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Mortgage-Backed and Credit Risk Transfer Securities
 6 Months Ended
Jun. 30, 2017
Investments, Debt and Equity Securities [Abstract]  
Mortgage-Backed and Credit Risk Transfer Securities
Mortgage-Backed and Credit Risk Transfer Securities
The following tables summarize our mortgage-backed securities ("MBS") and GSE CRT portfolio by asset type as of June 30, 2017 and December 31, 2016.
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
Principal/ Notional
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
3,187,931

 
134,856

 
3,322,787

 
(46,007
)
 
3,276,780

 
3.09
%
 
2.19
%
 
1.97
%
30 year fixed-rate
4,816,054

 
232,385

 
5,048,439

 
20,677

 
5,069,116

 
3.95
%
 
3.10
%
 
2.83
%
ARM*
269,123

 
1,988

 
271,111

 
3,463

 
274,574

 
2.68
%
 
2.58
%
 
2.27
%
Hybrid ARM
1,891,257

 
30,099

 
1,921,356

 
12,659

 
1,934,015

 
2.71
%
 
2.54
%
 
2.29
%
Total Agency pass-through(4)
10,164,365

 
399,328

 
10,563,693

 
(9,208
)
 
10,554,485

 
3.42
%
 
2.69
%
 
2.44
%
Agency-CMO(5)
1,429,977

 
(1,129,678
)
 
300,299

 
(2,033
)
 
298,266

 
2.04
%
 
2.87
%
 
0.34
%
Non-Agency RMBS(6)(7)(8)
3,247,516

 
(1,793,760
)
 
1,453,756

 
122,084

 
1,575,840

 
2.18
%
 
5.80
%
 
5.90
%
GSE CRT(9)(10)
769,217

 
25,537

 
794,754

 
82,423

 
877,177

 
3.06
%
 
2.40
%
 
2.62
%
CMBS(11)(12)
3,317,888

 
(612,386
)
 
2,705,502

 
72,014

 
2,777,516

 
3.90
%
 
4.62
%
 
4.45
%
Total
18,928,963

 
(3,110,959
)
 
15,818,004

 
265,280

 
16,083,284

 
3.17
%
 
3.30
%
 
3.07
%
* Adjustable-rate mortgage ("ARM")
 
(1)
Net weighted average coupon as of June 30, 2017 is presented net of servicing and other fees.
(2)
Period-end weighted average yield is based on amortized cost as of June 30, 2017 and incorporates future prepayment and loss assumptions.
(3)
Quarterly weighted average portfolio yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the average balance of the amortized cost of the investments. All yields are annualized.
(4)
We have elected the fair value option for Agency RMBS purchased on or after September 1, 2016 which represent 23.7% of principal/notional balance, 23.5% of amortized cost and 23.5% of fair value.
(5)
Agency collateralized mortgage obligation ("Agency-CMO") includes interest-only securities ("Agency IO"), which represent 84.3% of principal/notional balance, 24.1% of amortized cost and 23.9% of fair value.
(6)
Non-Agency RMBS held by us is 43.8% fixed rate, 48.0% variable rate, and 8.2% floating rate based on fair value.
(7)
Of the total discount in non-Agency RMBS, $258.2 million is non-accretable based on estimated future cash flows of the securities.
(8)
Non-Agency RMBS includes interest-only securities which represent 47.7% of principal/notional balance, 1.8% of amortized cost and 1.5% of fair value.
(9)
We have elected the fair value option for GSE CRT purchased on or after August 24, 2015, which represent 26.1% of the balance based on fair value. As a result, GSE CRT accounted for under the fair value option are not bifurcated between the debt host contract and the embedded derivative.
(10)
GSE CRT weighted average coupon and weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.
(11)
CMBS includes interest-only securities which represent 18.5% of principal/notional balance, 0.7% of amortized cost and 0.7% of fair value.
(12)
We have elected the fair value option for CMBS purchased on or after September 1, 2016 which represent 10.6% of principal/notional balance, 11.3% of amortized cost and 11.0% of fair value.

