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Mortgage-Backed Securities
 12 Months Ended
Dec. 31, 2013
Investments, Debt and Equity Securities [Abstract]  
Mortgage-Backed Securities
Mortgage-Backed Securities
All of the Company’s MBS are classified as available-for-sale and, as such, are reported at fair value, which is determined by obtaining valuations from an independent source. If the fair value of a security is not available from a dealer or third-party pricing service, or such data appears unreliable, the Company may estimate the fair value of the security using a variety of methods including other pricing services, repurchase agreement pricing, discounted cash flow analysis, matrix pricing, option adjusted spread models and other fundamental analysis of observable market factors.
The following tables present certain information about the Company’s investment portfolio at December 31, 2013 and 2012.
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
Principal
Balance
 
Unamortized
Premium
(Discount)
 
Amortized
Cost
 
Unrealized
Gain/
(Loss), net
 
Fair
Value
 
Net Weighted
Average 
Coupon (1)
 
Period-
end
Weighted
Average
Yield (2)
 
Quarterly
Weighted
Average
Yield (3)
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
1,637,988

 
83,799

 
1,721,787

 
22,494

 
1,744,281

 
4.02
%
 
2.54
%
 
2.61
%
30 year fixed-rate
6,494,723

 
435,680

 
6,930,403

 
(228,250
)
 
6,702,153

 
4.11
%
 
2.96
%
 
3.13
%
ARM
251,693

 
992

 
252,685

 
597

 
253,282

 
2.80
%
 
2.62
%
 
2.41
%
Hybrid ARM
1,764,472

 
9,470

 
1,773,942

 
(3,384
)
 
1,770,558

 
2.69
%
 
2.46
%
 
2.06
%
Total Agency pass-through
10,148,876

 
529,941

 
10,678,817

 
(208,543
)
 
10,470,274

 
3.82
%
 
2.80
%
 
2.90
%
Agency-CMO(4)
1,532,474

 
(1,051,777
)
 
480,697

 
(6,183
)
 
474,514

 
2.76
%
 
3.82
%
 
3.47
%
Non-Agency RMBS(5)
4,361,730

 
(618,634
)
 
3,743,096

 
32,213

 
3,775,309

 
3.74
%
 
3.75
%
 
4.60
%
CMBS(6)
4,630,363

 
(2,032,945
)
 
2,597,418

 
31,142

 
2,628,560

 
3.38
%
 
4.62
%
 
4.51
%
Total
20,673,443

 
(3,173,415
)
 
17,500,028

 
(151,371
)
 
17,348,657

 
3.63
%
 
3.30
%
 
3.51
%
____________________
(1)
Net weighted average coupon (“WAC”) as of December 31, 2013 is presented net of servicing and other fees.
(2)
Weighted average yield based on amortized cost as of December 31, 2013 incorporates future prepayment and loss assumptions.
(3)
Weighted average yield based on average amortized cost for the three months ended December 31, 2013 incorporates actual cash flows and future prepayment and loss assumptions.
(4)
Included in the Agency-CMO are interest only securities which represent 25.0% of the balance based on fair value.
(5)
Non-Agency RMBS held by the Company is 58.4% variable rate, 32.4% fixed rate, and 9.2% floating rate based on fair value.
(6)
Included in the CMBS are interest-only securities and commercial real estate mezzanine loan pass-through certificates which represent 7.5% and 1.0% of the balance based on fair value, respectively.

