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Use of Special Purpose Entities (SPE) and Variable Interest Entities (VIE) | 3 Months Ended
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Mar. 31, 2020
Variable Interest Entity, Consolidated, Carrying Amount, Assets and Liabilities, Net [Abstract] |
Use of Special Purpose Entities (SPE) and Variable Interest Entities (VIE) | Use of Special Purpose Entities (SPE) and Variable Interest Entities (VIE) The Company uses SPEs to facilitate transactions that involve securitizing financial assets or re-securitizing previously securitized financial assets. The objective of such transactions may include obtaining non-recourse financing, obtaining liquidity or refinancing the underlying securitized financial assets on improved terms. Securitization involves transferring assets to an SPE to convert all or a portion of those assets into cash before they would have been realized in the normal course of business through the SPE’s issuance of debt or equity instruments. Investors in an SPE usually have recourse only to the assets in the SPE and depending on the overall structure of the transaction, may benefit from various forms of credit enhancement, such as over-collateralization in the form of excess assets in the SPE, priority with respect to receipt of cash flows relative to holders of other debt or equity instruments issued by the SPE, or a line of credit or other form of liquidity agreement that is designed with the objective of ensuring that investors receive principal and/or interest cash flow on the investment in accordance with the terms of their investment agreement. The Company has entered into financing transactions which required the Company to analyze and determine whether the SPEs that were created to facilitate the transactions are VIEs in accordance with ASC 810, Consolidation, and if so, whether the Company is the primary beneficiary requiring consolidation. As of March 31, 2020 and December 31, 2019, the Company evaluated its residential loan securitizations and concluded that the entities created to facilitate each of the financing transactions are VIEs and that the Company is the primary beneficiary of these VIEs (each a “Financing VIE” and collectively, the “Financing VIEs”). Accordingly, the Company continues to consolidate the Residential CDOs issued by its residential loan securitizations as of March 31, 2020 and December 31, 2019. The Company invests in subordinated securities that represent the first loss position of the Freddie Mac-sponsored residential loan securitization from which they were issued, and certain IOs and senior securities issued from the securitization. The Company has evaluated its investments in this securitization trust to determine whether it is a VIE and if so, whether the Company is the primary beneficiary requiring consolidation. The Company has determined that the Freddie Mac-sponsored residential loan securitization trust is a VIE as of March 31, 2020 and December 31, 2019, which we refer to as Consolidated SLST. The Company also determined that it is the primary beneficiary of the VIE within Consolidated SLST and, accordingly, has consolidated its assets, liabilities, income and expenses, in the accompanying condensed consolidated financial statements (see Notes 2 and 4). The Company’s investments that are included in Consolidated SLST were not included as collateral to any Financing VIE as of March 31, 2020 and December 31, 2019. As of December 31, 2019, the Company invested in multi-family CMBS consisting of POs that represent the first loss position of the Freddie Mac-sponsored multi-family K-series securitizations from which they were issued, and certain IOs and certain senior and mezzanine CMBS securities issued from those securitizations. The Company evaluated these CMBS investments in Freddie Mac-sponsored K-Series securitization trusts to determine whether they were VIEs and if so, whether the Company was the primary beneficiary requiring consolidation. The Company determined that the Freddie Mac-sponsored multi-family K-Series securitization trusts were VIEs as of December 31, 2019, which we refer to as the Consolidated K-Series. The Company also determined that it was the primary beneficiary of each VIE within the Consolidated K-Series and, accordingly, consolidated its assets, liabilities, income and expenses in the accompanying condensed consolidated financial statements (see Notes 2 and 6). In March 2019, the Company exercised its right to an optional redemption of its multi-family CMBS re-securitization with an outstanding principal balance of $33.2 million resulting in a loss on extinguishment of debt of $2.9 million. During the three months ended March 31, 2020, the Company sold its first loss POs and certain mezzanine securities issued by the Consolidated K-Series. These sales, for total proceeds of approximately $555.2 million, resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO, a realized net loss on de-consolidation of multi-family loans held in securitization trusts and multi-family collateralized debt obligations of $54.1 million and reversal of previously recognized net unrealized gains of $168.5 million. The sales also resulted in the de-consolidation of $17.4 billion in multi-family loans held in securitization trusts and $16.6 billion in multi-family collateralized debt obligations. The Company transferred its remaining IOs and mezzanine and senior securities owned in the Consolidated K-Series with a fair value of approximately $237.3 million to investment securities available for sale. In analyzing whether the Company is the primary beneficiary of the Financing VIEs, Consolidated SLST and the Consolidated K-Series, the Company considered its involvement in each of the VIEs, including the design and purpose of each VIE, and whether its involvement reflected a controlling financial interest that resulted in the Company being deemed the primary beneficiary of the VIEs. In determining whether the Company would be considered the primary beneficiary, the following factors were assessed:
• | whether the Company has both the power to direct the activities that most significantly impact the economic performance of the VIE; and
• | whether the Company has a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE.
