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Residential Morgage Securities and MSR Related Assets (Tables)
 12 Months Ended
Dec. 31, 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 residential mortgage securities at December 31, 2018 and 2017:
December 31, 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: (3)
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fannie Mae
 
$
1,716,340

 
$
65,930

 
$
(24
)
 
$
—

 
$
1,782,246

 
$
1,762,032

 
$
12,107

 
$
(32,321
)
 
$
(20,214
)
Freddie Mac
 
909,561

 
36,991

 
—

 
—

 
947,588

 
931,318

 
907

 
(17,177
)
 
(16,270
)
Ginnie Mae
 
4,729

 
87

 
—

 
—

 
4,816

 
4,863

 
47

 
—

 
47

Total Agency MBS
 
2,630,630

 
103,008

 
(24
)
 
—

 
2,734,650

 
2,698,213

 
13,061

 
(49,498
)
 
(36,437
)
Non-Agency MBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expected to Recover Par (4)(5)
 
1,536,485

 
40

 
(21,725
)
 
—

 
1,514,800

 
1,527,700

 
20,520

 
(7,620
)
 
12,900

Expected to Recover Less than Par (4)
 
2,002,319

 
—

 
(133,300
)
 
(516,116
)
 
1,352,903

 
1,790,599

 
438,465

 
(769
)
 
437,696

Total Non-Agency MBS (6)
 
3,538,804

 
40

 
(155,025
)
 
(516,116
)
 
2,867,703

 
3,318,299

 
458,985

 
(8,389
)
 
450,596

Total MBS
 
6,169,434

 
103,048

 
(155,049
)
 
(516,116
)
 
5,602,353

 
6,016,512

 
472,046

 
(57,887
)
 
414,159

CRT securities (7)
 
476,744

 
9,321

 
107

 
—

 
486,172

 
492,821

 
12,545

 
(5,896
)
 
6,649

Total MBS and CRT securities
 
$
6,646,178

 
$
112,369

 
$
(154,942
)
 
$
(516,116
)
 
$
6,088,525

 
$
6,509,333

 
$
484,591

 
$
(63,783
)
 
$
420,808

 
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: (3)
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

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 (4)(5)
 
1,128,808

 
50

 
(22,737
)
 
—

 
1,106,121

 
1,132,205

 
26,518

 
(434
)
 
26,084

Expected to Recover Less than Par (4)
 
2,589,935

 
—

 
(192,588
)
 
(593,227
)
 
1,804,120

 
2,401,761

 
597,660

 
(19
)
 
597,641

Total Non-Agency MBS (6)
 
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 (7)
 
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 December 31, 2018 reflect Credit Reserve of $503.3 million and OTTI of $12.8 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 $1.0 million and $1.9 million at December 31, 2018 and 2017, respectively, which are not included in the Principal/Current Face.
(3)
Amounts disclosed at December 31, 2018 include Agency MBS with a fair value of $736.5 million for which the fair value option has been elected. Such securities had no unrealized gains and gross unrealized losses of approximately $3.3 million at December 31, 2018. The Company did not have any Agency MBS for which the fair value option had been elected at December 31, 2017.
(4)
Based on management’s current estimates of future principal cash flows expected to be received.
(5)
Includes RPL/NPL MBS, which at December 31, 2018 had a $1.4 billion Principal/Current face, $1.4 billion amortized cost and $1.4 billion 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.
(6)
At December 31, 2018 and 2017, the Company expected to recover approximately 85% and 84%, respectively, of the then-current face amount of Non-Agency MBS.
(7)
Amounts disclosed at December 31, 2018 includes CRT securities with a fair value of $477.4 million for which the fair value option has been elected. Such securities had gross unrealized gains of approximately $12.5 million and gross unrealized losses of approximately $5.6 million at December 31, 2018. Amounts disclosed at December 31, 2017 includes CRT securities with a fair value of $528.9 million for which the fair value option had 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 residential mortgage securities that were in an unrealized loss position at December 31, 2018:
 
