Residential Whole Loans

Included on the Company’s consolidated balance sheets at June 30, 2018 and December 31, 2017 are approximately $3.4 billion and $2.2 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 to be consolidated for financial reporting purposes.

Residential Whole Loans, at Carrying Value

The following table presents the components of the Company’s Residential whole loans, at carrying value at June 30, 2018 and December 31, 2017:



(Dollars In Thousands)	June 30, 2018		December 31, 2017
Purchased credit impaired loans	$	804,848	$	790,879
Other loans at carrying value:
Non-QM loans	626,927		55,612
Rehabilitation loans	162,741		56,706
Single-family rental loans	55,571		5,319
Seasoned performing loans	256,155		—
Total other loans at carrying value	$	1,101,394	$	117,637
Total Residential whole loans, at carrying value	$	1,906,242	$	908,516

Number of loans	8,300		4,800

Purchased Credit Impaired Loans

As of June 30, 2018, the Company had established an allowance for loan losses of approximately $297,000 on its purchased credit impaired loans held at carrying value. For the three and six months ended June 30, 2018, a net reversal of provision for loan losses of approximately $83,000 and $33,000 was recorded, respectively, which is included in Operating and Other expense on the Company’s consolidated statements of operations. For the three and six months ended June 30, 2017, a net reversal of provision for loan losses of approximately $394,000 and $615,000 was recorded, respectively.

The following table presents the activity in the Company’s allowance for loan losses on its purchased credit impaired loans held at carrying value for the three and six months ended June 30, 2018 and 2017:



(In Thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Balance at the beginning of period	$	380		$	769		$	330		$	990
Reversal of provisions for loan losses	(83		)	(394		)	(33		)	(615		)
Balance at the end of period	$	297		$	375		$	297		$	375

Information regarding estimates of the contractually required payments, the cash flows expected to be collected, and the estimated fair value of the $57.6 million and $101.4 million of purchased credit impaired loans held at carrying value acquired by the Company during the three and six months ended June 30, 2018 and 2017 is not presented as the closing of the purchase transactions had not occurred as of June 30, 2018 and 2017, respectively.

The following table presents accretable yield activity for the Company’s purchased credit impaired loans held at carrying value for the three and six months ended June 30, 2018 and 2017:



(In Thousands)	Three Months Ended June 30, (1)						Six Months Ended June 30, (1)
	2018			2017			2018			2017
Balance at beginning of period	$	413,404		$	325,551		$	421,872		$	334,379
Accretion	(10,910		)	(8,503		)	(21,941		)	(17,193		)
Liquidations and other	(12,840		)	—			(15,010		)	—
Reclassifications (to)/from non-accretable difference, net	11,421			1,077			16,154			939
Balance at end of period	$	401,075		$	318,125		$	401,075		$	318,125


(1)	Excluded from the table above are approximately $57.6 million and $101.4 million of purchased credit impaired loans held at carrying value for which the closing of the purchase transaction had not occurred as of June 30, 2018 and 2017, respectively.

Accretable yield for purchased credit impaired 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 three and six months ended June 30, 2018 is not necessarily indicative of future results.

Other Loans at Carrying Value

As of June 30, 2018, there were six loans held at carrying value, that have been placed on non-accrual status as they are more than 90 days delinquent and had not yet become current with respect to the contractually required payments under the loan. Such loans have an unpaid balance of approximately $2.1 million. These non-performing loans represent approximately 0.2% of the total outstanding principal balance of all of the Company’s Other Loans at Carrying Value. Management have assessed the recoverability of these loans and based on estimates of the value of the underlying collateral, no allowance for loan loss reserves has been recorded as of June 30, 2018.

In connection with purchased Rehabilitation loans, the Company has unfunded commitments of $29.7 million.

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 June 30, 2018 and December 31, 2017:



(Dollars in Thousands)	June 30, 2018 (1)		December 31, 2017
Less than 60 Days Past Due:
Outstanding principal balance	$	563,446	$	488,600
Aggregate fair value	$	522,687	$	446,616
Number of loans	2,718		2,323

60 Days to 89 Days Past Due:
Outstanding principal balance	$	71,880	$	45,955
Aggregate fair value	$	61,112	$	37,927
Number of loans	292		207

90 Days or More Past Due:
Outstanding principal balance	$	1,025,432	$	1,027,818
Aggregate fair value	$	884,741	$	840,572
Number of loans	3,615		3,984
Total Residential whole loans, at fair value	$	1,468,540	$	1,325,115


(1)	Excluded from the table above are approximately $34.4 million of residential whole loans held at fair value for which the closing of the purchase transaction had not occurred as of June 30, 2018.

The following table presents the components of Net gain on residential whole loans held at fair value for the three and six months ended June 30, 2018 and 2017:



(In Thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Coupon payments and other income received	$	19,002	$	9,974	$	34,400	$	18,148
Net unrealized gains	4,599		4,262		18,346		7,209
Net gain on payoff/liquidation of loans	4,044		752		6,952		1,619
Net gain on transfers to REO	4,798		1,220		11,243		3,005
Total	$	32,443	$	16,208	$	70,941	$	29,981