Quarterly report pursuant to Section 13 or 15(d)

Available-for-Sale Securities, at Fair Value

v3.21.2
Available-for-Sale Securities, at Fair Value
 9 Months Ended
Sep. 30, 2021
Debt Securities, Available-for-sale [Abstract]  
Available-for-Sale Securities, at Fair Value Available-for-Sale Securities, at Fair Value
The Company holds both Agency and non-Agency 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, 2021 and December 31, 2020:
(in thousands) September 30,
2021		 December 31,
2020
Agency:
Federal National Mortgage Association $ 5,209,904  $ 11,486,658 
Federal Home Loan Mortgage Corporation 1,237,751  2,837,103 
Government National Mortgage Association 208,916  314,130 
Non-Agency 8,173  13,031 
Total available-for-sale securities $ 6,664,744  $ 14,650,922 
At September 30, 2021 and December 31, 2020, the Company pledged AFS securities with a carrying value of $6.5 billion and $14.6 billion, respectively, as collateral for repurchase agreements. See Note 11 - Repurchase Agreements.
At September 30, 2021 and December 31, 2020, the Company did not have any securities purchased from and financed with the same counterparty that did not meet the conditions of ASC 860, Transfers and Servicing, 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, 2021 and December 31, 2020, the carrying value, which also represents the maximum exposure to loss, of all non-Agency securities in unconsolidated VIEs was $8.2 million and $13.0 million, respectively.
The following tables present the amortized cost and carrying value of AFS securities by collateral type as of September 30, 2021 and December 31, 2020:
September 30, 2021
(in thousands) Principal/ Current Face Un-amortized Premium Accretable Purchase Discount Amortized Cost Allowance for Credit Losses Unrealized Gain Unrealized Loss Carrying Value
Agency:
Principal and interest
 $ 5,720,782  $ 247,747  $ (13) $ 5,968,516  $ —  $ 285,088  $ (371) $ 6,253,233 
Interest-only 3,931,227  387,003  —  387,003  (14,000) 39,515  (9,180) 403,338 
Total Agency 9,652,009  634,750  (13) 6,355,519  (14,000) 324,603  (9,551) 6,656,571 
Non-Agency
 1,611,480  12,476  (28) 13,519  (1,429) 41  (3,958) 8,173 
Total $ 11,263,489  $ 647,226  $ (41) $ 6,369,038  $ (15,429) $ 324,644  $ (13,509) $ 6,664,744 
December 31, 2020
(in thousands) Principal/ Current Face Un-amortized Premium Accretable Purchase Discount Amortized Cost Allowance for Credit Losses Unrealized Gain Unrealized Loss Carrying Value
Agency:
Principal and interest
 $ 13,103,355  $ 605,253  $ (14) $ 13,708,594  $ —  $ 629,079  $ (420) $ 14,337,253 
Interest-only 3,649,556  315,876  —  315,876  (17,889) 15,680  (13,029) 300,638 
Total Agency 16,752,911  921,129  (14) 14,024,470  (17,889) 644,759  (13,449) 14,637,891 
Non-Agency
 2,095,365  16,408  (36) 18,705  (4,639) 109  (1,144) 13,031 
Total $ 18,848,276  $ 937,537  $ (50) $ 14,043,175  $ (22,528) $ 644,868  $ (14,593) $ 14,650,922 

