The Bank makes short-term investments in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold, and may make other investments in debt securities, which are classified as either trading, AFS, or HTM.

Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold. The Bank invests in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold to provide short-term liquidity. These investments are generally transacted with counterparties that have received an investment grade credit rating of BBB or greater by a nationally recognized statistical rating organization (NRSRO). At March 31, 2020, none of these investments were with counterparties rated below BBB, and approximately 1% were with unrated counterparties. These may differ from any internal ratings of the investments by the Bank, if applicable.

Federal funds sold are unsecured loans that are generally transacted on an overnight term. Federal Finance Housing Agency (Finance Agency) regulations include a limit on the amount of unsecured credit the Bank may extend to a counterparty. At March 31, 2020, and December 31, 2019, all investments in interest-bearing deposits and Federal funds sold were repaid or expected to be repaid according to the contractual terms. No allowance for credit losses was recorded for these assets at March 31, 2020, and December 31, 2019. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivable of $2 and a de minimis amount as of March 31, 2020, respectively, and $3 and a de minimis amount as of December 31, 2019, respectively.

Based upon the collateral held as security and collateral maintenance provisions with its counterparties, the Bank determined that no allowance for credit losses was needed for its securities purchased under agreements to resell at March 31, 2020, and December 31, 2019. The carrying value of securities purchased under agreements excludes de minimis amounts of accrued interest receivable as of March 31, 2020, and December 31, 2019.

The Bank invests in debt securities, which are classified as either trading, AFS, or HTM. Within these investments, the Bank is primarily subject to credit risk related to private-label residential mortgage-backed securities (PLRMBS) that are supported by underlying mortgage loans. The Bank is prohibited by Finance Agency regulations from purchasing certain higher risk securities, such as equity securities and debt instruments that are not investment quality at time of purchase.

The net unrealized gain/(loss) on trading securities was $73 and $(1) for the three months ended March 31, 2020 and 2019, respectively. These amounts represent the changes in the fair value of the securities during the reported periods.



March 31, 2020
	Amortized Cost⁽¹⁾		Allowance for Credit Losses⁽²⁾			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. obligations – Treasury securities	$	5,347	$	—		$	6	$	—		$	5,353
MBS:
GSEs – multifamily:
Freddie Mac	857		—			—		(24		)	833
Fannie Mae	7,991		—			—		(228		)	7,763
Subtotal – GSEs – multifamily	8,848		—			—		(252		)	8,596
PLRMBS:
Prime	204		(6		)	2		(2		)	198
Alt-A	2,028		(33		)	97		(64		)	2,028
Subtotal PLRMBS	2,232		(39		)	99		(66		)	2,226
Total MBS	11,080		(39		)	99		(318		)	10,822
Total	$	16,427	$	(39	)	$	105	$	(318	)	$	16,175



December 31, 2019
	Amortized Cost⁽¹⁾		OTTI Recognized in AOCI⁽²⁾			Gross Unrealized Gains⁽³⁾		Gross Unrealized Losses			Estimated Fair Value
U.S. obligations – Treasury securities	$	5,281	$	—		$	7	$	—		$	5,288
MBS:
GSEs – multifamily:
Freddie Mac	773		—			4		—			777
Fannie Mae	6,823		—			23		(13		)	6,833
Subtotal – GSEs – multifamily	7,596		—			27		(13		)	7,610
PLRMBS:
Prime	213		—			17		—			230
Alt-A	2,116		(9		)	260		—			2,367
Subtotal PLRMBS	2,329		(9		)	277		—			2,597
Total MBS	9,925		(9		)	304		(13		)	10,207
Total	$	15,206	$	(9	)	$	311	$	(13	)	$	15,495

At March 31, 2020, the amortized cost of the Bank’s MBS classified as AFS included premiums of $68, discounts of $50, and credit-related OTTI of $547 for AFS securities with an OTTI recognized pursuant to the impairment guidance in effect prior to January 1, 2020. At December 31, 2019, the amortized cost of the Bank’s MBS classified as AFS included premiums of $65, discounts of $52, and credit-related OTTI of $574.

