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Commercial Loans
 6 Months Ended
Jun. 30, 2022
Noncontrolling Interest [Abstract]  
Commercial Loans Commercial Loans
Commercial Loans

    In January 2019, WMC CRE LLC ("CRE LLC"), a wholly-owned subsidiary of the Company was formed for the purpose of acquiring Commercial Loans. The Commercial Loans owned by CRE LLC are financed under the Commercial Whole Loan Facility. Refer to Note 7 - Financings for details.

The following table presents information about the Commercial Loans owned by CRE LLC as of June 30, 2022 (dollars in thousands):
    
LoanAcquisition DateLoan TypePrincipal BalanceFair ValueOriginal LTVInterest RateMaturity DateExtension OptionCollateral
CRE 3August 2019Interest-Only Mezzanine loan$90,000 $26,934 58%
1-Month LIBOR plus 9.25%
6/29/2021
None(1)
Entertainment and Retail
CRE 4September 2019Interest-Only First Mortgage38,367 37,980 63%
1-Month LIBOR plus 3.02%
8/6/2022
One-Year Extension(2)
Retail
CRE 5December 2019Interest-Only First Mortgage24,535 24,362 62%
1-Month LIBOR plus 3.75%
11/6/2022
Two One-Year Extensions
Hotel
CRE 6December 2019Interest-Only First Mortgage13,207 13,114 62%
1-Month LIBOR plus 3.75%
11/6/2022
Two One-Year Extensions
Hotel
CRE 7December 2019Interest-Only First Mortgage7,259 7,208 62%
1-Month LIBOR plus 3.75%
11/6/2022
Two One-Year Extensions
Hotel
CRE 8December 2019Interest-Only First Mortgage4,425 4,425 79%
1-Month LIBOR plus 4.85%
12/6/2022NoneAssisted Living Facilities
$177,793 $114,023 
(1) CRE 3 is in default and not eligible for extension
(2) Extension terms are under discussion. A 30-day forbearance of the maturity was agreed to in order to complete the negotiations and documentation of the extension.

Commercial Loan Trust

In March 2018, the Company formed the Revolving Small Balance Commercial Trust 2018-1 ("RSBC Trust") to acquire commercial real estate mortgage loans. The Company consolidates the trust because it determined that the wholly-owned RSBC Trust was a VIE and that the Company was the primary beneficiary. As of June 30, 2022, there was one loan remaining in the trust and it is financed under one of the Company's short-term repurchase agreements. The Company holds the financing liability outside the RSBC Trust. Refer to Note 7 - "Financings" for details.
    The following table presents information on the commercial real estate mortgage loan held by RSBC Trust as of June 30, 2022 (dollars in thousands):
LoanAcquisition DateLoan TypePrincipal BalanceFair ValueLTV
Interest Rate(1)
Maturity Date(1)
Extension Option
Collateral
SBC 3January 2019Interest-Only First Mortgage$14,362 $14,398 49%
1-Month LIBOR plus 4.35%
1/6/2023NoneNursing Facilities
$14,362 $14,398 
(1) During July 2022,the SBC 3 loan was granted a six month extension through January 6, 2023, with a 25 bps increase in rate and a 25 bps extension fee.
Securitized Commercial Loans
    
    Securitized commercial loans are comprised of commercial loans from consolidated third party sponsored CMBS VIE's. At June 30, 2022, the Company had a variable interest in one third party sponsored CMBS VIE, CSMC Trust 2014-USA, that it determined it was the primary beneficiary and was required to consolidate. The commercial loans that serve as collateral for the securitized debt issued by this VIE can only be used to settle the securitized debt. Refer to Note 7 - "Financings" for details on the associated securitized debt. The Company assesses modifications to VIEs on an ongoing basis to determine if a significant reconsideration event has occurred that would change the Company’s initial consolidation assessment.
 
