Altisource Asset Management Corp
Annual Report 2015

Plain-text annual report

ALTISOURCE ASSET MANAGEMENT CORP FORM 10-K (Annual Report) Filed 02/29/16 for the Period Ending 12/31/15 Telephone CIK Symbol SIC Code Fiscal Year 770-612-7007 0001555074 AAMC 6500 - Real estate 12/31 http://www.edgar-online.com © Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-KxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEARENDED DECEMBER 31, 2015ORoTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934COMMISSION FILE NUMBER: 000-54809Altisource Asset Management Corporation(Exact name of registrant as specified in its charter)UNITED STATES VIRGIN ISLANDS66-0783125(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)36C Strand StreetChristiansted, United States Virgin Islands 00820(Address of principal executive office)(340) 692-1055(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:(Title of Each Class)(Name of exchange on which registered)Common stock, par value $0.01 per shareNYSE MKTSecurities registered pursuant to Section 12(g) of the Act: None.Indicate by check if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes ¨ No xIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submitand post such files). Yes ¨ No xIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large Accelerated Filer¨ Accelerated FilerxNon-Accelerated Filer¨(Do not check if a smaller reporting company)Smaller Reporting Company¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xThe aggregate market value of common stock held by non-affiliates of the registrant was $167.4 million , based on the closing share price as reported on the NewYork Stock Exchange on June 30, 2015 and the assumption that all Directors and executive officers of the registrant and their families and beneficial holders of10% of the registrant's common stock are affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.As of February 22, 2016 , 1,970,572 shares of our common stock were outstanding (ex cluding 596,408 shares held as treasury stock).Portions of the registrant's definitive proxy statement for the registrant's 2016 annual meeting, to be filed within 120 days after the close of the registrant's fiscalyear, are incorporated by reference into Part III of this Annual Report on Form 10-K.Altisource Asset Management CorporationDecember 31, 2015Table of ContentsPart I1Item 1. Business.1Item 1A. Risk Factors.16Item 1B. Unresolved Staff Comments.43Item 2. Properties.43Item 3. Legal Proceedings.43Item 4. Mine Safety Disclosures.45Part II46Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.46Item 6. Selected Financial Data.48Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.48Item 7A. Quantitative and Qualitative Disclosures About Market Risk.82Item 8. Consolidated Financial Statements and Supplementary Data.82Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.82Item 9A. Controls and Procedures.83Item 9B. Other Information.87Part III88Item 10. Directors, Executive Officers and Corporate Governance.88Item 11. Executive Compensation.88Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.88Item 13. Certain Relationships and Related Transactions, and Director Independence.88Item 14. Principal Accountant Fees and Services.88Part IV89Item 15. Exhibits.89Signatures91i(table of contents)References in this report to "we," "our," "us," or the "Company" refer to Altisource Asset Management Corporation and its consolidated subsidiaries, unlessotherwise indicated. References in this report to “Residential” refer to Altisource Residential Corporation and its consolidated subsidiaries, unless otherwiseindicated. References in this report to “Altisource” refer to Altisource Portfolio Solutions S.A. and its consolidated subsidiaries, unless otherwise indicated.Special note on forward-looking statementsOur disclosure and analysis in this Annual Report on Form 10-K contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of1933, as amended, which we refer to as the “Securities Act,” and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the“Exchange Act.” In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,”“expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words orphrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-lookingstatements by discussions of strategy, plans or intentions.The forward-looking statements contained in this report reflect our current views about future events and are subject to numerous known and unknown risks,uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-lookingstatement. Factors that may materially affect such forward-looking statements include, but are not limited to:•our ability to implement our business strategy and the business strategy of Residential;•our ability to retain Residential as a client;•our ability to retain and maintain our strategic relationships with related parties;•the ability of Residential to generate cash available for distribution to its stockholders under our management;•our ability to effectively compete with our competitors;•Residential's ability to complete future or pending transactions;•the failure of Altisource to effectively perform its obligations under their agreements with us and Residential;•the failure of Residential’s servicers to effectively perform their services to Residential;•general economic and market conditions; and•governmental regulations, taxes and policies.While forward-looking statements reflect our good faith beliefs, assumptions and expectations, they are not guarantees of future performance. Such forward-looking statements speak only as of their respective dates, and we assume no obligation to update them to reflect changes in underlying assumptions or factors,new information or otherwise. For a further discussion of these and other factors that could cause our future results to differ materially from any forward-lookingstatements contained herein, please refer to the section “Item 1A. Risk factors.”ii(table of contents)Part I Item 1. BusinessOverviewWe were incorporated in the United States Virgin Islands on March 15, 2012 (our “inception”). Subsequent to our separation from Altisource Portfolio SolutionsS.A. (“Altisource”) on December 21, 2012, we immediately commenced operations. Our primary business is to provide asset management and certain corporategovernance services to institutional investors. In October 2013, we applied for and were granted registration by the SEC as a registered investment adviser undersection 203(c) of the Investment Advisers Act of 1940.Our primary client currently is Altisource Residential Corporation (“Residential”), a public real estate investment trust (“REIT”) focused on acquiring andmanaging quality, affordable single-family rental properties for working class families throughout the United States. Residential is currently our primary source ofrevenue and will drive our results. We operate in a single segment focused on providing asset management and certain corporate governance services toResidential.We initially provided services to Residential pursuant to a 15-year asset management agreement beginning December 21, 2012 (the “Original AMA”). On March31, 2015, we entered into a new asset management agreement with Residential (the “New AMA”) under which we will continue to be the exclusive asset managerfor Residential for an initial term of 15 years from April 1, 2015, with two potential five-year extensions. The Original AMA had a different incentive fee structurethat gave us a share of Residential’s cash flow available for distribution to its stockholders as well as reimbursement for certain overhead and operating expenses.Although the New AMA provides for a new fee structure in which we are entitled to a base management fee, an incentive management fee and a conversion fee forloans and real estate owned (“REO”) properties that become rental properties during each quarter, our operating results are highly dependent on Residential'soperating results. See the “Asset Management Agreement” section for additional details of the New AMA.We have concluded that Residential is a variable interest entity (“VIE”) because Residential's equity holders lack the ability through voting rights to makedecisions about Residential's activities that have a significant effect on the success of Residential. We have also concluded that we are the primary beneficiary ofResidential because, under the asset management agreement, we have the power to direct the activities of Residential that most significantly impact Residential'seconomic performance including establishing Residential's investment and business strategy. As a result, we consolidate Residential in our consolidated financialstatements. As discussed in Note 1 to the consolidated financial statements, we expect to deconsolidate Residential from our consolidated financial statementseffective January 1, 2016 after our adoption Accounting Standards Update (“ASU”) 2015-02, Consolidation (Topic 810) – Amendments to the ConsolidationAnalysis.In addition to the services we provide to Residential, we provide management services to NewSource Reinsurance Company Ltd. (“NewSource”), a Bermuda titleinsurance and reinsurance company. In October 2013, we invested $2.0 million in NewSource and received 100% of the common stock of NewSource,representing 2,000,000 shares. In September 2015, we contributed an additional $5.0 million to NewSource. Because we own 100% of voting common stock ofNewSource and there are no substantive kick-out rights granted to other equity owners, we consolidate NewSource in our consolidated financial statements. OnDecember 2, 2013, NewSource became registered as a licensed reinsurer with the Bermuda Monetary Authority (“BMA”).Our Business StrategyOur business strategy is to:•provide asset management services to Residential to generate a growing stream of cash available for distribution to its shareholders and thereby growingour earnings; and•develop additional scalable investment strategies and vehicles by leveraging the expertise of our management team.Our ExpertiseOur senior management team includes individuals with significant experience in the real estate, mortgage, housing, financial services and asset managementmarkets. Throughout their careers, our executives have managed various real estate-related businesses and executed structured real estate and financingtransactions through multiple market cycles. We have also internally developed a valuation model, more fully described below, that uses proprietary historical datato evaluate and project1(table of contents)the performance of residential rental properties and residential mortgage loans. We believe that our asset evaluation process and the experience and judgment ofour executive management team in identifying, assessing, valuing and acquiring new residential rental properties and related assets will help Residential toappropriately value the residential rental assets at the time of purchase and to quickly and efficiently grow its portfolio.Strengths that AAMC Brings to ResidentialWe are committed to a business strategy that will enable Residential to grow and maintain a substantial single-family rental portfolio and become one of the largestnationwide single-family rental REITs. Our goal is to enhance Residential's long-term stockholder value through the execution of its business plan with a focus onits competitive strengths. Residential's strong competitive position is based on the following factors:•Acquisition Strategy Enables Residential to Build a Portfolio that can Provide High Yields to its Stockholders. Through our personnel and technicalexpertise, we have developed a valuation model for Residential that uses proprietary historical data to evaluate and project the performance of single-family rental assets and residential mortgage loans. This valuation model has been built with multiple broad economic inputs as well as individualproperty-level inputs to determine which properties will produce the highest possible yields and how much to pay for these properties to best achieveoptimal results. These internally-developed tools not only help Residential to evaluate the most attractive single-family rental portfolios for sale, but theyalso have assisted Residential in developing a robust one-by-one purchase program that levers the Altisource property inspection, management and rentalinfrastructure and related data flows to identify and acquire higher yielding assets at any progression in the loan-to-REO cycle and in any geographicallocation into which Residential desires to expand. We intend to continue to build this one-by-one infrastructure and employ regional teams that will focuson specified geographical areas and use their developed regional experience and anecdotal operating results to continually build a better, more predictablemodel meant to achieve high rental yield portfolio growth with properties marked by strong stabilized occupancy rates and optimal economic returns.