4. Securitized Loans Held for Investment

The Company is considered to be the primary beneficiary of VIEs formed for the purpose of securitizing whole mortgage loans. Refer to Note 8 for additional details regarding the Company’s involvement with VIEs.

The following table provides a summary of the changes in the carrying value of securitized loans held for investment at September 30, 2012 and December 31, 2011:

	September 30, 2012			December 31, 2011
	(dollars in thousands)
Balance, beginning of period	$	256,632		$	349,112
Purchases		1,185,664			-
Principal paydowns		(297,923	)		(85,526	)
Net periodic amortization (accretion)		(7,846	)		(1,663	)
Change to loan loss provision		396			(5,291	)
Balance, end of period	$	1,136,923		$	256,632

The following table represents the Company’s securitized residential mortgage loans classified as held for investment at September 30, 2012 and December 31, 2011:

	September 30, 2012		December 31, 2011
	(dollars in thousands)

Securitized loans, at amortized cost	$	1,148,187	$	270,570
Less: allowance for loan losses		11,264		13,938
Securitized loans held for investment	$	1,136,923	$	256,632

The securitized loan portfolio is collateralized by prime, jumbo, first lien residential mortgages of which 9.8% were originated during 2012, 59.8% were originated during 2011, 13.2% during 2010, and the remaining 17.2% of the loans were originated prior to 2010. A summary of key characteristics of these loans follows.

	September 30, 2012				December 31, 2011
Number of loans			1,384				392
Weighted average maturity (years)			28.2				25.8
Weighted average loan to value (1)			71.7	%			75.5	%
Weighted average FICO (2)			767				752
Weighted average loan balance (in thousands)		$	820.1			$	684.0
Weighted average percentage owner occupied			94.0	%			91.1	%
Weighted average percentage single family residence			65.9	%			58.1	%
Weighted average geographic concentration of top five states	CA		39.6	%	CA		36.0	%
	NY		7.7	%	FL		6.1	%
	WA		6.6	%	AZ		5.8	%
	VA		4.7	%	NJ		5.4	%
	MD		4.2	%	IL		5.3	%

(1) Value represents appraised value of the collateral at the time of loan origination.

(2) FICO as determined at the time of loan origination.

The following table summarizes the changes in the allowance for loan losses for the securitized mortgage loan portfolio for the nine months ended September 30, 2012 and year ended December 31, 2011:

	For the Nine Months Ended September 30, 2012			For the Year Ended December 31, 2011
	(dollars in thousands)
Balance, beginning of period	$	13,938		$	11,006
Provision for loan losses		(396	)		5,291
Charge-offs		(2,278	)		(2,359	)
Balance, end of period	$	11,264		$	13,938

The Company has established an allowance for loan losses related to securitized loans that is composed of a general and specific reserve. The balance in the allowance for loan losses related to the general reserve at September 30, 2012 and December 31, 2011 was $4.7 million and $6.3 million, respectively. The balance in the allowance for loan losses related to the specific reserve at September 30, 2012 and December 31, 2011 was $6.6 million and $7.6 million, respectively.

The Company’s overall provision for loan losses is described in Note 2(g). The Company’s general reserve is based on historical loss rates for pools of loans with similar credit characteristics, adjusted for current trends and market conditions, including current trends in delinquencies and severities. The Company has established a specific reserve that reflects consideration of loans more than 60 days delinquent, loans in foreclosure, borrowers that have declared bankruptcy, and real estate owned. The loan loss provision related to these loans is measured as the difference between the unpaid principal balance and the estimated fair value of the property securing the mortgage, less estimated costs to sell. The specific reserve also reflects consideration of concessions granted to borrowers by the servicer in the form of modifications (i.e., reductions). Loan loss provisions related to these modifications are based on the contractual principal and interest payments, post-modification, discounted at the loan’s original effective interest rate.

The total unpaid principal balance of impaired loans for which the Company established a specific reserve was $28.3 million and $32.9 million at September 30, 2012 and December 31, 2011, respectively. The Company’s recorded investment in impaired loans for which there is a related allowance for credit losses at September 30, 2012 and December 31, 2011 was $21.2 million and $14.3 million, respectively. The total unpaid principal balance of non-impaired loans for which the Company established a general reserve was $1.1 billion and $235.2 million at September 30, 2012 and December 31, 2011, respectively. The Company’s recorded investment in loans that are not impaired for which there is a related general reserve for credit losses at September 30, 2012 and December 31, 2011 was $1.1 billion and $228.9 million, respectively.

The following table summarizes the outstanding principal balance of loans 30 days delinquent and greater as reported by the servicer at September 30, 2012 and December 31, 2011.

	30 Days Delinquent		60 Days Delinquent		90+ Days Delinquent		Bankruptcy		Foreclosure		REO		Total
(dollars in thousands)
September 30, 2012	$	2,372	$	2,008	$	3,999	$	0	$	4,030	$	1,768	$	14,177
December 31, 2011	$	1,342	$	1,828	$	2,338	$	1,659	$	3,626	$	5,201	$	15,994

With the exception of its ability to approve loan modifications solely as it relates to CSMC 2012-CIM1 and CSMC 2012-CIM2 as further described in Note 2(g), the Company does not service or modify loans held for investment. The trustee and servicer of the respective securitization are responsible for servicing and modifying these loans. The Company is required to make certain assumptions in accounting for loans held for investment due to the limitation of information available to the Company. The following table presents the loans that were modified by the servicer during the nine months ended September 30, 2012 and September 30, 2011.

	Number of Loans Modified During Period	Unpaid Principal Balance of Modified Loans (Pre-modification)		Unpaid Principal Balance of Modified Loans (Post-modification)		Amortized Cost of Modified Loans		Amortized Cost of Modified Loans For Which There is an Allowance for Loan Losses		Amortized Cost of Modified Loans For Which There is No Allowance for Loan Losses
(dollars in thousands)
Nine Months Ended
September 30, 2012	7	$	3,943	$	4,053	$	4,025	$	4,025	$	0
September 30, 2011	6	$	4,447	$	4,821	$	4,876	$	4,876	$	0

Loans are modified by the servicer as a method of loss mitigation. Based on the information available, during the quarter and nine months ended September 30, 2012, the Company determined that all loans modified by the servicer were considered troubled debt restructurings, as defined under GAAP. A troubled debt restructuring is generally any modification of a loan to a borrower that is experiencing financial difficulties, where a lender agrees to terms that are more favorable to the borrower than are otherwise available in the current market. All loan modifications during the quarters and nine months ended September 30, 2012 and September 30, 2011 included a reduction of the stated interest rates. Loans modified by the servicer have been individually assessed for impairment and measurement of impairment is based on the excess of the recorded investment in the loan over the present value of the expected cash flows, post modification, discounted at the loan’s effective interest rate at inception. In the absence of additional loan modifications by the servicer in future periods that are considered to be TDR’s, the $4.5 million specific reserve related to TDR’s as of September 30, 2012 will be recognized in net income in future periods by way of a decrease in the provision for loan losses.

As of September 30, 2012, one loan with an outstanding principal balance of approximately $1.6 million that was modified in the past twelve months was delinquent on its scheduled payments. This loan was individually evaluated for impairment and the related allowance for loan loss is based on the excess of the recorded investment in the loan over the present value of the expected cash flows, post modification, discounted at the loan’s effective interest rate at inception.