10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: September 30, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-34506

TWO HARBORS INVESTMENT CORP.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	27-0312904
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

575 Lexington Avenue, Suite 2930
New York,	New York	10022
(Address of Principal Executive Offices)		(Zip Code)

(612) 629-2500

(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class:	Trading Symbol(s)	Name of Exchange on Which Registered:
Common Stock, par value $0.01 per share	TWO	New York Stock Exchange
8.125% Series A Cumulative Redeemable Preferred Stock	TWO PRA	New York Stock Exchange
7.625% Series B Cumulative Redeemable Preferred Stock	TWO PRB	New York Stock Exchange
7.25% Series C Cumulative Redeemable Preferred Stock	TWO PRC	New York Stock Exchange
7.75% Series D Cumulative Redeemable Preferred Stock	TWO PRD	New York Stock Exchange
7.50% Series E Cumulative Redeemable Preferred Stock	TWO PRE	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of November 5, 2019, there were 272,899,932 shares of outstanding common stock, par value $.01 per share, issued and outstanding.

TWO HARBORS INVESTMENT CORP.

INDEX

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018	1
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018	2
	Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2019 and 2018	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	6
	Notes to the Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	47
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	74
Item 4.	Controls and Procedures	80
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	81
Item 1A.	Risk Factors	81
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	81
Item 3.	Defaults Upon Senior Securities	81
Item 4.	Mine Safety Disclosures	81
Item 5.	Other Information	81
Item 6.	Exhibits	81
Index of Exhibits		83
Signatures		84

i

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TWO HARBORS INVESTMENT CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	September 30, 2019			December 31, 2018
ASSETS	(unaudited)
Available-for-sale securities, at fair value	$	28,318,558		$	25,552,604
Mortgage servicing rights, at fair value	1,651,556			1,993,440
Cash and cash equivalents	740,698			409,758
Restricted cash	509,689			688,006
Accrued interest receivable	87,321			86,589
Due from counterparties	314,871			154,626
Derivative assets, at fair value	230,620			319,981
Reverse repurchase agreements	180,575			761,815
Other assets	130,339			165,660
Total Assets (1)	$	32,164,227		$	30,132,479
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Repurchase agreements	$	25,567,136		$	23,133,476
Federal Home Loan Bank advances	50,000			865,024
Revolving credit facilities	300,000			310,000
Term notes payable	394,235			—
Convertible senior notes	284,635			283,856
Derivative liabilities, at fair value	17,201			820,590
Due to counterparties	231,021			130,210
Dividends payable	128,109			135,551
Accrued interest payable	122,793			160,005
Other liabilities	49,517			39,278
Total Liabilities (1)	27,144,647			25,877,990
Stockholders’ Equity
Preferred stock, par value $0.01 per share; 50,000,000 shares authorized and 40,050,000 and 40,050,000 shares issued and outstanding, respectively ($1,001,250 and $1,001,250 liquidation preference, respectively)	977,501			977,501
Common stock, par value $0.01 per share; 450,000,000 shares authorized and 272,895,402 and 248,085,721 shares issued and outstanding, respectively	2,729			2,481
Additional paid-in capital	5,151,554			4,809,616
Accumulated other comprehensive income	748,354			110,817
Cumulative earnings	2,521,137			2,332,371
Cumulative distributions to stockholders	(4,381,695		)	(3,978,297		)
Total Stockholders’ Equity	5,019,580			4,254,489
Total Liabilities and Stockholders’ Equity	$	32,164,227		$	30,132,479

____________________

(1) The condensed consolidated balance sheets include assets and liabilities of consolidated variable interest entities, or VIEs. At September 30, 2019 and December 31, 2018, assets of the VIEs totaled $394,756 and $0, and liabilities of the VIEs totaled $394,756 and $0, respectively. See Note 3 - Variable Interest Entities for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

TWO HARBORS INVESTMENT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

(in thousands, except share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Interest income:
Available-for-sale securities	$	242,023		$	230,607		$	731,716		$	604,790
Other	7,717			6,091			24,536			13,287
Total interest income	249,740			236,698			756,252			618,077
Interest expense:
Repurchase agreements	176,450			138,343			501,361			322,735
Federal Home Loan Bank advances	391			5,301			10,406			14,655
Revolving credit facilities	3,964			3,973			15,316			5,776
Term notes payable	5,475			—			5,706			—
Convertible senior notes	4,797			4,779			14,256			14,204
Total interest expense	191,077			152,396			547,045			357,370
Net interest income	58,663			84,302			209,207			260,707
Other-than-temporary impairments:
Total other-than-temporary impairment losses	(5,950		)	(95		)	(11,004		)	(363		)
Other income:
Gain (loss) on investment securities	248,828			(42,996		)	251,977			(95,549		)
Servicing income	126,025			89,618			373,922			238,473
(Loss) gain on servicing asset	(234,514		)	20,591			(675,920		)	102,251
Gain (loss) on interest rate swap, cap and swaption agreements	70,620			75,857			(101,414		)	255,535
Gain (loss) on other derivative instruments	85,856			(31,463		)	270,798			(15,735		)
Other income	495			907			277			2,695
Total other income	297,310			112,514			119,640			487,670
Expenses:
Management fees	16,839			(5,041		)	42,556			18,120
Servicing expenses	17,696			16,433			54,354			42,526
Other operating expenses	13,344			17,033			42,913			47,040
Acquisition transaction costs	—			86,703			—			86,703
Restructuring charges	—			8,238			—			8,238
Total expenses	47,879			123,366			139,823			202,627
Income before income taxes	302,144			73,355			178,020			545,387
(Benefit from) provision for income taxes	(3,556		)	37,409			(11,188		)	35,142
Net income	305,700			35,946			189,208			510,245
Dividends on preferred stock	18,951			18,951			56,851			46,445
Net income attributable to common stockholders	$	286,749		$	16,995		$	132,357		$	463,800
Basic earnings per weighted average common share	$	1.05		$	0.08		$	0.50		$	2.42
Diluted earnings per weighted average common share	$	1.00		$	0.08		$	0.50		$	2.28
Dividends declared per common share	$	0.40		$	0.47		$	1.27		$	1.41
Weighted average number of shares of common stock:
Basic	272,897,575			224,399,436			266,114,772			191,846,212
Diluted	291,053,718			224,399,436			266,114,772			209,607,146

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

TWO HARBORS INVESTMENT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited), continued

(in thousands, except share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019		2018
Comprehensive income (loss):
Net income	$	305,700		$	35,946		$	189,208	$	510,245
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on available-for-sale securities	(29,164		)	(119,796		)	637,537		(499,460		)
Other comprehensive (loss) income	(29,164		)	(119,796		)	637,537		(499,460		)
Comprehensive income (loss)	276,536			(83,850		)	826,745		10,785
Dividends on preferred stock	18,951			18,951			56,851		46,445
Comprehensive income (loss) attributable to common stockholders	$	257,585		$	(102,801	)	$	769,894	$	(35,660	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

TWO HARBORS INVESTMENT CORP. 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

(in thousands)

	Preferred Stock		Common Stock Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Cumulative Earnings			Cumulative Distributions to Stockholders			Total Stockholders’ Equity
Balance, December 31, 2017	$	702,537	$	1,745	$	3,672,003	$	334,813		$	2,386,604		$	(3,526,278	)	$	3,571,424
Cumulative effect of adoption of new accounting principle	—		—		—		9,918			(9,918		)	—			—
Adjusted balance, January 1, 2018	702,537		1,745		3,672,003		344,731			2,376,686			(3,526,278		)	3,571,424
Net income	—		—		—		—			334,809			—			334,809
Other comprehensive loss before reclassifications, net of tax	—		—		—		(343,542		)	—			—			(343,542		)
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—		(1,235		)	—			—			(1,235		)
Other comprehensive loss, net of tax	—		—		—		(344,777		)	—			—			(344,777		)
Issuance of preferred stock, net of offering costs	13		—		—		—			—			—			13
Issuance of common stock, net of offering costs	—		—		76		—			—			—			76
Preferred dividends declared	—		—		—		—			—			(13,747		)	(13,747		)
Common dividends declared	—		—		—		—			—			(82,454		)	(82,454		)
Non-cash equity award compensation	—		9		2,332		—			—			—			2,341
Balance, March 31, 2018	702,550		1,754		3,674,411		(46		)	2,711,495			(3,622,479		)	3,467,685
Net income	—		—		—		—			139,490			—			139,490
Other comprehensive loss before reclassifications, net of tax	—		—		—		(58,676		)	—			—			(58,676		)
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—		23,789			—			—			23,789
Other comprehensive loss, net of tax	—		—		—		(34,887		)	—			—			(34,887		)
Issuance of common stock, net of offering costs	—		—		119		—			—			—			119
Preferred dividends declared	—		—		—		—			—			(13,747		)	(13,747		)
Common dividends declared	—		—		—		—			—			(82,472		)	(82,472		)
Non-cash equity award compensation	—		1		4,056		—			—			—			4,057
Balance, June 30, 2018	702,550		1,755		3,678,586		(34,933		)	2,850,985			(3,718,698		)	3,480,245
Cumulative effect of adoption of new accounting principle	—		—		25		—			(25		)	—			—
Adjusted balance, July 1, 2018	702,550		1,755		3,678,611		(34,933		)	2,850,960			(3,718,698		)	3,480,245
Net income	—		—		—		—			35,946			—			35,946
Other comprehensive loss before reclassifications, net of tax	—		—		—		(150,259		)	—			—			(150,259		)
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—		30,463			—			—			30,463
Other comprehensive loss, net of tax	—		—		—		(119,796		)	—			—			(119,796		)
Acquisition of CYS Investments, Inc.	275,000		726		1,124,388		—			—			—			1,400,114
Issuance of common stock, net of offering costs	—		—		134		—			—			—			134
Preferred dividends declared	—		—		—		—			—			(18,951		)	(18,951		)
Common dividends declared	—		—		—		—			—			(105,097		)	(105,097		)
Non-cash equity award compensation	—		—		3,387		—			—			—			3,387
Balance, September 30, 2018	$	977,550	$	2,481	$	4,806,520	$	(154,729	)	$	2,886,906		$	(3,842,746	)	$	4,675,982

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

TWO HARBORS INVESTMENT CORP. 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited), continued

(in thousands)

	Preferred Stock		Common Stock Par Value		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Cumulative Earnings			Cumulative Distributions to Stockholders			Total Stockholders’ Equity
Balance, December 31, 2018	$	977,501	$	2,481	$	4,809,616		$	110,817		$	2,332,371		$	(3,978,297	)	$	4,254,489
Cumulative effect of adoption of new accounting principle	—		—		—			—			(442		)	—			(442		)
Adjusted balance, January 1, 2019	977,501		2,481		4,809,616			110,817			2,331,929			(3,978,297		)	4,254,047
Net loss	—		—		—			—			(25,935		)	—			(25,935		)
Other comprehensive income before reclassifications, net of tax	—		—		—			327,840			—			—			327,840
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—			28,312			—			—			28,312
Other comprehensive income, net of tax	—		—		—			356,152			—			—			356,152
Issuance of common stock, net of offering costs	—		243		335,035			—			—			—			335,278
Preferred dividends declared	—		—		—			—			—			(18,950		)	(18,950		)
Common dividends declared	—		—		—			—			—			(128,229		)	(128,229		)
Non-cash equity award compensation	—		4		1,857			—			—			—			1,861
Balance, March 31, 2019	977,501		2,728		5,146,508			466,969			2,305,994			(4,125,476		)	4,774,224
Net loss	—		—		—			—			(90,557		)	—			(90,557		)
Other comprehensive income before reclassifications, net of tax	—		—		—			296,637			—			—			296,637
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—			13,912			—			—			13,912
Other comprehensive income, net of tax	—		—		—			310,549			—			—			310,549
Issuance of common stock, net of offering costs	—		—		171			—			—			—			171
Preferred dividends declared	—		—		—			—			—			(18,950		)	(18,950		)
Common dividends declared	—		—		—			—			—			(109,160		)	(109,160		)
Non-cash equity award compensation	—		1		2,496			—			—			—			2,497
Balance, June 30, 2019	977,501		2,729		5,149,175			777,518			2,215,437			(4,253,586		)	4,868,774
Net income	—		—		—			—			305,700			—			305,700
Other comprehensive income before reclassifications, net of tax	—		—		—			191,676			—			—			191,676
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—			(220,840		)	—			—			(220,840		)
Other comprehensive loss, net of tax	—		—		—			(29,164		)	—			—			(29,164		)
Issuance of common stock, net of offering costs	—		—		217			—			—			—			217
Repurchase of common stock	—		—		(19		)	—			—			—			(19		)
Preferred dividends declared	—		—		—			—			—			(18,951		)	(18,951		)
Common dividends declared	—		—		—			—			—			(109,158		)	(109,158		)
Non-cash equity award compensation	—		—		2,181			—			—			—			2,181
Balance, September 30, 2019	$	977,501	$	2,729	$	5,151,554		$	748,354		$	2,521,137		$	(4,381,695	)	$	5,019,580

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

TWO HARBORS INVESTMENT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

	Nine Months Ended
	September 30,
	2019			2018
Cash Flows From Operating Activities:
Net income	$	189,208		$	510,245
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums and discounts on investment securities, net	119,175			73,441
Amortization of deferred debt issuance costs on term notes payable and convertible senior notes	1,096			728
Other-than-temporary impairment losses	11,004			363
Realized and unrealized (gains) losses on investment securities	(251,977		)	96,842
Loss (gain) on servicing asset	675,920			(102,251		)
Realized and unrealized loss (gain) on interest rate swaps, caps and swaptions	167,160			(221,649		)
Unrealized (gain) loss on other derivative instruments	(36,439		)	27,457
Equity based compensation	6,539			9,785
Excess consideration in the acquisition of CYS Investments, Inc.	—			77,602
Net change in assets and liabilities:
(Increase) decrease in accrued interest receivable	(732		)	13,698
(Increase) decrease in deferred income taxes, net	(33,287		)	35,094
(Decrease) increase in accrued interest payable	(37,212		)	1,823
Change in other operating assets and liabilities, net	40,629			(1,812		)
Net cash provided by operating activities	851,084			521,366
Cash Flows From Investing Activities:
Purchases of available-for-sale securities	(18,406,882		)	(6,319,252		)
Proceeds from sales of available-for-sale securities	14,065,573			9,156,686
Principal payments on available-for-sale securities	2,334,729			1,792,168
Purchases of mortgage servicing rights, net of purchase price adjustments	(333,506		)	(475,451		)
(Payments for) proceeds from sales of mortgage servicing rights	(530		)	395
(Purchases) short sales of derivative instruments, net	(76,739		)	(82,971		)
(Payments for termination and settlement) proceeds from sales and settlement of derivative instruments, net	(768,010		)	498,425
Payments for reverse repurchase agreements	(1,480,150		)	(1,440,713		)
Proceeds from reverse repurchase agreements	2,061,390			1,442,798
Net cash paid for the acquisition of CYS Investments, Inc.	—			(13,552		)
Decrease in due to counterparties, net	(59,434		)	(187,146		)
Change in other investing assets and liabilities, net	37,737			44,257
Net cash (used in) provided by investing activities	$	(2,625,822	)	$	4,415,644

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

TWO HARBORS INVESTMENT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited), continued

(in thousands)

	Nine Months Ended
	September 30,
	2019			2018
Cash Flows From Financing Activities:
Proceeds from repurchase agreements	$	202,963,685		$	103,348,835
Principal payments on repurchase agreements	(200,530,025		)	(107,736,938		)
Principal payments on Federal Home Loan Bank advances	(815,024		)	(350,000		)
Proceeds from revolving credit facilities	450,000			377,400
Principal payments on revolving credit facilities	(460,000		)	(87,400		)
Proceeds from issuance of term notes payable	393,918			—
Proceeds from issuance of preferred stock, net of offering costs	—			13
Proceeds from issuance of common stock, net of offering costs	335,666			329
Repurchase of common stock	(19		)	—
Dividends paid on preferred stock	(56,851		)	(39,443		)
Dividends paid on common stock	(353,989		)	(193,318		)
Net cash provided by (used in) financing activities	1,927,361			(4,680,522		)
Net increase in cash, cash equivalents and restricted cash	152,623			256,488
Cash, cash equivalents and restricted cash at beginning of period	1,097,764			1,054,995
Cash, cash equivalents and restricted cash at end of period	$	1,250,387		$	1,311,483
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	581,333		$	300,573
Cash paid for taxes, net	$	16,946		$	502
Noncash Activities:
Acquisition of the assets and liabilities of CYS Investments, Inc.
Available-for-sale securities	$	—		$	10,034,557
Cash and cash equivalents	$	—		$	386
Restricted cash	$	—		$	1,062
Accrued interest receivable	$	—		$	30,646
Reverse repurchase agreements	$	—		$	761,460
Other assets	$	—		$	11,977
Repurchase agreements	$	—		$	(8,743,527	)
Derivative liabilities, net	$	—		$	(451,026	)
Due to counterparties, net	$	—		$	(279,715	)
Accrued interest payable	$	—		$	(27,487	)
Other liabilities	$	—		$	(821	)
Issuance of preferred stock in connection with the acquisition of CYS Investments, Inc.	$	—		$	275,000
Issuance of common stock in connection with the acquisition of CYS Investments, Inc.	$	—		$	1,125,114
Cumulative-effect adjustment to equity for adoption of new accounting principle	$	442		$	9,918
Dividends declared but not paid at end of period	$	128,109		$	96,259

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Note 1. Organization and Operations

Two Harbors Investment Corp., or the Company, is a Maryland corporation investing in and managing Agency residential mortgage-backed securities, or Agency RMBS, non-Agency securities, mortgage servicing rights, or MSR, and other financial assets. The Company’s Chief Investment Officer manages the investment portfolio as a whole and resources are allocated and financial performance is assessed on a consolidated basis. The Company is externally managed and advised by PRCM Advisers LLC, or PRCM Advisers, which is a subsidiary of Pine River Capital Management L.P., or Pine River. The Company’s common stock is listed on the NYSE under the symbol “TWO”.

The Company was incorporated on May 21, 2009, and commenced operations as a publicly traded company on October 28, 2009, upon completion of a merger with Capitol Acquisition Corp., or Capitol, which became a wholly owned indirect subsidiary of the Company as a result of the merger.

The Company has elected to be treated as a real estate investment trust, or REIT, as defined under the Internal Revenue Code of 1986, as amended, or the Code, for U.S. federal income tax purposes. As long as the Company continues to comply with a number of requirements under federal tax law and maintains its qualification as a REIT, the Company generally will not be subject to U.S. federal income taxes to the extent that the Company distributes its taxable income to its stockholders on an annual basis and does not engage in prohibited transactions. However, certain activities that the Company may perform may cause it to earn income which will not be qualifying income for REIT purposes. The Company has designated certain of its subsidiaries as taxable REIT subsidiaries, or TRSs, as defined in the Code, to engage in such activities.

On April 26, 2018, the Company announced that it had entered into a definitive merger agreement to acquire CYS Investments, Inc., or CYS, a Maryland corporation that invested primarily in Agency RMBS and was treated as a REIT for U.S. federal income tax purposes. The transaction was approved by the stockholders of both the Company and CYS on July 27, 2018, and the merger was completed on July 31, 2018, at which time CYS became a wholly owned subsidiary of the Company. In exchange for all of the shares of CYS common stock outstanding immediately prior to the effective time of the merger, the Company issued approximately 72.6 million new shares of common stock, as well as aggregate cash consideration of $15.0 million, to CYS common stockholders. In addition, the Company issued 3 million shares of newly classified Series D cumulative redeemable preferred stock and 8 million shares of newly classified Series E cumulative redeemable preferred stock in exchange for all shares of CYS’s Series A and Series B cumulative redeemable preferred stock outstanding prior to the effective time of the merger.

Note 2. Basis of Presentation and Significant Accounting Policies

Consolidation and Basis of Presentation

The interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, have been condensed or omitted according to such SEC rules and regulations. However, management believes that the disclosures included in these interim condensed consolidated financial statements are adequate to make the information presented not misleading.

The condensed consolidated financial statements of the Company include the accounts of all subsidiaries; inter-company accounts and transactions have been eliminated. All trust entities in which the Company holds investments that are considered variable interest entities, or VIEs, for financial reporting purposes were reviewed for consolidation under the applicable consolidation guidance. Whenever the Company has both the power to direct the activities of a trust that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant, the Company consolidates the trust. Certain prior period amounts have been reclassified to conform to the current period presentation. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at September 30, 2019 and results of operations for all periods presented have been made. The results of operations for the three and nine months ended September 30, 2019 should not be construed as indicative of the results to be expected for future periods or the full year.

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TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amount and timing of credit losses, prepayment rates, the period of time during which the Company anticipates an increase in the fair values of real estate securities sufficient to recover unrealized losses in those securities, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the consolidated financial statements and the reported amounts of certain revenues and expenses during the reported period. It is likely that changes in these estimates (e.g., valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ from its estimates and the differences may be material.

Significant Accounting Policies

Included in Note 2 to the Consolidated Financial Statements of the Company’s 2018 Annual Report on Form 10-K is a summary of the Company’s significant accounting policies. Provided below is a summary of additional accounting policies that are significant to the Company’s consolidated financial condition and results of operations for the nine months ended September 30, 2019.

Securitizations and Variable Interest Entities

During the second quarter of 2019, the Company formed a new trust entity, or the Issuer Trust, for the purpose of financing MSR through securitization. On June 27, 2019, the Company, through the Issuer Trust, completed an MSR securitization transaction pursuant to which, through two of the Company’s wholly owned subsidiaries, MSR is pledged to the Issuer Trust and in return, the Issuer Trust issued (a) an aggregate principal amount of $400.0 million in term notes to qualified institutional buyers and (b) a variable funding note, or VFN, with a maximum principal balance of $1.0 billion to one of the subsidiaries, in each case secured on a pari passu basi. The term notes bear interest at a rate equal to one-month LIBOR plus 2.80% per annum. The term notes will mature on June 25, 2024 or, if extended pursuant to the terms of the related indenture supplement, June 25, 2026 (unless earlier redeemed in accordance with their terms).

The Issuer Trust is considered a VIE for financial reporting purposes and, thus, was reviewed for consolidation under the applicable consolidation guidance. As the Company has both the power to direct the activities of the Issuer Trust that most significantly impact the entity’s performance, and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, the Company consolidates the trust.

Term Notes Payable

Term notes payable related to the Company’s on-balance sheet securitization are recorded at outstanding principal balance, net of any unamortized deferred debt issuance costs, on the Company’s condensed consolidated balance sheets.

Recently Issued and/or Adopted Accounting Standards

Lease Classification and Accounting

In February 2016, the FASB issued ASU No. 2016-02, which requires lessees to recognize on their balance sheets both a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. The Company’s adoption of this ASU was applied by recording a cumulative-effect adjustment to retained earnings as of January 1, 2019, which did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.

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TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, which changes the impairment model for most financial assets and certain other instruments. Valuation allowances for credit losses on AFS debt securities will be recognized, rather than direct reductions in the amortized cost of the investments, regardless of whether the impairment is considered to be other-than-temporary. The new model also requires the estimation of lifetime expected credit losses and corresponding recognition of allowance for losses on trade and other receivables, held-to-maturity debt securities, loans, and other instruments held at amortized cost. The ASU requires certain recurring disclosures and is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2019, with early adoption permitted for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018. The Company is evaluating the adoption of this ASU to determine the impact it may have on its condensed consolidated financial statements, which at the date of adoption, will establish an allowance for credit losses on AFS securities which will be derived from the present value of the current designated credit reserve with a resulting increase to amortized cost on the securities. The Company also expects adoption of this ASU to impact the recording for the purchase of certain non-Agency securities with purchased credit deterioration by recording an allowance for credit losses with an increase in amortized cost above the purchase price of the same amount. Subsequent changes in expected credit losses will be recognized immediately in earnings as a provision for credit losses until the allowance is reduced to zero. Further favorable changes will result in prospective adjustments to the effective interest rate. The Company is currently developing new processes, policies and controls to implement the standard, which it expects to have completed by the adoption date.

SEC Disclosure Update and Simplification

In August 2018, the SEC adopted a final rule that amends certain disclosure requirements that have become duplicative, overlapping, or outdated in light of other SEC disclosure requirements, U.S. GAAP, or changes in the information environment. However, the guidance also added requirements for entities to include in their interim financial statements a reconciliation of changes in stockholders’ equity for each period for which an income statement is required (both year-to-date and quarterly periods). The final rule is effective for all filings made on or after November 5, 2018. However, the SEC staff said it would not object to a registrant waiting to comply with the new interim disclosure requirement until the filing of its Form 10-Q for the quarter that begins after the effective date. As a result, the Company adopted the new interim disclosure requirement in connection with the Form 10-Q filing for the first quarter 2019. The Company’s adoption of this final rule did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.

Note 3. Variable Interest Entities

The Issuer Trust that was formed for the purpose of financing MSR through securitization (see discussion in Note 2 - Basis of Presentation and Significant Accounting Policies) is considered a VIE for financial reporting purposes and, thus, was reviewed for consolidation under the applicable consolidation guidance. As the Company has both the power to direct the activities of the Issuer Trust that most significantly impact the entity’s performance, and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, the Company consolidates the trust. Additionally, in accordance with arrangements entered into in connection with the securitization transaction, the Company has direct financial obligations payable to the Issuer Trust, which, in turn, support the Issuer Trust’s obligations to noteholders under the securitization transaction.

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TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following table presents a summary of the assets and liabilities of all consolidated trusts as reported on the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018:

(in thousands)	September 30, 2019		December 31, 2018
Note receivable (1)	$	394,235	$	—
Cash and cash equivalents	200		—
Accrued interest receivable (1)	321		—
Total Assets	$	394,756	$	—
Term notes payable	$	394,235	$	—
Accrued interest payable	321		—
Other liabilities	200		—
Total Liabilities	$	394,756	$	—

____________________

(1) Receivables due from a wholly owned subsidiary of the Company to the Issuer Trust are eliminated in consolidation in accordance with U.S. GAAP.

Note 4. Available-for-Sale Securities, at Fair Value

The Company holds AFS investment securities which are carried at fair value on the condensed consolidated balance sheets. The following table presents the Company’s AFS investment securities by collateral type as of September 30, 2019 and December 31, 2018:

(in thousands)	September 30, 2019		December 31, 2018
Agency
Federal National Mortgage Association	$	19,445,245	$	15,812,696
Federal Home Loan Mortgage Corporation	4,835,146		4,930,963
Government National Mortgage Association	485,792		941,374
Non-Agency	3,552,375		3,867,571
Total available-for-sale securities	$	28,318,558	$	25,552,604

At September 30, 2019 and December 31, 2018, the Company pledged AFS securities with a carrying value of $26.4 billion and $25.2 billion, respectively, as collateral for repurchase agreements and advances from the Federal Home Loan Bank of Des Moines, or the FHLB. See Note 10 - Repurchase Agreements and Note 12 - Federal Home Loan Bank of Des Moines Advances.

At September 30, 2019 and December 31, 2018, the Company did not have any securities purchased from and financed with the same counterparty that did not meet the conditions of ASC 860, to be considered linked transactions and, therefore, classified as derivatives.

The Company is not required to consolidate variable interest entities, or VIEs, for which it has concluded it does not have both the power to direct the activities of the VIEs that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant. The Company’s investments in these unconsolidated VIEs include all non-Agency securities, which are classified within available-for-sale securities, at fair value on the condensed consolidated balance sheets. As of September 30, 2019 and December 31, 2018, the carrying value, which also represents the maximum exposure to loss, of all non-Agency securities in unconsolidated VIEs was $3.6 billion and $3.9 billion, respectively.

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TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following tables present the amortized cost and carrying value of AFS securities by collateral type as of September 30, 2019 and December 31, 2018:

	September 30, 2019
(in thousands)	Principal/ Current Face		Un-amortized Premium		Accretable Purchase Discount			Credit Reserve Purchase Discount			Amortized Cost		Unrealized Gain		Unrealized Loss			Carrying Value
Agency
Principal and interest	$	23,255,819	$	935,781	$	(21	)	$	—		$	24,191,579	$	431,492	$	(5,701	)	$	24,617,370
Interest-only	2,757,909		179,769		—			—			179,769		15,881		(46,837		)	148,813
Total Agency	26,013,728		1,115,550		(21		)	—			24,371,348		447,373		(52,538		)	24,766,183
Non-Agency
Principal and interest	5,289,767		7,417		(462,973		)	(1,723,638		)	3,110,573		380,236		(17,526		)	3,473,283
Interest-only	4,664,358		83,037		—			—			83,037		4,393		(8,338		)	79,092
Total Non-Agency	9,954,125		90,454		(462,973		)	(1,723,638		)	3,193,610		384,629		(25,864		)	3,552,375
Total	$	35,967,853	$	1,206,004	$	(462,994	)	$	(1,723,638	)	$	27,564,958	$	832,002	$	(78,402	)	$	28,318,558

	December 31, 2018
(in thousands)	Principal/ Current Face		Un-amortized Premium		Accretable Purchase Discount			Credit Reserve Purchase Discount			Amortized Cost		Unrealized Gain		Unrealized Loss			Carrying Value
Agency
Principal and interest	$	20,775,790	$	1,037,781	$	(25,085	)	$	—		$	21,788,486	$	61,128	$	(339,997	)	$	21,509,617
Interest-only	3,115,967		209,901		—			—			209,901		14,170		(48,655		)	175,416
Total Agency	23,891,757		1,247,682		(25,085		)	—			21,998,387		75,298		(388,652		)	21,685,033
Non-Agency
Principal and interest	5,360,124		6,682		(694,119		)	(1,322,762		)	3,349,925		478,095		(44,657		)	3,783,363
Interest-only	5,137,169		83,846		—			—			83,846		3,655		(3,293		)	84,208
Total Non-Agency	10,497,293		90,528		(694,119		)	(1,322,762		)	3,433,771		481,750		(47,950		)	3,867,571
Total	$	34,389,050	$	1,338,210	$	(719,204	)	$	(1,322,762	)	$	25,432,158	$	557,048	$	(436,602	)	$	25,552,604

The following tables present the carrying value of the Company’s AFS securities by rate type as of September 30, 2019 and December 31, 2018:

	September 30, 2019
(in thousands)	Agency		Non-Agency		Total
Adjustable Rate	$	15,662	$	3,263,875	$	3,279,537
Fixed Rate	24,750,521		288,500		25,039,021
Total	$	24,766,183	$	3,552,375	$	28,318,558

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TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

	December 31, 2018
(in thousands)	Agency		Non-Agency		Total
Adjustable Rate	$	19,073	$	3,475,171	$	3,494,244
Fixed Rate	21,665,960		392,400		22,058,360
Total	$	21,685,033	$	3,867,571	$	25,552,604

The following table presents the Company’s AFS securities according to their estimated weighted average life classifications as of September 30, 2019:

	September 30, 2019
(in thousands)	Agency		Non-Agency		Total
≤ 1 year	$	666	$	42,933	$	43,599
> 1 and ≤ 3 years	59,293		180,489		239,782
> 3 and ≤ 5 years	4,800,249		195,007		4,995,256
> 5 and ≤ 10 years	19,904,761		2,761,214		22,665,975
> 10 years	1,214		372,732		373,946
Total	$	24,766,183	$	3,552,375	$	28,318,558

When the Company purchases a credit-sensitive AFS security at a significant discount to its face value, the Company often does not amortize into income a significant portion of this discount that the Company is entitled to earn because the Company does not expect to collect the entire discount due to the inherent credit risk of the security. The Company may also record an other-than-temporary impairment, or OTTI, for a portion of its investment in the security to the extent the Company believes that the amortized cost will exceed the present value of expected future cash flows. The amount of principal that the Company does not amortize into income is designated as a credit reserve on the security, with unamortized net discounts or premiums amortized into income over time to the extent realizable.

The following table presents the changes for the three and nine months ended September 30, 2019 and 2018 of the net unamortized discount/premium and designated credit reserves on non-Agency AFS securities.

	Nine Months Ended September 30,
	2019									2018
(in thousands)	Designated Credit Reserve			Net Unamortized Discount/Premium			Total			Designated Credit Reserve			Net Unamortized Discount/Premium			Total
Beginning balance at January 1	$	(1,322,762	)	$	(603,591	)	$	(1,926,353	)	$	(653,613	)	$	(607,609	)	$	(1,261,222	)
Acquisitions	(471,746		)	10,524			(461,222		)	(606,728		)	(37,924		)	(644,652		)
Accretion of net discount	—			27,782			27,782			—			64,538			64,538
Realized credit losses	18,668			—			18,668			20,983			—			20,983
Reclassification adjustment for other-than-temporary impairments	(6,847		)	—			(6,847		)	(363		)	—			(363		)
Transfers from (to)	34,157			(34,157		)	—			44,972			(44,972		)	—
Sales, calls, other	24,892			226,923			251,815			—			18,430			18,430
Ending balance at September 30	$	(1,723,638	)	$	(372,519	)	$	(2,096,157	)	$	(1,194,749	)	$	(607,537	)	$	(1,802,286	)

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TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following table presents the components comprising the carrying value of AFS securities not deemed to be other than temporarily impaired by length of time that the securities had an unrealized loss position as of September 30, 2019 and December 31, 2018. At September 30, 2019, the Company held 1,209 AFS securities, of which 89 were in an unrealized loss position for less than twelve consecutive months and 145 were in an unrealized loss position for more than twelve consecutive months. At December 31, 2018, the Company held 1,550 AFS securities, of which 290 were in an unrealized loss position for less than twelve consecutive months and 489 were in an unrealized loss position for more than twelve consecutive months.

	Unrealized Loss Position for
	Less than 12 Months					12 Months or More					Total
(in thousands)	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
September 30, 2019	$	1,456,511	$	(22,884	)	$	751,426	$	(55,518	)	$	2,207,937	$	(78,402	)
December 31, 2018	$	4,386,946	$	(66,520	)	$	9,501,123	$	(370,082	)	$	13,888,069	$	(436,602	)

Evaluating AFS Securities for Other-Than-Temporary Impairments

In evaluating AFS securities for OTTI, the Company determines whether there has been a significant adverse quarterly change in the cash flow expectations for a security. The Company compares the amortized cost of each security in an unrealized loss position against the present value of expected future cash flows of the security. The Company also considers whether there has been a significant adverse change in the regulatory and/or economic environment as part of this analysis. If the amortized cost of the security is greater than the present value of expected future cash flows using the original yield as the discount rate, an other-than-temporary credit impairment has occurred. If the Company does not intend to sell and will not be more likely than not required to sell the security, the credit loss is recognized in earnings and the balance of the unrealized loss is recognized in either other comprehensive (loss) income, net of tax, or gain (loss) on investment securities, depending on the accounting treatment. If the Company intends to sell the security or will be more likely than not required to sell the security, the full unrealized loss is recognized in earnings.

During the three and nine months ended September 30, 2019, the Company recorded $5.9 million and $11.0 million in other-than-temporary credit impairments on a total of 16 non-Agency securities where the future expected cash flows for each security were less than its amortized cost. During the three and nine months ended September 30, 2018, the Company recorded $0.1 million and $0.4 million in other-than-temporary credit impairments on a total of three non-Agency securities where the future expected cash flows for each security were less than its amortized cost. As of September 30, 2019, impaired securities with a carrying value of $310.6 million had actual weighted average cumulative losses of 3.3%, weighted average three-month prepayment speed of 7.4%, weighted average 60+ day delinquency of 16.5% of the pool balance, and weighted average FICO score of 638. At September 30, 2019, the Company did not intend to sell the securities and determined that it was not more likely than not that the Company will be required to sell the securities; therefore, only the projected credit loss was recognized in earnings.

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TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following table presents the changes in OTTI included in earnings for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2019			2018			2019			2018
Cumulative credit loss at beginning of period	$	(9,376	)	$	(6,663	)	$	(6,865	)	$	(6,395	)
Additions:
Other-than-temporary impairments not previously recognized	(5,950		)	(72		)	(10,353		)	(157		)
Increases related to other-than-temporary impairments on securities with previously recognized other-than-temporary impairments	—			(23		)	(651		)	(206		)
Reductions:
Decreases related to other-than-temporary impairments on securities paid down	—			—			1,703			—
Decreases related to other-than-temporary impairments on securities sold	1,613			—			2,453			—
Cumulative credit loss at end of period	$	(13,713	)	$	(6,758	)	$	(13,713	)	$	(6,758	)

Cumulative credit losses related to OTTI may be reduced for securities sold as well as for securities that mature, are paid down, or are prepaid such that the outstanding principal balance is reduced to zero. Additionally, increases in cash flows expected to be collected over the remaining life of the security cause a reduction in the cumulative credit loss.

Gross Realized Gains and Losses

Gains and losses from the sale of AFS securities are recorded as realized gains (losses) within gain (loss) on investment securities in the Company’s condensed consolidated statements of comprehensive income (loss). For the three and nine months ended September 30, 2019, the Company sold AFS securities for $6.1 billion and $14.1 billion with an amortized cost of $5.9 billion and $13.8 billion for net realized gains of $250.3 million and $256.4 million, respectively. For the three and nine months ended September 30, 2018, the Company sold AFS securities for $5.4 billion and $9.2 billion with an amortized cost of $5.5 billion and $9.3 billion for net realized losses of $42.2 million and $100.7 million, respectively.

The following table presents the gross realized gains and losses on sales of AFS securities for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2019			2018			2019			2018
Gross realized gains	$	254,655		$	6,603		$	380,808		$	16,357
Gross realized losses	(4,388		)	(48,758		)	(124,409		)	(117,075		)
Total realized gains (losses) on sales, net	$	250,267		$	(42,155	)	$	256,399		$	(100,718	)

Note 5. Servicing Activities

Mortgage Servicing Rights, at Fair Value

One of the Company’s wholly owned subsidiaries has approvals from Fannie Mae and Freddie Mac to own and manage MSR, which represent the right to control the servicing of mortgage loans. The Company and its subsidiaries do not originate or directly service mortgage loans, and instead contract with appropriately licensed subservicers to handle substantially all servicing functions in the name of the subservicer for the loans underlying the Company’s MSR.

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TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following table summarizes activity related to MSR for the three and nine months ended September 30, 2019 and 2018.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2019			2018			2019			2018
Balance at beginning of period	$	1,800,826		$	1,450,261		$	1,993,440		$	1,086,717
Purchases of mortgage servicing rights	76,588			201,197			341,110			480,462
Sales of mortgage servicing rights	905			—			905			—
Changes in fair value due to:
Changes in valuation inputs or assumptions used in the valuation model	(144,071		)	62,680			(477,710		)	209,610
Other changes in fair value (1)	(90,529		)	(42,085		)	(198,585		)	(107,754		)
Other changes (2)	7,837			(8,029		)	(7,604		)	(5,011		)
Balance at end of period	$	1,651,556		$	1,664,024		$	1,651,556		$	1,664,024

____________________

(1) Other changes in fair value primarily represents changes due to the realization of expected cash flows.

(2) Other changes includes purchase price adjustments, contractual prepayment protection, and changes due to the Company’s purchase of the underlying collateral.

At September 30, 2019 and December 31, 2018, the Company pledged MSR with a carrying value of $1.6 billion and $1.1 billion, respectively, as collateral for repurchase agreements, revolving credit facilities and term notes payable. See Note 10 - Repurchase Agreements, Note 13 - Revolving Credit Facilities and Note 14 - Term Notes Payable.

As of September 30, 2019 and December 31, 2018, the key economic assumptions and sensitivity of the fair value of MSR to immediate 10% and 20% adverse changes in these assumptions were as follows:

(dollars in thousands)	September 30, 2019			December 31, 2018
Weighted average prepayment speed:	16.1		%	8.6	%
Impact on fair value of 10% adverse change	$	(96,530	)	(67,245	)
Impact on fair value of 20% adverse change	$	(182,573	)	(130,371	)
Weighted average delinquency:	0.8		%	1.3	%
Impact on fair value of 10% adverse change	$	(6,435	)	(6,911	)
Impact on fair value of 20% adverse change	$	(12,898	)	(13,688	)
Weighted average discount rate:	7.0		%	9.4	%
Impact on fair value of 10% adverse change	$	(37,901	)	(62,528	)
Impact on fair value of 20% adverse change	$	(74,275	)	(121,135	)

These assumptions and sensitivities are hypothetical and should be considered with caution. Changes in fair value based on 10% and 20% variations in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of MSR is calculated without changing any other assumptions. In reality, changes in one factor may result in changes in another (e.g., increased market interest rates may result in lower prepayments and increased credit losses) that could magnify or counteract the sensitivities. Further, these sensitivities show only the change in the asset balances and do not show any expected change in the fair value of the instruments used to manage the interest rates and prepayment risks associated with these assets.

Risk Mitigation Activities

The primary risk associated with the Company’s MSR is interest rate risk and the resulting impact on prepayments. A significant decline in interest rates could lead to higher-than-expected prepayments that could reduce the value of the MSR. The Company economically hedges the impact of these risks with its Agency RMBS portfolio.

16

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Mortgage Servicing Income

The following table presents the components of servicing income recorded on the Company’s condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2019		2018		2019		2018
Servicing fee income	$	106,700	$	80,690	$	327,184	$	218,022
Ancillary and other fee income	499		358		1,302		1,004
Float income	18,826		8,570		45,436		19,447
Total	$	126,025	$	89,618	$	373,922	$	238,473

Mortgage Servicing Advances

In connection with the servicing of loans, the Company’s subservicers make certain payments for property taxes and insurance premiums, default and property maintenance payments, as well as advances of principal and interest payments before collecting them from individual borrowers. Servicing advances, including contractual interest, are priority cash flows in the event of a loan principal reduction or foreclosure and ultimate liquidation of the real estate-owned property, thus making their collection reasonably assured. These servicing advances, which are funded by the Company, totaled $29.1 million and $39.7 million and were included in other assets on the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively.

Serviced Mortgage Assets

The Company’s total serviced mortgage assets consist of residential mortgage loans underlying MSR, residential mortgage loans held in previous on-balance sheet securitization trusts for which the Company is the named servicing administrator and other assets. The following table presents the number of loans and unpaid principal balance of the mortgage assets for which the Company manages the servicing as of September 30, 2019 and December 31, 2018:

	September 30, 2019			December 31, 2018
(dollars in thousands)	Number of Loans	Unpaid Principal Balance		Number of Loans	Unpaid Principal Balance
Mortgage servicing rights	742,723	$	165,332,533	717,167	$	163,102,308
Residential mortgage loans in securitization trusts	3,340	2,166,758		3,612	2,392,471
Other assets	74	12,833		220	34,374
Total serviced mortgage assets	746,137	$	167,512,124	720,999	$	165,529,153

Note 6. Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash held in bank accounts and cash held in money market funds on an overnight basis.

The Company is required to maintain certain cash balances with counterparties for securities and derivatives trading activity and collateral for the Company’s repurchase agreements and FHLB advances in restricted accounts. The Company has also placed cash in a restricted account pursuant to a letter of credit on an office space lease.

17

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following table presents the Company’s restricted cash balances as of September 30, 2019 and December 31, 2018:

(in thousands)	September 30, 2019		December 31, 2018
Restricted cash balances held by trading counterparties:
For securities and loan trading activity	$	45,050	$	51,350
For derivatives trading activity	142,604		219,900
As restricted collateral for repurchase agreements and Federal Home Loan Bank advances	321,975		416,696
Total restricted cash balances held by trading counterparties	509,629		687,946
Restricted cash balance pursuant to letter of credit on office lease	60		60
Total	$	509,689	$	688,006

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Company’s condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018 that sum to the total of the same such amounts shown in the statements of cash flows:

(in thousands)	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	740,698	$	409,758
Restricted cash	509,689		688,006
Total cash, cash equivalents and restricted cash	$	1,250,387	$	1,097,764

Note 7. Derivative Instruments and Hedging Activities

The Company enters into a variety of derivative and non-derivative instruments in connection with its risk management activities. The primary objective for executing these derivative and non-derivative instruments is to mitigate the Company’s economic exposure to future events that are outside its control, principally market risk and cash flow volatility associated with interest rate risk (including associated prepayment risk). Specifically, the Company enters into derivative and non-derivative instruments to economically hedge interest rate risk or “duration mismatch (or gap)” by adjusting the duration of its floating-rate borrowings into fixed-rate borrowings to more closely match the duration of its assets. This particularly applies to floating-rate borrowing agreements with maturities or interest rate resets of less than six months. Typically, the interest receivable terms (e.g., LIBOR) of certain derivatives match the terms of the underlying debt, resulting in an effective conversion of the rate of the related borrowing agreement from floating to fixed. The objective is to manage the cash flows associated with current and anticipated interest payments on borrowings, as well as the ability to roll or refinance borrowings at the desired amount by adjusting the duration.

To help manage the adverse impact of interest rate changes on the value of the Company’s portfolio as well as its cash flows, the Company may, at times, enter into various forward contracts, including short securities, Agency to-be-announced securities, or TBAs, options, futures, swaps, caps and total return swaps. In executing on the Company’s current risk management strategy, the Company has entered into interest rate swap, cap and swaption agreements, TBAs, put and call options for TBAs, U.S. Treasury futures and total return swaps (based on the Markit IOS Index). The Company has also entered into a number of non-derivative instruments to manage interest rate risk, principally MSR and Agency interest-only securities (see discussion below).

The following summarizes the Company’s significant asset and liability classes, the risk exposure for these classes, and the Company’s risk management activities used to mitigate these risks. The discussion includes both derivative and non-derivative instruments used as part of these risk management activities. Any of the Company’s derivative and non-derivative instruments may be entered into in conjunction with one another in order to mitigate risks. As a result, the following discussions of each type of instrument should be read as a collective representation of the Company’s risk mitigation efforts and should not be considered independent of one another. While the Company uses derivative and non-derivative instruments to achieve the Company’s risk management activities, it is possible that these instruments will not effectively mitigate all or a substantial portion of the Company’s market rate risk. In addition, the Company might elect, at times, not to enter into certain hedging arrangements in order to maintain compliance with REIT requirements.

18

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Balance Sheet Presentation

In accordance with ASC 815, Derivatives and Hedging, or ASC 815, the Company records derivative financial instruments on its condensed consolidated balance sheets as assets or liabilities at fair value. Changes in fair value are accounted for depending on the use of the derivative instruments and whether they are designated or qualifying as hedge instruments. Due to the volatility of the credit markets and difficulty in effectively matching pricing or cash flows, the Company has not designated any current derivatives as hedging instruments.

The following tables present the gross fair value and notional amounts of the Company’s derivative financial instruments treated as trading derivatives as of September 30, 2019 and December 31, 2018.

	September 30, 2019
	Derivative Assets				Derivative Liabilities
(in thousands)	Fair Value		Notional		Fair Value			Notional
Inverse interest-only securities	$	76,429	$	415,943	$	—		$	—
Interest rate swap agreements	128,252		2,725,000		—			39,108,495
Swaptions, net	9,283		1,750,000		—			—
TBAs	16,656		5,604,000		(15,717		)	4,259,000
U.S. Treasury futures	—		—		(1,471		)	320,000
Markit IOS total return swaps	—		—		(13		)	43,767
Total	$	230,620	$	10,494,943	$	(17,201	)	$	43,731,262

	December 31, 2018
	Derivative Assets				Derivative Liabilities
(in thousands)	Fair Value		Notional		Fair Value			Notional
Inverse interest-only securities	$	70,813	$	476,299	$	—		$	—
Interest rate swap agreements	187,231		26,798,605		—			2,725,000
Interest rate cap contracts	40,335		2,500,000		—			—
Swaptions, net	—		—		(13,456		)	63,000
TBAs	21,602		6,484,000		—			—
Put and call options for TBAs, net	—		—		(25,296		)	1,767,000
Short U.S. Treasuries	—		—		(781,455		)	800,000
Markit IOS total return swaps	—		—		(383		)	48,265
Total	$	319,981	$	36,258,904	$	(820,590	)	$	5,403,265

Comprehensive Income (Loss) Statement Presentation

The Company has not applied hedge accounting to its current derivative portfolio held to mitigate interest rate risk and credit risk. As a result, the Company is subject to volatility in its earnings due to movement in the unrealized gains and losses associated with its derivative instruments.

19

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following table summarizes the location and amount of gains and losses on derivative instruments reported in the condensed consolidated statements of comprehensive income (loss):

Derivative Instruments	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income
		Three Months Ended						Nine Months Ended
(in thousands)		September 30,						September 30,
		2019			2018			2019			2018
Interest rate risk management
TBAs	Gain (loss) on other derivative instruments	$	82,964		$	(45,231	)	$	221,439		$	(55,766	)
Short U.S. Treasuries	Gain (loss) on other derivative instruments	—			1,606			(6,801		)	1,606
U.S. Treasury futures	Gain (loss) on other derivative instruments	(359		)	—			46,089			—
Put and call options for TBAs	Gain (loss) on other derivative instruments	—			13,489			(7,666		)	43,328
Interest rate swaps - Payers	Gain (loss) on interest rate swap, cap and swaption agreements	(172,856		)	105,195			(834,426		)	412,291
Interest rate swaps - Receivers	Gain (loss) on interest rate swap, cap and swaption agreements	211,086			(54,653		)	664,313			(252,375		)
Swaptions	Gain (loss) on interest rate swap, cap and swaption agreements	32,390			24,629			76,383			94,933
Interest rate caps	Gain (loss) on interest rate swap, cap and swaption agreements	—			686			(7,684		)	686
Markit IOS total return swaps	Gain (loss) on other derivative instruments	(888		)	(302		)	(1,365		)	371
Non-risk management
Inverse interest-only securities	Gain (loss) on other derivative instruments	4,139			(1,025		)	19,102			(5,274		)
Total		$	156,476		$	44,394		$	169,384		$	239,800

For the three and nine months ended September 30, 2019, the Company recognized $19.2 million and $65.7 million, respectively, of income for the accrual and/or settlement of the net interest expense associated with its interest rate swaps and caps. The income results from receiving either LIBOR interest or a fixed interest rate and paying either a fixed interest rate or LIBOR interest on an average $41.2 billion and $39.8 billion notional, respectively. For the three and nine months ended September 30, 2018, the Company recognized $16.2 million and $33.9 million, respectively, of income for the accrual and/or settlement of the net interest expense associated with its interest rate swaps and caps. The income results from paying either a fixed interest rate or LIBOR interest and receiving either LIBOR interest or a fixed interest rate on an average $31.8 billion and $26.2 billion notional, respectively.

20

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following tables present information with respect to the volume of activity in the Company’s derivative instruments during the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30, 2019
(in thousands)	Beginning of Period Notional Amount		Additions		Settlement, Termination, Expiration or Exercise			End of Period Notional Amount		Average Notional Amount		Realized Gain (Loss), net (1)
Inverse interest-only securities	$	436,611	$	—	$	(20,668	)	$	415,943	$	427,222	$	—
Interest rate swap agreements	40,470,277		17,874,435		(16,511,217		)	41,833,495		41,180,308		38,044
Swaptions, net	3,875,000		1,000,000		(3,125,000		)	1,750,000		2,650,815		37,366
TBAs, net	9,422,000		40,347,000		(39,906,000		)	9,863,000		9,107,707		94,504
U.S. Treasury futures	1,300,000		3,567,000		(4,547,000		)	320,000		657,022		26,939
Markit IOS total return swaps	45,536		—		(1,769		)	43,767		46,088		—
Total	$	55,549,424	$	62,788,435	$	(64,111,654	)	$	54,226,205	$	54,069,162	$	196,853

	Three Months Ended September 30, 2018
(in thousands)	Beginning of Period Notional Amount			Additions			Settlement, Termination, Expiration or Exercise			End of Period Notional Amount			Average Notional Amount			Realized Gain (Loss), net (1)
Inverse interest-only securities	$	529,056		$	—		$	(30,230	)	$	498,826		$	514,879		$	—
Interest rate swap agreements	26,047,264			12,544,820			(8,088,318		)	30,503,766			30,144,641			(50,240		)
Interest rate cap contracts	—			2,500,000			—			2,500,000			1,684,783			—
Swaptions, net	(738,000		)	1,164,000			(262,000		)	164,000			(157,663		)	10,374
TBAs, net	3,049,000			21,060,000			(14,785,000		)	9,324,000			6,430,924			(23,067		)
Short U.S. Treasuries	—			(800,000		)	—			(800,000		)	(539,130		)	—
Put and call options for TBAs, net	(320,000		)	(1,710,000		)	1,120,000			(910,000		)	(1,106,120		)	910
Markit IOS total return swaps	51,541			—			(1,850		)	49,691			50,296			(516		)
Total	$	28,618,861		$	34,758,820		$	(22,047,398	)	$	41,330,283		$	37,022,610		$	(62,539	)

	Nine Months Ended September 30, 2019
(in thousands)	Beginning of Period Notional Amount			Additions		Settlement, Termination, Expiration or Exercise			End of Period Notional Amount		Average Notional Amount			Realized Gain (Loss), net (1)
Inverse interest-only securities	$	476,299		$	—	$	(60,356	)	$	415,943	$	447,082		$	—
Interest rate swap agreements	29,523,605			32,373,068		(20,063,178		)	41,833,495		38,402,820			41,975
Interest rate cap contracts	2,500,000			—		(2,500,000		)	—		1,417,216			(8,690		)
Swaptions, net	63,000			14,200,000		(12,513,000		)	1,750,000		3,259,802			63,139
TBAs, net	6,484,000			119,252,000		(115,873,000		)	9,863,000		8,905,264			242,102
Short U.S. Treasuries	(800,000		)	—		800,000			—		(61,097		)	(23,172		)
U.S. Treasury futures	—			8,077,000		(7,757,000		)	320,000		691,414			47,565
Put and call options for TBAs, net	(1,767,000		)	—		1,767,000			—		(147,606		)	(32,962		)
Markit IOS total return swaps	48,265			—		(4,498		)	43,767		45,964			—
Total	$	36,528,169		$	173,902,068	$	(156,204,032	)	$	54,226,205	$	52,960,859		$	329,957

21

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

	Nine Months Ended September 30, 2018
(in thousands)	Beginning of Period Notional Amount			Additions			Settlement, Termination, Expiration or Exercise			End of Period Notional Amount			Average Notional Amount			Realized Gain (Loss), net (1)
Inverse interest-only securities	$	588,246		$	—		$	(89,420	)	$	498,826		$	544,691		$	—
Interest rate swap agreements	28,482,125			37,894,452			(35,872,811		)	30,503,766			25,588,646			(46,101		)
Interest rate cap contracts	—			2,500,000			—			2,500,000			567,766			—
Swaptions, net	2,666,000			(74,000		)	(2,428,000		)	164,000			(2,015,260		)	78,266
TBAs, net	(573,000		)	38,773,000			(28,876,000		)	9,324,000			3,210,355			(28,681		)
Short U.S. Treasuries	—			(800,000		)	—			(800,000		)	(181,685		)	—
Put and call options for TBAs, net	—			2,892,000			(3,802,000		)	(910,000		)	(590,168		)	39,452
Markit IOS total return swaps	63,507			—			(13,816		)	49,691			57,303			(765		)
Total	$	31,226,878		$	81,185,452		$	(71,082,047	)	$	41,330,283		$	27,181,648		$	42,171

____________________

(1) Excludes net interest paid or received in full settlement of the net interest spread liability.

Cash flow activity related to derivative instruments is reflected within the operating activities and investing activities sections of the condensed consolidated statements of cash flows. Realized gains and losses and derivative fair value adjustments are reflected within the realized and unrealized loss (gain) on interest rate swaps, caps and swaptions and unrealized (gain) loss on other derivative instruments line items within the operating activities section of the condensed consolidated statements of cash flows. The remaining cash flow activity related to derivative instruments is reflected within the (purchases) short sales of other derivative instruments, (payments for termination and settlement) proceeds from sales and settlements of derivative instruments, net and decrease in due to counterparties, net line items within the investing activities section of the condensed consolidated statements of cash flows.

Interest Rate Sensitive Assets/Liabilities

The Company’s Agency RMBS portfolio is generally subject to change in value when mortgage rates decline or increase, depending on the type of investment. Rising mortgage rates generally result in a decline in the value of the Company’s fixed-rate Agency pools. To mitigate the impact of this risk on the Company’s fixed-rate Agency pool portfolio, the Company maintains a portfolio of fixed-rate interest-only securities and MSR, which increase in value when interest rates increase. As of September 30, 2019 and December 31, 2018, the Company had $130.3 million and $147.6 million, respectively, of interest-only securities, and $1.7 billion and $2.0 billion, respectively, of MSR in place to economically hedge its Agency RMBS. Interest-only securities are included in AFS securities, at fair value, in the condensed consolidated balance sheets.

The Company monitors its borrowings under repurchase agreements, FHLB advances and revolving credit facilities, which are generally floating-rate debt, in relation to the rate profile of its portfolio. In connection with its risk management activities, the Company enters into a variety of derivative and non-derivative instruments to economically hedge interest rate risk or “duration mismatch (or gap)” by adjusting the duration of its floating-rate borrowings into fixed-rate borrowings to more closely match the duration of its assets. This particularly applies to borrowing agreements with maturities or interest rate resets of less than six months. Typically, the interest receivable terms (e.g., LIBOR) of certain derivatives match the terms of the underlying debt, resulting in an effective conversion of the rate of the related borrowing agreement from floating to fixed. The objective is to manage the cash flows associated with current and anticipated interest payments on borrowings, as well as the ability to roll or refinance borrowings at the desired amount by adjusting the duration. To help manage the adverse impact of interest rate changes on the value of the Company’s portfolio as well as its cash flows, the Company may, at times, enter into various forward contracts, including short securities, TBAs, options, futures, swaps, caps, credit default swaps and total return swaps. In executing on the Company’s current interest rate risk management strategy, the Company has entered into TBAs, put and call options for TBAs, interest rate swap, cap and swaption agreements, U.S. Treasury futures and Markit IOS total return swaps.

22

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

TBAs. At times, the Company may use TBAs as a means of deploying capital until targeted investments are available or to take advantage of temporary displacements, funding advantages or valuation differentials in the marketplace. Additionally, the Company may use TBAs independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. TBAs are forward contracts for the purchase (long notional positions) or sale (short notional positions) of Agency RMBS. The issuer, coupon and stated maturity of the Agency RMBS are predetermined as well as the trade price, face amount and future settle date (published each month by the Securities Industry and Financial Markets Association). However, the specific Agency RMBS to be delivered upon settlement is not known at the time of the TBA transaction. As a result, and because physical delivery of the Agency RMBS upon settlement cannot be assured, the Company accounts for TBAs as derivative instruments.

The Company may hold both long and short notional TBA positions, which are disclosed on a gross basis according to the unrealized gain or loss position of each TBA contract regardless of long or short notional position. The following tables present the notional amount, cost basis, market value and carrying value (which approximates fair value) of the Company’s TBA positions as of September 30, 2019 and December 31, 2018:

	September 30, 2019
										Net Carrying Value (4)
(in thousands)	Notional Amount (1)			Cost Basis (2)			Market Value (3)			Derivative Assets		Derivative Liabilities
Purchase contracts	$	12,659,000		$	13,168,924		$	13,166,842		$	13,146	$	(15,229	)
Sale contracts	(2,796,000		)	(2,905,436		)	(2,902,414		)	3,510		(488		)
TBAs, net	$	9,863,000		$	10,263,488		$	10,264,428		$	16,656	$	(15,717	)

	December 31, 2018
							Net Carrying Value (4)
(in thousands)	Notional Amount (1)		Cost Basis (2)		Market Value (3)		Derivative Assets		Derivative Liabilities
Purchase contracts	$	6,484,000	$	6,734,858	$	6,756,460	$	21,602	$	—
Sale contracts	—		—		—		—		—
TBAs, net	$	6,484,000	$	6,734,858	$	6,756,460	$	21,602	$	—

___________________

(1) Notional amount represents the face amount of the underlying Agency RMBS.

(2) Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS.

(3) Market value represents the current market value of the TBA (or of the underlying Agency RMBS) as of period-end.

(4) Net carrying value represents the difference between the market value of the TBA as of period-end and its cost basis, and is reported in derivative assets / (liabilities), at fair value, in the condensed consolidated balance sheets.

Short U.S. Treasuries. The Company may use short U.S. Treasury securities independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of December 31, 2018, the Company had short-sold U.S. Treasuries with a notional amount of $800.0 million and a fair market value of $781.5 million included in derivative liabilities, at fair value, on the condensed consolidated balance sheet as of December 31, 2018. The Company did not hold any short U.S. Treasuries as of September 30, 2019.

U.S. Treasury Futures. The Company may use U.S. Treasury futures independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of September 30, 2019, the Company had purchased U.S. Treasury futures with a notional amount of $0.3 billion and a fair market value of $1.5 million included in derivative liabilities, at fair value, on the condensed consolidated balance sheet as of September 30, 2019. The Company did not hold any U.S. Treasury futures as of December 31, 2018.

Put and Call Options for TBAs. The Company may use put and call options for TBAs independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of December 31, 2018, the Company had purchased put and call options for TBAs with a notional amount of $5.4 billion and short sold put and call options for TBAs with a notional amount of $7.2 billion. The put and call options had a fair market value of $25.3 million included in derivative liabilities, at fair value, on the condensed consolidated balance sheet as of December 31, 2018. The Company did not hold any put and call options for TBAs as of September 30, 2019.

23

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Interest Rate Swap Agreements. The Company may use interest rate swaps independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of September 30, 2019 and December 31, 2018, the Company held the following interest rate swaps that were utilized as economic hedges of interest rate exposure (or duration) whereby the Company receives interest at a three-month LIBOR rate:

(notional in thousands)
September 30, 2019
Swaps Maturities	Notional Amount		Weighted Average Fixed Pay Rate		Weighted Average Receive Rate		Weighted Average Maturity (Years)
2019	$	3,566,897	1.834	%	2.204	%	0.10
2020	3,640,000		1.806	%	2.186	%	1.08
2021	15,740,977		1.681	%	2.177	%	1.72
2022	2,578,640		1.911	%	2.185	%	2.99
2023 and Thereafter	7,518,220		2.344	%	2.212	%	6.96
Total	$	33,044,734	1.880	%	2.189	%	2.77

(notional in thousands)
December 31, 2018
Swaps Maturities	Notional Amount (1)		Weighted Average Fixed Pay Rate (2)		Weighted Average Receive Rate (2)		Weighted Average Maturity (Years) (2)
2019	$	4,336,897	1.769	%	2.565	%	0.79
2020	3,640,000		1.806	%	2.689	%	1.83
2021	4,117,000		1.550	%	2.687	%	2.69
2022	2,470,000		2.002	%	2.728	%	3.75
2023 and Thereafter	6,842,270		2.495	%	2.636	%	7.60
Total	$	21,406,167	1.978	%	2.651	%	3.75

____________________

(1) Notional amount includes $572.0 million in forward starting interest rate swaps as of December 31, 2018.

(2) Weighted averages exclude forward starting interest rate swaps. As of December 31, 2018, the weighted average fixed pay rate on forward starting interest rate swaps was 2.8%.

