Consolidated Securitization Vehicles and Other Variable Interest Entities

Since its inception, the Company has utilized VIEs for the purpose of securitizing whole mortgage loans or re-securitizing RMBS and obtaining long-term, non-recourse financing. The Company evaluated its interest in each VIE to determine if it is the primary beneficiary.

As of December 31, 2017, the Company’s Consolidated Statement of Financial Condition includes assets of consolidated VIEs with a carrying value of $15.0 billion and liabilities with a carrying value of $9.6 billion. As of December 31, 2016, the Company’s Consolidated Statement of Financial Condition includes assets of consolidated VIEs with a carrying value of $10.8 billion of and liabilities with a carrying value of $7.3 billion.

During the year ended December 31, 2017, the Company consolidated approximately $7.4 billion unpaid principal balance (excluding $509 million of loans held by a subsidiary of the Company) of seasoned residential subprime mortgage loans. The Company generally sells these loans to multiple real estate mortgage investment conduit trusts (the “Trusts”). The Company purchased certain subordinate notes and trust certificates of the Trusts. The Company evaluated the Trusts and determined that the total equity investment at risk is not sufficient to permit these trusts to finance its activities without additional subordinated financial support provided by another party. Therefore, the Company concluded that the Trusts were VIEs. The Company further determined that their interests in the Trusts gave the Company the power to direct the activity of these VIEs that most significantly impacted the Company's economic performance of the VIEs. As the Company concluded that it was the primary beneficiary of the Trusts, the Company consolidated the assets and liabilities of the Trusts. All intercompany balances and transactions are eliminated in consolidation.

The consolidation of these Trusts resulted in the addition of the following amounts, net of eliminations, at the time of securitization.



	Consolidated Trusts
	(dollars in thousands)
Assets:
Loans held for investment, at fair value	$	7,407,677
Other Assets	51,711

Liabilities:
Securitized debt at fair value⁽¹⁾	$	5,188,457

(1) After the elimination of intercompany balances.

As sponsor of the Trusts, the Company has retained an eligible horizontal retained interest consisting of the Class B and Class C

notes in the Trusts in order to satisfy the U.S. risk retention rules (the “Required Credit Risk”). The U.S. risk retention rules impose limitations on the ability of the Company to dispose of or hedge the Required Credit Risk until the later of (i) the fifth

anniversary of the closing date of the securitization transactions (the “Closing Date”) and (ii) the date on which the aggregate unpaid principal balance of the mortgage loans has been reduced to 25% of the aggregate unpaid principal balance of the mortgage loans as of the Closing Date, but in any event no longer than the seventh anniversary of the Closing Date. These investments have been eliminated in consolidation of the Trusts as of December 31, 2017.

VIEs for Which the Company is the Primary Beneficiary

The retained beneficial interests in VIEs for which the Company is the primary beneficiary are typically the subordinated tranches of these re-securitizations and in some cases the Company may hold interests in additional tranches. The table below reflects the assets and liabilities recorded in the Consolidated Statements of Financial Condition related to the consolidated VIEs as of December 31, 2017 and December 31, 2016.



	December 31, 2017		December 31, 2016
	(dollars in thousands)
Assets:
Non-Agency RMBS, at fair value	$	1,579,793	$	1,842,080
Loans held for investment, at fair value	13,263,338		8,753,653
Accrued interest receivable	75,489		57,153
Other assets	68,844		109,068
Liabilities:
Securitized debt, collateralized by Non-Agency RMBS	$	205,780	$	334,124
Securitized debt at fair value, collateralized by loans held for investment	9,388,657		6,941,097
Accrued interest payable	33,870		24,942
Other liabilities	3,513		2,742

Income, OTTI and expense amounts related to consolidated VIEs recorded in the Consolidated Statements of Operations is presented in the tables below.



	For the Year Ended
	December 31, 2017			December 31, 2016			December 31, 2015
	(dollars in thousands)
Interest income, Assets of consolidated VIEs	$	914,022		$	678,623		$	575,715
Interest expense, Non-recourse liabilities of VIEs	390,858			249,708			191,922
Net interest income	$	523,164		$	428,915		$	383,793

Total other-than-temporary impairment losses	$	(2,174	)	$	(1,274	)	$	(2,066	)
Portion of loss recognized in other comprehensive income (loss)	(51,118		)	(37,475		)	(55,552		)
Net other-than-temporary credit impairment losses	$	(53,292	)	$	(38,749	)	$	(57,618	)

Servicing fees	$	41,493		$	31,178		$	25,244

VIEs for Which the Company is Not the Primary Beneficiary

The Company is not required to consolidate VIEs in which it has concluded it does not have a controlling financial interest, and thus is not the primary beneficiary. In such cases, the Company does not have both the power to direct the entities’ most significant activities and the obligation to absorb losses or right to receive benefits that could potentially be significant to the VIEs. The Company’s investments in these unconsolidated VIEs are carried in Non-Agency RMBS on the Consolidated Statements of Financial Condition and include senior and subordinated bonds issued by the VIEs. The fair value of the Company’s investments in each unconsolidated VIEs at December 31, 2017, ranged from less than $1 million to $52 million, with an aggregate amount of $1.3 billion. The fair value of the Company’s investments in each unconsolidated VIEs at December 31, 2016, ranged from less than $1 million to $51 million, with an aggregate amount of $1.5 billion. The Company’s maximum exposure to loss from these unconsolidated VIEs was $1.2 billion and $1.4 billion at December 31, 2017 and December 31, 2016, respectively. The maximum exposure to loss was determined as the amortized cost of the unconsolidated VIE, which represents the purchase price of the investment adjusted by any unamortized premiums or discounts as of the reporting date.