Residential Whole Loans

6 Months Ended

Jun. 30, 2022

Included on the Company’s consolidated balance sheets at June 30, 2022 and December 31, 2021 are approximately $8.2 billion and $7.9 billion, respectively, of residential whole loans generally 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. Starting in the second quarter of 2021, the Company elected the fair value option for all loan acquisitions, including loans originated by Lima One subsequent to its acquisition by the Company. Prior to the second quarter of 2021, the fair value option was typically elected only for Purchased Non-performing Loans.

The following table presents the components of the Company’s Residential whole loans, and the accounting model designated at June 30, 2022 and December 31, 2021:


	Held at Carrying Value				Held at Fair Value				Total
(Dollars in Thousands)	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Purchased Performing Loans:
Non-QM loans	$	1,113,696	$	1,448,162	$	2,381,214	$	2,013,369	$	3,494,910	$	3,461,531
Rehabilitation loans	111,164		217,315		932,667		517,530		1,043,831		734,845
Single-family rental loans	247,129		331,808		1,016,109		619,415		1,263,238		951,223
Seasoned performing loans	92,909		102,041		—		—		92,909		102,041
Agency eligible investor loans	—		—		912,245		1,082,765		912,245		1,082,765
Total Purchased Performing Loans	$	1,564,898	$	2,099,326	$	5,242,235	$	4,233,079	$	6,807,133	$	6,332,405

Purchased Credit Deteriorated Loans	$	498,317	$	547,772	$	—	$	—	$	498,317	$	547,772

Allowance for Credit Losses	$	(36,927)	$	(39,447)	$	—	$	—	$	(36,927)	$	(39,447)

Purchased Non-Performing Loans	$	—	$	—	$	922,058	$	1,072,270	$	922,058	$	1,072,270

Total Residential Whole Loans	$	2,026,288	$	2,607,651	$	6,164,293	$	5,305,349	$	8,190,581	$	7,913,000

Number of loans	7,813		9,361		17,762		14,734		25,575		24,095

The following table presents additional information regarding the Company’s Residential whole loans at June 30, 2022 and December 31, 2021:

June 30, 2022


	Fair Value / Carrying Value		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 UPB
													Past Due Days
(Dollars In Thousands)											Current		30-59		60-89		90+
Purchased Performing Loans:
Non-QM loans	$	3,487,780	$	3,636,992	4.96	%	356	65	%	734	$	3,465,427	$	76,261	$	17,781	$	77,523
Rehabilitation loans	1,038,770		1,044,722		7.18		13	67		743	952,587		3,230		6,913		81,992
Single-family rental loans	1,261,946		1,319,956		5.40		326	70		737	1,283,285		5,169		2,009		29,493
Seasoned performing loans	92,863		101,811		2.82		156	31		722	93,000		807		577		7,427
Agency eligible investor loans	912,245		1,015,832		3.40		348	61		767	1,011,769		2,653		596		814
Total Purchased Performing Loans	6,793,604		$	7,119,313	5.11	%	296

Purchased Credit Deteriorated Loans	$	474,919	$	587,058	4.57	%	280	65	%	N/A	425,803		40,047		17,416		103,792

Purchased Non-Performing Loans	$	922,058	$	969,007	4.92	%	280	70	%	N/A	$	460,929	$	83,631	$	34,546	$	389,901

Residential whole loans, total or weighted average	$	8,190,581	$	8,675,378	5.06	%	293

December 31, 2021


	Fair Value / Carrying Value		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 UPB
													Past Due Days
(Dollars In Thousands)											Current		30-59		60-89		90+
Purchased Performing Loans:
Non-QM loans	$	3,453,242	$	3,361,164	5.07	%	355	66	%	731	$	3,165,964	$	77,581	$	22,864	$	94,755
Rehabilitation loans	727,964		731,154		7.18		11	67		735	616,733		5,834		5,553		103,034
Single-family rental loans	949,772		924,498		5.46		329	70		732	898,166		2,150		695		23,487
Seasoned performing loans	101,995		111,710		2.76		162	37		722	102,047		938		481		8,244
Agency eligible investor loans	1,082,765		1,060,486		3.40		354	62		767	1,039,257		21,229		—		—
Total Purchased Performing Loans	6,315,738		$	6,189,012	5.05	%	307

Purchased Credit Deteriorated Loans	524,992		$	643,187	4.55	%	283	69		N/A	456,924		50,048		18,736		117,479

Purchased Non-Performing Loans	1,072,270		$	1,073,544	4.87	%	283	73		N/A	492,481		87,041		40,876		453,146

Residential whole loans, total or weighted average	$	7,913,000	$	7,905,743	4.99	%	301

(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 $172.3 million and $137.3 million at June 30, 2022 and December 31, 2021, 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 72% and 71% at June 30, 2022 and December 31, 2021, 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.

No Residential whole loans were sold during the six months ended June 30, 2022 and 2021.