The following tables summarize the AFS securities with unrealized losses as of March 31, 2020, and December 31, 2019. The unrealized losses are aggregated by major security type and the length of time that individual securities have been in a continuous unrealized loss position. At December 31, 2019, total unrealized losses in the following table will not agree to total gross unrealized losses in the table above. The unrealized losses in the following table as of December 31, 2019, also include non-credit-related OTTI losses recognized in AOCI.



March 31, 2020
	Less Than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
U.S. obligations – Treasury securities	$	104	$	—	$	—	$	—	$	104	$	—
MBS:
MBS – GSEs – multifamily:
Freddie Mac	$	833	$	24	$	—	$	—	$	833	$	24
Fannie Mae	7,402		216		235		12		7,637		228
Subtotal MBS – GSEs – multifamily	8,235		240		235		12		8,470		252
PLRMBS:
Prime	109		1		6		1		115		2
Alt-A	747		37		161		27		908		64
Subtotal PLRMBS	856		38		167		28		1,023		66
Total MBS	9,091		278		402		40		9,493		318
Total	$	9,195	$	278	$	402	$	40	$	9,597	$	318



December 31, 2019
	Less Than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
MBS – GSEs – multifamily:
Freddie Mac	$	211	$	—	$	—	$	—	$	211	$	—
Fannie Mae	2,433		9		623		4		3,056		13
Subtotal MBS – GSEs – multifamily	2,644		9		623		4		3,267		13
PLRMBS:
Prime	4		—		8		—		12		—
Alt-A	75		—		193		9		268		9
Subtotal PLRMBS	79		—		201		9		280		9
Total	$	2,723	$	9	$	824	$	13	$	3,547	$	22



March 31, 2020
Year of Contractual Maturity	Amortized Cost		Estimated Fair Value
AFS securities other than MBS:
Due in 1 year or less	$	3,290	$	3,293
Due after 1 year through 5 years	2,057		2,060
Subtotal	5,347		5,353
MBS	11,080		10,822
Total	$	16,427	$	16,175



December 31, 2019
Year of Contractual Maturity	Amortized Cost		Estimated Fair Value
AFS securities other than MBS:
Due in 1 year or less	$	2,309	$	2,312
Due after 1 year through 5 years	2,972		2,976
Subtotal	5,281		5,288
MBS	9,925		10,207
Total	$	15,206	$	15,495

Held-to-Maturity Securities. The Bank classifies the following securities as HTM because the Bank has the positive intent and ability to hold these securities to maturity:



March 31, 2020
	Amortized Cost⁽¹⁾		OTTI Recognized in AOCI⁽²⁾			Net Carrying Value		Gross Unrecognized Holding Gains⁽³⁾		Gross Unrecognized Holding Losses⁽³⁾			Estimated Fair Value
MBS – Other U.S. obligations – single-family:
Ginnie Mae	$	441	$	—		$	441	$	15	$	—		$	456
MBS – GSEs – single-family:
Freddie Mac	952		—			952		20		—			972
Fannie Mae	1,686		—			1,686		28		(3		)	1,711
Subtotal MBS – GSEs – single-family	2,638		—			2,638		48		(3		)	2,683
MBS – GSEs – multifamily:
Freddie Mac	2,388		—			2,388		—		(25		)	2,363
Fannie Mae	1,039		—			1,039		—		(2		)	1,037
Subtotal MBS – GSEs – multifamily	3,427		—			3,427		—		(27		)	3,400
Subtotal MBS – GSEs	6,065		—			6,065		48		(30		)	6,083
PLRMBS:
Prime	229		—			229		—		(21		)	208
Alt-A	130		(1		)	129		2		(11		)	120
Subtotal PLRMBS	359		(1		)	358		2		(32		)	328
Total	$	6,865	$	(1	)	$	6,864	$	65	$	(62	)	$	6,867



