Loans Held for Investment and Loans Held for Investment at Fair Value

12 Months Ended

Dec. 31, 2022

Loans Held for Investment and Loans Held for Investment at Fair Value

Note 6 — Loans Held for Investment and Loans Held for Investment at Fair Value

The following tables summarize loans held for investment as of December 31, 2022 and 2021 (in thousands):


	December 31, 2022
	Loans held for			Loans held for		Total loans
	investment,			investment, at		held for
	net			fair value		investment
Unpaid principal balance	$	3,243,854		$	268,632	$	3,512,486
Valuation adjustments on FVO loans		—			7,463		7,463
Deferred loan origination costs		33,429			—		33,429
		3,277,283			276,095		3,553,378
Allowance for loan losses		(4,893	)		—		(4,893	)
Total loans held for investment, net	$	3,272,390		$	276,095	$	3,548,485


	December 31, 2021
	Loans held for			Loans held for		Total loans
	investment,			investment, at		held for
	net			fair value		investment
Unpaid principal balance	$	2,498,466		$	1,332	$	2,499,798
Valuation adjustments on FVO loans		—			27		27
Deferred loan origination costs		33,360			—		33,360
		2,531,826			1,359		2,533,185
Allowance for loan losses		(4,262	)		—		(4,262	)
Total loans held for investment, net	$	2,527,564		$	1,359	$	2,528,923

During the year ended December 31, 2022, $292.4 million in UPB of loans held for investment have participated in the COVID-19 forbearance program and the Company granted a 90-days forbearance period on these loans. The following table summarizes the UPB and amortized cost basis of the loans in the Company's COVID-19 forbearance program as of December 31, 2022 ($ in thousands):


	December 31, 2022
	UPB			%	Amortized Cost			%
Beginning balance	$	292,429			$	295,990
Additions		—				—
Foreclosures		(3,593	)			(3,620	)
Repayments		(87,831	)			(89,024	)
Ending balance	$	201,005			$	203,346

Performing/Accruing	$	161,455		80.3%	$	163,346		80.3%

Nonperforming/Nonaccrual	$	39,550		19.7%	$	40,000		19.7%


	December 31, 2021
	UPB			%	Amortized Cost			%
Beginning balance	$	392,073			$	396,918
Additions		2,616				2,615
Foreclosures		(402	)			(408	)
Repayments		(101,858	)			(103,135	)
Ending balance	$	292,429			$	295,990

Performing/Accruing	$	233,307		79.8%	$	236,076		79.8%

Nonperforming/Nonaccrual	$	59,122		20.2%	$	59,914		20.2%

Since April 1, 2020, the inception of the COVID-19 forbearance program, the Company has modified $409.6 million in UPB of loans, which includes capitalized interest of $11.5 million. As of December 31, 2022, $215.8 million in UPB of modified loans has been paid down, which includes $4.3 million of capitalized interest received.

Approximately 80.3% and 79.8% of the COVID forbearance loans in UPB were performing, and 19.7% and 20.2% were on nonaccrual status as of December 31, 2022 and 2021, respectively.

As of December 31, 2022 and 2021, the gross unpaid principal balance of loans held for investment pledged as collateral for the Company’s warehouse facility agreements, and securitizations issued were as follows (in thousands):


	December 31,
	2022		2021
The 2013 repurchase agreement	$	170,185	$	202,511
The 2021 repurchase agreement		101,024		114,072
The Bank credit agreement		39,087		30,959
The 2021 term repurchase agreement		104,594		53,217
The July 2021 term repurchase agreement		3,859		—
Total pledged loans	$	418,749	$	400,759

2015-1 Trust	$	—	$	31,931
2016-1 Trust		39,720		52,623
2017-2 Trust		67,048		94,809
2018-1 Trust		48,139		71,051
2018-2 Trust		104,791		154,974
2019-1 Trust		104,249		144,727
2019-2 Trust		91,025		132,358
2019-3 Trust		75,618		103,266
2020-1 Trust		144,913		189,547
2020-2 Trust		81,259		98,403
2020-MC1 Trust		—		134,957
2021-1 Trust		208,875		249,396
2021-2 Trust		172,144		198,039
2021-3 Trust		178,861		202,138
2021-4 Trust		275,741		314,547
2022-1 Trust		262,526		—
2022-2 Trust		245,339		—
2022-MC1 Trust		97,246		—
2022-3 Trust		299,638		—
2022-4 Trust		326,627		—
2022-5 Trust		251,288		—
Total	$	3,075,047	$	2,172,766

