Distressed and Other Residential Mortgage Loans, At Fair Value

12 Months Ended

Dec. 31, 2019

SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Abstract]

Distressed and Other Residential Mortgage Loans, At Fair Value

Certain of the Company’s acquired residential mortgage loans, including distressed residential mortgage loans, non-QM loans, second mortgages and residential bridge 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 unrealized gains (losses), net on the Company’s consolidated statements of operations.

The Company’s distressed and other residential mortgage loans at fair value consist of the following as of December 31, 2019 and 2018, respectively (dollar amounts in thousands):



	Principal		Premium/(Discount)			Unrealized Gains/(Losses)		Carrying Value
December 31, 2019	$	1,464,984	$	(81,372	)	$	46,142	$	1,429,754
December 31, 2018	788,372		(54,905		)	4,056		737,523

The following table presents the components of realized gains (losses), net and unrealized gains (losses), net attributable to distressed and other residential mortgage loans at fair value for the years ended December 31, 2019, 2018 and 2017 respectively (dollar amounts in thousands):



	Years Ended December 31,
	2019		2018		2017
Net realized gains on payoff and sale of loans	$	9,187	$	4,606	$	1,719
Net unrealized gains (losses)	42,087		4,096		(41		)

The geographic concentrations of credit risk exceeding 5% of the unpaid principal balance of distressed and other residential mortgage loans at fair value as of December 31, 2019 and 2018, respectively, are as follows:



	December 31, 2019		December 31, 2018
California	23.9	%	27.9	%
Florida	9.4	%	9.0	%
New York	8.0	%	5.1	%
Texas	5.4	%	4.2	%
New Jersey	5.1	%	3.8	%

The following table presents the fair value and aggregate unpaid principal balance of the Company’s distressed and other residential mortgage loans at fair value greater than 90 days past due and in non-accrual status as of December 31, 2019 and 2018, respectively (dollar amounts in thousands):



	Fair Value		Unpaid Principal Balance
December 31, 2019	$	106,199	$	122,918
December 31, 2018	60,117		75,167

Additionally, the fair value and aggregate unpaid principal balance of distressed and other residential mortgage loans at fair value held in non-accrual status but less than 90 days past due was approximately $9.3 million and $10.7 million, respectively, as of December 31, 2019.

Distressed and other residential mortgage loans with a fair value of approximately $881.2 million and $626.2 million at December 31, 2019 and 2018, respectively, are pledged as collateral for master repurchase agreements (see Note 12).

Distressed and Other Residential Mortgage Loans, Net

Distressed Residential Mortgage Loans, Net

As of December 31, 2019 and 2018, the carrying value of the Company’s distressed residential mortgage loans accounted for under ASC 310-30 amounts to approximately $158.7 million and $228.5 million, respectively.

The Company has elected the fair value option for all distressed residential mortgage loans purchased after June 30, 2017 (see Note 4).

The following table details activity in accretable yield for the distressed residential mortgage loans, net for the years ended December 31, 2019 and 2018, respectively (dollar amounts in thousands):



	December 31, 2019			December 31, 2018
Balance at beginning of period	$	195,560		$	303,949
Additions	1,784			7,972
Disposals	(53,624		)	(99,603		)
Accretion	(7,015		)	(16,758		)
Balance at end of period ⁽¹⁾	$	136,705		$	195,560

⁽¹⁾

Accretable yield is the excess of the distressed residential mortgage loans’ cash flows expected to be collected over the purchase price. The cash flows expected to be collected represents the Company’s estimate of the amount and timing of undiscounted principal and interest cash flows. Additions include reclassification to accretable yield from nonaccretable yield. Disposals include distressed residential mortgage loan dispositions, which include refinancing, sale and foreclosure of the underlying collateral and resulting removal of the distressed residential mortgage loans from the accretable yield, and reclassifications from accretable to nonaccretable yield. The reclassifications between accretable and nonaccretable yield and the accretion of interest income is based on various estimates regarding loan performance and the value of the underlying real estate securing the loans. As the Company continues to update its estimates regarding the loans and the underlying collateral, the accretable yield may change. Therefore, the amount of accretable income recorded in each of the years ended December 31, 2019 and 2018 is not necessarily indicative of future results.

