Investments In Securities

9 Months Ended

Sep. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Note 6 - Investments in Securities

As of September 30, 2020 and December 31, 2019, our securities portfolio consisted of $5,545,765 and $12,825,367 of investment securities, at fair value, respectively, and $2,075,905 and $1,006,280 of TBA Agency Securities, at fair value, respectively. Our TBA Agency Securities are reported at net carrying value of $1,474 and $(592), at September 30, 2020 and December 31, 2019, respectively, and are reported in Derivatives, at fair value on our consolidated balance sheets (see Note 8 - Derivatives for additional information). The net carrying value of our TBA Agency Securities represents the difference between the fair value of the underlying Agency Security in the TBA contract and the cost basis or the forward price to be paid or received for the underlying Agency Security.

The following table summarizes our investments in securities as of September 30, 2020 and December 31, 2019, excluding TBA Agency Securities (see Note 8 - Derivatives for additional information). We designated Agency MBS purchased in the second and third quarters of 2020 as “trading securities” for financial reporting purposes, and consequently, fair value changes for these investments are reported in net income. We anticipate continuing this designation for newly acquired Agency MBS positions because it is more representative of our results of operations insofar as the fair value changes for these securities are presented in a manner consistent with the presentation and timing of the fair value changes of our hedging instruments. Fair value changes for the legacy Agency Securities designated as available for sale will continue to be reported in other comprehensive income as required by GAAP.


	Available for Sale Securities			Trading Securities
	Agency			Agency			Credit Risk and Non-Agency			Interest-Only			U.S. Treasuries			Totals
September 30, 2020
Balance, December 31, 2019	$	11,941,766		$	—		$	883,601		$	—		$	—		$	12,825,367
Purchases ⁽¹⁾	1,768,688			3,709,017			237,928			—			4,621,776			10,337,409
Proceeds from sales	(10,762,842)			(154,369)			(889,057)			—			(4,643,049)			(16,449,317)

Principal repayments	(751,425)			(170,723)			(45,766)			—			—			(967,914)
Gains (losses)	(16,473)			20,060			(189,555)			—			21,357			(164,611)
Credit loss expense	(1,012)			—			—			—			—			(1,012)
Amortization/accretion	(26,105)			(10,817)			2,849			—			(84)			(34,157)
Balance, September 30, 2020	$	2,152,597		$	3,393,168		$	—		$	—		$	—		$	5,545,765
Percentage of Portfolio	38.82		%	61.18		%	—		%	—		%	—		%	100.00		%

December 31, 2019
Balance, December 31, 2018	$	7,051,954		$	—		$	819,915		$	20,623		$	98,646		$	7,991,138
Purchases ⁽¹⁾	9,130,512			—			138,767			—			1,685,058			10,954,337
Sales	(2,894,339)			—			—			(18,822)			(1,786,090)			(4,699,251)
Principal Repayments	(1,701,406)			—			(53,641)			—			—			(1,755,047)
Gains (losses)	408,954			—			(24,396)			123			2,024			386,705

Amortization/accretion	(53,909)			—			2,956			(1,924)			362			(52,515)
Balance, December 31, 2019	$	11,941,766		$	—		$	883,601		$	—		$	—		$	12,825,367
Percentage of Portfolio	93.11		%				6.89		%	—		%	—		%	100.00		%

(1)Purchases include cash paid during the period, plus payable for investment securities purchased during the period as of period end. At September 30, 2020, we had investment related payables with respect to unsettled purchases of Agency Securities, trading of $518,552 and at December 31, 2019, we had investment related payables with respect to unsettled purchases of Agency Securities, available for sale of $358,712.

Available for Sale Securities:

During three and nine months ended September 30, 2020, we evaluated our available for sale securities to determine if the available sale securities in an unrealized loss position were impaired. In the first quarter of 2020, we recognized an impairment of $1,012 in our consolidated statements of operations as we had determined that we may have been required to sell certain securities in the near future. No credit loss expense was required for the second or third quarters of 2020. We do not have an allowance for credit losses as all of our available for sale securities consist of Agency MBS.

At September 30, 2019 and December 31, 2019, we evaluated our available for sale securities with unrealized losses to determine whether there was an other than temporary impairment ("OTTI"). At those dates, we also considered whether we intended to sell available for sale securities and whether it was more likely than not that we could meet our liquidity requirements and contractual obligations without selling available for sale securities. No OTTI was recognized for the three and nine months ended September 30, 2019 or for the year ended December 31, 2019.

The table below presents the components of the carrying value and the unrealized gain or loss position of our available for sale securities at September 30, 2020 and December 31, 2019. Our available for sale securities had a weighted average coupon of 3.3% and 3.8% at September 30, 2020 and December 31, 2019.


Agency Securities	Principal Amount		Amortized Cost		Gross Unrealized Loss		Gross Unrealized Gain		Fair Value
September 30, 2020
Total Fannie Mae	$	1,468,314	$	1,510,059	$	(22)	$	181,302	$	1,691,339
Total Freddie Mac	407,397		423,830		—		18,746		442,576
Total Ginnie Mae	18,058		18,511		(12)		183		18,682
Total	$	1,893,769	$	1,952,400	$	(34)	$	200,231	$	2,152,597

December 31, 2019
Total Fannie Mae	$	8,779,331	$	8,975,140	$	(291)	$	294,937	$	9,269,786
Total Freddie Mac	2,522,870		2,587,512		(40)		61,323		2,648,795
Total Ginnie Mae	22,504		23,641		(461)		5		23,185
Total	$	11,324,705	$	11,586,293	$	(792)	$	356,265	$	11,941,766

The following table presents the unrealized losses and estimated fair value of our available for sale securities by length of time that such securities have been in a continuous unrealized loss position at September 30, 2020 and December 31, 2019. All of our available for sale securities are issued and guaranteed by GSEs or Ginnie Mae. The GSEs have a long term credit rating of AA+.


