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Mortgage-Backed Securities (Tables)
 6 Months Ended
Jun. 30, 2018
Investments, Debt and Equity Securities [Abstract]  
Schedule of present amortized cost, fair value and unrealized gain/losses of Company's MBS investments
The tables below present amortized cost, fair value and unrealized gain/losses of Company's MBS investments as of June 30, 2018 and December 31, 2017.
 
 
June 30, 2018
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
Principal or Notional Value
Total Premium
Total Discount
Amortized Cost
Fair Value
Gross Unrealized Gains
Gross Unrealized Losses
Net Unrealized Gain/(Loss)
Non-Agency RMBS
 
 
 
 
 
 
 
 
Senior
$
2,522,667

$
628

$
(1,180,560
)
$
1,342,735

$
2,063,786

$
721,524

$
(473
)
$
721,051

Senior, interest-only
5,282,885

302,960

—

302,960

252,324

26,074

(76,710
)
(50,636
)
Subordinated
365,499

9,842

(170,202
)
205,139

266,830

61,963

(272
)
61,691

Subordinated, interest-only
206,557

9,279

—

9,279

10,482

1,830

(627
)
1,203

Agency MBS
 

 

 

 

 

 

 



Residential
4,527,730

167,342

—

4,695,072

4,612,920

9,528

(91,680
)
(82,152
)
Commercial
2,300,891

52,422

(4,509
)
2,348,804

2,273,508

944

(76,240
)
(75,296
)
Interest-only
3,010,512

109,938

—

109,938

102,901

954

(7,991
)
(7,037
)
Total
$
18,216,741

$
652,411

$
(1,355,271
)
$
9,013,927

$
9,582,751

$
822,817

$
(253,993
)
$
568,824


 
 
December 31, 2017
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
Principal or Notional Value
Total Premium
Total Discount
Amortized Cost
Fair Value
Gross Unrealized Gains
Gross Unrealized Losses
Net Unrealized Gain/(Loss)
Non-Agency RMBS
 
 
 
 
 
 
 
 
Senior
$
2,733,926

$
540

$
(1,257,103
)
$
1,477,363

$
2,231,415

$
754,234

$
(182
)
$
754,052

Senior, interest-only
4,862,461

262,996

—

262,996

210,850

15,761

(67,907
)
(52,146
)
Subordinated
501,455

10,571

(177,206
)
334,820

401,225

66,704

(299
)
66,405

Subordinated, interest-only
201,378

7,369

—

7,369

7,826

902

(445
)
457

Agency MBS
 

 

 

 

 

 

 

 

Residential
2,227,128

123,245

—

2,350,373

2,322,180

5,706

(33,899
)
(28,193
)
Commercial
1,894,594

47,430

(4,685
)
1,937,339

1,938,281

17,041

(16,099
)
942

Interest-only
3,021,840

111,277

—

111,277

104,367

834

(7,744
)
(6,910
)
Total
$
15,442,782

$
563,428

$
(1,438,994
)
$
6,481,537

$
7,216,144

$
861,182

$
(126,575
)
$
734,607
Schedule of changes in accretable yield
The table below presents changes in accretable yield, or the excess of the security’s cash flows expected to be collected over the Company’s investment, solely as it pertains to the Company’s Non-Agency RMBS portfolio accounted for according to the provisions of ASC 310-30.

 
For the Quarters Ended
For the Six Months Ended
 
June 30, 2018
June 30, 2017
June 30, 2018
June 30, 2017
 
(dollars in thousands)
(dollars in thousands)
Balance at beginning of period
$
1,293,996

$
1,513,416

$
1,303,590

$
1,550,110

Purchases
5,734

1,969

5,734

10,185

Yield income earned
(57,786
)
(67,750
)
(117,517
)
(136,577
)
Reclassification (to) from non-accretable difference
31,471

(62,059
)
81,496

(38,107
)
Sales and deconsolidation
(6,775
)
(2,388
)
(6,663
)
(2,423
)
Balance at end of period
$
1,266,640

$
1,383,188

$
1,266,640

$
1,383,188
Schedule of non-agency RMBS having deteriorated credit when acquired
The table below presents the outstanding principal balance and related amortized cost at June 30, 2018 and December 31, 2017 as it pertains to the Company’s Non-Agency RMBS portfolio accounted for according to the provisions of ASC 310-30.
 