December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
Principal/Notional
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
3,460,625

 
151,526

 
3,612,151

 
(54,223
)
 
3,557,928

 
3.11
%
 
2.19
%
 
1.99
%
30 year fixed-rate
2,780,806

 
185,521

 
2,966,327

 
15,390

 
2,981,717

 
4.37
%
 
2.61
%
 
2.57
%
ARM
301,900

 
2,520

 
304,420

 
3,453

 
307,873

 
2.69
%
 
2.59
%
 
2.16
%
Hybrid ARM
2,423,152

 
42,360

 
2,465,512

 
8,789

 
2,474,301

 
2.70
%
 
2.52
%
 
2.02
%
Total Agency pass-through(4)
8,966,483

 
381,927

 
9,348,410

 
(26,591
)
 
9,321,819

 
3.37
%
 
2.42
%
 
2.20
%
Agency-CMO(5)
1,712,120

 
(1,368,916
)
 
343,204

 
837

 
344,041

 
2.16
%
 
3.08
%
 
2.07
%
Non-Agency RMBS(6)(7)(8)
3,838,314

 
(1,934,269
)
 
1,904,045

 
91,506

 
1,995,551

 
2.21
%
 
5.22
%
 
5.22
%
GSE CRT(9)(10)
707,899

 
24,320

 
732,219

 
35,981

 
768,200

 
2.38
%
 
1.51
%
 
1.24
%
CMBS(11)(12)
3,050,747

 
(559,857
)
 
2,490,890

 
60,830

 
2,551,720

 
3.80
%
 
4.21
%
 
4.17
%
Total
18,275,563

 
(3,456,795
)
 
14,818,768

 
162,563

 
14,981,331

 
3.05
%
 
3.05
%
 
2.87
%
 
(1)
Net weighted average coupon as of December 31, 2016 is presented net of servicing and other fees.
(2)
Period-end weighted average yield is based on amortized cost as of December 31, 2016 and incorporates future prepayment and loss assumptions.
(3)
Quarterly weighted average portfolio yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the average balance of the amortized cost of the investments. All yields are annualized.
(4)
We have elected the fair value option for Agency RMBS purchased on or after September 1, 2016 which represent 4.3% of principal/notional balance, 4.3% of amortized cost and 4.2% of fair value.
(5)
Agency collateralized mortgage obligation ("Agency CMO") includes interest-only securities ("Agency IO"), which represent 85.5% of principal (notional) balance, 26.8% of amortized cost and 21.7% of fair value.
(6)
Non-Agency RMBS held by us is 45.5% variable rate, 47.2% fixed rate, and 7.3% floating rate based on fair value.
(7)
Of the total discount in non-Agency RMBS, $252.5 million is non-accretable based on estimated future cash flows of the securities.
(8)
Non-Agency RMBS includes interest-only securities, which represent 43.5% of principal/notional balance, 1.5% of amortized cost and 1.3% of fair value.
(9)
We have elected the fair value option for GSE CRT purchased on or after August 24, 2015, which represent 19.2% of the balance based on fair value. As a result, GSE CRT accounted for under the fair value option are not bifurcated between the debt host contract and the embedded derivative.
(10)
GSE CRT weighted average coupon and weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.
(11)
CMBS includes interest-only securities which represent 20.3% of principal/notional balance, 0.8% of amortized cost and 0.9% of fair value.
(12)
We have elected the fair value option for CMBS purchased on or after September 1, 2016 which represent 0.4% of principal/notional balance, 0.6% of amortized cost and 0.5% of fair value.
The following table summarizes our non-Agency RMBS portfolio by asset type based on fair value as of June 30, 2017 and December 31, 2016.
$ in thousands
June 30, 2017
 
% of Non-Agency
 
December 31, 2016
 
% of Non-Agency
Prime
699,638

 
44.4
%
 
889,658

 
44.6
%
Alt-A
421,492

 
26.7
%
 
447,213

 
22.4
%
Re-REMIC
237,766

 
15.1
%
 
364,301

 
18.2
%
Subprime/reperforming
216,944

 
13.8
%
 
294,379

 
14.8
%
Total Non-Agency
1,575,840

 
100.0
%
 
1,995,551

 
100.0
%
The following table summarizes the credit enhancement provided to our re-securitization of real estate mortgage investment conduit ("Re-REMIC") holdings as of June 30, 2017 and December 31, 2016.
  