(a)

Nonaccrual Loans

The following tables present the amortized cost basis, or recorded investment, of the Company’s loans held for investment, excluding loans carried at fair value, that were nonperforming and on nonaccrual status as of December 31, 2022 and 2021. Also included in the tables below is a TDR individually evaluated for allowance for loan loss.


	December 31, 2022
	Total Nonaccrual		Nonaccrual with No Allowance for Loan Loss		Nonaccrual with Allowance for Loan Loss		Allowance for Loans Individually Evaluated		% of Allowance to Total Nonaccrual/ Impaired Loans
Commercial - Purchase	$	22,571	$	22,437	$	134	$	28		0.2	%
Commercial - Refinance		87,133		82,330		4,803		517		4.1
Residential 1-4 Unit - Purchase		27,984		27,516		468		118		0.9
Residential 1-4 Unit - Refinance		113,909		111,742		2,167		175		1.4
Short Term 1-4 Unit - Purchase		8,140		8,140		—		—		—
Short Term 1-4 Unit - Refinance		35,602		30,612		4,990		258		2.1
Total	$	295,339	$	282,777	$	12,562	$	1,096		8.7	%

Performing troubled debt restructuring:	$	—	$	—	$	—	$	25		—


	December 31, 2021
	Total Nonaccrual		Nonaccrual with No Allowance for Loan Loss		Nonaccrual with Allowance for Loan Loss		Allowance for Loans Individually Evaluated		% of Allowance to Total Nonaccrual/ Impaired Loans
Commercial - Purchase	$	17,260	$	16,501	$	759	$	9		0.1	%
Commercial - Refinance		85,935		79,131		6,804		826		6.2
Residential 1-4 Unit - Purchase		17,385		17,128		257		96		0.7
Residential 1-4 Unit - Refinance		107,552		105,515		2,037		138		1.0
Short Term 1-4 Unit - Purchase		2,986		2,881		105		31		0.2
Short Term 1-4 Unit - Refinance		45,300		41,870		3,430		306		2.3
Total	$	276,418	$	263,026	$	13,392	$	1,406		10.5	%

Troubled debt restructuring included in nonaccrual loans:	$	165	$	—	$	—	$	25		—

The Company has made the accounting policy election not to measure an allowance for credit losses for accrued interest receivables. The Company has also made the accounting policy election to write off accrued interest receivables by reversing interest income when loans are placed on nonaccrual status, or 90 days or more past due, other than the COVID-19 forbearance-granted loans. Any future payments received for these loans will be recognized on a cash basis.

The Company continues to evaluate the COVID-19 forbearance-granted loans on an individual basis to determine if a reserve should be established on the collectability of the accrued interest and whether any loans should be placed on nonaccrual status at a future date.

The following table presents the amortized cost basis in the loans held for investment as of December 31, 2022 and 2021, and the amount of accrued interest receivables written off by reversing interest income by portfolio segment for the years ended December 31, 2022 and 2021 (in thousands):


	December 31,
	2022					2021
	Amortized Cost		Interest Reversal			Amortized Cost		Interest Reversal
Commercial - Purchase	$	701,408	$	(640	)	$	509,421	$	(346	)
Commercial - Refinance		907,097		(1,343	)		783,260		(1,176	)
Residential 1-4 Unit - Purchase		588,433		(596	)		408,770		(209	)
Residential 1-4 Unit - Refinance		939,305		(1,602	)		730,321		(1,474	)
Short Term 1-4 Unit - Purchase		69,884		(189	)		28,989		(821	)
Short Term 1-4 Unit - Refinance		71,157		(502	)		71,065		(653	)
Total	$	3,277,284	$	(4,872	)	$	2,531,826	$	(4,679	)

For the years ended December 31, 2022 and 2021, cash basis interest income recognized on nonaccrual loans was $27.3 million and $31.2 million, respectively. Other than loans in the Company's COVID-19 forbearance program, no accrued interest income was recognized on nonaccrual loans for the years ended December 31, 2022 and 2021. The average recorded investment of individually evaluated loans, computed using month-end balances, was $269.4 million and $311.2 million for the years ended December 31, 2022 and 2021, respectively. There were no commitments to lend additional funds to debtors whose loans have been modified as of December 31, 2022 and 2021.

