MBS investments held as of September 30, 2020 or in prior periods include 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 (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. The Company sold its remaining holdings of Agency MBS during the quarter ended June 30, 2020.

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. During the quarter ended June 30, 2020, the Company had sold substantially all of its holdings of Legacy Non-Agency MBS and substantially reduced its holdings of other Non-Agency MBS. The Company sold its remaining Legacy Non-Agency MBS during the quarter ended September 30, 2020.

CRT securities are debt obligations issued by or sponsored by Fannie Mae and Freddie Mac. The coupon payments on CRT securities are paid by the issuer and the principal payments received are dependent on the performance of loans in either a reference pool or an actual pool of loans. 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 its investments in 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).


(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 (2)(3)(4)	$	60,295	$	—	$	(8,246)	$	(669)	$	51,380	$	8,015	$	(2,965)	$	5,050	$	56,430
CRT securities (5)	104,163		2,414		(69)		(20,768)		85,740		13,722		(3,127)		10,595		96,335
Total residential mortgage securities	$	164,458	$	2,414	$	(8,315)	$	(21,437)	$	137,120	$	21,737	$	(6,092)	$	15,645	$	152,765


(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 residential mortgage securities	$	4,044,818	$	67,108	$	(90,694)	$	(436,598)	$	3,585,248	$	417,089	$	(18,818)	$	398,271	$	3,983,519

(3)Includes RPL/NPL MBS, which at September 30, 2020 had an $57.4 million Principal/Current face, $49.2 million amortized cost and $53.8 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.

(5)Amounts disclosed at September 30, 2020 includes CRT securities with a fair value of $63.3 million for which the fair value option has been elected. Such securities had $410,000 gross unrealized gains and gross unrealized losses of approximately $3.1 million at September 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.

(7)Amounts disclosed at December 31, 2019 include Agency MBS with a fair value of $280.3 million, for which the fair value option has been elected. Such securities had $4.5 million unrealized gains and no gross unrealized losses at December 31, 2019, respectively.


	Three Months Ended September 30, 2020				Three Months Ended September 30, 2019
(In Thousands)	Sales Proceeds		Gains/(Losses)		Sales Proceeds		Gains/(Losses)
Agency MBS	$	—	$	—	$	257,289	$	2,771
Non-Agency MBS	116		48		47,867		14,444
CRT Securities	—		—		28,969		493
Total	$	116	$	48	$	334,125	$	17,708


	Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
(In Thousands)	Sales Proceeds		Gains/(Losses)		Sales Proceeds		Gains/(Losses)
Agency MBS	$	1,500,875	$	(19,291)	$	360,634	$	499
Non-Agency MBS	1,318,958		107,999		244,778		41,420
CRT Securities	243,025		(27,011)		133,507		8,108
Total	$	3,062,858	$	61,697	$	738,919	$	50,027


	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 (1)	$	44,927	$	2,965	5	$	—	$	—	—	$	44,927	$	2,965
CRT securities (2)	59,553		3,127		8	—		—		—	59,553		3,127
Total residential mortgage securities	$	104,480	$	6,092	13	$	—	$	—	—	$	104,480	$	6,092

Gross unrealized losses on the Company’s Non-Agency MBS were $3.0 million at September 30, 2020. Based upon the most recent evaluation, the Company does not consider these unrealized losses to require an allowance for credit losses 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 that require an allowance for credit losses 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.


	Three Months Ended September 30,				Nine Months Ended September 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	$	—	$	—	$	—	$	—

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 nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30, 2020				Three Months Ended September 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	$	(669)	$	(8,430)	$	(479,566)	$	(117,753)

Accretion of discount	—		7		—		10,357
Realized credit losses	—		—		4,062		—

Sales/Redemptions	—		177		12,479		6,029


Transfers/release of credit reserve	—		—		930		(930)
Balance at end of period	$	(669)	$	(8,246)	$	(462,095)	$	(102,297)


	Nine Months Ended September 30, 2020				Nine Months Ended September 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	—		10,827		—		38,215
Realized credit losses	5,868		—		21,482		—
Purchases	—		—		(624)		291
Sales/Redemptions	436,885		76,233		23,842		25,231

Net impairment losses recognized in earnings	(11,513)		—		—		—
Transfers/release of credit reserve	4,689		(4,689)		9,321		(9,321)
Balance at end of period	$	(669)	$	(8,246)	$	(462,095)	$	(102,297)

(2)Includes the impact of $1.7 million of cash proceeds (a one-time payment) received by the Company during the nine months ended September 30, 2019 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.

At September 30, 2020 and December 31, 2019, the Company had $234.1 million and $1.2 billion, 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 September 30, 2020, these term notes had an amortized cost of $184.5 million, gross unrealized gains of $49.5 million, a weighted average yield of 12.1% and a weighted average term to maturity of 9.5 years. During the nine months ended September 30, 2020, the Company sold certain term notes for $711.7 million, realizing gains of $28.7 million, respectively. During the three months ended March 31, 2020, the Company recognized an impairment loss related to its term notes of $280.8 million based on its intent to sell, or the likelihood it will be required to sell, such notes. At December 31, 2019, the term notes had an amortized cost of $1.2 billion, gross unrealized gains of $5.2 million, a weighted average yield of 4.75% and a weighted average term to maturity of 5.3 years.

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.

The Company has participated in a loan where the Company committed to lend $32.6 million of which approximately $18.1 million was drawn at September 30, 2020. At September 30, 2020, the coupon paid by the borrower on the drawn amount is 5.52%. The facility expires in 11 months. 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.


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
AOCI from AFS securities:
Unrealized gain on AFS securities at beginning of period	$	52,889	$	439,898	$	392,722	$	417,167
Unrealized gain/(loss) on Agency MBS, net	—		603		(161)		22,483
Unrealized gain on Non-Agency MBS, net	5,998		2,856		360,315		22,211
Unrealized gain on MSR term notes, net	9,084		2,024		48,431		5,391
Reclassification adjustment for MBS sales included in net income	(60)		(14,499)		(389,127)		(36,370)
Reclassification adjustment for impairment included in net income	—		—		(344,269)		—
Change in AOCI from AFS securities	15,022		(9,016)		(324,811)		13,715
Balance at end of period	$	67,911	$	430,882	$	67,911	$	430,882


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Agency MBS
Coupon interest	$	—	$	18,994	$	14,038	$	66,560
Effective yield adjustment (1)	—		(7,188)		(5,186)		(21,039)
Interest income	$	—	$	11,806	$	8,852	$	45,521

Legacy Non-Agency MBS
Coupon interest	$	42	$	21,011	$	18,222	$	68,144
Effective yield adjustment (2)(3)	6		10,336		10,564		38,003
Interest income	$	48	$	31,347	$	28,786	$	106,147

RPL/NPL MBS
Coupon interest	$	811	$	13,227	$	7,622	$	44,305
Effective yield adjustment (1)(4)	94		8		449		158
Interest income	$	905	$	13,235	$	8,071	$	44,463

CRT securities
Coupon interest	$	956	$	5,174	$	6,063	$	16,769
Effective yield adjustment (2)	420		(923)		(94)		(1,224)
Interest income	$	1,376	$	4,251	$	5,969	$	15,545

MSR-related assets
Coupon interest	$	2,991	$	15,273	$	23,332	$	38,230
Effective yield adjustment (1)(2)	3,250		1		6,857		2
Interest income	$	6,241	$	15,274	$	30,189	$	38,232

(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.