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Residential Whole Loans

6 Months Ended

Jun. 30, 2019

Included on the Company’s consolidated balance sheets at June 30, 2019 and December 31, 2018 are approximately $5.9 billion and $4.7 billion, respectively, of residential whole loans arising from the Company’s interests in certain trusts established to acquire the loans and certain entities established in connection with its loan securitization transactions. The Company has assessed that these entities are required to be consolidated for financial reporting purposes.

Residential Whole Loans, at Carrying Value

The following table presents the components of the Company’s Residential whole loans, at carrying value at June 30, 2019 and December 31, 2018:



(Dollars In Thousands)	June 30, 2019		December 31, 2018
Purchased Performing Loans:
Non-QM loans	$	2,290,713	$	1,354,774
Rehabilitation loans	859,705		494,576
Single-family rental loans	295,461		145,327
Seasoned performing loans	200,450		224,051
Total Purchased Performing Loans	3,646,329		2,218,728
Purchased Credit Impaired Loans	745,654		797,987
Total Residential whole loans, at carrying value	$	4,391,983	$	3,016,715

Number of loans	14,091		11,149

The following table presents components of interest income on the Company’s Residential whole loans, at carrying value for the three and six months ended June 30, 2019 and 2018:



	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2019		2018		2019		2018
Purchased Performing Loans:
Non-QM loans	$	26,578	$	4,185	$	48,992	$	5,893
Rehabilitation loans	13,256		2,270		23,189		3,615
Single-family rental loans	3,926		570		6,627		815
Seasoned performing loans	3,122		—		6,295		—
Total Purchased Performing Loans	46,882		7,025		85,103		10,323
Purchased Credit Impaired Loans	10,997		10,910		22,396		21,941
Total Residential whole loans, at carrying value	$	57,879	$	17,935	$	107,499	$	32,264

The following table presents additional information regarding the Company’s Residential whole loans, at carrying value at June 30, 2019:

June 30, 2019



	Carrying Value		Unpaid Principal Balance (“UPB”)		Weighted Average Coupon (1)		Weighted Average Term to Maturity (Months)	Weighted Average LTV Ratio (2)		Aging by UPB
												Past Due Days
(Dollars In Thousands)										Current		30-59		60-89		90+
Purchased Performing Loans:
Non-QM loans	$	2,290,713	$	2,217,845	6.18	%	364	66	%	$	2,177,570	$	21,827	$	10,622	$	7,826
Rehabilitation loans (3)	860,155		860,155		7.33		9	65		775,479		45,955		16,351		22,370
Single-family rental loans	295,461		294,110		6.21		327	69		289,768		3,219		1,123		—
Seasoned performing loans	200,450		217,635		4.43		186	47		213,229		3,071		657		678
Purchased Credit Impaired Loans (4)	745,654		933,142		4.43		298	85		N/M		N/M		N/M		103,029
Residential whole loans, at carrying value, total or weighted average	$	4,392,433	$	4,522,887	5.98	%	272

(1) Weighted average is calculated based on the interest bearing principal balance of each loan within the related category. For loans acquired with servicing rights released by the seller, interest rates included in the calculation do not reflect loan servicing fees. For loans acquired with servicing rights retained by the seller, interest rates included in the calculation are net of servicing fees.

(2) LTV represents the ratio of the total unpaid principal balance of the loan to the estimated value of the collateral securing the related loan as of the most recent date available, which may be the origination date. For Rehabilitation loans, the LTV presented is the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan, where available. For certain Rehabilitation loans, totaling $215.5 million, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation. The LTV of these loans based on the current unpaid principal balance and the valuation obtained during underwriting, is 68%. Excluded from the calculation of weighted average LTV are certain low value loans secured by vacant lots, for which the LTV ratio is not meaningful.

(3) Carrying value of Rehabilitation loans excludes an allowance for loan losses of $450,000 at June 30, 2019.

(4)

Purchased credit impaired loans tend to be characterized by varying performance of the underlying borrowers over time, including loans where multiple months of payments are received in a period to bring the loan to current status, followed by months where no payments are received. Accordingly, delinquency information is presented for loans that are more than 90 days past due that are considered to be seriously delinquent.

Purchased Performing Loans

As of June 30, 2019, there were 98 Purchased Performing Loans held at carrying value, that have been placed on non-accrual status as they are 90 or more days delinquent, or otherwise had not met the necessary criteria to be returned to accrual status. Such loans have an unpaid balance of approximately $38.3 million. These non-accrual loans represent approximately 1.1% of the total outstanding principal balance of all of the Company’s Purchased Performing Loans and have a weighted average LTV of 67%. As of June 30, 2019, the Company has established an allowance for loan losses of $450,000. For the three months ended June 30, 2019, no provision for loan losses was recorded. For the six months ended June 30, 2019, a provision for loan losses of $622,000 was recorded, which is included in Operating and Other expense on the Company’s consolidated statements of operations. No provision for loan losses was recorded in the prior year periods.

