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

3 Months Ended

Mar. 31, 2015

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 adjustable-rate whole mortgage loans with the intention of holding them as investments.  The loans are being accounted for under the fair value option.  See Note 2 for further discussion.  As of March 31, 2015, the unpaid principal balance and the fair value of the Company’s mortgage loans held for investment were $120,395 and $123,301, respectively.  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 the fourth quarter of 2014.

The following table provides the geographic distribution of mortgage loans held at March 31, 2015 and December 31, 2014, based on unpaid principal balance.

	March 31, 2015			December 31, 2014
California		64	%		82	%
Washington		9	%		2	%
Illinois		8	%		2	%
Texas		6	%		3	%
All other		13	%		11	%
Total		100	%		100	%

The following table provides additional data on the Company’s mortgage loan portfolio at March 31, 2015 and December 31, 2014.

	March 31, 2015			December 31, 2014
		Portfolio			Portfolio
	Portfolio Range	Weighted Average		Portfolio Range	Weighted Average
Unpaid principal balance	$213 to $1,966	$	777	$447 to $1,332	$	790
Current interest rate	2.50% to 4.13%		3.41%	2.75% to 3.75%		3.43%
Maturity	5/2044 to 3/2045	10/2044		6/2044 to 12/2044	9/2044
FICO score at loan origination	700 to 813	772		705 to 813	762
Loan-to-value ratio at loan origination	24% to 80%		68%	28% to 80%		65%

No loans were 90 days or more past due and none were on nonaccrual status at March 31, 2015 or December 31, 2014.

The following table presents the rollforward of mortgage loans held for investment for the periods presented.

	Three Months Ended March 31
	2015			2014
Fair value, beginning of period	$	31,460		$	-
Purchases		95,769			-
Principal repaid		(4,172	)		-
Change in fair value		244			-
Fair value, end of period	$	123,301		$	-

The portion of the change in the fair value that was attributable to changes in credit risk was immaterial for three months ended March 31, 2015.

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 March 31, 2015 and December 31, 2014.

	March 31, 2015				December 31, 2014
		Weighted-				Weighted-
Unobservable Input	Range	Average			Range	Average
Discount rate	2.4% - 3.9%		3.0	%	3.6% - 3.9%		3.8	%
Conditional refinance rate	13.6% - 22.7%		17.2	%	12.4% - 19.3%		15.3	%
Default rate	0% - 1.8%		0.5	%	0% - 1.5%		0.4	%
Loss severity	10.4% - 20.0%		14.0	%	10.2% - 19.9%		13.8	%