For the Six Months Ended
For the Year Ended
 
June 30, 2018
December 31, 2017
 
(dollars in thousands)
Outstanding principal balance:
 
 
Beginning of period
$
2,673,350

$
3,138,265

End of period
$
2,476,421

$
2,673,350

Amortized cost:
 

 

Beginning of period
$
1,381,839

$
1,695,079

End of period
$
1,249,140

$
1,381,839
Schedule of temporary impairment losses, investments
The following tables present the gross unrealized losses and estimated fair value of the Company’s RMBS by length of time that such securities have been in a continuous unrealized loss position at June 30, 2018 and December 31, 2017. All securities in an unrealized loss position have been evaluated by the Company for OTTI as discussed in Note 2(d) of 2017, Form 10-K.

 
 
 
June 30, 2018
 
 
 
 
 
 
 


(dollars in thousands)
 
 
 
 
 
 
 
Unrealized Loss Position for Less than 12 Months
 
Unrealized Loss Position for 12 Months or More
 
Total
 
Estimated Fair Value
Unrealized Losses
Number of Securities
 
Estimated Fair Value
Unrealized Losses
Number of Securities
 
Estimated Fair Value
Unrealized Losses
Number of Securities
Non-Agency RMBS
 
 
 
 
 
 
 
 
 
 
 
Senior
$
43,709

$
(473
)
3

 
$
—

$
—

—

 
$
43,709

$
(473
)
3

Senior, interest-only
25,400

(4,391
)
31

 
103,442

(72,319
)
104

 
128,842

(76,710
)
135

Subordinated
1,016

(272
)
5

 
—

—

6

 
1,016

(272
)
11

Subordinated, interest-only
112

(18
)
1

 
704

(609
)
3

 
816

(627
)
4

Agency MBS
 

 



 


 

 

 
 

 

 

Residential
1,618,829

(23,966
)
36

 
1,318,668

(67,714
)
94

 
2,937,497

(91,680
)
130

Commercial
1,713,531

(60,698
)
506

 
321,813

(15,542
)
114

 
2,035,344

(76,240
)
620

Interest-only
12,375

(689
)
7

 
48,211

(7,302
)
20

 
60,586

(7,991
)
27

Total
$
3,414,972

$
(90,507
)
589

 
$
1,792,838

$
(163,486
)
341

 
$
5,207,810

$
(253,993
)
930


 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
Unrealized Loss Position for Less than 12 Months
 
Unrealized Loss Position for 12 Months or More
 
Total
 
Estimated Fair Value
Unrealized Losses
Number of Securities
 
Estimated Fair Value
Unrealized Losses
Number of Securities
 
Estimated Fair Value
Unrealized Losses
Number of Securities
Non-Agency RMBS
 
 
 
 
 
 
 
 
 
 
 
Senior
$
35,229

$
(182
)
1

 
$
—

$
—

—

 
$
35,229

$
(182
)
1

Senior, interest-only
28,129

(1,724
)
27

 
120,120

(66,183
)
120

 
148,249

(67,907
)
147

Subordinated
235

(38
)
7

 
6,261

(261
)
5

 
6,496

(299
)
12

Subordinated, interest-only
—

—

—

 
945

(445
)
3

 
945

(445
)
3

Agency MBS
 

 

 

 
 

 

 

 
 

 

 

Residential
660,103

(5,197
)
21

 
1,471,464

(28,702
)
93

 
2,131,567

(33,899
)
114

Commercial
830,889

(11,695
)
176

 
161,980

(4,404
)
91

 
992,869

(16,099
)
267

Interest-only
15,142

(641
)
7

 
57,875

(7,103
)
24

 
73,017

(7,744
)
31

Total
$
1,569,727

$
(19,477
)
239

 
$
1,818,645

$
(107,098
)
336

 
$
3,388,372

$
(126,575
)
575
Other than temporary impairment, credit losses recognized in earnings
A summary of the OTTI included in earnings for the quarters and six months ended June 30, 2018 and 2017 are presented below.

 
For the Quarter Ended
 
For the Six Months Ended
 
June 30, 2018
June 30, 2017
 
June 30, 2018
June 30, 2017
 
(dollars in thousands)
 
(dollars in thousands)
Total other-than-temporary impairment losses
$
(805
)
$
(749
)
 
$
(1,099
)
$
(3,462
)
Portion of loss recognized in other comprehensive income (loss)
(8,326
)
(12,760
)
 
(9,190
)
(28,748
)
Net other-than-temporary credit impairment losses
$
(9,131
)
$
(13,509
)
 
$
(10,289
)
$
(32,210
)
 
The following table presents a roll forward of the credit loss component of OTTI on the Company’s Non-Agency RMBS for which a portion of loss was recognized in OCI. The table delineates between those securities that are recognizing OTTI for the first time as opposed to those that have previously recognized OTTI.
 