Additionally, as of September 30, 2019 and December 31, 2018, the Company held the following interest rate swaps in order to mitigate mortgage interest rate exposure (or duration) risk whereby the Company pays interest at a three-month LIBOR rate:

(notional in thousands)
September 30, 2019
Swaps Maturities	Notional Amounts		Weighted Average Pay Rate		Weighted Average Fixed Receive Rate		Weighted Average Maturity (Years)
2020	250,000		2.278	%	2.258	%	0.31
2021	915,000		2.209	%	2.516	%	1.35
2022	—		—	%	—	%	0.00
2023 and Thereafter	7,623,761		2.186	%	2.232	%	8.88
Total	$	8,788,761	2.191	%	2.262	%	7.86

24

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

(notional in thousands)
December 31, 2018
Swaps Maturities	Notional Amounts		Weighted Average Pay Rate		Weighted Average Fixed Receive Rate		Weighted Average Maturity (Years)
2020	$	250,000	2.469	%	2.258	%	1.06
2021	2,477,438		2.538	%	2.736	%	2.24
2022	800,000		2.653	%	2.975	%	3.39
2023 and Thereafter	4,590,000		2.653	%	2.757	%	7.37
Total	$	8,117,438	2.612	%	2.757	%	5.22

Interest Rate Swaptions. The Company may use interest rate swaptions (agreements to enter into interest rate swaps in the future for which the Company would either pay or receive a fixed rate) independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of September 30, 2019 and December 31, 2018, the Company had the following outstanding interest rate swaptions that were utilized as macro-economic hedges:

	September 30, 2019
(notional and dollars in thousands)	Option						Underlying Swap
Swaption	Expiration	Cost Basis		Fair Value		Average Months to Expiration	Notional Amount		Average Pay Rate		Average Receive Rate		Average Term (Years)
Purchase contracts:
Payer	< 6 Months	$	5,395	$	1,401	4.01	$	1,250,000	2.05	%	3M Libor		5.2
Total Payer		$	5,395	$	1,401	4.01	$	1,250,000	2.05	%	3M Libor		5.2
Receiver	< 6 Months	$	4,100	$	7,882	4.10	$	500,000	3M Libor		1.55	%	10.0
Total Receiver		$	4,100	$	7,882	4.10	$	500,000	3M Libor		1.55	%	10.0

	December 31, 2018
(notional and dollars in thousands)	Option								Underlying Swap
Swaption	Expiration	Cost			Fair Value			Average Months to Expiration	Notional Amount			Average Fixed Pay Rate		Average Receive Rate		Average Term (Years)
Purchase contracts:
Payer	< 6 Months	$	4,855		$	2,430		5.13	$	900,000		3.16	%	3M Libor		10.0
Payer	≥ 6 Months	8,400			5,992			8.60	800,000			3.14	%	3M Libor		10.0
Total Payer		$	13,255		$	8,422		7.92	$	1,700,000		3.15	%	3M Libor		10.0
Sale contracts:
Receiver	< 6 Months	$	(4,855	)	$	(9,001	)	4.74	$	(845,000	)	3M Libor		2.66	%	10.0
Receiver	≥ 6 Months	(8,400		)	(12,877		)	8.60	(792,000		)	3M Libor		2.64	%	10.0
Total Receiver		$	(13,255	)	$	(21,878	)	7.52	$	(1,637,000	)	3M Libor		2.65	%	10.0

25

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Interest Rate Cap Contracts. The Company may use interest rate caps independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of December 31, 2018, the Company held the following interest rate caps that were utilized as economic hedges of interest rate exposure (or duration) whereby the Company receives interest at a three-month LIBOR rate, net of a fixed cap rate:

(notional in thousands)
December 31, 2018
Caps Maturities	Notional Amount		Weighted Average Cap Rate		Weighted Average Receive Rate		Weighted Average Maturity (Years)
2019	$	800,000	1.344	%	2.422	%	0.53
2020	1,700,000		1.250	%	2.766	%	1.29
Total	$	2,500,000	1.280	%	2.656	%	1.04

The Company did not hold any interest rate caps as of September 30, 2019.

Markit IOS Total Return Swaps. The Company may use total return swaps (agreements whereby the Company receives or makes payments based on the total return of an underlying instrument or index, such as the Markit IOS Index, in exchange for fixed or floating rate interest payments) independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. The Company enters into total return swaps to help mitigate the potential impact of larger increases or decreases in interest rates on the performance of our portfolio (referred to as “convexity risk”). Total return swaps based on the Markit IOS Index are intended to synthetically replicate the performance of interest-only securities. The Company had the following total return swap agreements in place at September 30, 2019 and December 31, 2018:

(notional and dollars in thousands)
September 30, 2019
Maturity Date	Current Notional Amount			Fair Value			Cost Basis			Unrealized Gain (Loss)
January 12, 2043	$	(19,439	)	$	(6	)	$	(30	)	$	24
January 12, 2044	(24,328		)	(7		)	(29		)	22
Total	$	(43,767	)	$	(13	)	$	(59	)	$	46

(notional and dollars in thousands)
December 31, 2018
Maturity Date	Current Notional Amount			Fair Value			Cost Basis			Unrealized Gain (Loss)
January 12, 2043	$	(21,395	)	$	(153	)	$	(30	)	$	(123	)
January 12, 2044	(26,870		)	(230		)	(29		)	(201		)
Total	$	(48,265	)	$	(383	)	$	(59	)	$	(324	)

Credit Risk

The Company’s exposure to credit losses on its Agency RMBS portfolio is limited due to implicit or explicit backing from the GSEs. The payment of principal and interest on the Freddie Mac and Fannie Mae mortgage-backed securities are guaranteed by those respective agencies, and the payment of principal and interest on the Ginnie Mae mortgage-backed securities are backed by the full faith and credit of the U.S. government.

For non-Agency investment securities, the Company may enter into credit default swaps to hedge credit risk. In future periods, the Company could enhance its credit risk protection, enter into further paired derivative positions, including both long and short credit default swaps, and/or seek opportunistic trades in the event of a market disruption (see discussion under “Non-Risk Management Activities” below). The Company also has processes and controls in place to monitor, analyze, manage and mitigate its credit risk with respect to non-Agency securities.

26

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Derivative financial instruments contain an element of credit risk if counterparties are unable to meet the terms of the agreements. Credit risk associated with derivative financial instruments is measured as the net replacement cost should the counterparties that owe the Company under such contracts completely fail to perform under the terms of these contracts, assuming there are no recoveries of underlying collateral, as measured by the market value of the derivative financial instruments. As of September 30, 2019, the fair value of derivative financial instruments as an asset and liability position was $230.6 million and $17.2 million, respectively.

The Company attempts to mitigate its credit risk exposure on derivative financial instruments by limiting its counterparties to banks and financial institutions that meet established internal credit guidelines. The Company also seeks to spread its credit risk exposure across multiple counterparties in order to reduce its exposure to any single counterparty. Additionally, the Company reduces credit risk on the majority of its derivative instruments by entering into agreements that permit the closeout and netting of transactions with the same counterparty or clearing agency, in the case of centrally cleared interest rate swaps, upon the occurrence of certain events. To further mitigate the risk of counterparty default, the Company maintains collateral agreements with certain of its counterparties and clearing agencies, which require both parties to maintain cash deposits in the event the fair values of the derivative financial instruments exceed established thresholds. The Company’s centrally cleared interest rate swaps require that the Company posts an “initial margin” amount determined by the clearing exchange, which is generally intended to be set at a level sufficient to protect the exchange from the interest rate swap’s maximum estimated single-day price movement. The Company also exchanges “variation margin” based upon daily changes in fair value, as measured by the exchange. As a result of amendments to rules governing certain central clearing activities, the exchange of variation margin is considered a settlement of the interest rate swap, as opposed to pledged collateral. Accordingly, beginning in the first quarter of 2018, the Company began accounting for the receipt or payment of variation margin as a direct reduction to the carrying value of the interest rate swap asset or liability.

Note 8. Offsetting Assets and Liabilities

Certain of the Company’s repurchase agreements are governed by underlying agreements that provide for a right of setoff in the event of default by either party to the agreement. The Company also has netting arrangements in place with all derivative counterparties pursuant to standard documentation developed by the International Swap and Derivatives Association, or ISDA, or central clearing exchange agreements, in the case of centrally cleared interest rate swaps. The Company and the counterparty or clearing agency are required to post cash collateral based upon the net underlying market value of the Company’s open positions with the counterparty. Additionally, the Company’s centrally cleared interest rate swaps require that the Company posts an “initial margin” amount determined by the clearing exchange, which is generally intended to be set at a level sufficient to protect the exchange from the interest rate swap’s maximum estimated single-day price movement. The Company also exchanges “variation margin” based upon daily changes in fair value, as measured by the exchange.

Under U.S. GAAP, if the Company has a valid right of setoff, it may offset the related asset and liability and report the net amount. As a result of amendments to rules governing certain central clearing activities, the exchange of variation margin is considered a settlement of the interest rate swap, as opposed to pledged collateral. Accordingly, beginning in the first quarter of 2018, the Company began accounting for the receipt or payment of variation margin on CME and LCH cleared positions as a direct reduction to the carrying value of the interest rate swap asset or liability. The receipt or payment of initial margin will continue to be accounted for separate from the interest rate swap asset or liability.

The Company presents repurchase agreements subject to master netting arrangements or similar agreements on a gross basis and derivative assets and liabilities (other than centrally cleared interest rate swaps) subject to such arrangements on a net basis, based on derivative type and counterparty, in its condensed consolidated balance sheets. Separately, the Company presents cash collateral subject to such arrangements (other than variation margin on centrally cleared interest rate swaps) on a net basis, based on counterparty, in its condensed consolidated balance sheets. However, the Company does not offset repurchase agreements or derivative assets and liabilities (other than centrally cleared interest rate swaps) with the associated cash collateral on its condensed consolidated balance sheets.

27

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following tables present information about the Company’s assets and liabilities that are subject to master netting arrangements or similar agreements and can potentially be offset on the Company’s condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018:

	September 30, 2019
										Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets (1)
(in thousands)	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Balance Sheets			Net Amounts of Assets (Liabilities) Presented in the Balance Sheets			Financial Instruments			Cash Collateral (Received) Pledged			Net Amount
Assets
Derivative assets	$	608,193		$	(377,573	)	$	230,620		$	(17,201	)	$	—		$	213,419
Reverse repurchase agreements	180,575			—			180,575			—			(180,575		)	—
Total Assets	$	788,768		$	(377,573	)	$	411,195		$	(17,201	)	$	(180,575	)	$	213,419
Liabilities
Repurchase agreements	$	(25,567,136	)	$	—		$	(25,567,136	)	$	25,567,136		$	—		$	—
Derivative liabilities	(394,774		)	377,573			(17,201		)	17,201			—			—
Total Liabilities	$	(25,961,910	)	$	377,573		$	(25,584,337	)	$	25,584,337		$	—		$	—

	December 31, 2018
										Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets (1)
(in thousands)	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Balance Sheets			Net Amounts of Assets (Liabilities) Presented in the Balance Sheets			Financial Instruments			Cash Collateral (Received) Pledged		Net Amount
Assets
Derivative assets	$	599,573		$	(279,592	)	$	319,981		$	(58,775	)	$	—	$	261,206
Reverse repurchase agreements	761,815			—			761,815			(761,815		)	—		—
Total Assets	$	1,361,388		$	(279,592	)	$	1,081,796		$	(820,590	)	$	—	$	261,206
Liabilities
Repurchase agreements	$	(23,133,476	)	$	—		$	(23,133,476	)	$	23,133,476		$	—	$	—
Derivative liabilities	(1,100,182		)	279,592			(820,590		)	820,590			—		—
Total Liabilities	$	(24,233,658	)	$	279,592		$	(23,954,066	)	$	23,954,066		$	—	$	—

____________________

(1) Amounts presented are limited in total to the net amount of assets or liabilities presented in the condensed consolidated balance sheets by instrument. Excess cash collateral or financial assets that are pledged to counterparties may exceed the financial liabilities subject to a master netting arrangement or similar agreement, or counterparties may have pledged excess cash collateral to the Company that exceed the corresponding financial assets. These excess amounts are excluded from the table above, although separately reported within restricted cash, due from counterparties, or due to counterparties in the Company’s condensed consolidated balance sheets.

28

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Note 9. Fair Value

Fair Value Measurements

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). Additionally, ASC 820 requires an entity to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring fair value of a liability.

ASC 820 establishes a three-level hierarchy to be used when measuring and disclosing fair value. An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. Following is a description of the three levels:

Level 1 Inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date under current market conditions. Additionally, the entity must have the ability to access the active market and the quoted prices cannot be adjusted by the entity.

Level 2 Inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full-term of the assets or liabilities.

Level 3 Unobservable inputs are supported by little or no market activity. The unobservable inputs represent the assumptions that market participants would use to price the assets and liabilities, including risk. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation.

The following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models and significant assumptions utilized.

Available-for-sale securities. The Company holds a portfolio of AFS securities that are carried at fair value in the condensed consolidated balance sheets and primarily comprised of Agency RMBS and non-Agency securities. The Company determines the fair value of its Agency RMBS based upon prices obtained from third-party pricing providers received using bid price, which are deemed indicative of market activity. The third-party pricing providers use pricing models that generally incorporate such factors as coupons, primary and secondary mortgage rates, rate reset period, issuer, prepayment speeds, credit enhancements and expected life of the security. In determining the fair value of its non-Agency securities, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers and other applicable market data. If observable market prices are not available or insufficient to determine fair value due principally to illiquidity in the marketplace, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs (including prepayment speeds, delinquency levels, and credit losses). The Company classified 99.5% and 0.5% of its AFS securities as Level 2 and Level 3 fair value assets, respectively, at September 30, 2019. AFS securities account for 93.8% of all assets reported at fair value at September 30, 2019.

Mortgage servicing rights. The Company holds a portfolio of MSR that are carried at fair value on the condensed consolidated balance sheets. The Company determines fair value of its MSR based on prices obtained from third-party pricing providers. Although MSR transactions are observable in the marketplace, the details of those transactions are not necessarily reflective of the value of the Company’s MSR portfolio. Third-party providers use both observable market data and unobservable market data (including prepayment speeds, delinquency levels and discount rates) as inputs into models, which help to inform their best estimates of fair value market price. As a result, the Company classified 100% of its MSR as Level 3 fair value assets at September 30, 2019.

Derivative instruments. The Company may enter into a variety of derivative financial instruments as part of its hedging strategies. The Company principally executes over-the-counter, or OTC, derivative contracts, such as interest rate swaps, caps, swaptions, put and call options for TBAs and Markit IOS total return swaps. The Company utilizes third-party pricing providers to value its financial derivative instruments. The Company classified 100% of the interest rate swaps, swaptions, and Markit IOS total return swaps reported at fair value as Level 2 at September 30, 2019. The Company did not hold any interest rate caps or put and call options for TBAs at September 30, 2019.

29

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The Company may also enter into certain other derivative financial instruments, such as TBAs, short U.S. Treasuries, U.S. Treasury futures and inverse interest-only securities. These instruments are similar in form to the Company’s AFS securities and the Company utilizes a pricing service to value TBAs, short U.S. Treasuries, U.S. Treasury futures and inverse interest-only securities. The Company classified 100% of its inverse interest-only securities at fair value as Level 2 at September 30, 2019. The Company reported 100% of its TBAs and U.S. Treasury futures as Level 1 as of September 30, 2019. The Company did not hold any short U.S. Treasuries at September 30, 2019.

The Company’s risk management committee governs trading activity relating to derivative instruments. The Company’s policy is to minimize credit exposure related to financial derivatives used for hedging by limiting the hedge counterparties to major banks, financial institutions, exchanges, and private investors who meet established capital and credit guidelines as well as by limiting the amount of exposure to any individual counterparty.

The Company has netting arrangements in place with all derivative counterparties pursuant to standard documentation developed by ISDA, or central clearing exchange agreements, in the case of centrally cleared interest rate swaps. Additionally, both the Company and the counterparty or clearing agency are required to post cash collateral based upon the net underlying market value of the Company’s open positions with the counterparty. Posting of cash collateral typically occurs daily, subject to certain dollar thresholds. Due to the existence of netting arrangements, as well as frequent cash collateral posting at low posting thresholds, credit exposure to the Company and/or to the counterparty or clearing agency is considered materially mitigated. Based on the Company’s assessment, there is no requirement for any additional adjustment to derivative valuations specifically for credit.

The following tables display the Company’s assets and liabilities measured at fair value on a recurring basis. The Company often economically hedges the fair value change of its assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items, and therefore do not directly display the impact of the Company’s risk management activities.

	Recurring Fair Value Measurements
	September 30, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale securities	$	—	$	28,172,321	$	146,237	$	28,318,558
Mortgage servicing rights	—		—		1,651,556		1,651,556
Derivative assets	16,656		213,964		—		230,620
Total assets	$	16,656	$	28,386,285	$	1,797,793	$	30,200,734
Liabilities
Derivative liabilities	$	17,188	$	13	$	—	$	17,201
Total liabilities	$	17,188	$	13	$	—	$	17,201

	Recurring Fair Value Measurements
	December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale securities	$	—	$	25,447,447	$	105,157	$	25,552,604
Mortgage servicing rights	—		—		1,993,440		1,993,440
Derivative assets	21,602		298,379		—		319,981
Total assets	$	21,602	$	25,745,826	$	2,098,597	$	27,866,025
Liabilities
Derivative liabilities	$	—	$	820,590	$	—	$	820,590
Total liabilities	$	—	$	820,590	$	—	$	820,590

30

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The Company may be required to measure certain assets or liabilities at fair value from time to time. These periodic fair value measures typically result from application of certain impairment measures under U.S. GAAP. These items would constitute nonrecurring fair value measures under ASC 820. As of September 30, 2019, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis in the periods presented. 

The valuation of Level 3 instruments requires significant judgment by the third-party pricing providers and/or management. The third-party pricing providers and/or management rely on inputs such as market price quotations from market makers (either market or indicative levels), original transaction price, recent transactions in the same or similar instruments, and changes in financial ratios or cash flows to determine fair value. Level 3 instruments may also be discounted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the third-party pricing providers in the absence of market information. Assumptions used by the third-party pricing providers due to lack of observable inputs may significantly impact the resulting fair value and therefore the Company’s condensed consolidated financial statements. The Company’s valuation committee reviews all valuations that are based on pricing information received from third-party pricing providers. As part of this review, prices are compared against other pricing or input data points in the marketplace, along with internal valuation expertise, to ensure the pricing is reasonable. In addition, the Company performs back-testing of pricing information to validate price information and identify any pricing trends of a third-party price provider.

In determining fair value, third-party pricing providers use various valuation approaches, including market and income approaches. Inputs that are used in determining fair value of an instrument may include pricing information, credit data, volatility statistics, and other factors. In addition, inputs can be either observable or unobservable.

The availability of observable inputs can vary by instrument and is affected by a wide variety of factors, including the type of instrument, whether the instrument is new and not yet established in the marketplace and other characteristics particular to the instrument. The third-party pricing provider uses prices and inputs that are current as of the measurement date, including during periods of market dislocations. In periods of market dislocation, the availability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified to or from various levels within the fair value hierarchy.

Securities for which market quotations are readily available are valued at the bid price (in the case of long positions) or the ask price (in the case of short positions) at the close of trading on the date as of which value is determined. Exchange-traded securities for which no bid or ask price is available are valued at the last traded price. OTC derivative contracts, including interest rate swaps, caps and swaption agreements, put and call options for TBAs and U.S. Treasuries, constant maturity swaps, credit default swaps, U.S. Treasury futures and Markit IOS total return swaps, are valued by the Company using observable inputs, specifically quotations received from third-party pricing providers, and are therefore classified within Level 2.

31

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following table presents the reconciliation for the Company’s Level 3 assets measured at fair value on a recurring basis:

	Three Months Ended							Nine Months Ended
	September 30, 2019							September 30, 2019
(in thousands)	Available-For-Sale Securities			Mortgage Servicing Rights				Available-For-Sale Securities			Mortgage Servicing Rights
Beginning of period level 3 fair value	$	217,210		$	1,800,826			$	105,157		$	1,993,440
Gains (losses) included in net income:
Realized (losses) gains, net	(3,448		)	(92,699		)		(15,490		)	(200,466		)
Unrealized (losses) gains, net	—			(141,815		)	(1)	—			(475,454		)	(1)
Net gains (losses) included in net income	(3,448		)	(234,514		)		(15,490		)	(675,920		)
Other comprehensive (loss) income	(617		)	—				2,702			—
Purchases	—			76,588				7,468			341,110
Sales	—			819				—			530
Settlements	—			7,837				—			(7,604		)
Gross transfers into level 3	93,541			—				366,466			—
Gross transfers out of level 3	(160,449		)	—				(320,066		)	—
End of period level 3 fair value	$	146,237		$	1,651,556			$	146,237		$	1,651,556
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	—		$	(136,922	)	(2)	$	—		$	(448,075	)	(2)
Change in unrealized gains or losses for the period included in other comprehensive (loss) income for assets held at the end of the reporting period	$	(617	)	$	—			$	2,608		$	—

____________________

(1) The change in unrealized gains or losses on MSR was recorded in (loss) gain on servicing asset on the condensed consolidated statements of comprehensive income (loss).

(2) The change in unrealized gains or losses on MSR that were held at the end of the reporting period was recorded in (loss) gain on servicing asset on the condensed consolidated statements of comprehensive income (loss).

The Company transferred certain AFS from Level 2 to Level 3 and from Level 3 to Level 2 based the observability of inputs during the three and nine months ended September 30, 2019. No additional AFS transfers between Level 1, Level 2 or Level 3 were made during the three and nine months ended September 30, 2019. The Company did not transfer AFS between Level 1, Level 2 or Level 3 during the three and nine months ended September 30, 2018. Transfers between Levels are deemed to take place on the first day of the reporting period in which the transfer has taken place.

The Company used third-party pricing providers in the fair value measurement of its Level 3 available-for-sale securities. The significant unobservable inputs used by the third-party pricing provider included expected default, severity and discount rate. Significant increases (decreases) in any of the inputs in isolation may result in significantly lower (higher) fair value measurement.

The Company also used multiple third-party pricing providers in the fair value measurement of its Level 3 MSR. The tables below present information about the significant unobservable inputs used by the third-party pricing providers in the fair value measurement of the Company’s MSR classified as Level 3 fair value assets at September 30, 2019:

September 30, 2019
Valuation Technique	Unobservable Input (1)	Range				Weighted Average (2)
Discounted cash flow	Constant prepayment speed	13.0	-	18.3	%	16.1%
	Delinquency	0.6	-	0.9	%	0.8%
	Discount rate	6.1	-	8.0	%	7.0%

32

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

December 31, 2018
Valuation Technique	Unobservable Input (1)	Range				Weighted Average (2)
Discounted cash flow	Constant prepayment speed	7.6	-	9.6	%	8.6%
	Delinquency	1.0	-	1.5	%	1.3%
	Discount rate	8.2	-	10.7	%	9.4%

___________________

(1) Significant increases (decreases) in any of the inputs in isolation may result in significantly lower (higher) fair value measurement. A change in the assumption used for discount rates may be accompanied by a directionally similar change in the assumption used for the probability of delinquency and a directionally opposite change in the assumption used for prepayment rates.

(2) Calculated by averaging the weighted average significant unobservable inputs used by the multiple third-party pricing providers in the fair value measurement of MSR.

Fair Value of Financial Instruments

In accordance with ASC 820, the Company is required to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in the condensed consolidated balance sheets, for which fair value can be estimated.

The following describes the Company’s methods for estimating the fair value for financial instruments.

• AFS securities, MSR, and derivative assets and liabilities are recurring fair value measurements; carrying value equals fair value. See discussion of valuation methods and assumptions within the Fair Value Measurements section of this Note 9.

• Cash and cash equivalents and restricted cash have a carrying value which approximates fair value because of the short maturities of these instruments. The Company categorizes the fair value measurement of these assets as Level 1.

• Reverse repurchase agreements have a carrying value which approximates fair value due to their short-term nature. The Company categorizes the fair value measurement of these assets as Level 2.

• The carrying value of repurchase agreements, FHLB advances and revolving credit facilities that mature in less than one year generally approximates fair value due to the short maturities. As of September 30, 2019, the Company held $262.9 million of repurchase agreements, $50.0 million of FHLB advances and $300.0 million of revolving credit facilities that are considered long-term. The Company’s long-term repurchase agreements, FHLB advances and revolving credit facilities have floating rates based on an index plus a spread and, for members of the FHLB, the credit spread is typically consistent with those demanded in the market. Accordingly, the interest rates on these borrowings are at market and thus carrying value approximates fair value. The Company categorizes the fair value measurement of these liabilities as Level 2.

• Term notes payable are recorded at outstanding principal balance, net of any unamortized deferred debt issuance costs. In determining the fair value of term notes payable, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers, broker quotes received and other applicable market data. If observable market prices are not available or insufficient to determine fair value due principally to illiquidity in the marketplace, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs (including prepayment speeds, delinquency levels, and credit losses). The Company categorizes the fair value measurement of these liabilities as Level 2.

• Convertible senior notes are carried at their unpaid principal balance, net of any unamortized deferred issuance costs. The Company estimates the fair value of its convertible senior notes using the market transaction price nearest to September 30, 2019. The Company categorizes the fair value measurement of these assets as Level 2.

33

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at September 30, 2019 and December 31, 2018.

	September 30, 2019				December 31, 2018
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Available-for-sale securities	$	28,318,558	$	28,318,558	$	25,552,604	$	25,552,604
Mortgage servicing rights	$	1,651,556	$	1,651,556	$	1,993,440	$	1,993,440
Cash and cash equivalents	$	740,698	$	740,698	$	409,758	$	409,758
Restricted cash	$	509,689	$	509,689	$	688,006	$	688,006
Derivative assets	$	230,620	$	230,620	$	319,981	$	319,981
Reverse repurchase agreements	$	180,575	$	180,575	$	761,815	$	761,815
Other assets	$	18,274	$	18,274	74,412		74,412
Liabilities
Repurchase agreements	$	25,567,136	$	25,567,136	$	23,133,476	$	23,133,476
Federal Home Loan Bank advances	$	50,000	$	50,000	$	865,024	$	865,024
Revolving credit facilities	$	300,000	$	300,000	$	310,000	$	310,000
Term notes payable	$	394,235	$	400,032	$	—	$	—
Convertible senior notes	$	284,635	$	294,869	$	283,856	$	281,951
Derivative liabilities	$	17,201	$	17,201	$	820,590	$	820,590

Note 10. Repurchase Agreements

As of September 30, 2019 and December 31, 2018, the Company had outstanding $25.6 billion and $23.1 billion, respectively, of repurchase agreements. Excluding the effect of the Company’s interest rate swaps and caps, the repurchase agreements had a weighted average borrowing rate of 2.47% and 2.68% and weighted average remaining maturities of 81 and 66 days as of September 30, 2019 and December 31, 2018, respectively.

At September 30, 2019 and December 31, 2018, the repurchase agreement balances were as follows:

(in thousands)	September 30, 2019		December 31, 2018
Short-term	$	25,304,275	$	22,833,476
Long-term	262,861		300,000
Total	$	25,567,136	$	23,133,476

34

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

At September 30, 2019 and December 31, 2018, the repurchase agreements had the following characteristics and remaining maturities:

	September 30, 2019
	Collateral Type
(in thousands)	Agency RMBS			Non-Agency Securities			Agency Derivatives			Mortgage Servicing Rights			Total Amount Outstanding
Within 30 days	$	6,804,755		$	328,032		$	21,525		$	—		$	7,154,312
30 to 59 days	6,450,044			317,390			11,961			—			6,779,395
60 to 89 days	—			93,353			—			—			93,353
90 to 119 days	3,655,339			136,347			—			—			3,791,686
120 to 364 days	7,124,853			345,547			15,129			—			7,485,529
One year and over	—			—			—			262,861			262,861
Total	$	24,034,991		$	1,220,669		$	48,615		$	262,861		$	25,567,136
Weighted average borrowing rate	2.41		%	3.34		%	3.08		%	3.77		%	2.47		%

	December 31, 2018
	Collateral Type
(in thousands)	Agency RMBS			Non-Agency Securities			Agency Derivatives			Mortgage Servicing Rights			Total Amount Outstanding
Within 30 days	$	6,712,021		$	770,287		$	6,561		$	—		$	7,488,869
30 to 59 days	4,557,688			496,466			23,444			—			5,077,598
60 to 89 days	5,410,967			242,473			1,621			—			5,655,061
90 to 119 days	1,209,395			722,399			7,065			—			1,938,859
120 to 364 days	2,201,325			463,939			7,825			—			2,673,089
One year and over	—			—			—			300,000			300,000
Total	$	20,091,396		$	2,695,564		$	46,516		$	300,000		$	23,133,476
Weighted average borrowing rate	2.52		%	3.65		%	3.34		%	4.51		%	2.68		%

The following table summarizes assets at carrying values that are pledged or restricted as collateral for the future payment obligations of repurchase agreements and derivative instruments:

(in thousands)	September 30, 2019		December 31, 2018
Available-for-sale securities, at fair value	$	26,351,294	$	24,240,507
Mortgage servicing rights, at fair value	530,696		685,683
Restricted cash	321,975		416,696
Due from counterparties	133,634		110,695
Derivative assets, at fair value	75,834		70,191
U.S. Treasuries (1)	—		6,457
Total	$	27,413,433	$	25,530,229

____________________

(1) U.S. Treasuries received as collateral and re-pledged.

Although the transactions under repurchase agreements represent committed borrowings until maturity, the respective lender retains the right to mark the underlying collateral to fair value. A reduction in the value of pledged assets would require the Company to provide additional collateral or fund margin calls.

35

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following table summarizes certain characteristics of the Company’s repurchase agreements and counterparty concentration at September 30, 2019 and December 31, 2018:

	September 30, 2019							December 31, 2018
(dollars in thousands)	Amount Outstanding		Net Counterparty Exposure (1)		Percent of Equity		Weighted Average Days to Maturity	Amount Outstanding		Net Counterparty Exposure (1)		Percent of Equity		Weighted Average Days to Maturity
Barclays Capital Inc.	$	3,710,843	$	269,905	5	%	63	$	2,508,277	$	280,148	7	%	50
Royal Bank of Canada	2,665,484		226,480		5	%	123	2,504,438		342,739		8	%	94
All other counterparties (2)	19,190,809		1,112,016		22	%	78	18,120,761		1,399,187		33	%	64
Total	$	25,567,136	$	1,608,401				$	23,133,476	$	2,022,074

____________________

(1) Represents the net carrying value of the assets sold under agreements to repurchase, including accrued interest plus any cash or assets on deposit to secure the repurchase obligation, less the amount of the repurchase liability, including accrued interest.

(2) Represents amounts outstanding with 23 and 28 counterparties at September 30, 2019 and December 31, 2018, respectively.

The Company does not anticipate any defaults by its repurchase agreement counterparties. There can be no assurance, however, that any such default or defaults will not occur.

Note 11. Reverse Repurchase Agreements

As of September 30, 2019, the Company had $180.6 million in amounts due to counterparties as collateral for reverse repurchase agreements that could be pledged, delivered or otherwise used, with a fair value of $180.6 million.

As of December 31, 2018, the Company held securities, consisting of U.S Treasury securities, with a fair value of $781.5 million as collateral for reverse repurchase agreements that could be pledged, delivered or otherwise used, with a fair value of $761.8 million.

Note 12. Federal Home Loan Bank of Des Moines Advances

The Company’s wholly owned subsidiary, TH Insurance Holdings Company LLC, or TH Insurance, is a member of the FHLB. As a member of the FHLB, TH Insurance has access to a variety of products and services offered by the FHLB, including secured advances. As of September 30, 2019 and December 31, 2018, TH Insurance had $50.0 million and $865.0 million in outstanding secured advances with a weighted average borrowing rate of 2.99% and 2.79%, respectively.

The ability to borrow from the FHLB is subject to the Company’s continued creditworthiness, pledging of sufficient eligible collateral to secure advances, and compliance with certain agreements with the FHLB. Each advance requires approval by the FHLB and is secured by collateral in accordance with the FHLB’s credit and collateral guidelines, as may be revised from time to time by the FHLB. Eligible collateral may include conventional 1-4 family residential mortgage loans, Agency RMBS and certain non-Agency securities with a rating of A and above.

On January 11, 2016, the Federal Housing Finance Agency, or FHFA, released a final rule regarding membership in the Federal Home Loan Bank system. Among other effects, the final rule excludes captive insurers from membership eligibility, including the Company’s subsidiary member, TH Insurance. Since TH Insurance was admitted as a member in 2013, it is eligible for a membership grace period that runs through February 19, 2021, during which new advances or renewals that mature beyond the grace period will be prohibited; however, any existing advances that mature beyond this grace period will be permitted to remain in place subject to their terms insofar as the Company maintains good standing with the FHLB. If any new advances or renewals occur, TH Insurance’s outstanding advances will be limited to 40% of its total assets.

36

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

At September 30, 2019 and December 31, 2018, FHLB advances had the following remaining maturities:

(in thousands)	September 30, 2019		December 31, 2018
≤ 1 year	$	—	$	815,024
> 1 and ≤ 3 years	—		—
> 3 and ≤ 5 years	—		—
> 5 and ≤ 10 years	—		—
> 10 years	50,000		50,000
Total	$	50,000	$	865,024

At September 30, 2019 and December 31, 2018, the Company pledged AFS securities with a carrying value of $54.8 million and $917.5 million, respectively, as collateral for advances from the FHLB. The FHLB retains the right to mark the underlying collateral for FHLB advances to fair value. A reduction in the value of pledged assets would require the Company to provide additional collateral. In addition, as a condition to membership in the FHLB, the Company is required to purchase and hold a certain amount of FHLB stock, which is based, in part, upon the outstanding principal balance of advances from the FHLB. At September 30, 2019 and December 31, 2018, the Company had stock in the FHLB totaling $6.1 million and $40.8 million, respectively, which is included in other assets on the condensed consolidated balance sheets. FHLB stock is considered a non-marketable, long-term investment, is carried at cost and is subject to recoverability testing under applicable accounting standards. This stock can only be redeemed or sold at its par value, and only to the FHLB. Accordingly, when evaluating FHLB stock for impairment, the Company considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. As of September 30, 2019 and December 31, 2018, the Company had not recognized an impairment charge related to its FHLB stock.

Note 13. Revolving Credit Facilities

To finance MSR, the Company has entered into revolving credit facilities collateralized by the value of the MSR pledged. As of September 30, 2019 and December 31, 2018, the Company had outstanding short- and long-term borrowings under revolving credit facilities of $300.0 million and $310.0 million with a weighted average borrowing rate of 4.52% and 5.60% and weighted average remaining maturities of 1.45 and 4.25 years, respectively.

At September 30, 2019 and December 31, 2018, borrowings under revolving credit facilities had the following remaining maturities:

(in thousands)	September 30, 2019		December 31, 2018
Within 30 days	$	—	$	—
30 to 59 days	—		—
60 to 89 days	—		—
90 to 119 days	—		—
120 to 364 days	—		20,000
One year and over	300,000		290,000
Total	$	300,000	$	310,000

Although the transactions under revolving credit facilities represent committed borrowings from the time of funding until maturity, the respective lender retains the right to mark the underlying collateral to fair value. A reduction in the value of pledged assets below a designated threshold would require the Company to provide additional collateral or pay down the facility. As of September 30, 2019 and December 31, 2018, MSR with a carrying value of $460.2 million and $458.2 million, respectively, was pledged as collateral for the Company’s future payment obligations under its revolving credit facilities. The Company does not anticipate any defaults by its revolving credit facility counterparties, although there can be no assurance that any such default or defaults will not occur.

37

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Note 14. Term Notes Payable

The debt issued in connection with the on-balance sheet securitization discussed in Note 2 - Basis of Presentation and Significant Accounting Policies is classified as term notes payable and carried at outstanding principal balance, net of any unamortized deferred debt issuance costs, on the Company’s condensed consolidated balance sheets. As of September 30, 2019, the outstanding amount due on term notes payable was $394.2 million, net of deferred debt issuance costs, with a weighted average interest rate of 4.82% and weighted average remaining maturities of 4.7 years. At September 30, 2019, the Company pledged MSR with a carrying value of $591.1 million and weighted average underlying loan coupon of 4.27% as collateral for term notes payable.

Note 15. Convertible Senior Notes

In January 2017, the Company closed an underwritten public offering of $287.5 million aggregate principal amount of convertible senior notes due 2022. The net proceeds from the offering were approximately $282.2 million after deducting underwriting discounts and estimated offering expenses payable by the Company. The notes are unsecured, pay interest semiannually at a rate of 6.25% per annum and are convertible at the option of the holder into shares of the Company’s common stock. The notes will mature in January 2022, unless earlier converted or repurchased in accordance with their terms. The Company does not have the right to redeem the notes prior to maturity, but may be required to repurchase the notes from holders under certain circumstances. As of September 30, 2019 and December 31, 2018, the notes had a conversion rate of 63.1793 and 62.4003 shares of common stock per $1,000 principal amount of the notes, respectively. The outstanding amount due on the convertible senior notes as of September 30, 2019 and December 31, 2018 was $284.6 million and $283.9 million, respectively, net of deferred issuance costs.

38

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Note 16. Stockholders’ Equity

Redeemable Preferred Stock

The following is a summary of the Company’s series of cumulative redeemable preferred stock issued and outstanding as of September 30, 2019. In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company, each series of preferred stock will rank on parity with one another and rank senior to the Company's common stock with respect to the payment of the dividends and the distribution of assets.

As of September 30, 2019
(in thousands)
Class of Stock		Issuance Date	Shares Issued and Outstanding	Carrying Value		Contractual Rate		Redemption Date (1)	Fixed to Floating Rate Conversion Date (2)	Floating Annual Rate (3)
Fixed-to-Floating Rate
Series A		March 14, 2017	5,750	$	138,872	8.125	%	April 27, 2027	April 27, 2027	3M LIBOR + 5.660%
Series B		July 19, 2017	11,500	278,094		7.625	%	July 27, 2027	July 27, 2027	3M LIBOR + 5.352%
Series C		November 27, 2017	11,800	285,585		7.250	%	January 27, 2025	January 27, 2025	3M LIBOR + 5.011%
Fixed Rate
Series D		July 31, 2018	3,000	74,964		7.750	%	July 31, 2018	N/A	N/A
Series E		July 31, 2018	8,000	199,986		7.500	%	July 31, 2018	N/A	N/A
	Total		40,050	$	977,501

____________________

(1) Subject to the Company’s right under limited circumstances to redeem the preferred stock earlier than the redemption date disclosed in order to preserve its qualification as a REIT or following a change in control of the Company.

(2) For the fixed-to-floating rate redeemable preferred stock, the dividend rate will remain at a annual fixed rate of the $25.00 per share liquidation preference from the issuance date up to but not including the transition date disclosed within. Effective the conversion date and onward, dividends will accumulate on a floating rate basis according to the terms disclosed within (3) below.

(3) On and after the fixed to floating rate conversion date, the dividend will accumulate and be payable quarterly at a percentage of the $25.00 per share liquidation preference equal to an annual floating rate of three-month LIBOR plus the spread indicated within each preferred class.

On July 31, 2018, upon the closing of the merger with CYS, the Company issued 3,000,000 shares of newly classified 7.75% Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share, and 8,000,000 shares of newly classified 7.50% Series E Cumulative Redeemable Preferred Stock, par value $0.01 per share, in exchange for all shares of CYS’s Series A and Series B cumulative redeemable preferred stock outstanding prior to the effective time of the merger. Pursuant to the terms of the merger agreement with CYS, the terms of the Company’s Series D and Series E Cumulative Redeemable Preferred Stock are substantially similar to the terms of CYS’s Series A and Series B Cumulative Redeemable Preferred Stock.

For each series of preferred stock, the Company may redeem the stock on or after the redemption date in whole or in part, at any time or from time to time. Each series of preferred stock has a par value of $0.01 per share and a liquidation and redemption price of $25.00, plus any accumulated and unpaid dividends thereon up to, but excluding, the redemption date. Through September 30, 2019, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.

39

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Distributions to Preferred Stockholders

The following table presents cash dividends declared by the Company on its preferred stock from December 31, 2017 through September 30, 2019:

Declaration Date	Record Date	Payment Date	Cash Dividend Per Preferred Share
Series A Preferred Stock:
September 19, 2019	October 11, 2019	October 28, 2019	$	0.507810
June 19, 2019	July 12, 2019	July 29, 2019	$	0.507810
March 19, 2019	April 12, 2019	April 29, 2019	$	0.507810
December 18, 2018	December 31, 2018	January 28, 2019	$	0.507810
September 20, 2018	October 12, 2018	October 29, 2018	$	0.507810
June 19, 2018	July 12, 2018	July 27, 2018	$	0.507810
March 20, 2018	April 12, 2018	April 27, 2018	$	0.507810
Series B Preferred Stock:
September 19, 2019	October 11, 2019	October 28, 2019	$	0.476560
June 19, 2019	July 12, 2019	July 29, 2019	$	0.476560
March 19, 2019	April 12, 2019	April 29, 2019	$	0.476560
December 18, 2018	December 31, 2018	January 28, 2019	$	0.476560
September 20, 2018	October 12, 2018	October 29, 2018	$	0.476560
June 19, 2018	July 12, 2018	July 27, 2018	$	0.476560
March 20, 2018	April 12, 2018	April 27, 2018	$	0.476560
Series C Preferred Stock:
September 19, 2019	October 11, 2019	October 28, 2019	$	0.453130
June 19, 2019	July 12, 2019	July 29, 2019	$	0.453130
March 19, 2019	April 12, 2019	April 29, 2019	$	0.453130
December 18, 2018	December 31, 2018	January 28, 2019	$	0.453130
September 20, 2018	October 12, 2018	October 29, 2018	$	0.453130
June 19, 2018	July 12, 2018	July 27, 2018	$	0.453130
March 20, 2018	April 12, 2018	April 27, 2018	$	0.453130
Series D Preferred Stock:
September 19, 2019	October 1, 2019	October 15, 2019	$	0.484375
June 19, 2019	July 1, 2019	July 15, 2019	$	0.484375
March 19, 2019	April 1, 2019	April 15, 2019	$	0.484375
December 18, 2018	December 31, 2018	January 28, 2019	$	0.484375
September 20, 2018	October 1, 2018	October 15, 2018	$	0.484375
Series E Preferred Stock:
September 19, 2019	October 1, 2019	October 15, 2019	$	0.468750
June 19, 2019	July 1, 2019	July 15, 2019	$	0.468750
March 19, 2019	April 1, 2019	April 15, 2019	$	0.468750
December 18, 2018	December 31, 2018	January 28, 2019	$	0.468750
September 20, 2018	October 1, 2018	October 15, 2018	$	0.468750

40

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Common Stock

Public Offering

On March 21, 2019, the Company completed a public offering of 18,000,000 shares of its common stock at a price of $13.76 per share. On March 22, 2019, an additional 2,700,000 shares were sold by the Company to the underwriters of the offering pursuant to an overallotment option. The net proceeds to the Company were approximately $284.5 million, after deducting offering expenses of approximately $0.3 million.

Issuance of Common Stock in Connection with Acquisition of CYS Investments, Inc.

On July 31, 2018, in exchange for all of the shares of CYS common stock outstanding immediately prior to the effective time of the merger, the Company issued approximately 72.6 million new shares of common stock, as well as aggregate cash consideration of $15.0 million, to CYS common stockholders.

As of September 30, 2019, the Company had 272,895,402 shares of common stock outstanding. The following table presents a reconciliation of the common shares outstanding for the three and nine months ended September 30, 2019 and 2018:

	Number of common shares
Common shares outstanding, December 31, 2017	174,496,587
Issuance of common stock	72,608,932
Issuance of restricted stock (1)	972,651
Common shares outstanding, September 30, 2018	248,078,170
Common shares outstanding, December 31, 2018	248,085,721
Issuance of common stock	24,399,107
Issuance of restricted stock (1)	412,074
Repurchase of common stock	(1,500	)
Common shares outstanding, September 30, 2019	272,895,402

____________________

(1) Represents shares of restricted stock granted under the Second Restated 2009 Equity Incentive Plan, net of forfeitures, of which 1,202,252 restricted shares remained subject to vesting requirements at September 30, 2019.

Distributions to Common Stockholders

The following table presents cash dividends declared by the Company on its common stock from December 31, 2017 through September 30, 2019:

Declaration Date	Record Date	Payment Date	Cash Dividend Per Common Share
September 19, 2019	September 30, 2019	October 28, 2019	$	0.400000
June 19, 2019	July 1, 2019	July 29, 2019	$	0.400000
March 19, 2019	March 29, 2019	April 29, 2019	$	0.470000
December 18, 2018	December 31, 2018	January 28, 2019	$	0.470000
September 20, 2018	October 1, 2018	October 29, 2018	$	0.311630
July 13, 2018	July 25, 2018	July 30, 2018	$	0.158370
June 19, 2018	June 29, 2018	July 27, 2018	$	0.470000
March 20, 2018	April 2, 2018	April 27, 2018	$	0.470000

41

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Dividend Reinvestment and Direct Stock Purchase Plan

The Company sponsors a dividend reinvestment and direct stock purchase plan through which stockholders may purchase additional shares of the Company’s common stock by reinvesting some or all of the cash dividends received on shares of the Company’s common stock. Stockholders may also make optional cash purchases of shares of the Company’s common stock subject to certain limitations detailed in the plan prospectus. The plan allows for the issuance of up to an aggregate of 3,750,000 shares of the Company’s common stock. As of September 30, 2019, 261,659 shares have been issued under the plan for total proceeds of approximately $4.9 million, of which 8,651 and 33,807 shares were issued for total proceeds of $0.1 million and $0.5 million during the three and nine months ended September 30, 2019, respectively. During the three and nine months ended September 30, 2018, 8,692 and 21,160 shares were issued for total proceeds of $0.1 million and $0.3 million, respectively.

Share Repurchase Program

The Company’s share repurchase program allows for the repurchase of up to an aggregate of 37,500,000 shares of the Company’s common stock. Shares may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to a trading plan in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, or by any combination of such methods. The manner, price, number and timing of share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules. The share repurchase program does not require the purchase of any minimum number of shares, and, subject to SEC rules, purchases may be commenced or suspended at any time without prior notice. The share repurchase program does not have an expiration date. As of September 30, 2019, a total of 12,069,000 shares had been repurchased by the Company under the program for an aggregate cost of $200.4 million; of these, 1,500 shares were repurchased for a total cost of $19.0 thousand during both the three and nine months ended September 30, 2019. No shares were repurchased during the three and nine months ended September 30, 2018.

At-the-Market Offerings

As of December 31, 2018, the Company was party to an equity distribution agreement under which the Company was authorized to sell up to an aggregate of 10,000,000 shares of its common stock from time to time in any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 under the Securities Act of 1933, as amended, or the Securities Act. During the nine months ended September 30, 2019, the Company terminated its prior equity distribution agreement and entered into a new equity distribution agreement pursuant to which a total of 35,000,000 shares of common stock are authorized for issuance. As of September 30, 2019, 7,458,235 shares of common stock had been sold under the equity distribution agreements for total accumulated net proceeds of approximately $128.2 million, of which 3,665,300 shares were sold for net proceeds of $50.6 million during the nine months ended September 30, 2019. No shares were sold during the three months ended September 30, 2019 or three and nine months ended September 30, 2018.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income at September 30, 2019 and December 31, 2018 was as follows:

(in thousands)	September 30, 2019			December 31, 2018
Available-for-sale securities
Unrealized gains	$	779,919		$	498,744
Unrealized losses	(31,565		)	(387,927		)
Accumulated other comprehensive income	$	748,354		$	110,817

42

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Reclassifications out of Accumulated Other Comprehensive Income

The Company reclassifies unrealized gains and losses on AFS securities in accumulated other comprehensive income to net income upon the recognition of any other-than-temporary impairments and realized gains and losses on sales, net of income tax effects, as individual securities are impaired or sold. The following table summarizes reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2019 and 2018:

	Affected Line Item in the Statements of Comprehensive (Loss) Income	Amount Reclassified out of Accumulated Other Comprehensive Income
		Three Months Ended					Nine Months Ended
(in thousands)		September 30,					September 30,
		2019			2018		2019			2018
Other-than-temporary impairments on AFS securities	Total other-than-temporary impairment losses	$	5,950		$	95	$	11,004		$	363
Realized losses (gains) on sales of certain AFS securities, net of tax	Gain (loss) on investment securities	(226,790		)	30,368		(189,620		)	52,654
Total		$	(220,840	)	$	30,463	$	(178,616	)	$	53,017

Note 17. Equity Incentive Plan

The Company’s Plan provides incentive compensation to attract and retain qualified directors, officers, advisors, consultants and other personnel, including PRCM Advisers and affiliates and employees of PRCM Advisers and its affiliates, and any joint venture affiliates of the Company. The Plan is administered by the compensation committee of the Company’s board of directors. The compensation committee has the full authority to administer and interpret the Plan, to authorize the granting of awards, to determine the eligibility of potential recipients to receive an award, to determine the number of shares of common stock to be covered by each award (subject to the individual participant limitations provided in the Plan), to determine the terms, provisions and conditions of each award (which may not be inconsistent with the terms of the Plan), to prescribe the form of instruments evidencing awards and to take any other actions and make all other determinations that it deems necessary or appropriate in connection with the Plan or the administration or interpretation thereof. In connection with this authority, the compensation committee may, among other things, establish performance goals that must be met in order for awards to be granted or to vest, or for the restrictions on any such awards to lapse.

The Company’s Plan provides for grants of restricted common stock, phantom shares, dividend equivalent rights and other equity-based awards, subject to a ceiling of 6,500,000 shares available for issuance under the Plan. The Plan allows for the Company’s board of directors to expand the types of awards available under the Plan to include long-term incentive plan units in the future. If an award granted under the Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards. Unless earlier terminated by the Company’s board of directors, no new award may be granted under the Plan after the tenth anniversary of the date that the Plan was approved by the Company’s board of directors. No award may be granted under the Plan to any person who, assuming payment of all awards held by such person, would own or be deemed to own more than 9.8% of the outstanding shares of the Company’s common stock.

During the nine months ended September 30, 2019 and 2018, the Company granted 60,108 and 55,553 shares of common stock, respectively, to its independent directors pursuant to the Plan. The estimated fair value of these awards was $13.35 and $15.48 per share on grant date, based on the adjusted closing price of the Company’s common stock on the NYSE on such date. The restricted common shares granted in 2019 are subject to a one-year vesting period, and the common shares granted in 2018 vested immediately.

Additionally, during the nine months ended September 30, 2019 and 2018, the Company granted 455,174 and 941,371 shares of restricted common stock, respectively, to the Company’s executive officers and key employees of PRCM Advisers who provide services to the Company, pursuant to the terms of the Plan and the associated award agreements. The estimated fair value of these awards was $14.40 and $15.12 per share on grant date, based on the adjusted closing market price of the Company’s common stock on the NYSE on such date. The shares underlying the grants vest in three equal annual installments commencing on the first anniversary of the grant date, as long as such grantee complies with the terms and conditions of his or her applicable restricted stock award agreement.

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TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following table summarizes the activity related to restricted common stock for the nine months ended September 30, 2019 and 2018:

	Nine Months Ended September 30,
	2019					2018
	Shares		Weighted Average Grant Date Fair Market Value			Shares		Weighted Average Grant Date Fair Market Value
Outstanding at Beginning of Period	1,593,701		$	15.81		1,284,010		$	17.15
Granted	515,282		14.28			996,924		14.96
Vested	(803,523	)	(14.43		)	(673,118	)	(17.12		)
Forfeited	(103,208	)	(15.52		)	(14,115	)	(15.59		)
Outstanding at End of Period	1,202,252		$	16.10		1,593,701		$	15.81

For the three and nine months ended September 30, 2019, the Company recognized compensation related to restricted common stock granted pursuant to the Plan of $2.2 million and $6.5 million, respectively. For the three and nine months ended September 30, 2018, the Company recognized compensation related to restricted common stock granted pursuant to the Plan of $3.4 million and $9.8 million, respectively.

Note 18. Income Taxes

For the three and nine months ended September 30, 2019 and 2018, the Company qualified to be taxed as a REIT under the Code for U.S. federal income tax purposes. As long as the Company qualifies as a REIT, the Company generally will not be subject to U.S. federal income taxes on its taxable income to the extent it annually distributes its net taxable income to stockholders, and does not engage in prohibited transactions. The Company intends to distribute 100% of its REIT taxable income and comply with all requirements to continue to qualify as a REIT. The majority of states also recognize the Company’s REIT status. The Company’s TRSs file separate tax returns and are fully taxed as standalone U.S. C corporations. It is assumed that the Company will retain its REIT status and will incur no REIT level taxation as it intends to comply with the REIT regulations and annual distribution requirements.

During the three and nine months ended September 30, 2019, the Company’s TRSs recognized a benefit from income taxes of $3.6 million and $11.2 million, respectively, which was primarily due to losses recognized on MSR, offset by net gains recognized on derivative instruments held in the Company’s TRSs. During the three and nine months ended September 30, 2018, the Company’s TRSs recognized a provision for income taxes of $37.4 million and $35.1 million, respectively, which was primarily due to realized gains on sales of AFS securities and gains recognized on MSR held in the Company’s TRSs, as well as the write-down of net deferred tax assets resulting from the deemed liquidation of one of the Company’s TRSs due to its TRS election revocation, offset by net losses incurred on derivative instruments held in the TRSs.

Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s condensed consolidated financial statements of a contingent tax liability for uncertain tax positions. Additionally, there were no amounts accrued for penalties or interest as of or during the periods presented in these condensed consolidated financial statements.

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TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Note 19. Earnings Per Share

The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except share data)	2019		2018		2019		2018
Numerator:
Net income	$	305,700	$	35,946	$	189,208	$	510,245
Dividends on preferred stock	18,951		18,951		56,851		46,445
Net income attributable to common stockholders - basic	286,749		16,995		132,357		463,800
Interest expense attributable to convertible notes (1)	4,779		—		—		14,151
Net income attributable to common stockholders - diluted	$	291,528	$	16,995	$	132,357	$	477,951
Denominator:
Weighted average common shares outstanding	271,689,878		222,805,735		264,871,455		190,229,850
Weighted average restricted stock shares	1,207,697		1,593,701		1,243,317		1,616,362
Basic weighted average shares outstanding	272,897,575		224,399,436		266,114,772		191,846,212
Effect of dilutive shares issued in an assumed conversion	18,156,143		—		—		17,760,934
Diluted weighted average shares outstanding	291,053,718		224,399,436		266,114,772		209,607,146
Earnings Per Share
Basic	$	1.05	$	0.08	$	0.50	$	2.42
Diluted	$	1.00	$	0.08	$	0.50	$	2.28

___________________

(1) Includes a nondiscretionary adjustment for the assumed change in the management fee calculation.

For the nine months ended September 30, 2019, excluded from the calculation of diluted earnings per share is the effect of adding back $14.2 million of interest expense, net of a nondiscretionary adjustment for the assumed change in the management fee calculation, and 18,116,911 weighted average common share equivalents related to the assumed conversion of the Company’s convertible senior notes, as their inclusion would be antidilutive.

For the three months ended September 30, 2018, excluded from the calculation of diluted earnings per share is the effect of adding back $4.8 million of interest expense, net of a nondiscretionary adjustment for the assumed change in the management fee calculation, and 17,847,425 weighted average common share equivalents related to the assumed conversion of the Company’s convertible senior notes, as their inclusion would be antidilutive.

Note 20. Related Party Transactions

The following summary provides disclosure of the material transactions with affiliates of the Company.

In accordance with the Management Agreement between the Company and PRCM Advisers dated as of October 28, 2009 and subsequently amended, the Company incurred $16.8 million and $42.6 million as a management fee to PRCM Advisers for the three and nine months ended September 30, 2019, respectively, and $12.4 million and $35.6 million as a management fee to PRCM Advisers for the three and nine months ended September 30, 2018, respectively, which represents approximately 1.5% of stockholders’ equity on an annualized basis as defined by the Management Agreement. For purposes of calculating the management fee, stockholders’ equity is adjusted as discussed below, and to exclude any common stock repurchases, as well as any unrealized gains, losses or other items that do not affect realized net income, among other adjustments, in accordance with the Management Agreement.

45

TWO HARBORS INVESTMENT CORP.

Notes to the Condensed Consolidated Financial Statements (unaudited)

In connection with the acquisition of CYS, the Management Agreement was amended to (i) reduce PRCM Advisers’ base management fee with respect to the additional equity under management resulting from the merger to 0.75% from the effective time through the first anniversary of the effective time and (ii) for the fiscal quarter in which closing of the merger occurred, to make a one-time downward adjustment of Pine River’s management fees payable by Two Harbors for such quarter by $15.0 million to offset the cash consideration payable to stockholders of CYS, plus an additional downward adjustment of up to $3.3 million for certain transaction-related expenses. For both the three and nine months ended September 30, 2018, the total downward adjustment to management fees was $17.5 million. The Company does not anticipate any further downward adjustments to management fees for transaction-related expenses.

In addition, the Company reimbursed PRCM Advisers for direct and allocated costs incurred by PRCM Advisers on behalf of the Company. These direct and allocated costs totaled approximately $4.8 million and $23.0 million for the three and nine months ended September 30, 2019, respectively, and $5.3 million and $20.8 million for the three and nine months ended September 30, 2018, respectively. The Company will continue to have certain costs allocated to it by PRCM Advisers for compensation, data services, technology and certain office lease payments, however, the Company has direct relationships with most of its third party vendors and pays those expenses directly.

The Company recognized $2.2 million and $6.5 million of compensation during the three and nine months ended September 30, 2019, respectively, and $3.4 million and $9.8 million of compensation during the three and nine months ended September 30, 2018, respectively, related to restricted common stock issued to employees of PRCM Advisers and the Company’s independent directors pursuant to the Plan. See Note 17 - Equity Incentive Plan for additional information.

Note 21. Subsequent Events

Events subsequent to September 30, 2019 were evaluated through the date these condensed consolidated financial statements were issued and no other additional events were identified requiring further disclosure in these condensed consolidated financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q as well as our Annual Report on Form 10-K for the year ended December 31, 2018.

General

We are a Maryland corporation focused on investing in and managing Agency residential mortgage-backed securities, or Agency RMBS, non-Agency securities, mortgage servicing rights, or MSR, and other financial assets, which we collectively refer to as our target assets. We operate as a real estate investment trust, or REIT, as defined under the Internal Revenue Code of 1986, as amended, or the Code. We are externally managed by PRCM Advisers LLC, or PRCM Advisers, which is a wholly owned subsidiary of Pine River Capital Management L.P., or Pine River.

Our objective is to provide attractive risk-adjusted total return to our stockholders over the long term, primarily through dividends and secondarily through capital appreciation. We selectively acquire and manage an investment portfolio of our target assets, which is constructed to generate attractive returns through market cycles. We focus on asset selection and implement a relative value investment approach across various sectors within the mortgage market. Our target assets include the following:

• Agency RMBS (which includes inverse interest-only Agency securities classified as “Agency Derivatives” for purposes of U.S. generally accepted accounting principles, or U.S. GAAP), meaning RMBS whose principal and interest payments are guaranteed by the Government National Mortgage Association (or Ginnie Mae), the Federal National Mortgage Association (or Fannie Mae), or the Federal Home Loan Mortgage Corporation (or Freddie Mac), or collectively, the government sponsored entities, or GSEs;

• Non-Agency securities, meaning securities that are not issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac;

• MSR; and

• Other financial assets comprising approximately 5% to 10% of the portfolio.

We generally view our target assets in two strategies that are based on our core competencies of understanding and managing prepayment and credit risk. Our rates strategy includes assets that are primarily sensitive to changes in interest rates and prepayment speeds, specifically Agency RMBS and MSR. Our credit strategy includes assets that are primarily sensitive to changes in inherent credit risk, including non-Agency securities. Other assets include financial and mortgage-related assets other than the target assets in our rates and credit strategies, including certain non-hedging transactions that may produce non-qualifying income for purposes of the REIT gross income tests.

Within our MSR business, we purchase the right to control the servicing of residential mortgage loans from high-quality originators. We do not directly service the mortgage loans underlying the MSR we acquire; rather, we contract with appropriately licensed third-party subservicers to handle substantially all servicing functions in the name of the subservicer.

On April 26, 2018, we announced that we had entered into a definitive merger agreement pursuant to which we would acquire CYS Investments, Inc., or CYS, a Maryland corporation investing in primarily Agency RMBS and treated as a REIT for U.S. federal income tax purposes. The transaction was approved by the stockholders of both Two Harbors and CYS on July 27, 2018, and the merger was completed on July 31, 2018, at which time CYS became our wholly owned subsidiary. In exchange for all of the shares of CYS common stock outstanding immediately prior to the effective time of the merger, we issued approximately 72.6 million new shares of common stock, as well as aggregate cash consideration of $15.0 million, to CYS common stockholders. In addition, we issued 3 million shares of newly classified Series D cumulative redeemable preferred stock and 8 million shares of newly classified Series E cumulative redeemable preferred stock in exchange for all shares of CYS’s Series A and Series B cumulative redeemable preferred stock outstanding prior to the effective time of the merger. The financial results of CYS since the closing date of the acquisition have been included in our condensed consolidated financial statements.

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We believe our investment model allows management to allocate capital across various sectors within the mortgage market, with a focus on asset selection and the implementation of a relative value investment approach. In making our capital allocation decisions, we take into consideration a number of factors, including the opportunities available in the marketplace, the cost and availability of financing, and the cost of hedging interest rate, prepayment, credit and other portfolio risks. As a result, capital allocation reflects management’s flexible approach to investing in the marketplace. The following table provides our capital allocation in each of our investment strategies as of September 30, 2019 and the four immediately preceding period ends:

	Capital Allocations(1) as of
	September 30, 2019	June 30, 2019	March 31, 2019	December 31, 2018	September 30, 2018
Rates strategy	79%	76%	77%	74%	76%
Credit strategy	21%	24%	23%	26%	24%

____________________

(1) Capital allocation percentages reflect management’s assessment regarding the extent to which each asset class contributes to total portfolio risk. Does not represent funding allocation or balance sheet financing of such assets.

As our capital allocation shifts, our annualized yields and cost of financing will also shift. Our capital allocation at September 30, 2019 was 79% to our rates strategy and 21% to our credit strategy. The increased allocation to our rates strategy in 2018 was primarily driven by the acquisition of CYS’s Agency portfolio and further increases to this allocation in 2019 are due to the continued growth of our MSR portfolio. Throughout the remainder of 2019, we intend to allocate capital to the most attractive investment opportunities in our target asset classes. We do not have a fixed allocation target between our rates and credit strategies. Our investment decisions are not driven solely by annualized yields, but rather a multitude of macroeconomic drivers, including market environments and their respective impacts (e.g., uncertainty of prepayment speeds, extension risk and credit events).

For the three months ended September 30, 2019, our net yield realized on the portfolio was lower than recent periods due to the purchase of Agency and non-Agency RMBS at lower yields than our overall portfolio yields, higher prepayment speeds on RMBS and a slight increase in our cost of financing. The following table provides the average annualized yield on our assets, including Agency RMBS, non-Agency securities and MSR for the three months ended September 30, 2019, and the four immediately preceding quarters:

	Three Months Ended
	September 30, 2019	June 30, 2019	March 31, 2019	December 31, 2018	September 30, 2018
Average annualized portfolio yield (1)	3.67%	3.93%	4.25%	4.14%	3.76%
Cost of financing (2)	2.51%	2.55%	2.47%	2.53%	2.28%
Net portfolio yield	1.16%	1.38%	1.78%	1.61%	1.48%

____________________

(1) Average annualized yield incorporates future prepayment, credit loss and other assumptions, all of which are estimates and subject to change.

(2) Cost of financing includes swap and cap interest rate spread.

