Residential Whole Loans

12 Months Ended

Dec. 31, 2014

Residential Whole Loans [Abstract]

Residential Whole Loans

Residential Whole Loans

Included on the Company’s consolidated balance sheets as of December 31, 2014 is approximately $351.4 million in residential whole loans arising from the Company’s 100% equity interest in certificates issued by certain trusts established to acquire the loans. Based on its evaluation of these interests and other factors, the Company has determined that the trusts are required to be consolidated for financial reporting purposes. The Company did not own any residential whole loans prior to 2014.

Residential Whole Loans at Carrying Value

Residential whole loans at carrying value totaled approximately $207.9 million at December 31, 2014. The carrying value reflects the original investment amount, plus accretion of interest income, less principal and interest cash flows received. The carrying value also reflects any allowance for loan losses established subsequent to acquisition.

The Company recorded a provision for loan losses of approximately $137,000 on its residential whole loan pools held at carrying value for the year ended December 31, 2014 which is included within Operating and other expense on the Company’s consolidated statement of operations.

The following table presents information regarding the estimates of the contractually required payments, the cash flows expected to be collected, and the estimated fair value of the residential whole loans held at carrying value acquired by the Company for the year ended December 31, 2014.

(In Thousands)	For the Year Ended December 31, 2014
Contractually required principal and interest	$	448,453
Contractual cash flows not expected to be collected (non-accretable yield)	(100,466		)
Expected cash flows to be collected	347,987
Interest component of expected cash flows (accretable yield)	(135,425		)
Fair value at the date of acquisition	$	212,562

The following table presents accretable yield activity for the Company’s residential whole loans held at carrying value for the year ended December 31, 2014.

(In Thousands)	For the Year Ended December 31, 2014
Balance at beginning of period	$	—
Additions	135,425
Accretion	(3,996		)
Reclassifications from non-accretable difference	1,583
Balance at end of period	$	133,012

Accretable yield for residential whole loans is the excess of loan cash flows expected to be collected over the purchase price. The cash flows expected to be collected represents the Company’s estimate, of the amount and timing of undiscounted principal and interest cash flows. Additions include accretable yield estimates for purchases made during the period and reclassification to accretable yield from nonaccretable yield. Accretable yield is reduced by accretion during the period. The reclassifications between accretable and nonaccretable yield and the accretion of interest income is based on changes in estimates regarding loan performance and the value of the underlying real estate securing the loans. In future periods, as the Company updates estimates of cash flows expected to be collected from the loans and the underlying collateral, the accretable yield may change. Therefore, the amount of accretable income recorded in the year ended December 31, 2014 is not necessarily indicative of future results.

Residential Whole Loans at fair value

Certain of the Company’s residential whole loans are presented at fair value on its consolidated balance sheets as a result of a fair value election made at time of acquisition. Subsequent changes in fair value are reported in current period earnings and presented in Gains/(losses) on residential whole loans held at fair value on the Company’s consolidated statements of operations.

At December 31, 2014, the Company had approximately 885 residential whole loans at fair value, with an aggregate outstanding principal balance of $182.6 million, and an aggregate fair value of $143.5 million. During the year ended December 31, 2014, the Company recorded a net gain on these loans of $447,000. The Company did not have any residential whole loans during the year ended December 31, 2013.