Residential Whole Loans

9 Months Ended

Sep. 30, 2022

Included on the Company’s consolidated balance sheets at September 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 September 30, 2022 and December 31, 2021:


	Held at Carrying Value				Held at Fair Value				Total
(Dollars in Thousands)	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Purchased Performing Loans:
Non-QM loans	$	1,030,504	$	1,448,162	$	2,362,221	$	2,013,369	$	3,392,725	$	3,461,531
Residential transition loans (1)	92,762		217,315		1,156,406		517,530		1,249,168		734,845
Single-family rental loans	224,302		331,808		1,096,780		619,415		1,321,082		951,223
Seasoned performing loans	87,028		102,041		—		—		87,028		102,041
Agency eligible investor loans	—		—		852,996		1,082,765		852,996		1,082,765
Total Purchased Performing Loans	$	1,434,596	$	2,099,326	$	5,468,403	$	4,233,079	$	6,902,999	$	6,332,405

Purchased Credit Deteriorated Loans	$	480,679	$	547,772	$	—	$	—	$	480,679	$	547,772

Allowance for Credit Losses	$	(37,192)	$	(39,447)	$	—	$	—	$	(37,192)	$	(39,447)

Purchased Non-Performing Loans	$	—	$	—	$	847,563	$	1,072,270	$	847,563	$	1,072,270

Total Residential Whole Loans	$	1,878,083	$	2,607,651	$	6,315,966	$	5,305,349	$	8,194,049	$	7,913,000

Number of loans	7,388		9,361		18,805		14,734		26,193		24,095

(1)Includes $523.3 million and $213.9 million of Residential transition loans collateralized by multi-family properties as of September 30, 2022 and December 31, 2021, respectively.

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

September 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	$	3,385,837	$	3,669,113	5.06	%	353	65	%	733	$	3,534,877	$	50,120	$	20,285	$	63,831
Residential transition loans	1,243,638		1,261,611		7.41		13	66		745	1,174,054		8,047		2,000		77,510
Single-family rental loans	1,319,768		1,436,439		5.61		326	69		737	1,406,215		3,704		767		25,753
Seasoned performing loans	86,979		95,443		3.09		155	30		713	87,887		911		300		6,345
Agency eligible investor loans	852,996		1,008,857		3.40		345	61		767	1,005,580		1,301		758		1,218
Total Purchased Performing Loans	6,889,218		$	7,471,463	5.31	%	287

Purchased Credit Deteriorated Loans	$	457,268	$	567,166	4.62	%	279	64	%	N/A	$	415,369	$	37,675	$	17,814	$	96,308

Purchased Non-Performing Loans	$	847,563	$	926,661	4.97	%	279	69	%	N/A	$	454,086	$	83,492	$	45,854	$	343,229

Residential whole loans, total or weighted average	$	8,194,049	$	8,965,290	5.24	%	286

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
Residential transition 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 Residential transition 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 Residential transition loans, totaling $194.1 million and $137.3 million at September 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 71% and 71% at September 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 nine months ended September 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:


	Nine Months Ended September 30, 2022
(Dollars In Thousands)	Non-QM Loans		Residential Transition 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/(reversal)	(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
Current provision/(reversal)	(242)		583		83		3		120		547
Write-offs	—		(114)		(61)		—		(107)		(282)
Allowance for credit losses at September 30, 2022	$	6,888	$	5,530	$	1,314	$	49	$	23,411	$	37,192


	Nine Months Ended September 30, 2021
(Dollars In Thousands)	Non-QM Loans		Residential Transition 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/(reversal)	(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
Current provision/(reversal)	(2,403)		(2,526)		(670)		(7)		(4,020)		(9,626)
Write-offs			(393)		(56)		—		(84)		(533)
Allowance for credit losses at September 30, 2021	$	9,689	$	8,685	$	1,634	$	50	$	24,044	$	44,102

(1)In connection with purchased Residential transition loans at carrying value, the Company had unfunded commitments of $8.4 million and $29.2 million as of September 30, 2022 and 2021, respectively, with an allowance for credit losses of $84,000 and $355,000 at September 30, 2022 and 2021, respectively. Such allowance is included in “Other liabilities” in the Company’s consolidated balance sheets (see Note 7).

