The Company classifies its Non-Agency RMBS as senior, subordinated, or Interest-only. The Company also invests in Agency MBS which it classifies as Agency RMBS to include residential and residential interest-only MBS and Agency CMBS to include commercial and commercial interest-only MBS. Senior interests in Non-Agency RMBS are generally entitled to the first principal repayments in their pro-rata ownership interests at the acquisition date. The tables below present amortized cost, allowance for credit losses, fair value and unrealized gain/losses of Company's MBS investments as of March 31, 2020 and December 31, 2019.



			March 31, 2020
			(dollars in thousands)
	Principal or Notional Value		Total Premium		Total Discount			Amortized Cost		Allowance for credit losses			Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gain/(Loss)
Non-Agency RMBS
Senior	$	1,924,284	$	1,870	$	(922,847	)	$	1,003,307	$	(5,410	)	$	1,420,224	$	424,613	$	(2,286	)	$	422,327
Subordinated	900,396		8,496		(341,888		)	567,004		(904		)	528,178		42,782		(80,704		)	(37,922		)
Interest-only	6,931,077		287,092		—			287,092		—			225,998		41,151		(102,245		)	(61,094		)
Agency RMBS
Pass-through	—		—		—			—		—			—		—		—			—
Interest-only	1,484,016		135,180		—			135,180		—			105,644		—		(29,536		)	(29,536		)
Agency CMBS
Project loans	2,506,241		49,294		(4,878		)	2,550,657		—			2,786,527		235,985		(115		)	235,870
Interest-only	1,764,487		47,163		—			47,163		—			46,189		1,614		(2,588		)	(974		)
Total	$	15,510,501	$	529,095	$	(1,269,613	)	$	4,590,403	$	(6,314	)	$	5,112,760	$	746,145	$	(217,474	)	$	528,671



			December 31, 2019
			(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	$	2,024,564	$	2,038	$	(953,916	)	$	1,072,686	$	1,700,911	$	628,518	$	(293	)	$	628,225
Subordinated	876,592		9,915		(332,913		)	553,594		624,598		76,272		(5,268		)	71,004
Interest-only	7,458,653		301,170		—			301,170		288,899		51,481		(63,752		)	(12,271		)
Agency RMBS
Pass-through	6,080,547		131,023		—			6,211,570		6,362,626		152,271		(1,215		)	151,056
Interest-only	1,539,941		139,536		—			139,536		127,667		220		(12,089		)	(11,869		)
Agency CMBS
Project loans	2,621,938		52,681		(4,961		)	2,669,658		2,801,692		132,700		(666		)	132,034
Interest-only	1,817,246		51,140		—			51,140		49,025		586		(2,701		)	(2,115		)
Total	$	22,419,481	$	687,503	$	(1,291,790	)	$	10,999,354	$	11,955,418	$	1,042,048	$	(85,984	)	$	956,064

The following tables present the gross unrealized losses and estimated fair value of the Company’s Agency and Non-Agency MBS by length of time that such securities have been in a continuous unrealized loss position at March 31, 2020 and December 31, 2019. All available for sale securities in an unrealized loss position have been evaluated by the Company for current expected credit losses.



						March 31, 2020
						(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 Positions	Estimated Fair Value		Unrealized Losses			Number of Positions	Estimated Fair Value		Unrealized Losses			Number of Positions
Non-Agency RMBS
Senior	$	85,768	$	(2,286	)	14	$	—	$	—		—	$	85,768	$	(2,286	)	14
Subordinated	407,971		(80,429		)	32	1,435		(275		)	10	409,406		(80,704		)	42
Interest-only	75,692		(35,469		)	97	43,493		(66,776		)	66	119,185		(102,245		)	163
Agency RMBS
Pass-through	—		—			—	—		—			—	—		—			—
Interest-only	104,396		(28,624		)	23	1,250		(912		)	1	105,646		(29,536		)	24
Agency CMBS
Project loans	—		—			—	39,863		(115		)	3	39,863		(115		)	3
Interest-only	2,333		(196		)	3	8,809		(2,392		)	7	11,142		(2,588		)	10
Total	$	676,160	$	(147,004	)	169	$	94,850	$	(70,470	)	87	$	771,010	$	(217,474	)	256



