Investment Securities

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

As of June 30, 2020 and December 31, 2019, our investment portfolio consisted of $77.1 billion and $100.4 billion of investment securities, at fair value, respectively, and $20.5 billion and $7.4 billion of net TBA securities, at fair value, respectively. Our net TBA position is reported at its net carrying value of $130 million and $25 million as of June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019, our investment securities had a net unamortized premium balance of $2.9 billion and $3.1 billion, respectively.

The following tables summarize our investment securities as of June 30, 2020 and December 31, 2019, excluding TBA securities, (dollars in millions). Details of our TBA securities as of each of the respective dates are included in Note 6.


	June 30, 2020						December 31, 2019
Investment Securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Agency RMBS:
Fixed rate	$	71,885	$	75,165	$	96,375	$	98,074
Adjustable rate	109		112		160		163
CMO	365		381		441		447
Interest-only and principal-only strips	128		155		146		164
Multifamily	17		19		37		39
Total Agency RMBS	72,504		75,832		97,159		98,887
Non-Agency RMBS	221		222		198		209
CMBS	361		377		352		370
CRT securities	742		712		961		976
Total investment securities	$	73,828	$	77,143	$	98,670	$	100,442


	June 30, 2020
	Agency RMBS															Non-Agency
Investment Securities	Fannie Mae			Freddie Mac			Ginnie Mae			RMBS			CMBS			CRT			Total
Available-for-sale securities:
Par value	$	11,774		$	4,147		$	16		$	—		$	—		$	—		$	15,937
Unamortized discount	(6)			(1)			—			—			—			—			(7)
Unamortized premium	538			211			—			—			—			—			749
Amortized cost	12,306			4,357			16			—			—			—			16,679
Gross unrealized gains	581			183			1			—			—			—			765
Gross unrealized losses	(1)			—			—			—			—			—			(1)
Total available-for-sale securities, at fair value	12,886			4,540			17			—			—			—			17,443
Securities remeasured at fair value through earnings:
Par value	32,084			21,537			4			229			357			730			54,941
Unamortized discount	(22)			(2)			—			(10)			(2)			(6)			(42)
Unamortized premium	1,323			898			—			4			7			18			2,250
Amortized cost	33,385			22,433			4			223			362			742			57,149
Gross unrealized gains	1,471			1,103			—			8			23			3			2,608
Gross unrealized losses	(4)			(3)			—			(9)			(8)			(33)			(57)
Total securities remeasured at fair value through earnings	34,852			23,533			4			222			377			712			59,700
Total securities, at fair value	$	47,738		$	28,073		$	21		$	222		$	377		$	712		$	77,143
Weighted average coupon as of June 30, 2020	3.65		%	3.80		%	3.80		%	4.15		%	4.20		%	3.46		%	3.71		%
Weighted average yield as of June 30, 2020 ¹	2.60		%	2.68		%	2.23		%	4.01		%	4.11		%	2.94		%	2.64		%

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1.Incorporates a weighted average future constant prepayment rate assumption of 16.6% based on forward rates as of June 30, 2020.


	December 31, 2019
	Agency RMBS															Non-Agency
Investment Securities	Fannie Mae			Freddie Mac			Ginnie Mae			RMBS			CMBS			CRT			Total
Available-for-sale securities:
Par value	$	14,301		$	4,762		$	18		$	—		$	—		$	—		$	19,081
Unamortized discount	(10)			(2)			—			—			—			—			(12)
Unamortized premium	711			276			—			—			—			—			987
Amortized cost	15,002			5,036			18			—			—			—			20,056
Gross unrealized gains	142			29			1			—			—			—			172
Gross unrealized losses	(50)			(25)			—			—			—			—			(75)
Total available-for-sale securities, at fair value	15,094			5,040			19			—			—			—			20,153
Securities remeasured at fair value through earnings:
Par value	45,106			29,881			—			208			348			937			76,480
Unamortized discount	(68)			(2)			—			(10)			(3)			(2)			(85)
Unamortized premium	1,218			967			—			1			7			26			2,219
Amortized cost	46,256			30,846			—			199			352			961			78,614
Gross unrealized gains	991			691			—			10			19			18			1,729
Gross unrealized losses	(32)			(18)			—			—			(1)			(3)			(54)
Total securities remeasured at fair value through earnings	47,215			31,519			—			209			370			976			80,289
Total securities, at fair value	$	62,309		$	36,559		$	19		$	209		$	370		$	976		$	100,442
Weighted average coupon as of December 31, 2019	3.62		%	3.75		%	3.77		%	4.05		%	4.49		%	5.07		%	3.68		%
Weighted average yield as of December 31, 2019 ¹	3.03		%	3.09		%	2.08		%	4.39		%	4.38		%	4.05		%	3.07		%

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1.Incorporates a weighted average future constant prepayment rate assumption of 10.8% based on forward rates as of December 31, 2019.

