XML 36 R14.htm IDEA: XBRL DOCUMENT
v3.20.2

VARIABLE INTEREST ENTITIES | 6 Months Ended
--- | ---
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
VARIABLE INTEREST ENTITIES |
8. VARIABLE INTEREST ENTITIES
Commercial Trusts The Company has invested in subordinate mortgage-backed securities issued by commercial securitization trusts (“Commercial Trusts”) and determined that it is the primary beneficiary as a result of its ability to replace the special servicer without cause through its ownership of the subordinate securities and its current designation as the directing certificate holder. Information regarding these securitization trusts are summarized in the table below.
Type of Underlying Collateral | Settlement Date | Cut-off Date Principal Balance | Face Value of Company’s Variable Interest at Settlement Date
|  | (dollars in thousands)
Multifamily | April 2015 | $ | 1,192,607 |  | $ | 89,446 |
Hotels | June 2018 | $ | 982,000 |  | $ | 93,500 |
Multifamily | August 2019 | $ | 271,700 |  | $ | 20,270 |
Office Building | October 2019 | $ | 60,000 |  | $ | 60,000 |
Multifamily | October 2019 | $ | 415,000 |  | $ | 75,359 |
Multifamily | December 2019 | $ | 394,000 |  | $ | 110,350 |
Upon consolidation, the Company elected the fair value option for the financial assets and liabilities of the Commercial Trusts in order to avoid an accounting mismatch, and to represent more faithfully the economics of its interest in the entities. The fair value option requires that changes in fair value be reflected in the Company’s Consolidated Statements of Comprehensive Income (Loss). The Company applied the practical expedient under ASU 2014-07, whereby the Company determines whether the fair value of the financial assets or financial liabilities is more observable as a basis for measuring the less observable financial instruments. The Company has determined that the fair value of the financial liabilities of the Commercial Trusts are more observable, since the prices for these liabilities are primarily available from third-party pricing services utilized for multifamily and commercial mortgage-backed securities, while the individual assets of the trusts are inherently less capable of precise measurement given their illiquid nature and the limitations on available information related to these assets. Given that the Company’s methodology for valuing the financial assets of the Commercial Trusts are an aggregate fair value derived from the fair value of the financial liabilities, the Company has determined that the fair value of each of the financial assets in their entirety should be classified in Level 2 of the fair value measurement hierarchy. The Commercial Trusts mortgage loans had an aggregate unpaid principal balance of $2.3 billion and $2.3 billion at June 30, 2020 and December 31, 2019, respectively. At June 30, 2020 and December 31, 2019, there were no loans 90 days or more past due or on nonaccrual status. There is no gain or loss attributable to instrument-specific credit risk of the underlying loans or securitized debt securities at June 30, 2020 and 2019 based upon the Company’s process of monitoring events of default on the underlying mortgage loans. Commercial Securitizations The Company also invests in commercial mortgage-backed securities issued by entities that are VIEs because they do not have sufficient equity at risk for the entities to finance their activities without additional subordinated financial support from other parties, but the Company is not the primary beneficiary because it does not have the power to direct the activities that most significantly impact the VIEs’ economic performance. For these entities, the Company’s maximum exposure to loss is the amortized cost basis of the securities it owns and it does not provide any liquidity arrangements, guarantees or other commitments to these VIEs. See the “Securities” Note for further information on Commercial Securities. Collateralized Loan Obligation In February 2019, the Company closed NLY 2019-FL2, a managed commercial real estate collateralized loan obligation (“CLO”) securitization with a face value of $857.3 million, which provides non-recourse financing to the Company collateralized by certain commercial real estate mortgage loans originated by the Company. As of June 30, 2020 a total of $610.1 million of notes were held by third parties and the Company retained or purchased $196.6 million of subordinated notes and preferred shares, which