Pledged Assets

Our funding agreements require us to fully collateralize our obligations under the agreements based upon our counterparties' collateral requirements and their determination of the fair value of the securities pledged as collateral, which fluctuates with changes in interest rates, credit quality and liquidity conditions within the investment banking, mortgage finance and real estate industries. Our derivative contracts similarly require us to fully collateralize our obligations under such agreements, which will vary over time based on similar factors as well as our counterparties' determination of the value of the derivative contract. We are typically required to post initial collateral upon execution of derivative transactions, such as under our interest rate swap agreements and TBA contracts. If we breach our collateral requirements, we will be required to fully settle our obligations under the agreements, which could include a forced liquidation of our pledged collateral.

Our counterparties also apply a "haircut" to our pledged collateral, which means our collateral is valued at slightly less than market value and limits the amount we can borrow against our securities. This haircut reflects the underlying risk of the specific collateral and protects our counterparty against a change in its value. Our agreements do not specify the haircut; rather haircuts are determined on an individual transaction basis. Additionally, the FHLB of Des Moines may adjust the haircut on our outstanding FHLB advances at any time prior to maturity. As a condition of our membership in the FHLB of Des Moines, we are also obligated to purchase membership stock in the FHLB based upon the total assets of our wholly-owned captive insurance company and activity-based stock in the FHLB based upon the aggregate amount of advances obtained from the FHLB.

Consequently, our funding agreements and derivative contracts expose us to credit risk relating to potential losses that could be recognized in the event that our counterparties fail to perform their obligations under such agreements. We minimize this risk by limiting our counterparties to major financial institutions with acceptable credit ratings or to registered clearinghouses and U.S. government agencies and we monitor our positions with individual counterparties. In the event of a default by a counterparty we may have difficulty obtaining our assets pledged as collateral to such counterparty and may not receive payments provided for under the terms of our derivative agreements. In the case of centrally cleared instruments, we could be exposed to credit risk if the central clearing agency or a clearing member defaults on its respective obligation to perform under the contract. However, we believe that the risk is minimal due to the clearing exchanges' initial and daily mark to market margin requirements and clearinghouse guarantee funds and other resources that are available in the event of a clearing member default.

Further, each of our International Swaps and Derivatives Association ("ISDA") Master Agreements also contains a cross default provision under which a default under certain of our other indebtedness in excess of certain thresholds causes an event of default under the ISDA Master Agreement. Threshold amounts vary by lender. Following an event of default, we could be required to settle our obligations under the agreements. Additionally, under certain of our ISDA Master Agreements, we could be required to settle our obligations under the agreements if we fail to maintain certain minimum stockholders' equity thresholds or our REIT status or if we fail to comply with limits on our leverage up to certain specified levels. As of September 30, 2016, the fair value of additional collateral that could be required to be posted as a result of the credit-risk-related contingent features being triggered was not material to our financial statements.

As of September 30, 2016, our maximum amount at risk with any counterparty related to our repurchase agreements was less than 5% of our stockholders' equity and our maximum amount at risk with any counterparty related to our interest rate swap and swaption agreements, excluding centrally cleared swaps, was less than 1% of our stockholders' equity.

Assets Pledged to Counterparties

The following tables summarize our assets pledged as collateral under our funding, derivative and prime broker agreements by type, including securities pledged related to securities sold but not yet settled, as of September 30, 2016 and December 31, 2015 (in millions):



	September 30, 2016
Assets Pledged to Counterparties	Repurchase Agreements and FHLB Advances ¹		Debt of Consolidated VIEs		Derivative Agreements		Prime Broker Agreements		Total
Agency MBS - fair value	$	42,997	$	890	$	684	$	830	$	45,401
Non-agency MBS - fair value	102		—		—		—		102
U.S. Treasury securities - fair value	45		—		—		—		45
Accrued interest on pledged securities	118		3		2		2		125
Restricted cash and cash equivalents	15		—		666		—		681
Total	$	43,277	$	893	$	1,352	$	832	$	46,354

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1. Includes $194 million of retained interests in our consolidated VIEs pledged as collateral under repurchase agreements.



	December 31, 2015
Assets Pledged to Counterparties	Repurchase Agreements and FHLB Advances ¹		Debt of Consolidated VIEs		Derivative Agreements		Prime Broker Agreements		Total
Agency MBS - fair value	$	47,992	$	1,029	$	148	$	485	$	49,654
Non-agency MBS - fair value	113		—		—		—		113
U.S. Treasury securities - fair value	25		—		—		—		25
Accrued interest on pledged securities	135		3		—		2		140
Restricted cash and cash equivalents	23		—		1,226		32		1,281
Total	$	48,288	$	1,032	$	1,374	$	519	$	51,213

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1. Includes $245 million of retained interests in our consolidated VIEs pledged as collateral under repurchase agreements.

As of September 30, 2016 and December 31, 2015, we held $126 million and $150 million, respectively, of membership and activity-based stock in the FHLB of Des Moines. FHLB stock is reported at cost, which equals par value, in other assets on our accompanying consolidated balance sheets. FHLB stock can only be redeemed or sold at its par value, and only to the FHLB of Des Moines.

The cash and cash equivalents and agency securities pledged as collateral under our derivative agreements are included in restricted cash and cash equivalents and agency securities, at fair value, respectively, on our consolidated balance sheets.

