Residential Loans at Amortized Cost, Net

Residential loans at amortized cost, net consist of mortgage loans held for investment. The majority of these residential loans are held in securitization trusts that have been consolidated. Refer to Note 5 for further information regarding VIEs.

Residential loans at amortized cost, net are comprised of the following components (in thousands):



	December 31,
	2016			2015
Unpaid principal balance ⁽¹⁾	$	701,944		$	580,086
Unamortized discounts and other cost basis adjustments, net ⁽²⁾	(31,568		)	(34,223		)
Allowance for loan losses	(5,167		)	(4,457		)
Residential loans at amortized cost, net ⁽³⁾	$	665,209		$	541,406

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(1)	Includes loans subject to repurchase from Ginnie Mae, which are discussed in more detail below.


(2)	Includes $4.5 million and $4.6 million of accrued interest receivable at December 31, 2016 and 2015, respectively.


(3)	Includes $202.3 million and $40.8 million of mortgage loans that are not related to consolidated VIEs at December 31, 2016 and 2015, respectively.

Allowance for Loan Losses

The following table summarizes the activity in the allowance for loan losses on residential loans at amortized cost, net (in thousands):



	For the Years Ended December 31,
	2016			2015			2014
Balance at beginning of the year	$	4,457		$	10,033		$	14,320
Provision for loan losses⁽¹⁾	2,701			3,142			1,491
Charge-offs, net of recoveries ⁽²⁾	(1,991		)	(3,034		)	(5,778		)
Sale of residual interests ⁽³⁾	—			(5,684		)	—
Balance at end of the year	$	5,167		$	4,457		$	10,033

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(1)	Provision for loan losses is included in other expenses, net on the consolidated statements of comprehensive loss.


(2)	Includes charge-offs recognized upon foreclosure of real estate in satisfaction of residential loans of $1.4 million, $1.7 million and $4.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.


(3)	Sale of residual interests represents a decrease to the allowance for loan losses resulting from the deconsolidation of the seven Residual Trusts during the year ended December 31, 2015. Refer to Note 5 for additional information regarding Residual Trusts.

Aging of Past Due Residential Loans and Credit Risk Profile Based on Delinquencies

Residential loans at amortized cost that are not insured are placed on non-accrual status when any portion of the principal or interest is 90 days past due. When placed on non-accrual status, the related interest receivable is reversed against interest income of the current period. Interest income on non-accrual loans, if received, is recorded using the cash-basis method of accounting. Residential loans are removed from non-accrual status when there is no longer significant uncertainty regarding collection of the principal and the associated interest. If a non-accrual loan is returned to accruing status, the accrued interest existing at the date the residential loan is placed on non-accrual status and interest during the non-accrual period are recorded as interest income as of the date the loan no longer meets the non-accrual criteria. The past due or delinquency status of residential loans is generally determined based on the contractual payment terms. In the case of loans with an approved repayment plan, including plans approved by the bankruptcy court, delinquency is based on the modified due date of the loan. Loan balances are charged off when it becomes evident that balances are not collectible.

Factors that are important to managing overall credit quality and minimizing loan losses include sound loan underwriting, monitoring of existing loans, early identification of problem loans and timely resolution of problems. The Company primarily utilizes delinquency status to monitor the credit quality of the portfolio. The Company considers all loans 30 days or more past due to be non-performing and all loans that are current to be performing with regard to its credit quality profile. The Company had a recorded investment in loans that were 30 days or more past due of $68.3 million and $46.6 million at December 31, 2016 and 2015, respectively.

Ginnie Mae Securitizations

For certain mortgage loans that the Company pooled and securitized with Ginnie Mae, the Company as the issuer has the unilateral right to repurchase, without Ginnie Mae’s prior authorization, any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. As a result of this unilateral right, the Company must recognize the delinquent loan on its consolidated balance sheets when the loan becomes 90 days delinquent and establish a corresponding liability regardless of the Company’s intention to repurchase the loan. At December 31, 2016 and 2015, the Company has recorded $184.3 million and $22.5 million, respectively, in such loans with a corresponding liability in payables and accrued liabilities.

Concentrations of Credit Risk

Concentrations of credit risk associated with the residential loan portfolio carried at amortized cost are limited due to the large number of customers and their dispersion across many geographic areas. At December 31, 2016, the concentrations of homes securing these loans (represented by 5% or more of unpaid principal balance) were located in Texas, Mississippi and Alabama.