Residential Whole Loans

3 Months Ended

Mar. 31, 2021

Included on the Company’s consolidated balance sheets at March 31, 2021 and December 31, 2020 are approximately $5.2 billion and $5.3 billion, respectively, of residential whole loans arising from the Company’s interests in certain trusts established to acquire the loans and certain entities established in connection with its loan securitization transactions. The Company has assessed that these entities are required to be consolidated for financial reporting purposes.

Residential Whole Loans, at Carrying Value

The following table presents the components of the Company’s Residential whole loans, at carrying value at March 31, 2021 and December 31, 2020:


(Dollars In Thousands)	March 31, 2021		December 31, 2020
Purchased Performing Loans:
Non-QM loans	$	2,243,444	$	2,357,185
Rehabilitation loans	464,385		581,801
Single-family rental loans	451,791		446,374
Seasoned performing loans	128,069		136,264
Total Purchased Performing Loans	3,287,689		3,521,624
Purchased Credit Deteriorated Loans	644,611		673,708
Total Residential whole loans, at carrying value	$	3,932,300	$	4,195,332
Allowance for credit losses on residential whole loans held at carrying value	(63,244)		(86,833)
Total Residential whole loans at carrying value, net	$	3,869,056	$	4,108,499

Number of loans	12,575		13,112

The following table presents the components of interest income on the Company’s Residential whole loans, at carrying value for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
(In Thousands)	2021		2020
Purchased Performing Loans:
Non-QM loans (1)	$	22,114	$	49,070
Rehabilitation loans	6,668		15,327
Single-family rental loans	6,278		7,343
Seasoned performing loans	1,990		2,600
Total Purchased Performing Loans	37,050		74,340
Purchased Credit Deteriorated Loans	8,290		9,146
Total Residential whole loans, at carrying value	$	45,340	$	83,486

(1) Includes interest income on Non-QM loans held-for-sale at March 31, 2020.

The following table presents additional information regarding the Company’s Residential whole loans, at carrying value at March 31, 2021:

March 31, 2021


	Carrying Value		Amortized Cost Basis		Unpaid Principal Balance (“UPB”)		Weighted Average Coupon (1)		Weighted Average Term to Maturity (Months)	Weighted Average LTV Ratio (2)		Weighted Average Original FICO (3)	Aging by Amortized Cost Basis
															Past Due Days
(Dollars In Thousands)													Current		30-59		60-89		90+
Purchased Performing Loans:
Non-QM loans (4)	$	2,228,899	$	2,243,444	$	2,183,662	5.82	%	350	64	%	713	$	1,975,505	$	89,767	$	42,912	$	135,260
Rehabilitation loans (4)	450,717		464,385		464,385		7.23		3	64		719	293,931		21,296		12,167		136,991
Single-family rental loans (4)	449,045		451,791		447,072		6.29		320	70		730	421,258		4,507		1,935		24,091
Seasoned performing loans (4)	128,003		128,069		139,847		3.12		169	39		723	115,315		2,445		1,589		8,721
Purchased Credit Deteriorated Loans (4)(5)	612,392		644,611		751,759		4.49		285	75		N/A	N/M		N/M		N/M		117,509
Residential whole loans, at carrying value, total or weighted average	$	3,869,056	$	3,932,300	$	3,986,725	5.72	%	288

December 31, 2020


	Carrying Value		Amortized Cost Basis		Unpaid Principal Balance (“UPB”)		Weighted Average Coupon (1)		Weighted Average Term to Maturity (Months)	Weighted Average LTV Ratio (2)		Weighted Average Original FICO (3)	Aging by Amortized Cost Basis
															Past Due Days
(Dollars In Thousands)													Current		30-59		60-89		90+
Purchased Performing Loans:
Non-QM loans (4)	$	2,336,117	$	2,357,185	$	2,294,086	5.84	%	351	64	%	712	$	2,099,134	$	73,163	$	36,501	$	148,387
Rehabilitation loans (4)	563,430		581,801		581,801		7.29		3	63		719	390,706		29,315		25,433		136,347
Single-family rental loans (4)	442,456		446,374		442,208		6.32		324	70		730	415,386		6,652		3,948		20,388
Seasoned performing loans (4)	136,157		136,264		149,004		3.30		171	40		723	124,877		2,186		1,170		8,031
Purchased Credit Deteriorated Loans (4)(5)	630,339		673,708		782,319		4.46		287	76		N/A	N/M		N/M		N/M		119,621
Residential whole loans, at carrying value, total or weighted average	$	4,108,499	$	4,195,332	$	4,249,418	5.77	%	282

