XML 23 R11.htm IDEA: XBRL DOCUMENT v3.8.0.1
Mortgage-Backed and Credit Risk Transfer Securities
 3 Months Ended
Mar. 31, 2018
Investments, Debt and Equity Securities [Abstract]  
Mortgage-Backed and Credit Risk Transfer Securities
Mortgage-Backed and Credit Risk Transfer Securities
The following tables summarize our mortgage-backed securities ("MBS") and GSE CRT portfolio by asset type as of March 31, 2018 and December 31, 2017.
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
Principal/ Notional
Balance
 
Unamortized
Premium
(Discount)
 
Amortized
Cost
 
Unrealized
Gain/
(Loss), net
 
Fair
Value
 
Period-
end
Weighted
Average
Yield (1)
 
Quarterly
Weighted
Average
Yield (2)
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
2,603,748

 
102,652

 
2,706,400

 
(96,848
)
 
2,609,552

 
2.22
%
 
2.04
%
30 year fixed-rate
7,546,645

 
290,890

 
7,837,535

 
(175,497
)
 
7,662,038

 
3.14
%
 
2.96
%
ARM*
227,154

 
1,419

 
228,573

 
(907
)
 
227,666

 
2.59
%
 
2.32
%
Hybrid ARM
1,617,558

 
24,314

 
1,641,872

 
(18,334
)
 
1,623,538

 
2.54
%
 
2.24
%
Total Agency pass-through
11,995,105

 
419,275

 
12,414,380

 
(291,586
)
 
12,122,794

 
2.85
%
 
2.65
%
Agency-CMO (3)
1,146,728

 
(880,126
)
 
266,602

 
(12,648
)
 
253,954

 
2.97
%
 
2.51
%
CMBS (4)
3,899,661

 
(703,191
)
 
3,196,470

 
(7,189
)
 
3,189,281

 
4.92
%
 
4.85
%
Non-Agency RMBS (5)(6)(7)
2,672,496

 
(1,606,280
)
 
1,066,216

 
128,736

 
1,194,952

 
7.19
%
 
7.08
%
GSE CRT (8)
750,873

 
23,609

 
774,482

 
86,771

 
861,253

 
2.61
%
 
3.00
%
Total
20,464,863

 
(2,746,713
)
 
17,718,150

 
(95,916
)
 
17,622,234

 
3.48
%
 
3.32
%
* Adjustable-rate mortgage ("ARM")
 
(1)
Period-end weighted average yield is based on amortized cost as of March 31, 2018 and incorporates future prepayment and loss assumptions.
(2)
Quarterly weighted average yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the average balance of the amortized cost of the investments. All yields are annualized.
(3)
Agency collateralized mortgage obligation ("Agency-CMO") includes interest-only securities ("Agency IO"), which represent 81.4% of principal/notional balance, 19.4% of amortized cost and 17.6% of fair value.
(4)
CMBS includes interest-only securities which represent 15.6% of principal/notional balance, 0.5% of amortized cost and 0.6% of fair value.
(5)
Non-Agency RMBS held by us is 51.8% variable rate, 38.0% fixed rate and 10.1% floating rate based on fair value.
(6)
Of the total discount in non-Agency RMBS, $191.1 million is non-accretable calculated using the principal/notional balance and based on estimated future cash flows of the securities.
(7)
Non-Agency RMBS includes interest-only securities ("Non-Agency IO") which represent 51.9% of principal/notional balance, 2.0% of amortized cost and 1.8% of fair value.
(8)
GSE CRT weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.

December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
Principal/Notional
Balance
 
Unamortized
Premium
(Discount)
 
Amortized
Cost
 
Unrealized
Gain/
(Loss), net
 
Fair
Value
 
Period-
end
Weighted
Average
Yield (1)
 
Quarterly
Weighted
Average
Yield (2)
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
2,917,307

 
119,120

 
3,036,427

 
(61,645
)
 
2,974,782

 
2.17
%
 
1.98
%
30 year fixed-rate
7,354,211

 
295,977

 
7,650,188

 
(9,648
)
 
7,640,540

 
3.09
%
 
2.90
%
ARM
238,486

 
1,609

 
240,095

 
1,105

 
241,200

 
2.60
%
 
2.36
%
Hybrid ARM
1,696,148

 
26,066

 
1,722,214

 
(2,829
)
 
1,719,385

 
2.54
%
 
2.25
%
Total Agency pass-through
12,206,152

 
442,772

 
12,648,924

 
(73,017
)
 
12,575,907

 
2.79
%
 
2.58
%
Agency-CMO (3)
1,226,539

 
(942,290
)
 
284,249

 
(10,306
)
 
273,943

 
2.91
%
 
2.74
%
CMBS (4)
3,879,775

 
(704,097
)
 
