5. SECURITIES

The Company’s investments in securities include agency, credit risk transfer, non-agency and commercial mortgage-backed securities. All of the debt securities 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 in which case changes in fair value are recognized in Net unrealized gains (losses) on instruments measured at fair value through earnings in the Consolidated Statements of Comprehensive Income (Loss). 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.

Other-Than-Temporary Impairment – Management evaluates available-for-sale securities and held-to-maturity debt 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). When the fair value of a held-to-maturity security is less than the cost, the Company performs an analysis to determine whether it expects to recover the entire cost basis of the security. There was no other-than-temporary impairment recognized for the three months ended March 31, 2019 and 2018.

Agency Mortgage-Backed Securities - The Company invests in mortgage pass-through certificates, collateralized mortgage obligations and other MBS 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.

CRT 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 prime loan, Alt-A loan, subprime loan, non-performing loan (“NPL”) and re-performing loan (“RPL”) securitizations.

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.

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.

The following represents a rollforward of the activity for the Company’s securities:



March 31, 2019
	Residential Securities			Commercial Securities			Total
	(dollars in thousands)
Beginning balance January 1	$	92,467,030		$	156,758		$	92,623,788
Purchases	23,649,271			98,633			23,747,904
Sales	(10,456,466		)	(39,834		)	(10,496,300		)
Principal paydowns	(2,343,260		)	(42,859		)	(2,386,119		)
Amortization / accretion	(247,447		)	78			(247,369		)
Fair value adjustment	1,748,912			2,455			1,751,367
Ending balance March 31	$	104,818,040		$	175,231		$	104,993,271

The following tables present the Company’s Residential Investment Securities portfolio that was carried at their fair value at March 31, 2019 and December 31, 2018:



	March 31, 2019
	Principal / Notional		Remaining Premium		Remaining Discount			Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Agency	(dollars in thousands)
Fixed-rate pass-through	$	92,064,633	$	4,060,260	$	(41,614	)	$	96,083,279	$	789,557	$	(1,118,629	)	$	95,754,207
Adjustable-rate pass-through	4,046,258		204,672		(1,317		)	4,249,613		7,395		(104,972		)	4,152,036
CMO	10,699		50		—			10,749		199		—			10,948
Interest-only	5,522,373		1,070,160		—			1,070,160		1,900		(239,282		)	832,778
Multifamily	2,186,848		18,783		(5,249		)	2,200,382		104,664		—			2,305,046
Reverse mortgages	34,415		4,031		—			38,446		68		(3		)	38,511
Total agency securities	$	103,865,226	$	5,357,956	$	(48,180	)	$	103,652,629	$	903,783	$	(1,462,886	)	$	103,093,526
Residential credit
CRT	$	593,949	$	24,891	$	(16,883	)	$	601,957	$	9,488	$	(3,500	)	$	607,945
Alt-A	215,630		374		(30,467		)	185,537		12,926		(95		)	198,368
Prime	312,534		2,205		(21,319		)	293,420		16,786		(179		)	310,027
Subprime	393,362		1,480		(61,911		)	332,931		38,800		(446		)	371,285
NPL/RPL	3,431		—		(22		)	3,409		27		—			3,436
Prime jumbo (>=2010 vintage)	220,289		1,070		(4,626		)	216,733		3,004		(915		)	218,822
Prime jumbo (>=2010 vintage) Interest-only	837,030		12,445		—			12,445		2,517		(331		)	14,631
Total residential credit securities	$	2,576,225	$	42,465	$	(135,228	)	$	1,646,432	$	83,548	$	(5,466	)	$	1,724,514
Total residential securities	$	106,441,451	$	5,400,421	$	(183,408	)	$	105,299,061	$	987,331	$	(1,468,352	)	$	104,818,040
Commercial
Commercial securities	$	180,992	$	497	$	(9,513	)	$	171,976	$	3,546	$	(291	)	$	175,231
Total securities	$	106,622,443	$	5,400,918	$	(192,921	)	$	105,471,037	$	990,877	$	(1,468,643	)	$	104,993,271

