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Residential Mortgage Securities and MSR-Related Assets
 6 Months Ended
Jun. 30, 2019
Investments, Debt and Equity Securities [Abstract]  
Residential Mortgage Securities and MSR-Related Assets Residential Mortgage Securities and MSR-Related Assets
 
Agency and Non-Agency MBS

The Company’s MBS are comprised of Agency MBS and Non-Agency MBS which include MBS issued prior to 2008 (“Legacy Non-Agency MBS”). These MBS are secured by:  (i) hybrid mortgages (“Hybrids”), which have interest rates that are fixed for a specified period of time and, thereafter, generally adjust annually to an increment over a specified interest rate index; (ii) adjustable-rate mortgages (“ARMs”), which have interest rates that reset annually or more frequently (collectively, “ARM-MBS”); and (iii) 15 and 30 year fixed-rate mortgages for Agency MBS and, for Non-Agency MBS, 30-year and longer-term fixed rate mortgages. In addition, the Company’s MBS are also comprised of MBS backed by securitized re-performing/non-performing loans (“RPL/NPL MBS”), where the cash flows of the bond may not reflect the contractual cash flows of the underlying collateral. The Company’s RPL/NPL MBS are generally structured with a contractual coupon step-up feature where the coupon increases from 300 - 400 basis points at 36 - 48 months from issuance or sooner. The Company pledges a significant portion of its MBS as collateral against its borrowings under repurchase agreements and Swaps.  (See Note 7)
 
Agency MBS:  Agency MBS are guaranteed as to principal and/or interest by a federally chartered corporation, such as Fannie Mae or Freddie Mac, or an agency of the U.S. Government, such as Ginnie Mae.  The payment of principal and/or interest on Ginnie Mae MBS is explicitly backed by the full faith and credit of the U.S. Government.  Since the third quarter of 2008, Fannie Mae and Freddie Mac have been under the conservatorship of the Federal Housing Finance Agency, which significantly strengthened the backing for these government-sponsored entities.
 
Non-Agency MBS:  The Company’s Non-Agency MBS are primarily secured by pools of residential mortgages, which are not guaranteed by an agency of the U.S. Government or any federally chartered corporation.  Credit risk associated with Non-Agency MBS is regularly assessed as new information regarding the underlying collateral becomes available and based on updated estimates of cash flows generated by the underlying collateral.
 
CRT Securities

CRT securities are debt obligations issued or sponsored by Fannie Mae and Freddie Mac. The payments of principal and interest on the CRT securities are paid by Fannie Mae or Freddie Mac, as the case may be, on a monthly basis, and are dependent on the performance of loans in either a reference pool or an actual pool of loans. As the loans in the underlying pool are paid, the principal balance of the CRT securities is paid. As an investor in a CRT security, the Company may incur a principal loss if the performance of the actual or reference pool loans results in either an actual or calculated loss that exceeds the credit enhancement of the security owned by the Company. The Company assesses the credit risk associated with CRT securities by assessing the current and expected future performance of the associated loan pool. The Company pledges a portion of its CRT securities as collateral against its borrowings under repurchase agreements.  (See Note 7)


The following tables present certain information about the Company’s residential mortgage securities at June 30, 2019 and December 31, 2018:
 
June 30, 2019
(In Thousands)
 
Principal/ Current
Face
 
Purchase
Premiums
 
Accretable
Purchase
Discounts
 
Discount
Designated
as Credit Reserve and 
OTTI (1)
 
Amortized
Cost (2)
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Net
Unrealized
Gain/(Loss)
 
Fair Value
Agency MBS: (3)
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fannie Mae
 
$
1,412,562

 
$
54,319

 
$
(23
)
 
$
—

 
$
1,466,858

 
$
14,103

 
$
(17,543
)
 
$
(3,440
)
 
$
1,463,418

Freddie Mac
 
757,852

 
30,662

 
—

 
—

 
789,196

 
5,188

 
(4,914
)
 
