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Investments in Securities
 6 Months Ended
Jun. 30, 2014
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 (losses) gains, net” in our condensed consolidated statements of operations and comprehensive income. The following table displays our investments in trading securities as of June 30, 2014 and December 31, 2013.
 
As of
 
June 30, 2014
 
December 31, 2013
 
(Dollars in millions)
Mortgage-related securities:
 
 
 
 
 
 
 
Fannie Mae
 
$
5,686

 
 
 
$
5,870

 
Freddie Mac
 
1,766

 
 
 
1,839

 
Ginnie Mae
 
234

 
 
 
407

 
Alt-A private-label securities
 
1,194

 
 
 
1,516

 
Subprime private-label securities
 
1,282

 
 
 
1,448

 
CMBS
 
2,641

 
 
 
2,718

 
Mortgage revenue bonds
 
643

 
 
 
565

 
Other mortgage-related securities
 
101

 
 
 
99

 
Total mortgage-related securities
 
13,547

 
 
 
14,462

 
U.S. Treasury securities
 
13,083

 
 
 
16,306

 
Total trading securities
 
$
26,630

 
 
 
$
30,768

 
The following table displays information about our net trading gains and losses for the three and six months ended June 30, 2014 and 2013.
 
For the Three
 
For the Six
 
Months Ended
 
Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
(Dollars in millions)
Net trading gains (losses)
$
249

 
$
(228
)
 
$
394

 
$
168

Net trading gains (losses) recognized in the period related to securities still held at period end
233

 
(273
)
 
353

 
125

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 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 six months ended June 30, 2014 and 2013.
 
For the Three
 
For the Six
 
Months Ended
 
Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
(Dollars in millions)

Gross realized gains
$
396

 
$
173

 
$
399

 
$
182

Gross realized losses
—

 
53

 
2

 
57

Total proceeds(1)
1,705

 
1,676

 
1,740

 
1,770

__________
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 June 30, 2014 and December 31, 2013.
 
As of June 30, 2014
 
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
 
$
5,663

 
 
 
$
385

 
 
 
$
—

 
 
 
$
(26
)
 
 
$
6,022

Freddie Mac
 
5,735

 
 
 
467

 
 
 
—

 
 
 
—

 
 
6,202

Ginnie Mae
 
461

 
 
 
67

 
 
 
—

 
 
 
—

 
 
528

Alt-A private-label securities
 
5,479

 
 
 
1,220

 
 
 
(18
)
 
 
 
—

 
 
6,681

Subprime private-label securities
 
4,688

 
 
 
1,057

 
 
 
(19
)
 
 
 
(21
)
 
 
5,705

CMBS
 
1,427

 
 
 
81

 
 
 
—

 
 
 
—

 
 
1,508

Mortgage revenue bonds
 
4,669

 
 
 
79

 
 
 
(126
)
 
 
 
(62
)
 
 
4,560

Other mortgage-related securities
 
2,781

 
 
 
214

 
 
 
(24
)
 
 
 
(151
)
 
 
2,820

Total
 
$
30,903

 
 
 
$
3,570

 
 
 
$
(187
)
 
 
 
$
(260
)
 
 
$
34,026


 
As of December 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
 
$
6,227

 
 
 
$
390

 
 
 
$
—

 
 
 
$
(44
)
 
 
$
6,573

Freddie Mac
 
6,365

 
 
 
477

 
 
 
—

 
 
 
—

 
 
6,842

Ginnie Mae
 
512

 
 
 
76

 
 
 
—

 
 
 
—

 
 
588

Alt-A private-label securities
 
6,240

 
 
 
1,151

 
 
 
(40
)
 
 
 
(2
)
 
 
7,349

Subprime private-label securities
 
6,232

 
 
 
991

 
 
 
(102
)
 
 
 
(53
)
 
 
7,068

CMBS
 
1,526

 
 
 
80

 
 
 
—

 
 
 
—

 
 
1,606

Mortgage revenue bonds
 
5,645

 
 
 
35

 
 
 
(228
)
 
 
 
(196
)
 
 
5,256

Other mortgage-related securities
 
2,943

 
 
 
164

 
 
 
(15
)
 
 
 
(203
)
 
 
2,889

Total
 
$
35,690

 
 
 
$
3,364

 
 
 
$
(385
)
 
 
 
$
(498
)
 
 
$
38,171

__________
(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” in our condensed consolidated balance sheets, 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 other-than-temporary impairments.
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 June 30, 2014 and December 31, 2013.
 