 
Unrealized Loss Position For:
 
 
 
 
Less than 12 Months
 
12 Months or more
 
Total
(Dollars in Thousands)
 
Fair
Value
 
Unrealized Losses
 
Number of
Securities
 
Fair
Value
 
Unrealized Losses
 
Number of
Securities
 
Fair
Value
 
Unrealized Losses
Agency MBS: (1)
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fannie Mae
 
$
282,850

 
$
1,215

 
67

 
$
919,504

 
$
31,106

 
293

 
$
1,202,354

 
$
32,321

Freddie Mac
 
608,458

 
3,331

 
15

 
287,637

 
13,846

 
123

 
896,095

 
17,177

Total Agency MBS
 
891,308

 
4,546

 
82

 
1,207,141

 
44,952

 
416

 
2,098,449

 
49,498

Non-Agency MBS:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Expected to Recover Par (2)
 
1,193,422

 
6,187

 
31

 
91,469

 
1,433

 
9

 
1,284,891

 
7,620

Expected to Recover Less than Par (2)
 
54,223

 
660

 
11

 
2,028

 
109

 
1

 
56,251

 
769

Total Non-Agency MBS
 
1,247,645

 
6,847

 
42

 
93,497

 
1,542

 
10

 
1,341,142

 
8,389

Total MBS
 
2,138,953

 
11,393

 
124

 
1,300,638

 
46,494

 
426

 
3,439,591

 
57,887

CRT securities (3)
 
167,195

 
5,896

 
41

 
—

 
—

 
—

 
167,195

 
5,896

Total MBS and CRT securities
 
$
2,306,148

 
$
17,289

 
165

 
$
1,300,638

 
$
46,494

 
426

 
$
3,606,786

 
$
63,783

 

(1) Amounts disclosed at December 31, 2018 include Agency MBS with a fair value of $736.5 million on which the fair value option has been elected. Such securities had unrealized losses of $3.3 million at December 31, 2018.
(2) Based on management’s current estimates of future principal cash flows expected to be received.
(3) Amounts disclosed at December 31, 2018 includes CRT securities with a fair value of $151.8 million for 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 years ended December 31, 2018, 2017 and 2016:
 
 
 
For the Year Ended December 31,
(In Thousands)
 
2018
 
2017
 
2016
Total OTTI losses
 
$
(1,259
)
 
$
(63
)
 
$
(1,255
)
OTTI recognized in/(reclassified from) OCI
 
—

 
(969
)
 
770

OTTI recognized in earnings
 
$
(1,259
)
 
$
(1,032
)
 
$
(485
)
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.
 
 
 
For the Year Ended December 31,
(In Thousands)
 
2018
 
2017
 
2016
Credit loss component of OTTI at beginning of period
 
$
38,337

 
$
37,305

 
$
36,820

Additions for credit related OTTI not previously recognized
 
1,259

 
63

 
314

Subsequent additional credit related OTTI recorded
 
—

 
969

 
171

Credit loss component of OTTI at end of period
 
$
39,596

 
$
38,337

 
$
37,305
Schedule of changes in the components of the purchase discount on Non-Agency MBS
The following table presents 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 years ended December 31, 2018 and 2017:
 
 
 
For the Year Ended December 31,
 
 
2018
 
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)(3)
 
—

 
(14,822
)
 
—

 
—

Accretion of discount
 
—

 
70,750

 
—

 
77,513

Realized credit losses
 
42,246

 
—

 
49,291

 
—

Purchases
 
(2,512
)
 
1,685

 
(29,810
)
 
18,386

Sales
 
12,987

 
28,336

 
31,730

 
17,802

Net impairment losses recognized in earnings
 
(1,259
)
 
—

 
(1,032
)
 
—

Transfers/release of credit reserve
 
25,649

 
(25,649
)
 
