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MBS, CRT Securities and MSR Related Assets (Tables)
 6 Months Ended
Jun. 30, 2018
Investments, Debt and Equity Securities [Abstract]  
Schedule of information about MBS and CRT Securities
The following tables present certain information about the Company’s MBS and CRT securities at June 30, 2018 and December 31, 2017:
 
June 30, 2018
(In Thousands)
 
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)
Agency MBS:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fannie Mae
 
$
1,874,754

 
$
71,870

 
$
(34
)
 
$
—

 
$
1,946,590

 
$
1,928,719

 
$
17,695

 
$
(35,566
)
 
$
(17,871
)
Freddie Mac
 
428,102

 
17,080

 
—

 
—

 
446,360

 
428,465

 
1,100

 
(18,995
)
 
(17,895
)
Ginnie Mae
 
5,557

 
101

 
—

 
—

 
5,658

 
5,713

 
56

 
(1
)
 
55

Total Agency MBS
 
2,308,413

 
89,051

 
(34
)
 
—

 
2,398,608

 
2,362,897

 
18,851

 
(54,562
)
 
(35,711
)
Non-Agency MBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expected to Recover Par (3)(4)
 
1,122,973

 
43

 
(27,359
)
 
—

 
1,095,657

 
1,123,299

 
28,736

 
(1,094
)
 
27,642

Expected to Recover Less than Par (3)
 
2,298,626

 
—

 
(174,889
)
 
(553,596
)
 
1,570,141

 
2,119,668

 
549,719

 
(192
)
 
549,527

Total Non-Agency MBS (5)
 
3,421,599

 
43

 
(202,248
)
 
(553,596
)
 
2,665,798

 
3,242,967

 
578,455

 
(1,286
)
 
577,169

Total MBS
 
5,730,012

 
89,094

 
(202,282
)
 
(553,596
)
 
5,064,406

 
5,605,864

 
597,306

 
(55,848
)
 
541,458

CRT securities (6)
 
520,688

 
9,825

 
(1,830
)
 
—

 
528,683

 
571,955

 
43,365

 
(93
)
 
43,272

Total MBS and CRT securities
 
$
6,250,700

 
$
98,919

 
$
(204,112
)
 
$
(553,596
)
 
$
5,593,089

 
$
6,177,819

 
$
640,671

 
$
(55,941
)
 
$
584,730


December 31, 2017
(In Thousands)
 
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)
Agency MBS:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fannie Mae
 
$
2,170,974

 
$
82,271

 
$
(40
)
 
$
—

 
$
2,253,205

 
$
2,246,600

 
$
21,736

 
$
(28,341
)
 
$
(6,605
)
Freddie Mac
 
561,346

 
21,683

 
—

 
—

 
584,920

 
571,748

 
1,624

 
(14,796
)
 
(13,172
)
Ginnie Mae
 
6,142

 
112

 
—

 
—

 
6,254

 
6,333

 
79

 
—

 
79

Total Agency MBS
 
2,738,462

 
104,066

 
(40
)
 
—

 
2,844,379

 
2,824,681

 
23,439

 
(43,137
)
 
(19,698
)
Non-Agency MBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expected to Recover Par (3)(4)
 
1,128,808

 
50

 
(22,737
)
 
—

 
1,106,121

 
1,132,205

 
26,518

 
(434
)
 
26,084

Expected to Recover Less than Par (3)
 
2,589,935

 
—

 
(192,588
)
 
(593,227
)
 
1,804,120

 
2,401,761

 
597,660

 
(19
)
 
597,641

Total Non-Agency MBS (5)
 
3,718,743

 
50

 
(215,325
)
 
(593,227
)
 
2,910,241

 
3,533,966

 
624,178

 
(453
)
 
623,725

Total MBS
 
6,457,205

 
104,116

 
(215,365
)
 
(593,227
)
 
5,754,620

 
6,358,647

 
647,617

 
(43,590
)
 
604,027

CRT securities (6)
 
602,799

 
8,887

 
(3,550
)
 
—

 
608,136

 
664,403

 
56,290

 
(23
)
 
56,267

Total MBS and CRT securities
 
$
7,060,004

 
$
113,003

 
$
(218,915
)
 
$
(593,227
)
 
$
6,362,756

 
$
7,023,050

 
$
703,907

 
$
(43,613
)
 