(1)Weighted average is calculated based on the interest bearing principal balance of each loan within the related category. For loans acquired with servicing rights released by the seller, interest rates included in the calculation do not reflect loan servicing fees. For loans acquired with servicing rights retained by the seller, interest rates included in the calculation are net of servicing fees.

(2)LTV represents the ratio of the total unpaid principal balance of the loan to the estimated value of the collateral securing the related loan as of the most recent date available, which may be the origination date. For Rehabilitation loans, the LTV presented is the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan, where available. For certain Rehabilitation loans, totaling $151.7 million and $189.9 million at March 31, 2021 and December 31, 2020, respectively, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation. The weighted average LTV of these loans based on the current unpaid principal balance and the valuation obtained during underwriting, is 68% and 69% at March 31, 2021 and December 31, 2020, respectively. Excluded from the calculation of weighted average LTV are certain low value loans secured by vacant lots, for which the LTV ratio is not meaningful.

(3)Excludes loans for which no Fair Isaac Corporation (“FICO”) score is available.

(4)At March 31, 2021 and December 31, 2020 the difference between the Carrying Value and Amortized Cost Basis represents the related allowance for credit losses.

(5)Purchased Credit Deteriorated Loans tend to be characterized by varying performance of the underlying borrowers over time, including loans where multiple months of payments are received in a period to bring the loan to current status, followed by months where no payments are received. Accordingly, delinquency information is presented only for loans that are more than 90 days past due.

No Residential whole loans, at carrying value were sold during the three months ended March 31, 2021. During the three months ended March 31, 2020, $659.9 million of Non-QM loans were sold, realizing losses of $145.8 million.

Allowance for Credit Losses

The following table presents a roll-forward of the allowance for credit losses on the Company’s Residential Whole Loans, at Carrying Value:


	Three Months Ended March 31, 2021
(Dollars In Thousands)	Non-QM Loans		Rehabilitation Loans (1)(2)		Single-family Rental Loans		Seasoned Performing Loans		Purchased Credit Deteriorated Loans (3)		Totals
Allowance for credit losses at December 31, 2020	$	21,068	$	18,371	$	3,918	$	107	$	43,369	$	86,833
Current provision	(6,523)		(3,700)		(1,172)		(41)		(10,936)		(22,372)
Write-offs	—		(1,003)		—		—		(214)		(1,217)
Allowance for credit losses at March 31, 2021	$	14,545	$	13,668	$	2,746	$	66	$	32,219	$	63,244


	Three Months Ended March 31, 2020
(Dollars In Thousands)	Non-QM Loans (4)		Rehabilitation Loans (1)(2)		Single-family Rental Loans		Seasoned Performing Loans		Purchased Credit Deteriorated Loans (3)		Totals
Allowance for credit losses at December 31, 2019	$	388	$	2,331	$	62	$	—	$	244	$	3,025
Transition adjustment on adoption of ASU 2016-13 (5)	6,904		517		754		19		62,361		70,555
Current provision	26,358		33,213		6,615		230		8,481		74,897
Write-offs	—		(428)		—		—		(219)		(647)
Valuation adjustment on loans held for sale	70,181		—		—		—		—		70,181
Allowance for credit and valuation losses at March 31, 2020	$	103,831	$	35,633	$	7,431	$	249	$	70,867	$	218,011

(1)In connection with purchased Rehabilitation loans, the Company had unfunded commitments of $54.4 million and $123.1 million as of March 31, 2021 and 2020, respectively, with an allowance for credit losses of $795,905 and $3.5 million at March 31, 2021 and 2020, respectively. Such allowance is included in “Other liabilities” in the Company’s consolidated balance sheets (see Note 9).

