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SECURITIES
 9 Months Ended
Sep. 30, 2018
Investments, Debt and Equity Securities [Abstract]  
SECURITIES
SECURITIES                                      
The Company’s investments in securities include agency, credit risk transfer, non-agency and commercial mortgage-backed securities. All of the debt are classified as available-for-sale. Available-for-sale securities are carried at fair value with changes in fair value recognized in other comprehensive income unless the fair value option is elected. Transactions for securities are recorded on trade date, including TBA securities that meet the regular-way securities scope exception from derivative accounting. Gains and losses on disposals of securities are recorded on trade date based on the specific identification method.

The Company accounts for equity securities at fair value unless it is accounted for under the equity method of accounting or the measurement alternative for equity securities without readily determinable fair values.

Other-Than-Temporary Impairment - Management evaluates available-for-sale securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market conditions warrant such evaluation.

When the fair value of an available-for-sale security is less than its amortized cost, the security is considered impaired. For securities that are impaired, the Company determines if it (1) has the intent to sell the security, (2) is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, or (3) does not expect to recover the entire amortized cost basis of the security.  Further, the security is analyzed for credit loss (the difference between the present value of cash flows expected to be collected and the amortized cost basis). The credit loss, if any, will then be recognized in the Consolidated Statements of Comprehensive Income (Loss), while the balance of losses related to other factors will be recognized as a component of Other comprehensive income (loss). There was no other-than-temporary impairment recognized for the three or nine months ended September 30, 2018 and 2017.

Agency Mortgage-Backed Securities - The Company invests in mortgage pass-through certificates, collateralized mortgage obligations and other mortgage-backed securities representing interests in or obligations backed by pools of residential or multifamily mortgage loans and certificates. Many of the underlying loans and certificates are guaranteed by the Government National Mortgage Association (“Ginnie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or the Federal National Mortgage Association (“Fannie Mae”) (collectively, “Agency mortgage-backed securities”). 

Agency mortgage-backed securities may include forward contracts for Agency mortgage-backed securities purchases or sales of a generic pool, on a to-be-announced basis (“TBA securities”). TBA securities without intent to accept delivery (“TBA derivatives”),
are accounted for as derivatives as discussed in the “Derivative Instruments” Note.

Credit Risk Transfer Securities - CRT securities are risk sharing instruments issued by Fannie Mae and Freddie Mac, and similarly structured transactions arranged by third party market participants. CRT securities are designed to synthetically transfer mortgage credit risk from Fannie Mae and Freddie Mac to private investors.

Non-Agency Mortgage-Backed Securities- The Company invests in non-Agency mortgage-backed securities such as those issued in non-performing loan (“NPL”) and re-performing loan (“RPL”) securitizations.

Commercial Mortgage-Backed Securities (“Commercial Securities”) - Certain commercial mortgage-backed securities are classified as available-for-sale and reported at fair value with unrealized gains and losses reported as a component of Other comprehensive income (loss). Management evaluates such Commercial Securities for other-than-temporary impairment at least quarterly. The Company elected the fair value option on certain Commercial Securities, including conduit commercial mortgage-backed securities, to simplify the accounting where the unrealized gains and losses on these financial instruments are recorded through earnings.

Agency mortgage-backed securities, non-agency mortgage-backed securities and CRT securities are referred to herein as “Residential Securities.” Although the Company generally intends to hold most of its Residential Securities until maturity, it may, from time to time, sell any of its Residential Securities as part of the overall management of its portfolio.
The following represents a rollforward of the activity for the Company’s securities:

 
September 30, 2018
 
Residential Securities
 
Commercial Securities
 
Total
 
(dollars in thousands)
Beginning Balance January 1
$
92,300,821

 
$
262,751

 
$
92,563,572

Purchases
25,395,018

 
62,402

 
25,457,420

Sales
(14,532,225
)
 
(40,900
)
 
(14,573,125
)
Principal paydowns
(8,695,247
)
 
(96,397
)
 
(8,791,644
)
Amortization / accretion
(485,804
)
 
501

 
(485,303
)
Fair value adjustment
(2,830,447
)
 
(1,862
)
 
(2,832,309
)
Ending Balance September 30
$
91,152,116

 
$
186,495

 
$
91,338,611




The following tables present the Company’s securities that were carried at fair value at September 30, 2018 and December 31, 2017:
 
September 30, 2018
 
Principal / Notional
 
Remaining Premium
 
Remaining Discount
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
Agency
(dollars in thousands)
Fixed-rate pass-through
$
80,917,596

 
$
4,376,927

 
$
(7,643
)
 
