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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: March 31, 2020
OR
             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _________________
COMMISSION FILE NUMBER: 1-33796

CHIMERA INVESTMENT CORPORATION
(Exact name of Registrant as specified in its Charter) 
Maryland
 
26-0630461
(State or other jurisdiction of incorporation or organization)
 
 (IRS Employer Identification No.)
                                                                                                                                             

520 Madison Avenue 32nd Floor
New York, New York
(Address of principal executive offices)
10022
(Zip Code)
(212) 626-2300
(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 Each Exchange on Which Registered
 
 
 
Common Stock, par value $0.01 per share
CIM
New York Stock Exchange
8.00% Series A Cumulative Redeemable Preferred Stock
CIM PRA
New York Stock Exchange
8.00% Series B Cumulative Fixed-to-Floating Rate Redeemable Preferred Stock
CIM PRB
New York Stock Exchange
7.75% Series C Cumulative Fixed-to-Floating Rate Redeemable Preferred Stock
CIM PRC
New York Stock Exchange
8.00% Series D Cumulative Fixed-to-Floating Rate Redeemable Preferred Stock
CIM PRD
New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all documents and 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 þ No ☐




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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ 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 Exchange Act)
Yes No þ


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:
Class
Outstanding at April 30, 2020
Common Stock, $0.01 par value
192,218,251





CHIMERA INVESTMENT CORPORATION

FORM 10-Q
TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Financial Condition as of March 31, 2020 (Unaudited) and December 31, 2019 (Derived from the audited consolidated financial statements as of December 31, 2019)
2
 
 
Consolidated Statements of Operations (Unaudited) for the quarters ended March 31, 2020 and 2019
3
 
 
Consolidated Statements of Comprehensive Income (Unaudited) for the quarters ended March 31, 2020 and 2019
4
 
 
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the quarters ended March 31, 2020 and 2019
5
 
 
Consolidated Statements of Cash Flows (Unaudited) for the quarters ended March 31, 2020 and 2019
6
 
 
8
 
 
43
 
 
63
 
 
69
 
 
 
 
 
 
 
 
 
 
 
 
 
69
 
 
69
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
74
 
 
74
 
 
77






1


Part I
Item 1. Consolidated Financial Statements

CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except share and per share data)
(Unaudited)

March 31, 2020
December 31, 2019
Cash and cash equivalents
$
261,491

$
109,878

Non-Agency RMBS, at fair value (net of allowance for credit losses of $6 million and $0 million, respectively)
2,174,400

2,614,408

Agency RMBS, at fair value
105,644

6,490,293

Agency CMBS, at fair value
2,832,716

2,850,717

Loans held for investment, at fair value
13,306,818

14,292,815

Receivable for investments sold

446,225

Accrued interest receivable
93,343

116,423

Other assets
467,451

194,301

Derivatives, at fair value, net

3,611

Total assets (1)
$
19,241,863

$
27,118,671

Liabilities:
 

 

Repurchase agreements ($8.8 billion and $15.4 billion pledged as collateral, respectively)
$
7,146,996

$
13,427,545

Securitized debt, collateralized by Non-Agency RMBS ($522 million and $598 million pledged as collateral, respectively)
128,683

133,557

Securitized debt at fair value, collateralized by loans held for investment ($11.9 billion and $12.1 billion pledged as collateral, respectively)
7,864,196

8,179,608

Payable for investments purchased
699,164

1,256,337

Accrued interest payable
45,709

63,600

Dividends payable
98,434

98,568

Accounts payable and other liabilities
14,827

6,163

Total liabilities (1)
$
15,998,009

$
23,165,378






Commitments and Contingencies (See Note 15)









Stockholders' Equity:
 

 

Preferred Stock, par value of $0.01 per share, 100,000,000 shares authorized:




8.00% Series A cumulative redeemable: 5,800,000 shares issued and outstanding, respectively ($145,000 liquidation preference)
$
58

$
58

8.00% Series B cumulative redeemable: 13,000,000 shares issued and outstanding, respectively ($325,000 liquidation preference)
130

130

7.75% Series C cumulative redeemable: 10,400,000 shares issued and outstanding, respectively ($260,000 liquidation preference)
104

104

8.00% Series D cumulative redeemable: 8,000,000 shares issued and outstanding, respectively ($200,000 liquidation preference)
80

80

Common stock: par value $0.01 per share; 500,000,000 shares authorized, 185,860,307 and 187,226,081 shares issued and outstanding, respectively
1,860

1,873

Additional paid-in-capital
4,255,054

4,275,963

Accumulated other comprehensive income
502,491

708,336

Cumulative earnings
3,422,285

3,793,040

Cumulative distributions to stockholders
(4,938,208
)
(4,826,291
)
Total stockholders' equity
$
3,243,854

$
3,953,293

Total liabilities and stockholders' equity
$
19,241,863

$
27,118,671

(1) The Company's consolidated statements of financial condition include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations and liabilities of the VIE for which creditors do not have recourse to the primary beneficiary (Chimera Investment Corporation). As of March 31, 2020, and December 31, 2019, total assets of consolidated VIEs were $12,334,195 and $12,544,744, respectively, and total liabilities of consolidated VIEs were$7,777,605 and $8,064,235, respectively. See Note 8 for further discussion.

See accompanying notes to consolidated financial statements.