•Relationship with Altisource and its Nationwide Property Management Infrastructure . We believe that Residential is strategically positioned to operatesingle-family rental properties across the United States at an attractive cost structure with the support of Altisource’s nationwide vendor network, whichprovides services in 208 major markets across the United States. In 2015, Altisource conducted more than 247,000 inspections and 133,000 repair andmaintenance orders on a monthly basis and has more than 9,300 centrally managed vendors operating nationwide. This vendor network infrastructure hasbeen developed over many years, and we believe this infrastructure would be difficult and expensive for Residential's competitors and/or new marketparticipants to replicate. We believe, therefore, that Residential's existing relationships with Altisource and its vendor network, as described above in“Access to Established Nationwide Property Management Infrastructure,” gives Residential a distinct advantage as it allows it to bid on large attractiveportfolios at an attractive cost structure. We also believe that our established relationships with the Altisource network management team and our ongoingexperience with the service providers in Altisource’s vendor network who know our renovation, maintenance and repair standards would likely provideResidential with an advantage over others in replicating and/or acquiring this nationwide property management infrastructure, if necessary.•Depth of Management Experience. We believe the experience and technical expertise of our management team is one of Residential's key strengths. Ourteam has a broad and deep knowledge of the mortgage and real estate markets with decades of experience in real estate, mortgage trading, housing,financial services and asset management markets. Their experience in the real estate industry brings a wealth of understanding of the markets in whichResidential interacts and can help Residential build its portfolio in locations that bring the highest potential returns to its stockholders. Management andits supporting teams have a multitude of contacts and significant business acumen that enable us to source single-family rental assets through access toauctions and sellers of single-family rental assets and obtain important financing to optimize available leverage for quick and efficient growth ofResidential's portfolio. This is of tremendous value to Residential as it has been able to strategically sell non-performing and re-performing loans to createtaxable income and sustain a strong dividend while using liquidity generated from these sales to increase its single-family rental portfolio byapproximately 247% in 2015.•Strong Understanding and Interaction with Mortgage Loan Servicers . Our key personnel have extensive experience with Residential's mortgage loanservicers and managing mortgage loan assets that allows Residential to capitalize on the servicing capabilities of its third party servicers and ensure costeffective servicing of its residential mortgage loan portfolios. We have directed and will continue to direct Residential's mortgage servicers to employvarious loan resolution methodologies with respect to its residential mortgage loans, including loan modification, collateral2(table of contents)resolution and collateral disposition. To help Residential achieve its business objective, we instruct Residential's mortgage servicers to focus on (1)converting a portion of its sub-performing and non-performing loans to performing status and (2) managing the foreclosure process and timelines withrespect to the remainder of those loans. Importantly, by modifying as many loans as possible, we seek to keep more families in their homes because of ourefforts. In 2015, Residential substantially diversified its servicer base by engaging additional alternate mortgage loan servicers to service its loans.Asset Management AgreementPursuant to the asset management agreement, we design and implement Residential's business strategy, administer its business activities and day-to-day operationsand provide corporate governance services, subject to oversight by Residential's Board of Directors. We are responsible for, among other duties: (1) performingand administering all of Residential's day-to-day operations, (2) defining investment criteria in Residential's investment policy in cooperation with its Board ofDirectors, (3) sourcing, analyzing and executing asset acquisitions, including the related financing activities, (4) analyzing and executing sales of properties andresidential mortgage loans, (5) overseeing Altisource’s renovation, leasing and property management of Residential's single-family rental properties, (6) overseeingthe servicing of Residential's residential mortgage loan portfolios, (7) performing asset management duties and (8) performing corporate governance and othermanagement functions, including financial, accounting and tax management services.We provide Residential with a management team and appropriate support personnel who have substantial experience in the management of residential mortgageloans and residential rental properties. Our management also has significant corporate governance experience that enables us to manage Residential's business andorganizational structure efficiently. We have agreed not to provide the same or substantially similar services without the prior written consent of Residential'sboard of directors to any business or entity competing against Residential in (a) the acquisition or sale of portfolios of REO properties, (b) the carrying on of asingle-family rental business, (c) the acquisition or sale of single-family rental properties, non-performing and re-performing mortgage loans or other similarassets, (d) the purchase of portfolios of sub-performing or non-performing residential mortgage loans or (e) any other activity in which Residential engages.Notwithstanding the foregoing, we may engage in any other business or render similar or different services to any businesses engaged in lending or insuranceactivities or any other activity other than those described above. Further, at any time following Residential's determination and announcement that it will no longerengage in any of the above-described competitive activities, we would be entitled to provide advisory or other services to businesses or entities in such competitiveactivities without Residential's prior consent.On March 31, 2015, we entered into the New AMA with Residential. The New AMA, which became effective on April 1, 2015, provides for a new managementfee structure, which replaces the incentive fee structure under the Original AMA, as follows:•Base Management Fee . We are entitled to a quarterly Base Management Fee equal to 1.5% of the product of (i) Residential's average invested equitycapital for the quarter multiplied by (ii) 0.25 , while it has fewer than 2,500 single-family rental properties actually rented (“Rental Properties”). TheBase Management Fee percentage increases to 1.75% of invested capital while Residential has between 2,500 and 4,499 Rental Properties and increasesto 2.0% of invested capital while it has 4,500 or more Rental Properties; •Incentive Management Fee . We are entitled to a quarterly Incentive Management Fee equal to 20% of the amount by which Residential's return oninvested capital (based on AFFO, defined as net income attributable to holders of common stock calculated in accordance with GAAP plus real estatedepreciation expense minus recurring capital expenditures on all real estate assets owned by Residential) exceeds an annual hurdle return rate of between7.0% and 8.25% (depending on the 10 -year treasury rate). The Incentive Management Fee increases to 22.5% while Residential has between 2,500 and4,499 Rental Properties and increases to 25% while it has 4,500 or more Rental Properties; and •Conversion Fee . We are entitled to a quarterly Conversion Fee equal to 1.5% of the market value of assets converted into leased single-family homes byResidential for the first time during the quarter.To the extent Residential has an aggregate shortfall in its return rate over the previous seven quarters, that aggregate return rate shortfall gets added to the normalquarterly 1.75% return hurdle for the next quarter before we are entitled to an Incentive Management Fee. Residential has the flexibility to pay up to 25% of the Incentive Management Fee to us in shares of its common stock. Under the New AMA, Residential will notbe required to reimburse us for the allocable compensation and routine overhead expenses of our employees and staff, all of which will now be covered by the BaseManagement Fee described above.3(table of contents)Under the New AMA, we will continue to be the exclusive asset manager for Residential for an initial term of 15 years from April 1, 2015, with two potential five-year extensions, subject to Residential achieving an average annual return on invested capital of at least 7.0% during the then-current term. The Original AMAhad a 15 year term, but provided Residential with significant termination rights, including the ability to terminate the agreement if Residential’s board determined,in its sole discretion, that our performance was unsatisfactory or our compensation was reasonable. However, under the New AMA, Residential’s terminationrights are significantly limited. Under the New AMA, neither party is entitled to terminate the New AMA prior to the end of the initial term, or each renewal term,other than termination by (a) us and/or Residential “for cause” for certain events such as a material breach of the New AMA and failure to cure such breach, (b)Residential for certain other reasons such as its failure to achieve a return on invested capital of at least 7.0% for two consecutive fiscal years after the thirdanniversary of the New AMA or (c) Residential in connection with certain change of control events.Under the Old AMA, Residential paid us a quarterly incentive management fee as follows:(i)2% of all cash available for distribution by Residential to its stockholders and to us as incentive management fee, which we referred to as “availablecash,” until the aggregate amount per share of available cash for the quarter (based on the average number of shares of our common stock outstandingduring the quarter), which we referred to as the “quarterly per share distribution amount,” exceeded $0.161 , then(ii)15% of all additional available cash for the quarter until the quarterly per share distribution amount exceeded $0.193 , then(iii)25% of all additional available cash for the quarter until the quarterly per share distribution amount exceeded $0.257 , and thereafter(iv)50% of all additional available cash for the quarter.in each case set forth in clauses (i) through (iv), as such amounts would have been appropriately adjusted from time to time to take into account the effect of anystock split, reverse stock split or stock dividend, should any have occurred.Residential distributed any quarterly distribution to its stockholders after the application of the incentive management fee payable to us. Residential was required to reimburse us on a monthly basis for the (i) direct and indirect expenses we incurred or payments we made on Residential’s behalf,including, but not limited to, the allocable compensation and routine overhead expenses of all of our employees and staff and (ii) all other reasonable operating andoverhead expenses we incurred related to the asset management services we provided to Residential.If the New AMA were terminated by Residential, our financial position and future prospects for revenues and growth would be materially adversely affected.Residential's Business StrategyResidential is committed to becoming and maintaining its position as one of the top single-family rental REITs serving working class American families and theircommunities, while also providing consistent and robust returns on equity and long-term growth for its investors. We believe Residential's