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Investments in Securities
 9 Months Ended
Sep. 30, 2016
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, net” in our condensed consolidated statements of operations and comprehensive income. The following table displays our investments in trading securities.
 
As of
 
September 30, 2016
 
December 31, 2015
 
(Dollars in millions)
Mortgage-related securities:
 
 
 
 
 
 
Fannie Mae
 
$
4,931

 
 
 
$
4,813

Freddie Mac
 
808

 
 
 
1,314

Ginnie Mae
 
1,393

 
 
 
426

Alt-A private-label securities
 
313

 
 
 
436

Subprime private-label securities
 
353

 
 
 
644

Commercial mortgage-backed securities (“CMBS”)
 
1,281

 
 
 
2,341

Mortgage revenue bonds
 
191

 
 
 
449

Total mortgage-related securities
 
9,270

 
 
 
10,423

U.S. Treasury securities
 
31,277

 
 
 
29,485

Total trading securities
 
$
40,547

 
 
 
$
39,908

Available-for-Sale Securities
We record available-for-sale (“AFS”) securities at fair value with unrealized gains and losses, recorded net of tax, as a component of “Other comprehensive income (loss)” 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
 
For the Nine
 
Months Ended
 
Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(Dollars in millions)

Gross realized gains
$
400

 
$
94

 
$
845

 
$
907

Gross realized losses
—

 
9

 
12

 
66

Total proceeds (excludes initial sale of securities from new portfolio securitizations)
2,819

 
1,556

 
10,086

 
6,764

The following tables display the amortized cost, gross unrealized gains and losses, and fair value by major security type for AFS securities in our retained mortgage portfolio.
 
As of September 30, 2016
 
Total Amortized Cost(1)
 
Gross Unrealized Gains
 
Gross Unrealized Losses(2)
 
 
Total Fair Value
 
(Dollars in millions)
Fannie Mae
 
$
2,545

 
 
 
$
187

 
 
 
$
(20
)
 
 
 
$
2,712

Freddie Mac
 
534

 
 
 
48

 
 
 
—

 
 
 
582

Ginnie Mae
 
54

 
 
 
7

 
 
 
—

 
 
 
61

Alt-A private-label securities
 
883

 
 
 
535

 
 
 
(1
)
 
 
 
1,417

Subprime private-label securities
 
1,437

 
 
 
486

 
 
 
(4
)
 
 
 
1,919

CMBS
 
971

 
 
 
8

 
 
 
(1
)
 
 
 
978

Mortgage revenue bonds
 
1,639

 
 
 
90

 
 
 
(4
)
 
 
 
1,725

Other mortgage-related securities
 
449

 
 
 
22

 
 
 
—

 
 
 
471

Total
 
$
8,512

 
 
 
$
1,383

 
 
 
$
(30
)
 
 
 
$
9,865

 
As of December 31, 2015
 
Total Amortized Cost(1)
 
Gross Unrealized Gains
 
Gross Unrealized Losses(2)
 
 
Total Fair Value
 
(Dollars in millions)
Fannie Mae
 
$
4,008

 
 
 
$
243

 
 
 
$
(30
)
 
 
 
$
4,221

Freddie Mac
 
4,000

 
 
 
299

 
 
 
—

 
 
 
4,299

Ginnie Mae
 
343

 
 
 
48

 
 
 
—

 
 
 
391

Alt-A private-label securities
 
2,029

 
 
 
653

 
 
 
(4
)
 
 
 
2,678

Subprime private-label securities
 
2,526

 
 
 
759

 
 
 
(4
)
 
 
 
3,281

CMBS
 
1,235

 
 
 
20

 
 
 
—

 
 
 
1,255

Mortgage revenue bonds
 
2,639

 
 
 
99

 
 
 
(37
)
 
 
 
2,701

Other mortgage-related securities
 
1,361

 
 
 
49

 
 
 
(6
)
 
 
 
1,404

Total
 
$
18,141

 
 
 
$
2,170

 
 
 
$
(81
)
 
 
 
$
20,230

__________
(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, net” in our condensed consolidated statements of operations and comprehensive income.
(2) 
Represents the gross unrealized losses on securities for which we have not recognized OTTI, as well as the noncredit component of OTTI and cumulative changes in fair value of securities for which we previously recognized the credit component of OTTI in “Accumulated other comprehensive income” in our condensed consolidated balance sheets.
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.
 