2



CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share and per share data)
(Unaudited)
 
For the Quarters Ended

March 31, 2020
March 31, 2019
Net interest income:


Interest income (1)
$
300,266

$
350,389

Interest expense (2)
142,083

202,950

Net interest income
158,183

147,439






Provision for credit losses
(6,314
)






Net other-than-temporary credit impairment losses

(4,853
)





Other investment gains (losses):
 



Net unrealized gains (losses) on derivatives
201,000

(89,315
)
Realized gains (losses) on terminations of interest rate swaps
(463,966
)
(108,046
)
Net realized gains (losses) on derivatives
(41,086
)
(7,277
)
Net gains (losses) on derivatives
(304,052
)
(204,638
)
Net unrealized gains (losses) on financial instruments at fair value
(260,887
)
200,812

Net realized gains (losses) on sales of investments
75,854

8,603

Total other gains (losses)
(489,085
)
4,777






Other expenses:
 

 

Compensation and benefits
12,934

14,370

General and administrative expenses
5,678

5,821

Servicing fees
9,989

8,963

Transaction expenses
4,906

62

Total other expenses
33,507

29,216

Income (loss) before income taxes
(370,723
)
118,147

Income taxes
32


Net income (loss)
$
(370,755
)
$
118,147






Dividends on preferred stock
18,438

17,392






Net income (loss) available to common shareholders
$
(389,193
)
$
100,755






Net income (loss) per share available to common shareholders:




Basic
$
(2.08
)
$
0.54

Diluted
$
(2.08
)
$
0.54






Weighted average number of common shares outstanding:




Basic
187,018,602

187,112,454

Diluted
187,018,602

188,199,711


(1) Includes interest income of consolidated VIEs of $174,681 and $207,112 for the quarters ended March 31, 2020 and 2019, respectively. See Note 8 to consolidated financial statements for further discussion.

(2) Includes interest expense of consolidated VIEs of $64,629 and $91,027 for the quarters ended March 31, 2020 and 2019, respectively. See Note 8 to consolidated financial statements for further discussion.

See accompanying notes to consolidated financial statements.

3




CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except share and per share data)
(Unaudited)




For the Quarters Ended

March 31, 2020
March 31, 2019
Comprehensive income (loss):
 

Net income (loss)
$
(370,755
)
$
118,147

Other comprehensive income:
 

Unrealized gains (losses) on available-for-sale securities, net (1)
(199,204
)
26,385

Reclassification adjustment for net losses included in net income for other-than-temporary credit impairment losses

4,853

Reclassification adjustment for net realized losses (gains) included in net income
(6,641
)
14,918

Other comprehensive income (loss)
(205,845
)
46,156

Comprehensive income (loss) before preferred stock dividends
$
(576,600
)
$
164,303

Dividends on preferred stock
$
18,438

$
17,392

Comprehensive income (loss) available to common stock shareholders
$
(595,038
)
$
146,911


(1) March 31, 2020 amount includes $6 million of unrealized losses on AFS securities for which the Company has recognized an allowance for credit losses.

4



CHIMERA INVESTMENT CORPORATION   
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands, except per share data)
(Unaudited)
 
For the Quarter Ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
Series A Preferred Stock Par Value
Series B Preferred Stock Par Value
Series C Preferred Stock Par Value
Series D Preferred Stock Par Value
Common
Stock Par
Value
Additional Paid-in Capital
Accumulated Other Comprehensive Income
Cumulative Earnings
Cumulative Distributions to Stockholders
Total
Balance, December 31, 2019
$
58

$
130

$
104

$
80

$
1,873

$
4,275,963

$
708,336

$
3,793,040

$
(4,826,291
)
$
3,953,293

Net income (loss)







(370,755
)

(370,755
)
Other comprehensive income (loss)






(205,845
)


(205,845
)
Repurchase of common stock




(14
)
(22,051
)



(22,065
)
Stock based compensation




1

1,142




1,143

Common dividends declared








(93,479
)
(93,479
)
Preferred dividends declared








(18,438
)
(18,438
)
Balance, March 31, 2020
$
58

$
130

$
104

$
80

$
1,860

$
4,255,054

$
502,491

$
3,422,285

$
(4,938,208
)
$
3,243,854

 
 
 
 
 
 
 
 
 
 
 
For the Quarter Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Series A Preferred Stock Par Value
Series B Preferred Stock Par Value
Series C Preferred Stock Par Value
Series D Preferred Stock Par Value
Common
Stock Par
Value
Additional Paid-in Capital
Accumulated Other Comprehensive Income
Cumulative Earnings
Cumulative Distributions to Stockholders
Total
Balance, December 31, 2018
$
58

$
130

$
104

$

$
1,871

$
4,072,093

$
626,832

$
3,379,489

$
(4,376,748
)
$
3,703,829

Net income (loss)







118,147


118,147

Other comprehensive income (loss)






46,156



46,156

Stock based compensation





2,682




2,682

Common dividends declared








(93,613
)
(93,613
)
Preferred dividends declared








(17,392
)
(17,392
)
Issuance of preferred stock



80


193,288




193,368

Balance, March 31, 2019
$
58

$
130

$
104

$
80

$
1,871

$
4,268,063

$
672,988

$
3,497,636

$
(4,487,753
)
$
3,953,177



See accompanying notes to consolidated financial statements.

5



CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
 
For the Quarters Ended
 
March 31, 2020
March 31, 2019
Cash Flows From Operating Activities:
Net income
$
(370,755
)
$
118,147

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
(Accretion) amortization of investment discounts/premiums, net
36,319

6,030

Accretion (amortization) of deferred financing costs and securitized debt discounts/premiums, net
(18,318
)
(5,955
)
Amortization of swaption premium

160

Net unrealized losses (gains) on derivatives
(201,000
)
89,315

Margin (paid) received on derivatives
325,594

(98,565
)
Net unrealized losses (gains) on financial instruments at fair value
260,887

(200,812
)
Net realized losses (gains) on sales of investments
(75,854
)
(8,603
)
Net provision for credit losses
6,314


Net other-than-temporary credit impairment losses

4,853

(Gain) loss on extinguishment of debt


Equity-based compensation expense
1,143

2,682

Changes in operating assets:




Decrease (increase) in accrued interest receivable, net
23,763

(662
)
Decrease (increase) in other assets
(394,817
)
1,025

Changes in operating liabilities:




Increase (decrease) in accounts payable and other liabilities
6,417

15,655

Increase (decrease) in accrued interest payable, net
(19,156
)
14,554

Net cash provided by (used in) operating activities
$
(419,463
)
$
(62,176
)
Cash Flows From Investing Activities:
Agency MBS portfolio:
 

 

Purchases
$
(160,516
)
$
(1,379,467
)
Sales
6,244,850

91,731

Principal payments
593,341

215,403

Non-Agency RMBS portfolio:
 