	December 31, 2018
	Principal / Notional		Remaining Premium		Remaining Discount			Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Agency	(dollars in thousands)
Fixed-rate pass-through	$	81,144,650	$	3,810,808	$	(36,987	)	$	84,918,471	$	264,443	$	(2,130,362	)	$	83,052,552
Adjustable-rate pass-through	4,835,983		247,981		(1,337		)	5,082,627		7,127		(151,770		)	4,937,984
CMO	11,113		53		—			11,166		55		—			11,221
Interest-only	6,007,008		1,179,855		—			1,179,855		1,446		(307,412		)	873,889
Multifamily	1,802,292		12,329		(5,332		)	1,809,289		32,753		(3,477		)	1,838,565
Reverse mortgages	34,650		4,175		—			38,825		69		(110		)	38,784
Total agency investments	$	93,835,696	$	5,255,201	$	(43,656	)	$	93,040,233	$	305,893	$	(2,593,131	)	$	90,752,995
Residential credit
CRT	$	542,374	$	28,444	$	(15,466	)	$	555,352	$	7,879	$	(11,134	)	$	552,097
Alt-A	202,889		349		(31,238		)	172,000		10,559		(198		)	182,361
Prime	353,108		2,040		(23,153		)	331,995		12,821		(830		)	343,986
Subprime	423,166		1,776		(65,005		)	359,937		35,278		(594		)	394,621
NPL/RPL	3,431		—		(30		)	3,401		37		—			3,438
Prime jumbo (>=2010 vintage)	225,567		1,087		(4,691		)	221,963		1,439		(2,744		)	220,658
Prime jumbo (>=2010 vintage) Interest-only	860,085		12,820		—			12,820		4,054		—			16,874
Total residential credit securities	$	2,610,620	$	46,516	$	(139,583	)	$	1,657,468	$	72,067	$	(15,500	)	$	1,714,035
Total residential securities	$	96,446,316	$	5,301,717	$	(183,239	)	$	94,697,701	$	377,960	$	(2,608,631	)	$	92,467,030
Commercial
Commercial securities	$	155,921	$	9,778	$	(9,740	)	$	155,959	$	1,659	$	(860	)	$	156,758
Total securities	$	96,602,237	$	5,311,495	$	(192,979	)	$	94,853,660	$	379,619	$	(2,609,491	)	$	92,623,788

The following table presents the Company’s Agency mortgage-backed securities portfolio by issuing Agency concentration at March 31, 2019 and December 31, 2018:



	March 31, 2019		December 31, 2018
Investment Type	(dollars in thousands)
Fannie Mae	$	66,385,692	$	60,270,432
Freddie Mac	36,564,254		30,397,556
Ginnie Mae	143,580		85,007
Total	$	103,093,526	$	90,752,995

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

The following table summarizes the Company’s Residential Securities at March 31, 2019 and December 31, 2018, according to their estimated weighted average life classifications:



	March 31, 2019				December 31, 2018
	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Estimated weighted average life	(dollars in thousands)
Less than one year	$	13,863	$	14,032	$	13,447	$	13,670
Greater than one year through five years	16,081,685		16,091,945		11,710,172		11,928,973
Greater than five years through ten years	87,693,108		88,181,059		80,202,479		82,218,464
Greater than ten years	1,029,384		1,012,025		540,932		536,594
Total	$	104,818,040	$	105,299,061	$	92,467,030	$	94,697,701

The estimated weighted average lives of the Residential Securities at March 31, 2019 and December 31, 2018 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 March 31, 2019 and December 31, 2018.



	March 31, 2019						December 31, 2018
	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	$	12,188,284	$	(197,039	)	89	$	22,418,036	$	(432,352	)	713
12 Months or more	42,463,903		(1,026,562		)	1,513	43,134,843		(1,853,257		)	1,476
Total	$	54,652,187	$	(1,223,601	)	1,602	$	65,552,879	$	(2,285,609	)	2,189
⁽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 months ended March 31, 2019 and 2018, the Company disposed of $10.5 billion and $463.4 million of Residential Securities, resulting in net realized gains (losses) of ($92.5) million and $13.0 million, respectively.