As of June 30, 2014
 
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
 
$
(4
)
 
 
$
284

 
 
$
(22
)
 
 
$
673

Alt-A private-label securities
 
(3
)
 
 
121

 
 
(15
)
 
 
113

Subprime private-label securities
 
(2
)
 
 
72

 
 
(38
)
 
 
618

Mortgage revenue bonds
 
(2
)
 
 
66

 
 
(186
)
 
 
1,396

Other mortgage-related securities
 
—

 
 
5

 
 
(175
)
 
 
1,050

Total
 
$
(11
)
 
 
$
548

 
 
$
(436
)
 
 
$
3,850

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 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
 
$
(40
)
 
 
$
975

 
 
$
(4
)
 
 
$
126

Alt-A private-label securities
 
(12
)
 
 
490

 
 
(30
)
 
 
308

Subprime private-label securities
 
(24
)
 
 
448

 
 
(131
)
 
 
1,332

Mortgage revenue bonds
 
(147
)
 
 
1,662

 
 
(277
)
 
 
970

Other mortgage-related securities
 
—

 
 
5

 
 
(218
)
 
 
1,066

Total
 
$
(223
)
 
 
$
3,580

 
 
$
(660
)
 
 
$
3,802

Other-Than-Temporary Impairments
We evaluate AFS 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. 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 to sell the security or it is not more likely than not we will be required to sell the security before recovery.
The following table displays the modeled attributes, including default rates and severities, which were used to determine as of June 30, 2014 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 June 30, 2014
 
 
 
Alt-A
 
Subprime
 
Option ARM
 
Fixed Rate
 
Variable Rate
 
Hybrid Rate
 
(Dollars in millions)
 
Vintage Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004 & Prior:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
117

 
 
$
117

 
 
 
$
920

 
 
 
$
133

 
 
 
$
328

 
Weighted average collateral default(1)
26.5
%
 
 
23.9
%
 
 
 
9.5
%
 
 
 
20.8
%
 
 
 
13.3
%
 
Weighted average collateral severities(2)
55.2

 
 
54.5

 
 
 
52.0

 
 
 
40.8

 
 
 
38.5

 
Weighted average voluntary prepayment rates(3)
10.1

 
 
9.7

 
 
 
13.4

 
 
 
9.9

 
 
 
10.2

 
Average credit enhancement(4)
38.4

 
 
4.1

 
 
 
10.9

 
 
 
21.3

 
 
 
9.4

 
2005:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
41

 
 
$
472

 
 
 
$
828

 
 
 
$
384

 
 
 
$
1,348

 
Weighted average collateral default(1)
49.0
%
 
 
31.9
%
 
 
 
22.9
%
 
 
 
33.0
%
 
 
 
26.4
%
 
Weighted average collateral severities(2)
60.0

 
 
53.5

 
 
 
54.0

 
 
 
47.7

 
 
 
44.2

 
Weighted average voluntary prepayment rates(3)
2.9

 
 
7.5

 
 
 
10.4

 
 
 
8.5

 
 
 
9.1

 
Average credit enhancement(4)
47.9

 
 
8.9

 
 
 
0.6

 
 
 
12.6

 
 
 
2.8

 
2006:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
7,527

 
 
$
690

 
 
 
$
393

 
 
 
$
1,088

 
 
 
$
1,193

 
Weighted average collateral default(1)
53.0
%
 
 
42.1
%
 
 
 
24.4
%
 
 
 
36.3
%
 
 
 
18.1
%
 
Weighted average collateral severities(2)
61.4

 
 
48.3

 
 
 
55.2

 
 
 
47.7

 
 
 
43.7

 
Weighted average voluntary prepayment rates(3)
2.4

 
 
6.1

 
 
 
8.3

 
 