We seek to deploy moderate leverage as part of our investment strategy. We generally finance our Agency RMBS and non-Agency securities through short- and long-term borrowings structured as repurchase agreements and advances from the Federal Home Loan Bank of Des Moines, or the FHLB. We also finance our MSR through repurchase agreements, revolving credit facilities, term notes payable and convertible senior notes.

48

Our Agency RMBS, given their liquidity and high credit quality, are eligible for higher levels of leverage, while non-Agency securities and MSR, with less liquidity and/or more exposure to credit risk, utilize lower levels of leverage. As a result, our debt-to-equity ratio is determined by our portfolio mix as well as many additional factors, including the liquidity of our portfolio, the availability and price of our financing, the diversification of our counterparties and their available capacity to finance our assets, and anticipated regulatory developments. Over the past several quarters, we have generally maintained a debt-to-equity ratio range of 5.0 to 6.0 times to finance our securities portfolio and MSR, on a fully deployed capital basis. Our debt-to-equity ratio is directly correlated to the composition of our portfolio; specifically, the higher percentage of Agency RMBS we hold, the higher our debt-to-equity ratio is, while the higher percentage of non-Agency securities and MSR we hold, the lower our debt-to-equity ratio is. We may alter the percentage allocation of our portfolio among our target assets depending on the relative value of the assets that are available to purchase from time to time, including at times when we are deploying proceeds from offerings we conduct. As we allocate capital toward Agency RMBS and deploy financing on MSR, our debt-to-equity ratio may increase beyond 6.0 times in the future. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Repurchase Agreements” for further discussion.

We recognize that investing in our target assets is competitive and we compete with other entities for attractive investment opportunities. We rely on our management team and our dedicated team of investment professionals provided by our external manager to identify investment opportunities. We believe that our significant focus in the residential market, the extensive mortgage market expertise of our investment team, our strong analytics and our disciplined relative value investment approach give us a competitive advantage versus our peers.

We have elected to be treated as a REIT for U.S. federal income tax purposes. To qualify as a REIT we are required to meet certain investment and operating tests and annual distribution requirements. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to stockholders, do not participate in prohibited transactions and maintain our intended qualification as a REIT. However, certain activities that we may perform may cause us to earn income which will not be qualifying income for REIT purposes. We have designated certain of our subsidiaries as taxable REIT subsidiaries, or TRSs, as defined in the Code, to engage in such activities. We also operate our business in a manner that will permit us to maintain our exemption from registration under the Investment Company Act of 1940, as amended, or the 1940 Act. While we do not currently originate or service residential mortgage loans, certain of our subsidiaries have obtained the requisite licenses and approvals to own and manage MSR.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains, or incorporates by reference, not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act, and that are subject to the safe harbors created by such sections. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “target,” “believe,” “intend,” “seek,” “plan,” “goals,” “future,” “likely,” “may” and similar expressions or their negative forms, or by references to strategy, plans, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our Annual Report on Form 10-K for the year ended December 31, 2018, under the caption “Risk Factors.” Other risks, uncertainties and factors that could cause actual results to differ materially from those projected are described below and may be described from time to time in reports we file with the Securities and Exchange Commission, or SEC, including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise any such forward-looking statements, whether as a result of new information, future events, or otherwise.

Important factors, among others, that may affect our actual results include:

• changes in interest rates and the market value of our target assets;

• changes in prepayment rates of mortgages underlying our target assets;

• the occurrence, extent and timing of credit losses within our portfolio;

• our exposure to adjustable-rate and negative amortization mortgage loans underlying our target assets;

• the state of the credit markets and other general economic conditions, particularly as they affect the price of earning assets and the credit status of borrowers;

• the concentration of the credit risks to which we are exposed;

• legislative and regulatory actions affecting our business;

• the availability and cost of our target assets;

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• the availability and cost of financing for our target assets, including repurchase agreement financing, revolving credit facilities and financing through the FHLB;

• declines in home prices;

• increases in payment delinquencies and defaults on the mortgages comprising and underlying our target assets;

• changes in liquidity in the market for real estate securities, the re-pricing of credit risk in the capital markets, inaccurate ratings of securities by rating agencies, rating agency downgrades of securities, and increases in the supply of real estate securities available-for-sale;

• changes in the values of securities we own and the impact of adjustments reflecting those changes on our condensed consolidated statements of comprehensive income (loss) and balance sheets, including our stockholders’ equity;

• our ability to generate cash flow from our target assets;

• our ability to effectively execute and realize the benefits of strategic transactions and initiatives we have pursued or may in the future pursue;

• changes in the competitive landscape within our industry, including changes that may affect our ability to attract and retain personnel;

• our exposure to legal and regulatory claims, penalties or enforcement activities, including those arising from our ownership and management of MSR and prior securitization transactions;

• our exposure to counterparties involved in our MSR business and prior securitization transactions and our ability to enforce representations and warranties made by them;

• our ability to acquire MSR and successfully operate our seller-servicer subsidiary and oversee the activities of our subservicers;

• our ability to successfully diversify our business into new asset classes, and manage the new risks to which they may expose us;

• our ability to manage various operational and regulatory risks associated with our business;

• interruptions in or impairments to our communications and information technology systems;

• our ability to maintain appropriate internal controls over financial reporting;

• our ability to establish, adjust and maintain appropriate hedges for the risks in our portfolio;

• our ability to maintain our REIT qualification for U.S. federal income tax purposes; and

• limitations imposed on our business due to our REIT status and our status as exempt from registration under the 1940 Act.

This Quarterly Report on Form 10-Q may contain statistics and other data that, in some cases, have been obtained or compiled from information made available by mortgage loan servicers and other third-party service providers.

Factors Affecting our Operating Results

Our net interest income includes income from our securities portfolio, including the amortization of purchase premiums and accretion of purchase discounts. Net interest income, as well as our servicing income, net of subservicing expenses, will fluctuate primarily as a result of changes in market interest rates, our financing costs and prepayment speeds on our assets. Interest rates, financing costs and prepayment rates vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. Our operating results will also be affected by default rates and credit losses with respect to the mortgage loans underlying our non-Agency securities.

Fair Value Measurement

A significant portion of our assets and liabilities are reported at fair value and, therefore, our condensed consolidated balance sheets and statements of comprehensive income (loss) are significantly affected by fluctuations in market prices. At September 30, 2019, approximately 93.9% of our total assets, or $30.2 billion, consisted of financial instruments recorded at fair value. See Note 9 - Fair Value to the condensed consolidated financial statements, included in this Quarterly Report on Form 10-Q, for descriptions of valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models and significant assumptions utilized. Although we execute various hedging strategies to mitigate our exposure to changes in fair value, we cannot fully eliminate our exposure to volatility caused by fluctuations in market prices.

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Any temporary change in the fair value of our available-for-sale, or AFS, securities, excluding Agency interest-only mortgage-backed securities, is recorded as a component of accumulated other comprehensive income and does not impact our earnings. Our reported earnings for U.S. GAAP purposes, or GAAP net income, is affected, however, by fluctuations in market prices on the remainder of our financial assets and liabilities recorded at fair value, including interest rate swap, cap and swaption agreements and certain other derivative instruments (i.e., TBAs, put and call options for TBAs, U.S. Treasury futures, Markit IOS total return swaps and inverse interest-only securities), which are accounted for as derivative trading instruments under U.S. GAAP, Agency interest-only mortgage-backed securities and MSR.

We have numerous internal controls in place to help ensure the appropriateness of fair value measurements. Significant fair value measures are subject to detailed analytics and management review and approval. Our entire investment portfolio reported at fair value is priced by third-party brokers and/or by independent pricing providers. We generally receive three or more broker and vendor quotes on pass-through Agency RMBS, and generally receive multiple broker or vendor quotes on all other securities, including interest-only Agency RMBS, inverse interest-only Agency RMBS, and non-Agency securities. We also currently receive three vendor quotes for the MSR in our investment portfolio. For Agency RMBS, the third-party pricing providers and brokers use pricing models that commonly incorporate such factors as coupons, primary and secondary mortgage rates, rate reset period, issuer, prepayment speeds, credit enhancements and expected life of the security. For non-Agency securities, the third-party pricing providers and brokers utilize both observable and unobservable inputs such as pool-specific characteristics (e.g., loan age, loan size, credit quality of borrowers, vintage, servicer quality), floating rate indices, prepayment and default assumptions, and recent trading of the same or similar securities. For MSR, vendors use pricing models that generally incorporate observable inputs such as principal balance, note rate, geographical location, loan-to-value (LTV) ratios, FICO, appraised value and other loan characteristics, along with observed market yields and trading levels. Pricing providers will customarily incorporate loan servicing cost, servicing fee, ancillary income, and earnings rate on escrow as observable inputs. Unobservable or model-driven inputs include forecast cumulative defaults, default curve, forecast loss severity and forecast voluntary prepayment.

We evaluate the prices we receive from both brokers and independent pricing providers by comparing those prices to actual purchase and sale transactions, our internally modeled prices calculated based on market observable rates and credit spreads, and to each other both in current and prior periods. We review and may challenge broker quotes and valuations from third-party pricing providers to ensure that such quotes and valuations are indicative of fair value as a result of this analysis. We then estimate the fair value of each security based upon the median of the final broker quotes received, and we estimate the fair value of MSR based upon the average of prices received from independent providers, subject to internally-established hierarchy and override procedures.

We utilize “bid side” pricing for our Agency RMBS and non-Agency securities and, as a result, certain assets, especially the most recent purchases, may realize a markdown due to the “bid-offer” spread. To the extent that this occurs, any economic effect of this would be reflected in accumulated other comprehensive income.

Considerable judgment is used in forming conclusions and estimating inputs to our Level 3 fair value measurements. Level 3 inputs such as interest rate movements, prepayments speeds, credit losses and discount rates are inherently difficult to estimate. Changes to these inputs can have a significant effect on fair value measurements. Accordingly, there is no assurance that our estimates of fair value are indicative of the amounts that would be realized on the ultimate sale or exchange of these assets. The Company classified 5.6% of its total assets as Level 3 fair value assets at September 30, 2019.

Market Conditions and Outlook

The key macroeconomic factors that impact our business are U.S. residential property prices, national employment rates and the interest rate environment. Home prices continued to increase modestly during the third quarter of 2019 and are expected to gradually appreciate over the next several years, albeit at a slower rate. Unemployment rates remain low and U.S. payrolls continue to grow, although new job creation has yet to generate substantive wage growth. Other than LTV ratios and cash reserves, we believe employment is the most powerful determinant of homeowners’ ongoing likelihood to pay their mortgages. Home price performance and employment are particularly important to our non-Agency portfolio.

The U.S. interest rate environment is in a period of transition following several years of steadily increasing rates. The Federal Reserve has moved from a stance of patience and neutrality to one more concerned with sustaining economic expansion, which prompted two 25 basis point interest rate cuts during the third quarter. At the same time, in part due to the absence of meaningful inflation, the interest rate curve has inverted, with rates out to 10 years being lower than the federal funds target rate. The Trump administration continues to focus on multiple issues, including trade policies, that could impact interest rates, the U.S. economy and U.S. businesses. While there is much uncertainty regarding the timing and specifics of many potential policy changes, any such actions could affect our business. Further, while the Federal Reserve has been reducing its mortgage-backed securities holdings through cessation of reinvesting principal and interest payments, the approach has generally been to move gradually and cautiously. Mortgage investments could be impacted by a decision to increase or decrease the overall size, or the rate of change, of Federal Reserve’s System Open Market Account mortgage holdings.

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We believe our blended Agency and non-Agency securities portfolio and our investing expertise, as well as our operational capabilities to invest in MSR, will allow us to better navigate the dynamic mortgage market while future regulatory and policy activities take shape. Having a diversified portfolio allows us to mitigate a variety of risks, including interest rate and RMBS spread volatility.

We expect that whole-pool Agency RMBS will continue to comprise the majority of our assets in light of the long-term attractiveness of the asset class and in order to continue to satisfy the requirements of our exemption from registration under the 1940 Act. Interest-only Agency securities and MSR also provide a complementary investment and risk-management strategy to our principal and interest (P&I) Agency RMBS. Risk-adjusted returns in our Agency RMBS portfolio may decline if we are required to pay higher purchase premiums due to lower interest rates or additional liquidity in the market. Additionally, the Federal Reserve’s prior quantitative easing programs and reinvestment of its mortgage-backed security principal repayments and other policy changes may impact the returns of our Agency RMBS portfolio.

The following table provides the carrying value of our securities portfolio by product type:

(dollars in thousands)	September 30, 2019				December 31, 2018
Agency
Fixed Rate	$	24,750,521	87.2	%	$	21,665,960	84.6	%
Hybrid ARM	15,662		—	%	19,073		0.1	%
Total Agency	24,766,183		87.2	%	21,685,033		84.7	%
Agency Derivatives	75,892		0.3	%	70,257		0.3	%
Non-Agency
Senior	2,990,274		10.5	%	2,854,731		11.1	%
Mezzanine	483,009		1.7	%	928,632		3.6	%
Interest-only securities	79,092		0.3	%	84,208		0.3	%
Total Non-Agency	3,552,375		12.5	%	3,867,571		15.0	%
Total	$	28,394,450			$	25,622,861

Prepayment speeds and volatility due to interest rates

Our Agency RMBS portfolio is subject to inherent prepayment risk. We seek to offset a portion of our Agency pool exposure to prepayment speeds through our MSR and interest-only Agency RMBS portfolios. Generally, a decline in interest rates that leads to rising prepayment speeds will cause the market value of our interest-only securities and MSR to deteriorate, and our fixed coupon Agency pools to increase. The inverse relationship occurs when interest rates increase and prepayments slow. As previously discussed, the low interest rate environment is expected to persist in the near term. However, changes in home price performance, key employment metrics and government programs, among other macroeconomic factors, could cause prepayment speeds to increase on many RMBS, which could lead to less attractive reinvestment opportunities. Nonetheless, we believe our portfolio management approach, including our asset selection process, positions us to respond to a variety of market scenarios, including an overall faster prepayment environment.

The following table provides the three-month weighted average constant prepayment rate, or CPR, on our Agency RMBS for the three months ended September 30, 2019, and the four immediately preceding quarters:

	Three Months Ended
Agency RMBS	September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
Weighted Average CPR	13.4	%	10.1	%	6.5	%	6.8	%	8.1	%

Although we are unable to predict the movement in interest rates in the remainder of 2019 and beyond, our diversified portfolio management strategy is intended to generate attractive yields with a low level of sensitivity to changes in the yield curve, prepayments and interest rate cycles.

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Our Agency RMBS are collateralized by pools of fixed-rate mortgage loans and hybrid adjustable-rate mortgage loans, or hybrid ARMs, which are mortgage loans that have interest rates that are fixed for an initial period and adjustable thereafter. Our Agency portfolio also includes securities with implicit or explicit prepayment protection, including lower loan balances (securities collateralized by loans of less than $175,000 in initial principal balance), higher LTVs (securities collateralized by loans with LTVs greater than or equal to 80%), certain geographic concentrations and lower FICO scores. Our overall allocation of Agency RMBS and holdings of pools with specific characteristics are viewed in the context of our aggregate rates strategy, including MSR and related derivative hedging instruments. Additionally, the selection of securities with certain attributes is driven by the perceived relative value of the securities, which factors in the opportunities in the marketplace, the cost of financing and the cost of hedging interest rate, prepayment, credit and other portfolio risks. As a result, Agency RMBS capital allocation reflects management’s flexible approach to investing in the marketplace.

The following tables provide the carrying value of our Agency RMBS portfolio by underlying mortgage loan rate type:

	September 30, 2019
(dollars in thousands)	Principal/ Current Face		Carrying Value		% of Agency Portfolio		% Prepayment Protected		Gross Weighted Average Coupon Rate		Amortized Cost		Weighted Average Loan Age (months)
Agency RMBS AFS:
30-Year Fixed
3.0%	$	1,235,468	$	1,264,756	5.1	%	100.0	%	3.9	%	$	1,266,544	3
3.5%	6,265,723		6,512,005		26.2	%	100.0	%	4.4	%	6,443,871		4
4.0%	8,963,441		9,510,723		38.3	%	100.0	%	4.6	%	9,338,734		22
4.5%	5,101,841		5,491,084		22.1	%	100.0	%	5.0	%	5,347,820		17
≥ 5%	1,557,936		1,691,013		6.8	%	78.9	%	5.8	%	1,648,078		28
	23,124,409		24,469,581		98.5	%	98.5	%	4.7	%	24,045,047		16
Other P&I	131,410		147,789		0.6	%	4.1	%	6.7	%	146,532		207
Interest-only	2,757,909		148,813		0.6	%	—	%	4.5	%	179,769		101
Agency Derivatives	415,943		75,892		0.3	%	—	%	6.7	%	59,911		181
Total Agency RMBS	$	26,429,671	$	24,842,075	100.0	%	97.1	%			$	24,431,259

	December 31, 2018
(dollars in thousands)	Principal/ Current Face		Carrying Value		% of Agency Portfolio		% Prepayment Protected		Gross Weighted Average Coupon Rate		Amortized Cost		Weighted Average Loan Age (months)
Agency RMBS AFS:
30-Year Fixed
3.0%	$	3,255	$	3,200	—	%	100.0	%	3.6	%	$	3,314	47
3.5%	231,068		231,321		1.1	%	100.0	%	4.1	%	232,200		19
4.0%	8,640,859		8,846,367		40.7	%	83.0	%	4.4	%	9,047,282		22
4.5%	10,237,108		10,686,699		49.1	%	99.0	%	5.0	%	10,765,144		16
≥ 5%	1,367,700		1,452,170		6.7	%	74.4	%	5.8	%	1,449,256		24
	20,479,990		21,219,757		97.6	%	90.7	%	4.8	%	21,497,196		19
Other P&I	295,800		289,860		1.3	%	0.3	%	5.7	%	291,290		151
Interest-only	3,115,967		175,416		0.8	%	—	%	4.5	%	209,901		92
Agency Derivatives	476,299		70,257		0.3	%	—	%	6.7	%	69,496		173
Total Agency RMBS	$	24,368,056	$	21,755,290	100.0	%	88.4	%			$	22,067,883

Our non-Agency securities yields are expected to increase if prepayment rates on such assets exceed our prepayment assumptions. To the extent that prepayment speeds increase due to macroeconomic factors, we expect to benefit from the ability to recognize the income from the heavily discounted prices that principally arose from credit or payment default expectations.

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The following tables provide net unamortized discount/premium information on our non-Agency securities portfolio:

	September 30, 2019
(in thousands)	Principal/ Current Face		Un-amortized Premium		Accretable Purchase Discount			Credit Reserve Purchase Discount			Amortized Cost
Principal and interest securities
Senior	$	4,654,131	$	7,308	$	(359,396	)	$	(1,593,708	)	$	2,708,335
Mezzanine	635,636		109		(103,577		)	(129,930		)	402,238
Total P&I securities	5,289,767		7,417		(462,973		)	(1,723,638		)	3,110,573
Interest-only	4,664,358		83,037		—			—			83,037
Total Non-Agency	$	9,954,125	$	90,454	$	(462,973	)	$	(1,723,638	)	$	3,193,610

	December 31, 2018
(in thousands)	Principal/ Current Face		Un-amortized Premium		Accretable Purchase Discount			Credit Reserve Purchase Discount			Amortized Cost
Principal and interest securities
Senior	$	4,227,631	$	5,381	$	(477,682	)	$	(1,204,325	)	$	2,551,005
Mezzanine	1,132,493		1,301		(216,437		)	(118,437		)	798,920
Total P&I securities	5,360,124		6,682		(694,119		)	(1,322,762		)	3,349,925
Interest-only	5,137,169		83,846		—			—			83,846
Total Non-Agency	$	10,497,293	$	90,528	$	(694,119	)	$	(1,322,762	)	$	3,433,771

Credit losses

Although our Agency portfolio is supported by U.S. government agency and federally chartered corporation guarantees of payment of principal and interest, we are exposed to credit risk in our non-Agency securities.

The credit support built into non-Agency securities deal structures is designed to provide a level of protection from potential credit losses for more senior tranches. We evaluate credit risk on our non-Agency investments through a comprehensive asset selection process, which is predominantly focused on quantifying and pricing credit risk, including extensive initial modeling and scenario analysis. In addition, the discounted purchase prices paid for our non-Agency securities provide additional insulation from credit losses in the event we receive less than 100% of par on such assets. At purchase, we estimate the portion of the discount we do not expect to recover and factor that into our expected yield and accretion methodology. We may also record an other-than-temporary impairment, or OTTI, for a portion of our investment in a security to the extent we believe that the amortized cost exceeds the present value of expected future cash flows. We review our non-Agency securities on an ongoing basis using quantitative and qualitative analysis of the risk-adjusted returns on such investments and through on-going asset surveillance. Nevertheless, unanticipated credit losses could occur, adversely impacting our operating results.

Counterparty exposure and leverage ratio

We monitor counterparty exposure in our broker, banking and lending counterparties on a daily basis. We believe our broker and banking counterparties are well-capitalized organizations and we attempt to manage our cash balances across these organizations to reduce our exposure to any single counterparty.

As of September 30, 2019, we had entered into repurchase agreements with 47 counterparties, 25 of which had outstanding balances at September 30, 2019. In addition, we held long-term secured advances from the FHLB, short- and long-term borrowings under revolving credit facilities, long-term term notes payable and long-term unsecured convertible senior notes. As of September 30, 2019, the debt-to-equity ratio funding our AFS securities, MSR and Agency Derivatives, which includes unsecured borrowings under convertible senior notes, was 5.3:1.0.

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As of September 30, 2019, we held $740.7 million in cash and cash equivalents, approximately $1.4 million of unpledged Agency securities and derivatives and $1.9 billion of unpledged non-Agency securities. As a result, we had an overall estimated unused borrowing capacity on our unpledged securities of approximately $1.4 billion. As of September 30, 2019, we held approximately $69.6 million of unpledged MSR. Overall, we had unused borrowing capacity on MSR financing facilities of $227.1 million. Generally, unused borrowing capacity may be the result of our election not to utilize certain financing, as well as delays in the timing in which funding is provided or the inability to meet lenders’ eligibility requirements for specific types of asset classes. If borrowing rates and collateral requirements change in the near term, we believe we are subject to less earnings volatility than if we carried higher leverage.

We also monitor exposure to our MSR counterparties. We may be required to make representations and warranties to investors in the loans underlying the MSR we own; however, some of our MSR were purchased on a bifurcated basis, meaning the representation and warranty obligations remain with the seller. If the representations and warranties we make prove to be inaccurate, we may be obligated to repurchase certain mortgage loans, which may impact the profitability of our portfolio. Although we obtain similar representations and warranties from the counterparty from which we acquired the relevant asset, if those representations and warranties do not directly mirror those we make to the investor, or if we are unable to enforce the representations and warranties against the counterparty for a variety of reasons, including the financial condition or insolvency of the counterparty, we may not be able to seek indemnification from our counterparties for any losses attributable to the breach.

Proposed Changes to LIBOR

LIBOR is used extensively in the U.S. and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including corporate and municipal bonds and loans, floating rate mortgages, asset-backed securities, consumer loans, and interest rate swaps and other derivatives. It is expected that a number of private-sector banks currently reporting information used to set LIBOR will stop doing so after 2021 when their current reporting commitment ends, which could either cause LIBOR to stop publication immediately or cause LIBOR’s regulator to determine that its quality has degraded to the degree that it is no longer representative of its underlying market. The U.S. and other countries are currently working to replace LIBOR with alternative reference rates. In the U.S., the Alternative Reference Rates Committee, or ARRC, has identified the Secured Overnight Financing Rate, or SOFR, as its preferred alternative rate for U.S. dollar-based LIBOR.  SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. Some market participants may continue to explore whether other U.S. dollar-based reference rates would be more appropriate for certain types of instruments. The ARRC has proposed a paced market transition plan to SOFR, and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. We have material contracts that are indexed to USD-LIBOR and are monitoring this activity, evaluating the related risks, and beginning the process of assessing our exposure.

Summary of Results of Operations and Financial Condition

Our GAAP net loss attributable to common stockholders was $286.7 million and $132.4 million ($1.00 and $0.50 per diluted weighted average share) for the three and nine months ended September 30, 2019, as compared to GAAP net income attributable to common stockholders of $17.0 million and $463.8 million ($0.08 and $2.28 per diluted weighted average share) for the three and nine months ended September 30, 2018.

With our accounting treatment for AFS securities, unrealized fluctuations in the market values of AFS securities, excluding Agency interest-only securities, do not impact our GAAP net income or taxable income but are recognized on our condensed consolidated balance sheets as a change in stockholders’ equity under “accumulated other comprehensive income.” For the three and nine months ended September 30, 2019, net unrealized losses on AFS securities recognized as other comprehensive loss, net of tax, were $29.1 million and net unrealized gains on AFS securities recognized as other comprehensive income, net of tax, were $637.5 million, respectively. This, combined with GAAP net income attributable to common stockholders of $286.7 million and $132.4 million, resulted in comprehensive income attributable to common stockholders of $257.6 million and $769.9 million for the three and nine months ended September 30, 2019, respectively. For the three and nine months ended September 30, 2018, net unrealized losses on AFS securities recognized as other comprehensive loss, net of tax, were $119.8 million and $499.5 million, respectively. This, combined with GAAP net income attributable to common stockholders of $17.0 million and $463.8 million, resulted in comprehensive loss attributable to common stockholders of $102.8 million and $35.7 million for the three and nine months ended September 30, 2018, respectively.

Our book value per common share for U.S. GAAP purposes was $14.72 at September 30, 2019, an increase from $13.11 book value per common share at December 31, 2018. During this nine month period, we issued 24,399,107 shares of common stock for net proceeds of $335.7 million and recognized comprehensive income attributable to common stockholders of $769.9 million, which drove the overall increase in book value.

The following tables present the components of our comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018:

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(in thousands, except share data)	Three Months Ended						Nine Months Ended
Income Statement Data:	September 30,						September 30,
	2019			2018			2019			2018
	(unaudited)						(unaudited)
Interest income:
Available-for-sale securities	$	242,023		$	230,607		$	731,716		$	604,790
Other	7,717			6,091			24,536			13,287
Total interest income	249,740			236,698			756,252			618,077
Interest expense:
Repurchase agreements	176,450			138,343			501,361			322,735
Federal Home Loan Bank advances	391			5,301			10,406			14,655
Revolving credit facilities	3,964			3,973			15,316			5,776
Term notes payable	5,475			—			5,706			—
Convertible senior notes	4,797			4,779			14,256			14,204
Total interest expense	191,077			152,396			547,045			357,370
Net interest income	58,663			84,302			209,207			260,707
Other-than-temporary impairment losses	(5,950		)	(95		)	(11,004		)	(363		)
Other income:
Gain (loss) on investment securities	248,828			(42,996		)	251,977			(95,549		)
Servicing income	126,025			89,618			373,922			238,473
(Loss) gain on servicing asset	(234,514		)	20,591			(675,920		)	102,251
Gain (loss) on interest rate swap, cap and swaption agreements	70,620			75,857			(101,414		)	255,535
Gain (loss) on other derivative instruments	85,856			(31,463		)	270,798			(15,735		)
Other income	495			907			277			2,695
Total other income	297,310			112,514			119,640			487,670
Expenses:
Management fees	16,839			(5,041		)	42,556			18,120
Servicing expenses	17,696			16,433			54,354			42,526
Other operating expenses	13,344			17,033			42,913			47,040
Acquisition transaction costs	—			86,703			—			86,703
Restructuring charges	—			8,238			—			8,238
Total expenses	47,879			123,366			139,823			202,627
Income before income taxes	302,144			73,355			178,020			545,387
(Benefit from) provision for income taxes	(3,556		)	37,409			(11,188		)	35,142
Net income	305,700			35,946			189,208			510,245
Dividends on preferred stock	18,951			18,951			56,851			46,445
Net income attributable to common stockholders	$	286,749		$	16,995		$	132,357		$	463,800
Basic earnings per weighted average common share	$	1.05		$	0.08		$	0.50		$	2.42
Diluted earnings per weighted average common share	$	1.00		$	0.08		$	0.50		$	2.28
Dividends declared per common share	$	0.40		$	0.47		$	1.27		$	1.41
Weighted average number of shares of common stock:
Basic	272,897,575			224,399,436			266,114,772			191,846,212
Diluted	291,053,718			224,399,436			266,114,772			209,607,146

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(in thousands)	Three Months Ended						Nine Months Ended
Income Statement Data:	September 30,						September 30,
	2019			2018			2019		2018
	(unaudited)						(unaudited)
Comprehensive income (loss):
Net income	$	305,700		$	35,946		$	189,208	$	510,245
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on available-for-sale securities	(29,164		)	(119,796		)	637,537		(499,460		)
Other comprehensive (loss) income	(29,164		)	(119,796		)	637,537		(499,460		)
Comprehensive income (loss)	276,536			(83,850		)	826,745		10,785
Dividends on preferred stock	18,951			18,951			56,851		46,445
Comprehensive income (loss) attributable to common stockholders	$	257,585		$	(102,801	)	$	769,894	$	(35,660	)

(in thousands)	September 30, 2019		December 31, 2018
Balance Sheet Data:
	(unaudited)
Available-for-sale securities	$	28,318,558	$	25,552,604
Mortgage servicing rights	$	1,651,556	$	1,993,440
Total assets	$	32,164,227	$	30,132,479
Repurchase agreements	$	25,567,136	$	23,133,476
Federal Home Loan Bank advances	$	50,000	$	865,024
Total stockholders’ equity	$	5,019,580	$	4,254,489

Results of Operations

The following analysis focuses on financial results during the three and nine months ended September 30, 2019 and 2018.

Interest Income

Interest income increased from $236.7 million and $618.1 million for the three and nine months ended September 30, 2018, respectively, to $249.7 million and $756.3 million for the same periods in 2019 due to the growth of our AFS securities portfolio as a result of the acquisition of CYS and purchases of Agency securities with higher yields, offset by decreases in yields on non-Agency securities, as discussed below.

Interest Expense

Interest expense increased from $152.4 million and $357.4 million for the three and nine months ended September 30, 2018, respectively, to $191.1 million and $547.0 million for the same periods in 2019 due to increased financing on AFS securities as a result of the acquisition of CYS and on MSR due to portfolio growth, and increases in the borrowing rates offered by counterparties, offset by decreased financing on non-Agency securities due to sufficient liquidity from other sources.

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Net Interest Income

The following tables present the components of interest income and average annualized net asset yield earned by asset type, the components of interest expense and average annualized cost of funds on borrowings incurred by liability and/or collateral type, and net interest income and average annualized net interest rate spread for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
(dollars in thousands)	Average Balance (1)		Interest Income/Expense		Net Yield/Cost of Funds (2)		Average Balance (1)		Interest Income/Expense		Net Yield/Cost of Funds (2)
Interest-earning assets
Agency available-for-sale securities	$	25,140,887	$	199,121	3.2	%	$	23,241,104	$	584,980	3.4	%
Non-Agency available-for-sale securities	3,259,772		42,902		5.3	%	3,265,827		146,736		6.0	%
Other	9,430		7,717		4.3	%	17,642		24,536		4.6	%
Total interest income/net asset yield	$	28,410,089	$	249,740	3.5	%	$	26,524,573	$	756,252	3.8	%
Interest-bearing liabilities
Repurchase agreements, FHLB advances, revolving credit facilities and term notes payable collateralized by:
Agency available-for-sale securities	$	24,608,562	$	160,608	2.6	%	$	22,448,615	$	445,727	2.6	%
Non-Agency available-for-sale securities	1,462,268		12,879		3.5	%	2,013,227		55,263		3.7	%
Agency derivatives (3)	47,873		392		3.3	%	47,010		1,197		3.4	%
Mortgage servicing rights (4)	946,488		12,401		5.2	%	757,654		30,602		5.4	%
Other unassignable
Convertible senior notes	284,528		4,797		6.7	%	284,268		14,256		6.7	%
Total interest expense/cost of funds	$	27,349,719	191,077		2.8	%	$	25,550,774	547,045		2.9	%
Net interest income/spread (5)			$	58,663	0.7	%			$	209,207	0.9	%

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	Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018
(dollars in thousands)	Average Balance (1)		Interest Income/Expense		Net Yield/Cost of Funds (2)		Average Balance (1)		Interest Income/Expense		Net Yield/Cost of Funds (2)
Interest-earning assets
Agency available-for-sale securities	$	22,443,273	$	174,459	3.1	%	$	19,278,634	$	443,584	3.1	%
Non-Agency available-for-sale securities	3,027,030		56,148		7.4	%	2,764,818		161,206		7.8	%
Other	29,249		6,091		4.5	%	30,686		13,287		4.3	%
Total interest income/net asset yield	$	25,499,552	$	236,698	3.7	%	$	22,074,138	$	618,077	3.7	%
Interest-bearing liabilities
Repurchase agreements, FHLB advances, revolving credit facilities and term notes payable collateralized by:
Agency available-for-sale securities	$	20,793,417	$	119,197	2.3	%	$	18,206,059	$	271,772	2.0	%
Non-Agency available-for-sale securities	2,282,735		20,803		3.6	%	2,181,769		55,970		3.4	%
Agency derivatives (3)	53,834		427		3.2	%	59,185		1,246		2.8	%
Mortgage servicing rights (4)	508,550		7,190		5.7	%	349,664		14,178		5.4	%
Other unassignable
Convertible senior notes	283,453		4,779		6.7	%	283,211		14,204		6.7	%
Total interest expense/cost of funds	$	23,921,989	152,396		2.5	%	$	21,079,888	357,370		2.3	%
Net interest income/spread (5)			$	84,302	1.2	%			$	260,707	1.4	%

____________________

(1) Average asset balance represents average amortized cost on AFS securities and Agency Derivatives.

(2) Cost of funds does not include the accrual and settlement of interest associated with interest rate swaps and caps. In accordance with U.S. GAAP, those costs are included in (loss) gain on interest rate swap, cap and swaption agreements in the condensed consolidated statements of comprehensive income (loss). For the three and nine months ended September 30, 2019, our total average cost of funds on the assets assigned as collateral for borrowings shown in the table above, including interest spread expense associated with interest rate swaps and caps, was 2.5% and 2.5%, respectively, compared to 2.3% and 2.1% for the same periods in 2018.

(3) Yields on Agency Derivatives not shown as interest income is included in gain (loss) on other derivative instruments in the condensed consolidated statements of comprehensive income (loss).

(4) Yields on mortgage servicing rights not shown as these assets do not earn interest.

(5) Net interest spread does not include the accrual and settlement of interest associated with interest rate swaps and caps. In accordance with U.S. GAAP, those costs are included in gain (loss) on interest rate swap, cap and swaption agreements in the condensed consolidated statements of comprehensive income (loss). For the three and nine months ended September 30, 2019, our total average net interest rate spread on the assets and liabilities shown in the table above, including interest spread expense associated with interest rate swaps and caps, was 0.9% and 1.2%, respectively, compared to 1.3% and 1.6% for the same periods in 2018.

The increase in yields on Agency AFS securities for the three and nine months ended September 30, 2019, as compared to the same periods in 2018, was predominantly driven by purchases of pools with higher yields and sales of pools with lower yields. The increase in cost of funds associated with the financing of Agency AFS securities for the three and nine months ended September 30, 2019, as compared to the same periods in 2018, was the result of increases in the borrowing rates offered by financing counterparties.

The decrease in yields on non-Agency securities for the three and nine months ended September 30, 2019, as compared to the same periods in 2018, was driven by purchases of non-Agency securities at lower yields than our existing portfolio and the sale of higher yield bonds that had realized their upside potential. The decrease in cost of funds associated with the financing of non-Agency AFS securities for the three and nine months ended September 30, 2019, as compared to the same periods in 2018, was the result of decreases in LIBOR.

The increase in cost of funds associated with the financing of Agency Derivatives for the three and nine months ended September 30, 2019, as compared to the same periods in 2018, was the result of increases in the borrowing rates offered by counterparties.

The decrease in cost of funds associated with the financing of MSR for the three and nine months ended September 30, 2019, as compared to the same periods in 2018, the result of the issuance of term notes payable in June 2019, which incur lower amortization of deferred debt issuance costs due to their longer term to maturity.

Our convertible senior notes were issued in January 2017, are unsecured and pay interest semiannually at a rate of 6.25% per annum. The cost of funds associated with our convertible senior notes for the three and nine months ended September 30, 2019, as compared to the same periods in 2018, was consistent.

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The following tables present the components of the yield earned by investment type on our AFS securities portfolio as a percentage of our average amortized cost of securities for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Agency (1)		Non-Agency		Total		Agency (1)		Non-Agency		Total
Gross yield/stated coupon	4.1	%	4.8	%	4.2	%	4.2	%	4.8	%	4.3	%
Net (premium amortization) discount accretion	(0.9	)%	0.5	%	(0.8	)%	(0.8	)%	1.2	%	(0.6	)%
Net yield (2)	3.2	%	5.3	%	3.4	%	3.4	%	6.0	%	3.7	%

	Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018
	Agency (1)		Non-Agency		Total		Agency (1)		Non-Agency		Total
Gross yield/stated coupon	4.0	%	4.8	%	4.1	%	4.0	%	4.7	%	4.1	%
Net (premium amortization) discount accretion	(0.9	)%	2.6	%	(0.5	)%	(0.9	)%	3.1	%	(0.4	)%
Net yield (2)	3.1	%	7.4	%	3.6	%	3.1	%	7.8	%	3.7	%

____________________

(1) Excludes Agency Derivatives. For the three and nine months ended September 30, 2019, the average annualized net yield on total Agency RMBS, including Agency Derivatives, was 3.2% and 3.4%, respectively, compared to 3.1% and 3.1% for the same periods in 2018.

(2) These yields have not been adjusted for cost of delay and cost to carry purchase premiums.

Other-Than-Temporary Impairments

We review each of our securities on a quarterly basis to determine if an OTTI charge is necessary. During the three and nine months ended September 30, 2019, we recorded $5.9 million and $11.0 million in other-than-temporary credit impairments on a total of 16 non-Agency securities where the future expected cash flows for each security were less than its amortized cost. During the three and nine months ended September 30, 2018, we recorded $0.1 million and $0.4 million in other-than-temporary credit impairments on three non-Agency securities where the future expected cash flows for the security were less than their amortized cost. For further information about evaluating AFS securities for OTTI, refer to Note 4 - Available-for-Sale Securities, at Fair Value of the notes to the condensed consolidated financial statements.

Gain (Loss) on Investment Securities

During the three and nine months ended September 30, 2019, we sold AFS securities for $6.1 billion and $14.1 billion with an amortized cost of $5.9 billion and $13.8 billion, for net realized gains of $250.3 million and $256.4 million, respectively. During the three and nine months ended September 30, 2018, we sold AFS securities for $5.4 billion and $9.2 billion with an amortized cost of $5.5 billion and $9.3 billion, for net realized losses of $42.2 million and $100.7 million, respectively. We do not expect to sell assets on a frequent basis, but may sell assets to reallocate capital into new assets that we believe have higher risk-adjusted returns.

For the three and nine months ended September 30, 2019, Agency interest-only mortgage-backed securities experienced a change in unrealized losses of $1.4 million and $4.4 million, respectively. For the three and nine months ended September 30, 2018, Agency interest-only mortgage-backed securities experienced a change in unrealized losses of $1.7 million and a change in unrealized gains of $2.0 million, respectively. The increase in change in unrealized losses (decrease in gains) for the three and nine months ended September 30, 2019, as compared to the same periods in 2018, was due to interest rates generally falling during the three and nine months ended September 30, 2019, as compared to interest rates generally rising during the three and nine months ended September 30, 2018.

For the nine months ended September 30, 2018, we recognized $1.3 million in dividend income on equity securities. We did not recognize any dividend income on equity securities during the three months ended September 30, 2018. For the three and nine months ended September 30, 2018, equity securities experienced a change in unrealized losses of $0.4 million and a change in unrealized gains of $0.6 million, respectively, due to increases in the market price of the securities. Additionally, during both the three and nine months ended September 30, 2018, we sold equity securities for $31.2 million with a cost basis of $30.0 million for net realized gains of $1.2 million. We did not hold any equity securities during the three and nine months ended September 30, 2019.

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Servicing Income

For the three and nine months ended September 30, 2019, we recognized total servicing income from our MSR portfolio of $126.0 million and $373.9 million, respectively. These amounts include servicing fee income of $106.7 million and $327.2 million, ancillary and other fee income of $0.5 million and $1.3 million, and float income of $18.8 million and $45.4 million, respectively. For the three and nine months ended September 30, 2018, we recognized total servicing income of $89.6 million and $238.5 million, respectively. These amounts include servicing fee income of $80.7 million and $218.0 million, ancillary and other fee income of $0.4 million and $1.0 million, and float income of $8.6 million and $19.4 million, respectively. The increase in servicing income for the three and nine months ended September 30, 2019, as compared to the same periods in 2018, was the result of an increase in the size of our MSR portfolio. Additionally, the increase in float income was the result of both the increased size of our MSR portfolio and increased float earning rates.

(Loss) Gain on Servicing Asset

For the three and nine months ended September 30, 2019, we recognized loss on servicing asset of $234.5 million and $675.9 million, respectively, which included a decrease in fair value of MSR due to changes in valuation inputs or assumptions of $144.1 million and $477.7 million, respectively, and a decrease in fair value of MSR due to realization of cash flows (runoff) of $90.5 million and $198.6 million, respectively. Additionally, we recognized gains on sales of MSR of $0.1 million and $0.4 million for the three and nine months ended September 30, 2019. For the three and nine months ended September 30, 2018, gain on servicing asset of $20.6 million and $102.3 million, respectively, includes an increase in fair value of MSR due to changes in valuation inputs or assumptions of $62.7 million and $209.6 million, respectively, offset by a decrease in fair value of MSR due to realization of cash flows (runoff) of $42.1 million and $107.8 million, respectively. Additionally, we recognized gains on sales of MSR of $0.4 million for the nine months ended September 30, 2018, respectively. The increase in loss (decrease in gain) on servicing asset for the three and nine months ended September 30, 2019, as compared to the same periods in 2018, was predominantly driven by decreases in interest rates, an increase in prepayment speed assumptions, and higher portfolio runoff on a larger MSR portfolio during the three and nine months ended September 30, 2019.

Gain (Loss) on Interest Rate Swap, Cap and Swaption Agreements

For the three and nine months ended September 30, 2019, we recognized $19.2 million and $65.7 million of income, respectively, for the accrual and/or settlement of the net interest expense associated with our interest rate swaps and caps. The income results from receiving either LIBOR interest or a fixed interest rate and paying either a fixed interest rate or LIBOR interest on an average $41.2 billion and $39.8 billion notional, respectively, held to economically hedge/mitigate portfolio interest rate exposure (or duration) risk. For the three and nine months ended September 30, 2018, we recognized $16.2 million and $33.9 million of income for the accrual and/or settlement of the net interest expense associated with our interest rate swaps and caps. The income results from receiving either LIBOR interest or a fixed interest rate and paying either a fixed interest rate or LIBOR interest on an average $31.8 billion and $26.2 billion notional, respectively, held to economically hedge/mitigate portfolio interest rate exposure (or duration) risk.

During the three and nine months ended September 30, 2019, we terminated, had agreements mature or had options expire on 43 and 82 interest rate swap, cap and swaption positions of $19.6 billion and $39.2 billion notional, respectively. Upon settlement of the terminations, we received $18.9 million and $26.2 million in full settlement of our net interest spread asset/liability and recognized $75.4 million and $96.4 million in realized gains on the swaps, caps and swaptions for the three and nine months ended September 30, 2019, respectively, including early termination penalties. During the three and nine months ended September 30, 2018, we terminated, had agreements mature or had options expire on 33 and 116 interest rate swap, cap and swaption positions of $14.9 billion and $69.5 billion notional, respectively. Upon settlement of the terminations, we paid $11.7 million and $18.1 million in full settlement of our net interest spread liability and recognized $39.9 million in realized losses and $32.2 million in realized gains on the swaps, caps and swaptions for the three and nine months ended September 30, 2018, respectively, including early termination penalties. We elected to terminate certain swaps, caps and swaptions during these periods to align with our investment portfolio.

Also included in our financial results for the three and nine months ended September 30, 2019, was the recognition of a change in unrealized valuation losses of $23.9 million and $263.6 million, respectively, on our interest rate swap, cap and swaption agreements that were accounted for as trading instruments, compared to a change in unrealized valuation gains of $99.5 million and $189.5 million for the same periods in 2018. The change in fair value of interest rate swaps and caps was a result of changes to LIBOR, the swap curve and corresponding counterparty borrowing rates during the three and nine months ended September 30, 2019 and 2018. Since these swaps, caps and swaptions are used for purposes of hedging our interest rate exposure, their unrealized valuation gains and losses are generally offset by unrealized losses and gains in our Agency RMBS AFS portfolio, which are recorded either directly to stockholders’ equity through other comprehensive (loss) income, net of tax, or to gain (loss) on investment securities, in the case of Agency interest-only securities.

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The following table provides the net interest spread and gains and losses associated with our interest rate swap, cap and swaption positions:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2019			2018			2019			2018
Net interest spread	$	19,151		$	16,237		$	65,746		$	33,886
Early termination, agreement maturation and option expiration gains (losses)	75,409			(39,866		)	96,423			32,164
Change in unrealized (loss) gain on interest rate swap, cap and swaption agreements, at fair value	(23,940		)	99,486			(263,583		)	189,485
Gain (loss) on interest rate swap, cap and swaption agreements	$	70,620		$	75,857		$	(101,414	)	$	255,535

Gain (Loss) on Other Derivative Instruments

Included in our financial results for the three and nine months ended September 30, 2019, was the recognition of $85.9 million and $270.8 million of gains, respectively, on other derivative instruments we hold for purposes of both hedging and non-hedging activities, principally TBAs, put and call options for TBAs, Markit IOS total return swaps, short U.S. treasuries, U.S. Treasury futures and inverse interest-only securities. Included within these results for the three and nine months ended September 30, 2019, was the recognition of $1.2 million and $3.9 million of interest income, net of accretion on inverse interest-only securities on an average amortized cost basis of $63.6 million and $65.3 million, respectively, and interest expense on short U.S. treasuries of $1.3 million for the nine months ended September 30, 2019. We did not hold any short U.S. treasuries during the three months ended September 30, 2019. The remainder represented realized and unrealized net gains (losses) on other derivative instruments.

Included in our financial results for the three and nine months ended September 30, 2018, was the recognition of $31.5 million and $15.7 million of losses, respectively, on other derivative instruments we hold for purposes of both hedging and non-hedging activities, principally TBAs, put and call options for TBAs, Markit IOS total return swaps, short U.S. treasuries and inverse interest-only securities. Included within these results for the three and nine months ended September 30, 2018, was the recognition of $0.9 million and $5.0 million of interest income, net of accretion on inverse interest-only securities on an average amortized cost basis of $75.2 million and $80.4 million, respectively. The remainder represented realized and unrealized net gains (losses) on other derivative instruments. As these derivative instruments are considered trading instruments, our financial results include both realized and unrealized gains (losses) associated with these instruments.

Other Income

We recorded other income of $0.5 million and $0.3 million for the three and nine months ended September 30, 2019 and $0.9 million and $2.7 million for the three and nine months ended September 30, 2018, respectively. The decrease in other income for the three and nine months ended September 30, 2019, as compared to the same periods in 2018, was driven by losses on extinguishment of debt and lower dividend income on our FHLB stock due to a decrease in the average balance held.

Management Fees

We incurred management fees of $16.8 million and $42.6 million for the three and nine months ended September 30, 2019 and $12.4 million and $35.6 million for the three and nine months ended September 30, 2018, respectively, which are payable to PRCM Advisers, our external manager, under our management agreement. The management fee is calculated based on our stockholders’ equity with certain adjustments outlined in the management agreement.

In connection with the acquisition of CYS, the management agreement was amended to (i) reduce PRCM Advisers’ base management fee with respect to the additional equity under management resulting from the merger to 0.75% from the effective time through the first anniversary of the effective time and (ii) for the fiscal quarter in which closing of the merger occurs, to make a one-time downward adjustment of Pine River’s management fees payable by Two Harbors for such quarter by $15.0 million to offset the cash consideration payable to stockholders of CYS, plus an additional downward adjustment of up to $3.3 million for certain transaction-related expenses. For both the three and nine months ended September 30, 2018, the total downward adjustment to management fees was $17.5 million. We do not anticipate any further downward adjustments to management fees for transaction-related expenses.

Servicing Expenses

For the three and nine months ended September 30, 2019, we recognized $17.7 million and $54.4 million, respectively, in servicing expenses generally related to the subservicing of MSR compared to $16.4 million and $42.5 million for the same periods in 2018. The increase in servicing expenses during the three and nine months ended September 30, 2019, as compared to the same periods in 2018, was largely the result of an increase in the size of our MSR portfolio.

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Other Operating Expenses

For the three and nine months ended September 30, 2019, we recognized $13.3 million and $42.9 million of other operating expenses, which represents an annualized expense ratio of 1.1% and 1.2% of average equity, respectively. Excluding non-cash equity compensation expenses (amortization of restricted stock) of $2.0 million and $6.2 million, our annualized expense ratio was 0.9% and 1.0% of average equity for the three and nine months ended September 30, 2019, respectively. For the three and nine months ended September 30, 2018, we recognized $17.0 million and $47.0 million of other operating expenses, which represents an annualized expense ratio of 1.6% and 1.6% of average common equity for the three and nine months ended September 30, 2018, respectively. Excluding non-cash equity compensation expenses of $3.2 million and $9.1 million, our annualized expense ratio was 1.3% and 1.3% of average equity for the three and nine months ended September 30, 2018, respectively.

Included in other operating expenses are direct and allocated costs incurred by PRCM Advisers on our behalf and reimbursed by us. For the three and nine months ended September 30, 2019, these direct and allocated costs totaled approximately $4.8 million and $23.0 million, respectively, compared to $5.3 million and $20.8 million for the same periods in 2018. Included in these reimbursed costs was compensation paid to employees of Pine River serving as our principal financial officer and general counsel of $0.2 million and $2.9 million for the three and nine months ended September 30, 2019 and $0.2 million and $1.5 million for the three and nine months ended September 30, 2018, respectively. The allocation of compensation paid to employees of Pine River serving as our principal financial officer and general counsel is based on time spent overseeing our company’s activities in accordance with the management agreement; we do not reimburse PRCM Advisers for any expenses related to the compensation of our chief executive officer or chief investment officer. Equity based compensation expense for the three and nine months ended September 30, 2019 also includes the amortization of restricted stock awarded to our executive officers, including our chief executive officer, chief investment officer, principal financial officer and general counsel of $0.8 million and $2.2 million, compared to $1.8 million and $5.0 million for the three and nine months ended September 30, 2018, respectively.

We have direct relationships with the majority of our third-party vendors. We will continue to have certain costs allocated to us by PRCM Advisers for compensation, data services, technology and certain office lease payments, but most of our expenses with third-party vendors are paid directly by us.

Acquisition Transaction Costs

The acquisition of CYS was treated as an asset purchase under U.S. GAAP. Given there were no meaningful nonfinancial assets and non-current assets acquired in the merger with CYS and no identified intangible assets to assign value, the excess consideration and costs associated with the transaction were recognized in the condensed consolidated statements of comprehensive income (loss) as acquisition transaction costs. For both the three and nine months ended September 30, 2018, these acquisition transaction costs totaled approximately $86.7 million.

Restructuring Charges

In connection with the acquisition of CYS, we incurred restructuring charges, including termination benefits, contract terminations and other associated costs, of $8.2 million for both the three and nine months ended September 30, 2018.

Income Taxes

During the three and nine months ended September 30, 2019, our TRSs recognized a benefit from income taxes of $3.6 million and $11.2 million, respectively, which was primarily due to losses recognized on MSR, offset by net gains recognized on derivative instruments held in our TRSs. During the three and nine months ended September 30, 2018, our TRSs recognized a provision for income taxes of $37.4 million and $35.1 million, which was primarily due to realized gains on sales of AFS securities and gains recognized on MSR held in the TRSs as well as the write-down of net deferred tax assets resulting from the deemed liquidation of one of our TRSs due to its TRS election revocation, offset by net losses incurred on derivative instruments held in the TRSs. We currently intend to distribute 100% of our REIT taxable income and comply with all requirements to continue to qualify as a REIT.

Financial Condition

Available-for-Sale Securities, at Fair Value

Agency RMBS

Our Agency RMBS AFS portfolio is comprised of adjustable rate and fixed rate mortgage-backed securities backed by single-family and multi-family mortgage loans. All of our principal and interest Agency RMBS AFS were Fannie Mae or Freddie Mac mortgage pass-through certificates or collateralized mortgage obligations that carry an implied rating of “AAA,” or Ginnie Mae mortgage pass-through certificates, which are backed by the guarantee of the U.S. government. The majority of these securities consist of whole pools in which we own all of the investment interests in the securities.

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The table below summarizes certain characteristics of our Agency RMBS AFS at September 30, 2019:

	September 30, 2019
(dollars in thousands, except purchase price)	Principal/ Current Face		Net (Discount) Premium		Amortized Cost		Unrealized Gain		Unrealized Loss			Carrying Value		Weighted Average Coupon Rate		Weighted Average Purchase Price
P&I securities
Fixed	$	23,241,167	$	935,027	$	24,176,194	$	431,036	$	(5,522	)	$	24,601,708	4.02	%	$	104.23
Hybrid ARM	14,652		733		15,385		456		(179		)	15,662		6.29	%	$	108.47
Total P&I securities	23,255,819		935,760		24,191,579		431,492		(5,701		)	24,617,370		4.02	%	$	104.23
Interest-only securities
Fixed	653,460		47,211		47,211		4,456		(490		)	51,177		2.93	%	$	34.97
Fixed Other (1)	2,104,449		132,558		132,558		11,425		(46,347		)	97,636		1.61	%	$	8.71
Total	$	26,013,728	$	1,115,529	$	24,371,348	$	447,373	$	(52,538	)	$	24,766,183

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(1) Fixed Other represents weighted-average coupon interest-only securities that are not generally used for our interest-rate risk management purposes. These securities pay variable coupon interest based on the weighted average of the fixed rates of the underlying loans of the security, less the weighted average rates of the applicable issued P&I securities.

Our three-month average constant prepayment rate, or CPR, experienced by Agency RMBS AFS owned by us as of September 30, 2019, on an annualized basis, was 13.4%.

Non-Agency Securities

Our non-Agency securities portfolio is comprised of senior and mezzanine tranches of mortgage-backed and asset-backed securities. The following table provides investment information on our non-Agency securities as of September 30, 2019:

	September 30, 2019
(in thousands)	Principal/Current Face		Un-amortized Premium		Accretable Purchase Discount			Credit Reserve Purchase Discount			Amortized Cost		Unrealized Gain		Unrealized Loss			Carrying Value
P&I securities
Senior	$	4,654,131	$	7,308	$	(359,396	)	$	(1,593,708	)	$	2,708,335	$	296,287	$	(14,348	)	$	2,990,274
Mezzanine	635,636		109		(103,577		)	(129,930		)	402,238		83,949		(3,178		)	483,009
Total P&I	5,289,767		7,417		(462,973		)	(1,723,638		)	3,110,573		380,236		(17,526		)	3,473,283
Interest-only securities	4,664,358		83,037		—			—			83,037		4,393		(8,338		)	79,092
Total	$	9,954,125	$	90,454	$	(462,973	)	$	(1,723,638	)	$	3,193,610	$	384,629	$	(25,864	)	$	3,552,375

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The majority of our non-Agency securities were rated at September 30, 2019. Note that credit ratings are based on the par value of the non-Agency securities, whereas the distressed non-Agency securities in our portfolio were acquired at heavily discounted prices. The following table summarizes the credit ratings of our non-Agency securities portfolio, based on the Bloomberg Index Rating, a composite of each of the four major credit rating agencies (i.e., DBRS Ltd., Moody’s Investors Services, Inc., Standard & Poor’s Corporation and Fitch, Inc.), as of September 30, 2019:

	September 30, 2019
AAA	0.4	%
AA	—	%
A	—	%
BBB	—	%
BB	—	%
B	1.3	%
Below B	79.9	%
Not rated	18.4	%
Total	100.0	%

Within our non-Agency securities portfolio, we have a substantial emphasis on “legacy” securities, which include securities issued up to and including 2009, many of which are subprime. We believe these deeply discounted securities can add relative value as the economy and housing markets continue to improve, as there remains upside optionality to lower delinquencies, higher recoveries and faster prepays.

Due to acquisitions of “legacy” non-Agency securities, our designated credit reserve as a percentage of total discount increased from September 30, 2018 to September 30, 2019 (as disclosed in Note 4 - Available-for-Sale Securities, at Fair Value of the notes to the condensed consolidated financial statements). From September 30, 2018 to September 30, 2019, our designated credit reserve as a percentage of total discount increased from 63.6% to 78.8%.

A subprime bond may generally be considered higher risk; however, if purchased at a discount that reflects a high expectation of credit losses, it could be viewed as less risky than a prime bond, which is subject to unanticipated credit loss performance. Accordingly, we believe our risk profile in owning a heavily discounted subprime bond with known delinquencies affords us the ability to assume a higher percentage of expected credit loss with comparable risk-adjusted returns to a less discounted prime bond with a lower percentage of expected credit loss.

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The following tables present certain information by investment type and their respective underlying loan characteristics for our senior and mezzanine non-Agency securities, excluding our non-Agency interest-only portfolio, at September 30, 2019:

	September 30, 2019
Non-Agency P&I Securities	Senior			Mezzanine			Total
Carrying value (in thousands)	$	2,990,274		$	483,009		$	3,473,283
% of total	86.1		%	13.9		%	100.0		%
Weighted average purchase price (1)	$	63.32		$	65.52		$	63.63
Weighted average coupon	3.0		%	2.8		%	3.0		%
Weighted average fixed coupon	5.8		%	5.8		%	5.8		%
Weighted average floating coupon	2.7		%	2.5		%	2.7		%
Weighted average hybrid coupon	4.3		%	5.5		%	4.5		%
Collateral attributes
Weighted average loan age (months)	157			164			158
Weighted average current loan size (in thousands)	$	208		$	262		$	216
Weighted average current loan-to-value	61.0		%	58.9		%	60.7		%
Current performance
60+ day delinquencies	18.6		%	16.7		%	18.3		%
Average credit enhancement (2)	1.9		%	7.8		%	2.8		%
3-month CPR (3)	5.6		%	7.8		%	5.9		%
CDR	4.2		%	5.5		%	4.4		%
Severity	48.8		%	33.3		%	46.7		%
Cumulative loss	36.3		%	21.3		%	34.2		%

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(1) Average purchase price utilized carrying value for weighting purposes. If current face were utilized for weighting purposes, the average purchase price for senior, mezzanine, and total non-Agency securities, excluding our non-Agency interest-only portfolio, would be $59.31, $60.11 and $59.41, respectively, at September 30, 2019.

(2) Average credit enhancement remaining on our non-Agency P&I securities portfolio, which is the average amount of protection available to absorb future credit losses due to defaults on the underlying collateral.

(3) Three-month CPR is reflective of the prepayment speed on the underlying securitization; however, it does not necessarily indicate the proceeds received on our investment tranche. Proceeds received for each security are dependent on the position of the individual security within the structure of each deal.

	September 30, 2019
	Non-Agency P&I Securities
(dollars in thousands)	Senior				Mezzanine				Total
Collateral Type	Carrying Value		% of Senior		Carrying Value		% of Mezzanine		Carrying Value		% of Total
Prime	$	28,189	0.9	%	$	9,050	1.9	%	$	37,239	1.1	%
Alt-A	373,196		12.5	%	83,148		17.2	%	456,344		13.1	%
POA	151,795		5.1	%	161,948		33.5	%	313,743		9.0	%
Subprime	2,432,613		81.4	%	228,863		47.4	%	2,661,476		76.7	%
Other	4,481		0.1	%	—		—	%	4,481		0.1	%
Total	$	2,990,274	100.0	%	$	483,009	100.0	%	$	3,473,283	100.0	%

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	September 30, 2019
	Non-Agency P&I Securities
(dollars in thousands)	Senior				Mezzanine				Total
Coupon Type	Carrying Value		% of Senior		Carrying Value		% of Mezzanine		Carrying Value		% of Total
Fixed rate	$	254,300	8.5	%	$	27,268	5.6	%	$	281,568	8.1	%
Hybrid or floating	2,735,974		91.5	%	455,741		94.4	%	3,191,715		91.9	%
Total	$	2,990,274	100.0	%	$	483,009	100.0	%	$	3,473,283	100.0	%

	September 30, 2019
	Non-Agency P&I Securities
(dollars in thousands)	Senior				Mezzanine				Total
Origination Year	Carrying Value		% of Senior		Carrying Value		% of Mezzanine		Carrying Value		% of Total
2006 and thereafter	$	2,795,791	93.5	%	$	256,216	53.0	%	$	3,052,007	87.9	%
2002-2005	193,883		6.5	%	226,694		47.0	%	420,577		12.1	%
Pre-2002	600		—	%	99		—	%	699		—	%
Total	$	2,990,274	100.0	%	$	483,009	100.0	%	$	3,473,283	100.0	%

Mortgage Servicing Rights, at Fair Value

One of our wholly owned subsidiaries has approvals from Fannie Mae and Freddie Mac to own and manage MSR, which represent the right to control the servicing of mortgage loans. We do not directly service mortgage loans, and instead contract with appropriately licensed subservicers to handle substantially all servicing functions in the name of the subservicer for the loans underlying our MSR. As of September 30, 2019, our MSR had a fair market value of $1.7 billion.

As of September 30, 2019, our MSR portfolio included MSR on 742,723 loans with an unpaid principal balance of approximately $165.3 billion. The following table summarizes certain characteristics of the loans underlying our MSR at September 30, 2019:

	September 30, 2019
(dollars in thousands)	Number of Loans	Unpaid Principal Balance		Fair Value		% Fannie Mae		Gross Weighted Average Coupon Rate		Weighted Average Loan Age (months)	Weighted Average Original FICO	Weighted Average Original LTV		60+ Day Delinquencies		3-Month CPR		Net Servicing Fee (bps)
30-Year Fixed
≤ 3.75%	91,609	$	23,622,904	$	248,427	75.2	%	3.5	%	49	770	69.7	%	0.1	%	11.3	%	25.3
> 3.75 - 4.25%	212,196	51,893,607		533,613		68.3	%	3.9	%	39	760	75.9	%	0.2	%	15.5	%	26.0
> 4.25 - 4.75%	191,980	43,960,380		433,990		66.4	%	4.4	%	30	745	78.8	%	0.4	%	24.5	%	26.1
> 4.75 - 5.25%	100,078	21,392,716		216,418		65.7	%	4.9	%	22	733	80.5	%	0.6	%	31.7	%	28.0
> 5.25%	35,406	6,340,674		62,167		70.3	%	5.5	%	20	709	80.3	%	0.9	%	29.3	%	30.8
	631,269	147,210,281		1,494,615		68.5	%	4.2	%	35	751	76.6	%	0.3	%	21.0	%	26.4
15-Year Fixed
≤ 2.75%	2,202	456,212		4,027		82.0	%	2.6	%	43	777	59.4	%	0.1	%	9.0	%	26.1
> 2.75 - 3.25%	35,460	6,050,907		50,688		85.7	%	2.9	%	49	771	61.6	%	—	%	11.2	%	25.5
> 3.25 - 3.75%	35,603	5,581,539		49,764		79.1	%	3.4	%	40	758	64.6	%	0.1	%	14.3	%	26.9
> 3.75 - 4.25%	20,021	2,882,477		26,801		67.4	%	3.9	%	29	746	65.8	%	0.2	%	20.4	%	29.0
> 4.25%	11,848	1,508,153		13,799		62.3	%	4.5	%	19	734	66.7	%	0.3	%	24.5	%	31.4
	105,134	16,479,288		145,079		78.0	%	3.4	%	39	759	63.8	%	0.1	%	15.2	%	27.1
Total ARMs	6,320	1,642,964		11,862		71.6	%	3.7	%	41	762	65.5	%	0.4	%	29.5	%	25.1
Total	742,723	$	165,332,533	$	1,651,556	69.5	%	4.1	%	35	752	75.2	%	0.3	%	20.5	%	26.5

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Financing

Our borrowings consist primarily of repurchase agreements, FHLB advances, revolving credit facilities and term notes payable collateralized by our pledge of AFS securities, derivative instruments, MSR and certain cash balances. Substantially all of our Agency RMBS are currently pledged as collateral, and the majority of our non-Agency securities have been pledged as collateral, either through repurchase agreements or FHLB advances.

