Residential Mortgage Securities and MSR-Related Assets (Tables)

9 Months Ended

Sep. 30, 2019

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 September 30, 2019 and December 31, 2018:

September 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	$	1,217,508	$	46,917	$	(23	)	$	—		$	1,264,402	$	10,896	$	(15,282	)	$	(4,386	)	$	1,260,016
Freddie Mac	526,173		21,303		—			—			548,441		5,159		(3,990		)	1,169			549,610
Ginnie Mae	4,118		76		—			—			4,194		53		—			53			4,247
Total Agency MBS	1,747,799		68,296		(23		)	—			1,817,037		16,108		(19,272		)	(3,164		)	1,813,873
Non-Agency MBS:
Expected to Recover Par (4)(5)	917,981		—		(14,176		)	—			903,805		17,905		(5		)	17,900			921,705
Expected to Recover Less than Par (4)	1,611,768		—		(88,121		)	(462,095		)	1,061,552		414,788		(256		)	414,532			1,476,084
Total Non-Agency MBS (6)	2,529,749		—		(102,297		)	(462,095		)	1,965,357		432,693		(261		)	432,432			2,397,789
Total MBS	4,277,548		68,296		(102,320		)	(462,095		)	3,782,394		448,801		(19,533		)	429,268			4,211,662
CRT securities (7)	364,284		5,882		(117		)	—			370,049		8,084		(241		)	7,843			377,892
Total MBS and CRT securities	$	4,641,832	$	74,178	$	(102,437	)	$	(462,095	)	$	4,152,443	$	456,885	$	(19,774	)	$	437,111		$	4,589,554

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 September 30, 2019 reflect Credit Reserve of $451.1 million and OTTI of $11.0 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 $965,000 and $1.0 million at September 30, 2019 and December 31, 2018, respectively, which are not included in the Principal/Current Face.

(3) Amounts disclosed at September 30, 2019 and December 31, 2018 include Agency MBS with a fair value of $312.5 million and $736.5 million, respectively, for which the fair value option has been elected. Such securities had gross unrealized gains of $4.1 million and no unrealized losses at September 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 September 30, 2019 had an $824.8 million Principal/Current face, $824.3 million amortized cost and $828.1 million 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 September 30, 2019 and December 31, 2018, the Company expected to recover approximately 82% and 85% of the then-current face amount of Non-Agency MBS, respectively.

(7)

Amounts disclosed at September 30, 2019 includes CRT securities with a fair value of $351.4 million for which the fair value option has been elected. Such securities had gross unrealized gains of approximately $7.8 million and gross unrealized losses of approximately $0.2 million at September 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.

Schedule of Sale of Residential Mortgage Securities

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

	Three Months Ended September 30, 2019				Three Months Ended September 30, 2018
(In Thousands)	Sales Proceeds		Gains/(Losses)		Sales Proceeds		Gains/(Losses)
Agency MBS	$	257,289	$	2,771	$	—	$	—
Non-Agency MBS	47,867		14,444		24,341		3,391
CRT Securities	28,969		493		118,855		13,024
Total	$	334,125	$	17,708	$	143,196	$	16,415

	Nine Months Ended September 30, 2019				Nine Months Ended September 30, 2018
(In Thousands)	Sales Proceeds		Gains/(Losses)		Sales Proceeds		Gains/(Losses)
Agency MBS	$	360,634	$	499	$	75,306	$	(3,787	)
Non-Agency MBS	244,778		41,420		43,703		12,208
CRT Securities	133,507		8,108		222,877		24,240
Total	$	738,919	$	50,027	$	341,886	$	32,661

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 September 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	$	36,775	$	104	25	$	660,757	$	15,178	280	$	697,532	$	15,282
Freddie Mac	—		—		—	163,863		3,990		101	163,863		3,990
Ginnie Mae	—		—		—	172		—		1	172		—
Total Agency MBS	36,775		104		25	824,792		19,168		382	861,567		19,272
Non-Agency MBS:
Expected to Recover Par (1)	—		—		—	7,495		5		1	7,495		5
Expected to Recover Less than Par (1)	2,009		11		1	1,894		245		2	3,903		256
Total Non-Agency MBS	2,009		11		1	9,389		250		3	11,398		261
Total MBS	38,784		115		26	834,181		19,418		385	872,965		19,533
CRT securities (2)	7,189		41		2	24,966		200		7	32,155		241
Total MBS and CRT securities	$	45,973	$	156	28	$	859,147	$	19,618	392	$	905,120	$	19,774

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

(2) Amounts disclosed at September 30, 2019 include CRT securities with a fair value of $32.2 million for which the fair value option has been elected. Such securities had unrealized losses of $241,000 at September 30, 2019.

