MBS (Tables)

9 Months Ended

Sep. 30, 2013

Investments, Debt and Equity Securities [Abstract]

Schedule of information about MBS

The following tables present certain information about the Company’s MBS at September 30, 2013 and December 31, 2012:

September 30, 2013

	Principal/ Current Face		Purchase Premiums		Accretable Purchase Discounts			Discount Designated as Credit Reserve and OTTI (1)			Amortized Cost (2)		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gain/(Loss)
(In Thousands)
Agency MBS:
Fannie Mae	$	5,197,165	$	180,854	$	(95	)	$	—		$	5,377,924	$	5,440,656	$	104,702	$	(41,970	)	$	62,732
Freddie Mac	1,208,358		46,134		—			—			1,257,912		1,243,489		11,258		(25,681		)	(14,423		)
Ginnie Mae	12,988		224		—			—			13,212		13,544		332		—			332
Total Agency MBS	6,418,511		227,212		(95		)	—			6,649,048		6,697,689		116,292		(67,651		)	48,641
Non-Agency MBS (3)
Rated AAA	16,889		85		(177		)	—			16,797		17,180		383		—			383
Rated A	698		15		—			—			713		681		—		(32		)	(32		)
Rated BBB	46,717		536		(1,182		)	—			46,071		46,645		1,434		(860		)	574
Rated BB	104,253		45		(7,734		)	(861		)	95,703		100,228		4,746		(221		)	4,525
Rated B	273,241		—		(33,804		)	(7,003		)	232,434		257,247		24,859		(46		)	24,813
Rated CCC	1,244,536		12		(135,061		)	(190,357		)	919,130		1,084,830		168,233		(2,533		)	165,700
Rated CC	384,617		—		(36,426		)	(87,400		)	260,791		309,776		49,017		(32		)	48,985
Rated C	340,721		—		(40,131		)	(49,164		)	251,426		297,497		46,252		(181		)	46,071
Unrated and D-rated (4)	3,453,991		—		(188,393		)	(784,207		)	2,481,391		2,859,294		382,767		(4,864		)	377,903
Total Non-Agency MBS	5,865,663		693		(442,908		)	(1,118,992		)	4,304,456		4,973,378		677,691		(8,769		)	668,922
Total MBS	$	12,284,174	$	227,905	$	(443,003	)	$	(1,118,992	)	$	10,953,504	$	11,671,067	$	793,983	$	(76,420	)	$	717,563

December 31, 2012

	Principal/ Current Face		Purchase Premiums		Accretable Purchase Discounts			Discount Designated as Credit Reserve and OTTI (1)			Amortized Cost (2)		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gain/(Loss)
(In Thousands)
Agency MBS:
Fannie Mae	$	5,977,388	$	196,686	$	(58	)	$	—		$	6,174,016	$	6,351,621	$	178,970	$	(1,365	)	$	177,605
Freddie Mac	800,854		30,447		—			—			835,724		858,560		22,925		(89		)	22,836
Ginnie Mae	14,526		251		—			—			14,777		15,279		502		—			502
Total Agency MBS	6,792,768		227,384		(58		)	—			7,024,517		7,225,460		202,397		(1,454		)	200,943
Non-Agency MBS (3)
Rated AAA	25,209		158		(219		)	—			25,148		25,905		757		—			757
Rated A	1,147		24		—			—			1,171		1,086		—		(85		)	(85		)
Rated BBB	49,301		637		(1,741		)	(378		)	47,819		48,563		1,806		(1,062		)	744
Rated BB	118,031		39		(8,892		)	(853		)	108,325		112,905		4,937		(357		)	4,580
Rated B	247,532		—		(31,133		)	(12,462		)	203,937		225,281		21,452		(108		)	21,344
Rated CCC	1,235,638		14		(107,618		)	(201,126		)	926,908		1,055,757		131,826		(2,977		)	128,849
Rated CC	579,632		—		(41,191		)	(132,061		)	406,380		468,017		61,739		(102		)	61,637
Rated C	952,984		—		(55,294		)	(166,529		)	731,161		812,523		81,850		(488		)	81,362
Unrated and D-rated (4)	3,300,086		—		(125,538		)	(867,097		)	2,307,451		2,632,128		325,796		(1,119		)	324,677
Total Non-Agency MBS	6,509,560		872		(371,626		)	(1,380,506		)	4,758,300		5,382,165		630,163		(6,298		)	623,865
Total MBS	$	13,302,328	$	228,256	$	(371,684	)	$	(1,380,506	)	$	11,782,817	$	12,607,625	$	832,560	$	(7,752	)	$	824,808

(1)  Discount designated as Credit Reserve and amounts related to OTTI are generally not expected to be accreted into interest income.  Amounts disclosed at September 30, 2013 reflect Credit Reserve of $1.074 billion and OTTI of $45.0 million.  Amounts disclosed at December 31, 2012 reflect Credit Reserve of $1.332 billion and OTTI of $48.7 million.

