Investment Securities

As of December 31, 2018 and 2017, our investment portfolio consisted of $84.3 billion and $57.1 billion of investment securities, at fair value, respectively, and $7.3 billion and $15.7 billion of TBA securities, at fair value, respectively. Our TBA position is reported at its net carrying value of $70 million and $3 million as of December 31, 2018 and 2017, 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.

As of December 31, 2018 and 2017, our investment securities had a net unamortized premium balance of $2.9 billion and $2.7 billion, respectively, including interest and principal-only securities.

The following tables summarize our investment securities as of December 31, 2018 and 2017, excluding TBA securities, (dollars in millions). Details of our TBA securities as of each of the respective dates are included in Note 5.



	December 31, 2018				December 31, 2017
Investment Securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Agency RMBS:
Fixed rate	$	83,047	$	81,753	$	55,477	$	55,026
Adjustable rate	212		213		278		283
CMO	588		583		629		631
Interest-only and principal-only strips	172		178		213		228
Total Agency RMBS	84,019		82,727		56,597		56,168
Non-Agency RMBS	264		266		7		7
CMBS	280		282		28		29
CRT securities	1,006		1,012		834		876
Total investment securities	$	85,569	$	84,287	$	57,466	$	57,080



	December 31, 2018
	Agency RMBS									Non-Agency
Investment Securities	Fannie Mae			Freddie Mac			Ginnie Mae			RMBS			CMBS			CRT			Total
Available-for-sale securities:
Par value	$	17,591		$	5,673		$	25		$	6		$	—		$	—		$	23,295
Unamortized discount	(10		)	(2		)	—			—			—			—			(12		)
Unamortized premium	912			343			—			—			—			—			1,255
Amortized cost	18,493			6,014			25			6			—			—			24,538
Gross unrealized gains	4			2			1			—			—			—			7
Gross unrealized losses	(686		)	(264		)	—			—			—			—			(950		)
Total available-for-sale securities, at fair value	17,811			5,752			26			6			—			—			23,595
Securities remeasured at fair value through earnings:
Par value	39,453			18,428			—			268			281			968			59,398
Unamortized discount	(78		)	(9		)	—			(10		)	(6		)	—			(103		)
Unamortized premium	1,055			638			—			—			5			38			1,736
Amortized cost	40,430			19,057			—			258			280			1,006			61,031
Gross unrealized gains	223			57			—			2			3			18			303
Gross unrealized losses	(386		)	(243		)	—			—			(1		)	(12		)	(642		)
Total securities remeasured at fair value through earnings	40,267			18,871			—			260			282			1,012			60,692
Total securities, at fair value	$	58,078		$	24,623		$	26		$	266		$	282		$	1,012		$	84,287
Weighted average coupon as of December 31, 2018	3.82		%	3.87		%	3.37		%	3.83		%	4.58		%	5.86		%	3.86		%
Weighted average yield as of December 31, 2018 ¹	3.28		%	3.28		%	2.04		%	4.22		%	4.68		%	5.16		%	3.31		%

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1.	Incorporates a weighted average future constant prepayment rate assumption of 7.9% based on forward rates as of December 31, 2018.



	December 31, 2017
	Agency RMBS									Non-Agency
Investment Securities	Fannie Mae			Freddie Mac			Ginnie Mae			RMBS			CMBS			CRT			Total
Available-for-sale securities:
Par value	$	24,200		$	8,219		$	34		$	7		$	—		$	—		$	32,460
Unamortized discount	(25		)	(3		)	—			—			—			—			(28		)
Unamortized premium	1,119			447			—			—			—			—			1,566
Amortized cost	25,294			8,663			34			7			—			—			33,998
Gross unrealized gains	98			22			1			—			—			—			121
Gross unrealized losses	(325		)	(141		)	—			—			—			—			(466		)
Total available-for-sale securities, at fair value	25,067			8,544			35			7			—			—			33,653
Securities remeasured at fair value through earnings:
Par value	13,558			7,956			—			—			29			801			22,344
Unamortized discount	(34		)	—			—			—			(1		)	—			(35		)
Unamortized premium	711			415			—			—			—			33			1,159
Amortized cost	14,235			8,371			—			—			28			834			23,468
Gross unrealized gains	26			2			—			—			1			42			71
Gross unrealized losses	(70		)	(42		)	—			—			—			—			(112		)
Total securities remeasured at fair value through earnings	14,191			8,331			—			—			29			876			23,427
Total securities, at fair value	$	39,258		$	16,875		$	35		$	7		$	29		$	876		$	57,080
Weighted average coupon as of December 31, 2017	3.67		%	3.73		%	2.84		%	2.50		%	6.55		%	5.26		%	3.71		%
Weighted average yield as of December 31, 2017 ¹	2.84		%	2.87		%	2.02		%	3.08		%	7.30		%	5.19		%	2.89		%

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1.	Incorporates a weighted average future constant prepayment rate assumption of 8.4% based on forward rates as of December 31, 2017.

