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Investments in Securities
 3 Months Ended
Mar. 31, 2013
Investments, Debt and Equity Securities [Abstract]  
Investments in Securities
Investments in Securities
Trading Securities
Trading securities are recorded at fair value with subsequent changes in fair value recorded as “Fair value gains, net” in our condensed consolidated statements of operations and comprehensive income. The following table displays our investments in trading securities as of March 31, 2013 and December 31, 2012.
 
 
As of
 
March 31,
 
December 31,
 
2013
 
2012
 
 
(Dollars in millions)
Mortgage-related securities:
 
 
 
 
 
 
 
Fannie Mae
 
$
6,432

 
 
 
$
6,248

 
Freddie Mac
 
3,375

 
 
 
2,793

 
Ginnie Mae
 
679

 
 
 
437

 
Alt-A private-label securities
 
1,457

 
 
 
1,330

 
Subprime private-label securities
 
1,446

 
 
 
1,319

 
CMBS
 
9,817

 
 
 
9,826

 
Mortgage revenue bonds
 
661

 
 
 
675

 
Other mortgage-related securities
 
118

 
 
 
117

 
Total mortgage-related securities
 
23,985

 
 
 
22,745

 
U.S. Treasury securities
 
28,406

 
 
 
17,950

 
Total trading securities
 
$
52,391

 
 
 
$
40,695

 
The following table displays information about our net trading gains and losses for the three months ended March 31, 2013 and 2012.
 
For the Three
 
Months Ended
 
March 31,
 
2013
 
2012
 
 
(Dollars in millions)
Net trading gains (losses):
 
 
 
 
 
Mortgage-related securities
 
$
391

 
 
$
296

Non-mortgage-related securities(1)
 
5

 
 
(12
)
Total
 
$
396

 
 
$
284

Net trading gains (losses) recorded in the period related to securities still held at period end:
 
 
 
 
 
Mortgage-related securities
 
$
392

 
 
$
331

Non-mortgage-related securities(1)
 
5

 
 
(12
)
Total
 
$
397

 
 
$
319

__________
s
(1) 
Consists of U.S. Treasury securities for the three months ended March 31, 2013 and U.S. Treasury securities and asset-backed securities for the three months ended March 31, 2012.
Available-for-Sale Securities
We measure available-for-sale (“AFS”) securities at fair value with unrealized gains and losses recorded net of tax as a component of “Other comprehensive income” and we record realized gains and losses from the sale of AFS securities in “Investment gains, net” in our condensed consolidated statements of operations and comprehensive income.
The following table displays the gross realized gains, losses and proceeds on sales of AFS securities for the three months ended March 31, 2013 and 2012.
 
For the Three
 
Months Ended
 
March 31,
 
2013
 
2012
 
(Dollars in millions)
Gross realized gains
$
9

 
$
18

Gross realized losses
4

 
9

Total proceeds(1)
94

 
268

__________
s
(1) 
Excludes proceeds from the initial sale of securities from new portfolio securitizations included in “Note 2, Consolidations and Transfers of Financial Assets.”
The following tables display the amortized cost, gross unrealized gains and losses and fair value by major security type for AFS securities we held as of March 31, 2013 and December 31, 2012.

 
As of March 31, 2013

Total Amortized Cost(1)
 
Gross Unrealized Gains
 
Gross Unrealized Losses - OTTI(2)
 
Gross Unrealized Losses - Other(3)
 
Total Fair Value

 
(Dollars in millions)
Fannie Mae
 
$
8,015

 
 
 
$
740

 
 
 
$
—

 
 
 
$
(8
)
 
 
$
8,747

Freddie Mac
 
7,970

 
 
 
662

 
 
 
—

 
 
 
—

 
 
8,632

Ginnie Mae
 
609

 
 
 
100

 
 
 
—

 
 
 
—

 
 
709

Alt-A private-label securities
 
10,968

 
 
 
620

 
 
 
(412
)
 
 
 
(50
)
 
