Variable Interest Entities

12 Months Ended

Dec. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Since its inception, the Company has utilized VIEs for the purpose of securitizing whole mortgage loans to obtain long-term non-recourse financing. The Company evaluates its interest in each VIE to determine if it is the primary beneficiary.

VIEs for Which the Company is the Primary Beneficiary

In the third and fourth quarters of 2021, the Company entered into securitization transactions where it was determined that the Company was the primary beneficiary, as it controls the class of securities with call rights, or “controlling class” of securities, the XS tranche. The Company was the sole entity to contribute residential whole mortgage loans to the securitization vehicles, AOMT 2021-4 and AOMT 2021-7.

During the year ended December 31, 2021, in the AOMT 2021-4 and AOMT 2021-7 transactions, the Company securitized and consolidated approximately $703.5 million unpaid principal balance of seasoned residential non-QM mortgage loans. The retained beneficial interest in VIEs for which the Company is the primary beneficiary (currently comprised of AOMT 2021-4 and AOMT 2021-7) is the subordinated tranches of the securitization and further interests in additional interest‑only tranches. The table below sets forth the fair values of the assets and liabilities recorded in the consolidated balance sheet related to these consolidated VIEs as of December 31, 2021:


Assets:	(in thousands)
Residential mortgage loans in securitization trusts - at fair value	$	667,365
Accrued interest receivable	1,728


Liabilities:
Non-recourse securitization obligations, collateralized by residential mortgage loans	$	619,108
Less: debt issuance costs capitalized	(2,551)
Non-recourse securitization obligations, collateralized by residential mortgage loans, net	$	616,557

Income and expense amounts related to the consolidated VIEs recorded in the consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2021 is set forth as follows:


	Total Consolidated VIEs
	(in thousands)
Interest income	$	7,933
Interest expense, non-recourse liabilities	(1,792)
Net interest income	6,141
Net unrealized loss on mortgage loans	(1,308)
Operating expenses	(86)
Income from consolidated VIEs	$	4,747

VIEs for Which the Company is Not the Primary Beneficiary

In 2019 and 2020, the Company co‑sponsored and participated in the formation of various entities that were considered to be VIEs. These VIEs were formed to facilitate securitization issuances that were comprised of secured residential whole loans or small balance commercial loans contributed to securitization trusts.

These securities were issued as a result of the unconsolidated securitizations where the Company retained bonds from the issuances of AOMT 2019-2, AOMT 2019-4, AOMT 2019-6, AOMT 2020-3, and AOMT 2020-SBC1. The Company determined that it was not then and is not now the primary beneficiary of any of these entities, as no primary beneficiary was identified in the assessment of primary beneficiary determination, and thus has not consolidated the operating results or statements of financial position of any of these entities. The Company performs ongoing reassessments of all VIEs in which the Company has participated since its inception as to whether changes in the facts and circumstances regarding the Company’s involvement with a VIE would cause the Company’s consolidation conclusion to change, and the Company’s assessment of the VIEs in which the Company participated during the years 2019 and 2020 remains unchanged.

The securities received in the aforementioned 2019 and 2020 securitization transactions are included in “RMBS - at fair value” and “CMBS - at fair value” on the consolidated balance sheets as of December 31, 2021 and 2020, and details on the accounting treatment and fair value methodology of the securities can be found in Note 10, Fair Value Measurements. See Note 6, Investment Securities, for the fair value of AOMT securities held by the Company as of December 31, 2021 and 2020 that were retained by the Company as a result of the securitization transactions in 2020 and 2019.