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MarketScreener Homepage  >  Equities  >  Nyse  >  Great Ajax Corp.    AJX

GREAT AJAX CORP.

(AJX)
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GREAT AJAX : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/05/2020 | 06:12am EST
In this quarterly report on Form 10-Q ("report"), unless the context indicates
otherwise, references to "Great Ajax," "we," "the company," "our" and "us" refer
to the activities of and the assets and liabilities of the business and
operations of Great Ajax Corp.; "operating partnership" refers to Great Ajax
Operating Partnership L.P., a Delaware limited partnership; "our Manager" refers
to Thetis Asset Management LLC, a Delaware limited liability company; "Aspen
Capital" refers to the Aspen Capital group of companies; "Aspen" and "Aspen Yo"
refers to Aspen Yo LLC, an Oregon limited liability company that is part of
Aspen Capital; and "the Servicer" and "Gregory" refer to Gregory Funding LLC, an
Oregon limited liability company and our affiliate, and an indirect subsidiary
of Aspen Yo.

Our Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the unaudited interim consolidated
financial statements and related notes included in Item 1. Consolidated interim
financial statements of this report and in Item 8. Financial statements and
supplementary data in our most recent Annual Report on Form 10-K, as well as the
section entitled "Risk Factors" in Part II, Item 1A. of this report, as well as
other cautionary statements and risks described elsewhere in this report and our
most recent Annual Report on Form 10-K.

Overview


Great Ajax Corp. is a Maryland corporation that is organized and operated in a
manner intended to allow us to qualify as a REIT. We primarily target
acquisitions of RPLs, which are residential mortgage loans on which at least
five of the seven most recent payments have been made, or the most recent
payment has been made and accepted pursuant to an agreement, or the full dollar
amount, to cover at least five payments has been paid in the last seven months.
We also acquire and originate SBC loans. The SBC loans that we target through
acquisitions generally have a principal balance of up to $5.0 million and are
secured by multi-family residential and commercial mixed use retail/residential
properties on which at least five of the seven most recent payments have been
made, or the most recent payment has been made and accepted pursuant to an
agreement, or the full dollar amount, to cover at least five payments has been
paid in the last seven months. We also originate SBC loans that we believe will
provide an appropriate risk-adjusted total return. Additionally, we invest in
single-family and smaller commercial properties directly either through a
foreclosure event of a loan in its mortgage portfolio or through a direct
acquisition. We may also target investments in NPLs either directly or with
joint venture partners. NPLs are loans on which the most recent three payments
have not been made. We may acquire NPLs either directly or with joint venture
partners. We own a 19.8% equity interest in the Manager and an 8.0% equity
interest in the parent company of our Servicer. GA-TRS is a wholly owned
subsidiary of the Operating Partnership that owns the equity interest in the
Manager and the Servicer. We have elected to treat GA-TRS as a taxable REIT
subsidiary under the Code. Our mortgage loans and real properties are serviced
by the Servicer, also an affiliated company.

In 2014, we formed Great Ajax Funding LLC, a wholly owned subsidiary of the
Operating Partnership, to act as the depositor of mortgage loans into
securitization trusts and to hold the subordinated securities issued by such
trusts and any additional trusts we may form for additional secured borrowings.
AJX Mortgage Trust I and AJX Mortgage Trust II are wholly owned subsidiaries of
the Operating Partnership formed to hold mortgage loans used as collateral for
financings under our repurchase agreements. On February 1, 2015, we formed GAJX
Real Estate Corp., as a wholly owned subsidiary of the Operating Partnership, to
own, maintain, improve and sell certain REO purchased by us. We have elected to
treat GAJX Real Estate Corp. as a TRS under the Code.

Our Operating Partnership, through interests in certain entities, holds 99.8% of
Great Ajax II REIT Inc. which holds an interest in Great Ajax II Depositor LLC
which was formed to act as the depositor of mortgage loans into securitization
trusts and to hold the subordinated securities issued by such trusts and any
additional trusts we may form for additional secured borrowings. We have
securitized mortgage loans through a securitization trust and retained
subordinated securities from the secured borrowings. This trust is considered to
be a VIE, and we have determined that we are the primary beneficiary of this
VIE.

In 2018, we formed Gaea Real Estate Corp. ("Gaea"), as a wholly owned subsidiary
of the Operating Partnership. We have elected to treat Gaea as a TRS under the
Code. Also during 2018, we formed Gaea Real Estate Operating Partnership LP, a
wholly owned subsidiary of Gaea, to hold investments in commercial real estate
assets. We also formed BFLD Holdings LLC ("BFLD"), Gaea Commercial Properties
LLC, Gaea Commercial Finance LLC and Gaea RE LLC as subsidiaries of Gaea Real
Estate Operating Partnership. In 2019, we formed DG Brooklyn Holdings ("DG
Brooklyn Holdings"), also a subsidiary of Gaea Real Estate Operating Partnership
LP, to hold investments in multi-family properties. On November 22, 2019, Gaea
completed a private capital raise in which it raised $66.3 million from the
issuance of 4,419,641 shares of its common stock to third parties to allow Gaea
to continue to advance its investment strategy. We retained a 23.2% ownership
interest in Gaea following the transaction.
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We elected to be taxed as a REIT for U.S. federal income tax purposes beginning
with our taxable year ended December 31, 2014. Our qualification as a REIT
depends upon our ability to meet, on a continuing basis, various complex
requirements under the Code relating to, among other things, the sources of our
gross income, the composition and values of our assets, our distribution levels
and the diversity of ownership of our capital stock. We believe that we are
organized in conformity with the requirements for qualification as a REIT under
the Code, and that our current intended manner of operation enables us to meet
the requirements for taxation as a REIT for U.S. federal income tax purposes.

Our Portfolio


The following table outlines the carrying value of our portfolio of mortgage
loan assets and single-family and smaller commercial properties as of June 30,
2020 and December 31, 2019 ($ in millions):

                                          June 30, 2020       December 31, 2019
Residential RPL loans                    $     1,048.1$        1,085.5
Residential NPL loans                             28.2                   30.9
SBC/commercial loans                               4.2                   35.1
Property held-for-sale, net                        6.9                   13.5
Rental property, net                               1.4                    1.5
Investment in debt securities                    258.0                  

231.7

Investment in beneficial interests                69.9                   58.0
Total Real Estate Assets                 $     1,416.7$        1,456.2

We closely monitor the status of our mortgage loans and, through our Servicer, work with our borrowers to improve their payment records.

Market Trends and Outlook

COVID-19


The COVID-19 pandemic that began during the first quarter of 2020 created a
global public-health crisis that resulted in widespread volatility and
deteriorations in household, business, and economic market conditions, including
in the United States, where we conduct all of our business. While the duration
and severity of the COVID-19 pandemic remains unknown, many governmental and
nongovernmental authorities directed their actions toward curtailing household
and business activity in order to contain or mitigate the impact of the COVID-19
pandemic and deployed fiscal- and monetary-policy measures in order to seek to
partially mitigate the adverse effects. These programs have had varying degrees
of success and the extent of the long term impact on the mortgage market remains
unknown.

COVID-19 began to meaningfully impact our operations in late March 2020 and this
disruption was reflected in our results of operations for the quarter ended
March 31, 2020. During the quarter ended June 30, 2020 many of these negative
impacts were reversed as follows:

•We recorded total recovery of credit losses provisions of $4.3 million on our
Mortgage loan portfolio and Investments in beneficial interests as a result of
better than expected loan performance during the quarter and the related impact
on future repayment rates.
•We recovered of $23.2 million of unrealized losses on our Investments in debt
securities to Other comprehensive income as counterparty marks at June 30, 2020
rebounded off March 31, 2020 levels.
•We recovered $24.7 million of cash deposits on a net basis from our repurchase
financing counterparties as collateral prices rebounded off March 31, 2020
levels.

The pandemic has continued and continues to significantly and adversely impact
certain areas of the United States. As a result, our forecast of macroeconomic
conditions and expected lifetime credit losses on our mortgage loan and
beneficial interest portfolios is subject to meaningful uncertainty. While our
borrowers continue to make scheduled payments and we continue to receive
payments in full, we have acted swiftly to support our borrowers with a mortgage
forbearance program. While we generally do not hold loans guaranteed by GSEs or
the US government, we, through our Servicer, are nonetheless offering a
forbearance program under terms similar to those required for GSE loans.
Borrowers that are able to provide documentation of a negative impact of
COVID-19 are entitled to three months of forbearance. The three monthly payments
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may then be repaid over 12 months. If a borrower cannot repay the deferred
amount, our Servicer will work them on repayment options. Notwithstanding the
foregoing, to the extent special rules apply to a mortgagor because of the
jurisdiction or type of the Mortgage Loan, the Servicer will comply with those
rules. Our Servicer has extensive experience dealing with delinquent borrowers
and we believe it is well positioned to react on our behalf to any increase in
mortgage delinquencies. The following list shows the COVID-19 forbearance
activity in our mortgage loan portfolio as of July 31, 2020(1) :

•Number of COVID-19 forbearance relief inquiries: 1,153 •Number of COVID-19 forbearance relief granted: 337 •Number of COVID-19 forbearance under review: 177



(1)Statistics are for loans carried on our balance sheet including loans held in
Ajax 2017-D and Ajax 2018-C where third parties own 50% and 37%, respectively.
Statistics do not include non-consolidated joint ventures where we own bonds and
beneficial interests issued by the joint ventures.

During the quarter ended June 30, 2020, we raised $125.0 million, net of
offering costs, in a series of private placements of preferred stock and
warrants. We expect to use the net proceeds from the private placement to
acquire mortgage loans and mortgage-related assets consistent with our
investment strategy, and that this additional capital will provide sufficient
liquidity to both benefit from any investment opportunities and protect against
future market disruption.

Notwithstanding this additional capital and liquidity, we expect continued
volatility in the residential mortgage securities market in the short term and
increased acquisition opportunities later in the year or early 2021. Extended
forbearance, foreclosure timelines and eviction timelines could result in lower
yields and losses on our mortgage loan and beneficial interest portfolios and
losses on our REO held-for-sale. Ongoing disruption in the credit markets could
result in margin calls from our financing counterparties and additional mark
downs on our Investments in debt securities, beneficial interests and mortgage
loans.

We believe that certain cyclical trends continue to drive a significant realignment within the mortgage sector notwithstanding the impact of the pandemic. Through the end of the second quarter, the recent trends noted below have continued, including:


•historically low interest rates and elevated operating costs resulting from new
regulatory requirements continue to drive sales of residential mortgage assets
by banks and other mortgage lenders;
•declining home ownership in certain areas due to rising prices, low inventory,
tighter lending standards and increased down payment requirements that have
increased the demand for single-family and multi-family residential rental
properties;
•the Dodd-Frank risk retention rules for asset backed securities have reduced
the universe of participants in the securitization markets;
•the lack of a robust market for non-conforming mortgage loans will reduce the
pool of buyers due to tighter credit standards as a result of COVID-19; and
•the current market landscape and decrease in the price of residential mortgage
loans as a result of the COVID-19 outbreak we believe will generate new
opportunities in residential mortgage-related whole loan strategies.

The origination of subprime and alternative residential mortgage loans remains
substantially below 2008 levels and the qualified mortgage and ability-to-repay
rule requirements have put pressure on new originations. Additionally, many
banks and other mortgage lenders have increased their credit standards and down
payment requirements for originating new loans. Recent market disruption from
the pandemic has sharply reduced financing alternatives for borrowers not
eligible for financing programs underwritten by the GSEs or the federal
government.

The combination of these factors has also resulted in a significant number of
families that cannot qualify to obtain new residential mortgage loans. We
believe the U.S. federal regulations addressing "qualified mortgages" based on,
among other factors such as employment status, debt-to-income level, impaired
credit history or lack of savings, limit mortgage loan availability from
traditional mortgage lenders. In addition, we believe that many homeowners
displaced by foreclosure or who either cannot afford to own or cannot be
approved for a mortgage will prefer to live in single-family rental properties
with similar characteristics and amenities to owned homes as well as smaller
multi-family residential properties. In certain demographic areas, new
households are being formed at a rate that exceeds the new homes being added to
the market, which we believe favors future demand for non-federally guaranteed
mortgage financing for single-family and smaller multi-family rental properties.
For all these reasons, we believe that demand for single-family and smaller
multi-family rental properties will increase in the near term and remain at
heightened levels for the foreseeable future.

We believe that investments in residential RPLs with positive equity provide an
optimal investment value. As a result, we are currently focusing on acquiring
pools of RPLs, though we may acquire NPLs, either directly or with joint venture
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partners, if attractive opportunities exist. Through our Servicer, we work with
our borrowers to improve their payment records. Once there is a period of
continued performance, we expect that borrowers will typically refinance these
loans at or near the estimated value of the underlying property.

We also believe there are significant attractive investment opportunities in the
SBC loan and property markets and originate as well as purchase these loans. The
primary lenders for smaller multi-family and mixed retail/residential properties
are community banks and not regional and national banks and large institutional
lenders. We believe the primary lenders and loan purchasers are less interested
in these assets because they typically require significant commercial and
residential mortgage credit and underwriting expertise, special servicing
capability and active property management. It is also more difficult to create
the large pools of these loans that banks, other lenders and portfolio acquirers
typically desire. We continually monitor opportunities to increase our holdings
of these SBC loans and properties.