Percentage of Re-REMIC Holdings at Fair Value
Re-REMIC Subordination(1)
June 30, 2017
 
December 31, 2016
0% - 10%
26.3
%
 
17.6
%
10% - 20%
3.9
%
 
7.4
%
20% - 30%
9.9
%
 
13.5
%
30% - 40%
19.4
%
 
15.7
%
40% - 50%
18.4
%
 
27.0
%
50% - 60%
20.3
%
 
16.1
%
60% - 70%
1.8
%
 
2.7
%
Total
100.0
%
 
100.0
%
 
(1)
Subordination refers to the credit enhancement provided to the Re-REMIC tranche held by us by any junior Re-REMIC tranche or tranches in a resecuritization. This figure reflects the percentage of the balance of the underlying securities represented by any junior tranche or tranches at the time of resecuritization. Generally, principal losses on the underlying securities in excess of the subordination amount would result in principal losses on the Re-REMIC tranche held by us. 48.3% of our Re-REMIC holdings are not senior tranches.
The components of the carrying value of our MBS and GSE CRT portfolio at June 30, 2017 and December 31, 2016 are presented below. 
$ in thousands
June 30, 2017
 
December 31, 2016
Principal balance
18,928,963

 
18,275,563

Unamortized premium
484,242

 
476,314

Unamortized discount
(3,595,201
)
 
(3,933,109
)
Gross unrealized gains
379,923

 
302,099

Gross unrealized losses
(114,643
)
 
(139,536
)
Fair value
16,083,284

 
14,981,331


The following table summarizes our MBS and GSE CRT portfolio according to estimated weighted average life classifications as of June 30, 2017 and December 31, 2016. 
$ in thousands
June 30, 2017
 
December 31, 2016
Less than one year
117,913

 
121,076

Greater than one year and less than five years
8,306,399

 
6,719,923

Greater than or equal to five years
7,658,972

 
8,140,332

Total
16,083,284

 
14,981,331



The following tables present the estimated fair value and gross unrealized losses of our MBS and GSE CRTs by length of time that such securities have been in a continuous unrealized loss position at June 30, 2017 and December 31, 2016.
June 30, 2017
  
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
2,534,116

 
(54,361
)
 
129

 
111,912

 
(2,469
)
 
19

 
2,646,028

 
(56,830
)
 
148

30 year fixed-rate
1,351,307

 
(16,221
)
 
59

 
507,832

 
(16,337
)
 
27

 
1,859,139

 
(32,558
)
 
86

ARM
82,986

 
(89
)
 
9

 
—

 
—

 
—

 
82,986

 
(89
)
 
9

Hybrid ARM
799,528

 
(4,824
)
 
73

 
7,048

 
(105
)
 
4

 
806,576

 
(4,929
)
 
77

Total Agency pass-through(1)
4,767,937

 
(75,495
)
 
270

 
626,792

 
(18,911
)
 
50

 
5,394,729

 
(94,406
)
 
320

Agency-CMO(2)
124,257

 
(5,340
)
 
26

 
21,443

 
(1,012
)
 
4

 
145,700

 
(6,352
)
 
30

Non-Agency RMBS
113,298

 
(2,385
)
 
23

 
166,184

 
(2,403
)
 
24

 
279,482

 
(4,788
)
 
47

CMBS(3)
487,895

 
(8,767
)
 
42

 
19,970

 
(330
)
 
5

 
507,865

 
(9,097
)
 
47

Total
5,493,387

 
(91,987
)
 
361

 
834,389

 
(22,656
)
 
83

 
6,327,776

 
(114,643
)
 