$
660,294

 
(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, 2018 reflect Credit Reserve of $540.7 million and OTTI of $12.9 million.  Amounts disclosed at December 31, 2017 reflect Credit Reserve of $579.0 million and OTTI of $14.2 million.
(2)
Includes principal payments receivable of $1.2 million and $1.9 million at June 30, 2018 and December 31, 2017, 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)
Includes RPL/NPL MBS, which at June 30, 2018 had a $909.3 million Principal/Current face, $907.5 million amortized cost and $907.9 million fair value. At December 31, 2017, RPL/NPL MBS had a $922.0 million Principal/Current face, $920.1 million amortized cost and $923.1 million fair value.
(5)
At both June 30, 2018 and December 31, 2017, the Company expected to recover approximately 84% of the then-current face amount of Non-Agency MBS, respectively.
(6)
Amounts disclosed at June 30, 2018 includes CRT securities with a fair value of $522.1 million for which the fair value option has been elected. Such securities had gross unrealized gains of approximately $37.3 million and gross unrealized losses of approximately $92,500 at June 30, 2018. Amounts disclosed at December 31, 2017 includes CRT securities with a fair value of $528.9 million for which the fair value option has been elected. Such securities had gross unrealized gains of approximately $40.5 million and gross unrealized losses of approximately $23,000 at December 31, 2017.
Schedule of information about MBS and CRT Securities that were in an unrealized loss position
The following table presents information about the Company’s MBS and CRT securities that were in an unrealized loss position at June 30, 2018:
 
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
(Dollars in Thousands)
Agency MBS:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fannie Mae
 
$
304,882

 
$
3,195

 
97

 
$
888,232

 
$
32,371

 
237

 
$
1,193,114

 
$
35,566

Freddie Mac
 
88,740

 
1,232

 
40

 
300,183

 
17,763

 
96

 
388,923

 
18,995

Ginnie Mae
 
672

 
1

 
3

 
—

 
—

 
—

 
672

 
1

Total Agency MBS
 
394,294

 
4,428

 
140

 
1,188,415

 
50,134

 
333

 
1,582,709

 
54,562

Non-Agency MBS:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Expected to Recover Par (1)
 
278,307

 
971

 
14

 
8,174

 
123

 
8

 
286,481

 
1,094

Expected to Recover Less than Par (1)
 
15,728

 
192

 
4

 
—

 
—

 
—

 
15,728

 
192

Total Non-Agency MBS
 
294,035

 
1,163

 
18

 
8,174

 
123

 
8

 
302,209

 
1,286

Total MBS
 
688,329

 
5,591

 
158

 
1,196,589

 
50,257

 
341

 
1,884,918

 
55,848

CRT securities (2)
 
18,064

 
93

 
5

 
—

 
—

 
—

 
18,064

 
93

Total MBS and CRT securities
 
$
706,393

 
$
5,684

 
163

 
$
1,196,589

 
$
50,257

 
341

 
$
1,902,982

 
$
55,941



(1)
Based on management’s current estimates of future principal cash flows expected to be received.  
(2)
Amounts disclosed at June 30, 2018 represent CRT securities on which the fair value option has been elected.

Schedule of composition of OTTI charges recorded
The following table presents the composition of OTTI charges recorded by the Company for the three and six months ended June 30, 2018 and 2017:
 
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(In Thousands)
 
2018
 
2017
 
2018
 
2017
Total OTTI losses
 
$
—

 
$
—

 
$
—

 
$
(63
)
OTTI reclassified from OCI
 
—

 
(618
)
 
—

 
(969
)
OTTI recognized in earnings
 
$
—

 
$
(618
)
 
$
—

 
$
(1,032
)
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,
 
Six Months Ended 
 June 30,
(In Thousands)
 
2018
 
2018
Credit loss component of OTTI at beginning of period
 
$
38,337

 
$
38,337

Additions for credit related OTTI not previously recognized
 
—

 
—

Subsequent additional credit related OTTI recorded
 
—

 
—

Credit loss component of OTTI at end of period
 
$
38,337

 
$
38,337
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, 2018 and 2017:

 
 
Three Months Ended 
 June 30, 2018
 
Three Months Ended 
 June 30, 2017
(In Thousands)
 
Discount
Designated as
Credit Reserve and OTTI
 
Accretable
Discount (1) 
Discount
Designated as
Credit Reserve and OTTI
 
 Accretable Discount (1)
Balance at beginning of period
 
$
(572,580
)
 
$
(199,659
)
 
$
(653,337
)
 
$
(269,724
)
Impact of RMBS Issuer Settlement (2)
 
—

 
(12,089
)
 
—

 
—

Accretion of discount
 
—

 
17,530

 
—

 
20,223

Realized credit losses
 
10,954

 
—

 
13,139

 
—

Purchases
 
—

 
—

 
(484
)
 
(1,520
)
Sales
 
—

 
—

 
5,037

 
2,819

Net impairment losses recognized in earnings
 
—

 
—

 
(618
)
 
—

Transfers/release of credit reserve
 
8,030

 
(8,030
)
 
9,765

 
(9,765
)
Balance at end of period
 
$
(553,596
)
 
$
(202,248
)
 
$
(626,498
)
 
$
(257,967
)

 
 
Six Months Ended 
 June 30, 2018
 
Six Months Ended 
 June 30, 2017
(In Thousands)
 
Discount
Designated as
Credit Reserve and OTTI
 
Accretable
Discount (1) 
Discount
Designated as
Credit Reserve and OTTI
 
 Accretable Discount (1)
Balance at beginning of period
 
$
(593,227
)
 
