Securities Held-to-Maturity

9 Months Ended

Sep. 30, 2018

Note 7 — Securities Held-to-Maturity

Freddie Mac may choose to hold, sell or securitize loans we sell to them under the Freddie Mac SBL program. As part of the securitizations under the SBL program, we have the option to purchase the bottom tranche bond, generally referred to as the “B Piece,” that represents the bottom 10%, or highest risk, of the securitization. During the nine months ended September 30, 2018, we purchased two B Piece bonds with an initial face value of $31.2 million, at a discount, for $21.6 million. As of September 30, 2018, we retained 49%, or $72.2 million initial face value, of five B Piece bonds, which were purchased at a discount for $48.8 million, and sold the remaining 51% to a third party at par. These held-to-maturity securities are carried at cost, net of unamortized discounts, and are collateralized by a pool of multifamily mortgage loans, bear interest at an initial weighted average variable rate of 3.63% and have an estimated weighted average maturity of 5.7 years. The weighted average effective interest rate was 11.32% and 12.97% at September 30, 2018 and December 31, 2017, respectively, including the accretion of discount. Approximately $10.7 million is estimated to mature within one year, $30.6 million is estimated to mature after one year through five years, $20.0 million is estimated to mature after five years through ten years and $9.2 million is estimated to mature after ten years.

The following is a summary of our B Piece bonds classified as securities held-to-maturity (in thousands):


					Unrealized		Estimated Fair
Period	Face Value		Carrying Value		Gain		Value
September 30, 2018	$	70,518	$	50,520	$	1,792	$	52,312

December 31, 2017	$	40,566	$	27,837	$	602	$	28,439

As of September 30, 2018, no impairment was recorded on these held-to-maturity securities. During the three and nine months ended September 30, 2018, we recorded interest income of $0.6 million and $1.7 million, respectively, and, during the three and nine months ended September 30, 2017, we recorded interest income of $0.5 million and $0.9 million, respectively, related to these investments.