Residential Mortgage Securities and MSR-Related Assets (Tables)

6 Months Ended

Jun. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Schedule of information about MBS and CRT Securities

The following tables present certain information about the Company’s residential mortgage securities at June 30, 2019 and December 31, 2018:

June 30, 2019

(In Thousands)	Principal/ Current Face		Purchase Premiums		Accretable Purchase Discounts			Discount Designated as Credit Reserve and  OTTI (1)			Amortized Cost (2)		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gain/(Loss)			Fair Value
Agency MBS: (3)
Fannie Mae	$	1,412,562	$	54,319	$	(23	)	$	—		$	1,466,858	$	14,103	$	(17,543	)	$	(3,440	)	$	1,463,418
Freddie Mac	757,852		30,662		—			—			789,196		5,188		(4,914		)	274			789,470
Ginnie Mae	4,357		80		—			—			4,437		50		—			50			4,487
Total Agency MBS	2,174,771		85,061		(23		)	—			2,260,491		19,341		(22,457		)	(3,116		)	2,257,375
Non-Agency MBS:
Expected to Recover Par (4)(5)	1,149,835		9		(16,996		)	—			1,132,848		20,933		(174		)	20,759			1,153,607
Expected to Recover Less than Par (4)	1,731,655		—		(100,757		)	(479,566		)	1,151,332		423,640		(309		)	423,331			1,574,663
Total Non-Agency MBS (6)	2,881,490		9		(117,753		)	(479,566		)	2,284,180		444,573		(483		)	444,090			2,728,270
Total MBS	5,056,261		85,070		(117,776		)	(479,566		)	4,544,671		463,914		(22,940		)	440,974			4,985,645
CRT securities (7)	392,587		6,907		(47		)	—			399,447		8,695		(826		)	7,869			407,316
Total MBS and CRT securities	$	5,448,848	$	91,977	$	(117,823	)	$	(479,566	)	$	4,944,118	$	472,609	$	(23,766	)	$	448,843		$	5,392,961

December 31, 2018

(In Thousands)	Principal/ Current Face		Purchase Premiums		Accretable Purchase Discounts			Discount Designated as Credit Reserve and  OTTI (1)			Amortized Cost (2)		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gain/(Loss)			Fair Value
Agency MBS: (3)
Fannie Mae	$	1,716,340	$	65,930	$	(24	)	$	—		$	1,782,246	$	12,107	$	(32,321	)	$	(20,214	)	$	1,762,032
Freddie Mac	909,561		36,991		—			—			947,588		907		(17,177		)	(16,270		)	931,318
Ginnie Mae	4,729		87		—			—			4,816		47		—			47			4,863
Total Agency MBS	2,630,630		103,008		(24		)	—			2,734,650		13,061		(49,498		)	(36,437		)	2,698,213
Non-Agency MBS:
Expected to Recover Par (4)(5)	1,536,485		40		(21,725		)	—			1,514,800		20,520		(7,620		)	12,900			1,527,700
Expected to Recover Less than Par (4)	2,002,319		—		(133,300		)	(516,116		)	1,352,903		438,465		(769		)	437,696			1,790,599
Total Non-Agency MBS (6)	3,538,804		40		(155,025		)	(516,116		)	2,867,703		458,985		(8,389		)	450,596			3,318,299
Total MBS	6,169,434		103,048		(155,049		)	(516,116		)	5,602,353		472,046		(57,887		)	414,159			6,016,512
CRT securities (7)	476,744		9,321		107			—			486,172		12,545		(5,896		)	6,649			492,821
Total MBS and CRT securities	$	6,646,178	$	112,369	$	(154,942	)	$	(516,116	)	$	6,088,525	$	484,591	$	(63,783	)	$	420,808		$	6,509,333

(1) Discount designated as Credit Reserve and amounts related to OTTI are generally not expected to be accreted into interest income.  Amounts disclosed at June 30, 2019 reflect Credit Reserve of $468.2 million and OTTI of $11.3 million.  Amounts disclosed at December 31, 2018 reflect Credit Reserve of $503.3 million and OTTI of $12.8 million.

(2) Includes principal payments receivable of $682,000 and $1.0 million at June 30, 2019 and December 31, 2018, respectively, which are not included in the Principal/Current Face.

(3) Amounts disclosed at June 30, 2019 and December 31, 2018 include Agency MBS with a fair value of $616.0 million and $736.5 million, respectively, for which the fair value option has been elected. Such securities had gross unrealized gains of $4.7 million and no unrealized losses at June 30, 2019, and no unrealized gains and gross unrealized losses of approximately $3.3 million at December 31, 2018, respectively.

(4) Based on management’s current estimates of future principal cash flows expected to be received.

(5) Includes RPL/NPL MBS, which at June 30, 2019 had a $1.0 billion Principal/Current face, $1.0 billion amortized cost and $1.0 billion fair value. At December 31, 2018, RPL/NPL MBS had a $1.4 billion Principal/Current face, $1.4 billion amortized cost and $1.4 billion fair value.

