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Residential Mortgage Securities and MSR-Related Assets (Tables)

3 Months Ended

Mar. 31, 2020

Investments, Debt and Equity Securities [Abstract]

Schedule of information about MBS and CRT Securities

The following tables present certain information about the Company’s residential mortgage securities at March 31, 2020 and December 31, 2019:

March 31, 2020



(In Thousands)	Principal/ Current Face		Purchase Premiums		Accretable Purchase Discounts			Discount Designated as Credit Reserve (1)			Gross Amortized Cost (2)		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gain/(Loss)			Fair Value
Agency MBS: (3)
Fannie Mae	$	433,397	$	15,384	$	(18	)	$	(4,747	)	$	444,016	$	4,242	$	—		$	4,242		$	448,258
Freddie Mac	95,759		3,468		—			(121		)	99,622		1,655		—			1,655			101,277
Ginnie Mae	3,749		69		—			—			3,818		60		—			60			3,878
Total Agency MBS	532,905		18,921		(18		)	(4,868		)	547,456		5,957		—			5,957			553,413
Non-Agency MBS:
Expected to Recover Par (4)(5)	150,181		—		(13,191		)	—			136,990		6,175		(21,643		)	(15,468		)	121,522
Expected to Recover Less than Par (4)	1,305,667		—		(77,777		)	(389,472		)	838,418		160,000		—			160,000			998,418
Total Non-Agency MBS (6)	1,455,848		—		(90,968		)	(389,472		)	975,408		166,175		(21,643		)	144,532			1,119,940
Total MBS	1,988,753		18,921		(90,986		)	(394,340		)	1,522,864		172,132		(21,643		)	150,489			1,673,353
CRT securities (7)	365,762		3,263		(42		)	(47,137		)	321,846		—		(67,745		)	(67,745		)	254,101
Total MBS and CRT securities	$	2,354,515	$	22,184	$	(91,028	)	$	(441,477	)	$	1,844,710	$	172,132	$	(89,388	)	$	82,744		$	1,927,454

December 31, 2019



(In Thousands)	Principal/ Current Face		Purchase Premiums		Accretable Purchase Discounts			Discount Designated as Credit Reserve (1)			Gross Amortized Cost (2)		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gain/(Loss)			Fair Value
Agency MBS: (3)
Fannie Mae	$	1,119,708	$	43,249	$	(22	)	$	—		$	1,162,935	$	9,799	$	(14,741	)	$	(4,942	)	$	1,157,993
Freddie Mac	480,879		19,468		—			—			500,961		5,475		(3,968		)	1,507			502,468
Ginnie Mae	3,996		73		—			—			4,069		52		—			52			4,121
Total Agency MBS	1,604,583		62,790		(22		)	—			1,667,965		15,326		(18,709		)	(3,383		)	1,664,582
Non-Agency MBS:
Expected to Recover Par (4)(5)	722,477		—		(16,661		)	—			705,816		19,861		(9		)	19,852			725,668
Expected to Recover Less than Par (4)	1,472,826		—		(73,956		)	(436,598		)	962,272		375,598		(9		)	375,589			1,337,861
Total Non-Agency MBS (6)	2,195,303		—		(90,617		)	(436,598		)	1,668,088		395,459		(18		)	395,441			2,063,529
Total MBS	3,799,886		62,790		(90,639		)	(436,598		)	3,336,053		410,785		(18,727		)	392,058			3,728,111
CRT securities (7)	244,932		4,318		(55		)	—			249,195		6,304		(91		)	6,213			255,408
Total MBS and CRT securities	$	4,044,818	$	67,108	$	(90,694	)	$	(436,598	)	$	3,585,248	$	417,089	$	(18,818	)	$	398,271		$	3,983,519


(1)	Discount designated as Credit Reserve is generally not expected to be accreted into interest income.


(2)	Includes principal payments receivable of $516,000 and $614,000 at March 31, 2020 and December 31, 2019, respectively, which are not included in the Principal/Current Face.