eliminate upon consolidation. The Company has determined that it is the primary beneficiary because it has the right to direct the servicer as well as remove the special servicer without cause and it holds variable interests that could be potentially significant to the CLO. The transfers of loans to the CLO did not qualify for sale accounting because the Company maintains effective control over the loans. The Company elected the fair value option for the financial liabilities issued by the CLO in order to simplify the accounting; however, the commercial loans continue to be carried at amortized cost as they were not eligible for the fair value option as it was not elected at origination of the loans. The Company incurred $8.3 million of costs in connection with the CLO that were expensed as incurred during the year ended December 31, 2019. The aggregate unpaid principal balance of loans in the CLO was $857.3 million at June 30, 2020 and there were no loans 90 days or more past due or on nonaccrual status. There is no gain or loss attributable to instrument-specific credit risk of the debt securities at June 30, 2020 based upon the Company’s process of monitoring events of default on the underlying mortgage loans. The contractual principal amount of the CLO debt held by third parties was $633.9 million at June 30, 2020. Multifamily Securitization In November 2019, the Company repackaged Fannie Mae guaranteed multifamily mortgage-backed securities with a principal cut-off balance of $1.0 billion and retained interest only securities with a notional balance of $1.0 billion and senior securities with a principal balance of $28.5 million. In March 2020, the Company repackaged Fannie Mae guaranteed multifamily mortgage-backed securities with a principal cut-off balance of $0.5 billion and retained interest only securities with a notional balance of $0.5 billion. The Company determined that it was the primary beneficiary based upon its involvement in the design of these VIEs. The Company elected the fair value option for the financial liabilities of these VIEs in order to simplify the accounting; however, the financial assets were not eligible for the fair value option as it was not elected at purchase. The Company incurred $1.1 million of costs in connection with this multifamily securitization that were expensed as incurred during the six months ended June 30, 2020. Residential Trusts The Company consolidates a securitization trust, which is included in “Residential Trusts” in the tables below, that issued residential mortgage-backed securities that are collateralized by residential mortgage loans that had been transferred to the trust by one of the Company’s subsidiaries. The Company owns the subordinate securities, and a subsidiary of the Company continues to be the master servicer. As such, the Company is deemed to be the primary beneficiary of the residential mortgage trust and consolidates the entity. The Company has elected the fair value option for the financial assets and liabilities of this VIE, but has not elected to apply the practical expedient under ASU 2014-13 as prices of both the financial assets and financial liabilities of the residential mortgage trust are available from third-party pricing services. The contractual principal amount of the residential mortgage trust’s debt held by third parties was $43.2 million and $57.3 million at June 30, 2020 and December 31, 2019, respectively. Residential Securitizations The Company also invests in residential mortgage-backed securities issued by entities that are VIEs because they do not have sufficient equity at risk for the entities to finance their activities without additional subordinated financial support from other parties, but the Company is not the primary beneficiary because it does not have the power to direct the activities that most significantly impact the VIEs’ economic performance. For these entities, the Company’s maximum exposure to loss is the amortized cost basis of the securities it owns and it does not provide any liquidity arrangements, guarantees or other commitments to these VIEs. See the “Securities” Note for further information on Residential Securities. OBX Trusts The entities in the table below are referred to collectively as the “OBX Trusts.” These securitizations represent financing transactions which provide non-recourse financing to the Company that are collateralized by residential mortgage loans purchased by the Company.