444

(1)
Amounts disclosed include Agency RMBS with a fair value of $801.6 million for which the fair value option has been elected. Such securities have unrealized losses of $6.5 million.
(2)
Fair value includes unrealized losses on Agency IO of $3.9 million and unrealized losses on CMO of $2.4 million.
(3)
Amounts disclosed includes CMBS with a fair value of $168.0 million for which the fair value option has been elected. Such securities have unrealized losses of $2.3 million.
December 31, 2016
  
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
2,781,777

 
(66,506
)
 
127

 
65,964

 
(1,556
)
 
17

 
2,847,741

 
(68,062
)
 
144

30 year fixed-rate
747,719

 
(15,409
)
 
45

 
547,763

 
(18,004
)
 
27

 
1,295,482

 
(33,413
)
 
72

ARM
120,540

 
(326
)
 
9

 
1,091

 
(7
)
 
1

 
121,631

 
(333
)
 
10

Hybrid ARM
1,356,687

 
(9,922
)
 
99

 
252

 
(4
)
 
2

 
1,356,939

 
(9,926
)
 
101

Total Agency pass-through(1)
5,006,723

 
(92,163
)
 
280

 
615,070

 
(19,571
)
 
47

 
5,621,793

 
(111,734
)
 
327

Agency-CMO(2)
163,114

 
(3,812
)
 
28

 
22,792

 
(952
)
 
3

 
185,906

 
(4,764
)
 
31

Non-Agency RMBS
287,647

 
(7,861
)
 
42

 
497,863

 
(6,671
)
 
36

 
785,510

 
(14,532
)
 
78

GSE CRT(3)
—

 
—

 
—

 
35,935

 
(969
)
 
3

 
35,935

 
(969
)
 
3

CMBS(4)
401,016

 
(6,733
)
 
36

 
47,219

 
(804
)
 
6

 
448,235

 
(7,537
)
 
42

Total
5,858,500

 
(110,569
)
 
386

 
1,218,879

 
(28,967
)
 
95

 
7,077,379

 
(139,536
)
 
481

(1)
Amounts disclosed include Agency RMBS with a fair value of $149.7 million for which the fair value option has been elected. Such securities have unrealized losses of $4.0 million.
(2)
Fair value includes unrealized losses on Agency IO of $3.0 million unrealized losses and unrealized losses on CMO of $1.7 million.
(3)
Fair value includes unrealized losses on both the debt host contract and the embedded derivative.
(4)
Amounts disclosed includes CMBS with a fair value of $13.9 million for which the fair value option has been elected. Such securities have unrealized losses of $613,000.
Gross unrealized losses on our Agency RMBS and CMO were $94.4 million and $2.4 million, respectively, at June 30, 2017. Due to the inherent credit quality of Agency RMBS and CMO, we determined that at June 30, 2017, any unrealized losses on our Agency RMBS and CMO portfolio are not other than temporary.
Gross unrealized losses on our Agency IO, non-Agency RMBS, GSE CRT and CMBS were $17.8 million at June 30, 2017. We did 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 our assessment for other-than-temporary impairment on a quarterly basis.
We assess our investment securities for other-than-temporary impairment on a quarterly basis. 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." This analysis includes a determination of estimated future cash flows through an evaluation of the characteristics of the underlying loans and the structural features of the investment. Underlying loan characteristics reviewed include, but are not limited to, delinquency status, loan-to-value ratios, borrower credit scores, occupancy status and geographic concentration.
The following table represents the other-than-temporary impairment losses ("OTTI") included in earnings for the three and six months ended June 30, 2017 and 2016:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
$ in thousands
2017
 