(3)	Amounts disclosed at March 31, 2020 and December 31, 2019 include Agency MBS with a fair value of $14.5 million and $280.3 million, respectively, for which the fair value option has been elected. Such securities had $499,000 unrealized gains and no gross unrealized losses at March 31, 2020, and $4.5 million unrealized gains and no gross unrealized losses at December 31, 2019, respectively.


(4)	Based on management’s current estimates of future principal cash flows expected to be received.


(5)	Includes RPL/NPL MBS, which at March 31, 2020 had an $101.4 million Principal/Current face, $101.1 million amortized cost and $79.5 million fair value. At December 31, 2019, RPL/NPL MBS had a $632.3 million Principal/Current face, $631.8 million amortized cost and $635.0 million fair value.


(6)	At March 31, 2020 and December 31, 2019, the Company expected to recover approximately 73% and 80% of the then-current face amount of Non-Agency MBS, respectively.

(7)

Amounts disclosed at March 31, 2020 includes CRT securities with a fair value of $188.6 million for which the fair value option has been elected. Such securities had no gross unrealized gains and gross unrealized losses of approximately $67.7 million at March 31, 2020. Amounts disclosed at December 31, 2019 includes CRT securities with a fair value of $255.4 million for which the fair value option has been elected. Such securities had gross unrealized gains of approximately $6.3 million and gross unrealized losses of approximately $91,000 at December 31, 2019.

Schedule of Sale of Residential Mortgage Securities

The following table presents information about the Company’s sales of its residential mortgage securities for the three months ended March 31, 2020 and 2019. The Company has no continuing involvement with any of the sold MBS.



	Three Months Ended March 31, 2020					Three Months Ended March 31, 2019
(In Thousands)	Sales Proceeds		Gains/(Losses)			Sales Proceeds		Gains/(Losses)
Agency MBS	$	965,132	$	(22,854	)	$	—	$	—
Non-Agency MBS	264,385		(43,124		)	126,094		18,153
CRT Securities	35,645		(2,017		)	83,368		6,456
Total	$	1,265,162	$	(67,995	)	$	209,462	$	24,609

Schedule of information about MBS and CRT Securities that were in an unrealized loss position

The following table presents information about the Company’s residential mortgage securities that were in an unrealized loss position at March 31, 2020, with respect to which no allowance for credit losses has been recorded:

Unrealized Loss Position For:



	Less than 12 Months					12 Months or more					Total
	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
(Dollars in Thousands)	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
Agency MBS:
Fannie Mae	$	—	$	—	—	$	—	$	—	—	$	—	$	—
Freddie Mac	—		—		—	—		—		—	—		—
Ginnie Mae	—		—		—	—		—		—	—		—
Total Agency MBS	—		—		—	—		—		—	—		—
Non-Agency MBS:
Expected to Recover Par (1)	79,464		21,643		7	—		—		—	79,464		21,643
Expected to Recover Less than Par (1)	—		—		—	—		—		—	—		—
Total Non-Agency MBS	79,464		21,643		7	—		—		—	79,464		21,643
Total MBS	79,464		21,643		7	—		—		—	79,464		21,643
CRT securities (2)	188,560		67,745		47	—		—		—	188,560		67,745
Total MBS and CRT securities	$	268,024	$	89,388	54	$	—	$	—	—	$	268,024	$	89,388


(1)	Based on management’s current estimates of future principal cash flows expected to be received.


(2)	Amounts disclosed at March 31, 2020 include CRT securities with a fair value of $188.6 million for which the fair value option has been elected. Such securities had unrealized losses of $67.7 million at March 31, 2020.