The geographic concentrations of credit risk exceeding 5% of the unpaid principal balance of our distressed residential mortgage loans, net as of December 31, 2019 and 2018, respectively, are as follows:



	December 31, 2019		December 31, 2018
North Carolina	10.5	%	9.0	%
Florida	10.1	%	10.4	%
Georgia	7.0	%	7.2	%
South Carolina	5.8	%	5.6	%
Texas	5.6	%	4.9	%
New York	5.5	%	5.4	%
Ohio	5.2	%	5.0	%
Virginia	5.2	%	5.3	%

The Company had no distressed residential mortgage loans held in securitization trusts pledged as collateral for securitized debt as of December 31, 2019. The Company’s distressed residential mortgage loans held in securitization trusts with a carrying value of approximately $88.1 million at December 31, 2018 were pledged as collateral for certain of the Securitized Debt issued by the Company (see Note 9). In addition, distressed residential mortgage loans with a carrying value of approximately $80.6 million and $128.1 million at December 31, 2019 and 2018, respectively, are pledged as collateral for a master repurchase agreement (see Note 12).

Residential Mortgage Loans Held in Securitization Trusts, Net

Residential mortgage loans held in securitization trusts, net are comprised of certain ARMs transferred to Consolidated VIEs that have been securitized into sequentially rated classes of beneficial interests. Residential mortgage loans held in securitization trusts, net consist of the following as of December 31, 2019 and 2018, respectively (dollar amounts in thousands):



	December 31, 2019			December 31, 2018
Unpaid principal balance	$	47,237		$	60,171
Deferred origination costs – net	301			383
Allowance for loan losses	(3,508		)	(3,759		)
Total	$	44,030		$	56,795

Allowance for Loan Losses - The following table presents the activity in the Company’s allowance for loan losses on residential mortgage loans held in securitization trusts, net for the years ended December 31, 2019, 2018 and 2017, respectively (dollar amounts in thousands):



	Years Ended December 31,
	2019			2018			2017
Balance at beginning of period	$	3,759		$	4,191		$	3,782
Provisions for loan losses	25			166			475
Transfer to real estate owned	(167		)	—			(6		)
Charge-offs	(109		)	(598		)	(60		)
Balance at the end of period	$	3,508		$	3,759		$	4,191

On an ongoing basis, the Company evaluates the adequacy of its allowance for loan losses. The Company’s allowance for loan losses at December 31, 2019 was $3.5 million, representing 743 basis points of the outstanding principal balance of residential mortgage loans held in securitization trusts, as compared to 625 basis points as of December 31, 2018. As part of the Company’s allowance for loan loss adequacy analysis, management will assess an overall level of allowances while also assessing credit losses inherent in each non-performing residential mortgage loan held in securitization trusts. These estimates involve the consideration of various credit related factors, including but not limited to, current housing market conditions, current loan to value ratios, delinquency status, the borrower’s current economic and credit status and other relevant factors.

The Company’s residential mortgage loans held in securitization trusts, net and real estate owned are pledged as collateral for the Residential CDOs issued by the Company. The Company’s net investment in these residential securitization trusts, which is the maximum amount of the Company’s investment that is at risk to loss and represents the difference between (i) the carrying amount of the mortgage loans, real estate owned and receivables held in residential securitization trusts and (ii) the amount of Residential CDOs outstanding, was $4.9 million and $4.8 million as of December 31, 2019 and 2018, respectively.

Delinquency Status of Our Residential Mortgage Loans Held in Securitization Trusts, Net

As of December 31, 2019, we had 18 delinquent loans with an aggregate principal amount outstanding of approximately $10.2 million categorized as residential mortgage loans held in securitization trusts, net, of which $6.7 million, or 66%, are under some form of temporary modified payment plan. The table below shows delinquencies in our portfolio of residential mortgage loans held in securitization trusts, net, including real estate owned (REO) through foreclosure, as of December 31, 2019 (dollar amounts in thousands):

December 31, 2019



Days Late	Number of Delinquent Loans	Total Unpaid Principal		% of Loan Portfolio
30 - 60	2	$	211	0.44	%
90+	16	$	10,010	21.05	%
Real estate owned through foreclosure	1	$	360	0.76	%

As of December 31, 2018, we had 19 delinquent loans with an aggregate principal amount outstanding of approximately $10.9 million categorized as residential mortgage loans held in securitization trusts, net, of which $6.6 million, or 61%, were under some form of temporary modified payment plan. The table below shows delinquencies in our portfolio of residential mortgage loans held in securitization trusts, net as of December 31, 2018 (dollar amounts in thousands):