business model providesit with operating capabilities that are difficult to replicate and positions Residential to opportunistically grow and effectively manage its portfolio of single-familyrental properties.First , we believe Residential's diversified acquisition strategy enables it to acquire single-family rental properties at a high yield both (a) through the purchase ofrental properties either in bulk or on a one-by-one basis and (b) through the acquisition and resolution of sub-performing and non-performing mortgage loans withthe expectation of converting them into single-family rental properties. We believe this diversified approach provides Residential with more avenues of growth andprovides it with an advantage over other acquisition strategies.Second , Residential's access to Altisource, which employs an established, nationwide renovation and property management infrastructure, provides Residentialwith immediate scale and a low cost structure that is unique in the industry today. With Altisource, Residential is not new to this industry. It is not just building aservices platform, which most of its competitors are still doing. Residential does not need to determine out how to collect rents, complete renovations, manageproperties on a large scale, determine how many call centers to have or how evictions really work when done carefully and thoughtfully, because Altisource has awell-developed platform to handle all of these things and more.4(table of contents)Third , Residential's multi-faceted loan resolution methodologies, through its mortgage loan servicers, provide it with earnings capabilities in its non-performingloan portfolio that distinguish it from other single-family rental REITs. Residential has relationships with three separate, independent servicers who have broadexperience in servicing non-performing loans and finding value in Residential's loan portfolio. If we determine to continue building Residential's single-familyrental portfolio through additional non-performing and sub-performing loan portfolios, Residential's experience with these servicers and their understanding ofResidential's business goals will enable it to continue to compete on various levels through the single-family rental conversion process.We believe that Residential's acquisition strategies, nationwide renovation and property management infrastructure and multi-faceted loan resolution capabilitiesprovide it with multiple avenues of value creation that will help Residential to achieve its business objective of generating attractive risk-adjusted returns for itsstockholders over the long term.Acquisition StrategyResidential employs a diversified single-family rental property acquisition strategy. Commencing in the second quarter of 2015, the acquisition strategy wasexpanded to opportunistically acquire portfolios of single-family rental properties in order to more quickly achieve scale in our rental portfolio. We expectResidential to opportunistically source, bid on and acquire additional portfolios of single-family rental properties over the course of 2016.In the second quarter of 2015, Residential also commenced a program to begin purchasing single-family residential properties on a one-by-one basis, sourcinglisted properties from the Multiple Listing Service and alternative listing sources. The first purchases of properties under this program occurred in the third quarterof 2015. As of February 22, 2016, Residential had purchased 124 properties pursuant to this one-by-one acquisition program and is continuing efforts to expandour capabilities to acquire more properties under this program on a quick and reliable basis.Prior to the second quarter of 2015, Residential's preferred acquisition strategy involved acquiring portfolios of sub-performing and non-performing mortgageloans. However, as market conditions evolved and the acquisition of sub-performing and non-performing mortgage loan pools became more competitive andhigher-priced, Residential introduced the alternative single-family rental acquisition strategies described above. While we intend to continue to review and assessthe acquisition of portfolios of sub-performing and non-performing mortgage loans, we believe that the strategy of acquiring portfolios of single-family rentalproperties will allow Residential to achieve scale in its rental portfolio more quickly and with more control over the value, location and projected returns on thetargeted assets.Access to Established Nationwide Property Management InfrastructureWe believe that Residential's 15-year master services agreement with Altisource, pursuant to which Altisource provides Residential with property management,leasing, renovation management and valuation services, allows Residential to operate and manage single-family rental properties with cost and operationalefficiency as well as predictability. This efficiency and predictability is driven by Altisource’s technology and global workforce. Altisource has developed anationwide operating infrastructure enabled by technology and standardized and centrally managed processes. It also has a global back office organization thatqualifies property management and renovation vendors, solicits the appropriate vendors to perform requested work, assigns the work to the vendor with the bestpossible combination of cost and delivery capabilities, provides uniform property management and inspection criteria and technology to review and assessproperties, verifies that the vendor’s work is complete and pays the vendor. This technology and organizational infrastructure allows Altisource to provide serviceswhich we believe provide Residential with the following competitive advantages:•The cost structure associated with Altisource’s nationwide vendor network is not dependent upon scale; accordingly, unlike many of Residential'scompetitors, it does not require a critical size of single-family rental properties to attain the operating efficiencies provided by Altisource's propertymanagement services;•Single-family residential property and sub-performing and non-performing loan portfolios typically contain properties that are geographically dispersed,requiring a cost-effective nationwide property management system; we believe Residential is positioned to bid effectively on portfolios with largegeographic dispersion;•Altisource provides Residential with a low-cost, single source for full lifecycle rental property management services, including due diligence andacquisition support, renovations and repairs, lease marketing, tenant management and customer care;•Altisource’s rental marketing strategy is specifically designed to advertise listings across popular industry-focused websites, utilizing their high organicand paid search rankings to generate large volumes of prospective tenants;5(table of contents)•Residential's contracted relationships with nationwide manufacturers and material suppliers, who are also used by Altisource, enable Residential tomanage the ordering and delivery of flooring, appliances, paint, fixtures and lighting for all renovation and unit turn work (i.e. work associated withturnover from one tenant to the next);•We have direct access to Altisource's inspection and estimating application which is utilized by the third-party general contracting vendors to identifyrequired renovation work and prepare detailed scopes of work to provide a consistent end product. In addition, this application catalogs major HVACsystems, appliances and construction materials, which can enable more accurate forecasting of long term maintenance requirements; and•Ongoing tenant management services are coordinated through an internal “24x7” customer service center.As of December 31, 2015 , Altisource managed more than 41,000 vacant pre-foreclosure and REO assets in all 50 states, and these types of properties are far moreintensive to manage than tenant-occupied rentals. Altisource has the capacity to conduct more than 247,000 inspections and 133,000 repair and maintenance orderson a monthly basis and has more than 9,300 centrally managed vendors operating nationwide. Altisource also leverages sophisticated systems and strong vendoroversight to mitigate risks for its clients, stringent enough to satisfy the requirements of two top-10 bank clients and one of the largest non-bank mortgage servicersin the United States. At least one analyst firm has ranked Altisource as the number seven brokerage company in the United States, operating in 50 states andmanaging over 32,000 transactions annually.We work directly with Altisource’s vendor management team on Residential's behalf, and our construction management team often interfaces with the generalcontractors and vendors to maintain relationships with the vendor network. Through our team, Residential coordinates with Altisource and its personnel as well asthe vendor network to establish a collective approach to the renovation management, maintenance, repair and materials supply chain to create a unified look andfeel for the single-family rental properties that Residential rents, owns or acquires upon resolution of its mortgage loans.Residential's master services agreement and other support agreements with Altisource are exclusive arrangements, and we believe that these relationships and ourdirect access to a large vendor network through Altisource provides Residential with significant competitive advantages over third parties with respect to acquiringand maintaining single-family rental properties. We expect Residential to hold single-family rental property assets over the long-term with a focus on developingbrand and franchise value.We also believe that the forecasted growth for the single-family rental marketplace, in combination with our projected asset management and acquisition costs forResidential and its ability to acquire high yielding assets nationwide, provides Residential with a significant opportunity to establish it as a leading residentialREIT.Loan Resolution ActivitiesThe management and/or sale of Residential's legacy portfolio of residential mortgage loans is an important focus of its business. For the mortgage loans remainingin its portfolio, Residential seeks to employ various loan resolution methodologies, through its servicers, with respect to its residential mortgage loans, includingloan modification, collateral resolution and collateral disposition. To help Residential achieve its business objective, we continue to focus on converting a portionof our sub-performing and non-performing loans to performing status and managing the foreclosure process and timelines with respect to the remainder of thoseloans. Due to the continually evolving market dynamics and pricing of distressed mortgage loans, we are opportunistically evaluating the different alternatives withrespect to our loan portfolio, including potential sales, continued resolution and possible acquisitions of such loans.Disposition of LoansAs discussed above, Residential's loan resolution strategy has typically led to the disposition of non-performing mortgage loans primarily through short sales,refinancing, foreclosure sales and the sale of loans that had transitioned to re-performing loans from prior non-performing loan acquisitions.In the third quarter of 2015, Residential also commenced efforts to sell certain non-performing loans to take advantage of attractive market pricing and evolvingmarket conditions. Sales of non-performing loans that do not meet its rental property criteria are expected to be a growth engine for Residential, allowing it torecycle capital that it may use to purchase rental properties that meet its return profile. In the fourth quarter, Residential completed the first of such sales to twounaffiliated parties of 772 non-performing and re-performing loans with an aggregate unpaid principal balance (“UPB”) of approximately $309.6 million ,representing 15% of its loan portfolio by UPB. The final sale price for these portfolios was within approximately 1% of the balance sheet carrying value.6(table of contents)In addition, in December 2015, Residential commenced an auction to sell an additional portfolio of 1,266 non-performing and re-performing mortgage loans withan aggregate UPB of $434.3 million , representing approximately 24% of its loan portfolio by UPB. On January 19, 2016, following the auction process,Residential agreed in principle to award the sale to an unrelated third party. The agreed upon price for this portfolio is within approximately 1% of