$
(215,325
)
 
$
(694,241
)
 
$
(278,191
)
Impact of RMBS Issuer Settlement (2)
 
—

 
(12,089
)
 
—

 
—

Accretion of discount
 
—

 
34,746

 
—

 
41,840

Realized credit losses
 
19,401

 
—

 
25,463

 
—

Purchases
 
(535
)
 
488

 
(484
)
 
(1,520
)
Sales
 
5,592

 
5,105

 
24,778

 
(1,078
)
Net impairment losses recognized in earnings
 
—

 
—

 
(1,032
)
 
—

Transfers/release of credit reserve
 
15,173

 
(15,173
)
 
19,018

 
(19,018
)
Balance at end of period
 
$
(553,596
)
 
$
(202,248
)
 
$
(626,498
)
 
$
(257,967
)

(1)
Together with coupon interest, accretable purchase discount is recognized as interest income over the life of the security.
(2)
Includes the impact of approximately $12.1 million of cash proceeds (a one-time payment) received by the Company during the three months ended June 30, 2018 in connection with the settlement of litigation related to certain residential mortgage backed securitization trusts that were sponsored by JP Morgan Chase & Co. and affiliated entities.

Schedule of impact of AFS on AOCI
The following table presents the impact of the Company’s AFS securities on its AOCI for the three and six months ended June 30, 2018 and 2017:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In Thousands)
2018
 
2017
 
2018
 
2017
AOCI from AFS securities:
 
 

 
 

 
 

 
 

Unrealized gain on AFS securities at beginning of period
 
$
574,485

 
$
629,487

 
$
620,648

 
$
620,403

Unrealized loss on Agency MBS, net
 
(9,641
)
 
(11,157
)
 
(18,331
)
 
(19,209
)
Unrealized (loss)/gain on Non-Agency MBS, net
 
(11,115
)
 
56,167

 
(38,308
)
 
83,663

Reclassification adjustment for MBS sales included in net income
 
(5,178
)
 
(5,656
)
 
(15,458
)
 
(15,602
)
Reclassification adjustment for OTTI included in net income
 
—

 
(618
)
 
—

 
(1,032
)
Change in AOCI from AFS securities
 
(25,934
)
 
38,736

 
(72,097
)
 
47,820

Balance at end of period
 
$
548,551

 
$
668,223

 
$
548,551

 
$
668,223
Schedule of interest income on MBS, CRT Securities and MSR Related Assets
The following table presents the components of interest income on the Company’s MBS, CRT securities and MSR related assets for the three and six months ended June 30, 2018 and 2017: 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In Thousands)
 
2018
 
2017
 
2018
 
2017
Agency MBS
 
 
 
 
 
 
 
 
Coupon interest
 
$
20,040

 
$
24,904

 
$
40,997

 
$
51,117

Effective yield adjustment (1)
 
(6,870
)
 
(8,317
)
 
(12,534
)
 
(16,636
)
Interest income
 
$
13,170

 
$
16,587

 
$
28,463

 
$
34,481

 
 
 
 
 
 
 
 
 
Legacy Non-Agency MBS
 
 
 
 
 
 
 
 
Coupon interest
 
$
27,931

 
$
32,444

 
$
56,765

 
$
67,108

Effective yield adjustment (2)
 
17,462

 
19,586

 
34,664

 
41,028

Interest income
 
$
45,393

 
$
52,030

 
$
91,429

 
$
108,136

 
 
 
 
 
 
 
 
 
RPL/NPL MBS
 
 
 
 
 
 
 
 
Coupon interest
 
$
9,588

 
$
17,601

 
$
19,641

 
$
40,529

Effective yield adjustment (1)
 
62

 
638

 
75

 
812

Interest income
 
$
9,650

 
$
18,239

 
$
19,716

 
$
41,341

 
 
 
 
 
 
 
 
 
CRT securities
 
 
 
 
 
 
 
 
Coupon interest
 
$
7,854

 
$
6,586

 
$
16,227

 
$
11,843

Effective yield adjustment (2)
 
841

 
1,260

 
1,964

 
2,379

Interest income
 
$
8,695

 
$
7,846

 
$
18,191

 
$
14,222

 
 
 
 
 
 
 
 
 
MSR related assets
 
 
 
 
 
 
 
 
Coupon interest
 
$
5,081

 
$
5,832

 
$
12,598

 
$
10,505

Effective yield adjustment (1)
 
1,138

 
73

 
1,244

 
134

Interest income
 
$
6,219

 
$
5,905

 
$
13,842

 
$
10,639


 
(1)  Includes amortization of premium paid net of accretion of purchase discount.  For Agency MBS, RPL/NPL MBS and the corporate loan secured by MSRs, interest income is recorded at an effective yield, which reflects net premium amortization/accretion based on actual prepayment activity.
(2) The effective yield adjustment is the difference between the net income calculated using the net yield, which is based on management’s estimates of the amount and timing of future cash flows, less the current coupon yield.