During the second quarter of 2019, we formed a new trust entity, or the Issuer Trust, for the purpose of financing MSR through securitization. On June 27, 2019, we, through the Issuer Trust, completed an MSR securitization transaction pursuant to which, through two of our wholly owned subsidiaries, MSR is pledged to the Issuer Trust and in return, the Issuer Trust issued (a) an aggregate principal amount of $400.0 million in term notes to qualified institutional buyers and (b) a variable funding note, or VFN, with a maximum principal balance of $1.0 billion to one of the subsidiaries, in each case secured on a pari passu basis. The term notes bear interest at a rate equal to one-month LIBOR plus 2.80% per annum. The term notes will mature on June 25, 2024 or, if extended pursuant to the terms of the related indenture supplement, June 25, 2026 (unless earlier redeemed in accordance with their terms).

Additionally, on January 19, 2017, we closed an underwritten public offering of $287.5 million aggregate principal amount of 6.25% convertible senior notes due 2022. The net proceeds from the offering were approximately $282.2 million after deducting underwriting discounts and estimated offering expenses. The majority of these proceeds were used to help fund our MSR assets, which previously had largely been funded with cash.

At September 30, 2019, borrowings under repurchase agreements, FHLB advances, revolving credit facilities, term notes payable and convertible senior notes had the following characteristics:

(dollars in thousands)	September 30, 2019
Collateral Type	Amount Outstanding		Weighted Average Borrowing Rate		Weighted Average Haircut on Collateral Value
Agency RMBS	$	24,084,991	2.41	%	4.1	%
Non-Agency securities	1,220,669		3.34	%	25.0	%
Agency Derivatives	48,615		3.08	%	26.4	%
Mortgage servicing rights	957,096		4.45	%	31.7	%
Other (1)	284,635		6.25	%	NA
Total	$	26,596,006	2.57	%	6.0	%

____________________

(1) Includes unsecured convertible senior notes paying interest semiannually at a rate of 6.25% per annum on the aggregate principal amount of $287.5 million.

As of September 30, 2019, we had outstanding $25.6 billion of repurchase agreements, and the term to maturity ranged from one day to over 14 months. Repurchase agreements had a weighted average borrowing rate of 2.47% and weighted average remaining maturities of 81 days as of September 30, 2019.

As of September 30, 2019, we had outstanding $50.0 million of FHLB advances with a weighted average term to maturity of 15.1 years. The weighted average cost of funds for our advances was 2.99% at September 30, 2019.

As of September 30, 2019, we had outstanding $300.0 million of short- and long-term borrowings under revolving credit facilities with a weighted average borrowing rate of 4.52% and weighted average remaining maturities of 1.45 years.

As of September 30, 2019, we had outstanding $394.2 million of term notes payable with a weighted average borrowing rate of 4.82% and weighted average remaining maturities of 4.7 years.

As of September 30, 2019, the outstanding amount due on convertible senior notes was $284.6 million, net of deferred issuance costs. These notes are unsecured, pay interest semiannually at a rate of 6.25% per annum and mature in January 2022.

As of September 30, 2019, the debt-to-equity ratio funding our AFS securities, MSR and Agency Derivatives, which includes unsecured borrowings under convertible senior notes, was 5.3:1.0. We believe our debt-to-equity ratio provides unused borrowing capacity and, thus, improves our liquidity and the strength of our balance sheet.

68

The following table provides a summary of our borrowings under repurchase agreements, FHLB advances, revolving credit facilities, term notes payable and convertible senior notes, our net TBA notional amounts and our debt-to-equity ratios for the three months ended September 30, 2019, and the four immediately preceding quarters:

(dollars in thousands)
For the Three Months Ended	Quarterly Average		End of Period Balance		Maximum Balance of Any Month-End		End of Period Total Borrowings to Equity Ratio	End of Period Net Long (Short) TBA Notional		End of Period Economic Debt-to-Equity Ratio (1)
September 30, 2019	$	27,349,719	$	26,596,006	$	28,168,892	5.3:1.0	$	9,863,000	7.2:1.0
June 30, 2019	$	26,640,949	$	28,896,436	$	29,132,756	5.9:1.0	$	9,422,000	7.8:1.0
March 31, 2019	$	22,661,656	$	21,254,108	$	23,685,031	4.5:1.0	$	10,168,000	6.5:1.0
December 31, 2018	$	23,276,768	$	24,592,356	$	24,592,356	5.8:1.0	$	6,484,000	7.2:1.0
September 30, 2018	$	23,921,989	$	25,265,210	$	27,528,323	5.4:1.0	$	9,324,000	7.3:1.0

____________________

(1) Defined as total borrowings under repurchase agreements, FHLB advances, revolving credit facilities, term notes payable and convertible senior notes, plus implied debt on net TBA notional, divided by total equity.

Equity

The tables below provide details of our changes in stockholders’ equity from June 30, 2019 to September 30, 2019 as well as a reconciliation of comprehensive income and GAAP net income to non-GAAP measures.

(dollars in millions, except per share amounts)	Book Value			Common Shares Outstanding	Common Book Value Per Share
Common stockholders' equity at June 30, 2019	$	3,867.5		272.9	$	14.17
Core Earnings, including dollar roll income, net of tax expense of $2.0 million ⁽¹⁾⁽²⁾	84.0
Dividends on preferred stock	(19.0		)
Core Earnings attributable to common stockholders, including dollar roll income, net of tax expense of $2.0 million ⁽¹⁾⁽²⁾	65.0
Realized and unrealized gains and losses, net of tax benefit of $5.6 million	221.7
Other comprehensive loss, net of tax	(29.1		)
Dividend declaration	(109.2		)
Other	2.2			—
Issuance of common stock, net of offering costs	0.2			—
Common stockholders' equity at September 30, 2019	$	4,018.3		272.9	$	14.72
Total preferred stock liquidation preference	1,001.3
Total equity at September 30, 2019	$	5,019.6

69

	Three Months Ended
(in millions)	September 30, 2019
Comprehensive income attributable to common stockholders	$	257.6
Adjustment for other comprehensive income attributable to common stockholders:
Unrealized losses on available-for-sale securities	29.1
Net loss attributable to common stockholders	286.7
Adjustments for non-Core Earnings:
Other-than-temporary impairments and loss recovery adjustments	7.3
Realized gain on investment securities	(250.2		)
Unrealized loss on investment securities	1.4
Realized and unrealized losses on mortgage servicing rights	161.2
Realized gain on termination or expiration of interest rate swaps, caps and swaptions	(75.4		)
Unrealized loss on interest rate swaps, caps and swaptions	23.9
Gains on other derivative instruments	(85.9		)
Other income	(0.1		)
Change in servicing reserves	(0.3		)
Non-cash equity compensation expense	2.0
Net benefit for income taxes on non-Core Earnings	(5.6		)
Core Earnings attributable to common stockholders, including dollar roll income (1)(2)	$	65.0

____________________

(1) Core Earnings, including dollar roll income, is a non-U.S. GAAP measure that we define as comprehensive income (loss) attributable to common stockholders, excluding “realized and unrealized gains and losses” (impairment losses, realized and unrealized gains and losses on the aggregate portfolio, reserve expense for representation and warranty obligations on MSR and non-cash compensation expense related to restricted common stock). As defined, Core Earnings, including dollar roll income, includes interest income or expense and premium income or loss on derivative instruments and servicing income, net of estimated amortization on MSR. Dollar roll income is the economic equivalent to holding and financing Agency RMBS using short-term repurchase agreements.

(2) Beginning with the period ended June 30, 2019, the company refined the MSR amortization method utilized in the calculation of Core Earnings, including dollar roll income. The new method includes an adjustment for any gain or loss on the capital used to purchase the MSR and allows Core Earnings to better reflect how the carry earned on MSR varies as a function of prepayment rates.

Liquidity and Capital Resources

Our liquidity and capital resources are managed and forecasted on a daily basis. We believe this ensures that we have sufficient liquidity to absorb market events that could negatively impact collateral valuations and result in margin calls. We also believe that it gives us the flexibility to manage our portfolio to take advantage of market opportunities.

Our principal sources of cash consist of borrowings under repurchase agreements, FHLB advances, revolving credit facilities, term notes payable, payments of principal and interest we receive on our target assets, cash generated from our operating results, and proceeds from capital market transactions. We typically use cash to repay principal and interest on our repurchase agreements, FHLB advances, revolving credit facilities and term notes payable to purchase our target assets, to make dividend payments on our capital stock, and to fund our operations.

On March 21, 2019, we completed a public offering of 18,000,000 shares of our common stock at a price of $13.76 per share. On March 22, 2019, an additional 2,700,000 shares were sold to the underwriters of the offering pursuant to an overallotment option. The net proceeds were approximately $284.5 million, after deducting offering expenses of approximately $0.3 million.

To the extent that we raise additional equity capital through capital market transactions, we anticipate using cash proceeds from such transactions to purchase additional Agency RMBS, non-Agency securities, MSR and other target assets and for other general corporate purposes.

As of September 30, 2019, we held $740.7 million in cash and cash equivalents available to support our operations; $30.2 billion of AFS securities, MSR, and derivative assets held at fair value; and $26.6 billion of outstanding debt in the form of repurchase agreements, FHLB advances, borrowings under revolving credit facilities, term notes payable and convertible senior notes. During the three and nine months ended September 30, 2019, the debt-to-equity ratio funding our AFS securities, MSR and Agency Derivatives, which includes unsecured borrowings under convertible senior notes, decreased from 5.9:10 to 5.3:1.0 and decreased from 5.8:1.0 to 5.3:1.0, respectively. The decrease was driven by increased financing on Agency RMBS purchases. During the three and nine months ended September 30, 2019, our economic debt-to-equity ratio funding our AFS securities, MSR and Agency Derivatives, which includes unsecured borrowings under convertible senior notes and implied debt on net TBA notional, decreased from 7.8:10 to 7.2:1.0 and remained constant at 7.2:1.0, respectively.

70

As of September 30, 2019, we held approximately $1.4 million of unpledged Agency securities and derivatives and $1.9 billion of unpledged non-Agency securities. As a result, we had an overall estimated unused borrowing capacity on unpledged securities of approximately $1.4 billion. As of September 30, 2019, we held approximately $69.6 million of unpledged MSR. Overall, we had unused borrowing capacity on MSR financing facilities of $227.1 million. Generally, unused borrowing capacity may be the result of our election not to utilize certain financing, as well as delays in the timing in which funding is provided or the inability to meet lenders’ eligibility requirements for specific types of asset classes. On a daily basis, we monitor and forecast our available, or excess, liquidity. Additionally, we frequently perform shock analyses against various market events to monitor the adequacy of our excess liquidity. If borrowing rates and/or collateral requirements change in the near term, we believe we are subject to less earnings volatility than a more leveraged organization.

During the nine months ended September 30, 2019, we did not experience any restrictions to our funding sources, although balance sheet capacity of counterparties have tightened due to compliance with the Basel III regulatory capital reform rules as well as management of perceived risk in the volatile interest rate environment. We expect ongoing sources of financing to be primarily repurchase agreements, FHLB advances, revolving credit facilities, term notes payable, convertible notes and similar financing arrangements. We plan to finance our assets with a moderate amount of leverage, the level of which may vary based upon the particular characteristics of our portfolio and market conditions.

As of September 30, 2019, we had master repurchase agreements in place with 47 counterparties (lenders), the majority of which are U.S. domiciled financial institutions, and we continue to evaluate additional counterparties to manage and reduce counterparty risk. Under our repurchase agreements, we are required to pledge additional assets as collateral to our lenders when the estimated fair value of the existing pledged collateral under such agreements declines and such lenders, through a margin call, demand additional collateral. Lenders generally make margin calls because of a perceived decline in the value of our assets collateralizing the repurchase agreements. This may occur following the monthly principal reduction of assets due to scheduled amortization and prepayments on the underlying mortgages, or may be caused by changes in market interest rates, a perceived decline in the market value of the investments and other market factors. To cover a margin call, we may pledge additional assets or cash. At maturity, any cash on deposit as collateral is generally applied against the repurchase agreement balance, thereby reducing the amount borrowed. Should the value of our assets suddenly decrease, significant margin calls on our repurchase agreements could result, causing an adverse change in our liquidity position.

The following table summarizes our repurchase agreements and counterparty geographical concentration at September 30, 2019 and December 31, 2018:

	September 30, 2019						December 31, 2018
(dollars in thousands)	Amount Outstanding		Net Counterparty Exposure(1)		Percent of Funding		Amount Outstanding		Net Counterparty Exposure(1)		Percent of Funding
North America	$	11,480,356	$	813,491	50.6	%	$	12,061,693	$	1,120,101	55.4	%
Europe (2)	9,073,593		573,462		35.7	%	6,728,245		646,000		31.9	%
Asia (2)	5,013,187		221,448		13.7	%	4,343,538		255,973		12.7	%
Total	$	25,567,136	$	1,608,401	100.0	%	$	23,133,476	$	2,022,074	100.0	%

____________________

(1) Represents the net carrying value of the assets sold under agreements to repurchase, including accrued interest plus any cash or assets on deposit to secure the repurchase obligation, less the amount of the repurchase liability, including accrued interest.

(2) Exposure to European and Asian domiciled banks and their U.S. subsidiaries.

71

In addition to our master repurchase agreements to fund our Agency and non-Agency securities, we have one repurchase facility and two revolving credit facilities that provide short- and long-term financing for our MSR portfolio. An overview of the facilities is presented in the table below:

(dollars in thousands)
September 30, 2019
Expiration Date (1)	Committed	Amount Outstanding		Unused Capacity		Total Capacity		Eligible Collateral
December 1, 2020	Yes (2)	$	262,861	$	137,139	$	400,000	Mortgage servicing rights (3)
March 12, 2021	Yes (2)	$	300,000	$	50,000	$	350,000	Mortgage servicing rights
December 16, 2019	No	$	—	$	40,000	$	40,000	Mortgage servicing rights

____________________

(1) The facilities are set to mature on the stated expiration date, unless extended pursuant to their terms.

(2) Commitment fee charged on unused capacity.

(3) This repurchase facility is secured by MSR notes, which are collateralized by our MSR.

Our wholly owned subsidiary, TH Insurance, is a member of the FHLB. As a member of the FHLB, TH Insurance has access to a variety of products and services offered by the FHLB, including secured advances. As of September 30, 2019, TH Insurance had $50.0 million in outstanding secured advances with a weighted average borrowing rate of 2.99%, and an additional $4.0 billion of available uncommitted capacity for borrowings insofar as TH Insurance holds adequate total assets to support a new advance. To the extent TH Insurance has uncommitted capacity, it may be adjusted at the sole discretion of the FHLB.

The ability to borrow from the FHLB is subject to our continued creditworthiness, pledging of sufficient eligible collateral to secure advances, and compliance with certain agreements with the FHLB. Each advance requires approval by the FHLB and is secured by collateral in accordance with the FHLB’s credit and collateral guidelines, as may be revised from time to time by the FHLB. Eligible collateral may include conventional 1-4 family residential mortgage loans, Agency RMBS and certain non-Agency securities with a rating of A and above.

In January 2016, the FHFA released a final rule regarding membership in the Federal Home Loan Bank system. Among other effects, the final rule excludes captive insurers from membership eligibility, including our subsidiary member, TH Insurance. Since TH Insurance was admitted as a member in 2013, it is eligible for a membership grace period that runs through February 19, 2021, during which new advances or renewals that mature beyond the grace period will be prohibited; however, any existing advances that mature beyond this grace period will be permitted to remain in place subject to their terms insofar as we maintain good standing with the FHLB. If any new advances or renewals occur, TH Insurance’s outstanding advances will be limited to 40% of its total assets.

We are subject to a variety of financial covenants under our lending agreements. The following represent the most restrictive financial covenants across the agreements as of September 30, 2019:

• Total indebtedness to net worth must be less than a specified threshold ratio in a repurchase agreement. As of September 30, 2019, our debt to net worth, as defined, was 5.4:1.0 while our threshold ratio, as defined, was 6.9:1.0.

• Cash liquidity must be greater than $100.0 million. As of September 30, 2019, our liquidity, as defined, was $740.7 million.

• Net worth must be greater than $1.5 billion or 50% of the highest net worth during the 24 calendar months prior, whichever is higher. As of September 30, 2019, 50% of the highest net worth during the 24 calendar months prior was $2.6 billion and our net worth, as defined, was $5.0 billion.

We are also subject to additional financial covenants in connection with various other agreements we enter into in the normal course of our business. We intend to continue to operate in a manner which complies with all of our financial covenants.

72

The following table summarizes assets at carrying values that were pledged or restricted as collateral for the future payment obligations of repurchase agreements, FHLB advances, revolving credit facilities, term notes payable and derivative instruments at September 30, 2019 and December 31, 2018:

(in thousands)	September 30, 2019		December 31, 2018
Available-for-sale securities, at fair value	$	26,406,106	$	25,157,999
Mortgage servicing rights, at fair value	1,581,925		1,143,918
Restricted cash	321,975		416,696
Due from counterparties	133,634		110,695
Derivative assets, at fair value	75,834		70,191
U.S. Treasuries, at fair value (1)	—		6,457
Total	$	28,519,474	$	26,905,956

____________________

(1) U.S. Treasuries received as collateral and re-pledged.

Although we generally intend to hold our target assets as long-term investments, we may sell certain of our assets in order to manage our interest rate risk and liquidity needs, to meet other operating objectives and to adapt to market conditions. Our Agency RMBS and non-Agency securities are generally actively traded and thus, in most circumstances, readily liquid. However, certain of our assets, including MSR, are subject to longer trade timelines, and, as a result, market conditions could significantly and adversely affect the liquidity of our assets. Any illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises. Our ability to quickly sell certain assets, such as MSR may be limited by delays encountered while obtaining certain regulatory approvals required for such dispositions and may be further limited by delays due to the time period needed for negotiating transaction documents, conducting diligence, and complying with regulatory requirements regarding the transfer of such assets before settlement may occur. Consequently, even if we identify a buyer for our MSR, there is no assurance that we would be able to quickly sell such assets if the need or desire arises.

In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we previously recorded our assets. Assets that are illiquid are more difficult to finance, and to the extent that we use leverage to finance assets that become illiquid, we may lose that leverage or have it reduced. Assets tend to become less liquid during times of financial stress, which is often the time that liquidity is most needed. As a result, our ability to sell assets or vary our portfolio in response to changes in economic and other conditions may be limited by liquidity constraints, which could adversely affect our results of operations and financial condition.

We cannot predict the timing and impact of future sales of our assets, if any. Because many of our assets are financed with repurchase agreements, FHLB advances, revolving credit facilities and term notes payable, a significant portion of the proceeds from sales of our assets (if any), prepayments and scheduled amortization are used to repay balances under these financing sources.

The following table provides the maturities of our repurchase agreements, FHLB advances, revolving credit facilities, term notes payable and convertible senior notes as of September 30, 2019 and December 31, 2018:

(in thousands)	September 30, 2019		December 31, 2018
Within 30 days	$	7,154,312	$	7,488,869
30 to 59 days	6,779,395		5,077,598
60 to 89 days	93,353		5,655,060
90 to 119 days	3,791,686		1,938,859
120 to 364 days	7,485,529		3,508,114
One to three years	847,496		300,000
Three to five years	394,235		573,856
Five to ten years	—		—
Ten years and over	50,000		50,000
Total	$	26,596,006	$	24,592,356

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For the three months ended September 30, 2019, our restricted and unrestricted cash balance increased approximately $458.7 million to $1.3 billion at September 30, 2019. The cash movements can be summarized by the following:

• Cash flows from operating activities. For the three months ended September 30, 2019, operating activities increased our cash balances by approximately $323.6 million, primarily driven by our financial results for the quarter.

• Cash flows from investing activities. For the three months ended September 30, 2019, investing activities increased our cash balances by approximately $2.6 billion, primarily driven by sales, net of purchases, and principal payments received on AFS securities as well as an increase in payables due to broker counterparties for settling of securities sales made in the second quarter.

• Cash flows from financing activities. For the three months ended September 30, 2019, financing activities decreased our cash balance by approximately $2.4 billion, primarily driven by decreased repurchase agreements on AFS securities sales.

Inflation

Substantially all of our assets and liabilities are financial in nature. As a result, changes in interest rates and other factors impact our performance far more than does inflation. Our financial statements are prepared in accordance with U.S. GAAP and dividends are based upon net ordinary income and capital gains as calculated for tax purposes; in each case, our results of operations and reported assets, liabilities and equity are measured with reference to historical cost or fair value without considering inflation.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We seek to manage our risks related to the credit quality of our assets, interest rates, liquidity, prepayment speeds and market value while providing an opportunity to stockholders to realize attractive risk-adjusted total return through ownership of our capital stock. Although we do not seek to avoid risk completely, we believe that risk can be quantified from historical experience and we seek to manage our risk levels in order to earn sufficient compensation to justify the risks we undertake and to maintain capital levels consistent with taking such risks.

To reduce the risks to our portfolio, we employ portfolio-wide and asset-specific risk measurement and management processes in our daily operations. Risk management tools include software and services licensed or purchased from third parties as well as proprietary and third-party analytical tools and models. There can be no guarantee that these tools and methods will protect us from market risks.

Interest Rate Risk

Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our assets and related financing obligations. Subject to maintaining our qualification as a REIT, we engage in a variety of interest rate management techniques that seek to mitigate the influence of interest rate changes on the values of our assets.

We may enter into a variety of derivative and non-derivative instruments to economically hedge interest rate risk or “duration mismatch (or gap)” by adjusting the duration of our floating-rate borrowings into fixed-rate borrowings to more closely match the duration of our assets. This particularly applies to borrowing agreements with maturities or interest rate resets of less than six months. Typically, the interest receivable terms (i.e., LIBOR) of certain derivatives match the terms of the underlying debt, resulting in an effective conversion of the rate of the related borrowing agreement from floating to fixed. The objective is to manage the cash flows associated with current and anticipated interest payments on borrowings, as well as the ability to roll or refinance borrowings at the desired amount by adjusting the duration. To help manage the adverse impact of interest rate changes on the value of our portfolio as well as our cash flows, we may, at times, enter into various forward contracts, including short securities, Agency to-be-announced securities, or TBAs, options, futures, swaps, caps, credit default swaps and total return swaps. In executing on the Company’s current interest rate risk management strategy, the Company has entered into TBAs, put and call options for TBAs, interest rate swap, cap and swaption agreements, U.S. Treasury futures and Markit IOS total return swaps. In addition, because MSR are negative duration assets, they provide a natural hedge to interest rate exposure on our Agency RMBS portfolio. In hedging interest rate risk, we seek to reduce the risk of losses on the value of our investments that may result from changes in interest rates in the broader markets, improve risk-adjusted returns and, where possible, obtain a favorable spread between the yield on our assets and the cost of our financing.

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Income of a REIT arising from “clearly identified” hedging transactions that are entered into to manage the risk of interest rate or price changes with respect to borrowings, including gain from the disposition of such hedging transactions, to the extent the hedging transactions hedge indebtedness incurred, or to be incurred, by the REIT to acquire or carry real estate assets, will not be treated as gross income for purposes of either the 75% or the 95% gross income tests. In general, for a hedging transaction to be “clearly identified,” (i) it must be identified as a hedging transaction before the end of the day on which it is acquired, originated, or entered into; and (ii) the items of risks being hedged must be identified “substantially contemporaneously” with entering into the hedging transaction (generally not more than 35 days after entering into the hedging transaction). We intend to structure any hedging transactions in a manner that does not jeopardize our qualification as a REIT, although this determination depends on an analysis of the facts and circumstances concerning each hedging transaction. We also implement part of our hedging strategy through our TRSs, which are subject to U.S. federal, state and, if applicable, local income tax.

We intend to treat our TBAs as qualifying assets for purposes of the 75% asset test, to the extent set forth in an opinion from Sidley Austin LLP substantially to the effect that, for purposes of the 75% asset test, our ownership of a TBA should be treated as ownership of the underlying Agency RMBS, and to treat income and gains from our TBAs as qualifying income for purposes of the 75% gross income test, to the extent set forth in an opinion from Sidley Austin LLP substantially to the effect that, for purposes of the 75% gross income test, any gain recognized by us in connection with the settlement of our TBAs should be treated as gain from the sale or disposition of the underlying Agency RMBS.

Interest Rate Effect on Net Interest Income

Our operating results depend in large part on differences between the income earned on our assets and our cost of borrowing and hedging activities. The costs associated with our borrowings are generally based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase while the coupon interest earned on our existing portfolio of leveraged fixed-rate Agency RMBS and non-Agency securities will remain static. Moreover, interest rates may rise at a faster pace than the yields earned on our leveraged adjustable-rate and hybrid securities. Both of these factors could result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on our asset/liability composition at the time, as well as the magnitude and duration of the interest rate increase. Further, an increase in short-term interest rates could also have a negative impact on the market value of our target assets. If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could adversely affect our liquidity and results of operations.

Our hedging techniques are partly based on assumed levels of prepayments of our target assets. If prepayments are slower or faster than assumed, the life of the investment will be longer or shorter, which could reduce the effectiveness of any hedging strategies we may use and may cause losses on such transactions. Hedging strategies involving the use of derivative securities are highly complex and may produce volatile returns.

We acquire adjustable-rate and hybrid Agency RMBS and non-Agency securities. These are assets in which some of the underlying mortgages are typically subject to periodic and lifetime interest rate caps and floors, which may limit the amount by which the security’s interest yield may change during any given period. However, our borrowing costs pursuant to our financing agreements are not subject to similar restrictions. Therefore, in a period of increasing interest rates, interest rate costs on our borrowings could increase without limitation, while the interest-rate yields on our adjustable-rate and hybrid securities could effectively be limited by caps. This issue will be magnified to the extent we acquire adjustable-rate and hybrid securities that are not based on mortgages that are fully indexed. In addition, adjustable-rate and hybrid securities may be subject to periodic payment caps that result in some portion of the interest being deferred and added to the principal outstanding. If this happens, we could receive less cash income on such assets than we would need to pay for interest costs on our related borrowings. These factors could lower our net interest income or cause a net loss during periods of rising interest rates, which would harm our financial condition, cash flows and results of operations.

Interest Rate Mismatch Risk

We fund the majority of our adjustable-rate and hybrid Agency RMBS and non-Agency securities with borrowings that are based on LIBOR, while the interest rates on these assets may be indexed to other index rates, such as the one-year Constant Maturity Treasury index, or CMT, the Monthly Treasury Average index, or MTA, or the 11^th District Cost of Funds Index, or COFI. Accordingly, any increase in LIBOR relative to these indices may result in an increase in our borrowing costs that is not matched by a corresponding increase in the interest earnings on these assets. Any such interest rate index mismatch could adversely affect our profitability, which may negatively impact distributions to our stockholders. To mitigate interest rate mismatches, we utilize the hedging strategies discussed above.

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The following table provides the indices of our variable rate Agency RMBS and non-Agency securities as of September 30, 2019 and December 31, 2018, respectively, based on carrying value (dollars in thousands).

	September 30, 2019								December 31, 2018
Index Type	Floating		Hybrid (1)		Total		Index %		Floating		Hybrid (1)		Total		Index %
CMT	$	—	$	12,695	$	12,695	—	%	$	9,502	$	15,423	$	24,925	1	%
LIBOR	3,179,354		8,796		3,188,150		93	%	3,374,141		9,278		3,383,419		93	%
Other (2)	48,508		160,691		209,199		7	%	50,597		165,054		215,651		6	%
Total	$	3,227,862	$	182,182	$	3,410,044	100	%	$	3,434,240	$	189,755	$	3,623,995	100	%

____________________

(1) “Hybrid” amounts reflect those assets with greater than twelve months to reset.

(2) “Other” includes COFI, MTA and other indices.

The following analyses of risks are based on our experience, estimates, models and assumptions. They rely on models which utilize estimates of fair value and interest rate sensitivity. Actual economic conditions or implementation of decisions may produce results that differ significantly from the estimates and assumptions used in our models.

We perform interest rate sensitivity analyses on various measures of our financial results and condition by examining how our assets, financing, and hedges will perform in various interest rate “shock” scenarios. Two of these measures are presented here in more detail. The first measure is change in annualized net interest income over the next 12 months, including interest spread from our interest rate swaps and caps and float income from custodial accounts associated with our MSR. The second measure is change in value of financial position, including the value of our derivative assets and liabilities. All changes in value are measured as the change from the September 30, 2019 financial position. All projected changes in annualized net interest income are measured as the change from the projected annualized net interest income based off current performance returns.

Computation of the cash flows for the rate-sensitive assets underpinning change in annualized net interest income are based on assumptions related to, among other things, prepayment speeds, yield on future acquisitions, slope of the yield curve, and size of the portfolio. (The assumption for prepayment speeds for Agency RMBS, non-Agency securities, and MSR, for example, is that they do not change in response to changes in interest rates.) Assumptions for the interest rate sensitive liabilities relate to, among other things, collateral requirements as a percentage of borrowings and amount/term of borrowing. These assumptions may not hold in practice; realized net interest income results may therefore be significantly different from the net interest income produced in scenario analyses. We also note that the uncertainty associated with the estimate of a change in net interest income is directly related to the size of interest rate move considered.

Computation of results for portfolio value involves a two-step process. The first is the use of models to project how the value of interest rate sensitive instruments will change in the scenarios considered. The second, and equally important, step is the improvement of the model projections based on application of our experience in assessing how current market and macroeconomic conditions will affect the prices of various interest rate sensitive instruments. Judgment is best applied to localized (less than 25 basis points, or bps) interest rate moves. The more an instantaneous interest rate move exceeds 25 bps, the greater the likelihood that accompanying market events are significant enough to warrant reconsideration of interest rate sensitivities. As with net interest income, the uncertainty associated with the estimate of change in portfolio value is therefore directly related to the size of interest rate move considered.

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The following interest rate sensitivity table displays the potential impact of instantaneous, parallel changes in interest rates of +/- 25 and +/- 50 bps on annualized net interest income and portfolio value, based on our interest sensitive financial instruments at September 30, 2019. The preceding discussion shows that the results for the 25 bps move scenarios are the best representation of our interest rate exposure, followed by those for the 50 bps move scenarios. This hierarchy reflects our localized approach to managing interest rate risk: monitoring rates and rebalancing our hedges on a day to day basis, where rate moves only rarely exceed 25 bps in either direction.

	Changes in Interest Rates
(dollars in thousands)	-50 bps			-25 bps			+25 bps			+50 bps
Change in annualized net interest income (1):	$	(36,806	)	$	(18,425	)	$	18,417		$	36,834
% change in net interest income (1)	(7.3		)%	(3.7		)%	3.7		%	7.3		%
Change in value of financial position:
Available-for-sale securities	$	317,439		$	150,259		$	(176,030	)	$	(415,719	)
As a % of common equity	7.9		%	3.7		%	(4.4		)%	(10.3		)%
Mortgage servicing rights	$	(285,186	)	$	(144,881	)	$	144,705		$	283,254
As a % of common equity	(7.1		)%	(3.6		)%	3.6		%	7.0		%
Derivatives, net	$	53,455		$	31,196		$	(41,018	)	$	(90,729	)
As a % of common equity	1.3		%	0.8		%	(1.0		)%	(2.3		)%
Reverse repurchase agreements	$	38		$	19		$	(19	)	$	(38	)
As a % of common equity	—		%	—		%	—		%	—		%
Repurchase agreements	$	(27,802	)	$	(13,901	)	$	13,901		$	27,802
As a % of common equity	(0.7		)%	(0.3		)%	0.3		%	0.7		%
Federal Home Loan Bank advances	$	(10	)	$	(5	)	$	5		$	10
As a % of common equity	—		%	—		%	—		%	—		%
Revolving credit facilities	$	(63	)	$	(32	)	$	(31	)	$	(63	)
As a % of common equity	—		%	—		%	—		%	—		%
Term notes payable	$	(132	)	$	(66	)	$	66		$	132
As a % of common equity	—		%	—		%	—		%	—		%
Convertible senior notes	$	(2,812	)	$	(1,401	)	$	1,392		$	2,774
As a % of common equity	(0.1		)%	—		%	—		%	0.1		%
Total Net Assets	$	54,927		$	21,188		$	(57,029	)	$	(192,577	)
As a % of total assets	0.2		%	0.1		%	(0.2		)%	(0.6		)%
As a % of common equity	1.4		%	0.5		%	(1.4		)%	(4.8		)%

____________________

(1) Amounts include the effect of interest spread from our interest rate swaps and caps and float income from custodial accounts associated with our MSR, but do not reflect any potential changes to dollar roll income associated with our TBA positions, which are accounted for as derivative instruments in accordance with U.S. GAAP.

Certain assumptions have been made in connection with the calculation of the information set forth in the foregoing interest rate sensitivity table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes. The base interest rate scenario assumes interest rates at September 30, 2019. As discussed, the analysis utilizes assumptions and estimates based on our experience and judgment. Furthermore, future purchases and sales of assets could materially change our interest rate risk profile.

The information set forth in the interest rate sensitivity table above and all related disclosures constitutes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. While this table reflects the estimated impact of interest rate changes on the static portfolio, we actively manage our portfolio and continuously make adjustments to the size and composition of our asset and hedge portfolio. Actual results could differ significantly from those estimated in the foregoing interest rate sensitivity table.

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Prepayment Risk

Prepayment risk is the risk that principal will be repaid at a different rate than anticipated. As we receive prepayments of principal on our Agency RMBS and non-Agency securities, premiums paid on such assets will be amortized against interest income. In general, an increase in prepayment rates will accelerate the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates will accelerate the accretion of purchase discounts, thereby increasing the interest income earned on the assets.

We believe that we will be able to reinvest proceeds from scheduled principal payments and prepayments at acceptable yields; however, no assurances can be given that, should significant prepayments occur, market conditions would be such that acceptable investments could be identified and the proceeds timely reinvested.

MSR are also subject to prepayment risk in that, generally, an increase in prepayment rates would result in a decline in value of the MSR.

Market Risk

Market Value Risk. Our AFS securities are reflected at their estimated fair value, with the difference between amortized cost and estimated fair value for all AFS securities except Agency interest-only securities reflected in accumulated other comprehensive income. The estimated fair value of these securities fluctuates primarily due to changes in interest rates, market valuation of credit risks, and other factors. Generally, in a rising interest rate environment, we would expect the fair value of these securities to decrease; conversely, in a decreasing interest rate environment, we would expect the fair value of these securities to increase. As market volatility increases or liquidity decreases, the fair value of our assets may be adversely impacted.

Our MSR are reflected at their estimated fair value. The estimated fair value fluctuates primarily due to changes in interest rates and other factors. Generally, in a rising interest rate environment, we would expect prepayments to decrease, resulting in an increase in the fair value of our MSR. Conversely, in a decreasing interest rate environment, we would expect prepayments to increase, resulting in a decline in fair value.

Real estate risk. Residential property values are subject to volatility and may be affected adversely by a number of factors, including national, regional and local economic conditions; local real estate conditions (such as an oversupply of housing); changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; retroactive changes to building or similar codes; and natural disasters and other catastrophes. Decreases in property values reduce the value of the collateral for residential mortgage loans and the potential proceeds available to borrowers to repay the loans, which could cause us to suffer losses on our non-Agency securities and may increase costs to service the residential mortgage loans underlying our MSR.

Liquidity Risk

Our liquidity risk is principally associated with our financing of long-maturity assets with shorter-term borrowings in the form of repurchase agreements, FHLB advances and borrowings under revolving credit facilities. Although the interest rate adjustments of these assets and liabilities fall within the guidelines established by our operating policies, maturities are not required to be, nor are they, matched.

Should the value of our assets pledged as collateral suddenly decrease, lender margin calls could increase, causing an adverse change in our liquidity position. Moreover, the portfolio construction of MSR, which generally have negative duration, combined with levered RMBS, which generally have positive duration, may in certain market scenarios lead to variation margin calls, which could negatively impact our excess cash position. Additionally, if the FHLB or one or more of our repurchase agreement or revolving credit facility counterparties chose not to provide ongoing funding, our ability to finance would decline or exist at possibly less advantageous terms. As such, we cannot assure that we will always be able to roll over our repurchase agreements, FHLB advances and revolving credit facilities. See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in this Quarterly Report on Form 10-Q for further information about our liquidity and capital resource management.

Credit Risk

We believe that our investment strategy will generally keep our risk of credit losses low to moderate. However, we retain the risk of potential credit losses on all of the loans underlying our non-Agency securities. With respect to our non-Agency securities that are senior in the credit structure, credit support contained in deal structures provide a level of protection from losses. We seek to manage the remaining credit risk through our pre-acquisition due diligence process, which includes comprehensive underwriting, and by factoring assumed credit losses into the purchase prices we pay for non-Agency securities. In addition, with respect to any particular target asset, we evaluate relative valuation, supply and demand trends, shape of yield curves, prepayment rates, delinquency and default rates, recovery of various sectors and vintage of collateral. At times, we enter into credit default swaps or other derivative instruments in an attempt to manage our credit risk. Nevertheless, unanticipated credit losses could adversely affect our operating results.

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Item 4. Controls and Procedures

A review and evaluation was performed by our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that review and evaluation, the CEO and CFO have concluded that our current disclosure controls and procedures, as designed and implemented, were effective as of September 30, 2019. Although our CEO and CFO have determined our disclosure controls and procedures were effective at the end of the period covered by this Quarterly Report on Form 10-Q, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the reports we submit under the Exchange Act.

There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we may be involved in various legal claims and/or administrative proceedings that arise in the ordinary course of our business. As of the date of this filing, we are not party to any litigation or legal proceedings or, to the best of our knowledge, any threatened litigation or legal proceedings, which, in our opinion, individually or in the aggregate, would have a material adverse effect on our results of operations or financial condition.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth under the heading “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018, or the Form 10-K. The materialization of any risks and uncertainties identified in our Forward-Looking Statements contained in this Quarterly Report on Form 10-Q, together with those previously disclosed in the Form 10-K or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations, and cash flows. See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)None.

(b)None.

(c)The Company’s share repurchase program allows for the repurchase of up to an aggregate of 37,500,000 shares of the Company’s common stock. Shares may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to a trading plan in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act or by any combination of such methods. The manner, price, number and timing of share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules. The share repurchase program does not require the purchase of any minimum number of shares, and, subject to SEC rules, purchases may be commenced or suspended at any time without prior notice. The share repurchase program does not have an expiration date. As of September 30, 2019, we had repurchased 12,069,000 shares under the program for a total cost of $200.4 million. The following table reflects purchases under the plan during the three months ended September 30, 2019:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans of Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2019 through July 31, 2019	—	$	—	—	25,432,500
August 1, 2019 through August 31, 2019	1,500	12.50		1,500	25,431,000
September 1, 2019 through September 30, 2019	—	—		—	25,431,000
Total	1,500	$	12.50	1,500	25,431,000

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits

A list of exhibits to this Quarterly Report on Form 10-Q is set forth below.

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Exhibit Number	Exhibit Description
3.1	Articles of Amendment and Restatement of Two Harbors Investment Corp. (incorporated by reference to Exhibit 99.1 to Annex B filed with Amendment No. 4).
3.2	Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp. (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2012).
3.3	Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp., effective as of 5:01 PM Eastern Time on November 1, 2017 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 2, 2017).
3.4	Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp., effective as of 5:02 PM Eastern Time on November 1, 2017 (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 2, 2017).
3.5	Articles Supplementary to the Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp. designating the shares of 8.125% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.3 of the Registrant’s Form 8-A filed with the SEC on March 13, 2017).
3.6	Articles Supplementary to the Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp. designating the shares of 7.625% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.4 of the Registrant’s Form 8-A filed with the SEC on July 17, 2017).
3.7	Articles Supplementary to the Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp. designating the shares of 7.25% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.7 of the Registrant’s Form 8-A filed with the SEC on November 22, 2017).
3.8	Articles Supplementary to the Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp. designating the shares of 7.75% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.8 of the Registrant’s Form 8-A filed with the SEC on July 31, 2018).
3.9	Articles Supplementary to the Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp. designating the shares of 7.50% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.9 of the Registrant’s Form 8-A filed with the SEC on July 31, 2018).
3.10	Amended and Restated Bylaws of Two Harbors Investment Corp. (incorporated by reference to Exhibit 3.4 to the Registrant’s Current Report on Form 8-K filed with the SEC on April 6, 2017).
31.1	Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)
31.2	Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)
32.1	Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished herewith)
32.2	Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished herewith)
101	Financial statements from the Quarterly Report on Form 10-Q of Two Harbors Investment Corp. for the three months ended September 30, 2019, filed with the SEC on November 6, 2019, formatted in Inline XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) the Condensed Consolidated Statements of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to the Condensed Consolidated Financial Statements. (filed herewith)
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). (filed herewith)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			TWO HARBORS INVESTMENT CORP.
Dated:	November 6, 2019	By:	/s/ Thomas E. Siering
			Thomas E. Siering Chief Executive Officer, President and Director (Principal Executive Officer)
Dated:	November 6, 2019	By:	/s/ Mary Riskey
			Mary Riskey Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-31.1

EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Thomas E. Siering, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Two Harbors Investment Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 6, 2019	/s/ Thomas E. Siering
		Thomas E. Siering
		Chief Executive Officer and President

EX-31.2

EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Mary Riskey, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Two Harbors Investment Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 6, 2019	/s/ Mary Riskey
		Mary Riskey
		Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION

Pursuant to 18 U.S.C. §1350, the undersigned officer of Two Harbors Investment Corp. (the “Registrant”) hereby certifies that the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2019 (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:	November 6, 2019	/s/ Thomas E. Siering
		Thomas E. Siering
		Chief Executive Officer and President

The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Quarterly Report or as a separate disclosure document.

EX-32.2

EXHIBIT 32.2

CERTIFICATION

Pursuant to 18 U.S.C. §1350, the undersigned officer of Two Harbors Investment Corp. (the “Registrant”) hereby certifies that the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2019 (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:	November 6, 2019	/s/ Mary Riskey
		Mary Riskey
		Chief Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Quarterly Report or as a separate disclosure document.

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Schedule of Mortgage Servicing Rights Sensitivity Analysis of Fair Value (Details) $ in Thousands	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Sensitivity Analysis of Fair Value of Interests Continued to be Held by Transferor, Servicing Assets or Liabilities, Impact of Adverse Change in Assumption [Line Items]
Impact on fair value of 10% adverse change in prepayment speed	$ (96,530)	$ (67,245)
Impact on fair value of 20% adverse change in prepayment speed	(182,573)	(130,371)
Impact on fair value of 10% adverse change in delinquency	(6,435)	(6,911)
Impact on fair value of 20% adverse change in delinquency	(12,898)	(13,688)
Impact on fair value of 10% adverse change in discount rate	(37,901)	(62,528)
Impact on fair value of 20% adverse change in discount rate	$ (74,275)	$ (121,135)
Measurement Input, Constant Prepayment Rate [Member]
Sensitivity Analysis of Fair Value of Interests Continued to be Held by Transferor, Servicing Assets or Liabilities, Impact of Adverse Change in Assumption [Line Items]
Weighted average assumption	0.161	0.086
Measurement Input, Default Rate [Member]
Sensitivity Analysis of Fair Value of Interests Continued to be Held by Transferor, Servicing Assets or Liabilities, Impact of Adverse Change in Assumption [Line Items]
Weighted average assumption	0.008	0.013
Measurement Input, Discount Rate [Member]
Sensitivity Analysis of Fair Value of Interests Continued to be Held by Transferor, Servicing Assets or Liabilities, Impact of Adverse Change in Assumption [Line Items]
Weighted average assumption	0.070	0.094

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Available-for-Sale Securities, at Fair Value Schedule of Unrealized Loss on Investments (Details) $ in Thousands	Sep. 30, 2019 USD ($) position	Dec. 31, 2018 USD ($) position
Debt Securities, Available-for-sale [Abstract]
Debt Securities, Available-for-sale, Number of Positions | position	1,209	1,550
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, Less than 12 Months, Number of Positions | position	89	290
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions | position	145	489
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, Less than 12 Months	$ 1,456,511	$ 4,386,946
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	(22,884)	(66,520)
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer	751,426	9,501,123
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	(55,518)	(370,082)
Debt Securities, Available-for-sale, Unrealized Loss Position	2,207,937	13,888,069
Debt Securities, Available-for-sale, Unrealized Loss Position, Accumulated Loss	$ (78,402)	$ (436,602)

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Schedule of Total Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents [Abstract]
Cash and cash equivalents	$ 740,698	$ 409,758
Restricted cash	509,689	688,006
Total cash, cash equivalents and restricted cash	$ 1,250,387	$ 1,097,764	$ 1,311,483	$ 1,054,995

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Derivative Instruments and Hedging Activities Credit Risk - Counterparty Exposure (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Derivative assets, at fair value	$ 230,620	$ 319,981
Derivative liabilities, at fair value	$ (17,201)	$ (820,590)

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Schedule of Underlying Assets of Repurchase Agreements when Amount of Repurchase Agreements Exceeds 10 Percent of Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets Sold under Agreements to Repurchase [Line Items]
Assets pledged or restricted as collateral for repurchase agreements	$ 27,413,433	$ 25,530,229
Available-for-sale Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Assets pledged or restricted as collateral for repurchase agreements	26,351,294	24,240,507
Mortgage Servicing Rights [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Assets pledged or restricted as collateral for repurchase agreements	530,696	685,683
Restricted Cash and Cash Equivalents [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Assets pledged or restricted as collateral for repurchase agreements	321,975	416,696
Due From Counterparties [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Assets pledged or restricted as collateral for repurchase agreements	133,634	110,695
Derivative Financial Instruments, Assets [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Assets pledged or restricted as collateral for repurchase agreements	75,834	70,191
US Treasury Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Assets pledged or restricted as collateral for repurchase agreements	$ 0	$ 6,457

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Schedule of Maturities of Federal Home Loan Bank Advances (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Schedule of Maturities of Federal Home Loan Bank Advances [Line Items]
Federal Home Loan Bank advances	$ 50,000	$ 865,024
Maturity Within One Year [Member]
Schedule of Maturities of Federal Home Loan Bank Advances [Line Items]
Federal Home Loan Bank advances	0	815,024
Maturity One to Three Years [Member]
Schedule of Maturities of Federal Home Loan Bank Advances [Line Items]
Federal Home Loan Bank advances	0	0
Maturity Three to Five Years [Member]
Schedule of Maturities of Federal Home Loan Bank Advances [Line Items]
Federal Home Loan Bank advances	0	0
Maturity Five to Ten Years [Member]
Schedule of Maturities of Federal Home Loan Bank Advances [Line Items]
Federal Home Loan Bank advances	0	0
Maturity Over Ten Years [Member]
Schedule of Maturities of Federal Home Loan Bank Advances [Line Items]
Federal Home Loan Bank advances	$ 50,000	$ 50,000

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Fair Value, Quantitative Information about Level 3 Fair Value Measurements (Details)	Sep. 30, 2019	Dec. 31, 2018
Measurement Input, Constant Prepayment Rate [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value measurement input	0.161	0.086
Measurement Input, Constant Prepayment Rate [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value measurement input	0.130	0.076
Measurement Input, Constant Prepayment Rate [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value measurement input	0.183	0.096
Measurement Input, Default Rate [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value measurement input	0.008	0.013
Measurement Input, Default Rate [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value measurement input	0.006	0.010
Measurement Input, Default Rate [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value measurement input	0.009	0.015
Measurement Input, Discount Rate [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value measurement input	0.070	0.094
Measurement Input, Discount Rate [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value measurement input	0.061	0.082
Measurement Input, Discount Rate [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value measurement input	0.080	0.107

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Organization and Operations

9 Months Ended

Sep. 30, 2019

Organization and Operations [Abstract]

Organization and Operations

Organization and Operations

Two Harbors Investment Corp., or the Company, is a Maryland corporation investing in and managing Agency residential mortgage-backed securities, or Agency RMBS, non-Agency securities, mortgage servicing rights, or MSR, and other financial assets. The Company’s Chief Investment Officer manages the investment portfolio as a whole and resources are allocated and financial performance is assessed on a consolidated basis. The Company is externally managed and advised by PRCM Advisers LLC, or PRCM Advisers, which is a subsidiary of Pine River Capital Management L.P., or Pine River. The Company’s common stock is listed on the NYSE under the symbol “TWO”.

The Company was incorporated on May 21, 2009, and commenced operations as a publicly traded company on October 28, 2009, upon completion of a merger with Capitol Acquisition Corp., or Capitol, which became a wholly owned indirect subsidiary of the Company as a result of the merger.

The Company has elected to be treated as a real estate investment trust, or REIT, as defined under the Internal Revenue Code of 1986, as amended, or the Code, for U.S. federal income tax purposes. As long as the Company continues to comply with a number of requirements under federal tax law and maintains its qualification as a REIT, the Company generally will not be subject to U.S. federal income taxes to the extent that the Company distributes its taxable income to its stockholders on an annual basis and does not engage in prohibited transactions. However, certain activities that the Company may perform may cause it to earn income which will not be qualifying income for REIT purposes. The Company has designated certain of its subsidiaries as taxable REIT subsidiaries, or TRSs, as defined in the Code, to engage in such activities.

On April 26, 2018, the Company announced that it had entered into a definitive merger agreement to acquire CYS Investments, Inc., or CYS, a Maryland corporation that invested primarily in Agency RMBS and was treated as a REIT for U.S. federal income tax purposes. The transaction was approved by the stockholders of both the Company and CYS on July 27, 2018, and the merger was completed on July 31, 2018, at which time CYS became a wholly owned subsidiary of the Company. In exchange for all of the shares of CYS common stock outstanding immediately prior to the effective time of the merger, the Company issued approximately 72.6 million new shares of common stock, as well as aggregate cash consideration of $15.0 million, to CYS common stockholders. In addition, the Company issued 3 million shares of newly classified Series D cumulative redeemable preferred stock and 8 million shares of newly classified Series E cumulative redeemable preferred stock in exchange for all shares of CYS’s Series A and Series B cumulative redeemable preferred stock outstanding prior to the effective time of the merger.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Stockholders' Equity
Preferred stock par value per share (in usd per share)	$ 0.01	$ 0.01
Preferred shares authorized (in shares)	50,000,000	50,000,000
Preferred shares issued (in shares)	40,050,000	40,050,000
Preferred shares outstanding (in shares)	40,050,000	40,050,000
Preferred stock liquidation preference	$ 1,001,250	$ 1,001,250
Common stock par value per share (in usd per share)	$ 0.01	$ 0.01
Common shares authorized (in shares)	450,000,000	450,000,000
Common shares issued (in shares)	272,895,402	248,085,721
Common shares outstanding (in shares)	272,895,402	248,085,721
Assets of consolidated variable interest entities	$ 394,756	$ 0
Liabilities of consolidated variable interest entities	$ 394,756	$ 0

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Repurchase Agreements

9 Months Ended

Sep. 30, 2019

Disclosure of Repurchase Agreements [Abstract]

Repurchase Agreements

Repurchase Agreements

As of September 30, 2019 and December 31, 2018, the Company had outstanding $25.6 billion and $23.1 billion, respectively, of repurchase agreements. Excluding the effect of the Company’s interest rate swaps and caps, the repurchase agreements had a weighted average borrowing rate of 2.47% and 2.68% and weighted average remaining maturities of 81 and 66 days as of September 30, 2019 and December 31, 2018, respectively.

At September 30, 2019 and December 31, 2018, the repurchase agreement balances were as follows:

(in thousands)	September 30, 2019		December 31, 2018
Short-term	$	25,304,275	$	22,833,476
Long-term	262,861		300,000
Total	$	25,567,136	$	23,133,476

At September 30, 2019 and December 31, 2018, the repurchase agreements had the following characteristics and remaining maturities:

	September 30, 2019
	Collateral Type
(in thousands)	Agency RMBS			Non-Agency Securities			Agency Derivatives			Mortgage Servicing Rights			Total Amount Outstanding
Within 30 days	$	6,804,755		$	328,032		$	21,525		$	—		$	7,154,312
30 to 59 days	6,450,044			317,390			11,961			—			6,779,395
60 to 89 days	—			93,353			—			—			93,353
90 to 119 days	3,655,339			136,347			—			—			3,791,686
120 to 364 days	7,124,853			345,547			15,129			—			7,485,529
One year and over	—			—			—			262,861			262,861
Total	$	24,034,991		$	1,220,669		$	48,615		$	262,861		$	25,567,136
Weighted average borrowing rate	2.41		%	3.34		%	3.08		%	3.77		%	2.47		%

	December 31, 2018
	Collateral Type
(in thousands)	Agency RMBS			Non-Agency Securities			Agency Derivatives			Mortgage Servicing Rights			Total Amount Outstanding
Within 30 days	$	6,712,021		$	770,287		$	6,561		$	—		$	7,488,869
30 to 59 days	4,557,688			496,466			23,444			—			5,077,598
60 to 89 days	5,410,967			242,473			1,621			—			5,655,061
90 to 119 days	1,209,395			722,399			7,065			—			1,938,859
120 to 364 days	2,201,325			463,939			7,825			—			2,673,089
One year and over	—			—			—			300,000			300,000
Total	$	20,091,396		$	2,695,564		$	46,516		$	300,000		$	23,133,476
Weighted average borrowing rate	2.52		%	3.65		%	3.34		%	4.51		%	2.68		%

The following table summarizes assets at carrying values that are pledged or restricted as collateral for the future payment obligations of repurchase agreements and derivative instruments:

(in thousands)	September 30, 2019		December 31, 2018
Available-for-sale securities, at fair value	$	26,351,294	$	24,240,507
Mortgage servicing rights, at fair value	530,696		685,683
Restricted cash	321,975		416,696
Due from counterparties	133,634		110,695
Derivative assets, at fair value	75,834		70,191
U.S. Treasuries (1)	—		6,457
Total	$	27,413,433	$	25,530,229

____________________

(1) U.S. Treasuries received as collateral and re-pledged.

Although the transactions under repurchase agreements represent committed borrowings until maturity, the respective lender retains the right to mark the underlying collateral to fair value. A reduction in the value of pledged assets would require the Company to provide additional collateral or fund margin calls.

The following table summarizes certain characteristics of the Company’s repurchase agreements and counterparty concentration at September 30, 2019 and December 31, 2018:

	September 30, 2019							December 31, 2018
(dollars in thousands)	Amount Outstanding		Net Counterparty Exposure (1)		Percent of Equity		Weighted Average Days to Maturity	Amount Outstanding		Net Counterparty Exposure (1)		Percent of Equity		Weighted Average Days to Maturity
Barclays Capital Inc.	$	3,710,843	$	269,905	5	%	63	$	2,508,277	$	280,148	7	%	50
Royal Bank of Canada	2,665,484		226,480		5	%	123	2,504,438		342,739		8	%	94
All other counterparties (2)	19,190,809		1,112,016		22	%	78	18,120,761		1,399,187		33	%	64
Total	$	25,567,136	$	1,608,401				$	23,133,476	$	2,022,074

____________________

(1) Represents the net carrying value of the assets sold under agreements to repurchase, including accrued interest plus any cash or assets on deposit to secure the repurchase obligation, less the amount of the repurchase liability, including accrued interest.

(2) Represents amounts outstanding with 23 and 28 counterparties at September 30, 2019 and December 31, 2018, respectively.

The Company does not anticipate any defaults by its repurchase agreement counterparties. There can be no assurance, however, that any such default or defaults will not occur.

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Cash, Cash Equivalents and Restricted Cash

9 Months Ended

Sep. 30, 2019

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents [Abstract]

Cash, Cash Equivalents and Restricted Cash

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash held in bank accounts and cash held in money market funds on an overnight basis.

The Company is required to maintain certain cash balances with counterparties for securities and derivatives trading activity and collateral for the Company’s repurchase agreements and FHLB advances in restricted accounts. The Company has also placed cash in a restricted account pursuant to a letter of credit on an office space lease.

The following table presents the Company’s restricted cash balances as of September 30, 2019 and December 31, 2018:

(in thousands)	September 30, 2019		December 31, 2018
Restricted cash balances held by trading counterparties:
For securities and loan trading activity	$	45,050	$	51,350
For derivatives trading activity	142,604		219,900
As restricted collateral for repurchase agreements and Federal Home Loan Bank advances	321,975		416,696
Total restricted cash balances held by trading counterparties	509,629		687,946
Restricted cash balance pursuant to letter of credit on office lease	60		60
Total	$	509,689	$	688,006

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Company’s condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018 that sum to the total of the same such amounts shown in the statements of cash flows:

(in thousands)	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	740,698	$	409,758
Restricted cash	509,689		688,006
Total cash, cash equivalents and restricted cash	$	1,250,387	$	1,097,764

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Preferred Stock

The following is a summary of the Company’s series of cumulative redeemable preferred stock issued and outstanding as of September 30, 2019. In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company, each series of preferred stock will rank on parity with one another and rank senior to the Company's common stock with respect to the payment of the dividends and the distribution of assets.

As of September 30, 2019
(in thousands)
Class of Stock		Issuance Date	Shares Issued and Outstanding	Carrying Value		Contractual Rate		Redemption Date (1)	Fixed to Floating Rate Conversion Date (2)	Floating Annual Rate (3)
Fixed-to-Floating Rate
Series A		March 14, 2017	5,750	$	138,872	8.125	%	April 27, 2027	April 27, 2027	3M LIBOR + 5.660%
Series B		July 19, 2017	11,500	278,094		7.625	%	July 27, 2027	July 27, 2027	3M LIBOR + 5.352%
Series C		November 27, 2017	11,800	285,585		7.250	%	January 27, 2025	January 27, 2025	3M LIBOR + 5.011%
Fixed Rate
Series D		July 31, 2018	3,000	74,964		7.750	%	July 31, 2018	N/A	N/A
Series E		July 31, 2018	8,000	199,986		7.500	%	July 31, 2018	N/A	N/A
	Total		40,050	$	977,501

____________________

(1) Subject to the Company’s right under limited circumstances to redeem the preferred stock earlier than the redemption date disclosed in order to preserve its qualification as a REIT or following a change in control of the Company.

(2) For the fixed-to-floating rate redeemable preferred stock, the dividend rate will remain at a annual fixed rate of the $25.00 per share liquidation preference from the issuance date up to but not including the transition date disclosed within. Effective the conversion date and onward, dividends will accumulate on a floating rate basis according to the terms disclosed within (3) below.

(3)

On and after the fixed to floating rate conversion date, the dividend will accumulate and be payable quarterly at a percentage of the $25.00 per share liquidation preference equal to an annual floating rate of three-month LIBOR plus the spread indicated within each preferred class.

Preferred Dividends Declared

The following table presents cash dividends declared by the Company on its preferred stock from December 31, 2017 through September 30, 2019:

Declaration Date	Record Date	Payment Date	Cash Dividend Per Preferred Share
Series A Preferred Stock:
September 19, 2019	October 11, 2019	October 28, 2019	$	0.507810
June 19, 2019	July 12, 2019	July 29, 2019	$	0.507810
March 19, 2019	April 12, 2019	April 29, 2019	$	0.507810
December 18, 2018	December 31, 2018	January 28, 2019	$	0.507810
September 20, 2018	October 12, 2018	October 29, 2018	$	0.507810
June 19, 2018	July 12, 2018	July 27, 2018	$	0.507810
March 20, 2018	April 12, 2018	April 27, 2018	$	0.507810
Series B Preferred Stock:
September 19, 2019	October 11, 2019	October 28, 2019	$	0.476560
June 19, 2019	July 12, 2019	July 29, 2019	$	0.476560
March 19, 2019	April 12, 2019	April 29, 2019	$	0.476560
December 18, 2018	December 31, 2018	January 28, 2019	$	0.476560
September 20, 2018	October 12, 2018	October 29, 2018	$	0.476560
June 19, 2018	July 12, 2018	July 27, 2018	$	0.476560
March 20, 2018	April 12, 2018	April 27, 2018	$	0.476560
Series C Preferred Stock:
September 19, 2019	October 11, 2019	October 28, 2019	$	0.453130
June 19, 2019	July 12, 2019	July 29, 2019	$	0.453130
March 19, 2019	April 12, 2019	April 29, 2019	$	0.453130
December 18, 2018	December 31, 2018	January 28, 2019	$	0.453130
September 20, 2018	October 12, 2018	October 29, 2018	$	0.453130
June 19, 2018	July 12, 2018	July 27, 2018	$	0.453130
March 20, 2018	April 12, 2018	April 27, 2018	$	0.453130
Series D Preferred Stock:
September 19, 2019	October 1, 2019	October 15, 2019	$	0.484375
June 19, 2019	July 1, 2019	July 15, 2019	$	0.484375
March 19, 2019	April 1, 2019	April 15, 2019	$	0.484375
December 18, 2018	December 31, 2018	January 28, 2019	$	0.484375
September 20, 2018	October 1, 2018	October 15, 2018	$	0.484375
Series E Preferred Stock:
September 19, 2019	October 1, 2019	October 15, 2019	$	0.468750
June 19, 2019	July 1, 2019	July 15, 2019	$	0.468750
March 19, 2019	April 1, 2019	April 15, 2019	$	0.468750
December 18, 2018	December 31, 2018	January 28, 2019	$	0.468750
September 20, 2018	October 1, 2018	October 15, 2018	$	0.468750

Schedule of Stock by Class

The following table presents a reconciliation of the common shares outstanding for the three and nine months ended September 30, 2019 and 2018:

	Number of common shares
Common shares outstanding, December 31, 2017	174,496,587
Issuance of common stock	72,608,932
Issuance of restricted stock (1)	972,651
Common shares outstanding, September 30, 2018	248,078,170
Common shares outstanding, December 31, 2018	248,085,721
Issuance of common stock	24,399,107
Issuance of restricted stock (1)	412,074
Repurchase of common stock	(1,500	)
Common shares outstanding, September 30, 2019	272,895,402

____________________

(1)

Represents shares of restricted stock granted under the Second Restated 2009 Equity Incentive Plan, net of forfeitures, of which 1,202,252 restricted shares remained subject to vesting requirements at September 30, 2019.