Residential'sbalance sheet carrying value. Subject to typical confirmatory due diligence and negotiation of a definitive purchase agreement, we expect Residential toconsummate this transaction in the first quarter of 2016. As is customary in these transactions, this confirmatory due diligence process may result in certain loansbeing removed from the sale or a repricing of certain loans; therefore, the final composition and proceeds of this portfolio sale are subject to adjustment dependingon the final diligence results and further negotiation by the parties.Following completion of the sale of this additional mortgage loan portfolio, Residential will have sold 2,227 non-performing and re-performing loans, including189 loans sold during June 2015, with an aggregate UPB of $790.5 million . Residential may market additional portfolios of non-performing loans in the future. Itis anticipated that the proceeds generated from any such transactions would be utilized, in part, to facilitate Residential's strategy to substantially grow its single-family rental assets through the purchase of portfolios of single-family residential properties and on a one-by-one basis.Residential is currently contemplating additional sales of non-performing loan portfolios for assets that do not meet its rental criteria.Resolution of LoansFor the non-performing and sub-performing mortgage loans that Residential continues to hold and acquire, the preferred resolution methodology has been tomodify them. Once successfully modified, we expect that certain borrowers will refinance their loans with other lenders or Residential will sell the modified loansafter establishing a payment history at or near the estimated value of the underlying property, potentially generating attractive returns for Residential. We believemodification followed by refinancing generates near-term cash flows, provides the highest possible economic outcome for Residential and is a socially responsiblebusiness strategy because it keeps more families in their homes.Certain of Residential's residential mortgage loans are liquidated as a result of a short sale, third party sale of the underlying property, refinancing or full debt pay-off of the loan. Upon liquidation of a loan, Residential records net realized gains, including the reclassification of previously accumulated net unrealized gains onthose mortgage loans. We expect the timeline to liquidate loans will vary significantly by loan, which could result in fluctuations in Residential's revenuerecognition and operating performance from period to period. Additionally, the proceeds from loan liquidations may vary significantly depending on the resolutionmethodology used for each loan.A portion of our residential mortgage loans become REO either through foreclosure or as a result of Residential's acquisition of the property via alternativeresolution such as deed-in-lieu of foreclosure. Upon conversion of loans to REO, Residential marks the properties to the most recent market value and recognizenet unrealized gains for the difference between the carrying value of the asset at the time of conversion and the most recent market value, which is based on brokerprice opinions (“BPOs”). The timeline to convert acquired loans into REO can vary significantly by loan, which can result in fluctuations in Residential's revenuerecognition and our operating performance from period to period. The factors that may affect the timelines to foreclose upon a residential mortgage loan include,without limitation, state foreclosure timelines and deferrals associated therewith; unauthorized parties occupying the property; federal, state or local legislativeaction or initiatives designed to provide homeowners with assistance in avoiding residential mortgage loan foreclosures; continued declines in real estate valuesand/or sustained high levels of unemployment that increase the number of foreclosures and that place additional pressure and/or delays on the alreadyoverburdened judicial and administrative proceedings.We anticipate that REO properties that meet Residential's investment criteria will be converted into single-family rental properties, which we believe will generatelong-term returns for Residential's stockholders. If an REO property does not meet Residential's rental investment criteria, we expect Residential to liquidate theproperty and generate cash for reinvestment in other acquisitions and dividend distributions.Real Estate AssetsOn August 18, 2015, Residential completed the acquisition of 1,314 single-family rental properties in the Atlanta, Georgia market, of which 94% were leased as ofthe acquisition date, from a third party seller for an aggregate purchase price of approximately $111.4 million. This purchase was completed following a diligenceprocess in which Residential was able to access a large portion of the properties being sold and obtain detailed property and tenant information.7(table of contents)During the third quarter of 2015, Residential also initiated purchases under a program to acquire single-family residential properties on a one-by-one basis throughthe MLS and alternative listing sources to acquire more single-family rental properties at attractive and predictable values. We believe that the fact that, becausethese properties are listed on the MLS or another listing source and are unoccupied, they are available to be inspected in order to provide more clarity to thecondition of the house. Residential acquired 98 residential rental properties under this program during 2015 and is continuing efforts to expand its capabilities toacquire more properties under this program at attractive and predictable values during 2016.During the year ended December 31, 2014, Residential acquired 237 REO properties as part of its mortgage loan portfolio acquisitions. The aggregate purchaseprice attributable to these acquired REO properties was $34.1 million.During the year ended December 31, 2013, Residential acquired 40 REO properties as part of its mortgage loan portfolio acquisitions. The aggregate purchaseprice attributable to these acquired REO properties was $6.2 million.As of December 31, 2015 , Residential had 6,516 REO properties, consisting of 4,933 REO properties held for use and 1,583 held for sale. Of the 4,933 REOproperties held for use, 2,118 properties had been leased, 264 were listed and ready for rent, and 350 were in varying stages of renovation and unit turn status. Withrespect to the remaining 2,201 REO properties held for use, we will make a final determination whether each property meets Residential's rental profile after (a)applicable state redemption periods have expired, (b) the foreclosure sale has been ratified, (c) Residential has recorded the deed for the property, (d) utilities havebeen activated and (e) we have secured access for interior inspection. A majority of the REO properties are subject to state regulations that require Residential toawait the expiration of a redemption period before a foreclosure can be finalized. Residential includes these redemption periods in its portfolio pricing, whichgenerally reduces the price it pays for the mortgage loans. Once the redemption period expires, Residential immediately proceeds to record the new deed, takepossession of the property, activate utilities, and start the inspection process in order to make a final determination on whether to rent or liquidate the property. Ifan REO property meets Residential's rental investment criteria, we determine the extent of renovations that are needed to generate an optimal rent and maintainconsistency of renovation specifications for future branding. If it is determined that the REO property will not meet Residential's rental investment criteria, theproperty is listed for sale, in some instances after renovations are made to optimize the sale proceeds.As of December 31, 2014 , Residential had 3,960 REO properties, consisting of 3,349 REO properties held for use and 611 properties held for sale. Of the 3,349properties held for use, 336 had been leased, 197 were listed and ready for rent and 254 were in various stages of renovation. With respect to the remaining 2,562REO properties at December 31, 2014 , we were in the process of determining whether these properties would meet our rental profile.The table below provides a summary of Residential's real estate assets and the carrying value by state as of December 31, 2015 ($ in thousands):Property Location Property Count Carrying Value (1) Weighted Average Age inYears (2)Alabama 39 $4,958 23.8Alaska 1 185 32.0Arizona 110 22,933 21.0Arkansas 30 2,447 36.7California 624 199,165 36.1Colorado 37 8,981 28.5Connecticut 53 9,148 59.1Delaware 21 2,821 43.5District of Columbia 1 218 105.0Florida 922 141,152 27.1Georgia 1,753 164,500 36.3Hawaii 3 530 42.2Idaho 19 2,919 33.9Illinois 387 58,851 42.8Indiana 188 20,246 30.6Iowa 12 1,125 46.5Kansas 23 1,739 54.18(table of contents)Kentucky 58 5,797 35.3Louisiana 21 2,004 35.9Maine 6 668 166.2Maryland 310 60,590 37.2Massachusetts 56 11,335 76.3Michigan 95 11,781 41.0Minnesota 62 9,970 43.7Mississippi 14 1,065 30.4Missouri 57 5,573 43.9Montana 3 635 28.8Nebraska 5 520 59.8Nevada 25 3,748 21.0New Hampshire 13 1,868 73.4New Jersey 89 14,688 60.4New Mexico 34 4,838 20.4New York 68 12,917 71.8North Carolina 222 27,106 19.7Ohio 118 13,293 41.2Oklahoma 17 1,831 35.1Oregon 16 2,718 45.5Pennsylvania 250 31,806 54.6Rhode Island 54 6,900 83.6South Carolina 127 15,740 23.1South Dakota 3 390 50.4Tennessee 73 9,283 24.4Texas 176 26,045 25.2Utah 73 12,342 31.7Vermont 5 793 108.6Virginia 86 26,083 28.6Washington 49 10,751 33.8West Virginia 2 456 12.1Wisconsin 105 10,765 50.3Wyoming 1 209 25.0Total real estate assets 6,516 $986,426 36.4_____________(1)The carrying value of an asset is based on historical cost, which generally consists of the market value at the time of acquisition plus renovation costs, net of anyaccumulated depreciation and impairment. Assets held for sale are carried at the lower of the carrying amount or estimated fair value less costs to sell.(2)Weighted average age is based on the age of each property weighted by its proportion of the total carrying value for its respective state.As of December 31, 2015 , Residential's highest concentrations of real estate were in three states, California, Florida and Georgia, which accounted for 3,300properties (50.6% of Residential's real estate assets) with an aggregate carrying value of $504.8 million (51.2% of the carrying value of Residential's real estateassets), with the remainder dispersed among 46 other states and the District of Columbia.Mortgage LoansResidential did not complete any residential mortgage loan portfolio acquisitions during the year ended December 31, 2015 .During 2014, Residential completed the acquisition of an aggregate of 7,326 residential mortgage loans, substantially all of which were non-performing, having anaggregate UPB of approximately $1.9 billion and an aggregate market value of underlying properties of approximately $1.8 billion. The aggregate purchase pricefor these acquisitions was approximately9(table of contents)$1.2 billion. Additionally, in June 2014, Residential acquired 879 re-performing mortgage loans with an aggregate market value of underlying properties of $271.1million for an aggregate purchase price of $144.6 million.During 2013, Residential completed the acquisition of an aggregate of 8,491 residential mortgage loans, substantially all of which were non-performing, having anaggregate UPB of approximately $2.2 billion and an aggregate market value of underlying properties of approximately $1.8 billion. The aggregate purchase pricefor these acquisitions was approximately $1.2 billion.As of December 31, 2015 , Residential had 5,739 mortgage loans at fair value with an aggregate carrying value of $1.0 billion . The carrying value of mortgageloans is based on our proprietary pricing model. The significant unobservable inputs used in the fair value measurement of Residential's mortgage loans at fairvalue are discount rates, forecasts of future home prices, alternate resolution probabilities and foreclosure timelines. Significant changes in any of these inputs inisolation could result in a significant change to the fair value measurement. For a more complete description of the fair value measurements and the factors thatmay significantly affect the carrying value of Residential's mortgage loans at fair value, please see Note 6 to our consolidated financial statements.Residential's