The Company owns 100% of RB Development Holding Company, LLC ("RBDHC"). RBDHC owns 50% of Kiawah River View Investors LLC ("KRVI"), a limited liability company that owns developed land and residential homes under development in Kiawah Island, SC, for which RiverBanc LLC ("RiverBanc"), a wholly-owned subsidiary of the Company, is the manager. The Company has evaluated KRVI to determine if it is a VIE and if so, whether the Company is the primary beneficiary requiring consolidation. The Company has determined that KRVI is a VIE for which RBDHC is the primary beneficiary as the Company, collectively through its wholly-owned subsidiaries, RiverBanc and RBDHC, has both the power to direct the activities that most significantly impact the economic performance of KRVI and has a right to receive benefits or absorb losses of KRVI that could be potentially significant to KRVI. Accordingly, the Company has consolidated KRVI in its condensed consolidated financial statements with a non-controlling interest for the third-party ownership of KRVI membership interests. Real estate under development in KRVI as of March 31, 2020 and December 31, 2019 of $14.8 million and $14.5 million, respectively, is included in receivables and other assets on the condensed consolidated balance sheets. The following table presents a summary of the assets and liabilities of the Company's residential loan securitizations, Consolidated SLST and KRVI of as of March 31, 2020 (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
| Financing VIE |  | Other VIEs |  |
| Residential Loan Securitizations |  | Consolidated SLST |  | Other |  | Total
Cash and cash equivalents | $ | — |  |  | $ | — |  |  | $ | 4 |  |  | $ | 4 |
Residential loans, at fair value | 42,984 |  |  | 1,218,299 |  |  | — |  |  | 1,261,283 |
Receivables and other assets | 3,337 |  |  | 3,772 |  |  | 14,859 |  |  | 21,968 |
Total assets | $ | 46,321 |  |  | $ | 1,222,071 |  |  | $ | 14,863 |  |  | $ | 1,283,255 |
Residential collateralized debt obligations | $ | 38,959 |  |  | $ | — |  |  | $ | — |  |  | $ | 38,959 |
Residential collateralized debt obligations, at fair value | — |  |  | 1,034,992 |  |  | — |  |  | 1,034,992 |
Accrued expenses and other liabilities | 6 |  |  | 2,646 |  |  | 75 |  |  | 2,727 |
Total liabilities | $ | 38,965 |  |  | $ | 1,037,638 |  |  | $ | 75 |  |  | $ | 1,076,678 |
The following table presents a summary of the assets and liabilities of the Company's residential loan securitizations, the Consolidated K-Series, Consolidated SLST and KRVI as of December 31, 2019 (dollar amounts in thousands):
|  | Financing VIE |  | Other VIEs |  |
|  | Residential Loan Securitizations |  | Consolidated K-Series |  | Consolidated SLST |  | Other |  | Total
Cash and cash equivalents |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 107 |  |  | $ | 107 |
Residential loans held in securitization trusts, net |  | 44,030 |  |  | — |  |  | — |  |  | — |  |  | 44,030 |
Residential loans, at fair value |  | — |  |  | — |  |  | 1,328,886 |  |  | — |  |  | 1,328,886 |
Multi-family loans held in securitization trusts, at fair value |  | — |  |  | 17,816,746 |  |  | — |  |  | — |  |  | 17,816,746 |
