Quarterly report pursuant to Section 13 or 15(d)

Variable Interest Entities and Securitizations

v3.24.1.1.u2
Variable Interest Entities and Securitizations
 3 Months Ended
Mar. 31, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Variable Interest Entities and Securitizations
5. Variable Interest Entities and Securitizations
The Company determined that the special purpose entities created in connection with its securitizations are VIEs. A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary, which is the entity that, through its variable interests, has both the power to direct the activities that significantly impact the VIE’s economic performance and the obligations to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Consolidated VIEs
FAR
FAR securitizes certain of its interests in HECM buyouts and non-agency reverse mortgage loans. The transactions provide investors with the ability to invest in a pool of reverse mortgage loans secured by residential properties. The transactions provide FAR with access to liquidity for these assets, ongoing servicing fees, and potential residual returns. The principal and interest on the outstanding certificates are paid using the cash flows from the underlying reverse mortgage loans, which serve as collateral for the debt. The securitizations are callable at or following the optional redemption date as defined in the respective indenture agreements.
In the three months ended March 31, 2024, the Company redeemed outstanding securitized notes related to certain non-agency reverse product securitizations. As part of the redemptions, the Company paid off notes with outstanding principal balances of $424.7 million. The notes were paid off at par.
FAM
FAM securitized certain of its interests in commercial mortgage loans. The transactions provided debt security holders the ability to invest in a pool of loans secured by an investment in real estate. The transactions provided the Company with access to liquidity for the loans and ongoing management fees. The principal and interest on the outstanding debt securities are paid using the cash flows from the underlying loans, which serve as collateral for the debt.
Servicing-Securitized Loans
In their capacity as servicer of the securitized loans, FAR and FAM retain the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance. FAR and FAM also retain certain beneficial interests in these trusts which provide exposure to potential gains and losses based on the performance of the trust. As FAR and FAM have both the power to direct the activities that significantly impact the VIE’s economic performance and the obligations to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the definition of primary beneficiary is met and the trusts are consolidated by the Company through its FAR and FAM subsidiaries.
Certain obligations may arise from the agreements associated with transfers of loans. Under these agreements, the Company may be obligated to repurchase the loans or otherwise indemnify or reimburse the investor for losses incurred due to material breach of contractual representations and warranties. There were no charge-offs associated with these transferred mortgage loans related to the standard securitization representations and warranties obligations for the three months ended March 31, 2024 or 2023.
The following table presents the assets and liabilities of the Company’s consolidated VIEs, which are included in the Condensed Consolidated Statements of Financial Condition, and excludes intercompany balances, except for retained bonds and beneficial interests (in thousands):
March 31, 2024 December 31, 2023
ASSETS
Restricted cash $ 183,490  $ 168,010 
Loans held for investment, subject to nonrecourse debt, at fair value 8,026,026  7,881,566 
Other assets, net 56,386  68,178 
TOTAL ASSETS $ 8,265,902  $ 8,117,754 
LIABILITIES
Nonrecourse debt, at fair value $ 8,015,402  $ 7,859,065 
Payables and other liabilities 501  546 
TOTAL VIE LIABILITIES 8,015,903  7,859,611 
Retained bonds and beneficial interests eliminated in consolidation (478,412) (327,653)
TOTAL CONSOLIDATED LIABILITIES $ 7,537,491  $ 7,531,958 
Unconsolidated VIEs
Transfer of loans accounted for as sales
The Company securitized certain of its interests in non-agency reverse mortgage loans and in agency-eligible residential mortgage loans. The transactions provided investors with the ability to invest in a pool of mortgage loans secured by residential properties and provided the Company with access to liquidity for these assets and ongoing service fees. The Company’s beneficial interest in the securitizations is limited to a 5% eligible vertical interest in the trusts. The Company determined that the securitization structures meet the definition of a VIE and concluded that the Company does not hold a significant variable interest in the securitizations and that the contractual role as servicer is not a variable interest. The transfers of the loans to the VIEs were determined to be sales. The Company derecognized the mortgage loans and did not consolidate the trusts.
The Company’s continuing involvement with and exposure to loss from the VIEs includes the carrying value of the retained bonds, the servicing asset recognized in the sale of the loans, servicing advances in the role as servicer, and obligations under representations and warranties contained in the loan sale agreements. Creditors of the VIEs have no recourse to the Company’s assets or general credit. The underlying performance of the mortgage loans transferred has a direct impact on the fair values and cash flows of the beneficial interests held and the servicing asset recognized.
Transfer of loans accounted for as secured borrowings
The Company securitized certain non-agency reverse mortgage loans and commercial mortgage loans where its beneficial interest in the securitizations is limited to a 5% eligible vertical interest in the trusts. The Company determined that these securitization structures meet the definition of a VIE and concluded that the Company does not hold a significant variable interest in the securitizations and the Company does not have the power to direct the activities that most significantly affect the economic performance of the VIEs. However, the transfers of the loans to the VIEs were determined not to be sales. As such, the Company continues to recognize the loans and recognized a nonrecourse liability for the proceeds received from third parties for the transfer of the loans. Bonds issued in the securitization that were retained by the Company are not recognized. The Company’s continuing involvement with and exposure to loss from the VIEs includes the carrying value of the retained bonds, servicing advances in the role as servicer, and obligations under representations and warranties contained in the loan sale agreements. Creditors of the VIEs have no recourse to the Company’s assets or general credit. The underlying performance of the mortgage loans held has a direct impact on the fair values and cash flows of the beneficial interests held.
The tables below present a summary of the unconsolidated VIEs for which the Company holds variable interests (in thousands).
March 31, 2024
Carrying value
Assets Liabilities Maximum exposure to loss Total assets in VIEs
Transfers of loans - sale treatment
Retained interests $ 50,124  $ —  $ 50,124  $ 996,999 
Transfers of loans - secured borrowing
Loans and nonrecourse liability 388,565  367,582  20,983  388,565 
TOTAL $ 438,689  $ 367,582  $ 71,107  $ 1,385,564 
December 31, 2023
Carrying value
Assets Liabilities Maximum exposure to loss Total assets in VIEs
Transfers of loans - sale treatment
Retained interests $ 50,774  $ —  $ 50,774  $ 1,008,152 
Transfers of loans - secured borrowing
Loans and nonrecourse liability 389,557  368,343  21,214  389,557 
TOTAL $ 440,331  $ 368,343  $ 71,988  $ 1,397,709 
As of March 31, 2024 and December 31, 2023, there were $0.8 million and $0.7 million, respectively, of mortgage loans transferred by the Company to unconsolidated securitization trusts that are 90 days or more past due.