We invest in real estate securities that we acquire from third parties or create and retain from our Sequoia securitizations. The following table presents the fair values of our real estate securities by type at March 31, 2020 and December 31, 2019.

Our real estate securities include mortgage-backed securities, which are presented in accordance with their general position within a securitization structure based on their rights to cash flows. Senior securities are those interests in a securitization that generally have the first right to cash flows and are last in line to absorb losses. Mezzanine securities are interests that are generally subordinate to senior securities in their rights to receive cash flows, and have subordinate securities below them that are first to absorb losses. Many of our mezzanine classified securities were initially rated AA through BBB- and issued in 2012 or later. Subordinate securities are all interests below mezzanine. Excluding our re-performing loan securities, nearly all of our residential securities are supported by collateral that was designated as prime at the time of issuance.

We elected the fair value option for certain securities and classify them as trading securities. Our trading securities include both residential and multifamily mortgage-backed securities, and our residential securities also include securities backed by re-performing loans ("RPL"). At March 31, 2020 and December 31, 2019, our senior trading securities included $40 million and $64 million of interest-only securities, respectively, for which there is no principal balance, and the unpaid principal balance of our remaining senior trading securities was zero and $84 million, respectively. Our interest-only securities included $19 million and $36 million of A-IO-S securities at March 31, 2020 and December 31, 2019, respectively, which are securities we retained from certain of our Sequoia securitizations that represent certificated servicing strips. At March 31, 2020 and December 31, 2019, our senior trading securities included $13 million and $55 million of RPL securities, respectively.

At March 31, 2020 and December 31, 2019, our mezzanine trading securities had an unpaid principal balance of $69 million and $537 million, respectively. At March 31, 2020 and December 31, 2019, the fair value of our mezzanine securities was $54 million and $538 million, respectively, and included $28 million and $39 million of Sequoia securities, respectively, zero and $395 million of multifamily securities, respectively, and $26 million and $104 million of other third-party residential securities, respectively, including $5 million and $30 million of RPL securities, respectively.

At March 31, 2020 and December 31, 2019, our subordinate trading securities had an unpaid principal balance of $283 million and $302 million, respectively. At March 31, 2020 and December 31, 2019, the fair value of our subordinate securities was $71 million and $172 million, respectively, and included $20 million and $90 million, respectively, of Agency residential mortgage credit risk transfer (or "CRT") securities, $47 million and $82 million, respectively, of other third-party residential securities, including $44 million and $76 million of RPL securities, respectively.

During the three months ended March 31, 2020 and 2019, we acquired $56 million and $154 million (principal balance), respectively, of securities for which we elected the fair value option and classified as trading, and sold $619 million and $29 million, respectively, of such securities. During the three months ended March 31, 2020 and 2019, we recorded a net market valuation loss of $263 million and a net market valuation gain of $22 million, respectively, on trading securities, included in Investment fair value changes, net on our consolidated statements of income (loss).

At March 31, 2020 and December 31, 2019, our available-for-sale securities were comprised of $106 million and $230 million of residential mortgage-backed securities, respectively, and $23 million and $9 million of multifamily mortgage-backed securities, respectively. During the three months ended March 31, 2020, we purchased $31 million and $5 million of AFS securities, respectively, and sold $46 million and $42 million of AFS securities, respectively, which resulted in net realized gains of $4 million and $7 million, respectively.

We often purchase AFS securities at a discount to their outstanding principal balances. To the extent we purchase an AFS security that has a likelihood of incurring a loss, we do not amortize into income the portion of the purchase discount that we do not expect to collect due to the inherent credit risk of the security. We may also expense a portion of our investment in the security to the extent we believe that principal losses will exceed the purchase discount. We designate any amount of unpaid principal balance that we do not expect to receive and thus do not expect to earn or recover as a credit reserve on the security. Any remaining net unamortized discounts or premiums on the security are amortized into income over time using the effective yield method.

At March 31, 2020, we had $20 million of AFS securities with contractual maturities less than five years, $2 million with contractual maturities greater than five years but less than ten years, and the remainder of our AFS securities had contractual maturities greater than ten years.