$
85,286,880

 
$
28,156

 
$
(3,664,420
)
 
$
81,650,616

Adjustable-rate pass-through
5,415,559

 
268,852

 
(1,568
)
 
5,682,843

 
9,098

 
(164,520
)
 
5,527,421

CMO
11,610

 
55

 
—

 
11,665

 
—

 
(124
)
 
11,541

Interest-only
6,248,885

 
1,226,033

 
—

 
1,226,033

 
2,500

 
(340,766
)
 
887,767

Multifamily
1,204,773

 
8,596

 
(8,242
)
 
1,205,127

 
306

 
(31,135
)
 
1,174,298

Reverse mortgages
34,552

 
4,272

 
—

 
38,824

 
—

 
(339
)
 
38,485

Total Agency Securities
$
93,832,975

 
$
5,884,735

 
$
(17,453
)
 
$
93,451,372

 
$
40,060

 
$
(4,201,304
)
 
$
89,290,128

Residential Credit
 

 
 

 
 

 
 

 
 

 
 

 
 

CRT
$
651,360

 
$
33,670

 
$
(14,996
)
 
$
670,034

 
$
18,537

 
$
(50
)
 
$
688,521

Alt-A
239,990

 
385

 
(36,910
)
 
203,465

 
12,730

 
(131
)
 
216,064

Prime
386,193

 
2,111

 
(25,419
)
 
362,885

 
15,341

 
(596
)
 
377,630

Subprime
449,425

 
1,973

 
(67,841
)
 
383,557

 
45,238

 
(109
)
 
428,686

NPL/RPL
3,431

 
—

 
(37
)
 
3,394

 
45

 
—

 
3,439

Prime Jumbo (>= 2010 Vintage)
137,953

 
587

 
(4,644
)
 
133,896

 
49

 
(3,977
)
 
129,968

Prime Jumbo (>= 2010 Vintage) Interest-Only
884,325

 
13,265

 
—

 
13,265

 
4,415

 
—

 
17,680

Total Residential Credit Securities
$
2,752,677

 
$
51,991

 
$
(149,847
)
 
$
1,770,496

 
$
96,355

 
$
(4,863
)
 
$
1,861,988

Total Residential Securities
$
96,585,652

 
$
5,936,726

 
$
(167,300
)
 
$
95,221,868

 
$
136,415

 
$
(4,206,167
)
 
$
91,152,116

Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Securities
196,407

 
339

 
(9,903
)
 
186,843

 
575

 
(923
)
 
186,495

Total Securities
$
96,782,059

 
$
5,937,065

 
$
(177,203
)
 
$
95,408,711

 
$
136,990

 
$
(4,207,090
)
 
$
91,338,611

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
Principal / Notional
 
Remaining Premium
 
Remaining Discount
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
Agency
(dollars in thousands)
Fixed-rate pass-through
$
78,509,335

 
$
4,514,815

 
$
(1,750
)
 
$
83,022,400

 
$
140,115

 
$
(1,178,673
)
 
$
81,983,842

Adjustable-rate pass-through
6,760,991

 
277,212

 
(1,952
)
 
7,036,251

 
15,776

 
(103,121
)
 
6,948,906

Interest-only
6,804,715

 
1,326,761

 
—

 
1,326,761

 
1,863

 
(242,862
)
 
1,085,762

Multifamily
490,753

 
5,038

 
(341
)
 
495,450

 
84

 
(1,845
)
 
493,689

Reverse mortgages
35,000

 
4,527

 
—

 
39,527

 
37

 
—

 
39,564

Total Agency Securities
$
92,600,794

 
$
6,128,353

 
$
(4,043
)
 
$
91,920,389

 
$
157,875

 
$
(1,526,501
)
 
$
90,551,763

Residential Credit
 

 
 

 
 

 
 

 
 

 
 

 
 

CRT
$
593,027

 
$
25,463

 
$
(3,456
)
 
$
615,034

 
$
36,730

 
$
—

 
$
651,764

Alt-A
204,213

 
499

 
(34,000
)
 
170,712

 
13,976

 
(802
)
 
183,886

Prime
197,756

 
358

 
(24,158
)
 
173,956

 
18,804

 
—

 
192,760

Subprime
554,470

 
2,037

 
(78,561
)
 
477,946

 
56,024

 
(90
)
 
533,880

NPL/RPL
42,585

 
14

 
(117
)
 
42,482

 
506

 
—

 
42,988

Prime Jumbo (>= 2010 Vintage)
130,025

 
627

 
(3,956
)
 
126,696

 
1,038

 
(1,112
)
 
