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Mortgage-Backed and Credit Risk Transfer Securities
 12 Months Ended
Dec. 31, 2019
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 MBS and GSE CRT portfolio by asset type at December 31, 2019 and 2018.
December 31, 2019
 
 
 
 
 
 
 
 
 
 
$ in thousands
Principal/ Notional
Balance
 
Unamortized
Premium
(Discount)
 
Amortized
Cost
 
Unrealized
Gain/
(Loss), net
 
Fair
Value
 
Period-
end
Weighted
Average
Yield (1)
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
280,426

 
1,666

 
282,092

 
10,322

 
292,414

 
3.34
%
30 year fixed-rate
9,911,339

 
308,427

 
10,219,766

 
304,454

 
10,524,220

 
3.62
%
Hybrid ARM*
55,024

 
602

 
55,626

 
1,267

 
56,893

 
3.46
%
Total Agency RMBS pass-through
10,246,789

 
310,695

 
10,557,484

 
316,043

 
10,873,527

 
3.61
%
Agency-CMO (2)
883,122

 
(467,840
)
 
415,282

 
12,230

 
427,512

 
3.54
%
Agency CMBS (3)
4,561,276

 
75,299

 
4,636,575

 
131,355

 
4,767,930

 
3.01
%
Non-Agency CMBS (4)
4,464,525

 
(772,295
)
 
3,692,230

 
131,244

 
3,823,474

 
5.16
%
Non-Agency RMBS (5)(6)(7)
2,340,119

 
(1,487,603
)
 
852,516

 
103,155

 
955,671

 
6.98
%
GSE CRT (8)
858,244

 
19,945

 
878,189

 
45,483

 
923,672

 
2.78
%
Total
23,354,075

 
(2,321,799
)
 
21,032,276

 
739,510

 
21,771,786

 
3.85
%
*Adjustable-rate mortgage (“ARM”)
(1)
Period-end weighted average yield is based on amortized cost as of December 31, 2019 and incorporates future prepayment and loss assumptions.
(2)
Agency collateralized mortgage obligation (“Agency-CMO”) includes interest-only securities (“Agency IO”), which represent 56.3% of principal/notional balance, 6.4% of amortized cost and 6.4% of fair value.
(3)
Includes unsettled TBA securities with an amortized cost of approximately $99.3 million.
(4)
Non-Agency CMBS includes interest-only securities which represent of 13.1% principal/notional balance, 0.3% of amortized cost and 0.3% of fair value.
(5)
Non-Agency RMBS held by us is 37.0% variable rate, 57.7% fixed rate and 5.3% floating rate based on fair value. Coupon payments on variable instruments are based upon changes in the underlying Hybrid ARM loan coupons, while coupon payments on floating rate investments are based up a spread to a reference index.
(6)
Of the total discount in non-Agency RMBS, $120.2 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 56.2% of principal/notional balance, 1.9% of amortized cost and 1.3% 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, 2018
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
Principal/ Notional
Balance
 
Unamortized
Premium
(Discount)
 
Amortized
Cost
 
Unrealized
Gain/
(Loss), net
 
Fair Value
 
Period-
end
Weighted
Average
Yield (1)
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
417,233

 
5,077

 
422,310

 
1,944

 
424,254

 
3.27
%
30 year fixed-rate
9,599,301

 
298,693

 
9,897,994

 
(125,225
)
 
9,772,769

 
3.55
%
Hybrid ARM
653,586

 
13,775

 
667,361

 
(7,413
)
 
659,948

 
2.79
%
Total Agency RMBS pass-through
10,670,120

 
317,545

 
10,987,665

 
(130,694
)
 
10,856,971

 
3.49
%
Agency-CMO (2)
907,862

 
(631,180
)
 
276,682

 
(8,991
)
 
267,691

 
3.61
%
Agency CMBS
973,122

 
15,058

 
988,180

 
14,330

 
1,002,510

 
3.54
%
Non-Agency CMBS (3)
4,024,715

 
(727,307
)
 
3,297,408

 
(10,949
)
 
3,286,459

 
5.05
%
Non-Agency RMBS (4)(5)(6)
2,800,335

 
(1,748,223
)
 
1,052,112

 
111,570

 
1,163,682

 
7.24
%
GSE CRT (7)
738,529

 
21,259

 
759,788

 
59,541

 
819,329

 
3.10
%
Total
20,114,683

 
(2,752,848
)
 