March 31, 2020
(In Thousands)	Senior		Mezzanine		Subordinate			Total
Principal balance	$	—	$	—	$	280,024		$	280,024
Credit reserve	—		—		(37,717		)	(37,717		)
Unamortized discount, net	—		—		(109,538		)	(109,538		)
Amortized cost	—		—		132,769			132,769
Gross unrealized gains	—		—		22,315			22,315
Gross unrealized losses	—		—		(24,316		)	(24,316		)
Allowance for credit losses	—		—		(1,525		)	(1,525		)
Carrying Value	$	—	$	—	$	129,243		$	129,243



December 31, 2019
(In Thousands)	Senior			Mezzanine			Subordinate			Total
Principal balance	$	26,331		$	13,512		$	264,234		$	304,077
Credit reserve	(533		)	—			(32,407		)	(32,940		)
Unamortized discount, net	(10,427		)	(527		)	(113,301		)	(124,255		)
Amortized cost	15,371			12,985			118,526			146,882
Gross unrealized gains	10,450			702			81,329			92,481
Gross unrealized losses	(29		)	—			—			(29		)
Carrying Value	$	25,792		$	13,687		$	199,855		$	239,334



	Three Months Ended March 31, 2020
	Credit Reserve			Unamortized Discount, Net
(In Thousands)	Credit Reserve			Unamortized Discount, Net
Beginning balance	$	32,940		$	124,255
Amortization of net discount	—			(1,754		)
Realized credit losses	(519		)	—
Acquisitions	5,184			777
Sales, calls, other	(206		)	(13,422		)
(Release of) transfers to credit reserves, net	318			(318		)
Ending Balance	$	37,717		$	109,538



	Less Than 12 Consecutive Months							12 Consecutive Months or Longer
	Amortized Cost		Unrealized Losses			Fair Value		Amortized Cost		Unrealized Losses			Fair Value
(In Thousands)	Amortized Cost		Unrealized Losses			Fair Value		Amortized Cost		Unrealized Losses			Fair Value
March 31, 2020	$	97,730	$	(24,316	)	$	71,889	$	—	$	—		$	—
December 31, 2019	—		—			—		5,830		(29		)	5,801

At March 31, 2020, after giving effect to purchases, sales, and extinguishment due to credit losses, our consolidated balance sheet included 100 AFS securities, of which 57 were in an unrealized loss position and zero were in a continuous unrealized loss position for 12 consecutive months or longer. At December 31, 2019, our consolidated balance sheet included 107 AFS securities, of which one was in an unrealized loss position and one was in a continuous unrealized loss position for 12 consecutive months or longer.

Gross unrealized losses on our AFS securities were $24 million at March 31, 2020. Pursuant to our adoption of ASU 2016-13, "Financial Instruments - Credit Losses" in the first quarter of 2020, we evaluate all securities in an unrealized loss position to determine if the impairment is credit-related (resulting in an allowance for credit losses recorded in earnings) or non-credit-related (resulting in an unrealized loss through other comprehensive income). At March 31, 2020, we did not intend to sell any of our AFS securities that were in an unrealized loss position, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost basis, which may be at their maturity. We review our AFS securities that are in an unrealized loss position to identify those securities with losses based on an assessment of changes in expected cash flows for such securities, which considers recent security performance and expected future performance of the underlying collateral.

At March 31, 2020, our allowance for credit losses related to our AFS securities was $2 million. AFS securities for which an allowance is recognized have experienced, or are expected to experience, credit-related adverse cash flow changes. In determining our estimate of cash flows for AFS securities we may consider factors such as structural credit enhancement, past and expected future performance of underlying mortgage loans, including timing of expected future cash flows, which are informed by prepayment rates, default rates, loss severities, delinquency rates, percentage of non-performing loans, FICO scores at loan origination, year of origination, loan-to-value ratios, and geographic concentrations, as well as general market assessments. Changes in our evaluation of these factors impacted the cash flows expected to be collected at the assessment date and were used to determine if there were credit-related adverse cash flows and if so, the amount of credit related losses. Significant judgment is used in both our analysis of the expected cash flows for our AFS securities and any determination of security credit losses.



	Three Months Ended
(In Thousands)	March 31, 2020
Beginning balance allowance for credit losses	$	—
Transition impact from adoption of new standard	—
Additions to allowance for credit losses on securities for which credit losses were not previously recorded	1,525
Allowance on purchased financial assets with credit deterioration	—
Reduction for securities sold during the period	—
Write-offs charged against allowance	—
Recoveries of amounts previously written off	—
Ending balance of allowance for credit losses	$	1,525

Gains and losses from the sale of AFS securities are recorded as Realized gains, net, in our consolidated statements of income (loss). The following table presents the gross realized gains and losses on sales and calls of AFS securities for the three months ended March 31, 2020 and 2019.



	Three Months Ended March 31,
(In Thousands)	2020			2019
Gross realized gains - sales	$	7,705		$	6,660
Gross realized gains - calls	—			4,026
Gross realized losses - sales	(3,853		)	—
Total Realized Gains on Sales and Calls of AFS Securities, net	$	3,852		$	10,686