sub-performing and non-performing mortgage loans become REO properties when Residential obtains legal title to the property upon completion ofthe foreclosure process or as a result of its acquisition of the property via alternative resolution, such as deed-in-lieu of foreclosure. Additionally, some of theportfolios Residential purchases may, from time to time, contain a small number of residential mortgage loans that have already been converted to REO.The remainder of Residential's mortgage loans at fair value consists of a diversified pool of sub-performing and non-performing residential mortgage loans withthe underlying properties located across the United States. The aggregate purchase price of Residential's mortgage loans at fair value was 67% of the aggregatemarket value as determined by the most recent BPO provided by the applicable seller for each property in the respective portfolio as of its cut-off date.The table below provides a summary of Residential's mortgage loans at fair value based on the respective carrying value, UPB and market values of underlyingproperties as of December 31, 2015 ($ in thousands):Location Loan Count Carrying Value UPB Market Value ofUnderlying Properties (1)Alabama 26 $2,416 $3,683 $3,122Arizona 30 6,531 8,722 8,697Arkansas 36 2,225 3,205 3,228California 401 158,270 180,063 213,557Colorado 22 3,602 3,759 4,640Connecticut 76 11,919 19,728 17,790Delaware 37 5,153 6,973 6,790District of Columbia 42 7,403 8,791 9,882Florida 1,239 176,140 273,714 242,570Georgia 138 14,891 20,538 19,648Hawaii 21 7,992 9,893 10,816Idaho 5 559 648 761Illinois 196 29,216 44,667 38,602Indiana 148 14,289 18,915 19,026Iowa 10 595 789 922Kansas 8 527 712 874Kentucky 33 2,629 4,040 3,692Louisiana 15 1,652 2,116 2,376Maine 23 2,261 3,738 3,505Maryland 318 54,887 79,834 71,814Massachusetts 176 31,548 45,250 48,663Michigan 30 3,472 4,261 4,85710(table of contents)Minnesota 20 3,615 4,197 4,821Mississippi 12 1,408 1,802 1,820Missouri 41 2,261 3,571 3,356Montana 1 172 257 230Nebraska 4 314 462 436Nevada 90 16,629 26,699 22,212New Hampshire 6 1,232 1,807 1,689New Jersey 739 108,953 197,781 156,328New Mexico 104 9,852 13,121 13,335New York 504 114,396 156,336 166,797North Carolina 99 11,181 14,699 15,211North Dakota 1 85 123 130Ohio 50 4,558 6,777 6,368Oklahoma 14 1,818 2,462 2,340Oregon 64 13,965 17,576 17,959Pennsylvania 132 13,552 20,102 19,170Puerto Rico 1 105 189 190Rhode Island 28 3,115 6,172 4,381South Carolina 109 11,833 15,429 15,832Tennessee 37 4,375 5,756 5,974Texas 264 29,312 28,690 40,780Utah 24 4,538 5,222 5,762Vermont 5 545 822 846Virginia 34 7,027 9,497 9,486Washington 294 55,044 67,848 70,680West Virginia 3 279 520 368Wisconsin 29 2,193 3,598 3,162Total mortgage loans at fair value 5,739 $960,534 $1,355,554 $1,325,495_____________(1)Market value is based on the most recent BPO provided to us by the applicable seller for each property in the respective portfolio as of its cut-off date or an updated BPOreceived since the acquisition was completed. Although we performed diligence on a representative sample of the properties to confirm the accuracy of the BPOs providedby the sellers, we cannot assure you that the BPOs set forth in this table accurately reflected the actual market value of the related property at the purported time oraccurately reflect such market value today.As of December 31, 2015 , Residential's highest concentrations of loans were in four states, which accounted for 2,883 loans (50.2% of Residential's mortgageloans at fair value) with an aggregate UPB of $807.9 million (59.6% of the UPB of Residential's mortgage loans at fair value), with the remainder dispersed among43 other states, Puerto Rico and the District of Columbia.11(table of contents)As set forth in the chart below, approximately 86% of Residential's mortgage loans at fair value were 60 days or more delinquent as of December 31, 2015.Other Services Provided by AltisourceIn addition to the Altisource master services agreement described above, Residential also has a trademark license agreement with Altisource that provides it with anon-exclusive, non-transferable, non-sublicensable, royalty free license to use the name “Altisource.” Residential also has a support services agreement withAltisource to provide services to it in such areas as human resources, vendor management operations, corporate services, risk management, quality assurance,consumer psychology, treasury, finance and accounting, legal, tax and compliance.During 2015, we internalized certain of the support services that had been provided to us by Altisource by directly hiring 31 of the Altisource employees that hadprovided those services. We believe the direct hire of these employees has further increased our infrastructure so that we are better able to serve Residentialoperationally while enabling Altisource to focus on the property management, maintenance and brokerage services that matter most to Residential.Residential's Investment ProcessAcquisition Process for Bulk Single-Family Rental PropertiesWe have continued to hire key personnel and portfolio managers with substantial experience in the real estate market. Using deep market connections andemploying advanced quantitative models and reasoning, the capital markets group focuses on sourcing, analyzing and negotiating the purchase of large,meaningful portfolios of rented single-family properties. This experience and execution of the business model has enabled Residential to purchase a portfolio of1,314 single-family rental properties in Atlanta, of which more than 94% were occupied by tenants with a stabilized rental income. In December 2015, Residentialalso bid for, and was awarded, a portfolio of 627 rental properties in Illinois, North Carolina, South Carolina, Georgia and Florida. The size, composition andlocation of the properties were analyzed and negotiated by our portfolio management team, which is in the process of conducting advance due diligence on theproperties. Such due diligence is being conducted with the assistance of Residential's property manager and involves physical inspection of the homes and analysisof the rent rolls and projected rental income for the properties. No assurance can be given that Residential will consummate this acquisition on a timely basis or atall.12(table of contents)Acquisition Process for One-by-One Real Estate PurchasesResidential's program to purchase residential rental properties on a one-by-one basis targets residential real estate listed on the MLS and alternative listing sourcesin strategically selected markets. Through analysis of local demographic, housing and crime-related metrics, we are able to identify potentially attractive marketsub-segments and pursue properties in such areas, often shortly after they become available. Our review process depends on the characteristics of each propertybeing evaluated for purchase, and the due diligence process may include an assessment of the applicable HOA requirements, neighborhood walkthroughs, propertyinspections and final rental suitability evaluations, all prior to Residential acquiring the asset. Through December 31, 2015 , Residential acquired 98 residentialproperties, and we expect Residential to continue to purchase residential rental properties throughout 2016.Acquisition Process for Sub-performing and Non-performing Mortgage LoansOur underwriting analysis for acquiring sub-performing and non-performing loan portfolios on a national basis relies on extensive analysis of the target portfolio’scharacteristics and the use of our proprietary model in determining future cash flows and returns from various resolution methodologies. We estimate Residential'sresolution timelines using advanced modeling techniques. We use regression-based models to determine the expected probabilities of different loan resolutions,including modification, rental and liquidation. We also use an extensive due diligence process to validate data accuracy, compliance with laws, and enforceabilityof liens among other factors.Residential's Financing StrategyResidential intends to continue to finance its investments with leverage, the level of which may vary based upon the particular characteristics of its portfolio and onmarket conditions. To the extent available at the relevant time, Residential's financing sources may include bank credit facilities, warehouse lines of credit,securitization financing, structured financing arrangements and repurchase agreements, among others. Residential may also seek to raise additional capital throughpublic or private offerings of debt or equity securities, depending upon market conditions. For additional information on our financing arrangements, see “Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.” Investment Committee and Investment PolicyWe conduct substantially all of the investment activities on behalf of Residential pursuant to the New AMA. Residential’s Board of Directors has adopted a broadinvestment policy designed to facilitate our management of Residential’s capital and assets and our maintenance of an investment portfolio profile that meetsResidential’s objectives. We report to Residential’s Investment Committee, whose role is to act in accordance with the investment policy and guidelines approvedby Residential’s Board of Directors for the investment of its capital. As part of an overall investment portfolio strategy, the investment policy provides that we canfacilitate Residential’s purchase or sale of non-performing or sub-performing residential mortgage loans, residential mortgage backed securities and real estateassets. We are also authorized, on behalf of Residential, to offer leases on acquired single-family residential real estate. The investment policy may be modified byResidential’s Board of Directors without the approval of our stockholders.The objective of Residential’s investment policy is to oversee our efforts to achieve a return on assets consistent with Residential’s business objective and tomaintain adequate liquidity to meet Residential’s financial covenants and regular cash requirements.The Investment Committee is authorized to approve the financing of Residential’s investment positions through repurchase agreements, warehouse lines of credit,securitized debt and other financing arrangements provided such agreements are negotiated with counterparties approved by the Investment Committee. We arealso permitted to hedge Residential’s interest rate exposure on its financing activities through the use of interest rate swaps, forwards, futures and options, subjectto prior approval from Residential’s Investment Committee.Investment Committee Approval of CounterpartiesResidential’s investment committee is authorized to consider and approve, based on our recommendations:•the financial soundness of institutions with which Residential plans to transact business and recommendations with respect thereto;13(table of contents)•Residential’s risk exposure limits with respect to the dollar amounts of total exposure with a given institution; and•investment accounts and trading accounts to be opened with banks, broker-dealers and financial institutions.Investment Committee GuidelinesThe activities of Residential’s Investment Committee are subject to the following guidelines, which we must follow in making recommendations to the InvestmentCommittee:•No investment will be made that would cause Residential or any of its subsidiaries to fail to qualify as a REIT for U.S. federal income tax purposes;•No investment will be made that would cause Residential to be required to register as an investment company under the Investment Company Act of 1940(the “Investment Company Act”); and•Until appropriate investments can be identified, Residential may invest available cash in interest-bearing and short-term investments that are consistentwith (a) Residential’s intention to qualify as a REIT and (b) Residential’s exemption from registration as an investment company under the InvestmentCompany Act.Broad Investment Policy RisksResidential's investment policy is very broad and, therefore, its Investment Committee and we have extensive latitude in determining the types of assets that areappropriate investments for Residential and to make individual investment decisions. In the future, we may make investments with lower rates of return than thoseanticipated under current market conditions and/or may make investments with greater risks to achieve those anticipated returns. Residential's Board of Directorswill