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LOANS | 9 Months Ended
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Sep. 30, 2023
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Abstract] |
LOANS |
6. LOANS
The Company invests in residential 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, 2023 and December 31, 2022, the Company rep orted $1.8 billion and $1.8 billion, 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. If loans are held for sale and the fair value option was not elected, they are accounted for at the lower of cost or fair value. 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 $1.1 million and $1.3 million at September 30, 2023 and December 31, 2022, respectively. Allowance for Losses – Prior to the sale of its corporate debt and commercial loan portfolios, the Company evaluated the need for a loss reserve on each of its loans classified as held-for investment and carried at amortized cost based upon estimated current expected credit losses. The Company recorded net loan loss (provisions) reversals of $0.0 million and $1.6 million for the three months ended September 30, 2023 and 2022, respectively, and $0.2 million and $27.9 million for the nine months ended September 30, 2023 and 2022, respectively. The following table presents the activity of the Company’s loan investments, excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, for the nine months ended September 30, 2023:
| Residential |  |  |  |  |  |  |  |
| (dollars in thousands)
Beginning balance January 1, 2023 | $ | 1,809,832 |  |  |  |  |  |  |  |  |
Purchases / originations | 3,438,802 |  |  |  |  |  |  |  |  |
Sales and transfers (1) | (3,375,118) |  |  |  |  |  |  |  |  |
Principal payments | (82,602) |  |  |  |  |  |  |  |  |
Gains / (losses) | 8,093 |  |  |  |  |  |  |  |  |
(Amortization) / accretion | (5,867) |  |  |  |  |  |  |  |  |
Ending balance September 30, 2023 | $ | 1,793,140 |  |  |  |  |  |  |  |  |
(1) Includes transfer of residential loans to securitization vehicles with a carrying value of $3.4 billion during the nine months ended September 30, 2023.
Residential 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 gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). 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 mortgage loans are secured by first liens on primarily one-to-four family residential properties. A subsidiary of the Company has engaged a third party to act as its custodian, agent and bailee for the purposes of receiving and holding certain documents, instruments and papers related to the residential mortgage loans it purchases. Pursuant to the Company’s custodial agreement, the custodian segregates and maintains continuous custody of all documents constituting the mortgage file with respect to each mortgage loan owned by the subsidiary in secure and fire resistant facilities and in a manner consistent with the standard of care employed by prudent mortgage loan document custodians. At or prior to the funding of any residential mortgage loan, the related seller, pursuant to the terms of our mortgage loan purchase agreement, must deliver to the custodian, the mortgage loan documents including the mortgage note, the mortgage and other related loan documents. In addition, a complete credit file for the related mortgage and borrower must be delivered to the subsidiary prior to the date of purchase. 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, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022
| (dollars in thousands)
Fair value | $ | 13,243,486 |  | $ | 10,931,744 |
Unpaid principal balance | $ | 14,910,846 |  | $ | 12,247,346 |
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, 2023 and 2022 for these investments, excluding loan warehouse facilities:
| For the Three Months Ended |  | For the Nine Months Ended
| September 30, 2023 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
| (dollars in thousands)
Interest income | $ | 181,965 |  |  | $ | 109,973 |  |  | $ | 491,397 |  |  | $ | 275,083 |
Net gains (losses) on disposal of investments (1) | (1,087) |  |  | 1,103 |  |  | (3,358) |  |  | (11,555) |
Net unrealized gains (losses) on instruments measured at fair value through earnings (1) | (418,776) |  |  | (541,771) |  |  | (326,096) |  |  | (1,281,501) |
Total included in net income (loss) | $ | (237,898) |  |  | $ | (430,695) |  |  | $ | 161,943 |  |  | $ | (1,017,973) |
(1) These amounts are presented in the line item Net gains (losses) on investments and other on the Consolidated Statements of Comprehensive Income (loss).
The following table provides the geographic concentrations based on the unpaid principal balances at September 30, 2023 and December 31, 2022 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:
Geographic Concentrations of Residential Mortgage Loans
September 30, 2023 |  | December 31, 2022
Property location | % of Balance |  | Property location | % of Balance
California | 41.9% |  | California | 44.8%
New York | 10.3% |  | New York | 10.3%
Florida | 10.1% |  | Florida | 8.3%
Texas | 5.4% |  | Texas | 5.1%
All other (none individually greater than 5%) | 32.3% |  | All other (none individually greater than 5%) | 31.5%
Total | 100.0% |  |  | 100.0%
The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, at September 30, 2023 and December 31, 2022:
| September 30, 2023 |  | December 31, 2022
| Portfolio Range | Portfolio Weighted Average |  | Portfolio Range | Portfolio Weighted Average
| (dollars in thousands)
Unpaid principal balance | $1 - $4,396 |  | $477 |  | $3 - $4,396 |  | $489
Interest rate | 2.00% - 12.00% |  | 5.28% |  | 2.00% - 15.00% |  | 4.61%
Maturity | 7/1/2029 - 9/1/2063 |  | 2/9/2052 |  | 7/1/2029 - 1/1/2063 |  | 10/6/2051
FICO score at loan origination | 549 - 839 |  | 758 |  | 588 - 831 |  | 759
Loan-to-value ratio at loan origination | 5% - 100% |  | 68% |  | 5% - 100% |  | 68%
At September 30, 2023 and December 31, 2022, approximately 12% and 11%, respectively, of the carrying value of the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, were adjustable-rate. The Company participated in an arrangement that provided a residential mortgage loan warehouse facility to a third-party originator. The arrangement was not renewed and expired during the quarter-ended September 30, 2023. The Company had 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 December 31, 2022, there were no outstanding balances on this warehouse facility. Corporate Debt In April 2022, the Company entered into a definitive agreement to sell substantially all of the corporate loan interests held by the middle market lending (“MML”) business operated by the Company, as well as assets managed for third parties (collectively, the “MML Portfolio”). All of the assets comprising the MML Portfolio were transferred by the end of 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.

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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Topic 310 -SubTopic 10 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//310-10/tableOfContent + Details
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