MBS (Tables)

6 Months Ended

Jun. 30, 2012

MBS

Schedule of information about MBS

	June 30, 2012
								Discount
								Designated
	Principal/				Accretable			as Credit					Carrying		Gross		Gross			Net
	Current		Purchase		Purchase			Reserve			Amortized		Value/		Unrealized		Unrealized			Unrealized
(In Thousands)	Face		Premiums		Discounts			and OTTI (1)			Cost (2)		Fair Value		Gains		Losses			Gain/(Loss)
Agency MBS:
Fannie Mae	$	5,914,532	$	168,658	$	(104	)	$	—		$	6,083,086	$	6,256,800	$	176,532	$	(2,818	)	$	173,714
Freddie Mac	689,648		21,658		—			—			716,883		741,844		25,010		(49		)	24,961
Ginnie Mae	15,350		265		—			—			15,615		15,967		352		—			352
Total Agency MBS	6,619,530		190,581		(104		)	—			6,815,584		7,014,611		201,894		(2,867		)	199,027
Non-Agency MBS: (3)
Rated AAA	38,015		195		(998		)	—			37,212		37,150		52		(114		)	(62		)
Rated AA	47		1		—			—			48		34		—		(14		)	(14		)
Rated A	22,836		656		—			—			23,492		20,895		—		(2,597		)	(2,597		)
Rated BBB	42,420		56		(2,874		)	(499		)	39,103		37,957		422		(1,568		)	(1,146		)
Rated BB	95,427		41		(6,358		)	(1,653		)	87,457		82,865		173		(4,765		)	(4,592		)
Rated B	319,951		16		(27,519		)	(20,123		)	272,325		269,844		8,596		(11,077		)	(2,481		)
Rated CCC	1,240,369		—		(79,972		)	(239,642		)	920,755		960,116		55,757		(16,396		)	39,361
Rated CC	578,202		—		(28,951		)	(108,941		)	440,310		444,224		17,612		(13,698		)	3,914
Rated C	1,710,909		—		(57,740		)	(385,361		)	1,267,808		1,292,990		54,973		(29,791		)	25,182
Unrated and D-rated(4)	2,235,661		—		(60,725		)	(684,533		)	1,490,403		1,529,818		83,970		(44,555		)	39,415
Total Non-Agency MBS	6,283,837		965		(265,137		)	(1,440,752		)	4,578,913		4,675,893		221,555		(124,575		)	96,980
Total MBS	$	12,903,367	$	191,546	$	(265,241	)	$	(1,440,752	)	$	11,394,497	$	11,690,504	$	423,449	$	(127,442	)	$	296,007
	December 31, 2011
								Discount
								Designated
	Principal/				Accretable			as Credit					Carrying		Gross		Gross			Net
	Current		Purchase		Purchase			Reserve			Amortized		Value/		Unrealized		Unrealized			Unrealized
(In Thousands)	Face		Premiums		Discounts			and OTTI (1)			Cost (2)		Fair Value		Gains		Losses			Gain/(Loss)
Agency MBS:
Fannie Mae	$	5,981,834	$	154,809	$	(135	)	$	—		$	6,136,508	$	6,329,925	$	194,997	$	(1,580	)	$	193,417
Freddie Mac	743,517		22,717		—			—			768,572		791,085		22,677		(164		)	22,513
Ginnie Mae	15,920		275		—			—			16,195		16,521		326		—			326
Total Agency MBS	6,741,271		177,801		(135		)	—			6,921,275		7,137,531		218,000		(1,744		)	216,256
Non-Agency MBS: (3)
Rated AAA	12,258		245		—			—			12,503		12,258		—		(245		)	(245		)
Rated AA	47		1		—			—			48		34		—		(14		)	(14		)
Rated A	28,950		765		(624		)	(5		)	29,086		24,911		341		(4,516		)	(4,175		)
Rated BBB	46,593		42		(3,020		)	(582		)	43,033		38,352		—		(4,681		)	(4,681		)
Rated BB	100,513		33		(10,749		)	(3,223		)	86,574		81,789		2,232		(7,017		)	(4,785		)
Rated B	355,930		17		(30,584		)	(25,004		)	300,359		277,438		2,729		(25,650		)	(22,921		)
Rated CCC	1,031,407		—		(68,174		)	(203,185		)	760,048		741,028		27,767		(46,787		)	(19,020		)
Rated CC	687,664		—		(33,478		)	(142,777		)	511,409		487,619		14,209		(37,999		)	(23,790		)
Rated C	2,128,919		—		(64,963		)	(487,397		)	1,576,559		1,503,737		44,988		(117,810		)	(72,822		)
Unrated and D-rated(4)	1,022,072		—		(38,887		)	(366,593		)	616,592		608,280		34,934		(43,246		)	(8,312		)
Total Non-Agency MBS	5,414,353		1,103		(250,479		)	(1,228,766		)	3,936,211		3,775,446		127,200		(287,965		)	(160,765		)
Total MBS	$	12,155,624	$	178,904	$	(250,614	)	$	(1,228,766	)	$	10,857,486	$	10,912,977	$	345,200	$	(289,709	)	$	55,491

(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, 2012 reflect Credit Reserve of $1.388 billion and OTTI of $52.9 million.  Amounts disclosed at December 31, 2011 reflect Credit Reserve of $1.174 billion and OTTI of $54.5 million.

