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Mortgage-Backed Securities (Tables)
 12 Months Ended
Dec. 31, 2017
Investments, Debt and Equity Securities [Abstract]  
Schedule of Available-for-sale Securities Reconciliation
The tables below present amortized cost, fair value and unrealized gain/losses of Company's MBS investments as of December 31, 2017 and December 31, 2016.
 
 
December 31, 2017
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
Principal or Notional Value
Total Premium
Total Discount
Amortized Cost
Fair Value
Gross Unrealized Gains
Gross Unrealized Losses
Net Unrealized Gain/(Loss)
Non-Agency RMBS
 
 
 
 
 
 
 
 
Senior
$
2,733,926

$
540

$
(1,257,103
)
$
1,477,363

$
2,231,415

$
754,234

$
(182
)
$
754,052

Senior, interest-only
4,862,461

262,996

—

262,996

210,850

15,761

(67,907
)
(52,146
)
Subordinated
501,455

10,571

(177,206
)
334,820

401,225

66,704

(299
)
66,405

Subordinated, interest-only
201,378

7,369

—

7,369

7,826

902

(445
)
457

Agency MBS
 

 

 

 

 

 

 



Residential
2,227,128

123,245

—

2,350,373

2,322,180

5,706

(33,899
)
(28,193
)
Commercial
1,894,594

47,430

(4,685
)
1,937,339

1,938,281

17,041

(16,099
)
942

Interest-only
3,021,840

111,277

—

111,277

104,367

834

(7,744
)
(6,910
)
Total
$
15,442,782

$
563,428

$
(1,438,994
)
$
6,481,537

$
7,216,144

$
861,182

$
(126,575
)
$
734,607


 
 
December 31, 2016
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
Principal or Notional Value
Total Premium
Total Discount
Amortized Cost
Fair Value
Gross Unrealized Gains
Gross Unrealized Losses
Net Unrealized Gain/(Loss)
Non-Agency RMBS
 
 
 
 
 
 
 
 
Senior
$
3,190,947

$
231

$
(1,412,058
)
$
1,779,120

$
2,511,003

$
732,133

$
(250
)
$
731,883

Senior, interest-only
5,648,339

292,396

—

292,396

253,539

18,674

(57,531
)
(38,857
)
Subordinated
673,259

16,352

(212,734
)
476,877

553,498

77,857

(1,236
)
76,621

Subordinated, interest-only
266,927

13,878

—

13,878

12,024

—

(1,854
)
(1,854
)
Agency MBS
 

 

 

 

 

 

 

 

Residential
2,594,570

149,872

—

2,744,442

2,705,978

11,235

(49,699
)
(38,464
)
Commercial
1,331,543

37,782

(2,688
)
1,366,637

1,316,975

175

(49,837
)
(49,662
)
Interest-only
3,356,491

152,175

—

152,175

144,800

1,893

(9,268
)
(7,375
)
Total
$
17,062,076

$
662,686

$
(1,627,480
)
$
6,825,525

$
7,497,817

$
841,967

$
(169,675
)
$
672,292
Schedule of Changes in Accretable Yield
The table below presents changes in accretable yield, or the excess of the security’s cash flows expected to be collected over the Company’s investment, solely as it pertains to the Company’s Non-Agency RMBS portfolio accounted for according to the provisions of ASC 310-30.

 
For the Year Ended
 
December 31, 2017
December 31, 2016
 
(dollars in thousands)
Balance at beginning of period
$
1,550,110

$
1,742,744

Purchases
20,962

79,156

Yield income earned
(266,214
)
(282,800
)
Reclassification (to) from non-accretable difference
18,909

53,681

Sales and deconsolidation
(20,178
)
(42,671
)
Balance at end of period
$
1,303,589

$
1,550,110
Schedule of Non-Agency RMBS Having Deteriorated Credit When Acquired
The table below presents the outstanding principal balance and related amortized cost at December 31, 2017 and December 31, 2016 as it pertains to the Company’s Non-Agency RMBS portfolio accounted for according to the provisions of ASC 310-30.
 
For the Year Ended
 
December 31, 2017
December 31, 2016
 
(dollars in thousands)
Outstanding principal balance:
 
 
Beginning of period
$
3,138,265

$
3,550,698

End of period
$
2,673,350

$
3,138,265

Amortized cost:
 

 

Beginning of period
$
1,695,079

$
1,958,726

End of period
$
1,381,839

$
1,695,079
Schedule of Temporary Impairment Losses, Investments
The following tables present the gross unrealized losses and estimated fair value of the Company’s RMBS by length of time that such securities have been in a continuous unrealized loss position at December 31, 2017 and December 31, 2016. All securities in an unrealized loss position have been evaluated by the Company for OTTI as discussed in Note 2(d).