Purchases
(19,503
)
(112,778
)
Sales
33,797

4,394

Principal payments
67,518

78,689

Loans held for investment:
 



Purchases
(575,541
)
(512,044
)
Sales

358,175

Principal payments
461,594

375,087

Net cash provided by (used in) investing activities
$
6,645,540

$
(880,810
)
Cash Flows From Financing Activities:
Proceeds from repurchase agreements
$
38,210,544

$
25,994,053

Payments on repurchase agreements
(44,491,093
)
(24,700,865
)
Net proceeds from preferred stock offerings

193,368

Payments on repurchase of common stock
(22,066
)

Proceeds from securitized debt borrowings, collateralized by loans held for investment
731,013


Payments on securitized debt borrowings, collateralized by loans held for investment
(386,362
)
(354,361
)
Payments on securitized debt borrowings, collateralized by Non-Agency RMBS
(4,449
)
(5,905
)
Common dividends paid
(93,613
)
(93,526
)

6



Preferred dividends paid
(18,438
)
(14,414
)
Net cash provided by (used in) financing activities
$
(6,074,464
)
$
1,018,350

Net increase (decrease) in cash and cash equivalents
151,613

75,364

Cash and cash equivalents at beginning of period
109,878

47,486

Cash and cash equivalents at end of period
$
261,491

$
122,850

 
 
 
Supplemental disclosure of cash flow information:
Interest received
$
359,664

$
357,111

Interest paid
$
178,292

$
194,549

Non-cash investing activities:
 



Payable for investments purchased
$
699,164

$
1,513,657

Receivable for investments sold
$

$
1,414,478

Net change in unrealized gain (loss) on available-for sale securities
$
(205,845
)
$
46,156

Retained beneficial interests
$

$
40,825

 
 
 
Non-cash financing activities:
 



    Dividends declared, not yet paid
$
98,434

$
99,050



See accompanying notes to consolidated financial statements.

7



CHIMERA INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization

Chimera Investment Corporation, or the Company, was organized in Maryland on June 1, 2007. The Company commenced operations on November 21, 2007 when it completed its initial public offering. The Company elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder, or the Code.

The Company conducts its operations through various subsidiaries including subsidiaries it treats as taxable REIT subsidiaries, or TRSs. In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate related business. The Company currently has ten wholly owned direct subsidiaries: Chimera RMBS Whole Pool LLC, and Chimera RMBS LLC formed in June 2009; CIM Trading Company LLC, or CIM Trading, formed in July 2010; Chimera Funding TRS LLC, or CIM Funding TRS, a TRS formed in October 2013, Chimera CMBS Whole Pool LLC and Chimera RMBS Securities LLC formed in March 2015; Chimera Insurance Company, LLC formed in July 2015; Chimera RR Holding LLC formed in April 2016, Anacostia LLC, a TRS formed in June 2018, and NYH Funding LLC, a TRS formed in May 2019.

2. Summary of the Significant Accounting Policies

(a) Basis of Presentation and Consolidation
The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included. Investment securities transactions are recorded on the trade date. Certain prior period amounts have been reclassified to conform to the current period's presentation.
The consolidated financial statements include the Company’s accounts, the accounts of its wholly-owned subsidiaries, and variable interest entities, or VIEs, in which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.
The Company uses securitization trusts considered to be VIEs in its securitization and re-securitization transactions. VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest, or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as its primary beneficiary and is generally the entity with (i) the power to direct the activities that most significantly impact the VIEs’ economic performance, and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE. For VIEs that do not have substantial on-going activities, the power to direct the activities that most significantly impact the VIEs’ economic performance may be determined by an entity’s involvement with the design and structure of the VIE.
The trusts are structured as entities that receive principal and interest on the underlying collateral and distribute those payments to the security holders. The assets held by the securitization entities are restricted in that they can only be used to fulfill the obligations of the securitization entity. The Company’s risks associated with its involvement with these VIEs are limited to its risks and rights as a holder of the security it has retained.
Determining the primary beneficiary of a VIE requires judgment. The Company determined that for the securitizations it consolidates, its ownership provides the Company with the obligation to absorb losses or the right to receive benefits from the VIE that could be significant to the VIE. In addition, the Company has the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance, or power, such as rights to direct servicer activity or the Company was determined to have power in connection with its involvement with the structure and design of the VIE.
The Company’s interest in the assets held by these securitization vehicles, which are consolidated on the Company’s Consolidated Statements of Financial Condition, is restricted by the structural provisions of these trusts, and a recovery of the Company’s investment in the vehicles will be limited by each entity’s distribution provisions. The liabilities of the securitization vehicles, which are also consolidated on the Company’s Consolidated Statements of Financial Condition, are non-recourse to the Company, and can only be satisfied using proceeds from each securitization vehicle’s respective asset pool.
The assets of securitization entities are comprised of residential mortgage backed securities (or RMBS), or residential mortgage loans. See Notes 3, 4 and 8 for further discussion of the characteristics of the securities and loans in the Company’s portfolio.