For the Quarters Ended
For the Six Months Ended
 
June 30, 2018
June 30, 2017
June 30, 2018
June 30, 2017
 
(dollars in thousands)
Cumulative credit loss beginning balance
$
586,056

$
558,229

$
591,521

$
556,485

Additions:
 

 

 

 

Other-than-temporary impairments not previously recognized
—

12,399

1,140

12,399

Reductions for securities sold or deconsolidated during the period
(4,775
)
—

(4,948
)
(7,443
)
Increases related to other-than-temporary impairments on securities with previously recognized other-than-temporary impairments
9,131

1,109

9,149

17,835

Reductions for increases in cash flows expected to be collected over the remaining life of the securities
(7,751
)
(99
)
(14,201
)
(7,638
)
Cumulative credit impairment loss ending balance
$
582,661

$
571,638

$
582,661

$
571,638
Other than temporary impairment of investments recorded in earnings, significant inputs and assumptions
The significant inputs used to measure the component of OTTI recognized in earnings for the Company’s Non-Agency RMBS for the periods reported are summarized as follows:

 
For the Six Months Ended
 
June 30, 2018
June 30, 2017
Loss Severity
 
 
Weighted Average
66%
62%
Range
34% - 132%
28% - 67%
60+ days delinquent
 
 
Weighted Average
23%
19%
Range
16% - 30%
11% - 25%
Credit Enhancement (1)

 
Weighted Average
32%
19%
Range
0% - 55%
0% - 38%
3 Month CPR
 
 
Weighted Average
10%
12%
Range
0% - 39%
2% - 24%
12 Month CPR
 
 
Weighted Average
8%
11%
Range
1% - 20%
4% - 19%

(1) Calculated as the combined credit enhancement to the Re-REMIC and underlying from each of their respective capital structures.
Summary of unrealized gains and losses on MBS
The following tables present a summary of unrealized gains and losses at June 30, 2018 and December 31, 2017.
 
 
June 30, 2018
 
 
 
 
 
(dollars in thousands) 
 
 
 
 
Gross Unrealized Gain Included in Accumulated Other Comprehensive Income
Gross Unrealized Gain Included in Cumulative Earnings
Total Gross Unrealized Gain
Gross Unrealized Loss Included in Accumulated Other Comprehensive Income
Gross Unrealized Loss Included in Cumulative Earnings
Total Gross Unrealized Loss
Non-Agency RMBS
 
 
 
 
 
 
Senior
$
721,524

$
—

$
721,524

$
(473
)
$
—

$
(473
)
Senior, interest-only
—

26,074

26,074

—

(76,710
)
(76,710
)
Subordinated
58,887

3,076

61,963

(272
)
—

(272
)
Subordinated, interest-only
—

1,830

1,830

—

(627
)
(627
)
Agency MBS
 

 

 
 

 

 
Residential
2,316

7,212

9,528

(70,382
)
(21,298
)
(91,680
)
Commercial
686

258

944

(40,635
)
(35,605
)
(76,240
)
Interest-only
—

954

954

—

(7,991
)
(7,991
)
Total
$
783,413

$
39,404

$
822,817

$
(111,762
)
$
(142,231
)
$
(253,993
)
 
 
December 31, 2017
 
 
 
 
 
(dollars in thousands)  
 
 
 
 
Gross Unrealized Gain Included in Accumulated Other Comprehensive Income
Gross Unrealized Gain Included in Cumulative Earnings
Total Gross Unrealized Gain
Gross Unrealized Loss Included in Accumulated Other Comprehensive Income
Gross Unrealized Loss Included in Cumulative Earnings
Total Gross Unrealized Loss
Non-Agency RMBS
 
 
 
 
 
 
Senior
$
754,234

$
—

$
754,234

$
(182
)
$
—

$
(182
)
Senior, interest-only
—

15,761

15,761

—

(67,907
)
(67,907
)
Subordinated
62,989

3,715

66,704

(102
)
(197
)
(299
)
Subordinated, interest-only
—

902

902

—

(445
)
(445
)
Agency MBS
 

 

 

 

 

 

Residential
5,706

—

5,706

(29,083
)
(4,816
)
(33,899
)
Commercial
15,462

1,579

17,041

(12,122
)
(3,977
)
(16,099
)
Interest-only
—

834

834

—

(7,744
)
(7,744
)
Total
$
838,391

$
22,791

$
861,182

$
(41,489
)
$
(85,086
)
$
(126,575
)
Residential mortgage backed securities collateral characteristics
The following tables provide a summary of the Company’s MBS portfolio at June 30, 2018 and December 31, 2017.
 
