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 consist of loans subject to repurchase from Ginnie Mae and, at December 31, 2017, loans 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):



	Successor			Predecessor
	December 31, 2018			December 31, 2017
Unpaid principal balance⁽¹⁾	$	481,050		$	1,021,172
Unamortized discounts and other cost basis adjustments, net⁽²⁾	(6,230		)	(29,371		)
Allowance for loan losses	(940		)	(6,347		)
Residential loans at amortized cost, net⁽³⁾	$	473,880		$	985,454

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(1)	Includes loans subject to repurchase from Ginnie Mae of $466.5 million and $542.4 million at December 31, 2018 and 2017, respectively.


(2)	Includes $0.1 million and $4.5 million of accrued interest receivable at December 31, 2018 and 2017, respectively.


(3)	Includes $561.0 million of mortgage loans that are not related to consolidated VIEs at December 31, 2017. The balance at December 31, 2018 does not include any mortgage loans related to consolidated VIEs.

In connection with the adoption of fresh start accounting, the Company elected fair value accounting for its mortgage loans related to the Residual Trusts, which resulted in a reduction to residential loans at amortized cost totaling $317.2 million at February 9, 2018 due to the reclassification of these loans from residential loans at amortized cost, net to residential loans at fair value. In addition, the Company adjusted residential loans carried at amortized cost to fair value. The net carrying value of the loans approximated fair value, and accordingly, the allowance for loan losses for each loan classification was netted against the gross asset amount to arrive at the gross asset balances under fresh start accounting. Refer to Note 2 for additional information regarding fresh start accounting adjustments.

Allowance for Loan Losses

The allowance for loan losses relates only to the unpaid principal balance of loans excluding loans subject to repurchase from Ginnie Mae. The following table summarizes the activity in the allowance for loan losses on residential loans at amortized cost, net (in thousands):



	Successor		Predecessor
	For the Period From February 10, 2018 Through December 31, 2018		For the Period From January 1, 2018 Through February 9, 2018			For the Year Ended December 31, 2017
Balance at beginning of the period	$	681	$	6,347		$	5,167
Adoption of ASC 610	—		(1,538		)	—
Fresh start accounting adjustments	—		(4,264		)	—
Provision for loan losses⁽¹⁾	69		238			3,643
Charge-offs, net of recoveries⁽²⁾	190		(102		)	(2,463		)
Balance at end of the period	$	940	$	681		$	6,347

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


(2)	Includes charge-offs recognized upon foreclosure of real estate in satisfaction of residential loans of $0.1 million and $1.0 million for the period from January 1, 2018 through February 9, 2018 and the year ended December 31, 2017, respectively.

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 nonperforming 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 $3.6 million and $74.4 million at December 31, 2018 and 2017, respectively.

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, 2018, the concentrations of homes securing these loans (represented by 5% or more of unpaid principal balance) were located in Florida, California, Texas, Massachusetts, Arizona and Pennsylvania.