						December 31, 2019
						(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 Positions	Estimated Fair Value		Unrealized Losses			Number of Positions	Estimated Fair Value		Unrealized Losses			Number of Positions
Non-Agency RMBS
Senior	$	—	$	—		—	$	31,635	$	(293	)	1	$	31,635	$	(293	)	1
Subordinated	69,178		(5,064		)	9	1,836		(204		)	11	71,014		(5,268		)	20
Interest-only	50,376		(22,737		)	46	64,129		(41,015		)	66	114,505		(63,752		)	112
Agency RMBS
Pass-through	11,398		(605		)	4	67,552		(610		)	5	78,950		(1,215		)	9
Interest-only	121,228		(12,089		)	22	—		—			—	121,228		(12,089		)	22
Agency CMBS
Project loans	41,971		(277		)	3	44,896		(389		)	4	86,867		(666		)	7
Interest-only	15,045		(295		)	6	9,930		(2,406		)	7	24,975		(2,701		)	13
Total	$	309,196	$	(41,067	)	90	$	219,978	$	(44,917	)	94	$	529,174	$	(85,984	)	184

At March 31, 2020, the Company did not intend to sell any of its Agency and Non-Agency MBS that were in an unrealized loss position, and it was not more likely than not that the Company would be required to sell these MBS before recovery of their amortized cost basis, which may be at their maturity. With respect to RMBS held by consolidated VIEs, the ability of any entity to cause the sale by the VIE prior to the maturity of these RMBS is either expressly prohibited, not probable, or is limited to specified events of default, none of which have occurred as of March 31, 2020.

Gross unrealized losses on the Company’s Agency MBS (excluding Agency MBS which are reported at fair value with changes in fair value recorded in earnings) were $115 thousand and $1 million as of March 31, 2020 and December 31, 2019, respectively. Given the inherent credit quality of Agency MBS, the Company does not consider any of the current impairments on its Agency MBS to be credit related. In evaluating whether it is more likely than not that it will be required to sell any impaired security before its anticipated recovery, which may be at their maturity, the Company considers the significance of each investment, the amount of impairment, the projected future performance of such impaired securities, as well as the Company’s current and anticipated leverage capacity and liquidity position. Based on these analyses, the Company determined that at March 31, 2020 and December 31, 2019, unrealized losses on its Agency MBS were temporary.

Gross unrealized losses on the Company’s Non-Agency RMBS (excluding Non-Agency RMBS which are reported at fair value with changes in fair value recorded in earnings), net of any allowance for credit losses, was $9 million at March 31, 2020. After evaluating the securities and recording the allowance for credit losses, we concluded that the remaining unrealized

losses reflected above were non-credit related and would be recovered from the securities' estimated future cash flows. We considered a number of factors in reaching this conclusion, including that we did not intend to sell the securities, it was not considered more likely than not that we would be forced to sell the securities prior to recovering the amortized cost, and there were no material credit events that would have caused us to otherwise conclude that we would not recover the amortized cost. Credit losses are calculated by comparing the estimated future cash flows of each security discontinued at the yield determined as of the initial acquisition date or, if since revised, as of the last date previously revised, to the net amortized cost basis. Significant judgment is used in projecting cash flows for Non-Agency RMBS.

Gross unrealized losses on the Company's Non-Agency RMBS (excluding Non-Agency RMBS which are reported at fair value with changes in fair value recorded in earnings), was $348 thousand at December 31, 2019. Based upon the most recent evaluation, the Company does not consider these unrealized losses to be indicative of other-than-temporary and does not believe that these unrealized losses are credit related, but rather are due to other factors.

The Company has reviewed its Non-Agency RMBS that are in an unrealized loss position to identify those securities with losses that are credit related based on an assessment of changes in cash flows expected to be collected for such RMBS, which considers recent bond performance and expected future performance of the underlying collateral. A summary of the credit loss allowance for the quarter ended March 31, 2020 is presented below.



	For the Quarter Ended
	March 31, 2020
	(dollars in thousands)
Beginning balance of the allowance for credit losses on available-for-sale securities at the beginning of period	$	—

Transition impact from CECL standard	—
Additions to the allowance for credit losses on securities for which credit losses were not previously recorded	(6,314		)
Allowance on purchased financial assets with credit deterioration	—
Reductions for the securities sold during the period	—
Write-offs charged against the allowance	—
Recoveries of amounts previously written off	—

Ending balance of the allowance for credit losses on available-for-sale securities at the end of period	$	(6,314	)



		For the Quarter Ended
		March 31, 2020
		(dollars in thousands)
		Prepay Rate	CDR	Loss Severity
	Amortized Cost	Weighted Average	Weighted Average	Weighted Average
Non-Agency RMBS
Senior	165,966,737	6.0%	3.1%	50.8%
Subordinated	55,410,172	7.5%	0.9%	39.0%

The increase in the allowance for credit losses is primarily due to increased expected losses and delinquencies. In addition, the decline in fair value on certain Non-Agency RMBS positions which had previously been in an unrealized gain position as of the prior year end, and are now in an unrealized loss position as of the end of the current period. These Non-Agency RMBS positions now in an unrealized loss have resulted in the recognition of an allowance for credit losses which was previously limited by unrealized gains on these investments.



