Note 17. Previously Consolidated Variable Interest Entities

As of December 31, 2011, our consolidated balance sheet included an aggregate $1.3 billion of assets and $1.5 billion of liabilities related to ten consolidated variable interest entities, or VIEs, including CT Legacy REIT and nine securitization vehicles. Of these ten VIEs, only two of the securitization vehicles, CT CDO I and GSMS 2006-FL8A, remain consolidated as of December 31, 2012.

The following disclosures relate specifically to the other eight VIEs that were previously consolidated on our balance sheet as of December 31, 2011. See Note 5 for comparable disclosures related to CT CDO I and GSMS 2006-FL8A.

CT Legacy REIT

In connection with our March 2011 Restructuring, we transferred substantially all of our directly held interest earning assets to a subsidiary of CT Legacy REIT. CT Legacy REIT is beneficially owned 52% by us, 24% by an affiliate of Five Mile Capital (the former mezzanine lender to CT Legacy REIT), and 24% by the former lenders under our senior credit facility. See Note 1 for further discussion of our March 2011 Restructuring and Note 3 for further of CT Legacy REIT.

Securitization Vehicles

As of December 31, 2011, we owned, either directly or indirectly, the residual debt and equity positions of nine securitization vehicles. As a result of consolidation, our subordinate debt and equity ownership interests in these entities were not included on our balance sheet, which instead reflected both the assets held and debt issued by these entities to third-parties. Similarly, our operating results and cash flows include the gross amounts related to the assets and liabilities of these securitization vehicles, as opposed to our net economic interests in these entities.

Our interest in the assets held by these entities, which were consolidated on our balance sheet, is restricted by the structural provisions of these entities, and our recovery of these assets is limited by the entities’ distribution provisions. The liabilities of the securitization vehicles, which were also consolidated on our balance sheet, are non-recourse to us, and can only be satisfied from each entities’ respective asset pool.

We are not obligated to provide, nor have we provided, any financial support to these securitization vehicles. As of December 31, 2012, we have no exposure to loss from these vehicles as we have 100% impaired our residual investments in these entities.

An affiliate of our Manager is the CDO collateral manager for three of our previously consolidated securitization vehicles, and is named special servicer on a number of these six entities’ collateral assets.

Seven securitization vehicles are no longer consolidated as of December 31, 2012, including: (i) CT CDO II and CT CDO IV, which were deconsolidated in December 2012 as a result of our CT CDO Deconsolidation, (ii) four securitization vehicles that were deconsolidated in February 2012 as a result of our CT Legacy Asset Deconsolidation and (iii) one securitization vehicle that liquidated in the ordinary course. See Note 1 for further discussion.

A. Securities Held-to-Maturity – Previously Consolidated Variable Interest Entities

Our previously consolidated VIEs’ securities portfolio consists of CMBS, CDOs, and other securities. As of December 31, 2011, all of our previously consolidated VIEs’ securities were classified as held-to-maturity.

The following table details overall statistics for our previously consolidated VIEs’ securities portfolio as of December 31, 2011:

		December 31, 2011
Number of securities		57
Number of issues		40
Rating (1) (2)		BB+
Fixed / Floating (in millions) (3)		$360 / $2
Coupon (1) (4)		6.48%
Yield (1) (4)		7.37%
Life (years) (1) (5)		2.5


(1)	Represents a weighted average as of December 31, 2012 and 2011, respectively.
(2)	Weighted average ratings are based on the lowest rating published by Fitch Ratings, Standard & Poor’s or Moody’s Investors Service for each security.
(3)	Represents the aggregate net book value of the portfolio allocated between fixed rate and floating rate securities.
(4)	Coupon is based on the securities’ contractual interest rates, while yield is based on expected cash flows for each security, and considers discounts/premiums and asset non-performance. Calculations for floating rate securities are based on LIBOR of 0.30% as of December 31, 2011, respectively.
(5)	Weighted average life is based on the timing and amount of future expected principal payments through the expected repayment date of each respective investment.

