MORTGAGE LOANS HELD FOR INVESTMENT AND RELATED ASSETS

The composition of our mortgage loan portfolio is as follows:



(dollars in 000s)
As of	July 31, 2013					July 31, 2012					April 30, 2013
	Amount			% of Total		Amount			% of Total		Amount			% of Total
Adjustable-rate loans	$	174,481		54	%	$	222,474		55	%	$	191,093		55	%
Fixed-rate loans	147,973			46	%	183,196			45	%	159,142			45	%
	322,454			100	%	405,670			100	%	350,235			100	%
Unamortized deferred fees and costs	2,741					3,274					2,868
Less: Allowance for loan losses	(15,514		)			(22,185		)			(14,314		)
	$	309,681				$	386,759				$	338,789

Our loan loss allowance as a percent of mortgage loans was 4.8% as of July 31, 2013, compared to 5.5% as of July 31, 2012 and 4.1% as of April 30, 2013.

Activity in the allowance for loan losses for the three months ended July 31, 2013 and 2012 is as follows:



(in 000s)
Three months ended July 31,	2013			2012
Balance at beginning of the period	$	14,314		$	26,540
Provision	7,603			4,000
Recoveries	767			1,186
Charge-offs	(7,170		)	(9,541		)
Balance at end of the period	$	15,514		$	22,185

As of July 31, 2013, we had $7.6 million of mortgage loans which were transferred into the held-for-sale portfolio from the held-for-investment portfolio. At the time of the transfer, the amount by which cost exceeded fair value totaled $2.9 million. This write-down to fair value was recorded as a provision during the three months ended July 31, 2013 and subsequently charged-off.

When determining our allowance for loan losses, we evaluate loans less than 60 days past due on a pooled basis, while loans we consider impaired, including those loans more than 60 days past due or modified as TDRs, are evaluated individually. The balance of these loans and the related allowance is as follows:



(in 000s)
As of	July 31, 2013				July 31, 2012				April 30, 2013
	Portfolio Balance		Related Allowance		Portfolio Balance		Related Allowance		Portfolio Balance		Related Allowance
Pooled (less than 60 days past due)	$	186,082	$	5,734	$	238,999	$	7,701	$	207,319	$	5,628
Impaired:
Individually (TDRs)	50,136		4,866		67,587		6,931		55,061		4,924
Individually (60 days or more past due)	86,236		4,914		99,084		7,553		87,855		3,762
	$	322,454	$	15,514	$	405,670	$	22,185	$	350,235	$	14,314

Detail of our mortgage loans held for investment and the related allowance as of July 31, 2013 is as follows:



(dollars in 000s)
	Outstanding Principal Balance		Loan Loss Allowance				% 30+ Days Past Due
	Outstanding Principal Balance		Amount		% of Principal		% 30+ Days Past Due
Purchased from SCC	$	183,551	$	11,912	6.5	%	32.7	%
All other	138,903		3,602		2.6	%	9.2	%
	$	322,454	$	15,514	4.8	%	22.6	%

Credit quality indicators as of July 31, 2013 include the following:



(in 000s)
Credit Quality Indicators	Purchased from SCC		All Other		Total Portfolio
Occupancy status:
Owner occupied	$	134,582	$	88,841	$	223,423
Non-owner occupied	48,969		50,062		99,031
	$	183,551	$	138,903	$	322,454
Documentation level:
Full documentation	$	60,826	$	101,226	$	162,052
Limited documentation	6,069		14,132		20,201
Stated income	101,995		14,443		116,438
No documentation	14,661		9,102		23,763
	$	183,551	$	138,903	$	322,454
Internal risk rating:
High	$	56,475	$	—	$	56,475
Medium	127,076		—		127,076
Low	—		138,903		138,903
	$	183,551	$	138,903	$	322,454

Loans given our internal risk rating of “high” were originated by Sand Canyon Corporation, formerly known as Option One Mortgage Corporation, and its subsidiaries (SCC), and generally had no documentation or were based on stated income. Loans given our internal risk rating of “medium” were generally full documentation or based on stated income, with loan-to-value ratios at origination of more than 80%, and were made to borrowers with credit scores below 700 at origination. Loans given our internal risk rating of “low” were generally obtained from parties other than SCC, with loan-to-value ratios at origination of less than 80% and were made to borrowers with credit scores greater than 700 at origination.