The following table summarizes our securities pledged as collateral under our repurchase agreements and FHLB advances by the remaining maturity of our borrowings, including securities pledged related to sold but not yet settled securities, as of September 30, 2016 and December 31, 2015 (in millions). For the corresponding borrowings associated with the following amounts and the interest rates thereon, refer to Note 5.



	September 30, 2016						December 31, 2015
Securities Pledged by Remaining Maturity of Repurchase Agreements and FHLB Advances	Fair Value of Pledged Securities		Amortized Cost of Pledged Securities		Accrued Interest on Pledged Securities		Fair Value of Pledged Securities		Amortized Cost of Pledged Securities		Accrued Interest on Pledged Securities
MBS:¹
≤ 30 days	$	18,604	$	18,204	$	51	$	20,053	$	20,075	$	57
> 30 and ≤ 60 days	7,404		7,258		20		8,311		8,340		23
> 60 and ≤ 90 days	2,078		2,026		6		7,534		7,525		21
> 90 days	15,014		14,668		41		12,207		12,187		34
Total MBS	43,100		42,156		118		48,105		48,127		135
U.S. Treasury securities:
1 day	45		45		—		25		25		—
Total	$	43,145	$	42,201	$	118	$	48,130	$	48,152	$	135

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1.	Includes $194 million and $245 million of retained interests in our consolidated VIEs pledged as collateral under repurchase agreements, as of September 30, 2016 and December 31, 2015, respectively.

As of September 30, 2016 and December 31, 2015, none of our borrowings backed by MBS were due on demand or mature overnight.

The table above excludes agency securities transferred to our consolidated VIEs. Securities transferred to our consolidated VIEs can only be used to settle the obligations of each respective VIE. However, we may pledge our retained interests in our consolidated VIEs as collateral under our repurchase agreements and derivative contracts. Please refer to Notes 4 and 5 for additional information regarding our consolidated VIEs.

Assets Pledged from Counterparties

As of September 30, 2016 and December 31, 2015, we had U.S. Treasury securities pledged to us from counterparties as collateral under our reverse repurchase agreements of $5.4 billion and $1.7 billion, respectively. U.S Treasury securities received as collateral under our reverse repurchase agreements that we use to cover short sales of U.S. Treasury securities are accounted for as securities borrowing transactions. We recognize a corresponding obligation to return the borrowed securities at fair value on the accompanying consolidated balance sheets based on the value of the underlying borrowed securities as of the reporting date.

Offsetting Assets and Liabilities

Certain of our repurchase agreements and derivative transactions are governed by underlying agreements that generally provide for a right of setoff under master netting arrangements (or similar agreements), including in the event of default or in the event of bankruptcy of either party to the transactions. Repurchase agreements and reverse repurchase agreements with the same counterparty and the same maturity date are presented net in our consolidated balance sheets when the terms of the agreements permit netting. All other assets and liabilities subject to master netting arrangements are presented on a gross basis in our consolidated balance sheets. The following tables present information about our assets and liabilities that are subject to master netting arrangements and have either been offset or can potentially be offset on our consolidated balance sheets as of September 30, 2016 and December 31, 2015 (in millions):



	Offsetting of Financial and Derivative Assets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets			Net Amounts of Assets Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets						Net Amount
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets					Financial Instruments			Collateral Received ²			Net Amount
September 30, 2016
Interest rate swap and swaption agreements, at fair value ¹	$	11	$	—		$	11	$	(11	)	$	—		$	—
Receivable under reverse repurchase agreements	5,616		(175		)	5,441		(4,797		)	(644		)	—
Total	$	5,627	$	(175	)	$	5,452	$	(4,808	)	$	(644	)	$	—

December 31, 2015
Interest rate swap and swaption agreements, at fair value¹	$	48	$	—		$	48	$	(31	)	$	—		$	17
Receivable under reverse repurchase agreements	1,713		—			1,713		(1,356		)	(357		)	—
Total	$	1,761	$	—		$	1,761	$	(1,387	)	$	(357	)	$	17



	Offsetting of Financial and Derivative Liabilities
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets			Net Amounts of Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets						Net Amount
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets					Financial Instruments			Collateral Pledged ²			Net Amount
September 30, 2016
Interest rate swap agreements, at fair value ¹	$	942	$	—		$	942	$	(11	)	$	(931	)	$	—
Repurchase agreements and FHLB advances	40,880		(175		)	40,705		(4,797		)	(35,908		)	—
Total	$	41,822	$	(175	)	$	41,647	$	(4,808	)	$	(36,839	)	$	—

December 31, 2015
Interest rate swap agreements, at fair value¹	$	920	$	—		$	920	$	(31	)	$	(889	)	$	—
Repurchase agreements	45,507		—			45,507		(1,356		)	(44,151		)	—
Total	$	46,427	$	—		$	46,427	$	(1,387	)	$	(45,040	)	$	—

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1.	Reported under derivative assets / liabilities, at fair value in the accompanying consolidated balance sheets. Refer to Note 6 for a reconciliation of derivative assets / liabilities, at fair value to their sub-components.


2.	Includes cash and securities pledged / received as collateral, at fair value. Amounts presented are limited to collateral pledged sufficient to reduce the net amount to zero for individual counterparties, as applicable.