 
 
 
December 31, 2017
 
 
 
 
 
 
 


(dollars in thousands)
 
 
 
 
 
 
 
Unrealized Loss Position for Less than 12 Months
 
Unrealized Loss Position for 12 Months or More
 
Total
 
Estimated Fair Value
Unrealized Losses
Number of Securities
 
Estimated Fair Value
Unrealized Losses
Number of Securities
 
Estimated Fair Value
Unrealized Losses
Number of Securities
Non-Agency RMBS
 
 
 
 
 
 
 
 
 
 
 
Senior
$
35,229

$
(182
)
1

 
$
—

$
—

—

 
$
35,229

$
(182
)
1

Senior, interest-only
28,129

(1,724
)
27

 
120,120

(66,183
)
120

 
148,249

(67,907
)
147

Subordinated
235

(38
)
7

 
6,261

(261
)
5

 
6,496

(299
)
12

Subordinated, interest-only
—

—

—

 
945

(445
)
3

 
945

(445
)
3

Agency MBS
 

 



 


 

 

 
 

 

 

Residential
660,103

(5,197
)
21

 
1,471,464

(28,702
)
93

 
2,131,567

(33,899
)
114

Commercial
830,889

(11,695
)
176

 
161,980

(4,404
)
91

 
992,869

(16,099
)
267

Interest-only
15,142

(641
)
7

 
57,875

(7,103
)
24

 
73,017

(7,744
)
31

Total
$
1,569,727

$
(19,477
)
239

 
$
1,818,645

$
(107,098
)
336

 
$
3,388,372

$
(126,575
)
575


 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
Unrealized Loss Position for Less than 12 Months
 
Unrealized Loss Position for 12 Months or More
 
Total
 
Estimated Fair Value
Unrealized Losses
Number of Securities
 
Estimated Fair Value
Unrealized Losses
Number of Securities
 
Estimated Fair Value
Unrealized Losses
Number of Securities
Non-Agency RMBS
 
 
 
 
 
 
 
 
 
 
 
Senior
$
12,384

$
(250
)
3

 
$
—

$
—

—

 
$
12,384

$
(250
)
3

Senior, interest-only
96,399

(13,600
)
62

 
78,516

(43,931
)
86

 
174,915

(57,531
)
148

Subordinated
56,015

(412
)
7

 
2,826

(824
)
4

 
58,841

(1,236
)
11

Subordinated, interest-only
748

(230
)
2

 
11,276

(1,624
)
3

 
12,024

(1,854
)
5

Agency MBS
 

 

 

 
 

 

 

 
 

 

 

Residential
2,338,910

(48,084
)
106

 
54,943

(1,615
)
1

 
2,393,853

(49,699
)
107

Commercial
1,247,923

(45,802
)
646

 
51,733

(4,035
)
46

 
1,299,656

(49,837
)
692

Interest-only
63,506

(2,170
)
20

 
52,963

(7,098
)
16

 
116,469

(9,268
)
36

Total
$
3,815,885

$
(110,548
)
846

 
$
252,257

$
(59,127
)
156

 
$
4,068,142

$
(169,675
)
1,002
Other than Temporary Impairment, Credit Losses Recognized in Earnings
A summary of the OTTI included in earnings for the years ended December 31, 2017, 2016 and 2015 are presented below.

 
For the Year Ended
 
December 31, 2017
December 31, 2016
December 31, 2015
 
(dollars in thousands)
Total other-than-temporary impairment losses
$
(5,169
)
$
(9,589
)
$
(8,700
)
Portion of loss recognized in other comprehensive income (loss)
(56,687
)
(48,398
)
(58,744
)
Net other-than-temporary credit impairment losses
$
(61,856
)
$
(57,987
)
$
(67,444
)
 
The following table presents a roll forward of the credit loss component of OTTI on the Company’s Non-Agency RMBS for which a portion of loss was previously recognized in OCI. The table delineates between those securities that are recognizing OTTI for the first time as opposed to those that have previously recognized OTTI.

