Commitments, Contingencies and Indemnifications	6 Months Ended
Jun. 30, 2017
Commitments, Contingencies and Indemnifications
Commitments, Contingencies and Indemnifications	Note 19 – Commitments, Contingencies and Indemnifications Litigation The Company may be subject to litigation and administrative proceedings arising in the ordinary course of its business. The Company has entered into agreements, which provide for indemnifications against losses, costs, claims, and liabilities arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant to these agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on history and experience, the Company expects the risk of loss to be remote. GMFS Settlement Agreement As previously disclosed in the Joint Proxy Statement Prospectus used in connection with the ZAIS Financial merger transaction and in our annual report on Form 10-K for the year ended December 31, 2016, a counterparty (the “Counterparty”) whose predecessor purchased mortgage loans from GMFS, which is currently our subsidiary, asserted claims (the “Claims”) against GMFS for breach of representations and warranties arising out these mortgage loan sales. We estimate that dating back to a period that began in 1999 and ended in 2006, approximately $1 billion of mortgage loans were sold and servicing was released by GMFS to the predecessor to the Counterparty. GMFS entered into a statute of limitations tolling agreement with the Counterparty on December 12, 2013 related to the Claims, which was further amended to extend the expiration date, most recently to May 15, 2017. On April 25, 2017, the Company and GMFS entered into a definitive agreement (the “Settlement Agreement”) to settle all Claims with the Counterparty and provide for mutual releases. Pursuant to the Settlement Agreement, the Company has paid a total of $6.0 million in cash and issued approximately $4.0 million in shares of the Company's common stock (275,862 shares issued) to the Counterparty (the “Shares”), resulting in a total of $10.0 million of consideration paid. The Shares were issued on May 2, 2017, in a private placement transaction. As part of the settlement, the Company has granted the Counterparty customary resale registration rights. During the period beginning on the 24-month anniversary of the date of the Settlement Agreement (and ending 30 days thereafter), the Counterparty will have the right, but not the obligation, to require that the Company repurchase any and all the Shares that the Counterparty then owns at a price per share equal to 65% of the then last reported book value per share of the Company's common stock. GMFS was an indirect subsidiary of ZAIS Financial when the Company completed its merger transaction with ZAIS Financial on October 31, 2016. ZAIS Financial had originally acquired GMFS on October 31, 2014 (the “GMFS 2014 acquisition”) from investment partnerships that were advised by our Manager, and from certain other entities controlled by GMFS management (together, the “2014 GMFS sellers”). The terms of the GMFS 2014 acquisition provided for the payment of both cash consideration and the possible payment of additional contingent consideration based on the achievement by GMFS of certain financial milestones specified in the GMFS 2014 acquisition agreement. The 2014 GMFS acquisition agreement contained representations and warranties related to GMFS, as well as indemnification obligations to cover breaches of representations and warranties, repurchase claims or demands from investors in respect of mortgage loans originated, purchased or sold by GMFS prior to the closing date of the acquisition. The 2014 GMFS acquisition agreement also established an escrow fund to support the payment of indemnification claims and allowed for indemnification claims to be offset against the contingent consideration that would otherwise be payable to the 2014 GMFS sellers under the 2014 GMFS acquisition agreement. Under the terms of the indemnification provisions contained in the GMFS 2014 acquisition agreement, the 2014 GMFS sellers are liable for amounts paid in settlement of Claims made with their consent, which consent was not to be unreasonably withheld or delayed. Certain of the 2014 GMFS sellers did not consent to the settlement, and as a result, there can be no assurance that the exercise of the right to indemnification by the Company under the terms of the 2014 acquisition agreement would be successful. Since the resolution of the Claims and related settlement occurred subsequent to the March 31, 2017 balance sheet date, but before the issuance of the Q1 2017 financial statements, the effects had been reflected and recognized in the consolidated financial statements as of March 31, 2017 included in the quarterly report on Form 10-Q filed on May 10, 2017. As a result, the settlement did not result in a charge to our earnings or otherwise adversely impact our results of operations. Other Management is not aware of any other contingencies that would require accrual or disclosure in the consolidated financial statements. Interest Rate Lock commitments (“IRLCs”) GMFS enters into IRLCs with customers who have applied for residential mortgage loans and meet certain credit and underwriting criteria. These commitments expose GMFS to market risk if interest rates change, and the loan is not economically hedged or committed to an investor. GMFS is also exposed to credit loss if the loan is originated and not sold to an investor and the mortgagor does not perform. Unfunded Loan Commitments As of June 30, 2017 and December 31, 2016, the Company had $5.7 million and $14.9 million of unfunded loan commitments related to loans, held at fair value, respectively. As of June 30, 2017 and December 31, 2016, the Company had $66.0 million and $29.3 million of unfunded loan commitments related to loans, held-for-investment, respectively. Commitments to Originate Loans GMFS enters into IRLCs with customers who have applied for residential mortgage loans and meet certain credit and underwriting criteria. These commitments expose GMFS to market risk if interest rates change, and the loan is not hedged or committed to an investor. GMFS is also exposed to credit loss if the loan is originated and not sold to an investor and the mortgagor does not perform. Upon extension of credit typically consists of a first deed of trust in the mortgagor’s residential property. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon. As of June 30, 2017 and December 31, 2016, total commitments to originate loans were $203.5 million and $200.0 million, respectively.

