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Investments | 6 Months Ended
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Jun. 30, 2020
Investments, Debt and Equity Securities [Abstract] |
Investments | Investments The Company holds investments in various debt securities and beneficial interests which are the net residual interest of the Company’s investments in securitization trusts. The Company's debt securities and beneficial interests are issued by securitization trusts, which are VIEs, that the Company has sponsored but which the Company does not consolidate since it has determined it is not the primary beneficiary (See Note 10 — Related party transactions). The Company marks its debt securities to fair value using prices provided by financing counterparties, and believes any unrealized losses to be temporary. Risks inherent in the Company's debt securities portfolio, affecting both the valuation of its securities as well as the portfolio's interest income include the risk of default, delays and inconsistency in the frequency and amount of payments, risks affecting borrowers such as man-made or natural disasters, or the COVID-19 outbreak, and damage to or delay in realizing the value of the underlying collateral. The Company monitors the credit quality of the mortgage loans underlying its debt securities on an ongoing basis, principally by considering loan payment activity or delinquency status. In addition, the Company assesses the expected cash flows from the mortgage loans, the fair value of the underlying collateral and other factors, and evaluates whether and when it becomes probable that all amounts contractually due will not be collected. The following table presents information regarding the Company's investments in debt securities and investments in beneficial interests ($ in thousands):
|  | As of June 30, 2020 |  |  |  |  |  |
|  | Basis(1) |  | Gross unrealized gains |  | Gross unrealized losses |  | Carrying value (fair value)
Debt securities |  | $ | 261,926 |  |  | $ | 2,936 |  |  | $ | (6,872) |  |  | $ | 257,990 |
Beneficial interests in securitization trusts |  | 69,876 |  |  | — |  |  | — |  |  | 69,876 |
Total investments |  | $ | 331,802 |  |  | $ | 2,936 |  |  | $ | (6,872) |  |  | $ | 327,866 |
(1)Basis amount is net of any amortized discount, allowance for credit losses, principal paydowns and interest receivable on securities of $0.3 million.
|  | As of December 31, 2019 |  |  |  |  |  |
|  | Basis(1) |  | Gross unrealized gains |  | Gross unrealized losses |  | Carrying value (fair value)
Debt securities |  | $ | 230,408 |  |  | $ | 1,643 |  |  | $ | (366) |  |  | $ | 231,685 |
Beneficial interests in securitization trusts |  | 57,954 |  |  | — |  |  | — |  |  | 57,954 |
Total investments |  | $ | 288,362 |  |  | $ | 1,643 |  |  | $ | (366) |  |  | $ | 289,639 |
(1)Basis amount is net of any amortized discount, principal paydown and interest receivable on securities of $0.3 million. The following table presents a breakdown of the Company's gross unrealized losses ($ in thousands):
|  | As of June 30, 2020 |  |  |  |
|  | Basis(1) |  | Gross unrealized losses |  | Carrying value (fair value)
Debt securities due April 2058(2) |  | $ | 6,498 |  |  | $ | (31) |  |  | $ | 6,467 |
Debt securities due February 2057(2) |  | 5,624 |  |  | (6) |  |  | 5,618 |
Debt securities due September 2059(3) |  | 63,693 |  |  | (2,802) |  |  | 60,891 |
Debt securities due November 2059(3) |  | 17,367 |  |  | (346) |  |  | 17,021 |
Debt securities due December 2059(3) |  | 49,519 |  |  | (3,687) |  |  | 45,832 |
Total |  | $ | 142,701 |  |  | $ | (6,872) |  |  | $ | 135,829 |
(1)Basis amount is net of any realized amortized costs and principal paydowns. (2)These securities have been in an unrealized loss position for 12 months or longer. (3)This security has been in an unrealized loss position for less than 12 months.