274

 
789,470

Ginnie Mae
 
4,357

 
80

 
—

 
—

 
4,437

 
50

 
—

 
50

 
4,487

Total Agency MBS
 
2,174,771

 
85,061

 
(23
)
 
—

 
2,260,491

 
19,341

 
(22,457
)
 
(3,116
)
 
2,257,375

Non-Agency MBS:
 
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 

Expected to Recover Par (4)(5)
 
1,149,835

 
9

 
(16,996
)
 
—

 
1,132,848

 
20,933

 
(174
)
 
20,759

 
1,153,607

Expected to Recover Less than Par (4)
 
1,731,655

 
—

 
(100,757
)
 
(479,566
)
 
1,151,332

 
423,640

 
(309
)
 
423,331

 
1,574,663

Total Non-Agency MBS (6)
 
2,881,490

 
9

 
(117,753
)
 
(479,566
)
 
2,284,180

 
444,573

 
(483
)
 
444,090

 
2,728,270

Total MBS
 
5,056,261

 
85,070

 
(117,776
)
 
(479,566
)
 
4,544,671

 
463,914

 
(22,940
)
 
440,974

 
4,985,645

CRT securities (7)
 
392,587

 
6,907

 
(47
)
 
—

 
399,447

 
8,695

 
(826
)
 
7,869

 
407,316

Total MBS and CRT securities
 
$
5,448,848

 
$
91,977

 
$
(117,823
)
 
$
(479,566
)
 
$
4,944,118

 
$
472,609

 
$
(23,766
)
 
$
448,843

 
$
5,392,961


December 31, 2018
(In Thousands)
 
Principal/ Current
Face
 
Purchase
Premiums
 
Accretable
Purchase
Discounts
 
Discount
Designated
as Credit Reserve and 
OTTI (1)
 
Amortized
Cost (2)
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Net
Unrealized
Gain/(Loss)
 
Fair Value
Agency MBS: (3)
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fannie Mae
 
$
1,716,340

 
$
65,930

 
$
(24
)
 
$
—

 
$
1,782,246

 
$
12,107

 
$
(32,321
)
 
$
(20,214
)
 
$
1,762,032

Freddie Mac
 
909,561

 
36,991

 
—

 
—

 
947,588

 
907

 
(17,177
)
 
(16,270
)
 
931,318

Ginnie Mae
 
4,729

 
87

 
—

 
—

 
4,816

 
47

 
—

 
47

 
4,863

Total Agency MBS
 
2,630,630

 
103,008

 
(24
)
 
—

 
2,734,650

 
13,061

 
(49,498
)
 
(36,437
)
 
2,698,213

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

 
40

 
(21,725
)
 
—

 
1,514,800

 
20,520

 
(7,620
)
 
12,900

 
1,527,700

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

 
—

 
(133,300
)
 
(516,116
)
 
1,352,903

 
438,465

 
(769
)
 
437,696

 
1,790,599

Total Non-Agency MBS (6)
 
3,538,804

 
40

 
(155,025
)
 
(516,116
)
 
2,867,703

 
458,985

 
(8,389
)
 
450,596

 
3,318,299

Total MBS
 
6,169,434

 
103,048

 
(155,049
)
 
(516,116
)
 
5,602,353

 
472,046

 
(57,887
)
 
414,159

 
6,016,512

CRT securities (7)
 
476,744

 
9,321

 
107

 
—

 
486,172

 
12,545

 
(5,896
)
 
6,649

 
492,821

Total MBS and CRT securities
 
$
6,646,178

 
$
112,369

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

 
$
484,591

 
$
(63,783
)
 