December 31, 2018



Days Late	Number of Delinquent Loans	Total Unpaid Principal		% of Loan Portfolio
90+	19	$	10,926	18.16	%

The geographic concentrations of credit risk exceeding 5% of the total loan balances in our residential mortgage loans held in securitization trusts, net as of December 31, 2019 and 2018, respectively, are as follows:



	December 31, 2019		December 31, 2018
New York	36.1	%	33.9	%
Massachusetts	17.2	%	20.0	%
New Jersey	12.8	%	14.5	%
Florida	12.1	%	9.9	%
Maryland	5.5	%	5.3	%

Schedule IV - Mortgage Loans on Real Estate

(dollar amounts in thousands)

December 31, 2019



Asset Type	Number of Loans	Interest Rate	Maturity Date	Carrying Value		Principal Amount of Loans Subject to Delinquent Principal or Interest
Distressed and other residential mortgage loans, net
First mortgage loans
Original loan amount $0 - $99,999	1,355	1.99% - 14.99%	08/25/2007 - 01/10/2060	$	62,833	$	12,942
Original loan amount $100,000 - $199,999	577	2.00% - 12.48%	11/19/2011 - 12/01/2059	62,926		13,302
Original loan amount $200,000 - $299,999	139	0.00% - 11.44%	06/01/2029 - 11/01/2059	27,775		7,914
Original loan amount over $299,999	112	2.00% - 9.75%	11/01/2021 - 05/01/2057	49,222		16,477

Residential mortgage loans, at fair value
First mortgage loans
Original loan amount $0 - $99,999	1,482	1.38% - 13.50%	10/10/2018 - 12/01/2059	84,154		6,901
Original loan amount $100,000 - $199,999	2,769	1.50% - 13.38%	07/01/2018 - 12/01/2059	328,284		29,491
Original loan amount $200,000 - $299,999	1,484	0.25% - 12.00%	01/07/2020 - 11/01/2059	301,835		29,612
Original loan amount over $299,999	1,701	2.00% - 12.00%	01/08/2020 - 02/01/2060	668,673		56,318

Second mortgage loans
Original loan amount $0 - $99,999	701	5.75% - 9.00%	12/01/2030 - 11/01/2049	32,827		595
Original loan amount $100,000 - $199,999	74	6.25% - 9.13%	05/01/2032 - 10/01/2049	9,549		—
Original loan amount $200,000 - $299,999	18	6.25% - 8.63%	03/01/2046 - 11/01/2049	4,137		—
Original loan amount over $299,999	1	6.88% - 6.88%	11/01/2047 - 11/01/2047	295		—

Other mortgage loans
Residential loans and loans held for sale	14	2.36% - 5.63%	07/01/2027 - 08/01/2046	2,406		413

Residential loans held in securitization trust, at fair value
First mortgage loans	8,103	1.38% - 10.50%	02/01/2022 - 12/01/2058	1,328,886		50,741

Multi-family loans held in securitization trusts, at fair value
First mortgage loans	828	3.04% - 5.76%	1/1/2020 - 1/1/2034	17,816,746		—
				$	20,780,548	$	224,706

Reconciliation of Balance Sheet Reported Amounts of Mortgage Loans on Real Estate



	For the year ended December 31,
(in thousands)	2019			2018			2017
Beginning balance	$	12,707,625		$	10,157,126		$	7,565,459
Additions during period:
Purchases	8,762,553			2,983,295			2,987,775
Accretion of purchase discount	11,234			19,940			19,686
Change in realized and unrealized gains (losses)	638,557			4,096			10,214
Deductions during period:
Repayments of principal	(1,052,812		)	(182,163		)	(175,664		)
Collection of interest	(11,429		)	(21,754		)	(26,081		)
Transfer to REO	(6,105		)	(7,998		)	(7,228		)
Cost of mortgages sold	(213,871		)	(109,000		)	(176,470		)
Provision for loan loss	2,780			(1,235		)	1,739
Change in realized and unrealized gains (losses)	—			(85,115		)	(270		)
Amortization of premium	(57,984		)	(49,567		)	(42,034		)
Balance at end of period	$	20,780,548		$	12,707,625		$	10,157,126