|  | As of December 31, 2019 |  |  |  |
|  | Basis(1) |  | Gross unrealized losses |  | Carrying value (fair value)
Debt securities due April 2058(2) |  | $ | 6,855 |  |  | $ | (9) |  |  | $ | 6,846 |
Debt securities due February 2057(2) |  | 7,324 |  |  | (1) |  |  | 7,323 |
Debt securities due September 2059(3) |  | 37,843 |  |  | (356) |  |  | 37,487 |
Total |  | $ | 52,022 |  |  | $ | (366) |  |  | $ | 51,656 |
(1)Basis amount is net of any realized amortized costs and principal paydowns. (2)These securities have been in an unrealized loss position for 12 months or longer. (3)This security has been in an unrealized loss position for less than 12 months. As of June 30, 2020, the Company recorded $2.9 million gross unrealized gains and a gross unrealized loss of $6.9 million in fair valuation adjustments in accumulated other comprehensive income on the consolidated balance sheet at a fair value of $258.0 million, which includes $0.3 million in interest receivable. As of December 31, 2019, the Company recorded a gross unrealized gain of $1.6 million and a gross unrealized loss of $0.4 million in fair valuation adjustments in accumulated other comprehensive income on the Company's consolidated balance sheet at fair value of $231.7 million, which includes $0.3 million in interest receivable. During the three and six months ended June 30, 2020, the Company acquired $0 and $61.3 million, respectively, in notes and beneficial interests issued by joint ventures between the Company and third party institutional accredited investors. Each joint venture issued senior notes and beneficial interests, which are trust certificates representing the residual investment in the trust. In certain transactions, the joint ventures also issued subordinated notes. Of the $61.3 million acquired in the six months ended June 30, 2020, the Company acquired $49.6 million in senior notes and $4.6 million in subordinate notes, collectively “the Notes.” The Notes are accounted for as debt securities and carried at fair value. Comparatively for the three and six months ended June 30, 2019, the Company acquired $20.2 million and $84.2 million, respectively, in notes and beneficial interests issued by joint ventures between the Company and third party institutional accredited investors. Of the $20.2 million and $84.2 million, respectively, for three and six months ended in June 30, 2019, the Company retained $7.5 million and $57.5 million, respectively, in senior notes and $4.7 million and $9.3 million in subordinate notes. During 2019, the Company sold senior notes issued by certain joint ventures for total proceeds of $39.6 million and recognized a gain of $8 thousand, net of transaction fees. During the three and six months ended June 30, 2020, the Company also acquired $0 and $7.1 million in beneficial interests issued by joint ventures during the three and six months ended June 30, 2020. Comparatively, for the three and six months ended June 30, 2019, the Company acquired $8.0 million and $17.4 million, respectively, in beneficial interests issued by joint ventures. As of June 30, 2020, the investments in beneficial interests were carried on the Company's consolidated balance sheet at $69.9 million. At December 31, 2019, the investments in beneficial interests were carried on the Company's consolidated balance sheet at $58.0 million. As of June 30, 2020 and December 31, 2019, the Company had no securities that were past due. The following table presents a reconciliation between the purchase price and par value for the Company's beneficial interests acquisitions for the three and six months ended June 30, 2020 ($ in thousands):
|  | Three months ended June 30, 2020 |  | Six months ended June 30, 2020
|  | Beneficial Interest |  | Beneficial Interest
Par |  | $ | — |  |  | $ | 11,970 |
Discount |  | — |  |  | (4,888) |
Purchase Price |  | $ | — |  |  | $ | 7,082 |
The Company adopted CECL using the prospective transition approach for PCD assets for its beneficial interests on January 1, 2020, at the time $4.2 million was reclassified from discount to allowance for credit losses for its Investments in beneficial interests. Under CECL, the Company adjusts its allowance for loan losses when there are changes in its expectation of future cash flows. An increase to the allowance for losses will occur when there is a reduction in the Company’s expected future cash flows. A reduction to the allowance, or recovery, may occur if there is an increase in expected future cash flows that were previously subject to a provision for losses. Management assesses the credit quality of the portfolio and the adequacy of loss reserves on a quarterly basis, or more frequently as necessary. During the three and six months ended June 30, 2020, the Company recorded a reversal of the provision for credit losses of $2.8 million and provision for credit losses of $0.2 million, respectively on its beneficial interest portfolio, primarily as a result of increased cash flow expectations despite the pandemic caused by COVID-19 that began during the first quarter of 2020. This reserve reflects the macroeconomic impact of the COVID-19 outbreak on mortgage loan and residential real estate markets generally and is not specific to any specific asset in the beneficial interest portfolio. During the three and six months ended June 30, 2019, the Company recorded no impairment on its beneficial interests. An analysis of the balance in the allowance for beneficial interest losses account follows ($ in thousands):
| Three months ended June 30, |  |  |  | Six months ended June 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
Allowance for beneficial interests credit losses, beginning balance | $ | (7,208) |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Beginning period adjustment for CECL | — |  |  | — |  |  | (4,221) |  |  | — |
Reversal of / (Increase in) provision for credit losses on beneficial interests | 2,802 |  |  | — |  |  | (185) |  |  | — |
Increase in allowance for beneficial interest credit losses | (2,553) |  |  | — |  |  | (2,553) |  |  | — |
Allowance for beneficial interests credit losses, end balance | $ | (6,959) |  |  | $ | — |  |  | $ | (6,959) |  |  | $ | — |

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- Definition The entire disclosure for investments in certain debt and equity securities. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2209399 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2324412 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -URI http://asc.fasb.org/topic&trid=2196928 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 940 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2176304 + Details
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