The table below details the ratings and vintage distribution of our previously consolidated securitization vehicles’ securities as of December 31, 2011 (in thousands):

	Rating as of December 31, 2011
Vintage	AAA		AA		A	BBB		BB		B	CCC and Below		Total
2006		$—		$—	$—		$—		$—	$—		$14,884		$14,884
2005		—		—	—		—		—	—		7,060		7,060
2004		—		24,780	1,935		—		—	—		—		26,715
2003		9,908		—	—		3,011		1,966	—		1,257		16,142
2002		—		—	—		—		6,712	—		2,283		8,995
2001		—		—	—		—		—	5,426		1,730		7,156
2000		2,891		—	—		—		19,935	—		3,985		26,811
1999		—		—	11,233		1,414		17,380	—		—		30,027
1998		45,956		46,315	37,580		43,607		11,900	—		5,000		190,358
1997		4,434		—	16,159		—		5,223	2,941		3,502		32,259
1996		—		—	—		—		—	—		1,167		1,167
Total		$63,189		$71,095	$66,907		$48,032		$63,116	$8,367		$40,868		$361,574

Other-than-temporary impairments

Quarterly, we have evaluated our previously consolidated VIEs’ securities portfolio to determine if there has been an other-than-temporary impairment based upon expected future cash flows from each securities investment. As a result of this evaluation, under the accounting guidance discussed in Note 2, during the year ended December 31, 2012, we determined that $160,000 of impairments previously recorded in other comprehensive income should be recognized as credit losses due to a decrease in cash flow expectation for one of our securities.

To determine the component of the gross other-than-temporary impairment related to expected credit losses, we compare the amortized cost basis of each other-than-temporarily impaired security to the present value of its revised expected cash flows, discounted using its pre-impairment yield. Significant judgment of our Manager is required in this analysis that includes, but is not limited to, (i) assumptions regarding the collectability of principal and interest on the underlying loans, net of related expenses, and (ii) current subordination levels at both the individual loans which serve as collateral under these securities and at the securities themselves.

The following table summarizes activity related to the other-than-temporary impairments of our previously consolidated VIEs’ securities during the year ended December 31, 2012 (in thousands):

	Gross Other-Than- Temporary Impairments			Credit Related Other-Than-Temporary Impairments			Non-Credit Related Other-Than-Temporary Impairments

December 31, 2011		$146,917			$130,328			$16,589

Additions due to change in expected cash flows		—			160			(160	)
Amortization of other-than-temporary impairments		(257	)		270			(527	)
Reductions due to realized losses		(19,560	)		(19,560	)		—
Deconsolidation of CT Legacy Asset (1)		(53,100	)		(49,220	)		(3,880	)
Deconsolidation of CDOs (1)		(74,000	)		(61,978	)		(12,022	)

December 31, 2012		$—			$—			$—


(1)	As further described in Note 1, we deconsolidated CT Legacy Asset and CT CDOs II and IV in 2012. As a result, the securities owned by these entities’ consolidated securitization vehicles, some of which were other-than-temporarily impaired, are no longer included in our consolidated financial statements.

Unrealized losses and fair value of securities

Certain of our previously consolidated VIEs’ securities are carried at values in excess of their fair values. This difference can be caused by, among other things, changes in credit spreads and interest rates. The following table shows the gross unrealized losses and fair value of our previously consolidated VIEs’ securities for which the fair value is lower than our book value as of December 31, 2011 and that are not deemed to be other-than-temporarily impaired (in millions):

	Less Than 12 Months					Greater Than 12 Months					Total

	Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Book Value (1)

Floating Rate		$—		$—			$0.2		($1.1	)		$0.2		($1.1	)		$1.3

Fixed Rate		155.2		(4.7	)		130.1		(11.1	)		285.3		(15.8	)		301.1

Total		$155.2		($4.7	)		$130.3		($12.2	)		$285.5		($16.9	)		$302.4


(1)	Excludes, as of December 31, 2011, $59.2 million of securities which were carried at or below fair value and securities against which an other-than-temporary impairment equal to the entire book value was recognized in earnings.

As of December 31, 2011, 35 of our previously consolidated VIEs' securities with an aggregate book value of $302.4 million were carried at values in excess of their fair values. Fair value for these securities was $285.5 million as of December 31, 2011. In total, as of December 31, 2011, our previously consolidated VIEs had 57 investments in securities with an aggregate book value of $361.6 million that have an estimated fair value of $351.8 million, including 52 investments in CMBS with an estimated fair value of $349.7 million and 5 investments in CDOs and other securities with an estimated fair value of $2.1 million.

