MBS (Tables)

9 Months Ended

Sep. 30, 2012

MBS

Schedule of information about MBS

	September 30, 2012
								Discount
								Designated
					Accretable			as Credit							Gross		Gross			Net
	Current		Purchase		Purchase			Reserve			Amortized				Unrealized		Unrealized			Unrealized
(In Thousands)	Face		Premiums		Discounts			and OTTI (1)			Cost (2)		Fair Value		Gains		Losses			Gain/(Loss)
Agency MBS:
Fannie Mae	$	6,357,355	$	204,196	$	(70	)	$	—		$	6,561,481	$	6,792,421	$	231,889	$	(949	)	$	230,940
Freddie Mac	615,976		20,996		—			—			642,312		668,748		26,448		(12		)	26,436
Ginnie Mae	14,902		257		—			—			15,159		15,679		520		—			520
Total Agency MBS	6,988,233		225,449		(70		)	—			7,218,952		7,476,848		258,857		(961		)	257,896
Non-Agency MBS: (3)
Rated AAA	35,908		179		(938		)	—			35,149		36,259		1,110		—			1,110
Rated AA	46		1		—			—			47		39		—		(8		)	(8		)
Rated A	22,713		644		—			—			23,357		22,214		—		(1,143		)	(1,143		)
Rated BBB	32,049		29		(2,123		)	(378		)	29,577		31,391		1,981		(167		)	1,814
Rated BB	120,010		41		(8,802		)	(1,724		)	109,525		110,928		2,456		(1,053		)	1,403
Rated B	307,488		15		(27,539		)	(18,879		)	261,085		275,878		17,036		(2,243		)	14,793
Rated CCC	1,155,928		—		(86,864		)	(203,508		)	865,556		969,810		107,609		(3,355		)	104,254
Rated CC	647,499		—		(27,799		)	(128,181		)	491,519		533,770		42,923		(672		)	42,251
Rated C	1,104,962		—		(44,439		)	(225,212		)	835,311		916,709		83,075		(1,677		)	81,398
Unrated and D-rated (4)	3,030,468		—		(109,572		)	(881,769		)	2,039,127		2,299,977		263,737		(2,887		)	260,850
Total Non-Agency MBS	6,457,071		909		(308,076		)	(1,459,651		)	4,690,253		5,196,975		519,927		(13,205		)	506,722
Total MBS	$	13,445,304	$	226,358	$	(308,146	)	$	(1,459,651	)	$	11,909,205	$	12,673,823	$	778,784	$	(14,166	)	$	764,618

	December 31, 2011
								Discount
								Designated
					Accretable			as Credit							Gross		Gross			Net
	Current		Purchase		Purchase			Reserve			Amortized				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 September 30, 2012 reflect Credit Reserve of $1.409 billion and OTTI of $50.3 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 $5.3 million and $2.3 million at September 30, 2012 and December 31, 2011, respectively, which are not included in the 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 214 Non-Agency MBS that were D-rated and had an aggregate amortized cost and fair value of $2.025 billion and $2.281 billion, respectively, at September 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	$	117,361	$	214	23	$	45,376	$	735	10	$	162,737	$	949
Freddie Mac	—		—		—	2,757		12		1	2,757		12
Total Agency MBS	117,361		214		23	48,133		747		11	165,494		961
Non-Agency MBS:
Rated AA	—		—		—	39		8		1	39		8
Rated A	—		—		—	22,214		1,143		2	22,214		1,143
Rated BBB	—		—		—	1,282		167		2	1,282		167
Rated BB	—		—		—	30,000		1,053		5	30,000		1,053
Rated B	—		—		—	97,342		2,243		8	97,342		2,243
Rated CCC	6,955		18		1	72,474		3,337		8	79,429		3,355
Rated CC	—		—		—	48,847		672		5	48,847		672
Rated C	—		—		—	74,379		1,677		5	74,379		1,677
Unrated and other	—		—		—	136,871		2,887		14	136,871		2,887
Total Non-Agency MBS	6,955		18		1	483,448		13,187		50	490,403		13,205
Total MBS	$	124,316	$	232	24	$	531,581	$	13,934	61	$	655,897	$	14,166

Schedule of composition of OTTI charges recorded

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(In Thousands)	2012		2011			2012			2011
Total OTTI losses	$	—	$	(14,913	)	$	(879	)	$	(15,550	)
OTTI recognized in/(reclassified from) other comprehensive income	—		10,922			(321		)	9,167
OTTI recognized in earnings	$	—	$	(3,991	)	$	(1,200	)	$	(6,383	)