The following table presents the Company’s AFS securities according to their estimated weighted average life classifications as of September 30, 2021:
September 30, 2021
(in thousands)  Agency  Non-Agency  Total
< 1 year $ 4,816  $ 8,173  $ 12,989 
≥ 1 and < 3 years 104,832  —  104,832 
≥ 3 and < 5 years 4,158,698  —  4,158,698 
≥ 5 and < 10 years 2,387,194  —  2,387,194 
≥ 10 years 1,031  —  1,031 
Total $ 6,656,571  $ 8,173  $ 6,664,744 
Measurement of Allowances for Credit Losses on AFS Securities (Subsequent to the Adoption of Topic 326)
Following the adoption of Topic 326 on January 1, 2020, the Company uses a discounted cash flow method to estimate and recognize an allowance for credit losses on both Agency and non-Agency AFS securities that are not accounted for under the fair value option, as detailed in Note 2 - Basis of Presentation and Significant Accounting Policies.
The following tables present the changes for the three and nine months ended September 30, 2021 and 2020 in the allowance for credit losses on Agency and non-Agency AFS securities:
Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
(in thousands) Agency Non-Agency Total Agency Non-Agency Total
Allowance for credit losses at beginning of period
 $ (15,154) $ (2,611) $ (17,765) $ (17,889) $ (4,639) $ (22,528)
Additions on securities for which credit losses were not previously recorded
 (26) —  (26) (57) (3,850) (3,907)
Decrease (increase) on securities with previously recorded credit losses
 (1,156) 1,023  (133) (3,293) 784  (2,509)
Write-offs
 2,336  159  2,495  7,239  6,276  13,515 
Allowance for credit losses at end of period
 $ (14,000) $ (1,429) $ (15,429) $ (14,000) $ (1,429) $ (15,429)
Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
(in thousands) Agency Non-Agency Total Agency Non-Agency Total
Allowance for credit losses at beginning of period
 $ (30,634) $ (11,949) $ (42,583) $ —  $ (244,876) $ (244,876)
Additions on securities for which credit losses were not previously recorded
 (86) —  (86) (32,882) (11,404) (44,286)
Reductions for securities sold
 —  —  —  —  246,792  246,792 
Decrease (increase) on securities with previously recorded credit losses
 (558) (6,456) (7,014) 1,604  (11,249) (9,645)
Write-offs
 12,037  12,151  24,188  12,037  17,018  29,055 
Recoveries of amounts previously written off
 —  —  —  —  (2,535) (2,535)
Allowance for credit losses at end of period
 $ (19,241) $ (6,254) $ (25,495) $ (19,241) $ (6,254) $ (25,495)
The following tables present the components comprising the carrying value of AFS securities for which an allowance for credit losses has not been recorded by length of time that the securities had an unrealized loss position as of September 30, 2021 and December 31, 2020 (subsequent to the adoption of Topic 326). At September 30, 2021 and December 31, 2020, the Company held 771 and 823 AFS securities, respectively; of the securities for which an allowance for credit losses has not been recorded, 26 and 13 were in an unrealized loss position for less than twelve consecutive months and 0 and 13 were in an unrealized loss position for more than twelve consecutive months, respectively.
September 30, 2021
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
Agency $ 29,995  $ (4,222) $ —  $ —  $ 29,995  $ (4,222)
Non-Agency 4,542  (611) —  —  4,542  (611)
Total $ 34,537  $ (4,833) $ —  $ —  $ 34,537  $ (4,833)
December 31, 2020
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
Agency $ 367,660  $ (1,705) $ 24,006  $ (4,454) $ 391,666  $ (6,159)
Non-Agency —  —  —  —  —  — 
Total $ 367,660  $ (1,705) $ 24,006  $ (4,454) $ 391,666  $ (6,159)

Evaluating AFS Securities for Other-Than-Temporary Impairments (Prior to the Adoption of Topic 326)
In evaluating AFS securities for OTTI prior to the adoption of Topic 326, the Company determined whether there had been a significant adverse quarterly change in the cash flow expectations for a security. The Company compared 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 considered whether there had been a significant adverse change in the regulatory and/or economic environment as part of this analysis. If the amortized cost of the security was greater than the present value of expected future cash flows using the original yield as the discount rate, an other-than-temporary credit impairment had occurred. If the Company did not intend to sell and would not be more likely than not required to sell the security, the credit loss was recognized in earnings and the balance of the unrealized loss was recognized in either other comprehensive (loss) income, net of tax, or gain (loss) on investment securities, depending on the accounting treatment. If the Company intended to sell the security or would be more likely than not required to sell the security, the full unrealized loss was recognized in earnings.
Cumulative credit losses related to OTTI are 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. As of December 31, 2019, the Company’s cumulative credit losses related to OTTI totaled $17.0 million. During the three months ended March 31, 2020, the Company sold all securities for which OTTI had been recognized prior to January 1, 2020, reducing the Company’s cumulative credit losses related to OTTI to zero.
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). The following table presents details around sales of AFS securities during the three and nine months ended September 30, 2021 and 2020:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2021 2020 2021 2020
Proceeds from sales of available-for-sale securities $ 502,349  $ —  $ 5,102,894  $ 16,969,870 
Amortized cost of available-for-sale securities sold (481,751) —  (4,998,583) (17,947,686)
Total realized gains (losses) on sales, net $ 20,598  $ —  $ 104,311  $ (977,816)
Gross realized gains $ 20,598  $ —  $ 133,583  $ 280,885 
Gross realized losses —  —  (29,272) (1,258,701)
Total realized gains (losses) on sales, net $ 20,598  $ —  $ 104,311  $ (977,816)