The Company invests in residential and corporate loans. Loans are classified as either held for investment or held for sale. Loans are eligible to be accounted for under the fair value option. If loans are elected under the fair value option, they are carried at fair value with changes in fair value recognized in earnings. Otherwise, loans held for investment are carried at cost less impairment and loans held for sale are accounted for at the lower of cost or fair value.

Excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, as of September 30, 2021 and December 31, 2020, the Company reported $1.7 billion and $345.8 million, respectively, of loans for which the fair value option was elected. If the Company intends to sell or securitize the loans and the securitization vehicle is not expected to be consolidated, the loans are classified as held for sale. Any origination fees and costs or purchase premiums or discounts are deferred and recognized upon sale. The Company determines the fair value of loans held for sale on an individual loan basis. The carrying value of the Company’s residential loans held for sale was $3.7 million and $47.0 million at September 30, 2021 and December 31, 2020, respectively.

Allowance for Losses – The Company evaluates the need for a loss reserve on each of its loans classified as held for investment where the fair value option is not elected. Allowance for loan losses are written off in the period the loans are deemed uncollectible.

of the total expected credit loss over the expected life of the loan. In estimating the lifetime expected credit losses, management utilizes a probability of default and loss given default methodology (“Loss Given Default methodology”), which considers projected economic conditions over the reasonable and supportable forecast period. The forecast incorporates primarily market-based assumptions including, but not limited to, forward interest rate curves, unemployment rate estimates and certain indexes sourced from third party vendors. For any remaining period of the expected life of the loan after the reasonable and supportable period, the Company reverts to historical losses on a straight-line basis. Management uses third party vendors’ loan pool data for loans with similar risk characteristics to estimate historical losses given the limited loss history of the Company’s loan portfolio. Changes in the lifetime expected credit loss are reflected in Loan loss (provision) reversal in the Consolidated Statements of Comprehensive Income (Loss).

For loans experiencing credit deterioration, the Company may use a different methodology to determine the expected credit losses such as a discounted cash flow analysis. For collateral-dependent loans, if foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for any selling costs, if applicable. Additionally, the Company may elect the practical expedient for a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty by measuring the allowance as the difference between the fair value of the collateral, less costs to sell, if applicable, and the amortized cost basis of the financial asset at the reporting date. The Company’s commercial loans are collateralized by commercial real estate including, but not limited to, multifamily real estate, office and retail space, hotels and industrial space. At origination, the fair value of the collateral generally exceeds the principal loan balance.

Management assesses the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. Depending on the expected recovery of its investment, the Company considers the estimated net recoverable value of the loans as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive landscape where the borrower conducts business. To determine if loan loss allowances are required on investments in corporate debt, the Company reviews the monthly and/or quarterly financial statements of the borrowers, verifies loan compliance packages, if applicable, and analyzes current results relative to budgets and sensitivities performed at inception of the investment. Because these determinations are based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized may differ materially from the carrying value as of the reporting date.

The Company may be exposed to various levels of credit risk depending on the nature of its investments and credit enhancements, if any, supporting its assets. The Company’s core investment process includes procedures related to the initial approval and periodic monitoring of credit risk and other risks associated with each investment. The Company’s investment underwriting procedures include evaluation of the underlying borrowers’ ability to manage and operate their respective properties or companies. Management reviews loan-to-value metrics at origination or acquisition of a new investment and if events occur that trigger re-evaluation by management.

The Company recorded net loan loss (provisions) reversals of $6.1 million and $145.3 million for the three and nine months ended September 30, 2021, respectively. The Company recorded net loan loss (provisions) reversals of $22.0 million and ($146.1) million for the three and nine months ended September 30, 2020, respectively. As of September 30, 2021 and December 31, 2020, the Company’s loan loss allowance was $27.7 million and $169.5 million, respectively.