We determine fair values using a combination of third-party dealer assessments of value and our own internal financial model-based estimations of fair value. See Note 12 for further discussion of fair value.

Our estimation of cash flows expected to be generated by our securities portfolio is based upon an internal review of the underlying loans securing our investments both on an absolute basis and compared to our initial underwriting for each investment. Our efforts are supplemented by third-party research reports, third-party market assessments and our dialogue with market participants. We attribute the difference between book value and estimated fair value to the current market dislocation and a general negative bias against structured financial products such as CMBS and CDOs.

Investments in variable interest entities

Our previously consolidated VIEs’ securities portfolio includes investments in both CMBS and CDOs, which securitization structures are also generally considered VIEs. We have not consolidated these VIEs due to our determination that, based on the structural provisions of each entity and the nature of our investments, we do not have the power to direct the activities that most significantly impact these entities' economic performance.

These securities were acquired through investment, and do not represent a securitization or other transfer of our assets. We are not named as special servicer for these investments.

We are not obligated to provide, nor have we provided, any financial support to these entities.

B. Loans Receivable, Net – Previously Consolidated Variable Interest Entities

The following table details overall statistics for our previously consolidated VIEs’ loans receivable portfolio as of December 31, 2011:

		December 31, 2011
Number of investments		76
Fixed / Floating (in millions) (1)		$336 / $338
Coupon (2) (3)		5.06%
Yield (2) (3)		5.99%
Maturity (years) (2) (4)		3.5


(1)	Represents the aggregate net book value of the portfolio allocated between fixed rate and floating rate loans.
(2)	Represents a weighted average as of December 31, 2011.
(3)	Calculations for floating rate loans are based on LIBOR of 0.30% as of December 31, 2011.
(4)	For loans in CT CDOs, assumes all extension options are executed. For loans in other consolidated securitization vehicles, maturity is based on information provided by the trustees of each respective entity.

The tables below detail the types of loans in our previously consolidated VIEs’ loan portfolio, as well as the property type and geographic distribution of the properties securing these loans, as of December 31, 2011 (in thousands):

	December 31, 2011
Asset Type	Book Value			Percentage
Senior mortgages		$254,309			38	%
Subordinate interests in mortgages		203,360			30
Mezzanine and other loans		223,384			32
Total		$681,053			100	%

Property Type	Book Value			Percentage
Office		$262,669			39	%
Hotel		243,958			36
Retail		72,701			11
Multifamily		25,629			4
Healthcare		18,837			3
Other		57,259			7
Total		$681,053			100	%

Geographic Location	Book Value			Percentage
Northeast		$236,400			35	%
Southeast		129,390			19
West		101,453			15
Southwest		84,049			12
Other		33,822			5
International		34,502			5
Diversified		61,437			9
Total		$681,053			100	%

Unallocated loan loss provision (1)		(7,432	)

Net book value		$673,621


(1)	We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. This general provision is not specifically allocable to any loan asset type, collateral property type, or geographic location, but rather to an overall pool of loans. See Note 2 for additional details.

Loan risk ratings

Quarterly, our Manager evaluates our previously consolidated VIEs’ loan portfolio for impairment as described in Note 2. In conjunction with our quarterly loan portfolio review, our Manager assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one (less risk) through eight (greater risk), which ratings are defined in Note 2.

The following table allocates the net book value and principal balance of our previously consolidated VIEs’ loans receivable based on our internal risk ratings as of December 31, 2011 (dollars in thousands):

		Loans Receivable as of December 31, 2011
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value
	1 - 3		22		$365,770		$365,792
	4 - 5		8		108,208		108,072
	6 - 8		17		465,921		123,549
	N/A		29		83,639		83,640

Total			76		$1,023,538		$681,053

Unallocated loan loss provision:							(7,432	)

Net book value							$673,621


(1)	We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. These loans have not been individually risk-rated, but have been assessed for loss based on macroeconomic factors. See Note 2 for additional information.

In making this risk assessment, one of the primary factors we consider is how senior or junior each loan is relative to other debt obligations of the borrower. The following tables further allocate our previously consolidated VIEs’ loans receivable by both loan type and our internal risk ratings as of December 31, 2011 (dollars in thousands):

Senior Mortgage Loans
		as of December 31, 2011
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value
	1 - 3		10		$79,955		$79,955
	4 - 5		3		33,551		33,527
	6 - 8		6		86,557		57,187
	N/A		29		83,639		83,640

Total			48		$283,702		$254,309


(1)	We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. These loans have not been individually risk-rated, but have been assessed for loss based on macroeconomic factors. See Note 2 for additional information.