17,361,835

 
34,807

 
17,396,642

 
4.00
%
(1)
Period-end weighted average yield based on amortized cost as of December 31, 2018 and incorporates future prepayment and loss assumptions.
(2)
Agency collateralized mortgage obligation (“Agency-CMO”) includes interest-only securities (“Agency IO”), which represent 73.6% of principal/notional balance, 13.5% of amortized cost and 12.4% of fair value.
(3)
Non-Agency CMBS includes interest-only securities which represent 15.0% of principal/notional balance, 0.4% of amortized cost and 0.5% of fair value.
(4)
Non-Agency RMBS held by us is 43.5% variable rate, 50.7% fixed rate and 5.8% floating rate based on fair value. Coupon payments on variable instruments are based upon changes in the underlying Hybrid ARM loan coupons, while coupon payments on floating rate investments are based up a spread to a reference index.
(5)
Of the total discount in non-Agency RMBS, $145.6 million is non-accretable calculated using the principal/notional balance and based on estimated future cash flows of the securities.
(6)
Non-Agency RMBS includes interest-only securities (“non-Agency IO”) which represent 55.4% of principal/notional balance, 2.3% of amortized cost and 2.4% of fair value.
(7)
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 December 31, 2019 and December 31, 2018. 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 December 31, 2019 and December 31, 2018, approximately 80% and 67%, respectively, of our MBS and GSE CRTs are accounted for under the fair value option.
 
December 31, 2019
 
December 31, 2018
$ 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
98,666

 
193,748

 
292,414

 
204,347

 
219,907

 
424,254

30 year fixed-rate
754,590

 
9,769,630

 
10,524,220

 
1,093,070

 
8,679,699

 
9,772,769

ARM


 


 
—

 
105,747

 
—

 
105,747

Hybrid ARM
31,522

 
25,371

 
56,893

 
521,199

 
33,002

 
554,201

Total Agency RMBS pass-through
884,778

 
9,988,749

 
10,873,527

 
1,924,363

 
8,932,608

 
10,856,971

Agency-CMO
146,733

 
280,779

 
427,512

 
168,385

 
99,306

 
267,691

Agency CMBS
—

 
4,767,930

 
4,767,930

 
—

 
1,002,510

 
1,002,510

Non-Agency CMBS
2,150,991

 
1,672,483

 
3,823,474

 
2,153,403

 
1,133,056

 
3,286,459

Non-Agency RMBS
715,479

 
240,192

 
955,671

 
961,445

 
202,237

 
1,163,682

GSE CRT
507,445

 
416,227

 
923,672

 
586,231

 
233,098

 
819,329

Total
4,405,426

 
17,366,360

 
21,771,786

 
5,793,827

 
11,602,815

 
17,396,642


The components of the carrying value of our MBS and GSE CRT portfolio at December 31, 2019 and 2018 are presented below.
 
December 31, 2019
 
December 31, 2018
$ in thousands
MBS and GSE
CRT Securities
 
Interest-Only Securities
 
Total
 
MBS and GSE
CRT Securities
 
Interest-Only Securities
 
Total
Principal/notional balance
20,957,410

 
2,396,665

 
23,354,075

 
17,442,367

 
2,672,316

 
20,114,683

Unamortized premium
440,503

 
—

 
440,503

 
395,907

 
—

 
395,907

Unamortized discount
(419,983
)
 
(2,342,319
)
 
(2,762,302
)
 
(549,988
)
 
(2,598,767
)
 
(3,148,755
)
Gross unrealized gains (1)
807,324

 
4,782

 
812,106

 
238,579

 
7,448

 
246,027

Gross unrealized losses (1)
(66,064
)
 
(6,532
)
 
(72,596
)
 
(204,664
)
 
(6,556
)
 
(211,220
)
Fair value
21,719,190

 
52,596

 
21,771,786

 
17,322,201

 
74,441

 
17,396,642

(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 years ended December 31, 2019 and 2018 is provided below within this Note 4.
The following table summarizes our MBS and GSE CRT portfolio according to estimated weighted average life classifications as of December 31, 2019 and 2018.
$ in thousands
December 31, 2019
 
