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Investments in Securities
 9 Months Ended
Sep. 30, 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 (losses), net” in our condensed consolidated statements of operations and comprehensive income. The following table displays our investments in trading securities as of September 30, 2013 and December 31, 2012.
 
As of
 
September 30, 2013
 
December 31, 2012
 
(Dollars in millions)
Mortgage-related securities:
 
 
 
 
 
 
 
Fannie Mae
 
$
6,081

 
 
 
$
6,248

 
Freddie Mac
 
2,163

 
 
 
2,793

 
Ginnie Mae
 
432

 
 
 
437

 
Alt-A private-label securities
 
1,495

 
 
 
1,330

 
Subprime private-label securities
 
1,411

 
 
 
1,319

 
CMBS
 
4,177

 
 
 
9,826

 
Mortgage revenue bonds
 
595

 
 
 
675

 
Other mortgage-related securities
 
110

 
 
 
117

 
Total mortgage-related securities
 
16,464

 
 
 
22,745

 
U.S. Treasury securities
 
16,396

 
 
 
17,950

 
Total trading securities
 
$
32,860

 
 
 
$
40,695

 
The following table displays information about our net trading losses and gains for the three and nine months ended September 30, 2013 and 2012.
 
For the Three
 
For the Nine
 
Months Ended
 
Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
 
 
(Dollars in millions)
Net trading (losses) gains
 
$
(57
)
 
 
$
406

 
 
$
111

 
 
$
676

 
Net trading (losses) gains recorded in the period related to securities still held at period end
 
$
(56
)
 
 
$
399

 
 
$
155

 
 
$
725

 
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 (loss) income” and we recognize 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 and nine months ended September 30, 2013 and 2012.
 
For the Three
 
For the Nine
 
Months Ended
 
Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
 
(Dollars in millions)
Gross realized gains
$
1,338

 
$
5

 
$
1,520

 
$
32

Gross realized losses
884

 
3

 
941

 
13

Total proceeds(1)
12,243

 
44

 
14,013

 
444

__________
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 September 30, 2013 and December 31, 2012.
 
 
As of September 30, 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
 
$
6,800

 
 
 
$
446

 
 
 
$
—

 
 
 
$
(47
)
 
 
$
7,199

Freddie Mac
 
6,755

 
 
 
509

 
 
 
—

 
 
 
—

 
 
7,264

Ginnie Mae
 
543

 
 
 
82

 
 
 
—

 
 
 
—

 
 
625

Alt-A private-label securities
 
6,445

 
 
 
1,034

 
 
 
(78
)
 
 
 
(2
)
 
 
7,399

Subprime private-label securities
 
6,418

 
 
 
765

 
 
 
(144
)
 
 
 
(74
)
 
 
6,965

CMBS
 
2,651

 
 
 
132

 
 
 
—

 
 
 
—

 
 
2,783

Mortgage revenue bonds
 
6,107

 
 
 
51

 
 
 
(185
)
 
 
 
(171
)
 
 
5,802

Other mortgage-related securities
 
3,048

 
 
 
134

 
 
 
(20
)
 
 
 
(199
)
 
 
2,963

Total
 
$
38,767

 
 
 
$
3,153

 
 
 
$
(427
)
 
 
 
$
(493
)
 
 
$
41,000


 
 
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
 
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

__________
(1) 
Amortized cost consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments as well as net 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.
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 September 30, 2013 and December 31, 2012.
 
 
As of September 30, 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
 
$
(44
)
 
 
$
991

 
 
$
(3
)
 
 
$
137

Alt-A private-label securities
 
(16
)
 
 
436

 
 
(64
)
 
 
618

Subprime private-label securities
 
(64
)
 
 
851

 
 
(154
)
 
 
1,581

Mortgage revenue bonds
 
(122
)
 
 
1,580

 
 
(234
)
 
 
1,008

Other mortgage-related securities
 
(1
)
 
 
51

 
 
(218
)
 
 
1,176

Total
 
$
(247
)
 
 
$
3,909

 
 
$
(673
)
 
 
$
4,520

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 evaluate available-for-sale securities for other-than-temporary impairment on a quarterly basis. An other-than-temporary impairment is considered to have occurred when the fair value of a debt security is below its amortized cost basis and we intend to sell or it is more likely than not that we will be required to sell the security before recovery. In such cases, we recognize in “Net other-than-temporary impairments” in our condensed consolidated statements of operations and comprehensive income, the entire difference between the amortized cost basis of the security and its fair value. An other-than-temporary impairment is also considered to have occurred if we do not expect to recover the entire amortized cost basis of a debt security even if we do not intend or it is not more likely than not we will be required to sell the security before recovery. We separate the difference between the amortized cost basis of the security and its fair value into the amount representing the credit loss, which we recognize in “Net other-than-temporary impairments” in our condensed consolidated statements of operations and comprehensive income, and the amount related to all other factors, which we recognize in “Other comprehensive (loss) income,” net of applicable taxes.
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 September 30, 2013, $673 million 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 September 30, 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 September 30, 2013 that was 87% 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 with unrealized losses of 12 consecutive months or longer. 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 and nine months ended September 30, 2013 and 2012. Net other-than-temporary impairments include credit losses on debt securities we do not intend to sell and the excess of amortized cost over the fair value of debt securities we intend to sell.
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
 