Common Dividends Declared

The following table presents cash dividends declared by the Company on its common stock from December 31, 2017 through September 30, 2019:

Declaration Date	Record Date	Payment Date	Cash Dividend Per Common Share
September 19, 2019	September 30, 2019	October 28, 2019	$	0.400000
June 19, 2019	July 1, 2019	July 29, 2019	$	0.400000
March 19, 2019	March 29, 2019	April 29, 2019	$	0.470000
December 18, 2018	December 31, 2018	January 28, 2019	$	0.470000
September 20, 2018	October 1, 2018	October 29, 2018	$	0.311630
July 13, 2018	July 25, 2018	July 30, 2018	$	0.158370
June 19, 2018	June 29, 2018	July 27, 2018	$	0.470000
March 20, 2018	April 2, 2018	April 27, 2018	$	0.470000

Schedule of Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income at September 30, 2019 and December 31, 2018 was as follows:

(in thousands)	September 30, 2019			December 31, 2018
Available-for-sale securities
Unrealized gains	$	779,919		$	498,744
Unrealized losses	(31,565		)	(387,927		)
Accumulated other comprehensive income	$	748,354		$	110,817

Reclassification out of Accumulated Other Comprehensive Income

The following table summarizes reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2019 and 2018:

	Affected Line Item in the Statements of Comprehensive (Loss) Income	Amount Reclassified out of Accumulated Other Comprehensive Income
		Three Months Ended					Nine Months Ended
(in thousands)		September 30,					September 30,
		2019			2018		2019			2018
Other-than-temporary impairments on AFS securities	Total other-than-temporary impairment losses	$	5,950		$	95	$	11,004		$	363
Realized losses (gains) on sales of certain AFS securities, net of tax	Gain (loss) on investment securities	(226,790		)	30,368		(189,620		)	52,654
Total		$	(220,840	)	$	30,463	$	(178,616	)	$	53,017

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Servicing Activities (Tables)

9 Months Ended

Sep. 30, 2019

Disclosures Pertaining to Servicing Assets and Servicing Liabilities [Abstract]

Schedule of Servicing Assets at Fair Value

The following table summarizes activity related to MSR for the three and nine months ended September 30, 2019 and 2018.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2019			2018			2019			2018
Balance at beginning of period	$	1,800,826		$	1,450,261		$	1,993,440		$	1,086,717
Purchases of mortgage servicing rights	76,588			201,197			341,110			480,462
Sales of mortgage servicing rights	905			—			905			—
Changes in fair value due to:
Changes in valuation inputs or assumptions used in the valuation model	(144,071		)	62,680			(477,710		)	209,610
Other changes in fair value (1)	(90,529		)	(42,085		)	(198,585		)	(107,754		)
Other changes (2)	7,837			(8,029		)	(7,604		)	(5,011		)
Balance at end of period	$	1,651,556		$	1,664,024		$	1,651,556		$	1,664,024

____________________

(1) Other changes in fair value primarily represents changes due to the realization of expected cash flows.

(2) Other changes includes purchase price adjustments, contractual prepayment protection, and changes due to the Company’s purchase of the underlying collateral.

Schedule of Sensitivity Analysis of Fair Value, Transferor's Interests in Transferred Financial Assets

As of September 30, 2019 and December 31, 2018, the key economic assumptions and sensitivity of the fair value of MSR to immediate 10% and 20% adverse changes in these assumptions were as follows:

(dollars in thousands)	September 30, 2019			December 31, 2018
Weighted average prepayment speed:	16.1		%	8.6	%
Impact on fair value of 10% adverse change	$	(96,530	)	(67,245	)
Impact on fair value of 20% adverse change	$	(182,573	)	(130,371	)
Weighted average delinquency:	0.8		%	1.3	%
Impact on fair value of 10% adverse change	$	(6,435	)	(6,911	)
Impact on fair value of 20% adverse change	$	(12,898	)	(13,688	)
Weighted average discount rate:	7.0		%	9.4	%
Impact on fair value of 10% adverse change	$	(37,901	)	(62,528	)
Impact on fair value of 20% adverse change	$	(74,275	)	(121,135	)

Components of Servicing Revenue

The following table presents the components of servicing income recorded on the Company’s condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2019		2018		2019		2018
Servicing fee income	$	106,700	$	80,690	$	327,184	$	218,022
Ancillary and other fee income	499		358		1,302		1,004
Float income	18,826		8,570		45,436		19,447
Total	$	126,025	$	89,618	$	373,922	$	238,473

Schedule of Total Serviced Mortgage Assets

The following table presents the number of loans and unpaid principal balance of the mortgage assets for which the Company manages the servicing as of September 30, 2019 and December 31, 2018:

	September 30, 2019			December 31, 2018
(dollars in thousands)	Number of Loans	Unpaid Principal Balance		Number of Loans	Unpaid Principal Balance
Mortgage servicing rights	742,723	$	165,332,533	717,167	$	163,102,308
Residential mortgage loans in securitization trusts	3,340	2,166,758		3,612	2,392,471
Other assets	74	12,833		220	34,374
Total serviced mortgage assets	746,137	$	167,512,124	720,999	$	165,529,153

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Fair Value (Tables)

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following tables display the Company’s assets and liabilities measured at fair value on a recurring basis. The Company often economically hedges the fair value change of its assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items, and therefore do not directly display the impact of the Company’s risk management activities.

	Recurring Fair Value Measurements
	September 30, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale securities	$	—	$	28,172,321	$	146,237	$	28,318,558
Mortgage servicing rights	—		—		1,651,556		1,651,556
Derivative assets	16,656		213,964		—		230,620
Total assets	$	16,656	$	28,386,285	$	1,797,793	$	30,200,734
Liabilities
Derivative liabilities	$	17,188	$	13	$	—	$	17,201
Total liabilities	$	17,188	$	13	$	—	$	17,201

	Recurring Fair Value Measurements
	December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale securities	$	—	$	25,447,447	$	105,157	$	25,552,604
Mortgage servicing rights	—		—		1,993,440		1,993,440
Derivative assets	21,602		298,379		—		319,981
Total assets	$	21,602	$	25,745,826	$	2,098,597	$	27,866,025
Liabilities
Derivative liabilities	$	—	$	820,590	$	—	$	820,590
Total liabilities	$	—	$	820,590	$	—	$	820,590

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

The following table presents the reconciliation for the Company’s Level 3 assets measured at fair value on a recurring basis:

	Three Months Ended							Nine Months Ended
	September 30, 2019							September 30, 2019
(in thousands)	Available-For-Sale Securities			Mortgage Servicing Rights				Available-For-Sale Securities			Mortgage Servicing Rights
Beginning of period level 3 fair value	$	217,210		$	1,800,826			$	105,157		$	1,993,440
Gains (losses) included in net income:
Realized (losses) gains, net	(3,448		)	(92,699		)		(15,490		)	(200,466		)
Unrealized (losses) gains, net	—			(141,815		)	(1)	—			(475,454		)	(1)
Net gains (losses) included in net income	(3,448		)	(234,514		)		(15,490		)	(675,920		)
Other comprehensive (loss) income	(617		)	—				2,702			—
Purchases	—			76,588				7,468			341,110
Sales	—			819				—			530
Settlements	—			7,837				—			(7,604		)
Gross transfers into level 3	93,541			—				366,466			—
Gross transfers out of level 3	(160,449		)	—				(320,066		)	—
End of period level 3 fair value	$	146,237		$	1,651,556			$	146,237		$	1,651,556
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	—		$	(136,922	)	(2)	$	—		$	(448,075	)	(2)
Change in unrealized gains or losses for the period included in other comprehensive (loss) income for assets held at the end of the reporting period	$	(617	)	$	—			$	2,608		$	—

____________________

(1) The change in unrealized gains or losses on MSR was recorded in (loss) gain on servicing asset on the condensed consolidated statements of comprehensive income (loss).

(2)

The change in unrealized gains or losses on MSR that were held at the end of the reporting period was recorded in (loss) gain on servicing asset on the condensed consolidated statements of comprehensive income (loss).

Fair Value Inputs, Assets, Quantitative Information

 The tables below present information about the significant unobservable inputs used by the third-party pricing providers in the fair value measurement of the Company’s MSR classified as Level 3 fair value assets at September 30, 2019:

September 30, 2019
Valuation Technique	Unobservable Input (1)	Range				Weighted Average (2)
Discounted cash flow	Constant prepayment speed	13.0	-	18.3	%	16.1%
	Delinquency	0.6	-	0.9	%	0.8%
	Discount rate	6.1	-	8.0	%	7.0%

December 31, 2018
Valuation Technique	Unobservable Input (1)	Range				Weighted Average (2)
Discounted cash flow	Constant prepayment speed	7.6	-	9.6	%	8.6%
	Delinquency	1.0	-	1.5	%	1.3%
	Discount rate	8.2	-	10.7	%	9.4%

___________________

(1) Significant increases (decreases) in any of the inputs in isolation may result in significantly lower (higher) fair value measurement. A change in the assumption used for discount rates may be accompanied by a directionally similar change in the assumption used for the probability of delinquency and a directionally opposite change in the assumption used for prepayment rates.

(2)

Calculated by averaging the weighted average significant unobservable inputs used by the multiple third-party pricing providers in the fair value measurement of MSR

Fair Value, by Balance Sheet Grouping

The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at September 30, 2019 and December 31, 2018.

	September 30, 2019				December 31, 2018
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Available-for-sale securities	$	28,318,558	$	28,318,558	$	25,552,604	$	25,552,604
Mortgage servicing rights	$	1,651,556	$	1,651,556	$	1,993,440	$	1,993,440
Cash and cash equivalents	$	740,698	$	740,698	$	409,758	$	409,758
Restricted cash	$	509,689	$	509,689	$	688,006	$	688,006
Derivative assets	$	230,620	$	230,620	$	319,981	$	319,981
Reverse repurchase agreements	$	180,575	$	180,575	$	761,815	$	761,815
Other assets	$	18,274	$	18,274	74,412		74,412
Liabilities
Repurchase agreements	$	25,567,136	$	25,567,136	$	23,133,476	$	23,133,476
Federal Home Loan Bank advances	$	50,000	$	50,000	$	865,024	$	865,024
Revolving credit facilities	$	300,000	$	300,000	$	310,000	$	310,000
Term notes payable	$	394,235	$	400,032	$	—	$	—
Convertible senior notes	$	284,635	$	294,869	$	283,856	$	281,951
Derivative liabilities	$	17,201	$	17,201	$	820,590	$	820,590

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Schedule of Related Party Transactions, by Related Party (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Related Party Transaction [Line Items]
Management fees	$ 16,839	$ (5,041)	$ 42,556	$ 18,120
Percent per annum of equity used to calculate management fees			1.50%
Compensation costs related to restricted common stock	2,200	3,400	$ 6,500	9,800
PRCM Advisers LLC [Member]
Related Party Transaction [Line Items]
Management fees		12,400		$ 35,600
Percent per annum of additional equity used to calculate management fees				0.75%
One time downward adjustment to management fees payable				$ 15,000
Maximum additional one time downward adjustment to management fees payable				3,300
Total one time downward adjustment to management fees payable				17,500
Direct and allocated costs incurred by manager	$ 4,800	$ 5,300	$ 23,000	$ 20,800

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Income Taxes

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

For the three and nine months ended September 30, 2019 and 2018, the Company qualified to be taxed as a REIT under the Code for U.S. federal income tax purposes. As long as the Company qualifies as a REIT, the Company generally will not be subject to U.S. federal income taxes on its taxable income to the extent it annually distributes its net taxable income to stockholders, and does not engage in prohibited transactions. The Company intends to distribute 100% of its REIT taxable income and comply with all requirements to continue to qualify as a REIT. The majority of states also recognize the Company’s REIT status. The Company’s TRSs file separate tax returns and are fully taxed as standalone U.S. C corporations. It is assumed that the Company will retain its REIT status and will incur no REIT level taxation as it intends to comply with the REIT regulations and annual distribution requirements.

During the three and nine months ended September 30, 2019, the Company’s TRSs recognized a benefit from income taxes of $3.6 million and $11.2 million, respectively, which was primarily due to losses recognized on MSR, offset by net gains recognized on derivative instruments held in the Company’s TRSs. During the three and nine months ended September 30, 2018, the Company’s TRSs recognized a provision for income taxes of $37.4 million and $35.1 million, respectively, which was primarily due to realized gains on sales of AFS securities and gains recognized on MSR held in the Company’s TRSs, as well as the write-down of net deferred tax assets resulting from the deemed liquidation of one of the Company’s TRSs due to its TRS election revocation, offset by net losses incurred on derivative instruments held in the TRSs.

Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s condensed consolidated financial statements of a contingent tax liability for uncertain tax positions. Additionally, there were no amounts accrued for penalties or interest as of or during the periods presented in these condensed consolidated financial statements.

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Term Notes Payable

9 Months Ended

Sep. 30, 2019

Term Notes Payable [Abstract]

Term Notes Payable

Term Notes Payable

The debt issued in connection with the on-balance sheet securitization discussed in Note 2 - Basis of Presentation and Significant Accounting Policies is classified as term notes payable and carried at outstanding principal balance, net of any unamortized deferred debt issuance costs, on the Company’s condensed consolidated balance sheets. As of September 30, 2019, the outstanding amount due on term notes payable was $394.2 million, net of deferred debt issuance costs, with a weighted average interest rate of 4.82% and weighted average remaining maturities of 4.7 years. At September 30, 2019, the Company pledged MSR with a carrying value of $591.1 million and weighted average underlying loan coupon of 4.27% as collateral for term notes payable.

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Equity Incentive Plan (Details) - $ / shares	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of restricted common shares reserved for issuance under equity incentive plan (in shares)	6,500,000
Number of restricted common shares granted during period under equity incentive plan (in shares)	515,282	996,924
Weighted average grant date fair value of restricted common shares granted during period under equity incentive plan (in usd per share)	$ 14.28	$ 14.96
Director [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of restricted common shares granted during period under equity incentive plan (in shares)	60,108	55,553
Weighted average grant date fair value of restricted common shares granted during period under equity incentive plan (in usd per share)	$ 13.35	$ 15.48
Key Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of restricted common shares granted during period under equity incentive plan (in shares)	455,174	941,371
Weighted average grant date fair value of restricted common shares granted during period under equity incentive plan (in usd per share)	$ 14.40	$ 15.12
Award vesting period of restricted common shares granted during period under equity incentive plan	3 years

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Basis of Presentation and Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Basis of Presentation and Significant Accounting Policies [Abstract]

Consolidation and Basis of Presentation

Consolidation and Basis of Presentation

The interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, have been condensed or omitted according to such SEC rules and regulations. However, management believes that the disclosures included in these interim condensed consolidated financial statements are adequate to make the information presented not misleading.

The condensed consolidated financial statements of the Company include the accounts of all subsidiaries; inter-company accounts and transactions have been eliminated. All trust entities in which the Company holds investments that are considered variable interest entities, or VIEs, for financial reporting purposes were reviewed for consolidation under the applicable consolidation guidance. Whenever the Company has both the power to direct the activities of a trust that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant, the Company consolidates the trust. Certain prior period amounts have been reclassified to conform to the current period presentation. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at September 30, 2019 and results of operations for all periods presented have been made. The results of operations for the three and nine months ended September 30, 2019 should not be construed as indicative of the results to be expected for future periods or the full year.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amount and timing of credit losses, prepayment rates, the period of time during which the Company anticipates an increase in the fair values of real estate securities sufficient to recover unrealized losses in those securities, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the consolidated financial statements and the reported amounts of certain revenues and expenses during the reported period. It is likely that changes in these estimates (e.g., valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ from its estimates and the differences may be material.

Securitization and Variable Interest Entities

Securitizations and Variable Interest Entities

During the second quarter of 2019, the Company formed a new trust entity, or the Issuer Trust, for the purpose of financing MSR through securitization. On June 27, 2019, the Company, through the Issuer Trust, completed an MSR securitization transaction pursuant to which, through two of the Company’s wholly owned subsidiaries, MSR is pledged to the Issuer Trust and in return, the Issuer Trust issued (a) an aggregate principal amount of $400.0 million in term notes to qualified institutional buyers and (b) a variable funding note, or VFN, with a maximum principal balance of $1.0 billion to one of the subsidiaries, in each case secured on a pari passu basi. The term notes bear interest at a rate equal to one-month LIBOR plus 2.80% per annum. The term notes will mature on June 25, 2024 or, if extended pursuant to the terms of the related indenture supplement, June 25, 2026 (unless earlier redeemed in accordance with their terms).

The Issuer Trust is considered a VIE for financial reporting purposes and, thus, was reviewed for consolidation under the applicable consolidation guidance. As the Company has both the power to direct the activities of the Issuer Trust that most significantly impact the entity’s performance, and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, the Company consolidates the trust.

Term Notes Payable

Term Notes Payable

Term notes payable related to the Company’s on-balance sheet securitization are recorded at outstanding principal balance, net of any unamortized deferred debt issuance costs, on the Company’s condensed consolidated balance sheets.

Recently Issued and/or Adopted Accounting Standards

Recently Issued and/or Adopted Accounting Standards

Lease Classification and Accounting

In February 2016, the FASB issued ASU No. 2016-02, which requires lessees to recognize on their balance sheets both a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. The Company’s adoption of this ASU was applied by recording a cumulative-effect adjustment to retained earnings as of January 1, 2019, which did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, which changes the impairment model for most financial assets and certain other instruments. Valuation allowances for credit losses on AFS debt securities will be recognized, rather than direct reductions in the amortized cost of the investments, regardless of whether the impairment is considered to be other-than-temporary. The new model also requires the estimation of lifetime expected credit losses and corresponding recognition of allowance for losses on trade and other receivables, held-to-maturity debt securities, loans, and other instruments held at amortized cost. The ASU requires certain recurring disclosures and is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2019, with early adoption permitted for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018. The Company is evaluating the adoption of this ASU to determine the impact it may have on its condensed consolidated financial statements, which at the date of adoption, will establish an allowance for credit losses on AFS securities which will be derived from the present value of the current designated credit reserve with a resulting increase to amortized cost on the securities. The Company also expects adoption of this ASU to impact the recording for the purchase of certain non-Agency securities with purchased credit deterioration by recording an allowance for credit losses with an increase in amortized cost above the purchase price of the same amount. Subsequent changes in expected credit losses will be recognized immediately in earnings as a provision for credit losses until the allowance is reduced to zero. Further favorable changes will result in prospective adjustments to the effective interest rate. The Company is currently developing new processes, policies and controls to implement the standard, which it expects to have completed by the adoption date.

SEC Disclosure Update and Simplification

In August 2018, the SEC adopted a final rule that amends certain disclosure requirements that have become duplicative, overlapping, or outdated in light of other SEC disclosure requirements, U.S. GAAP, or changes in the information environment. However, the guidance also added requirements for entities to include in their interim financial statements a reconciliation of changes in stockholders’ equity for each period for which an income statement is required (both year-to-date and quarterly periods). The final rule is effective for all filings made on or after November 5, 2018. However, the SEC staff said it would not object to a registrant waiting to comply with the new interim disclosure requirement until the filing of its Form 10-Q for the quarter that begins after the effective date. As a result, the Company adopted the new interim disclosure requirement in connection with the Form 10-Q filing for the first quarter 2019. The Company’s adoption of this final rule did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.

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Stockholders' Equity Share Repurchase Program (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Equity [Abstract]
Number of shares authorized to be repurchased under stock repurchase program (in shares)	37,500,000		37,500,000
Number of shares repurchased and retired to date (in shares)	12,069,000		12,069,000
Cost of shares repurchased and retired to date	$ 200,400,000		$ 200,400,000
Repurchase of common stock (in shares)	1,500	0	1,500	0
Repurchase of common stock	$ 19,000	$ 0	$ 19,000.0	$ 0

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Schedule of Available-for-sale Securities Reconciliation, Non-Agency Unamortized Net Discount and Designated Credit Reserves (Details) - Mortgage-backed Securities, Issued by Private Enterprises [Member] - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Debt Securities, Available-for-sale, Designated Credit Reserve [Member]
Debt Securities, Available-for-sale, Unamortized Discount [Roll Forward]
Total discount/premium on available-for-sale securities, beginning balance	$ 1,322,762	$ 653,613
Acquisitions	471,746	606,728
Accretion of net discount	0	0
Realized credit losses	18,668	20,983
Reclassification adjustment for other-than-temporary impairments	(6,847)	(363)
Transfers from (to)	(34,157)	(44,972)
Sales, calls, other	24,892	0
Total discount/premium on available-for-sale securities, ending balance	1,723,638	1,194,749
Debt Securities, Available-for-sale, Net Unamortized Discount/Premium [Member]
Debt Securities, Available-for-sale, Unamortized Discount [Roll Forward]
Total discount/premium on available-for-sale securities, beginning balance	603,591	607,609
Acquisitions	(10,524)	37,924
Accretion of net discount	(27,782)	(64,538)
Realized credit losses	0	0
Reclassification adjustment for other-than-temporary impairments	0	0
Transfers from (to)	34,157	44,972
Sales, calls, other	226,923	18,430
Total discount/premium on available-for-sale securities, ending balance	372,519	607,537
Debt Securities, Available-for-sale, Total Discount/Premium [Member]
Debt Securities, Available-for-sale, Unamortized Discount [Roll Forward]
Total discount/premium on available-for-sale securities, beginning balance	1,926,353	1,261,222
Acquisitions	461,222	644,652
Accretion of net discount	(27,782)	(64,538)
Realized credit losses	18,668	20,983
Reclassification adjustment for other-than-temporary impairments	(6,847)	(363)
Transfers from (to)	0	0
Sales, calls, other	251,815	18,430
Total discount/premium on available-for-sale securities, ending balance	$ 2,096,157	$ 1,802,286

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except share data)	2019		2018		2019		2018
Numerator:
Net income	$	305,700	$	35,946	$	189,208	$	510,245
Dividends on preferred stock	18,951		18,951		56,851		46,445
Net income attributable to common stockholders - basic	286,749		16,995		132,357		463,800
Interest expense attributable to convertible notes (1)	4,779		—		—		14,151
Net income attributable to common stockholders - diluted	$	291,528	$	16,995	$	132,357	$	477,951
Denominator:
Weighted average common shares outstanding	271,689,878		222,805,735		264,871,455		190,229,850
Weighted average restricted stock shares	1,207,697		1,593,701		1,243,317		1,616,362
Basic weighted average shares outstanding	272,897,575		224,399,436		266,114,772		191,846,212
Effect of dilutive shares issued in an assumed conversion	18,156,143		—		—		17,760,934
Diluted weighted average shares outstanding	291,053,718		224,399,436		266,114,772		209,607,146
Earnings Per Share
Basic	$	1.05	$	0.08	$	0.50	$	2.42
Diluted	$	1.00	$	0.08	$	0.50	$	2.28

___________________

(1)

Includes a nondiscretionary adjustment for the assumed change in the management fee calculation.

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Available-for-Sale Securities, at Fair Value Nonconsolidated Variable Interest Entities (Details) - Mortgage-backed Securities, Issued by Private Enterprises [Member] - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Variable Interest Entity [Line Items]
Assets of nonconsolidated Variable Interest Entities	$ 3,600,000	$ 3,900,000
Maximum exposure to loss of nonconsolidated Variable Interest Entities	$ 3,552,375	$ 3,867,572

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Derivative Instruments and Hedging Activities U.S. Treasury Futures (Details) - USD ($)	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Derivative [Line Items]
Notional	$ 54,226,205,000	$ 55,549,424,000	$ 36,528,169,000	$ 41,330,283,000	$ 28,618,861,000	$ 31,226,878,000
Derivative Financial Instruments, Liabilities [Member]
Derivative [Line Items]
Notional	43,731,262,000		5,403,265,000
Fair Value	(17,201,000)		$ (820,590,000)
U.S. Treasury Futures [Member]
Derivative [Line Items]
Notional	300,000,000
U.S. Treasury Futures [Member] | Derivative Financial Instruments, Liabilities [Member]
Derivative [Line Items]
Notional	320,000,000
Fair Value	$ (1,471,000)

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Stockholders' Equity Issuance of Common Stock in Connection with Acquisition of CYS Investments, Inc. (Details) - USD ($) $ in Millions		1 Months Ended	9 Months Ended
	Mar. 22, 2019	Jul. 31, 2018	Sep. 30, 2019	Sep. 30, 2018
Class of Stock [Line Items]
Aggregate cash consideration exchanged for shares of CYS common stock		$ 15.0
Common Stock [Member]
Class of Stock [Line Items]
Number of shares of stock issued during period (in shares)	18,000,000	72,600,000	24,399,107	72,608,932

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Convertible Senior Notes (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Debt Instrument, Redemption [Line Items]
Proceeds from convertible senior notes	$ 282,200
Convertible senior notes conversion ratio	0.0631793	0.0624003
Convertible senior notes	$ 284,635	$ 283,856
Convertible Debt [Member]
Debt Instrument, Redemption [Line Items]
Convertible senior notes aggregate principal amount	$ 287,500
Convertible senior notes interest rate per annum	6.25%

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Schedule of Notional Amounts of Derivative Positions (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Derivative, Notional Amount [Roll Forward]
Beginning of Period Notional Amount	$ (55,549,424,000)	$ (28,618,861,000)	$ (36,528,169,000)	$ (31,226,878,000)
Additions	62,788,435,000	34,758,820,000	173,902,068,000	81,185,452,000
Settlement, Termination, Expiration or Exercise	(64,111,654,000)	(22,047,398,000)	(156,204,032,000)	(71,082,047,000)
End of Period Notional Amount	(54,226,205,000)	(41,330,283,000)	(54,226,205,000)	(41,330,283,000)
Average Notional Amount	(54,069,162,000)	(37,022,610,000)	(52,960,859,000)	(27,181,648,000)
Realized Gain (Loss), net	196,853,000	(62,539,000)	329,957,000	42,171,000
Inverse Interest-Only Securities [Member]
Derivative, Notional Amount [Roll Forward]
Additions	0	0	0	0
Settlement, Termination, Expiration or Exercise	(20,668,000)	(30,230,000)	(60,356,000)	(89,420,000)
Realized Gain (Loss), net	0	0	0	0
Interest Rate Swap [Member]
Derivative, Notional Amount [Roll Forward]
Additions	17,874,435,000	12,544,820,000	32,373,068,000	37,894,452,000
Settlement, Termination, Expiration or Exercise	(16,511,217,000)	(8,088,318,000)	(20,063,178,000)	(35,872,811,000)
Realized Gain (Loss), net	38,044,000	(50,240,000)	41,975,000	(46,101,000)
Interest Rate Cap [Member]
Derivative, Notional Amount [Roll Forward]
Beginning of Period Notional Amount			(2,500,000,000)	0
Additions		2,500,000,000	0	2,500,000,000
Settlement, Termination, Expiration or Exercise		0	(2,500,000,000)	0
Average Notional Amount				(567,766,000)
Realized Gain (Loss), net		0	(8,690,000)	0
Interest Rate Swaption [Member]
Derivative, Notional Amount [Roll Forward]
Additions	1,000,000,000	1,164,000,000	14,200,000,000	(74,000,000)
Settlement, Termination, Expiration or Exercise	(3,125,000,000)	(262,000,000)	(12,513,000,000)	(2,428,000,000)
Realized Gain (Loss), net	37,366,000	10,374,000	63,139,000	78,266,000
TBAs [Member]
Derivative, Notional Amount [Roll Forward]
Additions	40,347,000,000	21,060,000,000	119,252,000,000	38,773,000,000
Settlement, Termination, Expiration or Exercise	(39,906,000,000)	(14,785,000,000)	(115,873,000,000)	(28,876,000,000)
Realized Gain (Loss), net	94,504,000	(23,067,000)	242,102,000	(28,681,000)
Short US Treasuries [Member]
Derivative, Notional Amount [Roll Forward]
Additions		(800,000,000)	0	800,000,000
Settlement, Termination, Expiration or Exercise		0	800,000,000	0
Realized Gain (Loss), net		0	(23,172,000)	0
U.S. Treasury Futures [Member]
Derivative, Notional Amount [Roll Forward]
Additions	3,567,000,000		8,077,000,000
Settlement, Termination, Expiration or Exercise	(4,547,000,000)		(7,757,000,000)
End of Period Notional Amount	(300,000,000)		(300,000,000)
Realized Gain (Loss), net	26,939,000		47,565,000
Put and Call Options for TBAs [Member]
Derivative, Notional Amount [Roll Forward]
Additions		(1,710,000,000)	0	2,892,000,000
Settlement, Termination, Expiration or Exercise		1,120,000,000	1,767,000,000	(3,802,000,000)
Realized Gain (Loss), net		910,000	(32,962,000)	39,452,000
Markit IOS Total Return Swap [Member]
Derivative, Notional Amount [Roll Forward]
Beginning of Period Notional Amount			(48,265,000)
Additions	0	0	0	0
Settlement, Termination, Expiration or Exercise	(1,769,000)	(1,850,000)	(4,498,000)	(13,816,000)
End of Period Notional Amount	(43,767,000)		(43,767,000)
Realized Gain (Loss), net	0	(516,000)	0	(765,000)
Net Long Position [Member] | Inverse Interest-Only Securities [Member]
Derivative, Notional Amount [Roll Forward]
Beginning of Period Notional Amount	(436,611,000)	(529,056,000)	(476,299,000)	(588,246,000)
End of Period Notional Amount	(415,943,000)	(498,826,000)	(415,943,000)	(498,826,000)
Average Notional Amount	(427,222,000)	(514,879,000)	(447,082,000)	(544,691,000)
Net Long Position [Member] | Interest Rate Swap [Member]
Derivative, Notional Amount [Roll Forward]
Beginning of Period Notional Amount	(40,470,277,000)	(26,047,264,000)	(29,523,605,000)	(28,482,125,000)
End of Period Notional Amount	(41,833,495,000)	(30,503,766,000)	(41,833,495,000)	(30,503,766,000)
Average Notional Amount	(41,180,308,000)	(30,144,641,000)	(38,402,820,000)	(25,588,646,000)
Net Long Position [Member] | Interest Rate Cap [Member]
Derivative, Notional Amount [Roll Forward]
Beginning of Period Notional Amount		0	(2,500,000,000)
End of Period Notional Amount	0	(2,500,000,000)	0	(2,500,000,000)
Average Notional Amount		(1,684,783,000)	(1,417,216,000)
Net Long Position [Member] | Interest Rate Swaption [Member]
Derivative, Notional Amount [Roll Forward]
Beginning of Period Notional Amount	(3,875,000,000)		(63,000,000)	(2,666,000,000)
End of Period Notional Amount	(1,750,000,000)	(164,000,000)	(1,750,000,000)	(164,000,000)
Average Notional Amount	(2,650,815,000)		(3,259,802,000)
Net Long Position [Member] | TBAs [Member]
Derivative, Notional Amount [Roll Forward]
Beginning of Period Notional Amount	(9,422,000,000)	(3,049,000,000)	(6,484,000,000)
End of Period Notional Amount	(9,863,000,000)	(9,324,000,000)	(9,863,000,000)	(9,324,000,000)
Average Notional Amount	(9,107,707,000)	(6,430,924,000)	(8,905,264,000)	(3,210,355,000)
Net Long Position [Member] | U.S. Treasury Futures [Member]
Derivative, Notional Amount [Roll Forward]
Beginning of Period Notional Amount	(1,300,000,000)		0
End of Period Notional Amount	(320,000,000)		(320,000,000)
Average Notional Amount	(657,022,000)		(691,414,000)
Net Long Position [Member] | Markit IOS Total Return Swap [Member]
Derivative, Notional Amount [Roll Forward]
Beginning of Period Notional Amount	(45,536,000)	(51,541,000)	(48,265,000)	(63,507,000)
End of Period Notional Amount	(43,767,000)	(49,691,000)	(43,767,000)	(49,691,000)
Average Notional Amount	(46,088,000)	(50,296,000)	(45,964,000)	(57,303,000)
Net Short Position [Member] | Interest Rate Swaption [Member]
Derivative, Notional Amount [Roll Forward]
Beginning of Period Notional Amount		(738,000,000)
Average Notional Amount		(157,663,000)		(2,015,260,000)
Net Short Position [Member] | TBAs [Member]
Derivative, Notional Amount [Roll Forward]
Beginning of Period Notional Amount				(573,000,000)
Net Short Position [Member] | Short US Treasuries [Member]
Derivative, Notional Amount [Roll Forward]
Beginning of Period Notional Amount		0	(800,000,000)	0
End of Period Notional Amount	0	(800,000,000)	0	(800,000,000)
Average Notional Amount		(539,130,000)	(61,097,000)	(181,685,000)
Net Short Position [Member] | Put and Call Options for TBAs [Member]
Derivative, Notional Amount [Roll Forward]
Beginning of Period Notional Amount		(320,000,000)	(1,767,000,000)	0
End of Period Notional Amount	$ 0	(910,000,000)	0	(910,000,000)
Average Notional Amount		$ (1,106,120,000)	$ (147,606,000)	$ (590,168,000)

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Variable Interest Entities (Tables)

9 Months Ended

Sep. 30, 2019

Variable Interest Entities [Abstract]

Schedule of Variable Interest Entities

The following table presents a summary of the assets and liabilities of all consolidated trusts as reported on the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018:

(in thousands)	September 30, 2019		December 31, 2018
Note receivable (1)	$	394,235	$	—
Cash and cash equivalents	200		—
Accrued interest receivable (1)	321		—
Total Assets	$	394,756	$	—
Term notes payable	$	394,235	$	—
Accrued interest payable	321		—
Other liabilities	200		—
Total Liabilities	$	394,756	$	—

____________________

(1)

Receivables due from a wholly owned subsidiary of the Company to the Issuer Trust are eliminated in consolidation in accordance with U.S. GAAP.

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Equity Incentive Plan Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Number of nonvested restricted common shares outstanding at beginning of period (in shares)			1,593,701	1,284,010
Weighted average grant date fair value of nonvested restricted common shares outstanding at beginning of period (in usd per share)			$ 15.81	$ 17.15
Number of restricted common shares granted during period under equity incentive plan (in shares)			515,282	996,924
Weighted average grant date fair value of restricted common shares granted during period under equity incentive plan (in usd per share)			$ 14.28	$ 14.96
Number of restricted common shares vested during period (in shares)			(803,523)	(673,118)
Weighted average grant date fair value of restricted common shares vested during period (in usd per share)			$ (14.43)	$ (17.12)
Number of restricted common shares forfeited during period (in shares)			(103,208)	(14,115)
Weighted average grant date fair value of restricted common shares forfeited during period (in usd per share)			$ (15.52)	$ (15.59)
Number of nonvested restricted common shares outstanding at end of period (in shares)	1,202,252	1,593,701	1,202,252	1,593,701
Weighted average grant date fair value of nonvested restricted common shares outstanding at end of period (in usd per share)	$ 16.10	$ 15.81	$ 16.10	$ 15.81
Compensation costs related to restricted common stock	$ 2.2	$ 3.4	$ 6.5	$ 9.8

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Stockholders' Equity At-the-Market Offering (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Subsidiary, Sale of Stock [Line Items]
Number of shares authorized to be sold under equity distribution agreement (in shares)	35,000,000		35,000,000		10,000,000
Number of common shares issued under equity distribution agreement and outstanding as of period-end (in shares)	7,458,235		7,458,235
Accumulated proceeds from issuance of common shares under equity distribution agreement	$ 128,200		$ 128,200
At the Market Offering [Member]
Subsidiary, Sale of Stock [Line Items]
Number of shares of stock issued during period (in shares)	0	0	3,665,300	0
Issuance of stock, net of offering costs	$ 0	$ 0	$ 50,600	$ 0

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Earnings Per Share

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except share data)	2019		2018		2019		2018
Numerator:
Net income	$	305,700	$	35,946	$	189,208	$	510,245
Dividends on preferred stock	18,951		18,951		56,851		46,445
Net income attributable to common stockholders - basic	286,749		16,995		132,357		463,800
Interest expense attributable to convertible notes (1)	4,779		—		—		14,151
Net income attributable to common stockholders - diluted	$	291,528	$	16,995	$	132,357	$	477,951
Denominator:
Weighted average common shares outstanding	271,689,878		222,805,735		264,871,455		190,229,850
Weighted average restricted stock shares	1,207,697		1,593,701		1,243,317		1,616,362
Basic weighted average shares outstanding	272,897,575		224,399,436		266,114,772		191,846,212
Effect of dilutive shares issued in an assumed conversion	18,156,143		—		—		17,760,934
Diluted weighted average shares outstanding	291,053,718		224,399,436		266,114,772		209,607,146
Earnings Per Share
Basic	$	1.05	$	0.08	$	0.50	$	2.42
Diluted	$	1.00	$	0.08	$	0.50	$	2.28

___________________

(1) Includes a nondiscretionary adjustment for the assumed change in the management fee calculation.

For the nine months ended September 30, 2019, excluded from the calculation of diluted earnings per share is the effect of adding back $14.2 million of interest expense, net of a nondiscretionary adjustment for the assumed change in the management fee calculation, and 18,116,911 weighted average common share equivalents related to the assumed conversion of the Company’s convertible senior notes, as their inclusion would be antidilutive.

For the three months ended September 30, 2018, excluded from the calculation of diluted earnings per share is the effect of adding back $4.8 million of interest expense, net of a nondiscretionary adjustment for the assumed change in the management fee calculation, and 17,847,425 weighted average common share equivalents related to the assumed conversion of the Company’s convertible senior notes, as their inclusion would be antidilutive.

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Convertible Senior Notes

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Convertible Senior Notes

Convertible Senior Notes

In January 2017, the Company closed an underwritten public offering of $287.5 million aggregate principal amount of convertible senior notes due 2022. The net proceeds from the offering were approximately $282.2 million after deducting underwriting discounts and estimated offering expenses payable by the Company. The notes are unsecured, pay interest semiannually at a rate of 6.25% per annum and are convertible at the option of the holder into shares of the Company’s common stock. The notes will mature in January 2022, unless earlier converted or repurchased in accordance with their terms. The Company does not have the right to redeem the notes prior to maturity, but may be required to repurchase the notes from holders under certain circumstances. As of September 30, 2019 and December 31, 2018, the notes had a conversion rate of 63.1793 and 62.4003 shares of common stock per $1,000 principal amount of the notes, respectively. The outstanding amount due on the convertible senior notes as of September 30, 2019 and December 31, 2018 was $284.6 million and $283.9 million, respectively, net of deferred issuance costs.

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Equity Incentive Plan (Tables)

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity

The following table summarizes the activity related to restricted common stock for the nine months ended September 30, 2019 and 2018:

	Nine Months Ended September 30,
	2019					2018
	Shares		Weighted Average Grant Date Fair Market Value			Shares		Weighted Average Grant Date Fair Market Value
Outstanding at Beginning of Period	1,593,701		$	15.81		1,284,010		$	17.15
Granted	515,282		14.28			996,924		14.96
Vested	(803,523	)	(14.43		)	(673,118	)	(17.12		)
Forfeited	(103,208	)	(15.52		)	(14,115	)	(15.59		)
Outstanding at End of Period	1,202,252		$	16.10		1,593,701		$	15.81

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Available-for-Sale Securities, at Fair Value (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale [Line Items]
Available-for-sale securities, at fair value	$ 28,318,558	$ 25,552,604
Available-for-sale securities, at fair value, pledged as collateral for borrowings	26,400,000	25,200,000
Federal National Mortgage Association Certificates and Obligations (FNMA) [Member]
Debt Securities, Available-for-sale [Line Items]
Available-for-sale securities, at fair value	19,445,245	15,812,696
Federal Home Loan Mortgage Corporation Certificates and Obligations (FHLMC) [Member]
Debt Securities, Available-for-sale [Line Items]
Available-for-sale securities, at fair value	4,835,146	4,930,963
Government National Mortgage Association Certificates and Obligations (GNMA) [Member]
Debt Securities, Available-for-sale [Line Items]
Available-for-sale securities, at fair value	485,792	941,374
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Debt Securities, Available-for-sale [Line Items]
Available-for-sale securities, at fair value	$ 3,552,375	$ 3,867,571

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Available-for-Sale Securities, Weighted Average Life Classifications (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale [Line Items]
Less than or equal to 1 year	$ 43,599
Greater than 1 year and less than or equal to 3 years	239,782
Greater than 3 years and less than or equal to 5 years	4,995,256
Greater than 5 years and less than or equal to 10 years	22,665,975
Greater than 10 years	373,946
Available-for-sale securities, at fair value	28,318,558	$ 25,552,604
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Debt Securities, Available-for-sale [Line Items]
Less than or equal to 1 year	666
Greater than 1 year and less than or equal to 3 years	59,293
Greater than 3 years and less than or equal to 5 years	4,800,249
Greater than 5 years and less than or equal to 10 years	19,904,761
Greater than 10 years	1,214
Available-for-sale securities, at fair value	24,766,183	21,685,033
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Debt Securities, Available-for-sale [Line Items]
Less than or equal to 1 year	42,933
Greater than 1 year and less than or equal to 3 years	180,489
Greater than 3 years and less than or equal to 5 years	195,007
Greater than 5 years and less than or equal to 10 years	2,761,214
Greater than 10 years	372,732
Available-for-sale securities, at fair value	$ 3,552,375	$ 3,867,571

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Derivative Instruments and Hedging Activities Put and Call Options for TBAs (Details) - USD ($)	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Derivative [Line Items]
Derivative, Notional Amount	$ 54,226,205,000	$ 55,549,424,000	$ 36,528,169,000	$ 41,330,283,000	$ 28,618,861,000	$ 31,226,878,000
Derivative Financial Instruments, Liabilities [Member]
Derivative [Line Items]
Derivative, Notional Amount	43,731,262,000		5,403,265,000
Fair Value	$ (17,201,000)		(820,590,000)
Put and Call Options for TBAs [Member] | Derivative Financial Instruments, Liabilities [Member]
Derivative [Line Items]
Derivative, Notional Amount			1,767,000,000
Fair Value			(25,296,000)
Put and Call Options for TBAs [Member] | Long [Member]
Derivative [Line Items]
Derivative, Notional Amount			5,400,000,000
Put and Call Options for TBAs [Member] | Short [Member]
Derivative [Line Items]
Derivative, Notional Amount			$ 7,200,000,000

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Stockholders' Equity Common Stock Rollforward (Details) - shares		1 Months Ended	3 Months Ended		9 Months Ended
	Mar. 22, 2019	Jul. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018	Dec. 31, 2017
Increase (Decrease) in Common Stock Outstanding [Roll Forward]
Common shares outstanding at beginning of period (in shares)					248,085,721
Number of shares of common stock repurchased during period (in shares)			(1,500)	0	(1,500)	0
Common shares outstanding at end of period (in shares)			272,895,402		272,895,402
Number of nonvested restricted common shares outstanding (in shares)			1,202,252	1,593,701	1,202,252	1,593,701	1,593,701	1,284,010
Common Stock [Member]
Increase (Decrease) in Common Stock Outstanding [Roll Forward]
Common shares outstanding at beginning of period (in shares)					248,085,721	174,496,587
Number of shares of stock issued during period (in shares)	18,000,000	72,600,000			24,399,107	72,608,932
Number of shares of restricted common stock issued during period (in shares)					412,074	972,651
Number of shares of common stock repurchased during period (in shares)					(1,500)
Common shares outstanding at end of period (in shares)			272,895,402	248,078,170	272,895,402	248,078,170

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Stockholders' Equity Redeemable Preferred Stock (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	9 Months Ended
	Jul. 31, 2018	Sep. 30, 2019	Dec. 31, 2018
Class of Stock [Line Items]
Preferred shares outstanding (in shares)		40,050,000	40,050,000
Preferred stock carrying value		$ 977,501
Preferred stock liquidation preference per share (in usd per share)		$ 25.00
Preferred stock par value per share (in usd per share)		$ 0.01	$ 0.01
Series A Preferred Stock [Member]
Class of Stock [Line Items]
Preferred shares outstanding (in shares)		5,750,000
Preferred stock carrying value		$ 138,872
Preferred stock dividend rate		8.125%
Preferred stock dividend variable rate spread		5.66%
Series B Preferred Stock [Member]
Class of Stock [Line Items]
Preferred shares outstanding (in shares)		11,500,000
Preferred stock carrying value		$ 278,094
Preferred stock dividend rate		7.625%
Preferred stock dividend variable rate spread		5.352%
Series C Preferred Stock [Member]
Class of Stock [Line Items]
Preferred shares outstanding (in shares)		11,800,000
Preferred stock carrying value		$ 285,585
Preferred stock dividend rate		7.25%
Preferred stock dividend variable rate spread		5.011%
Series D Preferred Stock [Member]
Class of Stock [Line Items]
Preferred shares outstanding (in shares)		3,000,000
Preferred stock carrying value		$ 74,964
Preferred stock dividend rate		7.75%
Number of shares of stock issued during period (in shares)	3,000,000
Preferred stock par value per share (in usd per share)		$ 0.01
Series E Preferred Stock [Member]
Class of Stock [Line Items]
Preferred shares outstanding (in shares)		8,000,000
Preferred stock carrying value		$ 199,986
Preferred stock dividend rate		7.50%
Number of shares of stock issued during period (in shares)	8,000,000
Preferred stock par value per share (in usd per share)		$ 0.01

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Derivative Instruments and Hedging Activities Interest Rate Sensitive Assets/Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Derivatives, Fair Value [Line Items]
Available-for-sale securities, at fair value	$ 28,318,558		$ 25,552,604
Mortgage servicing rights, at fair value	1,651,556	$ 1,800,826	1,993,440	$ 1,664,024	$ 1,450,261	$ 1,086,717
Interest-Only-Strip [Member]
Derivatives, Fair Value [Line Items]
Available-for-sale securities, at fair value	$ 130,300		$ 147,600

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Schedule of Derivative Instruments in Statement of Financial Position, Fair Value (Details) - USD ($)	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Notional Disclosures [Abstract]
Derivative, Notional Amount	$ 54,226,205,000	$ 55,549,424,000	$ 36,528,169,000	$ 41,330,283,000	$ 28,618,861,000	$ 31,226,878,000
Inverse Interest-Only Securities [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	76,429,000		70,813,000
Interest Rate Cap [Member]
Notional Disclosures [Abstract]
Derivative, Notional Amount			2,500,000,000			$ 0
Short US Treasuries [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value			781,500,000
U.S. Treasury Futures [Member]
Notional Disclosures [Abstract]
Derivative, Notional Amount	300,000,000
Markit IOS Total Return Swap [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	13,000		383,000
Notional Disclosures [Abstract]
Derivative, Notional Amount	43,767,000		48,265,000
Derivative Financial Instruments, Assets [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	230,620,000		319,981,000
Notional Disclosures [Abstract]
Derivative, Notional Amount	10,494,943,000		36,258,904,000
Derivative Financial Instruments, Assets [Member] | Inverse Interest-Only Securities [Member]
Notional Disclosures [Abstract]
Derivative, Notional Amount	415,943,000		476,299,000
Derivative Financial Instruments, Assets [Member] | Interest Rate Swap [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	128,252,000		187,231,000
Notional Disclosures [Abstract]
Derivative, Notional Amount	2,725,000,000		26,798,605,000
Derivative Financial Instruments, Assets [Member] | Interest Rate Cap [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value			40,335,000
Notional Disclosures [Abstract]
Derivative, Notional Amount			2,500,000,000
Derivative Financial Instruments, Assets [Member] | Interest Rate Swaption [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	9,283,000		0
Notional Disclosures [Abstract]
Derivative, Notional Amount	1,750,000,000		0
Derivative Financial Instruments, Assets [Member] | TBAs [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	16,656,000		21,602,000
Notional Disclosures [Abstract]
Derivative, Notional Amount	5,604,000,000		6,484,000,000
Derivative Financial Instruments, Assets [Member] | Put and Call Options for TBAs [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value			0
Notional Disclosures [Abstract]
Derivative, Notional Amount			0
Derivative Financial Instruments, Assets [Member] | Short US Treasuries [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value			0
Notional Disclosures [Abstract]
Derivative, Notional Amount			0
Derivative Financial Instruments, Assets [Member] | U.S. Treasury Futures [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	0
Notional Disclosures [Abstract]
Derivative, Notional Amount	0
Derivative Financial Instruments, Assets [Member] | Markit IOS Total Return Swap [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	0		0
Notional Disclosures [Abstract]
Derivative, Notional Amount	0		0
Derivative Financial Instruments, Liabilities [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	(17,201,000)		(820,590,000)
Notional Disclosures [Abstract]
Derivative, Notional Amount	43,731,262,000		5,403,265,000
Derivative Financial Instruments, Liabilities [Member] | Inverse Interest-Only Securities [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	0		0
Notional Disclosures [Abstract]
Derivative, Notional Amount	0		0
Derivative Financial Instruments, Liabilities [Member] | Interest Rate Swap [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	0		0
Notional Disclosures [Abstract]
Derivative, Notional Amount	39,108,495,000		2,725,000,000
Derivative Financial Instruments, Liabilities [Member] | Interest Rate Cap [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value			0
Notional Disclosures [Abstract]
Derivative, Notional Amount			0
Derivative Financial Instruments, Liabilities [Member] | Interest Rate Swaption [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	0		(13,456,000)
Notional Disclosures [Abstract]
Derivative, Notional Amount	0		63,000,000
Derivative Financial Instruments, Liabilities [Member] | TBAs [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	(15,717,000)		0
Notional Disclosures [Abstract]
Derivative, Notional Amount	4,259,000,000		0
Derivative Financial Instruments, Liabilities [Member] | Put and Call Options for TBAs [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value			(25,296,000)
Notional Disclosures [Abstract]
Derivative, Notional Amount			1,767,000,000
Derivative Financial Instruments, Liabilities [Member] | Short US Treasuries [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value			(781,455,000)
Notional Disclosures [Abstract]
Derivative, Notional Amount			800,000,000
Derivative Financial Instruments, Liabilities [Member] | U.S. Treasury Futures [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	(1,471,000)
Notional Disclosures [Abstract]
Derivative, Notional Amount	320,000,000
Derivative Financial Instruments, Liabilities [Member] | Markit IOS Total Return Swap [Member]
Derivative, Fair Value, Net [Abstract]
Fair Value	(13,000)		(383,000)
Notional Disclosures [Abstract]
Derivative, Notional Amount	$ 43,767,000		$ 48,265,000

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Components of Servicing Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Disclosures Pertaining to Servicing Assets and Servicing Liabilities [Abstract]
Servicing fee income	$ 106,700	$ 80,690	$ 327,184	$ 218,022
Ancillary and other fee income	499	358	1,302	1,004
Float income	18,826	8,570	45,436	19,447
Servicing income	126,025	$ 89,618	373,922	$ 238,473
Servicing advances	$ 29,100		$ 29,100		$ 39,700

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Available-for-Sale Securities, at Fair Value Other than Temporary Impairment, Credit Losses Recognized in Earnings (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) position	Sep. 30, 2018 USD ($) position
Debt Securities, Available-for-sale [Abstract]
Other-than-temporary impairment losses	$ (5,900)	$ (100)	$ (11,000)	$ (400)
Other than Temporary Impairment Losses, Investments, Number, Available-for-sale Securities | position			16	3
Other than Temporary Impairment Losses, Investments, Available-for-sale Securities, Market Value	310,600		$ 310,600
Other than Temporary Impairment Losses, Investments, Available-for-sale Securities, Weighted Average Cumulative Losses			3.30%
Other than Temporary Impairment Losses, Investments, Available-for-sale Securities, Weighted Average Three-Month Prepayment Speed			0.074
Other than Temporary Impairment Losses, Investments, Available-for-sale Securities, Delinquency Rate			16.50%
Other than Temporary Impairment Losses, Investments, Available-for-sale Securities, Weighted Average FICO Score			638
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Roll Forward]
Cumulative credit loss at beginning of period	(9,376)	(6,663)	$ (6,865)	$ (6,395)
Other-than-temporary impairments not previously recognized	(5,950)	(72)	(10,353)	(157)
Increases related to other-than-temporary impairments on securities with previously recognized other-than-temporary impairments	0	(23)	(651)	(206)
Decreases related to other-than-temporary impairments on securities paid down	0	0	1,703	0
Decreases related to other-than-temporary impairments on securities sold	1,613	0	2,453	0
Cumulative credit loss at end of period	$ (13,713)	$ (6,758)	$ (13,713)	$ (6,758)

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash Flows From Operating Activities:
Net income	$ 189,208	$ 510,245
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums and discounts on investment securities, net	119,175	73,441
Amortization of deferred debt issuance costs on convertible senior notes	1,096	728
Other-than-temporary impairment losses	11,004	363
Realized and unrealized (gains) losses on investment securities	(251,977)	96,842
Loss (gain) on servicing asset	675,920	(102,251)
Realized and unrealized losses (gains) on interest rate swaps, caps and swaptions	167,160	(221,649)
Unrealized (gain) loss on other derivative instruments	(36,439)	27,457
Equity based compensation	6,539	9,785
Excess consideration in the acquisition of CYS Investments, Inc.	0	77,602
Net change in assets and liabilities:
(Increase) decrease in accrued interest receivable	(732)	13,698
(Increase) decrease in deferred income taxes, net	(33,287)	35,094
Increase in accrued interest payable	(37,212)	1,823
Change in other operating assets and liabilities, net	40,629	(1,812)
Net cash provided by operating activities	851,084	521,366
Cash Flows From Investing Activities:
Purchases of available-for-sale securities	(18,406,882)	(6,319,252)
Proceeds from sales of available-for-sale securities	14,065,573	9,156,686
Principal payments on available-for-sale securities	2,334,729	1,792,168
Purchases of mortgage servicing rights, net of purchase price adjustments	(333,506)	(475,451)
Proceeds from sales of mortgage servicing rights	(530)	395
(Purchases) short sales of derivative instruments, net	(76,739)	(82,971)
(Payments for termination and settlement) proceeds from sales and settlement of derivative instruments, net	(768,010)	498,425
Payments for reverse repurchase agreements	(1,480,150)	(1,440,713)
Proceeds from reverse repurchase agreements	2,061,390	1,442,798
Net cash paid for the acquisition of CYS Investments, Inc.	0	(13,552)
Decrease in due to counterparties, net	(59,434)	(187,146)
Change in other investing assets and liabilities, net	37,737	44,257
Net cash (used in) provided by investing activities	(2,625,822)	4,415,644
Cash Flows From Financing Activities:
Proceeds from repurchase agreements	202,963,685	103,348,835
Principal payments on repurchase agreements	(200,530,025)	(107,736,938)
Principal payments on Federal Home Loan Bank advances	(815,024)	(350,000)
Proceeds from revolving credit facilities	450,000	377,400
Principal payments on revolving credit facilities	(460,000)	(87,400)
Proceeds from issuance of term notes payable	393,918	0
Proceeds from issuance of preferred stock, net of offering costs	0	13
Proceeds from issuance of common stock, net of offering costs	335,666	329
Repurchase of common stock	(19)	0
Dividends paid on preferred stock	(56,851)	(39,443)
Dividends paid on common stock	(353,989)	(193,318)
Net cash provided by (used in) financing activities	1,927,361	(4,680,522)
Net increase in cash, cash equivalents and restricted cash	152,623	256,488
Cash, cash equivalents and restricted cash at beginning of period	1,097,764	1,054,995
Cash, cash equivalents and restricted cash at end of period	1,250,387	1,311,483
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	581,333	300,573
Cash paid for taxes, net	16,946	502
Acquisition of the assets and liabilities of CYS Investments, Inc.
Available-for-sale securities	0	10,034,557
Cash and cash equivalents	0	386
Restricted cash	0	1,062
Accrued interest receivable	0	30,646
Reverse repurchase agreements	0	761,460
Other assets	0	11,977
Repurchase agreements	0	(8,743,527)
Derivative liabilities, net	0	(451,026)
Due to counterparties, net	0	(279,715)
Accrued interest payable	0	(27,487)
Other liabilities	0	(821)
Cumulative-effect adjustment for adoption of new accounting principle	442	9,918
Dividends declared but not paid at end of period	128,109	96,259
Preferred Stock
Acquisition of the assets and liabilities of CYS Investments, Inc.
Issuance of stock in connection with the acquisition of CYS Investments, Inc.	0	275,000
Common Stock Including Additional Paid in Capital [Member]
Acquisition of the assets and liabilities of CYS Investments, Inc.
Issuance of stock in connection with the acquisition of CYS Investments, Inc.	$ 0	$ 1,125,114

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CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
ASSETS
Available-for-sale securities, at fair value	$ 28,318,558	$ 25,552,604
Mortgage servicing rights, at fair value	1,651,556	1,993,440
Cash and cash equivalents	740,698	409,758
Restricted cash	509,689	688,006
Accrued interest receivable	87,321	86,589
Due from counterparties	314,871	154,626
Derivative assets, at fair value	230,620	319,981
Reverse repurchase agreements	180,575	761,815
Other assets	130,339	165,660
Total Assets	32,164,227	30,132,479
Liabilities
Repurchase agreements	25,567,136	23,133,476
Federal Home Loan Bank advances	50,000	865,024
Revolving credit facilities	300,000	310,000
Term notes payable	394,235	0
Convertible senior notes	284,635	283,856
Derivative liabilities, at fair value	17,201	820,590
Due to counterparties	231,021	130,210
Dividends payable	128,109	135,551
Accrued interest payable	122,793	160,005
Other liabilities	49,517	39,278
Total Liabilities	27,144,647	25,877,990
Stockholders' Equity
Preferred stock, par value $0.01 per share; 50,000,000 shares authorized and 40,050,000 and 40,050,000 shares issued and outstanding, respectively ($1,001,250 and $1,001,250 liquidation preference, respectively)	977,501	977,501
Common stock, par value $0.01 per share; 450,000,000 shares authorized and 272,895,402 and 248,085,721 shares issued and outstanding, respectively	2,729	2,481
Additional paid-in capital	5,151,554	4,809,616
Accumulated other comprehensive income	748,354	110,817
Cumulative earnings	2,521,137	2,332,371
Cumulative distributions to stockholders	(4,381,695)	(3,978,297)
Total Stockholders’ Equity	5,019,580	4,254,489
Total Liabilities and Stockholders’ Equity	$ 32,164,227	$ 30,132,479

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Derivative Instruments and Hedging Activities Schedule of Total Return Swaps (Details) - USD ($)	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Derivative [Line Items]
Notional	$ 54,226,205,000	$ 55,549,424,000	$ 36,528,169,000	$ 41,330,283,000	$ 28,618,861,000	$ 31,226,878,000
Markit IOS Total Return Swap [Member]
Derivative [Line Items]
Notional	43,767,000		48,265,000
Fair Value	(13,000)		(383,000)
Cost Basis	(59,000)		(59,000)
Derivative, Unrealized Gains (Losses)	46,000		(324,000)
Markit IOS Total Return Swap [Member] | Maturity Date, 1/12/2043 [Member]
Derivative [Line Items]
Notional	19,439,000		21,395,000
Fair Value	(6,000)		(153,000)
Cost Basis	(30,000)		(30,000)
Derivative, Unrealized Gains (Losses)	24,000		(123,000)
Markit IOS Total Return Swap [Member] | Maturity Date, 1/12/2044 [Member]
Derivative [Line Items]
Notional	24,328,000		26,870,000
Fair Value	(7,000)		(230,000)
Cost Basis	(29,000)		(29,000)
Derivative, Unrealized Gains (Losses)	$ 22,000		$ (201,000)

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Schedule of Repurchase Agreements by Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	$ 25,567,136	$ 23,133,476
Weighted average borrowing rate	2.47%	2.68%
US Government Agencies Debt Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	$ 24,034,991	$ 20,091,396
Weighted average borrowing rate	2.41%	2.52%
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	$ 1,220,669	$ 2,695,564
Weighted average borrowing rate	3.34%	3.65%
Inverse Interest-Only Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	$ 48,615	$ 46,516
Weighted average borrowing rate	3.08%	3.34%
Mortgage Servicing Rights [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	$ 262,861	$ 300,000
Weighted average borrowing rate	3.77%	4.51%
Maturity up to 30 days [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	$ 7,154,312	$ 7,488,869
Maturity up to 30 days [Member] | US Government Agencies Debt Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	6,804,755	6,712,021
Maturity up to 30 days [Member] | Mortgage-backed Securities, Issued by Private Enterprises [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	328,032	770,287
Maturity up to 30 days [Member] | Inverse Interest-Only Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	21,525	6,561
Maturity up to 30 days [Member] | Mortgage Servicing Rights [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	0	0
Maturity 30 to 59 Days [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	6,779,395	5,077,598
Maturity 30 to 59 Days [Member] | US Government Agencies Debt Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	6,450,044	4,557,688
Maturity 30 to 59 Days [Member] | Mortgage-backed Securities, Issued by Private Enterprises [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	317,390	496,466
Maturity 30 to 59 Days [Member] | Inverse Interest-Only Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	11,961	23,444
Maturity 30 to 59 Days [Member] | Mortgage Servicing Rights [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	0	0
Maturity 60 to 89 Days [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	93,353	5,655,061
Maturity 60 to 89 Days [Member] | US Government Agencies Debt Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	0	5,410,967
Maturity 60 to 89 Days [Member] | Mortgage-backed Securities, Issued by Private Enterprises [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	93,353	242,473
Maturity 60 to 89 Days [Member] | Inverse Interest-Only Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	0	1,621
Maturity 60 to 89 Days [Member] | Mortgage Servicing Rights [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	0	0
Maturity 90 to 119 Days [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	3,791,686	1,938,859
Maturity 90 to 119 Days [Member] | US Government Agencies Debt Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	3,655,339	1,209,395
Maturity 90 to 119 Days [Member] | Mortgage-backed Securities, Issued by Private Enterprises [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	136,347	722,399
Maturity 90 to 119 Days [Member] | Inverse Interest-Only Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	0	7,065
Maturity 90 to 119 Days [Member] | Mortgage Servicing Rights [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	0	0
Maturity 120 to 364 days [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	7,485,529	2,673,089
Maturity 120 to 364 days [Member] | US Government Agencies Debt Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	7,124,853	2,201,325
Maturity 120 to 364 days [Member] | Mortgage-backed Securities, Issued by Private Enterprises [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	345,547	463,939
Maturity 120 to 364 days [Member] | Inverse Interest-Only Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	15,129	7,825
Maturity 120 to 364 days [Member] | Mortgage Servicing Rights [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	0	0
Maturity Over One Year [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	262,861	300,000
Maturity Over One Year [Member] | US Government Agencies Debt Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	0	0
Maturity Over One Year [Member] | Mortgage-backed Securities, Issued by Private Enterprises [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	0	0
Maturity Over One Year [Member] | Inverse Interest-Only Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	0	0
Maturity Over One Year [Member] | Mortgage Servicing Rights [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	$ 262,861	$ 300,000

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Federal Home Loan Bank of Des Moines Advances (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Federal Home Loan Bank advances	$ 50,000	$ 865,024
Maximum percent of FHLB advances to total assets	40.00%
Federal Home Loan Bank of Des Moines [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Federal Home Loan Bank advances	$ 50,000	$ 865,000
Weighted average borrowing rate	2.99%	2.79%

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Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
Available-for-sale Securities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning of period level 3 fair value	$ 217,210	$ 105,157
Realized (losses) gains	(3,448)	(15,490)
Unrealized (losses) gains	0	0
Total gains (losses) included in net income	(3,448)	(15,490)
Other comprehensive (loss) income	(617)	2,702
Purchases	0	7,468
Sales	0	0
Settlements	0	0
Gross transfers into level 3	93,541	366,466
Gross transfers out of level 3	(160,449)	(320,066)
End of period level 3 fair value	146,237	146,237
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	0	0
Change in unrealized gains or losses for the period included in other comprehensive (loss) income for assets held at the end of the reporting period	(617)	2,608
Mortgage Servicing Rights [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning of period level 3 fair value	1,800,826	1,993,440
Realized (losses) gains	(92,699)	(200,466)
Unrealized (losses) gains	(141,815)	(475,454)
Total gains (losses) included in net income	(234,514)	(675,920)
Other comprehensive (loss) income	0	0
Purchases	76,588	341,110
Sales	819	530
Settlements	7,837	7,604
Gross transfers into level 3	0	0
Gross transfers out of level 3	0	0
End of period level 3 fair value	1,651,556	1,651,556
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	(136,922)	(448,075)
Change in unrealized gains or losses for the period included in other comprehensive (loss) income for assets held at the end of the reporting period	$ 0	$ 0

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Reverse Repurchase Agreements Reverse Repurchase Agreements

9 Months Ended

Sep. 30, 2019

Reverse Repurchase Agreements [Abstract]

Reverse Repurchase Agreements

Reverse Repurchase Agreements

As of September 30, 2019, the Company had $180.6 million in amounts due to counterparties as collateral for reverse repurchase agreements that could be pledged, delivered or otherwise used, with a fair value of $180.6 million.