(b)

Allowance for Loan Losses

The following tables present the activity in the allowance for loan losses for the years ended December 31, 2022 and 2021 (in thousands):


	December 31, 2022
							Residential			Residential			Short Term			Short Term
	Commercial			Commercial			1-4 Unit			1-4 Unit			1-4 Unit			1-4 Unit
	Purchase			Refinance			Purchase			Refinance			Purchase			Refinance			Total
Allowance for credit losses:
Balance - January 1, 2022	$	385		$	2,144		$	400		$	948		$	43		$	342		$	4,262
Provision for loan losses		401			(88	)		149			429			(22	)		283			1,152
Charge-offs		(147	)		(25	)		(7	)		(105	)		—			(237	)		(521	)
Ending balance	$	639		$	2,031		$	542		$	1,272		$	21		$	388		$	4,893

Allowance related to:
Loans individually evaluated	$	28		$	517		$	118		$	175		$	—		$	258		$	1,096
Loans collectively evaluated	$	611		$	1,514		$	424		$	1,097		$	21		$	130		$	3,797
Amortized cost related to:
Loans individually evaluated	$	22,571		$	87,133		$	27,984		$	113,909		$	8,140		$	35,602		$	295,339
Loans collectively evaluated	$	678,837		$	819,964		$	560,449		$	825,396		$	61,744		$	35,555		$	2,981,945


	December 31, 2021
							Residential			Residential			Short Term			Short Term
	Commercial			Commercial			1-4 Unit			1-4 Unit			1-4 Unit			1-4 Unit
	Purchase			Refinance			Purchase			Refinance			Purchase			Refinance			Total
Allowance for credit losses:
Balance - January 1, 2020	$	373		$	2,093		$	333		$	1,216		$	595		$	1,235		$	5,845
Provision for loan losses		154			164			104			(60	)		(538	)		(116	)		(292	)
Charge-offs		(142	)		(113	)		(37	)		(208	)		(14	)		(777	)		(1,291	)
Ending balance	$	385		$	2,144		$	400		$	948		$	43		$	342		$	4,262

Allowance related to:
Loans individually evaluated	$	9		$	826		$	96		$	138		$	31		$	306		$	1,406
Loans collectively evaluated	$	376		$	1,318		$	305		$	811		$	10		$	36		$	2,856
Amortized cost related to:
Loans individually evaluated	$	17,260		$	85,935		$	17,385		$	107,552		$	2,986		$	45,300		$	276,418
Loans collectively evaluated	$	492,161		$	697,326		$	391,385		$	622,768		$	26,003		$	25,765		$	2,255,408

(c)

Credit Quality Indicator

A credit quality indicator is a statistic used by the Company to monitor and assess the credit quality of loans held for investment, excluding loans held for investment at fair value. The Company monitors its charge-off rate in relation to its nonperforming loans as its credit quality indicator. The charge-offs over the average nonperforming loans were 0.20%, 0.42%, and 0.65% for the years ended December 31, 2022 , 2021 and 2020, respectively. The recovery rates on long-term nonperforming assets were 106.7%, 104.2% and 103.1% for the years ended December 31, 2022 , 2021 and 2020, respectively. On short-term nonperforming assets, the recovery rates were 107.0% and 102.7% for the years ended December 31, 2022 and 2021, respectively. Short-term loans were classified as held for sale during the year ended December 31, 2020.