 
(Dollars in millions)
Alt-A private-label securities
 
$
23

 
 
 
$
6

 
$
29

 
 
 
$
361

Subprime private-label securities
 
2

 
 
 
21

 
5

 
 
 
324

Other
 
2

 
 
 
11

 
8

 
 
 
16

Net other-than-temporary impairments(1)
 
$
27

 
 
 
$
38

 
$
42

 
 
 
$
701


__________
(1)
Includes $26 million of other-than-temporary impairments recognized in earnings for the three and nine months ended September 30, 2013, as we had the intent to sell the related securities before recovery of their amortized cost basis.
Net other-than-temporary impairments recognized in the three and nine months ended September 30, 2013 decreased compared with the three and nine months ended September 30, 2012. Net other-than-temporary impairment for the nine months ended September 30, 2012 reflects an update to the assumptions used to project cash flow estimates on our Alt-A and subprime private-label securities, which resulted in a significant decrease in the net present value of projected cash flows. We updated our assumptions due to observable market trends, including extending the time it takes to liquidate the loans and increasing loss severity rates for loans where the servicers stopped advancing payments.
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 and nine months ended September 30, 2013 and 2012. A related unrealized noncredit loss component of $7 million and $125 million for the three and nine months ended September 30, 2013, respectively, and related unrealized noncredit gain component of $21 million and $408 million for the three and nine months ended September 30, 2012, respectively, was recognized in “Other comprehensive (loss) income.”
  
For the Three Months Ended
 
For the Nine Months Ended
  
September 30,
 
September 30,
  
2013
 
2012
 
2013
 
2012
  
(Dollars in millions)
Balance, beginning of period
$
8,964

 
$
9,366

 
$
9,214

 
$
8,915

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

 
11

 
7

 
13

Additions for the credit component on debt securities for which OTTI was previously recognized
1

 
27

 
9

 
688

Reductions for securities no longer in portfolio at period end
(457
)
 
(1
)
 
(540
)
 
(3
)
Reductions for securities which we intend to sell or it is more likely than not that we will be required to sell before recovery of amortized cost basis
(193
)
 
—

 
(193
)
 
—

Reductions for amortization resulting from changes in cash flows expected to be collected over the remaining life of the securities
(92
)
 
(91
)
 
(274
)
 
(301
)
Balance, end of period
$
8,223

 
$
9,312

 
$
8,223

 
$
9,312

As of September 30, 2013, those debt securities with other-than-temporary impairment that we recognized 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 and nine months ended September 30, 2013 based on this analysis. For securities that we determined were not other-than-temporarily impaired, we concluded that either the security 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 as of September 30, 2013 whether our senior interests in certain non-agency mortgage-related securities (including those we intend to sell) will experience a cash shortfall. An estimate of voluntary prepayment rates is also an input to the present value of expected losses.
 
As of September 30, 2013
 
 
 
Alt-A
 
Subprime
 
Option ARM
 
Fixed Rate
 
Variable Rate
 
Hybrid Rate
 
(Dollars in millions)
 
Vintage Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004 & Prior:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
452

 
 
$
215

 
 
 
$
1,048

 
 
 
$
178

 
 
 
$
592

 
Weighted-average collateral default(1)
30.7
%
 
 
25.3
%
 
 
 
10.1
%
 
 
 
22.0
%
 
 
 
15.4
%
 
Weighted-average collateral severities(2)
55.8

 
 
52.4

 
 
 
51.4

 
 
 
41.1

 
 
 
37.3

 
Weighted-average voluntary prepayment rates(3)
7.3

 
 
8.1

 
 
 
11.8

 
 
 
8.6

 
 
 
8.7

 
Average credit enhancement(4)
47.2

 
 
5.5

 
 
 
11.2

 
 
 
20.1

 
 
 
6.7

 
2005:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
51

 
 
$
827

 
 
 
$
906

 
 
 
$
425

 
 
 
$
1,448

 
Weighted-average collateral default(1)
54.1
%
 
 
38.0
%
 
 
 
25.2
%
 
 
 
37.8
%
 
 
 
30.4
%
 
Weighted-average collateral severities(2)
61.6

 
 