3,175,678

 
40,739

 
3,216,417

 
4.92
%
 
4.77
%
Non-Agency RMBS (5)(6)(7)
2,785,704

 
(1,661,683
)
 
1,124,021

 
133,587

 
1,257,608

 
7.19
%
 
7.18
%
GSE CRT (8)
757,183

 
24,306

 
781,489

 
85,390

 
866,879

 
2.45
%
 
2.79
%
Total
20,855,353

 
(2,840,992
)
 
18,014,361

 
176,393

 
18,190,754

 
3.42
%
 
3.27
%
 
(1)
Period-end weighted average yield is based on amortized cost as of December 31, 2017 and incorporates future prepayment and loss assumptions.
(2)
Quarterly weighted average yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the average balance of the amortized cost of the investments. All yields are annualized.
(3)
Agency collateralized mortgage obligation ("Agency-CMO") includes interest-only securities ("Agency IO"), which represent 81.8% of principal (notional) balance, 20.9% of amortized cost and 18.7% of fair value.
(4)
CMBS includes interest-only securities which represent 15.8% of principal/notional balance, 0.5% of amortized cost and 0.6% of fair value.
(5)
Non-Agency RMBS held by us is 52.2% variable rate, 37.8% fixed rate, and 10.0% floating rate based on fair value.
(6)
Of the total discount in non-Agency RMBS, $195.3 million is non-accretable calculated using the principal/notional balance and based on estimated future cash flows of the securities.
(7)
Non-Agency RMBS includes interest-only securities, which represent 51.5% of principal/notional balance, 2.0% of amortized cost and 1.8% of fair value.
(8)
GSE CRT weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.
The following table presents the fair value of our available-for-sale securities and securities accounted for under the fair value option by asset type as of March 31, 2018 and December 31, 2017. We have elected the fair value option for all of our RMBS IOs, our MBS purchased on or after September 1, 2016 and our GSE CRTs purchased on or after August 24, 2015. As of March 31, 2018, $6.6 billion (December 31, 2017: $6.5 billion) or 37.6% (December 31, 2017: 35.6%) of our MBS and GSE CRT are accounted for under the fair value option.
 
March 31, 2018
 
December 31, 2017
$ in thousands
Available-for-sale Securities
 
Securities under Fair Value Option
 
Total
Fair Value
 
Available-for-sale Securities
 
Securities under Fair Value Option
 
Total
Fair Value
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
2,484,470

 
125,082

 
2,609,552

 
2,842,440

 
132,342

 
2,974,782

30 year fixed-rate
2,333,288

 
5,328,750

 
7,662,038

 
2,467,871

 
5,172,669

 
7,640,540

ARM*
227,666

 
—

 
227,666

 
241,200

 
—

 
241,200

Hybrid ARM
1,623,538

 
—

 
1,623,538

 
1,719,385

 
—

 
1,719,385

Total Agency pass-through
6,668,962

 
5,453,832

 
12,122,794

 
7,270,896

 
5,305,011

 
12,575,907

Agency-CMO
190,930

 
63,024

 
253,954

 
203,351

 
70,592

 
273,943

CMBS
2,339,249

 
850,032

 
3,189,281

 
2,376,413

 
840,004

 
3,216,417

Non-Agency RMBS
1,174,590

 
20,362

 
1,194,952

 
1,236,178

 
21,430

 
1,257,608

GSE CRT
629,952

 
231,301

 
861,253

 
635,537

 
231,342

 
866,879

Total
11,003,683

 
6,618,551

 
17,622,234

 
11,722,375

 
6,468,379

 
18,190,754


The components of the carrying value of our MBS and GSE CRT portfolio at March 31, 2018 and December 31, 2017 are presented below. 
 
March 31, 2018
$ in thousands
MBS and GSE CRT Securities
 
Interest-Only Securities
 
Total
Principal/ notional balance
17,696,263

 
2,768,600

 
20,464,863

Unamortized premium
494,730

 
—

 
494,730

Unamortized discount
(559,366
)
 
(2,682,077
)
 
(3,241,443
)
Gross unrealized gains (1)
277,526

 
4,716

 
282,242

Gross unrealized losses (1)
(368,916
)
 
(9,242
)
 
(378,158
)
Fair value
17,540,237

 
81,997

 
17,622,234


 
December 31, 2017
$ in thousands
MBS and GSE CRT Securities
 
Interest-Only Securities
 
Total
Principal/ notional balance
17,974,390

 
2,880,963

 
20,855,353

Unamortized premium
521,626

 
—

 
521,626

Unamortized discount
(577,344
)
 
(2,785,274
)
 