Schedule of changes in credit loss component of OTTI

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2012		September 30, 2012
Credit loss component of OTTI at beginning of period	$	36,115	$	34,915
Additions for credit related OTTI not previously recognized	—		458
Subsequent additional credit related OTTI recorded	—		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		Nine Months Ended
	September 30,		September 30,
	2012	2011	2012	2011
Credit enhancement (1) (2)
Weighted average (3)	—	2.70%	3.26%	3.02%
Range (4)	—	0.00-10.40%	0.00-16.50%	0.00-13.30%
Projected CPR (2) (5)
Weighted average (3)	—	11.00%	9.90%	10.90%
Range (4)	—	6.90-12.20%	9.10-13.30%	1.90-12.20%
Projected Loss Severity (2) (6)
Weighted average (3)	—	56.10%	55.50%	53.60%
Range (4)	—	46.10-70.00%	45.90-60.00%	41.90-70.00%
60+ days delinquent (2) (7)
Weighted average (3)	—	21.40%	24.40%	21.30%
Range (4)	—	9.10-36.70%	18.20-32.40%	7.30-36.70%

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

	Three Months Ended						Three Months Ended
	September 30, 2012						September 30, 2011
	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	$	(1,440,752	)	$	(265,137	)	$	(1,174,890	)	$	(222,930	)
Accretion of discount	—			8,816			—			10,785
Realized credit losses	49,314			—			10,735			—
Purchases	(122,266		)	4,554			(29,141		)	(16,198		)
Net impairment losses recognized in earnings	—			—			(3,991		)	—
Unlinking of Linked Transactions	—			(2,256		)	(10,419		)	(61		)
Transfers/release of credit reserve	54,053			(54,053		)	11,305			(11,305		)
Balance at end of period	$	(1,459,651	)	$	(308,076	)	$	(1,196,401	)	$	(239,709	)

	Nine Months Ended						Nine Months Ended
	September 30, 2012						September 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	$	(1,228,766	)	$	(250,479	)	$	(746,678	)	$	(228,966	)
Accretion of discount	—			28,107			—			33,107
Realized credit losses	107,229			—			20,612			—
Purchases	(370,649		)	(3,883		)	(360,655		)	(19,035		)
Reclass discount for OTTI	866			(866		)	101			(101		)
Net impairment losses recognized in earnings	(1,200		)	—			(6,383		)	—
Unlinking of Linked Transactions	(38,662		)	(9,424		)	(116,489		)	(11,623		)
Transfers/release of credit reserve	71,531			(71,531		)	13,091			(13,091		)
Balance at end of period	$	(1,459,651	)	$	(308,076	)	$	(1,196,401	)	$	(239,709	)

(1)  In addition, the Company reallocated $54,000 of purchase discount designated as Credit Reserve to accretable purchase discount on Non-Agency MBS underlying Linked Transactions during the three months ended September 30, 2012. The Company reallocated $1.1 million of purchase discount designated as accretable purchase discount to Credit Reserve on Non-Agency MBS underlying Linked Transactions during the three months ended September 30, 2011.

(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 $575,000 and $309,000 of purchase discount designated as accretable purchase discount to Credit Reserve on Non-Agency MBS underlying Linked Transactions during the nine months ended September 30, 2012 and 2011, respectively.

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In Thousands)	2012			2011			2012			2011
Accumulated other comprehensive income from MBS:
Unrealized gain on MBS at beginning of period	$	296,007		$	292,376		$	55,491		$	393,822
Unrealized gain on Agency MBS, net	61,999			12,035			47,169			50,092
Unrealized gain/(loss) on Non-Agency MBS, net	409,742			(109,294		)	666,287			(250,845		)
Reclassification adjustment for MBS sales included in net income	(3,130		)	(4,525		)	(5,529		)	(4,869		)
Reclassification adjustment for OTTI included in net income	—			3,991			1,200			6,383
Change in accumulated other comprehensive income/(loss) from MBS	$	468,611		(97,793		)	709,127			(199,239		)
Balance at end of period	$	764,618		$	194,583		$	764,618		$	194,583

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

MBS Interest Income

The following table presents the components of interest income on the Company’s Agency MBS for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In Thousands)	2012			2011			2012			2011
Coupon interest	$	61,978		$	70,654		$	187,963		$	212,703
Effective yield adjustment (1)	(14,780		)	(10,697		)	(37,915		)	(26,589		)
Agency MBS interest income	$	47,198		$	59,957		$	150,048		$	186,114

(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				Nine Months Ended
	September 30,				September 30,
(In Thousands)	2012		2011		2012		2011
Coupon interest	$	69,139	$	60,038	$	196,144	$	153,563
Effective yield adjustment (1)	8,760		10,746		27,913		32,970
Non-Agency MBS interest income	$	77,899	$	70,784	$	224,057	$	186,533

(1)  The effective yield adjustment is the difference between the net interest 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.