 
11,126

Subprime private-label securities
 
7,882

 
 
 
477

 
 
 
(356
)
 
 
 
(135
)
 
 
7,868

CMBS(4)
 
11,910

 
 
 
883

 
 
 
—

 
 
 
(6
)
 
 
12,787

Mortgage revenue bonds
 
7,325

 
 
 
138

 
 
 
(49
)
 
 
 
(59
)
 
 
7,355

Other mortgage-related securities
 
3,238

 
 
 
124

 
 
 
(27
)
 
 
 
(230
)
 
 
3,105

Total
 
$
57,917

 
 
 
$
3,744

 
 
 
$
(844
)
 
 
 
$
(488
)
 
 
$
60,329


 
 
As of December 31, 2012
 
Total Amortized Cost(1)
 
Gross Unrealized Gains
 
Gross Unrealized Losses - OTTI(2)
 
Gross Unrealized Losses - Other(3)
 
Total Fair Value
 
 
(Dollars in millions)
Fannie Mae
 
$
9,580

 
 
 
$
871

 
 
 
$
—

 
 
 
$
(16
)
 
 
$
10,435

Freddie Mac
 
8,652

 
 
 
728

 
 
 
—

 
 
 
—

 
 
9,380

Ginnie Mae
 
645

 
 
 
106

 
 
 
—

 
 
 
—

 
 
751

Alt-A private-label securities
 
11,356

 
 
 
452

 
 
 
(637
)
 
 
 
(96
)
 
 
11,075

Subprime private-label securities
 
8,137

 
 
 
217

 
 
 
(669
)
 
 
 
(238
)
 
 
7,447

CMBS(4)
 
12,284

 
 
 
824

 
 
 
—

 
 
 
(11
)
 
 
13,097

Mortgage revenue bonds
 
7,782

 
 
 
157

 
 
 
(45
)
 
 
 
(52
)
 
 
7,842

Other mortgage-related securities
 
3,330

 
 
 
109

 
 
 
(18
)
 
 
 
(267
)
 
 
3,154

Total
 
$
61,766

 
 
 
$
3,464

 
 
 
$
(1,369
)
 
 
 
$
(680
)
 
 
$
63,181

__________
s

(1) 
Amortized cost consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments as well as the credit component of other-than-temporary impairments (“OTTI”) recognized in our condensed consolidated statements of operations and comprehensive income.
(2) 
Represents the noncredit component of other-than-temporary impairments losses recorded in “Accumulated other comprehensive income” as well as cumulative changes in fair value of securities for which we previously recognized the credit component of other-than-temporary impairments.
(3) 
Represents the gross unrealized losses on securities for which we have not recognized an other-than-temporary impairment.
(4) 
Amortized cost includes $475 million and $527 million as of March 31, 2013 and December 31, 2012, respectively, of increases to the carrying amount from previous fair value hedge accounting.
The following tables display additional information regarding gross unrealized losses and fair value by major security type for AFS securities in an unrealized loss position that we held as of March 31, 2013 and December 31, 2012.
 
 
As of March 31, 2013
 
Less Than 12 Consecutive Months
 
12 Consecutive Months or Longer
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
 
(Dollars in millions)
Fannie Mae
 
$
(1
)
 
 
$
67

 
 
$
(7
)
 
 
$
303

Alt-A private-label securities
 
(8
)
 
 
671

 
 
(454
)
 
 
3,601

Subprime private-label securities
 
(7
)
 
 
198

 
 
(484
)
 
 
4,218

CMBS
 
—

 
 
—

 
 
(6
)
 
 
191

Mortgage revenue bonds
 
(5
)
 
 
266

 
 
(103
)
 
 
1,187

Other mortgage-related securities
 
—

 
 
—

 
 
(257
)
 
 
1,540

Total
 
$
(21
)
 
 
$
1,202

 
 
$
(1,311
)
 