8



(b) Statements of Financial Condition Presentation
The Company’s Consolidated Statements of Financial Condition include both the Company’s direct assets and liabilities and the assets and liabilities of consolidated securitization vehicles. Assets of each consolidated VIE can only be used to satisfy the obligations of that VIE, and the liabilities of consolidated VIEs are non-recourse to the Company. The Company is not obligated to provide, nor does it intend to provide, any financial support to these consolidated securitization vehicles. The notes to the consolidated financial statements describe the Company’s assets and liabilities including the assets and liabilities of consolidated securitization vehicles. See Note 8 for additional information related to the Company’s investments in consolidated securitization vehicles.
(c) Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although the Company’s estimates contemplate current conditions and how it expects them to change in the future, it is reasonably possible that actual conditions could be materially different than anticipated in those estimates, which could have a material adverse impact on the Company’s results of operations and its financial condition. Management has made significant estimates including in accounting for income recognition on Agency MBS, Non-Agency RMBS, IO MBS (Note 3) and residential mortgage loans (Note 4), valuation of Agency MBS and Non-Agency RMBS (Notes 3 and 5), residential mortgage loans (Note 4 and 5), securitized debt (Note 5 and 7) and derivative instruments (Notes 5 and 9). Actual results could differ materially from those estimates.
(d) Significant Accounting Policies
There have been no significant changes to the Company's accounting policies included in Note 2 to the consolidated financial statements of the Company’s Form 10-K for the year ended December 31, 2019, other than the significant accounting policies discussed below.
Interest Income Recognition and Allowance for Credit Losses
Investments in Non-agency RMBS securities
The Company considers its investments in Non-Agency RMBS as beneficial interests. Beneficial interests gives the Company the right to receive all or portions of specified cash flows received by a trust or other entity. Beneficial interests held by the Company are created in connection with securitization transactions such as those involving mortgage loan obligations. Beneficial interests are accounted for in accordance with guidance in ASC 325-40 as amended by the ASU 2016-13. Beneficial interests classified as available-for-sale (AFS) record changes in fair value in other comprehensive income (OCI). Beneficial interests for which the Company has elected the fair value option (FVO) record changes in fair value in earnings.
Interest income on the Company’s beneficial interests is recognized using the interest method based on management’s estimates of cash flows expected to be collected. The effective interest rate on these securities is based on management’s estimate for each security of the projected cash flows, which are estimated based on observation of current market information and include assumptions related to fluctuations in prepayment speeds and the timing and amount of credit losses. On a quarterly basis, the Company reviews and, if appropriate, adjusts its cash flow projections based on inputs and analyses received from external sources, internal models, and the Company’s judgments about prepayment rates, the timing and amount of credit losses, and other factors. Changes in the amount or timing of cash flows from those originally projected, or from those estimated at the last evaluation date, are considered to be either favorable changes or adverse changes.
Adverse changes in the timing or amount of cash flows on beneficial interests classified as AFS could result in the Company recording an increase in the allowance for credit losses. The allowance for credit losses are calculated using a discounted cash flow (DCF) approach and is measured as the difference between the beneficial interest’s amortized cost and the estimate of cash flows expected to be collected discounted at the effective interest rate used to accrete the beneficial interest. The allowance for credit losses is recorded as a contra-asset and a reduction in earnings. The allowance for credit losses will be limited to the amount of the unrealized losses on the beneficial interest. Any allowance for credit losses in excess of the unrealized losses on the beneficial interests are accounted for as a prospective reduction of the effective interest rate. No allowance is recorded for beneficial interests in an unrealized gain position. Favorable changes in the DCF will result in a reduction in the allowance for credit losses, if any. Any reduction in allowance for credit losses is recorded in earnings. If the allowance for credit losses has been reduced to zero, the remaining favorable changes are reflected as a prospective increase to the effective interest rate.
Beneficial interests for which other than temporary impairment (OTTI) had been recognized prior to the effective date of ASU 2016-13 shall apply the guidance in the update on a prospective basis. In addition the yield used to accrete the beneficial interest on beneficial interests with prior OTTI will remain unchanged as a result of the adoption of ASU 2016-13. Recoveries

9



of amounts previously written off relating to improvements in cash flows shall be recorded in income in the period received. Therefore, subsequent favorable changes in the DCF of the beneficial interests with prior OTTI will not be reflected as an adjustment to their yield used to accrete the discount. Subsequent adverse changes in the DCF will result in an increase to the allowance for credit losses, limited to the amount of the unrealized losses on the beneficial interest.
Credit losses recognized on BIs will be accreted on a monthly basis at the rate used to recognize interest income, the effective interest rate. The accretion will be recorded as a reduction to interest income in the statement of operations.
The Company presents separately all accrued interest on the statement of financial position. Interest is accrued on all BIs when due. Interest which is not received at the due date is written off when it becomes delinquent. As all interest not received when due is charged off against interest income, no allowance for accrued interest is required.
No allowances for credit losses are recognized on beneficial interests for which the Company has elected the fair value option. All favorable or adverse changes in management’s estimates of cash flows expected to be collected results in a prospective increase or decrease in the effective interest rate used to recognize interest income.
Investments in agency MBS securities
The Company invests in pass-through mortgage-backed securities guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA) and Freddie Mac (FHLMC) (collectively “Agency Securities”).
Interest income for Agency Securities for which changes in fair value are recorded in OCI, including premiums and discounts associated with the acquisition of these securities, is recognized over the life of such securities using the interest method based on the contractual cash flows of the security. In applying the interest method, the Company considers estimates of future principal prepayments in the calculation of the effective yield. Differences that arise between previously anticipated prepayments and actual prepayments received, as well as changes in future prepayment assumptions, result in a recalculation of the effective yield on the security. This recalculation of the effective yield is updated on a monthly basis. Upon a recalculation of the effective yield, the investment in the security is adjusted to the amount that would have existed had the new effective yield been retrospectively applied since acquisition with a corresponding charge or credit to interest income. This adjustment is accounted for as a change in estimate with a cumulative effect adjustment on interest income as a result in the change in the yield. Prepayments are estimated using models generally accepted in the industry.
All securities carried at fair value with changes in fair value recorded in OCI need to be evaluated for expected losses, even if the risk of loss is considered remote. However, the Company is not required to measure expected credit losses on securities in which historical credit loss information adjusted for current conditions and reasonable and supportable forecasts results in an expectation that incurring a credit loss is zero. Based on the current facts and circumstances, the Company believes it’s investments Agency Securities would qualify for zero expected credit losses. The factors considered in reaching this conclusion include the long history of zero credit losses, the explicit guarantee by the US government (although limited for FNMA and FHLMC securities) and yields that, while not risk-free, generally trade based on market views of prepayment and liquidity risk (not credit risk).
Interest income on Agency Securities for which changes in fair value are recorded in earnings is recognized using the interest method based on management’s estimates of cash flows expected to be collected. The effective interest rate on these securities is based on management’s estimate of the projected cash flows. Changes in the amount or timing of cash flows as a result in changes in expected prepayments from those originally projected, or from those estimated at the last evaluation date, are reflected prospectively as an adjustment to the effective interest rate used to recognize interest income. This recalculation of the effective interest rate is updated on a monthly basis.
Income Taxes
The Company does not have any material unrecognized tax positions that would affect its financial statements or require disclosure. No accruals for penalties and interest were necessary as of March 31, 2020 or December 31, 2019.
Fair Value Disclosure
A complete discussion of the methodology utilized by the Company to estimate the fair value of its financial instruments is included in Note 5 to these consolidated financial statements.
(e) Recent Accounting Pronouncements
Financial Instruments - Credit Losses - (Topic 326)