(3,362,618
)
Gross unrealized gains (1)
336,543

 
5,113

 
341,656

Gross unrealized losses (1)
(155,146
)
 
(10,117
)
 
(165,263
)
Fair value
18,100,069

 
90,685

 
18,190,754

(1)
Gross unrealized gains and losses includes gains (losses) recognized in net income for securities accounted for as derivatives or under the fair value option as well as gains (losses) for available-for-sale securities which are recognized as adjustments to other comprehensive income. Realization occurs upon sale or settlement of such securities. Further detail on the components of our total gains (losses) on investments, net for the three months ended March 31, 2018 and 2017 is provided later in this Note 4.
The following table summarizes our MBS and GSE CRT portfolio according to estimated weighted average life classifications as of March 31, 2018 and December 31, 2017. 
$ in thousands
March 31, 2018
 
December 31, 2017
Less than one year
106,835

 
135,559

Greater than one year and less than five years
7,156,838

 
7,934,836

Greater than or equal to five years
10,358,561

 
10,120,359

Total
17,622,234

 
18,190,754



The following tables present the estimated fair value and gross unrealized losses of our MBS and GSE CRTs by length of time that such securities have been in a continuous unrealized loss position at March 31, 2018 and December 31, 2017.
March 31, 2018
  
Less than 12 Months
 
12 Months or More
 
Total
$ in thousands
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
300,750

 
(3,026
)
 
71

 
2,072,058

 
(96,994
)
 
129

 
2,372,808

 
(100,020
)
 
200

30 year fixed-rate
5,816,164

 
(149,050
)
 
185

 
913,526

 
(45,945
)
 
56

 
6,729,690

 
(194,995
)
 
241

ARM
129,244

 
(1,776
)
 
14

 
754

 
(32
)
 
1

 
129,998

 
(1,808
)
 
15

Hybrid ARM
701,155

 
(10,134
)
 
84

 
480,849

 
(12,250
)
 
46

 
1,182,004

 
(22,384
)
 
130

Total Agency pass-through (1)
6,947,313

 
(163,986
)
 
354

 
3,467,187

 
(155,221
)
 
232

 
10,414,500

 
(319,207
)
 
586

Agency-CMO (2)
157,601

 
(11,414
)
 
46

 
76,278

 
(3,303
)
 
5

 
233,879

 
(14,717
)
 
51

CMBS (3)
1,617,640

 
(33,804
)
 
125

 
171,683

 
(7,753
)
 
16

 
1,789,323

 
(41,557
)
 
141

Non-Agency RMBS (4)
138,721

 
(1,284
)
 
28

 
85,870

 
(1,393
)
 
10

 
224,591

 
(2,677
)
 
38

Total
8,861,275

 
(210,488
)
 
553

 
3,801,018

 
(167,670
)
 
263

 
12,662,293

 
(378,158
)
 
816

(1)
Amounts disclosed includes Agency RMBS with a fair value of $5.3 billion for which the fair value option has been elected. Such securities have unrealized losses of $146.2 million.
(2)
Amounts disclosed includes Agency IO and Agency-CMO with fair value of $26.3 million and $18.4 million, respectively, for which the fair value option has been elected. These Agency IO and Agency-CMO securities have unrealized losses of $9.0 million and $694,000, respectively.
(3)
Amounts disclosed includes CMBS with a fair value of $769.0 million for which the fair value option has been elected. Such securities have unrealized losses of $22.4 million.
(4)
Amounts disclosed includes Non-Agency IO with a fair value of $12.5 million for which the fair value option has been elected. Such securities have unrealized losses of $204,000.

December 31, 2017
  
Less than 12 Months
 
12 Months or More
 
Total
$ in thousands
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
111,020

 
(321
)
 
26

 
2,406,021

 
(67,285
)
 
133

 
2,517,041

 
(67,606
)
 
159

30 year fixed-rate
3,677,576

 
(20,730
)
 
107

 
963,547

 
(27,158
)
 
56

 
4,641,123

 
(47,888
)
 
163

ARM
101,173

 
(902
)
 
12

 
—

 
—

 
—

 
101,173

 
(902
)
 
12

Hybrid ARM
614,321

 
(4,189
)
 
73

 
517,642

 
(8,091
)
 
47

 
1,131,963

 
(12,280
)
 
120

Total Agency pass-through (1)
4,504,090

 
(26,142
)
 
218

 
3,887,210

 
(102,534
)
 
236

 
8,391,300

 
(128,676
)
 
454

Agency-CMO (2)
75,299

 
(10,433
)
 
44

 
81,988

 
(2,309
)
 
5

 
157,287

 
(12,742
)
 
49

CMBS (3)
892,553

 
(17,612
)
 
81

 
135,139

 
(3,792
)
 