Other credit quality indicators include aging status and accrual status. Nonperforming loans are loans that are 90 or more days past due, in bankruptcy, in foreclosure, or not accruing interest. The following tables present the aging status of the amortized cost basis in the loans held for investment portfolio, which include $203.3 million and $296.0 million loans in the Company’s COVID-19 forbearance program as of December 31, 2022 and 2021, respectively (in thousands):


	30–59 days		60–89 days		90+days		Total				Total
December 31, 2022	past due		past due		past due(1)		past due		Current		loans
Loans individually evaluated
Commercial - Purchase	$	865	$	—	$	21,706	$	22,571	$	—	$	22,571
Commercial - Refinance		4,415		5,943		76,619		86,977		156		87,133
Residential 1-4 Unit - Purchase		590		592		26,802		27,984		—		27,984
Residential 1-4 Unit - Refinance		1,715		2,728		109,466		113,909		—		113,909
Short Term 1-4 Unit - Purchase		176		—		7,964		8,140		—		8,140
Short Term 1-4 Unit - Refinance		657		—		34,945		35,602		—		35,602
Total loans individually evaluated	$	8,418	$	9,263	$	277,502	$	295,183	$	156	$	295,339
Loans collectively evaluated
Commercial - Purchase	$	24,899	$	5,096	$	—	$	29,995	$	648,842	$	678,837
Commercial - Refinance		41,711		20,561		—		62,272		757,692		819,964
Residential 1-4 Unit - Purchase		22,840		13,948		—		36,788		523,661		560,449
Residential 1-4 Unit - Refinance		64,925		23,224		—		88,149		737,247		825,396
Short Term 1-4 Unit - Purchase		21,273		294		—		21,567		40,177		61,744
Short Term 1-4 Unit - Refinance		5,550		1,191		—		6,741		28,814		35,555
Total loans collectively evaluated	$	181,198	$	64,314	$	—	$	245,512	$	2,736,433	$	2,981,945
Ending balance	$	189,616	$	73,577	$	277,502	$	540,695	$	2,736,589	$	3,277,284

(1)

Includes loans in bankruptcy and foreclosure less than 90 days past due.


	30–59 days		60–89 days		90+days		Total				Total
December 31, 2021	past due		past due		past due(1)		past due		Current		loans
Loans individually evaluated
Commercial - Purchase	$	700	$	2,314	$	14,246	$	17,260	$	—	$	17,260
Commercial - Refinance		4,464		6,818		74,488		85,770		165		85,935
Residential 1-4 Unit - Purchase		—		682		16,703		17,385		—		17,385
Residential 1-4 Unit - Refinance		807		1,088		105,657		107,552		—		107,552
Short Term 1-4 Unit - Purchase		1,224		—		1,762		2,986		—		2,986
Short Term 1-4 Unit - Refinance		615		1,010		43,675		45,300		—		45,300
Total loans individually evaluated	$	7,810	$	11,912	$	256,531	$	276,253	$	165	$	276,418
Loans collectively evaluated
Commercial - Purchase	$	17,319	$	4,034	$	—	$	21,353	$	470,808	$	492,161
Commercial - Refinance		31,769		7,025		—		38,794		658,532		697,326
Residential 1-4 Unit - Purchase		14,905		5,580		—		20,485		370,900		391,385
Residential 1-4 Unit - Refinance		39,045		9,548		—		48,593		574,175		622,768
Short Term 1-4 Unit - Purchase		21,412		217		—		21,629		4,374		26,003
Short Term 1-4 Unit - Refinance		4,060		5,561		—		9,621		16,144		25,765
Total loans collectively evaluated	$	128,510	$	31,965	$	—	$	160,475	$	2,094,933	$	2,255,408
Ending balance	$	136,320	$	43,877	$	256,531	$	436,728	$	2,095,098	$	2,531,826

(1)

Includes loans in bankruptcy and foreclosure less than 90 days past due.

The following table presents the aging of the amortized cost basis of loans held for investment in the Company's COVID-19 forbearance program as of December 31, 2022 and 2021(in thousands):