$
420,808

 
$
6,509,333

 
(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, 2019 reflect Credit Reserve of $468.2 million and OTTI of $11.3 million.  Amounts disclosed at December 31, 2018 reflect Credit Reserve of $503.3 million and OTTI of $12.8 million.
(2)
Includes principal payments receivable of $682,000 and $1.0 million at June 30, 2019 and December 31, 2018, respectively, which are not included in the Principal/Current Face.
(3)
Amounts disclosed at June 30, 2019 and December 31, 2018 include Agency MBS with a fair value of $616.0 million and $736.5 million, respectively, for which the fair value option has been elected. Such securities had gross unrealized gains of $4.7 million and no unrealized losses at June 30, 2019, and no unrealized gains and gross unrealized losses of approximately $3.3 million at December 31, 2018, respectively.
(4)
Based on management’s current estimates of future principal cash flows expected to be received.
(5)
Includes RPL/NPL MBS, which at June 30, 2019 had a $1.0 billion Principal/Current face, $1.0 billion amortized cost and $1.0 billion fair value. At December 31, 2018, RPL/NPL MBS had a $1.4 billion Principal/Current face, $1.4 billion amortized cost and $1.4 billion fair value.
(6)
At June 30, 2019 and December 31, 2018, the Company expected to recover approximately 83% and 85% of the then-current face amount of Non-Agency MBS, respectively.
(7)
Amounts disclosed at June 30, 2019 includes CRT securities with a fair value of $380.8 million for which the fair value option has been elected. Such securities had gross unrealized gains of approximately $8.4 million and gross unrealized losses of approximately $0.8 million at June 30, 2019. 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.
 


Sales of Residential Mortgage Securities
 
The following tables present information about the Company’s sales of its residential mortgage securities for the three and six months ended June 30, 2019 and 2018. The Company has no continuing involvement with any of the sold MBS.

 
 
Three Months Ended
June 30, 2019
 
Three Months Ended
June 30, 2018
(In Thousands)
 
Sales Proceeds
 
Gains/(Losses)
 
Sales Proceeds
 
Gains/(Losses)
Agency MBS
 
$
103,345

 
$
(2,272
)
 
$
75,306

 
$
(3,787
)
Non-Agency MBS
 
70,818

 
8,823

 
—

 
—

CRT Securities
 
21,170

 
1,159

 
104,022

 
11,216

Total
 
$
195,333

 
$
7,710

 
$
179,328

 
$
7,429


 
 
Six Months Ended
June 30, 2019
 
Six Months Ended
June 30, 2018
(In Thousands)
 
Sales Proceeds
 
Gains/(Losses)
 
Sales Proceeds
 
Gains/(Losses)
Agency MBS
 
$
103,345

 
$
(2,272
)
 
$
75,306

 
$
(3,787
)
Non-Agency MBS
 
196,912

 
26,976

 
19,362

 
8,817

CRT Securities
 
104,539

 
7,615

 
104,022

 
11,216

Total
 
$
404,796

 
$
32,319

 
$
198,690

 
$
16,246




Unrealized Losses on Residential Mortgage Securities

The following table presents information about the Company’s residential mortgage securities that were in an unrealized loss position at June 30, 2019:
 
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
 
$
21,017

 
$
76

 
18

 
$
750,981

 
$
17,467

 
283

 
$
771,998

 
$
17,543

Freddie Mac
 
—

 
—

 
—

 
173,673

 
4,914

 
101

 
173,673

 
4,914

Total Agency MBS
 
21,017

 
76

 
18

 
924,654

 
22,381

 
384

 
945,671

 
22,457

Non-Agency MBS:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Expected to Recover Par (1)
 
—

 
—

 
—

 
90,058

 
174

 
4

 
90,058

 
174

Expected to Recover Less than Par (1)
 
2,391

 
10

 
2

 
3,648

 
299

 
2

 
6,039

 
309

Total Non-Agency MBS
 
2,391

 
10

 
2

 
93,706

 
473

 
6

 
96,097

 
483

Total MBS
 
23,408

 
86

 
20

 
1,018,360

 
22,854

 
390

 
1,041,768

 
22,940

CRT securities (2)
 