RETL 2019-RVP

RETL 2018 was refinanced with a new securitization RETL 2019-RVP ("RETL 2019 Trust") in March 2019. The Company acquired a $65.3 million interest in the trust certificates issued by the RETL 2019 Trust, including $45.3 million which represents the 5% eligible risk retention certificate. The Company determined that RETL 2019 Trust was a VIE and that the Company was also the primary beneficiary because the Manager was involved in certain aspects of the design of the trust and the Company together with other related party entities own more than 50% of the controlling class. As the primary beneficiary, the Company consolidated RETL 2019 Trust and its investment in the trust certificates (HRR class and a portion of the C class) of RETL 2019 Trust was eliminated in consolidation. The RETL 2019 Trust held a commercial loan collateralized by first mortgages, deeds of trusts and interests in commercial real estate.

On September 15, 2021, the commercial loan was paid in full by the borrower and the RETL HRR bond with an outstanding principal amount of $45.3 million held in WMC RETL LLC, a wholly-owned subsidiary of the Company, was paid off. Accordingly, the RETL 2019 Trust is no longer consolidated.

CSMC Trust 2014-USA

The Company together with other related party entities own more than 50% of the controlling class of CSMC Trust 2014-USA ("CSMC USA"). As of June 30, 2022, the Company held an 8.8% interest in the trust certificates issued by CSMC USA (F Class) with an outstanding principal balance of $14.9 million. The Company performs ongoing reassessment of its CMBS VIE holdings for potential consolidation of the securitized trust in which it owns a portion of the controlling class. Since the ownership of the controlling financial interest is held within a related party group, the Company must determine whether it is the primary beneficiary under the related party tie-breaker rule. As a result of the Company's evaluation, it was determined that the Company is the primary beneficiary of CSMC USA, and effective on August 1, 2020, consolidated CSMC USA. The Company’s investment in the trust certificate of CSMC USA (F Class) was eliminated in the consolidation. The CSMC USA holds a commercial loan secured by a first mortgage lien on the borrowers’ fee and leasehold interests in a portion of a super-regional mall. The outstanding principal balance on this commercial loan is $1.4 billion as of June 30, 2022. The loan has a stated maturity date of September 11, 2025 and bears a fixed interest rate of 4.38%. The Company elected the fair value option for the commercial loan as well as the associated securitized debt.

In December 2020, the commercial loan held by CSMC USA was amended to an interest only payment through maturity. As part of the modification, a Cash Management Forbearance Agreement was entered into by the special servicer and the borrower, which required both increased reporting requirements and monthly net cash remittance.
Consolidated Securitized Commercial Loan Trusts and Commercial Loan Trust
 
The two commercial consolidated trusts, CSMC USA and RSBC Trust, collectively held two Commercial Loans as of June 30, 2022. The following table presents a summary of the assets and liabilities of the two consolidated trusts included in the Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (dollars in thousands):

 
 June 30, 2022December 31, 2021
Restricted cash$257 $260 
Securitized commercial loans, at fair value1,243,371 1,355,808 
Commercial Loans, at fair value14,398 14,362 
Interest receivable5,119 5,290 
Total assets$1,263,145 $1,375,720 
Securitized debt, at fair value$1,232,700 $1,344,370 
Interest payable4,995 5,164 
Accounts payable and accrued expenses9 9 
Other liabilities257 260 
Total liabilities$1,237,961 $1,349,803 

The Company’s risk with respect to its investment in the securitized commercial loan trust is limited to its direct ownership in the trust. The commercial loan held by the consolidated securitized commercial loan trust is held solely to satisfy the liabilities of the trust, and creditors of the trust have no recourse to the general credit of the Company. The securitized commercial loan of the trust can only be used to satisfy the obligations of that trust. The Company is not contractually required to provide, and has not provided any additional financial support to the securitized commercial loan trust for the three and six months ended June 30, 2022 and June 30, 2021. 