	Residential		Commercial		Corporate Debt		Corporate Debt Held for Sale (1)		Total
	(dollars in thousands)
Beginning balance January 1, 2021	$	345,810	$	498,081	$	2,239,930	$	—	$	3,083,821

Purchases / originations	3,597,844		126,722		1,055,048		468,483		5,248,097
Sales and transfers (2)	(2,206,190)		(608,202)		(879,622)		(466,370)		(4,160,384)



Principal payments	(43,690)		(84,929)		(546,631)		—		(675,250)
Gains / (losses) (3)	(784)		67,784		11,826		—		78,826
(Amortization) / accretion	(6,722)		544		10,158		—		3,980

Ending balance September 30, 2021	$	1,686,268	$	—	$	1,890,709	$	2,113	$	3,579,090


(1) Represents loans the Company originated during the three months ended June 30, 2021 and subsequently syndicated and closed. At September 30, 2021, loans held for sale were carried at the lower of cost or fair value. (2) Includes securitizations, syndications, transfers to securitization vehicles and commercial loan transfers to assets of disposal group held for sale. Includes transfer of residential loans to securitization vehicles with a carrying value of $2.0 billion during the nine months ended September 30, 2021. (3) Includes loan loss allowances.

The Company also has off-balance-sheet credit exposures related to unfunded loan commitments, including revolvers, delayed draw term loans and future funding commitments that are not unconditionally cancelable by the Company. The Company utilizes the same methodology in calculating the liability related to the expected credit losses on these exposures as it does for the calculation of the allowance for loan losses. In determining the estimate of credit losses for off-balance-sheet credit exposures, the Company will consider the contractual period in which the entity is exposed to credit risk and the likelihood that funding will occur, if material. Estimated credit losses for off-balance-sheet credit exposures are included in Other liabilities on the Company’s Consolidated Statements of Financial Condition.

The Company’s residential mortgage loans are primarily comprised of performing adjustable-rate and fixed-rate whole loans. The Company’s residential loans are accounted for under the fair value option with changes in fair value reflected in Net unrealized gains (losses) on instruments measured at fair value through earnings in the Consolidated Statements of Comprehensive Income (Loss). Additionally, the Company consolidates a collateralized financing entity that securitized prime adjustable-rate jumbo residential mortgage loans. The Company also consolidates securitization trusts in which it had purchased subordinated securities because it also has certain powers and rights to direct the activities of such trusts. Refer to the “Variable Interest Entities” Note for further information related to the Company’s consolidated residential mortgage loan trusts.

The following table presents the fair value and the unpaid principal balances of the residential mortgage loan portfolio, including loans transferred or pledged to securitization vehicles and excluding loan warehouse facilities, at September 30, 2021 and December 31, 2020:

The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020 for these investments, excluding loan warehouse facilities:


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
	(dollars in thousands)
Interest income	$	45,799	$	42,508	$	121,871	$	132,937
Net gains (losses) on disposal of investments and other	(7,154)		(4,638)		(34,095)		(22,014)
Net unrealized gains (losses) on instruments measured at fair value through earnings	12,525		77,837		49,436		(4,381)
Total included in net income (loss)	$	51,170	$	115,707	$	137,212	$	106,542

Geographic Concentrations of Residential Mortgage Loans

September 30, 2021

December 31, 2020

Property location

% of Balance

Property location

% of Balance

California

51.3%

California

48.9%

New York

10.7%

New York

14.0%

Florida

6.4%

Florida

6.0%

All other (none individually greater than 5%)

31.6%

All other (none individually greater than 5%)

31.1%

Total

100.0%


	September 30, 2021		December 31, 2020
	Portfolio Range	Portfolio Weighted Average	Portfolio Range	Portfolio Weighted Average
	(dollars in thousands)
Unpaid principal balance	$1 - $4,382	$517	$1 - $3,448	$473
Interest rate	0.50% - 9.24%	4.25%	0.50% - 9.24%	4.89%
Maturity	7/1/2029 - 10/1/2061	6/5/2050	7/1/2029 - 1/1/2061	4/17/2046
FICO score at loan origination	604 - 829	761	505 - 829	755
Loan-to-value ratio at loan origination	8% - 103%	66%	8% - 104%	67%

During the three months ended September 30, 2021, the Company participated in an arrangement that provided a residential mortgage loan warehouse facility to a third-party originator. The Company has elected to apply the fair value option to this lending facility in order to simplify the accounting and keep the accounting consistent with other residential credit financial instruments with similar characteristics. At September 30, 2021, the fair value and carrying value of this warehouse facility was approximately $1.4 million and is reported as Loans, net in the Consolidated Statements of Financial Condition. As of September 30, 2021, the lending facility was not on nonaccrual status nor past due.