12

 
1,027,692

 
(21,404
)
 
93

Non-Agency RMBS (4)
84,439

 
(709
)
 
15

 
96,263

 
(1,732
)
 
11

 
180,702

 
(2,441
)
 
26

Total
5,556,381

 
(54,896
)
 
358

 
4,200,600

 
(110,367
)
 
264

 
9,756,981

 
(165,263
)
 
622

(1)
Amounts disclosed includes Agency RMBS with a fair value of $3.4 billion for which the fair value option has been elected. Such securities have unrealized losses of 22.8 million.
(2)
Amounts disclosed includes Agency IO and Agency-CMO with fair value of $36.5 million and $9.5 million, respectively, for which the fair value option has been elected. These Agency IO and Agency-CMO securities have unrealized losses of $10.1 million and $88,000, respectively.
(3)
Amounts disclosed includes CMBS with a fair value of $596.0 million for which the fair value option has been elected. Such securities have unrealized losses of $8.9 million.
(4)
Amounts disclosed includes Non-Agency IO with a fair value of $530,000 for which the fair value option has been elected. Such securities have unrealized losses of $39,000.
Gross unrealized losses on our Agency RMBS and CMO were $319.2 million (December 31, 2017: $128.7 million) and $5.7 million (December 31, 2017: $2.7 million), respectively, at March 31, 2018. Due to the inherent credit quality of Agency RMBS and CMO, we determined that at March 31, 2018 and December 31, 2017, any unrealized losses on our Agency RMBS and CMO portfolio are not other than temporary.
Gross unrealized losses on our Agency IO, non-Agency RMBS, GSE CRT and CMBS were $53.3 million (December 31, 2017: $33.9 million) at March 31, 2018. We did not consider these unrealized losses to be credit related, but rather due to non-credit related factors such as interest rate spreads, prepayment speeds, and market fluctuations. These investment securities are included in our assessment for other-than-temporary impairment on a quarterly basis.
We assess our investment securities for other-than-temporary impairment ("OTTI") on a quarterly basis. When the fair value of an investment is less than its amortized cost at the balance sheet date of the reporting period for which impairment is assessed, the impairment is designated as either "temporary" or "other-than-temporary." This analysis includes a determination of estimated future cash flows through an evaluation of the characteristics of the underlying loans and the structural features of the investment. Underlying loan characteristics reviewed include, but are not limited to, delinquency status, loan-to-value ratios, borrower credit scores, occupancy status and geographic concentration.
The following table represents OTTI included in earnings for the three months ended March 31, 2018 and 2017:
 
Three Months Ended March 31,
$ in thousands
2018
 
2017
RMBS interest-only securities
4,309

 
291

Non-Agency RMBS (1)
50

 
241

Total
4,359

 
532

(1)
Amounts disclosed relate to credit losses on debt securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income.
OTTI on RMBS interest-only securities was recorded as a reclassification from an unrealized to realized loss within gain (loss) on investments, net on the condensed consolidated statements of operations because we account for these securities under the fair value option. As of March 31, 2018, we did not intend to sell the securities and determined that it was not more likely than not that we will be required to sell the securities.
The following table summarizes the components of our total gain (loss) on investments, net for the three months ended March 31, 2018 and 2017.
 
Three Months Ended March 31,
$ in thousands
2018
 
2017
Gross realized gains on sale of investments
—

 
904

Gross realized losses on sale of investments
(9,237
)
 
(1,911
)
Other-than-temporary impairment losses
(4,359
)
 
(532
)
Net unrealized gains and losses on MBS accounted for under the fair value option
(147,195
)
 
(3,602
)
Net unrealized gains and losses on GSE CRT accounted for under the fair value option
434

 
3,279

Net unrealized gains and losses on trading securities
(13
)
 
9

Total gain (loss) on investments, net
(160,370
)
 
(1,853
)

The following tables present components of interest income recognized on our MBS and GSE CRT portfolio for the three months ended March 31, 2018 and 2017. GSE CRT interest income excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.
For the three months ended March 31, 2018
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income
Agency
108,317

 
(23,222
)
 
85,095

CMBS
37,293

 
1,426

 
38,719

Non-Agency
14,012

 
5,177

 
19,189

GSE CRT
6,525

 
(697
)
 
5,828

Other
172

 
—

 
172

Total
166,319

 
(17,316
)
 
149,003

For the three months ended March 31, 2017
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income
Agency
91,231

 
(28,578
)
 
62,653

CMBS
29,676

 
(2,634
)
 
27,042

Non-Agency
20,614

 
4,387

 
25,001

GSE CRT
4,487

 
(371
)
 
4,116

Other
61

 
—

 
61

Total
146,069

 
(27,196
)
 
118,873