(2)Includes $66.7 million and $94.9 million of loans that were assessed for credit losses based on a collateral dependent methodology as of September 30, 2022 and 2021, respectively.

(3)Includes $56.2 million and $57.4 million of loans that were assessed for credit losses based on a collateral dependent methodology as of September 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, anticipated inflation and increasing market interest rates, and heightened political uncertainty. The Company’s estimates of credit losses reflect the Company’s expectation that the performance of its portfolio will experience higher delinquencies and defaults compared to the performance in historical periods of portfolios included in the available proxy data. 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 September 30, 2022 and December 31, 2021 was $196.2 million and $240.2 million, respectively. The amortized cost basis of Purchased Credit Deteriorated Loans on nonaccrual status as of September 30, 2022 and December 31, 2021 was $86.6 million and $108.9 million, respectively. The fair value of Purchased Non-performing Loans on nonaccrual status as of September 30, 2022 and December 31, 2021 was $450.5 million and $588.1 million, respectively. During the three and nine months ended September 30, 2022, the Company recognized $5.0 million and $14.3 million of interest income on loans on nonaccrual status, including $3.7 million and $10.2 million, respectively, on its portfolio of loans which were non-performing at acquisition. At September 30, 2022 and December 31, 2021, there were approximately $75.8 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)	$	—	$	47,909	$	199,510	$	476,591	$	245,908	$	29,082	$	999,000
LTV > 80% (1)	—		2,135		14,379		7,142		6,790		1,060		31,506
Total Non-QM loans	$	—	$	50,044	$	213,889	$	483,733	$	252,698	$	30,142	$	1,030,506
Nine Months Ended September 30, 2022 Gross write-offs	$	—	$	—	$	—	$	—	$	51	$	—	$	51

Residential transition loans
LTV <= 80% (1)	$	—	$	2,037	$	7,698	$	57,070	$	13,065	$	3,047	$	82,917
LTV > 80% (1)	—		—		—		4,594		3,552		1,699		9,845
Total Residential transition loans	$	—	$	2,037	$	7,698	$	61,664	$	16,617	$	4,746	$	92,762
Nine Months Ended September 30, 2022 Gross write-offs	$	—	$	—	$	92	$	317	$	41	$	—	$	450

Single-family rental loans
LTV <= 80% (1)	$	—	$	13,822	$	26,569	$	127,766	$	49,619	$	3,213	$	220,989
LTV > 80% (1)	—		—		406		2,821		86		—		3,313
Total Single family rental loans	$	—	$	13,822	$	26,975	$	130,587	$	49,705	$	3,213	$	224,302
Nine Months Ended September 30, 2022 Gross write-offs	$	—	$	—	$	—	$	205	$	68	$	—	$	273

Seasoned performing loans
LTV <= 80% (1)	$	—	$	—	$	—	$	—	$	—	$	84,120	$	84,120
LTV > 80% (1)	—		—		—		—		—		2,908		2,908
Total Seasoned performing loans	$	—	$	—	$	—	$	—	$	—	$	87,028	$	87,028
Nine Months Ended September 30, 2022 Gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Purchased credit deteriorated loans
LTV <= 80% (1)	$	—	$	—	$	—	$	—	$	—	$	383,865	$	383,865
LTV > 80% (1)	—		—		—		—		—		96,814		96,814
Total Purchased credit deteriorated loans	$	—	$	—	$	—	$	—	$	—	$	480,679	$	480,679
Nine Months Ended September 30, 2022 Gross write-offs	$	—	$	—	$	—	$	—	$	—	$	391	$	391

