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Investments in Securities
12 Months Ended
Dec. 31, 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 consolidated statements of operations and comprehensive income. The following table displays our investments in trading securities as of December 31, 2014 and 2013.
 
As of December 31,
 
2014
 
2013
 
(Dollars in millions)
Mortgage-related securities:
 
 
 
Fannie Mae
$
4,940

 
$
5,870

Freddie Mac
1,369

 
1,839

Ginnie Mae
166

 
407

Alt-A private-label securities
920

 
1,516

Subprime private-label securities
1,307

 
1,448

CMBS
2,515

 
2,718

Mortgage revenue bonds
722

 
565

Other mortgage-related securities
99

 
99

Total mortgage-related securities
12,038

 
14,462

U.S. Treasury securities
19,466

 
16,306

Total trading securities
$
31,504

 
$
30,768

The following table displays information about our net trading gains for the years ended December 31, 2014, 2013 and 2012.
 
For the Year Ended December 31,
 
2014
 
2013
 
2012
 
 
(Dollars in millions)
Net trading gains
 
$
485

 
 
$
260

 
 
$
1,004

Net trading gains recorded in the period related to securities still held at period end
 
420

 
 
297

 
 
1,037

Available-for-Sale Securities
We record 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 (losses), net” in our consolidated statements of operations and comprehensive income.
The following table displays the gross realized gains, losses and proceeds on sales of AFS securities, excluding proceeds from the initial sale of securities from new portfolio securitizations, for the years ended December 31, 2014, 2013 and 2012.
 
For the Year Ended December 31,
 
2014
 
2013
 
2012
 
(Dollars in millions)
Gross realized gains
$
569

 
$
1,632

 
$
40

Gross realized losses
(5
)
 
(979
)
 
(16
)
Total proceeds
3,265

 
15,157

 
634

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 December 31, 2014 and 2013.
 
 
As of December 31, 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
 
$
5,330

 
 
 
$
328

 
 
 
$

 
 
 
$
(19
)
 
 
$
5,639

Freddie Mac
 
5,100

 
 
 
428

 
 
 

 
 
 

 
 
5,528

Ginnie Mae
 
416

 
 
 
60

 
 
 

 
 
 

 
 
476

Alt-A private-label securities
 
4,638

 
 
 
1,055

 
 
 
(15
)
 
 
 

 
 
5,678

Subprime private-label securities
 
4,103

 
 
 
1,161

 
 
 
(9
)
 
 
 
(15
)
 
 
5,240

CMBS
 
1,341

 
 
 
56

 
 
 

 
 
 

 
 
1,397

Mortgage revenue bonds
 
3,859

 
 
 
177

 
 
 
(8
)
 
 
 
(5
)
 
 
4,023

Other mortgage-related securities
 
2,626

 
 
 
183

 
 
 
(23
)
 
 
 
(113
)
 
 
2,673

Total
 
$
27,413

 
 
 
$
3,448

 
 
 
$
(55
)
 
 
 
$
(152
)
 
 
$
30,654



 
 
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


s

(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 “Investment gains (losses), net” in our consolidated statements of operations and comprehensive income.
(2) 
Represents the noncredit component of OTTI 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 OTTI.
(3) 
Represents the gross unrealized losses on securities for which we have not recognized OTTI.
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 December 31, 2014 and 2013.
 
 
As of December 31, 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
 
$

 
 
$
113

 
 
$
(19
)
 
 
$
627

Alt-A private-label securities
 
(2
)
 
 
171

 
 
(13
)
 
 
112

Subprime private-label securities
 

 
 

 
 
(24
)
 
 
460

Mortgage revenue bonds
 
(2
)
 
 
47

 
 
(11
)
 
 
155

Other mortgage-related securities
 

 
 
8

 
 
(136
)
 
 
1,021

Total
 
$
(4
)
 
 
$
339

 
 
$
(203
)
 
 
$
2,375

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
For AFS securities, OTTI 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. Additionally, OTTI is 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.
We recognized $90 million, $64 million and $713 million of OTTI for the years ended December 31, 2014, 2013 and 2012, respectively, which are included in “Investment gains (losses), net” in our consolidated statements of operations and comprehensive income.
The following table displays the modeled attributes, including default rates and severities, which were used to determine as of December 31, 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 December 31, 2014
 
 
 
Alt-A
 
Subprime
 
Option ARM
 
Fixed Rate
 
Variable Rate
 
Hybrid Rate
 
(Dollars in millions)
 
Vintage Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004 & Prior:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
110

 
 
$
110

 
 
 
$
794

 
 
 
$
121

 
 
 
$
305

 
Weighted average collateral default(1)
26.4
%
 
 
26.4
%
 
 
 
8.3
%
 
 
 
17.2
%
 
 
 
11.7
%
 
Weighted average collateral severities(2)
56.3

 
 
54.6

 
 
 
45.9

 
 
 
37.8

 
 
 
36.4

 
Weighted average voluntary prepayment rates(3)
8.2

 
 
9.2

 
 
 
14.0

 
 
 
9.4

 
 
 
10.7

 
Average credit enhancement(4)
39.2

 
 
3.9

 
 
 
11.3

 
 
 
23.3

 
 
 
9.9

 
2005:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
8

 
 
$
451

 
 
 
$
771

 
 
 
$
277

 
 
 
$
1,096

 
Weighted average collateral default(1)
47.0
%
 
 
31.5
%
 
 
 