December 31, 2019
	Amortized Cost⁽¹⁾		OTTI Recognized in AOCI⁽²⁾			Carrying Value		Gross Unrecognized Holding Gains⁽³⁾		Gross Unrecognized Holding Losses⁽³⁾			Estimated Fair Value
MBS – Other U.S. obligations – single-family:
Ginnie Mae	$	470	$	—		$	470	$	5	$	—		$	475
MBS – GSEs – single-family:
Freddie Mac	1,063		—			1,063		8		(1		)	1,070
Fannie Mae	1,844		—			1,844		20		(1		)	1,863
Subtotal MBS – GSEs – single-family	2,907		—			2,907		28		(2		)	2,933
MBS – GSEs – multifamily:
Freddie Mac	2,625		—			2,625		—		(9		)	2,616
Fannie Mae	1,159		—			1,159		—		(2		)	1,157
Subtotal MBS – GSEs – multifamily	3,784		—			3,784		—		(11		)	3,773
Subtotal MBS – GSEs	6,691		—			6,691		28		(13		)	6,706
PLRMBS:
Prime	243		—			243		1		(4		)	240
Alt-A	142		(1		)	141		6		(2		)	145
Subtotal PLRMBS	385		(1		)	384		7		(6		)	385
Total	$	7,546	$	(1	)	$	7,545	$	40	$	(19	)	$	7,566

At March 31, 2020, the amortized cost of the Bank’s MBS classified as HTM included premiums of $7, discounts of $10, and credit-related OTTI of $6 for HTM securities with an OTTI recognized pursuant to the impairment guidance in effect prior to January 1, 2020. At December 31, 2019, the amortized cost of the Bank’s MBS classified as HTM included premiums of $8, discounts of $11, and credit-related OTTI of $7.

Allowance for Credit Losses on AFS and HTM Securities. The Bank adopted new accounting guidance for the measurement of credit losses on financial instruments on January 1, 2020. For additional information, see Note 2 – Recently Issued and Adopted Accounting Guidance. For information on the prior methodology for evaluating credit losses, see “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2019 Form 10-K.

During the three months ended March 31, 2020, the Bank recognized a provision for credit losses of $39 associated with PLRMBS classified as AFS and no provision for credit losses associated with HTM investments. Under the previous accounting methodology of security impairment, the Bank recognized credit-related net OTTI loss of $1 during the three months ended March 31, 2019. To evaluate investment securities for credit loss at March 31, 2020, the Bank employed the following methodologies, based on the type of security.

AFS and HTM Securities (Excluding PLRMBS) – The Bank’s AFS and HTM securities are principally U.S. obligations and MBS issued by Ginnie Mae, Freddie Mac, and Fannie Mae that are backed by single-family or multifamily mortgage loans. The Bank only purchases securities considered investment quality. Excluding PLRMBS investments, at March 31, 2020, approximately 100% of AFS securities and HTM securities, based on

At March 31, 2020, certain of the Bank’s AFS securities were in an unrealized loss position. These losses are considered temporary as the Bank expects to recover the entire amortized cost basis on these AFS investment securities and neither intends to sell these securities nor considers it more likely than not that it will be required to sell these securities before its anticipated recovery of each security's remaining amortized cost basis. Further, the Bank has not experienced any payment defaults on the instruments. In addition, substantially all of these securities carry an implicit or explicit government guarantee. As a result, no allowance for credit losses was recorded on these AFS securities at March 31, 2020.

As of March 31, 2020, the Bank had not established an allowance for credit loss on any of its HTM securities because the securities: (i) were all highly rated or had short remaining terms to maturity, (ii) had not experienced, nor did the Bank expect, any payment default on the instruments, and (iii) in the case of GSE or other U.S. obligations, carry an implicit or explicit government guarantee such that the Bank consider the risk of nonpayment to be zero.

