Mortgage Loans

6 Months Ended

Jun. 30, 2020

The following table presents information regarding the carrying value for the Company's RPL loans, NPL loans and SBC loans as of June 30, 2020 and December 31, 2019 ($ in thousands):


Loan portfolio basis by asset type	June 30, 2020		December 31, 2019
Residential RPLs loans	$	1,048,146	$	1,085,514
SBC/commercial loans	4,240		35,086
Residential NPL loans	28,231		30,869
Total	$	1,080,617	$	1,151,469

Included on the Company’s consolidated balance sheets as of June 30, 2020 and December 31, 2019 are approximately $1.1 billion and $1.2 billion, respectively, of RPLs, NPLs, and SBCs. RPLs, NPLs and SBCs are categorized at acquisition. The carrying value of all loans reflects the original investment amount, plus accretion of interest income and credit and non-credit discount, less principal and interest cash flows received. The carrying values at June 30, 2020 and December 31, 2019 for the Company's loans in the table above are presented net of a cumulative allowance for loan credit losses of $14.5 million and $2.0 million, respectively, reflected in the appropriate lines in the table by loan type. For the three and six months ended June 30, 2020, the Company recognized a recovery of $1.5 million of provision for loan credit losses and $0.6 million of provision for loan credit losses. For the three and six months ended June 30, 2019, the Company recognized a $0.1 million and $0.2 million, respectively, of provision for loan credit losses. For the three and six month periods ended June 30, 2020, the Company accreted $20.3 million and $40.3 million net of credit impairments and recoveries, respectively, into interest income with respect to its RPL, NPL and SBC loans. For the three and six month periods ended June 30, 2019, the Company accreted $23.9 million and $50.3 million net of credit impairments, respectively, into interest income with respect to its RPL, NPL and SBC loans.

Loss estimates are determined based on the net present value of the difference between the contractual cash flows and the expected cash flows over the expected life of the assets. Contractual cash flows are calculated based on the stated terms of the loans, and incorporate any prepayment assumptions utilized in the expected cash flows. Expected cash flows are based on our proprietary model, which includes factors such as resolution method, resolution timeline, foreclosure costs, rehabilitation costs and eviction costs. Additional variables include the specific location of the underlying property, loan-to-value ratio, property age and condition, change and rate of change of borrower credit rating, servicing notes, interest rate, monthly payment amount and neighborhood rents.

The Company's mortgage loans are secured by real estate. Risks inherent in the Company's mortgage loan portfolio, affecting both the valuation of its mortgage loans 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 pandemic caused by the novel coronavirus ("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 in its portfolio 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 Company had no loan acquisitions during the three months ended June 30, 2020, however, during the six months ended June 30, 2020 the Company purchased 26 RPLs with UPB of $2.0 million. Comparatively, during the three and six months ended June 30, 2019, the Company acquired 496 and 534 RPLs, respectively, with UPB of $106.6 million and $115.1 million, respectively. During the three months ended June 30, 2020 no NPLs were purchased, however, during the six months ended June 30, 2020 one NPL was purchased with UPB of $0.2 million. No NPLs were purchased during the three and six months ended June 30, 2019. During the three and six months ended June 30, 2020, the Company acquired no SBC loans. Comparatively, during the three and six months ended June 30, 2019, the Company acquired two and 21 SBC loans with UPB of $0.7 million and $18.4 million, respectively.

During the three months ended June 30, 2020 the Company sold no mortgage loans, however, during the six months ended June 30, 2020 the Company sold 26 commercial loans to Gaea, an affiliated entity with a carrying value of $26.1 million and UPB of $26.2 million and a collateral value of $44.2 million. Comparatively, the Company sold 962 loans to a related party joint venture, Ajax Mortgage Loan Trust 2019-C ("2019-C"), a joint venture with third party institutional investors,

during the three and six month periods ended June 30, 2019 with a carrying value of $176.9 million and UPB of $200.1 million and a collateral value of $320.1 million. (See Note 10 — Related Party Transactions.)

