Investment Securities

As of September 30, 2016 and December 31, 2015, our investment portfolio consisted of $47.4 billion and $52.5 billion of investment securities, at fair value, respectively, and a $15.6 billion and $7.4 billion net long TBA position, at fair value, respectively.

Our TBA position is reported at its net carrying value of $46 million and $14 million as of September 30, 2016 and December 31, 2015, respectively, in derivative assets/(liabilities) on our accompanying consolidated balance sheets. The net carrying value of our TBA position represents the difference between the fair value of the underlying agency security in the TBA contract and the cost basis or the forward price to be paid or received for the underlying agency security. (See Note 6 for further details of our net TBA position as of September 30, 2016 and December 31, 2015.)

As of September 30, 2016 and December 31, 2015, the net unamortized premium balance on our MBS was $2.1 billion and $2.3 billion, respectively, including interest and principal-only securities.

The following tables summarize our investment securities as of September 30, 2016 and December 31, 2015 (dollars in millions):



	September 30, 2016
Investment Securities	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Agency MBS:
Fixed rate	$	44,641	$	980	$	(10	)	$	45,611
Adjustable rate	401		14		—			415
CMO	840		25		—			865
Interest-only and principal-only strips	286		44		(3		)	327
Total agency MBS	46,168		1,063		(13		)	47,218
Non-agency MBS	100		2		—			102
CRT securities	36		—		—			36
Total investment securities	$	46,304	$	1,065	$	(13	)	$	47,356



	December 31, 2015
Investments Securities	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Agency MBS:
Fixed rate	$	50,576	$	339	$	(393	)	$	50,522
Adjustable rate	484		11		—			495
CMO	973		18		(1		)	990
Interest-only and principal-only strips	317		39		(3		)	353
Total agency MBS	52,350		407		(397		)	52,360
Non-agency MBS	114		—		(1		)	113
Total investment securities	$	52,464	$	407	$	(398	)	$	52,473



	September 30, 2016
Investment Securities	Fannie Mae			Freddie Mac			Ginnie Mae			Non-Agency			CRT			Total
Available-for-sale securities:
Par value	$	33,919		$	9,930		$	48		$	99		$	—		$	43,996
Unamortized discount	(27		)	(3		)	—			—			—			(30		)
Unamortized premium	1,494			520			1			1			—			2,016
Amortized cost	35,386			10,447			49			100			—			45,982
Gross unrealized gains	817			201			1			2			—			1,021
Gross unrealized losses	(6		)	(4		)	—			—			—			(10		)
Total available-for-sale securities, at fair value	36,197			10,644			50			102			—			46,993
Securities remeasured at fair value through earnings: ¹
Par value ²	181			—			—			—			35			216
Unamortized discount	(37		)	—			—			—			—			(37		)
Unamortized premium	126			16			—			—			1			143
Amortized cost	270			16			—			—			36			322
Gross unrealized gains	41			3			—			—			—			44
Gross unrealized losses	(2		)	(1		)	—			—			—			(3		)
Total securities remeasured at fair value through earnings	309			18			—			—			36			363
Total securities, at fair value	$	36,506		$	10,662		$	50		$	102		$	36		$	47,356
Weighted average coupon as of September 30, 2016	3.63		%	3.69		%	2.81		%	3.50		%	4.91		%	3.64		%
Weighted average yield as of September 30, 2016 ³	2.68		%	2.67		%	1.96		%	3.00		%	4.85		%	2.68		%

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1.	Securities measured at fair value through earnings includes agency interest-only and principal-only securities.


2.	Par value amount excludes the underlying unamortized principal balance ("UPB") of interest-only securities of $1.0 billion as of September 30, 2016.


3.	Incorporates a weighted average future constant prepayment rate assumption of 11% based on forward rates as of September 30, 2016.