128,806

 
826

 
32

 
—

 
—

 
—

 
128,806

 
826

Total MBS and CRT securities
 
$
152,214

 
$
912

 
52

 
$
1,018,360

 
$
22,854

 
390

 
$
1,170,574

 
$
23,766



(1)
Based on management’s current estimates of future principal cash flows expected to be received.
(2)
Amounts disclosed at June 30, 2019 include CRT securities with a fair value of $128.8 million for which the fair value option has been elected. Such securities had unrealized losses of $826,000 at June 30, 2019.

At June 30, 2019, the Company did not intend to sell any of its investments that were in an unrealized loss position, and it is “more likely than not” that the Company will not be required to sell these securities before recovery of their amortized cost basis, which may be at their maturity. 
 
Gross unrealized losses on the Company’s Agency MBS were $22.5 million at June 30, 2019.  Agency MBS are issued by Government Sponsored Entities (“GSEs”) and enjoy either the implicit or explicit backing of the full faith and credit of the U.S. Government. While the Company’s Agency MBS are not rated by any rating agency, they are currently perceived by market participants to be of high credit quality, with risk of default limited to the unlikely event that the U.S. Government would not continue to support the GSEs. Given the credit quality inherent in Agency MBS, the Company does not consider any of the current impairments on its Agency MBS to be credit related. In assessing whether it is more likely than not that it will be required to sell any impaired security before its anticipated recovery, which may be at its maturity, the Company considers for each impaired security, the significance of each investment, the amount of impairment, the projected future performance of such impaired securities, as well as the Company’s current and anticipated leverage capacity and liquidity position. Based on these analyses, the Company determined that at June 30, 2019 any unrealized losses on its Agency MBS were temporary.

Gross unrealized losses on the Company’s Non-Agency MBS were $483,000 at June 30, 2019. Based upon the most recent evaluation, the Company does not consider these unrealized losses to be indicative of OTTI and does not believe that these unrealized losses are credit related, but are rather a reflection of current market yields and/or marketplace bid-ask spreads.  The Company has reviewed its Non-Agency MBS that are in an unrealized loss position to identify those securities with losses that are other-than-temporary based on an assessment of changes in expected cash flows for such securities, which considers recent bond performance and, where possible, expected future performance of the underlying collateral.
  
The Company did not recognize any credit-related OTTI losses through earnings related to its Non-Agency MBS during the three and six months ended June 30, 2019 and 2018. Non-Agency MBS on which OTTI is recognized have experienced, or are expected to experience, credit-related adverse cash flow changes.  The Company’s estimate of cash flows for these Non-Agency MBS is based on its review of the underlying mortgage loans securing these MBS.  The Company considers information available about the structure of the securitization, including structural credit enhancement, if any, and the past and expected future performance of underlying mortgage loans, including timing of expected future cash flows, prepayment rates, default rates, loss severities, delinquency rates, percentage of non-performing loans, year of origination, LTVs, geographic concentrations, and dialogue with market participants.  Changes in the Company’s evaluation of each of these factors impacts the cash flows expected to be collected at the OTTI assessment date. For Non-Agency MBS purchased at a discount to par that were assessed for and had no OTTI recorded this period, such cash flow estimates indicated that the amount of expected losses decreased compared to the previous OTTI assessment date. These positive cash flow changes are primarily driven by recent improvements in LTVs due to loan amortization and home price appreciation, which, in turn, positively impacts the Company’s estimates of default rates and loss severities for the underlying collateral. In addition, voluntary prepayments (i.e., loans that prepay in full with no loss) have generally trended higher relative to the Company’s assumptions for these MBS which also positively impacts the Company’s estimate of expected loss. Overall, the combination of higher voluntary prepayments and lower LTVs supports the Company’s assessment that such MBS are not other-than-temporarily impaired.