	Unrealized Loss Position For:
	< 12 Months						≥ 12 Months						Total
Agency Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2020	$	9,383	$	(34)	$	—	$	—	$	9,383	$	(34)
December 31, 2019	$	2,136	$	(10)	$	43,939	$	(782)	$	46,075	$	(792)

Actual maturities of available for sale securities are generally shorter than stated contractual maturities because actual maturities of available for sale securities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal. The following table summarizes the weighted average lives of our available for sale securities at September 30, 2020 and December 31, 2019.


	September 30, 2020						December 31, 2019
Weighted Average Life of Available for Sale Securities	Fair Value		Amortized Cost		Fair Value		Amortized Cost
< 1 year	$	45	$	45	$	—	$	—
≥ 1 year and < 3 years	217,345		208,549		22,237		22,254
≥ 3 years and < 5 years	738,231		705,376		6,542,389		6,365,623
≥ 5 years	1,196,976		1,038,430		5,377,140		5,198,416
Total Available for Sale Securities	$	2,152,597	$	1,952,400	$	11,941,766	$	11,586,293

We use a third party model to calculate the weighted average lives of our available for sale securities. Weighted average life is calculated based on expectations for estimated prepayments for the underlying mortgage loans of our available for sale securities. These estimated prepayments are based on assumptions such as interest rates, current and future home prices, housing policy and borrower incentives. The weighted average lives of our available for sale securities at September 30, 2020 and December 31, 2019 in the table above are based upon market factors, assumptions, models and estimates from the third party model and also incorporate management’s judgment and experience. The actual weighted average lives of our available for sale securities could be longer or shorter than estimated.

Trading Securities:

The components of the carrying value of our trading securities at September 30, 2020 and December 31, 2019 are presented in the table below. We did not have any Credit Risk and Non-Agency Securities at September 30, 2020. We did not have any U.S. Treasury Securities or Interest-Only Securities at September 30, 2020 and December 31, 2019.


	Principal Amount		Amortized Cost		Gross Unrealized Loss		Gross Unrealized Gain		Fair Value
September 30, 2020
Agency Securities:
Total Fannie Mae	$	2,562,859	$	2,736,811	$	(2,361)	$	18,360	$	2,752,810
Total Freddie Mac	602,722		635,163		(292)		5,487		640,358







Total Trading Securities	$	3,165,581	$	3,371,974	$	(2,653)	$	23,847	$	3,393,168

December 31, 2019
Credit Risk Transfer	$	754,729	$	751,940	$	—	$	52,024	$	803,964
Non-Agency Securities	93,723		72,904		(3)		6,736		79,637
Total Trading Securities	$	848,452	$	824,844	$	(3)	$	58,760	$	883,601

Our Credit Risk Transfer securities are collateralized by residential mortgage loans meeting agency criteria. However, our securities principal and interest are not guaranteed by the agencies. Credit Risk Transfer securities include tranches issued since 2014. Our Non-Agency Securities are collateralized by residential mortgage loans not guaranteed by any agency and include legacy securities issued between 2005 and 2007.

The following table presents the unrealized losses and estimated fair value of our trading securities by length of time that such securities have been in a continuous unrealized loss position at September 30, 2020 and December 31, 2019. Our Credit Risk and Non-Agency Securities are subject to risk of loss with regard to principal and interest payments. We evaluate each investment based on the characteristics of the underlying collateral and securitization structure, rather than relying on the ratings assigned by rating agencies.


	Unrealized Loss Position For:
	< 12 Months						≥ 12 Months						Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2020
Agency Securities	$	831,339	$	(2,653)	$	—	$	—	$	831,339	$	(2,653)




December 31, 2019
Credit Risk and Non-Agency Securities	$	362	$	(3)	$	—	$	—	$	362	$	(3)

The following table summarizes the weighted average lives of our trading securities at September 30, 2020 and December 31, 2019.


	September 30, 2020						December 31, 2019
Estimated Weighted Average Life of Trading Securities	Fair Value		Amortized Cost		Fair Value		Amortized Cost

≥ 1 year and < 3 years	488,744		488,823		389,883		369,600
≥ 3 years and < 5 years	1,351,241		1,339,604		407,656		375,030
≥ 5 years	1,553,183		1,543,547		86,062		80,214
Total	$	3,393,168	$	3,371,974	$	883,601	$	824,844

We use a third party model to calculate the weighted average lives of our trading securities. Weighted average life is calculated based on expectations for estimated prepayments for the underlying mortgage loans of our trading securities. These estimated prepayments are based on assumptions such as interest rates, current and future home prices, housing policy and borrower incentives. The weighted average lives of our trading securities at September 30, 2020 and December 31, 2019 in the tables above are based upon market factors, assumptions, models and estimates from the third party model and also incorporate management’s judgment and experience. The actual weighted average lives of our trading securities could be longer or shorter than estimated.