Residential Whole Loans

Included on the Company’s consolidated balance sheets at September 30, 2018 and December 31, 2017 are approximately $3.9 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 September 30, 2018 and December 31, 2017:



(Dollars In Thousands)	September 30, 2018		December 31, 2017
Purchased credit impaired loans	$	825,614	$	790,879
Other loans at carrying value:
Non-QM loans	989,818		55,612
Rehabilitation loans	329,301		56,706
Single-family rental loans	79,699		5,319
Seasoned performing loans	247,135		—
Total other loans at carrying value	$	1,645,953	$	117,637
Total Residential whole loans, at carrying value	$	2,471,567	$	908,516

Number of loans	9,900		4,800

The following table presents additional information regarding the Company’s Residential whole loans, at carrying value at September 30, 2018:

September 30, 2018



	Carrying Value		Unpaid Principal Balance (“UPB”)		Weighted Average Coupon (1)		Weighted Average Term to Maturity (Months)	Weighted Average LTV Ratio (2)		Aging by UPB
												Past Due Days
(Dollars In Thousands)										Current		30-59		60-89		90+
Purchased credit impaired loans	$	825,614	$	1,034,890	4.36	%	304	87	%	N/A		N/A		N/A		N/A
Other loans at carrying value:(3)
Non-QM loans	989,818		956,162		6.18		358	66		$	944,564	$	8,564	$	1,865	$	1,169
Rehabilitation loans	329,301		329,301		7.51		9	65		309,951		12,836		3,620		2,894
Single-family rental loans	79,699		79,563		5.84		355	68		78,172		870		—		521
Seasoned performing loans	240,362		260,770		4.05		194	49		239,025		20,373		635		737
Residential whole loans, at carrying value, total or weighted average	$	2,464,794	$	2,660,686	5.46	%	278

(1) Weighted average is calculated based on the interest bearing principal balance of each loan within the related category. For loans acquired with servicing rights released by the seller, interest rates included in the calculation do not reflect loan servicing fees. For loans acquired with servicing rights retained by the seller, interest rates included in the calculation are net of servicing fees.

(2) LTV represents the ratio of the total unpaid principal balance of the loan, to the estimated value of the collateral securing the related loan. For Rehabilitation loans, the LTV generally represents the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated after repaired value of the collateral securing the related loan. For certain Rehabilitation loans, an after repaired valuation is not obtained during loan underwriting. For these loans, the LTV represents the ratio of the current unpaid principal balance of the loan, to the “as is” estimated value of the collateral securing the related loan.

(3) Excluded from the table above are approximately $6.8 million of other loans held at carrying value for which the closing of the purchase transaction had not occurred as of September 30, 2018.

Purchased Credit Impaired Loans

As of September 30, 2018, the Company had established an allowance for loan losses of approximately $461,000 on its purchased credit impaired loans held at carrying value. For the three and nine months ended September 30, 2018, a provision for loan losses of approximately $164,000 and $131,000 was recorded, respectively, which is included in Operating and Other expense on the Company’s consolidated statements of operations. For the three and nine months ended September 30, 2017, a net reversal of provision for loan losses of approximately $57,000 and $672,000 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 nine months ended September 30, 2018 and 2017:



	Three Months Ended September 30,					Nine Months Ended September 30,
(In Thousands)	2018		2017			2018		2017
Balance at the beginning of period	$	297	$	375		$	330	$	990
Provisions/(reversal of provisions) for loan losses	164		(57		)	131		(672		)
Balance at the end of period	$	461	$	318		$	461	$	318

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 purchased credit impaired loans held at carrying value acquired by the Company for the three and nine months ended September 30, 2018 and 2017:



	Three Months Ended September 30, (1)						Nine Months Ended September 30, (1)
(In Thousands)	2018			2017			2018			2017
Contractually required principal and interest	$	154,911		$	185,234		$	154,911		$	185,234
Contractual cash flows not expected to be collected (non-accretable yield)	(15,378		)	(33,448		)	(15,378		)	(33,448		)
Expected cash flows to be collected	139,533			151,786			139,533			151,786
Interest component of expected cash flows (accretable yield)	(41,947		)	(53,916		)	(41,947		)	(53,916		)
Fair value at the date of acquisition	$	97,586		$	97,870		$	97,586		$	97,870

(1)

Included in the activity presented for the three and nine months ended September 30, 2018 and 2017 are approximately $54.9 million and $97.9 million of purchase credit impaired loans held at carrying value the Company committed to purchase during the three months ended June 30, 2018 and 2017, but for which the closing of the purchase transaction occurred during the three months ended September 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 nine months ended September 30, 2018 and 2017:



	Three Months Ended September 30, (1)						Nine Months Ended September 30, (1)
(In Thousands)	2018			2017			2018			2017
Balance at beginning of period	$	401,075		$	318,125		$	421,872		$	334,379
Additions	41,947			53,916			41,947			53,916
Accretion	(11,198		)	(9,026		)	(33,139		)	(26,219		)
Liquidations and other	(8,378		)	—			(23,388		)	—
Reclassifications (to)/from non-accretable difference, net	9,694			303			25,848			1,242
Balance at end of period	$	433,140		$	363,318		$	433,140		$	363,318

(1)

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 nine months ended September 30, 2018 is not necessarily indicative of future results.

Other Loans at Carrying Value

As of September 30, 2018, there were ten 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 $5.3 million. These non-performing loans represent approximately 0.3% of the total outstanding principal balance of all of the Company’s Other Loans at Carrying Value. Management has 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 September 30, 2018.

In connection with purchased Rehabilitation loans, the Company has unfunded commitments of $43.9 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 September 30, 2018 and December 31, 2017:



(Dollars in Thousands)	September 30, 2018 (1)			December 31, 2017
Less than 60 Days Past Due:
Outstanding principal balance	$	585,024		$	488,600
Aggregate fair value	$	544,890		$	446,616
Weighted Average LTV Ratio (2)	76.17		%	74.98		%
Number of loans	2,775			2,323

60 Days to 89 Days Past Due:
Outstanding principal balance	$	70,018		$	45,955
Aggregate fair value	$	62,043		$	37,927
Weighted Average LTV Ratio (2)	77.62		%	89.25		%
Number of loans	319			207

90 Days or More Past Due:
Outstanding principal balance	$	972,488		$	1,027,818
Aggregate fair value	$	840,634		$	840,572
Weighted Average LTV Ratio (2)	89.48		%	94.50		%
Number of loans	3,416			3,984
Total Residential whole loans, at fair value	$	1,447,567		$	1,325,115


(1)	Excluded from the table above are approximately $1.8 million of residential whole loans held at fair value for which the closing of the purchase transaction had not occurred as of September 30, 2018.


(2)	LTV represents the ratio of the total unpaid principal balance of the loan, to the estimated value of the collateral securing the related loan. Excluded from the calculation of weighted average LTV are certain low value loans secured by vacant lots, for which the LTV ratio is not meaningful.

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



	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2018		2017		2018		2017
Coupon payments and other income received (1)	$	17,634	$	9,824	$	52,034	$	27,971
Net unrealized gains	8,442		5,289		26,788		12,499
Net gain on payoff/liquidation of loans	3,251		1,456		10,203		3,076
Net gain on transfers to REO	5,615		2,110		16,858		5,114
Total	$	34,942	$	18,679	$	105,883	$	48,660

(1) Primarily includes coupon interest payments received upon the liquidation of previously delinquent mortgage loans, recurring coupon interest payments received on mortgage loans that are contractually current, and cash payments received from private mortgage insurance on liquidated loans.