XML 23 R12.htm IDEA: XBRL DOCUMENT v3.5.0.2
Residential Whole Loans
 9 Months Ended
Sep. 30, 2016
Investments, Debt and Equity Securities [Abstract]  
Residential Whole Loans
Residential Whole Loans

Included on the Company’s consolidated balance sheets at September 30, 2016 and December 31, 2015 are approximately $1.3 billion and $895.1 million, respectively, of residential whole loans arising from the Company’s 100% equity interest in certificates issued by certain trusts established to acquire the loans. Based on its evaluation of these interests and other factors, the Company has determined that the trusts are required to be consolidated for financial reporting purposes.

Residential Whole Loans at Carrying Value

Residential whole loans at carrying value totaled approximately $550.6 million and $271.8 million at September 30, 2016 and December 31, 2015, respectively. The carrying value reflects the original investment amount, plus accretion of interest income, less principal and interest cash flows received. The carrying value is reduced by any allowance for loan losses established subsequent to acquisition.

As of September 30, 2016 the Company had established an allowance for loan losses of approximately $1.0 million on its residential whole loan pools held at carrying value. For the three months ended September 30, 2016, there was no provision for loan losses recorded. For the nine months ended September 30, 2016, a net reversal of provision for loan losses of approximately $142,000 was recorded, which is included in Operating and Other expense on the Company’s consolidated statements of operations. For the three and nine months ended September 30, 2015, a net provision for loan losses of approximately $335,000 and $785,000 was recorded, respectively.

The following table presents the activity in the Company’s allowance for loan losses on its residential whole loan pools at carrying value for the three and nine months ended September 30, 2016 and 2015:

 (In Thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016

2015
 
2016
 
2015
Balance at the beginning of period
 
$
1,023

 
$
587

 
$
1,165

 
$
137

Provisions/(reversal of provisions) for loan losses
 
—

 
335

 
(142
)
 
785

Balance at the end of period
 
$
1,023

 
$
922

 
$
1,023

 
$
922



The following table presents information regarding estimates of the contractually required payments, the cash flows expected to be collected, and the estimated fair value of the residential whole loans held at carrying value acquired by the Company for the three and nine months ended September 30, 2016 and 2015.

 (In Thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016 (1)
 
2015
 
2016 (1)
 
2015
Contractually required principal and interest
 
$
121,818

 
$
10,646

 
$
363,144

 
$
103,950

Contractual cash flows not expected to be collected (non-accretable yield)
 
(31,648
)
 
(1,313
)
 
(66,685
)
 
(18,465
)
Expected cash flows to be collected
 
90,170

 
9,333

 
296,459

 
85,485

Interest component of expected cash flows 
(accretable yield)
 
(28,801
)
 
(3,620
)
 
(98,550
)
 
(34,901
)
Fair value at the date of acquisition
 
$
61,369

 
$
5,713

 
$
197,909

 
$
50,584



(1)  Excluded from the table above are approximately $111.2 million of residential whole loans held at carrying value for which the closing of the purchase transaction had not occurred as of September 30, 2016.

The following table presents accretable yield activity for the Company’s residential whole loans held at carrying value for the three and nine months ended September 30, 2016 and 2015:

 (In Thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016 (1)
 
2015
 
2016 (1)
 
2015
Balance at beginning of period
 
$
234,527

 
$
155,574

 
$
175,271

 
$
133,012

  Additions
 
28,801

 
3,620

 
98,550

 
34,901

  Accretion
 
(5,917
)
 
(3,972
)
 
(16,112
)
 
(11,406
)
  Reclassifications from/(to) non-accretable difference, net
 
218

 
2,692

 
(80
)
 
1,407

Balance at end of period
 
$
257,629

 
$
157,914

 
$
257,629

 
$
157,914



(1)  Excluded from the table above are approximately $111.2 million of residential whole loans held at carrying value for which the closing of the purchase transaction had not occurred as of September 30, 2016.

Accretable yield for residential whole loans is the excess of loan cash flows expected to be collected over the purchase price. The cash flows expected to be collected represent the Company’s estimate of the amount and timing of undiscounted principal and interest cash flows. Additions include accretable yield estimates for purchases made during the period and reclassification to accretable yield from non-accretable yield. Accretable yield is reduced by accretion during the period. The reclassifications between accretable and non-accretable yield and the accretion of interest income are based on changes in estimates regarding loan performance and the value of the underlying real estate securing the loans. In future periods, as the Company updates estimates of cash flows expected to be collected from the loans and the underlying collateral, the accretable yield may change. Therefore, the amount of accretable income recorded during the three and nine months ended September 30, 2016 is not necessarily indicative of future results.

Residential Whole Loans at Fair Value

Certain of the Company’s residential whole loans are presented at fair value on its consolidated balance sheets as a result of a fair value election made at time of acquisition. Subsequent changes in fair value are reported in current period earnings and presented in Net gain on residential whole loans held at fair value on the Company’s consolidated statements of operations.

The following table presents information regarding the Company’s residential whole loans held at fair value at September 30, 2016 and December 31, 2015:
 (Dollars in Thousands)
 
September 30, 2016 (1)
 
December 31, 2015
Outstanding principal balance
 
$
840,964

 
$
786,330

Aggregate fair value
 
$
704,462

 
$
623,276

Number of loans
 
3,205

 
3,143



(1)  Excluded from the table above are approximately $92.8 million of residential whole loans held at fair value for which the closing of the purchase transaction had not occurred as of September 30, 2016.

During the three and nine months ended September 30, 2016, the Company recorded net gains on residential whole loans held at fair value of $18.7 million and $45.1 million, respectively. During the three and nine months ended September 30, 2015, the Company recorded net gains on residential whole loans at fair value of $5.6 million and $10.8 million, respectively.
  
The following table presents the components of Net gain on residential whole loans held at fair value for the three and nine months ended September 30, 2016 and 2015:
 (In Thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Coupon payments and other income received
 
$
6,253

 
$
2,772

 
$
15,987

 
$
5,665

Net unrealized gains
 
10,913

 
2,362

 
25,529

 
3,872

Net gain on payoff/liquidation of loans
 
1,535

 
431

 
3,536

 
1,286

    Total
 
$
18,701

 
$
5,565

 
$
45,052

 
$
10,823