 
$
11,040

 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2012
 
Less Than 12 Consecutive Months
 
12 Consecutive Months or Longer
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
 
(Dollars in millions)
Fannie Mae
 
$
(5
)
 
 
$
599

 
 
$
(11
)
 
 
$
372

Alt-A private-label securities
 
(18
)
 
 
541

 
 
(715
)
 
 
4,465

Subprime private-label securities
 
(14
)
 
 
243

 
 
(893
)
 
 
5,058

CMBS
 
—

 
 
—

 
 
(11
)
 
 
240

Mortgage revenue bonds
 
(3
)
 
 
127

 
 
(94
)
 
 
1,198

Other mortgage-related securities
 
(3
)
 
 
95

 
 
(282
)
 
 
1,529

Total
 
$
(43
)
 
 
$
1,605

 
 
$
(2,006
)
 
 
$
12,862

Other-Than-Temporary Impairments
We recognize the credit component of other-than-temporary impairments of our debt securities in “Net other-than-temporary impairments” and the noncredit component in “Other comprehensive income” in our condensed consolidated statements of operations and comprehensive income for those securities that we do not intend to sell and for which it is not more likely than not that we will be required to sell before recovery.
The fair value of our securities varies from period to period due to changes in interest rates, in the performance of the underlying collateral and in the credit performance of the underlying issuer, among other factors. As of March 31, 2013, $1.3 billion of gross unrealized losses on AFS securities had existed for a period of 12 consecutive months or longer. Gross unrealized losses on AFS securities as of March 31, 2013 include unrealized losses on securities with other-than-temporary impairment in which a portion of the impairment remains in “Accumulated other comprehensive income.” The securities with unrealized losses for 12 consecutive months or longer, on average, had a fair value as of March 31, 2013 that was 89% of their amortized cost basis. Based on our review for impairments of AFS securities, which includes an evaluation of the collectibility of cash flows and any intent or requirement to sell the securities, we have concluded that we do not have an intent to sell and we believe it is not more likely than not that we will be required to sell the securities. Additionally, our projections of cash flows indicate that we will recover these unrealized losses over the lives of the securities.
The following table displays our net other-than-temporary impairments by major security type recognized in our condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2013 and 2012.
 
For the Three Months Ended
 
March 31,
 
2013
 
2012
 
 
(Dollars in millions)
Alt-A private-label securities
 
$
4

 
 
 
$
43

Subprime private-label securities
 
3

 
 
 
19

Other
 
2

 
 
 
2

Net other-than-temporary impairments
 
$
9

 
 
 
$
64

The following table displays activity related to the unrealized credit component on debt securities held by us and recognized in our condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2013 and 2012. For the three months ended March 31, 2013 and 2012, a related unrealized noncredit component of $33 million and $16 million, respectively, was recognized in “Other comprehensive income.”
  
For the Three Months Ended
  
March 31,
  
2013
 
2012
  
(Dollars in millions)
Balance, beginning of period
$
9,214

 
$
8,915

Additions for the credit component on debt securities for which OTTI was not previously recognized
5

 
—

Additions for the credit component on debt securities for which OTTI was previously recognized
4

 
64

Reductions for securities no longer in portfolio at period end
(2
)
 
—

Reductions for amortization resulting from changes in cash flows expected to be collected over the remaining life of the securities
(85
)
 
