Non-Agency Securities, Trading

3 Months Ended

Mar. 31, 2016

Investments, Debt and Equity Securities [Abstract]

Non-Agency Securities, Trading

Note 6 -Agency Securities, Available for Sale

All of our Agency Securities are classified as available for sale and, as such, are reported at their estimated fair value and changes in fair value reported as part of the statements of comprehensive income (loss). At March 31, 2016 and December 31, 2015, investments in Agency Securities accounted for 97.3% and 100.0% of our MBS portfolio.

We evaluated our Agency Securities with unrealized losses at March 31, 2016, March 31, 2015 and December 31, 2015, to determine whether there was an other than temporary impairment. All of our Agency Securities are issued and guaranteed by GSEs or Ginnie Mae. The GSEs have a long term credit rating of AA+. At those dates, we also considered whether we intended to sell Agency Securities and whether it was more likely than not that we could meet our liquidity requirements and contractual obligations without selling Agency Securities. As a result of this evaluation, no other than temporary impairment was recognized for the quarters ended March 31, 2016 and March 31, 2015 and for the year ended December 31, 2015, respectively, because we determined that we 1) did not have the intent to sell the Agency Securities in an unrealized loss position, 2) did not believe it more likely than not that we were required to sell the securities before recovery (for example, because of liquidity requirements or contractual obligations), and/or (3) determined that a credit loss did not exist.

At March 31, 2016, we had the following Agency Securities in an unrealized gain or loss position as presented below. The components of the carrying value of our Agency Securities at March 31, 2016 are also presented below. Our Agency Securities had a weighted average coupon of 3.51% at March 31, 2016.

March 31, 2016	Amortized Cost		Gross Unrealized Loss			Gross Unrealized Gain		Fair Value		Percent of Total
Fannie Mae
ARMs & Hybrids	$	43,992	$	(103	)	$	372	$	44,261	0.42	%
Multi-Family MBS	1,501,472		—			57,340		1,558,812		14.88
10 Year Fixed	171,556		(164		)	1,539		172,931		1.65
15 Year Fixed	3,478,018		(134		)	40,669		3,518,553		33.59
20 Year Fixed	2,340,415		(3,460		)	13,266		2,350,221		22.44
25 Year Fixed	17,798		(10		)	28		17,816		0.17
30 Year Fixed	1,217,468		(45		)	10,121		1,227,544		11.73
Total Fannie Mae	$	8,770,719	$	(3,916	)	$	123,335	$	8,890,138	84.88	%
Freddie Mac
10 Year Fixed	81,795		(60		)	1,538		83,273		0.80
15 Year Fixed	87,086		(1		)	1,254		88,339		0.84
20 Year Fixed	1,357,383		(5,398		)	6,631		1,358,616		12.97
Total Freddie Mac	$	1,526,264	$	(5,459	)	$	9,423	$	1,530,228	14.61	%
Ginnie Mae
ARMs & Hybrids	54,000		(729		)	43		53,314		0.51
10 Year Fixed	308		—			22		330		0.00
Total Ginnie Mae	$	54,308	$	(729	)	$	65	$	53,644	0.51	%
Total Agency Securities	$	10,351,291	$	(10,104	)	$	132,823	$	10,474,010	100.00	%

At December 31, 2015, we had the following securities in an unrealized gain or loss position as presented below. The components of the carrying value of our Agency Securities at December 31, 2015 are also presented below. Our Agency Securities had a weighted average coupon of 3.47% at December 31, 2015.

December 31, 2015	Amortized Cost		Gross Unrealized Loss			Gross Unrealized Gain		Fair Value		Percent of Total
Fannie Mae
ARMs&Hybrids	$	46,512	$	(210	)	$	486	$	46,788	0.38	%
Multi-Family MBS	2,182,156		(30,879		)	7,312		2,158,589		17.32
10 Year Fixed	91,752		(362		)	605		91,995		0.74
15 Year Fixed	4,302,585		(10,462		)	5,498		4,297,621		34.49
20 Year Fixed	2,692,310		(25,429		)	5,289		2,672,170		21.44
25 Year Fixed	18,488		(128		)	—		18,360		0.15
30 Year Fixed	1,447,835		(6,645		)	492		1,441,682		11.56
Total Fannie Mae	$	10,781,638	$	(74,115	)	$	19,682	$	10,727,205	86.08	%
Freddie Mac
ARMs&Hybrids	12,738		(46		)	197		12,889		0.10
10 Year Fixed	37,657		(92		)	652		38,217		0.31
15 Year Fixed	192,982		(995		)	310		192,297		1.54
20 Year Fixed	1,443,652		(16,380		)	4,006		1,431,278		11.49
Total Freddie Mac	$	1,687,029	$	(17,513	)	$	5,165	$	1,674,681	13.44	%
Ginnie Mae
ARMs&Hybrids	59,877		(610		)	69		59,336		0.48
15 Year Fixed	314		—			20		334		0.00
Total Ginnie Mae	$	60,191	$	(610	)	$	89	$	59,670	0.48	%
Total Agency Securities	$	12,528,858	$	(92,238	)	$	24,936	$	12,461,556	100.00	%

Recognition of interest income commences on the settlement date of the purchase transaction and continues through the settlement date of the sale transaction. At March 31, 2016 and December 31, 2015, we did not have any investment related receivables or payables with respect to unsettled sales and purchases of our Agency Securities.