	December 31, 2015
Investment Securities	Fannie Mae			Freddie Mac			Ginnie Mae			Non-Agency			Total
Available-for-sale securities:
Par value	$	39,205		$	10,575		$	62		$	113		$	49,955
Unamortized discount	(32		)	(4		)	—			—			(36		)
Unamortized premium	1,707			519			1			1			2,228
Amortized cost	40,880			11,090			63			114			52,147
Gross unrealized gains	286			80			2			—			368
Gross unrealized losses	(283		)	(111		)	—			(1		)	(395		)
Total available-for-sale securities, at fair value	40,883			11,059			65			113			52,120
Securities remeasured at fair value through earnings: ¹
Par value ²	208			—			—			—			208
Unamortized discount	(42		)	—			—			—			(42		)
Unamortized premium	132			19			—			—			151
Amortized cost	298			19			—			—			317
Gross unrealized gains	35			4			—			—			39
Gross unrealized losses	(2		)	(1		)	—			—			(3		)
Total securities remeasured at fair value through earnings	331			22			—			—			353
Total securities, at fair value	$	41,214		$	11,081		$	65		$	113		$	52,473
Weighted average coupon as of December 31, 2015	3.62		%	3.69		%	3.18		%	3.50		%	3.63		%
Weighted average yield as of December 31, 2015 ³	2.79		%	2.77		%	1.97		%	3.33		%	2.78		%

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1.	Securities measured at fair value through earnings includes agency interest-only and principal-only securities.


2.	Par value amount excludes the underlying unamortized principal balance ("UPB") of interest-only securities of $1.0 billion as of December 31, 2015.


3.	Incorporates a weighted average future constant prepayment rate assumption of 8% based on forward rates as of December 31, 2015.

As of September 30, 2016 and December 31, 2015, our investments in non-agency MBS carried a credit rating of AAA. As of September 30, 2016, all of our investments in CRT securities were issued by Fannie Mae or Freddie Mac.

The actual maturities of our investment securities are generally shorter than their stated contractual maturities. Actual maturities are affected by the contractual lives of the underlying mortgages, periodic contractual principal payments and principal prepayments. As of September 30, 2016 and December 31, 2015, our weighted average expected constant prepayment rate ("CPR") over the remaining life of our aggregate investment portfolio was 11% and 8%, respectively. Our estimates differ materially for different types of securities and thus individual holdings have a wide range of projected CPRs.

The following table summarizes our investments classified as available-for-sale as of September 30, 2016 and December 31, 2015 according to their estimated weighted average life classification (dollars in millions):



	September 30, 2016						December 31, 2015
Estimated Weighted Average Life of Securities Classified as Available-for-Sale	Fair Value		Amortized Cost		Weighted Average Coupon	Weighted Average Yield	Fair Value		Amortized Cost		Weighted Average Coupon	Weighted Average Yield
≥ 1 year and ≤ 3 years	$	1,493	$	1,467	3.92%	2.48%	$	167	$	163	4.02%	2.66%
> 3 years and ≤ 5 years	15,984		15,556		3.30%	2.44%	17,497		17,343		3.27%	2.40%
> 5 years and ≤10 years	29,490		28,936		3.65%	2.76%	34,206		34,391		3.67%	2.93%
> 10 years	26		23		4.67%	3.86%	250		250		3.56%	3.08%
Total	$	46,993	$	45,982	3.54%	2.64%	$	52,120	$	52,147	3.54%	2.75%

The following table presents the gross unrealized loss and fair values of our available-for-sale securities by length of time that such securities have been in a continuous unrealized loss position as of September 30, 2016 and December 31, 2015 (in millions):



	Unrealized Loss Position For
	Less than 12 Months					12 Months or More					Total
Securities Classified as Available-for-Sale	Estimated Fair Value		Unrealized Loss			Estimated Fair Value		Unrealized Loss			Estimated Fair Value		Unrealized Loss
September 30, 2016	$	602	$	(2	)	$	1,851	$	(8	)	$	2,453	$	(10	)
December 31, 2015	$	24,035	$	(200	)	$	6,793	$	(195	)	$	30,828	$	(395	)

We did not recognize any OTTI charges on our investment securities for the nine months ended September 30, 2016 and 2015. As of the end of each respective reporting period, a decision had not been made to sell any of our securities in an unrealized loss position and we did not believe it was more likely than not that we would be required to sell such securities before recovery of their amortized cost basis. The unrealized losses on our securities were not due to credit losses given the GSE guarantees and credit enhancements on our non-agency securities, but rather were due to changes in interest rates and prepayment expectations. However, as we continue to actively manage our portfolio, we may recognize additional realized losses on our investment securities upon selecting specific securities to sell.

