Mortgage Loans Held For Investment (Mortgage Loans Held for Investment)

12 Months Ended

Dec. 31, 2014

Mortgage Loans Held for Investment

Schedule Of Gain Loss On Investments Including Marketable Securities And Investments Held At Cost Income Statement Reported Amounts Summary [Line Items]

Mortgage-Backed Securities

5. Mortgage Loans Held for Investment

The Company purchases individual jumbo whole mortgage loans with the intention of securitizing them.  These loans are considered held for investment and are accounted for under the fair value option.  See Note 2 for further discussion.  As of December 31, 2014, the unpaid principal balance and the fair value of the Company’s mortgage loans held for investment were $30,792 and $31,460, respectively.  The Company did not invest in mortgage loans prior to 2014.

Based on the unpaid principal balance of the mortgage loans held at December 31, 2014, 82% were on properties located in California.  Less than 5% were located in any other individual state.

The following table provides additional data on our mortgage loan portfolio at December 31, 2014.

	December 31, 2014			December 31, 2013
		Portfolio			Portfolio
	Portfolio Range	Weighted Average		Portfolio Range	Weighted Average
Unpaid principal balance	$447 to $1,332	$	790	n/a	n/a
Interest rate	2.75% to 3.75%		3.43%	n/a	n/a
Maturity	6/2044 to 12/2044	9/2044		n/a	n/a
FICO score at loan origination	705 to 813	762		n/a	n/a
Loan-to-value ratio at loan origination	28% to 80%		65%	n/a	n/a

No loans were 90 days or more past due and none were on nonaccrual status at December 31, 2014.

The following table presents the reconciliation of mortgage loans held for investment.

	Years Ended December 31
	2014			2013		2012
Fair value, beginning of period	$	-		$	-	$	-
Gains included in net income:		-			-		-
Interest income		35			-		-
Gain on mortgage loans held for investment		8			-		-
Total gains included in net income		43			-		-
Settlements		(46	)		-		-
Sales		-			-		-
Purchases		31,463			-		-
Fair value, end of period	$	31,460		$	-	$	-

None of the change in the fair value of the mortgage loans was attributable to changes in credit risk.

The Company classifies its mortgage loans held for investment as Level 3 in the fair value hierarchy.  Prices for these instruments are obtained from third party pricing providers which use significant unobservable inputs in their valuations.  These valuations are prepared on an instrument-by-instrument basis and primarily use discounted cash flow models that include unobservable market data inputs including prepayment speeds, delinquency levels, and credit losses.  Model valuations are then compared to external indicators such as market price quotations from market makers for similar instruments and recent transactions in the same or similar instruments.  These valuations may also be discounted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the third-party pricing provider in the absence of market information.  The valuation of mortgage loans held for investment requires significant judgment by the third-party pricing provider and management.  Assumptions used by the third-party pricing provider due to lack of observable inputs may significantly impact the resulting fair value and therefore the Company’s financial statements.  Management reviews the valuations received from the third-party pricing provider.  As part of this review, prices are compared against other pricing along with internal valuation expertise to ensure assumptions and pricing is reasonable.

The following table provides information about the significant unobservable inputs used in the Level 3 valuation of the Company’s mortgage loans held for investment at December 31, 2014.

		Weighted
Unobservable Input	Range	Average
Discount rate	3.6% - 3.9%		3.8	%
Conditional refinance rate	12.4% - 19.3%		15.3	%
Default rate	0% - 1.5%		0.4	%
Loss severity	10.2% - 19.9%		13.8	%