Actual maturities of Agency Securities are generally shorter than stated contractual maturities because actual maturities of Agency Securities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal.

The following table summarizes the weighted average lives of our Agency Securities at March 31, 2016 and December 31, 2015.

	March 31, 2016				December 31, 2015
Weighted Average Life of all Agency Securities	Fair Value		Amortized Cost		Fair Value		Amortized Cost
Less than one year	$	16	$	16	$	19	$	19
Greater than or equal to one year and less than three years	67,434		67,080		30,189		30,375
Greater than or equal to three years and less than five years	7,452,538		7,396,947		6,037,851		6,039,218
Greater than or equal to five years	2,954,022		2,887,248		6,393,497		6,459,246
Total Agency Securities	$	10,474,010	$	10,351,291	$	12,461,556	$	12,528,858

We use a third party model to calculate the weighted average lives of our Agency Securities. Weighted average life is calculated based on expectations for estimated prepayments for the underlying mortgage loans of our Agency Securities. These estimated prepayments are based on assumptions such as interest rates, current and future home prices, housing policy and borrower incentives. The weighted average lives of our Agency Securities at March 31, 2016 and December 31, 2015 in the table above are based upon market factors, assumptions, models and estimates from the third party model and also incorporate management’s judgment and experience. The actual weighted average lives of our Agency Securities could be longer or shorter than estimated.

The following table presents the unrealized losses and estimated fair value of our Agency Securities by length of time that such securities have been in a continuous unrealized loss position at March 31, 2016 and December 31, 2015.

	Unrealized Loss Position For:
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
March 31, 2016	$	575,246	$	(1,068	)	$	1,537,449	$	(9,036	)	$	2,112,695	$	(10,104	)
December 31, 2015	$	7,105,363	$	(58,799	)	$	1,861,211	$	(33,439	)	$	8,966,574	$	(92,238	)

During the quarters ended March 31, 2016 and March 31, 2015, we sold $1,789,215 and $1,372,538 of Agency Securities, which resulted in realized gains of $1,891 and $6,544, respectively. Sales of Agency Securities are done to reposition our MBS portfolio and to reach our target level of liquidity.

Note 7 -Non-Agency Securities, Trading

All of our Non-Agency Securities are classified as trading securities and reported at their estimated fair value. Fair value changes are reported in the condensed consolidated statements of operations in the period in which they occur. During the quarter ended March 31, 2016, we began to invest in Non-Agency Securities. At March 31, 2016, investments in Non-Agency Securities accounted for 2.7% of our MBS portfolio.

The components of the carrying value of our Non-Agency Securities at March 31, 2016 are presented in the table below. 

	Non-Agency Securities
March 31, 2016	Fair Value		Amortized  Cost		Principal Amount		Weighted Average Coupon
Credit risk transfer	$	285,696	$	281,550	$	291,718	5.11	%
Total Non-Agency Securities	$	285,696	$	281,550	$	291,718

Included in the table above are unsettled purchases with an aggregate cost of $14,936 and estimated fair value of $14,955 at March 31, 2016.

The following table summarizes the weighted average lives of our Non-Agency Securities at March 31, 2016

	March 31, 2016
Weighted Average Life of all Non-Agency Securities	Fair Value		Amortized Cost
Less than one year	$	—	$	—
Greater than or equal to one year and less than three years	12,909		12,745
Greater than or equal to three years and less than five years	56,427		55,399
Greater than or equal to five years	216,360		213,406
Total Non-Agency Securities	$	285,696	$	281,550

We use a third party model to calculate the weighted average lives of our Non-Agency Securities. Weighted average life is calculated based on expectations for estimated prepayments for the underlying mortgage loans of our Non-Agency Securities. These estimated prepayments are based on assumptions such as interest rates, current and future home prices, housing policy and borrower incentives. The weighted average lives of our Non-Agency Securities at March 31, 2016 in the table above are based upon market factors, assumptions, models and estimates from the third party model and also incorporate management’s judgment and experience. The actual weighted average lives of our Non-Agency Securities could be longer or shorter than estimated.

The following table presents the unrealized losses and estimated fair value of our Non-Agency Securities by length of time that such securities have been in a continuous unrealized loss position at March 31, 2016.

	Unrealized Loss Position For:
	Less than 12 Months					12 Months or More				Total
As of	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2016	$	103,211	$	(430	)	$	—	$	—	$	103,211	$	(430	)

Our Non-Agency Securities are subject to risk of loss with regard to principal and interest payments and at March 31, 2016, have generally either been assigned below investment grade ratings by rating agencies, or have not been rated. We evaluate each investment based on the characteristics of the underlying collateral and securitization structure, rather than relying on the ratings assigned by rating agencies.