10



On January 1, 2020 the Company adopted accounting standards update (or ASU) No. 2016-13, Measurement of Credit Losses on Financial Instruments. This update replaced the previous model for recognizing credit losses from an incurred credit loss model to a current expected credit loss (or CECL) model for financial instruments measured at amortized cost and required the Company to record an allowance for credit losses on available-for-sale (or AFS) debt securities for all expected (rather than incurred) credit losses of the asset rather than reduce the carrying amount, as the Company did under the OTTI model. This update also revised the accounting model for purchased credit-impaired debt securities. The changes in the allowance for credit losses created in accordance with this update have been recorded in earnings. Expected credit losses are limited to the amount of the unrealized loss on the debt securities impacted by the update.
The update did not have any impact on financial instruments which were carried at fair value with changes in fair value recorded in earnings. As all Loans held for investment are carried at fair value, with changes in fair value recorded in earnings, the update had no impact on the carrying value or revenue recognition of Loans held for investment.
On January 1, 2020, the effective date of the update, the Company was required to record a cumulative-effect adjustment related to financial instruments under the scope of this update to the statement of financial position. As all financial instruments impacted by the update, including all purchased credit impaired debt securities, were in an unrealized gain position as of the effective date, there was no impact on the financial statements at the transition date and no cumulative-effect adjustment was required.
In addition, the update superseded subtopic 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality. As of January 1, 2020, the Company accounted all investments previously classified as AFS and under subtopic 310-30, using the subtopic 326-30 Financial Instruments - Credit Losses; Available-for-Sale Debt Securities and subtopic 325-40, Investments -Other-Beneficial Interests in Securitized Financial Assets.
Reference Rate Reform (Topic 848)
In March 2020, the FASB issued ASU No. 2020-4, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference London Inter Bank Offering Rate (or LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company has not yet adopted this guidance and is currently evaluating what impact this update will have on the consolidated financial statements.
3. Mortgage-Backed Securities

The Company classifies its Non-Agency RMBS as senior, subordinated, or Interest-only. The Company also invests in Agency MBS which it classifies as Agency RMBS to include residential and residential interest-only MBS and Agency CMBS to include commercial and commercial interest-only MBS. Senior interests in Non-Agency RMBS are generally entitled to the first principal repayments in their pro-rata ownership interests at the acquisition date. The tables below present amortized cost, allowance for credit losses, fair value and unrealized gain/losses of Company's MBS investments as of March 31, 2020 and December 31, 2019.

11



 
 
March 31, 2020
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
Principal or Notional Value
Total Premium
Total Discount
Amortized Cost
Allowance for credit losses
Fair Value
Gross Unrealized Gains
Gross Unrealized Losses
Net Unrealized Gain/(Loss)
Non-Agency RMBS
 
 
 
 
 
 
 
 
 
Senior
$
1,924,284

$
1,870

$
(922,847
)
$
1,003,307

$
(5,410
)
$
1,420,224

$
424,613

$
(2,286
)
$
422,327

Subordinated
900,396

8,496

(341,888
)
567,004

(904
)
528,178

42,782

(80,704
)
(37,922
)
Interest-only
6,931,077

287,092


287,092


225,998

41,151

(102,245
)
(61,094
)
Agency RMBS
 

 

 

 

 
 

 

 



Pass-through









Interest-only
1,484,016

135,180


135,180


105,644


(29,536
)
(29,536
)
Agency CMBS
 
 
 
 
 
 
 
 
 
Project loans
2,506,241

49,294

(4,878
)
2,550,657


2,786,527

235,985

(115
)
235,870

Interest-only
1,764,487

47,163


47,163


46,189

1,614

(2,588
)
(974
)
Total
$
15,510,501

$
529,095

$
(1,269,613
)
$
4,590,403

$
(6,314
)
$
5,112,760

$
746,145

$
(217,474
)
$
528,671


 
 
December 31, 2019
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
Principal or Notional Value
Total Premium
Total Discount
Amortized Cost
Fair Value
Gross Unrealized Gains
Gross Unrealized Losses
Net Unrealized Gain/(Loss)
Non-Agency RMBS
 
 
 
 
 
 
 
 
Senior
$
2,024,564

$
2,038

$
(953,916
)
$
1,072,686

$
1,700,911

$
628,518

$
(293
)
$
628,225

Subordinated
876,592

9,915

(332,913
)
553,594

624,598

76,272

(5,268
)
71,004

Interest-only
7,458,653

301,170


301,170

288,899

51,481

(63,752
)
(12,271
)
Agency RMBS
 

 

 

 

 

 

 

 

Pass-through
6,080,547

131,023


6,211,570

6,362,626

152,271

(1,215
)
151,056

Interest-only
1,539,941

139,536


139,536

127,667

220

(12,089
)
(11,869
)
Agency CMBS
 
 
 
 
 
 
 
 
Project loans
2,621,938

52,681

(4,961
)
2,669,658

2,801,692

132,700

(666
)
132,034

Interest-only
1,817,246

51,140


51,140

49,025

586

(2,701
)
(2,115
)
Total
$
22,419,481

$
687,503

$
(1,291,790
)
$
10,999,354

$
11,955,418

$
1,042,048

$
(85,984
)
$
956,064



The following tables present the gross unrealized losses and estimated fair value of the Company’s Agency and Non-Agency MBS by length of time that such securities have been in a continuous unrealized loss position at March 31, 2020 and December 31, 2019. All available for sale securities in an unrealized loss position have been evaluated by the Company for current expected credit losses.