Subordinate Interests in Mortgages
		as of December 31, 2011
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value
	1 - 3		5		$111,358		$111,112
	4 - 5		3		56,037		55,925
	6 - 8		6		121,381		36,323

Total			14		$288,776		$203,360


(1)	We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. These loans have not been individually risk-rated, but have been assessed for loss based on macroeconomic factors. See Note 2 for additional information.

Mezzanine & Other Loans
		as of December 31, 2011
Risk Rating (1)		Number of Loans		Principal Balance		Net Book Value
	1 - 3		7		$174,457		$174,725
	4 - 5		2		18,620		18,620
	6 - 8		5		257,983		30,039

Total			14		$451,060		$223,384


(1)	We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. These loans have not been individually risk-rated, but have been assessed for loss based on macroeconomic factors. See Note 2 for additional information.

Loan impairments

The following table describes our previously consolidated VIEs’ impaired loans as of December 31, 2011, including impaired loans that are current in their interest payments and those that are delinquent on contractual payments (dollars in thousands):

	December 31, 2011
Impaired Loans	No. of Loans		Gross Book Value		Provision for Loan Loss			Net Book Value
Performing loans		4		$237,622		($211,331	)		$26,291
Non-performing loans		5		175,034		(130,756	)		44,278

Total impaired loans		9		$412,656		($342,087	)		$70,569

The following table details the allocation of our previously consolidated VIEs’ provision for loan losses as of December 31, 2011 (in thousands):

	December 31, 2011
Impaired Loans	Principal Balance		Provision for Loan Loss		Loss Severity
Mezzanine & other loans		$248,483		$227,944		92%
Subordinate interests in mortgages		106,470		84,774		80
Senior mortgages		57,934		29,369		51
Unallocated (1)		117,762		7,431		6
Total/Weighted Average		$530,649		$349,518		66%


(1)	We have recorded a general provision for loan losses against certain pools of smaller loans in our consolidated securitization vehicles. These loans have not been individually risk-rated, but have been assessed for loss based on macroeconomic factors. See Note 2 for additional information.

Generally, we have recorded provisions for loan loss against all loans which are in maturity default, or otherwise have past-due principal payments. As of December 31, 2011, our previously consolidated VIEs had six loans with a net book value of $65.2 million which were in maturity default but had no provision recorded. We expect to collect all principal and interest due under these loans upon their resolution.

The following table details our previously consolidated VIEs’ average balance of impaired loans by loan type, and the income recorded on such loans subsequent to their impairment during the year ended December 31, 2012 (in thousands):

Income on Impaired Loans for the Year ended December 31, 2012
Asset Type	Average Net Book Value		Income Recorded (1)
Senior Mortgage Loans		$5,713		$233
Subordinate Interests in Mortgages		5,571		142
Mezzanine & Other Loans		4,108		893

Total		$15,392		$1,268


(1)	Substantially all of the income recorded on impaired loans during the period was received in cash.

Income on Impaired Loans for the Year Ended December 31, 2011
Asset Type	Average Net Book Value		Income Recorded (1)
Senior Mortgage Loans		$62,461		$3,927
Subordinate Interests in Mortgages		33,508		817
Mezzanine & Other Loans		93,470		9,521

Total		$189,439		$14,265


(1)	Substantially all of the income recorded on impaired loans during the period was received in cash.

Nonaccrual loans

In accordance with our revenue recognition policies discussed in Note 2, we do not accrue interest on loans which are 90 days past due or, in the opinion of our Manager, are otherwise uncollectable. Accordingly, we do not have any material interest receivable accrued on nonperforming loans as of December 31, 2011.