(2)Includes $149.2 million and $110.8 million of loans that were assessed for credit losses based on a collateral dependent methodology as of March 31, 2021 and 2020, respectively.

(3)Includes $87.7 million and $74.5 million of loans that were assessed for credit losses based on a collateral dependent methodology as of March 31, 2021 and 2020, respectively.

(4)Includes Non-QM loans held-for-sale with a net carrying value of $895.3 million at March 31, 2020.

(5)Of the $70.6 million of reserves recorded on adoption of ASU 2016-13, $8.3 million was recorded as an adjustment to stockholders’ equity and $62.4 million was recorded as a “gross up” of the amortized cost basis of Purchased Credit Deteriorated Loans.

The Company adopted ASU 2016-13 (“CECL”) on January 1, 2020 (see Note 2). The anticipated impact of the COVID-19 pandemic on expected economic conditions, including forecasted unemployment, home price appreciation, and prepayment rates, for the short to medium term resulted in significantly increased estimates of credit losses recorded under CECL for the first quarter of 2020 for residential whole loans held at carrying value. Since the end of the first quarter of 2020, primarily as a result of generally more stable markets and an ongoing economic recovery, the Company has made subsequent revisions to certain macro-economic assumptions, including its estimates related to future rates of unemployment and home price appreciation, and has made adjustments to the quantitative model outputs for relevant qualitative factors. The net impact of these assumption revisions and qualitative adjustments has resulted in a reversal of a portion of the allowance for loan loss since the end of the first quarter of 2020. The qualitative adjustments, which have the effect of increasing expected loss estimates, were determined based on a variety of factors, including differences between the Company’s loan portfolio and the loan portfolios represented by data available in regulatory filings of certain banks that are considered to have similar loan portfolios (available proxy data), and differences between current (and expected future) market conditions in comparison to market conditions that occurred in historical periods. Such differences include uncertainty with respect to the ongoing impact of the pandemic, the speed of vaccine deployment and time period for a significant portion of society to be vaccinated, the extent and timing of government stimulus efforts and heightened political uncertainty. The Company’s estimates of credit losses reflect the Company’s expectation that full recovery to pre-pandemic economic conditions will take an extended period, resulting in increased delinquencies and defaults during this period compared to historical periods. Estimates of credit losses

under CECL are highly sensitive to changes in assumptions and current economic conditions have increased the difficulty of accurately forecasting future conditions.

The amortized cost basis of Purchased Performing Loans on nonaccrual status as of March 31, 2021 and December 31, 2020 was $363.3 million and $373.3 million, respectively. The amortized cost basis of Purchased Credit Deteriorated Loans on nonaccrual status as of March 31, 2021 and December 31, 2020 was $146.4 million and $151.4 million, respectively. No interest income was recognized from loans on nonaccrual status during the three months ended March 31, 2021 and 2020. At March 31, 2021 and December 31, 2020, there were approximately $132.3 million and $130.7 million of loans on nonaccrual status that did not have an associated allowance for credit losses because they were determined to be collateral dependent and the estimated fair value of the related collateral exceeded the carrying value of each loan, respectively.

In periods prior to the adoption of CECL, an allowance for loan losses was recorded when, based on current information and events, it was probable that the Company would be unable to collect all amounts due under the existing contractual terms of the loan agreement. Any required loan loss allowance would reduce the carrying value of the loan with a corresponding charge to earnings. Significant judgments were required in determining any allowance for loan loss, including assumptions regarding the loan cash flows expected to be collected, the value of the underlying collateral and the ability of the Company to collect on any other forms of security, such as a personal guaranty provided either by the borrower or an affiliate of the borrower.