	30–59 days		60–89 days		90+days		Total				Total
December 31, 2022	past due		past due		past due(1)		past due		Current		loans
Loans individually evaluated
Commercial - Purchase	$	—	$	—	$	2,880	$	2,880	$	—	$	2,880
Commercial - Refinance		767		186		16,194		17,147		—		17,147
Residential 1-4 Unit - Purchase		—		—		1,116		1,116		—		1,116
Residential 1-4 Unit - Refinance		—		—		10,039		10,039		—		10,039
Short Term 1-4 Unit - Purchase		—		—		279		279		—		279
Short Term 1-4 Unit - Refinance		180		—		8,359		8,539		—		8,539
Total loans individually evaluated	$	947	$	186	$	38,867	$	40,000	$	—	$	40,000
Loans collectively evaluated
Commercial - Purchase	$	1,682	$	656	$	—	$	2,338	$	22,323	$	24,661
Commercial - Refinance		5,874		3,786		—		9,660		62,699		72,359
Residential 1-4 Unit - Purchase		2,346		1,036		—		3,382		7,277		10,659
Residential 1-4 Unit - Refinance		4,118		1,539		—		5,657		30,178		35,835
Short Term 1-4 Unit - Purchase		19,832		—		—		19,832		—		19,832
Short Term 1-4 Unit - Refinance		—		—		—		—		—		—
Total loans collectively evaluated	$	33,852	$	7,017	$	—	$	40,869	$	122,477	$	163,346
Ending balance	$	34,799	$	7,203	$	38,867	$	80,869	$	122,477	$	203,346

(1)

Includes loans in bankruptcy and foreclosure less than 90 days past due. Also includes accruing loans 90+ day past due.


	30–59 days		60–89 days		90+days		Total				Total
December 31, 2021	past due		past due		past due(1)		past due		Current		loans
Loans individually evaluated
Commercial - Purchase	$	163	$	1,622	$	4,259	$	6,044	$	—	$	6,044
Commercial - Refinance		—		2,820		18,520		21,340		—		21,340
Residential 1-4 Unit - Purchase		—		—		3,045		3,045		—		3,045
Residential 1-4 Unit - Refinance		—		—		22,670		22,670		—		22,670
Short Term 1-4 Unit - Purchase		99		—		180		279		—		279
Short Term 1-4 Unit - Refinance		404		299		5,833		6,536		—		6,536
Total loans individually evaluated	$	666	$	4,741	$	54,507	$	59,914	$	—	$	59,914
Loans collectively evaluated
Commercial - Purchase	$	2,209	$	1,158	$	—	$	3,367	$	30,904	$	34,271
Commercial - Refinance		8,309		2,444		—		10,753		90,040		100,793
Residential 1-4 Unit - Purchase		315		231		—		546		18,321		18,867
Residential 1-4 Unit - Refinance		4,086		319		—		4,405		48,314		52,719
Short Term 1-4 Unit - Purchase		20,869		—		—		20,869		761		21,630
Short Term 1-4 Unit - Refinance		942		4,149		—		5,091		2,705		7,796
Total loans collectively evaluated	$	36,730	$	8,301	$	—	$	45,031	$	191,045	$	236,076
Ending balance	$	37,396	$	13,042	$	54,507	$	104,945	$	191,045	$	295,990

(1)

Includes loans in bankruptcy and foreclosure less than 90 days past due. Also includes accruing loans 90+ day past due.

In addition to the aging status, the Company also evaluates credit quality by accrual status. The following tables present the amortized cost in loans held for investment, excluding loans held for investment at fair value, based on accrual status and by loan origination year as of December 31, 2022 and 2021 (in thousands).


	Term Loans Amortized Cost Basis by Origination Year
December 31, 2022:	2022		2021		2020		2019		2018		Pre-2018		Total
Commercial - Purchase
Payment performance
Performing	$	273,950	$	249,100	$	36,064	$	56,322	$	33,193	$	30,208	$	678,837
Nonperforming		1,274		6,959		1,579		5,809		3,205		3,745		22,571
Total Commercial - Purchase	$	275,224	$	256,059	$	37,643	$	62,131	$	36,398	$	33,953	$	701,408

Commercial - Refinance
Payment performance
Performing	$	263,754	$	210,898	$	55,795	$	103,633	$	93,161	$	92,723	$	819,964
Nonperforming		9,012		11,801		3,855		23,423		20,408		18,634		87,133
Total Commercial - Refinance	$	272,766	$	222,699	$	59,650	$	127,056	$	113,569	$	111,357	$	907,097