12



 
 
 
March 31, 2020
 
 
 
 
 
 
 


(dollars in thousands)
 
 
 
 
 
 
 
Unrealized Loss Position for Less than 12 Months
 
Unrealized Loss Position for 12 Months or More
 
Total
 
Estimated Fair Value
Unrealized Losses
Number of Positions
 
Estimated Fair Value
Unrealized Losses
Number of Positions
 
Estimated Fair Value
Unrealized Losses
Number of Positions
Non-Agency RMBS
 
 
 
 
 
 
 
 
 
 
 
Senior
$
85,768

$
(2,286
)
14

 
$

$


 
$
85,768

$
(2,286
)
14

Subordinated
407,971

(80,429
)
32

 
1,435

(275
)
10

 
409,406

(80,704
)
42

Interest-only
75,692

(35,469
)
97

 
43,493

(66,776
)
66

 
119,185

(102,245
)
163

Agency RMBS
 

 



 


 

 

 
 

 

 

Pass-through



 



 



Interest-only
104,396

(28,624
)
23

 
1,250

(912
)
1

 
105,646

(29,536
)
24

Agency CMBS
 
 
 
 
 
 
 
 
 
 
 
Project loans



 
39,863

(115
)
3

 
39,863

(115
)
3

Interest-only
2,333

(196
)
3

 
8,809

(2,392
)
7

 
11,142

(2,588
)
10

Total
$
676,160

$
(147,004
)
169

 
$
94,850

$
(70,470
)
87

 
$
771,010

$
(217,474
)
256


 
 
 
December 31, 2019
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
Unrealized Loss Position for Less than 12 Months
 
Unrealized Loss Position for 12 Months or More
 
Total
 
Estimated Fair Value
Unrealized Losses
Number of Positions
 
Estimated Fair Value
Unrealized Losses
Number of Positions
 
Estimated Fair Value
Unrealized Losses
Number of Positions
Non-Agency RMBS
 
 
 
 
 
 
 
 
 
 
 
Senior
$

$


 
$
31,635

$
(293
)
1

 
$
31,635

$
(293
)
1

Subordinated
69,178

(5,064
)
9

 
1,836

(204
)
11

 
71,014

(5,268
)
20

Interest-only
50,376

(22,737
)
46

 
64,129

(41,015
)
66

 
114,505

(63,752
)
112

Agency RMBS
 

 

 

 
 

 

 

 
 

 

 

Pass-through
11,398

(605
)
4

 
67,552

(610
)
5

 
78,950

(1,215
)
9

Interest-only
121,228

(12,089
)
22

 



 
121,228

(12,089
)
22

Agency CMBS
 
 
 
 
 
 
 
 
 
 
 
Project loans
41,971

(277
)
3

 
44,896

(389
)
4

 
86,867

(666
)
7

Interest-only
15,045

(295
)
6

 
9,930

(2,406
)
7

 
24,975

(2,701
)
13

Total
$
309,196

$
(41,067
)
90

 
$
219,978

$
(44,917
)
94

 
$
529,174

$
(85,984
)
184



At March 31, 2020, the Company did not intend to sell any of its Agency and Non-Agency MBS that were in an unrealized loss position, and it was not more likely than not that the Company would be required to sell these MBS before recovery of their amortized cost basis, which may be at their maturity. With respect to RMBS held by consolidated VIEs, the ability of any entity to cause the sale by the VIE prior to the maturity of these RMBS is either expressly prohibited, not probable, or is limited to specified events of default, none of which have occurred as of March 31, 2020.

Gross unrealized losses on the Company’s Agency MBS (excluding Agency MBS which are reported at fair value with changes in fair value recorded in earnings) were $115 thousand and $1 million as of March 31, 2020 and December 31, 2019, respectively. Given the inherent credit quality of Agency MBS, the Company does not consider any of the current impairments on its Agency MBS to be credit related. In evaluating whether it is more likely than not that it will be required to sell any impaired security before its anticipated recovery, which may be at their maturity, the Company considers the significance of each investment, the amount of impairment, the projected future performance of such impaired securities, as well as the Company’s current and anticipated leverage capacity and liquidity position. Based on these analyses, the Company determined that at March 31, 2020 and December 31, 2019, unrealized losses on its Agency MBS were temporary.

Gross unrealized losses on the Company’s Non-Agency RMBS (excluding Non-Agency RMBS which are reported at fair value with changes in fair value recorded in earnings), net of any allowance for credit losses, was $9 million at March 31, 2020. After evaluating the securities and recording the allowance for credit losses, we concluded that the remaining unrealized

13



losses reflected above were non-credit related and would be recovered from the securities' estimated future cash flows. We considered a number of factors in reaching this conclusion, including that we did not intend to sell the securities, it was not considered more likely than not that we would be forced to sell the securities prior to recovering the amortized cost, and there were no material credit events that would have caused us to otherwise conclude that we would not recover the amortized cost. Credit losses are calculated by comparing the estimated future cash flows of each security discontinued at the yield determined as of the initial acquisition date or, if since revised, as of the last date previously revised, to the net amortized cost basis. Significant judgment is used in projecting cash flows for Non-Agency RMBS.

Gross unrealized losses on the Company's Non-Agency RMBS (excluding Non-Agency RMBS which are reported at fair value with changes in fair value recorded in earnings), was $348 thousand at December 31, 2019. Based upon the most recent evaluation, the Company does not consider these unrealized losses to be indicative of other-than-temporary and does not believe that these unrealized losses are credit related, but rather are due to other factors.

The Company has reviewed its Non-Agency RMBS that are in an unrealized loss position to identify those securities with losses that are credit related based on an assessment of changes in cash flows expected to be collected for such RMBS, which considers recent bond performance and expected future performance of the underlying collateral. A summary of the credit loss allowance for the quarter ended March 31, 2020 is presented below.

