NOTE 3. MORTGAGE-BACKED SECURITIES

The following tables summarize our Agency MBS and Non-Agency MBS at June 30, 2017 and December 31, 2016, which are carried at their fair value (in thousands):

June 30, 2017


					Total		Non-Agency		Total
By Agency	Freddie Mac		Fannie Mae		Agency MBS		MBS		MBS
Amortized cost	$	1,704,059	$	2,176,616	$	3,880,675	$	670,542	$	4,551,217
Paydowns receivable(1)(2)		23,404		—		23,404		—		23,404
Unrealized gains		8,987		30,140		39,127		25,581		64,708
Unrealized losses		(16,891)		(9,261)		(26,152)		(5,469)		(31,621)
Fair value	$	1,719,559	$	2,197,495	$	3,917,054	$	690,654	$	4,607,708

(1)

Paydowns receivable on Agency MBS are generated when the Company receives notice from Freddie Mac of prepayments but does not receive the actual cash with respect to such prepayments until the 15th day of the following month.

(2)

Paydowns receivable on Non-Agency MBS represent when the Company receives notice of prepayments but does not receive the actual cash until the following month.


							20-Year
							and
					15-Year		30-Year		Total		Non‑Agency		Total
By Security Type	ARMs		Hybrids		Fixed Rate(1)		Fixed‑Rate		Agency MBS		MBS		MBS
Amortized cost	$	1,420,926	$	1,002,650	$	988,478	$	468,621	$	3,880,675	$	670,542	$	4,551,217
Paydowns receivable(2)(3)		11,862		11,542		—		—		23,404		—		23,404
Unrealized gains		31,722		1,438		1,894		4,073		39,127		25,581		64,708
Unrealized losses		(1,537)		(8,738)		(13,827)		(2,050)		(26,152)		(5,469)		(31,621)
Fair value	$	1,462,973	$	1,006,892	$	976,545	$	470,644	$	3,917,054	$	690,654	$	4,607,708

(1)

Included in the fair value of the 15-year fixed-rate Agency MBS was approximately $639.2 million held as trading investments.

(2)

(3)

Paydowns receivable on Non-Agency MBS represent when the Company receives notice of prepayments but does not receive the actual cash until the following month.

During the three months ended June 30, 2017, we sold approximately $27.5 million of Agency MBS and realized gross gains of approximately $176 thousand. During the six months ended June 30, 2017, we sold approximately $35.7 million of Agency MBS and realized gross gains of approximately $176 thousand and realized gross losses of approximately $68 thousand. During the three months ended June 30, 2016, we did not sell any Agency MBS. During the six months ended June 30, 2016, we sold approximately $317 million of Agency MBS and realized gross losses of approximately $3.4 million and realized gross gains of approximately $0.2 million.

During the three months ended June 30, 2017, we had gross unrealized gains on trading investments of $4.1 million. During the six months ended June 30, 2017, we had gross unrealized gains on trading investments of $4.2 million. We did not have any trading investments during the three and six months ended June 30, 2016.

December 31, 2016


							Total		Non-Agency		Total
By Agency	Ginnie Mae		Freddie Mac		Fannie Mae		Agency MBS		MBS		MBS
Amortized cost	$	8,601	$	1,709,839	$	2,164,171	$	3,882,611	$	639,703	$	4,522,314
Paydowns receivable(1)(2)		—		31,130		—		31,130		6		31,136
Unrealized gains		3		10,652		36,069		46,724		11,999		58,723
Unrealized losses		(130)		(22,301)		(12,841)		(35,272)		(10,462)		(45,734)
Fair value	$	8,474	$	1,729,320	$	2,187,399	$	3,925,193	$	641,246	$	4,566,439


							20-Year
							and			Total
					15-Year		30-Year			Agency	Non‑Agency		Total
By Security Type	ARMs		Hybrids		Fixed Rate(1)		Fixed‑Rate		MBS		MBS		MBS
Amortized cost	$	1,762,550	$	1,106,680	$	872,741	$	140,640	$	3,882,611	$	639,703	$	4,522,314
Paydowns receivable(2)(3)		16,164		14,966		—		—		31,130		6		31,136
Unrealized gains		40,066		1,096		1,142		4,420		46,724		11,999		58,723
Unrealized losses		(3,162)		(12,156)		(19,927)		(27)		(35,272)		(10,462)		(45,734)
Fair value	$	1,815,618	$	1,110,586	$	853,956	$	145,033	$	3,925,193	$	641,246	$	4,566,439

(1)

Included in the fair value of the 15-year fixed-rate Agency MBS was approximately $483.2 million held as trading investments.

(2)

(3)

Paydowns receivable on Non-Agency MBS represent when the Company receives notice of prepayments but does not receive the actual cash until the following month.

The following table presents information regarding the estimates of the contractually required principal payments, cash flows expected to be collected, and estimated fair value of the Non-Agency MBS held at carrying value acquired by the Company for the three and six months ended June 30, 2017 and cumulatively at June 30, 2017 and December 31, 2016:


	Change During the		Change During the
	Three Months Ended		Six Months Ended		At		At
	June 30,		June 30,		June 30,		December 31,
	2017		2017		2017		2016
	(in thousands)
Non-Agency MBS acquired with credit deterioration:
Contractually required principal	$	3,412	$	116,813	$	716,092	$	599,279
Contractual principal not expected to be collected (non-accretable yield)		(11,799)		(65,874)		(289,165)		(223,291)
Expected cash flows to be collected		(8,387)		50,939		426,927		375,988
Market yield adjustment		9,298		45,820		129,397		83,577
Unrealized gain, net		7,066		14,161		17,761		3,600
Fair value		7,977		110,920		574,085		463,165
Fair value of other Non-Agency MBS (without credit deterioration)		(56,833)		(61,512)		116,569		178,081
Total fair value of Non-Agency MBS	$	(48,856)	$	49,408	$	690,654	$	641,246

The following table presents the change for the three and six months ended June 30, 2017 of the components of the Company’s purchase discount on the Non-Agency MBS acquired with credit deterioration between the amount designated as the market yield adjustment and the non-accretable difference:


	Three Months Ended				Six Months Ended
	June 30,					June 30,
	2017				2017
	Market Yield		Non-		Market Yield		Non-
	Adjustment		Accretable		Adjustment		Accretable
	(in thousands)
Balance, beginning of period	$	120,099	$	(277,366)	$	83,577	$	(223,291)
Accretion of discount		(1,129)		—		(2,245)		—
Purchases		10,427		(15,908)		48,065		(75,475)
Realized credit losses, net of recoveries		—		5,014		—		11,238
Impairment charge		—		(905)		—		(1,637)
Balance, end of period	$	129,397	$	(289,165)	$	129,397	$	(289,165)