(6) At June 30, 2019 and December 31, 2018, the Company expected to recover approximately 83% and 85% of the then-current face amount of Non-Agency MBS, respectively.

(7)

Amounts disclosed at June 30, 2019 includes CRT securities with a fair value of $380.8 million for which the fair value option has been elected. Such securities had gross unrealized gains of approximately $8.4 million and gross unrealized losses of approximately $0.8 million at June 30, 2019. Amounts disclosed at December 31, 2018 includes CRT securities with a fair value of $477.4 million for which the fair value option has been elected. Such securities had gross unrealized gains of approximately $12.5 million and gross unrealized losses of approximately $5.6 million at December 31, 2018.

Schedule of Sale of Residential Mortgage Securities

The following tables present information about the Company’s sales of its residential mortgage securities for the three and six months ended June 30, 2019 and 2018. The Company has no continuing involvement with any of the sold MBS.

	Three Months Ended June 30, 2019					Three Months Ended June 30, 2018
(In Thousands)	Sales Proceeds		Gains/(Losses)			Sales Proceeds		Gains/(Losses)
Agency MBS	$	103,345	$	(2,272	)	$	75,306	$	(3,787	)
Non-Agency MBS	70,818		8,823			—		—
CRT Securities	21,170		1,159			104,022		11,216
Total	$	195,333	$	7,710		$	179,328	$	7,429

	Six Months Ended June 30, 2019					Six Months Ended June 30, 2018
(In Thousands)	Sales Proceeds		Gains/(Losses)			Sales Proceeds		Gains/(Losses)
Agency MBS	$	103,345	$	(2,272	)	$	75,306	$	(3,787	)
Non-Agency MBS	196,912		26,976			19,362		8,817
CRT Securities	104,539		7,615			104,022		11,216
Total	$	404,796	$	32,319		$	198,690	$	16,246

Schedule of information about MBS and CRT Securities that were in an unrealized loss position

The following table presents information about the Company’s residential mortgage securities that were in an unrealized loss position at June 30, 2019:

Unrealized Loss Position For:

	Less than 12 Months					12 Months or more					Total
	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
(Dollars in Thousands)
Agency MBS:
Fannie Mae	$	21,017	$	76	18	$	750,981	$	17,467	283	$	771,998	$	17,543
Freddie Mac	—		—		—	173,673		4,914		101	173,673		4,914
Total Agency MBS	21,017		76		18	924,654		22,381		384	945,671		22,457
Non-Agency MBS:
Expected to Recover Par (1)	—		—		—	90,058		174		4	90,058		174
Expected to Recover Less than Par (1)	2,391		10		2	3,648		299		2	6,039		309
Total Non-Agency MBS	2,391		10		2	93,706		473		6	96,097		483
Total MBS	23,408		86		20	1,018,360		22,854		390	1,041,768		22,940
CRT securities (2)	128,806		826		32	—		—		—	128,806		826
Total MBS and CRT securities	$	152,214	$	912	52	$	1,018,360	$	22,854	390	$	1,170,574	$	23,766

(1) Based on management’s current estimates of future principal cash flows expected to be received.

(2) Amounts disclosed at June 30, 2019 include CRT securities with a fair value of $128.8 million for which the fair value option has been elected. Such securities had unrealized losses of $826,000 at June 30, 2019.

Schedule of changes in credit loss component of OTTI

The following table presents a roll-forward of the credit loss component of OTTI on the Company’s Non-Agency MBS for which a non-credit component of OTTI was previously recognized in OCI.  Changes in the credit loss component of OTTI are presented based upon whether the current period is the first time OTTI was recorded on a security or a subsequent OTTI charge was recorded.

	Three Months Ended June 30,		Six Months Ended June 30,
(In Thousands)	2019		2019
Credit loss component of OTTI at beginning of period	$	39,596	$	39,596
Additions for credit related OTTI not previously recognized	—		—
Subsequent additional credit related OTTI recorded	—		—
Credit loss component of OTTI at end of period	$	39,596	$	39,596

Schedule of changes in the components of the purchase discount on Non-Agency MBS

The following tables present the changes in the components of the Company’s purchase discount on its Non-Agency MBS between purchase discount designated as Credit Reserve and OTTI and accretable purchase discount for the three and six months ended June 30, 2019 and 2018:

	Three Months Ended June 30, 2019						Three Months Ended June 30, 2018
(In Thousands)	Discount Designated as Credit Reserve and OTTI			Accretable Discount (1)			Discount Designated as Credit Reserve and OTTI			Accretable Discount (1)
Balance at beginning of period	$	(501,619	)	$	(130,147	)	$	(572,580	)	$	(199,659	)
Impact of RMBS Issuer Settlement (2)	—			(833		)	—			(12,089		)
Accretion of discount	—			14,551			—			17,530
Realized credit losses	9,917			—			10,954			—
Purchases	(624		)	409			—			—
Sales	8,171			2,856			—			—
Transfers/release of credit reserve	4,589			(4,589		)	8,030			(8,030		)
Balance at end of period	$	(479,566	)	$	(117,753	)	$	(553,596	)	$	(202,248	)