 
For the Quarter Ended
 
March 31, 2020
 
(dollars in thousands)
Beginning balance of the allowance for credit losses on available-for-sale securities at the beginning of period
$

 
 
Transition impact from CECL standard

Additions to the allowance for credit losses on securities for which credit losses were not previously recorded
(6,314
)
Allowance on purchased financial assets with credit deterioration

Reductions for the securities sold during the period

Write-offs charged against the allowance

Recoveries of amounts previously written off


 
Ending balance of the allowance for credit losses on available-for-sale securities at the end of period
$
(6,314
)


The following table presents significant credit quality indicators used for the credit loss allowance on our Non-Agency RMBS investments as of March 31, 2020.
 
 
For the Quarter Ended
 
 
March 31, 2020
 
 
(dollars in thousands)
  
 
Prepay Rate
CDR
Loss Severity
  
Amortized Cost
Weighted Average
Weighted Average
Weighted Average
Non-Agency RMBS
 
 
 
 
Senior
165,966,737
6.0%
3.1%
50.8%
Subordinated
55,410,172
7.5%
0.9%
39.0%


The increase in the allowance for credit losses is primarily due to increased expected losses and delinquencies. In addition, the decline in fair value on certain Non-Agency RMBS positions which had previously been in an unrealized gain position as of the prior year end, and are now in an unrealized loss position as of the end of the current period. These Non-Agency RMBS positions now in an unrealized loss have resulted in the recognition of an allowance for credit losses which was previously limited by unrealized gains on these investments.

The following tables present a summary of unrealized gains and losses at March 31, 2020 and December 31, 2019.

14



 
 
March 31, 2020
 
 
 
 
 
(dollars in thousands) 
 
 
 
 
Gross Unrealized Gain Included in Accumulated Other Comprehensive Income
Gross Unrealized Gain Included in Cumulative Earnings
Total Gross Unrealized Gain
Gross Unrealized Loss Included in Accumulated Other Comprehensive Income
Gross Unrealized Loss Included in Cumulative Earnings
Total Gross Unrealized Loss
Non-Agency RMBS
 
 
 
 
 
 
Senior
$
424,613

$

$
424,613

$
(2,286
)
$

$
(2,286
)
Subordinated
35,815

6,967

42,782

(6,817
)
(73,887
)
(80,704
)
Interest-only

41,151

41,151


(102,245
)
(102,245
)
Agency RMBS
 

 

 
 

 

 
Pass-through






Interest-only




(29,536
)
(29,536
)
Agency CMBS
 
 
 
 
 
 
Project loans
51,281

184,704

235,985

(115
)

(115
)
Interest-only

1,614

1,614


(2,588
)
(2,588
)
Total
$
511,709

$
234,436

$
746,145

$
(9,218
)
$
(208,256
)
$
(217,474
)
 
 
December 31, 2019
 
 
 
 
 
(dollars in thousands)  
 
 
 
 
Gross Unrealized Gain Included in Accumulated Other Comprehensive Income
Gross Unrealized Gain Included in Cumulative Earnings
Total Gross Unrealized Gain
Gross Unrealized Loss Included in Accumulated Other Comprehensive Income
Gross Unrealized Loss Included in Cumulative Earnings
Total Gross Unrealized Loss
Non-Agency RMBS
 
 
 
 
 
 
Senior
$
628,518

$

$
628,518

$
(293
)
$

$
(293
)
Subordinated
57,174

19,098

76,272

(55
)
(5,213
)
(5,268
)
Interest-only

51,481

51,481


(63,752
)
(63,752
)
Agency RMBS
 

 

 

 

 

 

Pass-through

152,271

152,271


(1,215
)
(1,215
)
Interest-only

220

220


(12,089
)
(12,089
)
Agency CMBS
 
 
 
 
 
 
Project loans
23,643

109,057

132,700

(651
)
(15
)
(666
)
Interest-only

586

586


(2,701
)
(2,701
)
Total
$
709,335

$
332,713

$
1,042,048

$
(999
)
$
(84,985
)
$
(85,984
)


Changes in prepayments, actual cash flows, and cash flows expected to be collected, among other items, are affected by the collateral characteristics of each asset class. The Company chooses assets for the portfolio after carefully evaluating each investment’s risk profile.

The following tables provide a summary of the Company’s MBS portfolio at March 31, 2020 and December 31, 2019.

15



 
March 31, 2020
 
Principal or Notional Value
at Period-End
(dollars in thousands)
Weighted Average Amortized
Cost Basis
Weighted Average Fair Value
Weighted Average
Coupon
Weighted Average Yield at Period-End (1)
Non-Agency RMBS
 
 
 
 
Senior
$
1,924,284

$
52.14

73.81

4.8
%
17.3
%
Subordinated
900,396

62.97

58.66

3.8
%
6.8
%
Interest-only
6,931,077

4.14

3.26

1.3
%
11.5
%
Agency RMBS
 

 

 

 

 

Interest-only
1,484,016

9.11

7.12

1.6
%
4.1
%
Agency CMBS










Project loans
2,506,241

101.77

111.18

3.8
%
3.6
%
Interest-only
1,764,487

2.67

2.62

0.6
%
4.8
%
(1) Bond Equivalent Yield at period end.

 
December 31, 2019
 
Principal or Notional Value at Period-End
(dollars in thousands)
Weighted Average Amortized
Cost Basis
Weighted Average Fair Value
Weighted Average
Coupon
Weighted Average Yield at Period-End (1)
Non-Agency RMBS
 
 
 
 
Senior
$
2,024,564

$
52.98

$
84.01

5.0
%
20.8
%
Subordinated
876,592

63.15

71.25

3.7
%
6.9
%
Interest-only
7,458,653

4.04

3.87

1.1
%
8.4
%
Agency RMBS
 

 

 

 

 

Pass-through
6,080,547

102.15

104.64

4.0
%
3.4
%
Interest-only
1,539,941

9.06

8.29

1.6
%
4.0
%
Agency CMBS










Project loans
2,621,938

101.82

106.86

3.7
%
3.6
%
Interest-only
1,817,246

2.81

2.70

0.7
%
4.7
%
(1) Bond Equivalent Yield at period end.