55.9

 
 
 
54.7

 
 
 
47.3

 
 
 
44.8

 
Weighted-average voluntary prepayment rates(3)
2.7

 
 
6.6

 
 
 
9.5

 
 
 
7.6

 
 
 
8.2

 
Average credit enhancement(4)
49.3

 
 
8.7

 
 
 
0.5

 
 
 
12.1

 
 
 
3.1

 
2006:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
9,656

 
 
$
854

 
 
 
$
424

 
 
 
$
1,171

 
 
 
$
1,288

 
Weighted-average collateral default(1)
58.1
%
 
 
47.4
%
 
 
 
27.3
%
 
 
 
42.5
%
 
 
 
21.8
%
 
Weighted-average collateral severities(2)
63.4

 
 
50.7

 
 
 
56.4

 
 
 
49.9

 
 
 
43.4

 
Weighted-average voluntary prepayment rates(3)
2.3

 
 
5.3

 
 
 
7.2

 
 
 
6.9

 
 
 
8.9

 
Average credit enhancement(4)
11.8

 
 
5.7

 
 
 
0.1

 
 
 
0.7

 
 
 
0.0

 
2007 & After:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
483

 
 
$
—

 
 
 
$
—

 
 
 
$
—

 
 
 
$
91

 
Weighted-average collateral default(1)
53.8
%
 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
24.6
%
 
Weighted-average collateral severities(2)
47.7

 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
44.3

 
Weighted-average voluntary prepayment rates(3)
1.6

 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
8.3

 
Average credit enhancement(4)
24.0

 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
20.5

 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
10,642

 
 
$
1,896

 
 
 
$
2,378

 
 
 
$
1,774

 
 
 
$
3,419

 
Weighted-average collateral default(1)
56.7
%
 
 
40.8
%
 
 
 
18.9
%
 
 
 
39.3
%
 
 
 
24.4
%
 
Weighted-average collateral severities(2)
62.5

 
 
52.9

 
 
 
54.3

 
 
 
48.8

 
 
 
43.5

 
Weighted-average voluntary prepayment rates(3)
2.4

 
 
6.2

 
 
 
10.1

 
 
 
7.2

 
 
 
8.6

 
Average credit enhancement(4)
14.0

 
 
7.0

 
 
 
5.2

 
 
 
5.3

 
 
 
3.0

 
__________

(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 September 30, 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 September 30, 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
 
$
6,800

 
 
$
7,199

 
 
$
—

 
 
$
—

 
 
$
321

 
 
$
339

 
 
$
488

 
 
$
523

 
 
$
5,991

 
 
$
6,337

Freddie Mac
 
6,755

 
 
7,264

 
 
—

 
 
—

 
 
310

 
 
329

 
 
710

 
 
763

 
 
5,735

 
 
6,172

Ginnie Mae
 
543

 
 
625

 
 
—

 
 
—

 
 
1

 
 
1

 
 
22

 
 
26

 
 
520

 
 
598

Alt-A private-label securities
 
6,445

 
 
7,399

 
 
—

 
 
—

 
 
1

 
 
1

 
 
—

 
 
—

 
 
6,444

 
 
7,398

Subprime private-label securities
 
6,418

 
 
6,965

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
6,418

 
 
6,965

CMBS
 
2,651

 
 
2,783

 
 
—

 
 
—

 
 
2,543

 
 
2,672

 
 
—

 
 
—

 
 
108

 
 
111

Mortgage revenue bonds
 
6,107

 
 
5,802

 
 
34

 
 
36

 
 
279

 
 
284

 
 
577

 
 
580

 
 
5,217

 
 
4,902

Other mortgage-related securities
 
3,048

 
 
2,963

 
 
—

 
 
—

 
 
—

 
 
5

 
 
40

 
 
41

 
 
3,008

 
 
2,917

Total
 
$
38,767

 
 
$
41,000

 
 
$
34

 
 
$
36

 
 
$
3,455

 
 
$
3,631

 
 
$
1,837

 
 
$
1,933

 
 
$
33,441

 
 
$
35,400

Accumulated Other Comprehensive Income
The following table displays our accumulated other comprehensive income by major categories as of September 30, 2013 and December 31, 2012.
 
As of
 
September 30,
 
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
 
$
476

 
 
 
$
1,399

 
Net unrealized gains (losses) on available-for-sale securities for which we have recorded OTTI, net of tax
 
990

 
 
 
(465
)
 
Prior service cost and actuarial losses, net of amortization for defined benefit plans, net of tax
 
(366
)
 
 
 
(505
)
 
Other losses
 
(30
)
 
 
 
(45
)
 
Accumulated other comprehensive income
 
$
1,070

 
 
 
$
384