 
For the Year Ended
 
December 31, 2017
December 31, 2016
December 31, 2015
 
(dollars in thousands)
Cumulative credit loss beginning balance
$
556,485

$
529,112

$
507,548

Additions:
 

 



Other-than-temporary impairments not previously recognized
12,669

25,959

41,233

Reductions for securities sold or deconsolidated during the period
(12,405
)
(9,429
)
(19,746
)
Increases related to other-than-temporary impairments on securities with previously recognized other-than-temporary impairments
47,211

32,027

26,138

Reductions for increases in cash flows expected to be collected over the remaining life of the securities
(12,439
)
(21,184
)
(26,061
)
Cumulative credit impairment loss ending balance
$
591,521

$
556,485

$
529,112
Other than Temporary Impairment of Investments Recorded in Earnings, Significant Inputs and Assumptions
The significant inputs used to measure the component of OTTI recognized in earnings for the Company’s Non-Agency RMBS for the periods reported are summarized as follows:

 
For the Year Ended
 
December 31, 2017
December 31, 2016
Loss Severity
 
 
Weighted Average
64%
58%
Range
28% - 89%
25% - 85%
60+ days delinquent
 
 
Weighted Average
21%
21%
Range
11% - 27%
0% - 40%
Credit Enhancement (1)

 
Weighted Average
16%
25%
Range
0% - 50%
0% - 100%
3 Month CPR
 
 
Weighted Average
10%
7%
Range
0% - 24%
0% - 27%
12 Month CPR
 
 
Weighted Average
11%
6%
Range
1% - 19%
1% - 24%

(1) Calculated as the combined credit enhancement to the Re-REMIC and underlying from each of their respective capital structures.
Summary of Unrealized Gains and Losses on MBS
The following tables present a summary of unrealized gains and losses at December 31, 2017 and December 31, 2016. IO MBS included in the tables below represent the right to receive a specified portion of the contractual interest cash flows of the underlying principal balance of specific securities. At December 31, 2017, IO MBS had a fair value of $323 million, an amortized cost of $382 million and net unrealized losses of $59 million. At December 31, 2016, IO MBS had a fair value of $410 million, an amortized cost of $458 million and net unrealized losses of $48 million. All changes in fair value of IOs are reflected in Net Income in the Consolidated Statements of Operations.

 
 
December 31, 2017
 
 
 
 
 
(dollars in thousands) 
 
 
 
 
Gross Unrealized Gain Included in Accumulated Other Comprehensive Income
Gross Unrealized Gain Included in Cumulative Earnings
Total Gross Unrealized Gain
Gross Unrealized Loss Included in Accumulated Other Comprehensive Income
Gross Unrealized Loss Included in Cumulative Earnings
Total Gross Unrealized Loss
Non-Agency RMBS
 
 
 
 
 
 
Senior
$
754,234

$
—

$
754,234

$
(182
)
$
—

$
(182
)
Senior, interest-only
—

15,761

15,761

—

(67,907
)
(67,907
)
Subordinated
62,989

3,715

66,704

(102
)
(197
)
(299
)
Subordinated, interest-only
—

902

902

—

(445
)
(445
)
Agency MBS
 

 

 
 

 

 
Residential
5,706

—

5,706

(29,083
)
(4,816
)
(33,899
)
Commercial
15,462

1,579

17,041

(12,122
)
(3,977
)
(16,099
)
Interest-only
—

834

834

—

(7,744
)
(7,744
)
Total
$
838,391

$
22,791

$
861,182

$
(41,489
)
$
(85,086
)
$
(126,575
)
 
 
December 31, 2016
 
 
 
 
 
(dollars in thousands)  
 
 
 
 
Gross Unrealized Gain Included in Accumulated Other Comprehensive Income
Gross Unrealized Gain Included in Cumulative Earnings
Total Gross Unrealized Gain
Gross Unrealized Loss Included in Accumulated Other Comprehensive Income
Gross Unrealized Loss Included in Cumulative Earnings
Total Gross Unrealized Loss
Non-Agency RMBS
 
 
 
 
 
 
Senior
$
732,133

$
—

$
732,133

$
(250
)
$
—

$
(250
)
Senior, interest-only
—

18,674

18,674

—

(57,531
)
(57,531
)
Subordinated
74,584

3,273

77,857

(235
)
(1,001
)
(1,236
)
Subordinated, interest-only
—

—

—

—

(1,854
)
(1,854
)
Agency MBS
 

 

 

 

 

 

Residential
11,235

—

11,235

(49,699
)
—

(49,699
)
Commercial
175

—

175

(49,837
)
—

(49,837
)
Interest-only
—

1,893

1,893

—

(9,268
)
(9,268
)
Total
$
818,127

$
23,840

$
841,967

$
(100,021
)
$
(69,654
)
$
(169,675
)
Residential Mortgage Backed Securities Collateral Characteristics
The following tables provide a summary of the Company’s MBS portfolio at December 31, 2017 and December 31, 2016.
 