Gains and Losses on Sale of Mortgage-Backed Securities

The following table is a summary of our net gain (loss) from the sale of securities classified as available-for-sale for the three and nine months ended September 30, 2016 and 2015 (in millions). Please refer to Note 9 for a summary of changes in accumulated OCI for the same periods.



	Three Months Ended September 30,						Nine Months Ended September 30,
Securities Classified as Available-for-Sale	2016			2015			2016			2015
MBS sold, at cost	$	(6,123	)	$	(4,575	)	$	(17,146	)	$	(22,548	)
Proceeds from MBS sold ¹	6,184			4,536			17,260			22,523
Net gain (loss) on sale of MBS	$	61		$	(39	)	$	114		$	(25	)

Gross gain on sale of MBS	$	62		$	2		$	122		$	81
Gross loss on sale of MBS	(1		)	(41		)	(8		)	(106		)
Net gain (loss) on sale of MBS	$	61		$	(39	)	$	114		$	(25	)

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1.	Proceeds include cash received during the period, plus receivable for MBS sold during the period as of period end.

For the three and nine months ended September 30, 2016, we recognized a net unrealized loss of $6 million and an unrealized gain of $5 million, respectively, and for the three and nine months ended September 30, 2015 we recognized a net unrealized gain of $10 million and $14 million, respectively, for the change in value of investments in interest and principal-only securities in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. Over the same periods, we did not recognize any realized gains or losses on our interest or principal-only securities.

Securitizations and Variable Interest Entities

As of September 30, 2016 and December 31, 2015, we held investments in CMO trusts, which are variable interest entities ("VIEs"). We have consolidated certain of these CMO trusts in our consolidated financial statements where we have determined we are the primary beneficiary of the trusts. All of our CMO securities are backed by fixed or adjustable-rate agency MBS. Fannie Mae or Freddie Mac guarantees the payment of interest and principal and acts as the trustee and administrator of their respective securitization trusts. Accordingly, we are not required to provide the beneficial interest holders of the CMO securities any financial or other support. Our maximum exposure to loss related to our involvement with CMO trusts is the fair value of the CMO securities and interest and principal-only securities held by us, less principal amounts guaranteed by Fannie Mae and Freddie Mac.

In connection with our consolidated CMO trusts, we recognized agency securities with a total fair value of $0.9 billion and $1.0 billion as of September 30, 2016 and December 31, 2015, respectively, and debt with a total fair value of $494 million and $595 million, respectively, in our accompanying consolidated balance sheets. As of September 30, 2016 and December 31, 2015, the agency securities had an aggregate unpaid principal balance of $0.8 billion and $1.0 billion, respectively, and the debt had an aggregate unpaid principal balance of $488 million and $587 million, respectively. We re-measure our consolidated debt at fair value through earnings in gain (loss) on derivative instruments and other securities, net in our consolidated statements of comprehensive income. For the three and nine months ended September 30, 2016, we recorded a loss of $2 million and $8 million, respectively, associated with our consolidated debt. For the three and nine months ended September 30, 2015, we recorded a gain of $7 million and $16 million, respectively, associated with our consolidated debt. Our involvement with the consolidated trusts is limited to the agency securities transferred by us upon the formation of the trusts and the CMO securities subsequently held by us. There are no arrangements that could require us to provide financial support to the trusts.

As of September 30, 2016 and December 31, 2015, the fair value of our CMO securities and interest and principal-only securities was $1.2 billion and $1.3 billion, respectively, excluding the consolidated CMO trusts discussed above, or $1.6 billion and $1.8 billion, respectively, including the net asset value of our consolidated CMO trusts. Our maximum exposure to loss related to our CMO securities and interest and principal-only securities, including our consolidated CMO trusts, was $222 million and $238 million as of September 30, 2016 and December 31, 2015, respectively.