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Residential Mortgage Securities and MSR-Related Assets (Tables)

9 Months Ended

Sep. 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 September 30, 2020 and December 31, 2019:

September 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 (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

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 residential mortgage 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 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.

(4)At September 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 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.

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

(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.

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 nine months ended September 30, 2020 and 2019. The Company has no continuing involvement with any of the sold securities.


	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

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, 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 (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

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

(2)Amounts disclosed at September 30, 2020 include CRT securities with a fair value of $59.6 million for which the fair value option has been elected. Such securities had unrealized losses of $3.1 million at September 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 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	$	—	$	—	$	—	$	—

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 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)

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

(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.

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, 2020 and 2019:


	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

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, 2020 and 2019:


	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.

(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 nine months ended September 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 $4,000 during the three months ended September 30, 2019 and $277,000 and $152,000 during the nine months ended September 30, 2020 and 2019, respectively.