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MORTGAGE LOAN RECEIVABLES
 3 Months Ended
Mar. 31, 2017
Mortgage Loans on Real Estate [Abstract]  
MORTGAGE LOAN RECEIVABLES 3. MORTGAGE LOAN RECEIVABLES
 
March 31, 2017 ($ in thousands)
 
 
Outstanding
Face Amount
 
Carrying
Value
 
Weighted
Average
Yield (1)
 
Remaining
Maturity
(years)
 
 
 
 
 
 
 
 
Mortgage loan receivables held for investment, at amortized cost
$
2,317,221

 
$
2,304,093

 
6.93
%
 
1.70
Provision for loan losses
N/A

 
(4,000
)
 
 
 
 
Total mortgage loan receivables held for investment, at amortized cost
2,317,221

 
2,300,093

 
 
 
 
Mortgage loan receivables held for sale
520,679

 
516,582

 
5.06
%
 
7.71
Total
$
2,837,900

 
$
2,816,675

 
6.59
%
 
2.81
 
(1)         March 31, 2017 London Interbank Offered Rate (“LIBOR”) rates are used to calculate weighted average yield for floating rate loans.

As of March 31, 2017, $459.2 million, or 19.9%, of the carrying value of our mortgage loan receivables held for investment, at amortized cost, were at fixed interest rates and $1.8 billion, or 80.1%, of the carrying value of our mortgage loan receivables held for investment, at amortized cost, were at variable interest rates, linked to LIBOR, some of which include interest rate floors. As of March 31, 2017, $516.6 million, or 100.0%, of the carrying value of our mortgage loan receivables held for sale were at fixed interest rates.
 
December 31, 2016 ($ in thousands)
 
 
Outstanding
Face Amount
 
Carrying
Value
 
Weighted
Average
Yield (1)
 
Remaining
Maturity
(years)
 
 
 
 
 
 
 
 
Mortgage loan receivables held for investment, at amortized cost
$
2,011,309

 
$
2,000,095

 
7.17
%
 
1.66
Provision for loan losses
N/A

 
(4,000
)
 
 
 
 
Total mortgage loan receivables held for investment, at amortized cost
2,011,309

 
1,996,095

 
 
 
 
Mortgage loan receivables held for sale
360,518

 
357,882

 
4.20
%
 
4.55
Total
2,371,827

 
2,353,977

 
6.73
%
 
2.10
 
(1)         December 31, 2016 LIBOR rates are used to calculate weighted average yield for floating rate loans.
 
As of December 31, 2016, $205.4 million, or 10.3%, of the carrying value of our mortgage loan receivables held for investment, at amortized cost, were at fixed interest rates and $1.8 billion, or 89.7%, of the carrying value of our mortgage loan receivables held for investment, at amortized cost, were at variable interest rates, linked to LIBOR, some of which include interest rate floors. As of December 31, 2016, $360.5 million, or 100%, of the carrying value of our mortgage loan receivables held for sale were at fixed interest rates.

The following table summarizes mortgage loan receivables by loan type ($ in thousands):
 
 
March 31, 2017
 
December 31, 2016
 
Outstanding
Face Amount
 
Carrying
Value
 
Outstanding
Face Amount
 
Carrying
Value
 
 
 
 
 
 
 
 
Mortgage loan receivables held for investment, at amortized cost
 

 
 

 
 

 
 

First mortgage loans
$
2,149,727

 
$
2,137,383

 
$
1,843,006

 
$
1,832,626

Mezzanine loans
167,494

 
166,710

 
168,303

 
167,469

Total mortgage loan receivables held for investment, at amortized cost
2,317,221

 
2,304,093

 
2,011,309

 
2,000,095

Mortgage loan receivables held for sale
 

 
 

 
 

 
 

First mortgage loans
520,679

 
516,582

 
360,518

 
357,882

Total mortgage loan receivables held for sale
520,679

 
516,582

 
360,518

 
357,882

 
 
 
 
 
 
 
 
Provision for loan losses
N/A

 
(4,000
)
 
N/A

 
(4,000
)
Total
$
2,837,900

 
$
2,816,675

 
$
2,371,827

 
$
2,353,977


 
For the three months ended March 31, 2017 and 2016, the activity in our loan portfolio was as follows ($ in thousands):

 
Mortgage loan
receivables held
for investment, at
amortized cost (1)
 
Mortgage loan 
receivables held
for sale
 
 
 
 
Balance, December 31, 2016
$
1,996,095

 
$
357,882

Origination of mortgage loan receivables
249,829

 
279,898

Repayment of mortgage loan receivables
(68,251
)
 