The following table details our previously consolidated VIEs’ loans receivable which are on nonaccrual status as of December 31, 2011 (in thousands):

Non-Accrual Loans Receivable as of December 31, 2011
Asset Type	Principal Balance		Net Book Value
Senior Mortgage Loans		$24,700		$11,638
Subordinate Interests in Mortgages		111,776		31,177
Mezzanine & Other Loans		248,483		20,539

Total		$384,959		$63,354

Loan modifications

During the year ended December 31, 2011, five modifications of our previously consolidated VIEs loans were considered troubled debt restructurings, as defined under GAAP. A troubled debt restructuring is generally any modification of a loan to a borrower that is experiencing financial difficulties, where a lender agrees to terms that are more favorable to the borrower than is otherwise available in the current market. These loan modifications included: (i) a nine-month extension of a $19.0 million senior mortgage loan which is in maturity default, (ii) a two-year forbearance of a $24.3 million subordinate mortgage interest, including a 2.0% spread increase which will accrue on a deferred basis, (iii) a 28-month extension of a $33.0 million subordinate mortgage interest, (iv) a two-year extension of a $13.7 million subordinate mortgage interest coupled with a 2% increase in rate on a deferred basis, and (v) a two-year forbearance of a $15.0 million subordinate mortgage interest coupled with a 1% decrease in rate. All five of these loans have been individually assessed for impairment, and other than a 100% impairment previously recorded against the $15.0 million subordinate mortgage interest, no additional impairment was necessary.

C. Loans Held-for-Sale, Net – Previously Consolidated Variable Interest Entities

As of December 31, 2011, one of our previously consolidated VIEs classified one of its loans receivable as held-for-sale. This loan had a gross book value of $32.3 million and was carried at its fair value of $30.9 million as of December 31, 2011. As further described in the introduction to Note 17, this VIE was deconsolidated in 2012, and we therefore do not have any loan s classified as held-for-sale as of December 31, 2012.

D. Real Estate Held-for-Sale – Previously Consolidated Variable Interest Entities

As of December 31, 2011, one of our previously consolidated VIEs classified its one real estate investment as held-for-sale. This real estate investment had a gross book value of $25.30 million and was carried at its fair value of $10.3 million as of December 31, 2011. As further described in the introduction to Note 17, this VIE was deconsolidated in 2012, and we therefore do not have any real estate classified as held-for-sale as of December 31, 2012.

E. Debt Obligations – Previously Consolidated Variable Interest Entities

As of December 31, 2011, our previously consolidated VIEs had $1.3 billion of total debt obligations outstanding, all of which were non-recourse to us. The balances of each class of entity’s outstanding debt obligations, their respective coupons and all-in effective costs, including the amortization of fees and expenses, were as follows (in thousands):

	December 31, 2011
Debt Obligations	Principal Balance		Book Value		Coupon(1)			All-In Cost(1)			Maturity Date(2)

CT Legacy REIT
Repurchase obligation (JPMorgan)		$58,464		$58,464		2.80	%		2.80	%	December 2014
Mezzanine loan (3)		65,275		55,111		15.00	%		18.61	%	March 2016
Subtotal		$123,739		$113,575		9.24	%		10.47	%	August 2015

Securitized Debt Obligations
CT CDO II		$199,751		$199,751		0.91	%		1.22	%	March 2050
CT CDO III		199,138		199,553		5.26	%		5.17	%	June 2035
CT CDO IV		221,540		221,540		1.07	%		1.21	%	October 2043
JPMCC 2004-FL1A (4)		—		—		1.25	%		1.25	%	April 2019
GMACC 1997-C1		83,672		83,672		7.09	%		7.09	%	July 2029
GECMC 00-1 H		24,847		24,847		5.50	%		5.50	%	August 2027
MSC 2007-XLCA		310,083		310,083		2.44	%		2.44	%	July 2017
Subtotal		$1,039,031		$1,039,446		2.84	%		2.92	%	January 2034

Total/Weighted Average		$1,162,770		$1,153,021		3.52	%		3.66	%	January 2032


(1)	Represents a weighted average for each respective facility, assuming LIBOR of 0.21% at December 31, 2012 for floating rate debt obligations.
(2)	Maturity dates represent the contractual maturity of each debt obligation. Repayment of securitized debt is a function of collateral cash flows which are disbursed in accordance with the contractual provisions of each trust, and is generally expected to occur prior to the maturity date above.
(3)	The mezzanine loan carries a 10.50% per annum interest rate, of which 7.0% per annum may be deferred. The all-in cost of the mezzanine loan includes the amortization of deferred fees and expenses.
(4)	As of December 31, 2011, all outstanding debt obligations of JPMCC 2004-FL1A were eliminated in consolidation.
(5)	Including the impact of interest rate hedges with an aggregate notional balance of $357.4 million as of December 31, 2011, the effective all-in cost of our previously consolidated VIEs’ debt obligations would be 5.30% per annum.