Our mortgage loans held for investment include concentrations of loans to borrowers in certain states, which may result in increased exposure to loss as a result of changes in real estate values and underlying economic or market conditions related to a particular geographical location. Approximately 59% of our mortgage loan portfolio consists of loans to borrowers located in the states of Florida, California, New York and Wisconsin.

Detail of the aging of the mortgage loans in our portfolio as of July 31, 2013 is as follows:



(in 000s)
	Less than 60 Days Past Due		60 – 89 Days Past Due		90+ Days Past Due⁽¹⁾		Total Past Due		Current		Total
Purchased from SCC	$	11,890	$	2,724	$	61,237	$	75,851	$	107,700	$	183,551
All other	5,266		—		12,311		17,577		121,326		138,903
	$	17,156	$	2,724	$	73,548	$	93,428	$	229,026	$	322,454


⁽¹⁾	We do not accrue interest on loans past due 90 days or more.

Information related to our non-accrual loans is as follows:



(in 000s)
As of	July 31, 2013		July 31, 2012		April 30, 2013
Loans:
Purchased from SCC	$	68,740	$	81,539	$	70,327
Other	14,860		16,178		14,906
	83,600		97,717		85,233
TDRs:
Purchased from SCC	3,247		3,398		3,719
Other	500		509		502
	3,747		3,907		4,221
Total non-accrual loans	$	87,347	$	101,624	$	89,454

Information related to impaired loans is as follows:



(in 000s)
	Balance With Allowance		Balance With No Allowance		Total Impaired Loans		Related Allowance
As of July 31, 2013:
Purchased from SCC	$	33,088	$	80,132	$	113,220	$	7,396
Other	6,603		16,549		23,152		2,384
	$	39,691	$	96,681	$	136,372	$	9,780
As of July 31, 2012:
Purchased from SCC	$	45,719	$	94,184	$	139,903	$	11,653
Other	8,199		18,569		26,768		2,831
	$	53,918	$	112,753	$	166,671	$	14,484
As of April 30, 2013:
Purchased from SCC	$	33,791	$	84,592	$	118,383	$	6,573
Other	7,601		16,932		24,533		2,113
	$	41,392	$	101,524	$	142,916	$	8,686

Information related to the allowance for impaired loans is as follows:



(in 000s)
As of	July 31, 2013		July 31, 2012		April 30, 2013
Portion of total allowance for loan losses allocated to impaired loans and TDR loans:
Based on collateral value method	$	4,914	$	7,553	$	3,762
Based on discounted cash flow method	4,866		6,931		4,924
	$	9,780	$	14,484	$	8,686

Information related to activities of our non-performing assets is as follows:



(in 000s)
As of	July 31, 2013		July 31, 2012		April 30, 2013
Average impaired loans:
Purchased from SCC	$	130,287	$	147,555	$	133,936
All other	25,328		26,841		25,425
	$	155,615	$	174,396	$	159,361
Interest income on impaired loans:
Purchased from SCC	$	848	$	1,011	$	3,825
All other	73		82		305
	$	921	$	1,093	$	4,130
Interest income on impaired loans recognized on a cash basis on non-accrual status:
Purchased from SCC	$	820	$	994	$	3,746
All other	73		73		279
	$	893	$	1,067	$	4,025

Activity related to our real estate owned (REO) is as follows:



(in 000s)
Three months ended July 31,	2013			2012
Balance, beginning of the period	$	13,968		$	14,972
Additions	2,100			3,074
Sales	(1,664		)	(1,801		)
Impairments	(487		)	(788		)
Balance, end of the period	$	13,917		$	15,457