(247
)
Realized gain on sale of mortgage loan receivables(2)
—

 
(999
)
Transfer between held for investment and held for sale(3)
119,952

 
(119,952
)
Accretion/amortization of discount, premium and other fees
2,468

 
—

Balance, March 31, 2017
$
2,300,093

 
$
516,582


 
Mortgage loan
receivables held
for investment, at
amortized cost (1)
 
Mortgage loan
receivables held
for sale
 
 
 
 
Balance, December 31, 2015
$
1,738,645

 
$
571,764

Origination of mortgage loan receivables
49,735

 
91,027

Repayment of mortgage loan receivables
(218,410
)
 
(524
)
Proceeds from sales of mortgage loan receivables
—

 
(316,766
)
Realized gain on sale of mortgage loan receivables
—

 
7,830

Accretion/amortization of discount, premium and other fees
3,013

 
—

Loan loss provision
(150
)
 
—

Balance, March 31, 2016
$
1,572,833

 
$
353,331

 
 
 
 
 

(1)         Includes provision for loan losses of $4.0 million and $3.9 million as of March 31, 2017 and 2016, respectively.
(2)         Includes $1.0 million of realized losses on loans recorded as other than temporary impairments related to lower of cost or market adjustments for the three months ended March 31, 2017.
(3)
During the three months ended March 31, 2017, the Company reclassified from mortgage loan receivables held for sale to mortgage loan receivables held for investment, at amortized cost, a loan with an outstanding face amount of $120.0 million, a book value of $120.0 million (fair value at date of reclassification) and a remaining maturity of 3 years. The loan had been recorded at lower of cost or market prior to its reclassification. The discount to fair value is the result of an increase in market interest rates since the loan’s origination and not a deterioration in credit of the borrower or collateral coverage and the Company expects to collect all amounts due under the loan. The transfer has been reflected as a non-cash item on the consolidated statement of cash flows for the three months ended March 31, 2017.

During the three months ended March 31, 2017, the transfers of financial assets via sales of loans were treated as sales in accordance with ASC Topic 860 — Transfers and Servicing, with the exception of two assets with a combined book value of $56.1 million in which the Company retains effective control that would preclude sales accounting. The transfers are considered nonrecourse secured borrowings in which the assets remain on the Company’s consolidated balance sheets in mortgage loan receivables held for investment, net, at amortized cost and the sale proceeds of $56.1 million are recognized in debt obligations. During the three months ended March 31, 2016, the transfers of financial assets via sales of loans were treated as sales under ASC Topic 860 — Transfers and Servicing.

At March 31, 2017 and December 31, 2016, there was $0.5 million and $0.6 million, respectively, of unamortized discounts included in our mortgage loan receivables held for investment, at amortized cost, on our consolidated balance sheets. 

The Company evaluates each of its loans for potential losses at least quarterly. Its loans are typically collateralized by real estate directly or indirectly. As a result, the Company regularly evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property, as well as the financial and operating capability of the borrower. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash flow from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan at maturity, and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, the Company considers the overall economic environment, real estate sector, and geographic sub-market in which the collateral property is located. Such impairment analyses are completed and reviewed by asset management personnel, who utilize various data sources, including (i) periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, the borrowers’ business plan, and capitalization and discount rates, (ii) site inspections, and (iii) current credit spreads and other market data. As a result of this analysis, the Company has concluded that none of its loans are individually impaired as of March 31, 2017 and December 31, 2016.

However, based on the inherent risks shared among the loans as a group, it is probable that the loans had incurred an impairment due to common characteristics and inherent risks in the portfolio. Therefore, the Company has recorded a reserve, based on a targeted percentage level which it seeks to maintain over the life of the portfolio, as disclosed in the tables below. Historically, the Company has not incurred losses on any originated loans.

As of March 31, 2017, two of the Company’s loans, which were originated simultaneously as part of a single transaction, and had a carrying value of $26.9 million, were in default. The borrower is currently in bankruptcy court; however, the Company determined that no impairment was necessary and continues to accrue interest on these loans because the loans’ collateral value was in excess of the outstanding balances and pursue its legal remedies. As of March 31, 2017, accrued but unpaid interest totaled $1.9 million, which included $1.8 million of default interest. As of December 31, 2016, the same two loans mentioned above were in default. As of December 31, 2016, accrued but unpaid interest totaled $3.5 million, which included $2.2 million of default interest.

As of March 31, 2017 and December 31, 2016 there were no loans on non-accrual status.
 
Provision for Loan Losses ($ in thousands)
 
Three Months Ended March 31,
 
2017
 
2016
 
 
 
 
Provision for loan losses at beginning of period
$
4,000

 
$
3,700

Provision for loan losses
—

 
150

Provision for loan losses at end of period
$
4,000

 
$
3,850