Residential Whole Loans

Included on the Company’s consolidated balance sheets as of December 31, 2018 and 2017 are approximately $4.7 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 December 31, 2018 and 2017:



(Dollars In Thousands)	December 31, 2018		December 31, 2017
Purchased performing loans:
Non-QM loans	$	1,354,774	$	55,612
Rehabilitation loans	494,576		56,706
Single-family rental loans	145,327		5,319
Seasoned performing loans	224,051		—
Total purchased performing loans	2,218,728		117,637
Purchased credit impaired loans	797,987		790,879
Total Residential whole loans, at carrying value	$	3,016,715	908,516

Number of loans	11,149		4,792

The following table presents components of interest income on the Company’s Residential whole loans, at carrying value for the years ended December 31, 2018, 2017 and 2016:



	For the Year Ended December 31,
(In Thousands)	2018		2017		2016
Purchased performing loans:
Non-QM loans	$	31,036	$	84	$	—
Rehabilitation loans	15,975		431		—
Single-family rental loans	3,315		15		—
Seasoned performing loans	5,818		—		—
Total purchased performing loans	56,144		530		—
Purchased credit impaired loans	44,777		35,657		23,916
Residential whole loans, at carrying value	$	100,921	$	36,187	$	23,916

The following table presents additional information regarding the Company’s Residential whole loans, at carrying value at December 31, 2018:

December 31, 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 performing loans: (3)
Non-QM loans	$	1,338,360	$	1,293,805	6.19	%	361	66	%	$	1,271,410	$	14,535	$	4,802	$	3,058
Rehabilitation loans	494,576		494,576		7.39		9	65		465,033		18,353		6,451		4,739
Single-family rental loans	145,327		144,972		5.92		355	70		143,226		1,225		—		521
Seasoned performing loans	224,051		242,539		4.25		191	47		233,105		6,439		1,618		1,377
Purchased credit impaired loans	797,987		1,002,261		4.38		302	86		N/A		N/A		N/A		N/A
Residential whole loans, at carrying value, total or weighted average	$	3,000,301	$	3,178,153	5.68	%	275

(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 as of the most recent date available, which may be the origination date. For Rehabilitation loans, the LTV presented is 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, where available. For certain Rehabilitation loans, totaling $79.0 million, an after repaired valuation was not obtained and the loan was underwritten based on an“as is” valuation. The LTV of these loans based on the current unpaid principal balance and the valuation obtained during underwriting, is 67%. 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.

(3) Excluded from the table above are approximately $16.4 million of purchased performing loans held at carrying value for which the closing of the purchase transaction had not occurred as of December 31, 2018.

Purchased Performing Loans

As of December 31, 2018, there were 28 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 $9.7 million. These non-accrual loans represent approximately 0.2% of the total outstanding principal balance of all of the Company’s Purchased Performing Loans. 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 December 31, 2018.

In connection with purchased Rehabilitation loans, the Company has unfunded commitments of $49.8 million.

Purchased Credit Impaired Loans

As of December 31, 2018 and 2017, the Company had established an allowance for loan losses of approximately $968,000 and $330,000, respectively, on its purchased credit impaired loans held at carrying value. For the year ended December 31, 2018, a provision for loan losses of approximately $638,000 was recorded, and for the years ended December 31, 2017 and 2016, a net reversal of provisions 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.

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 years ended December 31, 2018, 2017 and 2016:



	For the Year Ended December 31,
(In Thousands)	2018		2017			2016
Balance at the beginning of period	$	330	$	990		$	1,165
Provisions/(reversal of provisions) for loan losses	638		(660		)	(175		)
Balance at the end of period	$	968	$	330		$	990

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 years ended December 31, 2018 and 2017:



	For the Year Ended December 31,
(In Thousands)	2018			2017
Contractually required principal and interest	$	154,911		$	534,112
Contractual cash flows not expected to be collected (non-accretable yield)	(15,378		)	(129,547		)
Expected cash flows to be collected	139,533			404,565
Interest component of expected cash flows (accretable yield)	(41,947		)	(137,378		)
Fair value at the date of acquisition	$	97,586		$	267,187

The following table presents accretable yield activity for the Company’s purchased credit impaired loans held at carrying value for the years ended December 31, 2018 and 2017:



	For the Year Ended December 31,
(In Thousands)	2018			2017
Balance at beginning of period	$	421,872		$	334,379
Additions	41,947			137,378
Accretion	(44,777		)	(35,657		)
Liquidations and other	(35,156		)	(16,356		)
Reclassifications from non-accretable difference, net	31,443			2,128
Balance at end of period	$	415,329		$	421,872

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 year ended December 31, 2018 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 measured at fair value through earnings 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, 2018 and 2017:



(Dollars in Thousands)	December 31, 2018 (1)			December 31, 2017
Less than 60 Days Past Due:
Outstanding principal balance	$	610,290		$	488,600
Aggregate fair value	$	561,770		$	446,616
Weighted Average LTV Ratio (2)	76.18		%	74.98		%
Number of loans	2,898			2,323

60 Days to 89 Days Past Due:
Outstanding principal balance	$	63,938		$	45,955
Aggregate fair value	$	54,947		$	37,927
Weighted Average LTV Ratio (2)	82.86		%	89.25		%
Number of loans	285			207

90 Days or More Past Due:
Outstanding principal balance	$	970,758		$	1,027,818
Aggregate fair value	$	854,545		$	840,572
Weighted Average LTV Ratio (2)	90.24		%	94.50		%
Number of loans	3,531			3,984
Total Residential whole loans, at fair value	$	1,471,262		$	1,325,115


(1)	Excluded from the table above are approximately $194.7 million of residential whole loans held at fair value for which the closing of the purchase transaction had not occurred as of December 31, 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 measured at fair value through earnings for the years ended December 31, 2018, 2017 and 2016:



	For the Year Ended December 31,
(In Thousands)	2018		2017		2016
Coupon payments and other income received (1)	$	70,515	$	41,399	$	23,017
Net unrealized gains	36,725		33,617		31,254
Net gain on payoff/liquidation of loans	11,087		4,958		5,413
Net gain on transfers to REO	19,292		10,071		2,921
Total	$	137,619	$	90,045	$	62,605

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