Securitization | Date of Closing | Face Value at Closing
|  | (dollars in thousands)
OBX 2018-1 | March 2018 | $ | 327,162 |
OBX 2018-EXP1 | August 2018 | $ | 383,451 |
OBX 2018-EXP2 | October 2018 | $ | 384,027 |
OBX 2019-INV1 | January 2019 | $ | 393,961 |
OBX 2019-EXP1 | April 2019 | $ | 388,156 |
OBX 2019-INV2 | June 2019 | $ | 383,760 |
OBX 2019-EXP2 | July 2019 | $ | 463,405 |
OBX 2019-EXP3 | October 2019 | $ | 465,492 |
OBX 2020-INV1 | January 2020 | $ | 374,609 |
OBX 2020-EXP1 | February 2020 | $ | 467,511 |
As of June 30, 2020, a total of $2.3 billion of bonds were held by third parties and the Company retained $526.3 million of mortgage-backed securities, which were eliminated in consolidation. The Company is deemed to be the primary beneficiary and consolidates the OBX Trusts because it has power to direct the activities that most significantly impact the OBX Trusts’ performance and holds a variable interest that could be potentially significant to these VIEs. The Company has elected the fair value option for the financial assets and liabilities of these VIEs, but has not elected the practical expedient under ASU 2014-13 as prices of both the financial assets and financial liabilities of the residential mortgage trusts are available from third-party pricing services. The Company incurred $0.0 and $3.0 million of costs during the three months ended June 30, 2020 and 2019, respectively, and $3.7 million and $4.7 million of costs during the six months ended June 30, 2020 and 2019, respectively, in connection with these securitizations that were expensed as incurred. The contractual principal amount of the OBX Trusts’ debt held by third parties was $2.3 billion at June 30, 2020. Although the residential mortgage loans have been sold for bankruptcy and state law purposes, the transfers of the residential mortgage loans to the OBX Trusts did not qualify for sale accounting and are reflected as intercompany secured borrowings that are eliminated upon consolidation. Credit Facility VIEs In June 2016, a consolidated subsidiary of the Company entered into a credit facility with a third party financial institution. As of June 30, 2020, the borrowing limit on this facility was $625.0 million. The subsidiary was deemed to be a VIE and the Company was determined to be the primary beneficiary due to its role as collateral manager and because it holds a variable interest in the entity that could potentially be significant to the entity. The Company has pledged as collateral for this facility corporate loans with a carrying amount of $741.3 million at June 30, 2020. The transfers did not qualify for sale accounting and are reflected as an intercompany secured borrowing that is eliminated upon consolidation. At June 30, 2020, the subsidiary had an intercompany receivable of $426.4 million, which eliminates upon consolidation and a secured financing of $426.4 million to the third party financial institution. In July 2017, a consolidated subsidiary of the Company entered into a credit facility with a third party financial institution. As of June 30, 2020, the borrowing limit on this facility was $320.0 million. The subsidiary was deemed to be a VIE and the Company was determined to be the primary beneficiary due to its role as servicer and because it holds a variable interest in the entity that could potentially be significant to the entity. The Company has transferred corporate loans to the subsidiary with a carrying amount of $454.9 million at June 30, 2020, which continue to be reflected in the Company’s Consolidated Statements of Financial Condition under Loans, net. At June 30, 2020, the subsidiary had a secured financing of $257.8 million to the third party financial institution. In January 2019, a consolidated subsidiary of the Company (the “Borrower”) entered into a $300.0 million credit facility with a third party financial institution. The Company has pledged as collateral for this facility corporate loans with a carrying amount of $336.8 million at June 30, 2020. As of June 30, 2020, the Borrower had a secured financing of $211.6 million to the third party financial institution. MSR Silo The Company also owns variable interests in an entity that invests in MSRs and has structured its operations, funding and capitalization into pools of assets and liabilities, each referred to as a “silo.” Owners of variable interests in a given silo are entitled to all of the returns and subjected to the risk of loss on the investments and operations of that silo and have no substantive recourse to the assets of any other