The following table presents the components of the fair value of the securitized commercial loans and commercial loans as of June 30, 2022 and December 31, 2021 (dollars in thousands):

 CSMC USA Trust Securitized Commercial Loan, at Fair ValueRSBC Trust Commercial Loans, at Fair ValueCommercial Loans, at Fair Value
 June 30, 2022December 31, 2021June 30, 2022December 31, 2021June 30, 2022December 31, 2021
Principal balance$1,385,591 $1,385,591 $14,362 $14,362 $177,793 $177,797 
Unamortized premium— — — — — — 
Unamortized discount(97,425)(110,770)— — — — 
Amortized cost1,288,166 1,274,821 14,362 14,362 177,793 177,797 
Gross unrealized gains— 80,987 36 — — — 
Gross unrealized losses(44,795)— — — (63,770)(61,587)
Fair value$1,243,371 $1,355,808 $14,398 $14,362 $114,023 $116,210 

Non-Performing Commercial Loans

The following table presents the aging of the Commercial Loans as of June 30, 2022 (dollars in thousands):
Commercial Loans
No of LoansPrincipalFair Value
Current6$102,155 $101,487 
1-30 days— — — 
31-60 days— — — 
61-90 days— — — 
90+ days1 90,000 26,934 
Total7$192,155 $128,421 


The COVID-19 pandemic has adversely impacted a broad range of industries in which the commercial loan borrowers operate and could impair their ability to fulfill their financial obligations to the Company, most significantly, hospitality and retail assets, and with the general return to pre-covid operations with pent up demand, leisure hospitality has come back strong in desirable markets, but other retail sectors are showing slower recovery due to a mix of post-COVID economic factors. The low average original LTV of the Company's commercial loan portfolio of 59.7%, reflecting significant equity value that the sponsors are motivated to protect, is a mitigating factor of these risks. However, there is no guarantee that losses will not occur.

CRE 3 Loan

As of June 30, 2022, the CRE 3 junior mezzanine loan which has an outstanding principal balance of $90.0 million secured by a class A retail and entertainment complex located in the North East U.S. (the “Property”) was in default. The Property, which was originally scheduled to open in March 2020, was severely impacted by COVID-19 related shutdowns and restrictions and continues to face the challenging conditions impacting large portions of the retail sector. The Company was receiving interest payments on this loan from a reserve that was exhausted in May 2021 and the loan became non-performing.

Additionally, on May 10, 2021, the administrative agent for the senior mortgage loan on the Property (the “Administrative Agent”) notified us, as administrative agent for the junior mezzanine loan, of the Administrative Agent’s intent to accept an assignment in lieu of foreclosure with respect to the Property if the junior mezzanine lenders did not elect to purchase the senior mortgage loan within 30 days pursuant to the terms set forth in an intercreditor agreement among the Administrative Agent, the Company and the senior mezzanine lender. The senior mezzanine lender was provided with a similar notice on May 10, 2021. Since the original notice provided by the Administrative Agent on May 10, 2021, the Administrative Agent has extended the deadline for the junior mezzanine lenders and the senior mezzanine lender to exercise their purchase right with respect to the senior mortgage loan a total of three times, with the most recent extension expired on July 14, 2021, and neither the junior mezzanine lenders nor the senior mezzanine lender offered to purchase the senior mortgage loan.

The Company is currently in discussions with the borrower and certain other lenders regarding alternatives to address the situation which might include modifications of loan terms, deferral of payments, and/or the funding of new advances. There can be no assurance that these discussions will result in an outcome in which the Company would be repaid any amount of the loan and the Company may suffer further declines in fair value with respect to this mezzanine investment. The Company could experience a total loss of its investment under various scenarios, which at current levels would result in a $26.9 million reduction in the Company’s book value.

Commercial Real Estate Owned

Hotel REO
In February 2022, the Company along with other Hotel REO investors, sold the unencumbered hotel property which was foreclosed on in the third quarter of 2021 for $55.9 million. The Company and the other investors fully recovered their aggregate initial investment of $42.0 million. The Company and the other investors recognized a gain on sale of approximately $12.2 million