June 30, 2018
 
Principal or Notional Value
at Period-End
(dollars in thousands)
Weighted Average Amortized
Cost Basis
Weighted Average Fair Value
Weighted Average
Coupon
Weighted Average Yield at Period-End (1)
Non-Agency RMBS
 
 
 
 
Senior
$
2,522,667

$
53.23

$
81.81

4.8
%
17.7
%
Senior, interest-only
5,282,885

5.73

4.78

1.4
%
9.1
%
Subordinated
365,499

56.13

73.00

4.0
%
10.8
%
Subordinated, interest-only
206,557

4.49

5.07

0.9
%
11.8
%
Agency MBS
 

 

 

 

 

Residential pass-through
4,527,730

103.70

101.88

4.0
%
3.4
%
Commercial pass-through
2,300,891

102.08

98.81

3.6
%
3.4
%
Interest-only
3,010,512

3.65

3.42

0.7
%
3.3
%
(1) Bond Equivalent Yield at period end.

 
December 31, 2017
 
Principal or Notional Value at Period-End
(dollars in thousands)
Weighted Average Amortized
Cost Basis
Weighted Average Fair Value
Weighted Average
Coupon
Weighted Average Yield at Period-End (1)
Non-Agency RMBS
 
 
 
 
Senior
$
2,733,926

$
54.04

$
81.62

4.6
%
16.7
%
Senior, interest-only
4,862,461

5.41

4.34

1.3
%
8.0
%
Subordinated
501,455

66.77

80.01

4.1
%
9.6
%
Subordinated, interest-only
201,378

3.66

3.89

0.8
%
11.8
%
Agency MBS
 

 

 

 

 

Residential pass-through
2,227,128

105.53

104.27

3.8
%
2.9
%
Commercial pass-through
1,894,594

102.26

102.31

3.6
%
3.2
%
Interest-only
3,021,840

3.68

3.45

0.7
%
3.4
%
(1) Bond Equivalent Yield at period end.
Credit ratings of residential MBS
The following table presents the weighted average credit rating of the Company’s Non-Agency RMBS portfolio at June 30, 2018 and December 31, 2017.

 
June 30, 2018
December 31, 2017

AAA
0.3
%
0.3
%
AA
0.9
%
0.3
%
A
0.1
%
0.6
%
BBB
1.4
%
1.9
%
BB
2.0
%
2.5
%
B
2.1
%
2.3
%
Below B
57.8
%
59.6
%
Not Rated
35.4
%
32.5
%
Total
100.0
%
100.0
%
Schedule of MBS by estimated weighted average life classification
The following tables provide a summary of the fair value and amortized cost of the Company’s MBS at June 30, 2018 and December 31, 2017 according to their estimated weighted-average life classifications. The weighted-average lives of the MBS in the tables below are based on lifetime expected prepayment rates using an industry prepayment model for the Agency MBS portfolio and the Company’s prepayment assumptions for the Non-Agency RMBS. The prepayment model considers current yield, forward yield, steepness of the interest rate curve, current mortgage rates, mortgage rates of the outstanding loan, loan age, margin, and volatility.
 
June 30, 2018
 
(dollars in thousands) 
 
Weighted Average Life
 
Less than one year
Greater than one year and less
than five years
Greater than five years and less
than ten years
Greater than ten years
Total
Fair value
 
 
 
 
 
Non-Agency RMBS
 
 
 
 
 
Senior
$
5,461

$
536,951

$
816,498

$
704,876

$
2,063,786

Senior interest-only
6

47,491

95,502

109,325

252,324

Subordinated
3,891

44,590

126,300

92,049

266,830

Subordinated interest-only
—

7,954

333

2,195

10,482

Agency MBS
 

 

 

 

 

Residential
—

—

4,600,496

12,424

4,612,920

Commercial
—

15,663

19,123

2,238,722

2,273,508

Interest-only
11,313

64,338

22,794

4,456

102,901

Total fair value
$
20,671

$
716,987

$
5,681,046

$
3,164,047

$
9,582,751

Amortized cost
 

 

 

 

 

Non-Agency RMBS
 
 

 

 

 