Factors That May Affect Our Operating Results


Acquisitions. Our operating results depend heavily on sourcing residential RPLs
and SBC loans and, when attractive opportunities are identified, NPLs. We
believe that there is generally a large supply of RPLs available to us for
acquisition and we believe the available supply provides for a steady
acquisition pipeline of assets since large institutions are active sellers in
the market. However, we expect that our residential mortgage loan portfolio may
grow at an uneven pace, as opportunities to acquire distressed residential
mortgage loans may be irregularly timed and may involve large portfolios of
loans, and the timing and extent of our success in acquiring such loans cannot
be predicted. We also believe there may be increased opportunities to acquire
NPLs due to the pandemic. In addition, for any given portfolio of loans that we
agree to acquire, we typically acquire fewer loans than originally expected, as
certain loans may be resolved prior to the closing date or may fail to meet our
diligence standards. The number of loans not acquired typically constitutes a
small portion of a particular portfolio. In any case where we do not acquire the
full portfolio, we make appropriate adjustments to the applicable purchase
price.

Financing. Our ability to grow our business by acquiring residential RPLs and
SBC loans depends on the availability of adequate financing, including
additional equity financing, debt financing or both in order to meet our
objectives. We intend to leverage our investments with debt, the level of which
may vary based upon the particular characteristics of our portfolio and on
market conditions. We have funded and intend to continue to fund our asset
acquisitions with non-recourse secured borrowings in which the underlying
collateral is not marked-to-market and employ repurchase agreements without the
obligation to mark-to-market the underlying collateral to the extent available.
We securitize our whole loan portfolios, primarily as a financing tool, when
economically efficient to create long-term, fixed rate, non-recourse financing
with moderate leverage, while retaining one or more tranches of the subordinate
MBS so created. The secured borrowings are structured as debt financings and not
real estate investment conduit ("REMIC") sales. We completed the securitization
transactions pursuant to Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act"), in which we issued notes primarily secured by seasoned,
performing and non-performing mortgage loans primarily secured by first liens on
one-to-four family residential properties. Currently there is substantial
uncertainty in the securitization markets which could limit our access to
financing.

To qualify as a REIT under the Code, we generally will need to distribute at
least 90% of our taxable income each year (subject to certain adjustments) to
our stockholders. This distribution requirement limits our ability to retain
earnings and thereby replenish or increase capital to support our activities.

Resolution Methodologies. We, through the Servicer, or our affiliates, employ
various loan resolution methodologies with respect to our residential mortgage
loans, including loan modification, collateral resolution and collateral
disposition. The manner in which an NPL is resolved will affect the amount and
timing of revenue we will receive. Our preferred resolution methodology is to
modify NPLs. Once successfully modified and there is a period of continued
performance, we expect that borrowers will typically refinance these loans at or
near the estimated value of the underlying property. We believe modification
followed by refinancing generates near-term cash flows, provides the highest
possible economic outcome for us and is a socially responsible business strategy
because it keeps more families in their homes. In certain circumstances, we may
also consider selling these modified loans. Through historical experience, we
expect that many of our NPLs will enter into foreclosure or similar proceedings,
ultimately becoming REO that we can sell or convert into single-family rental
properties that we believe will generate long-term returns for our stockholders.
Our REO properties may be converted into single-family rental properties or they
may be sold through REO liquidation and short sale processes. We expect the
timelines for each of the different processes to vary significantly. The exact
nature of resolution will depend on a number of factors that are beyond our
control, including borrower willingness, property value, availability of
refinancing, interest rates, conditions in the financial markets, regulatory
environment and other factors. To avoid the 100% prohibited transaction tax on
the sale of dealer property by a REIT, we may dispose of assets that may be
treated as held "primarily for sale to customers in the ordinary course of a
trade or business" by contributing or selling the asset to a TRS prior to
marketing the asset for sale.

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The state of the real estate market and home prices will determine proceeds from
any sale of real estate. We will opportunistically and on an asset-by-asset
basis determine whether to rent any REO we acquire, whether upon foreclosure or
otherwise. We may determine to sell such assets if they do not meet our
investment criteria. In addition, while we seek to track real estate price
trends and estimate the effects of those trends on the valuations of our
portfolios of residential mortgage loans, future real estate values are subject
to influences beyond our control. Declining real estate prices, including as a
result of COVID-19, are expected to negatively affect our results. We also
expect that extended eviction timelines resulting from COVID-19 will negatively
impact sales of our REO held-for-sale.

Conversion to Rental Property. From time to time we will retain an REO property
as a rental property and may acquire rental properties through direct purchases
at attractive prices. The key variables that will affect our residential rental
revenues over the long-term will be the extent to which we acquire properties,
which, in turn, will depend on the amount of our capital invested, average
occupancy and rental rates in our owned rental properties. We expect the
timeline to convert multi-family and single-family loans into rental properties
will vary significantly by loan, which could result in variations in our revenue
and our operating performance from period to period. There are a variety of
factors that may inhibit our ability, through the Servicer, to foreclose upon a
residential mortgage loan and get access to the real property within the time
frames we model as part of our valuation process. These factors include, without
limitation: state foreclosure timelines and the associated deferrals (including
from litigation); unauthorized occupants of the property; U.S. federal, state or
local legislative action or initiatives designed to provide homeowners with
assistance in avoiding residential mortgage loan foreclosures that may delay the
foreclosure process; U.S. federal government programs that require specific
procedures to be followed to explore the non-foreclosure outcome of a
residential mortgage loan prior to the commencement of a foreclosure proceeding;
and declines in real estate values and high levels of unemployment and
underemployment that increase the number of foreclosures and place additional
pressure on the already overburdened judicial and administrative systems. We do
not expect to retain a material number of single family residential properties
for use as rentals. We do, however, intend to focus on retaining multi-unit
residences derived from foreclosures or acquired through outright purchases as
rentals.

Expenses. Our expenses primarily consist of the fees and expenses payable by us
under the Management Agreement and the Servicing Agreement. Additionally, our
Manager incurs direct, out-of-pocket costs related to managing our business,
which are contractually reimbursable by us. Loan transaction expense is the cost
of performing due diligence on pools of mortgage loans under consideration for
purchase. Professional fees are primarily for legal, accounting and tax
services. Real estate operating expense consists of the ownership and operating
costs of our REO properties, both held-for-sale and as rentals, and includes any
charges for impairments to the carrying value of these assets, which may be
significant. Those expenses may increase due to extended eviction timelines
caused by the pandemic. Interest expense, which is subtracted from our Interest
income to arrive at Net interest income, consists of the costs to borrow money.

On July 30, 2020, we priced Ajax Mortgage Loan Trust 2020-B with $97.2 million
of AAA-rated senior securities, and $17.3 million of A-rated securities issued
with respect to $156.5 million of mortgage loans, all of which were RPLs. The
AAA- and A-rated securities have a weighted average coupon of 1.874% and
represent 73.2% of the UPB of the underlying mortgage loans. Our cost of funds
on our securities and mortgage loan repurchase lines of credit decreased
materially subsequent to the end of the quarter ended June 30, 2020. We expect
this reduction, combined with the closing of Ajax Mortgage Loan Trust 2020-B, to
have a favorable impact on our overall cost of funds.

Changes in Home Prices. As discussed above, generally, rising home prices are
expected to positively affect our results, particularly as this should result in
greater levels of re-performance of mortgage loans, faster refinancing of those
mortgage loans, more re-capture of principal on greater than 100% LTV
(loan-to-value) mortgage loans and increased recovery of the principal of the
mortgage loans upon sale of any REO. Conversely, declining real estate prices
are expected to negatively affect our results, particularly if the home prices
should decline below our purchase price for the loans and especially if
borrowers determine that it is better to strategically default as their equity
in their homes decline. While home prices have risen to, or in some cases
beyond, pre-Great Recession levels in many parts of the United States, there are
still significant regions where values have not materially increased. We
typically concentrate our investments in specific urban geographic locations in
which we expect stable or better property markets. However, when we analyze loan
and property acquisitions we do not take home price appreciation HPA into
account except for rural properties for which we model negative HPA related to
our expectation of worse than expected property condition. It is too early to
determine the impact of the COVID-19 outbreak on HPA and the resulting impact on
our markets. A significant decline in HPA will have an adverse impact on our
operating results.

Changes in Market Interest Rates. With respect to our business operations,
increases in existing interest rates, in general, may over time cause: (1) the
value of our mortgage loan and MBS portfolio to decline; (2) coupons on our
adjustable rate mortgages ("ARM") and hybrid ARM mortgage loans and MBS to
reset, although on a delayed basis, to higher interest rates; (3) prepayments on
our mortgage loans and MBS portfolio to slow, thereby slowing the amortization
of our purchase
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premiums and the accretion of our purchase discounts; (4) the interest expense
associated with our borrowings to increase; and (5) to the extent we enter into
interest rate swap agreements as part of our hedging strategy, the value of
these agreements to increase. Conversely, decreases in interest rates, in
general, may over time cause: (a) prepayments on our mortgage loan and MBS
portfolio to increase, thereby accelerating the accretion of our purchase
discounts; (b) the value of our mortgage loan and MBS portfolio to increase; (c)
coupons on our ARM and hybrid ARM mortgage loans and MBS to reset, although on a
delayed basis, to lower interest rates; (d) the interest expense associated with
our borrowings to decrease; and (e) to the extent we enter into interest rate
swap agreements as part of our hedging strategy, the value of these agreements
to decrease. We currently expect the pace of loan prepayments to slow due to the
COVID-19 outbreak.

Market Conditions. Due to the dramatic repricing of real estate assets that
occurred during the 2008 financial crisis and the continuing uncertainty
regarding the direction and strength of the real estate markets including as a
result of the pandemic, we believe a void in the debt and equity capital
available for investing in real estate exists as many financial institutions,
insurance companies, finance companies and fund managers have determined to
reduce or discontinue investment in debt or equity related to real estate. We
believe the dislocations in the residential real estate market have resulted or
will result in an "over-correction" in the repricing of real estate assets,
creating a potential opportunity for us to capitalize on these market
dislocations and capital void to the extent we are able to obtain financing for
additional purchases.

We believe that in spite of the continuing uncertain market environment for
mortgage-related assets, including as a result of the pandemic outbreak, current
market conditions offer potentially attractive investment opportunities for us,
even in the face of a riskier and more volatile market environment. We expect
that market conditions will continue to impact our operating results and will
cause us to adjust our investment and financing strategies over time as new
opportunities emerge and risk profiles of our business change.

COVID-19 Pandemic. The pandemic has also impacted, and is likely to continue to
impact, directly or indirectly, many of the other factors discussed above, as
well as other aspects of our business. New developments continue to emerge and
it is not possible for us to predict with certainty which factors will impact
our business. In addition, we cannot assess the impact of each factor on our
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
statements. In particular, it is difficult to fully assess the impact of the
pandemic at this time due to, among other things, uncertainty regarding the
severity and duration of the outbreak domestically and internationally and the
effectiveness of federal, state and local government efforts to contain the
spread of COVID-19, the effects of those efforts on our business, the indirect
impact on the U.S. economy and economic activity and the impact on the mortgage
markets and capital markets.

Critical Accounting Policies and Estimates

Mortgage Loans


Loans acquired with deterioration in credit quality - As of their acquisition
date the loans we acquire have generally suffered some credit deterioration
subsequent to origination. As a result, prior to the adoption of ASU 2016-13,
Financial Instruments - Credit Losses, otherwise known as CECL, on January 1,
2020, we were required to account for the mortgage loans pursuant to ASC 310-30,
Accounting for Loans with Deterioration in Credit Quality. Under both standards,
our recognition of interest income for loans with deteriorated credit quality
("PCD loans") is based upon having a reasonable expectation of the amount and
timing of the cash flows expected to be collected. When the timing and amount of
cash flows expected to be collected are reasonably estimable, we use expected
cash flows to apply the effective interest method of income recognition.

Under both CECL and ASC 310-30, acquired loans may be aggregated and accounted
for as a pool of loans if the loans have common risk characteristics. A pool is
accounted for as a single asset with a single composite interest rate and an
aggregate expectation of cash flows. However, CECL allows more flexibility to
adjust the loan pools as the underlying risk factors change over time. Under ASC
310-30, we determined RPLs to have common risk characteristics and accounted for
them as a single loan pool for loans acquired within each three-month calendar
quarter. Similarly, we determined NPLs to have common risk characteristics and
accounted for them as a single non-performing pool for loans acquired within
each three-month calendar quarter. The result was generally two additional pools
(RPLs and NPLs) each quarter. Under CECL, we re-aggregated our loan pools around
similar risk factors, while eliminating the previous distinction for the quarter
in which loans were acquired. This resulted in reducing the number of loan pools
to four as of March 31, 2020. The number of pools was then increased to six as
of June 30, 2020. Each loan pool is oriented around similar risk factors.
Excluded from the aggregate pools are loans that pay in full subsequent to the
acquisition closing date but prior to pooling. Any gain or loss on these loans
is recognized as Interest income in the period the loan pays in full.

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Our accounting for PCD loans gives rise to an accretable yield and an allowance
for credit losses. Under CECL, upon the acquisition of PCD loans we record the
acquisition as three separate elements for 1) the amount of purchase discount
which we expect to recover through eventual repayment by the borrower, 2) an
allowance for future expected credit loss and 3) the UPB of the loan. The
purchase price discount which we expect at the time of acquisition to collect
over the life of the loans is the accretable yield. Cash flows expected at
acquisition include all cash flows directly related to the acquired loan,
including those expected from the underlying collateral. We recognize the
accretable yield as Interest income on a prospective level yield basis over the
life of the pool. The expectation of the amount of undiscounted cash flows to be
collected is evaluated at the end of each calendar quarter. If we expect to
collect greater cash flows over the life of the pool, any prior allowance is
reversed to the extent of the increase and the expected yield to maturity is
adjusted on a prospective basis. The allowance for credit losses is increased
when we estimate we will not collect all amounts previously estimated to be
collectible, and reduced or eliminated when the underlying asset has been
liquidated and all expected underlying cash flows have been realized. Management
assesses the credit quality of the portfolio and the adequacy of loan loss
reserves on a quarterly basis, or more frequently as necessary. Significant
judgment is required in this analysis. Depending on the expected recovery of its
investment, we consider the estimated net recoverable value of the loan pools as
well as other factors, such as the fair value of the underlying collateral.
Because these determinations are based upon projections of future economic
events, which are inherently subjective, the amounts ultimately realized may
differ materially from the carrying value as of the reporting date.

