Note 6 — Loans Held for Investment and Loans Held for Investment at Fair Value

The following tables summarize loans held for investment as of September 30, 2021 and December 31, 2020 (in thousands):

The following table presents the activity in the Unpaid Principal Balance (“UPB”) and amortized cost basis of loans in the Company's COVID-19 forbearance program for the three and nine months ended September 30, 2021 ($ in thousands):

	Three Months Ended September 30, 2021								Nine Months Ended September 30, 2021
	UPB			%	Amortized Cost			%	UPB			%	Amortized Cost			%
Beginning balance	$	342,442			$	346,697			$	392,073			$	396,918
Additions		—				—				2,616				2,615
Foreclosures		—				—				(253	)			(260	)
Repayments		(22,698	)			(23,037	)			(74,692	)			(75,613	)
Ending balance	$	319,744			$	323,660			$	319,744			$	323,660

Performing/Accruing	$	249,944		78.2%	$	252,944		78.2%	$	249,944		78.2%	$	252,944		78.2%

Nonperforming/Nonaccrual	$	69,800		21.8%	$	70,716		21.8%	$	69,800		21.8%	$	70,716		21.8%

The following table presents the UPB and amortized cost basis of loans in the Company's COVID-19 forbearance program as of December 31, 2020 ($ in thousands):

Since April 1, 2020, the inception of the COVID-19 forbearance program, the Company has modified $407.9 million in UPB of loans, which includes capitalized interest of $9.8 million. As of September 30, 2021, $112.5 million in UPB of modified loans has been paid down, which includes $1.8 million of capitalized interest received.

Approximately 78.2% and 83.6% of the COVID forbearance loans in UPB were performing, and 21.8% and 16.4% were on nonaccrual status as of September 30, 2021 and December 31, 2020, respectively.

As of September 30, 2021 and December 31, 2020, the gross unpaid principal balance of loans held for investment pledged as collateral for the Company’s warehouse facilities, and securitizations issued were as follows (in thousands):

The following tables present the amortized cost basis, or recorded investment, of the Company’s loans held for investment that were nonperforming and on nonaccrual status as of September 30, 2021 and December 31, 2020, and accruing loans that were 90 days or more past due (“DPD”) as of September 30, 2021 and December 31, 2020. These accruing loans that were 90 or more days past due represent loans that were granted a forbearance under the Company’s COVID-19 payment forbearance programs.

	September 30, 2021
	Total Nonaccrual		Nonaccrual with No Allowance for Loan Loss		Nonaccrual with Allowance for Loan Loss		Allowance for Loans Individually Evaluated		% of Allowance to Total Nonaccrual Loans			Loans 90+ DPD Still Accruing COVID-19 Program
	($ in thousands)
Commercial - Purchase	$	20,707	$	19,945	$	762	$	12		0.1	%	$	—
Commercial - Refinance		84,324		74,483		9,841		938		4.5			—
Residential 1-4 Unit - Purchase		18,419		18,162		257		96		0.5			—
Residential 1-4 Unit - Refinance		114,785		110,595		4,190		261		1.3			—
Short Term 1-4 Unit - Purchase		5,982		5,144		838		110		0.5			—
Short Term 1-4 Unit - Refinance		47,591		42,607		4,984		359		1.7			—
Total	$	291,808	$	270,936	$	20,872	$	1,776		8.6	%	$	—

Troubled Debt Restructuring included in nonaccrual loans:	$	167	$	—	$	—	$	—		—		$	—

	December 31, 2020
	Total Nonaccrual		Nonaccrual with No Allowance for Loan Loss		Nonaccrual with Allowance for Loan Loss		Allowance for Loans Individually Evaluated		% of Allowance to Total Nonaccrual Loans			Loans 90+ DPD Still Accruing COVID-19 Program
	($ in thousands)
Commercial - Purchase	$	22,166	$	20,955	$	1,211	$	153		0.7	%	$	—
Commercial - Refinance		101,117		96,804		4,313		519		2.3			1,747
Residential 1-4 Unit - Purchase		26,373		25,839		534		128		0.6			—
Residential 1-4 Unit - Refinance		120,152		113,206		6,946		465		2.1			109
Short Term 1-4 Unit - Purchase		6,585		3,808		2,777		525		2.4			—
Short Term 1-4 Unit - Refinance		59,843		53,616		6,227		878		4.0			123
Total	$	336,236	$	314,228	$	22,008	$	2,668		12.1	%	$	1,979

Troubled Debt Restructuring included in nonaccrual loans:	$	173	$	—	$	—	$	25		—		$	—

The Company has made the accounting policy election not to measure an allowance for credit losses for accrued interest receivables. The Company has also made the accounting policy election to write off accrued interest receivables by reversing interest income when loans are placed on nonaccrual status, or 90 days or more past due, other than the COVID-19 forbearance-granted loans.