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)
 
2019
 
2019
Credit loss component of OTTI at beginning of period
 
$
39,596

 
$
39,596

Additions for credit related OTTI not previously recognized
 
—

 
—

Subsequent additional credit related OTTI recorded
 
—

 
—

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

 
$
39,596



Purchase Discounts 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, 2019 and 2018:

 
 
Three Months Ended
June 30, 2019
 
Three Months Ended
June 30, 2018
(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
 
$
(501,619
)
 
$
(130,147
)
 
$
(572,580
)
 
$
(199,659
)
Impact of RMBS Issuer Settlement (2)
 
—

 
(833
)
 
—

 
(12,089
)
Accretion of discount
 
—

 
14,551

 
—

 
17,530

Realized credit losses
 
9,917

 
—

 
10,954

 
—

Purchases
 
(624
)
 
409

 
—

 
—

Sales
 
8,171

 
2,856

 
—

 
—

Transfers/release of credit reserve
 
4,589

 
(4,589
)
 
8,030

 
(8,030
)
Balance at end of period
 
$
(479,566
)
 
$
(117,753
)
 
$
(553,596
)
 
$
(202,248
)

 
 
Six Months Ended
June 30, 2019
 
Six Months Ended
June 30, 2018
(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
 
$
(516,116
)
 
$
(155,025
)
 
$
(593,227
)
 
$
(215,325
)
Impact of RMBS Issuer Settlement (2)
 
—

 
(1,688
)
 
—

 
(12,089
)
Accretion of discount
 
—

 
27,858

 
—

 
34,746

Realized credit losses
 
17,420

 
—

 
19,401

 
—

Purchases
 
(624
)
 
291

 
(535
)
 
488

Sales
 
11,363

 
19,202

 
5,592

 
5,105

Transfers/release of credit reserve
 
8,391

 
(8,391
)
 
15,173

 
(15,173
)
Balance at end of period
 
$
(479,566
)
 
$
(117,753
)
 
$
(553,596
)
 
$
(202,248
)


(1)
Together with coupon interest, accretable purchase discount is recognized as interest income over the life of the security.
(2)
Includes the impact of cash proceeds (a one-time payment) received by the Company 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 of approximately $833,000 and $1.7 million during the three and six months ended June 30, 2019, respectively and approximately $12.1 million during the three and six months ended June 30, 2018.

MSR-Related Assets

(a) Term Notes Backed by MSR-Related Collateral

At June 30, 2019 and December 31, 2018, the Company had $1.1 billion and $538.5 million, respectively, of term notes issued by SPVs that have acquired rights to receive cash flows representing the servicing fees and/or excess servicing spread associated with certain MSRs. Payment of principal and interest on these term notes is considered to be largely dependent on cash flows generated by the underlying MSRs, as this impacts the cash flows available to the SPV that issued the term notes.

At June 30, 2019, these term notes had an amortized cost of $1.1 billion, gross unrealized gains of approximately $3.4 million, a weighted average yield of 5.17% and a weighted average term to maturity of 3.8 years. At December 31, 2018, the term notes had an amortized cost of $538.5 million, gross unrealized losses of $7,000, a weighted average yield of 5.32% and a weighted average term to maturity of 4.7 years.

(b) Corporate Loans

The Company has made or participated in loans to provide financing to entities that originate residential mortgage loans and own the related MSRs. These corporate loans are secured by MSRs, as well as certain other unencumbered assets owned by the borrower.

During the year ended December 31, 2018, the Company participated in a loan where the Company committed to lend $100.0 million of which approximately $63.8 million was drawn at June 30, 2019. At June 30, 2019, the coupon paid by the borrower on the drawn amount is 5.77%, the remaining term associated with the loan is 1.2 years and the remaining commitment period on any undrawn amount is 1.2 years. During the remaining commitment period, the Company receives a commitment fee between 0.25% and 1.0% based on the undrawn amount of the loan.