Residential 1-4 Unit - Purchase
Payment performance
Performing	$	249,625	$	227,235	$	10,710	$	31,685	$	18,891	$	22,303	$	560,449
Nonperforming		7,281		10,107		2,165		2,313		1,553		4,565		27,984
Total Residential 1-4 Unit - Purchase	$	256,906	$	237,342	$	12,875	$	33,998	$	20,444	$	26,868	$	588,433

Residential 1-4 Unit - Refinance
Payment performance
Performing	$	338,959	$	285,195	$	24,703	$	84,208	$	39,870	$	52,461	$	825,396
Nonperforming		21,391		25,023		6,907		27,746		15,834		17,008		113,909
Total Residential 1-4 Unit - Refinance	$	360,350	$	310,218	$	31,610	$	111,954	$	55,704	$	69,469	$	939,305

Short Term 1-4 Unit - Purchase
Payment performance
Performing	$	40,967	$	944	$	15,659	$	4,174	$	—	$	—	$	61,744
Nonperforming		1,287		5,212		995		542		104		—		8,140
Total Short Term 1-4 Unit - Purchase	$	42,254	$	6,156	$	16,654	$	4,716	$	104	$	—	$	69,884

Short Term 1-4 Unit - Refinance
Payment performance
Performing	$	35,555	$	—	$	—	$	—	$	—	$	—	$	35,555
Nonperforming		786		1,221		10,545		18,245		4,805		—		35,602
Total Short Term 1-4 Unit - Refinance	$	36,341	$	1,221	$	10,545	$	18,245	$	4,805	$	—	$	71,157

Total Portfolio	$	1,243,841	$	1,033,695	$	168,977	$	358,100	$	231,024	$	241,647	$	3,277,284


	Term Loans Amortized Cost Basis by Origination Year
December 31, 2021:	2021		2020		2019		2018		2017		Pre-2017		Total
Commercial - Purchase
Payment performance
Performing	$	277,618	$	45,836	$	81,541	$	46,637	$	24,164	$	16,365	$	492,161
Nonperforming		288		1,781		5,541		4,180		3,539		1,931		17,260
Total Commercial - Purchase	$	277,906	$	47,617	$	87,082	$	50,817	$	27,703	$	18,296	$	509,421

Commercial - Refinance
Payment performance
Performing	$	239,688	$	64,966	$	144,017	$	118,735	$	62,374	$	67,545	$	697,325
Nonperforming		2,482		3,949		26,012		26,869		16,492		10,131		85,935
Total Commercial - Refinance	$	242,170	$	68,915	$	170,029	$	145,604	$	78,866	$	77,676	$	783,260

Residential 1-4 Unit - Purchase
Payment performance
Performing	$	263,180	$	12,878	$	48,930	$	29,544	$	12,863	$	23,990	$	391,385
Nonperforming		1,372		2,749		3,896		3,736		3,487		2,145		17,385
Total Residential 1-4 Unit - Purchase	$	264,552	$	15,627	$	52,826	$	33,280	$	16,350	$	26,135	$	408,770

Residential 1-4 Unit - Refinance
Payment performance
Performing	$	343,199	$	31,334	$	114,145	$	59,825	$	31,774	$	42,491	$	622,768
Nonperforming		11,646		6,040		31,816		30,626		16,677		10,747		107,552
Total Residential 1-4 Unit - Refinance	$	354,845	$	37,374	$	145,961	$	90,451	$	48,451	$	53,238	$	730,320

Short Term 1-4 Unit - Purchase
Payment performance
Performing	$	1,890	$	15,582	$	8,531	$	—	$	—	$	—	$	26,003
Nonperforming		—		1,565		1,316		105		—		—		2,986
Total Short Term 1-4 Unit - Purchase	$	1,890	$	17,147	$	9,847	$	105	$	—	$	—	$	28,989

Short Term 1-4 Unit - Refinance
Payment performance
Performing	$	1,448	$	11,991	$	12,326	$	—	$	—	$	—	$	25,765
Nonperforming		1,038		15,819		22,618		5,825		—		—		45,300
Total Short Term 1-4 Unit - Refinance	$	2,486	$	27,810	$	34,944	$	5,825	$	—	$	—	$	71,065

Total Portfolio	$	1,143,849	$	214,490	$	500,689	$	326,082	$	171,370	$	175,345	$	2,531,825