December 31, 2018
Less than one year
268,536

 
110,020

Greater than one year and less than five years
7,836,620

 
3,508,100

Greater than or equal to five years
13,666,630

 
13,778,522

Total
21,771,786

 
17,396,642


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 December 31, 2019 and 2018.
December 31, 2019
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
957

 
(1
)
 
2

 
362

 
(3
)
 
4

 
1,319

 
(4
)
 
6

30 year fixed-rate
255,649

 
(207
)
 
3

 
34,009

 
(256
)
 
5

 
289,658

 
(463
)
 
8

Hybrid ARM
434

 
(2
)
 
1

 
1,524

 
(46
)
 
3

 
1,958

 
(48
)
 
4

Total Agency RMBS pass-through (1)
257,040

 
(210
)
 
6

 
35,895

 
(305
)
 
12

 
292,935

 
(515
)
 
18

Agency-CMO (2)
67,875

 
(1,194
)
 
15

 
6,155

 
(1,513
)
 
13

 
74,030

 
(2,707
)
 
28

Agency CMBS (3)
1,743,800

 
(50,521
)
 
58

 
—

 
—

 
—

 
1,743,800

 
(50,521
)
 
58

Non-Agency CMBS (4)
203,129

 
(2,783
)
 
19

 
101,021

 
(11,425
)
 
7

 
304,150

 
(14,208
)
 
26

Non-Agency RMBS (5)
26,283

 
(3,935
)
 
14

 
12,199

 
(636
)
 
2

 
38,482

 
(4,571
)
 
16

GSE CRT (6)
77,044

 
(74
)
 
4

 
—

 
—

 
—

 
77,044

 
(74
)
 
4

Total
2,375,171

 
(58,717
)
 
116

 
155,270

 
(13,879
)
 
34

 
2,530,441

 
(72,596
)
 
150


(1)
Includes Agency RMBS with a fair value of $271.3 million for which the fair value option has been elected. These securities have unrealized losses of $268,000.
(2)
Includes Agency IO with fair value of $11.1 million for which the fair value option has been elected. These Agency IO have unrealized losses of $2.3 million.
(3)
Fair value option has been elected for all Agency CMBS that are in an unrealized loss position.
(4)
Includes non-Agency CMBS with a fair value of $181.5 million for which the fair value option has been elected. These securities have unrealized losses of $2.8 million.
(5)
Includes non-Agency RMBS and non-Agency IO with a fair value of $17.6 million and $8.5 million, respectively, for which the fair value option has been elected. These securities have unrealized losses of $261,000 and $3.7 million, respectively.
(6)
Fair value option has been elected for all GSE CRT that are in an unrealized loss position.
 
December 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
86,241

 
(814
)
 
50

 
16,660

 
(189
)
 
22

 
102,901

 
(1,003
)
 
72

30 year fixed-rate
3,966,347

 
(49,182
)
 
158

 
2,846,090

 
(94,716
)
 
95

 
6,812,437

 
(143,898
)
 
253

Hybrid ARM
9,390

 
(87
)
 
3

 
503,417

 
(9,175
)
 
81

 
512,807

 
(9,262
)
 
84

Total Agency RMBS pass-through (1)
4,061,978

 
(50,083
)
 
211

 
3,366,167

 
(104,080
)
 
198

 
7,428,145

 
(154,163
)
 
409

Agency-CMO (2)
152,962

 
(6,315
)
 
34

 
101,705

 
(5,100
)
 
19

 
254,667

 
(11,415
)
 
53

Non-Agency CMBS (3)
1,214,691

 
(17,778
)
 
94

 
659,298

 
(25,381
)
 
52

 
1,873,989

 
(43,159
)
 
146

Non-Agency RMBS (4)
87,850

 
(1,152
)
 
19

 
89,265

 
(1,138
)
 
16

 
177,115

 
(2,290
)
 
35

GSE CRT (5)
9,639

 
(193
)
 
1

 
—

 
—

 
—

 
9,639

 
(193
)
 
1

Total
5,527,120

 
(75,521
)
 
359

 
4,216,435

 
(135,699
)
 
285

 
9,743,555

 
(211,220
)
 