Repurchase Obligations

In conjunction with our restructuring on March 31, 2011, our three legacy repurchase obligations were assumed by wholly-owned subsidiaries of CT Legacy REIT, and the recourse to Capital Trust, Inc. was eliminated. As of December 31, 2011, the only repurchase obligation of CT Legacy REIT remaining was under its JPMorgan facility.

As of December 31, 2011, the JPMorgan facility had a maturity date of December 15, 2014 and an interest rate of LIBOR + 2.50% per annum, which terms were subject to periodic repayment targets and spread increases through maturity. As of December 31, 2011, the JPMorgan facility had an outstanding balance of $58.5 million.

On February 10, 2012, we refinanced CT Legacy REIT’s repurchase facility and its mezzanine loan with a single, new $124.0 million repurchase facility with JPMorgan. The new facility is an obligation of CT Legacy Asset, matures in December 2014, carries a rate of LIBOR+6.00% as of December 31, 2012, and has paydown hurdles and associated potential rate increases over the term of the facility. As a result of the refinancing, we discontinued consolidation of CT Legacy Asset. See Note 1 and Note 3 for further discussion on the deconsolidation of CT Legacy Asset.

Mezzanine Loan

On March 31, 2011, CT Legacy REIT entered into an $83.0 million mezzanine loan with Five Mile Capital that carried an interest rate of 15.0% per annum, of which 7.0% may be deferred, and that had a maturity date of March 31, 2016. The mezzanine loan was not recourse to Capital Trust, Inc. except for certain limited non-recourse, “bad boy” carve outs.

As of December 31, 2011, the mezzanine loan had an outstanding principal balance of $65.3 million (including deferred interest) and a book balance of $55.1 million. As discussed above, on February 10, 2012, we refinanced CT Legacy REIT’s JPMorgan repurchase facility and its mezzanine loan with a single, new $124.0 million repurchase facility with JPMorgan. As a result of the refinancing, we discontinued consolidation of CT Legacy Asset. See Note 1 and Note 3 for further discussion on the deconsolidation of CT Legacy Asset.

Securitized Debt Obligations

As of December 31, 2011, loans receivable and securities with an aggregate book value of $708.5 million and $361.6 million, respectively, served as collateral for the non-recourse debt and equity securities issued by these securitization vehicles. As further described in Note 1, these entities are no longer consolidated as of December 31, 2012.

Our CT CDOs are variously subject to interest coverage and overcollateralization tests which, when breached, provide for hyper-amortization of the senior notes sold by a redirection of cash flow that would otherwise have been paid to the subordinate classes, some of which are owned by us. Furthermore, these CDOs provide for the re-classification of interest proceeds from impaired collateral as principal proceeds, which also serve to hyper-amortize the senior notes sold. As a result collateral asset impairments and the related breaches of these interest coverage and overcollateralization tests, as of December 31, 2011, we did not receive any cash payments from these CT CDOs other than CT CDO III.

In addition to the CT CDOs sponsored by us, we also consolidated four other securitization vehicles which were not sponsored or issued by us. The debt obligations of these entities will generally be satisfied with the repayment of assets in the entity’s collateral pool, or will be discharged when losses are realized.

F. Derivative Financial Instruments – Previously Consolidated Variable Interest Entities

Our previously consolidated VIEs’ derivative financial instruments include interest rate swaps in securitization vehicles and in CT Legacy REIT.

Securitization Vehicles

The following table summarizes the notional amounts and fair values of our previously consolidated securitization vehicles’ interest rate swaps as of December 31, 2011 (in thousands). The notional amount provides an indication of the extent of our involvement in the instruments at that time, but does not represent exposure to credit or interest rate risk.