As of December 31, 2018 and 2017, our investments in CRT and non-Agency securities had the following credit ratings:



	December 31, 2018						December 31, 2017
CRT and Non-Agency Security Credit Ratings ¹	CRT		RMBS		CMBS		CRT		RMBS		CMBS
AAA	$	—	$	160	$	52	$	—	$	7	$	—
AA	—		17		152		—		—		—
A	17		33		15		1		—		—
BBB	25		43		53		34		—		29
BB	492		8		10		370		—		—
B	453		2		—		455		—		—
Not Rated	25		3		—		16		—		—
Total	$	1,012	$	266	$	282	$	876	$	7	$	29

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1.	Represents the lowest of Standard and Poor's ("S&P"), Moody's, Fitch, DBRS, Kroll Bond Rating Agency ("KBRA") and Morningstar credit ratings, stated in terms of the S&P equivalent rating as of each date.

Our CRT securities reference the performance of loans underlying Agency RMBS issued by Fannie Mae or Freddie Mac, which were subject to their underwriting standards. As of December 31, 2018, our CRT securities had floating rate coupons ranging from 3.9% to 9.5%, referenced to loans originated between 2011 and 2018 with weighted average coupons ranging from 3.8% to 4.8%. As of 2017, our CRT securities had floating rate coupons ranging from 3.9% to 8.5%, referenced to loans originated between 2012 and 2017 with weighted average coupons ranging from 3.6% to 4.4%.

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 December 31, 2018 and 2017, the weighted average expected constant prepayment rate ("CPR") over the remaining life of our aggregate investment portfolio was 7.9% and 8.4%, respectively. Our estimates can differ materially for different securities and thus our individual holdings have a wide range of projected CPRs. The following table summarizes our investments as of December 31, 2018 and 2017 according to their estimated weighted average life classification (dollars in millions):



	December 31, 2018						December 31, 2017
Estimated Weighted Average Life of Investment Securities	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	$	1,690	$	1,716	3.99%	2.64%	$	2,712	$	2,693	3.90%	2.67%
> 3 years and ≤ 5 years	5,518		5,586		3.35%	2.73%	7,499		7,518		3.31%	2.39%
> 5 years and ≤10 years	72,503		73,588		3.92%	3.37%	45,977		46,398		3.75%	2.95%
> 10 years	4,576		4,679		3.57%	3.30%	892		857		4.87%	4.74%
Total	$	84,287	$	85,569	3.86%	3.31%	$	57,080	$	57,466	3.71%	2.89%

The following table presents the gross unrealized loss and fair values of securities classified as available-for-sale by length of time that such securities have been in a continuous unrealized loss position as of December 31, 2018 and 2017 (in millions):



	Unrealized Loss Position For
	Less than 12 Months					12 Months or More					Total
Securities Classified as Available-for-Sale	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
December 31, 2018	$	4,783	$	(72	)	$	18,231	$	(878	)	$	23,014	$	(950	)
December 31, 2017	$	3,582	$	(15	)	$	20,577	$	(451	)	$	24,159	$	(466	)

We did not recognize OTTI charges on our investment securities during the periods presented on our consolidated statements of operations. As of the end of each respective reporting period, a decision had not been made to sell 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 or U.S. Government agency guarantees, 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 Investment Securities

The following table is a summary of our net gain (loss) from the sale of investment securities for fiscal years 2018, 2017 and 2016 by investment classification of accounting (in millions):



	Fiscal Year 2018									Fiscal Year 2017									Fiscal Year 2016
Investment Securities	Available-for-Sale Securities ²			Fair Value Option Securities			Total			Available-for-Sale Securities ²			Fair Value Option Securities			Total			Available-for-Sale Securities ²			Fair Value Option Securities		Total
Investment securities sold, at cost	$	(4,306	)	$	(5,344	)	$	(9,650	)	$	(6,324	)	$	(12,913	)	$	(19,237	)	$	(17,907	)	$	—	$	(17,907	)
Proceeds from investment securities sold ¹	4,227			5,286			9,513			6,241			12,933			19,174			18,016			—		18,016
Net gain (loss) on sale of investment securities	$	(79	)	$	(58	)	$	(137	)	$	(83	)	$	20		$	(63	)	$	109		$	—	$	109

Gross gain on sale of investment securities	$	6		$	16		$	22		$	16		$	48		$	64		$	123		$	—	$	123
Gross loss on sale of investment securities	(85		)	(74		)	(159		)	(99		)	(28		)	(127		)	(14		)	—		(14		)
Net gain (loss) on sale of investment securities	$	(79	)	$	(58	)	$	(137	)	$	(83	)	$	20		$	(63	)	$	109		$	—	$	109

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


2.	See Note 9 for a summary of changes in accumulated OCI.

Consolidated Variable Interest Entities

As of December 31, 2018 and 2017, our consolidated financial statements reflect the consolidation of certain variable interest entities ("VIEs") for which we have determined we are the primary beneficiary. The consolidated VIEs consist of CMO trusts backed by fixed or adjustable-rate Agency RMBS. 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 the 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.