Receivables and other assets |  | 1,328 |  |  | 59,417 |  |  | 5,244 |  |  | 14,626 |  |  | 80,615 |
Total assets |  | $ | 45,358 |  |  | $ | 17,876,163 |  |  | $ | 1,334,130 |  |  | $ | 14,733 |  |  | $ | 19,270,384 |
Residential collateralized debt obligations |  | $ | 40,429 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 40,429 |
Residential collateralized debt obligations, at fair value |  | — |  |  | — |  |  | 1,052,829 |  |  | — |  |  | 1,052,829 |
Multi-family collateralized debt obligations, at fair value |  | — |  |  | 16,724,451 |  |  | — |  |  | — |  |  | 16,724,451 |
Accrued expenses and other liabilities |  | 14 |  |  | 57,873 |  |  | 2,643 |  |  | 75 |  |  | 60,605 |
Total liabilities |  | $ | 40,443 |  |  | $ | 16,782,324 |  |  | $ | 1,055,472 |  |  | $ | 75 |  |  | $ | 17,878,314 |
Unconsolidated VIEs As of March 31, 2020 and December 31, 2019, the Company evaluated its investment securities available for sale, preferred equity, mezzanine loan and other equity investments to determine whether they are VIEs and should be consolidated by the Company. Based on a number of factors, the Company determined that, as of March 31, 2020 and December 31, 2019, it does not have a controlling financial interest and is not the primary beneficiary of these VIEs. The following tables present the classification and carrying value of unconsolidated VIEs as of March 31, 2020 and December 31, 2019, respectively (dollar amounts in thousands):
| March 31, 2020
| Investment securities available for sale, at fair value |  | Preferred equity and mezzanine loan investments |  | Investments in unconsolidated entities |  | Total
ABS | $ | 42,344 |  |  | $ | — |  |  | $ | — |  |  | $ | 42,344 |
Preferred equity investments in multi-family properties | — |  |  | 173,863 |  |  | 126,865 |  |  | 300,728 |
Mezzanine loans on multi-family properties | — |  |  | 5,429 |  |  | — |  |  | 5,429 |
Equity investments in entities that invest in residential properties and loans | — |  |  | — |  |  | 66,790 |  |  | 66,790 |
Total assets | $ | 42,344 |  |  | $ | 179,292 |  |  | $ | 193,655 |  |  | $ | 415,291 |
| December 31, 2019
| Investment securities available for sale, at fair value |  | Preferred equity and mezzanine loan investments |  | Investments in unconsolidated entities |  | Total
ABS | $ | 49,214 |  |  | $ | — |  |  | $ | — |  |  | $ | 49,214 |
Preferred equity investments in multi-family properties | — |  |  | 173,825 |  |  | 106,083 |  |  | 279,908 |
Mezzanine loans on multi-family properties | — |  |  | 6,220 |  |  | — |  |  | 6,220 |
Equity investments in entities that invest in residential properties and loans | — |  |  | — |  |  | 65,572 |  |  | 65,572 |
Total assets | $ | 49,214 |  |  | $ | 180,045 |  |  | $ | 171,655 |  |  | $ | 400,914 |
Our maximum loss exposure on the investment securities available for sale, preferred equity and mezzanine loan investments, and investments in unconsolidated entities was approximately $415.3 million and $400.9 million at March 31, 2020 and December 31, 2019, respectively. The Company’s maximum exposure does not exceed the carrying value of its investments.

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