Short-Term Debt

6 Months Ended

Jun. 30, 2020

Repurchase Agreements

Short-Term Debt

NOTE 7. SHORT-TERM DEBT

We have entered into repurchase agreements and a warehouse line of credit with a large financial institution. The repurchase agreements that we use to finance most of our MBS are short-term borrowings that are secured by the market value of our MBS and bear fixed interest rates that have historically been based upon LIBOR. Warehouse lines of credit are short-term borrowings (generally less than 1 year) that are used to finance the residential mortgage loans that are held-for-securitization. At June 30, 2020 and December 31, 2019, we had borrowed $104.8 million and $133.8 million, respectively, against the warehouse line of credit. The residential mortgage loans held-for-securitization are held as collateral for the warehouse line of credit. Due to the negative impact on our financial condition from the COVID-19 coronavirus pandemic and, in particular, our reduced Stockholders’ Equity value, at March 31, 2020, we were not in compliance with the financial covenants on the loan warehouse line of credit agreement. In June 2020, we received a waiver of the non-compliance at March 31, 2020 by the lender. As of June 30, 2020, we were not in compliance with one of the covenants on this warehouse line of credit due to the negative impact of the COVID-19 coronavirus pandemic on our stockholders’ equity. In July 2020, we received a waiver of the non-compliance at June 30, 2020 by the lender. Based on the revised covenants from the lender, we currently expect to maintain compliance on this agreement.

Repurchase Agreements

At June 30, 2020 and December 31, 2019, the repurchase agreements had the following balances, weighted average interest rates, and remaining weighted average maturities:

June 30, 2020

	Agency MBS				Non-Agency MBS				Total MBS
			Weighted				Weighted					Weighted
			Average				Average					Average
			Interest				Interest					Interest
	Balance		Rate		Balance		Rate		Balance			Rate
		(in thousands)				(in thousands)				(in thousands)
Overnight	$	—	—	%	$	—	—	%	$	—		—	%
Less than 30 days		1,215,000	0.24			81,344	2.66			1,296,344		0.39
30 days to 90 days		380,000	0.24			20,837	3.24			400,837		0.39
Over 90 days		—	—			—	—			—		—
Demand		—	—			—	—			—		—
	$	1,595,000	0.24	%	$	102,181	2.78	%	$	1,697,181		0.39	%
Weighted average maturity		23 days				26 days				23 days
Weighted average interest rate after adjusting for interest rate swaps										1.24	%
Weighted average maturity after adjusting for interest rate swaps										983 days
MBS pledged as collateral under the repurchase agreements and interest rate swaps	$	1,679,841			$	164,741			$	1,844,582

December 31, 2019

	Agency MBS				Non-Agency MBS				Total MBS
			Weighted				Weighted					Weighted
			Average				Average					Average
			Interest				Interest					Interest
	Balance		Rate		Balance		Rate		Balance			Rate
		(in thousands)				(in thousands)				(in thousands)
Overnight	$	—	—	%	$	—	—	%	$	—		—	%
Less than 30 days		1,680,000	2.04			427,873	2.80			2,107,873		2.20
30 days to 90 days		1,550,000	1.89			—	—			1,550,000		1.89
Over 90 days		—	—			—	—			—		—
Demand		—	—			—	—			—		—
	$	3,230,000	1.97	%	$	427,873	2.80	%	$	3,657,873		2.07	%
Weighted average maturity		30 days				11 days				28 days
Weighted average interest rate after adjusting for interest rate swaps										2.13	%
Weighted average maturity after adjusting for interest rate swaps										978 days
MBS pledged as collateral under the repurchase agreements and interest rate swaps	$	3,419,375			$	535,315			$	3,954,690

For additional information on repurchase agreements, see the section in Note 1 entitled “Repurchase Agreements.”

The following tables present information about certain assets and liabilities that are subject to master netting arrangements (or similar agreements) only in the event of default on a contract at June 30, 2020 and December 31, 2019 (see Notes 1, 9, and 15 to our accompanying unaudited consolidated financial statements for more information on the Company’s interest rate swaps and other derivative instruments):

June 30, 2020

					Net Amounts of
					Assets		Gross Amounts Not Offset
	Gross Amounts				or Liabilities		in the Balance Sheets(1)
	of Recognized		Gross Amounts		Presented in				Cash
	Assets or		Offset in the		the Balance		Financial		Collateral		Net
	Liabilities		Balance Sheets		Sheets		Instruments		Received		Amounts
		(in thousands)
Derivative assets at fair value(2)	$	2,205	$	—	$	2,205	$	(2,205)	$	2,056	$	(149)
Total	$	2,205	$	—	$	2,205	$	(2,205)	$	2,056	$	(149)
Repurchase agreements(3)	$	1,697,181	$	—	$	1,697,181	$	(1,697,181)	$	—	$	—
Warehouse line of credit		104,620		—		104,620		(104,620)		—		—
Derivative liabilities at fair value(2)		93,317		—		93,317		(93,317)		—		—
Total	$	1,895,118	$	—	$	1,895,118	$	(1,895,118)	$	—	$	—

December 31, 2019

					Net Amounts of
					Assets		Gross Amounts Not Offset
	Gross Amounts				or Liabilities		in the Balance Sheets(1)
	of Recognized		Gross Amounts		Presented in				Cash
	Assets or		Offset in the		the Balance		Financial		Collateral		Net
	Liabilities		Balance Sheets		Sheets		Instruments		Received		Amounts
	(in thousands)
Derivative assets at fair value(2)	$	5,833	$	—	$	5,833	$	(5,833)	$	367	$	(5,466)
Total	$	5,833	$	—	$	5,833	$	(5,833)	$	367	$	(5,466)
Repurchase agreements(3)	$	3,657,873	$	—	$	3,657,873	$	(3,657,873)	$	—	$	—
Warehouse line of credit		133,811		—		133,811		(133,811)		—		—
Derivative liabilities at fair value(2)		52,197		—		52,197		(52,197)		—		—
Total	$	3,843,881	$	—	$	3,843,881	$	(3,843,881)	$	—	$	—

(1) Amounts presented are limited to collateral pledged sufficient to reduce the related net amount to zero in accordance with ASU No. 2011-11, as amended by ASU No. 2013-01.

(2) At June 30, 2020, we had paid approximately $137.1 million on swap and TBA Agency MBS margin calls (included in “Restricted cash”) and we had received cash from counterparties of approximately $2.1 million, which is shown in “Derivative counterparty margin” on our consolidated balance sheets. Our TBA Agency MBS derivatives were approximately $2.2 million in derivative assets at June 30, 2020. Our swap derivatives were approximately $93.3 million in derivative liabilities at June 30, 2020. At December 31, 2019, we had paid approximately $104.7 million on swap and TBA Agency MBS margin calls (included in “Restricted cash”) and we had received cash from counterparties of approximately $367 thousand, which is shown as “Derivative counterparty margin” on our consolidated balance sheets. Our swap derivatives were approximately $5.3 million in derivative assets and approximately $52.2 million in derivative liabilities at December 31, 2019.

(3) At June 30, 2020, we had pledged approximately $1.68 billion in Agency MBS and approximately $165 million in Non-Agency MBS as collateral on our repurchase agreements. At December 31, 2019, we had pledged approximately $3.42 billion in Agency MBS and approximately $535 million in Non-Agency MBS as collateral on our repurchase agreements.