The following table presents certain additional credit-related information regarding our residential whole loans:


	Amortized Cost Basis by Origination Year and LTV Bands
(Dollars In Thousands)	2021		2020		2019		2018		2017		Prior		Total
Non-QM loans
LTV <= 80% (1)	$	86,788	$	419,564	$	1,012,210	$	560,489	$	62,613	$	5,340	$	2,147,004
LTV > 80% (1)	4,271		43,575		24,620		19,224		4,599		151		96,440
Total Non-QM loans	$	91,059	$	463,139	$	1,036,830	$	579,713	$	67,212	$	5,491	$	2,243,444
Three Months Ended March 31, 2021 Gross write-offs	$	—			$	—			$	—	$	—	$	—
Three Months Ended March 31, 2021 Recoveries	—		—		—		—		—		—		—
Three Months Ended March 31, 2021 Net write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Rehabilitation loans
LTV <= 80% (1)	$	12,867	$	43,504	$	341,513	$	58,888	$	4,071	$	—	$	460,843
LTV > 80% (1)	—		—		1,842		—		1,700		—		3,542
Total Rehabilitation loans	$	12,867	$	43,504	$	343,355	$	58,888	$	5,771	$	—	$	464,385
Three Months Ended March 31, 2021 Gross write-offs	$	—	$	—	$	991	$	12	$	—	$	—	$	1,003
Three Months Ended March 31, 2021 Recoveries	—		—		—		—		—		—		—
Three Months Ended March 31, 2021 Net write-offs	$	—	$	—	$	991	$	12	$	—	$	—	$	1,003

Single family rental loans
LTV <= 80% (1)	$	15,765	$	39,564	$	264,032	$	112,995	$	12,881	$	—	$	445,237
LTV > 80% (1)	—		514		5,953		87		—		—		6,554
Total Single family rental loans	$	15,765	$	40,078	$	269,985	$	113,082	$	12,881	$	—	$	451,791
Three Months Ended March 31, 2021 Gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Three Months Ended March 31, 2021 Recoveries	—		—		—		—		—		—		—
Three Months Ended March 31, 2021 Net write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Seasoned performing loans
LTV <= 80% (1)	$	—	$	—	$	—	$	—	$	—	$	122,389	$	122,389
LTV > 80% (1)	—		—		—		—		—		5,680		5,680
Total Seasoned performing loans	$	—	$	—	$	—	$	—	$	—	$	128,069	$	128,069
Three Months Ended March 31, 2021 Gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Three Months Ended March 31, 2021 Recoveries	—		—		—		—		—		—		—
Three Months Ended March 31, 2021 Net write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Purchased credit deteriorated loans
LTV <= 80% (1)	$	—	$	—	$	—	$	—	$	627	$	423,587	$	424,214
LTV > 80% (1)	—		—		—		—		—		220,397		220,397
Total Purchased credit deteriorated loans	$	—	$	—	$	—	$	—	$	627	$	643,984	$	644,611
Three Months Ended March 31, 2021 Gross write-offs	$	—	$	—	$	—	$	—	$	—	$	214	$	214
Three Months Ended March 31, 2021 Recoveries	—		—		—		—		—		—		—
Three Months Ended March 31, 2021 Net write-offs	$	—	$	—	$	—	$	—	$	—	$	214	$	214

Total LTV <= 80% (1)	$	115,420	$	502,632	$	1,617,755	$	732,372	$	80,192	$	551,316	$	3,599,687
Total LTV > 80% (1)	4,271		44,089		32,415		19,311		6,299		226,228		332,613
Total residential whole loans, at carrying value	$	119,691	$	546,721	$	1,650,170	$	751,683	$	86,491	$	777,544	$	3,932,300
Total Gross write-offs	$	—	$	—	$	991	$	12	$	—	$	214	$	1,217
Total Recoveries	—		—		—		—		—		—		—
Total Net write-offs	$	—	$	—	$	991	$	12	$	—	$	214	$	1,217

(1)LTV represents the ratio of the total unpaid principal balance of the loan to the estimated value of the collateral securing the related loan as of the most recent date available, which may be the origination date. For Rehabilitation loans, the LTV presented is the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan, where available. For certain Rehabilitation loans, totaling $151.7 million at March 31, 2021, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation. The weighted average LTV of these loans based on the current unpaid principal balance and the valuation obtained during underwriting, is 68% at March 31, 2021. Certain low value loans secured by vacant lots are categorized as LTV > 80%.