periodically review its investment policy and its investment portfolio but will not review or approve each proposed investment made by us unless it fallsoutside our previously approved investment policy or constitutes a related party transaction.In addition, in conducting periodic reviews, Residential's Board of Directors will rely primarily on information provided to it by us. Furthermore, we may usecomplex strategies, and transactions entered into by us on behalf of Residential may be costly, difficult or impossible to unwind by the time they are reviewed byResidential's Board of Directors. Further, Residential may change its investment policy and targeted asset classes at any time without the consent of itsstockholders, which could result in it making investments that are different in type from, and possibly riskier than, its current investments or the investmentscurrently contemplated. Changes in Residential's investment strategy, investment policy and targeted asset classes may increase its exposure to interest rate risk,counterparty risk, default risk and real estate market fluctuations, which could materially and adversely affect Residential and, in turn, could adversely affect thefees we earn under our asset management agreement.NewSource InvestmentOn December 21, 2012, we entered into a subscription agreement to invest $2.0 million in 100% of the voting common stock of NewSource. Residentialsimultaneously entered into a subscription agreement to invest $18.0 million to acquire non-voting preferred stock of NewSource. On October 17, 2013, we andResidential invested the full amount of our respective subscriptions in NewSource, and on December 2, 2013, NewSource became registered as a licensed reinsurerwith the Bermuda Monetary Authority (“BMA”). In September 2015, we contributed an additional $5.0 million to NewSource.Additionally, on November 18, 2013, NewSource entered into a management agreement with us to provide asset management and corporate governance servicesfor an aggregate annual management fee of $840,000, and in November 2013, NewSource entered into a management agreement with Marsh IAS ManagementServices (Bermuda) Ltd. to administer its day-to-day business activities and operations. Effective October 1, 2015, we suspended further charges to NewSource forservices under the management agreement.NewSource commenced reinsurance activities during the second quarter of 2014, and generated approximately $5.0 million of title reinsurance premiums during2014. However, in December 2014, NewSource determined that the economics of the initial business activities did not warrant the continuation of its initialreinsurance quota share agreement with an unrelated third party. NewSource therefore transferred all of the risk of claims and future losses underwritten to anunrelated third party for a price of $3.2 million.NewSource is continuing to evaluate its real estate related insurance and reinsurance strategy and considering related opportunities. There is no assurance thatNewSource will be able to develop or grow its business strategy or operations, or engage in insurance and reinsurance activities at all.14(table of contents)On September 14, 2015, NewSource completed the repurchase of all of Residential's shares of non-voting preferred stock for aggregate proceeds of $18.0 million,which was the aggregate par value of the shares being repurchased. Until September 10, 2015, Residential was eligible to receive a 12% annual cumulativepreferred dividend on its investment. In connection with the repurchase of the preferred stock, NewSource also paid to Residential the accrued but unpaid dividendon its shares from January 1, 2015 through September 10, 2015 amounting to $1.5 million.EmployeesAs of December 31, 2015 , we had 46 full time employees. Our executive officers are also officers of Residential.On January 18, 2016, we hired a new dedicated General Counsel for Residential. Although he is not employed by Residential, his primary duties are to act asResidential's General Counsel, and he reports to Residential's Board of Directors. Residential also directs and approves his compensation and reimburses us for allcosts associated with his employment.Service ProvidersWe have entered into a support services agreement with Altisource (the “Altisource support services agreements”) pursuant to which Altisource may provide, asnecessary, services to us in such areas as human resources, vendor management operations, corporate services, risk management and six sigma, quality assurance,consumer psychology, treasury, finance and accounting, legal, tax, compliance and other support services. In addition, we have entered into trademark licenseagreements with Altisource that provides us with non-exclusive, non-transferable, non-sublicensable, royalty free license to use the name “Altisource.” We alsoentered into a technology services agreement with Altisource pursuant to which Altisource provides us with technology support services for network managementand telephony.During 2015, we internalized certain of the support services that had been provided to us by Altisource by directly hiring 31 of the Altisource employees that hadprovided those services. We believe the direct hire of these employees has further increased our infrastructure so that we are better able to serve Residentialoperationally while enabling Altisource to focus on the property management, maintenance and brokerage services that matter most to Residential.Our CompetitionWe are in a highly competitive market and are competing with other asset managers. Our competitors may have greater resources, more personnel, more clients,more sources of revenue and more capital than we do. Our clients may not perform as well as the clients of our competitors. Some of our competitors' clients mayhave significant amounts of capital, lower cost of capital or access to funding sources not available to our client. Additionally, our competitors and competitors'clients may have higher risk tolerances or may be willing to accept lower returns on investment. Some of our competitors may have better expertise or be regardedby potential clients as having better expertise to specific assets.Residential's CompetitionResidential faces competition from various sources for the acquisition of residential rental properties and residential mortgage loans. Residential's competitionincludes other REITs, hedge funds, private equity funds and partnerships. To effectively compete, Residential will rely upon our management team and theirsubstantial industry expertise, which we believe provides Residential with a competitive advantage and helps Residential assess the investment risks and determineappropriate pricing. We expect Residential's integrated approach of acquiring residential rental properties, both in bulk and on a one-by-one basis, as well asconverting sub-performing and non-performing residential mortgage loans into rental properties will enable Residential to compete more effectively for attractiveinvestment opportunities. However, we cannot assure you that Residential will be able to achieve its business goals or expectations due to the competitive pricingand other risks that it faces. Residential's competitors may have greater resources and access to capital and higher risk tolerances than Residential, may be able topay higher prices for assets or may be willing to accept lower returns on investment. As the inventory of available residential rental properties and related assetswill fluctuate, the competition for assets and financing may increase.Residential also faces significant competition in the single-family rental market from other real estate companies, including REITs, investment companies,partnerships and developers. To effectively manage rental yield and occupancy levels, Residential will rely upon the ability of our management team to supervisethe renovation, yield management and property management services on its acquired properties. Despite these efforts, some of Residential's competitors' single-family rental properties may be of better quality, be in more desirable locations than its properties or have leasing terms more favorable than15(table of contents)Residential offers. In addition, Residential's ability to compete and meet its return objectives depends upon, among other factors, trends of the national and localeconomies, the financial condition and liquidity of current and prospective tenants, availability and cost of capital, taxes and governmental regulations. Given thesignificant competition, complexity of the market, changing financial and economic conditions and evolving single-family tenant demographics and demands, wecannot assure you that Residential will be successful in acquiring or managing single-family rental properties that satisfy its return objectives.Environmental MattersAs an owner of real estate, Residential is subject to various federal, state and local environmental laws, regulations and ordinances and also could be liable to thirdparties resulting from environmental contamination or noncompliance with environmental laws at its properties. We are tasked with monitoring these laws,regulations and ordinances for Residential. Environmental laws can impose liability on an owner or operator of real property for the investigation and remediationof contamination at or migrating from such real property without regard to whether the owner or operator knew of or was responsible for the presence of thecontaminants. The costs of any required investigation or cleanup of these substances could be substantial. The liability is generally not limited under such laws andcould exceed the property's value and the aggregate assets of the liable party. The presence of contamination or the failure to remediate contamination atResidential's properties also may expose it to third-party liability for personal injury or property damage or adversely affect Residential's ability to sell, lease orrenovate the real estate or to borrow using the real estate as collateral. These and other risks related to environmental matters are described in more detail in “Item1A. Risk Factors.”Government ApprovalOutside of routine business filings, we do not believe it is necessary to obtain any government approval to operate our business.Governmental Regulations We do not believe there are any governmental regulations that will materially affect the conduct of our business.Available InformationWe file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other information with the Securities and ExchangeCommission (the “SEC”). These filings are available to the public over the Internet at the SEC's website at http://www.sec.gov. You may also read and copy anydocument we file at the SEC's public reference room located at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1 800-SEC-0330 for furtherinformation on the public reference room.Our principal Internet address is http://www.altisourceamc.com , and we encourage investors to use it as a way of easily finding information about us. Wepromptly make available on this website, free of charge, the reports that we file with or furnish to the SEC along with corporate governance information includingour Corporate Governance Guidelines, our Code of Business Conduct and Ethics and select press releases. The contents of our website are available forinformational purposes only and shall not be deemed incorporated by reference in this report.Item 1A. Risk FactorsThe following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. We consider the risks faced byResidential to be our risks because we rely on the performance of Residential to determine our incentive management fee payments and result of operations. If anyof the following risks actually occur, our business, operating results and financial condition could be materially adversely affected.Risks Related to Our BusinessWe have a limited operating history. If we are unable to implement our business strategy as planned, we will be materially and adversely affected.We commenced operations approximately three years ago, and our business model is relatively untested and evolving. Businesses like ours that have a limitedoperating history present substantial business and financial risks and may suffer significant losses. As a result we cannot predict our results of operations, financialcondition and cash flows. Our results for16(table of contents)prior periods are not necessarily indicative of our results