644

(1)
Includes Agency RMBS with a fair value of $6.1 billion for which the fair value option has been elected. These securities have unrealized losses of $130.2 million.
(2)
Includes Agency IO and Agency-CMO with fair value of $21.8 million and $66.0 million, respectively, for which the fair value option has been elected. These Agency IO and Agency-CMO securities have unrealized losses of $6.3 million and $845,000, respectively.
(3)
Includes non-Agency CMBS with a fair value of $831.3 million for which the fair value option has been elected. These securities have unrealized losses of $26.3 million.
(4)
Includes non-Agency RMBS and non-Agency IO with a fair value of $6.2 million and $3.7 million, respectively, for which the fair value option has been elected. These securities have unrealized losses of $79,000 and $269,000, respectively.
(5)
Fair value option has been elected for all GSE CRT that are in an unrealized loss position.
Gross unrealized losses on our Agency RMBS, Agency CMBS and CMO were $51.5 million at December 31, 2019 (December 31, 2018: $159.3 million). Due to the inherent credit quality of Agency RMBS, Agency CMBS and Agency CMO, we determined that at December 31, 2019, any unrealized losses on these securities are not other than temporary.
Gross unrealized losses on our Agency IO, non-Agency RMBS, GSE CRT and non-Agency CMBS were $21.1 million at December 31, 2019 (December 31, 2018: $51.9 million). We do not consider these unrealized losses to be credit related, but rather due to non-credit related factors such as interest rates, prepayment speeds and market fluctuations. These investment securities are included in our assessment for other-than-temporary-impairment (“OTTI”) on a quarterly basis.
We assess our investment securities for 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 years ended December 31, 2019, 2018 and 2017.
 
Years Ended December 31,
$ in thousands
2019
 
2018
 
2017
RMBS interest-only securities
6,707

 
7,761

 
11,208

Non-Agency RMBS (1)
1,024

 
85

 
754

Total
7,731

 
7,846

 
11,962

(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 consolidated statements of operations because we account for these securities under the fair value option. As of December 31, 2019, 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 years ended December 31, 2019, 2018 and 2017.
 
Years Ended December 31,
$ in thousands
2019
 
2018
 
2017
Gross realized gains on sale of investments
24,721

 
774

 
2,208

Gross realized losses on sale of investments
(16,682
)
 
(218,910
)
 
(3,873
)
Other-than-temporary impairment losses
(7,731
)
 
(7,846
)
 
(11,962
)
Net unrealized gains (losses) on MBS accounted for under the fair value option
626,104

 
(95,327
)
 
(21,368
)
Net unrealized gains (losses) on GSE CRT accounted for under the fair value option
(1,946
)
 
(6,370
)
 
15,269

Net unrealized gains (losses on trading securities)
—

 
(21
)
 
22

Total gain (loss) on investments, net
624,466

 
(327,700
)
 
(19,704
)
The following tables present components of interest income recognized on our MBS and GSE CRT portfolio for the years ended December 31, 2019, 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 Year ended December 31, 2019
 
 
 
 
 
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/ Discount Accretion
 
Interest
Income
Agency RMBS
488,650

 
(76,676
)
 
411,974

Agency CMBS
88,462

 
(4,712
)
 
83,750

Non-Agency CMBS
163,326

 
15,347

 
178,673

Non-Agency RMBS
52,857

 
13,164

 
66,021

GSE CRT
37,032

 
(7,842
)
 
29,190

Other
3,049

 
—

 
3,049

Total
833,376

 
(60,719
)
 
772,657

 
For the Year ended December 31, 2018
 
 
 
 
 
$ in thousands
Coupon
Interest
 
Net (Premium Amortization)/Discount Accretion
 
Interest
Income
Agency RMBS
441,757

 
(80,750
)
 
361,007

Agency CMBS
10,546

 
(591
)
 
9,955

Non-Agency CMBS
151,562

 
6,682

 
158,244

Non-Agency RMBS
55,116

 
19,968

 
75,084

GSE CRT
29,142

 
(3,071
)
 
26,071

Other
1,117

 
—

 
1,117

Total
689,240

 
(57,762
)
 
631,478

 
For the Year ended December 31, 2017
 
 
 
 
 
$ in thousands
Coupon
Interest
 
Net (Premium Amortization)/Discount Accretion
 
Interest
Income
Agency RMBS
392,248

 
(107,702
)
 
284,546

Non-Agency CMBS
131,005

 
(4,268
)
 
126,737

Non-Agency RMBS
70,849

 
18,769

 
89,618

GSE CRT
22,164

 
(1,949
)
 
20,215

Other
431

 
—

 
431

Total
616,697

 
(95,150
)
 
521,547