(109
)
Balance, end of period
$
9,136

 
$
8,870

As of March 31, 2013, those debt securities with other-than-temporary impairment for which we recognized the credit component of other-than-temporary impairments in our condensed consolidated statements of operations and comprehensive income consisted predominantly of Alt-A and subprime private-label securities. We evaluate Alt-A (including option adjustable rate mortgage (“ARM”)) and subprime private-label securities for other-than-temporary impairment by discounting the projected cash flows from econometric models to estimate the portion of loss in value attributable to credit. Separate components of a third-party model project regional home prices, unemployment and interest rates. The model combines these factors with available current information regarding attributes of loans in pools backing the private-label mortgage-related securities to project prepayment speeds, conditional default rates, loss severities and delinquency rates. It incorporates detailed information on security-level subordination levels and cash flow priority of payments to project security level cash flows. We have recorded other-than-temporary impairments for the three months ended March 31, 2013 based on this analysis. For securities we determined were not other-than-temporarily impaired, we concluded that either the bond had no projected credit loss or, if we projected a loss, that the present value of expected cash flows was greater than the security’s cost basis.
The following table displays the modeled attributes, including default rates and severities, which are used to determine whether our senior interests in certain non-agency mortgage-related securities will experience a cash shortfall as of March 31, 2013. Assumption of voluntary prepayment rates is also an input to the present value of expected losses.
 
As of March 31, 2013
 
 
 
Alt-A
 
Subprime
 
Option ARM
 
Fixed Rate
 
Variable Rate
 
Hybrid Rate
 
(Dollars in millions)
 
Vintage Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004 & Prior:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
1,348

 
 
$
428

 
 
 
$
2,702

 
 
 
$
418

 
 
 
$
1,886

 
Weighted average collateral default(1)
38.2
%
 
 
33.7
%
 
 
 
12.7
%
 
 
 
23.4
%
 
 
 
14.4
%
 
Weighted average collateral severities(2)
66.9

 
 
58.5

 
 
 
51.8

 
 
 
51.2

 
 
 
45.1

 
Weighted average voluntary prepayment rates(3)
7.7

 
 
6.5

 
 
 
12.0

 
 
 
7.9

 
 
 
10.0

 
Average credit enhancement(4)
52.1

 
 
10.0

 
 
 
12.1

 
 
 
23.3

 
 
 
9.0

 
2005:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
126

 
 
$
1,139

 
 
 
$
978

 
 
 
$
453

 
 
 
$
1,993

 
Weighted average collateral default(1)
65.2
%
 
 
46.1
%
 
 
 
34.4
%
 
 
 
41.4
%
 
 
 
28.7
%
 
Weighted average collateral severities(2)
70.7

 
 
63.7

 
 
 
61.1

 
 
 
59.7

 
 
 
52.1

 
Weighted average voluntary prepayment rates(3)
3.1

 
 
5.3

 
 
 
7.5

 
 
 
6.5

 
 
 
7.2

 
Average credit enhancement(4)
65.4

 
 
15.7

 
 
 
0.8

 
 
 
11.6

 
 
 
3.8

 
2006:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
10,313

 
 
$
955

 
 
 
$
450

 
 
 
$
1,354

 
 
 
$
1,386

 
Weighted average collateral default(1)
67.0
%
 
 
59.5
%
 
 
 
36.8
%
 
 
 
46.5
%
 
 
 
25.2
%
 
Weighted average collateral severities(2)
72.9

 
 
63.7

 
 
 
63.6

 
 
 
59.8

 
 
 
52.3

 
Weighted average voluntary prepayment rates(3)
2.7

 
 
4.2

 
 
 
6.0

 
 
 
5.1

 
 
 
7.2

 
Average credit enhancement(4)
12.3

 
 
8.3

 
 
 
0.1

 
 
 
0.6

 
 
 
—

 
2007 & After:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
565

 
 
$
—

 
 
 
$
—

 
 
 
$
—

 
 
 
$
98

 
Weighted average collateral default(1)
62.3
%
 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
33.8
%
 
Weighted average collateral severities(2)
61.5

 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
53.1

 
Weighted average voluntary prepayment rates(3)
2.2

 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
7.3

 
Average credit enhancement(4)
26.5

 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
20.9

 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
12,352

 
 
$
2,522

 
 
 
$
4,130

 
 
 
$
2,225

 
 
 
$
5,363

 
Weighted average collateral default(1)
63.6
%
 
 
49.1
%
 
 
 
20.4
%
 
 
 
41.1
%
 
 
 
22.9
%
 
Weighted average collateral severities(2)
71.7

 
 
62.8

 
 
 
55.3

 
 
 
58.2

 
 