19.9
%
 
 
 
27.1
%
 
 
 
20.7
%
 
Weighted average collateral severities(2)
69.7

 
 
53.6

 
 
 
49.0

 
 
 
47.2

 
 
 
41.2

 
Weighted average voluntary prepayment rates(3)
3.9

 
 
7.4

 
 
 
10.1

 
 
 
8.3

 
 
 
9.2

 
Average credit enhancement(4)
60.3

 
 
7.5

 
 
 
0.6

 
 
 
13.2

 
 
 
3.1

 
2006:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
6,718

 
 
$
571

 
 
 
$
374

 
 
 
$
873

 
 
 
$
872

 
Weighted average collateral default(1)
48.1
%
 
 
39.1
%
 
 
 
22.5
%
 
 
 
26.8
%
 
 
 
11.9
%
 
Weighted average collateral severities(2)
66.7

 
 
46.6

 
 
 
53.1

 
 
 
44.2

 
 
 
40.7

 
Weighted average voluntary prepayment rates(3)
2.3

 
 
6.3

 
 
 
8.4

 
 
 
7.4

 
 
 
12.5

 
Average credit enhancement(4)
15.0

 
 
1.5

 
 
 
0.1

 
 
 
1.1

 
 
 

 
2007 & After:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
328

 
 
$

 
 
 
$

 
 
 
$

 
 
 
$
77

 
Weighted average collateral default(1)
46.1
%
 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
20.7
%
 
Weighted average collateral severities(2)
25.5

 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
36.2

 
Weighted average voluntary prepayment rates(3)
1.3

 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
9.8

 
Average credit enhancement(4)
20.6

 
 
N/A

 
 
 
N/A

 
 
 
N/A

 
 
 
20.5

 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid principal balance
$
7,164

 
 
$
1,132

 
 
 
$
1,939

 
 
 
$
1,271

 
 
 
$
2,350

 
Weighted average collateral default(1)
47.7
%
 
 
34.8
%
 
 
 
15.7
%
 
 
 
25.9
%
 
 
 
16.3
%
 
Weighted average collateral severities(2)
64.8

 
 
49.7

 
 
 
49.5

 
 
 
44.5

 
 
 
40.4

 
Weighted average voluntary prepayment rates(3)
2.4

 
 
7.0

 
 
 
11.4

 
 
 
7.8

 
 
 
10.6

 
Average credit enhancement(4)
15.7

 
 
4.1

 
 
 
4.9

 
 
 
5.8

 
 
 
3.4

 
__________

(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 consolidated statements of operations and comprehensive income for the years ended December 31, 2014 and 2013.
 
For the Year Ended
 
December 31,
 
2014
 
2013
 
(Dollars in millions)
Balance, beginning of period
$
7,904

 
$
9,214

Additions for the credit component on debt securities for which OTTI was not previously recognized
1

 
20

Additions for the credit component on debt securities for which OTTI was previously recognized
58

 
10

Reductions for securities no longer in portfolio at period end
(904
)
 
(543
)
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
(1,453
)
 
(399
)
Reductions for amortization resulting from changes in cash flows expected to be collected over the remaining life of the securities
(346
)
 
(398
)
Balance, end of period
$
5,260

 
$
7,904

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 December 31, 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 December 31, 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
 
$
5,330

 
 
$
5,639

 
 
$

 
 
$

 
 
$
253

 
 
$
266

 
 
$
255

 
 
$
274

 
 
$
4,822

 
 
$
5,099

Freddie Mac
 
5,100

 
 
5,528

 
 

 
 

 
 
280

 
 
295

 
 
488

 
 
533

 
 
4,332

 
 
4,700

Ginnie Mae
 
416

 
 
476

 
 

 
 

 
 

 
 

 
 
62

 
 
70

 
 
354

 
 
406

Alt-A private-label securities
 
4,638

 
 
5,678

 
 

 
 

 
 

 
 

 
 

 
 

 
 
4,638

 
 
5,678

Subprime private-label securities
 
4,103

 
 
5,240

 
 

 
 

 
 

 
 

 
 

 
 

 
 
4,103

 
 
5,240

CMBS
 
1,341

 
 
1,397

 
 

 
 

 
 
1,264

 
 
1,320

 
 

 
 

 
 
77

 
 
77

Mortgage revenue bonds
 
3,859

 
 
4,023

 
 
16

 
 
16

 
 
168

 
 
170

 
 
340

 
 
343

 
 
3,335

 
 
3,494

Other mortgage-related securities
 
2,626

 
 
2,673

 
 

 
 

 
 

 
 
2

 
 
36

 
 
38

 
 
2,590

 
 
2,633

Total
 
$
27,413

 
 
$
30,654

 
 
$
16

 
 
$
16

 
 
$
1,965

 
 
$
2,053

 
 
$
1,181

 
 
$
1,258

 
 
$
24,251

 
 
$
27,327

Weighted average yield(1)
 
5.52
%
 
 
 
 
 
6.72
%
 
 
 
 
 
4.61
%
 
 
 
 
 
5.97
%
 
 
 
 
 
5.58
%
 
 
 
__________

(1) 
Yields are determined by dividing interest income (including amortization and accretion of premiums, discounts and other cost basis adjustments) by amortized cost balances as of year-end. Yields on tax-exempt obligations have been computed on a tax equivalent basis.