December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
Principal
Balance
 
Unamortized
Premium
(Discount)
 
Amortized
Cost
 
Unrealized
Gain, net
 
Fair Value
 
Net
Weighted
Average
Coupon (1)
 
Period-
end
Weighted
Average
Yield (2)
 
Quarterly
Weighted
Average
Yield (3)
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
1,964,999

 
102,058

 
2,067,057

 
63,839

 
2,130,896

 
4.09
%
 
2.37
%
 
2.37
%
30 year fixed-rate
9,168,196

 
601,592

 
9,769,788

 
238,949

 
10,008,737

 
4.21
%
 
2.89
%
 
2.88
%
ARM
109,937

 
3,464

 
113,401

 
2,365

 
115,766

 
3.15
%
 
2.06
%
 
2.02
%
Hybrid ARM
556,790

 
13,493

 
570,283

 
16,885

 
587,168

 
3.19
%
 
2.18
%
 
2.22
%
Total Agency pass-through
11,799,922

 
720,607

 
12,520,529

 
322,038

 
12,842,567

 
4.13
%
 
2.77
%
 
2.75
%
Agency-CMO(4)
1,322,043

 
(819,530
)
 
502,513

 
1,926

 
504,439

 
2.89
%
 
2.35
%
 
1.51
%
Non-Agency RMBS(5)
3,339,683

 
(308,885
)
 
3,030,798

 
48,238

 
3,079,036

 
4.20
%
 
4.61
%
 
4.80
%
CMBS(6)
1,868,928

 
24,070

 
1,892,998

 
151,523

 
2,044,521

 
5.27
%
 
4.96
%
 
4.82
%
Total
18,330,576

 
(383,738
)
 
17,946,838

 
523,725

 
18,470,563

 
4.17
%
 
3.30
%
 
3.27
%
____________________ 
(1)
Net WAC as of December 31, 2012 is presented net of servicing and other fees.
(2)
Weighted average yield based on amortized cost as of December 31, 2012 incorporates future prepayment and loss assumptions.
(3)
Weighted average yield based on average amortized cost for the three months ended December 31, 2012 incorporates future prepayment and loss assumptions.
(4)
Included in the Agency-CMO are interest only securities which represent 14.1% of the balance based on fair value.
(5)
Non-Agency RMBS held by the Company is 79.2% variable rate, 15.5% fixed rate, and 5.3% floating rate based on fair value.
(6)
Included in the CMBS are interest-only securities and commercial real estate mezzanine loan pass-through certificates which represent 0% and 1.1% of the balance based on fair value, respectively.
The following table summarizes our non-Agency RMBS portfolio by asset type as of December 31, 2013 and December 31, 2012, respectively:
$ in thousands
December 31, 2013
 
% of Non-Agency
 
December 31, 2012
 
% of Non-Agency
Re-REMIC Senior
1,444,376

 
38.3
%
 
1,844,209

 
59.9
%
Prime
1,504,802

 
39.9
%
 
754,161

 
24.5
%
Alt-A
801,919

 
21.2
%
 
468,181

 
15.2
%
Subprime
24,212

 
0.6
%
 
12,485

 
0.4
%
Total Non-Agency
3,775,309

 
100.0
%
 
3,079,036

 
100.0
%

The following table summarizes certain characteristics of our senior Re-REMIC Holdings as of December 31, 2013 and December 31, 2012:
  
 
Percentage of Re-REMIC
Holdings at Fair Value
Re-REMIC Subordination(1)
 
December 31,
2013
 
December 31,
2012
0-10
 
4.8
%
 
2.1
%
10-20
 
3.5
%
 
3.2
%
20-30
 
14.7
%
 
15.0
%
30-40
 
25.2
%
 
27.0
%
40-50
 
38.6
%
 
40.4
%
50-60
 
8.5
%
 
7.6
%
60-70
 
4.7
%
 
4.7
%
Total
 
100.0
%
 
100.0
%
 
(1)
Subordination refers to the credit enhancement provided to the senior Re-REMIC tranche by the junior Re-REMIC tranche or tranches in a resecuritization. This figure reflects the percentage of the balance of the underlying security represented by the junior tranche or tranches at the time of resecuritization. Generally, principal losses on the underlying security in excess of the subordination amount would result in principal losses on the senior Re-REMIC tranche.
The components of the carrying value of the Company’s investment portfolio at December 31, 2013 and 2012 are presented below:
$ in thousands
December 31,
2013
 
December 31,
2012
Principal balance
20,673,443

 
18,330,576

Unamortized premium
646,189

 
788,716

Unamortized discount
(3,819,604
)
 