The Company will continue to evaluate the COVID-19 forbearance-granted loans on an individual basis to determine if a reserve should be established on the collectability of the accrued interest and whether any loans should be placed on nonaccrual status at a future date.

The following tables present the amortized cost basis in the loans held for investment, excluding loans held for investment at fair value, as of September 30, 2021 and 2020, and the amount of accrued interest receivables written off by reversing interest income by portfolio segment for the three and nine months ended September 30, 2021 and 2020 (in thousands):

For the nine months ended September 30, 2021 and 2020 cash basis interest income recognized on nonaccrual loans was $24.3 million and $11.6 million, respectively, and $7.6 million and $4.9 million for the three months ended September 30, 2021 and 2020, respectively. Other than loans in the Company’s COVID-19 forbearance programs, no accrued interest income was recognized on nonaccrual loans for the three and nine months ended September 30, 2021 and 2020. The average recorded investment of individually evaluated loans, computed using month-end balances, was $292.2 million and $310.7 million for the three months ended September 30, 2021 and 2020, respectively, and $332.4 million and $223.7 million for the nine months ended September 30, 2021 and 2020, respectively. There were no commitments to lend additional funds to debtors whose loans have been modified as of September 30, 2021 and 2020.

The allowance for credit losses is maintained at a level deemed adequate by management to provide for expected losses in the portfolio at the balance sheet date. The allowance for credit losses is measured using two components. A component that measures expected credit losses on a collective (pool) basis when similar risk characteristics exist and a component that measures expected credit losses on an individual loan basis. To estimate the allowance for credit losses in the loans held for investment portfolio, management follows a detailed internal process, considering a number of different factors including, but not limited to, the ongoing analyses of loans, historical loss rates, relevant environmental factors, relevant market research, trends in delinquencies, effects and changes in credit concentrations, and ongoing evaluation of fair values.

The Company uses an open pool loss rate methodology to model expected credit losses on a collective basis. To determine the loss rates for the open pool method, the Company starts with its historical database of losses, segmenting the loans by loan purpose, product type and repayment period. A third-party model applying the open pool method is used to estimate an annual average loss rates by dividing the respective pool's quarterly historical losses by the pool's respective prior quarter’s ending unamortized loan cost balance and deriving an annual average loss rate from the historical quarterly loss rates. The model then adjusts the annual average loss rates based upon macroeconomic forecasts over a reasonable and supportable period, followed by a straight-line reversion to the historical loss rates. The adjusted annual average loss rates are applied to the forecasted pool balance within each segment. The forecasted balances in the loan pool segments are calculated based on a principal amortization using contractual maturity, factoring in further principal reductions from estimated prepayments. For the September 30, 2021 estimate, the Company considered a COVID-19 adverse stress scenario with a six-quarter reasonable and supportable forecast period followed by a four-quarter straight-line reversion period. Management concluded that applying the adverse stress scenario was appropriate given the status of the pandemic at the end of September 2021.

Once a loan becomes nonperforming (90 or more days past due), it no longer shares the same risk characteristics of the other loans within its segment of homogeneous loans (pool). Nonperforming loans are considered collateral dependent by the Company. These loans are evaluated individually using the practical expedient to determine the credit exposure.

The following tables present the activity in the allowance for credit losses for the three and nine months ended September 30, 2021 and 2020 (in thousands):

	Three Months Ended September 30, 2021
						Residential		Residential			Short Term		Short Term
	Commercial		Commercial			1-4 Unit		1-4 Unit			1-4 Unit		1-4 Unit
	Purchase		Refinance			Purchase		Refinance			Purchase		Refinance			Total
Allowance for credit losses:
Beginning Balance - July 1,2021	$	262	$	1,923		$	281	$	847		$	73	$	577		$	3,963
Provision for loan losses (1)		—		44			27		68			62		27			228
Charge-offs		—		(18	)		—		(43	)		—		(102	)		(163	)
Ending balance	$	262	$	1,949		$	308	$	872		$	135	$	502		$	4,028