								December 31,
	December 31, 2011							2011
Counterparty	Notional Amount		Interest Rate (1)			Maturity		Fair Value
Swiss RE Financial		$236,355		5.10	%		2015		($20,540	)
Bank of America		44,562		4.58	%		2014		(2,368	)
Bank of America		10,535		5.05	%		2016		(1,461	)
Bank of America		5,104		4.12	%		2016		(573	)
Total/Weighted Average		$296,556		5.00	%		2015		($24,942	)


(1)	Represents the gross fixed interest rate we pay to our counterparties under these derivative instruments. We receive an amount of interest indexed to one-month LIBOR on all of our interest rate swaps.

As of December 31, 2011, all of the derivative financial instruments of our previously consolidated securitization vehicles were classified as cash flow hedges, and recorded at fair value as interest rate hedge liabilities on our consolidated balance sheet.

The table below shows amounts recorded to other comprehensive income and amounts recorded to interest expense from other comprehensive income related to interest rate swaps held by our previously consolidated securitization vehicles for the years ended December 31, 2012 and 2011 (in thousands):

	Amount of net loss recognized						Amount of loss reclassified from OCI
	in OCI for the year ended (1)						to income for the year ended (2)

Hedge	December 31, 2012			December 31, 2011			December 31, 2012			December 31, 2011
Interest rate swaps		($10,449	)		($3,587	)		($15,066	)		($15,593	)


(1)	Represents the amount of unrealized gains and losses recorded to other comprehensive income during the period, net of the amount reclassified to interest expense.
(2)	Represents net amounts paid to swap counterparties during the period, which are included in interest expense, offset by an immaterial amount of non-cash swap amortization.

All of our consolidated securitization vehicles’ interest rate swaps were classified as highly effective for all of the periods presented. As of December 31, 2011, our previously consolidated securitization vehicles had not posted any assets as collateral under derivative agreements.

CT Legacy REIT

CT Legacy REIT is not party to any interest rate swap agreements. As of December 31, 2011, CT Legacy REIT’s formerly consolidated subsidiary, CT Legacy Asset, was party to five interest rate swaps with a notional amount of $60.8 million and fair value of $8.8 million.

The following table summarizes the notional amounts and fair values of CT Legacy Asset’s interest rate swaps as of December 31, 2011 (in thousands). The notional amount provides an indication of the extent of our involvement in the instruments at that time, but does not represent exposure to credit or interest rate risk.

								December 31,
	December 31, 2011							2011
Counterparty	Notional Amount		Interest Rate (1)			Maturity		Fair Value
JPMorgan Chase		$17,574		5.14	%		2014		($1,887	)
JPMorgan Chase		16,565		4.83	%		2014		(1,889	)
JPMorgan Chase		16,441		5.52	%		2018		(3,321	)
JPMorgan Chase		7,062		5.11	%		2016		(1,189	)
JPMorgan Chase		3,164		5.45	%		2015		(531	)
Total/Weighted Average		$60,806		5.17	%		2015		($8,817	)


(1)	Represents the gross fixed interest rate we pay to our counterparties under these derivative instruments. We receive an amount of interest indexed to one-month LIBOR on all of our interest rate swaps.

During the second quarter of 2011, as a result of significant repayments of CT Legacy REIT’s floating rate debt obligations, these interest rate swaps ceased to be highly effective hedging instruments. We therefore discontinued the designation of these hedges as cash flow hedges. As a result, beginning in the second quarter of 2011, any change in the fair values of these interest rate swaps was recorded as a non-cash component of interest expense on our consolidated statement of operations. We recognized $1.3 million of such non-cash interest expense during the year ended December 31, 2011. In addition, as a result of the termination of the effective hedge designation, we reclassified $3.2 million from accumulated other comprehensive income as non-cash interest expense on our consolidated financial statements. Net payments under such interest rate swaps during the year ended December 31, 2011 totaled $2.3 million, and were recorded as a component of interest expense.

During the period from January 1, 2012 to February 10, 2012, while we consolidated CT Legacy Asset, it made net payments of $262,000 under its interest rate swaps which were recorded as a component of interest expense. During the same period, we recognized $291,000 as a component of interest expense for the change in fair value of these swaps. In addition, as a result of the deconsolidation of CT Legacy Asset, we reclassified $1.8 million from other comprehensive income to interest expense. This amount represents the unamortized balance of prior fair value adjustments to these interest rate swaps from the second quarter of 2011, when we discontinued the designation of these swaps as cash flow hedges.

As of December 31, 2011, CT Legacy REIT had not posted any assets as collateral under derivative agreements.