126,622

Prime Jumbo (>= 2010 Vintage) Interest-Only
989,052

 
15,287

 
—

 
15,287

 
1,871

 
—

 
17,158

Total Residential Credit Securities
2,711,128

 
44,285

 
(144,248
)
 
1,622,113

 
128,949

 
(2,004
)
 
1,749,058

Total Residential Securities
$
95,311,922

 
$
6,172,638

 
$
(148,291
)
 
$
93,542,502

 
$
286,824

 
$
(1,528,505
)
 
$
92,300,821

Commercial
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial Securities
$
270,288

 
$
680

 
$
(9,731
)
 
$
261,237

 
$
1,843

 
$
(329
)
 
$
262,751

Total Securities
$
95,582,210

 
$
6,173,318

 
$
(158,022
)
 
$
93,803,739

 
$
288,667

 
$
(1,528,834
)
 
$
92,563,572



The following table presents the Company’s Agency mortgage-backed securities portfolio concentration by issuing Agency at September 30, 2018 and December 31, 2017:
 
 
September 30, 2018
 
December 31, 2017
Investment Type
 
(dollars in thousands)
Fannie Mae
 
$
59,568,293

 
$
63,361,415

Freddie Mac
 
29,636,443

 
27,091,978

Ginnie Mae
 
85,392

 
98,370

Total
 
$
89,290,128

 
$
90,551,763


 
Actual maturities of the Company’s Residential Securities portfolio are generally shorter than stated contractual maturities because actual maturities of the portfolio are generally affected by periodic payments and prepayments of principal on underlying mortgages.

The following table summarizes the Company’s available-for-sale Residential Securities at September 30, 2018 and December 31, 2017, according to their estimated weighted average life classifications:
 
 
September 30, 2018
 
December 31, 2017
 
 
Estimated Fair Value
 
Amortized Cost
 
Estimated Fair Value
 
Amortized Cost
Weighted Average Life
 
(dollars in thousands)
Less than one year
 
$
19,335

 
$
19,339

 
$
471,977

 
$
476,538

Greater than one year through five years
 
10,442,022

 
10,737,675

 
13,838,890

 
13,925,749

Greater than five years through ten years
 
79,260,878

 
83,003,720

 
77,273,833

 
78,431,852

Greater than ten years
 
1,429,881

 
1,461,134

 
716,121

 
708,363

Total
 
$
91,152,116

 
$
95,221,868

 
$
92,300,821

 
$
93,542,502


 
The weighted average lives of the Residential Securities at September 30, 2018 and December 31, 2017 in the table above are based upon projected principal prepayment rates. The actual weighted average lives of the Residential Securities could be longer or shorter than projected.

The following table presents the gross unrealized losses and estimated fair value of the Company’s Agency mortgage-backed securities, accounted for as available-for-sale where the fair value option has not been elected, by length of time that such securities have been in a continuous unrealized loss position at September 30, 2018 and December 31, 2017.
 
 
September 30, 2018
 
December 31, 2017
 
 
Estimated Fair
Value (1)
 
Gross Unrealized
Losses (1)
 
Number of
Securities (1)
 
Estimated Fair
Value (1)
 
Gross Unrealized
Losses (1)
 
Number of
Securities (1)
 
 
(dollars in thousands)
Less than 12 Months
 
$
46,457,384

 
$
(1,401,491
)
 
2,213

 
$
39,878,158

 
$
(272,234
)
 
1,114

12 Months or More
 
40,098,674

 
(2,458,708
)
 
1,233

 
39,491,238

 
(1,011,405
)
 
911

Total
 
$
86,556,058

 
$
(3,860,199
)
 
3,446

 
$
79,369,396

 
$
(1,283,639
)
 
2,025

(1) 
Excludes interest-only mortgage-backed securities and reverse mortgages.

The decline in value of these securities is solely due to market conditions and not the quality of the assets.  Substantially all of the Agency mortgage-backed securities are “AAA” rated or carry an implied “AAA” rating.  The investments are not considered to be other-than-temporarily impaired because the Company currently has the ability and intent to hold the investments to maturity or for a period of time sufficient for a forecasted market price recovery up to or beyond the cost of the investments, and it is not more likely than not that the Company will be required to sell the investments before recovery of the amortized cost bases, which may be maturity. 

During the three and nine months ended September 30, 2018, the Company disposed of $9.1 billion and $14.5 billion of Residential Securities, resulting in net realized (losses) of ($322.4) million and ($372.5) million, respectively. During the three and nine months ended September 30, 2017, the Company disposed of $6.8 billion and $11.4 billion of Residential Securities, resulting in net realized losses of ($10.2) million and ($14.3) million, respectively.