	Six Months Ended June 30, 2019						Six Months Ended June 30, 2018
(In Thousands)	Discount Designated as Credit Reserve and OTTI			Accretable Discount (1)			Discount Designated as Credit Reserve and OTTI			Accretable Discount (1)
Balance at beginning of period	$	(516,116	)	$	(155,025	)	$	(593,227	)	$	(215,325	)
Impact of RMBS Issuer Settlement (2)	—			(1,688		)	—			(12,089		)
Accretion of discount	—			27,858			—			34,746
Realized credit losses	17,420			—			19,401			—
Purchases	(624		)	291			(535		)	488
Sales	11,363			19,202			5,592			5,105
Transfers/release of credit reserve	8,391			(8,391		)	15,173			(15,173		)
Balance at end of period	$	(479,566	)	$	(117,753	)	$	(553,596	)	$	(202,248	)

(1) Together with coupon interest, accretable purchase discount is recognized as interest income over the life of the security.

(2)

Includes the impact of cash proceeds (a one-time payment) received by the Company in connection with the settlement of litigation related to certain residential mortgage backed securitization trusts that were sponsored by JP Morgan Chase & Co. and affiliated entities of approximately $833,000 and $1.7 million during the three and six months ended June 30, 2019, respectively and approximately $12.1 million during the three and six months ended June 30, 2018.

Schedule of impact of AFS on AOCI

The following table presents the impact of the Company’s AFS securities on its AOCI for the three and six months ended June 30, 2019 and 2018:

	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2019			2018			2019			2018
AOCI from AFS securities:
Unrealized gain on AFS securities at beginning of period	$	422,261		$	574,485		$	417,167		$	620,648
Unrealized gain/(loss) on Agency MBS, net	13,555			(9,641		)	21,880			(18,331		)
Unrealized gain/(loss) on Non-Agency MBS, net	7,598			(11,115		)	19,060			(38,544		)
Unrealized gain on MSR term notes, net	2,855			—			3,367			236
Reclassification adjustment for MBS sales included in net income	(6,371		)	(5,178		)	(21,576		)	(15,458		)
Change in AOCI from AFS securities	17,637			(25,934		)	22,731			(72,097		)
Balance at end of period	$	439,898		$	548,551		$	439,898		$	548,551

Schedule of interest income on MBS, CRT Securities and MSR Related Assets

The following table presents the components of interest income on the Company’s residential mortgage securities and MSR- related assets for the three and six months ended June 30, 2019 and 2018: 

	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2019			2018			2019			2018
Agency MBS
Coupon interest	$	22,938		$	20,040		$	47,566		$	40,997
Effective yield adjustment (1)	(7,664		)	(6,870		)	(13,851		)	(12,534		)
Interest income	$	15,274		$	13,170		$	33,715		$	28,463
Legacy Non-Agency MBS
Coupon interest	$	22,861		$	27,931		$	47,133		$	56,765
Effective yield adjustment (2)(3)	14,523			17,462			27,667			34,664
Interest income	$	37,384		$	45,393		$	74,800		$	91,429
RPL/NPL MBS
Coupon interest	$	14,635		$	9,588		$	31,078		$	19,641
Effective yield adjustment (1)(4)	8			62			150			75
Interest income	$	14,643		$	9,650		$	31,228		$	19,716
CRT securities
Coupon interest	5,477			$	7,854		$	11,595		$	16,227
Effective yield adjustment (2)	(383		)	841			(301		)	1,964
Interest income	$	5,094		$	8,695		$	11,294		$	18,191
MSR-related assets
Coupon interest	12,300			$	5,081		$	22,886		$	12,598
Effective yield adjustment (1)	38			1,138			72			1,244
Interest income	$	12,338		$	6,219		$	22,958		$	13,842

(1)  Includes amortization of premium paid net of accretion of purchase discount.  For Agency MBS, RPL/NPL MBS and the corporate loan secured by MSRs, interest income is recorded at an effective yield, which reflects net premium amortization/accretion based on actual prepayment activity.

(2) The effective yield adjustment is the difference between the net income calculated using the net yield, which is based on management’s estimates of the amount and timing of future cash flows, less the current coupon yield.

(3) Includes accretion income recognized due to the impact of redemptions of certain securities that had been previously purchased at a discount of approximately $3.1 million during the three and six months ended June 30, 2019.

(4) Includes accretion income recognized due to the impact of redemptions of certain securities that had been previously purchased at a discount of approximately $148,000 during the six months ended June 30, 2019 and $40,000 during the three and six months ended June 30, 2018, respectively.