Allowance related to:
Loans individually evaluated	$	12	$	938		$	96	$	261		$	110	$	359		$	1,776
Loans collectively evaluated		250		1,010			212		611			25		144			2,252
Amortized cost related to:
Loans individually evaluated	$	20,707	$	84,324		$	18,419	$	114,785		$	5,982	$	47,591		$	291,808
Loans collectively evaluated		405,776		625,877			322,192		556,918			44,776		52,378			2,007,917

	Three Months Ended September 30, 2020
							Residential			Residential			Short Term		Short Term
	Commercial			Commercial			1-4 Unit			1-4 Unit			1-4 Unit		1-4 Unit
	Purchase			Refinance			Purchase			Refinance			Purchase		Refinance		Total
Allowance for credit losses:
Beginning Balance - July 1,2020	$	524		$	2,687		$	403		$	1,607		$	—	$	—		5,221
Provision for loan losses (1)		(90	)		(101	)		171			1,593			—		—		1,573
Charge-offs		—			(210	)		(37	)		(799	)		—		—		(1,046	)
Ending balance	$	434		$	2,376		$	537		$	2,401		$	—	$	—	$	5,748

Allowance related to:
Loans individually evaluated	$	179		$	549		$	266		$	1,389		$	—	$	—		2,383
Loans collectively evaluated		255			1,828			271			1,011			—		—		3,365
Amortized cost related to:
Loans individually evaluated	$	20,544		$	102,337		$	27,800		$	165,434		$	—	$	—	$	316,115
Loans collectively evaluated		273,342			593,327			254,412			569,638			—		—		1,690,719

	Nine Months Ended September 30, 2021
							Residential			Residential			Short Term			Short Term
	Commercial			Commercial			1-4 Unit			1-4 Unit			1-4 Unit			1-4 Unit
	Purchase			Refinance			Purchase			Refinance			Purchase			Refinance			Total
Allowance for credit losses:
Beginning Balance - January 1,2021	$	373		$	2,093		$	333		$	1,216		$	595		$	1,235		$	5,845
Provision for loan losses (1)		3			(31	)		12			(150	)		(446	)		(56	)		(668	)
Charge-offs		(114	)		(113	)		(37	)		(194	)		(14	)		(677	)		(1,149	)
Ending balance	$	262		$	1,949		$	308		$	872		$	135		$	502		$	4,028

Allowance related to:
Loans individually evaluated	$	12		$	938		$	96		$	261		$	110		$	359		$	1,776
Loans collectively evaluated		250			1,010			212			611			25			144			2,252
Amortized cost related to:
Loans individually evaluated	$	20,707		$	84,324		$	18,419		$	114,785		$	5,982		$	47,591		$	291,808
Loans collectively evaluated		405,776			625,877			322,192			556,918			44,776			52,378			2,007,917

	Nine Months Ended September 30, 2020
							Residential			Residential			Short Term		Short Term
	Commercial			Commercial			1-4 Unit			1-4 Unit			1-4 Unit		1-4 Unit
	Purchase			Refinance			Purchase			Refinance			Purchase		Refinance		Total
Allowance for credit losses:
Beginning balance, prior to adoption of ASC 326	$	304		$	1,016		$	148		$	772		$	—	$	—	$	2,240
Impact of adopting ASC 326		19			62			9			47			—		—		137
Balance - January 1, 2020	$	323		$	1,078		$	157		$	819		$	—	$	—	$	2,377
Provision for loan losses (1)		190			1,508			553			2,411			—		—		4,662
Charge-offs		(79	)		(210	)		(173	)		(829	)		—		—		(1,291	)
Ending balance	$	434		$	2,376		$	537		$	2,401		$	—	$	—	$	5,748

Allowance related to:
Loans individually evaluated	$	179		$	549		$	266		$	1,389		$	—	$	—		2,383
Loans collectively evaluated		255			1,828			271			1,011			—		—		3,365
Amortized cost related to:
Loans individually evaluated	$	20,544		$	102,337		$	27,800		$	165,434		$	—	$	—		316,115
Loans collectively evaluated		273,342			593,327			254,412			569,638			—		—		1,690,719

A credit quality indicator is a statistic used by the Company to monitor and assess the credit quality of loans held for investment, excluding loans held for investment at fair value. The Company monitors its charge-off rate in relation to its nonperforming loans as its credit quality indicator. Nonperforming loans are loans that are 90 or more days past due, in bankruptcy, in foreclosure, or not accruing interest. As of September 30, 2021, the annualized charge-off rate was 0.53% of average nonperforming loans. The charged-off rate was 0.65% for the year ended December 31, 2020.