Schedule of Credit Losses

The following table presents a roll-forward of the allowance for credit losses on the Company’s Residential mortgage securities and MSR-related assets:



	Three Months Ended March 31,
(Dollars In Thousands)	2020			2019
Allowance for credit losses at beginning of period	$	—		$	—
Current provision:	—			—
Securities with no prior loss allowance	332,756			—
Securities with a prior loss allowance	—			—
Write-offs, including allowance related to securities we intend to sell	(332,756		)	—
Allowance for credit losses at end of period	$	—		$	—

Schedule of changes in the components of the purchase discount on Non-Agency MBS

The following table presents the changes in the components of the Company’s purchase discount on its Non-Agency MBS between purchase discount designated as Credit Reserve and accretable purchase discount for the three months ended March 31, 2020 and 2019:



	Three Months Ended March 31, 2020						Three Months Ended March 31, 2019
(In Thousands)	Discount Designated as Credit Reserve			Accretable Discount (1)			Discount Designated as Credit Reserve			Accretable Discount (1)
Balance at beginning of period	$	(436,598	)	$	(90,617	)	$	(516,116	)	$	(155,025	)
Impact of RMBS Issuer Settlement (2)	—			—			—			(855		)
Accretion of discount	—			9,889			—			13,307
Realized credit losses	4,459			—			7,504			—
Purchases	—			—			—			(118		)
Sales/Redemptions	49,491			(5,551		)	3,191			16,346
Net impairment losses recognized in earnings	(11,513		)	—			—			—
Transfers/release of credit reserve	4,689			(4,689		)	3,802			(3,802		)
Balance at end of period	$	(389,472	)	$	(90,968	)	$	(501,619	)	$	(130,147	)


(1)	Together with coupon interest, accretable purchase discount is recognized as interest income over the life of the security.


(2)	Includes the impact of $855,000 of cash proceeds (a one-time payment) received by the Company during the three months ended March 31, 2019 in connection with the settlement of litigation related to certain residential mortgage backed securitization trusts that were sponsored by JP Morgan Chase & Co. and affiliated entities.

Schedule of impact of AFS on AOCI

The following table presents the impact of the Company’s AFS securities on its AOCI for the three months ended March 31, 2020 and 2019:



	Three Months Ended March 31,
(In Thousands)	2020			2019
AOCI from AFS securities:
Unrealized gain on AFS securities at beginning of period	$	392,722		$	417,167
Unrealized gain on Agency MBS, net	4,876			9,315
Unrealized gain on Non-Agency MBS, net	124,700			12,276
Unrealized (loss)/gain on MSR term notes, net	(5,166		)	512
Reclassification adjustment for MBS sales included in net income	(23,953		)	(17,009		)
Reclassification adjustment for impairment included in net income	(344,269		)	—
Change in AOCI from AFS securities	(243,812		)	5,094
Balance at end of period	$	148,910		$	422,261

Schedule of interest income on MBS, CRT Securities and MSR Related Assets

The following table presents the components of interest income on the Company’s residential mortgage securities and MSR- related assets for the three months ended March 31, 2020 and 2019:



	Three Months Ended March 31,
(In Thousands)	2020			2019
Agency MBS
Coupon interest	$	13,636		$	24,628
Effective yield adjustment (1)	(4,775		)	(6,187		)
Interest income	$	8,861		$	18,441

Legacy Non-Agency MBS
Coupon interest	$	17,282		$	24,272
Effective yield adjustment (2)	9,406			13,144
Interest income	$	26,688		$	37,416

RPL/NPL MBS
Coupon interest	$	5,583		$	16,443
Effective yield adjustment (1)(3)	280			142
Interest income	$	5,863		$	16,585

CRT securities
Coupon interest	$	3,485		$	6,118
Effective yield adjustment (2)	(523		)	82
Interest income	$	2,962		$	6,200

MSR-related assets
Coupon interest	$	14,207		$	10,619
Effective yield adjustment (1)	—			1
Interest income	$	14,207		$	10,620

(1) Includes amortization of premium paid net of accretion of purchase discount. For Agency MBS, RPL/NPL MBS and the corporate loan secured by MSRs, interest income is recorded at an effective yield, which reflects net premium amortization/accretion based on actual prepayment activity.

(2) The effective yield adjustment is the difference between the net income calculated using the net yield, which is based on management’s estimates of the amount and timing of future cash flows, less the current coupon yield.

(3) Includes accretion income recognized due to the impact of redemptions of certain securities that had been previously purchased at a discount of approximately $277,000 and $148,000 during the three months ended March 31, 2020 and 2019, respectively.