for any future period, and we may not have sufficient additional capital to implement our business model.There can be no assurance that our business will remain profitable or that it will be sustainable. The earnings potential of our proposed business is unproven, andthe absence of an operating history makes it difficult to evaluate our prospects. We may not be able to implement our business strategy as planned, which couldmaterially and adversely affect us.We are operating under a new asset management agreement with Residential that substantially changes the fee structure in which we earn fees; failure ofResidential to achieve desired results could result in drastically reduced fees to us would have a material adverse effect on our operating results and financialcondition.In March 2015, we entered into the New AMA with Residential. The New AMA, which became effective on April 1, 2015, provides for a new management feestructure, which replaces the incentive fee structure under the Original AMA as described under “Item 1. Business - Asset Management Agreement.” The threecomponents of the fee structure are the Base Management Fee, which ranges from 1.5% to 2.0% of Residential’s invested capital (as defined in the New AMA),the Conversion Fee, which is 1.5% of the market value of the single-family homes leased by Residential for the first time during the quarter, and the IncentiveManagement Fee, which ranges from 20% to 25% of the amount by which Residential’s return on invested capital (based on AFFO as defined in the New AMA)exceeds an annual hurdle return rate of between 7.0% and 8.25% (depending on the 10-year treasury rate). To the extent Residential has an aggregate shortfall inits return rate over the previous seven quarters, that aggregate return rate shortfall gets added to the normal quarterly 1.75% return hurdle for the next quarterbefore we are entitled to an Incentive Management Fee.Since the effective date of the New AMA, we have not yet earned any Incentive Management Fees because Residential has not achieved a return in invested capitalof greater than 1.75% in any quarter since April 1, 2015. In addition, since Residential’s performance has resulted in shortfalls of the 1.75% return on investedcapital for the past three quarters, those shortfalls have been added to the return on invested capital Residential must achieve before entitling us to an IncentiveManagement Fee. We cannot be certain as to if, or when, we will earn an Incentive Management Fee under the New AMA. If Residential is unable to achieve areturn on capital that entitles us to earn an Incentive Management Fee, our operating results and financial condition would be significantly limited, which absentadditional new revenue streams, could materially and adversely affect us.Residential is our primary client and we are primarily reliant on Residential to generate our revenues. A loss of Residential as a client and/or our inability toobtain or develop new clients would materially adversely affect us.Residential currently is our primary customer. The loss of this key customer or its failure to pay us would adversely affect our revenues, results of operations andfinancial condition. Despite Residential’s or our efforts, Residential may fail to substantially grow or have adverse financial performance for a number of reasonsincluding, without limitation, failure to maintain adequate liquidity, an inability to grow through equity offerings and/or debt facilities, generation if poor orinadequate returns, or an inability to, or substantial delays in growing or monetizing its portfolio. Under the New AMA, neither party is entitled to terminate theNew AMA prior to the end of the initial term or each renewal term. However, Residential has the ability to terminate us (a) “for cause” for certain events such as amaterial breach of the New AMA and failure to cure such breach, (b) for certain other reasons such as its failure to achieve a return on invested capital of at least7.0% for two consecutive fiscal years after the third anniversary of the New AMA or (c) in connection with certain change of control events. There can be noassurance that Residential will not be able to terminate us prior to the end of the initial term or any renewal term, particularly after April 2018, if Residential’sresults do not achieve the required returns in two consecutive years. Residential may also make a decision to abandon the single-family rental business, which mayhave the constructive effect of terminating the agreement or drastically reducing our fees under the New AMA.We may not be able to obtain or develop additional clients on acceptable terms or at all. Our ability to attract, develop and/or maintain additional clients maydepend, in large part, on the success of Residential under our management and our ability to continue to develop and implement Residential’s business planprofitably and enable Residential to maintain and grow its shareholder returns and dividends. We may be unable to reduce our reliance on Residential for incentivemanagement fees and our failure to do so could materially adversely affect our results of operation and financial condition and could adversely affect our ability toattract additional clients and the sustainability of our business model.The success of our business is dependent on Residential and its ongoing access to sufficient and cost-effective sources of capital.Residential commenced operations approximately two years ago and may require additional working capital to implement its investment strategies. Residentialmay need to utilize a variety of funding sources to provide sufficient capital to effectively17(table of contents)carry out its business plan over the long-term. We will have significant responsibilities in advising Residential on its capital raising activities. Our success isdependent on Residential's ability to obtain such capital. Residential utilizes various sources of liquidity including without limitation accessing the capital marketsto issue debt or equity securities, engaging in collateralized or other borrowings including repurchase agreements and warehouse facilities from third party banks orentering into securitization transactions, all or any of which may not be available or have terms that are not cost-effective, therefore having an adverse impact onResidential's financial performance. Residential currently is our primary customer. The loss of this key customer or its failure to pay us would adversely affect ourrevenues, results of operation, financial condition. We may not be able to obtain additional clients on acceptable terms or at all. Therefore, we may be unable toreduce our reliance on Residential for incentive management fees.The asset management business is intensely competitive.The asset management business is intensely competitive, driven by a variety of factors including asset performance, the quality of service provided to clients, brandrecognition and business reputation. Our asset management business competes with a number of other asset managers. A number of factors serve to increase ourcompetitive risks:•a number of our competitors may have greater financial, technical, marketing and other resources and more personnel than we do;•our clients may not perform as well as the clients of our competitors;•several of our competitors and their clients have significant amounts of capital and many of them have similar management objectives to ours which maycreate additional competition for management opportunities;•some of these competitors' clients may also have a lower cost of capital and access to funding sources that are not available to our clients which maycreate competitive disadvantages for us with respect to funding opportunities;•some of our competitors' clients may have higher risk tolerances, different risk assessments or lower return thresholds which could allow them to facilitatethe acquisition and management by their clients of a wider variety of assets and allow them to advise their clients to bid more aggressively than our clientsfor assets on which we would advise our clients to bid;•there are relatively few barriers to entry impeding new asset management firms, and the successful efforts of new entrants into the asset managementbusiness is expected to continue to result in increased competition;•some of our competitors may have better expertise or be regarded by potential clients as having better expertise with regard to specific assets and•other industry participants will from time to time seek to recruit members of our management team and other employees away from us.Suboptimal economics of real estate related insurance activities, or a failure to commence and/or grow the business of NewSource could adversely impact ourinvestment in NewSource.We invested $2.0 million in 100% of the common stock of NewSource during 2013, and we invested an additional $5.0 million in 2015. Despite thecommencement in 2014 of NewSource’s title reinsurance business operations, NewSource determined that the economics of the initial business activities did notwarrant the continuation of its initial reinsurance quota share agreement with an unrelated third party. NewSource therefore transferred all of the risk of claims andfuture losses underwritten to an unrelated third party for a price of $3.2 million.NewSource is continuing to evaluate its real estate related insurance and reinsurance strategy and considering related opportunities. There is no assurance thatNewSource will be able to develop or grow its business strategy or operations, or engage in insurance and reinsurance activities at all. In any such event, thebusiness model for NewSource would become challenged or the growth of NewSource would become hampered, which would adversely affect the economics ofour investment in NewSource and /or generate stockholder returns to us.Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to whichwe will be subject following the separation date.We are directly subject to reporting and other obligations under the Exchange Act. Under the Sarbanes-Oxley Act, we are required to maintain effective disclosurecontrols and procedures. To comply with these requirements, we may need to implement additional financial and management controls, reporting systems andprocedures and hire additional accounting and finance staff. We have incurred, and expect to continue to incur, additional annual expenses for the purpose ofaddressing these requirements, and these expenses may be significant. If we are unable to implement additional controls, reporting systems, information technologysystems and procedures in a timely and effective fashion, our ability to comply with our financial18(table of contents)reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. Any failure to achieve and maintain effectiveinternal controls could have a material adverse effect on our financial condition, results of operations or cash flows. In the future, we may also be required tocomply with Section 404 of the Sarbanes-Oxley Act which will require annual management assessments of the effectiveness of our internal controls over financialreporting and will require a report by our independent registered public accounting firm addressing these assessments. These reporting and other obligations mayplace significant demands on our management, administrative and operational resources, including accounting systems and resources.We have identified a material weakness in our internal control over financial reporting which could, if not remediated, result in material misstatements in ourfinancial statements.Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under theExchange Act. As disclosed in Part II, Item 9A of this Annual Report on Form 10-K, during the fourth quarter of 2015, we concluded that certain materialweaknesses existed as of December 31, 2014. Specifically, management identified a material weakness in our internal control over financial reporting related to(1) the review of the BPOs used to record real estate owned and real estate assets held for sale, including monitoring the internal controls that are in place at thirdparty vendors that we use to provide fair value information for individual properties, and (2) the review of assumptions used to determine the fair value ofmortgage loans.