Variable Interest Entities

6 Months Ended

Jun. 30, 2020

Variable Interest Entities

Variable Interest Entities

NOTE 5. VARIABLE INTEREST ENTITIES

As discussed in Note 1, “Summary of Significant Accounting Policies,” we have determined that we are the primary beneficiary of certain securitization trusts. The following table presents a summary of the assets and liabilities of our consolidated securitization trusts as of June 30, 2020 and December 31, 2019:

	June 30,		December 31,
	2020		2019
	(in thousands)
Residential mortgage loans held-for-investment through consolidated securitization trusts	$	367,539	$	458,348
Accrued interest receivable		1,259		1,495
Total assets	$	368,798	$	459,843
Accrued interest payable	$	1,214	$	1,448
Asset-backed securities issued by securitization trusts		358,854		448,987
Total liabilities	$	360,068	$	450,435

Our risk with respect to each investment in a securitization trust is limited to our direct ownership in the securitization trust. We own the most subordinated classes on all of the trusts. The residential mortgage loans held by the consolidated securitization trusts are held solely to satisfy the liabilities of the securitization trusts, and the investors in the securitization trusts have no recourse to the general credit of the Company for the ABS issued by the securitization trusts. The assets of a consolidated securitization trust can only be used to satisfy the obligations of that trust. ABS are not paid down according to any schedule, but rather as payments are made on the underlying mortgages. The final distribution dates for the three trusts are all at various dates in 2045. We are not contractually required and have not provided any additional financial support to the securitization trusts for the period ended June 30, 2020.

Residential Mortgage Loans Held-for-Investment Through Consolidated Securitization Trusts

Residential mortgage loans held-for-investment through consolidated securitization trusts are carried at unpaid principal balances net of any premiums or discounts and allowances for loan losses. The residential mortgage loans are secured by first liens on the underlying residential properties. As we still retain the most subordinated tranches in these trusts, we continue to be the primary beneficiary of these trusts and believe that we are still required to consolidate these trusts. All of the loans in these trusts were originated during 2015. During the three and six months ended June 30, 2020, we did not sell any of our investment in these trusts. During the year ended December 31, 2019, we did not sell any of our investment in these trusts.

The following table details the carrying value for residential mortgage loans held-for-investment through consolidated securitization trusts at June 30, 2020 and December 31, 2019:

	June 30,		December 31,
	2020		2019
	(in thousands)
Principal balance	$	366,584	$	456,768
Unamortized premium and costs		1,102		1,755
Allowance for loan losses		(147)		(175)
Carrying value	$	367,539	$	458,348

The following table provides a reconciliation of the carrying value of residential mortgage loans held-for-investment through consolidated securitization trusts for the three and six months ended June 30, 2020 and June 30, 2019 and for the year ended December 31, 2019:

	Three Months		Six Months		Three Months		Six Months		For the Year
	Ended		Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,		December 31,
	2020		2020		2019		2019		2019
	(in thousands)
Balance at beginning of period	$	416,571	$	458,348	$	535,077	$	549,016	$	549,016
Deductions during period:
Collections of principal		(48,736)		(90,184)		(19,925)		(33,445)		(89,113)
Principal paydowns and other deductions		(316)		(653)		(403)		(833)		(1,566)
Provision for credit losses		(564)		(594)		—		—		—
Charge-offs, net		584		622		—		11		11
Balance at end of period	$	367,539	$	367,539	$	514,749	$	514,749	$	458,348

The following table details various portfolio characteristics of the residential mortgage loans held-for-investment through consolidated securitization trusts at June 30, 2020 and December 31, 2019:

	June 30,			December 31,
	2020			2019
	(dollar amounts in thousands)
Portfolio Characteristics:
Number of loans		580			704
Current principal balance	$	366,584		$	456,768
Average loan balance	$	632		$	649
Net weighted average coupon rate		3.86	%		3.87	%
Weighted average maturity (years)		23.8			24.3
Weighted average FICO score		761			762
Current Performance:
Current	$	361,114		$	452,875
30 days delinquent		3,494			2,122
60 days delinquent		1,250			726
90+ days delinquent		726			1,045
Bankruptcy/foreclosure		—			—
Total	$	366,584		$	456,768

The following table summarizes the geographic concentrations of residential mortgage loans held-for-investment through consolidated securitization trusts at June 30, 2020 and December 31, 2019, based on principal balance outstanding:

	June 30,		December 31,
State	2020		2019
California	43	%	43	%
Florida	7		7
Texas	6		—
Other states (none greater than 5%)	44		50
Total	100	%	100	%

Allowance for Loan Losses on Residential Mortgage Loans Held by Consolidated Securitization Trusts

As discussed in Note 1, “Summary of Significant Accounting Policies,” the Company establishes and maintains an allowance for loan losses on residential mortgage loans held by consolidated securitization trusts based on the Company’s estimate of credit losses.

The following table summarizes the activity in the allowance for loan losses for the three and six months ended June 30, 2020 and June 30, 2019 and for the year ended December 31, 2019:

	Three Months		Six Months		Three Months		Six Months		Year
	Ended		Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30		June 30,		December 31,
	2020		2020		2019		2019		2019
	(in thousands)
Balance at beginning of period	$	167	$	175	$	175	$	186	$	186
Impact of adopting ASC 326		—		—		—		—		—
Provision for credit losses		564		594		—		—		—
Charge-offs, net		(584)		(622)		—		(11)		(11)
Balance at end of period	$	147	$	147	$	175	$	175	$	175

Asset-Backed Securities Issued by Securitization Trusts

Asset-backed securities issued by securitization trusts are recorded at principal balances net of unamortized premiums and discounts. Asset-backed securities issued by securitization trusts are issued in various tranches and had a principal balance of $352.8 million at June 30, 2020 and $449.0 million at December 31, 2019. The investors in the asset-backed securities are not affiliated with the Company and have no recourse to the general credit of the Company.