Senior
$
5,347

$
387,067

$
489,371

$
460,950

$
1,342,735

Senior interest-only
102

60,821

120,956

121,081

302,960

Subordinated
3,838

34,758

88,839

77,704

205,139

Subordinated interest-only
—

6,270

838

2,171

9,279

Agency MBS
 

 

 

 

 

Residential
—

—

4,682,192

12,880

4,695,072

Commercial
—

15,769

20,374

2,312,661

2,348,804

Interest-only
11,264

69,648

24,895

4,131

109,938

Total amortized cost
$
20,551

$
574,333

$
5,427,465

$
2,991,578

$
9,013,927

 
December 31, 2017
 
(dollars in thousands)
 
Weighted Average Life
 
Less than one year
Greater than one year and less
than five years
Greater than five years and less
than ten years
Greater than ten years
Total
Fair value
 
 
 
 
 
Non-Agency RMBS
 
 
 
 
 
Senior
$
2,179

$
681,086

$
910,234

$
637,916

$
2,231,415

Senior interest-only
19

54,107

72,702

84,022

210,850

Subordinated
—

75,495

121,555

204,175

401,225

Subordinated interest-only
—

7,165

661

—

7,826

Agency MBS
 

 

 

 

 

Residential
—

21,777

2,300,403

—

2,322,180

Commercial
—

45,770

16,559

1,875,952

1,938,281

Interest-only
—

74,490

25,271

4,606

104,367

Total fair value
$
2,198

$
959,890

$
3,447,385

$
2,806,671

$
7,216,144

Amortized cost
 

 

 

 

 

Non-Agency RMBS
 
 

 

 

 

Senior
$
2,124

$
493,965

$
569,458

$
411,816

$
1,477,363

Senior interest-only
1,271

73,758

94,145

93,822

262,996

Subordinated
—

61,987

91,044

181,789

334,820

Subordinated interest-only
—

6,355

1,014

—

7,369

Agency MBS
 

 

 

 

 

Residential
—

22,069

2,328,304

—

2,350,373

Commercial
—

47,170

17,176

1,872,993

1,937,339

Interest-only
—

79,356

27,582

4,339

111,277

Total amortized cost
$
3,395

$
784,660

$
3,128,723

$
2,564,759

$
6,481,537
Schedule of collateral characteristics of underlying Mortgages of Non-Agency RMBS portfolio
The Non-Agency RMBS in the Portfolio have the following collateral characteristics at June 30, 2018 and December 31, 2017.
 
June 30, 2018
December 31, 2017
Weighted average maturity (years)
 
20.4

 
20.7

Weighted average amortized loan to value (1)
 
63.3
%
 
64.4
%
Weighted average FICO (2)
 
703

 
697

Weighted average loan balance (in thousands)
 
$
324

 
$
314

Weighted average percentage owner occupied
 
84.5
%
 
84.4
%
Weighted average percentage single family residence
 
65.7
%
 
66.3
%
Weighted average current credit enhancement
 
1.5
%
 
2.2
%
Weighted average geographic concentration of top four states
CA
32.4
%
CA
31.7
%
 
NY
8.4
%
NY
8.5
%
 
FL
8.1
%
FL
8.3
%
 
NJ
2.6
%
NJ
2.7
%
(1) Value represents appraised value of the collateral at the time of loan origination.
(2) FICO as determined at the time of loan origination.
Schedule of percentage of Non-Agency RMBS by year originated
The table below presents the origination year of the underlying loans related to the Company’s portfolio of Non-Agency RMBS at June 30, 2018 and December 31, 2017.

Origination Year
June 30, 2018
December 31, 2017

2003 and prior
4.8
%
3.6
%
2004
6.5
%
4.3
%
2005
20.1
%
20.8
%
2006
39.4
%
38.2
%
2007
23.6
%
30.4
%
2008
0.3
%
1.8
%
2009 and later
5.3
%
0.9
%
Total
100.0
%
100.0
%
Schedule of gains and losses from sales of investments
The proceeds and gross realized gains and gross realized losses from sales of investments for the quarters and six months ended June 30, 2018 and 2017 are as follows:

 
For the Quarter Ended
For the Six Months Ended
 
June 30, 2018
June 30, 2017
June 30, 2018
June 30, 2017
 
(dollars in thousands)
Proceeds from sales
$
32,551

$
153,681

$
32,551

$
173,743

 
 
 
 
 
Gross realized gains
4,383

5,380

4,383

10,566

Gross realized losses
(2,216
)
(839
)
(2,216
)
(858
)
Net realized gain (loss)
$
2,167

$
4,541

$
2,167

$
9,708