(2)  Includes principal payments receivable of $5.6 million and $2.3 million at June 30, 2012 and December 31, 2011, respectively, which are not included in the Principal/Current Face.

(3)  Non-Agency MBS, including Non-Agency MBS transferred to consolidated VIEs, are reported based on the lowest rating issued by a Rating Agency, if more than one rating is issued on the security, at the date presented.

(4)  Includes 154 Non-Agency MBS that were D-rated and had an aggregate amortized cost and fair value of $1.476 billion and $1.514 billion, respectively, at June 30, 2012 and 78 Non-Agency MBS that were D-rated and had an aggregate amortized cost and fair value of $602.0 million and $593.8 million, respectively, at December 31, 2011.

Schedule of information about MBS that were in an unrealized loss position

Unrealized Loss Position For:
	Less than 12 Months					12 Months or more					Total
	Fair		Unrealized		Number of	Fair		Unrealized		Number of	Fair		Unrealized
(In Thousands)	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Agency MBS:
Fannie Mae	$	599,290	$	2,064	38	$	47,942	$	754	10	$	647,232	$	2,818
Freddie Mac	18,391		31		2	2,832		18		1	21,223		49
Total Agency MBS	617,681		2,095		40	50,774		772		11	668,455		2,867
Non-Agency MBS:
Rated AAA	17,587		114		2	—		—		—	17,587		114
Rated AA	—		—		—	34		14		1	34		14
Rated A	—		—		—	20,895		2,597		1	20,895		2,597
Rated BBB	3,936		1		1	23,254		1,567		7	27,190		1,568
Rated BB	9,506		345		2	72,348		4,420		9	81,854		4,765
Rated B	8,863		73		1	174,843		11,004		14	183,706		11,077
Rated CCC	91,881		1,366		7	237,592		15,030		24	329,473		16,396
Rated CC	43,890		633		3	185,561		13,065		14	229,451		13,698
Rated C	184,805		2,249		13	482,007		27,542		33	666,812		29,791
Unrated and other	260,531		6,107		26	576,614		38,448		43	837,145		44,555
Total Non-Agency MBS	620,999		10,888		55	1,773,148		113,687		146	2,394,147		124,575
Total MBS	$	1,238,680	$	12,983	95	$	1,823,922	$	114,459	157	$	3,062,602	$	127,442

Schedule of composition of OTTI charges recorded

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In Thousands)	2012			2011			2012			2011
Total OTTI losses	$	—		$	(637	)	$	(879	)	$	(637	)
OTTI reclassified from other comprehensive income	(280		)	(1,755		)	(321		)	(1,755		)
OTTI recognized in earnings	(280		)	(2,392		)	(1,200		)	(2,392		)

Schedule of changes in credit loss component of OTTI

	Three Months Ended		Six Months Ended
(In Thousands)	June 30, 2012		June 30, 2012
Credit loss component of OTTI at beginning of period	$	35,835	$	34,915
Additions for credit related OTTI not previously recognized	—		458
Subsequent additional credit related OTTI recorded	280		742
Credit loss component of OTTI at end of period	$	36,115	$	36,115

Schedule of significant inputs considered and assumptions made in determining the measurement of the component of OTTI recorded earnings

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2012	2011	2012	2011
Credit enhancement(1) (2)
Weighted average(3)	4.00%	3.80%	3.26%	3.80%
Range(4)	0.00-12.10%	0.00-13.30%	0.00-16.50%	0.00-13.30%
Projected CPR(2) (5)
Weighted average(3)	9.80%	10.80%	9.90%	10.80%
Range(4)	9.10-11.00%	1.90-12.00%	9.10-13.30%	1.90-12.00%
Projected Loss Severity(2) (6)
Weighted average(3)	52.20%	48.40%	55.50%	48.40%
Range(4)	45.70-55.40%	41.90-60.00%	45.90-60.00%	41.90-60.00%
60+ days delinquent(2) (7)
Weighted average(3)	28.60%	20.90%	24.40%	20.90%
Range(4)	21.00-32.40%	7.30-32.40%	18.20-32.40%	7.30-32.40%

(1) Represents a level of protection for these securities, expressed as a percentage of total current underlying loan balance.

(2)  Information provided is based on loans for all groups that provide credit enhancement for MBS with credit enhancement.  If an MBS no longer has credit enhancement, information provided is based on loans for the individual group owned by the Company.

(3) Calculated by weighting the relevant input/assumptions for each individual security by current outstanding face of the security.

(4) Represents the range of inputs/assumptions based on individual securities.

(5) CPR - conditional prepayment rate.