The following tables present certain information regarding the LTVs of the Company’s Residential whole loans that are 90 days or more delinquent:


	March 31, 2021
(Dollars In Thousands)	Carrying Value / Fair Value		UPB		LTV (1)
Purchased Credit Deteriorated Loans	$	117,509	$	142,850	85.9	%
Non-QM loans	$	135,260	$	132,732	65.7	%
Rehabilitation loans	$	136,991	$	136,991	65.7	%
Single-family rental loans	$	24,091	$	24,052	73.4	%
Seasoned performing loans	$	8,721	$	9,449	50.7	%
Residential whole loans, at fair value	$	555,171	$	584,025	82.6	%


	December 31, 2020
(Dollars In Thousands)	Carrying Value / Fair Value		UPB		LTV (1)
Purchased Credit Deteriorated Loans	$	119,621	$	145,028	86.7	%
Non-QM loans	$	148,387	$	144,681	65.9	%
Rehabilitation loans	$	136,347	$	136,347	65.8	%
Single-family rental loans	$	20,388	$	20,233	72.7	%
Seasoned performing loans	$	8,031	$	8,823	55.1	%
Residential whole loans, at fair value	$	571,729	$	625,621	86.8	%

(1)LTV represents the ratio of the total unpaid principal balance of the loan to the estimated value of the collateral securing the related loan as of the most recent date available, which may be the origination date. For Rehabilitation loans, the LTV presented is the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan, where available. For certain Rehabilitation loans, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation. Excluded from the calculation of weighted average LTV are certain low value loans secured by vacant lots, for which the LTV ratio is not meaningful.

Residential Whole Loans, at Fair Value

Certain of the Company’s residential whole loans are presented at fair value on its consolidated balance sheets as a result of a fair value election made at the time of acquisition. Subsequent changes in fair value are reported in current period earnings and presented in Net gain on residential whole loans measured at fair value through earnings on the Company’s consolidated statements of operations.

The following table presents information regarding the Company’s residential whole loans held at fair value at March 31, 2021 and December 31, 2020:


(Dollars in Thousands)	March 31, 2021 (1)			December 31, 2020
Less than 60 Days Past Due:
Outstanding principal balance	$	590,813		$	602,292
Aggregate fair value	$	596,805		$	595,521
Weighted Average LTV Ratio (1)	69.46		%	72.57		%
Number of loans	2,975			3,033

60 Days to 89 Days Past Due:
Outstanding principal balance	$	58,625		$	54,180
Aggregate fair value	$	56,021		$	49,652
Weighted Average LTV Ratio (1)	70.56		%	82.11		%
Number of loans	293			263

90 Days or More Past Due:
Outstanding principal balance	$	584,025		$	625,621
Aggregate fair value	$	555,171		$	571,729
Weighted Average LTV Ratio (1)	82.56		%	86.78		%
Number of loans	2,170			2,326
Total Residential whole loans, at fair value	$	1,207,997		$	1,216,902

(1)Excluded from this table are approximately $112.2 million of Residential whole loans, at fair value for which the closing of the purchase transaction had not occurred as of March 31, 2021.

(2)LTV represents the ratio of the total unpaid principal balance of the loan, to the estimated value of the collateral securing the related loan. Excluded from the calculation of weighted average LTV are certain low value loans secured by vacant lots, for which the LTV ratio is not meaningful.

The following table presents the components of Net gain/(loss) on residential whole loans measured at fair value through earnings for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
(In Thousands)	2021		2020
Coupon payments, realized gains, and other income received (1)	$	16,676	$	19,036
Net unrealized gains/(losses)	32,088		(74,556)
Net gain on transfers to REO	1,045		2,760
Total	$	49,809	$	(52,760)

(1)Primarily includes gains on liquidation of non-performing loans, including the recovery of delinquent interest payments, recurring coupon interest payments received on mortgage loans that are contractually current, and cash payments received from private mortgage insurance on liquidated loans.