(2)  Includes principal payments receivable of $3.4 million and $4.4 million at September 30, 2013 and December 31, 2012, respectively, which are not included in the Principal/Current Face.

(3)  Non-Agency MBS, including Non-Agency MBS transferred to consolidated VIEs, are reported based on the lowest rating issued by a Rating Agency, if more than one rating is issued on the security, at the date presented. 

(4)  Includes Non-Agency MBS that were D-rated and had an aggregate amortized cost and fair value of $2.436 billion and $2.805 billion, respectively, at September 30, 2013 and Non-Agency MBS that were D-rated and had an aggregate amortized cost and fair value of $2.252 billion and $2.573 billion, respectively, at December 31, 2012.

Schedule of information about MBS that were in an unrealized loss position

The following table presents information about the Company’s MBS that were in an unrealized loss position at September 30, 2013:

Unrealized Loss Position For:

	Less than 12 Months					12 Months or more					Total
	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
(In Thousands)
Agency MBS:
Fannie Mae	$	1,796,814	$	38,545	154	$	119,958	$	3,425	29	$	1,916,772	$	41,970
Freddie Mac	775,718		23,955		100	42,551		1,726		6	818,269		25,681
Total Agency MBS	2,572,532		62,500		254	162,509		5,151		35	2,735,041		67,651
Non-Agency MBS:
Rated A	—		—		—	681		32		1	681		32
Rated BBB	6,880		74		1	18,421		786		3	25,301		860
Rated BB	—		—		—	2,022		221		3	2,022		221
Rated B	6,690		46		1	—		—		—	6,690		46
Rated CCC	55,983		1,060		7	21,998		1,473		4	77,981		2,533
Rated CC	1,594		32		2	—		—		—	1,594		32
Rated C	8,951		181		1	—		—		—	8,951		181
Unrated and D-rated	252,240		4,832		25	1		32		1	252,241		4,864
Total Non-Agency MBS	332,338		6,225		37	43,123		2,544		12	375,461		8,769
Total MBS	$	2,904,870	$	68,725	291	$	205,632	$	7,695	47	$	3,110,502	$	76,420

Schedule of composition of OTTI charges recorded

The following table presents the composition of OTTI charges recorded by the Company for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
(In Thousands)	2013		2012		2013		2012
Total OTTI losses	$	—	$	—	$	—	$	(879	)
OTTI reclassified from OCI	—		—		—		(321		)
OTTI recognized in earnings	$	—	$	—	$	—	$	(1,200	)

Schedule of changes in credit loss component of OTTI

The following table presents a roll-forward of the credit loss component of OTTI on the Company’s Non-Agency MBS for which a non-credit component of OTTI was previously recognized in OCI.  Changes in the credit loss component of OTTI are presented based upon whether the current period is the first time OTTI was recorded on a security or a subsequent OTTI charge was recorded.

(In Thousands)	Three Months Ended   September 30, 2013		Nine Months Ended   September 30, 2013
Credit loss component of OTTI at beginning of period	$	36,115	$	36,115
Additions for credit related OTTI not previously recognized	—		—
Subsequent additional credit related OTTI recorded	—		—
Credit loss component of OTTI at end of period	$	36,115	$	36,115

Schedule of significant inputs considered and assumptions made in determining the measurement of the component of OTTI recorded in earnings

The significant inputs considered and assumptions made at time of impairment in determining the measurement of the component of OTTI recorded in earnings for the Company’s Non-Agency MBS for the three and nine months ended September 30, 2013 and 2012 are summarized as follows:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2013	2012	2013	2012
Credit enhancement (1)(2)
Weighted average (3)	—	—	—	3.26%
Range (4)	—	—	—	0.00-16.50%
Projected CPR (2)(5)
Weighted average (3)	—	—	—	9.90%
Range (4)	—	—	—	9.10-13.30%
Projected Loss Severity (2)(6)
Weighted average (3)	—	—	—	55.50%
Range (4)	—	—	—	45.90-60.00%
60+ days delinquent (2)(7)
Weighted average (3)	—	—	—	24.40%
Range (4)	—	—	—	18.20-32.40%

(1) Represents a level of protection for these securities, expressed as a percentage of total current underlying loan balance.

(2) Information provided is based on loans for all groups that provide credit enhancement for MBS with credit enhancement.  If an MBS no longer has credit enhancement, information provided is based on loans for the individual group owned by the Company.

(3) Calculated by weighting the relevant input/assumptions for each individual security by current outstanding face of the security.

(4) Represents the range of inputs/assumptions based on individual securities.

(5) CPR - conditional prepayment rate.

(6)  Projected loss severity represents the projected amount of loss realized on liquidated properties as a percentage of the principal balance.

(7) Includes, for each security, underlying loans 60 or more days delinquent, foreclosed loans and other real estate owned.