Total LTV <= 80% (1)	$	—	$	63,768	$	233,777	$	661,427	$	308,592	$	503,327	$	1,770,891
Total LTV > 80% (1)	—		2,135		14,785		14,557		10,428		102,481		144,386
Total residential whole loans, at carrying value	$	—	$	65,903	$	248,562	$	675,984	$	319,020	$	605,808	$	1,915,277
Nine Months Ended September 30, 2022 Total Gross write-offs	$	—	$	—	$	92	$	522	$	160	$	391	$	1,165

(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 Residential transition 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 Residential transition loans, totaling $194.1 million at September 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 71% at September 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:


	September 30, 2022
(Dollars In Thousands)	Carrying Value / Fair Value		UPB		LTV (1)
Purchased Performing Loans
Non-QM loans	$	64,036	$	63,831	67.7	%
Residential transition loans	$	76,514	$	77,510	69.9	%
Single-family rental loans	$	25,901	$	25,753	74.9	%
Seasoned performing loans	$	5,850	$	6,345	45.4	%
Agency eligible investor loans	$	1,049	$	1,218	61.7	%
Total Purchased Performing Loans	$	173,350	$	174,657

Purchased Credit Deteriorated Loans	$	76,762	$	96,308	75.8	%

Purchased Non-Performing Loans	$	331,847	$	343,229	78.5	%

Total Residential Whole Loans	$	581,959	$	614,194


	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	%
Residential transition 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 Residential transition 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 Residential transition 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 nine months ended September 30, 2022 and 2021:


	Held at Carrying Value				Held at Fair Value				Total
	Three Months Ended September 30,				Three Months Ended September 30,				Three Months Ended September 30,
(In Thousands)	2022		2021		2022		2021		2022		2021
Purchased Performing Loans:
Non-QM loans	$	13,646	$	17,437	$	27,012	$	6,454	$	40,658	$	23,891
Residential transition loans	784		5,808		18,558		4,110		19,342		9,918
Single-family rental loans	3,658		6,074		15,340		3,423		18,998		9,497
Seasoned performing loans	1,227		1,728		—		—		1,227		1,728
Agency eligible investor loans	—		—		7,542		3,360		7,542		3,360
Total Purchased Performing Loans	$	19,315	$	31,047	$	68,452	$	17,347	$	87,767	$	48,394

Purchased Credit Deteriorated Loans	$	7,916	$	10,504	$	—	$	—	$	7,916	$	10,504

Purchased Non-Performing Loans	$	—	$	—	$	18,732	$	20,704	$	18,732	$	20,704

Total Residential Whole Loans	$	27,231	$	41,551	$	87,184	$	38,051	$	114,415	$	79,602


	Held at Carrying Value				Held at Fair Value				Total
	Nine Months Ended September 30,				Nine Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2022		2021		2022		2021		2022		2021
Purchased Performing Loans:
Non-QM loans	$	39,041	$	59,789	$	69,080	$	8,258	$	108,121	$	68,047
Residential transition loans	5,621		19,429		43,768		4,485		49,389		23,914
Single-family rental loans	12,134		19,594		36,603		3,890		48,737		23,484
Seasoned performing loans	3,392		5,260		—		—		3,392		5,260
Agency eligible investor loans	—		—		22,731		3,622		22,731		3,622
Total Purchased Performing Loans	$	60,188	$	104,072	$	172,182	$	20,255	$	232,370	$	124,327

Purchased Credit Deteriorated Loans	$	25,597	$	30,097	$	—	$	—	$	25,597	$	30,097

Purchased Non-Performing Loans	$	—	$	—	$	58,268	$	58,732	$	58,268	$	58,732

Total Residential Whole Loans	$	85,785	$	134,169	$	230,450	$	78,987	$	316,235	$	213,156

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2022		2021		2022		2021
Net unrealized (losses)/gains	$	(291,818)	$	20,494	$	(797,934)	$	58,807
Other Income (1)	(57)		1,321		1,270		518
Total	$	(291,875)	$	21,815	$	(796,664)	$	59,325

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