Mortgage Loans

3 Months Ended

Mar. 31, 2020

The following table presents information regarding the carrying value for the Company's RPL loan pools, NPL loan pools and SBC loans as of March 31, 2020 and December 31, 2019 ($ in thousands):


Loan portfolio basis by asset type	March 31, 2020		December 31, 2019
Residential RPL loan pools	$	1,066,555	$	1,085,514
SBC loan pools	5		11,652
Other mortgage loans non-pooled⁽¹⁾	4,212		23,434
Residential NPL loan pools	27,857		30,869
Total	$	1,098,629	$	1,151,469

(1)Other mortgage loans non-pooled are accounted for as non-PCD loans under CECL.

Included on the Company’s consolidated balance sheets as of March 31, 2020 and December 31, 2019 are approximately $1.1 billion and $1.2 billion, respectively, of RPLs, NPLs, and SBCs. RPLs, NPLs and SBCs are categorized at acquisition. The carrying value of all loans reflects the original investment amount, plus accretion of interest income and discount, less principal and interest cash flows received. The carrying values at March 31, 2020 and December 31, 2019 for the Company's loans in the table above are presented net of a cumulative allowance for loan losses of $16.1 million and

$2.0 million, respectively, reflected in the appropriate lines in the table by loan type. For the three months ended March 31, 2020 and 2019, the Company recognized $2.1 million and $0.2 million, respectively, of provision for loan loss. For the three month periods ended March 31, 2020 and 2019, the Company accreted $19.6 million and $26.4 million net of credit impairments, respectively, into interest income with respect to its RPL, NPL and SBC loan pools.

Loss estimates are determined based on the net present value of the difference between the contractual cash flows and the expected cash flows over the expected life of the assets. Contractual cash flows are calculated based on the stated terms of the loans, and incorporate any prepayment assumptions utilized in the expected cash flows. Expected cash flows are based on our proprietary model, which includes factors such as resolution method, resolution timeline, foreclosure costs, rehabilitation costs and eviction costs. Additional variables include the specific location of the underlying property, loan-to-value ratio, property age and condition, change and rate of change of borrower credit rating, servicing notes, interest rate, monthly payment amount and neighborhood rents.

The Company's mortgage loans are secured by real estate. Risks inherent in the Company's mortgage loan portfolio, affecting both the valuation of its mortgage loans as well as the portfolio's interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters, or the pandemic caused by the novel coronavirus ("COVID-19") outbreak, and damage to or delay in realizing the value of the underlying collateral. The Company monitors the credit quality of the mortgage loans in its portfolio on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected.

The Company’s loan acquisitions during the three months ended March 31, 2020 consisted of 26 purchased RPLs with UPB of $2.0 million, one NPL with UPB of $0.2 million and no originated SBC loans. Comparatively, during the three months ended March 31, 2019, the Company acquired 38 purchased RPLs with UPB of $8.5 million, no NPLs and 19 originated SBC loans with UPB of $17.8 million. The Company also sold 26 commercial loans to Gaea, an affiliated entity, during the quarter with a carrying value of $26.1 million and UPB of $26.2 million and collateral values of $44.2 million for $25.4 million, recognizing a loss on the sale of $0.7 million. (See Note 10 — Related Party Transactions.) No loans were sold during the quarter ended March 31, 2019.

The Company adopted CECL using the prospective transition approach for PCD assets on January 1, 2020, at the time, $10.2 million of loan discount was reclassified to the allowance for credit losses with no net impact on the amortized cost basis of the portfolio. The Company views its mortgage loan portfolio based on loan performance and uses four pools to aggregate its portfolio of PCD loans, and one pool for its originated loans. Among the PCD loans, separate pools exist for loans that have made seven of the most recent seven payments ("7f7 and better"), loans that have been securitized in rated secured borrowings during 2019 ("Great Ajax II REIT"), loans with collateral in California which are not included in Great Ajax II REIT ("California") and loans which have made between four and six of the most recent payments or worse ("4f4-6f6 and below"). Originated loans are aggregated in the "Originated" pool. The following table presents information regarding the year of origination of the Company's mortgage loan portfolio by basis ($ in thousands):