In connection with purchased Rehabilitation loans, the Company had unfunded commitments of $100.4 million at June 30, 2019.

Purchased Credit Impaired Loans

As of June 30, 2019 and 2018, the Company had established an allowance for loan losses of approximately $1.5 million and $297,000, respectively, on its Purchased Credit Impaired Loans held at carrying value. For the three and six months ended June 30, 2019, a provision for loan losses of approximately $385,000 and $568,000 was recorded, respectively, which is included in Operating and Other expense on the Company’s consolidated statements of operations. For the three and six months ended June 30, 2018, a net reversal of provision for loan losses of approximately $83,000 and $33,000 was recorded, respectively.

The following table presents the activity in the Company’s allowance for loan losses on its Purchased Credit Impaired Loans held at carrying value for the three and six months ended June 30, 2019 and 2018:



	Three Months Ended June 30,					Six Months Ended June 30,
(In Thousands)	2019		2018			2019		2018
Balance at the beginning of period	$	1,151	$	380		$	968	$	330
Provisions/(reversal of provisions) for loan losses	385		(83		)	568		(33		)
Balance at the end of period	$	1,536	$	297		$	1,536	$	297

The Company did not acquire any Purchased Credit Impaired Loans held at carrying value during the three and six months ended June 30, 2019 and 2018.

The following table presents accretable yield activity for the Company’s Purchased Credit Impaired Loans held at carrying value for the three and six months ended June 30, 2019 and 2018:



	Three Months Ended June 30, (1)						Six Months Ended June 30, (1)
(In Thousands)	2019			2018			2019			2018
Balance at beginning of period	$	398,958		$	413,404		$	415,330		$	421,872
Accretion	(10,997		)	(10,910		)	(22,396		)	(21,941		)
Liquidations and other	(11,808		)	(12,840		)	(22,296		)	(15,010		)
Reclassifications from non-accretable difference, net	111			11,421			5,626			16,154
Balance at end of period	$	376,264		$	401,075		$	376,264		$	401,075


(1)	Excluded from the table above are approximately $57.6 million of purchased credit impaired loans held at carrying value for which the closing of the purchase transaction had not occurred as of June 30, 2018.

Accretable yield for Purchased Credit Impaired 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 six months ended June 30, 2019 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 measured at fair value through earnings 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 June 30, 2019 and December 31, 2018:



(Dollars in Thousands)	June 30, 2019 (1)			December 31, 2018
Less than 60 Days Past Due:
Outstanding principal balance	$	646,170		$	610,290
Aggregate fair value	$	607,407		$	561,770
Weighted Average LTV Ratio (1)	77.04		%	76.18		%
Number of loans	3,096			2,898

60 Days to 89 Days Past Due:
Outstanding principal balance	$	66,939		$	63,938
Aggregate fair value	$	59,256		$	54,947
Weighted Average LTV Ratio (1)	80.61		%	82.86		%
Number of loans	324			285

90 Days or More Past Due:
Outstanding principal balance	$	875,667		$	970,758
Aggregate fair value	$	772,164		$	854,545
Weighted Average LTV Ratio (1)	88.80		%	90.24		%
Number of loans	3,320			3,531
Total Residential whole loans, at fair value	$	1,438,827		$	1,471,262


(1)	Excluded from the table above are approximately $87.0 million of residential whole loans held at fair value for which the closing of the purchase transaction had not occurred as of June 30, 2019.


(2)	LTV represents the ratio of the total unpaid principal balance of the loan, to the estimated value of the collateral securing the related loan. Excluded from the calculation of weighted average LTV are certain low value loans secured by vacant lots, for which the LTV ratio is not meaningful.

The following table presents the components of Net gain on residential whole loans measured at fair value through earnings for the three and six months ended June 30, 2019 and 2018:



	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2019		2018		2019		2018
Coupon payments and other income received (1)	$	21,411	$	19,002	$	40,884	$	34,400
Net unrealized gains	21,188		4,599		20,128		18,346
Net gain on payoff/liquidation of loans	2,596		4,044		4,879		6,952
Net gain on transfers to REO	6,278		4,798		10,849		11,243
Total	$	51,473	$	32,443	$	76,740	$	70,941

(1)

Primarily includes recovery of delinquent interest upon the liquidation of non-performing loans, recurring coupon interest payments received on mortgage loans that are contractually current, and cash payments received from private mortgage insurance on liquidated loans.