Residential Mortgage Securities and MSR-Related Assets (Tables)

6 Months Ended

Jun. 30, 2020

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 June 30, 2020 and December 31, 2019:

June 30, 2020

(In Thousands)	Principal/ Current Face		Purchase Premiums		Accretable Purchase Discounts			Discount Designated as Credit Reserve (1)			Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gain/(Loss)		Fair  Value
Non-Agency MBS:
Expected to Recover Par (2)(3)	$	59,512	$	—	$	(8,430	)	$	—		$	51,082	$	6,962	$	(6,372	)	$	590	$	51,672
Expected to Recover Less than Par (2)	2,849		—		—			(669		)	2,180		385		—			385		2,565
Total Non-Agency MBS (4)	62,361		—		(8,430		)	(669		)	53,262		7,347		(6,372		)	975		54,237
CRT securities (5)	104,309		2,052		(129		)	(20,768		)	85,464		11,945		(3,303		)	8,642		94,106
Total MBS and CRT securities	$	166,670	$	2,052	$	(8,559	)	$	(21,437	)	$	138,726	$	19,292	$	(9,675	)	$	9,617	$	148,343

December 31, 2019

(In Thousands)	Principal/ Current Face		Purchase Premiums		Accretable Purchase Discounts			Discount Designated as Credit Reserve (1)			Gross Amortized Cost (6)		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gain/(Loss)			Fair Value
Agency MBS: (7)
Fannie Mae	$	1,119,708	$	43,249	$	(22	)	$	—		$	1,162,935	$	9,799	$	(14,741	)	$	(4,942	)	$	1,157,993
Freddie Mac	480,879		19,468		—			—			500,961		5,475		(3,968		)	1,507			502,468
Ginnie Mae	3,996		73		—			—			4,069		52		—			52			4,121
Total Agency MBS	1,604,583		62,790		(22		)	—			1,667,965		15,326		(18,709		)	(3,383		)	1,664,582
Non-Agency MBS:
Expected to Recover Par (2)(3)	722,477		—		(16,661		)	—			705,816		19,861		(9		)	19,852			725,668
Expected to Recover Less than Par (2)	1,472,826		—		(73,956		)	(436,598		)	962,272		375,598		(9		)	375,589			1,337,861
Total Non-Agency MBS (4)	2,195,303		—		(90,617		)	(436,598		)	1,668,088		395,459		(18		)	395,441			2,063,529
Total MBS	3,799,886		62,790		(90,639		)	(436,598		)	3,336,053		410,785		(18,727		)	392,058			3,728,111
CRT securities (5)	244,932		4,318		(55		)	—			249,195		6,304		(91		)	6,213			255,408
Total MBS and CRT securities	$	4,044,818	$	67,108	$	(90,694	)	$	(436,598	)	$	3,585,248	$	417,089	$	(18,818	)	$	398,271		$	3,983,519

(1) Discount designated as Credit Reserve is generally not expected to be accreted into interest income.

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

(3) Includes RPL/NPL MBS, which at June 30, 2020 had an $59.4 million Principal/Current face, $51.0 million amortized cost and $51.5 million fair value. At December 31, 2019, RPL/NPL MBS had a $632.3 million Principal/Current face, $631.8 million amortized cost and $635.0 million fair value.

(4) At June 30, 2020 and December 31, 2019, the Company expected to recover approximately 99% and 80% of the then-current face amount of Non-Agency MBS, respectively.

(5) Amounts disclosed at June 30, 2020 includes CRT securities with a fair value of $63.4 million for which the fair value option has been elected. Such securities had $495,000 gross unrealized gains and gross unrealized losses of approximately $3.3 million at June 30, 2020. Amounts disclosed at December 31, 2019 includes CRT securities with a fair value of $255.4 million for which the fair value option has been elected. Such securities had gross unrealized gains of approximately $6.3 million and gross unrealized losses of approximately $91,000 at December 31, 2019.

(6) Includes principal payments receivable of $614,000 at December 31, 2019, which is not included in the Principal/Current Face.

(7)

Schedule of Sale of Residential Mortgage Securities

The following table presents information about the Company’s sales of its residential mortgage securities for the three and six months ended June 30, 2020 and 2019. The Company has no continuing involvement with any of the sold securities.

	Three Months Ended June 30, 2020					Three Months Ended June 30, 2019
(In Thousands)	Sales Proceeds		Gains/(Losses)			Sales Proceeds		Gains/(Losses)
Agency MBS	$	535,742	$	3,563		$	103,345	$	(2,272	)
Non-Agency MBS	1,054,980		151,095			70,818		8,823
CRT Securities	207,379		(24,992		)	21,170		1,159
Total	$	1,798,101	$	129,666		$	195,333	$	7,710

	Six Months Ended June 30, 2020					Six Months Ended June 30, 2019
(In Thousands)	Sales Proceeds		Gains/(Losses)			Sales Proceeds		Gains/(Losses)
Agency MBS	$	1,500,875	$	(19,291	)	$	103,345	$	(2,272	)
Non-Agency MBS	1,318,842		107,951			196,912		26,976
CRT Securities	243,025		(27,011		)	104,539		7,615
Total	$	3,062,742	$	61,649		$	404,796	$	32,319

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 June 30, 2020, with respect to which no allowance for credit losses has been recorded:

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)
Non-Agency MBS:
Expected to Recover Par (1)	$	43,422	$	6,372	5	$	—	$	—	—	$	43,422	$	6,372
Total Non-Agency MBS	43,422		6,372		5	—		—		—	43,422		6,372
Total MBS	43,422		6,372		5	—		—		—	43,422		6,372
CRT securities (2)	59,477		3,303		8	—		—		—	59,477		3,303
Total MBS and CRT securities	$	102,899	$	9,675	13	$	—	$	—	—	$	102,899	$	9,675

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

(2) Amounts disclosed at June 30, 2020 include CRT securities with a fair value of $59.5 million for which the fair value option has been elected. Such securities had unrealized losses of $3.3 million at June 30, 2020.