Our mortgage loans are secured by real estate. We monitor the credit quality of
the mortgage loans in our portfolio on an ongoing basis, principally by
considering loan payment activity or delinquency status. In addition, we assess
the expected cash flows from the mortgage loans, the fair value of the
underlying collateral and other factors, and evaluate whether and when it
becomes probable that all amounts contractually due will not be collected.

Borrower payments on the mortgage loans are classified as principal, interest,
payments of fees, or escrow deposits. Amounts applied as interest on the
borrower account are similarly classified as interest for accounting purposes
and are classified as operating cash flows in our consolidated Statement of Cash
Flows. Amounts applied as principal on the borrower account including amounts
contractually due from borrowers that exceed our basis in loans purchased at a
discount, are similarly classified as principal for accounting purposes and are
classified as investing cash flows in the consolidated Statement of Cash Flows
as required under U.S. GAAP. Amounts received as payments of fees are recorded
in Other income and classified as operating cash flows in the consolidated
Statement of Cash Flows. Escrow deposits are recorded on the Servicer's balance
sheet and do not impact our cash flow.

Loans acquired or originated that have not experienced a deterioration in credit
quality - while we generally acquire loans that have experienced deterioration
in credit quality, we also acquire loans that have not experienced a
deterioration in credit quality and originate SBC loans.

Accrual of interest on individual loans is discontinued when management believes
that, after considering economic and business conditions and collection efforts,
the borrower's financial condition is such that collection of interest is
doubtful. Our policy is to stop accruing interest when a loan's delinquency
exceeds 90 days. All interest accrued but not collected for loans that are
placed on non-accrual status or subsequently charged-off are reversed against
Interest income. Income is subsequently recognized on the cash basis until, in
management's judgment, the borrower's ability to make periodic principal and
interest payments returns and future payments are reasonably assured, in which
case the loan is returned to accrual status.

An individual loan is considered to be impaired when, based on current events
and conditions, it is probable we will be unable to collect all amounts due
(both principal and interest) according to the contractual terms of the loan
agreement. Impaired loans are carried at the present value of expected future
cash flows discounted at the loan's effective interest rate, the loan's market
price, or the fair value of the collateral if the loan is collateral dependent.
For individual loans, a troubled debt restructuring is a formal restructuring of
a loan where, for economic or legal reasons related to the borrower's financial
difficulties, a concession that would not otherwise be considered is granted to
the borrower. The concession may be granted in various forms, including
providing a below-market interest rate, a reduction in the loan balance or
accrued interest, an extension of the maturity date, or a combination of these.
An individual loan that has had a troubled debt restructuring is considered to
be impaired and is subject to the relevant accounting for impaired loans.

If necessary, an allowance for loan losses is established through a provision
for loan losses charged to expenses. The allowance is the difference between the
expected future cash flows from the loan and the contractual balance due.

Real Estate


Real estate owned Property - we acquire real estate properties directly from
sellers and when we foreclose on a borrower and take title to the underlying
property ("REO"). REO is recorded at cost if purchased, or at the present value
of
                                       57
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future cash flows if obtained through foreclosure. REO we expect to actively
market for sale is classified as held-for-sale. REO held-for-sale is carried at
the lower of its acquisition basis, or its net realizable value (estimated fair
market value less expected selling costs). We estimate fair market value using a
combination of BPOs, comparable sales, appraisals, and competitive market
analyses provided by local realtors subject to our judgment. Net unrealized
losses due to changes in market value are recognized through a valuation
allowance by charges to income. No depreciation or amortization expense is
recognized on properties held-for-sale, while holding costs are expensed as
incurred. Foreclosed property that is sold to a third party at the foreclosure
sale ("Third Party Sales") is not considered REO and proceeds on these third
party sales are treated as payment in satisfaction of the underlying loan. See
Mortgage Loans, above.

Rental property is real estate property not held-for-sale. Rental property is
intended to be held as long-term investments but may eventually be
held-for-sale. Property is held for investment as rental property if the modeled
present value of the future expected cash flows from use as a rental exceed the
present value of expected cash flows from a sale. Depreciation is provided for
using the straight-line method over the estimated useful lives of the assets of
27.5 years. We perform an impairment analysis for all rental property not
held-for-sale using estimated cash flows if events or changes in circumstances
indicate that the carrying value may be impaired, such as prolonged vacancy,
identification of materially adverse legal or environmental factors, changes in
expected ownership period or a decline in market value to an amount less than
cost. This analysis is performed at the property level. The cash flows are
estimated based on a number of assumptions that are subject to economic and
market uncertainties including, among others, demand for rental properties,
competition for customers, changes in market rental rates, costs to operate each
property and expected ownership periods.

If the carrying amount of a held for investment asset exceeds the sum of its
undiscounted future operating and residual cash flows, an impairment loss is
recorded for the difference between estimated fair value of the asset and the
carrying amount. We generally estimate the fair value of assets held for use by
using BPOs, comparable sales or realtor competitive market analysis. In some
instances, appraisal information may be available and is used in addition to
other measures of fair value.

From time to time, we perform property renovations to maximize the value of REO
held-for-sale and held for investment. Such expenditures are generally advanced
by our Servicer and recovered by our Servicer when the property is liquidated
(for REO property held-for-sale) or upon completion of the renovations (for REO
property held for investment). For residential and commercial properties that
are not held-for-sale, the carrying value, including any renovations that
improve or extend the life of the asset, are accounted for at cost. The cost
basis is depreciated using the straight-line method over an estimated useful
life of 27.5 years. Interest and other carrying costs incurred during the
renovation period are capitalized until the property is ready for its intended
use. Expenditures for ordinary maintenance and repairs are charged to expense as
incurred. We generally intend to limit rental activity to multifamily or
multi-unit single family properties.

Investments at fair value


Our Investments at Fair Value as of June 30, 2020 and December 31, 2019 consist
of investments in senior and subordinated notes issued by joint ventures, which
we form with third party institutional accredited investors. We recognize income
on the debt securities using the effective interest method. Additionally, the
notes are classified as available-for-sale and are carried at fair value with
changes in fair value reflected in our consolidated statements of comprehensive
income. We mark our investments to fair value using prices received from our
financing counterparties and believe any unrealized losses on our debt
securities to be temporary. Any other-than-temporary losses, which represent the
excess of the amortized cost basis over the present value of expected future
cash flows, are recognized in the period identified in our consolidated
statements of income. Risks inherent in our debt securities portfolio, affecting
both the valuation of the 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 pandemic, and damage to or delay in realizing the value of the
underlying collateral. We monitor the credit quality of the mortgage loans
underlying our debt securities on an ongoing basis, principally by considering
loan payment activity or delinquency status. In addition, we assess the expected
cash flows from the mortgage loans, the fair value of the underlying collateral
and other factors, and evaluate whether and when it becomes probable that all
amounts contractually due will not be collected.

Investments in Beneficial Interests


Our Investments in beneficial interests as of June 30, 2020 and December 31,
2019 consist of investments in the trust certificates issued by joint ventures
which we form with third party institutional accredited investors. The trust
certificates represent the residual interest of any special purpose entity
formed to facilitate certain investments. We account for our Investments in
beneficial interests under CECL, as discussed under Mortgage Loans.

Debt

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Secured Borrowings - We issue, through securitization trusts, callable debt
secured by our mortgage loans in the ordinary course of business. The secured
borrowings are structured as debt financings, and the loans remain on our
balance sheet as we are the primary beneficiary of many of these securitization
trusts, which are variable interest entities ("VIEs"). These secured borrowing
VIEs are structured as pass-through entities that receive principal and interest
on the underlying mortgages and distribute those payments to the holders of the
notes. Our exposure to the obligations of the VIEs is generally limited to the
amount of our investments in the VIE entities; the creditors do not have
recourse to the primary beneficiary. Coupon interest on the debt is recognized
using the accrual method of accounting. Deferred issuance costs, including
original issue discount and debt issuance costs, are amortized on an effective
yield basis based on the underlying cash flow of the mortgage loans. We assume
the debt will be called at the specified call date for purposes of amortizing
discount and issuance costs because we believe we will have the intent and
ability to call the debt on the call date. Changes in the actual or projected
underlying cash flows are reflected in the timing and amount of deferred
issuance cost amortization.

Repurchase Facilities - We enter into repurchase financing facilities under
which we nominally sell assets to a counterparty and simultaneously enter into
an agreement to repurchase the sold assets at a price equal to the sold amount
plus an interest factor. Despite being legally structured as sales and
subsequent repurchases, repurchase transactions are generally accounted for as
debt secured by the underlying assets. At the maturity of a repurchase
financing, unless the repurchase financing is renewed, we are required to repay
the borrowing including any accrued interest and concurrently receive back our
pledged collateral from the lender. The repurchase financings are treated as
collateralized financing transactions; pledged assets are recorded as assets in
our consolidated balance sheets, and debt is recognized at the contractual
amount. Interest is recorded at the contractual amount on an accrual basis.
Costs associated with the set-up of a repurchasing contract are recorded as
deferred expense at inception and amortized over the contractual life of the
agreement. Any draw fees associated with individual transactions and any
facility fees assessed on the amounts outstanding are recorded as deferred
expense when incurred and amortized over the contractual life of the related
borrowing.

Fair Value

Fair Value of Financial Instruments - Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. A fair value
hierarchy has been established that requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard describes three levels of inputs that may be used to
measure fair value:

•Level 1 - Quoted prices in active markets for identical assets or liabilities.
•Level 2 - Observable inputs other than Level 1 prices, such as quoted prices
for similar assets and liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
•Level 3 - Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities.

The degree of judgment utilized in measuring fair value generally correlates to
the level of pricing observability. Assets and liabilities with readily
available actively quoted prices or for which fair value can be measured from
actively quoted prices generally will have a higher degree of pricing
observability and a lesser degree of judgment utilized in measuring fair value.
Conversely, assets and liabilities rarely traded or not quoted will generally
have little or no pricing observability and a higher degree of judgment utilized
in measuring fair value. Pricing observability is impacted by a number of
factors, including the type of asset or liability, whether it is new to the
market and not yet established, and the characteristics specific to the
transaction.

The fair value of mortgage loans is estimated using the Manager's proprietary
pricing model, which estimates expected cash flows with the discount rate used
in the present value calculation representing the estimated effective yield of
the loan. For valuation purposes, we disclose the fair value of REO at the lower
of its acquisition basis, or its net realizable value (estimated fair market
value less expected selling costs). We estimate fair market value using BPOs,
comparable sales and competitive market analyses provided by local realtors. We
use net realizable value as a proxy for fair value as it represents the
liquidation proceeds to us and is most comparable to the fair value disclosure
for loans.

The fair value of secured borrowings is estimated using estimates provided by
our financing counterparties which are compared for reasonableness to the
Manager's proprietary pricing model which estimates expected cash flows of the
underlying mortgage loans collateralizing the debt, and which drive the cash
flows used to make interest payments.

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Our convertible senior notes are traded on the NYSE; the debt's fair value is determined from the NYSE closing price on the balance sheet date.

Recent Accounting Pronouncements

Refer to the notes to our interim financial statements for a description of relevant recent accounting pronouncements.

Results of Operations


For the three months ended June 30, 2020, we had net income attributable to
common stockholders of $6.2 million, or $0.27 per share, for basic and diluted
common shares. For the three months ended June 30, 2019, we had net income
attributable to common stockholders of $13.0 million, or $0.67 per share, for
basic and $0.56 for diluted common shares. Key items for the three months ended
June 30, 2020 include:

•Interest income of $23.7 million; net interest income after reversal of
provision for credit losses of $15.0 million as a result of better than expected
loan performance and the related impact on future repayment rates
•Net income attributable to common stockholders of $6.2 million
•Basic earnings per common share ("EPS") of $0.27
•Book value per common share of $15.20 at June 30, 2020
•Taxable income of $(0.09) per common share
•Collected total cash of $57.8 million, from loan payments, sales of REO and
investments in debt securities and beneficial interests
•Raised $125.0 million, net of offering costs, in a series of private placements
of preferred stock and warrants placed with institutional accredited investors
•Held $163.4 million of cash and cash equivalents at June 30, 2020; average
daily cash balance for the quarter was $125.7 million
•At June 30, 2020, approximately 72.6% of our portfolio based on UPB made at
least 12 out of the last 12 payments

Our consolidated net income attributable to common stockholders decreased
$6.8 million for the quarter ended June 30, 2020 compared to the quarter ended
June 30, 2019 primarily as a result of a $7.0 million gain on sale of mortgage
loans in the prior year quarter. The second quarter of 2020 includes a $4.3
million recovery of provision for losses on our loan and securities portfolios.
The reversal of the provision for credit losses was primarily triggered by
better than expected loan performance and its related impact on future cash
flows as the COVID-19 impact on cash flow extension has not been as material as
we anticipated. During the quarter ended June 30, 2019, we recorded a provision
for losses in the amount of $0.1 million for the quarter. Our book value
declined to $15.20 per share from $15.80 at December 31, 2019 primarily from the
year-to-date effects of a net $5.2 million non-cash mark-to-market adjustment to
the fair value of our debt securities as generally determined by marks provided
by our financing counterparties.

We recorded income from our investments in affiliates of $0.7 million for the
quarter ended June 30, 2020 compared to income of $0.3 million for the quarter
ended June 30, 2019. The primary driver of the difference is the flow-through
impact of a mark to market gain on shares of our stock held by our Manager and
our Servicer. This income represents a partial reversal of a larger
mark-to-market loss incurred during the quarter ended March 31, 2020. We account
for our investments in our Manager and our Servicer using the equity method of
accounting and all elements of income, expense, gain and loss are picked up in
proportion to our investment.