silo. While the Company previously held 100% of the voting interests in this entity, in August 2017, the Company sold 100% of such interests, and entered into an agreement with the entity’s affiliated portfolio manager giving the Company the power over the silo in which it owns all of the beneficial interests. As a result, the Company is considered to be the primary beneficiary and consolidates this silo. The Company’s exposure to the obligations of its VIEs is generally limited to the Company’s investment in the VIEs of $2.6 billion at June 30, 2020. Assets of the VIEs may only be used to settle obligations of the VIEs. Creditors of the VIEs have no recourse to the general credit of the Company. The Company is not contractually required to provide and has not provided any form of financial support to the VIEs. No gains or losses were recognized upon consolidation of existing VIEs. Interest income and expense are recognized using the effective interest method. The statements of financial condition of the Company’s VIEs, excluding the CLO, credit facility VIEs and OBX Trusts as the transfers of loans did not meet the criteria to be accounted for as sales, that are reflected in the Company’s Consolidated Statements of Financial Condition at June 30, 2020 and December 31, 2019 are as follows:
June 30, 2020
| Commercial Trusts |  | Residential Trusts |  | MSR Silo
Assets | (dollars in thousands)
Cash and cash equivalents | $ | — |  |  | $ | — |  |  | $ | 74,654 |
Loans | — |  |  | — |  |  | 61,147 |
Assets transferred or pledged to securitization vehicles | 2,150,623 |  |  | 60,948 |  |  | — |
Mortgage servicing rights | — |  |  | — |  |  | 227,400 |
Principal and interest receivable | 5,405 |  |  | 364 |  |  | — |
Other assets | — |  |  | — |  |  | 23,581 |
Total assets | $ | 2,156,028 |  |  | $ | 61,312 |  |  | $ | 386,782 |
Liabilities |  |  |  |  |  |  |  |
Debt issued by securitization vehicles (non-recourse) | $ | 1,830,018 |  |  | $ | 43,408 |  |  | $ | — |
Other secured financing | — |  |  | — |  |  | 33,896 |
Payable for unsettled trades | — |  |  | — |  |  | 11,720 |
Interest payable | 1,622 |  |  | 104 |  |  | — |
Other liabilities | — |  |  | 129 |  |  | 2,378 |
Total liabilities | $ | 1,831,640 |  |  | $ | 43,641 |  |  | $ | 47,994 |
December 31, 2019
| Commercial Trusts |  | Residential Trusts |  | MSR Silo
Assets | (dollars in thousands)
Cash and cash equivalents | $ | — |  |  | $ | — |  |  | $ | 67,455 |
Loans | — |  |  | — |  |  | 66,722 |
Assets transferred or pledged to securitization vehicles | 2,345,120 |  |  | 75,924 |  |  | — |
Mortgage servicing rights | — |  |  | — |  |  | 378,078 |
Principal and interest receivable | 7,085 |  |  | 408 |  |  | — |
Other assets | — |  |  | — |  |  | 27,021 |
Total assets | $ | 2,352,205 |  |  | $ | 76,332 |  |  | $ | 539,276 |
Liabilities |  |  |  |  |  |  |
Debt issued by securitization vehicles (non-recourse) | $ | 1,967,523 |  |  | $ | 57,905 |  |  | $ | — |
Other secured financing | — |  |  | — |  |  | 38,981 |
Payable for unsettled trades | — |  |  | — |  |  | 18,364 |
Interest payable | 3,008 |  |  | 137 |  |  | — |
Other liabilities | — |  |  | 78 |  |  | 2,393 |
Total liabilities | $ | 1,970,531 |  |  | $ | 58,120 |  |  | $ | 59,738 |
The geographic concentrations of credit risk exceeding 5% of the total loan unpaid principal balances related to the Company’s VIEs, excluding the CLO, OBX Trusts and credit facility VIEs, at June 30, 2020 are as follows: Securitized Loans at Fair Value Geographic Concentration of Credit Risk
Commercial Trusts |  | Residential Trusts
Property Location |  | Principal Balance |  | % of Balance |  | Property Location |  | Principal Balance |  | % of Balance
(dollars in thousands)
California |  | $ | 1,270,544 |  |  | 38.7 | % |  | California |  | $ | 27,442 |  |  | 45.0 | %
Texas |  | 478,457 |  |  | 14.6 | % |  | Texas |  | 8,309 |  |  | 13.6 | %
New York |  | 370,697 |  |  | 11.3 | % |  | Illinois |  | 6,534 |  |  | 10.7 | %
Florida |  | 196,495 |  |  | 6.0 | % |  | Other (1) |  | 18,695 |  |  | 30.7 | %
Other (1) |  | 968,561 |  |  | 29.4 | % |  |  |  |  |  |  |  |
Total |  | $ | 3,284,754 |  |  | 100.0 | % |  | Total |  | $ | 60,980 |  |  | 100.0 | %
(1) No individual state greater than 5%.

X
- References No definition available. + Details
Name: | us-gaap_OrganizationConsolidationAndPresentationOfFinancialStatementsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI http://asc.fasb.org/topic&trid=2197479 + Details
Name: | us-gaap_VariableInterestEntityDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration