Loans Held for Investment

The Loans held for investment are comprised primarily of loans collateralized by seasoned subprime residential mortgages. Additionally, it includes non-conforming, single family, owner occupied, jumbo, prime residential mortgages.

At June 30, 2018, all Loans held for investment are carried at fair value. See Note 5 for a discussion on how the Company determines the fair values of the Loans held for investment. As changes in the fair value of these loans are reflected in earnings, the Company does not estimate or record a loan loss provision. The total amortized cost of our Loans held for investment was $12.9 billion and $13.3 billion as of June 30, 2018 and December 31, 2017, respectively.

The following table provides a summary of the changes in the carrying value of Loans held for investment at fair value at June 30, 2018 and December 31, 2017:



	For the Six Months Ended			For the Year Ended
	June 30, 2018			December 31, 2017
	(dollars in thousands)
Balance, beginning of period	$	13,678,263		$	8,753,653
Purchases	924,283			6,539,765
Principal paydowns	(944,146		)	(1,788,409		)
Sales and settlements	(389,798		)	2,876
Net periodic accretion (amortization)	(43,594		)	(35,803		)
Change in fair value	21,513			206,181
Balance, end of period	$	13,246,521		$	13,678,263

The primary cause of the change in fair value is due to market demand and changes in credit risk of mortgage loans.

Residential mortgage loans

The loan portfolio for all residential mortgages were originated during the following years:



Origination Year	June 30, 2018		December 31, 2017
2002 and prior	7.5	%	7.5	%
2003	6.7	%	6.7	%
2004	14.4	%	14.6	%
2005	20.1	%	20.4	%
2006	23.3	%	23.1	%
2007	19.1	%	19.0	%
2008	6.0	%	6.0	%
2009	0.8	%	0.7	%
2010 and later	2.1	%	2.0	%
Total	100.0	%	100.0	%

The following table presents a summary of key characteristics of the residential loan portfolio at June 30, 2018 and December 31, 2017:



	June 30, 2018				December 31, 2017
Number of loans		144,451				149,172
Weighted average maturity (years)		18.8				18.8
Weighted average loan to value⁽¹⁾		87.5		%		88.0		%
Weighted average FICO⁽¹⁾		630				631
Weighted average loan balance (in thousands)		$	91			$	91
Weighted average percentage owner occupied		92.8		%		95.0		%
Weighted average percentage single family residence		86.2		%		86.0		%
Weighted average geographic concentration of top five states	CA	9.1		%	CA	9.0		%
	FL	7.2		%	FL	7.2		%
	OH	6.0		%	OH	6.1		%
	NY	5.6		%	PA	5.6		%
	PA	5.6		%	VA	5.5		%

(1) As provided by the Trustee.

The following table summarizes the outstanding principal balance of the residential loan portfolio which are 30 days delinquent and greater as reported by the servicer at June 30, 2018 and December 31, 2017.



	30 Days Delinquent	60 Days Delinquent	90+ Days Delinquent	Bankruptcy	Foreclosure	REO	Total	Unpaid Principal/Notional
	(dollars in thousands)
June 30, 2018	$797,730	$288,255	$396,269	$244,955	$262,100	$34,519	$2,023,828	$13,083,186
% of Unpaid Principal Balance	6.1%	2.2%	3.0%	1.9%	2.0%	0.3%	15.5%

December 31, 2017	$888,535	$353,810	$435,876	$272,778	$200,376	$31,008	$2,182,383	$13,525,820
% of Unpaid Principal Balance	6.6%	2.6%	3.2%	2.0%	1.5%	0.2%	16.1%

The fair value of residential mortgage loans 90 days or more past due was $549 million and $577 million as of June 30, 2018 and December 31, 2017, respectively.

Real estate owned

Real estate owned (“REO”) represents properties which the Company has received the legal title of the property to satisfy the outstanding loan. REO is re-categorized from loan to REO when the Company takes legal title of the property. REO assets are measured and reported at the estimated fair value less the estimated cost to sell at the end of each reporting period. At the time the asset is re-categorized, any difference between the previously recorded loan balance and the carrying value of the REO at the time the Company takes legal title of the property, is recognized as a gain or loss. All REO assets of the Company are held-for-sale and it is the Company’s intention to sell the property in the shortest time possible to maximize their return and recovery on the previously recorded loan. The carrying value of REO assets at June 30, 2018 and December 31, 2017 was $16 million and $10 million, respectively, and were recorded in Other Assets on the Company’s consolidated statements of financial condition.