 
49.7

 
Weighted average voluntary prepayment rates(3)
3.3

 
 
5.1

 
 
 
10.3

 
 
 
5.9

 
 
 
8.2

 
Average credit enhancement(4)
17.8

 
 
11.9

 
 
 
8.1

 
 
 
7.1

 
 
 
5.0

 
__________

(1) 
The expected remaining cumulative default rate of the collateral pool backing the securities, as a percentage of the current collateral unpaid principal balance, weighted by security unpaid principal balance.
(2) 
The expected remaining loss given default of the collateral pool backing the securities, calculated as the ratio of remaining cumulative loss divided by cumulative defaults, weighted by security unpaid principal balance.
(3) 
The average monthly voluntary prepayment rate, weighted by security unpaid principal balance.
(4) 
The average percent current credit enhancement provided by subordination of other securities. Excludes excess interest projections and monoline bond insurance.
Maturity Information
The following table displays the amortized cost and fair value of our AFS securities by major security type and remaining maturity, assuming no principal prepayments, as of March 31, 2013. Contractual maturity of mortgage-backed securities is not a reliable indicator of their expected life because borrowers generally have the right to prepay their obligations at any time.
  
 
As of March 31, 2013
 
Total Amortized Cost
 
Total
Fair
Value
 
One Year or Less
 
After One Year Through Five Years
 
After Five Years Through Ten Years
 
After Ten Years
 
 
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
  
(Dollars in millions)
Fannie Mae
 
$
8,015

 
 
$
8,747

 
 
$
—

 
 
$
—

 
 
$
248

 
 
$
263

 
 
$
505

 
 
$
536

 
 
$
7,262

 
 
$
7,948

Freddie Mac
 
7,970

 
 
8,632

 
 
—

 
 
—

 
 
90

 
 
95

 
 
771

 
 
824

 
 
7,109

 
 
7,713

Ginnie Mae
 
609

 
 
709

 
 
—

 
 
—

 
 
1

 
 
2

 
 
9

 
 
10

 
 
599

 
 
697

Alt-A private-label securities
 
10,968

 
 
11,126

 
 
—

 
 
—

 
 
14

 
 
14

 
 
152

 
 
155

 
 
10,802

 
 
10,957

Subprime private-label securities
 
7,882

 
 
7,868

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
7,882

 
 
7,868

CMBS
 
11,910

 
 
12,787

 
 
26

 
 
27

 
 
11,687

 
 
12,569

 
 
—

 
 
—

 
 
197

 
 
191

Mortgage revenue bonds
 
7,325

 
 
7,355

 
 
41

 
 
42

 
 
276

 
 
285

 
 
631

 
 
640

 
 
6,377

 
 
6,388

Other mortgage-related securities
 
3,238

 
 
3,105

 
 
—

 
 
—

 
 
—

 
 
6

 
 
43

 
 
42

 
 
3,195

 
 
3,057

Total
 
$
57,917

 
 
$
60,329

 
 
$
67

 
 
$
69

 
 
$
12,316

 
 
$
13,234

 
 
$
2,111

 
 
$
2,207

 
 
$
43,423

 
 
$
44,819

Accumulated Other Comprehensive Income
The following table displays our accumulated other comprehensive income by major categories as of March 31, 2013 and December 31, 2012.
 
 
As of
 
March 31,
 
December 31,
 
2013
 
2012
 
 
(Dollars in millions)
 
Net unrealized gains on available-for-sale securities for which we have not recorded OTTI, net of tax
 
$
1,362

 
 
 
$
1,399

 
Net unrealized gains (losses) on available-for-sale securities for which we have recorded OTTI, net of tax
 
220

 
 
 
(465
)
 
Prior service cost and actuarial losses, net of amortization for defined benefit plans, net of tax
 
(515
)
 
 
 
(505
)
 
Other losses
 
(29
)
 
 
 
(45
)
 
Accumulated other comprehensive income
 
$
1,038

 
 
 
$
384