Other credit quality indicators include aging status and accrual status. The following table presents the aging status of the amortized cost basis in the loans held for investment portfolio, excluding loans held for investment at fair value, which includes $323.7 million and $396.9 million loans in the Company’s COVID-19 forbearance program as of September 30, 2021 and December 31, 2020, respectively (in thousands):

	30–59 days		60–89 days		90+days		Total				Total
September 30, 2021	past due		past due		past due⁽¹⁾		past due		Current		loans
Loans individually evaluated
Commercial - Purchase	$	673	$	2,899	$	17,135	$	20,707	$	—	$	20,707
Commercial - Refinance		2,895		7,443		73,819		84,157		167		84,324
Residential 1-4 Unit - Purchase		870		509		17,040		18,419		—		18,419
Residential 1-4 Unit - Refinance		890		4,609		109,286		114,785		—		114,785
Short Term 1-4 Unit - Purchase		—		952		5,030		5,982		—		5,982
Short Term 1-4 Unit - Refinance		217		1,442		45,932		47,591		—		47,591
Total loans individually evaluated	$	5,545	$	17,854	$	268,242	$	291,641	$	167	$	291,808
Loans collectively evaluated
Commercial - Purchase	$	8,276	$	3,938	$	—	$	12,214	$	393,562	$	405,776
Commercial - Refinance		29,512		7,573		—		37,085		588,792		625,877
Residential 1-4 Unit - Purchase		7,573		2,643		—		10,216		311,976		322,192
Residential 1-4 Unit - Refinance		32,804		7,413		—		40,217		516,701		556,918
Short Term 1-4 Unit - Purchase		—		434		—		434		44,342		44,776
Short Term 1-4 Unit - Refinance		4,590		725		—		5,315		47,063		52,378
Total loans collectively evaluated	$	82,755	$	22,726	$	—	$	105,481	$	1,902,436	$	2,007,917
Ending balance	$	88,300	$	40,580	$	268,242	$	397,122	$	1,902,603	$	2,299,725

	30–59 days		60–89 days		90+days		Total				Total
December 31, 2020	past due		past due		past due⁽¹⁾		past due		Current		loans
Loans individually evaluated
Commercial - Purchase	$	961	$	1,307	$	19,898	$	22,166	$	—	$	22,166
Commercial - Refinance		2,118		7,532		91,467		101,117		—		101,117
Residential 1-4 Unit - Purchase		192		2,915		23,266		26,373		—		26,373
Residential 1-4 Unit - Refinance		1,440		3,010		115,702		120,152		—		120,152
Short Term 1-4 Unit - Purchase		—		—		6,585		6,585		—		6,585
Short Term 1-4 Unit - Refinance		964		760		58,119		59,843		—		59,843
Total loans individually evaluated	$	5,675	$	15,524	$	315,037	$	336,236	$	—	$	336,236
Loans collectively evaluated
Commercial - Purchase	$	8,000	$	7,081	$	—	$	15,081	$	263,657	$	278,738
Commercial - Refinance		33,725		13,224		1,747		48,696		535,285		583,981
Residential 1-4 Unit - Purchase		5,030		1,261		—		6,291		191,928		198,219
Residential 1-4 Unit - Refinance		33,144		14,567		109		47,820		398,953		446,773
Short Term 1-4 Unit - Purchase		1,972		21,780		—		23,752		12,987		36,739
Short Term 1-4 Unit - Refinance		8,406		5,383		123		13,912		59,336		73,248
Total loans collectively evaluated	$	90,277	$	63,296	$	1,979	$	155,552	$	1,462,146	$	1,617,698
Ending balance	$	95,952	$	78,820	$	317,016	$	491,788	$	1,462,146	$	1,953,934

In addition to the aging status, the Company also evaluates credit quality by accrual status. The following tables present the amortized cost in loans held for investment, excluding loans held for investment at fair value, based on accrual status and by loan origination year as of September 30, 2021 and December 31, 2020 (in thousands).