As of December 31, 2018, the Company held securities, consisting of U.S Treasury securities, with a fair value of $781.5 million as collateral for reverse repurchase agreements that could be pledged, delivered or otherwise used, with a fair value of $761.8 million.

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Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

The Company enters into a variety of derivative and non-derivative instruments in connection with its risk management activities. The primary objective for executing these derivative and non-derivative instruments is to mitigate the Company’s economic exposure to future events that are outside its control, principally market risk and cash flow volatility associated with interest rate risk (including associated prepayment risk). Specifically, the Company enters into derivative and non-derivative instruments to economically hedge interest rate risk or “duration mismatch (or gap)” by adjusting the duration of its floating-rate borrowings into fixed-rate borrowings to more closely match the duration of its assets. This particularly applies to floating-rate borrowing agreements with maturities or interest rate resets of less than six months. Typically, the interest receivable terms (e.g., LIBOR) of certain derivatives match the terms of the underlying debt, resulting in an effective conversion of the rate of the related borrowing agreement from floating to fixed. The objective is to manage the cash flows associated with current and anticipated interest payments on borrowings, as well as the ability to roll or refinance borrowings at the desired amount by adjusting the duration.

To help manage the adverse impact of interest rate changes on the value of the Company’s portfolio as well as its cash flows, the Company may, at times, enter into various forward contracts, including short securities, Agency to-be-announced securities, or TBAs, options, futures, swaps, caps and total return swaps. In executing on the Company’s current risk management strategy, the Company has entered into interest rate swap, cap and swaption agreements, TBAs, put and call options for TBAs, U.S. Treasury futures and total return swaps (based on the Markit IOS Index). The Company has also entered into a number of non-derivative instruments to manage interest rate risk, principally MSR and Agency interest-only securities (see discussion below).

The following summarizes the Company’s significant asset and liability classes, the risk exposure for these classes, and the Company’s risk management activities used to mitigate these risks. The discussion includes both derivative and non-derivative instruments used as part of these risk management activities. Any of the Company’s derivative and non-derivative instruments may be entered into in conjunction with one another in order to mitigate risks. As a result, the following discussions of each type of instrument should be read as a collective representation of the Company’s risk mitigation efforts and should not be considered independent of one another. While the Company uses derivative and non-derivative instruments to achieve the Company’s risk management activities, it is possible that these instruments will not effectively mitigate all or a substantial portion of the Company’s market rate risk. In addition, the Company might elect, at times, not to enter into certain hedging arrangements in order to maintain compliance with REIT requirements.

Balance Sheet Presentation

In accordance with ASC 815, Derivatives and Hedging, or ASC 815, the Company records derivative financial instruments on its condensed consolidated balance sheets as assets or liabilities at fair value. Changes in fair value are accounted for depending on the use of the derivative instruments and whether they are designated or qualifying as hedge instruments. Due to the volatility of the credit markets and difficulty in effectively matching pricing or cash flows, the Company has not designated any current derivatives as hedging instruments.

The following tables present the gross fair value and notional amounts of the Company’s derivative financial instruments treated as trading derivatives as of September 30, 2019 and December 31, 2018.

	September 30, 2019
	Derivative Assets				Derivative Liabilities
(in thousands)	Fair Value		Notional		Fair Value			Notional
Inverse interest-only securities	$	76,429	$	415,943	$	—		$	—
Interest rate swap agreements	128,252		2,725,000		—			39,108,495
Swaptions, net	9,283		1,750,000		—			—
TBAs	16,656		5,604,000		(15,717		)	4,259,000
U.S. Treasury futures	—		—		(1,471		)	320,000
Markit IOS total return swaps	—		—		(13		)	43,767
Total	$	230,620	$	10,494,943	$	(17,201	)	$	43,731,262

	December 31, 2018
	Derivative Assets				Derivative Liabilities
(in thousands)	Fair Value		Notional		Fair Value			Notional
Inverse interest-only securities	$	70,813	$	476,299	$	—		$	—
Interest rate swap agreements	187,231		26,798,605		—			2,725,000
Interest rate cap contracts	40,335		2,500,000		—			—
Swaptions, net	—		—		(13,456		)	63,000
TBAs	21,602		6,484,000		—			—
Put and call options for TBAs, net	—		—		(25,296		)	1,767,000
Short U.S. Treasuries	—		—		(781,455		)	800,000
Markit IOS total return swaps	—		—		(383		)	48,265
Total	$	319,981	$	36,258,904	$	(820,590	)	$	5,403,265

Comprehensive Income (Loss) Statement Presentation

The Company has not applied hedge accounting to its current derivative portfolio held to mitigate interest rate risk and credit risk. As a result, the Company is subject to volatility in its earnings due to movement in the unrealized gains and losses associated with its derivative instruments.

The following table summarizes the location and amount of gains and losses on derivative instruments reported in the condensed consolidated statements of comprehensive income (loss):

Derivative Instruments	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income
		Three Months Ended						Nine Months Ended
(in thousands)		September 30,						September 30,
		2019			2018			2019			2018
Interest rate risk management
TBAs	Gain (loss) on other derivative instruments	$	82,964		$	(45,231	)	$	221,439		$	(55,766	)
Short U.S. Treasuries	Gain (loss) on other derivative instruments	—			1,606			(6,801		)	1,606
U.S. Treasury futures	Gain (loss) on other derivative instruments	(359		)	—			46,089			—
Put and call options for TBAs	Gain (loss) on other derivative instruments	—			13,489			(7,666		)	43,328
Interest rate swaps - Payers	Gain (loss) on interest rate swap, cap and swaption agreements	(172,856		)	105,195			(834,426		)	412,291
Interest rate swaps - Receivers	Gain (loss) on interest rate swap, cap and swaption agreements	211,086			(54,653		)	664,313			(252,375		)
Swaptions	Gain (loss) on interest rate swap, cap and swaption agreements	32,390			24,629			76,383			94,933
Interest rate caps	Gain (loss) on interest rate swap, cap and swaption agreements	—			686			(7,684		)	686
Markit IOS total return swaps	Gain (loss) on other derivative instruments	(888		)	(302		)	(1,365		)	371
Non-risk management
Inverse interest-only securities	Gain (loss) on other derivative instruments	4,139			(1,025		)	19,102			(5,274		)
Total		$	156,476		$	44,394		$	169,384		$	239,800

For the three and nine months ended September 30, 2019, the Company recognized $19.2 million and $65.7 million, respectively, of income for the accrual and/or settlement of the net interest expense associated with its interest rate swaps and caps. The income results from receiving either LIBOR interest or a fixed interest rate and paying either a fixed interest rate or LIBOR interest on an average $41.2 billion and $39.8 billion notional, respectively. For the three and nine months ended September 30, 2018, the Company recognized $16.2 million and $33.9 million, respectively, of income for the accrual and/or settlement of the net interest expense associated with its interest rate swaps and caps. The income results from paying either a fixed interest rate or LIBOR interest and receiving either LIBOR interest or a fixed interest rate on an average $31.8 billion and $26.2 billion notional, respectively.

The following tables present information with respect to the volume of activity in the Company’s derivative instruments during the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30, 2019
(in thousands)	Beginning of Period Notional Amount		Additions		Settlement, Termination, Expiration or Exercise			End of Period Notional Amount		Average Notional Amount		Realized Gain (Loss), net (1)
Inverse interest-only securities	$	436,611	$	—	$	(20,668	)	$	415,943	$	427,222	$	—
Interest rate swap agreements	40,470,277		17,874,435		(16,511,217		)	41,833,495		41,180,308		38,044
Swaptions, net	3,875,000		1,000,000		(3,125,000		)	1,750,000		2,650,815		37,366
TBAs, net	9,422,000		40,347,000		(39,906,000		)	9,863,000		9,107,707		94,504
U.S. Treasury futures	1,300,000		3,567,000		(4,547,000		)	320,000		657,022		26,939
Markit IOS total return swaps	45,536		—		(1,769		)	43,767		46,088		—
Total	$	55,549,424	$	62,788,435	$	(64,111,654	)	$	54,226,205	$	54,069,162	$	196,853

	Three Months Ended September 30, 2018
(in thousands)	Beginning of Period Notional Amount			Additions			Settlement, Termination, Expiration or Exercise			End of Period Notional Amount			Average Notional Amount			Realized Gain (Loss), net (1)
Inverse interest-only securities	$	529,056		$	—		$	(30,230	)	$	498,826		$	514,879		$	—
Interest rate swap agreements	26,047,264			12,544,820			(8,088,318		)	30,503,766			30,144,641			(50,240		)
Interest rate cap contracts	—			2,500,000			—			2,500,000			1,684,783			—
Swaptions, net	(738,000		)	1,164,000			(262,000		)	164,000			(157,663		)	10,374
TBAs, net	3,049,000			21,060,000			(14,785,000		)	9,324,000			6,430,924			(23,067		)
Short U.S. Treasuries	—			(800,000		)	—			(800,000		)	(539,130		)	—
Put and call options for TBAs, net	(320,000		)	(1,710,000		)	1,120,000			(910,000		)	(1,106,120		)	910
Markit IOS total return swaps	51,541			—			(1,850		)	49,691			50,296			(516		)
Total	$	28,618,861		$	34,758,820		$	(22,047,398	)	$	41,330,283		$	37,022,610		$	(62,539	)

	Nine Months Ended September 30, 2019
(in thousands)	Beginning of Period Notional Amount			Additions		Settlement, Termination, Expiration or Exercise			End of Period Notional Amount		Average Notional Amount			Realized Gain (Loss), net (1)
Inverse interest-only securities	$	476,299		$	—	$	(60,356	)	$	415,943	$	447,082		$	—
Interest rate swap agreements	29,523,605			32,373,068		(20,063,178		)	41,833,495		38,402,820			41,975
Interest rate cap contracts	2,500,000			—		(2,500,000		)	—		1,417,216			(8,690		)
Swaptions, net	63,000			14,200,000		(12,513,000		)	1,750,000		3,259,802			63,139
TBAs, net	6,484,000			119,252,000		(115,873,000		)	9,863,000		8,905,264			242,102
Short U.S. Treasuries	(800,000		)	—		800,000			—		(61,097		)	(23,172		)
U.S. Treasury futures	—			8,077,000		(7,757,000		)	320,000		691,414			47,565
Put and call options for TBAs, net	(1,767,000		)	—		1,767,000			—		(147,606		)	(32,962		)
Markit IOS total return swaps	48,265			—		(4,498		)	43,767		45,964			—
Total	$	36,528,169		$	173,902,068	$	(156,204,032	)	$	54,226,205	$	52,960,859		$	329,957

	Nine Months Ended September 30, 2018
(in thousands)	Beginning of Period Notional Amount			Additions			Settlement, Termination, Expiration or Exercise			End of Period Notional Amount			Average Notional Amount			Realized Gain (Loss), net (1)
Inverse interest-only securities	$	588,246		$	—		$	(89,420	)	$	498,826		$	544,691		$	—
Interest rate swap agreements	28,482,125			37,894,452			(35,872,811		)	30,503,766			25,588,646			(46,101		)
Interest rate cap contracts	—			2,500,000			—			2,500,000			567,766			—
Swaptions, net	2,666,000			(74,000		)	(2,428,000		)	164,000			(2,015,260		)	78,266
TBAs, net	(573,000		)	38,773,000			(28,876,000		)	9,324,000			3,210,355			(28,681		)
Short U.S. Treasuries	—			(800,000		)	—			(800,000		)	(181,685		)	—
Put and call options for TBAs, net	—			2,892,000			(3,802,000		)	(910,000		)	(590,168		)	39,452
Markit IOS total return swaps	63,507			—			(13,816		)	49,691			57,303			(765		)
Total	$	31,226,878		$	81,185,452		$	(71,082,047	)	$	41,330,283		$	27,181,648		$	42,171

____________________

(1) Excludes net interest paid or received in full settlement of the net interest spread liability.

Cash flow activity related to derivative instruments is reflected within the operating activities and investing activities sections of the condensed consolidated statements of cash flows. Realized gains and losses and derivative fair value adjustments are reflected within the realized and unrealized loss (gain) on interest rate swaps, caps and swaptions and unrealized (gain) loss on other derivative instruments line items within the operating activities section of the condensed consolidated statements of cash flows. The remaining cash flow activity related to derivative instruments is reflected within the (purchases) short sales of other derivative instruments, (payments for termination and settlement) proceeds from sales and settlements of derivative instruments, net and decrease in due to counterparties, net line items within the investing activities section of the condensed consolidated statements of cash flows.

Interest Rate Sensitive Assets/Liabilities

The Company’s Agency RMBS portfolio is generally subject to change in value when mortgage rates decline or increase, depending on the type of investment. Rising mortgage rates generally result in a decline in the value of the Company’s fixed-rate Agency pools. To mitigate the impact of this risk on the Company’s fixed-rate Agency pool portfolio, the Company maintains a portfolio of fixed-rate interest-only securities and MSR, which increase in value when interest rates increase. As of September 30, 2019 and December 31, 2018, the Company had $130.3 million and $147.6 million, respectively, of interest-only securities, and $1.7 billion and $2.0 billion, respectively, of MSR in place to economically hedge its Agency RMBS. Interest-only securities are included in AFS securities, at fair value, in the condensed consolidated balance sheets.

The Company monitors its borrowings under repurchase agreements, FHLB advances and revolving credit facilities, which are generally floating-rate debt, in relation to the rate profile of its portfolio. In connection with its risk management activities, the Company enters into a variety of derivative and non-derivative instruments to economically hedge interest rate risk or “duration mismatch (or gap)” by adjusting the duration of its floating-rate borrowings into fixed-rate borrowings to more closely match the duration of its assets. This particularly applies to borrowing agreements with maturities or interest rate resets of less than six months. Typically, the interest receivable terms (e.g., LIBOR) of certain derivatives match the terms of the underlying debt, resulting in an effective conversion of the rate of the related borrowing agreement from floating to fixed. The objective is to manage the cash flows associated with current and anticipated interest payments on borrowings, as well as the ability to roll or refinance borrowings at the desired amount by adjusting the duration. To help manage the adverse impact of interest rate changes on the value of the Company’s portfolio as well as its cash flows, the Company may, at times, enter into various forward contracts, including short securities, TBAs, options, futures, swaps, caps, credit default swaps and total return swaps. In executing on the Company’s current interest rate risk management strategy, the Company has entered into TBAs, put and call options for TBAs, interest rate swap, cap and swaption agreements, U.S. Treasury futures and Markit IOS total return swaps.

TBAs. At times, the Company may use TBAs as a means of deploying capital until targeted investments are available or to take advantage of temporary displacements, funding advantages or valuation differentials in the marketplace. Additionally, the Company may use TBAs independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. TBAs are forward contracts for the purchase (long notional positions) or sale (short notional positions) of Agency RMBS. The issuer, coupon and stated maturity of the Agency RMBS are predetermined as well as the trade price, face amount and future settle date (published each month by the Securities Industry and Financial Markets Association). However, the specific Agency RMBS to be delivered upon settlement is not known at the time of the TBA transaction. As a result, and because physical delivery of the Agency RMBS upon settlement cannot be assured, the Company accounts for TBAs as derivative instruments.

The Company may hold both long and short notional TBA positions, which are disclosed on a gross basis according to the unrealized gain or loss position of each TBA contract regardless of long or short notional position. The following tables present the notional amount, cost basis, market value and carrying value (which approximates fair value) of the Company’s TBA positions as of September 30, 2019 and December 31, 2018:

	September 30, 2019
										Net Carrying Value (4)
(in thousands)	Notional Amount (1)			Cost Basis (2)			Market Value (3)			Derivative Assets		Derivative Liabilities
Purchase contracts	$	12,659,000		$	13,168,924		$	13,166,842		$	13,146	$	(15,229	)
Sale contracts	(2,796,000		)	(2,905,436		)	(2,902,414		)	3,510		(488		)
TBAs, net	$	9,863,000		$	10,263,488		$	10,264,428		$	16,656	$	(15,717	)

	December 31, 2018
							Net Carrying Value (4)
(in thousands)	Notional Amount (1)		Cost Basis (2)		Market Value (3)		Derivative Assets		Derivative Liabilities
Purchase contracts	$	6,484,000	$	6,734,858	$	6,756,460	$	21,602	$	—
Sale contracts	—		—		—		—		—
TBAs, net	$	6,484,000	$	6,734,858	$	6,756,460	$	21,602	$	—

___________________

(1) Notional amount represents the face amount of the underlying Agency RMBS.

(2) Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS.

(3) Market value represents the current market value of the TBA (or of the underlying Agency RMBS) as of period-end.

(4) Net carrying value represents the difference between the market value of the TBA as of period-end and its cost basis, and is reported in derivative assets / (liabilities), at fair value, in the condensed consolidated balance sheets.

Short U.S. Treasuries. The Company may use short U.S. Treasury securities independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of December 31, 2018, the Company had short-sold U.S. Treasuries with a notional amount of $800.0 million and a fair market value of $781.5 million included in derivative liabilities, at fair value, on the condensed consolidated balance sheet as of December 31, 2018. The Company did not hold any short U.S. Treasuries as of September 30, 2019.

U.S. Treasury Futures. The Company may use U.S. Treasury futures independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of September 30, 2019, the Company had purchased U.S. Treasury futures with a notional amount of $0.3 billion and a fair market value of $1.5 million included in derivative liabilities, at fair value, on the condensed consolidated balance sheet as of September 30, 2019. The Company did not hold any U.S. Treasury futures as of December 31, 2018.

Put and Call Options for TBAs. The Company may use put and call options for TBAs independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of December 31, 2018, the Company had purchased put and call options for TBAs with a notional amount of $5.4 billion and short sold put and call options for TBAs with a notional amount of $7.2 billion. The put and call options had a fair market value of $25.3 million included in derivative liabilities, at fair value, on the condensed consolidated balance sheet as of December 31, 2018. The Company did not hold any put and call options for TBAs as of September 30, 2019.

Interest Rate Swap Agreements. The Company may use interest rate swaps independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of September 30, 2019 and December 31, 2018, the Company held the following interest rate swaps that were utilized as economic hedges of interest rate exposure (or duration) whereby the Company receives interest at a three-month LIBOR rate:

(notional in thousands)
September 30, 2019
Swaps Maturities	Notional Amount		Weighted Average Fixed Pay Rate		Weighted Average Receive Rate		Weighted Average Maturity (Years)
2019	$	3,566,897	1.834	%	2.204	%	0.10
2020	3,640,000		1.806	%	2.186	%	1.08
2021	15,740,977		1.681	%	2.177	%	1.72
2022	2,578,640		1.911	%	2.185	%	2.99
2023 and Thereafter	7,518,220		2.344	%	2.212	%	6.96
Total	$	33,044,734	1.880	%	2.189	%	2.77

(notional in thousands)
December 31, 2018
Swaps Maturities	Notional Amount (1)		Weighted Average Fixed Pay Rate (2)		Weighted Average Receive Rate (2)		Weighted Average Maturity (Years) (2)
2019	$	4,336,897	1.769	%	2.565	%	0.79
2020	3,640,000		1.806	%	2.689	%	1.83
2021	4,117,000		1.550	%	2.687	%	2.69
2022	2,470,000		2.002	%	2.728	%	3.75
2023 and Thereafter	6,842,270		2.495	%	2.636	%	7.60
Total	$	21,406,167	1.978	%	2.651	%	3.75

____________________

(1) Notional amount includes $572.0 million in forward starting interest rate swaps as of December 31, 2018.

(2) Weighted averages exclude forward starting interest rate swaps. As of December 31, 2018, the weighted average fixed pay rate on forward starting interest rate swaps was 2.8%.

Additionally, as of September 30, 2019 and December 31, 2018, the Company held the following interest rate swaps in order to mitigate mortgage interest rate exposure (or duration) risk whereby the Company pays interest at a three-month LIBOR rate:

(notional in thousands)
September 30, 2019
Swaps Maturities	Notional Amounts		Weighted Average Pay Rate		Weighted Average Fixed Receive Rate		Weighted Average Maturity (Years)
2020	250,000		2.278	%	2.258	%	0.31
2021	915,000		2.209	%	2.516	%	1.35
2022	—		—	%	—	%	0.00
2023 and Thereafter	7,623,761		2.186	%	2.232	%	8.88
Total	$	8,788,761	2.191	%	2.262	%	7.86

(notional in thousands)
December 31, 2018
Swaps Maturities	Notional Amounts		Weighted Average Pay Rate		Weighted Average Fixed Receive Rate		Weighted Average Maturity (Years)
2020	$	250,000	2.469	%	2.258	%	1.06
2021	2,477,438		2.538	%	2.736	%	2.24
2022	800,000		2.653	%	2.975	%	3.39
2023 and Thereafter	4,590,000		2.653	%	2.757	%	7.37
Total	$	8,117,438	2.612	%	2.757	%	5.22

Interest Rate Swaptions. The Company may use interest rate swaptions (agreements to enter into interest rate swaps in the future for which the Company would either pay or receive a fixed rate) independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of September 30, 2019 and December 31, 2018, the Company had the following outstanding interest rate swaptions that were utilized as macro-economic hedges:

	September 30, 2019
(notional and dollars in thousands)	Option						Underlying Swap
Swaption	Expiration	Cost Basis		Fair Value		Average Months to Expiration	Notional Amount		Average Pay Rate		Average Receive Rate		Average Term (Years)
Purchase contracts:
Payer	< 6 Months	$	5,395	$	1,401	4.01	$	1,250,000	2.05	%	3M Libor		5.2
Total Payer		$	5,395	$	1,401	4.01	$	1,250,000	2.05	%	3M Libor		5.2
Receiver	< 6 Months	$	4,100	$	7,882	4.10	$	500,000	3M Libor		1.55	%	10.0
Total Receiver		$	4,100	$	7,882	4.10	$	500,000	3M Libor		1.55	%	10.0

	December 31, 2018
(notional and dollars in thousands)	Option								Underlying Swap
Swaption	Expiration	Cost			Fair Value			Average Months to Expiration	Notional Amount			Average Fixed Pay Rate		Average Receive Rate		Average Term (Years)
Purchase contracts:
Payer	< 6 Months	$	4,855		$	2,430		5.13	$	900,000		3.16	%	3M Libor		10.0
Payer	≥ 6 Months	8,400			5,992			8.60	800,000			3.14	%	3M Libor		10.0
Total Payer		$	13,255		$	8,422		7.92	$	1,700,000		3.15	%	3M Libor		10.0
Sale contracts:
Receiver	< 6 Months	$	(4,855	)	$	(9,001	)	4.74	$	(845,000	)	3M Libor		2.66	%	10.0
Receiver	≥ 6 Months	(8,400		)	(12,877		)	8.60	(792,000		)	3M Libor		2.64	%	10.0
Total Receiver		$	(13,255	)	$	(21,878	)	7.52	$	(1,637,000	)	3M Libor		2.65	%	10.0

Interest Rate Cap Contracts. The Company may use interest rate caps independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of December 31, 2018, the Company held the following interest rate caps that were utilized as economic hedges of interest rate exposure (or duration) whereby the Company receives interest at a three-month LIBOR rate, net of a fixed cap rate:

(notional in thousands)
December 31, 2018
Caps Maturities	Notional Amount		Weighted Average Cap Rate		Weighted Average Receive Rate		Weighted Average Maturity (Years)
2019	$	800,000	1.344	%	2.422	%	0.53
2020	1,700,000		1.250	%	2.766	%	1.29
Total	$	2,500,000	1.280	%	2.656	%	1.04

The Company did not hold any interest rate caps as of September 30, 2019.

Markit IOS Total Return Swaps. The Company may use total return swaps (agreements whereby the Company receives or makes payments based on the total return of an underlying instrument or index, such as the Markit IOS Index, in exchange for fixed or floating rate interest payments) independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. The Company enters into total return swaps to help mitigate the potential impact of larger increases or decreases in interest rates on the performance of our portfolio (referred to as “convexity risk”). Total return swaps based on the Markit IOS Index are intended to synthetically replicate the performance of interest-only securities. The Company had the following total return swap agreements in place at September 30, 2019 and December 31, 2018:

(notional and dollars in thousands)
September 30, 2019
Maturity Date	Current Notional Amount			Fair Value			Cost Basis			Unrealized Gain (Loss)
January 12, 2043	$	(19,439	)	$	(6	)	$	(30	)	$	24
January 12, 2044	(24,328		)	(7		)	(29		)	22
Total	$	(43,767	)	$	(13	)	$	(59	)	$	46

(notional and dollars in thousands)
December 31, 2018
Maturity Date	Current Notional Amount			Fair Value			Cost Basis			Unrealized Gain (Loss)
January 12, 2043	$	(21,395	)	$	(153	)	$	(30	)	$	(123	)
January 12, 2044	(26,870		)	(230		)	(29		)	(201		)
Total	$	(48,265	)	$	(383	)	$	(59	)	$	(324	)

Credit Risk

The Company’s exposure to credit losses on its Agency RMBS portfolio is limited due to implicit or explicit backing from the GSEs. The payment of principal and interest on the Freddie Mac and Fannie Mae mortgage-backed securities are guaranteed by those respective agencies, and the payment of principal and interest on the Ginnie Mae mortgage-backed securities are backed by the full faith and credit of the U.S. government.

For non-Agency investment securities, the Company may enter into credit default swaps to hedge credit risk. In future periods, the Company could enhance its credit risk protection, enter into further paired derivative positions, including both long and short credit default swaps, and/or seek opportunistic trades in the event of a market disruption (see discussion under “Non-Risk Management Activities” below). The Company also has processes and controls in place to monitor, analyze, manage and mitigate its credit risk with respect to non-Agency securities.

Derivative financial instruments contain an element of credit risk if counterparties are unable to meet the terms of the agreements. Credit risk associated with derivative financial instruments is measured as the net replacement cost should the counterparties that owe the Company under such contracts completely fail to perform under the terms of these contracts, assuming there are no recoveries of underlying collateral, as measured by the market value of the derivative financial instruments. As of September 30, 2019, the fair value of derivative financial instruments as an asset and liability position was $230.6 million and $17.2 million, respectively.

The Company attempts to mitigate its credit risk exposure on derivative financial instruments by limiting its counterparties to banks and financial institutions that meet established internal credit guidelines. The Company also seeks to spread its credit risk exposure across multiple counterparties in order to reduce its exposure to any single counterparty. Additionally, the Company reduces credit risk on the majority of its derivative instruments by entering into agreements that permit the closeout and netting of transactions with the same counterparty or clearing agency, in the case of centrally cleared interest rate swaps, upon the occurrence of certain events. To further mitigate the risk of counterparty default, the Company maintains collateral agreements with certain of its counterparties and clearing agencies, which require both parties to maintain cash deposits in the event the fair values of the derivative financial instruments exceed established thresholds. The Company’s centrally cleared interest rate swaps require that the Company posts an “initial margin” amount determined by the clearing exchange, which is generally intended to be set at a level sufficient to protect the exchange from the interest rate swap’s maximum estimated single-day price movement. The Company also exchanges “variation margin” based upon daily changes in fair value, as measured by the exchange. As a result of amendments to rules governing certain central clearing activities, the exchange of variation margin is considered a settlement of the interest rate swap, as opposed to pledged collateral. Accordingly, beginning in the first quarter of 2018, the Company began accounting for the receipt or payment of variation margin as a direct reduction to the carrying value of the interest rate swap asset or liability.

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Available-for-Sale Securities, at Fair Value (Tables)

9 Months Ended

Sep. 30, 2019

Debt Securities, Available-for-sale [Abstract]

Debt Securities, Available-for-sale

The following table presents the Company’s AFS investment securities by collateral type as of September 30, 2019 and December 31, 2018:

(in thousands)	September 30, 2019		December 31, 2018
Agency
Federal National Mortgage Association	$	19,445,245	$	15,812,696
Federal Home Loan Mortgage Corporation	4,835,146		4,930,963
Government National Mortgage Association	485,792		941,374
Non-Agency	3,552,375		3,867,571
Total available-for-sale securities	$	28,318,558	$	25,552,604

Schedule of Available-for-sale Securities Reconciliation

The following tables present the amortized cost and carrying value of AFS securities by collateral type as of September 30, 2019 and December 31, 2018:

	September 30, 2019
(in thousands)	Principal/ Current Face		Un-amortized Premium		Accretable Purchase Discount			Credit Reserve Purchase Discount			Amortized Cost		Unrealized Gain		Unrealized Loss			Carrying Value
Agency
Principal and interest	$	23,255,819	$	935,781	$	(21	)	$	—		$	24,191,579	$	431,492	$	(5,701	)	$	24,617,370
Interest-only	2,757,909		179,769		—			—			179,769		15,881		(46,837		)	148,813
Total Agency	26,013,728		1,115,550		(21		)	—			24,371,348		447,373		(52,538		)	24,766,183
Non-Agency
Principal and interest	5,289,767		7,417		(462,973		)	(1,723,638		)	3,110,573		380,236		(17,526		)	3,473,283
Interest-only	4,664,358		83,037		—			—			83,037		4,393		(8,338		)	79,092
Total Non-Agency	9,954,125		90,454		(462,973		)	(1,723,638		)	3,193,610		384,629		(25,864		)	3,552,375
Total	$	35,967,853	$	1,206,004	$	(462,994	)	$	(1,723,638	)	$	27,564,958	$	832,002	$	(78,402	)	$	28,318,558

	December 31, 2018
(in thousands)	Principal/ Current Face		Un-amortized Premium		Accretable Purchase Discount			Credit Reserve Purchase Discount			Amortized Cost		Unrealized Gain		Unrealized Loss			Carrying Value
Agency
Principal and interest	$	20,775,790	$	1,037,781	$	(25,085	)	$	—		$	21,788,486	$	61,128	$	(339,997	)	$	21,509,617
Interest-only	3,115,967		209,901		—			—			209,901		14,170		(48,655		)	175,416
Total Agency	23,891,757		1,247,682		(25,085		)	—			21,998,387		75,298		(388,652		)	21,685,033
Non-Agency
Principal and interest	5,360,124		6,682		(694,119		)	(1,322,762		)	3,349,925		478,095		(44,657		)	3,783,363
Interest-only	5,137,169		83,846		—			—			83,846		3,655		(3,293		)	84,208
Total Non-Agency	10,497,293		90,528		(694,119		)	(1,322,762		)	3,433,771		481,750		(47,950		)	3,867,571
Total	$	34,389,050	$	1,338,210	$	(719,204	)	$	(1,322,762	)	$	25,432,158	$	557,048	$	(436,602	)	$	25,552,604

Debt Securities, Available-for-sale, Classified by Rate Type

The following tables present the carrying value of the Company’s AFS securities by rate type as of September 30, 2019 and December 31, 2018:

	September 30, 2019
(in thousands)	Agency		Non-Agency		Total
Adjustable Rate	$	15,662	$	3,263,875	$	3,279,537
Fixed Rate	24,750,521		288,500		25,039,021
Total	$	24,766,183	$	3,552,375	$	28,318,558

	December 31, 2018
(in thousands)	Agency		Non-Agency		Total
Adjustable Rate	$	19,073	$	3,475,171	$	3,494,244
Fixed Rate	21,665,960		392,400		22,058,360
Total	$	21,685,033	$	3,867,571	$	25,552,604

Debt Securities, Available-for-sale, Weighted Average Life Classifications

The following table presents the Company’s AFS securities according to their estimated weighted average life classifications as of September 30, 2019:

	September 30, 2019
(in thousands)	Agency		Non-Agency		Total
≤ 1 year	$	666	$	42,933	$	43,599
> 1 and ≤ 3 years	59,293		180,489		239,782
> 3 and ≤ 5 years	4,800,249		195,007		4,995,256
> 5 and ≤ 10 years	19,904,761		2,761,214		22,665,975
> 10 years	1,214		372,732		373,946
Total	$	24,766,183	$	3,552,375	$	28,318,558

Schedule of Available-for-sale Securities Reconciliation, Non-Agency Unamortized Net Discount and Designated Credit Reserves

The following table presents the changes for the three and nine months ended September 30, 2019 and 2018 of the net unamortized discount/premium and designated credit reserves on non-Agency AFS securities.

	Nine Months Ended September 30,
	2019									2018
(in thousands)	Designated Credit Reserve			Net Unamortized Discount/Premium			Total			Designated Credit Reserve			Net Unamortized Discount/Premium			Total
Beginning balance at January 1	$	(1,322,762	)	$	(603,591	)	$	(1,926,353	)	$	(653,613	)	$	(607,609	)	$	(1,261,222	)
Acquisitions	(471,746		)	10,524			(461,222		)	(606,728		)	(37,924		)	(644,652		)
Accretion of net discount	—			27,782			27,782			—			64,538			64,538
Realized credit losses	18,668			—			18,668			20,983			—			20,983
Reclassification adjustment for other-than-temporary impairments	(6,847		)	—			(6,847		)	(363		)	—			(363		)
Transfers from (to)	34,157			(34,157		)	—			44,972			(44,972		)	—
Sales, calls, other	24,892			226,923			251,815			—			18,430			18,430
Ending balance at September 30	$	(1,723,638	)	$	(372,519	)	$	(2,096,157	)	$	(1,194,749	)	$	(607,537	)	$	(1,802,286	)

Schedule of Unrealized Loss on Investments

The following table presents the components comprising the carrying value of AFS securities not deemed to be other than temporarily impaired by length of time that the securities had an unrealized loss position as of September 30, 2019 and December 31, 2018. At September 30, 2019, the Company held 1,209 AFS securities, of which 89 were in an unrealized loss position for less than twelve consecutive months and 145 were in an unrealized loss position for more than twelve consecutive months. At December 31, 2018, the Company held 1,550 AFS securities, of which 290 were in an unrealized loss position for less than twelve consecutive months and 489 were in an unrealized loss position for more than twelve consecutive months.

	Unrealized Loss Position for
	Less than 12 Months					12 Months or More					Total
(in thousands)	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
September 30, 2019	$	1,456,511	$	(22,884	)	$	751,426	$	(55,518	)	$	2,207,937	$	(78,402	)
December 31, 2018	$	4,386,946	$	(66,520	)	$	9,501,123	$	(370,082	)	$	13,888,069	$	(436,602	)

Other than Temporary Impairment, Credit Losses Recognized in Earnings

The following table presents the changes in OTTI included in earnings for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2019			2018			2019			2018
Cumulative credit loss at beginning of period	$	(9,376	)	$	(6,663	)	$	(6,865	)	$	(6,395	)
Additions:
Other-than-temporary impairments not previously recognized	(5,950		)	(72		)	(10,353		)	(157		)
Increases related to other-than-temporary impairments on securities with previously recognized other-than-temporary impairments	—			(23		)	(651		)	(206		)
Reductions:
Decreases related to other-than-temporary impairments on securities paid down	—			—			1,703			—
Decreases related to other-than-temporary impairments on securities sold	1,613			—			2,453			—
Cumulative credit loss at end of period	$	(13,713	)	$	(6,758	)	$	(13,713	)	$	(6,758	)

Schedule of Realized Gain (Loss)

The following table presents the gross realized gains and losses on sales of AFS securities for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2019			2018			2019			2018
Gross realized gains	$	254,655		$	6,603		$	380,808		$	16,357
Gross realized losses	(4,388		)	(48,758		)	(124,409		)	(117,075		)
Total realized gains (losses) on sales, net	$	250,267		$	(42,155	)	$	256,399		$	(100,718	)

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Offsetting Assets and Liabilities Offsetting Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2019

Offsetting [Abstract]

Offsetting Assets

The following tables present information about the Company’s assets and liabilities that are subject to master netting arrangements or similar agreements and can potentially be offset on the Company’s condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018:

	September 30, 2019
										Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets (1)
(in thousands)	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Balance Sheets			Net Amounts of Assets (Liabilities) Presented in the Balance Sheets			Financial Instruments			Cash Collateral (Received) Pledged			Net Amount
Assets
Derivative assets	$	608,193		$	(377,573	)	$	230,620		$	(17,201	)	$	—		$	213,419
Reverse repurchase agreements	180,575			—			180,575			—			(180,575		)	—
Total Assets	$	788,768		$	(377,573	)	$	411,195		$	(17,201	)	$	(180,575	)	$	213,419
Liabilities
Repurchase agreements	$	(25,567,136	)	$	—		$	(25,567,136	)	$	25,567,136		$	—		$	—
Derivative liabilities	(394,774		)	377,573			(17,201		)	17,201			—			—
Total Liabilities	$	(25,961,910	)	$	377,573		$	(25,584,337	)	$	25,584,337		$	—		$	—

	December 31, 2018
										Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets (1)
(in thousands)	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Balance Sheets			Net Amounts of Assets (Liabilities) Presented in the Balance Sheets			Financial Instruments			Cash Collateral (Received) Pledged		Net Amount
Assets
Derivative assets	$	599,573		$	(279,592	)	$	319,981		$	(58,775	)	$	—	$	261,206
Reverse repurchase agreements	761,815			—			761,815			(761,815		)	—		—
Total Assets	$	1,361,388		$	(279,592	)	$	1,081,796		$	(820,590	)	$	—	$	261,206
Liabilities
Repurchase agreements	$	(23,133,476	)	$	—		$	(23,133,476	)	$	23,133,476		$	—	$	—
Derivative liabilities	(1,100,182		)	279,592			(820,590		)	820,590			—		—
Total Liabilities	$	(24,233,658	)	$	279,592		$	(23,954,066	)	$	23,954,066		$	—	$	—

____________________

(1)

Amounts presented are limited in total to the net amount of assets or liabilities presented in the condensed consolidated balance sheets by instrument. Excess cash collateral or financial assets that are pledged to counterparties may exceed the financial liabilities subject to a master netting arrangement or similar agreement, or counterparties may have pledged excess cash collateral to the Company that exceed the corresponding financial assets. These excess amounts are excluded from the table above, although separately reported within restricted cash, due from counterparties, or due to counterparties in the Company’s condensed consolidated balance sheets.

Offsetting Liabilities

The following tables present information about the Company’s assets and liabilities that are subject to master netting arrangements or similar agreements and can potentially be offset on the Company’s condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018:

	September 30, 2019
										Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets (1)
(in thousands)	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Balance Sheets			Net Amounts of Assets (Liabilities) Presented in the Balance Sheets			Financial Instruments			Cash Collateral (Received) Pledged			Net Amount
Assets
Derivative assets	$	608,193		$	(377,573	)	$	230,620		$	(17,201	)	$	—		$	213,419
Reverse repurchase agreements	180,575			—			180,575			—			(180,575		)	—
Total Assets	$	788,768		$	(377,573	)	$	411,195		$	(17,201	)	$	(180,575	)	$	213,419
Liabilities
Repurchase agreements	$	(25,567,136	)	$	—		$	(25,567,136	)	$	25,567,136		$	—		$	—
Derivative liabilities	(394,774		)	377,573			(17,201		)	17,201			—			—
Total Liabilities	$	(25,961,910	)	$	377,573		$	(25,584,337	)	$	25,584,337		$	—		$	—

	December 31, 2018
										Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets (1)
(in thousands)	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Balance Sheets			Net Amounts of Assets (Liabilities) Presented in the Balance Sheets			Financial Instruments			Cash Collateral (Received) Pledged		Net Amount
Assets
Derivative assets	$	599,573		$	(279,592	)	$	319,981		$	(58,775	)	$	—	$	261,206
Reverse repurchase agreements	761,815			—			761,815			(761,815		)	—		—
Total Assets	$	1,361,388		$	(279,592	)	$	1,081,796		$	(820,590	)	$	—	$	261,206
Liabilities
Repurchase agreements	$	(23,133,476	)	$	—		$	(23,133,476	)	$	23,133,476		$	—	$	—
Derivative liabilities	(1,100,182		)	279,592			(820,590		)	820,590			—		—
Total Liabilities	$	(24,233,658	)	$	279,592		$	(23,954,066	)	$	23,954,066		$	—	$	—

____________________

(1)

Amounts presented are limited in total to the net amount of assets or liabilities presented in the condensed consolidated balance sheets by instrument. Excess cash collateral or financial assets that are pledged to counterparties may exceed the financial liabilities subject to a master netting arrangement or similar agreement, or counterparties may have pledged excess cash collateral to the Company that exceed the corresponding financial assets. These excess amounts are excluded from the table above, although separately reported within restricted cash, due from counterparties, or due to counterparties in the Company’s condensed consolidated balance sheets.

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Revolving Credit Facilities (Tables)

9 Months Ended

Sep. 30, 2019

Revolving Credit Facilities [Abstract]

Schedule of Line of Credit Facilities

At September 30, 2019 and December 31, 2018, borrowings under revolving credit facilities had the following remaining maturities:

(in thousands)	September 30, 2019		December 31, 2018
Within 30 days	$	—	$	—
30 to 59 days	—		—
60 to 89 days	—		—
90 to 119 days	—		—
120 to 364 days	—		20,000
One year and over	300,000		290,000
Total	$	300,000	$	310,000

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Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Earnings Per Share [Abstract]
Net income	$ 305,700	$ 35,946	$ 189,208	$ 510,245
Dividends on preferred stock	18,951	18,951	56,851	46,445
Net income attributable to common stockholders	286,749	16,995	132,357	463,800
Interest expense attributable to convertible notes	4,779	0	0	14,151
Net income attributable to common stockholders - diluted	$ 291,528	$ 16,995	$ 132,357	$ 477,951
Weighted average common shares outstanding (in shares)	271,689,878	222,805,735	264,871,455	190,229,850
Weighted average restricted stock shares (in shares)	1,207,697	1,593,701	1,243,317	1,616,362
Weighted average basic common shares outstanding (in shares)	272,897,575	224,399,436	266,114,772	191,846,212
Effect of dilutive shares issued in an assumed conversion (in shares)	18,156,143	0	0	17,760,934
Weighted average diluted common shares outstanding (in shares)	291,053,718	224,399,436	266,114,772	209,607,146
Basic earnings per weighted average common share	$ 1.05	$ 0.08	$ 0.50	$ 2.42
Diluted earnings per weighted average common share	$ 1.00	$ 0.08	$ 0.50	$ 2.28
Interest expense attributable to antidilutive convertible notes excluded from computation of earnings per share		$ 4,800	$ 14,200
Antidilutive convertible notes excluded from computation of earnings per share (in shares)		17,847,425	18,116,911

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Stockholders' Equity Reclassifications out of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Realized losses (gains) on sales of certain AFS securities, net of tax	$ (248,828)	$ 42,996	$ (251,977)	$ 95,549
Amounts reclassified from accumulated other comprehensive income (loss)	(220,840)	30,463	178,616	53,017
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Other-than-temporary impairments on AFS securities	5,950	95	11,004	363
Realized losses (gains) on sales of certain AFS securities, net of tax	$ (226,790)	$ 30,368	$ (189,620)	$ 52,654

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Subsequent Events

9 Months Ended

Sep. 30, 2019

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

Events subsequent to September 30, 2019 were evaluated through the date these condensed consolidated financial statements were issued and no other additional events were identified requiring further disclosure in these condensed consolidated financial statements.

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Equity Incentive Plan

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Equity Incentive Plan

Equity Incentive Plan

The Company’s Plan provides incentive compensation to attract and retain qualified directors, officers, advisors, consultants and other personnel, including PRCM Advisers and affiliates and employees of PRCM Advisers and its affiliates, and any joint venture affiliates of the Company. The Plan is administered by the compensation committee of the Company’s board of directors. The compensation committee has the full authority to administer and interpret the Plan, to authorize the granting of awards, to determine the eligibility of potential recipients to receive an award, to determine the number of shares of common stock to be covered by each award (subject to the individual participant limitations provided in the Plan), to determine the terms, provisions and conditions of each award (which may not be inconsistent with the terms of the Plan), to prescribe the form of instruments evidencing awards and to take any other actions and make all other determinations that it deems necessary or appropriate in connection with the Plan or the administration or interpretation thereof. In connection with this authority, the compensation committee may, among other things, establish performance goals that must be met in order for awards to be granted or to vest, or for the restrictions on any such awards to lapse.

The Company’s Plan provides for grants of restricted common stock, phantom shares, dividend equivalent rights and other equity-based awards, subject to a ceiling of 6,500,000 shares available for issuance under the Plan. The Plan allows for the Company’s board of directors to expand the types of awards available under the Plan to include long-term incentive plan units in the future. If an award granted under the Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards. Unless earlier terminated by the Company’s board of directors, no new award may be granted under the Plan after the tenth anniversary of the date that the Plan was approved by the Company’s board of directors. No award may be granted under the Plan to any person who, assuming payment of all awards held by such person, would own or be deemed to own more than 9.8% of the outstanding shares of the Company’s common stock.

During the nine months ended September 30, 2019 and 2018, the Company granted 60,108 and 55,553 shares of common stock, respectively, to its independent directors pursuant to the Plan. The estimated fair value of these awards was $13.35 and $15.48 per share on grant date, based on the adjusted closing price of the Company’s common stock on the NYSE on such date. The restricted common shares granted in 2019 are subject to a one-year vesting period, and the common shares granted in 2018 vested immediately.

Additionally, during the nine months ended September 30, 2019 and 2018, the Company granted 455,174 and 941,371 shares of restricted common stock, respectively, to the Company’s executive officers and key employees of PRCM Advisers who provide services to the Company, pursuant to the terms of the Plan and the associated award agreements. The estimated fair value of these awards was $14.40 and $15.12 per share on grant date, based on the adjusted closing market price of the Company’s common stock on the NYSE on such date. The shares underlying the grants vest in three equal annual installments commencing on the first anniversary of the grant date, as long as such grantee complies with the terms and conditions of his or her applicable restricted stock award agreement.

The following table summarizes the activity related to restricted common stock for the nine months ended September 30, 2019 and 2018:

	Nine Months Ended September 30,
	2019					2018
	Shares		Weighted Average Grant Date Fair Market Value			Shares		Weighted Average Grant Date Fair Market Value
Outstanding at Beginning of Period	1,593,701		$	15.81		1,284,010		$	17.15
Granted	515,282		14.28			996,924		14.96
Vested	(803,523	)	(14.43		)	(673,118	)	(17.12		)
Forfeited	(103,208	)	(15.52		)	(14,115	)	(15.59		)
Outstanding at End of Period	1,202,252		$	16.10		1,593,701		$	15.81

For the three and nine months ended September 30, 2019, the Company recognized compensation related to restricted common stock granted pursuant to the Plan of $2.2 million and $6.5 million, respectively. For the three and nine months ended September 30, 2018, the Company recognized compensation related to restricted common stock granted pursuant to the Plan of $3.4 million and $9.8 million, respectively.

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Derivative Instruments and Hedging Activities Short U.S. Treasury Securities (Details) - USD ($)	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Derivative [Line Items]
Notional	$ 54,226,205,000	$ 55,549,424,000	$ 36,528,169,000	$ 41,330,283,000	$ 28,618,861,000	$ 31,226,878,000
Derivative Financial Instruments, Liabilities [Member]
Derivative [Line Items]
Notional	43,731,262,000		5,403,265,000
Fair Value	$ (17,201,000)		(820,590,000)
Short US Treasuries [Member]
Derivative [Line Items]
Fair Value			781,500,000
Short US Treasuries [Member] | Derivative Financial Instruments, Liabilities [Member]
Derivative [Line Items]
Notional			800,000,000
Fair Value			$ (781,455,000)

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Stockholders' Equity Public Offering (Details) - USD ($) $ / shares in Units, $ in Thousands		1 Months Ended	9 Months Ended
	Mar. 22, 2019	Jul. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Mar. 21, 2019
Class of Stock [Line Items]
Proceeds from issuance of common stock, net of offering costs	$ 284,500		$ 335,666	$ 329
Issuance costs incurred in common stock offering	$ 300
Common Stock [Member]
Class of Stock [Line Items]
Number of shares of stock issued during period (in shares)	18,000,000	72,600,000	24,399,107	72,608,932
Price per share of common stock issued during period (in usd per share)					$ 13.76
Over-Allotment Option [Member] | Common Stock [Member]
Class of Stock [Line Items]
Number of shares of stock issued during period (in shares)	2,700,000

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Term Notes Payable (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Debt Instrument [Line Items]
Term notes payable	$ 394,235	$ 0
Weighted average interest rate	4.82%
Weighted average remaining maturities	4 years 8 months 12 days
Mortgage servicing rights, at fair value, pledged as collateral for borrowings	$ 1,600,000	$ 1,100,000
Weighted average underlying loan coupon of mortgage servicing rights pledged as collateral for borrowings	4.27%
Term Notes Payable [Member]
Debt Instrument [Line Items]
Mortgage servicing rights, at fair value, pledged as collateral for borrowings	$ 591,100

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Derivative Instruments and Hedging Activities Interest Spread on Interest Rate Swaps and Caps (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Jun. 30, 2019	Dec. 31, 2018	Jun. 30, 2018	Dec. 31, 2017
Derivative Instruments, Gain (Loss) [Line Items]
Derivative, Notional Amount	$ 54,226,205,000	$ 41,330,283,000	$ 54,226,205,000	$ 41,330,283,000	$ 55,549,424,000	$ 36,528,169,000	$ 28,618,861,000	$ 31,226,878,000
Average Notional Amount	54,069,162,000	37,022,610,000	52,960,859,000	27,181,648,000
Interest Rate Contract [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Net interest expense (income) on interest rate swaps and caps	19,200,000	16,200,000	65,700,000	33,900,000
Net Long Position [Member] | Interest Rate Contract [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Average Notional Amount	$ 41,200,000,000	$ 31,800,000,000	$ 39,800,000,000	$ 26,200,000,000

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Stockholders' Equity Dividend Reinvestment and Direct Stock Purchase Plan (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Equity [Abstract]
Number of common shares reserved for issuance under dividend reinvestment plan (in shares)	3,750,000		3,750,000
Number of common shares issued from dividend reinvestment plan and outstanding as of period-end (in shares)	261,659		261,659
Accumulated proceeds from issuance of common shares from dividend reinvestment plan	$ 4,900		$ 4,900
Number of common shares issued during period from dividend reinvestment plan (in shares)	8,651	8,692	33,807	21,160
Proceeds from issuance of common shares during period from dividend reinvestment plan	$ 100	$ 100	$ 500	$ 300

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Derivative Instruments and Hedging Activities Schedule of Interest Rate Swap Receivers (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018	Jun. 30, 2019	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Derivative [Line Items]
Notional	$ 54,226,205,000	$ 36,528,169,000	$ 55,549,424,000	$ 41,330,283,000	$ 28,618,861,000	$ 31,226,878,000
Interest Rate Swap [Member] | Short [Member]
Derivative [Line Items]
Notional	$ 8,788,761,000	$ 8,117,438,000
Weighted Average Variable Interest Rate	2.191%	2.612%
Weighted Average Fixed Interest Rate	2.262%	2.757%
Weighted Average Remaining Maturity	7 years 10 months 9 days	5 years 2 months 19 days
Interest Rate Swap [Member] | Derivative Maturity Over One And Within Two Years From Balance Sheet Date [Member] | Short [Member]
Derivative [Line Items]
Notional	$ 250,000,000	$ 250,000,000
Weighted Average Variable Interest Rate	2.278%	2.469%
Weighted Average Fixed Interest Rate	2.258%	2.258%
Weighted Average Remaining Maturity	9 days	1 year 21 days
Interest Rate Swap [Member] | Derivative Maturity Over Two And Within Three Years From Balance Sheet Date [Member] | Short [Member]
Derivative [Line Items]
Notional	$ 915,000,000	$ 2,477,438,000
Weighted Average Variable Interest Rate	2.209%	2.538%
Weighted Average Fixed Interest Rate	2.516%	2.736%
Weighted Average Remaining Maturity	1 year 4 months 6 days	2 years 2 months 26 days
Interest Rate Swap [Member] | Derivative Maturity Over Three And Within Four Years From Balance Sheet Date [Member] | Short [Member]
Derivative [Line Items]
Notional		$ 800,000,000
Weighted Average Variable Interest Rate		2.653%
Weighted Average Fixed Interest Rate		2.975%
Weighted Average Remaining Maturity	0 years	3 years 4 months 20 days
Interest Rate Swap [Member] | Derivative Maturity Over Four Years From Balance Sheet Date [Member] | Short [Member]
Derivative [Line Items]
Notional	$ 7,623,761,000	$ 4,590,000,000
Weighted Average Variable Interest Rate	2.186%	2.653%
Weighted Average Fixed Interest Rate	2.232%	2.757%
Weighted Average Remaining Maturity	8 years 10 months 17 days	7 years 4 months 13 days

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Organization and Operations Acquisition of CYS Investments, Inc. (Details) - USD ($) $ in Millions		1 Months Ended	9 Months Ended
	Mar. 22, 2019	Jul. 31, 2018	Sep. 30, 2019	Sep. 30, 2018
Class of Stock [Line Items]
Aggregate cash consideration exchanged for shares of CYS common stock		$ 15.0
Common Stock [Member]
Class of Stock [Line Items]
Number of shares of stock issued during period (in shares)	18,000,000	72,600,000	24,399,107	72,608,932
Series D Preferred Stock [Member]
Class of Stock [Line Items]
Number of shares of stock issued during period (in shares)		3,000,000
Series E Preferred Stock [Member]
Class of Stock [Line Items]
Number of shares of stock issued during period (in shares)		8,000,000

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Schedule of Available-for-sale Securities Reconciliation (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale [Line Items]
Principal/Current Face	$ 35,967,853	$ 34,389,050
Unamortized Premium	1,206,004	1,338,210
Accretable Purchase Discount	462,994	719,204
Credit Reserve Purchase Discount	1,723,638	1,322,762
Amortized Cost	27,564,958	25,432,158
Unrealized Gain	832,002	557,048
Unrealized Loss	78,402	436,602
Available-for-sale securities, at fair value	28,318,558	25,552,604
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Debt Securities, Available-for-sale [Line Items]
Principal/Current Face	26,013,728	23,891,757
Unamortized Premium	1,115,550	1,247,682
Accretable Purchase Discount	21	25,085
Credit Reserve Purchase Discount	0	0
Amortized Cost	24,371,348	21,998,387
Unrealized Gain	447,373	75,298
Unrealized Loss	52,538	388,652
Available-for-sale securities, at fair value	24,766,183	21,685,033
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Debt Securities, Available-for-sale [Line Items]
Principal/Current Face	9,954,125	10,497,293
Unamortized Premium	90,454	90,528
Accretable Purchase Discount	462,973	694,119
Credit Reserve Purchase Discount	1,723,638	1,322,762
Amortized Cost	3,193,610	3,433,771
Unrealized Gain	384,629	481,750
Unrealized Loss	25,864	47,950
Available-for-sale securities, at fair value	3,552,375	3,867,571
Interest-Only-Strip [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Debt Securities, Available-for-sale [Line Items]
Principal/Current Face	2,757,909	3,115,967
Unamortized Premium	179,769	209,901
Accretable Purchase Discount	0	0
Credit Reserve Purchase Discount	0	0
Amortized Cost	179,769	209,901
Unrealized Gain	15,881	14,170
Unrealized Loss	46,837	48,655
Available-for-sale securities, at fair value	148,813	175,416
Interest-Only-Strip [Member] | Mortgage-backed Securities, Issued by Private Enterprises [Member]
Debt Securities, Available-for-sale [Line Items]
Principal/Current Face	4,664,358	5,137,169
Unamortized Premium	83,037	83,846
Accretable Purchase Discount	0	0
Credit Reserve Purchase Discount	0	0
Amortized Cost	83,037	83,846
Unrealized Gain	4,393	3,655
Unrealized Loss	8,338	3,293
Available-for-sale securities, at fair value	79,092	84,208
Fixed Income Securities [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Debt Securities, Available-for-sale [Line Items]
Principal/Current Face	23,255,819	20,775,790
Unamortized Premium	935,781	1,037,781
Accretable Purchase Discount	21	25,085
Credit Reserve Purchase Discount	0	0
Amortized Cost	24,191,579	21,788,486
Unrealized Gain	431,492	61,128
Unrealized Loss	5,701	339,997
Available-for-sale securities, at fair value	24,617,370	21,509,617
Fixed Income Securities [Member] | Mortgage-backed Securities, Issued by Private Enterprises [Member]
Debt Securities, Available-for-sale [Line Items]
Principal/Current Face	5,289,767	5,360,124
Unamortized Premium	7,417	6,682
Accretable Purchase Discount	462,973	694,119
Credit Reserve Purchase Discount	1,723,638	1,322,762
Amortized Cost	3,110,573	3,349,925
Unrealized Gain	380,236	478,095
Unrealized Loss	17,526	44,657
Available-for-sale securities, at fair value	$ 3,473,283	$ 3,783,363

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Interest income:
Available-for-sale securities	$ 242,023	$ 230,607	$ 731,716	$ 604,790
Other	7,717	6,091	24,536	13,287
Total interest income	249,740	236,698	756,252	618,077
Interest expense:
Repurchase agreements	176,450	138,343	501,361	322,735
Federal Home Loan Bank advances	391	5,301	10,406	14,655
Revolving credit facilities	3,964	3,973	15,316	5,776
Term notes payable	5,475	0	5,706	0
Convertible senior notes	4,797	4,779	14,256	14,204
Total interest expense	191,077	152,396	547,045	357,370
Net interest income	58,663	84,302	209,207	260,707
Other-than-temporary impairments:
Total other-than-temporary impairment losses	(5,950)	(95)	(11,004)	(363)
Other income (loss):
Gain (loss) on investment securities	248,828	(42,996)	251,977	(95,549)
Servicing income	126,025	89,618	373,922	238,473
(Loss) gain on servicing asset	(234,514)	20,591	(675,920)	102,251
(Loss) gain, cap on interest rate swap and swaption agreements	70,620	75,857	(101,414)	255,535
Gain (loss) on other derivative instruments	85,856	(31,463)	270,798	(15,735)
Other income	495	907	277	2,695
Total other income (loss)	297,310	112,514	119,640	487,670
Expenses:
Management fees	16,839	(5,041)	42,556	18,120
Servicing expenses	17,696	16,433	54,354	42,526
Other operating expenses	13,344	17,033	42,913	47,040
Acquisition transaction costs	0	86,703	0	86,703
Restructuring charges	0	8,238	0	8,238
Total expenses	47,879	123,366	139,823	202,627
Income from continuing operations before income taxes	302,144	73,355	178,020	545,387
(Benefit from) provision for income taxes	(3,556)	37,409	(11,188)	35,142
Net income	305,700	35,946	189,208	510,245
Dividends on preferred stock	18,951	18,951	56,851	46,445
Net income attributable to common stockholders	$ 286,749	$ 16,995	$ 132,357	$ 463,800
Basic earnings per weighted average common share	$ 1.05	$ 0.08	$ 0.50	$ 2.42
Diluted earnings per weighted average common share	1.00	0.08	0.50	2.28
Dividends declared per common share (in usd per share)	$ 0.40	$ 0.47	$ 1.27	$ 1.41
Weighted average basic common shares outstanding (in shares)	272,897,575	224,399,436	266,114,772	191,846,212
Weighted average diluted common shares outstanding (in shares)	291,053,718	224,399,436	266,114,772	209,607,146
Comprehensive income:
Net income	$ 305,700	$ 35,946	$ 189,208	$ 510,245
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on available-for-sale securities	(29,164)	(119,796)	637,537	(499,460)
Other comprehensive income (loss)	(29,164)	(119,796)	637,537	(499,460)
Comprehensive income	276,536	(83,850)	826,745	10,785
Dividends on preferred stock	18,951	18,951	56,851	46,445
Comprehensive income (loss) attributable to common stockholders	$ 257,585	$ (102,801)	$ 769,894	$ (35,660)

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Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Repurchase agreements	$ 25,567,136	$ 23,133,476
Long-term Federal Home Loan Bank Advances	50,000
Revolving credit facilities	300,000	310,000
Maturity Over One Year [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Repurchase agreements	262,861	300,000
Revolving credit facilities	$ 300,000	$ 290,000

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Underlying Assets of Federal Home Loan Bank Advances (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Federal Home Loan Bank of Des Moines [Member]
Schedule of Assets Underlying Federal Home Loan Bank Advances [Line Items]
Federal Home Loan Bank stock	$ 6,100	$ 40,800
Available-for-sale Securities [Member]
Schedule of Assets Underlying Federal Home Loan Bank Advances [Line Items]
Assets pledged as collateral for Federal Home Loan Bank advances	$ 54,800	$ 917,500

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Basis of Presentation and Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Basis of Presentation and Significant Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies

Basis of Presentation and Significant Accounting Policies

Consolidation and Basis of Presentation

The interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, have been condensed or omitted according to such SEC rules and regulations. However, management believes that the disclosures included in these interim condensed consolidated financial statements are adequate to make the information presented not misleading.

The condensed consolidated financial statements of the Company include the accounts of all subsidiaries; inter-company accounts and transactions have been eliminated. All trust entities in which the Company holds investments that are considered variable interest entities, or VIEs, for financial reporting purposes were reviewed for consolidation under the applicable consolidation guidance. Whenever the Company has both the power to direct the activities of a trust that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant, the Company consolidates the trust. Certain prior period amounts have been reclassified to conform to the current period presentation. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at September 30, 2019 and results of operations for all periods presented have been made. The results of operations for the three and nine months ended September 30, 2019 should not be construed as indicative of the results to be expected for future periods or the full year.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amount and timing of credit losses, prepayment rates, the period of time during which the Company anticipates an increase in the fair values of real estate securities sufficient to recover unrealized losses in those securities, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the consolidated financial statements and the reported amounts of certain revenues and expenses during the reported period. It is likely that changes in these estimates (e.g., valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ from its estimates and the differences may be material.

Significant Accounting Policies

Included in Note 2 to the Consolidated Financial Statements of the Company’s 2018 Annual Report on Form 10-K is a summary of the Company’s significant accounting policies. Provided below is a summary of additional accounting policies that are significant to the Company’s consolidated financial condition and results of operations for the nine months ended September 30, 2019.

Securitizations and Variable Interest Entities

During the second quarter of 2019, the Company formed a new trust entity, or the Issuer Trust, for the purpose of financing MSR through securitization. On June 27, 2019, the Company, through the Issuer Trust, completed an MSR securitization transaction pursuant to which, through two of the Company’s wholly owned subsidiaries, MSR is pledged to the Issuer Trust and in return, the Issuer Trust issued (a) an aggregate principal amount of $400.0 million in term notes to qualified institutional buyers and (b) a variable funding note, or VFN, with a maximum principal balance of $1.0 billion to one of the subsidiaries, in each case secured on a pari passu basi. The term notes bear interest at a rate equal to one-month LIBOR plus 2.80% per annum. The term notes will mature on June 25, 2024 or, if extended pursuant to the terms of the related indenture supplement, June 25, 2026 (unless earlier redeemed in accordance with their terms).