Schedule of Credit Losses

The following table presents a roll-forward of the allowance for credit losses on the Company’s Residential mortgage securities and MSR-related assets:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars In Thousands)	2020		2019		2020			2019
Allowance for credit losses at beginning of period	$	—	$	—	$	—		$	—
Current provision:	—		—		—			—
Securities with no prior loss allowance	—		—		344,269			—
Securities with a prior loss allowance	—		—		—			—
Write-offs, including allowance related to securities the Company intends to sell	—		—		(344,269		)	—
Allowance for credit losses at end of period	$	—	$	—	$	—		$	—

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 accretable purchase discount for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30, 2020						Three Months Ended June 30, 2019
(In Thousands)	Discount Designated as Credit Reserve			Accretable Discount (1)			Discount Designated as Credit Reserve			Accretable Discount (1)
Balance at beginning of period	$	(389,472	)	$	(90,968	)	$	(501,619	)	$	(130,147	)
Impact of RMBS Issuer Settlement (2)	—			—			—			(833		)
Accretion of discount	—			932			—			14,551
Realized credit losses	1,409			—			9,917			—
Purchases	—			—			(624		)	409
Sales/Redemptions	387,394			81,606			8,171			2,856
Transfers/release of credit reserve	—			—			4,589			(4,589		)
Balance at end of period	$	(669	)	$	(8,430	)	$	(479,566	)	$	(117,753	)

	Six Months Ended June 30, 2020						Six Months Ended June 30, 2019
(In Thousands)	Discount Designated as Credit Reserve			Accretable Discount (1)			Discount Designated as Credit Reserve			Accretable Discount (1)
Balance at beginning of period	$	(436,598	)	$	(90,617	)	$	(516,116	)	$	(155,025	)
Impact of RMBS Issuer Settlement (2)	—			—			—			(1,688		)
Accretion of discount	—			10,820			—			27,858
Realized credit losses	5,868			—			17,420			—
Purchases	—			—			(624		)	291
Sales/Redemptions	436,885			76,056			11,363			19,202
Net impairment losses recognized in earnings	(11,513		)	—			—			—
Transfers/release of credit reserve	4,689			(4,689		)	8,391			(8,391		)
Balance at end of period	$	(669	)	$	(8,430	)	$	(479,566	)	$	(117,753	)

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

(2) Includes the impact of $833,000 and $1.7 million of cash proceeds (a one-time payment) received by the Company during the three and six months ended June 30, 2019, respectively, 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, 2020 and 2019:

	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2020			2019			2020			2019
AOCI from AFS securities:
Unrealized gain on AFS securities at beginning of period	$	148,910		$	422,261		$	392,722		$	417,167
Unrealized (loss)/gain on Agency MBS, net	(394		)	13,555			(161		)	21,880
Unrealized gain on Non-Agency MBS, net	8,644			7,598			354,317			19,060
Unrealized gain on MSR term notes, net	40,465			2,855			39,347			3,367
Reclassification adjustment for MBS sales included in net income	(144,736		)	(6,371		)	(389,067		)	(21,576		)
Reclassification adjustment for impairment included in net income	—			—			(344,269		)	—
Change in AOCI from AFS securities	(96,021		)	17,637			(339,833		)	22,731
Balance at end of period	$	52,889		$	439,898		$	52,889		$	439,898

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 six months ended June 30, 2020 and 2019: 

	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2020			2019			2020			2019
Agency MBS
Coupon interest	$	402		$	22,938		$	14,038		$	47,566
Effective yield adjustment (1)	(412		)	(7,664		)	(5,186		)	(13,851		)
Interest income	$	(10	)	$	15,274		$	8,852		$	33,715
Legacy Non-Agency MBS
Coupon interest	$	897		$	22,861		$	18,179		$	47,133
Effective yield adjustment (2)	1,153			14,523			10,560			27,667
Interest income	$	2,050		$	37,384		$	28,739		$	74,800
RPL/NPL MBS
Coupon interest	$	1,228		$	14,635		$	6,811		$	31,078
Effective yield adjustment (1)(3)	77			8			355			150
Interest income	$	1,305		$	14,643		$	7,166		$	31,228
CRT securities
Coupon interest	$	1,622		$	5,477		$	5,107		$	11,595
Effective yield adjustment (2)	8			(383		)	(515		)	(301		)
Interest income	$	1,630		$	5,094		$	4,592		$	11,294
MSR-related assets
Coupon interest	$	6,133		$	12,338		$	20,340		$	22,957
Effective yield adjustment (1)(2)	3,608			—			3,608			1
Interest income	$	9,741		$	12,338		$	23,948		$	22,958

(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 less the current coupon yield. The net yield may be based on management’s estimates of the amount and timing of future cash flows or on the instrument’s contractual cash flows, depending on the relevant accounting standard.

(3) Includes accretion income recognized due to the impact of redemptions of certain securities that had been previously purchased at a discount of approximately $277,000 and $148,000 during the six months ended June 30, 2020 and 2019, respectively.