(6)  Projected loss severity represents the projected amount of loss realized on liquidated properties as a percentage of the principal balance.

(7) Includes, for each security, underlying loans 60 or more days delinquent, foreclosed loans and other real estate owned.

Schedule of impact of MBS on accumulated other comprehensive (loss)/income

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In Thousands)	2012			2011			2012			2011
Accumulated other comprehensive income from MBS:
Unrealized gain on MBS at beginning of period	$	312,954		$	403,185		$	55,491		$	393,822
Unrealized (loss)/gain on Agency MBS, net	(11,170		)	46,456			(14,328		)	37,713
Unrealized (loss)/gain on Non-Agency MBS, net	(6,057		)	(159,657		)	256,545			(141,551		)
Reclassification adjustment for MBS sales included in net income	—			—			(2,901		)	—
Reclassification adjustment for OTTI included in net income	280			2,392			1,200			2,392
Change in accumulated other comprehensive income from MBS	$	(16,947	)	(110,809		)	240,516			(101,446		)
Balance at end of period	$	296,007		$	292,376		$	296,007		$	292,376

Schedule of changes in the components of the purchase discount on Non-Agency MBS

	Three Months Ended						Six Months Ended
	June 30, 2012						June 30, 2012
	Discount						Discount
	Designated as						Designated as
	Credit Reserve			Accretable			Credit Reserve			Accretable
(In Thousands)	and OTTI (1)			Discount (1) (2)			and OTTI (1)			Discount (1) (2)
Balance at beginning of period	$	(1,344,718	)	$	(264,182	)	$	(1,228,766	)	$	(250,479	)
Accretion of discount	—			9,881			—			19,291
Realized credit losses	35,521			—			57,915			—
Purchases	(139,934		)	(1,004		)	(248,383		)	(8,437		)
Reclass discount for OTTI	182			(182		)	866			(866		)
Net impairment losses recognized in earnings	(280		)	—			(1,200		)	—
Unlinking of Linked Transactions	(83		)	(1,090		)	(38,662		)	(7,168		)
Transfers/release of credit reserve	8,560			(8,560		)	17,478			(17,478		)
Balance at end of period	$	(1,440,752	)	$	(265,137	)	$	(1,440,752	)	$	(265,137	)

	Three Months Ended						Six Months Ended
	June 30, 2011						June 30, 2011
	Discount						Discount
	Designated as						Designated as
	Credit Reserve			Accretable			Credit Reserve			Accretable
(In Thousands)	and OTTI (3)			Discount (2) (3)			and OTTI (3)			Discount (2 )(3)
Balance at beginning of period	$	(945,853	)	$	(213,925	)	$	(746,678	)	$	(228,966	)
Accretion of discount	—			12,161			—			22,322
Realized credit losses	6,502			—			9,877			—
Purchases	(176,571		)	(14,563		)	(331,514		)	(2,837		)
Reclass discount for OTTI	101			(101		)	101			(101		)
Net impairment losses recognized in earnings	(2,392		)	—			(2,392		)	—
Unlinking of Linked Transactions	(54,647		)	(8,532		)	(106,070		)	(11,562		)
Transfers/release of credit reserve	(2,030		)	2,030			1,786			(1,786		)
Balance at end of period	$	(1,174,890	)	$	(222,930	)	$	(1,174,890	)	$	(222,930	)

(1)  In addition, the Company reallocated $629,000 of purchase discount designated as accretable purchase discount to Credit Reserve on Non-Agency MBS underlying Linked Transactions during the six months ended June 30, 2012, all of which occurred during the three months ended March 31, 2012.

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

(3)  In addition, the Company reallocated $366,000 of purchase discount designated as accretable purchase discount to Credit Reserve on Non-Agency MBS underlying Linked Transactions during the three months ended June 30, 2011.  For the six months ended June 30, 2011, the Company reallocated $799,000 of purchase discount designated as Credit Reserve to accretable purchase discount on Non-Agency MBS underlying Linked Transactions.

Schedule of components of interest income on the entity's Agency MBS

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In Thousands)	2012			2011			2012			2011
Coupon interest	$	61,976		$	74,343		$	125,984		$	142,049
Effective yield adjustment (1)	(12,426		)	(8,361		)	(23,134		)	(15,892		)
Agency MBS interest income	$	49,550		$	65,982		$	102,850		$	126,157

(1)  Includes amortization of premium paid net of accretion of purchase discount.  For Agency MBS, interest income is recorded at an effective yield, which reflects net premium amortization based on actual prepayment activity.

Schedule of components of interest income on the entity's Non-Agency MBS

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In Thousands)	2012		2011		2012		2011
Coupon interest	$	66,144	$	53,988	$	127,004	$	93,525
Effective yield adjustment(1)	9,810		12,112		19,154		22,224
Non-Agency MBS interest income	$	75,954	$	66,100	$	146,158	$	115,749

(1)  The effective yield adjustment is the difference between the net income calculated using the net yield, which is based on management’s estimates of future cash flows for Non-Agency MBS, less the current coupon yield.