	Term Loans Amortized Cost Basis by Origination Year
September 30, 2021:	2021		2020		2019		2018		2017		Pre-2017		Total
Commercial - Purchase
Payment performance
Performing	$	172,073	$	51,482	$	86,618	$	52,270	$	24,583	$	18,750	$	405,776
Nonperforming		287		1,893		6,307		5,654		4,543		2,023		20,707
Total Commercial - Purchase	$	172,360	$	53,375	$	92,925	$	57,924	$	29,126	$	20,773	$	426,483

Commercial - Refinance
Payment performance
Performing	$	142,262	$	66,714	$	151,881	$	125,813	$	68,414	$	70,793	$	625,877
Nonperforming		618		3,890		23,916		27,618		17,140		11,142		84,324
Total Commercial - Refinance	$	142,880	$	70,604	$	175,797	$	153,431	$	85,554	$	81,935	$	710,201

Residential 1-4 Unit - Purchase
Payment performance
Performing	$	180,260	$	13,471	$	54,926	$	31,565	$	14,931	$	27,039	$	322,192
Nonperforming		460		2,842		5,256		3,534		3,491		2,836		18,419
Total Residential 1-4 Unit - Purchase	$	180,720	$	16,313	$	60,182	$	35,099	$	18,422	$	29,875	$	340,611

Residential 1-4 Unit - Refinance
Payment performance
Performing	$	238,761	$	31,679	$	124,991	$	75,242	$	37,915	$	48,330	$	556,918
Nonperforming		8,178		7,065		37,062		32,754		18,256		11,470		114,785
Total Residential 1-4 Unit - Purchase	$	246,939	$	38,744	$	162,053	$	107,996	$	56,171	$	59,800	$	671,703

Short Term 1-4 Unit - Purchase
Payment performance
Performing	$	17,618	$	16,722	$	10,436	$	—	$	—	$	—	$	44,776
Nonperforming		—		4,136		1,430		416		—		—		5,982
Total Short Term 1-4 Unit - Purchase	$	17,618	$	20,858	$	11,866	$	416	$	—	$	—	$	50,758

Short Term 1-4 Unit - Refinance
Payment performance
Performing	$	18,345	$	18,366	$	15,667	$	—	$	—	$	—	$	52,378
Nonperforming		792		16,453		25,266		5,080		—		—		47,591
Total Short Term 1-4 Unit - Refinance	$	19,137	$	34,819	$	40,933	$	5,080	$	—	$	—	$	99,969

Total Portfolio	$	779,654	$	234,713	$	543,756	$	359,946	$	189,273	$	192,383	$	2,299,725

	Term Loans Amortized Cost Basis by Origination Year
December 31, 2020	2020		2019		2018		2017		2016		Pre-2016		Total
Commercial - Purchase
Payment performance
Performing	$	56,446	$	99,534	$	64,706	$	34,862	$	9,500	$	13,690	$	278,738
Nonperforming		1,046		4,666		5,799		7,182		1,539		1,934		22,166
Total Commercial - Purchase	$	57,492	$	104,200	$	70,505	$	42,044	$	11,039	$	15,624	$	300,904

Commercial - Refinance
Payment performance
Performing	$	75,376	$	176,854	$	157,499	$	87,476	$	34,858	$	51,918	$	583,981
Nonperforming		4,929		26,776		32,955		18,980		10,392		7,085		101,117
Total Commercial - Refinance	$	80,305	$	203,630	$	190,454	$	106,456	$	45,250	$	59,003	$	685,098

Residential 1-4 Unit - Purchase
Payment performance
Performing	$	26,215	$	69,775	$	42,537	$	25,874	$	7,056	$	26,762	$	198,219
Nonperforming		1,611		5,973		8,949		5,059		1,348		3,433		26,373
Total Residential 1-4 Unit - Purchase	$	27,826	$	75,748	$	51,486	$	30,933	$	8,404	$	30,195	$	224,592

Residential 1-4 Unit - Refinance
Payment performance
Performing	$	57,945	$	168,912	$	96,568	$	61,033	$	22,949	$	39,366	$	446,773
Nonperforming		3,934		42,159		37,451		17,942		7,653		11,013		120,152
Total Residential 1-4 Unit - Purchase	$	61,879	$	211,071	$	134,019	$	78,975	$	30,602	$	50,379	$	566,925

Short Term 1-4 Unit - Purchase
Payment performance
Performing	$	20,563	$	15,990	$	186	$	—	$	—	$	—	$	36,739
Nonperforming		3,764		2,217		604		—		—		—		6,585
Total Short Term 1-4 Unit - Purchase	$	24,327	$	18,207	$	790	$	—	$	—	$	—	$	43,324

Short Term 1-4 Unit - Refinance
Payment performance
Performing	$	35,234	$	37,818	$	196	$	—	$	—	$	—	$	73,248
Nonperforming		17,318		33,711		8,719		95		—		—		59,843
Total Short Term 1-4 Unit - Refinance	$	52,552	$	71,529	$	8,915	$	95	$	—	$	—	$	133,091

Total Portfolio	$	304,381	$	684,385	$	456,169	$	258,503	$	95,295	$	155,201	$	1,953,934