Investments in RMBS

6 Months Ended

Jun. 30, 2021

Note 4 — Investments in RMBS

At June 30, 2021, the Company’s investments in RMBS consist solely of Agency RMBS. The Company’s investments in RMBS may also include, from time to time, any of the following: Collateralized mortgage obligations (“CMOs”), which are either loss share securities issued by Fannie Mae or Freddie Mac or non-Agency RMBS, sometimes called “private label MBS,” which are structured debt instruments representing interests in specified pools of mortgage loans subdivided into multiple classes, or tranches, of securities, with each tranche having different maturities or risk profiles and different ratings by one or more nationally recognized statistical rating organizations (“NRSRO”). All of the Company’s RMBS are classified as available for sale and are, therefore, reported at fair value. Beginning on January 1, 2020, upon the adoption of ASU 2016-13, Financial Instruments-Credit Losses, credit related impairment, if any, is included in provision (reversal) for credit losses on securities in the consolidated statements of income (loss). If it is determined as of the financial reporting date that all or a portion of a security’s cost basis is not collectible, then the Company will recognize a realized loss to the extent of the adjustment to the security’s cost basis. This adjustment to the amortized cost basis of the security, if any, is reflected in realized gain (loss) on RMBS, available-for-sale, net in the consolidated statements of income (loss). All other changes in fair value are recorded in other comprehensive income (loss).

The following is a summary of the Company’s investments in RMBS as of the dates indicated (dollars in thousands):

Summary of RMBS Assets

As of June 30, 2021

					Gross Unrealized										Weighted Average
Asset Type	Original Face Value		Book Value		Gains		Losses			Carrying Value^(A)		Number of Securities		Rating	Coupon			Yield^(C)			Maturity (Years)^(D)
RMBS
Fannie Mae	$	776,856	$	606,853	$	11,739	$	(1,548	)	$	617,044		76	(B)		3.13	%		2.99	%		28
Freddie Mac		448,149		377,588		6,442		(2,275	)		381,755		43	(B)		2.98	%		2.85	%		28
Total/Weighted Average	$	1,225,005	$	984,441	$	18,181	$	(3,823	)	$	998,799		119			3.07	%		2.94	%		28

As of December 31, 2020

					Gross Unrealized										Weighted Average
Asset Type	Original Face Value		Book Value		Gains		Losses			Carrying Value^(A)		Number of Securities		Rating	Coupon			Yield^(C)			Maturity (Years)
RMBS
Fannie Mae	$	840,175	$	692,665	$	22,530	$	(39	)	$	715,156		81	(B)		3.31	%		3.17	%		28
Freddie Mac		549,530		493,930		13,106		(82	)		506,954		49	(B)		2.99	%		2.87	%		28
Private Label MBS		22,000		5,944		197		-			6,141		5	(B)		4.08	%		4.08	%		28
Total/Weighted Average	$	1,411,705	$	1,192,539	$	35,833	$	(121	)	$	1,228,251		135			3.18	%		3.05	%		28

(A)	See Note 9 regarding the estimation of fair value, which approximates carrying value for all securities.

(B)	The Company used an implied AAA rating for the Agency RMBS. Private label RMBS are rated investment grade or better by at least one NRSRO as of December 31, 2020.

(C)	The weighted average yield is based on the most recent gross monthly interest income, which is then annualized and divided by the book value of settled securities.

Summary of RMBS Assets by Maturity

As of June 30, 2021

					Gross Unrealized										Weighted Average
Years to Maturity	Original Face Value		Book Value		Gains		Losses			Carrying Value^(A)		Number of Securities		Rating	Coupon			Yield^(C)			Maturity (Years)^(D)
Over 10 Years		1,225,005		984,441		18,181		(3,823	)		998,799		119	(B)		3.07	%		2.94	%		28
Total/Weighted Average	$	1,225,005	$	984,441	$	18,181	$	(3,823	)	$	998,799		119			3.07	%		2.94	%		28

As of December 31, 2020

					Gross Unrealized										Weighted Average
Years to Maturity	Original Face Value		Book Value		Gains		Losses			Carrying Value^(A)		Number of Securities		Rating	Coupon			Yield^(C)			Maturity (Years)
Over 10 Years		1,411,705		1,192,539		35,833		(121	)		1,228,251		135	(B)		3.18	%		3.05	%		28
Total/Weighted Average	$	1,411,705	$	1,192,539	$	35,833	$	(121	)	$	1,228,251		135			3.18	%		3.05	%		28

(A)	See Note 9 regarding the estimation of fair value, which approximates carrying value for all securities.

