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SECURITIES
 9 Months Ended
Sep. 30, 2019
Investments, Debt and Equity Securities [Abstract]  
SECURITIES
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 or nine months ended September 30, 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 for the nine months ended September 30, 2019:
 
Residential Securities
 
Commercial Securities
 
Total
 
(dollars in thousands)
Beginning balance January 1, 2019
$
92,467,030

 
$
156,758

 
$
92,623,788

Purchases
50,982,244

 
111,582

 
51,093,826

Sales
(19,793,722
)
 
(92,366
)
 
(19,886,088
)
Principal paydowns
(11,215,154
)
 
(43,170
)
 
(11,258,324
)
(Amortization) / accretion
(942,429
)
 
548

 
(941,881
)
Fair value adjustment
4,455,241

 
7,499

 
4,462,740

Ending balance September 30, 2019
$
115,953,210

 
$
140,851

 
$
116,094,061

 
 
 
 
 
 

The following tables present the Company’s securities portfolio that was carried at their fair value at September 30, 2019 and December 31, 2018:
 
September 30, 2019
 
Principal /
Notional
 
Remaining Premium
 
Remaining Discount
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated Fair Value
Agency
(dollars in thousands)
Fixed-rate pass-through
$
102,020,108

 
$
4,321,803

 
$
(37,466
)
 
$
106,304,445

 
$
2,216,560

 
$
(102,943
)
 
$
108,418,062

Adjustable-rate pass-through
2,338,560

 
123,228

 
(1,440
)
 
2,460,348

 
11,265

 
(56,122
)
 
2,415,491

CMO
9,623

 
45

 
—

 
9,668

 
298

 
—

 
9,966

Interest-only
4,657,039

 
899,601

 
—

 
899,601

 
4,311

 
(173,304
)
 
730,608

Multifamily
2,562,366

 
28,314

 
(2,446
)
 
2,588,234

 
239,213

 
(712
)
 
2,826,735

Reverse mortgages
56,464

 
5,354

 
—

 
61,818

 
62

 
(218
)
 
61,662

Total agency securities
$
111,644,160

 
$
5,378,345

 
$
(41,352
)
 
$
112,324,114

 
$
2,471,709

 
$
(333,299
)
 
$
114,462,524

Residential credit
 

 
 

 
 

 
 

 
 

 
 

 
 

CRT (1)
$
463,982

 
$
16,785

 
$
(2,258
)
 
$
463,584

 
$
13,492

 
$
(2,311
)
 
$
474,765

Alt-A
153,891

 
255

 
(22,816
)
 
131,330

 
14,307

 
—

 
145,637

Prime
267,196

 
2,223

 
(18,176
)
 
251,243

 
18,506

 
(29
)
 
269,720

Prime interest-only
459,718

 
4,195

 
—

 
4,195

 
—

 
(538
)
 
3,657

Subprime
380,293

 
1,394

 
(62,355
)
 
319,332

 
40,883

 
(116
)
 
360,099

NPL/RPL
28,669

 
—

 
(74
)
 
28,595

 
—

 
(41
)
 
28,554

Prime jumbo (>=2010 vintage)
197,879

 
1,052

 
(4,374
)
 
194,557

 
6,967

 
—

 
201,524

Prime jumbo (>=2010 vintage) Interest-only
591,980

 
9,472

 
—

 
9,472

 
—

 
(2,742
)
 
6,730

Total residential credit securities
$
2,543,608

 
$
35,376

 
$
(110,053
)
 
$
1,402,308

 
$
94,155

 
$
(5,777
)
 
$
1,490,686

Total Residential Securities
$
114,187,768

 
$
5,413,721

 
$
(151,405
)
 
$
113,726,422

 
$
2,565,864

 
$
(339,076
)
 
$
115,953,210

Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Securities
$
140,600

 
$
343

 
$
(8,391
)
 
$
132,552

 
$
8,299

 
$
—

 
$
140,851

Total securities
$
114,328,368

 
$
5,414,064

 
$
(159,796
)
 
$
113,858,974

 
$
2,574,163

 
$
(339,076
)
 
$
116,094,061

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 

(1)
Principal/Notional amount includes $14.9 million of a CRT interest-only security as of September 30, 2019.


The following table presents the Company’s Agency mortgage-backed securities portfolio by issuing Agency concentration at September 30, 2019 and December 31, 2018:
 
 
September 30, 2019
 
December 31, 2018
Investment Type
(dollars in thousands)
Fannie Mae
$
73,707,294

 
$
60,270,432

Freddie Mac
40,592,878

 
30,397,556

Ginnie Mae
162,352

 
85,007

Total
$
114,462,524

 
$
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 September 30, 2019 and December 31, 2018, according to their estimated weighted average life classifications:
 
September 30, 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
$
5,508

 
$
6,454

 
$
13,447

 
$
13,670

Greater than one year through five years
58,857,860

 
57,504,374

 
11,710,172

 
11,928,973

Greater than five years through ten years
57,032,062

 
56,163,913

 
80,202,479

 
82,218,464

Greater than ten years
57,780

 
51,681

 
540,932

 
536,594

Total
$
115,953,210

 
$
113,726,422

 
$
92,467,030

 
$
94,697,701

 
The estimated weighted average lives of the Residential Securities at September 30, 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 September 30, 2019 and December 31, 2018.
 
September 30, 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
$
3,524,012

 
$
(17,042
)
 
45

 
$
22,418,036

 
$
(432,352
)
 
713

12 Months or more
13,989,400

 
(142,735
)
 
506

 
43,134,843

 
(1,853,257
)
 
1,476

Total
$
17,513,412

 
$
(159,777
)
 
551

 
$
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 and nine months ended September 30, 2019, the Company disposed of $11.1 billion and $30.7 billion of Residential Securities, resulting in net realized gains (losses) of $76.3 million and ($50.6) million, respectively. 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 gains (losses) of ($322.4) million and ($372.5) million, respectively.