MBS (Tables)

6 Months Ended

Jun. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Schedule of information about MBS

The following tables present certain information about the Company’s MBS at June 30, 2014 and December 31, 2013:

June 30, 2014

	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	$	5,128,686	$	195,467	$	(74	)	$	—		$	5,324,079	$	5,403,241	$	106,337	$	(27,175	)	$	79,162
Freddie Mac	1,094,460		42,075		—			—			1,137,853		1,133,670		11,652		(15,835		)	(4,183		)
Ginnie Mae	12,001		206		—			—			12,207		12,540		333		—			333
Total Agency MBS	6,235,147		237,748		(74		)	—			6,474,139		6,549,451		118,322		(43,010		)	75,312
Non-Agency MBS:
Expected to Recover Par (3)	313,136		524		(29,593		)	—			284,067		310,586		27,653		(1,134		)	26,519
Expected to Recover    Less Than Par (3)(4)	5,280,238		—		(406,518		)	(986,842		)	3,886,878		4,690,751		804,953		(1,080		)	803,873
Total Non-Agency MBS	5,593,374		524		(436,111		)	(986,842		)	4,170,945		5,001,337		832,606		(2,214		)	830,392
Total MBS	$	11,828,521	$	238,272	$	(436,185	)	$	(986,842	)	$	10,645,084	$	11,550,788	$	950,928	$	(45,224	)	$	905,704

December 31, 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	$	5,092,410	$	181,710	$	(87	)	$	—		$	5,274,033	$	5,315,363	$	96,516	$	(55,186	)	$	41,330
Freddie Mac	1,171,841		44,967		—			—			1,217,927		1,190,670		9,842		(37,099		)	(27,257		)
Ginnie Mae	12,668		218		—			—			12,886		13,188		302		—			302
Total Agency MBS	6,276,919		226,895		(87		)	—			6,504,846		6,519,221		106,660		(92,285		)	14,375
Non-Agency MBS:
Expected to Recover Par (3)	234,187		638		(24,450		)	—			210,375		230,738		21,720		(1,357		)	20,363
Expected to Recover    Less Than Par (3)(4)	5,381,851		—		(435,589		)	(1,043,037		)	3,903,225		4,621,399		720,566		(2,392		)	718,174
Total Non-Agency MBS	5,616,038		638		(460,039		)	(1,043,037		)	4,113,600		4,852,137		742,286		(3,749		)	738,537
Total MBS	$	11,892,957	$	227,533	$	(460,126	)	$	(1,043,037	)	$	10,618,446	$	11,371,358	$	848,946	$	(96,034	)	$	752,912

(1) Discount designated as Credit Reserve and amounts related to OTTI are generally not expected to be accreted into interest income.  Amounts disclosed at June 30, 2014 reflect Credit Reserve of $942.7 million and OTTI of $44.1 million.  Amounts disclosed at December 31, 2013 reflect Credit Reserve of $998.5 million and OTTI of $44.5 million.

(2) Includes principal payments receivable of $1.3 million and $1.1 million at June 30, 2014 and December 31, 2013, respectively, which are not included in the Principal/Current Face.

(3) Based on management’s current estimates of future principal cash flows expected to be received.

(4) At June 30, 2014 and December 31, 2013, the Company expected to recover approximately 82% and 81%, respectively, of the then-current face amount of Non-Agency MBS.

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 June 30, 2014:

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	$	407,252	$	2,013	35	$	1,383,328	$	25,162	147	$	1,790,580	$	27,175
Freddie Mac	9,980		34		2	733,159		15,801		103	743,139		15,835
Total Agency MBS	417,232		2,047		37	2,116,487		40,963		250	2,533,719		43,010
Non-Agency MBS:
Expected to Recover Par (1)	1,357		10		1	23,335		1,124		8	24,692		1,134
Expected to Recover Less Than Par (1)	17,668		118		3	29,241		962		8	46,909		1,080
Total Non-Agency MBS	19,025		128		4	52,576		2,086		16	71,601		2,214
Total MBS	$	436,257	$	2,175	41	$	2,169,063	$	43,049	266	$	2,605,320	$	45,224

(1) Based on management’s current estimates of future principal cash flows expected to be received.

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.

	Three Months Ended   June 30, 2014		Six Months Ended   June 30, 2014
(In Thousands)
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 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 six months ended June 30, 2014 and 2013:

	Three Months Ended   June 30, 2014						Three Months Ended   June 30, 2013
	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	$	(1,041,933	)	$	(442,156	)	$	(1,312,952	)	$	(381,913	)
Accretion of discount	—			25,766			—			16,698
Realized credit losses	23,359			—			38,375			—
Purchases	(3,018		)	1,636			(49,852		)	18,425
Sales	10,269			3,124			4,689			4,978
Transfers/release of credit reserve	24,481			(24,481		)	54,769			(54,769		)
Balance at end of period	$	(986,842	)	$	(436,111	)	$	(1,264,971	)	$	(396,581	)

	Six Months Ended   June 30, 2014						Six Months Ended   June 30, 2013
	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	$	(1,043,037	)	$	(460,039	)	$	(1,380,506	)	$	(371,626	)
Accretion of discount	—			53,197			—			28,749
Realized credit losses	48,396			—			88,682			—
Purchases	(66,335		)	25,042			(73,387		)	29,654
Sales	13,756			6,067			10,972			5,910
Transfers/release of credit reserve	60,378			(60,378		)	89,268			(89,268		)
Balance at end of period	$	(986,842	)	$	(436,111	)	$	(1,264,971	)	$	(396,581	)

(1) The Company did not reallocate any purchase discount designated as Credit Reserve to accretable purchase discount on Non-Agency MBS underlying Linked Transactions during the three months ended June 30, 2014. The Company reallocated $116,000 of purchase discount designated as Credit Reserve to accretable purchase discount on Non-Agency MBS underlying Linked Transactions during the three months ended June 30, 2013.

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

(3) In addition, the Company reallocated $115,000 and $129,000 of purchase discount designated as Credit Reserve to accretable purchase discount on Non-Agency MBS underlying Linked Transactions during the six months ended June 30, 2014 and 2013, respectively.

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 six months ended June 30, 2014 and 2013:

	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2014			2013			2014			2013
AOCI from MBS:
Unrealized gain on MBS at beginning of period	$	819,222		$	942,887		$	752,912		$	824,808
Unrealized gain/(loss) on Agency MBS, net	43,094			(140,480		)	60,937			(167,771		)
Unrealized gain/(loss) on Non-Agency MBS, net	50,136			(98,282		)	101,554			48,388
Reclassification adjustment for MBS sales included in net income	(6,748		)	(3,254		)	(9,699		)	(4,554		)
Change in AOCI from MBS	86,482			(242,016		)	152,792			$	(123,937	)
Balance at end of period	$	905,704		$	700,871		$	905,704		$	700,871

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 six months ended June 30, 2014 and 2013:

	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2014			2013			2014			2013
Coupon interest	$	49,836		$	54,485		$	99,335		$	111,989
Effective yield adjustment (1)	(12,227		)	(16,448		)	(22,397		)	(31,165		)
Agency MBS interest income	$	37,609		$	38,037		$	76,938		$	80,824

(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 six months ended June 30, 2014 and 2013:

	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2014		2013		2014		2013
Coupon interest	$	55,322	$	65,954	$	109,752	$	133,887
Effective yield adjustment (1)	25,694		16,644		53,083		28,626
Non-Agency MBS interest income	$	81,016	$	82,598	$	162,835	$	162,513

(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.