As of September 30, 2021, commercial real estate loans are reported in Assets of disposal group held for sale in the Consolidated Statements of Financial Condition and classified as held for sale. As of December 31, 2020, commercial real estate loans are reported in Loans, net in the Consolidated Statements of Financial Condition and classified as held for investment. Refer to the “Sale of Commercial Real Estate Business” Note for additional information on the transaction.

The Company’s commercial real estate loans are comprised of adjustable-rate and fixed-rate loans. The difference between the principal amount of a loan and proceeds at acquisition is recorded as either a discount or premium. Commercial real estate loans and preferred equity interests that were designated as held for investment and were originated or purchased by the Company were carried at their outstanding principal balance, net of unamortized origination fees and costs, premiums or discounts, less an allowance for losses, if necessary. Origination fees and costs, premiums or discounts are amortized into interest income over the life of the loan.

During the period the Company owns the assets, management generally reviews the most recent financial information and metrics derived therefrom produced by the borrower, which may include, but is not limited to, net operating income (“NOI”), debt service coverage ratios, property debt yields (net cash flow or NOI divided by the amount of outstanding indebtedness), loan per unit and rent rolls relating to each of the Company’s commercial real estate loans and preferred equity interests (“CRE Debt and Preferred Equity Investments”), and may consider other factors management deems important. Management also reviews market pricing to determine each borrower’s ability to refinance their respective assets at the maturity of each loan, economic trends (both macro and those affecting the property specifically), and the supply and demand of competing projects in the sub-market in which each subject property is located. Management monitors the financial condition and operating results of its borrowers and continually assesses the future outlook of the borrower’s financial performance in light of industry developments, management changes and company-specific considerations.

The Company’s commercial loans are collateral-dependent and, as such, for loans experiencing credit deterioration, the Company is required to record an allowance for loans held for investment based upon the fair value of the underlying collateral if foreclosure is probable or if the practical expedient is elected. For the nine months ended September 30, 2021, the Company reversed the loan loss allowance resulting in a loan loss reversal on impaired commercial loans of $67.4 million as the loans are classified as held for sale and are carried at lower of cost or fair value. For the three and nine months ended September 30, 2020, the Company recorded a loan loss (provision) reversal on impaired commercial loans of $0 and ($74.1) million, respectively, based upon the fair value of the underlying collateral. The Company uses a discounted cash flow or market based valuation technique based upon the underlying property to project property cash flows. In projecting these cash flows, the Company reviewed the borrower financial statements, rent rolls, economic trends and other factors management deems important. These nonrecurring fair value measurements are considered to be in Level 3 of the fair value measurement hierarchy as there are unobservable inputs, which are significant to the overall fair value.

For the nine months ended September 30, 2021, the Company reversed the loan loss allowance based upon its Loss Given Default methodology resulting in a loan loss reversal on commercial loans of $62.5 million as the loans are classified as held for sale and are carried at lower of cost or fair value. For the three and nine months ended September 30, 2020, the Company recorded a net loan loss (provision) reversal of $4.9 million and ($57.4) million, respectively, based upon its Loss Given Default methodology. As a result of the implementation of the Loss Given Default methodology under the modified retrospective method, a cumulative effect loan loss allowance of $7.8 million was recorded on January 1, 2020.

During the year ended December 31, 2020, the Company modified five commercial loans with a carrying value of $243.8 million at December 31, 2020. The maturity dates on four commercial loans were extended and one commercial loan was granted a 120 day forebearance. Additionally, as part of the restructuring, two loans had partial paydowns totaling $4.5 million. The loan loss allowance recorded for these commercial loans was $23.6 million at December 31, 2020. Future funding commitments on the restructured loans totaled $4.1 million at December 31, 2020.