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:


	Six Months Ended June 30, 2022
(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, 2021	$	8,289	$	6,881	$	1,451	$	46	$	22,780	$	39,447
Current provision	(909)		(1,460)		(122)		(1)		(975)		(3,467)
Write-offs	(51)		(219)		(27)		—		(226)		(523)
Allowance for credit losses at March 31, 2022	$	7,329	$	5,202	$	1,302	$	45	$	21,579	$	35,457
Current provision/(reversal)	(199)		(23)		174		1		1,877		1,830
Write-offs	—		(118)		(184)		—		(58)		(360)
Allowance for credit losses at June 30, 2022	$	7,130	$	5,061	$	1,292	$	46	$	23,398	$	36,927


	Six Months Ended June 30, 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
Current provision/(reversal)	(2,416)		(1,809)		(386)		(9)		(3,963)		(8,583)
Write-offs	(37)		(255)		—		—		(108)		(400)
Allowance for credit losses at June 30, 2021	$	12,092	$	11,604	$	2,360	$	57	$	28,148	$	54,261

(1)In connection with purchased Rehabilitation loans at carrying value, the Company had unfunded commitments of $10.1 million and $40.3 million as of June 30, 2022 and 2021, respectively, with an allowance for credit losses of $110,000 and $512,000 at June 30, 2022 and 2021, respectively. Such allowance is included in “Other liabilities” in the Company’s consolidated balance sheets (see Note 7).

(2)Includes $71.9 million and $120.4 million of loans that were assessed for credit losses based on a collateral dependent methodology as of June 30, 2022 and 2021, respectively.

(3)Includes $63.8 million and $83.1 million of loans that were assessed for credit losses based on a collateral dependent methodology as of June 30, 2022 and 2021, respectively.

The Company’s estimates of expected losses that form the basis of the Allowance for Credit Losses include certain qualitative adjustments which have the effect of increasing expected loss estimates. These qualitative adjustments 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 COVID-19 pandemic, the extent and timing of government stimulus efforts, anticipated inflation and increasing market interest rates, 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 credit losses on financial instruments (“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 June 30, 2022 and December 31, 2021 was $216.5 million and $240.2 million, respectively. The amortized cost basis of Purchased Credit Deteriorated Loans on nonaccrual status as of June 30, 2022 and December 31, 2021 was $94.0 million and $108.9 million, respectively. The fair value of Purchased Non-performing Loans on nonaccrual status as of June 30, 2022 and December 31, 2021 was $497.5 million and $588.1 million, respectively. During the three and six months ended June 30, 2022, the Company recognized $5.0 million and $9.3 million of interest income on loans on nonaccrual status, including $3.5 million and $6.5 million, respectively, on its portfolio of loans which were non-performing at acquisition. At June 30, 2022 and December 31, 2021, there were approximately $89.6 million and $107.4 million, respectively, of loans held at carrying value 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.

The following table presents certain additional credit-related information regarding our Residential whole loans, at Carrying Value:


	Amortized Cost Basis by Origination Year and LTV Bands
(Dollars In Thousands)	2022		2021		2020		2019		2018		Prior		Total
Non-QM loans
LTV <= 80% (1)	$	—	$	50,488	$	213,384	$	519,616	$	264,276	$	30,517	$	1,078,281
LTV > 80% (1)	—		2,147		15,582		8,203		7,861		1,622		35,415
Total Non-QM loans	$	—	$	52,635	$	228,966	$	527,819	$	272,137	$	32,139	$	1,113,696
Six Months Ended June 30, 2022 Gross write-offs	$	—	$	—	$	—	$	—	$	51	$	—	$	51

Rehabilitation loans
LTV <= 80% (1)	$	—	$	3,061	$	11,823	$	60,678	$	14,040	$	3,047	$	92,649
LTV > 80% (1)	—		—		2,280		10,984		3,552		1,699		18,515
Total Rehabilitation loans	$	—	$	3,061	$	14,103	$	71,662	$	17,592	$	4,746	$	111,164
Six Months Ended June 30, 2022 Gross write-offs	$	—	$	—	$	—	$	296	$	41	$	—	$	337

Single family rental loans
LTV <= 80% (1)	$	—	$	14,165	$	28,485	$	139,279	$	53,695	$	5,566	$	241,190
LTV > 80% (1)	—		—		511		5,342		86		—		5,939
Total Single family rental loans	$	—	$	14,165	$	28,996	$	144,621	$	53,781	$	5,566	$	247,129
Six Months Ended June 30, 2022 Gross write-offs	$	—	$	—	$	—	$	199	$	13	$	—	$	212

Seasoned performing loans
LTV <= 80% (1)	$	—	$	—	$	—	$	—	$	—	$	89,973	$	89,973
LTV > 80% (1)	—		—		—		—		—		2,936		2,936
Total Seasoned performing loans	$	—	$	—	$	—	$	—	$	—	$	92,909	$	92,909
Six Months Ended June 30, 2022 Gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Purchased credit deteriorated loans
LTV <= 80% (1)	$	—	$	—	$	—	$	—	$	—	$	393,206	$	393,206
LTV > 80% (1)	—		—		—		—		—		105,111		105,111
Total Purchased credit deteriorated loans	$	—	$	—	$	—	$	—	$	—	$	498,317	$	498,317
Six Months Ended June 30, 2022 Gross write-offs	$	—	$	—	$	—	$	—	$	—	$	284	$	284