We recorded $0.1 million in impairments on our REO held-for-sale portfolio in
real estate operating expense for the quarter ended June 30, 2020 compared to
$0.5 million for the quarter ended June 30, 2019. We continue to liquidate our
REO properties held-for-sale at a faster rate than we acquire properties, with
14 properties sold in the second quarter while two were added to REO
held-for-sale through foreclosures. Impairments for the quarter were driven
primarily by additional costs of holding the properties. We expect the rate of
new foreclosures to slow due to the continuing impact of COVID-19. During the
quarter ended June 30, 2019 we sold 21 REO properties while adding 19 through
foreclosures.
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Table 1: Results of Operations

                                                                                                         Six months ended June
                                               Three months ended June 30,                                        30,
($ in thousands)                                 2020                  2019               2020                 2019
INCOME
Interest income                            $      23,705$  28,128$  50,991$    57,580
Interest expense                                 (13,058)            (15,439)           (26,128)             (31,124)
Net interest income                               10,647              12,689             24,863               26,456
Provision for credit benefit/(losses)              4,328                 (85)              (781)                (239)
Net interest income after provision for
credit benefit/(losses)                           14,975              12,604             24,082               26,217
Income/(loss) from investments in
affiliates                                           672                 257               (440)                 718
Income/(loss) on sale of mortgage loans                -               7,014               (705)               7,014
Other income                                         680                 828              1,427                1,938
Total revenue, net                                16,327              20,703             24,364               35,887
EXPENSE
Related party expense - loan servicing
fees                                               1,936               2,274              3,950                4,780
Related party expense - management fee             2,143               1,652              3,942                3,340
Loan transaction expense                              65                 191                (38)                 260
Professional fees                                    732                 634              1,537                1,496
Real estate operating expenses                       188                 887              1,100                1,673
Other expense                                      2,325               1,219              3,350                2,300
Total expense                                      7,389               6,857             13,841               13,849
Loss on debt extinguishment                            -                 182                408                  182
Income before provision for income taxes           8,938              13,664             10,115               21,856
Provision for income taxes (benefit)                 120                  38               (199)                 109
Consolidated net income                            8,818              13,626             10,314               21,747
Less: consolidated net income attributable
to the non-controlling interest                      735                 599              1,831                1,390
Consolidated net income attributable to
Company                                            8,083              13,027              8,483               20,357
Less: dividends on preferred stock                 1,841                   -              1,841                    -
Consolidated net income attributable to
common stockholders                        $       6,242$  13,027$   6,642$    20,357



On January 1, 2020 we adopted Accounting Standards Update (ASU) No. 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments ("CECL"). Under CECL, we are required to record the net
present value of the expected life of loan losses on our Mortgage loans and our
Investments in beneficial interests. Our transition adjustment on January 1,
2020 resulted in a reclassification from discount to the allowance for losses in
the amount of $14.4 million with no impact on Shareholder equity.

Interest Income


Our primary source of income is accretion earned on our mortgage loan portfolio
offset by the interest expense incurred to fund and hold portfolio acquisitions.
Net interest income after recovery of provision for loan losses increased to
$15.0 million from $12.6 million, respectively, for the three months ended
June 30, 2020 and 2019 primarily as a result of $4.3 million in recovery from
provision of credit losses on our loan and securities portfolios as a result of
better than expected loan performance during the quarter and the impact this has
on expectations of future repayment rates. Net interest income after provision
for credit losses decreased to $24.1 million from $26.2 million for the six
months ended June 30, 2020 and 2019, respectively, primarily as a result of a
net $0.8 million in provisions for credit losses from across various aspects of
our portfolio in 2020 as compared to a provision for credit losses of $0.2
million for the six months ended June 30, 2019. The increase in the current year
to date provision for credit losses is the result of losses driven by
expectations derived from the COVID-19 outbreak that occurred in late March
including the potential effect of Government mandated forbearance
                                       61
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arrangements. As a result, for the three months ended June 30, 2020 we recorded
recoveries of provisions for credit losses of $1.5 million on our mortgage loan
portfolio and $2.8 million on our investments in securities based on better than
expected loan performance and the impact on future repayment rates during the
quarter. The COVID-19 impact on cash flow extensions was not as material as we
expected. For the six months ended June 30, 2020 we recorded provisions for
credit losses net, of the second quarter recoveries, of $0.6 million on our
mortgage loan portfolio and $0.2 million on our investments in beneficial
interests. Comparatively during the three and six months ended June 30, 2019 we
recorded provisions for credit losses of $0.1 million and $0.2 million,
respectively, on our mortgage loan portfolio and no provisions for credit losses
on our investments in beneficial interests. Our credit losses during calendar
year 2020 were based on ASU 2016-13, Financial Instruments - Credit Losses,
otherwise known as CECL, where both increases and decreases in payment
expectations are recorded in the period determined. Previously, our impairment
charges were determined under ASC 310-30, under which decreases in payment
expectations were recorded in the period determined while increases in payment
expectations were recorded prospectively over the remaining life of the loan
pool.

Our gross interest income decreased by $4.4 million to $23.7 million in the
quarter ended June 30, 2020 from $28.1 million in the quarter ended June 30,
2019 due primarily to a decrease in the average balance of our mortgage loan
portfolio as paydowns and payoffs exceeded loan purchases, and by decreases in
the average yields on our loan and securities portfolios based on our cash flows
as of the beginning of the quarter.

During the second quarter of 2020, we collected $38.2 million on our loan
portfolio as compared to $49.6 million for the second quarter of 2019, as
borrowers refinance or sell the underlying property. For the six months ended
June 30, 2020, we collected $85.2 million on our loan portfolio as compared to
$94.3 million for the six months ended June 30, 2019.

Our interest expense decreased $2.3 million to $13.1 million in the quarter
ended June 30, 2020 from $15.4 million in the quarter ended June 30, 2019
primarily due to both a decrease in the average balances of our interest bearing
liabilities and a decrease in the average interest rate primarily driven lower
rates on our mortgage repurchase agreements and secured borrowings. Interest
expense decreased by $5.0 million to $26.1 million in the six months ended
June 30, 2020 from $31.1 million in the six months ended June 30, 2019 also
primarily due to decreases in both the balances of our interest bearing
liabilities and in the average interest rate driven by reductions in the rates
on our mortgage repurchase agreements and secured borrowings.

The interest income detail for the three and six months ended June 30, 2020 and 2019 are included in the table below ($ in thousands):

Table 2: Interest income detail

                                                                                                        Six months ended June
                                              Three months ended June 30,                                        30,
                                                2020                  2019               2020                 2019
Accretable yield recognized on RPLs, NPLs
and SBC loans                             $      18,732$  24,706$  40,853$    51,417
Interest income on securities                     5,028               3,140             10,034                5,556
Bank interest income                                 75                 285                196                  605
Other interest income                              (130)                 (3)               (92)                   2
Interest income                           $      23,705$  28,128$  50,991$    57,580
Provision for credit benefit/(losses)             4,328                 (85)              (781)                (239)
Interest income after provision for
credit benefit/(losses)                   $      28,033$  28,043$  50,210$    57,341



The average balance of our mortgage loan portfolio, investment in securities and
debt outstanding for the three months ended June 30, 2020 and 2019 are included
in the table below ($ in thousands):
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Table 3: Average Balances
                                                                      Three months ended June 30,
                                                                       2020                   2019
Average mortgage loan portfolio                                  $    

1,087,800 $ 1,199,421 Average carrying value of debt securities and beneficial interests

                                                        $      333,359$   192,129
Total average asset level debt                                   $    

1,041,673 $ 1,107,812




The weighted average balance of our mortgage loan portfolio was $1.1 billion for
the three months ended June 30, 2020 compared to $1.2 billion for the three
months ended June 30, 2019. Additionally, we collected $57.8 million in cash
payments and proceeds on our mortgage loans, our REO held-for-sale and our
investments in securities for the three months ended June 30, 2020 compared to
collections of $59.9 million for the three months ended June 30, 2019.

Gain (loss) on sale of mortgage loans


We sold no mortgage loans during the three months ended June 30, 2020. During
the six months ended June 30, 2020 we sold 26 SBC mortgage loans with a carrying
value of $26.1 million and UPB of $26.2 million for a loss of $0.7 million.
During the comparative three and six months ended June 30, 2019, we sold 962
loans with a carrying value of $176.9 million and UPB of $200.1 million for a
gain of $7.0 million.

Other Income

Other income decreased for the three and six months ended June 30, 2020 as
compared to the three and six months ended June 30, 2019 due to decreased rental
income from the impact on our rental portfolio as a result our Gaea capital
raise in November 2019 and lower late fee income. This was offset by increased
net gain on sale of property held-for-sale. A breakdown of Other income is
provided in the table below ($ in thousands):

Table 4: Other Income
                                                                                                              Six months ended June
                                                   Three months ended June 30,                                         30,
                                                     2020                  2019               2020                  2019
Net gain on sale of Property
held-for-sale                                  $        394$      18$     807$        121
Late fee income                                         163                  215                348                   445
HAMP fees                                               114                  127                252                   511
Rental Income                                             9                  468                 20                   853
Other income                                              -                    -                  -                     8
Total Other Income                             $        680$     828$   1,427$      1,938




Expenses

Total expenses increased for the three months ended June 30, 2020 over the
comparable period in 2019 due to an increase in other expense as a result of our
warrant amortization expense and an increase in management fees from an increase
in our capital base as a result of our private placements of preferred stock and
warrants during the quarter. This was partially offset by lower real estate
operating expense due to our capital raise for Gaea in November 2019 and lower
REO impairments. Total expenses decreased for the six months ended June 30, 2020
over the comparable period in 2019 due to lower loan servicing fees and lower
real estate operating expense due to our Gaea capital raise in November 2019 and
lower REO impairments. This was offset by an increase in other expense as a
result of our warrant amortization expense and an increase in management fees
from our private offering. A breakdown of expenses is provided in the table
below ($ in thousands):

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Table 5: Expenses
                                                                                                           Six months ended June
                                                 Three months ended June 30,                                        30,
                                                   2020                  2019               2020                 2019
Other expense                                $       2,325$   1,219$   3,350$     2,300
Related party expense - management fee               2,143               1,652              3,942                3,340
Related party expense - loan servicing
fees                                                 1,936               2,274              3,950                4,780
Professional fees                                      732                 634              1,537                1,496
Real estate operating expenses                         188                 887              1,100                1,673
Loan transaction expense                                65                 191                (38)                 260
Total expenses                               $       7,389$   6,857$  13,841$    13,849



Other expense increased for the three and six months ended June 30, 2020 over
the comparable period in 2019 primarily due to the amortization of our put
option liability associated with the preferred stock capital raise we completed
during the quarter offset by lower travel expense. Travel expense is primarily
incurred during due diligence prior to and subsequent to portfolio acquisition.
A breakdown of other expense is provided in the table below ($ in thousands):

Table 6: Other Expense
                                                                                                             Six months ended June
                                                  Three months ended June 30,                                         30,
                                                    2020                  2019               2020                  2019
Amortization of put option liability          $       1,222           $       -          $   1,222          $          -
Borrowing related expenses                              218                 137                388                   334
Insurance                                               184                 159                368                   318
Employee and service provider share
grants                                                  174                 219                348                   469
Taxes and regulatory expense                            151                 152                197                   264
Other expense                                           122                  50                186                    99
Directors' fees and grants                              109                 109                218                   206
Software licenses and amortization                       64                  60                134                   107
Lien release non due diligence                           58                 197                 91                   215
Internal audit services                                  35                  48                 72                    99
Travel, meals, entertainment                            (12)                 88                126                   189
Total Other expense                           $       2,325$   1,219$   3,350$      2,300

Equity and Net Book Value per Share


Our net book value per share was $15.20 and $15.80 at June 30, 2020 and
December 31, 2019, respectively. The decrease in book value was driven primarily
by the reduction in equity that resulted from net fair value adjustments of
$5.2 million taken on our portfolio of debt securities recorded to Other
comprehensive income since December 31, 2019. While GAAP does not specifically
define the parameters for calculating book value, we believe our calculation is
representative of our book value on a per share basis, and our Manager believes
book value per share is a valuable metric for evaluating our business. The net
book value per share is calculated by dividing equity, after adjusting for the
anticipated conversion of the senior convertible notes into shares of common
stock, the subtraction of non-controlling interests and preferred shares
classified in equity, and shares for Manager and director fees that were
approved but still unissued as of the date indicated, unvested employee and
service provider stock grants and the common shares from assumed conversion of
our Senior convertible notes. A breakdown of our book value per share is set
forth in the table below ($ in thousands except per share amounts):

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Table 7: Book Value per Common Share

                                                                June 30, 2020          December 31, 2019
Outstanding shares                                                22,924,982                22,142,143

Adjustments for: Unvested grants of restricted stock, and Manager and director shares earned but not issued as of the date indicated

                  5,200                     2,600

Conversion of convertible senior notes into shares of common stock

                                                              8,007,089                 8,270,208
Total adjusted shares outstanding                                 30,937,271                30,414,951

Equity at period end                                           $     

498,870 $ 384,084 Net increase in equity from expected conversion of convertible senior notes

                                                         112,750                   120,669
Adjustment for equity due to preferred shares                       (115,144)                        -
Adjustment for equity due to non-controlling interests               (26,080)                  (24,257)
Adjusted equity                                                $     470,396$        480,496
Book value per share                                           $       15.20          $          15.80



Mortgage Loan Portfolio

For the three months ended June 30, 2020, we acquired no RPLs, however, for the
six months ended June 30, 2020, we acquired 26 RPLs with an aggregate
acquisition price of $1.2 million representing 61.7% of UPB. Comparatively, for
the three and six months ended June 30, 2019, we acquired 496 and 534 RPLs with
an aggregate acquisition price of $90.7 million and $97.9 million, respectively,
representing 85.1% of UPB in each case. We acquired no NPL loans for the three
months ended June 30, 2020, however, during the six months ended June 30, 2020,
we acquired one NPL loan for an acquisition price of $0.2 million representing
81.5% of UPB. Comparatively, during the three and six months ended June 30, 2019
we acquired no NPLs.

