Consolidated K-Series and Consolidated SLST

12 Months Ended

Dec. 31, 2019

Disclosure Text Block Supplement [Abstract]

Consolidated K-Series and Consolidated SLST

Consolidated K-Series

The Company owns first loss POs, certain IOs and certain senior and mezzanine securities issued by certain Freddie Mac-sponsored multi-family loan K-series securitizations that comprise the Consolidated K-Series. The Consolidated K-Series is comprised of fourteen and nine Freddie Mac-sponsored multi-family loan K-Series securitizations as of December 31, 2019 and 2018, respectively, that we consolidate in our financial statements in accordance with GAAP. The Company has elected the fair value option on the assets and liabilities held within the Consolidated K-Series, which requires that changes in valuations in the assets and liabilities of the Consolidated K-Series be reflected in the Company’s consolidated statements of operations. Our investment in the Consolidated K-Series is limited to the multi-family CMBS that we own with an aggregate net carrying value of $1.1 billion and $657.6 million at December 31, 2019 and 2018, respectively (see Note 9).

The condensed consolidated balance sheets of the Consolidated K-Series at December 31, 2019 and 2018, respectively, are as follows (dollar amounts in thousands):



Balance Sheets	December 31, 2019		December 31, 2018
Assets
Multi-family loans held in securitization trusts, at fair value	$	17,816,746	$	11,679,847
Receivables ⁽¹⁾	59,417		41,850
Total Assets	$	17,876,163	$	11,721,697
Liabilities and Equity
Multi-family CDOs, at fair value	$	16,724,451	$	11,022,248
Accrued expenses	57,873		41,102
Total Liabilities	16,782,324		11,063,350
Equity	1,093,839		658,347
Total Liabilities and Equity	$	17,876,163	$	11,721,697


⁽¹⁾	Included in receivables and other assets on the accompanying consolidated balance sheets.

The multi-family loans held in securitization trusts had unpaid aggregate principal balances of approximately $16.8 billion and $11.5 billion at December 31, 2019 and 2018, respectively. The Multi-Family CDOs had aggregate unpaid principal balances of approximately $16.8 billion and $11.5 billion at December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, the current weighted average interest rate on these Multi-Family CDOs was 3.85% and 3.96%, respectively.

The Company does not have any claims to the assets or obligations for the liabilities of the Consolidated K-Series (other than those securities represented by the first loss POs, IOs and certain senior and mezzanine securities owned by the Company). We have elected the fair value option for the Consolidated K-Series. The net fair value of our investment in the Consolidated K-Series, which represents the difference between the carrying values of multi-family loans held in securitization trusts less the carrying value of Multi-Family CDOs, approximates the fair value of our underlying securities (see Note 15).

The condensed consolidated statements of operations of the Consolidated K-Series for the years ended December 31, 2019, 2018, and 2017, respectively, are as follows (dollar amounts in thousands):



	Years Ended December 31,
Statements of Operations	2019		2018		2017
Interest income	$	535,226	$	358,712	$	297,124
Interest expense	457,130		313,102		261,665
Net interest income	78,096		45,610		35,459
Unrealized gains, net	23,962		37,581		18,872
Net income	$	102,058	$	83,191	$	54,331

The geographic concentrations of credit risk exceeding 5% of the total loan balances related to multi-family loans held in securitization trusts as of December 31, 2019 and multi-family loans held in securitization trusts and first loss POs and certain IOs held in re-securitization trusts as of December 31, 2018 are as follows:



	December 31, 2019		December 31, 2018
California	15.9	%	14.8	%
Texas	12.4	%	13.0	%
Florida	6.2	%	4.5	%
Maryland	5.8	%	5.0	%

Consolidated SLST

In the fourth quarter of 2019, the Company invested in first loss subordinated securities and certain IOs and senior securities issued by a Freddie Mac-sponsored residential mortgage loan securitization. In accordance with GAAP, the Company has consolidated the underlying seasoned re-performing and non-performing residential mortgage loans held in the securitization and the SLST CDOs issued to permanently finance these residential mortgage loans, which we refer to as Consolidated SLST. The Company has elected the fair value option on the assets and liabilities held within Consolidated SLST, which requires that changes in valuations in the assets and liabilities of Consolidated SLST be reflected in the Company’s consolidated statements of operations. Our investment in Consolidated SLST is limited to the securities that we own with an aggregate net carrying value of $276.8 million at December 31, 2019 (see Note 9).

The condensed consolidated balance sheet of Consolidated SLST at December 31, 2019 is as follows (dollar amounts in thousands):



Balance Sheet	December 31, 2019
Assets
Residential mortgage loans held in securitization trust, at fair value	$	1,328,886
Receivables ⁽¹⁾	5,244
Total Assets	$	1,334,130
Liabilities and Equity
Residential collateralized debt obligations, at fair value	$	1,052,829
Accrued expenses	2,643
Total Liabilities	1,055,472
Equity	278,658
Total Liabilities and Equity	$	1,334,130


⁽¹⁾	Included in receivables and other assets on the accompanying consolidated balance sheets.

The residential mortgage loans held in securitization trust at fair value had aggregate unpaid principal balances of approximately $1.3 billion at December 31, 2019. The SLST CDOs had aggregate unpaid principal balances of approximately $1.3 billion at December 31, 2019. As of December 31, 2019, the current weighted average interest rate on the SLST CDOs was 3.53%.

The Company does not have any claims to the assets or obligations for the liabilities of Consolidated SLST (other than those securities represented by the first loss subordinated securities, IOs and senior securities owned by the Company). We have elected the fair value option for Consolidated SLST. The net fair value of our investment in Consolidated SLST, which represents the difference between the carrying values of residential mortgage loans held in securitization trust less the carrying value of SLST CDOs, approximates the fair value of our underlying securities (see Note 15).

The condensed consolidated statement of operations of Consolidated SLST for the year ended December 31, 2019, is as follows (dollar amounts in thousands):



Statement of Operations	December 31, 2019
Interest income ⁽¹⁾	$	4,764
Interest expense ⁽²⁾	2,945
Net interest income	1,819
Unrealized losses, net	(83		)
Net income	$	1,736


⁽¹⁾	Included in the Company’s accompanying consolidated statements of operations in interest income, distressed and other residential mortgage loans.


⁽²⁾	Included in the Company’s accompanying consolidated statements of operations in interest expense, residential collateralized debt obligations.

The geographic concentrations of credit risk exceeding 5% of the total loan balances related to residential mortgage loans held in securitization trust at fair value as of December 31, 2019 are as follows:



	December 31, 2019
California	11.0	%
Florida	10.6	%
New York	9.1	%
New Jersey	6.9	%
Illinois	6.6	%