As of June 30, 2020 and December 31, 2019, our investments in CRT and non-Agency securities had the following credit ratings:


	June 30, 2020										December 31, 2019
CRT and Non-Agency Security Credit Ratings ¹	CRT		RMBS		CMBS		CRT		RMBS		CMBS
AAA	$	—	$	—	$	34	$	—	$	—	$	43
AA	—		69		223		—		81		214
A	—		32		31		13		25		34
BBB	99		80		59		67		71		69
BB	244		26		30		471		21		10
B	251		5		—		308		4		—
Not Rated	118		10		—		117		7		—
Total	$	712	$	222	$	377	$	976	$	209	$	370

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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.

The actual maturities of our investment securities are generally shorter than their stated contractual maturities. The actual maturities of our Agency and high credit quality non-Agency RMBS are primarily affected by principal prepayments and to a lesser degree the contractual lives of the underlying mortgages and periodic contractual principal repayments. The actual maturities of our credit-oriented investments are primarily impacted by their contractual lives and default and loss recovery rates. As of June 30, 2020 and December 31, 2019, the weighted average expected constant prepayment rate ("CPR") over the remaining life of our Agency and high credit quality non-Agency RMBS investment portfolio was 16.6% and 10.8%, 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 June 30, 2020 and December 31, 2019 according to their estimated weighted average life classification (dollars in millions):


	June 30, 2020											December 31, 2019
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
≤ 3 years	$	2,713	$	2,686	3.48%	1.88%	$	2,671	$	2,654	3.54%	2.61%
> 3 years and ≤ 5 years	43,494		41,853		3.70%	2.53%	10,822		10,563		3.85%	3.20%
> 5 years and ≤10 years	30,864		29,210		3.73%	2.88%	86,492		85,002		3.67%	3.07%
> 10 years	72		79		4.33%	3.39%	457		451		3.31%	3.06%
Total	$	77,143	$	73,828	3.71%	2.64%	$	100,442	$	98,670	3.68%	3.07%

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 June 30, 2020 and December 31, 2019 (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
June 30, 2020	$	—	$	—	$	22	$	(1)	$	22	$	(1)
December 31, 2019	$	1,653	$	(12)	$	6,984	$	(63)	$	8,637	$	(75)

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 the three and six months ended June 30, 2020 and 2019 by investment classification of accounting (in millions):


	Three Months Ended June 30,
	2020										2019
Investment Securities	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	$	(1,278)	$	(4,472)	$	(5,750)	$	(366)	$	(7,769)	$	(8,135)
Proceeds from investment securities sold ¹	1,317		4,586		5,903		361		7,906		8,267
Net gain (loss) on sale of investment securities	$	39	$	114	$	153	$	(5)	$	137	$	132

Gross gain on sale of investment securities	$	39	$	129	$	168	$	—	$	138	$	138
Gross loss on sale of investment securities	—		(15)		(15)		(5)		(1)		(6)
Net gain (loss) on sale of investment securities	$	39	$	114	$	153	$	(5)	$	137	$	132


	Six Months Ended June 30,
	2020										2019
Investment Securities	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	$	(1,433)	$	(53,912)	$	(55,345)	$	(705)	$	(12,331)	$	(13,036)
Proceeds from investment securities sold ¹	1,473		54,519		55,992		696		12,532		13,228
Net gain (loss) on sale of investment securities	$	40	$	607	$	647	$	(9)	$	201	$	192

Gross gain on sale of investment securities	$	40	$	696	$	736	$	—	$	204	$	204
Gross loss on sale of investment securities	—		(89)		(89)		(9)		(3)		(12)
Net gain (loss) on sale of investment securities	$	40	$	607	$	647	$	(9)	$	201	$	192

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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 10 for a summary of changes in accumulated OCI.