			March 31, 2020
			(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	$	424,613	$	—	$	424,613	$	(2,286	)	$	—		$	(2,286	)
Subordinated	35,815		6,967		42,782		(6,817		)	(73,887		)	(80,704		)
Interest-only	—		41,151		41,151		—			(102,245		)	(102,245		)
Agency RMBS
Pass-through	—		—		—		—			—			—
Interest-only	—		—		—		—			(29,536		)	(29,536		)
Agency CMBS
Project loans	51,281		184,704		235,985		(115		)	—			(115		)
Interest-only	—		1,614		1,614		—			(2,588		)	(2,588		)
Total	$	511,709	$	234,436	$	746,145	$	(9,218	)	$	(208,256	)	$	(217,474	)



			December 31, 2019
			(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	$	628,518	$	—	$	628,518	$	(293	)	$	—		$	(293	)
Subordinated	57,174		19,098		76,272		(55		)	(5,213		)	(5,268		)
Interest-only	—		51,481		51,481		—			(63,752		)	(63,752		)
Agency RMBS
Pass-through	—		152,271		152,271		—			(1,215		)	(1,215		)
Interest-only	—		220		220		—			(12,089		)	(12,089		)
Agency CMBS
Project loans	23,643		109,057		132,700		(651		)	(15		)	(666		)
Interest-only	—		586		586		—			(2,701		)	(2,701		)
Total	$	709,335	$	332,713	$	1,042,048	$	(999	)	$	(84,985	)	$	(85,984	)

Changes in prepayments, actual cash flows, and cash flows expected to be collected, among other items, are affected by the collateral characteristics of each asset class. The Company chooses assets for the portfolio after carefully evaluating each investment’s risk profile.



	March 31, 2020
	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	$	1,924,284	$	52.14	73.81	4.8	%	17.3	%
Subordinated	900,396		62.97		58.66	3.8	%	6.8	%
Interest-only	6,931,077		4.14		3.26	1.3	%	11.5	%
Agency RMBS
Interest-only	1,484,016		9.11		7.12	1.6	%	4.1	%
Agency CMBS
Project loans	2,506,241		101.77		111.18	3.8	%	3.6	%
Interest-only	1,764,487		2.67		2.62	0.6	%	4.8	%



	December 31, 2019
	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	$	2,024,564	$	52.98	$	84.01	5.0	%	20.8	%
Subordinated	876,592		63.15		71.25		3.7	%	6.9	%
Interest-only	7,458,653		4.04		3.87		1.1	%	8.4	%
Agency RMBS
Pass-through	6,080,547		102.15		104.64		4.0	%	3.4	%
Interest-only	1,539,941		9.06		8.29		1.6	%	4.0	%
Agency CMBS
Project loans	2,621,938		101.82		106.86		3.7	%	3.6	%
Interest-only	1,817,246		2.81		2.70		0.7	%	4.7	%

Actual maturities of MBS are generally shorter than the stated contractual maturities. Actual maturities of the Company’s MBS are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal. The following tables provide a summary of the fair value and amortized cost of the Company’s MBS at March 31, 2020 and December 31, 2019 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



	March 31, 2020
	(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	$	9,861	$	344,239	$	559,033	$	507,091	$	1,420,224
Subordinated	—		29,670		112,528		385,980		528,178
Interest-only	—		113,900		109,067		3,031		225,998
Agency RMBS
Pass-through	—		—		—		—		—
Interest-only	—		1,250		104,394		—		105,644
Agency CMBS
Project loans	14,951		—		31,252		2,740,324		2,786,527
Interest-only	2,333		39,945		3,911		—		46,189
Total fair value	$	27,145	$	529,004	$	920,185	$	3,636,426	$	5,112,760
Amortized cost
Non-Agency RMBS
Senior	$	9,961	$	273,374	$	369,124	$	350,848	$	1,003,307
Subordinated	—		21,487		111,344		434,173		567,004
Interest-only	1,752		145,034		137,145		3,161		287,092
Agency RMBS
Pass-through	—		—		—		—		—
Interest-only	—		2,162		133,018		—		135,180
Agency CMBS
Project loans	14,981		—		28,646		2,507,030		2,550,657
Interest-only	2,529		40,879		3,755		—		47,163
Total amortized cost	$	29,223	$	482,936	$	783,032	$	3,295,212	$	4,590,403



