[American Capital Agency] buys agency mortgages sending you a dividend that equals the difference between the interest it pays on money borrowed and the interest it collects on the mortgages. Agency mortgages are guaranteed by the US government the same way treasuries are so, there is no default risk. Roughly half of AGNC's portfolio is adjustable rates and half fixed. The borrowings tend to be at shorter term rates whereas the mortgages they buy tend to be longer term. The majority of the profit therefore comes the same way a bank historically makes money, by the spread between short term borrowings and long term lendings.