September 30, 2021
	Senior Mortgages		Senior Securitized Mortgages (1)		Mezzanine Loans		Total
	(dollars in thousands)
Beginning balance (January 1, 2021) (2)	$	373,925	$	874,349	$	124,156	$	1,372,430

Originations & advances (principal)	127,481		69		644		128,194
Principal payments	(75,007)		(87,253)		(9,922)		(172,182)


Transfers and sales (3)	(436,408)		(797,116)		(171,794)		(1,405,318)
Net (increase) decrease in origination fees	(1,403)		—		—		(1,403)

Amortization of net origination fees	501		486		43		1,030
Allowance for loan losses
Beginning allowance	(10,911)		(62,149)		(56,873)		(129,933)


Current period (allowance) reversal	10,911		62,149		56,873		129,933

Ending allowance	—		—		—		—


Net carrying value (September 30, 2021)	$	—	$	52,684	$	—	$	52,684


December 31, 2020
	Senior Mortgages		Senior Securitized Mortgages (1)		Mezzanine Loans		Total
	(dollars in thousands)
Beginning balance (January 1, 2020) (2)	$	499,690	$	936,378	$	182,726	$	1,618,794
Originations & advances (principal)	206,090		—		12,374		218,464
Principal payments	(77,344)		(144,308)		(78)		(221,730)
Principal write off	—		—		(7,000)		(7,000)


Transfers (3)	(245,120)		142,621		(7,100)		(109,599)
Net (increase) decrease in origination fees	(1,055)		(653)		(80)		(1,788)
Realized gain	204		—		—		204
Amortization of net origination fees	2,371		2,460		187		5,018
Allowance for loan losses
Beginning allowance, prior to CECL adoption	—		—		(12,703)		(12,703)
Impact of adopting CECL	(2,263)		(4,166)		(1,336)		(7,765)
Current period (allowance) reversal	(8,648)		(57,983)		(66,521)		(133,152)

Write offs	—		—		23,687		23,687
Ending allowance	(10,911)		(62,149)		(56,873)		(129,933)

Net carrying value (December 31, 2020)	$	373,925	$	874,349	$	124,156	$	1,372,430

(1) Represents assets of consolidated VIEs held for sale at September 30, 2021. (2) Excludes loan loss allowances. (3) Includes transfers to securitization vehicles.

The Company’s investments in corporate loans typically take the form of senior secured loans primarily in first or second lien positions. The Company’s senior secured loans generally have stated maturities of five to eight years. In connection with these senior secured loans, the Company receives a security interest in certain assets of the borrower and such assets support repayment of such loans. Senior secured loans are generally exposed to less credit risk than more junior loans given their seniority to scheduled principal and interest and priority of security in the assets of the borrower. Interest income from coupon payments is accrued based upon the outstanding principal amounts of the debt and its contractual terms. Premiums and discounts are amortized or accreted into interest income using the effective interest method.


Risk Rating - Corporate Debt			Description
1-5 / Performing			Meets all present contractual obligations.
6 / Performing - Closely Monitored			Meets all present contractual obligations but exhibits a defined weakness in either leverage or liquidity, but not both. Loans at this rating will require closer monitoring, but where we expect no loss of interest or principal.
7 / Substandard			A loan that has a defined weakness in either leverage and/or liquidity, and which may require substantial changes to strengthen the asset. Loans at this rating level have a higher probability of loss, although no determination of the amount or timing of a loss is yet possible.
8 / Doubtful			A loan that has missed a scheduled principal or interest payment or is otherwise deemed a non-earning account. The probability of loss is increasingly certain due to significant performance issues.
9 / Loss			Considered uncollectible.

Management assesses each loan at least quarterly and assigns an internal risk rating based on its evaluation of the most recent financial information produced by the borrower and consideration of economic conditions. See below for a tabular disclosure of the amortized cost basis of the Company’s corporate debt held for investment by year of origination and internal risk rating.

There was no provision for loan loss recorded on corporate loans using a discounted cash flow methodology for the nine months ended September 30, 2021. For the three months ended September 30, 2020, the Company recorded a loan loss (provision) reversal of $5.4 million on impaired corporate loans using a discounted cash flow methodology with a principal balance and carrying value, net of allowances of $9.7 million and $9.6 million, respectively. For the nine months ended September 30, 2020, the Company recorded a net loan loss (provision) of ($4.5) million on impaired corporate loans using a discounted cash flow methodology with a principal balance and carrying value, net of allowances of $29.3 million and $21.9 million, respectively. During the nine months ended September 30, 2020, a loan was restructured and the Company received $2.8 million of second lien debt and $4.8 million of equity. As a result of the restructuring, $19.6 million of first lien debt was written off and the related allowance of $11.9 million was charged off.