Total LTV <= 80% (1)	$	—	$	67,714	$	253,692	$	719,573	$	332,011	$	522,309	$	1,895,299
Total LTV > 80% (1)	—		2,147		18,373		24,529		11,499		111,368		167,916
Total residential whole loans, at carrying value	$	—	$	69,861	$	272,065	$	744,102	$	343,510	$	633,677	$	2,063,215
Six Months Ended June 30, 2022 Total Gross write-offs	$	—	$	—	$	—	$	495	$	105	$	284	$	884

(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 $172.3 million at June 30, 2022, 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 72% at June 30, 2022. 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:


	June 30, 2022
(Dollars In Thousands)	Carrying Value / Fair Value		UPB		LTV (1)
Purchased Performing Loans
Non-QM loans	$	78,037	$	77,523	66.6	%
Rehabilitation loans	$	81,432	$	81,992	70.8	%
Single-family rental loans	$	29,577	$	29,493	75.2	%
Seasoned performing loans	$	6,854	$	7,427	45.4	%
Agency eligible investor loans	$	718	$	814	59.2	%
Total Purchased Performing Loans	$	196,618	$	197,249

Purchased Credit Deteriorated Loans	$	83,606	$	103,792	77.1	%

Purchased Non-Performing Loans	$	385,233	$	389,901	79.7	%

Total Residential whole loans	$	665,457	$	690,942


	December 31, 2021
(Dollars In Thousands)	Carrying Value / Fair Value		UPB		LTV (1)
Purchased Performing Loans
Non-QM loans	$	96,473	$	94,755	64.6	%
Rehabilitation loans	$	103,166	$	103,034	67.6	%
Single-family rental loans	$	23,524	$	23,487	73.4	%
Seasoned performing loans	$	7,740	$	8,244	45.6	%
Agency eligible investor loans	$	—	$	—	—	%
Total Purchased Performing Loans	$	230,903	$	229,520

Purchased Credit Deteriorated Loans	$	95,899	$	117,479	79.1	%

Purchased Non-Performing Loans	$	454,443	$	453,146	80.2	%

Total Residential whole loans	$	781,245	$	800,145

(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.

The following tables present the components of interest income on the Company’s Residential whole loans for the three and six months ended June 30, 2022 and 2021:


	Held at Carrying Value				Held at Fair Value				Total
	Three Months Ended June 30,				Three Months Ended June 30,				Three Months Ended June 30,
(In Thousands)	2022		2021		2022		2021		2022		2021
Purchased Performing Loans:
Non-QM loans	$	12,255	$	20,164	$	22,257	$	1,804	$	34,512	$	21,968
Rehabilitation loans	1,271		6,954		13,917		375		15,188		7,329
Single-family rental loans	3,783		6,439		12,630		467		16,413		6,906
Seasoned performing loans	1,155		1,540		—		—		1,155		1,540
Agency eligible investor loans	—		—		7,604		262		7,604		262
Total Purchased Performing Loans	$	18,464	$	35,097	$	56,408	$	2,908	$	74,872	$	38,005

Purchased Credit Deteriorated Loans	$	8,672	$	11,303	$	—	$	—	$	8,672	$	11,303

Purchased Non-Performing Loans	$	—	$	—	$	18,810	$	19,708	$	18,810	$	19,708

Total Residential Whole Loans	$	27,136	$	46,400	$	75,218	$	22,616	$	102,354	$	69,016


	Held at Carrying Value				Held at Fair Value				Total
	Six Months Ended June 30,				Six Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2022		2021		2022		2021		2022		2021
Purchased Performing Loans:
Non-QM loans	$	25,395	$	42,352	$	42,068	$	1,804	$	67,463	$	44,156
Rehabilitation loans	4,837		13,621		25,210		375		30,047		13,996
Single-family rental loans	8,476		13,520		21,263		467		29,739		13,987
Seasoned performing loans	2,165		3,531		—		—		2,165		3,531
Agency eligible investor loans	—		—		15,189		262		15,189		262
Total Purchased Performing Loans	$	40,873	$	73,024	$	103,730	$	2,908	$	144,603	$	75,932

Purchased Credit Deteriorated Loans	$	17,681	$	19,593	$	—	$	—	$	17,681	$	19,593

Purchased Non-Performing Loans	$	—	$	—	$	39,536	$	38,029	$	39,536	$	38,029

Total Residential Whole Loans	$	58,554	$	92,617	$	143,266	$	40,937	$	201,820	$	133,554

The following table presents the components of Net gain/(loss) on residential whole loans measured at fair value through earnings for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2022		2021		2022		2021
Net unrealized (losses)/gains	$	(218,181)	$	6,226	$	(506,116)	$	38,313
Other Income (1)	1,767		(205)		1,327		(803)
Total	$	(216,414)	$	6,021	$	(504,789)	$	37,510

(1)Primarily includes cash payments received from private mortgage insurance on liquidated loans and losses on liquidations of non-performing loans.