For the three and six months ended June 30, 2020, we acquired no SBC loans.
Comparatively, for the three and six months ended June 30, 2019 we acquired two
and 21 SBC loans, respectively, with UPB of $0.7 million and $18.4 million,
respectively, that represented 18.2% and 57.1% of the underlying collateral
value of $3.6 million and $32.3 million, respectively. We ended the period with
$1.1 billion of mortgage loans with an aggregate UPB of $1.2 billion as of
June 30, 2020 and $1.2 billion of mortgage loans with an aggregate UPB of $1.3
billion as of June 30, 2019.

The following table shows loan portfolio acquisitions that includes paid in full
loans after acquisition but before boarding by the Servicer, for the three and
six months ended June 30, 2020, and 2019 ($ in thousands):

Table 8: Loan Portfolio Acquisitions

                                                                                                      Six months ended June
                                              Three months ended June 30,                                      30,
                                                2020                2019               2020                 2019
RPLs
Count                                               -                 496                 26                  534
UPB                                        $        -           $ 106,559$   1,952$   115,054
Purchase price                             $        -           $  90,694$   1,205$    97,899
Purchase price % of UPB                             -   %            85.1  %            61.7  %              85.1    %
NPLs
Count                                               -                   -                  1                    -
UPB                                        $        -           $       -          $     227          $         -
Purchase price                             $        -           $       -          $     185          $         -
Purchase price % of UPB                             -   %               -  %            81.5  %                 -    %


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Table 9: Commercial loans non-pooled

                                                                                                          Six months ended June
                                                 Three months ended June 30,                                       30,
                                                   2020                 2019               2020                 2019
Commercial loans non-pooled
Count                                                  -                    2                  -                   21
UPB                                          $         -            $     664          $       -          $    18,440
Undrawn UPB at acquisition                   $         -            $     808          $       -          $     1,277
Issue price % of collateral value                      -    %            18.2  %               -  %              57.1    %



During the three and six months ended June 30, 2020, 112 and 263 mortgage loans,
respectively, representing 1.7% and 6.3% of our ending UPB, respectively, were
liquidated. Comparatively, during the three and six months ended June 30, 2019,
1,122 and 1,273 mortgage loans, respectively, representing 16.4% and 18.3% of
our ending UPB, respectively, were liquidated, including conversions to REO
property. Our loan portfolio activity for the three and six months ended
June 30, 2020 and 2019 is presented below ($ in thousands):

Table 10: Loan Portfolio Activity

                                                                                                                 Six months ended June
                                                    Three months ended June 30,                                           30,
                                                     2020                   2019                 2020                  2019
Beginning carrying value                       $    1,098,629          $

1,313,677 $ 1,151,469$ 1,310,873 RPL, NPL and SBC pool portfolio acquisitions, net cost basis

                                -               90,694                  185                 97,899
Other non-pooled portfolio acquisitions,
net cost basis                                              -                  656                1,206                 18,449
Draws on SBC loans                                          -                  391                    -                    391
Accretion recognized                                   18,695               24,046               40,440                 50,632
Payments received on PCD loans, net                   (38,108)             (47,277)             (79,761)               (91,375)
Principal payments received on non-PCD
loans, net                                                (30)              (1,393)              (5,337)                (1,755)
Reclassifications to REO                                  (98)              (5,655)                (912)                (9,826)
Sale of mortgage loans                                      -             (176,888)             (26,111)              (176,888)
Provision for credit benefit/(losses) on
mortgage loans                                          1,525                  (85)                (597)                  (239)
Other                                                       4                  (26)                  35                    (21)
Ending carrying value                          $    1,080,617          $
1,198,140          $ 1,080,617$   1,198,140



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Table 11: Portfolio Composition

As of June 30, 2020 and December 31, 2019, our portfolios consisted of the following ($ in thousands):

                                                                                                        December 31,
                  June 30, 2020(1,2)                                                                     2019(1,2)
No. of Loans                                  5,948          No. of Loans                                   6,184
Total UPB                               $ 1,181,161          Total UPB                               $  1,268,126
Interest-Bearing Balance                $ 1,105,494          Interest-Bearing Balance                $  1,190,917
Deferred Balance(3)                     $    75,667          Deferred Balance(3)                     $     77,209
Market Value of Collateral(4)           $ 1,897,367          Market Value of Collateral(4)           $  1,783,856
Price/Total UPB(5)                             82.3  %       Price/Total UPB(5)                              82.9  %
Price/Market Value of Collateral               54.3  %       Price/Market Value of Collateral                61.9  %
Weighted Average Coupon                        4.50  %       Weighted Average Coupon                         4.55  %
Weighted Average LTV(6)                        73.6  %       Weighted Average LTV(6)                         83.5  %
Weighted Average Remaining Term                              Weighted Average Remaining Term
(months)                                        302          (months)                                         311
No. of first liens                            5,890          No. of first liens                             6,124
No. of second liens                              58          No. of second liens                               60
No. of Rental Properties                          9          No. of Rental Properties                          10
Capital Invested in Rental Properties   $     1,389          Capital Invested in Rental Properties   $      1,591
RPL loans                                      97.0  %       RPL loans                                       95.3  %
NPL loans                                       2.6  %       NPL loans                                        2.7  %
SBC commercial loans                            0.4  %       SBC commercial loans                             2.0  %
No. of Other REO                                 33          No. of Other REO                                  58
Market Value of Other REO(7)            $     7,156          Market Value of Other REO(7)            $     13,987
Carrying value of debt securities and                        Carrying value of debt securities and
beneficial interests in trusts          $   333,359          beneficial interests in trusts          $    288,362
Loans with 12 for 12 payments as an                          Loans with 12 for 12 payments as an
approximate percentage of UPB (8)              72.6  %       approximate percentage of UPB (8)               76.0  %
Loans with 24 for 24 payments as an                          Loans with 24 for 24 payments as an
approximate percentage of UPB (9)              65.6  %       approximate percentage of UPB (9)               64.0  %





(1)Includes the impact of 1,003 mortgage loans with a purchase price of $177.3
million, UPB of $194.3 million and collateral value of $295.3 million acquired
in the fourth quarter of 2017 through a 50% owned joint venture which we
consolidate.
(2)Includes the impact of 256 mortgage loans with a purchase price of $47.4
million, UPB of $52.8 million and collateral value of $68.1 million acquired in
the third quarter of 2018 through a 63.0% owned joint venture which we
consolidate.
(3)Amounts that have been deferred in connection with a loan modification on
which interest does not accrue. These amounts generally become payable at the
time of maturity.
(4)As of date of acquisition.
(5)At June 30, 2020 and December 31, 2019, our loan portfolio consists of fixed
rate (52.1% of UPB), ARM (9.4% of UPB) and Hybrid ARM (38.5% of UPB); and fixed
rate (52.8% of UPB), ARM (9.5% of UPB) and Hybrid ARM (37.7% of UPB),
respectively.
(6)UPB as of June 30, 2020 and December 31, 2019, divided by market value of
collateral and weighted by the UPB of the loan.
(7)Market value of REO is based on net realizable value. Fair market value is
determined based on appraisals, BPOs, or other market indicators of fair value
including list price or contract price.
(8)Loans that have made at least 12 of the last 12 payments, or for which the
full dollar amount to cover at least 12 payments has been made in the last 12
months.
(9)Loans that have made at least 24 of the last 24 payments, or for which the
full dollar amount to cover at least 24 payments has been made in the last 24
months.

Table 12: Portfolio Characteristics


The following tables present certain characteristics of our mortgage loans by
year of origination as of June 30, 2020 and December 31, 2019, respectively ($
in thousands):

Portfolio at June 30, 2020
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                                                                     Years 

of Origination

                                                   After 2008          2006 - 2008          2005 and prior
Number of loans                                          598                3,453                   1,897
Unpaid principal balance                          $  120,500$   790,418$      270,243
Mortgage loan portfolio by year of origination          10.2  %              66.9  %                 22.9  %
Loan Attributes:
Weighted average loan age (months)                     110.1                160.6                   199.6
Weighted Average loan-to-value                          71.2  %              78.0  %                 63.5  %
Delinquency Performance:
Current                                                 59.9  %              63.3  %                 63.7  %
30 days delinquent                                       6.7  %               8.6  %                 10.0  %
60 days delinquent                                       9.8  %               8.3  %                  6.4  %
90+ days delinquent                                     19.9  %              15.1  %                 16.6  %
Foreclosure                                              3.7  %               4.7  %                  3.3  %


Portfolio at December 31, 2019

Years of Origination

                                                         After 2008          2006 - 2008          2005 and prior
Number of loans                                                625                3,576                   1,983
Unpaid principal balance                                $  153,923$   826,684$      287,519
Mortgage loan portfolio by year of origination                12.1  %              65.2  %                 22.7  %
Loan Attributes:
Weighted average loan age (months)                            88.0                154.5                   193.3
Weighted Average loan-to-value                                72.7  %              81.2  %                 66.5  %
Delinquency Performance:
Current                                                       61.9  %              56.9  %                 58.8  %
30 days delinquent                                             9.5  %              13.0  %                 12.6  %
60 days delinquent                                             6.5  %               8.4  %                  8.2  %
90+ days delinquent                                           20.5  %              17.3  %                 17.3  %
Foreclosure                                                    1.6  %               4.4  %                  3.1  %



Table 13: Loans by State

The following table identifies our mortgage loans by state, number of loans, loan value, collateral value and percentages thereof at June 30, 2020 and December 31, 2019 ($ in thousands):

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                                                    June 30, 2020December 31, 2019
                                                                                                          % of                                                                                                                        % of
                                                                                 Collateral            Collateral                                                                                            Collateral            Collateral
  State             Count                 UPB                 % UPB               Value(1)                Value               State             Count                 UPB                 % UPB               Value(1)                Value
CA                      941          $   322,311                 27.3  %       $   566,619                    29.9  %       CA                    1,010          $   370,838                 29.2  %       $   564,169                    31.6  %
FL                      660              114,466                  9.7  %           181,120                     9.5  %       FL                      689              119,728                  9.4  %           156,967                     8.8  %
NY                      326              102,855                  8.7  %           175,276                     9.2  %       NY                      331              105,853                  8.3  %           161,646                     9.1  %
NJ                      291               66,027                  5.6  %            87,912                     4.6  %       NJ                      290               66,762                  5.3  %            80,472                     4.5  %
MD                      247               60,522                  5.1  %            77,307                     4.1  %       MD                      257               63,349                  5.0  %            74,027                     4.2  %
GA                      342               45,157                  3.8  %            69,168                     3.7  %       GA                      363               48,969                  3.9  %            62,960                     3.5  %
VA                      197               42,285                  3.6  %            60,324                     3.2  %       VA                      206               44,193                  3.5  %            57,678                     3.2  %
IL                      221               41,538                  3.5  %            53,173                     2.8  %       IL                      228               42,962                  3.4  %            49,586                     2.8  %
TX                      386               37,452                  3.2  %            75,063                     4.0  %       TX                      399               39,689                  3.1  %            69,874                     3.9  %
MA                      174               35,296                  3.0  %            59,309                     3.1  %       MA                      181               37,596                  3.0  %            53,785                     3.0  %
NC                      240               30,384                  2.6  %            46,801                     2.5  %       NC                      240               31,402                  2.5  %            42,977                     2.4  %
WA                      105               26,558                  2.2  %            47,719                     2.5  %       WA                      114               28,489                  2.2  %            43,372                     2.4  %
AZ                      152               25,747                  2.2  %            42,070                     2.2  %       AZ                      154               26,321                  2.1  %            34,277                     1.9  %
NV                      104               20,468                  1.7  %            33,251                     1.8  %       NV                      107               21,384                  1.7  %            27,540                     1.5  %
PA                      174               20,150                  1.7  %            28,857                     1.5  %       PA                      180               20,978                  1.7  %            26,936                     1.5  %
SC                      125               14,017                  1.2  %            20,862                     1.1  %       SC                      129               15,282                  1.2  %            21,263                     1.2  %
MI                       95               13,193                  1.1  %            22,931                     1.2  %       MI                       98               14,339                  1.1  %            21,876                     1.2  %
OH                      107               12,847                  1.1  %            16,912                     0.9  %       OH                      110               13,515                  1.1  %            15,451                     0.9  %
OR                       63               12,467                  1.1  %            21,891                     1.2  %       OR                       66               12,991                  1.0  %            19,519                     1.1  %
CT                       71               12,260                  1.0  %            16,142                     0.9  %       CT                       72               12,594                  1.0  %            15,832                     0.9  %
TN                      111               11,802                  1.0  %            21,201                     1.1  %       TN                      115               12,566                  1.0  %            19,203                     1.1  %
CO                       58               11,421                  1.0  %            23,734                     1.3  %       CO                       63               12,368                  1.0  %            22,471                     1.3  %
MN                       52                9,684                  0.8  %            13,583                     0.7  %       MN                       54               10,200                  0.8  %            12,753                     0.7  %
MO                       78                9,329                  0.8  %            12,325                     0.6  %       MO                       80               10,003                  0.8  %            12,427                     0.7  %
IN                       94                8,967                  0.8  %            13,477                     0.7  %       IN                      100                9,521                  0.8  %            12,545                     0.7  %
UT                       47                8,211                  0.7  %            16,444                     0.9  %       UT                       52                8,923                  0.7  %            13,957                     0.8  %
LA                       71                7,375                  0.6  %            11,235                     0.6  %       LA                       74                7,585                  0.6  %            11,389                     0.6  %
HI                       17                7,185                  0.6  %            10,345                     0.6  %       HI                       17                7,229                  0.6  %            10,093                     0.6  %
DE                       32                6,510                  0.6  %             7,702                     0.4  %       DE                       33                6,566                  0.5  %             7,626                     0.4  %
WI                       37                4,707                  0.4  %             6,251                     0.3  %       WI                       37                4,772                  0.4  %             5,827                     0.3  %
DC                       16                4,505                  0.4  %             7,201                     0.4  %       DC                       16                4,542                  0.4  %             6,368                     0.4  %
NM                       30                4,481                  0.4  %             6,085                     0.3  %       NM                       30                4,525                  0.4  %             5,407                     0.3  %
KY                       34                3,927                  0.3  %             5,618                     0.3  %       KY                       34                3,969                  0.3  %             5,213                     0.3  %
AL                       42                3,402                  0.3  %             4,420                     0.2  %       AL                       43                3,569                  0.3  %             4,480                     0.3  %
RI                       14                3,110                  0.3  %             4,355                     0.2  %       RI                       15                3,232                  0.3  %             4,188                     0.2  %
NH                       17                2,982                  0.3  %             4,707                     0.2  %       NH                       17                3,016                  0.2  %             4,290                     0.3  %
MS                       28                2,511                  0.2  %             3,479                     0.2  %       OK                       30                2,631                  0.2  %             3,948                     0.2  %
OK                       28                2,504                  0.2  %             3,930                     0.2  %       MS                       25                2,389                  0.2  %             3,062                     0.2  %
ID                       14                1,707                  0.1  %             3,352                     0.2  %       ID                       14                1,723                  0.1  %             2,755                     0.2  %
IA                       16                1,578                  0.1  %             2,081                     0.1  %       IA                       16                1,599                  0.1  %             2,011                     0.1  %
ME                       11                1,545                  0.1  %             1,940                     0.1  %       WV                       17                1,595                  0.1  %             2,208                     0.1  %
KS                       18                1,359                  0.1  %             2,790                     0.2  %       ME                       11                1,564                  0.1  %             1,829                     0.1  %
AR                       18                1,304                  0.1  %             1,845                     0.1  %       KS                       18                1,391                  0.1  %             2,435                     0.1  %
WV                       15                1,179                  0.1  %             1,575                     0.1  %       AR                       18                1,318                  0.1  %             1,777                     0.1  %
MT                        5                  686                  0.1  %             1,091                     0.1  %       NE                        6                  702                  0.1  %               836                     0.1  %
PR                        6                  532                  0.1  %               621                       -  %       MT                        5                  697                  0.1  %             1,005                     0.1  %
NE                        4                  531                  0.1  %               581                       -  %       PR                        6                  546                    -  %               838                     0.1  %
WY                        4                  515                    -  %               583                       -  %       WY                        4                  519                    -  %               593                       -  %
SD                        3                  506                    -  %               724                       -  %       SD                        3                  509                    -  %               678                       -  %
VT                        2                  456                    -  %               515                       -  %       VT                        2                  467                    -  %               470                       -  %
ND                        3                  399                    -  %               482                       -  %       ND                        3                  403                    -  %               595                       -  %
AK                        2                  251                    -  %               388                       -  %       AK                        2                  253                    -  %               372                       -  %
                      5,948          $ 1,181,161                100.0  %       $ 1,897,367                   100.0  %                             6,184          $ 1,268,126                100.0  %       $ 1,783,856                   100.0  %