	December 31, 2019
	(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	$	16,343	$	450,185	$	676,382	$	558,001	$	1,700,911
Subordinated	—		43,796		95,973		484,829		624,598
Interest-only	—		126,631		159,057		3,211		288,899
Agency RMBS
Pass-through	—		5,939,408		421,539		1,679		6,362,626
Interest-only	—		1,614		126,053		—		127,667
Agency CMBS
Project loans	15,065		—		29,385		2,757,242		2,801,692
Interest-only	—		20,528		28,497		—		49,025
Total fair value	$	31,408	$	6,582,162	$	1,536,886	$	3,804,962	$	11,955,418
Amortized cost
Non-Agency RMBS
Senior	$	15,206	$	304,850	$	409,958	$	342,672	$	1,072,686
Subordinated	—		29,085		86,033		438,476		553,594
Interest-only	—		150,221		148,889		2,060		301,170
Agency RMBS
Pass-through	—		5,796,044		414,482		1,044		6,211,570
Interest-only	—		2,260		137,276		—		139,536
Agency CMBS
Project loans	15,084		—		28,954		2,625,620		2,669,658
Interest-only	—		22,950		28,190		—		51,140
Total amortized cost	$	30,290	$	6,305,410	$	1,253,782	$	3,409,872	$	10,999,354

The Non-Agency RMBS portfolio is subject to credit risk. The Non-Agency RMBS portfolio is primarily collateralized by Alt-A first lien mortgages. An Alt-A mortgage is a type of U.S. mortgage that, for various reasons, is considered riskier than A-paper, or prime, and less risky than subprime, the riskiest category. Alt-A interest rates, which are determined by credit risk, therefore tend to be between those of prime and subprime home loans. Typically, Alt-A mortgages are characterized by borrowers with less than full documentation, lower credit scores and higher loan-to-value ratios. At origination of the loan, Alt-A mortgage securities are defined as Non-Agency RMBS where (i) the underlying collateral has weighted average FICO scores between 680 and 720 or (ii) the FICO scores are greater than 720 and RMBS have 30% or less of the underlying collateral composed of full documentation loans. At March 31, 2020 and December 31, 2019, 58% of the Non-Agency RMBS collateral was classified as Alt-A, based on fair value. At March 31, 2020 and December 31, 2019, 13% and 12% of the Non-Agency RMBS collateral was classified as prime, respectively, based on fair value. The remaining Non-Agency RMBS collateral is classified as subprime.

The Non-Agency RMBS in the Portfolio have the following collateral characteristics at March 31, 2020 and December 31, 2019.



	March 31, 2020				December 31, 2019
Weighted average maturity (years)		23.3				23.6
Weighted average amortized loan to value⁽¹⁾		62.7		%		63.2		%
Weighted average FICO⁽²⁾		718				719
Weighted average loan balance (in thousands)		$	308			$	313
Weighted average percentage owner occupied		81.1		%		80.6		%
Weighted average percentage single family residence		60.3		%		60.0		%
Weighted average current credit enhancement		0.9		%		1.1		%
Weighted average geographic concentration of top four states	CA	33.4		%	CA	32.5		%
	FL	6.9		%	FL	6.6		%
	NY	6.8		%	NY	6.3		%
	TX	2.1		%	TX	2.0		%

Gross realized gains and losses are recorded in “Net realized gains (losses) on sales of investments” on the Company’s Consolidated Statements of Operations. The proceeds and gross realized gains and gross realized losses from sales of investments for the quarters ended March 31, 2020 and 2019 are as follows:



	For the Quarters Ended
	March 31, 2020			March 31, 2019
	(dollars in thousands)
Proceeds from sales:
Non-Agency RMBS	33,797			4,430
Agency RMBS	5,710,134			1,482,369
Agency CMBS	105,017			22,482

Gross realized gains:
Non-Agency RMBS	1,256			285
Agency RMBS	74,264			27,012
Agency CMBS	6,150			—
Gross realized losses:
Non-Agency RMBS	—			(1,320		)
Agency RMBS	(5,816		)	(15,149		)
Agency CMBS	—			(2,225		)
Net realized gain (loss)	$	75,854		$	8,603

During the quarter ended March 31, 2020, the Company transferred Non-Agency RMBS investments with a market value of $135 million to a third party. As part of the transfer, the Company purchased an option to re-acquire these assets for a fixed price at a future date. This transfer was accounted for as a secured borrowing within the Repurchase agreements on the Statement of Financial Condition.