50,835

 
(50,835
)
Balance at end of period
 
$
(516,116
)
 
$
(155,025
)
 
$
(593,227
)
 
$
(215,325
)

(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 $2.7 million of cash proceeds (a one-time payment) received by the Company during the year ended December 31, 2018 in connection with the settlement of litigation related to certain residential mortgage backed securitization trusts that were sponsored by Lehman Brothers Holdings Inc.
(3)
Includes the impact of approximately $12.1 million of cash proceeds (a one-time payment) received by the Company during the year ended December 31, 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 years ended December 31, 2018, 2017, and 2016:
 
 
 
For the Year Ended December 31,
(In Thousands)
 
2018
 
2017
 
2016
AOCI from AFS securities:
 
 

 
 

 
 

Unrealized gain on AFS securities at beginning of period
 
$
620,648

 
$
620,403

 
$
585,250

Unrealized loss on Agency MBS, net
 
(17,891
)
 
(39,158
)
 
(9,322
)
Unrealized (loss)/gain on Non-Agency MBS, net
 
(131,939
)
 
78,337

 
81,882

Unrealized (loss)/gain on MSR term notes, net
 
(812
)
 
805

 
—

Reclassification adjustment for MBS sales included in net income
 
(51,580
)
 
(38,707
)
 
(36,922
)
Reclassification adjustment for OTTI included in net income
 
(1,259
)
 
(1,032
)
 
(485
)
Change in AOCI from AFS securities
 
(203,481
)
 
245

 
35,153

Balance at end of period
 
$
417,167

 
$
620,648

 
$
620,403
Schedule of interest income on MBS, CRT Securities and MSR Related Assets
The following table presents components of interest income on the Company’s residential mortgage securities and MSR-related assets for the years ended December 31, 2018, 2017 and 2016:
 
 
 
For the Year Ended December 31,
(In Thousands)
 
2018
 
2017
 
2016
Agency MBS
 
 
 
 
 
 
Coupon interest
 
$
88,233

 
$
96,678

 
$
119,966

Effective yield adjustment (1)
 
(25,930
)
 
(31,323
)
 
(36,897
)
Interest income
 
$
62,303

 
$
65,355

 
$
83,069

 
 
 
 
 
 
 
Legacy Non-Agency MBS
 
 
 
 
 
 
Coupon interest
 
$
109,714

 
$
127,645

 
$
154,057

Effective yield adjustment (2)(3)
 
69,309

 
76,005

 
78,443

Interest income
 
$
179,023

 
$
203,650

 
$
232,500

 
 
 
 
 
 
 
RPL/NPL MBS
 
 
 
 
 
 
Coupon interest
 
$
46,339

 
$
65,957

 
$
98,213

Effective yield adjustment (1)(4)
 
1,434

 
1,505

 
2,108

Interest income
 
$
47,773

 
$
67,462

 
$
100,321

 
 
 
 
 
 
 
CRT securities
 
 
 
 
 
 
Coupon interest
 
$
30,628

 
$
27,706

 
$
13,023

Effective yield adjustment (2)
 
2,748

 
4,009

 
1,747

Interest income
 
$
33,376

 
$
31,715

 
$
14,770

 
 
 
 
 
 
 
MSR-related assets
 
 
 
 
 
 
Coupon interest
 
$
27,176

 
$
24,534

 
$
2,090

Effective yield adjustment (1)
 
1,244

 
296

 
10

Interest income
 
$
28,420

 
$
24,830

 
$
2,100


(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.
(3)
Includes accretion income recognized due to the impact of redemptions of certain securities that had been previously been purchased at a discount of $2.7 million, $1.7 million and $7,000 during the years ended December 31, 2018, 2017 and 2016, respectively.
(4)
Includes accretion income recognized due to the impact of redemptions of certain securities that had been previously been purchased at a discount of $1.4 million, $1.2 million and $1.6 million during the years ended December 31, 2018, 2017 and 2016, respectively.