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 September 30, 2019		Nine months ended September 30, 2019
(In Thousands)
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

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, 2019 and 2018:

	Three Months Ended September 30, 2019						Three Months Ended September 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	$	(479,566	)	$	(117,753	)	$	(553,596	)	$	(202,248	)
Impact of RMBS Issuer Settlement (2)	—			—			—			(2,734		)
Accretion of discount	—			10,357			—			20,115
Realized credit losses	4,062			—			12,042			—
Purchases	—			—			(1,975		)	1,368
Sales	12,479			6,029			1,552			1,974
Transfers/release of credit reserve	930			(930		)	10,220			(10,220		)
Balance at end of period	$	(462,095	)	$	(102,297	)	$	(531,757	)	$	(191,745	)

	Nine Months Ended September 30, 2019						Nine Months Ended September 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)(3)	—			(1,688		)	—			(14,822		)
Accretion of discount	—			38,215			—			54,860
Realized credit losses	21,482			—			31,443			—
Purchases	(624		)	291			(2,510		)	1,856
Sales	23,842			25,231			7,144			7,079
Transfers/release of credit reserve	9,321			(9,321		)	25,393			(25,393		)
Balance at end of period	$	(462,095	)	$	(102,297	)	$	(531,757	)	$	(191,745	)

(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 three and nine months ended September 30, 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 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 $1.7 million during the nine months ended September 30, 2019 and approximately $12.1 million during the nine months ended September 30, 2018.

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 nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands)	2019			2018			2019			2018
AOCI from AFS securities:
Unrealized gain on AFS securities at beginning of period	$	439,898		$	548,551		$	417,167		$	620,648
Unrealized gain/(loss) on Agency MBS, net	603			(9,177		)	22,483			(27,507		)
Unrealized gain/(loss) on Non-Agency MBS, net	2,856			(25,101		)	22,211			(62,979		)
Unrealized gain on MSR term notes, net	2,024			—			5,391			236
Reclassification adjustment for MBS sales included in net income	(14,499		)	(9,455		)	(36,370		)	(25,580		)
Change in AOCI from AFS securities	(9,016		)	(43,733		)	13,715			(115,830		)
Balance at end of period	$	430,882		$	504,818		$	430,882		$	504,818

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 residential mortgage securities and MSR- related assets for the three and nine months ended September 30, 2019 and 2018: 

	Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands)	2019			2018			2019			2018
Agency MBS
Coupon interest	$	18,994		$	21,549		$	66,560		$	62,546
Effective yield adjustment (1)	(7,188		)	(7,217		)	(21,039		)	(19,751		)
Interest income	$	11,806		$	14,332		$	45,521		$	42,795
Legacy Non-Agency MBS
Coupon interest	$	21,011		$	27,026		$	68,144		$	83,791
Effective yield adjustment (2)(3)	10,336			18,984			38,003			53,648
Interest income	$	31,347		$	46,010		$	106,147		$	137,439
RPL/NPL MBS
Coupon interest	$	13,227		$	11,526		$	44,305		$	31,167
Effective yield adjustment (1)(4)	8			1,131			158			1,206
Interest income	$	13,235		$	12,657		$	44,463		$	32,373
CRT securities
Coupon interest	$	5,174		$	7,257		$	16,769		$	23,484
Effective yield adjustment (2)	(923		)	491			(1,224		)	2,455
Interest income	$	4,251		$	7,748		$	15,545		$	25,939
MSR-related assets
Coupon interest	$	15,222		$	6,387		$	38,107		$	18,985
Effective yield adjustment (1)	52			20			125			1,264
Interest income	$	15,274		$	6,407		$	38,232		$	20,249

(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 $2.3 million during the three months ended September 30, 2018, and $3.1 million and $2.3 million during the nine months ended September 30, 2019 and 2018, respectively.

(4) Includes accretion income recognized due to the impact of redemptions of certain securities that had been previously purchased at a discount of approximately $4,000 and $1.1 million during the three months ended September 30, 2019 and 2018, respectively, and $152,000 and $1.2 million during the nine months ended September 30, 2019 and 2018, respectively.