2016
 
2017
 
2016
RMBS interest-only securities
3,585

 
1,472

 
3,876

 
7,155

Non-Agency RMBS (1)
513

 
53

 
754

 
53

Total
4,098

 
1,525

 
4,630

 
7,208

(1)
Amounts disclosed relate to credit losses on debt securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income.
As we have previously elected the fair value option for RMBS interest-only securities, the OTTI was recorded as a reclassification from an unrealized to a realized loss within gain (loss) on investments, net on the condensed consolidated statements of operations. As of June 30, 2017, we did not intend to sell the securities and determined that it was not more likely than not that we will be required to sell the securities.
The following table summarizes the changes in accumulated other comprehensive income (loss) related to our GSE CRT debt host contracts and available-for-sale MBS for the three and six months ended June 30, 2017 and 2016.  We reclassify unrealized gains and losses from other comprehensive income to gain (loss) on investments, net when we sell our investments.
The table excludes MBS and GSE CRT that are accounted for under the fair value option. As of June 30, 2017, $3.1 billion or 19.3% of our MBS and GSE CRT are accounted for under the fair value option.
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
$ in thousands
2017
 
2016
 
2017
 
2016
Accumulated other comprehensive income (loss) from MBS and GSE CRT securities:
 
 
 
 
 
 
 
Unrealized gain (loss) on MBS and GSE CRT at beginning of period
163,440

 
288,715

 
146,301

 
177,799

Unrealized gain (loss) on MBS and GSE CRT
39,633

 
117,116

 
55,922

 
238,576

Reclassification of unrealized (gain) loss on sale of MBS and GSE CRT to gain (loss) on investments, net
651

 
(1,037
)
 
1,501

 
(11,581
)
Balance at the end of period
203,724

 
404,794

 
203,724

 
404,794


The following table summarizes the components of our total gain (loss) on investments, net for the three and six months ended June 30, 2017 and 2016.
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
$ in thousands
2017
 
2016
 
2017
 
2016
Gross realized gains on sale of investments
1,311

 
1,037

 
2,215

 
14,052

Gross realized losses on sale of investments
(1,962
)
 
—

 
(3,873
)
 
(2,471
)
Other-than-temporary impairment losses
(4,098
)
 
(1,525
)
 
(4,630
)
 
(7,208
)
Net unrealized gains and losses on MBS accounted for under the fair value option
7,715

 
1,266

 
4,113

 
7,942

Net unrealized gains and losses on GSE CRT accounted for under the fair value option
8,195

 
173

 
11,474

 
237

Net unrealized gains and losses on trading securities
14

 
463

 
23

 
463

Total gain (loss) on investments, net
11,175

 
1,414

 
9,322

 
13,015


The following table presents components of interest income recognized on our MBS and GSE CRT portfolio for the three and six months ended June 30, 2017 and 2016. GSE CRT interest income excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.
For the three months ended June 30, 2017
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income
Agency
91,979

 
(27,775
)
 
64,204

Non-Agency
18,131

 
3,734

 
21,865

GSE CRT
5,556

 
(347
)
 
5,209

CMBS
31,506

 
(1,852
)
 
29,654

Other
95

 
—

 
95

Total
147,267

 
(26,240
)
 
121,027

For the three months ended June 30, 2016
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income
Agency
84,440

 
(28,277
)
 
56,163

Non-Agency
24,127

 
2,292

 
26,419

GSE CRT
2,136

 
(775
)
 
1,361

CMBS
31,476

 
(2,839
)
 
28,637

Other
297

 
(17
)
 
280

Total
142,476

 
(29,616
)
 
112,860


For the six months ended June 30, 2017
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income
Agency
183,210

 
(56,353
)
 
126,857

Non-Agency
38,745

 
8,121

 
46,866

GSE CRT
10,043

 
(718
)
 
9,325

CMBS
61,182

 
(4,486
)
 
56,696

Other
156

 
—

 
156

Total
293,336

 
(53,436
)
 
239,900

For the six months ended June 30, 2016
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income
Agency
170,211

 
(52,462
)
 
117,749

Non-Agency
49,976

 
6,136

 
56,112

GSE CRT
4,333

 
(1,542
)
 
2,791

CMBS
63,740

 
(5,779
)
 
57,961

Other
510

 
(17
)
 
493

Total
288,770

 
(53,664
)
 
235,106