Residential Whole Loans

Included on the Company’s consolidated balance sheets as of December 31, 2017 and 2016 are approximately $2.2 billion and $1.4 billion, respectively, of residential whole loans arising from the Company’s interests in certain trusts established to acquire the loans and certain entities established in connection with its loan securitization transactions. The Company has assessed that these entities are required consolidated for financial reporting purposes.

Residential Whole Loans at Carrying Value

Residential whole loans, at carrying value totaled approximately $908.5 million and $590.5 million at December 31, 2017 and 2016, respectively. The carrying value reflects the original investment amount, plus accretion of interest income, less principal and interest cash flows received. The carrying value is reduced by any allowance for loan losses established subsequent to acquisition. The Company had approximately 4,800 and 3,200 Residential whole loans held at carrying value at December 31, 2017 and 2016, respectively.

As of December 31, 2017 and 2016, the Company had established an allowance for loan losses of approximately $330,000 and $1.0 million, respectively, on its residential whole loan pools held at carrying value. For the years ended December 31, 2017 and 2016, a net reversal of provision for loan losses of approximately $660,000 and $175,000 was recorded, which is included in Operating and Other expense on the Company’s consolidated statements of operations. For the year ended December 31, 2015, a net provision for loan losses of approximately $1.0 million was recorded.

The following table presents the activity in the Company’s allowance for loan losses on its residential whole loan pools at carrying value for the years ended December 31, 2017, 2016 and 2015:



(In Thousands)	For the Year Ended December 31,
	2017			2016			2015
Balance at the beginning of period	$	990		$	1,165		$	137
(Reversal of provisions)/provisions for loan losses	(660		)	(175		)	1,028
Balance at the end of period	$	330		$	990		$	1,165

The following table presents information regarding estimates of the contractually required payments, the cash flows expected to be collected, and the estimated fair value of the purchase credit impaired residential whole loans held at carrying value acquired by the Company for the years ended December 31, 2017 and 2016:



(In Thousands)	For the Year Ended December 31,
	2017			2016
Contractually required principal and interest	$	534,112		$	662,747
Contractual cash flows not expected to be collected (non-accretable yield)	(129,547		)	(117,694		)
Expected cash flows to be collected	404,565			545,053
Interest component of expected cash flows (accretable yield)	(137,378		)	(181,534		)
Fair value at the date of acquisition	$	267,187		$	363,519

The following table presents accretable yield activity for the Company’s purchase credit impaired residential whole loans held at carrying value for the years ended December 31, 2017 and 2016:



(In Thousands)	For the Year Ended December 31,
	2017			2016
Balance at beginning of period	$	334,379		$	175,271
Additions	137,378			181,534
Accretion	(35,657		)	(23,916		)
Liquidations and other	(16,356		)	—
Reclassifications from non-accretable difference, net	2,128			1,490
Balance at end of period	$	421,872		$	334,379

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 represent 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 non-accretable yield. Accretable yield is reduced by accretion during the period. The reclassifications between accretable and non-accretable yield and the accretion of interest income are 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 during the year ended December 31, 2017 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 Net gain on residential whole loans held at fair value on the Company’s consolidated statements of operations.

The following table presents information regarding the Company’s residential whole loans held at fair value at December 31, 2017 and 2016:



(Dollars in Thousands)	December 31, 2017		December 31, 2016
Outstanding principal balance	$	1,562,373	$	966,174
Aggregate fair value	$	1,325,115	$	814,682
Number of loans	6,514		3,812

During the years ended December 31, 2017, 2016 and 2015, the Company recorded net gains on residential whole loans held at fair value of $90.0 million, $62.6 million and $19.6 million, respectively.

The following table presents the components of Net gain on residential whole loans held at fair value for the years ended December 31, 2017, 2016 and 2015:



	For the Year Ended December 31,
(In Thousands)	2017		2016		2015
Coupon payments and other income received	$	41,373	$	23,017	$	9,304
Net unrealized gains	33,617		31,254		6,539
Net gain on payoff/liquidation of loans	4,958		5,413		1,879
Net gain on transfers to REO	10,071		2,921		1,853
Total	$	90,019	$	62,605	$	19,575