(B)	The Company used an implied AAA rating for the Agency RMBS. The Company’s private label RMBS are rated investment grade or better by at least one NRSRO as of December 31, 2020.

(C)	The weighted average yield is based on the most recent gross monthly interest income, which is then annualized and divided by the book value of settled securities.

At June 30, 2021 and December 31, 2020, the Company pledged Agency RMBS with a carrying value of approximately $933.1 million and $1,164.4 million, respectively, as collateral for borrowings under repurchase agreements. At June 30, 2021 and December 31, 2020, the Company did not have any securities purchased from and financed with the same counterparty that did not meet the conditions of ASC 860, Transfers and Servicing, to be considered linked transactions and, therefore, classified as derivatives.

Based on management’s analysis of the Company’s securities, the performance of the underlying loans and changes in market factors, management determined that unrealized losses as of the balance sheet date on the Company’s securities were primarily the result of changes in market factors, rather than issuer-specific credit impairment. The Company performed analyses in relation to such securities, using management’s best estimate of their cash flows, which support its belief that the carrying values of such securities were fully recoverable over their expected holding periods. Such market factors include changes in market interest rates and credit spreads and certain macroeconomic events, none of which will directly impact the Company’s ability to collect amounts contractually due. Management continually evaluates the credit status of each of the Company’s securities and the collateral supporting those securities. This evaluation includes a review of the credit of the issuer of the security (if applicable), the credit rating of the security (if applicable), the key terms of the security (including credit support), debt service coverage and loan to value ratios, the performance of the pool of underlying loans and the estimated value of the collateral supporting such loans, including the effect of local, industry and broader economic trends and factors. Significant judgment is required in this analysis. In connection with the above, the Company weighs the fact that a substantial majority, if not all, of its investments in RMBS are guaranteed by U.S. government agencies or U.S. government sponsored enterprises.

Both credit related and non-credit related unrealized losses on securities that the Company (i) intends to sell, or (ii) will more likely than not be required to sell before recovering their cost basis, are recognized in earnings. The Company did not record an allowance for credit losses on the balance sheet at June 30, 2021 and December 31, 2020, or any impairment charges in earnings during the three-month periods ended June 30, 2021 and June 30, 2020.

The following tables summarize the Company’s securities in an unrealized loss position as of the dates indicated (dollars in thousands):

RMBS Unrealized Loss Positions

As of June 30, 2021

													Weighted Average
Duration in Loss Position	Original Face Value		Book Value		Gross Unrealized Losses			Carrying Value^(A)		Number of Securities		Rating	Coupon			Yield^(C)			Maturity (Years)^(D)
Less than Twelve Months	$	437,608	$	435,577	$	(3,823	)	$	431,754		39	(B)		2.75	%		2.60	%		29
Total/Weighted Average	$	437,608	$	435,577	$	(3,823	)	$	431,754		39			2.75	%		2.60	%		29

As of December 31, 2020

													Weighted Average
Duration in Loss Position	Original Face Value		Book Value		Gross Unrealized Losses			Carrying Value^(A)		Number of Securities		Rating	Coupon			Yield^(C)			Maturity (Years)
Less than Twelve Months	$	55,656	$	57,945	$	(121	)	$	57,824		4	(B)		3.00	%		2.82	%		29
Total/Weighted Average	$	55,656	$	57,945	$	(121	)	$	57,824		4			3.00	%		2.82	%		29

(A)	See Note 9 regarding the estimation of fair value, which approximates carrying value for all securities.

(B)	The Company used an implied AAA rating for the Agency RMBS. The Company’s private label RMBS are rated investment grade or better by at least one NRSRO as of December 31, 2020.

(C)	The weighted average yield is based on the most recent gross monthly interest income, which is then annualized and divided by the book value of settled securities.