Consolidated Securitization Vehicles and Other Variable Interest Entities

6 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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 June 30, 2020, the Company’s Consolidated Statement of Financial Condition includes assets of consolidated VIEs with a carrying value of $12.6 billion and liabilities with a carrying value of $8.4 billion. As of December 31, 2019, the Company’s Consolidated Statement of Financial Condition includes assets of consolidated VIEs with a carrying value of $12.5 billion and liabilities with a carrying value of $8.1 billion.

During the quarter and six months ended June 30, 2020, the Company securitized and consolidated approximately $715 million and $1.6 billion unpaid principal balance of seasoned residential subprime mortgage loans, respectively. During the year ended December 31, 2019, the Company securitized and consolidated approximately $1.5 billion unpaid principal balance of seasoned residential subprime mortgage loans.

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 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 June 30, 2020 and December 31, 2019.



	June 30, 2020		December 31, 2019
	(dollars in thousands)
Assets:
Non-Agency RMBS, at fair value⁽¹⁾	$	524,205	$	598,080
Loans held for investment, at fair value	11,973,418		11,853,659
Accrued interest receivable	60,717		63,218
Other assets	20,495		29,787
Liabilities:
Securitized debt, collateralized by Non-Agency RMBS	$	124,414	$	133,557
Securitized debt at fair value, collateralized by loans held for investment	8,277,843		7,899,259
Accrued interest payable	26,029		28,775
Other liabilities	2,791		2,644

(1) June 30, 2020 balance includes allowance for credit losses of $216 thousand.

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



	For the Quarters ended
	June 30, 2020			June 30, 2019
	(dollars in thousands)
Interest income, Assets of consolidated VIEs	$	169,127		$	200,703
Interest expense, Non-recourse liabilities of VIEs	70,816			87,529
Net interest income	$	98,311		$	113,174

(Increase) decrease in provision for credit losses	$	(75	)	$	—

Servicing fees	$	8,145		$	8,861



	For the Six Months ended
	June 30, 2020			June 30, 2019
	(dollars in thousands)
Interest income, Assets of consolidated VIEs	$	343,809		$	407,814
Interest expense, Non-recourse liabilities of VIEs	135,445			178,556
Net interest income	$	208,364		$	229,258

(Increase) decrease in provision for credit losses	$	(216	)	$	—

Servicing fees	$	16,382		$	17,600

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 June 30, 2020, ranged from less than $1 million to $159 million, with an aggregate amount of $1.7 billion. The fair value of the Company’s investments in each unconsolidated VIEs at December 31, 2019, ranged from less than $1 million to $191 million, with an aggregate amount of $2.0 billion. The Company’s maximum exposure to loss from these unconsolidated VIEs was $1.4 billion, and $1.6 billion at June 30, 2020 and December 31, 2019,

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.