Schedule of changes in the components of the purchase discount on Non-Agency MBS

The following tables present the changes in the components of the Company’s purchase discount on its Non-Agency MBS between purchase discount designated as Credit Reserve and OTTI and accretable purchase discount for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended   September 30, 2013						Three Months Ended   September 30, 2012
	Discount Designated as Credit Reserve and OTTI (1)			Accretable Discount (1)(2)			Discount Designated as Credit Reserve and OTTI (1)			Accretable Discount (1)(2)
(In Thousands)
Balance at beginning of period	$	(1,264,971	)	$	(396,581	)	$	(1,440,752	)	$	(265,137	)
Accretion of discount	—			19,556			—			8,816
Realized credit losses	48,642			—			49,314			—
Purchases	(851		)	879			(122,266		)	4,554
Sales	27,178			4,248			—			—
Unlinking of Linked Transactions	—			—			—			(2,256		)
Transfers/release of credit reserve	71,010			(71,010		)	54,053			(54,053		)
Balance at end of period	$	(1,118,992	)	$	(442,908	)	$	(1,459,651	)	$	(308,076	)

	Nine Months Ended   September 30, 2013						Nine Months Ended   September 30, 2012
	Discount Designated as Credit Reserve and OTTI (3)			Accretable Discount (2)(3)			Discount Designated as Credit Reserve and OTTI (3)			Accretable Discount (2)(3)
(In Thousands)
Balance at beginning of period	$	(1,380,506	)	$	(371,626	)	$	(1,228,766	)	$	(250,479	)
Accretion of discount	—			48,305			—			28,107
Realized credit losses	137,324			—			107,229			—
Purchases	(74,238		)	30,533			(370,649		)	(3,883		)
Sales	38,150			10,158			—			—
Reclass discount for OTTI	—			—			866			(866		)
Net impairment losses recognized in earnings	—			—			(1,200		)	—
Unlinking of Linked Transactions	—			—			(38,662		)	(9,424		)
Transfers/release of credit reserve	160,278			(160,278		)	71,531			(71,531		)
Balance at end of period	$	(1,118,992	)	$	(442,908	)	$	(1,459,651	)	$	(308,076	)

(1)  During the three months ended September 30, 2013, the Company did not reallocate any purchase discount designated as Credit Reserve to accretable purchase discount on Non-Agency MBS underlying Linked Transactions. The Company reallocated $54,000 of purchase discount designated as Credit Reserve to accretable purchase discount on Non-Agency MBS underlying Linked Transactions during the three months ended September 30, 2012.

(2)  Together with coupon interest, accretable purchase discount is recognized as interest income over the life of the security.

(3)  During the nine months ended September 30, 2013, the Company reallocated $129,000 of purchase discount designated as Credit Reserve to accretable purchase discount on Non-Agency MBS underlying Linked Transactions. In addition, the Company reallocated $575,000 of purchase discount designated as accretable purchase discount to Credit Reserve on Non-Agency MBS underlying Linked Transactions during the nine months ended September 30, 2012.

Schedule of impact of MBS on AOCI

The following table presents the impact of the Company’s MBS on its AOCI for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended   September 30,						Nine Months Ended   September 30,
(In Thousands)	2013			2012			2013			2012
AOCI from MBS:
Unrealized gain on MBS at beginning of period	$	700,871		$	296,007		$	824,808		$	55,491
Unrealized gain/(loss) on Agency MBS, net	15,469			61,999			(152,302		)	47,169
Unrealized gain on Non-Agency MBS, net	16,381			409,742			62,455			666,287
Reclassification adjustment for MBS sales included in net income	(15,158		)	(3,130		)	(17,398		)	(5,529		)
Reclassification adjustment for OTTI included in net income	—			—			—			1,200
Change in AOCI from MBS	$	16,692		$	468,611		$	(107,245	)	$	709,127
Balance at end of period	$	717,563		$	764,618		$	717,563		$	764,618

Schedule of components of interest income on the entity's Agency MBS

The following table presents the components of interest income on the Company’s Agency MBS for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended   September 30,						Nine Months Ended   September 30,
(In Thousands)	2013			2012			2013			2012
Coupon interest	$	51,997		$	61,978		$	163,986		$	187,963
Effective yield adjustment (1)	(15,839		)	(14,780		)	(47,004		)	(37,915		)
Agency MBS interest income	$	36,158		$	47,198		$	116,982		$	150,048

(1)  Includes amortization of premium paid net of accretion of purchase discount.  For Agency MBS, interest income is recorded at an effective yield, which reflects net premium amortization based on actual prepayment activity.

Schedule of components of interest income on the entity's Non-Agency MBS

The following table presents components of interest income for the Company’s Non-Agency MBS (including MBS transferred to consolidated VIEs) for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
(In Thousands)	2013		2012		2013		2012
Coupon interest	$	62,802	$	69,139	$	196,688	$	196,144
Effective yield adjustment (1)	19,501		8,760		48,128		27,913
Non-Agency MBS interest income	$	82,303	$	77,899	$	244,816	$	224,057

(1)  The effective yield adjustment is the difference between the net income calculated using the net yield, which is based on management’s estimates of future cash flows for Non-Agency MBS, less the current coupon yield.