In December 2016, the Company entered into a loan agreement under the terms of which it had committed to lend $130.0 million, of which approximately $124.2 million was drawn at March 31, 2018. This loan was paid in full during the three months ended June 30, 2018, at which time any remaining commitment was extinguished.

Impact of AFS Securities 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, 2019 and 2018:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In Thousands)
2019
 
2018
 
2019
 
2018
AOCI from AFS securities:
 
 

 
 

 
 

 
 

Unrealized gain on AFS securities at beginning of period
 
$
422,261

 
$
574,485

 
$
417,167

 
$
620,648

Unrealized gain/(loss) on Agency MBS, net
 
13,555

 
(9,641
)
 
21,880

 
(18,331
)
Unrealized gain/(loss) on Non-Agency MBS, net
 
7,598

 
(11,115
)
 
19,060

 
(38,544
)
Unrealized gain on MSR term notes, net
 
2,855

 
—

 
3,367

 
236

Reclassification adjustment for MBS sales included in net income
 
(6,371
)
 
(5,178
)
 
(21,576
)
 
(15,458
)
Change in AOCI from AFS securities
 
17,637

 
(25,934
)
 
22,731

 
(72,097
)
Balance at end of period
 
$
439,898

 
$
548,551

 
$
439,898

 
$
548,551


 
Interest Income on Residential Mortgage Securities and MSR-Related Assets
 
The following table presents the components of interest income on the Company’s residential mortgage securities and MSR- related assets for the three and six months ended June 30, 2019 and 2018: 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In Thousands)
 
2019
 
2018
 
2019
 
2018
Agency MBS
 
 
 
 
 
 
 
 
Coupon interest
 
$
22,938

 
$
20,040

 
$
47,566

 
$
40,997

Effective yield adjustment (1)
 
(7,664
)
 
(6,870
)
 
(13,851
)
 
(12,534
)
Interest income
 
$
15,274

 
$
13,170

 
$
33,715

 
$
28,463

 
 
 
 
 
 
 
 
 
Legacy Non-Agency MBS
 
 
 
 
 
 
 
 
Coupon interest
 
$
22,861

 
$
27,931

 
$
47,133

 
$
56,765

Effective yield adjustment (2)(3)
 
14,523

 
17,462

 
27,667

 
34,664

Interest income
 
$
37,384

 
$
45,393

 
$
74,800

 
$
91,429

 
 
 
 
 
 
 
 
 
RPL/NPL MBS
 
 
 
 
 
 
 
 
Coupon interest
 
$
14,635

 
$
9,588

 
$
31,078

 
$
19,641

Effective yield adjustment (1)(4)
 
8

 
62

 
150

 
75

Interest income
 
$
14,643

 
$
9,650

 
$
31,228

 
$
19,716

 
 
 
 
 
 
 
 
 
CRT securities
 
 
 
 
 
 
 
 
Coupon interest
 
5,477

 
$
7,854

 
$
11,595

 
$
16,227

Effective yield adjustment (2)
 
(383
)
 
841

 
(301
)
 
1,964

Interest income
 
$
5,094

 
$
8,695

 
$
11,294

 
$
18,191

 
 
 
 
 
 
 
 
 
MSR-related assets
 
 
 
 
 
 
 
 
Coupon interest
 
12,300

 
$
5,081

 
$
22,886

 
$
12,598

Effective yield adjustment (1)
 
38

 
1,138

 
72

 
1,244

Interest income
 
$
12,338

 
$
6,219

 
$
22,958

 
$
13,842

 
(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 purchased at a discount of approximately $3.1 million during the three and six months ended June 30, 2019.
(4) Includes accretion income recognized due to the impact of redemptions of certain securities that had been previously purchased at a discount of approximately $148,000 during the six months ended June 30, 2019 and $40,000 during the three and six months ended June 30, 2018, respectively.