	March 31, 2020
	2020		2019		2018		2017		2016		2009-2015		2006-2008		2005 and prior		Total
7f7 and better	$	—	$	—	$	244	$	124	$	2,085	$	33,490	$	262,595	$	114,237	$	412,775
Great Ajax II REIT	—		—		—		226		1,107		34,114		212,468		67,583		315,498
California	—		—		—		351		216		8,291		155,506		36,116		200,480
4f4-6f6 and below	—		—		—		361		698		24,410		99,980		39,006		164,455
Originated	—		788		1,245		2,508		104		711		55		10		5,421
Total	$	—	$	788	$	1,489	$	3,570	$	4,210	$	101,016	$	730,604	$	256,952	$	1,098,629

The following table presents a reconciliation between the purchase price and par value for the Company's loan acquisitions and originations for the quarter ended March 31, 2020 ($ in thousands):


	Three months ended March 31, 2020
	PCD Loans		Non PCD Loans
Par	$	227	$	1,952
Discount	(37)		(747)
Allowance	(4)		—
Purchase Price	$	186	$	1,205

The Company performs an analysis of its expectation of the amount of undiscounted cash flows expected to be collected from its mortgage loan pools at the end of each calendar quarter. Under CECL, the Company adjusts its allowance for loan losses when there are changes in its expectation of future cash flows. An increase to the allowance for losses will occur when there is a reduction in the Company's expected future cash flows. Reduction to the allowance, or recovery, may occur if there is an increase in expected future cash flows that were previously subject to a provision for losses. Management assesses the credit quality of the portfolio and the adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. During the quarter ended March 31, 2020, the Company recorded a provision for credit losses of $2.1 million on its mortgage loan portfolio primarily as a result of reduced cash flow expectations due to the COVID-19 outbreak. This reserve reflects the macroeconomic impact of the COVID-19 outbreak on mortgage loans and residential real estate markets generally and is not specific to any loan losses or impairments in the mortgage loan portfolio. During the quarter ended March 31, 2019, the Company recorded an impairment of $0.2 million on its mortgage loan portfolio. An analysis of the balance in the allowance for loan losses account follows ($ in thousands):


	Three months ended March 31,
	2020		2019
Allowance for loan credit losses, beginning of period	$	(1,960)	$	(1,164)
Beginning period adjustment for CECL	(10,156)		—
Provision for credit losses on mortgage loans	(2,122)		(154)
Change to allowance for loan credit losses	(1,898)		—
Allowance for loan credit losses, end of period	$	(16,136)	$	(1,318)

The following table sets forth the carrying value of the Company’s mortgage loans by delinquency status as of March 31, 2020 and December 31, 2019 ($ in thousands):


	March 31, 2020
	Current		30		60		90		Foreclosure		Total
7f7 and better	$	231,761	$	66,809	$	51,058	$	61,750	$	1,398	$	412,776
Great Ajax II REIT	247,368		35,519		17,831		14,448		331		315,497
California	113,120		30,438		14,315		40,643		1,964		200,480
4f4- 6f6 and below	9,412		12,492		15,057		90,019		37,476		164,456
Originated	3,635		—		1,177		608		—		5,420
Total	$	605,296	$	145,258	$	99,438	$	207,468	$	41,169	$	1,098,629


	December 31, 2019
	Current		30		60		90		Foreclosure		Total
7f7 and better	$	252,815	$	72,394	$	41,673	$	50,602	$	1,894	$	419,378
Great Ajax II REIT	129,812		31,426		16,467		36,785		1,986		216,476
California	265,679		37,553		14,034		4,597		—		321,863
4f4- 6f6 and below	6,412		4,835		20,782		103,872		34,417		170,318
Originated	21,425		—		850		1,159		—		23,434
Total	$	676,143	$	146,208	$	93,806	$	197,015	$	38,297	$	1,151,469