December 31, 2017
 
Principal or Notional Value
at Period-End
(dollars in thousands)
Weighted Average Amortized
Cost Basis
Weighted Average Fair Value
Weighted Average
Coupon
Weighted Average Yield at Period-End (1)
Non-Agency RMBS
 
 
 
 
Senior
$
2,733,926

$
54.04

$
81.62

4.6
%
16.7
%
Senior, interest-only
4,862,461

5.41

4.34

1.3
%
8.0
%
Subordinated
501,455

66.77

80.01

4.1
%
9.6
%
Subordinated, interest-only
201,378

3.66

3.89

0.8
%
11.8
%
Agency MBS
 

 

 

 

 

Residential pass-through
2,227,128

105.53

104.27

3.8
%
2.9
%
Commercial pass-through
1,894,594

102.26

102.31

3.6
%
3.2
%
Interest-only
3,021,840

3.68

3.45

0.7
%
3.4
%
(1) Bond Equivalent Yield at period end.
 
December 31, 2016
 
Principal or Notional Value at Period-End
(dollars in thousands)
Weighted Average Amortized
Cost Basis
Weighted Average Fair Value
Weighted Average
Coupon
Weighted Average Yield at Period-End (1)
Non-Agency RMBS
 
 
 
 
Senior
$
3,190,947

$
55.76

$
78.69

4.3
%
15.5
%
Senior, interest-only
5,648,339

5.18

4.49

1.5
%
11.7
%
Subordinated
673,259

70.83

82.21

3.8
%
9.2
%
Subordinated, interest-only
266,927

5.20

4.50

1.1
%
13.5
%
Agency MBS
 

 

 

 

 

Residential pass-through
2,594,570

105.78

104.29

3.9
%
3.0
%
Commercial pass-through
1,331,543

102.64

98.91

3.6
%
2.9
%
Interest-only
3,356,491

4.53

4.31

0.8
%
3.5
%
(1) Bond Equivalent Yield at period end.
Credit Ratings of Residential Mortgage-Backed Securities
The following table presents the weighted average credit rating of the Company’s Non-Agency RMBS portfolio at December 31, 2017 and December 31, 2016.

 
December 31, 2017

December 31, 2016

AAA
0.3
%
0.3
%
AA
0.3
%
0.3
%
A
0.6
%
0.7
%
BBB
1.9
%
0.7
%
BB
2.5
%
3.0
%
B
2.3
%
3.9
%
Below B
59.6
%
67.2
%
Not Rated
32.5
%
23.9
%
Total
100.0
%
100.0
%
Schedule of Mortgage-Backed Securities by Estimated Weighted Average Life Classification
The following tables provide a summary of the fair value and amortized cost of the Company’s MBS at December 31, 2017 and December 31, 2016 according to their estimated weighted-average life classifications. The weighted-average lives of the MBS in the tables below are based on lifetime expected prepayment rates using an industry prepayment model for the Agency MBS portfolio and the Company’s prepayment assumptions for the Non-Agency RMBS. The prepayment model considers current yield, forward yield, steepness of the interest rate curve, current mortgage rates, mortgage rates of the outstanding loan, loan age, margin, and volatility.
 
December 31, 2017
 
(dollars in thousands) 
 
Weighted Average Life
 
Less than one year
Greater than one year and less
than five years
Greater than five years and less
than ten years
Greater than ten years
Total
Fair value
 
 
 
 
 
Non-Agency RMBS
 
 
 
 
 
Senior
$
2,179

$
681,086

$
910,234

$
637,916

$
2,231,415

Senior interest-only
19

54,107

72,702

84,022

210,850

Subordinated
—

75,495

121,555

204,175

401,225

Subordinated interest-only
—

7,165

661

—

7,826

Agency MBS
 

 

 

 

 

Residential
—

21,777

2,300,403

—

2,322,180

Commercial
—

45,770

16,559

1,875,952

1,938,281

Interest-only
—

74,490

25,271

4,606

104,367

Total fair value
$
2,198

$
959,890

$
3,447,385

$
2,806,671

$
7,216,144

Amortized cost
 

 

 

 

 

Non-Agency RMBS
 
 

 

 

 