(1,172,454
)
Gross unrealized gains
291,725

 
563,093

Gross unrealized losses
(443,096
)
 
(39,368
)
Fair value
17,348,657

 
18,470,563


The following table summarizes certain characteristics of the Company’s investment portfolio, at fair value, according to estimated weighted average life classifications as of December 31, 2013 and 2012:
$ in thousands
December 31,
2013
 
December 31,
2012
Less than one year
101,251

 
70,044

Greater than one year and less than five years
5,958,852

 
13,146,577

Greater than or equal to five years
11,288,554

 
5,253,942

Total
17,348,657

 
18,470,563


The following tables present the estimated fair value, the gross unrealized losses and the number of securities of the Company’s MBS by length of time that such securities have been in a continuous unrealized loss position at December 31, 2013 and 2012, respectively:
December 31, 2013
Less than 12 Months
 
12 Months or More
 
Total
$ in thousands
Fair
Value
 
Unrealized
Losses
 
Number of Securities
 
Fair
Value
 
Unrealized
Losses
 
Number of Securities
 
Fair
Value
 
Unrealized
Losses
 
Number of Securities
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
431,527

 
(4,964
)
 
18

 
11,100

 
(259
)
 
1

 
442,627

 
(5,223
)
 
19

30 year fixed-rate
3,710,679

 
(228,167
)
 
126

 
641,259

 
(56,754
)
 
27

 
4,351,938

 
(284,921
)
 
153

ARM
94,447

 
(968
)
 
7

 
—

 
—

 
—

 
94,447

 
(968
)
 
7

Hybrid ARM
1,129,488

 
(9,715
)
 
48

 
—

 
—

 
—

 
1,129,488

 
(9,715
)
 
48

Total Agency pass through
5,366,141

 
(243,814
)
 
199

 
652,359

 
(57,013
)
 
28

 
6,018,500

 
(300,827
)
 
227

Agency-CMO
311,935

 
(16,599
)
 
13

 
8,883

 
(3,736
)
 
4

 
320,818

 
(20,335
)
 
17

Non-Agency RMBS
1,307,036

 
(58,326
)
 
76

 
91,651

 
(1,726
)
 
8

 
1,398,687

 
(60,052
)
 
84

CMBS
1,118,270

 
(61,882
)
 
84

 
—

 
—

 
—

 
1,118,270

 
(61,882
)
 
84

Total
8,103,382

 
(380,621
)
 
372

 
752,893

 
(62,475
)
 
40

 
8,856,275

 
(443,096
)
 
412

December 31, 2012
Less than 12 Months
 
12 Months or More
 
Total
$ in thousands
Fair
Value
 
Unrealized
Losses
 
Number of Securities
 
Fair
Value
 
Unrealized
Losses
 
Number of Securities
 
Fair
Value
 
Unrealized
Losses
 
Number of Securities
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
31,269

 
(279
)
 
3

 
—

 
—

 
—

 
31,269

 
(279
)
 
3

30 year fixed-rate
1,763,113

 
(6,469
)
 
47

 
78,640

 
(832
)
 
1

 
1,841,753

 
(7,301
)
 
48

Total Agency pass through
1,794,382

 
(6,748
)
 
50

 
78,640

 
(832
)
 
1

 
1,873,022

 
(7,580
)
 
51

Agency-CMO
31,719

 
(7,796
)
 
14

 
10,770

 
(2,812
)
 
6

 
42,489

 
(10,608
)
 
20

Non-Agency RMBS
516,744

 
(6,005
)
 
35

 
490,503

 
(12,895
)
 
28

 
1,007,247

 
(18,900
)
 
63

CMBS
187,349

 
(1,267
)
 
14

 
52,813

 
(1,013
)
 
3

 
240,162

 
(2,280
)
 
17

Total
2,530,194

 
(21,816
)
 
113

 
632,726

 
(17,552
)
 
38

 
3,162,920

 
(39,368
)
 