Note 19 – Commitments, Contingencies and Indemnifications

Litigation

The Company may be subject to litigation and administrative proceedings arising in the ordinary course of its business.

The Company has entered into agreements, which provide for indemnifications against losses, costs, claims, and liabilities arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant to these agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on history and experience, the Company expects the risk of loss to be remote.

GMFS Settlement Agreement

As previously disclosed in the Joint Proxy Statement Prospectus used in connection with the ZAIS Financial merger transaction and in our annual report on Form 10-K for the year ended December 31, 2016, a counterparty (the “Counterparty”) whose predecessor purchased mortgage loans from GMFS, which is currently our subsidiary, asserted claims (the “Claims”) against GMFS for breach of representations and warranties arising out these mortgage loan sales. We estimate that dating back to a period that began in 1999 and ended in 2006, approximately $1 billion of mortgage loans were sold and servicing was released by GMFS to the predecessor to the Counterparty. GMFS entered into a statute of limitations tolling agreement with the Counterparty on December 12, 2013 related to the Claims, which was further amended to extend the expiration date, most recently to May 15, 2017.

On April 25, 2017, the Company and GMFS entered into a definitive agreement (the “Settlement Agreement”) to settle all Claims with the Counterparty and provide for mutual releases. Pursuant to the Settlement Agreement, the Company has paid a total of $6.0 million in cash and issued approximately $4.0 million in shares of the Company's common stock (275,862 shares issued) to the Counterparty (the “Shares”), resulting in a total of $10.0 million of consideration paid. The Shares were issued on May 2, 2017, in a private placement transaction. As part of the settlement, the Company has granted the Counterparty customary resale registration rights.

During the period beginning on the 24-month anniversary of the date of the Settlement Agreement (and ending 30 days thereafter), the Counterparty will have the right, but not the obligation, to require that the Company repurchase any and all the Shares that the Counterparty then owns at a price per share equal to 65% of the then last reported book value per share of the Company's common stock.

GMFS was an indirect subsidiary of ZAIS Financial when the Company completed its merger transaction with ZAIS Financial on October 31, 2016. ZAIS Financial had originally acquired GMFS on October 31, 2014 (the “GMFS 2014 acquisition”) from investment partnerships that were advised by our Manager, and from certain other entities controlled by GMFS management (together, the “2014 GMFS sellers”). The terms of the GMFS 2014 acquisition provided for the payment of both cash consideration and the possible payment of additional contingent consideration based on the achievement by GMFS of certain financial milestones specified in the GMFS 2014 acquisition agreement.

The 2014 GMFS acquisition agreement contained representations and warranties related to GMFS, as well as indemnification obligations to cover breaches of representations and warranties, repurchase claims or demands from investors in respect of mortgage loans originated, purchased or sold by GMFS prior to the closing date of the acquisition. The 2014 GMFS acquisition agreement also established an escrow fund to support the payment of indemnification claims and allowed for indemnification claims to be offset against the contingent consideration that would otherwise be payable to the 2014 GMFS sellers under the 2014 GMFS acquisition agreement.

Under the terms of the indemnification provisions contained in the GMFS 2014 acquisition agreement, the 2014 GMFS sellers are liable for amounts paid in settlement of Claims made with their consent, which consent was not to be unreasonably withheld or delayed. Certain of the 2014 GMFS sellers did not consent to the settlement, and as a result, there can be no assurance that the exercise of the right to indemnification by the Company under the terms of the 2014 acquisition agreement would be successful.

Since the resolution of the Claims and related settlement occurred subsequent to the March 31, 2017 balance sheet date, but before the issuance of the Q1 2017 financial statements, the effects had been reflected and recognized in the consolidated financial statements as of March 31, 2017 included in the quarterly report on Form 10-Q filed on May 10, 2017. As a result, the settlement did not result in a charge to our earnings or otherwise adversely impact our results of operations.

Other

Management is not aware of any other contingencies that would require accrual or disclosure in the consolidated financial statements.

Interest Rate Lock commitments (“IRLCs”)

GMFS enters into IRLCs with customers who have applied for residential mortgage loans and meet certain credit and underwriting criteria. These commitments expose GMFS to market risk if interest rates change, and the loan is not economically hedged or committed to an investor. GMFS is also exposed to credit loss if the loan is originated and not sold to an investor and the mortgagor does not perform.

Unfunded Loan Commitments

As of June 30, 2017 and December 31, 2016, the Company had $5.7 million and $14.9 million of unfunded loan commitments related to loans, held at fair value, respectively. As of June 30, 2017 and December 31, 2016, the Company had $66.0 million and $29.3 million of unfunded loan commitments related to loans, held-for-investment, respectively.

Commitments to Originate Loans

GMFS enters into IRLCs with customers who have applied for residential mortgage loans and meet certain credit and underwriting criteria. These commitments expose GMFS to market risk if interest rates change, and the loan is not hedged or committed to an investor. GMFS is also exposed to credit loss if the loan is originated and not sold to an investor and the mortgagor does not perform. Upon extension of credit typically consists of a first deed of trust in the mortgagor’s residential property.

Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon. As of June 30, 2017 and December 31, 2016, total commitments to originate loans were $203.5 million and $200.0 million, respectively.