Senior
$
2,124

$
493,965

$
569,458

$
411,816

$
1,477,363

Senior interest-only
1,271

73,758

94,145

93,822

262,996

Subordinated
—

61,987

91,044

181,789

334,820

Subordinated interest-only
—

6,355

1,014

—

7,369

Agency MBS
 

 

 

 

 

Residential
—

22,069

2,328,304

—

2,350,373

Commercial
—

47,170

17,176

1,872,993

1,937,339

Interest-only
—

79,356

27,582

4,339

111,277

Total amortized cost
$
3,395

$
784,660

$
3,128,723

$
2,564,759

$
6,481,537

 
December 31, 2016
 
(dollars in thousands)
 
Weighted Average Life
 
Less than one year
Greater than one year and less
than five years
Greater than five years and less
than ten years
Greater than ten years
Total
Fair value
 
 
 
 
 
Non-Agency RMBS
 
 
 
 
 
Senior
$
25,612

$
508,979

$
1,267,000

$
709,412

$
2,511,003

Senior interest-only
417

37,796

115,780

99,546

253,539

Subordinated
—

94,793

238,630

220,075

553,498

Subordinated interest-only
—

—

12,024

—

12,024

Agency MBS
 

 

 

 

 

Residential
—

429,869

2,276,109

—

2,705,978

Commercial
—

47,354

16,833

1,252,788

1,316,975

Interest-only
—

75,863

63,715

5,222

144,800

Total fair value
$
26,029

$
1,194,654

$
3,990,091

$
2,287,043

$
7,497,817

Amortized cost
 

 

 

 

 

Non-Agency RMBS
 
 

 

 

 

Senior
$
21,423

$
403,250

$
868,624

$
485,823

$
1,779,120

Senior interest-only
1,992

50,252

134,642

105,510

292,396

Subordinated
—

76,287

195,538

205,052

476,877

Subordinated interest-only
—

—

13,878

—

13,878

Agency MBS
 

 

 

 

 

Residential
—

438,270

2,306,172

—

2,744,442

Commercial
—

49,027

17,247

1,300,363

1,366,637

Interest-only
—

77,598

69,333

5,244

152,175

Total amortized cost
$
23,415

$
1,094,684

$
3,605,434

$
2,101,992

$
6,825,525
Schedule of Collateral Characteristics of Underlying Mortgages of Non-Agency RMBS Portfolio
The Non-Agency RMBS in the Portfolio have the following collateral characteristics at December 31, 2017 and December 31, 2016.
 
December 31, 2017
December 31, 2016
Weighted average maturity (years)
 
20.7

 
21.6

Weighted average amortized loan to value (1)
 
64.4
%
 
66.5
%
Weighted average FICO (2)
 
697

 
698

Weighted average loan balance (in thousands)
 
$
314

 
$
319

Weighted average percentage owner occupied
 
84.4
%
 
83.2
%
Weighted average percentage single family residence
 
66.3
%
 
65.8
%
Weighted average current credit enhancement
 
2.2
%
 
2.3
%
Weighted average geographic concentration of top four states
CA
31.7
%
CA
32.1
%
 
NY
8.5
%
FL
8.1
%
 
FL
8.3
%
NY
7.9
%
 
NJ
2.7
%
NJ
2.7
%
(1) Value represents appraised value of the collateral at the time of loan origination.
(2) FICO as determined at the time of loan origination.
Schedule of Percentage of Non-Agency RMBS by Year Originated
The table below presents the origination year of the underlying loans related to the Company’s portfolio of Non-Agency RMBS at December 31, 2017 and December 31, 2016.

Origination Year
December 31, 2017
December 31, 2016

2003 and prior
3.6
%
3.6
%
2004
4.3
%
4.2
%
2005
20.8
%
20.2
%
2006
38.2
%
38.0
%
2007
30.4
%
31.3
%
2008
1.8
%
1.8
%
2009 and later
0.9
%
0.9
%
Total
100.0
%
100.0
%
Schedule of Gains and Losses from Sales of Investments
The proceeds and gross realized gains and gross realized losses from sales of investments for the years ended December 31, 2017, 2016 and 2015 are as follows:

 
For the Year Ended
 
December 31, 2017
December 31, 2016
December 31, 2015
 
(dollars in thousands)
Proceeds from sales
$
812,005

$
2,719,329

$
6,244,613

 
 
 
 
Gross realized gains
17,538

28,572

94,618

Gross realized losses
(8,415
)
(10,417
)
(17,544
)
Net realized gain (loss)
$
9,123

$
18,155

$
77,074