151


Gross unrealized losses on the Company’s Agency RMBS were $300.8 million at December 31, 2013. Due to the inherent credit quality of Agency RMBS, the Company determined that at December 31, 2013, any unrealized losses on its Agency RMBS portfolio are temporary.
Gross unrealized losses on the Company’s MBS-CMO, non-Agency RMBS, and CMBS were $142.3 million at December 31, 2013. The Company does not consider these unrealized losses to be credit related, but rather due to non-credit related factors such as interest rate spreads, prepayment speeds, and market fluctuations. These investment securities are included in the Company’s assessment for other-than-temporary impairment on at least a quarterly basis.
The following table presents the impact of the Company’s MBS on its accumulated other comprehensive income for the years ended December 31, 2013, 2012 and 2011.
 
Years Ended December 31,
$ in thousands
2013
 
2012
 
2011
Accumulated other comprehensive income (loss) from investment securities:
 
 
 
 
 
Unrealized gain (loss) on MBS at beginning of period
523,725

 
(1,218
)
 
31,267

Unrealized gain (loss) on MBS, net
(675,096
)
 
524,943

 
(32,485
)
Balance at the end of period
(151,371
)
 
523,725

 
(1,218
)

During the years ended December 31, 2013, 2012 and 2011 the Company reclassified $199.4 million of net unrealized losses, $48.2 million of net unrealized gain and $11.0 million of net unrealized gain respectively from other comprehensive income into gain (loss) on sale of investments as a result of the Company selling certain investments.
The Company assesses its investment securities for other-than-temporary impairment on at least a quarterly basis and more frequently when economic or market conditions warrant such evaluation. When the fair value of an investment is less than its amortized cost at the balance sheet date of the reporting period for which impairment is assessed, the impairment is designated as either “temporary” or “other-than-temporary.” The Company evaluates each security that has had a fair value less than amortized cost for three or more consecutive months for other-than-temporary impairment. This analysis includes evaluating the individual loans in each security to determine estimated future cash flows. Individual loan characteristics reviewed include, but are not limited to, delinquency status, loan-to-value ratios, borrower credit scores, occupancy status and geographic concentration. To the extent a security is deemed impaired, the amount by which the amortized cost exceeds the security's market value would be considered other-than-temporary impairment.
The Company did not have other-than-temporary impairments for the years ended December 31, 2013, 2012 and 2011.
The following table presents a roll-forward of the credit loss component of other-than-temporary impairments for the years ended December 31, 2013, 2012 and 2011.
 
Years Ended December 31,
$ in thousands
2013
 
2012
 
2011
Cumulative credit loss amount at the beginning of the period
—

 
—

 
510

Additions for credit losses for which other-than-temporary impairment had not been previously recognized
—

 
—

 
—

Reductions for securities sold
—

 
—

 
(510
)
Cumulative credit loss amount at end of period
—

 
—

 
—


The following table presents components of interest income on the Company’s MBS portfolio for the years ended December 31, 2013, 2012 and 2011.
For the Year ended December 31, 2013
 
 
 
 
 
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income
Agency
530,220

 
(161,149
)
 
369,071

Non-Agency
156,400

 
9,243

 
165,643

CMBS
140,094

 
(28,215
)
 
111,879

Other
194

 
—

 
194

Total
826,908

 
(180,121
)
 
646,787

 
For the Year ended December 31, 2012
 
 
 
 
 
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income (Loss)
Agency
517,651

 
(157,239
)
 
360,412

Non-Agency
111,191

 
19,010

 
130,201

CMBS
77,701

 
(1,395
)
 
76,306

Other
(89
)
 
—

 
(89
)
Total
706,454

 
(139,624
)
 
566,830

 
For the Year ended December 31, 2011
 
 
 
 
 
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income (Loss)
Agency
344,447

 
(85,566
)
 
258,881

Non-Agency
104,547

 
35,230

 
139,777

CMBS
54,508

 
226

 
54,734

Other
(40
)
 
—

 
(40
)
Total
503,462

 
(50,110
)
 
453,352