 
7.7

 
 
 
10.1

 
Average credit enhancement(4)
10.3

 
 
2.9

 
 
 
0.1

 
 
 
0.7

 
 
 
—

 
2007 & After:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
341

 
 
$
—

 
 
 
$
—

 
 
 
$
—

 
 
 
$
83

 
Weighted average collateral default(1)
50.4
%
 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
21.9
%
 
Weighted average collateral severities(2)
28.0

 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
39.9

 
Weighted average voluntary prepayment rates(3)
1.4

 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
9.9

 
Average credit enhancement(4)
20.3

 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
20.4

 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
8,026

 
 
$
1,279

 
 
 
$
2,141

 
 
 
$
1,605

 
 
 
$
2,952

 
Weighted average collateral default(1)
52.5
%
 
 
36.7
%
 
 
 
17.4
%
 
 
 
34.2
%
 
 
 
21.5
%
 
Weighted average collateral severities(2)
60.0

 
 
50.3

 
 
 
53.8

 
 
 
47.3

 
 
 
43.5

 
Weighted average voluntary prepayment rates(3)
2.5

 
 
7.0

 
 
 
11.3

 
 
 
8.1

 
 
 
9.6

 
Average credit enhancement(4)
11.4

 
 
5.2

 
 
 
4.9

 
 
 
5.3

 
 
 
2.9

 
__________

(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.
The following table displays activity related to the unrealized credit loss component on debt securities held by us and recognized in our condensed consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2014 and 2013.
 
For the Three Months Ended
 
For the Six Months Ended
  
June 30,
 
June 30,
  
2014
 
2013
 
2014
 
2013
 
(Dollars in millions)
Balance, beginning of period
$
7,096

 
$
9,136

 
$
7,904

 
$
9,214

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

 
2

 
1

 
7

Additions for the credit component on debt securities for which OTTI was previously recognized
8

 
4

 
47

 
8

Reductions for securities no longer in portfolio at period end
(384
)
 
(81
)
 
(437
)
 
(83
)
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
(755
)
 
—

 
(1,453
)
 
—

Reductions for amortization resulting from changes in cash flows expected to be collected over the remaining life of the securities
(94
)
 
(97
)
 
(191
)
 
(182
)
Balance, end of period
$
5,871

 
$
8,964

 
$
5,871

 
$
8,964

Maturity Information
The following table displays the amortized cost and fair value of our AFS securities by major security type and remaining contractual maturity, assuming no principal prepayments, as of June 30, 2014. The 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 June 30, 2014
 
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
 
$
5,663

 
 
$
6,022

 
 
$
—

 
 
$
—

 
 
$
321

 
 
$
339

 
 
$
284

 
 
$
307

 
 
$
5,058

 
 
$
5,376

Freddie Mac
 
5,735

 
 
6,202

 
 
—

 
 
—

 
 
367

 
 
389

 
 
590

 
 
646

 
 
4,778

 
 
5,167

Ginnie Mae
 
461

 
 
528

 
 
—

 
 
—

 
 
—

 
 
—

 
 
66

 
 
75

 
 
395

 
 
453

Alt-A private-label securities
 
5,479

 
 
6,681

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
5,479

 
 
6,681

Subprime private-label securities
 
4,688

 
 
5,705

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
4,688

 
 
5,705

CMBS
 
1,427

 
 
1,508

 
 
—

 
 
—

 
 
1,345

 
 
1,424

 
 
—

 
 
—

 
 
82

 
 
84

Mortgage revenue bonds
 
4,669

 
 
4,560

 
 
26

 
 
27

 
 
209

 
 
212

 
 
467

 
 
470

 
 
3,967

 
 
3,851

Other mortgage-related securities
 
2,781

 
 
2,820

 
 
—

 
 
—

 
 
—

 
 
3

 
 
36

 
 
39

 
 
2,745

 
 
2,778

Total
 
$
30,903

 
 
$
34,026

 
 
$
26

 
 
$
27

 
 
$
2,242

 
 
$
2,367

 
 
$
1,443

 
 
$
1,537

 
 
$
27,192

 
 
$
30,095