The Issuer Trust is considered a VIE for financial reporting purposes and, thus, was reviewed for consolidation under the applicable consolidation guidance. As the Company has both the power to direct the activities of the Issuer Trust that most significantly impact the entity’s performance, and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, the Company consolidates the trust.

Term Notes Payable

Term notes payable related to the Company’s on-balance sheet securitization are recorded at outstanding principal balance, net of any unamortized deferred debt issuance costs, on the Company’s condensed consolidated balance sheets.

Recently Issued and/or Adopted Accounting Standards

Lease Classification and Accounting

In February 2016, the FASB issued ASU No. 2016-02, which requires lessees to recognize on their balance sheets both a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. The Company’s adoption of this ASU was applied by recording a cumulative-effect adjustment to retained earnings as of January 1, 2019, which did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, which changes the impairment model for most financial assets and certain other instruments. Valuation allowances for credit losses on AFS debt securities will be recognized, rather than direct reductions in the amortized cost of the investments, regardless of whether the impairment is considered to be other-than-temporary. The new model also requires the estimation of lifetime expected credit losses and corresponding recognition of allowance for losses on trade and other receivables, held-to-maturity debt securities, loans, and other instruments held at amortized cost. The ASU requires certain recurring disclosures and is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2019, with early adoption permitted for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018. The Company is evaluating the adoption of this ASU to determine the impact it may have on its condensed consolidated financial statements, which at the date of adoption, will establish an allowance for credit losses on AFS securities which will be derived from the present value of the current designated credit reserve with a resulting increase to amortized cost on the securities. The Company also expects adoption of this ASU to impact the recording for the purchase of certain non-Agency securities with purchased credit deterioration by recording an allowance for credit losses with an increase in amortized cost above the purchase price of the same amount. Subsequent changes in expected credit losses will be recognized immediately in earnings as a provision for credit losses until the allowance is reduced to zero. Further favorable changes will result in prospective adjustments to the effective interest rate. The Company is currently developing new processes, policies and controls to implement the standard, which it expects to have completed by the adoption date.

SEC Disclosure Update and Simplification

In August 2018, the SEC adopted a final rule that amends certain disclosure requirements that have become duplicative, overlapping, or outdated in light of other SEC disclosure requirements, U.S. GAAP, or changes in the information environment. However, the guidance also added requirements for entities to include in their interim financial statements a reconciliation of changes in stockholders’ equity for each period for which an income statement is required (both year-to-date and quarterly periods). The final rule is effective for all filings made on or after November 5, 2018. However, the SEC staff said it would not object to a registrant waiting to comply with the new interim disclosure requirement until the filing of its Form 10-Q for the quarter that begins after the effective date. As a result, the Company adopted the new interim disclosure requirement in connection with the Form 10-Q filing for the first quarter 2019. The Company’s adoption of this final rule did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.

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Derivative Instruments and Hedging Activities Schedule of Interest Rate Swaptions (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018	Jun. 30, 2019	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Derivative [Line Items]
Notional	$ 54,226,205,000	$ 36,528,169,000	$ 55,549,424,000	$ 41,330,283,000	$ 28,618,861,000	$ 31,226,878,000
Interest Rate Swaption [Member] | Long [Member] | Variable Income Interest Rate [Member]
Derivative [Line Items]
Cost Basis	(5,395,000)	(13,255,000)
Fair Value	$ (1,401,000)	$ (8,422,000)
Weighted Average Remaining Maturity	4 years 3 days	7 months 28 days
Interest Rate Swaption [Member] | Long [Member] | Variable Income Interest Rate [Member] | Less Than Six Months Remaining Maturity [Member]
Derivative [Line Items]
Cost Basis	$ (5,395,000)	$ (4,855,000)
Fair Value	$ (1,401,000)	$ (2,430,000)
Weighted Average Remaining Maturity	4 years 3 days	5 months 4 days
Interest Rate Swaption [Member] | Long [Member] | Variable Income Interest Rate [Member] | Six Months or Longer Remaining Maturity [Member]
Derivative [Line Items]
Cost Basis		$ (8,400,000)
Fair Value		$ (5,992,000)
Weighted Average Remaining Maturity		8 months 18 days
Interest Rate Swaption [Member] | Long [Member] | Fixed Income Interest Rate [Member]
Derivative [Line Items]
Cost Basis	$ (4,100,000)
Fair Value	$ (7,882,000)
Weighted Average Remaining Maturity	4 years 1 month 6 days
Interest Rate Swaption [Member] | Long [Member] | Fixed Income Interest Rate [Member] | Less Than Six Months Remaining Maturity [Member]
Derivative [Line Items]
Cost Basis	$ (4,100,000)
Fair Value	$ (7,882,000)
Weighted Average Remaining Maturity	4 years 1 month 6 days
Interest Rate Swaption [Member] | Short [Member] | Fixed Income Interest Rate [Member]
Derivative [Line Items]
Cost Basis		$ (13,255,000)
Fair Value		$ (21,878,000)
Weighted Average Remaining Maturity		7 months 16 days
Interest Rate Swaption [Member] | Short [Member] | Fixed Income Interest Rate [Member] | Less Than Six Months Remaining Maturity [Member]
Derivative [Line Items]
Cost Basis		$ (4,855,000)
Fair Value		$ (9,001,000)
Weighted Average Remaining Maturity		4 months 24 days
Interest Rate Swaption [Member] | Short [Member] | Fixed Income Interest Rate [Member] | Six Months or Longer Remaining Maturity [Member]
Derivative [Line Items]
Cost Basis		$ (8,400,000)
Fair Value		$ (12,877,000)
Weighted Average Remaining Maturity		8 months 18 days
Underlying Swap [Member] | Long [Member] | Variable Income Interest Rate [Member]
Derivative [Line Items]
Notional	$ 1,250,000,000	$ 1,700,000,000
Weighted Average Remaining Maturity	5 years 2 months 12 days	10 years
Underlying Swap [Member] | Long [Member] | Variable Income Interest Rate [Member] | London Interbank Offered Rate (LIBOR) [Member]
Derivative [Line Items]
Weighted Average Fixed Interest Rate	2.05%	3.15%
Underlying Swap [Member] | Long [Member] | Variable Income Interest Rate [Member] | Less Than Six Months Remaining Maturity [Member]
Derivative [Line Items]
Notional	$ 1,250,000,000	$ 900,000,000
Weighted Average Remaining Maturity	5 years 2 months 12 days	10 years
Underlying Swap [Member] | Long [Member] | Variable Income Interest Rate [Member] | Less Than Six Months Remaining Maturity [Member] | London Interbank Offered Rate (LIBOR) [Member]
Derivative [Line Items]
Weighted Average Fixed Interest Rate	2.05%	3.16%
Underlying Swap [Member] | Long [Member] | Variable Income Interest Rate [Member] | Six Months or Longer Remaining Maturity [Member]
Derivative [Line Items]
Notional		$ 800,000,000
Weighted Average Remaining Maturity		10 years
Underlying Swap [Member] | Long [Member] | Variable Income Interest Rate [Member] | Six Months or Longer Remaining Maturity [Member] | London Interbank Offered Rate (LIBOR) [Member]
Derivative [Line Items]
Weighted Average Fixed Interest Rate		3.14%
Underlying Swap [Member] | Long [Member] | Fixed Income Interest Rate [Member]
Derivative [Line Items]
Notional	$ 500,000,000
Weighted Average Remaining Maturity	10 years
Underlying Swap [Member] | Long [Member] | Fixed Income Interest Rate [Member] | London Interbank Offered Rate (LIBOR) [Member]
Derivative [Line Items]
Weighted Average Fixed Interest Rate	1.55%
Underlying Swap [Member] | Long [Member] | Fixed Income Interest Rate [Member] | Less Than Six Months Remaining Maturity [Member]
Derivative [Line Items]
Notional	$ 500,000,000
Weighted Average Remaining Maturity	10 years
Underlying Swap [Member] | Long [Member] | Fixed Income Interest Rate [Member] | Less Than Six Months Remaining Maturity [Member] | London Interbank Offered Rate (LIBOR) [Member]
Derivative [Line Items]
Weighted Average Fixed Interest Rate	1.55%
Underlying Swap [Member] | Short [Member] | Fixed Income Interest Rate [Member]
Derivative [Line Items]
Notional		$ 1,637,000,000
Weighted Average Remaining Maturity		10 years
Underlying Swap [Member] | Short [Member] | Fixed Income Interest Rate [Member] | London Interbank Offered Rate (LIBOR) [Member]
Derivative [Line Items]
Weighted Average Fixed Interest Rate		2.65%
Underlying Swap [Member] | Short [Member] | Fixed Income Interest Rate [Member] | Less Than Six Months Remaining Maturity [Member]
Derivative [Line Items]
Notional		$ 845,000,000
Weighted Average Remaining Maturity		10 years
Underlying Swap [Member] | Short [Member] | Fixed Income Interest Rate [Member] | Less Than Six Months Remaining Maturity [Member] | London Interbank Offered Rate (LIBOR) [Member]
Derivative [Line Items]
Weighted Average Fixed Interest Rate		2.66%
Underlying Swap [Member] | Short [Member] | Fixed Income Interest Rate [Member] | Six Months or Longer Remaining Maturity [Member]
Derivative [Line Items]
Notional		$ 792,000,000
Weighted Average Remaining Maturity		10 years
Underlying Swap [Member] | Short [Member] | Fixed Income Interest Rate [Member] | Six Months or Longer Remaining Maturity [Member] | London Interbank Offered Rate (LIBOR) [Member]
Derivative [Line Items]
Weighted Average Fixed Interest Rate		2.64%

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Repurchase Agreements (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Disclosure of Repurchase Agreements [Abstract]
Repurchase agreements	$ 25,567,136	$ 23,133,476
Weighted average borrowing rate	2.47%	2.68%
Weighted average remaining maturity	81 days	66 days

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Schedule of Repurchase Agreement Counterparties with Whom Repurchase Agreements Exceed 10 Percent of Stockholders' Equity (Details) $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2019 USD ($) counterparty	Sep. 30, 2018	Dec. 31, 2018 USD ($) counterparty
Repurchase Agreement Counterparty [Line Items]
Repurchase agreements	$ 25,567,136		$ 23,133,476
Net Counterparty Exposure	$ 1,608,401		$ 2,022,074
Weighted Average Days to Maturity	81 days		66 days
Repurchase Agreement Counterparty, Barclays Capital [Member]
Repurchase Agreement Counterparty [Line Items]
Repurchase agreements	$ 3,710,843		$ 2,508,277
Net Counterparty Exposure	$ 269,905		$ 280,148
Percent of Equity	5.00%		7.00%
Weighted Average Days to Maturity	63 days	50 days
Repurchase Agreement Counterparty, Royal Bank of Canada [Member]
Repurchase Agreement Counterparty [Line Items]
Repurchase agreements	$ 2,665,484		$ 2,504,438
Net Counterparty Exposure	$ 226,480		$ 342,739
Percent of Equity	5.00%		8.00%
Weighted Average Days to Maturity	123 days		94 days
Repurchase Agreement Counterparty, All Other Counterparties [Member]
Repurchase Agreement Counterparty [Line Items]
Repurchase agreements	$ 19,190,809		$ 18,120,761
Net Counterparty Exposure	$ 1,112,016		$ 1,399,187
Percent of Equity	22.00%		33.00%
Weighted Average Days to Maturity	78 days		64 days
Number of repurchase agreement counterparties with whom amount at risk is less than 10 percent of stockholders' equity | counterparty	23		28

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Offsetting Assets and Liabilities Offsetting Assets and Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Offsetting [Abstract]
Gross amount of recognized derivative assets	$ 608,193	$ 599,573
Gross amount of derivative liabilities offset against derivative assets in the balance sheet	377,573	279,592
Net amount of derivative assets presented in the balance sheet	230,620	319,981
Gross amount of derivative liabilities not offset against derivative assets in the balance sheet	17,201	58,775
Gross amount of cash collateral received not offset against derivative assets in the balance sheet	0	0
Net amount of derivative assets after effects of amounts offset and not offset in the balance sheet	213,419	261,206
Gross amount of recognized reverse repurchase agreements	180,575	761,815
Gross amount of financial liabilities offset against reverse repurchase agreements in the balance sheet	0	0
Net amount of reverse repurchase agreements presented in the balance sheet	180,575	761,815
Gross amount of financial liabilities not offset against reverse repurchase agreements in the balance sheet	0	761,815
Gross amount of cash collateral received not offset against reverse repurchase agreements in the balance sheet	(180,575)	0
Net amount of reverse repurchase agreements after effects of amounts offset and not offset in the balance sheet	0	0
Gross amount of recognized assets subject to master netting arrangements or similar agreements	788,768	1,361,388
Gross amount of liabilities offset against assets subject to master netting arrangements or similar agreements in the balance sheet	377,573	279,592
Net amount of assets subject to master netting arrangements or similar agreements presented in the balance sheet	411,195	1,081,796
Gross amount of liabilities not offset against assets subject to master netting arrangements or similar agreements in the balance sheet	17,201	820,590
Gross amount of cash collateral received not offset against assets subject to master netting arrangements or similar agreements in the balance sheet	180,575	0
Net amount of assets subject to master netting arrangements or similar agreements after effects of amounts offset and not offset in the balance sheet	213,419	261,206
Gross amount of recognized repurchase agreements	25,567,136	23,133,476
Gross amount of financial assets offset against repurchase agreements in the balance sheet	0	0
Net amount of repurchase agreements presented in the balance sheet	25,567,136	23,133,476
Gross amount of financial assets not offset against repurchase agreements in the balance sheet	25,567,136	23,133,476
Gross amount of cash collateral pledged not offset against repurchase agreements in the balance sheet	0	0
Net amount of repurchase agreements after effects of amounts offset and not offset in the balance sheet	0	0
Gross amount of recognized derivative liabilities	394,774	1,100,182
Gross amount of derivative assets offset against derivative liabilities in the balance sheet	377,573	279,592
Net amount of derivative liabilities presented in the balance sheet	17,201	820,590
Gross amount of derivatives assets not offset against derivative liabilities in the balance sheet	17,201	820,590
Gross amount of cash collateral pledged not offset against derivative liabilities in the balance sheet	0	0
Net amount of derivative liabilities after effects of amounts offset and not offset in the balance sheet	0	0
Gross amount of recognized liabilities subject to master netting arrangements or similar agreements	25,961,910	24,233,658
Gross amount of assets offset against liabilities subject to master netting arrangements or similar agreements in the balance sheet	377,573	279,592
Net amount of liabilities subject to master netting arrangements or similar agreements presented in the balance sheet	25,584,337	23,954,066
Gross amount of assets not offset against liabilities subject to master netting arrangements or similar agreements in the balance sheet	25,584,337	23,954,066
Gross amount of cash collateral pledged not offset against liabilities subject to master netting arrangements or similar agreements in the balance sheet	0	0
Net amount of liabilities subject to master netting arrangements or similar agreements after effects of amounts offset and not offset in the balance sheet	$ 0	$ 0

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Schedule of Restricted Cash and Cash Equivalents (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Restricted Cash and Cash Equivalents Items [Line Items]
Restricted cash	$ 509,689	$ 688,006
Restricted Cash and Cash Equivalents Held for Securities Trading Activity [Member]
Restricted Cash and Cash Equivalents Items [Line Items]
Restricted cash	45,050	51,350
Restricted Cash and Cash Equivalents Held for Derivatives Trading Activity [Member]
Restricted Cash and Cash Equivalents Items [Line Items]
Restricted cash	142,604	219,900
Restricted Cash and Cash Equivalents Pledged as Restricted Collateral for Borrowings [Member]
Restricted Cash and Cash Equivalents Items [Line Items]
Restricted cash	321,975	416,696
Restricted Cash and Cash Equivalents Held by Counterparties [Member]
Restricted Cash and Cash Equivalents Items [Line Items]
Restricted cash	509,629	687,946
Restricted Cash and Cash Equivalents for Lease [Member]
Restricted Cash and Cash Equivalents Items [Line Items]
Restricted cash	$ 60	$ 60

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Rollforward of Mortgage Servicing Rights, at Fair Value (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Servicing Asset at Fair Value, Amount [Roll Forward]
Mortgage servicing rights, at fair value, at beginning of period	$ 1,800,826	$ 1,450,261	$ 1,993,440	$ 1,086,717
Purchases of mortgage servicing rights	76,588	201,197	341,110	480,462
Sales of mortgage servicing rights	905	0	905	0
Changes in valuation inputs or assumptions used in the valuation model	(144,071)	62,680	(477,710)	209,610
Other changes in fair value	(90,529)	(42,085)	(198,585)	(107,754)
Other changes	7,837	(8,029)	(7,604)	(5,011)
Mortgage servicing rights, at fair value, at end of period	1,651,556	$ 1,664,024	1,651,556	$ 1,664,024
Mortgage servicing rights, at fair value, pledged as collateral for borrowings	$ 1,600,000		$ 1,600,000		$ 1,100,000

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Cash, Cash Equivalents and Restricted Cash (Tables)

9 Months Ended

Sep. 30, 2019

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents [Abstract]

Schedule of Restricted Cash and Cash Equivalents

The following table presents the Company’s restricted cash balances as of September 30, 2019 and December 31, 2018:

(in thousands)	September 30, 2019		December 31, 2018
Restricted cash balances held by trading counterparties:
For securities and loan trading activity	$	45,050	$	51,350
For derivatives trading activity	142,604		219,900
As restricted collateral for repurchase agreements and Federal Home Loan Bank advances	321,975		416,696
Total restricted cash balances held by trading counterparties	509,629		687,946
Restricted cash balance pursuant to letter of credit on office lease	60		60
Total	$	509,689	$	688,006

Schedule of Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Company’s condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018 that sum to the total of the same such amounts shown in the statements of cash flows:

(in thousands)	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	740,698	$	409,758
Restricted cash	509,689		688,006
Total cash, cash equivalents and restricted cash	$	1,250,387	$	1,097,764

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Repurchase Agreements (Tables)

9 Months Ended

Sep. 30, 2019

Disclosure of Repurchase Agreements [Abstract]

Schedule of Repurchase Agreements By Term, Short or Long

At September 30, 2019 and December 31, 2018, the repurchase agreement balances were as follows:

(in thousands)	September 30, 2019		December 31, 2018
Short-term	$	25,304,275	$	22,833,476
Long-term	262,861		300,000
Total	$	25,567,136	$	23,133,476

Schedule of Repurchase Agreements by Maturity

At September 30, 2019 and December 31, 2018, the repurchase agreements had the following characteristics and remaining maturities:

	September 30, 2019
	Collateral Type
(in thousands)	Agency RMBS			Non-Agency Securities			Agency Derivatives			Mortgage Servicing Rights			Total Amount Outstanding
Within 30 days	$	6,804,755		$	328,032		$	21,525		$	—		$	7,154,312
30 to 59 days	6,450,044			317,390			11,961			—			6,779,395
60 to 89 days	—			93,353			—			—			93,353
90 to 119 days	3,655,339			136,347			—			—			3,791,686
120 to 364 days	7,124,853			345,547			15,129			—			7,485,529
One year and over	—			—			—			262,861			262,861
Total	$	24,034,991		$	1,220,669		$	48,615		$	262,861		$	25,567,136
Weighted average borrowing rate	2.41		%	3.34		%	3.08		%	3.77		%	2.47		%

	December 31, 2018
	Collateral Type
(in thousands)	Agency RMBS			Non-Agency Securities			Agency Derivatives			Mortgage Servicing Rights			Total Amount Outstanding
Within 30 days	$	6,712,021		$	770,287		$	6,561		$	—		$	7,488,869
30 to 59 days	4,557,688			496,466			23,444			—			5,077,598
60 to 89 days	5,410,967			242,473			1,621			—			5,655,061
90 to 119 days	1,209,395			722,399			7,065			—			1,938,859
120 to 364 days	2,201,325			463,939			7,825			—			2,673,089
One year and over	—			—			—			300,000			300,000
Total	$	20,091,396		$	2,695,564		$	46,516		$	300,000		$	23,133,476
Weighted average borrowing rate	2.52		%	3.65		%	3.34		%	4.51		%	2.68		%

Schedule of Underlying Assets of Repurchase Agreements when Amount of Repurchase Agreements Exceeds 10 Percent of Assets

The following table summarizes assets at carrying values that are pledged or restricted as collateral for the future payment obligations of repurchase agreements and derivative instruments:

(in thousands)	September 30, 2019		December 31, 2018
Available-for-sale securities, at fair value	$	26,351,294	$	24,240,507
Mortgage servicing rights, at fair value	530,696		685,683
Restricted cash	321,975		416,696
Due from counterparties	133,634		110,695
Derivative assets, at fair value	75,834		70,191
U.S. Treasuries (1)	—		6,457
Total	$	27,413,433	$	25,530,229

____________________

(1)

U.S. Treasuries received as collateral and re-pledged.

Schedule of Repurchase Agreement Counterparties with Whom Repurchase Agreements Exceed 10 Percent of Stockholders' Equity

.

The following table summarizes certain characteristics of the Company’s repurchase agreements and counterparty concentration at September 30, 2019 and December 31, 2018:

	September 30, 2019							December 31, 2018
(dollars in thousands)	Amount Outstanding		Net Counterparty Exposure (1)		Percent of Equity		Weighted Average Days to Maturity	Amount Outstanding		Net Counterparty Exposure (1)		Percent of Equity		Weighted Average Days to Maturity
Barclays Capital Inc.	$	3,710,843	$	269,905	5	%	63	$	2,508,277	$	280,148	7	%	50
Royal Bank of Canada	2,665,484		226,480		5	%	123	2,504,438		342,739		8	%	94
All other counterparties (2)	19,190,809		1,112,016		22	%	78	18,120,761		1,399,187		33	%	64
Total	$	25,567,136	$	1,608,401				$	23,133,476	$	2,022,074

____________________

(1) Represents the net carrying value of the assets sold under agreements to repurchase, including accrued interest plus any cash or assets on deposit to secure the repurchase obligation, less the amount of the repurchase liability, including accrued interest.

(2)

Represents amounts outstanding with 23 and 28 counterparties at September 30, 2019 and December 31, 2018, respectivel

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Fair Value

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

Fair Value

Fair Value

Fair Value Measurements

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). Additionally, ASC 820 requires an entity to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring fair value of a liability.

ASC 820 establishes a three-level hierarchy to be used when measuring and disclosing fair value. An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. Following is a description of the three levels:

Level 1 Inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date under current market conditions. Additionally, the entity must have the ability to access the active market and the quoted prices cannot be adjusted by the entity.

Level 2 Inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full-term of the assets or liabilities.

Level 3 Unobservable inputs are supported by little or no market activity. The unobservable inputs represent the assumptions that market participants would use to price the assets and liabilities, including risk. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation.

The following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models and significant assumptions utilized.

Available-for-sale securities. The Company holds a portfolio of AFS securities that are carried at fair value in the condensed consolidated balance sheets and primarily comprised of Agency RMBS and non-Agency securities. The Company determines the fair value of its Agency RMBS based upon prices obtained from third-party pricing providers received using bid price, which are deemed indicative of market activity. The third-party pricing providers use pricing models that generally incorporate such factors as coupons, primary and secondary mortgage rates, rate reset period, issuer, prepayment speeds, credit enhancements and expected life of the security. In determining the fair value of its non-Agency securities, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers and other applicable market data. If observable market prices are not available or insufficient to determine fair value due principally to illiquidity in the marketplace, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs (including prepayment speeds, delinquency levels, and credit losses). The Company classified 99.5% and 0.5% of its AFS securities as Level 2 and Level 3 fair value assets, respectively, at September 30, 2019. AFS securities account for 93.8% of all assets reported at fair value at September 30, 2019.

Mortgage servicing rights. The Company holds a portfolio of MSR that are carried at fair value on the condensed consolidated balance sheets. The Company determines fair value of its MSR based on prices obtained from third-party pricing providers. Although MSR transactions are observable in the marketplace, the details of those transactions are not necessarily reflective of the value of the Company’s MSR portfolio. Third-party providers use both observable market data and unobservable market data (including prepayment speeds, delinquency levels and discount rates) as inputs into models, which help to inform their best estimates of fair value market price. As a result, the Company classified 100% of its MSR as Level 3 fair value assets at September 30, 2019.

Derivative instruments. The Company may enter into a variety of derivative financial instruments as part of its hedging strategies. The Company principally executes over-the-counter, or OTC, derivative contracts, such as interest rate swaps, caps, swaptions, put and call options for TBAs and Markit IOS total return swaps. The Company utilizes third-party pricing providers to value its financial derivative instruments. The Company classified 100% of the interest rate swaps, swaptions, and Markit IOS total return swaps reported at fair value as Level 2 at September 30, 2019. The Company did not hold any interest rate caps or put and call options for TBAs at September 30, 2019.

The Company may also enter into certain other derivative financial instruments, such as TBAs, short U.S. Treasuries, U.S. Treasury futures and inverse interest-only securities. These instruments are similar in form to the Company’s AFS securities and the Company utilizes a pricing service to value TBAs, short U.S. Treasuries, U.S. Treasury futures and inverse interest-only securities. The Company classified 100% of its inverse interest-only securities at fair value as Level 2 at September 30, 2019. The Company reported 100% of its TBAs and U.S. Treasury futures as Level 1 as of September 30, 2019. The Company did not hold any short U.S. Treasuries at September 30, 2019.

The Company’s risk management committee governs trading activity relating to derivative instruments. The Company’s policy is to minimize credit exposure related to financial derivatives used for hedging by limiting the hedge counterparties to major banks, financial institutions, exchanges, and private investors who meet established capital and credit guidelines as well as by limiting the amount of exposure to any individual counterparty.

The Company has netting arrangements in place with all derivative counterparties pursuant to standard documentation developed by ISDA, or central clearing exchange agreements, in the case of centrally cleared interest rate swaps. Additionally, both the Company and the counterparty or clearing agency are required to post cash collateral based upon the net underlying market value of the Company’s open positions with the counterparty. Posting of cash collateral typically occurs daily, subject to certain dollar thresholds. Due to the existence of netting arrangements, as well as frequent cash collateral posting at low posting thresholds, credit exposure to the Company and/or to the counterparty or clearing agency is considered materially mitigated. Based on the Company’s assessment, there is no requirement for any additional adjustment to derivative valuations specifically for credit.

The following tables display the Company’s assets and liabilities measured at fair value on a recurring basis. The Company often economically hedges the fair value change of its assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items, and therefore do not directly display the impact of the Company’s risk management activities.

	Recurring Fair Value Measurements
	September 30, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale securities	$	—	$	28,172,321	$	146,237	$	28,318,558
Mortgage servicing rights	—		—		1,651,556		1,651,556
Derivative assets	16,656		213,964		—		230,620
Total assets	$	16,656	$	28,386,285	$	1,797,793	$	30,200,734
Liabilities
Derivative liabilities	$	17,188	$	13	$	—	$	17,201
Total liabilities	$	17,188	$	13	$	—	$	17,201

	Recurring Fair Value Measurements
	December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale securities	$	—	$	25,447,447	$	105,157	$	25,552,604
Mortgage servicing rights	—		—		1,993,440		1,993,440
Derivative assets	21,602		298,379		—		319,981
Total assets	$	21,602	$	25,745,826	$	2,098,597	$	27,866,025
Liabilities
Derivative liabilities	$	—	$	820,590	$	—	$	820,590
Total liabilities	$	—	$	820,590	$	—	$	820,590

The Company may be required to measure certain assets or liabilities at fair value from time to time. These periodic fair value measures typically result from application of certain impairment measures under U.S. GAAP. These items would constitute nonrecurring fair value measures under ASC 820. As of September 30, 2019, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis in the periods presented. 

The valuation of Level 3 instruments requires significant judgment by the third-party pricing providers and/or management. The third-party pricing providers and/or management rely on inputs such as market price quotations from market makers (either market or indicative levels), original transaction price, recent transactions in the same or similar instruments, and changes in financial ratios or cash flows to determine fair value. Level 3 instruments may also be discounted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the third-party pricing providers in the absence of market information. Assumptions used by the third-party pricing providers due to lack of observable inputs may significantly impact the resulting fair value and therefore the Company’s condensed consolidated financial statements. The Company’s valuation committee reviews all valuations that are based on pricing information received from third-party pricing providers. As part of this review, prices are compared against other pricing or input data points in the marketplace, along with internal valuation expertise, to ensure the pricing is reasonable. In addition, the Company performs back-testing of pricing information to validate price information and identify any pricing trends of a third-party price provider.

In determining fair value, third-party pricing providers use various valuation approaches, including market and income approaches. Inputs that are used in determining fair value of an instrument may include pricing information, credit data, volatility statistics, and other factors. In addition, inputs can be either observable or unobservable.

The availability of observable inputs can vary by instrument and is affected by a wide variety of factors, including the type of instrument, whether the instrument is new and not yet established in the marketplace and other characteristics particular to the instrument. The third-party pricing provider uses prices and inputs that are current as of the measurement date, including during periods of market dislocations. In periods of market dislocation, the availability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified to or from various levels within the fair value hierarchy.

Securities for which market quotations are readily available are valued at the bid price (in the case of long positions) or the ask price (in the case of short positions) at the close of trading on the date as of which value is determined. Exchange-traded securities for which no bid or ask price is available are valued at the last traded price. OTC derivative contracts, including interest rate swaps, caps and swaption agreements, put and call options for TBAs and U.S. Treasuries, constant maturity swaps, credit default swaps, U.S. Treasury futures and Markit IOS total return swaps, are valued by the Company using observable inputs, specifically quotations received from third-party pricing providers, and are therefore classified within Level 2.

The following table presents the reconciliation for the Company’s Level 3 assets measured at fair value on a recurring basis:

	Three Months Ended							Nine Months Ended
	September 30, 2019							September 30, 2019
(in thousands)	Available-For-Sale Securities			Mortgage Servicing Rights				Available-For-Sale Securities			Mortgage Servicing Rights
Beginning of period level 3 fair value	$	217,210		$	1,800,826			$	105,157		$	1,993,440
Gains (losses) included in net income:
Realized (losses) gains, net	(3,448		)	(92,699		)		(15,490		)	(200,466		)
Unrealized (losses) gains, net	—			(141,815		)	(1)	—			(475,454		)	(1)
Net gains (losses) included in net income	(3,448		)	(234,514		)		(15,490		)	(675,920		)
Other comprehensive (loss) income	(617		)	—				2,702			—
Purchases	—			76,588				7,468			341,110
Sales	—			819				—			530
Settlements	—			7,837				—			(7,604		)
Gross transfers into level 3	93,541			—				366,466			—
Gross transfers out of level 3	(160,449		)	—				(320,066		)	—
End of period level 3 fair value	$	146,237		$	1,651,556			$	146,237		$	1,651,556
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	—		$	(136,922	)	(2)	$	—		$	(448,075	)	(2)
Change in unrealized gains or losses for the period included in other comprehensive (loss) income for assets held at the end of the reporting period	$	(617	)	$	—			$	2,608		$	—

____________________

(1) The change in unrealized gains or losses on MSR was recorded in (loss) gain on servicing asset on the condensed consolidated statements of comprehensive income (loss).

(2) The change in unrealized gains or losses on MSR that were held at the end of the reporting period was recorded in (loss) gain on servicing asset on the condensed consolidated statements of comprehensive income (loss).

The Company transferred certain AFS from Level 2 to Level 3 and from Level 3 to Level 2 based the observability of inputs during the three and nine months ended September 30, 2019. No additional AFS transfers between Level 1, Level 2 or Level 3 were made during the three and nine months ended September 30, 2019. The Company did not transfer AFS between Level 1, Level 2 or Level 3 during the three and nine months ended September 30, 2018. Transfers between Levels are deemed to take place on the first day of the reporting period in which the transfer has taken place.

The Company used third-party pricing providers in the fair value measurement of its Level 3 available-for-sale securities. The significant unobservable inputs used by the third-party pricing provider included expected default, severity and discount rate. Significant increases (decreases) in any of the inputs in isolation may result in significantly lower (higher) fair value measurement.

The Company also used multiple third-party pricing providers in the fair value measurement of its Level 3 MSR. The tables below present information about the significant unobservable inputs used by the third-party pricing providers in the fair value measurement of the Company’s MSR classified as Level 3 fair value assets at September 30, 2019:

September 30, 2019
Valuation Technique	Unobservable Input (1)	Range				Weighted Average (2)
Discounted cash flow	Constant prepayment speed	13.0	-	18.3	%	16.1%
	Delinquency	0.6	-	0.9	%	0.8%
	Discount rate	6.1	-	8.0	%	7.0%

December 31, 2018
Valuation Technique	Unobservable Input (1)	Range				Weighted Average (2)
Discounted cash flow	Constant prepayment speed	7.6	-	9.6	%	8.6%
	Delinquency	1.0	-	1.5	%	1.3%
	Discount rate	8.2	-	10.7	%	9.4%

___________________

(1) Significant increases (decreases) in any of the inputs in isolation may result in significantly lower (higher) fair value measurement. A change in the assumption used for discount rates may be accompanied by a directionally similar change in the assumption used for the probability of delinquency and a directionally opposite change in the assumption used for prepayment rates.

(2) Calculated by averaging the weighted average significant unobservable inputs used by the multiple third-party pricing providers in the fair value measurement of MSR.

Fair Value of Financial Instruments

In accordance with ASC 820, the Company is required to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in the condensed consolidated balance sheets, for which fair value can be estimated.

The following describes the Company’s methods for estimating the fair value for financial instruments.

• AFS securities, MSR, and derivative assets and liabilities are recurring fair value measurements; carrying value equals fair value. See discussion of valuation methods and assumptions within the Fair Value Measurements section of this Note 9.

• Cash and cash equivalents and restricted cash have a carrying value which approximates fair value because of the short maturities of these instruments. The Company categorizes the fair value measurement of these assets as Level 1.

• Reverse repurchase agreements have a carrying value which approximates fair value due to their short-term nature. The Company categorizes the fair value measurement of these assets as Level 2.

• The carrying value of repurchase agreements, FHLB advances and revolving credit facilities that mature in less than one year generally approximates fair value due to the short maturities. As of September 30, 2019, the Company held $262.9 million of repurchase agreements, $50.0 million of FHLB advances and $300.0 million of revolving credit facilities that are considered long-term. The Company’s long-term repurchase agreements, FHLB advances and revolving credit facilities have floating rates based on an index plus a spread and, for members of the FHLB, the credit spread is typically consistent with those demanded in the market. Accordingly, the interest rates on these borrowings are at market and thus carrying value approximates fair value. The Company categorizes the fair value measurement of these liabilities as Level 2.

• Term notes payable are recorded at outstanding principal balance, net of any unamortized deferred debt issuance costs. In determining the fair value of term notes payable, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers, broker quotes received and other applicable market data. If observable market prices are not available or insufficient to determine fair value due principally to illiquidity in the marketplace, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs (including prepayment speeds, delinquency levels, and credit losses). The Company categorizes the fair value measurement of these liabilities as Level 2.

• Convertible senior notes are carried at their unpaid principal balance, net of any unamortized deferred issuance costs. The Company estimates the fair value of its convertible senior notes using the market transaction price nearest to September 30, 2019. The Company categorizes the fair value measurement of these assets as Level 2.

The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at September 30, 2019 and December 31, 2018.

	September 30, 2019				December 31, 2018
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Available-for-sale securities	$	28,318,558	$	28,318,558	$	25,552,604	$	25,552,604
Mortgage servicing rights	$	1,651,556	$	1,651,556	$	1,993,440	$	1,993,440
Cash and cash equivalents	$	740,698	$	740,698	$	409,758	$	409,758
Restricted cash	$	509,689	$	509,689	$	688,006	$	688,006
Derivative assets	$	230,620	$	230,620	$	319,981	$	319,981
Reverse repurchase agreements	$	180,575	$	180,575	$	761,815	$	761,815
Other assets	$	18,274	$	18,274	74,412		74,412
Liabilities
Repurchase agreements	$	25,567,136	$	25,567,136	$	23,133,476	$	23,133,476
Federal Home Loan Bank advances	$	50,000	$	50,000	$	865,024	$	865,024
Revolving credit facilities	$	300,000	$	300,000	$	310,000	$	310,000
Term notes payable	$	394,235	$	400,032	$	—	$	—
Convertible senior notes	$	284,635	$	294,869	$	283,856	$	281,951
Derivative liabilities	$	17,201	$	17,201	$	820,590	$	820,590

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Servicing Activities

9 Months Ended

Sep. 30, 2019

Disclosures Pertaining to Servicing Assets and Servicing Liabilities [Abstract]

Servicing Activities

Servicing Activities

Mortgage Servicing Rights, at Fair Value

One of the Company’s wholly owned subsidiaries has approvals from Fannie Mae and Freddie Mac to own and manage MSR, which represent the right to control the servicing of mortgage loans. The Company and its subsidiaries do not originate or directly service mortgage loans, and instead contract with appropriately licensed subservicers to handle substantially all servicing functions in the name of the subservicer for the loans underlying the Company’s MSR.

The following table summarizes activity related to MSR for the three and nine months ended September 30, 2019 and 2018.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2019			2018			2019			2018
Balance at beginning of period	$	1,800,826		$	1,450,261		$	1,993,440		$	1,086,717
Purchases of mortgage servicing rights	76,588			201,197			341,110			480,462
Sales of mortgage servicing rights	905			—			905			—
Changes in fair value due to:
Changes in valuation inputs or assumptions used in the valuation model	(144,071		)	62,680			(477,710		)	209,610
Other changes in fair value (1)	(90,529		)	(42,085		)	(198,585		)	(107,754		)
Other changes (2)	7,837			(8,029		)	(7,604		)	(5,011		)
Balance at end of period	$	1,651,556		$	1,664,024		$	1,651,556		$	1,664,024

____________________

(1) Other changes in fair value primarily represents changes due to the realization of expected cash flows.

(2) Other changes includes purchase price adjustments, contractual prepayment protection, and changes due to the Company’s purchase of the underlying collateral.

At September 30, 2019 and December 31, 2018, the Company pledged MSR with a carrying value of $1.6 billion and $1.1 billion, respectively, as collateral for repurchase agreements, revolving credit facilities and term notes payable. See Note 10 - Repurchase Agreements, Note 13 - Revolving Credit Facilities and Note 14 - Term Notes Payable.

As of September 30, 2019 and December 31, 2018, the key economic assumptions and sensitivity of the fair value of MSR to immediate 10% and 20% adverse changes in these assumptions were as follows:

(dollars in thousands)	September 30, 2019			December 31, 2018
Weighted average prepayment speed:	16.1		%	8.6	%
Impact on fair value of 10% adverse change	$	(96,530	)	(67,245	)
Impact on fair value of 20% adverse change	$	(182,573	)	(130,371	)
Weighted average delinquency:	0.8		%	1.3	%
Impact on fair value of 10% adverse change	$	(6,435	)	(6,911	)
Impact on fair value of 20% adverse change	$	(12,898	)	(13,688	)
Weighted average discount rate:	7.0		%	9.4	%
Impact on fair value of 10% adverse change	$	(37,901	)	(62,528	)
Impact on fair value of 20% adverse change	$	(74,275	)	(121,135	)

These assumptions and sensitivities are hypothetical and should be considered with caution. Changes in fair value based on 10% and 20% variations in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of MSR is calculated without changing any other assumptions. In reality, changes in one factor may result in changes in another (e.g., increased market interest rates may result in lower prepayments and increased credit losses) that could magnify or counteract the sensitivities. Further, these sensitivities show only the change in the asset balances and do not show any expected change in the fair value of the instruments used to manage the interest rates and prepayment risks associated with these assets.

Risk Mitigation Activities

The primary risk associated with the Company’s MSR is interest rate risk and the resulting impact on prepayments. A significant decline in interest rates could lead to higher-than-expected prepayments that could reduce the value of the MSR. The Company economically hedges the impact of these risks with its Agency RMBS portfolio.

Mortgage Servicing Income

The following table presents the components of servicing income recorded on the Company’s condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2019		2018		2019		2018
Servicing fee income	$	106,700	$	80,690	$	327,184	$	218,022
Ancillary and other fee income	499		358		1,302		1,004
Float income	18,826		8,570		45,436		19,447
Total	$	126,025	$	89,618	$	373,922	$	238,473

Mortgage Servicing Advances

In connection with the servicing of loans, the Company’s subservicers make certain payments for property taxes and insurance premiums, default and property maintenance payments, as well as advances of principal and interest payments before collecting them from individual borrowers. Servicing advances, including contractual interest, are priority cash flows in the event of a loan principal reduction or foreclosure and ultimate liquidation of the real estate-owned property, thus making their collection reasonably assured. These servicing advances, which are funded by the Company, totaled $29.1 million and $39.7 million and were included in other assets on the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively.

Serviced Mortgage Assets

The Company’s total serviced mortgage assets consist of residential mortgage loans underlying MSR, residential mortgage loans held in previous on-balance sheet securitization trusts for which the Company is the named servicing administrator and other assets. The following table presents the number of loans and unpaid principal balance of the mortgage assets for which the Company manages the servicing as of September 30, 2019 and December 31, 2018:

	September 30, 2019			December 31, 2018
(dollars in thousands)	Number of Loans	Unpaid Principal Balance		Number of Loans	Unpaid Principal Balance
Mortgage servicing rights	742,723	$	165,332,533	717,167	$	163,102,308
Residential mortgage loans in securitization trusts	3,340	2,166,758		3,612	2,392,471
Other assets	74	12,833		220	34,374
Total serviced mortgage assets	746,137	$	167,512,124	720,999	$	165,529,153

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Revolving Credit Facilities

9 Months Ended

Sep. 30, 2019

Revolving Credit Facilities [Abstract]

Revolving Credit Facilities

Revolving Credit Facilities

To finance MSR, the Company has entered into revolving credit facilities collateralized by the value of the MSR pledged. As of September 30, 2019 and December 31, 2018, the Company had outstanding short- and long-term borrowings under revolving credit facilities of $300.0 million and $310.0 million with a weighted average borrowing rate of 4.52% and 5.60% and weighted average remaining maturities of 1.45 and 4.25 years, respectively.

At September 30, 2019 and December 31, 2018, borrowings under revolving credit facilities had the following remaining maturities:

(in thousands)	September 30, 2019		December 31, 2018
Within 30 days	$	—	$	—
30 to 59 days	—		—
60 to 89 days	—		—
90 to 119 days	—		—
120 to 364 days	—		20,000
One year and over	300,000		290,000
Total	$	300,000	$	310,000

Although the transactions under revolving credit facilities represent committed borrowings from the time of funding until maturity, the respective lender retains the right to mark the underlying collateral to fair value. A reduction in the value of pledged assets below a designated threshold would require the Company to provide additional collateral or pay down the facility. As of September 30, 2019 and December 31, 2018, MSR with a carrying value of $460.2 million and $458.2 million, respectively, was pledged as collateral for the Company’s future payment obligations under its revolving credit facilities. The Company does not anticipate any defaults by its revolving credit facility counterparties, although there can be no assurance that any such default or defaults will not occur.

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Variable Interest Entities

9 Months Ended

Sep. 30, 2019

Variable Interest Entities [Abstract]

Variable Interest Entities

Variable Interest Entities

The Issuer Trust that was formed for the purpose of financing MSR through securitization (see discussion in Note 2 - Basis of Presentation and Significant Accounting Policies) is considered a VIE for financial reporting purposes and, thus, was reviewed for consolidation under the applicable consolidation guidance. As the Company has both the power to direct the activities of the Issuer Trust that most significantly impact the entity’s performance, and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, the Company consolidates the trust. Additionally, in accordance with arrangements entered into in connection with the securitization transaction, the Company has direct financial obligations payable to the Issuer Trust, which, in turn, support the Issuer Trust’s obligations to noteholders under the securitization transaction.

The following table presents a summary of the assets and liabilities of all consolidated trusts as reported on the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018:

(in thousands)	September 30, 2019		December 31, 2018
Note receivable (1)	$	394,235	$	—
Cash and cash equivalents	200		—
Accrued interest receivable (1)	321		—
Total Assets	$	394,756	$	—
Term notes payable	$	394,235	$	—
Accrued interest payable	321		—
Other liabilities	200		—
Total Liabilities	$	394,756	$	—

____________________

(1)

Receivables due from a wholly owned subsidiary of the Company to the Issuer Trust are eliminated in consolidation in accordance with U.S. GAAP.

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Derivative Instruments and Hedging Activities Schedule of Interest Rate Caps (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Sep. 30, 2019	Jun. 30, 2019	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Derivative [Line Items]
Notional	$ 36,528,169,000	$ 54,226,205,000	$ 55,549,424,000	$ 41,330,283,000	$ 28,618,861,000	$ 31,226,878,000
Interest Rate Cap [Member]
Derivative [Line Items]
Notional	2,500,000,000					$ 0
Interest Rate Cap [Member] | Long [Member]
Derivative [Line Items]
Notional	$ 2,500,000,000
Derivative, Average Cap Interest Rate	1.28%
Weighted Average Variable Interest Rate	2.656%
Weighted Average Remaining Maturity	1 year 14 days
Derivative Maturity Within One Year From Balance Sheet Date [Member] | Interest Rate Cap [Member] | Long [Member]
Derivative [Line Items]
Notional	$ 800,000,000
Derivative, Average Cap Interest Rate	1.344%
Weighted Average Variable Interest Rate	2.422%
Weighted Average Remaining Maturity	16 days
Derivative Maturity Over One And Within Two Years From Balance Sheet Date [Member] | Interest Rate Cap [Member] | Long [Member]
Derivative [Line Items]
Notional	$ 1,700,000,000
Derivative, Average Cap Interest Rate	1.25%
Weighted Average Variable Interest Rate	2.766%
Weighted Average Remaining Maturity	1 year 3 months 14 days

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Schedule of Repurchase Agreements by Term, Short or Long (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	$ 25,567,136	$ 23,133,476
Maturity up to One Year [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	25,304,275	22,833,476
Maturity Over One Year [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements	$ 262,861	$ 300,000

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Reverse Repurchase Agreements Reverse Repurchase Agreements (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Derivative [Line Items]
Gross amount of cash collateral received not offset against reverse repurchase agreements in the balance sheet	$ 180,575	$ 0
Reverse repurchase agreements	$ 180,575	761,815
Short US Treasuries [Member]
Derivative [Line Items]
Fair Value		$ 781,500

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Fair Value, Measurement Inputs, Disclosure (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt Securities, Available-for-sale, Categorized as Level 2 Assets	99.50%
Debt Securities, Available-for-sale, Categorized as Level 3 Assets	0.50%
Assets Reported at Fair Value, Debt Securities, Available-for-sale	93.80%
Mortgage Servicing Rights Categorized as Level 3 Assets	100.00%
Over-the-Counter Derivatives Categorized as Level 2 Assets (Liabilities)	100.00%
Other RMBS Classified as Derivatives Categorized as Level 2 Assets	100.00%
Other Derivatives Categorized as Level 1 Assets (Liabilities)	100.00%
Mortgage servicing rights	$ 1,651,556	$ 1,800,826	$ 1,993,440	$ 1,664,024	$ 1,450,261	$ 1,086,717
Derivative assets, at fair value	230,620		319,981
Derivative liabilities, at fair value	17,201		820,590
Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	28,318,558		25,552,604
Mortgage servicing rights	1,651,556		1,993,440
Derivative assets, at fair value	230,620		319,981
Total assets	30,200,734		27,866,025
Derivative liabilities, at fair value	17,201		820,590
Total liabilities	17,201		820,590
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0		0
Mortgage servicing rights	0		0
Derivative assets, at fair value	16,656		21,602
Total assets	16,656		21,602
Derivative liabilities, at fair value	17,188		0
Total liabilities	17,188		0
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	28,172,321		25,447,447
Mortgage servicing rights	0		0
Derivative assets, at fair value	213,964		298,379
Total assets	28,386,285		25,745,826
Derivative liabilities, at fair value	13		820,590
Total liabilities	13		820,590
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	146,237		105,157
Mortgage servicing rights	1,651,556		1,993,440
Derivative assets, at fair value	0		0
Total assets	1,797,793		2,098,597
Derivative liabilities, at fair value	0		0
Total liabilities	$ 0		$ 0

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($)	Total	Preferred Stock	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	Cumulative Earnings	Cumulative Distributions to Stockholders	Total Stockholders' Equity	Preferred Stock Total Stockholders' Equity	Common Stock Total Stockholders' Equity
Cumulative effect of adoption of new accounting principles					$ 9,918,000	$ (9,918,000)		$ 0
Stockholders’ equity at beginning of period at Dec. 31, 2017		$ 702,537,000	$ 1,745,000	$ 3,672,003,000	334,813,000	2,386,604,000	$ (3,526,278,000)	3,571,424,000
Stockholders' equity at beginning of period, adjusted balance at Dec. 31, 2017		702,537,000	1,745,000	3,672,003,000	344,731,000	2,376,686,000	(3,526,278,000)	3,571,424,000
Net income (loss)						334,809,000		334,809,000
Other comprehensive income (loss) before reclassifications, net of tax					(343,542,000)			(343,542,000)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax					1,235,000			(1,235,000)
Other comprehensive income (loss), net of tax					(344,777,000)			(344,777,000)
Issuance of stock, net of offering costs		13,000	0	76,000					$ 13,000	$ 76,000
Preferred dividends declared							(13,747,000)	(13,747,000)
Common dividends declared							(82,454,000)	(82,454,000)
Non-cash equity award compensation			9,000	2,332,000				2,341,000
Stockholders’ equity at end of period at Mar. 31, 2018		702,550,000	1,754,000	3,674,411,000	(46,000)	2,711,495,000	(3,622,479,000)	3,467,685,000
Stockholders’ equity at beginning of period at Dec. 31, 2017		702,537,000	1,745,000	3,672,003,000	334,813,000	2,386,604,000	(3,526,278,000)	3,571,424,000
Stockholders' equity at beginning of period, adjusted balance at Dec. 31, 2017		702,537,000	1,745,000	3,672,003,000	344,731,000	2,376,686,000	(3,526,278,000)	3,571,424,000
Other comprehensive income (loss), net of tax	$ (499,460,000)
Repurchase of common stock	0
Stockholders’ equity at end of period at Sep. 30, 2018		977,550,000	2,481,000	4,806,520,000	(154,729,000)	2,886,906,000	(3,842,746,000)	4,675,982,000
Stockholders’ equity at beginning of period at Mar. 31, 2018		702,550,000	1,754,000	3,674,411,000	(46,000)	2,711,495,000	(3,622,479,000)	3,467,685,000
Net income (loss)						139,490,000		139,490,000
Other comprehensive income (loss) before reclassifications, net of tax					(58,676,000)			(58,676,000)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax					(23,789,000)			23,789,000
Other comprehensive income (loss), net of tax					(34,887,000)			(34,887,000)
Issuance of stock, net of offering costs			0	119,000						119,000
Preferred dividends declared							(13,747,000)	(13,747,000)
Common dividends declared							(82,472,000)	(82,472,000)
Non-cash equity award compensation			1,000	4,056,000				4,057,000
Stockholders’ equity at end of period at Jun. 30, 2018		702,550,000	1,755,000	3,678,586,000	(34,933,000)	2,850,985,000	(3,718,698,000)	3,480,245,000
Cumulative effect of adoption of new accounting principles				25,000		(25,000)		0
Stockholders' equity at beginning of period, adjusted balance at Jun. 30, 2018		702,550,000	1,755,000	3,678,611,000	(34,933,000)	2,850,960,000	(3,718,698,000)	3,480,245,000
Net income (loss)						35,946,000		35,946,000
Other comprehensive income (loss) before reclassifications, net of tax					(150,259,000)			(150,259,000)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax					(30,463,000)			30,463,000
Other comprehensive income (loss), net of tax	(119,796,000)				(119,796,000)			(119,796,000)
Acquisition of CYS Investments, Inc.		275,000,000	726,000	1,124,388,000				1,400,114,000
Issuance of stock, net of offering costs			0	134,000						134,000
Repurchase of common stock	0
Preferred dividends declared							(18,951,000)	(18,951,000)
Common dividends declared							(105,097,000)	(105,097,000)
Non-cash equity award compensation			0	3,387,000				3,387,000
Stockholders’ equity at end of period at Sep. 30, 2018		977,550,000	2,481,000	4,806,520,000	(154,729,000)	2,886,906,000	(3,842,746,000)	4,675,982,000
Cumulative effect of adoption of new accounting principles						(442,000)		(442,000)
Stockholders’ equity at beginning of period at Dec. 31, 2018	4,254,489,000	977,501,000	2,481,000	4,809,616,000	110,817,000	2,332,371,000	(3,978,297,000)	4,254,489,000
Stockholders' equity at beginning of period, adjusted balance at Dec. 31, 2018		977,501,000	2,481,000	4,809,616,000	110,817,000	2,331,929,000	(3,978,297,000)	4,254,047,000
Net income (loss)						(25,935,000)		(25,935,000)
Other comprehensive income (loss) before reclassifications, net of tax					327,840,000			327,840,000
Amounts reclassified from accumulated other comprehensive income (loss), net of tax					(28,312,000)			28,312,000
Other comprehensive income (loss), net of tax					356,152,000			356,152,000
Issuance of stock, net of offering costs			243,000	335,035,000						335,278,000
Preferred dividends declared							(18,950,000)	(18,950,000)
Common dividends declared							(128,229,000)	(128,229,000)
Non-cash equity award compensation			4,000	1,857,000				1,861,000
Stockholders’ equity at end of period at Mar. 31, 2019		977,501,000	2,728,000	5,146,508,000	466,969,000	2,305,994,000	(4,125,476,000)	4,774,224,000
Stockholders’ equity at beginning of period at Dec. 31, 2018	4,254,489,000	977,501,000	2,481,000	4,809,616,000	110,817,000	2,332,371,000	(3,978,297,000)	4,254,489,000
Stockholders' equity at beginning of period, adjusted balance at Dec. 31, 2018		977,501,000	2,481,000	4,809,616,000	110,817,000	2,331,929,000	(3,978,297,000)	4,254,047,000
Other comprehensive income (loss), net of tax	637,537,000
Repurchase of common stock	(19,000.0)
Stockholders’ equity at end of period at Sep. 30, 2019	5,019,580,000	977,501,000	2,729,000	5,151,554,000	748,354,000	2,521,137,000	(4,381,695,000)	5,019,580,000
Stockholders’ equity at beginning of period at Mar. 31, 2019		977,501,000	2,728,000	5,146,508,000	466,969,000	2,305,994,000	(4,125,476,000)	4,774,224,000
Net income (loss)						(90,557,000)		(90,557,000)
Other comprehensive income (loss) before reclassifications, net of tax					296,637,000			296,637,000
Amounts reclassified from accumulated other comprehensive income (loss), net of tax					(13,912,000)			13,912,000
Other comprehensive income (loss), net of tax					310,549,000			310,549,000
Issuance of stock, net of offering costs			0	171,000						171,000
Preferred dividends declared							(18,950,000)	(18,950,000)
Common dividends declared							(109,160,000)	(109,160,000)
Non-cash equity award compensation			1,000	2,496,000				2,497,000
Stockholders’ equity at end of period at Jun. 30, 2019		977,501,000	2,729,000	5,149,175,000	777,518,000	2,215,437,000	(4,253,586,000)	4,868,774,000
Net income (loss)						305,700,000		305,700,000
Other comprehensive income (loss) before reclassifications, net of tax					191,676,000			191,676,000
Amounts reclassified from accumulated other comprehensive income (loss), net of tax					220,840,000			(220,840,000)
Other comprehensive income (loss), net of tax	(29,164,000)				(29,164,000)			(29,164,000)
Issuance of stock, net of offering costs			0	217,000						$ 217,000
Repurchase of common stock	(19,000)		0	(19,000)				(19,000)
Preferred dividends declared							(18,951,000)	(18,951,000)
Common dividends declared							(109,158,000)	(109,158,000)
Non-cash equity award compensation			0	2,181,000				2,181,000
Stockholders’ equity at end of period at Sep. 30, 2019	$ 5,019,580,000	$ 977,501,000	$ 2,729,000	$ 5,151,554,000	$ 748,354,000	$ 2,521,137,000	$ (4,381,695,000)	$ 5,019,580,000

XML

Fair Value by Balance Sheet Grouping (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale securities, at fair value	$ 28,318,558		$ 25,552,604
Mortgage servicing rights, at fair value	1,651,556	$ 1,800,826	1,993,440	$ 1,664,024	$ 1,450,261	$ 1,086,717
Cash and cash equivalents	740,698		409,758
Restricted cash	509,689		688,006
Derivative assets, at fair value	230,620		319,981
Reverse repurchase agreements	180,575		761,815
Other assets	18,274		74,412
Repurchase agreements	25,567,136		23,133,476
Federal Home Loan Bank advances	50,000		865,024
Revolving credit facilities	300,000		310,000
Term notes payable	394,235		0
Term notes payable, at fair value	400,032		0
Convertible senior notes	284,635		283,856
Convertible senior notes, at fair value	294,869		281,951
Derivative liabilities, at fair value	17,201		820,590
Federal Home Loan Bank of Des Moines [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Federal Home Loan Bank advances	$ 50,000		$ 865,000

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 05, 2019
Entity Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2019
Document Transition Report	false
Entity File Number	001-34506
Entity Registrant Name	TWO HARBORS INVESTMENT CORP.
Entity Central Index Key	0001465740
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Incorporation, State or Country Code	MD
Entity Tax Identification Number	27-0312904
Entity Address, Address Line One	575 Lexington Avenue, Suite 2930
Entity Address, City or Town	New York,
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	10022
City Area Code	612
Local Phone Number	629-2500
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		272,899,932
Common Stock [Member] | NEW YORK STOCK EXCHANGE, INC. [Member]
Entity Information [Line Items]
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	TWO
Security Exchange Name	NYSE
Series A Preferred Stock [Member] | NEW YORK STOCK EXCHANGE, INC. [Member]
Entity Information [Line Items]
Title of 12(b) Security	8.125% Series A Cumulative Redeemable Preferred Stock
Trading Symbol	TWO PRA
Security Exchange Name	NYSE
Series B Preferred Stock [Member] | NEW YORK STOCK EXCHANGE, INC. [Member]
Entity Information [Line Items]
Title of 12(b) Security	7.625% Series B Cumulative Redeemable Preferred Stock
Trading Symbol	TWO PRB
Security Exchange Name	NYSE
Series C Preferred Stock [Member] | NEW YORK STOCK EXCHANGE, INC. [Member]
Entity Information [Line Items]
Title of 12(b) Security	7.25% Series C Cumulative Redeemable Preferred Stock
Trading Symbol	TWO PRC
Security Exchange Name	NYSE
Series D Preferred Stock [Member] | NEW YORK STOCK EXCHANGE, INC. [Member]
Entity Information [Line Items]
Title of 12(b) Security	7.75% Series D Cumulative Redeemable Preferred Stock
Trading Symbol	TWO PRD
Security Exchange Name	NYSE
Series E Preferred Stock [Member] | NEW YORK STOCK EXCHANGE, INC. [Member]
Entity Information [Line Items]
Title of 12(b) Security	7.50% Series E Cumulative Redeemable Preferred Stock
Trading Symbol	TWO PRE
Security Exchange Name	NYSE

XML

Revolving Credit Facilities (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Line of Credit Facility [Line Items]
Revolving credit facilities	$ 300,000	$ 310,000
Weighted average borrowing rate	4.52%	5.60%
Weighted average remaining maturity	1 year 5 months 12 days	4 years 3 months
Mortgage servicing rights, at fair value, pledged as collateral for borrowings	$ 1,600,000	$ 1,100,000
Line of Credit [Member]
Line of Credit Facility [Line Items]
Mortgage servicing rights, at fair value, pledged as collateral for borrowings	$ 460,200	$ 458,200

XML

Serviced Mortgage Assets (Details) $ in Thousands	Sep. 30, 2019 USD ($) loan	Dec. 31, 2018 USD ($) loan
Assets that Continue to be Recognized, Securitized or Asset-backed Financing Arrangement Assets and any Other Financial Assets Managed Together [Line Items]
Number of Loans | loan	746,137	720,999
Unpaid Principal Balance | $	$ 167,512,124	$ 165,529,153
Mortgage Servicing Rights [Member]
Assets that Continue to be Recognized, Securitized or Asset-backed Financing Arrangement Assets and any Other Financial Assets Managed Together [Line Items]
Number of Loans | loan	742,723	717,167
Unpaid Principal Balance | $	$ 165,332,533	$ 163,102,308
Loans in Securitization Trusts, Residential Mortgages [Member]
Assets that Continue to be Recognized, Securitized or Asset-backed Financing Arrangement Assets and any Other Financial Assets Managed Together [Line Items]
Number of Loans | loan	3,340	3,612
Unpaid Principal Balance | $	$ 2,166,758	$ 2,392,471
Other Assets [Member]
Assets that Continue to be Recognized, Securitized or Asset-backed Financing Arrangement Assets and any Other Financial Assets Managed Together [Line Items]
Number of Loans | loan	74	220
Unpaid Principal Balance | $	$ 12,833	$ 34,374

XML

Available-for-Sale Securities, at Fair Value Schedule of Realized Gain (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Debt Securities, Available-for-sale [Abstract]
Proceeds from sales of available-for-sale securities	$ 6,100,000	$ 5,400,000	$ 14,065,573	$ 9,156,686
Amortized cost of available-for-sale securities sold	5,900,000	5,500,000	13,800,000	9,300,000
Gross realized gains	254,655	6,603	380,808	16,357
Gross realized losses	(4,388)	(48,758)	(124,409)	(117,075)
Total realized gains (losses) on sales, net	$ 250,267	$ (42,155)	$ 256,399	$ (100,718)

XML

Derivative Instruments and Hedging Activities (Tables)

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value

The following tables present the gross fair value and notional amounts of the Company’s derivative financial instruments treated as trading derivatives as of September 30, 2019 and December 31, 2018.