Private-Label Residential Mortgage-Backed Securities – The Bank also holds investments in PLRMBS. The Bank has not purchased any PLRMBS since the first quarter of 2008. However, many of these securities have subsequently experienced significant credit deterioration. As of March 31, 2020, approximately 7% of PLRMBS (AFS and HTM combined, based on amortized cost) were rated A, or above, by an NRSRO; and the remaining securities were either rated less than A, or were unrated. To determine whether an allowance for credit loss is necessary on these securities, the Bank uses cash flow analyses. For certain PLRMBS where underlying collateral data is not available, alternative procedures as determined by the Bank are used to assess these securities for credit loss measurement.

At each quarter end, the Bank compares the present value of the cash flows expected to be collected on its PLRMBS, using the effective interest rate, to the amortized cost basis of the securities to determine whether a credit loss exists. The expected credit losses are measured using:

The projected cash flows are based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in assumptions and expectations. The scenario of cash flows determined reflects management’s expectations and includes a base case housing price forecast for near- and long-term horizons.

For all the PLRMBS in its AFS and HTM portfolios, the Bank does not intend to sell any security and it is not more likely than not that the Bank will be required to sell any security before its anticipated recovery of the remaining amortized cost basis.

For securities with an OTTI recognized pursuant to the impairment guidance in effect prior to January 1, 2020, as of March 31, 2020 (securities for which the Bank determined that it does not expect to recover the entire amortized cost basis), the following table presents a summary of the significant inputs used in measuring the fair value of PLRMBS classified as Level 3 as of March 31, 2020, and the related current credit enhancement for the Bank.



March 31, 2020
	Significant Inputs for Other-Than-Temporarily Impaired PLRMBS
	Prepayment Rates	Default Rates	Loss Severities
Collateral Type at Origination	Weighted Average % ⁽¹⁾	Weighted Average % ⁽¹⁾	Weighted Average % ⁽¹⁾
Prime	16.3	11.2	54.1
Alt-A	15.0	16.1	40.3
Total	15.0	16.0	40.6

Credit enhancement is defined as the percentage of subordinated tranches, excess spread, and over-collateralization, if any, in a security structure that will generally absorb losses before the Bank will experience a loss on the security. The calculated averages represent the dollar-weighted averages of all the PLRMBS investments in each category shown. The classification is based on the model used to run the estimated cash flows for the CUSIP, which may not necessarily be the same as the classification at the time of origination.



	Three Months Ended March 31,
	2020			2019
Balance, beginning of the period	$	1,021		$	1,077
Additional charges on securities for which OTTI was previously recognized⁽¹⁾	—			1
Accretion of yield adjustments resulting from improvement of expected cash flows that are recognized over the remaining life of the securities⁽²⁾	(17		)	(15		)
Balance, end of the period	$	1,004		$	1,063

In general, the Bank elects to transfer any PLRMBS that incurred a credit loss during the applicable period from the Bank’s HTM portfolio to its AFS portfolio at their fair values. The Bank recognized a credit loss on these HTM PLRMBS, which the Bank believes is evidence of a significant decline in the issuers’ creditworthiness. The decline in the issuers’ creditworthiness is the basis for the transfers to the AFS portfolio. These transfers allow the Bank the option to sell these securities prior to maturity in view of changes in interest rates, changes in prepayment risk, or other factors, while recognizing the Bank’s intent to hold these securities for an indefinite period of time.

The Bank transferred PLRMBS from its HTM portfolio to its AFS portfolio with an amortized cost and fair value of $1 during the three months ended March 31, 2020. The Bank did not transfer any PLRMBS from its HTM portfolio to its AFS portfolio during the three months ended March 31, 2019.

For the Bank’s PLRMBS, the Bank experienced declines in fair value in March 2020 as a result of disruptions in the financial markets combined with illiquidity in the PLRMBS market and decreased expectations of the performance of loan collateral underlying these securities, which caused these assets to be valued at discounts to their amortized cost. As a result, an allowance for credit losses of $39 was recorded on these securities as of March 31, 2020.