For the three and nine months ended September 30, 2021 the Company recorded a net loan loss (provision) reversal on corporate loans of $6.1 million and $11.8 million, respectively, based upon its Loss Given Default methodology. For the three and nine months ended September 30, 2020 the Company recorded a net loan loss (provision) reversal on corporate loans of $11.6 million and ($10.1) million, respectively, based upon its Loss Given Default methodology. As a result of the implementation of the Loss Given Default methodology under the modified retrospective method, a cumulative effect loan loss allowance on corporate loans of $29.7 million was recorded on January 1, 2020.

At September 30, 2021 and December 31, 2020, the Company had unfunded corporate loan commitments of $221.7 million and $87.3 million, respectively. At September 30, 2021 and December 31, 2020, the liability related to the expected credit losses on the unfunded corporate loan commitments was $0.5 million and $0.7 million, respectively.


September 30, 2021
	First Lien		Second Lien		Total
	(dollars in thousands)
Beginning balance (January 1, 2021) (1)	$	1,489,125	$	750,805	$	2,239,930

Originations & advances	988,568		66,480		1,055,048
Sales and transfers (2)	(795,932)		(83,690)		(879,622)
Principal payments	(388,928)		(157,703)		(546,631)
Amortization & accretion of (premium) discounts	7,078		3,080		10,158
Loan restructuring	—		—		—


Allowance for loan losses
Beginning allowance	(18,767)		(20,785)		(39,552)

Current period (allowance) reversal	2,530		9,296		11,826

Ending allowance	(16,237)		(11,489)		(27,726)

Net carrying value (September 30, 2021)	$	1,302,441	$	588,268	$	1,890,709


December 31, 2020
	First Lien		Second Lien		Total
	(dollars in thousands)
Beginning balance (January 1, 2020) (1)	$	1,403,503	$	748,710	$	2,152,213
Originations & advances	834,211		227,433		1,061,644
Sales (2)	(273,887)		(79,203)		(353,090)
Principal payments	(444,759)		(132,000)		(576,759)
Amortization & accretion of (premium) discounts	8,374		3,832		12,206
Loan restructuring	(19,550)		2,818		(16,732)


Allowance for loan losses
Beginning allowance, prior to CECL adoption	(7,363)		—		(7,363)
Impact of adopting CECL	(10,787)		(18,866)		(29,653)
Current period (allowance) reversal	(12,510)		(1,919)		(14,429)
Write offs	11,893		—		11,893
Ending allowance	(18,767)		(20,785)		(39,552)

Net carrying value (December 31, 2020)	$	1,489,125	$	750,805	$	2,239,930


(1) Excludes loan loss allowances. (2) Includes syndications and, for the period ended September 30, 2021 includes transfers to held for sale.


Amortized Cost Basis by Risk Rating and Vintage (1)
Risk Rating	Vintage
	Total		2021		2020		2019		2018		2017		2016		2015
(dollars in thousands)
1-5 / Performing	$	1,728,548	$	416,715	$	363,377	$	219,426	$	545,882	$	159,772	$	23,376
6 / Performing - Closely Monitored	40,195		820		26,392		—		—		12,983		—		—
7 / Substandard	121,966		—		11,370		25,556		85,040		—		—		—
8 / Doubtful	—		—		—		—		—		—		—		—
9 / Loss	—		—		—		—		—		—		—		—
Total	$	1,890,709	$	417,535	$	401,139	$	244,982	$	630,922	$	172,755	$	23,376	$	—

(1) The amortized cost basis excludes accrued interest and includes deferred fees on unfunded loans. As of September 30, 2021, the Company had $12.1 million of accrued interest receivable on corporate loans which is reported in Principal and interest receivable in the Consolidated Statements of Financial Condition and $2.1 million of deferred loan fees on unfunded loans, which is reported in Loans, net in the Consolidated Statements of Financial Condition.