5.	Mortgage-Backed Securities and Agency CRT securities

All of the Company’s securities, other than its agency CRT securities, are classified as available-for-sale and are reported at their estimated fair value. The agency CRT securities are accounted for under the fair value option as discussed in Note 2. The MBS market is primarily an over-the-counter market. As such, there are no standard, public market quotations for individual MBS. The Company estimates the fair value of its securities based on a market approach by obtaining values for its securities from third-party pricing services. The third-party pricing services gather trade data and use pricing models that incorporate such factors as coupons, primary mortgage rates, prepayment speeds, spread to the U.S. Treasury and interest rate swap curves, periodic and life caps and other similar factors. The third party pricing services also receive data from traders at broker-dealers that participate in the active markets for these securities and directly observe numerous trades of securities similar to the securities owned by the Company.

The Company regularly reviews the prices obtained and the methods used to derive those prices. As part of this evaluation, the Company considers security-specific factors such as coupon, prepayment experience, fixed/adjustable rate, annual and life caps, coupon index, time to next reset and issuing agency, among other factors to ensure that estimated fair values are appropriate. The Company’s analysis of pricing information obtained also includes comparing the data received to other available information, such as other independent pricing services, repurchase agreement pricing, discounted cash flow analysis, matrix pricing, option adjusted spread models and other fundamental analysis of observable market factors.

In addition to agency securities, the Company at times invests in MBS not issued or guaranteed by a U.S. Government agency or a U.S. Government-sponsored entity (“non-agency” securities). The following table presents the composition of the Company’s MBS and agency CRT securities portfolio at March 31, 2016.

	Amortized Cost		Gross Unrealized Loss			Gross Unrealized Gain		Estimated Fair Value
Agency MBS
Fannie Mae Certificates
ARMs	$	6,680,662	$	(4,469	)	$	94,897	$	6,771,090
Fixed-Rate		-		-			-		-
Total Fannie Mae		6,680,662		(4,469	)		94,897		6,771,090

Freddie Mac Certificates
ARMs		5,234,739		(7,041	)		46,783		5,274,481
Fixed-Rate		-		-			-		-
Total Freddie Mac		5,234,739		(7,041	)		46,783		5,274,481

Total Agency MBS	$	11,915,401	$	(11,510	)	$	141,680	$	12,045,571

Agency CRT Securities	$	111,217	$	(659	)	$	463	$	111,021

The following table presents the composition of the Company’s MBS and agency CRT securities portfolio at December 31, 2015.

	Amortized Cost		Gross Unrealized Loss			Gross Unrealized Gain		Estimated Fair Value
Agency MBS
Fannie Mae Certificates
ARMs	$	7,392,021	$	(14,465	)	$	102,247	$	7,479,803
Fixed-Rate		1,005,458		(8,148	)		-		997,310
Total Fannie Mae		8,397,479		(22,613	)		102,247		8,477,113

Freddie Mac Certificates
ARMs		5,806,425		(22,551	)		41,243		5,825,117
Fixed-Rate		-		-			-		-
Total Freddie Mac		5,806,425		(22,551	)		41,243		5,825,117

Total Agency MBS	$	14,203,904	$	(45,164	)	$	143,490	$	14,302,230

Agency CRT Securities	$	111,217	$	(1,830	)	$	-	$	109,387

The components of the combined carrying value the Company’s MBS and agency CRT securities at March 31, 2016 and December 31, 2015 are presented below:

	March 31,			December 31,
	2016			2015
Principal balance	$	11,717,636		$	13,935,533
Unamortized premium		311,245			381,851
Unamortized discount		(2,263	)		(2,263	)
Gross unrealized gains		142,143			143,490
Gross unrealized losses		(12,169	)		(46,994	)
Carrying value/estimated fair value	$	12,156,592		$	14,411,617

The following table presents components of interest income on the Company’s MBS and agency CRT securities for the three months ended March 31, 2016 and 2015.

	Three Months Ended March 31
	2016			2015
Coupon interest	$	86,648		$	113,478
Net premium amortization		(18,943	)		(27,116	)
Interest income	$	67,705		$	86,362

Gross gains and losses from sales of available-for-sale MBS and agency CRT securities for the three months ended March 31, 2016 and 2015 were as follows:

	Three Months Ended March 31
	2016			2015
Gross gains	$	5,894		$	16,510
Gross losses		(1,607	)		(57	)
Net gain (loss)	$	4,287		$	16,453

The Company monitors the performance and market value of its available-for-sale MBS portfolio on an ongoing basis, and on a quarterly basis reviews its MBS for impairment. At March 31, 2016 and December 31, 2015, the Company had the following MBS in a loss position as presented in the following two tables:

	As of March 31, 2016
	Less than 12 Months					Greater than 12 Months					Total
	Fair Market		Unrealized			Fair Market		Unrealized			Fair Market		Unrealized
	Value		Loss			Value		Loss			Value		Loss
Fannie Mae Certificates
ARMs		775,829	$	(2,022	)	$	503,197	$	(2,447	)	$	1,279,026	$	(4,469	)
Fixed-Rate		-		-			-		-			-		-
Freddie Mac Certificates
ARMs		620,483		(1,830	)		889,689		(5,211	)		1,510,172		(7,041	)
Fixed-Rate		-		-			-		-			-		-
Total temporarily impaired securities	$	1,396,312	$	(3,852	)	$	1,392,886	$	(7,658	)	$	2,789,198	$	(11,510	)
Number of securities in an unrealized loss position				84					57					141

	As of December 31, 2015
	Less than 12 Months					Greater than 12 Months					Total
	Fair Market		Unrealized			Fair Market		Unrealized			Fair Market		Unrealized
	Value		Loss			Value		Loss			Value		Loss
Fannie Mae Certificates
ARMs		1,712,043	$	(7,922	)	$	511,884	$	(6,542	)	$	2,223,927	$	(14,464	)
Fixed-Rate		997,310		(8,148	)		-		-			997,310		(8,148	)
Freddie Mac Certificates
ARMs		1,814,773		(9,246	)		861,198		(13,306	)		2,675,971		(22,552	)
Fixed-Rate		-		-			-		-			-		-
Total temporarily impaired securities	$	4,524,126	$	(25,316	)	$	1,373,082	$	(19,848	)	$	5,897,208	$	(45,164	)
Number of securities in an unrealized loss position				223					52					275

The Company did not make the decision to sell the above MBS as of March 31, 2016 and December 31, 2015, nor was it deemed more likely than not the Company would be required to sell these securities before recovery of their amortized cost basis. The unrealized losses on the above securities are the result of market interest rates and are not considered to be credit related. No impairment losses were recognized during the periods presented herein.

The contractual maturity of the Company’s MBS ranges from 15 to 30 years. Because of prepayments on the underlying mortgage loans, the actual weighted-average life is expected to be significantly less than the stated maturity.