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(1) As of date of acquisition.

Liquidity and Capital Resources

Source and Uses of Cash


Our primary sources of cash have consisted of proceeds from our securities
offerings, our secured borrowings, repurchase agreements, principal and interest
payments on our loan portfolio, principal paydowns on securities, and sales of
properties held-for-sale. Depending on market conditions, we expect that our
primary financing sources will continue to include secured borrowings,
repurchase agreements, and securities offerings in addition to transaction or
asset specific funding arrangements and credit facilities (including term loans
and revolving facilities). We expect that these sources of funds will be
sufficient to meet our short-term and long-term liquidity needs. From time to
time, we may invest with third parties and acquire interests in loans and other
real estate assets through investments in joint ventures using special purpose
entities that can result in investments at fair value and investments in
beneficial interests, which are reflected on our consolidated balance sheet.

As of June 30, 2020 and December 31, 2019, substantially all of our invested
capital was in RPLs, NPLs, SBC loans, property held-for-sale, debt securities,
beneficial interests and rental properties. We also held approximately $163.4
million of cash and cash equivalents, an increase of $99.1 million from our
balance of $64.3 million at December 31, 2019. Our average daily cash balance
during the quarter was $125.7 million, an increase of $59.6 million from our
average daily cash balance of $66.1 million during the three months ended
December 31, 2019.

Our collections of principal and interest payments on mortgage loans and
securities, payoffs of mortgage loans and proceeds on the sale of our property
held-for-sale and sale of debt securities held as investments were $120.2
million and $123.1 million for the six months ended June 30, 2020 and 2019,
respectively. We currently expect the pace of loan prepayments to slow due to
the pandemic.

Our operating cash outflows, including the effect of restricted cash, for the
six months ended June 30, 2020 and 2019 were $10.2 million and $10.0 million,
respectively. Our primary operating cash inflow is cash interest payments on our
mortgage loan pools of $24.2 million and $29.5 million for the six months ended
June 30, 2020 and 2019, respectively. Non-cash interest income accretion was
$16.2 million and $21.1 million for the six months ended June 30, 2020 and 2019,
respectively. During the six months ended June 30, 2020 we recognized a loss of
$0.7 million from the sale of 26 mortgage loans to Gaea, an affiliated entity.
During the six months ended June 30, 2019 we recognized a gain of $7.0 million
from the sale of 962 loans to a related party joint venture, Ajax Mortgage Loan
Trust 2019-C ("2019-C"). We expect, however, that the impact of the COVID-19
outbreak will put pressure on our cash flow from operations as we enter into
loan modifications on certain of our loans permitting interest payments to be
deferred. Though the ownership of mortgage loans and other real estate assets is
our business, GAAP requires that operating cash flows do not include the portion
of principal payments that are allocable to the discount we recognize on our
mortgage loans including proceeds from loans that pay in full or are liquidated
in a short sale or third party sale at foreclosure or the proceeds on the sales
of our property held-for-sale. These activities are all considered to be
Investing activities under GAAP, and the cash flows from these activities are
included in the investing section of our consolidated statements of cash flows.

For the six months ended June 30, 2020 our investing cash inflow of $57.0
million was primarily driven by principal payments on and payoffs of our
mortgage loan portfolio of $60.8 million, principal payments on and payoffs of
our debt securities and beneficial interests of $25.5 million, and the sale of
mortgage loans to Gaea in the amount of $25.4 million, offset by purchases of
debt securities and beneficial interests of $61.3 million. For the six months
ended June 30, 2019 our investing cash inflow of $112.5 million was primarily
driven by the sale of mortgage loans to our 2019-C securitization of $184.1
million and principal payments on and payoffs of our mortgage loan portfolio of
$63.6 million, principal payments on and payoffs of our debt securities and
beneficial interests of $22.1 million, and sale of $39.6 million of debt
securities held as investments, offset by purchases of debt securities and
beneficial interests of $84.2 million and acquisitions of mortgage loans of
$116.3 million.

Our financing cash flows are driven primarily by funding used to acquire
mortgage loan pools. We fund our mortgage loan pool acquisitions primarily
through secured borrowings, repurchase agreements and the proceeds from our
convertible debt and equity offerings. For the six months ended June 30, 2020,
we had net financing cash inflows of $52.5 million primarily driven from our
issuance of preferred stock and warrants, net of any offering costs, for $125.0
million in a series of private placements to institutional accredited investors
as well as from additional borrowing through repurchase transactions of $145.3
million, offset by repayments of $159.3 million on repurchase transaction and
pay downs of existing debt obligations of $44.5 million on secured debt. For the
six months ended June 30, 2019, we had net cash outflows from financing
activities of $102.0 million from our pay down of existing debt obligations
offset by our repurchase agreements of $147.4 million. For the
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six months ended June 30, 2020 and 2019 we paid $5.9 million and $13.7 million, respectively, in combined dividends and distributions.

Financing Activities - Equity offerings


During the quarter ended June 30, 2020, we issued an aggregate of $130.0 million
of preferred stock and warrants to institutional accredited investors in a
series of private placements. We issued 2,307,400 shares of 7.25% Series A
Fixed-to-Floating Rate Preferred Stock and 2,892,600 shares of 5.00% Series B
Fixed-to-Floating Rate Preferred Stock, each at a purchase price per share of
$25.00 and two series of five-year warrants to purchase an aggregate of
6,500,000 shares of our common stock at an exercise price of $10.00 per share.
Each series of warrants includes a put option that allows the holder to sell the
warrants to us at a specified put price on or after July 6, 2023. Under GAAP, we
are required to allocate the proceeds between the relative fair values of the
Preferred stock and warrants. The initial allocation of the proceeds, net of all
offering costs, resulted in the Preferred series A shares receiving an
allocation of $51.1 million, the Preferred series B shares receiving an
allocation of $64.0 million and the warrants an allocation of $9.9 million. We
mark the obligation for the warrants and future put liability to market though
earnings. We expect to use the net proceeds from the private placement to
acquire mortgage loans and mortgage-related assets consistent with our
investment strategy.

During the six months ended June 30, 2020, we did not sell any shares of common
stock under our at the market program which we established in October 2016, to
sell, through our agents, shares of common stock with an aggregate offering
price of up to $50.0 million. In accordance with the terms of the agreements, we
may offer and sell shares of our common stock at any time and from time to time
through the sales agents. Sales of the shares, if any, will be made by means of
ordinary brokers' transactions on the New York Stock Exchange or otherwise at
market prices prevailing at the time of the sale.

Financing Activities - Secured Borrowings and Convertible Senior Notes


From inception (January 30, 2014) to June 30, 2020, we have completed 15 secured
borrowings, not including borrowings we completed for our non-consolidated joint
ventures (See Table 17: Investments in joint ventures), through securitization
trusts pursuant to Rule 144A under the Securities Act, six of which were
outstanding at June 30, 2020. The secured borrowings are structured as debt
financings and not REMIC sales, and the loans included in the secured borrowings
remain on our consolidated balance sheet as we are the primary beneficiary of
the secured borrowing trusts, which are VIEs. The secured borrowing VIEs are
structured as pass through entities that receive principal and interest on the
underlying mortgages and distribute those payments to the holders of the notes.
Our exposure to the obligations of the VIEs is generally limited to our
investments in the entities. The notes that are issued by the secured borrowing
trusts are secured solely by the mortgages held by the applicable trusts and not
by any of our other assets. The mortgage loans of the applicable trusts are the
only source of repayment and interest on the notes issued by such trusts. We do
not guarantee any of the obligations of the trusts under the terms of the
agreement governing the notes or otherwise.

Our secured borrowings are generally structured with Class A notes, subordinated
notes, and trust certificates, which have rights to the residual interests in
the mortgages once the notes are repaid. With the exception of our Ajax Mortgage
Loan Trusts 2017-D ("2017-D") secured borrowings, from which we sold a 50%
interest in the Class A notes and a 50% interest in the residual equity to third
parties and 2018-C secured borrowings, from which we sold a 95% interest in the
Class A notes and 37% in the Class B and trust certificates, we have retained
the subordinate notes and the applicable trust certificates from the other six
secured borrowings outstanding at June 30, 2020.

For all of our secured borrowings the Class A notes are senior, sequential pay,
fixed rate notes, and with the exception of 2017-D and 2018-C as noted above,
the Class B notes are subordinate, sequential pay, fixed rate notes with the
exception of 2019-D which are subordinate, sequential pay, fixed rate notes for
Class B-1 and variable rate notes for Class B-2 and Class B-3. The interest rate
is effectively the rate equal to the spread between the gross average rate of
interest the trust collects on its mortgage loan portfolio minus the rate
derived from the sum of the servicing fee and other expenses of the trust. The
Class M notes issued under 2017-B, 2019-D and 2019-F are also mezzanine,
sequential pay, fixed rate notes.

For all of our secured borrowings, except 2017-B, 2019-D and 2019-F, which
contains no interest rate step-up, if the Class A notes have not been redeemed
by the payment date or otherwise paid in full 36 months after issue, or in the
case of 2017-C, 48 months after issue, an interest rate step-up of 300 basis
points is triggered. Twelve months after the 300 basis point step up is
triggered, an additional 100 basis point step up will be triggered, and an
amount equal to the aggregate interest payment amount that accrued and would
otherwise be paid to the subordinate notes will be paid as principal to the
Class A notes on that date and each subsequent payment date until the Class A
notes are paid in full. After the Class A notes are paid in full, the
subordinate notes will resume receiving their respective interest payment
amounts and any interest that accrued but was
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not paid while the Class A notes were outstanding. As the holder of the trust
certificates, we are entitled to receive any remaining amounts in the trusts
after the Class A notes and subordinate notes have been paid in full.