The Company adopted CECL using the prospective transition approach for PCD assets on January 1, 2020, at the time, $10.2 million of loan discount was reclassified to the allowance for credit losses with no net impact on the amortized cost basis of the portfolio. The Company views its mortgage loan portfolio based on loan performance and uses six pools to aggregate its portfolio of PCD loans, and one pool for its non-PCD loans. Among the PCD loans, separate pools exist for loans that have been securitized in rated secured borrowings during 2019 ("Great Ajax II REIT"), loans held by securitization trust 2018-C, loans held by securitization trust 2017-D, loans with collateral in California which are not included in the Great Ajax II REIT, 2018-C or 2017-D pools, and the remaining loans are pooled between those which have made seven of the most recent seven payments ("7f7 and better") and those which have made between four and six of the most recent payments or worse ("4f4-6f6 and below"). The following table presents information regarding the year of origination of the Company's mortgage loan portfolio by basis ($ in thousands):


	June 30, 2020
	2020		2019		2018		2017		2016		2009-2015		2006-2008		2005 and prior		Total
Great Ajax II REIT	$	—	$	—	$	—	$	225	$	1,097	$	32,025	$	208,799	$	66,450	$	308,596
7f7 and better	—		—		152		265		2,044		23,419		144,510		62,431		232,821
4f4-6f6 and below	—		—		—		—		—		13,934		120,362		40,559		174,855
2018-C	—		—		—		123		—		7,100		95,544		34,356		137,123
California	—		—		—		349		215		5,862		89,475		22,847		118,748
2017-D	—		—		106		136		707		15,624		60,952		25,555		103,080
Non-PCD	—		783		1,244		2,506		101		696		54		10		5,394
Total	$	—	$	783	$	1,502	$	3,604	$	4,164	$	98,660	$	719,696	$	252,208	$	1,080,617

The following table presents a reconciliation between the purchase price and par value for the Company's loan acquisitions and originations for the three and six months ended June 30, 2020 ($ in thousands):


	Three months ended June 30, 2020						Six months ended June 30, 2020
	PCD Loans		Non PCD Loans		PCD Loans		Non PCD Loans
Par	$	—	$	—	$	227	$	1,952
Discount	—		—		(37)		(747)
Allowance	—		—		(4)		—
Purchase Price	$	—	$	—	$	186	$	1,205

The Company performs an analysis of its expectation of the amount of undiscounted cash flows expected to be collected from its mortgage loan pools at the end of each calendar quarter. Under CECL, the Company adjusts its allowance for loan credit 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. 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 loss. Management assesses the credit quality of the portfolio and the adequacy of loan 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 recovery of the provision for credit losses of $1.5 million and a net provision for credit losses of $0.6 million, respectively, on its mortgage loan portfolio primarily as a result of reduced cash flow expectations due to the COVID-19 outbreak. This reserve reflects the macroeconomic impact of the COVID-19 outbreak on mortgage loans and residential real estate markets generally and is not specific to any loan losses or impairments in the mortgage loan portfolio. During the three and six months ended June 30, 2019, the Company recorded a provision for credit losses of $0.1 million and $0.2 million, respectively, on its mortgage loan portfolio. An analysis of the balance in the allowance for loan losses account follows ($ in thousands):


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Allowance for loan credit losses, beginning of period	$	(16,136)	$	(1,318)	$	(1,960)	$	(1,164)
Beginning period adjustment for CECL	—		—		(10,156)		—
Reversal of / (Increase in) provision for credit losses on mortgage loans	1,525		(85)		(597)		(239)
Reversal of / (Increase in) allowance for loan credit losses	161		—		(1,737)		—
Allowance for loan credit losses, end of period	$	(14,450)	$	(1,403)	$	(14,450)	$	(1,403)

The following table sets forth the carrying value of the Company’s mortgage loans by delinquency status as of June 30, 2020 and December 31, 2019 ($ in thousands):


	June 30, 2020
	Current		30		60		90		Foreclosure		Total
Great Ajax II REIT	$	254,360	$	21,214	$	19,437	$	13,484	$	101	$	308,596
7f7 and better	163,097		22,875		21,155		25,181		512		232,820
2018-C	96,276		18,616		17,081		35,369		7,512		174,854
2017-D	83,239		15,549		12,160		23,899		2,274		137,121
California	80,421		9,721		8,926		17,918		1,761		118,747
4f4- 6f6 and below	12,493		6,706		7,617		49,172		27,092		103,080
Non-PCD	1,427		251		1,936		1,785		—		5,399
Total	$	691,313	$	94,932	$	88,312	$	166,808	$	39,252	$	1,080,617


	December 31, 2019
	Current		30		60		90		Foreclosure		Total
Great Ajax II REIT	$	265,677	$	37,553	$	14,034	$	4,597	$	—	$	321,861
7f7 and better	147,722		29,371		22,645		28,864		1,829		230,431
2018-C	75,253		33,904		19,756		42,315		8,074		179,302
2017-D	68,996		28,318		14,452		33,166		3,188		148,120
California	90,658		12,733		9,123		20,737		1,173		134,424
4f4- 6f6 and below	6,412		4,329		12,946		66,177		24,033		113,897
Non-PCD	21,425		—		850		1,159		—		23,434
Total	$	676,143	$	146,208	$	93,806	$	197,015	$	38,297	$	1,151,469