	September 30, 2019
	Derivative Assets				Derivative Liabilities
(in thousands)	Fair Value		Notional		Fair Value			Notional
Inverse interest-only securities	$	76,429	$	415,943	$	—		$	—
Interest rate swap agreements	128,252		2,725,000		—			39,108,495
Swaptions, net	9,283		1,750,000		—			—
TBAs	16,656		5,604,000		(15,717		)	4,259,000
U.S. Treasury futures	—		—		(1,471		)	320,000
Markit IOS total return swaps	—		—		(13		)	43,767
Total	$	230,620	$	10,494,943	$	(17,201	)	$	43,731,262

	December 31, 2018
	Derivative Assets				Derivative Liabilities
(in thousands)	Fair Value		Notional		Fair Value			Notional
Inverse interest-only securities	$	70,813	$	476,299	$	—		$	—
Interest rate swap agreements	187,231		26,798,605		—			2,725,000
Interest rate cap contracts	40,335		2,500,000		—			—
Swaptions, net	—		—		(13,456		)	63,000
TBAs	21,602		6,484,000		—			—
Put and call options for TBAs, net	—		—		(25,296		)	1,767,000
Short U.S. Treasuries	—		—		(781,455		)	800,000
Markit IOS total return swaps	—		—		(383		)	48,265
Total	$	319,981	$	36,258,904	$	(820,590	)	$	5,403,265

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance

The following table summarizes the location and amount of gains and losses on derivative instruments reported in the condensed consolidated statements of comprehensive income (loss):

Derivative Instruments	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income
		Three Months Ended						Nine Months Ended
(in thousands)		September 30,						September 30,
		2019			2018			2019			2018
Interest rate risk management
TBAs	Gain (loss) on other derivative instruments	$	82,964		$	(45,231	)	$	221,439		$	(55,766	)
Short U.S. Treasuries	Gain (loss) on other derivative instruments	—			1,606			(6,801		)	1,606
U.S. Treasury futures	Gain (loss) on other derivative instruments	(359		)	—			46,089			—
Put and call options for TBAs	Gain (loss) on other derivative instruments	—			13,489			(7,666		)	43,328
Interest rate swaps - Payers	Gain (loss) on interest rate swap, cap and swaption agreements	(172,856		)	105,195			(834,426		)	412,291
Interest rate swaps - Receivers	Gain (loss) on interest rate swap, cap and swaption agreements	211,086			(54,653		)	664,313			(252,375		)
Swaptions	Gain (loss) on interest rate swap, cap and swaption agreements	32,390			24,629			76,383			94,933
Interest rate caps	Gain (loss) on interest rate swap, cap and swaption agreements	—			686			(7,684		)	686
Markit IOS total return swaps	Gain (loss) on other derivative instruments	(888		)	(302		)	(1,365		)	371
Non-risk management
Inverse interest-only securities	Gain (loss) on other derivative instruments	4,139			(1,025		)	19,102			(5,274		)
Total		$	156,476		$	44,394		$	169,384		$	239,800

Schedule of Notional Amounts of Outstanding Derivative Positions

The following tables present information with respect to the volume of activity in the Company’s derivative instruments during the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30, 2019
(in thousands)	Beginning of Period Notional Amount		Additions		Settlement, Termination, Expiration or Exercise			End of Period Notional Amount		Average Notional Amount		Realized Gain (Loss), net (1)
Inverse interest-only securities	$	436,611	$	—	$	(20,668	)	$	415,943	$	427,222	$	—
Interest rate swap agreements	40,470,277		17,874,435		(16,511,217		)	41,833,495		41,180,308		38,044
Swaptions, net	3,875,000		1,000,000		(3,125,000		)	1,750,000		2,650,815		37,366
TBAs, net	9,422,000		40,347,000		(39,906,000		)	9,863,000		9,107,707		94,504
U.S. Treasury futures	1,300,000		3,567,000		(4,547,000		)	320,000		657,022		26,939
Markit IOS total return swaps	45,536		—		(1,769		)	43,767		46,088		—
Total	$	55,549,424	$	62,788,435	$	(64,111,654	)	$	54,226,205	$	54,069,162	$	196,853

	Three Months Ended September 30, 2018
(in thousands)	Beginning of Period Notional Amount			Additions			Settlement, Termination, Expiration or Exercise			End of Period Notional Amount			Average Notional Amount			Realized Gain (Loss), net (1)
Inverse interest-only securities	$	529,056		$	—		$	(30,230	)	$	498,826		$	514,879		$	—
Interest rate swap agreements	26,047,264			12,544,820			(8,088,318		)	30,503,766			30,144,641			(50,240		)
Interest rate cap contracts	—			2,500,000			—			2,500,000			1,684,783			—
Swaptions, net	(738,000		)	1,164,000			(262,000		)	164,000			(157,663		)	10,374
TBAs, net	3,049,000			21,060,000			(14,785,000		)	9,324,000			6,430,924			(23,067		)
Short U.S. Treasuries	—			(800,000		)	—			(800,000		)	(539,130		)	—
Put and call options for TBAs, net	(320,000		)	(1,710,000		)	1,120,000			(910,000		)	(1,106,120		)	910
Markit IOS total return swaps	51,541			—			(1,850		)	49,691			50,296			(516		)
Total	$	28,618,861		$	34,758,820		$	(22,047,398	)	$	41,330,283		$	37,022,610		$	(62,539	)

	Nine Months Ended September 30, 2019
(in thousands)	Beginning of Period Notional Amount			Additions		Settlement, Termination, Expiration or Exercise			End of Period Notional Amount		Average Notional Amount			Realized Gain (Loss), net (1)
Inverse interest-only securities	$	476,299		$	—	$	(60,356	)	$	415,943	$	447,082		$	—
Interest rate swap agreements	29,523,605			32,373,068		(20,063,178		)	41,833,495		38,402,820			41,975
Interest rate cap contracts	2,500,000			—		(2,500,000		)	—		1,417,216			(8,690		)
Swaptions, net	63,000			14,200,000		(12,513,000		)	1,750,000		3,259,802			63,139
TBAs, net	6,484,000			119,252,000		(115,873,000		)	9,863,000		8,905,264			242,102
Short U.S. Treasuries	(800,000		)	—		800,000			—		(61,097		)	(23,172		)
U.S. Treasury futures	—			8,077,000		(7,757,000		)	320,000		691,414			47,565
Put and call options for TBAs, net	(1,767,000		)	—		1,767,000			—		(147,606		)	(32,962		)
Markit IOS total return swaps	48,265			—		(4,498		)	43,767		45,964			—
Total	$	36,528,169		$	173,902,068	$	(156,204,032	)	$	54,226,205	$	52,960,859		$	329,957

	Nine Months Ended September 30, 2018
(in thousands)	Beginning of Period Notional Amount			Additions			Settlement, Termination, Expiration or Exercise			End of Period Notional Amount			Average Notional Amount			Realized Gain (Loss), net (1)
Inverse interest-only securities	$	588,246		$	—		$	(89,420	)	$	498,826		$	544,691		$	—
Interest rate swap agreements	28,482,125			37,894,452			(35,872,811		)	30,503,766			25,588,646			(46,101		)
Interest rate cap contracts	—			2,500,000			—			2,500,000			567,766			—
Swaptions, net	2,666,000			(74,000		)	(2,428,000		)	164,000			(2,015,260		)	78,266
TBAs, net	(573,000		)	38,773,000			(28,876,000		)	9,324,000			3,210,355			(28,681		)
Short U.S. Treasuries	—			(800,000		)	—			(800,000		)	(181,685		)	—
Put and call options for TBAs, net	—			2,892,000			(3,802,000		)	(910,000		)	(590,168		)	39,452
Markit IOS total return swaps	63,507			—			(13,816		)	49,691			57,303			(765		)
Total	$	31,226,878		$	81,185,452		$	(71,082,047	)	$	41,330,283		$	27,181,648		$	42,171

____________________

(1)

Excludes net interest paid or received in full settlement of the net interest spread liability.

Schedule of TBA Positions

The following tables present the notional amount, cost basis, market value and carrying value (which approximates fair value) of the Company’s TBA positions as of September 30, 2019 and December 31, 2018:

	September 30, 2019
										Net Carrying Value (4)
(in thousands)	Notional Amount (1)			Cost Basis (2)			Market Value (3)			Derivative Assets		Derivative Liabilities
Purchase contracts	$	12,659,000		$	13,168,924		$	13,166,842		$	13,146	$	(15,229	)
Sale contracts	(2,796,000		)	(2,905,436		)	(2,902,414		)	3,510		(488		)
TBAs, net	$	9,863,000		$	10,263,488		$	10,264,428		$	16,656	$	(15,717	)

	December 31, 2018
							Net Carrying Value (4)
(in thousands)	Notional Amount (1)		Cost Basis (2)		Market Value (3)		Derivative Assets		Derivative Liabilities
Purchase contracts	$	6,484,000	$	6,734,858	$	6,756,460	$	21,602	$	—
Sale contracts	—		—		—		—		—
TBAs, net	$	6,484,000	$	6,734,858	$	6,756,460	$	21,602	$	—

___________________

(1) Notional amount represents the face amount of the underlying Agency RMBS.

(2) Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS.

(3) Market value represents the current market value of the TBA (or of the underlying Agency RMBS) as of period-end.

(4)

Net carrying value represents the difference between the market value of the TBA as of period-end and its cost basis, and is reported in derivative assets / (liabilities), at fair value, in the condensed consolidated balance sheets.

Schedule of Interest Rate Swap Payers

As of September 30, 2019 and December 31, 2018, the Company held the following interest rate swaps that were utilized as economic hedges of interest rate exposure (or duration) whereby the Company receives interest at a three-month LIBOR rate:

(notional in thousands)
September 30, 2019
Swaps Maturities	Notional Amount		Weighted Average Fixed Pay Rate		Weighted Average Receive Rate		Weighted Average Maturity (Years)
2019	$	3,566,897	1.834	%	2.204	%	0.10
2020	3,640,000		1.806	%	2.186	%	1.08
2021	15,740,977		1.681	%	2.177	%	1.72
2022	2,578,640		1.911	%	2.185	%	2.99
2023 and Thereafter	7,518,220		2.344	%	2.212	%	6.96
Total	$	33,044,734	1.880	%	2.189	%	2.77

(notional in thousands)
December 31, 2018
Swaps Maturities	Notional Amount (1)		Weighted Average Fixed Pay Rate (2)		Weighted Average Receive Rate (2)		Weighted Average Maturity (Years) (2)
2019	$	4,336,897	1.769	%	2.565	%	0.79
2020	3,640,000		1.806	%	2.689	%	1.83
2021	4,117,000		1.550	%	2.687	%	2.69
2022	2,470,000		2.002	%	2.728	%	3.75
2023 and Thereafter	6,842,270		2.495	%	2.636	%	7.60
Total	$	21,406,167	1.978	%	2.651	%	3.75

____________________

(1) Notional amount includes $572.0 million in forward starting interest rate swaps as of December 31, 2018.

(2) Weighted averages exclude forward starting interest rate swaps. As of December 31, 2018, the weighted average fixed pay rate on forward starting interest rate swaps was 2.8%.

Schedule of Interest Rate Swap Receivers

Additionally, as of September 30, 2019 and December 31, 2018, the Company held the following interest rate swaps in order to mitigate mortgage interest rate exposure (or duration) risk whereby the Company pays interest at a three-month LIBOR rate:

(notional in thousands)
September 30, 2019
Swaps Maturities	Notional Amounts		Weighted Average Pay Rate		Weighted Average Fixed Receive Rate		Weighted Average Maturity (Years)
2020	250,000		2.278	%	2.258	%	0.31
2021	915,000		2.209	%	2.516	%	1.35
2022	—		—	%	—	%	0.00
2023 and Thereafter	7,623,761		2.186	%	2.232	%	8.88
Total	$	8,788,761	2.191	%	2.262	%	7.86

(notional in thousands)
December 31, 2018
Swaps Maturities	Notional Amounts		Weighted Average Pay Rate		Weighted Average Fixed Receive Rate		Weighted Average Maturity (Years)
2020	$	250,000	2.469	%	2.258	%	1.06
2021	2,477,438		2.538	%	2.736	%	2.24
2022	800,000		2.653	%	2.975	%	3.39
2023 and Thereafter	4,590,000		2.653	%	2.757	%	7.37
Total	$	8,117,438	2.612	%	2.757	%	5.22

Schedule of Interest Rate Swaptions

As of September 30, 2019 and December 31, 2018, the Company had the following outstanding interest rate swaptions that were utilized as macro-economic hedges:

	September 30, 2019
(notional and dollars in thousands)	Option						Underlying Swap
Swaption	Expiration	Cost Basis		Fair Value		Average Months to Expiration	Notional Amount		Average Pay Rate		Average Receive Rate		Average Term (Years)
Purchase contracts:
Payer	< 6 Months	$	5,395	$	1,401	4.01	$	1,250,000	2.05	%	3M Libor		5.2
Total Payer		$	5,395	$	1,401	4.01	$	1,250,000	2.05	%	3M Libor		5.2
Receiver	< 6 Months	$	4,100	$	7,882	4.10	$	500,000	3M Libor		1.55	%	10.0
Total Receiver		$	4,100	$	7,882	4.10	$	500,000	3M Libor		1.55	%	10.0

	December 31, 2018
(notional and dollars in thousands)	Option								Underlying Swap
Swaption	Expiration	Cost			Fair Value			Average Months to Expiration	Notional Amount			Average Fixed Pay Rate		Average Receive Rate		Average Term (Years)
Purchase contracts:
Payer	< 6 Months	$	4,855		$	2,430		5.13	$	900,000		3.16	%	3M Libor		10.0
Payer	≥ 6 Months	8,400			5,992			8.60	800,000			3.14	%	3M Libor		10.0
Total Payer		$	13,255		$	8,422		7.92	$	1,700,000		3.15	%	3M Libor		10.0
Sale contracts:
Receiver	< 6 Months	$	(4,855	)	$	(9,001	)	4.74	$	(845,000	)	3M Libor		2.66	%	10.0
Receiver	≥ 6 Months	(8,400		)	(12,877		)	8.60	(792,000		)	3M Libor		2.64	%	10.0
Total Receiver		$	(13,255	)	$	(21,878	)	7.52	$	(1,637,000	)	3M Libor		2.65	%	10.0

Schedule of Interest Rate Caps

As of December 31, 2018, the Company held the following interest rate caps that were utilized as economic hedges of interest rate exposure (or duration) whereby the Company receives interest at a three-month LIBOR rate, net of a fixed cap rate:

(notional in thousands)
December 31, 2018
Caps Maturities	Notional Amount		Weighted Average Cap Rate		Weighted Average Receive Rate		Weighted Average Maturity (Years)
2019	$	800,000	1.344	%	2.422	%	0.53
2020	1,700,000		1.250	%	2.766	%	1.29
Total	$	2,500,000	1.280	%	2.656	%	1.04

The Company did not hold any interest rate caps as of September 30, 2019.

Schedule of Total Return Swaps

The Company had the following total return swap agreements in place at September 30, 2019 and December 31, 2018:

(notional and dollars in thousands)
September 30, 2019
Maturity Date	Current Notional Amount			Fair Value			Cost Basis			Unrealized Gain (Loss)
January 12, 2043	$	(19,439	)	$	(6	)	$	(30	)	$	24
January 12, 2044	(24,328		)	(7		)	(29		)	22
Total	$	(43,767	)	$	(13	)	$	(59	)	$	46

(notional and dollars in thousands)
December 31, 2018
Maturity Date	Current Notional Amount			Fair Value			Cost Basis			Unrealized Gain (Loss)
January 12, 2043	$	(21,395	)	$	(153	)	$	(30	)	$	(123	)
January 12, 2044	(26,870		)	(230		)	(29		)	(201		)
Total	$	(48,265	)	$	(383	)	$	(59	)	$	(324	)

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Federal Home Loan Bank of Des Moines Advances (Tables)

9 Months Ended

Sep. 30, 2019

Advances from Federal Home Loan Banks [Abstract]

Schedule of Maturities of Federal Home Loan Bank Advances

At September 30, 2019 and December 31, 2018, FHLB advances had the following remaining maturities:

(in thousands)	September 30, 2019		December 31, 2018
≤ 1 year	$	—	$	815,024
> 1 and ≤ 3 years	—		—
> 3 and ≤ 5 years	—		—
> 5 and ≤ 10 years	—		—
> 10 years	50,000		50,000
Total	$	50,000	$	865,024

XML

Federal Home Loan Bank of Des Moines Advances

9 Months Ended

Sep. 30, 2019

Advances from Federal Home Loan Banks [Abstract]

Federal Home Loan Bank of Des Moines Advances

Federal Home Loan Bank of Des Moines Advances

The Company’s wholly owned subsidiary, TH Insurance Holdings Company LLC, or TH Insurance, is a member of the FHLB. As a member of the FHLB, TH Insurance has access to a variety of products and services offered by the FHLB, including secured advances. As of September 30, 2019 and December 31, 2018, TH Insurance had $50.0 million and $865.0 million in outstanding secured advances with a weighted average borrowing rate of 2.99% and 2.79%, respectively.

The ability to borrow from the FHLB is subject to the Company’s continued creditworthiness, pledging of sufficient eligible collateral to secure advances, and compliance with certain agreements with the FHLB. Each advance requires approval by the FHLB and is secured by collateral in accordance with the FHLB’s credit and collateral guidelines, as may be revised from time to time by the FHLB. Eligible collateral may include conventional 1-4 family residential mortgage loans, Agency RMBS and certain non-Agency securities with a rating of A and above.

On January 11, 2016, the Federal Housing Finance Agency, or FHFA, released a final rule regarding membership in the Federal Home Loan Bank system. Among other effects, the final rule excludes captive insurers from membership eligibility, including the Company’s subsidiary member, TH Insurance. Since TH Insurance was admitted as a member in 2013, it is eligible for a membership grace period that runs through February 19, 2021, during which new advances or renewals that mature beyond the grace period will be prohibited; however, any existing advances that mature beyond this grace period will be permitted to remain in place subject to their terms insofar as the Company maintains good standing with the FHLB. If any new advances or renewals occur, TH Insurance’s outstanding advances will be limited to 40% of its total assets.

At September 30, 2019 and December 31, 2018, FHLB advances had the following remaining maturities:

(in thousands)	September 30, 2019		December 31, 2018
≤ 1 year	$	—	$	815,024
> 1 and ≤ 3 years	—		—
> 3 and ≤ 5 years	—		—
> 5 and ≤ 10 years	—		—
> 10 years	50,000		50,000
Total	$	50,000	$	865,024

At September 30, 2019 and December 31, 2018, the Company pledged AFS securities with a carrying value of $54.8 million and $917.5 million, respectively, as collateral for advances from the FHLB. The FHLB retains the right to mark the underlying collateral for FHLB advances to fair value. A reduction in the value of pledged assets would require the Company to provide additional collateral. In addition, as a condition to membership in the FHLB, the Company is required to purchase and hold a certain amount of FHLB stock, which is based, in part, upon the outstanding principal balance of advances from the FHLB. At September 30, 2019 and December 31, 2018, the Company had stock in the FHLB totaling $6.1 million and $40.8 million, respectively, which is included in other assets on the condensed consolidated balance sheets. FHLB stock is considered a non-marketable, long-term investment, is carried at cost and is subject to recoverability testing under applicable accounting standards. This stock can only be redeemed or sold at its par value, and only to the FHLB. Accordingly, when evaluating FHLB stock for impairment, the Company considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. As of September 30, 2019 and December 31, 2018, the Company had not recognized an impairment charge related to its FHLB stock.

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Offsetting Assets and Liabilities Offsetting Assets and Liabilities

9 Months Ended

Sep. 30, 2019

Offsetting [Abstract]

Offsetting Assets and Liabilities

Offsetting Assets and Liabilities

Certain of the Company’s repurchase agreements are governed by underlying agreements that provide for a right of setoff in the event of default by either party to the agreement. The Company also has netting arrangements in place with all derivative counterparties pursuant to standard documentation developed by the International Swap and Derivatives Association, or ISDA, or central clearing exchange agreements, in the case of centrally cleared interest rate swaps. The Company and the counterparty or clearing agency are required to post cash collateral based upon the net underlying market value of the Company’s open positions with the counterparty. Additionally, the Company’s centrally cleared interest rate swaps require that the Company posts an “initial margin” amount determined by the clearing exchange, which is generally intended to be set at a level sufficient to protect the exchange from the interest rate swap’s maximum estimated single-day price movement. The Company also exchanges “variation margin” based upon daily changes in fair value, as measured by the exchange.

Under U.S. GAAP, if the Company has a valid right of setoff, it may offset the related asset and liability and report the net amount. As a result of amendments to rules governing certain central clearing activities, the exchange of variation margin is considered a settlement of the interest rate swap, as opposed to pledged collateral. Accordingly, beginning in the first quarter of 2018, the Company began accounting for the receipt or payment of variation margin on CME and LCH cleared positions as a direct reduction to the carrying value of the interest rate swap asset or liability. The receipt or payment of initial margin will continue to be accounted for separate from the interest rate swap asset or liability.

The Company presents repurchase agreements subject to master netting arrangements or similar agreements on a gross basis and derivative assets and liabilities (other than centrally cleared interest rate swaps) subject to such arrangements on a net basis, based on derivative type and counterparty, in its condensed consolidated balance sheets. Separately, the Company presents cash collateral subject to such arrangements (other than variation margin on centrally cleared interest rate swaps) on a net basis, based on counterparty, in its condensed consolidated balance sheets. However, the Company does not offset repurchase agreements or derivative assets and liabilities (other than centrally cleared interest rate swaps) with the associated cash collateral on its condensed consolidated balance sheets.

The following tables present information about the Company’s assets and liabilities that are subject to master netting arrangements or similar agreements and can potentially be offset on the Company’s condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018:

	September 30, 2019
										Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets (1)
(in thousands)	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Balance Sheets			Net Amounts of Assets (Liabilities) Presented in the Balance Sheets			Financial Instruments			Cash Collateral (Received) Pledged			Net Amount
Assets
Derivative assets	$	608,193		$	(377,573	)	$	230,620		$	(17,201	)	$	—		$	213,419
Reverse repurchase agreements	180,575			—			180,575			—			(180,575		)	—
Total Assets	$	788,768		$	(377,573	)	$	411,195		$	(17,201	)	$	(180,575	)	$	213,419
Liabilities
Repurchase agreements	$	(25,567,136	)	$	—		$	(25,567,136	)	$	25,567,136		$	—		$	—
Derivative liabilities	(394,774		)	377,573			(17,201		)	17,201			—			—
Total Liabilities	$	(25,961,910	)	$	377,573		$	(25,584,337	)	$	25,584,337		$	—		$	—

	December 31, 2018
										Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets (1)
(in thousands)	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Balance Sheets			Net Amounts of Assets (Liabilities) Presented in the Balance Sheets			Financial Instruments			Cash Collateral (Received) Pledged		Net Amount
Assets
Derivative assets	$	599,573		$	(279,592	)	$	319,981		$	(58,775	)	$	—	$	261,206
Reverse repurchase agreements	761,815			—			761,815			(761,815		)	—		—
Total Assets	$	1,361,388		$	(279,592	)	$	1,081,796		$	(820,590	)	$	—	$	261,206
Liabilities
Repurchase agreements	$	(23,133,476	)	$	—		$	(23,133,476	)	$	23,133,476		$	—	$	—
Derivative liabilities	(1,100,182		)	279,592			(820,590		)	820,590			—		—
Total Liabilities	$	(24,233,658	)	$	279,592		$	(23,954,066	)	$	23,954,066		$	—	$	—

____________________

(1)

Amounts presented are limited in total to the net amount of assets or liabilities presented in the condensed consolidated balance sheets by instrument. Excess cash collateral or financial assets that are pledged to counterparties may exceed the financial liabilities subject to a master netting arrangement or similar agreement, or counterparties may have pledged excess cash collateral to the Company that exceed the corresponding financial assets. These excess amounts are excluded from the table above, although separately reported within restricted cash, due from counterparties, or due to counterparties in the Company’s condensed consolidated balance sheets.

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Available-for-Sale Securities, at Fair Value

9 Months Ended

Sep. 30, 2019

Debt Securities, Available-for-sale [Abstract]

Available-for-Sale Securities, at Fair Value

Available-for-Sale Securities, at Fair Value

The Company holds AFS investment securities which are carried at fair value on the condensed consolidated balance sheets. The following table presents the Company’s AFS investment securities by collateral type as of September 30, 2019 and December 31, 2018:

(in thousands)	September 30, 2019		December 31, 2018
Agency
Federal National Mortgage Association	$	19,445,245	$	15,812,696
Federal Home Loan Mortgage Corporation	4,835,146		4,930,963
Government National Mortgage Association	485,792		941,374
Non-Agency	3,552,375		3,867,571
Total available-for-sale securities	$	28,318,558	$	25,552,604

At September 30, 2019 and December 31, 2018, the Company pledged AFS securities with a carrying value of $26.4 billion and $25.2 billion, respectively, as collateral for repurchase agreements and advances from the Federal Home Loan Bank of Des Moines, or the FHLB. See Note 10 - Repurchase Agreements and Note 12 - Federal Home Loan Bank of Des Moines Advances.

At September 30, 2019 and December 31, 2018, the Company did not have any securities purchased from and financed with the same counterparty that did not meet the conditions of ASC 860, to be considered linked transactions and, therefore, classified as derivatives.

The Company is not required to consolidate variable interest entities, or VIEs, for which it has concluded it does not have both the power to direct the activities of the VIEs that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant. The Company’s investments in these unconsolidated VIEs include all non-Agency securities, which are classified within available-for-sale securities, at fair value on the condensed consolidated balance sheets. As of September 30, 2019 and December 31, 2018, the carrying value, which also represents the maximum exposure to loss, of all non-Agency securities in unconsolidated VIEs was $3.6 billion and $3.9 billion, respectively.

The following tables present the amortized cost and carrying value of AFS securities by collateral type as of September 30, 2019 and December 31, 2018:

	September 30, 2019
(in thousands)	Principal/ Current Face		Un-amortized Premium		Accretable Purchase Discount			Credit Reserve Purchase Discount			Amortized Cost		Unrealized Gain		Unrealized Loss			Carrying Value
Agency
Principal and interest	$	23,255,819	$	935,781	$	(21	)	$	—		$	24,191,579	$	431,492	$	(5,701	)	$	24,617,370
Interest-only	2,757,909		179,769		—			—			179,769		15,881		(46,837		)	148,813
Total Agency	26,013,728		1,115,550		(21		)	—			24,371,348		447,373		(52,538		)	24,766,183
Non-Agency
Principal and interest	5,289,767		7,417		(462,973		)	(1,723,638		)	3,110,573		380,236		(17,526		)	3,473,283
Interest-only	4,664,358		83,037		—			—			83,037		4,393		(8,338		)	79,092
Total Non-Agency	9,954,125		90,454		(462,973		)	(1,723,638		)	3,193,610		384,629		(25,864		)	3,552,375
Total	$	35,967,853	$	1,206,004	$	(462,994	)	$	(1,723,638	)	$	27,564,958	$	832,002	$	(78,402	)	$	28,318,558

	December 31, 2018
(in thousands)	Principal/ Current Face		Un-amortized Premium		Accretable Purchase Discount			Credit Reserve Purchase Discount			Amortized Cost		Unrealized Gain		Unrealized Loss			Carrying Value
Agency
Principal and interest	$	20,775,790	$	1,037,781	$	(25,085	)	$	—		$	21,788,486	$	61,128	$	(339,997	)	$	21,509,617
Interest-only	3,115,967		209,901		—			—			209,901		14,170		(48,655		)	175,416
Total Agency	23,891,757		1,247,682		(25,085		)	—			21,998,387		75,298		(388,652		)	21,685,033
Non-Agency
Principal and interest	5,360,124		6,682		(694,119		)	(1,322,762		)	3,349,925		478,095		(44,657		)	3,783,363
Interest-only	5,137,169		83,846		—			—			83,846		3,655		(3,293		)	84,208
Total Non-Agency	10,497,293		90,528		(694,119		)	(1,322,762		)	3,433,771		481,750		(47,950		)	3,867,571
Total	$	34,389,050	$	1,338,210	$	(719,204	)	$	(1,322,762	)	$	25,432,158	$	557,048	$	(436,602	)	$	25,552,604

The following tables present the carrying value of the Company’s AFS securities by rate type as of September 30, 2019 and December 31, 2018:

	September 30, 2019
(in thousands)	Agency		Non-Agency		Total
Adjustable Rate	$	15,662	$	3,263,875	$	3,279,537
Fixed Rate	24,750,521		288,500		25,039,021
Total	$	24,766,183	$	3,552,375	$	28,318,558

	December 31, 2018
(in thousands)	Agency		Non-Agency		Total
Adjustable Rate	$	19,073	$	3,475,171	$	3,494,244
Fixed Rate	21,665,960		392,400		22,058,360
Total	$	21,685,033	$	3,867,571	$	25,552,604

The following table presents the Company’s AFS securities according to their estimated weighted average life classifications as of September 30, 2019:

	September 30, 2019
(in thousands)	Agency		Non-Agency		Total
≤ 1 year	$	666	$	42,933	$	43,599
> 1 and ≤ 3 years	59,293		180,489		239,782
> 3 and ≤ 5 years	4,800,249		195,007		4,995,256
> 5 and ≤ 10 years	19,904,761		2,761,214		22,665,975
> 10 years	1,214		372,732		373,946
Total	$	24,766,183	$	3,552,375	$	28,318,558

When the Company purchases a credit-sensitive AFS security at a significant discount to its face value, the Company often does not amortize into income a significant portion of this discount that the Company is entitled to earn because the Company does not expect to collect the entire discount due to the inherent credit risk of the security. The Company may also record an other-than-temporary impairment, or OTTI, for a portion of its investment in the security to the extent the Company believes that the amortized cost will exceed the present value of expected future cash flows. The amount of principal that the Company does not amortize into income is designated as a credit reserve on the security, with unamortized net discounts or premiums amortized into income over time to the extent realizable.

The following table presents the changes for the three and nine months ended September 30, 2019 and 2018 of the net unamortized discount/premium and designated credit reserves on non-Agency AFS securities.

	Nine Months Ended September 30,
	2019									2018
(in thousands)	Designated Credit Reserve			Net Unamortized Discount/Premium			Total			Designated Credit Reserve			Net Unamortized Discount/Premium			Total
Beginning balance at January 1	$	(1,322,762	)	$	(603,591	)	$	(1,926,353	)	$	(653,613	)	$	(607,609	)	$	(1,261,222	)
Acquisitions	(471,746		)	10,524			(461,222		)	(606,728		)	(37,924		)	(644,652		)
Accretion of net discount	—			27,782			27,782			—			64,538			64,538
Realized credit losses	18,668			—			18,668			20,983			—			20,983
Reclassification adjustment for other-than-temporary impairments	(6,847		)	—			(6,847		)	(363		)	—			(363		)
Transfers from (to)	34,157			(34,157		)	—			44,972			(44,972		)	—
Sales, calls, other	24,892			226,923			251,815			—			18,430			18,430
Ending balance at September 30	$	(1,723,638	)	$	(372,519	)	$	(2,096,157	)	$	(1,194,749	)	$	(607,537	)	$	(1,802,286	)

The following table presents the components comprising the carrying value of AFS securities not deemed to be other than temporarily impaired by length of time that the securities had an unrealized loss position as of September 30, 2019 and December 31, 2018. At September 30, 2019, the Company held 1,209 AFS securities, of which 89 were in an unrealized loss position for less than twelve consecutive months and 145 were in an unrealized loss position for more than twelve consecutive months. At December 31, 2018, the Company held 1,550 AFS securities, of which 290 were in an unrealized loss position for less than twelve consecutive months and 489 were in an unrealized loss position for more than twelve consecutive months.

	Unrealized Loss Position for
	Less than 12 Months					12 Months or More					Total
(in thousands)	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
September 30, 2019	$	1,456,511	$	(22,884	)	$	751,426	$	(55,518	)	$	2,207,937	$	(78,402	)
December 31, 2018	$	4,386,946	$	(66,520	)	$	9,501,123	$	(370,082	)	$	13,888,069	$	(436,602	)

Evaluating AFS Securities for Other-Than-Temporary Impairments

In evaluating AFS securities for OTTI, the Company determines whether there has been a significant adverse quarterly change in the cash flow expectations for a security. The Company compares the amortized cost of each security in an unrealized loss position against the present value of expected future cash flows of the security. The Company also considers whether there has been a significant adverse change in the regulatory and/or economic environment as part of this analysis. If the amortized cost of the security is greater than the present value of expected future cash flows using the original yield as the discount rate, an other-than-temporary credit impairment has occurred. If the Company does not intend to sell and will not be more likely than not required to sell the security, the credit loss is recognized in earnings and the balance of the unrealized loss is recognized in either other comprehensive (loss) income, net of tax, or gain (loss) on investment securities, depending on the accounting treatment. If the Company intends to sell the security or will be more likely than not required to sell the security, the full unrealized loss is recognized in earnings.

During the three and nine months ended September 30, 2019, the Company recorded $5.9 million and $11.0 million in other-than-temporary credit impairments on a total of 16 non-Agency securities where the future expected cash flows for each security were less than its amortized cost. During the three and nine months ended September 30, 2018, the Company recorded $0.1 million and $0.4 million in other-than-temporary credit impairments on a total of three non-Agency securities where the future expected cash flows for each security were less than its amortized cost. As of September 30, 2019, impaired securities with a carrying value of $310.6 million had actual weighted average cumulative losses of 3.3%, weighted average three-month prepayment speed of 7.4%, weighted average 60+ day delinquency of 16.5% of the pool balance, and weighted average FICO score of 638. At September 30, 2019, the Company did not intend to sell the securities and determined that it was not more likely than not that the Company will be required to sell the securities; therefore, only the projected credit loss was recognized in earnings.

The following table presents the changes in OTTI included in earnings for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2019			2018			2019			2018
Cumulative credit loss at beginning of period	$	(9,376	)	$	(6,663	)	$	(6,865	)	$	(6,395	)
Additions:
Other-than-temporary impairments not previously recognized	(5,950		)	(72		)	(10,353		)	(157		)
Increases related to other-than-temporary impairments on securities with previously recognized other-than-temporary impairments	—			(23		)	(651		)	(206		)
Reductions:
Decreases related to other-than-temporary impairments on securities paid down	—			—			1,703			—
Decreases related to other-than-temporary impairments on securities sold	1,613			—			2,453			—
Cumulative credit loss at end of period	$	(13,713	)	$	(6,758	)	$	(13,713	)	$	(6,758	)

Cumulative credit losses related to OTTI may be reduced for securities sold as well as for securities that mature, are paid down, or are prepaid such that the outstanding principal balance is reduced to zero. Additionally, increases in cash flows expected to be collected over the remaining life of the security cause a reduction in the cumulative credit loss.

Gross Realized Gains and Losses

Gains and losses from the sale of AFS securities are recorded as realized gains (losses) within gain (loss) on investment securities in the Company’s condensed consolidated statements of comprehensive income (loss). For the three and nine months ended September 30, 2019, the Company sold AFS securities for $6.1 billion and $14.1 billion with an amortized cost of $5.9 billion and $13.8 billion for net realized gains of $250.3 million and $256.4 million, respectively. For the three and nine months ended September 30, 2018, the Company sold AFS securities for $5.4 billion and $9.2 billion with an amortized cost of $5.5 billion and $9.3 billion for net realized losses of $42.2 million and $100.7 million, respectively.

The following table presents the gross realized gains and losses on sales of AFS securities for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2019			2018			2019			2018
Gross realized gains	$	254,655		$	6,603		$	380,808		$	16,357
Gross realized losses	(4,388		)	(48,758		)	(124,409		)	(117,075		)
Total realized gains (losses) on sales, net	$	250,267		$	(42,155	)	$	256,399		$	(100,718	)

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Related Party Transactions

9 Months Ended

Sep. 30, 2019

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

The following summary provides disclosure of the material transactions with affiliates of the Company.

In accordance with the Management Agreement between the Company and PRCM Advisers dated as of October 28, 2009 and subsequently amended, the Company incurred $16.8 million and $42.6 million as a management fee to PRCM Advisers for the three and nine months ended September 30, 2019, respectively, and $12.4 million and $35.6 million as a management fee to PRCM Advisers for the three and nine months ended September 30, 2018, respectively, which represents approximately 1.5% of stockholders’ equity on an annualized basis as defined by the Management Agreement. For purposes of calculating the management fee, stockholders’ equity is adjusted as discussed below, and to exclude any common stock repurchases, as well as any unrealized gains, losses or other items that do not affect realized net income, among other adjustments, in accordance with the Management Agreement.

In connection with the acquisition of CYS, the Management Agreement was amended to (i) reduce PRCM Advisers’ base management fee with respect to the additional equity under management resulting from the merger to 0.75% from the effective time through the first anniversary of the effective time and (ii) for the fiscal quarter in which closing of the merger occurred, to make a one-time downward adjustment of Pine River’s management fees payable by Two Harbors for such quarter by $15.0 million to offset the cash consideration payable to stockholders of CYS, plus an additional downward adjustment of up to $3.3 million for certain transaction-related expenses. For both the three and nine months ended September 30, 2018, the total downward adjustment to management fees was $17.5 million. The Company does not anticipate any further downward adjustments to management fees for transaction-related expenses.

In addition, the Company reimbursed PRCM Advisers for direct and allocated costs incurred by PRCM Advisers on behalf of the Company. These direct and allocated costs totaled approximately $4.8 million and $23.0 million for the three and nine months ended September 30, 2019, respectively, and $5.3 million and $20.8 million for the three and nine months ended September 30, 2018, respectively. The Company will continue to have certain costs allocated to it by PRCM Advisers for compensation, data services, technology and certain office lease payments, however, the Company has direct relationships with most of its third party vendors and pays those expenses directly.

The Company recognized $2.2 million and $6.5 million of compensation during the three and nine months ended September 30, 2019, respectively, and $3.4 million and $9.8 million of compensation during the three and nine months ended September 30, 2018, respectively, related to restricted common stock issued to employees of PRCM Advisers and the Company’s independent directors pursuant to the Plan. See Note 17 - Equity Incentive Plan for additional information.

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Stockholders' Equity

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Stockholders' Equity

Equity

Redeemable Preferred Stock

The following is a summary of the Company’s series of cumulative redeemable preferred stock issued and outstanding as of September 30, 2019. In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company, each series of preferred stock will rank on parity with one another and rank senior to the Company's common stock with respect to the payment of the dividends and the distribution of assets.

As of September 30, 2019
(in thousands)
Class of Stock		Issuance Date	Shares Issued and Outstanding	Carrying Value		Contractual Rate		Redemption Date (1)	Fixed to Floating Rate Conversion Date (2)	Floating Annual Rate (3)
Fixed-to-Floating Rate
Series A		March 14, 2017	5,750	$	138,872	8.125	%	April 27, 2027	April 27, 2027	3M LIBOR + 5.660%
Series B		July 19, 2017	11,500	278,094		7.625	%	July 27, 2027	July 27, 2027	3M LIBOR + 5.352%
Series C		November 27, 2017	11,800	285,585		7.250	%	January 27, 2025	January 27, 2025	3M LIBOR + 5.011%
Fixed Rate
Series D		July 31, 2018	3,000	74,964		7.750	%	July 31, 2018	N/A	N/A
Series E		July 31, 2018	8,000	199,986		7.500	%	July 31, 2018	N/A	N/A
	Total		40,050	$	977,501

____________________

(1) Subject to the Company’s right under limited circumstances to redeem the preferred stock earlier than the redemption date disclosed in order to preserve its qualification as a REIT or following a change in control of the Company.

(2) For the fixed-to-floating rate redeemable preferred stock, the dividend rate will remain at a annual fixed rate of the $25.00 per share liquidation preference from the issuance date up to but not including the transition date disclosed within. Effective the conversion date and onward, dividends will accumulate on a floating rate basis according to the terms disclosed within (3) below.

(3) On and after the fixed to floating rate conversion date, the dividend will accumulate and be payable quarterly at a percentage of the $25.00 per share liquidation preference equal to an annual floating rate of three-month LIBOR plus the spread indicated within each preferred class.

On July 31, 2018, upon the closing of the merger with CYS, the Company issued 3,000,000 shares of newly classified 7.75% Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share, and 8,000,000 shares of newly classified 7.50% Series E Cumulative Redeemable Preferred Stock, par value $0.01 per share, in exchange for all shares of CYS’s Series A and Series B cumulative redeemable preferred stock outstanding prior to the effective time of the merger. Pursuant to the terms of the merger agreement with CYS, the terms of the Company’s Series D and Series E Cumulative Redeemable Preferred Stock are substantially similar to the terms of CYS’s Series A and Series B Cumulative Redeemable Preferred Stock.

For each series of preferred stock, the Company may redeem the stock on or after the redemption date in whole or in part, at any time or from time to time. Each series of preferred stock has a par value of $0.01 per share and a liquidation and redemption price of $25.00, plus any accumulated and unpaid dividends thereon up to, but excluding, the redemption date. Through September 30, 2019, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.

Distributions to Preferred Stockholders

The following table presents cash dividends declared by the Company on its preferred stock from December 31, 2017 through September 30, 2019:

Declaration Date	Record Date	Payment Date	Cash Dividend Per Preferred Share
Series A Preferred Stock:
September 19, 2019	October 11, 2019	October 28, 2019	$	0.507810
June 19, 2019	July 12, 2019	July 29, 2019	$	0.507810
March 19, 2019	April 12, 2019	April 29, 2019	$	0.507810
December 18, 2018	December 31, 2018	January 28, 2019	$	0.507810
September 20, 2018	October 12, 2018	October 29, 2018	$	0.507810
June 19, 2018	July 12, 2018	July 27, 2018	$	0.507810
March 20, 2018	April 12, 2018	April 27, 2018	$	0.507810
Series B Preferred Stock:
September 19, 2019	October 11, 2019	October 28, 2019	$	0.476560
June 19, 2019	July 12, 2019	July 29, 2019	$	0.476560
March 19, 2019	April 12, 2019	April 29, 2019	$	0.476560
December 18, 2018	December 31, 2018	January 28, 2019	$	0.476560
September 20, 2018	October 12, 2018	October 29, 2018	$	0.476560
June 19, 2018	July 12, 2018	July 27, 2018	$	0.476560
March 20, 2018	April 12, 2018	April 27, 2018	$	0.476560
Series C Preferred Stock:
September 19, 2019	October 11, 2019	October 28, 2019	$	0.453130
June 19, 2019	July 12, 2019	July 29, 2019	$	0.453130
March 19, 2019	April 12, 2019	April 29, 2019	$	0.453130
December 18, 2018	December 31, 2018	January 28, 2019	$	0.453130
September 20, 2018	October 12, 2018	October 29, 2018	$	0.453130
June 19, 2018	July 12, 2018	July 27, 2018	$	0.453130
March 20, 2018	April 12, 2018	April 27, 2018	$	0.453130
Series D Preferred Stock:
September 19, 2019	October 1, 2019	October 15, 2019	$	0.484375
June 19, 2019	July 1, 2019	July 15, 2019	$	0.484375
March 19, 2019	April 1, 2019	April 15, 2019	$	0.484375
December 18, 2018	December 31, 2018	January 28, 2019	$	0.484375
September 20, 2018	October 1, 2018	October 15, 2018	$	0.484375
Series E Preferred Stock:
September 19, 2019	October 1, 2019	October 15, 2019	$	0.468750
June 19, 2019	July 1, 2019	July 15, 2019	$	0.468750
March 19, 2019	April 1, 2019	April 15, 2019	$	0.468750
December 18, 2018	December 31, 2018	January 28, 2019	$	0.468750
September 20, 2018	October 1, 2018	October 15, 2018	$	0.468750

Common Stock

Public Offering

On March 21, 2019, the Company completed a public offering of 18,000,000 shares of its common stock at a price of $13.76 per share. On March 22, 2019, an additional 2,700,000 shares were sold by the Company to the underwriters of the offering pursuant to an overallotment option. The net proceeds to the Company were approximately $284.5 million, after deducting offering expenses of approximately $0.3 million.

Issuance of Common Stock in Connection with Acquisition of CYS Investments, Inc.

On July 31, 2018, in exchange for all of the shares of CYS common stock outstanding immediately prior to the effective time of the merger, the Company issued approximately 72.6 million new shares of common stock, as well as aggregate cash consideration of $15.0 million, to CYS common stockholders.

As of September 30, 2019, the Company had 272,895,402 shares of common stock outstanding. The following table presents a reconciliation of the common shares outstanding for the three and nine months ended September 30, 2019 and 2018:

	Number of common shares
Common shares outstanding, December 31, 2017	174,496,587
Issuance of common stock	72,608,932
Issuance of restricted stock (1)	972,651
Common shares outstanding, September 30, 2018	248,078,170
Common shares outstanding, December 31, 2018	248,085,721
Issuance of common stock	24,399,107
Issuance of restricted stock (1)	412,074
Repurchase of common stock	(1,500	)
Common shares outstanding, September 30, 2019	272,895,402

____________________

(1) Represents shares of restricted stock granted under the Second Restated 2009 Equity Incentive Plan, net of forfeitures, of which 1,202,252 restricted shares remained subject to vesting requirements at September 30, 2019.

Distributions to Common Stockholders

The following table presents cash dividends declared by the Company on its common stock from December 31, 2017 through September 30, 2019:

Declaration Date	Record Date	Payment Date	Cash Dividend Per Common Share
September 19, 2019	September 30, 2019	October 28, 2019	$	0.400000
June 19, 2019	July 1, 2019	July 29, 2019	$	0.400000
March 19, 2019	March 29, 2019	April 29, 2019	$	0.470000
December 18, 2018	December 31, 2018	January 28, 2019	$	0.470000
September 20, 2018	October 1, 2018	October 29, 2018	$	0.311630
July 13, 2018	July 25, 2018	July 30, 2018	$	0.158370
June 19, 2018	June 29, 2018	July 27, 2018	$	0.470000
March 20, 2018	April 2, 2018	April 27, 2018	$	0.470000

Dividend Reinvestment and Direct Stock Purchase Plan

The Company sponsors a dividend reinvestment and direct stock purchase plan through which stockholders may purchase additional shares of the Company’s common stock by reinvesting some or all of the cash dividends received on shares of the Company’s common stock. Stockholders may also make optional cash purchases of shares of the Company’s common stock subject to certain limitations detailed in the plan prospectus. The plan allows for the issuance of up to an aggregate of 3,750,000 shares of the Company’s common stock. As of September 30, 2019, 261,659 shares have been issued under the plan for total proceeds of approximately $4.9 million, of which 8,651 and 33,807 shares were issued for total proceeds of $0.1 million and $0.5 million during the three and nine months ended September 30, 2019, respectively. During the three and nine months ended September 30, 2018, 8,692 and 21,160 shares were issued for total proceeds of $0.1 million and $0.3 million, respectively.

Share Repurchase Program

The Company’s share repurchase program allows for the repurchase of up to an aggregate of 37,500,000 shares of the Company’s common stock. Shares may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to a trading plan in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, or by any combination of such methods. The manner, price, number and timing of share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules. The share repurchase program does not require the purchase of any minimum number of shares, and, subject to SEC rules, purchases may be commenced or suspended at any time without prior notice. The share repurchase program does not have an expiration date. As of September 30, 2019, a total of 12,069,000 shares had been repurchased by the Company under the program for an aggregate cost of $200.4 million; of these, 1,500 shares were repurchased for a total cost of $19.0 thousand during both the three and nine months ended September 30, 2019. No shares were repurchased during the three and nine months ended September 30, 2018.

At-the-Market Offerings

As of December 31, 2018, the Company was party to an equity distribution agreement under which the Company was authorized to sell up to an aggregate of 10,000,000 shares of its common stock from time to time in any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 under the Securities Act of 1933, as amended, or the Securities Act. During the nine months ended September 30, 2019, the Company terminated its prior equity distribution agreement and entered into a new equity distribution agreement pursuant to which a total of 35,000,000 shares of common stock are authorized for issuance. As of September 30, 2019, 7,458,235 shares of common stock had been sold under the equity distribution agreements for total accumulated net proceeds of approximately $128.2 million, of which 3,665,300 shares were sold for net proceeds of $50.6 million during the nine months ended September 30, 2019. No shares were sold during the three months ended September 30, 2019 or three and nine months ended September 30, 2018.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income at September 30, 2019 and December 31, 2018 was as follows:

(in thousands)	September 30, 2019			December 31, 2018
Available-for-sale securities
Unrealized gains	$	779,919		$	498,744
Unrealized losses	(31,565		)	(387,927		)
Accumulated other comprehensive income	$	748,354		$	110,817

Reclassifications out of Accumulated Other Comprehensive Income

The Company reclassifies unrealized gains and losses on AFS securities in accumulated other comprehensive income to net income upon the recognition of any other-than-temporary impairments and realized gains and losses on sales, net of income tax effects, as individual securities are impaired or sold. The following table summarizes reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2019 and 2018:

	Affected Line Item in the Statements of Comprehensive (Loss) Income	Amount Reclassified out of Accumulated Other Comprehensive Income
		Three Months Ended					Nine Months Ended
(in thousands)		September 30,					September 30,
		2019			2018		2019			2018
Other-than-temporary impairments on AFS securities	Total other-than-temporary impairment losses	$	5,950		$	95	$	11,004		$	363
Realized losses (gains) on sales of certain AFS securities, net of tax	Gain (loss) on investment securities	(226,790		)	30,368		(189,620		)	52,654
Total		$	(220,840	)	$	30,463	$	(178,616	)	$	53,017

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Tax Disclosure [Abstract]
Percent of REIT taxable income the entity intends to distribute	100.00%		100.00%
(Benefit from) provision for income taxes	$ (3,556)	$ 37,409	$ (11,188)	$ 35,142

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Stockholders' Equity Schedule of Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Equity [Abstract]
Unrealized gains	$ 779,919	$ 498,744
Unrealized losses	(31,565)	(387,927)
Accumulated other comprehensive income	$ 748,354	$ 110,817

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Stockholders' Equity Schedule of Common Dividends Declared (Details) - $ / shares	1 Months Ended	2 Months Ended	3 Months Ended							9 Months Ended
	Jul. 31, 2018	Sep. 30, 2018	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018
Class of Stock [Line Items]
Dividends declared per common share (in usd per share)			$ 0.40				$ 0.47			$ 1.27	$ 1.41
Common Stock [Member]
Class of Stock [Line Items]
Declaration Date	Jul. 13, 2018	Sep. 20, 2018	Sep. 19, 2019	Jun. 19, 2019	Mar. 19, 2019	Dec. 18, 2018		Jun. 19, 2018	Mar. 20, 2018
Record Date	Jul. 25, 2018	Oct. 01, 2018	Sep. 30, 2019	Jul. 01, 2019	Mar. 29, 2019	Dec. 31, 2018		Jun. 29, 2018	Apr. 02, 2018
Payment Date	Jul. 30, 2018	Oct. 29, 2018	Oct. 28, 2019	Jul. 29, 2019	Apr. 29, 2019	Jan. 28, 2019		Jul. 27, 2018	Apr. 27, 2018
Dividends declared per common share (in usd per share)	$ 0.158370	$ 0.311630	$ 0.400000	$ 0.400000	$ 0.470000	$ 0.470000		$ 0.470000	$ 0.470000

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Derivative Instruments and Hedging Activities Schedule of Interest Rate Swap Payers (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018	Jun. 30, 2019	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Derivative [Line Items]
Notional	$ 54,226,205,000	$ 36,528,169,000	$ 55,549,424,000	$ 41,330,283,000	$ 28,618,861,000	$ 31,226,878,000
Interest Rate Swap [Member] | Long [Member]
Derivative [Line Items]
Notional	$ 33,044,734,000	$ 21,406,167,000
Weighted Average Variable Interest Rate	2.189%	2.651%
Weighted Average Remaining Maturity	2 years 9 months 7 days	3 years 9 months
Weighted Average Fixed Interest Rate	1.88%	1.978%
Interest Rate Swap [Member] | Derivative Maturity Within One Year From Balance Sheet Date [Member] | Long [Member]
Derivative [Line Items]
Notional	$ 3,566,897,000	$ 4,336,897,000
Weighted Average Variable Interest Rate	2.204%	2.565%
Weighted Average Remaining Maturity	3 days	24 days
Weighted Average Fixed Interest Rate	1.834%	1.769%
Interest Rate Swap [Member] | Derivative Maturity Over One And Within Two Years From Balance Sheet Date [Member] | Long [Member]
Derivative [Line Items]
Notional	$ 3,640,000,000	$ 3,640,000,000
Weighted Average Variable Interest Rate	2.186%	2.689%
Weighted Average Remaining Maturity	1 year 29 days	1 year 9 months 29 days
Weighted Average Fixed Interest Rate	1.806%	1.806%
Interest Rate Swap [Member] | Derivative Maturity Over Two And Within Three Years From Balance Sheet Date [Member] | Long [Member]
Derivative [Line Items]
Notional	$ 15,740,977,000	$ 4,117,000,000
Weighted Average Variable Interest Rate	2.177%	2.687%
Weighted Average Remaining Maturity	1 year 8 months 19 days	2 years 8 months 8 days
Weighted Average Fixed Interest Rate	1.681%	1.55%
Interest Rate Swap [Member] | Derivative Maturity Over Three And Within Four Years From Balance Sheet Date [Member] | Long [Member]
Derivative [Line Items]
Notional	$ 2,578,640,000	$ 2,470,000,000
Weighted Average Variable Interest Rate	2.185%	2.728%
Weighted Average Remaining Maturity	2 years 11 months 26 days	3 years 9 months
Weighted Average Fixed Interest Rate	1.911%	2.002%
Interest Rate Swap [Member] | Derivative Maturity Over Four Years From Balance Sheet Date [Member] | Long [Member]
Derivative [Line Items]
Notional	$ 7,518,220,000	$ 6,842,270,000
Weighted Average Variable Interest Rate	2.212%	2.636%
Weighted Average Remaining Maturity	6 years 11 months 15 days	7 years 7 months 6 days
Weighted Average Fixed Interest Rate	2.344%	2.495%
Forward Starting Interest Rate Swap [Member]
Derivative [Line Items]
Notional		$ 572,000,000.0
Weighted Average Fixed Interest Rate		2.80%

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Derivative Instruments and Hedging Activities Schedule of TBA Contracts (Details) - USD ($)	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Derivative [Line Items]
Derivative, Notional Amount	$ 54,226,205,000	$ 55,549,424,000	$ 36,528,169,000	$ 41,330,283,000	$ 28,618,861,000	$ 31,226,878,000
Derivative Financial Instruments, Assets [Member]
Derivative [Line Items]
Derivative, Notional Amount	10,494,943,000		36,258,904,000
Fair Value	230,620,000		319,981,000
Derivative Financial Instruments, Liabilities [Member]
Derivative [Line Items]
Derivative, Notional Amount	43,731,262,000		5,403,265,000
Fair Value	(17,201,000)		(820,590,000)
TBAs [Member] | Derivative Financial Instruments, Assets [Member]
Derivative [Line Items]
Derivative, Notional Amount	5,604,000,000		6,484,000,000
Fair Value	16,656,000		21,602,000
TBAs [Member] | Derivative Financial Instruments, Liabilities [Member]
Derivative [Line Items]
Derivative, Notional Amount	4,259,000,000		0
Fair Value	(15,717,000)		0
TBAs [Member] | Long [Member]
Derivative [Line Items]
Derivative, Notional Amount	12,659,000,000		6,484,000,000
Cost Basis	13,168,924,000		6,734,858,000
Market Value	13,166,842,000		6,756,460,000
TBAs [Member] | Long [Member] | Derivative Financial Instruments, Assets [Member]
Derivative [Line Items]
Fair Value	13,146,000		21,602,000
TBAs [Member] | Long [Member] | Derivative Financial Instruments, Liabilities [Member]
Derivative [Line Items]
Fair Value	(15,229,000)		0
TBAs [Member] | Short [Member]
Derivative [Line Items]
Derivative, Notional Amount	2,796,000,000		0
Cost Basis	2,905,436,000		0
Market Value	2,902,414,000		0
TBAs [Member] | Short [Member] | Derivative Financial Instruments, Assets [Member]
Derivative [Line Items]
Fair Value	3,510,000		0
TBAs [Member] | Short [Member] | Derivative Financial Instruments, Liabilities [Member]
Derivative [Line Items]
Fair Value	(488,000)		0
TBAs [Member] | Net Long Position [Member]
Derivative [Line Items]
Derivative, Notional Amount	9,863,000,000	$ 9,422,000,000	6,484,000,000	$ 9,324,000,000	$ 3,049,000,000
Cost Basis	10,263,488,000		6,734,858,000
Market Value	10,264,428,000		6,756,460,000
TBAs [Member] | Net Long Position [Member] | Derivative Financial Instruments, Assets [Member]
Derivative [Line Items]
Fair Value	16,656,000		21,602,000
TBAs [Member] | Net Long Position [Member] | Derivative Financial Instruments, Liabilities [Member]
Derivative [Line Items]
Fair Value	$ (15,717,000)		$ 0

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Stockholders' Equity Schedule of Preferred Dividends Declared (Details) - $ / shares	3 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018
Series A Preferred Stock [Member]
Class of Stock [Line Items]
Declaration Date	Sep. 19, 2019	Jun. 19, 2019	Mar. 19, 2019	Dec. 18, 2018	Sep. 20, 2018	Jun. 19, 2018	Mar. 20, 2018
Record Date	Oct. 11, 2019	Jul. 12, 2019	Apr. 12, 2019	Dec. 31, 2018	Oct. 12, 2018	Jul. 12, 2018	Apr. 12, 2018
Payment Date	Oct. 28, 2019	Jul. 29, 2019	Apr. 29, 2019	Jan. 28, 2019	Oct. 29, 2018	Jul. 27, 2018	Apr. 27, 2018
Dividends declared per preferred share (in usd per share)	$ 0.507810	$ 0.507810	$ 0.507810	$ 0.507810	$ 0.507810	$ 0.507810	$ 0.507810
Series B Preferred Stock [Member]
Class of Stock [Line Items]
Declaration Date	Sep. 19, 2019	Jun. 19, 2019	Mar. 19, 2019	Dec. 18, 2018	Sep. 20, 2018	Jun. 19, 2018	Mar. 20, 2018
Record Date	Oct. 11, 2019	Jul. 12, 2019	Apr. 12, 2019	Dec. 31, 2018	Oct. 12, 2018	Jul. 12, 2018	Apr. 12, 2018
Payment Date	Oct. 28, 2019	Jul. 29, 2019	Apr. 29, 2019	Jan. 28, 2019	Oct. 29, 2018	Jul. 27, 2018	Apr. 27, 2018
Dividends declared per preferred share (in usd per share)	$ 0.476560	$ 0.476560	$ 0.476560	$ 0.476560	$ 0.476560	$ 0.476560	$ 0.476560
Series C Preferred Stock [Member]
Class of Stock [Line Items]
Declaration Date	Sep. 19, 2019	Jun. 19, 2019	Mar. 19, 2019	Dec. 18, 2018	Sep. 20, 2018	Jun. 19, 2018	Mar. 20, 2018
Record Date	Oct. 11, 2019	Jul. 12, 2019	Apr. 12, 2019	Dec. 31, 2018	Oct. 12, 2018	Jul. 12, 2018	Apr. 12, 2018
Payment Date	Oct. 28, 2019	Jul. 29, 2019	Apr. 29, 2019	Jan. 28, 2019	Oct. 29, 2018	Jul. 27, 2018	Apr. 27, 2018
Dividends declared per preferred share (in usd per share)	$ 0.453130	$ 0.453130	$ 0.453130	$ 0.453130	$ 0.453130	$ 0.453130	$ 0.453130
Series D Preferred Stock [Member]
Class of Stock [Line Items]
Declaration Date	Sep. 19, 2019	Jun. 19, 2019	Mar. 19, 2019	Dec. 18, 2018	Sep. 20, 2018
Record Date	Oct. 01, 2019	Jul. 01, 2019	Apr. 01, 2019	Dec. 31, 2018	Oct. 01, 2018
Payment Date	Oct. 15, 2019	Jul. 15, 2019	Apr. 15, 2019	Jan. 28, 2019	Oct. 15, 2018
Dividends declared per preferred share (in usd per share)	$ 0.484375	$ 0.484375	$ 0.484375	$ 0.484375	$ 0.484375
Series E Preferred Stock [Member]
Class of Stock [Line Items]
Declaration Date	Sep. 19, 2019	Jun. 19, 2019	Mar. 19, 2019	Dec. 18, 2018	Sep. 20, 2018
Record Date	Oct. 01, 2019	Jul. 01, 2019	Apr. 01, 2019	Dec. 31, 2018	Oct. 01, 2018
Payment Date	Oct. 15, 2019	Jul. 15, 2019	Apr. 15, 2019	Jan. 28, 2019	Oct. 15, 2018
Dividends declared per preferred share (in usd per share)	$ 0.468750	$ 0.468750	$ 0.468750	$ 0.468750	$ 0.468750

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Schedule of Revolving Credit Facilities by Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Line of Credit Facility [Line Items]
Revolving credit facilities	$ 300,000	$ 310,000
Maturity up to 30 days [Member]
Line of Credit Facility [Line Items]
Revolving credit facilities	0	0
Maturity 30 to 59 Days [Member]
Line of Credit Facility [Line Items]
Revolving credit facilities	0	0
Maturity 60 to 89 Days [Member]
Line of Credit Facility [Line Items]
Revolving credit facilities	0	0
Maturity 90 to 119 Days [Member]
Line of Credit Facility [Line Items]
Revolving credit facilities	0	0
Maturity 120 to 364 days [Member]
Line of Credit Facility [Line Items]
Revolving credit facilities	0	20,000
Maturity Over One Year [Member]
Line of Credit Facility [Line Items]
Revolving credit facilities	$ 300,000	$ 290,000

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Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income	$ 156,476	$ 44,394	$ 169,384	$ 239,800
TBAs [Member] | Gain (loss) on other derivative instruments
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income	82,964	(45,231)	221,439	(55,766)
Short US Treasuries [Member] | Gain (loss) on other derivative instruments
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income	0	1,606	(6,801)	1,606
U.S. Treasury Futures [Member] | Gain (loss) on other derivative instruments
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income	(359)	0	46,089	0
Put and Call Options for TBAs [Member] | Gain (loss) on other derivative instruments
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income	0	13,489	(7,666)	43,328
Interest Rate Swap [Member] | Long [Member] | Gain (loss) on interest rate swap, cap and swaption agreements
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income	(172,856)	105,195	(834,426)	412,291
Interest Rate Swap [Member] | Short [Member] | Gain (loss) on interest rate swap, cap and swaption agreements
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income	211,086	(54,653)	664,313	(252,375)
Interest Rate Swaption [Member] | Gain (loss) on interest rate swap, cap and swaption agreements
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income	32,390	24,629	76,383	94,933
Interest Rate Cap [Member] | Gain (loss) on interest rate swap, cap and swaption agreements
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income	0	686	(7,684)	686
Markit IOS Total Return Swap [Member] | Gain (loss) on other derivative instruments
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income	(888)	(302)	(1,365)	371
Inverse Interest-Only Securities [Member] | Gain (loss) on other derivative instruments
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income	$ 4,139	$ (1,025)	$ 19,102	$ (5,274)

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Variable Interest Entities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Variable Interest Entity [Line Items]
Assets of consolidated variable interest entities	$ 394,756	$ 0
Liabilities of consolidated variable interest entities	394,756	0
Notes Receivable [Member]
Variable Interest Entity [Line Items]
Assets of consolidated variable interest entities	394,235	0
Cash and Cash Equivalents [Member]
Variable Interest Entity [Line Items]
Assets of consolidated variable interest entities	200	0
Accrued Interest Receivable [Member]
Variable Interest Entity [Line Items]
Assets of consolidated variable interest entities	321	0
Assets, Total [Member]
Variable Interest Entity [Line Items]
Assets of consolidated variable interest entities	394,756	0
Term Notes Payable [Member]
Variable Interest Entity [Line Items]
Liabilities of consolidated variable interest entities	394,235	0
Accrued Interest Payable [Member]
Variable Interest Entity [Line Items]
Liabilities of consolidated variable interest entities	321	0
Other Liabilities [Member]
Variable Interest Entity [Line Items]
Liabilities of consolidated variable interest entities	200	0
Liabilities, Total [Member]
Variable Interest Entity [Line Items]
Liabilities of consolidated variable interest entities	$ 394,756	$ 0

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Available-for-sale Securities Classified by Rate Type (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale [Line Items]
Adjustable Rate	$ 3,279,537	$ 3,494,244
Fixed Rate	25,039,021	22,058,360
Available-for-sale securities, at fair value	28,318,558	25,552,604
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Debt Securities, Available-for-sale [Line Items]
Adjustable Rate	15,662	19,073
Fixed Rate	24,750,521	21,665,960
Available-for-sale securities, at fair value	24,766,183	21,685,033
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Debt Securities, Available-for-sale [Line Items]
Adjustable Rate	3,263,875	3,475,171
Fixed Rate	288,500	392,400
Available-for-sale securities, at fair value	$ 3,552,375	$ 3,867,571