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The following table sets forth the original terms of all outstanding notes from
our secured borrowings outstanding at June 30, 2020 at their respective cutoff
dates:

Table 14: Secured Borrowings
                                        Interest Rate
   Issuing Trust/Issue Date             Step-up Date                         Security                       Original Principal             Interest Rate
Ajax Mortgage Loan Trust
2017-B/ December 2017                None                      Class A notes due 2056                     $115.8 million                            3.16  %
                                     None                      Class M-1 notes due 2056(3)                $9.7 million                              3.50  %
                                     None                      Class M-2 notes due 2056(3)                $9.5 million                              3.50  %
                                     None                      Class B-1 notes due 2056(1)                $9.0 million                              3.75  %
                                     None                      Class B-2 notes due 2056(1)                $7.5 million                              3.75  %
                                                               Trust certificates(2)                      $14.3 million                                -  %
                                                               Deferred issuance costs                    $(1.8) million                               -  %

Ajax Mortgage Loan Trust
2017-C/ November 2017                November 25, 2021         Class A notes due 2060                     $130.2 million                            3.75  %
                                     May 25, 2022              Class B-1 notes due 2060(1)                $13.0 million                             5.25  %
                                                               Trust certificates(2)                      $42.8 million                                -  %
                                                               Deferred issuance costs                    $(1.7) million                               -  %

Ajax Mortgage Loan Trust
2017-D/ December 2017                April 25, 2021            Class A notes due 2057(4)                  $177.8 million                            3.75  %
                                     None                      Class B certificates(4)                    $44.5 million                                -  %
                                                               Deferred issuance costs                    $(1.1) million                               -  %

Ajax Mortgage Loan Trust
2018-C/ September 2018               October 25, 2021          Class A notes due 2065(5)                  $170.5 million                            4.36  %
                                     April 25, 2022            Class B notes due 2065(5)                  $15.9 million                             5.25  %
                                                               Trust certificates(5)                      $40.9 million                                -  %
                                                               Deferred issuance costs                    $(2.0) million                               -  %

Ajax Mortgage Loan Trust
2019-D/ July 2019                    None                      Class A-1 notes due 2065                   $140.4 million                            2.96  %
                                     None                      Class A-2 notes due 2065                   $6.1 million                              3.50  %
                                     None                      Class A-3 notes due 2065                   $10.1 million                             3.50  %
                                     None                      Class M-1 notes due 2065(3)                $9.3 million                              3.50  %
                                     None                      Class B-1 notes due 2065(6)                $7.5 million                              3.50  %
                                     None                      Class B-2 notes due 2065(6)                $7.1 million                          variable(7)
                                     None                      Class B-3 notes due 2065(6)                $12.8 million                         variable(7)
                                                               Deferred issuance costs                    $(2.7) million                               -  %

Ajax Mortgage Loan Trust
2019-F/ November 2019                None                      Class A-1 notes due 2059                   $110.1 million                            2.86  %
                                     None                      Class A-2 notes due 2059                   $12.5 million                             3.50  %
                                     None                      Class A-3 notes due 2059                   $5.1 million                              3.50  %
                                     None                      Class M-1 notes due 2059(1)                $6.1 million                              3.50  %
                                     None                      Class B-1 notes due 2059(6)                $11.5 million                             3.50  %
                                     None                      Class B-2 notes due 2059(6)                $10.4 million                         variable(7)
                                     None                      Class B-3 notes due 2059(6)                $15.1 million                         variable(7)
                                                               Deferred issuance costs                    $(1.8) million                               -  %





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(1)The Class B notes are subordinated, sequential pay, fixed rate notes with
Class B-2 notes subordinate to the Class B-1 notes. We have retained the Class B
notes.
(2)The trust certificates issued by the trusts and the beneficial ownership of
the trusts are retained by Great Ajax Funding LLC as the depositor. As the
holder of the trust certificates, we are entitled to receive any remaining
amounts in the trusts after the Class A notes, Class M notes, where present, and
Class B notes have been paid in full.
(3)The Class M notes are subordinated, sequential pay, fixed rate notes with
Class M-2 notes subordinate to the Class M-1 notes. We retained the Class M
notes.
(4)AJAXM 2017-D is a joint venture in which a third party owns 50% of the Class
A notes and 50% of the Class B certificates. We are required to consolidate
2017-D and are reflecting 100% of the mortgage loans, in Mortgage loans, net.
50% of the Class A notes, which are held by the third party, are included in
Secured borrowings, net. The 50% portion of the Class A notes retained by us
have been encumbered under a repurchase agreement. 50% of the Class B
certificates are recognized as Non-controlling interest.
(5)AJAXM 2018-C is a joint venture in which a third party owns 95% of the Class
A notes and 37% of the Class B notes and certificates. We are required to
consolidate 2018-C and are reflecting 100% of the mortgage loans, in Mortgage
loans, net. 95% of the Class A notes and 37% of the Class B notes, which are
held by the third party, are included in Secured borrowings, net. The 5% portion
of the Class A notes retained by us have been encumbered under the repurchase
agreement. 37% percent of the Class C certificates are recognized as
Non-controlling interest.
(6)The Class B notes are subordinated, sequential pay, with B-2 and B-2 notes
having variable interest rates and subordinate to the Class B-1 notes. The Class
B-1 notes are fixed rate notes. We have retained the Class B notes.
(7)The interest rate is effectively the rate equal to the spread between the
gross average rate of interest the trust collects on its mortgage loan portfolio
minus the rate derived from the sum of the servicing fee and other expenses of
the trust.

Repurchase Transactions

We have two repurchase facilities whereby we, through two wholly owned Delaware
trusts (the "Trusts"), acquire pools of mortgage loans, which are then sold by
the Trusts, as "Seller" to two separate counterparties, the "buyer" or "buyers."
One facility has a ceiling of $250.0 million and the other $400.0 million at any
one time. Upon the time of the initial sale to the buyer, each Trust, with a
simultaneous agreement, also agrees to repurchase the pools of mortgage loans
from the buyer. Mortgage loans sold under these facilities carry interest
calculated based on a spread to one-month LIBOR, which are fixed for the term of
the borrowing. The purchase price that the Trust realizes upon the initial sale
of the mortgage loans to the buyer can vary between 70% and 85% of the asset's
acquisition price, depending upon the facility being utilized and/or the quality
of the underlying collateral. The obligations of the Trust to repurchase these
mortgage loans at a future date are guaranteed by the Operating Partnership. The
difference between the market value of the asset and the amount of the
repurchase agreement is generally the amount of equity we have in the position
and is intended to provide the buyer with some protection against fluctuations
in the value of the collateral, and/or a failure by us to repurchase the asset
and repay the borrowing at maturity. We also have three repurchase facilities
substantially similar to the mortgage loan repurchase facilities where the
pledged assets are the class B bonds and certificates from our securitization
transactions. These facilities have no effective ceilings. Each repurchase
transaction represents its own borrowing. As such, the ceilings associated with
these transactions are the amounts currently borrowed at any one time. We have
effective control over the assets subject to all of these transactions;
therefore, our repurchase transactions are accounted for as financing
arrangements.

During the last two weeks of March 2020, we received margin calls from financing
counterparties in the amount of $28.2 million due to the turmoil in the
financial markets resulting from the COVID-19 outbreak. We ended the first
quarter of 2020 with $32.4 million of cash collateral on deposit with our
financing counterparties. Subsequent to March 31, 2020, our required cash
collateral position has declined as security prices increased and our financing
counterparties returned a portion of the cash collateral. As of June 30, 2020,
we had $7.6 million of cash collateral on deposit with financing counterparties.
This cash is included in Prepaid expenses and other assets on our consolidated
balance sheet at June 30, 2020 and is not netted against our Borrowings under
repurchase agreements.

A summary of our outstanding repurchase transactions at June 30, 2020 and December 31, 2019 is as follows ($ in thousands):

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Table 15: Repurchase Transactions by Maturity Date

                                                                                                                                                           June 30, 2020
                                                                Maximum
                                                               Borrowing            Amount            Amount of            Percentage of
     Maturity Date                 Origination date             Capacity          Outstanding         Collateral        Collateral Coverage             Interest Rate
July 10, 2020                  January 13, 2020               $   9,020$    9,020$  13,016                       144  %                       3.67  %
July 13, 2020                  April 13, 2020                    30,026              30,026             45,368                       151  %                       6.97  %
July 17, 2020                  June 19, 2020                     36,047              36,047             49,503                       137  %                       3.44  %
July 20, 2020                  June 19, 2020                     13,565              13,565             19,047                       140  %                       3.04  %
July 31, 2020                  February 3, 2020                   7,763               7,763              9,702                       125  %                       3.56  %
July 31, 2020                  February 3, 2020                   7,151               7,151              9,537                       133  %                       3.56  %
August 13, 2020                May 13, 2020                       1,955               1,955              4,428                       226  %                       3.33  %
September 1, 2020              June 3, 2020                      19,948              19,948             27,271                       137  %                       3.04  %
September 1, 2020              June 3, 2020                      14,158              14,158             18,850                       133  %                       3.04  %
September 1, 2020              June 3, 2020                      13,994              13,994             24,496                       175  %                       3.04  %
September 1, 2020              June 3, 2020                       5,624               5,624              7,352                       131  %                       3.04  %
September 1, 2020              June 3, 2020                       4,296               4,296              5,513                       128  %                       3.04  %
September 1, 2020              June 3, 2020                       2,954               2,954              3,916                       133  %                       3.04  %
September 1, 2020              June 3, 2020                       2,332               2,332              3,360                       144  %                       3.19  %
September 1, 2020              June 3, 2020                       1,132               1,132              1,607                       142  %                       3.19  %
September 17, 2020             June 19, 2020                     11,825              11,825             15,832                       134  %                       3.02  %
September 17, 2020             June 19, 2020                      9,485               9,485             12,488                       132  %                       3.02  %
September 17, 2020             June 19, 2020                      4,336               4,336              5,624                       130  %                       3.02  %
September 17, 2020             June 19, 2020                      1,110               1,110              1,687                       152  %                       3.17  %
September 24, 2020             September 25, 2019               400,000             112,257            167,347                       149  %                       2.69  %
September 24, 2020             June 26, 2020                      6,876               6,876             10,024                       146  %                       3.13  %
September 24, 2020             June 26, 2020                      5,198               5,198              6,930                       133  %                       2.98  %
September 24, 2020             June 26, 2020                      2,730               2,730              3,585                       131  %                       2.98  %
September 25, 2020             June 26, 2020                     21,400              21,400             30,747                       144  %                       3.13  %
September 28, 2020             June 30, 2020                      8,049               8,049             10,727                       133  %                       3.01  %
September 28, 2020             June 30, 2020                      6,099               6,099              9,038                       148  %                       3.16  %
September 28, 2020             June 30, 2020                      4,938               4,938              6,581                       133  %                       3.01  %
September 28, 2020             June 30, 2020                      4,850               4,850              6,498                       134  %                       3.01  %
September 28, 2020             June 30, 2020                      3,324               3,324              4,667                       140  %                       3.16  %
July 9, 2021                   July 15, 2016                    250,000              27,593             43,569                       158  %                       2.69  %
Totals                                                        $ 910,185$  400,035$ 578,310                       145  %                       3.29  %



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                                                                                                                    December 31, 2019
                                                                 Maximum
                                                                Borrowing            Amount            Amount of            Percentage of
      Maturity Date                 Origination date             Capacity          Outstanding         Collateral        Collateral Coverage           Interest Rate
January 3, 2020                 November 26, 2019              $   8,411$    8,411$  11,098                       132  %                     3.45  %
January 3, 2020                 November 26, 2019                  6,093               6,093              9,038                       148  %                     3.45  %
January 3, 2020                 November 26, 2019                  5,175               5,175              6,855                       132  %                     3.45  %
January 3, 2020                 December 2, 2019                  11,966              11,966             15,742                       132  %                     3.45  %
January 3, 2020                 December 2, 2019                  10,648              10,648             14,058                       132  %                     3.45  %
January 3, 2020                 December 2, 2019                   5,485               5,485              7,050                       129  %                     3.45  %
January 3, 2020                 December 2, 2019                   4,096               4,096              5,261                       128  %                     3.45  %
January 3, 2020                 December 2, 2019                   1,644               1,644              2,388                       145  %                     3.55  %
January 3, 2020                 December 2, 2019                   1,576               1,576              2,287                       145  %                     3.55  %
January 10, 2020                December 11, 2019                 21,088              21,088             28,284                       134  %                     3.47  %
January 10, 2020                December 11, 2019                  1,808               1,808              2,640                       146  %                     3.57  %
January 13, 2020                July 11, 2019                      8,956               8,956             13,016                       145  %                     4.16  %
January 21, 2020                December 20, 2019                 15,718              15,718             20,623                       131  %                     3.41  %
January 21, 2020                December 20, 2019                 10,305              10,305             13,521                       131  %                     3.41  %
January 21, 2020                December 20, 2019                  5,840               5,840              7,324                       125  %                     3.41  %
January 21, 2020                December 20, 2019                  2,784               2,784              4,050                       145  %                     3.51  %
January 28, 2020                October 30, 2019                   5,318               5,318              7,464                       140  %                     3.19  %
January 28, 2020                October 30, 2019                   2,520               2,520              3,381                       134  %                     2.99  %
February 3, 2020                August 1, 2019                     7,568               7,568              9,702                       128  %                     4.19  %
February 3, 2020                August 1, 2019                     6,664               6,664              9,537                       143  %                     4.19  %
February 24, 2020               November 26, 2019                 41,412              41,412             54,828                       132  %                     2.92  %
March 25, 2020                  September 25, 2019                 7,075               7,075             10,024                       142  %                     3.96  %
March 25, 2020                  September 25, 2019                 5,851               5,851              7,423                       127  %                     3.81  %
March 26, 2020                  September 26, 2019                27,075              27,075             34,591                       128  %                     3.81  %
March 27, 2020                  September 27, 2019                 2,915               2,915              3,709                       127  %                     3.79  %
June 3, 2020                    December 6, 2019                   6,097               6,097              7,891                       129  %                     3.64  %
June 3, 2020                    December 6, 2019                   4,704               4,704              6,106                       130  %                     3.64  %
June 3, 2020                    December 6, 2019                   3,053               3,053              4,035                       132  %                     3.64  %
June 3, 2020                    December 6, 2019                   2,332               2,332              3,360                       144  %                     3.79  %
June 3, 2020                    December 6, 2019                   1,132               1,132              1,607                       142  %                     3.79  %
June 19, 2020                   December 19, 2019                 13,447              13,447             18,076                       134  %                     3.55  %
June 19, 2020                   December 19, 2019                  1,155               1,155              1,687                       146  %                     3.70  %
June 30, 2020                   December 30, 2019                  5,286               5,286              7,044                       133  %                     3.57  %
June 30, 2020                   December 30, 2019                  3,324               3,324              4,667                       140  %                     3.72  %
July 10, 2020                   July 15, 2016                    250,000              28,931             57,397                       198  %                     4.28  %
September 24, 2020              September 25, 2019               400,000             116,662            164,403                       141  %                     4.24  %
Totals                                                         $ 918,521$  414,114$ 580,167                       140  %                     3.77  %



As of June 30, 2020, we had $400.0 million outstanding under our repurchase
transactions compared to $414.1 million as of December 31, 2019. The maximum
month-end balance outstanding during the three months ended June 30, 2020 was
$433.8 million, compared to a maximum month-end balance for the three months
ended December 31, 2019, of $438.4 million. The following table presents certain
details of our repurchase transactions for the three months ended June 30, 2020
and December 31, 2019 ($ in thousands):

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Table 16: Repurchase Balances

Three months ended

                                                                   June 30, 2020          December 31, 2019
Balance at the end of period                                      $     400,035$        414,114
Maximum month-end balance outstanding during the quarter          $     433,812$        438,388
Average balance                                                   $     413,543$        422,837



The decrease in our average balance from $422.8 million for the three months
ended December 31, 2019 to our average balance of $413.5 million for the three
months ended June 30, 2020 was due to a net decrease in repurchase financing
during the three months ended June 30, 2020, as a result of decreased
investments in mortgage loans and debt securities.