The following table presents the weighted average credit rating of the Company’s Non-Agency RMBS portfolio at March 31, 2020 and December 31, 2019.
 
March 31, 2020
December 31, 2019

AAA
0.7
%
0.4
%
AA
0.1
%
0.1
%
A
1.0
%
0.9
%
BBB
1.7
%
1.6
%
BB
3.9
%
3.8
%
B
1.5
%
1.6
%
Below B or not rated
91.1
%
91.6
%
Total
100.0
%
100.0
%


Actual maturities of MBS are generally shorter than the stated contractual maturities. Actual maturities of the Company’s MBS are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal. The following tables provide a summary of the fair value and amortized cost of the Company’s MBS at March 31, 2020 and December 31, 2019 according to their estimated weighted-average life classifications. The weighted-average lives of the MBS in the tables below are based on lifetime expected prepayment rates using an industry prepayment model for the Agency MBS portfolio and the Company’s prepayment assumptions for the Non-Agency RMBS. The prepayment model

16



considers current yield, forward yield, steepness of the interest rate curve, current mortgage rates, mortgage rates of the outstanding loan, loan age, margin, and volatility.
 
March 31, 2020
 
(dollars in thousands) 
 
Weighted Average Life
 
Less than one year
Greater than one year and less
than five years
Greater than five years and less
than ten years
Greater than ten years
Total
Fair value
 
 
 
 
 
Non-Agency RMBS
 
 
 
 
 
Senior
$
9,861

$
344,239

$
559,033

$
507,091

$
1,420,224

Subordinated

29,670

112,528

385,980

528,178

Interest-only

113,900

109,067

3,031

225,998

Agency RMBS
 

 

 

 

 

Pass-through





Interest-only

1,250

104,394


105,644

Agency CMBS
 
 
 
 
 
Project loans
14,951


31,252

2,740,324

2,786,527

Interest-only
2,333

39,945

3,911


46,189

Total fair value
$
27,145

$
529,004

$
920,185

$
3,636,426

$
5,112,760

Amortized cost
 

 

 

 

 

Non-Agency RMBS
 
 

 

 

 

Senior
$
9,961

$
273,374

$
369,124

$
350,848

$
1,003,307

Subordinated

21,487

111,344

434,173

567,004

Interest-only
1,752

145,034

137,145

3,161

287,092

Agency RMBS
 

 

 

 

 

Pass-through





Interest-only

2,162

133,018


135,180

Agency CMBS
 
 
 
 
 
Project loans
14,981


28,646

2,507,030

2,550,657

Interest-only
2,529

40,879

3,755


47,163

Total amortized cost
$
29,223

$
482,936

$
783,032

$
3,295,212

$
4,590,403


17



 
December 31, 2019
 
(dollars in thousands)
 
Weighted Average Life
 
Less than one year
Greater than one year and less
than five years
Greater than five years and less
than ten years
Greater than ten years
Total
Fair value
 
 
 
 
 
Non-Agency RMBS
 
 
 
 
 
Senior
$
16,343

$
450,185

$
676,382

$
558,001

$
1,700,911

Subordinated

43,796

95,973

484,829

624,598

Interest-only

126,631

159,057

3,211

288,899

Agency RMBS
 

 

 

 

 

Pass-through

5,939,408

421,539

1,679

6,362,626

Interest-only

1,614

126,053


127,667

Agency CMBS
 
 
 
 
 
Project loans
15,065


29,385

2,757,242

2,801,692

Interest-only

20,528

28,497


49,025

Total fair value
$
31,408

$
6,582,162

$
1,536,886

$
3,804,962

$
11,955,418

Amortized cost
 

 

 

 

 

Non-Agency RMBS
 
 

 

 

 

Senior
$
15,206

$
304,850

$
409,958

$
342,672

$
1,072,686

Subordinated

29,085

86,033

438,476

553,594

Interest-only

150,221

148,889

2,060

301,170

Agency RMBS
 

 

 

 

 

Pass-through

5,796,044

414,482

1,044

6,211,570

Interest-only

2,260

137,276


139,536

Agency CMBS
 
 
 
 
 
Project loans
15,084


28,954

2,625,620

2,669,658

Interest-only

22,950

28,190


51,140

Total amortized cost
$
30,290

$
6,305,410

$
1,253,782

$
3,409,872

$
10,999,354



The Non-Agency RMBS portfolio is subject to credit risk. The Non-Agency RMBS portfolio is primarily collateralized by Alt-A first lien mortgages. An Alt-A mortgage is a type of U.S. mortgage that, for various reasons, is considered riskier than A-paper, or prime, and less risky than subprime, the riskiest category. Alt-A interest rates, which are determined by credit risk, therefore tend to be between those of prime and subprime home loans. Typically, Alt-A mortgages are characterized by borrowers with less than full documentation, lower credit scores and higher loan-to-value ratios. At origination of the loan, Alt-A mortgage securities are defined as Non-Agency RMBS where (i) the underlying collateral has weighted average FICO scores between 680 and 720 or (ii) the FICO scores are greater than 720 and RMBS have 30% or less of the underlying collateral composed of full documentation loans. At March 31, 2020 and December 31, 2019, 58% of the Non-Agency RMBS collateral was classified as Alt-A, based on fair value. At March 31, 2020 and December 31, 2019, 13% and 12% of the Non-Agency RMBS collateral was classified as prime, respectively, based on fair value. The remaining Non-Agency RMBS collateral is classified as subprime.

The Non-Agency RMBS in the Portfolio have the following collateral characteristics at March 31, 2020 and December 31, 2019.
 
March 31, 2020
December 31, 2019
Weighted average maturity (years)
 
23.3

 
23.6

Weighted average amortized loan to value (1)
 
62.7
%
 
63.2
%
Weighted average FICO (2)
 
718

 
719

Weighted average loan balance (in thousands)
 
$
308

 
$
313

Weighted average percentage owner occupied
 
81.1