As of September 30, 2016
 
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
)
 
 
$
85

 
 
$
(19
)
 
 
$
502

Alt-A private-label securities
 
(1
)
 
 
38

 
 
—

 
 
—

Subprime private-label securities
 
—

 
 
—

 
 
(4
)
 
 
76

CMBS
 
(1
)
 
 
136

 
 
—

 
 
—

Mortgage revenue bonds
 
(3
)
 
 
16

 
 
(1
)
 
 
5

Total
 
$
(6
)
 
 
$
275

 
 
$
(24
)
 
 
$
583

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2015
 
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
 
$
(8
)
 
 
$
659

 
 
$
(22
)
 
 
$
491

Alt-A private-label securities
 
(1
)
 
 
26

 
 
(3
)
 
 
54

Subprime private-label securities
 
—

 
 
12

 
 
(4
)
 
 
91

Mortgage revenue bonds
 
(35
)
 
 
631

 
 
(2
)
 
 
22

Other mortgage-related securities
 
(6
)
 
 
224

 
 
—

 
 
—

Total
 
$
(50
)
 
 
$
1,552

 
 
$
(31
)
 
 
$
658

Other-Than-Temporary Impairments
We recognized $3 million and $5 million of OTTI for the three months ended September 30, 2016 and 2015, respectively, and $34 million and $187 million of OTTI for the nine months ended September 30, 2016 and 2015, respectively, which are included in “Investment gains, net” in our condensed 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 September 30, 2016 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, 2016
 
 
 
Alt-A
 
Subprime
 
Option ARM
 
Fixed Rate
 
Variable Rate
 
Hybrid Rate
 
(Dollars in millions)
 
Unpaid principal balance
$
2,688

 
 
$
360

 
 
 
$
270

 
 
 
$
548

 
 
 
$
571

 
Weighted average collateral default(1)
37.4
%
 
 
24.3
%
 
 
 
17.0
%
 
 
 
18.8
%
 
 
 
7.4
%
 
Weighted average collateral severities(2)
49.8

 
 
29.3

 
 
 
52.4

 
 
 
38.2

 
 
 
35.0

 
Weighted average voluntary prepayment rates(3)
2.9

 
 
9.3

 
 
 
7.9

 
 
 
8.6

 
 
 
13.9

 
Average credit enhancement(4)
12.8

 
 
3.7

 
 
 
0.4

 
 
 
2.0

 
 
 
1.6

 
__________

(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 Months Ended September 30,
 
For the Nine Months Ended September 30,
  
2016
 
2015
 
2016
 
2015
 
(Dollars in millions)
Beginning balance
$
2,219

 
$
2,557

 
$
2,421

 
$
5,260

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

 
—

 
1

 
—

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

 
1

 
6

 
5

Reductions for securities no longer in portfolio at period end
(3
)
 
(2
)
 
(106
)
 
(1,167
)
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
(223
)
 
—

 
(254
)
 
(1,439
)
Reductions for amortization resulting from changes in cash flows expected to be collected over the remaining life of the securities
(30
)
 
(43
)
 
(104
)
 
(146
)
Ending balance
$
1,964

 
$
2,513

 
$
1,964

 
$
2,513

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. 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 September 30, 2016
 
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
 
$
2,545

 
 
$
2,712

 
 
$
—

 
 
$
—

 
 
$
29

 
 
$
29

 
 
$
60

 
 
$
66

 
 
$
2,456

 
 
$
2,617

Freddie Mac
 
534

 
 
582

 
 
1

 
 
1

 
 
65

 
 
68

 
 
95

 
 
102

 
 
373

 
 
411

Ginnie Mae
 
54

 
 
61

 
 
—

 
 
—

 
 
1

 
 
1

 
 
3

 
 
4

 
 
50

 
 
56

Alt-A private-label securities
 
883

 
 
1,417

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
883

 
 
1,417

Subprime private-label securities
 
1,437

 
 
1,919

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
1,437

 
 
1,919

CMBS
 
971

 
 
978

 
 
776

 
 
782

 
 
154

 
 
156

 
 
—

 
 
—

 
 
41

 
 
40

Mortgage revenue bonds
 
1,639

 
 
1,725

 
 
10

 
 
10

 
 
88

 
 
88

 
 
170

 
 
172

 
 
1,371

 
 
1,455

Other mortgage-related securities
 
449

 
 
471

 
 
—

 
 
—

 
 
—

 
 
1

 
 
3

 
 
3

 
 
446

 
 
467

Total
 
$
8,512

 
 
$
9,865

 
 
$
787

 
 
$
793

 
 
$
337

 
 
$
343

 
 
$
331

 
 
$
347

 
 
$
7,057

 
 
$
8,382