As of June 30, 2020 and December 31, 2019, we did not have any credit facilities or other outstanding debt obligations other than the repurchase facilities, secured borrowings, senior convertible notes and our put obligation on outstanding common stock warrants.

We are not required by our investment guidelines to maintain any specific debt-to-equity ratio, and we believe that the appropriate leverage for the particular assets we hold depends on the credit quality and risk of those assets, as well as the general availability and terms of stable and reliable financing for those assets.


Dividends

We may declare dividends based on, among other things, our earnings, our
financial condition, our working capital needs, new opportunities, and
distribution requirements imposed on REITs. The declaration of dividends to our
stockholders and the amount of such dividends are at the discretion of our Board
of Directors. On March 25, 2020 we announced that we would pay our previously
declared cash dividend of $0.32 per share in shares of our common stock. The
value was based on the $9.14 per share closing price on the record date. As a
result, on March 27, 2020, we issued 781,222 shares of our common stock in
fulfillment of the dividend.

On August 4, 2020, our Board of Directors declared a cash dividend of $0.17 per
share, paid on August 31, 2020 to stockholders of record as of August 14, 2020.
Our Management Agreement with our Manager requires the payment of an incentive
management fee above the amount of the base management fee if either, (1) for
any quarterly incentive fee, the sum of cash dividends on our common stock, plus
distributions on our externally-held operating partnership units, plus any
quarterly increase in book value, all calculated on an annualized basis, exceed
8% of our book, or (2) for any annual incentive fee, the value of quarterly cash
dividends on our common stock, plus cash special dividends on our commons stock,
plus distributions on our externally-held operating partnership units all paid
out within the applicable calendar year, paid out of our taxable income, exceeds
of 8% (on an annualized basis) of our stock's book value. During the three and
six months ended June 30, 2020, we recorded no incentive fee payable to the
Manager. Comparatively, during the three and six months ended June 30, 2019, we
recorded $0 and $0.2 million, respectively, for an incentive fee payable to the
Manager. Our dividend payments are driven by the amount of our taxable income,
subject to IRS rules for maintaining our status as a REIT.

Our most recently declared quarterly dividend represents a payment of
approximately 4.47% on an annualized basis of our book value of $15.20 per share
at June 30, 2020. If our taxable income increases to the levels we experienced
during 2019, we could exceed the threshold for paying an incentive fee to our
Manager, and thereby trigger such payments. See Note 10 - Related party
transactions.

Capital resources


We believe that our capital resources will be sufficient to enable us to meet
anticipated short-term and long-term liquidity requirements. As the local and
global economies have weakened as a result of the pandemic, ensuring adequate
liquidity is critical. We believe we have access to adequate resources to meet
the needs of our existing operations, mandatory capital expenditures, dividend
payments, and working capital, to the extent not funded by cash provided by
operating activities. However, we expect the COVID-19 pandemic to adversely
impact our future operating cash flows due to the inability of some of our
borrowers to make scheduled payments on time or at all, and the potential for
HPA decline.

Off-Balance Sheet Arrangements

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Other than our investments in debt securities and beneficial interests issued by
joint ventures, which are summarized below by securitization trust and our
equity method investments discussed elsewhere in this report, we do not have any
relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special purpose entities,
which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes. Further,
we have not guaranteed any obligations of unconsolidated entities nor do we have
any commitment or intent to provide funding to any such entities. As such, we
are not materially exposed to any market, credit, liquidity or financing risk
that could arise if we had engaged in such relationships.

Table 17: Investments in joint ventures


We form joint ventures with third party institutional accredited investors to
purchase mortgage loans and other mortgage related assets. The debt securities
and beneficial interests we carry on our consolidated balance sheets are issued
by securitization trusts formed by these joint ventures, which are VIEs, that we
have sponsored but which we do not consolidate since we have determined we are
not the primary beneficiary.

A summary of our investments in joint ventures is presented below(1) ($ in
thousands):

                                                                                                                                     Great Ajax Corp. Ownership
                                                                                                                                                                          Current
                                                                                                                                                                           Owned
                                                                                                                                                                         Stated or
                                                                                                                                                                         Notional
                                                                       Total Original                                                        Original Stated or          Principal
                                                                        Outstanding                                                          Notional Principal           Balance
 Issuing Trust/Issue Date                   Security                     Principal               Coupon           Ownership Percent           Balance Retained           Retained
Ajax Mortgage Loan Trust
2018-A/ April 2018                Class A notes due 2058             $     91,036                  3.85  %                    9.36  %       $       8,521$  6,498
                                  Trust certificates                 $     22,759                     -  %                    9.36  %       $       2,130$  2,144Ajax Mortgage Loan Trust
2018-B/ June 2018                 Class A notes due 2057             $     66,374                  3.75  %                   20.00  %       $      13,275$  5,624
                                  Trust certificates                 $     28,447                     -  %                   20.00  %       $       5,689$  4,103Ajax Mortgage Loan Trust
2018-D/ September 2018            Class A notes due 2058             $     80,664                  3.75  %                   20.00  %       $      16,133$ 14,312
                                  Trust certificates                 $     20,166                     -  %                   20.00  %       $       4,033$  3,915Ajax Mortgage Loan Trust
2018-E/ December 2018             Class A notes due 2058             $     86,089                  4.38  %                    5.01  %       $       4,313$  3,920
                                  Class B notes due 2058             $      8,035                  5.25  %                   20.00  %       $       1,607$  1,605
                                  Trust certificates                 $     20,662                     -  %                   20.00  %       $       4,132$  4,130Ajax Mortgage Loan Trust
2018-F/ December 2018             Class A notes due 2058             $    180,002                  4.38  %                    5.01  %       $       9,018$  7,352
                                  Class B notes due 2058             $     16,800                  5.25  %                   20.00  %       $       2,520$  3,360
                                  Trust certificates                 $     43,201                     -  %                   20.00  %       $       6,480$  8,252Ajax Mortgage Loan Trust
2018-G/ December 2018             Class A notes due 2057             $    173,562                  4.38  %                   25.00  %       $      43,390$ 31,535
                                  Class B notes due 2057             $     16,199                  5.25  %                   25.00  %       $       4,050$  4,050
                                  Trust certificates                 $     41,655                     -  %                   25.00  %       $      10,414$ 10,585Ajax Mortgage Loan Trust
2019-A/ March 2019                Class A notes due 2057             $    127,801                  3.75  %                   20.00  %       $      25,560$ 18,850


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                                      Class B notes due 2057             $  11,928             5.25  %          20.00  %       $  2,386$  2,388
                                      Trust certificates                 $  30,672                -  %          20.00  %       $  6,134$  6,137Ajax Mortgage Loan Trust
2019-B/ March 2019                    Class A notes due 2059             $ 163,325             3.75  %          15.00  %       $ 24,499$ 18,372
                                      Class B notes due 2059             $  15,244             5.25  %          15.00  %       $  2,287$  2,287
                                      Trust certificates                 $  39,198                -  %          15.00  %       $  5,880$  5,976Ajax Mortgage Loan Trust
2019-C/ May 2019                      Class A notes due 2058             $ 150,037             3.95  %           5.00  %       $  7,502$  6,568
                                      Class B notes due 2058             $  14,003             5.25  %          34.00  %       $  4,761$  4,761
                                      Trust certificates                 $  36,009                -  %          34.00  %       $ 12,243$ 12,417Ajax Mortgage Loan Trust
2019-E/September 2019                 Class A notes due 2059             $ 181,101             3.00  %          20.00  %       $ 36,220$ 30,747
                                      Class B notes due 2059             $  16,903             4.88  %          20.00  %       $  3,381$  3,381
                                      Trust certificates                 $  43,464                -  %          20.00  %       $  8,693$  8,558Ajax Mortgage Loan Trust
2019-G/ December 2019                 Class A notes due 2059             $ 141,420             3.00  %          20.00  %       $ 28,284$ 27,271
                                      Class B notes due 2059             $  13,199             4.25  %          20.00  %       $  2,640$  2,640
                                      Trust certificates                 $  33,941                -  %          20.00  %       $  6,788$  6,820Ajax Mortgage Loan Trust
2019-H/ December 2019                 Class A notes due 2059             $  90,381             3.00  %          20.00  %       $ 18,076$ 15,831
                                      Class B notes due 2059             $   8,435             4.25  %          20.00  %       $  1,687$  1,687
                                      Trust certificates                 $  21,692                -  %          20.00  %       $  4,338$  4,375Ajax Mortgage Loan Trust
2020-A/ March 2020                    Class A notes due 2059             $ 249,384             2.38  %          20.00  %       $ 49,877$ 45,368
                                      Class B notes due 2059             $  23,276             3.50  %          20.00  %       $  4,655$  4,428
                                      Trust certificates                 $  59,852                -  %          20.00  %       $ 11,970$ 11,970

(1)Table does not include our 2017-D and 2018-C securitizations with total original outstanding principal of $222.3 million and $227.3 million, respectively, as these trusts are included in our consolidated financial statements.

                                       79
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Table 18: Contractual Obligations

A summary of our contractual obligations as of June 30, 2020 and December 31, 2019 is as follows ($ in thousands):


June 30, 2020                                                                        Payments Due by Period
($ in thousands)                              Total            Less than 1 Year         1 - 3 Years          3 - 5 Years          More than 5 Years
Convertible senior notes                   $ 115,850          $             -          $         -          $  115,850          $            -
Borrowings under repurchase
agreements                                   400,035                  400,035                    -                   -                       -
Interest on convertible senior notes          33,946                    8,399               16,798               8,749                       -
Interest on repurchase agreements              2,658                    2,658                    -                   -                       -
Put obligation on outstanding common
stock warrants                                50,707                        -                    -              50,707                       -
Total                                      $ 603,196$       411,092$    16,798$  175,306          $            -



December 31, 2019                                                                     Payments Due by Period
($ in thousands)                               Total            Less than 1 Year         1 - 3 Years          3 - 5 Years          More than 5 Years
Convertible senior notes                    $ 123,850          $             -          $         -          $  123,850          $            -
Borrowings under repurchase
agreements                                    414,114                  414,114                    -                   -                       -
Interest on convertible senior notes           40,780                    8,979               17,958              13,843                       -
Interest on repurchase agreements               5,699                    5,699                    -                   -                       -
Total                                       $ 584,443$       428,792$    17,958$  137,693          $            -



Our secured borrowings are not included in the table above as such borrowings
are non-recourse to us and principal and interest are only paid to the extent
that cash flows from mortgage loans (in the securitization trust)
collateralizing the debt are received. Accordingly, a projection of contractual
maturities over the next five years is inapplicable.

Inflation


Virtually all of our assets and liabilities are interest-rate sensitive in
nature. As a result, interest rates and other factors influence our performance
far more so than does inflation. Changes in interest rates do not necessarily
correlate with inflation rates or changes in inflation rates. Our activities and
consolidated balance sheet are measured with reference to historical cost and/or
fair market value without considering inflation.

Subsequent Events


Since quarter end, we have acquired 239 residential RPLs with aggregate UPB of
$45.4 million in four transactions from four sellers. The purchase price equaled
88.9% of UPB and 66.2% of the estimated market value of the underlying
collateral of $60.9 million.

We also have agreed to acquire, subject to due diligence, 29 residential RPLs
and three NPLs with aggregate UPB of $8.1 million and $0.9 million,
respectively, in nine transactions and one transaction, respectively, from eight
sellers and one seller, respectively. The purchase price of the residential RPLs
equals 87.1% of UPB and 61.3% of the estimated market value of the underlying
collateral of $11.4 million. The purchase price of the NPLs equals 77.2% of UPB
and 58.0% of the estimated market value of the underlying collateral of $1.2
million. We also agreed to acquire two SBC loans with UPB of $2.1 million. The
purchase price of the SBC loans equals 100.0% of UPB.

On July 30, 2020, we priced Ajax Mortgage Loan Trust 2020-B with $97.2 million
of AAA-rated senior securities, and $17.3 million of A-rated securities issued
with respect to $156.5 million of mortgage loans, all of which were RPLs. The
AAA- and A-rated securities have a weighted average coupon of 1.874% and
represent 73.2% of the UPB of the underlying mortgage loans.

On August 4, 2020, our Board of Directors declared a cash dividend of $0.17 per
share to be paid on August 31, 2020 to our common stockholders of record as of
August 14, 2020.
                                       80

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