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that amaterial misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. As of December 31, 2015, wehave not yet fully remediated the material weakness relating to the review of assumptions used to determine the fair value of mortgage loans. We are currently inthe process of designing, documenting and implementing additional control procedures to remediate this material weakness. If our remedial measures areinsufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal controls are discovered or occur in thefuture, we could be required to restate our financial results or experience a decline in the price of our securities.Our success depends on our senior management team, and if we are not able to retain them, it could have a material adverse effect on us.We are highly dependent upon the continued services and experience of our senior management team. We depend on the services of members of our seniormanagement team to, among other things, continue the development and implementation of our growth strategies and maintain and develop our clientrelationships. In the event that, for any reason, we are unable to retain our key personnel, it may be difficult for us to secure suitable replacements on acceptableterms. This would adversely impact the development and implementation of our growth strategies.The continuing unpredictability of the credit markets may restrict our access to capital and may make it difficult or impossible for us to obtain any requiredadditional financing.The domestic and international credit markets continue to be unpredictable. In the event that we need additional capital for our business, we may have a difficulttime obtaining it and/or the terms upon which we can obtain it would have an adverse impact on our financial performance.Our business could be significantly impacted if we suffer failure or disruptions of our information systems.We rely heavily on communications, data processing and other information processing systems to conduct our business and support our day-to-day activities, mostservices of which are provided through Altisource. Thus, our business requires the continued operation of Altisource's sophisticated information technologysystems and network infrastructure. These systems are vulnerable to interruption by fire, loss, system malfunction and other events which are beyond our control.Systems interruptions could reduce our ability to provide our services and could have an adverse effect on our operations and financial performance.19(table of contents)Failure to retain the tax benefits provided by the United States Virgin Islands would adversely affect our financial performance.We are incorporated under the laws of the United States Virgin Islands and are headquartered in Frederiksted, in the United States Virgin Islands. The UnitedStates Virgin Islands has an Economic Development Commission, which we refer to as the “EDC,” that provides benefits, which we refer to as “EDC Benefits,” tocertain qualified businesses in Frederiksted that enable us to avail ourselves of significant tax benefits for a thirty year period. We received our certificate tooperate as a company that qualifies for EDC Benefits as of February 1, 2013, which provides us with a 90% credit on our taxes so long as we comply with therequirements of the EDC and our certificate of benefits. It is possible that we may not be able to retain our qualifications for the EDC Benefits or that changes inU.S. federal, state, local, territorial or United States Virgin Islands taxation statutes or applicable regulations may cause a reduction in or an elimination of the EDCBenefits, all of which could result in a significant increase to our tax expense, and, therefore, adversely affect our financial condition and results of operations.We may become subject to United States federal income taxation.We are incorporated under the laws of the United States Virgin Islands and intend to operate in a manner that will cause us to be treated as not engaging in a tradeor business within the United States which will cause us to be exempt from current United States federal income taxation on our net income. However, becausethere are no definitive standards provided by the Code, regulations or court decisions as to the specific activities that constitute being engaged in the conduct of atrade or business within the United States, and as any such determination is essentially factual in nature, we cannot assure you that the IRS will not successfullyassert that we are engaged in a trade or business within the United States.If the IRS were to successfully assert that we have been engaged in a trade or business within the United States in any taxable year, various adverse taxconsequences could result including the following:•we may become subject to current United States federal income taxation on our net income from sources within the United States;•we may be subject to United States federal income tax on a portion of our net investment income, regardless of its source;•we may not be entitled to deduct certain expenses that would otherwise be deductible from the income subject to United States taxation and•we may be subject to United States branch profits tax on profits deemed to have been distributed out of the United States.United States persons who own shares may be subject to United States federal income taxation on our undistributed earnings and may recognize ordinaryincome upon disposition of shares.Significant potential adverse United States federal income tax consequences generally apply to any United States person who owns shares in a passive foreigninvestment company which we refer to as a “PFIC.” We cannot provide assurance that we will not be a PFIC in any future taxable year.In general, we would be a PFIC for a taxable year if either (i) 75% or more of its income constitutes “passive income” or (ii) 50% or more of our assets produce“passive income.” Passive income generally includes interest, dividends and other investment income. We believe that we are currently operating and intend tocontinue operating our business in a way that should not cause us to be a deemed PFIC, although we cannot assure you the IRS will not successfully challenge thisconclusion.United States persons who, directly or indirectly or through attribution rules, own 10% or more of our shares which we refer to as United States 10% shareholders,may be subject to the controlled foreign corporation, which we refer to as “CFC,” rules. Under the CFC rules, each United States 10% shareholder must annuallyinclude his pro rata share of the CFC's “subpart F income,” even if no distributions are made. In general, with respect to insurance revenues related to NewSource,we will be treated as a CFC only if United States 10% shareholders collectively own more than 25% of the total combined voting power or total value of our sharesfor an uninterrupted period of 30 days or more during any year. With respect to all other revenues, we will be treated as a CFC only if United States 10%shareholders collectively own more than 50% of the total combined voting power or total value of our shares for an uninterrupted period of 30 days or more duringany year. We believe that the dispersion of our ordinary shares among holders will generally prevent shareholders who acquire shares from being United States10% shareholders. We cannot assure you, however, that these rules will not apply to you. If you are a United States person, we strongly urge you to consult yourown tax adviser concerning the CFC rules.20(table of contents)United States tax-exempt organizations who own shares may recognize unrelated business taxable income.If you are a United States tax-exempt organization you may recognize unrelated business taxable income with respect to our insurance-related income if a portionof our subpart F income is allocated to you. In general, subpart F income will be allocated to you if we are a CFC and you are a United States 10% shareholder andcertain exceptions do not apply. In general, with respect to insurance revenues related to NewSource, we will be treated as a CFC only if United States 10%shareholders collectively own more than 25% of the total combined voting power or total value of our shares for an uninterrupted period of 30 days or more duringany year. Although we do not believe that any United States persons will be allocated subpart F income, we cannot assure you that this will be the case. If you are aUnited States tax-exempt organization, we advise you to consult your own tax adviser regarding the risk of recognizing unrelated business taxable income.Change in United States tax laws may be retroactive and could subject us, and/or United States persons who own shares to United States income taxation onour undistributed earnings.The tax laws and interpretations regarding whether we are engaged in a United States trade or business, are a CFC or a PFIC are subject to change, possibly on aretroactive basis. New regulations or pronouncements interpreting or clarifying such rules may be forthcoming from the IRS. We are not able to predict if, when orin what form such guidance will be provided and whether such guidance will have a retroactive effect.The impact of the initiative of the Organization for Economic Cooperation and Development to eliminate harmful tax practices is uncertain and couldadversely affect our tax status in the United States Virgin Islands.The Organization for Economic Cooperation and Development has published reports and launched a global dialogue among member and non-member countries onmeasures to limit harmful tax competition. These measures are largely directed at counteracting the effects of tax havens and preferential tax regimes in countriesaround the world. While the United States Virgin Islands is currently a jurisdiction that has substantially implemented internationally agreed tax standards, we arenot able to predict if additional requirements will be imposed and if so whether changes arising from such additional requirements will subject us to additionaltaxes.Concentration of Credit Risk We and Residential maintain our cash and cash equivalent investments and our restricted cash at financial or other intermediary institutions. The combined accountbalances at each institution typically exceed FDIC insurance coverage of $250,000 per depositor and, as a result, there is a concentration of credit risk related toamounts on deposit in excess of FDIC insurance coverage. At December 31, 2015, we and Residential had an aggregate of approximately $204.1 million atfinancial institutions in excess of FDIC insured limits. Any event that would cause a material portion of our and/or Residential’s cash and cash equivalents andrestricted cash at financial institutions to be uninsured by the FDIC could have a material adverse effect on our financial condition and results of operations.Risks to Us Related to Residential’s Business Risks and Operating PerformanceInitially, Residential is our primary source of revenue and will drive our potential future growth. Any risk associated with Residential's business that wouldadversely affect its ability to generate revenue and pay distributions to its shareholders is a risk to our business, as our revenues, results of operations andfinancial condition significantly depend upon the incentive management fees paid to us as a percentage of Residential's cash available for distribution to itsshareholders. Any risk that ultimately adversely affects Residential would adversely affect the revenues we can generate, as well as our results of operations andfinancial condition. The risks related to Residential’s business are provided below.Residential has a limited operating history. If Residential is unable to implement its business strategy as planned, it will be materially and adversely affected.Residential commenced operations approximately three years ago and its business model is relatively untested. Businesses like Residential’s that have a limitedoperating history present substantial business and financial risks and may suffer significant losses. As a result we cannot predict Residential’s results of operations,financial condition and cash flows. Residential only began to generate residential rental revenue during 2013, and its historical financial results have been largelyattributable to purchasing residential mortgage loans and other rental-related assets at a discount. As a result of the changes to its acquisition strategy and itsdiversified approach of acquiring single-family rental properties directly, Residential did not complete any21(table of contents)residential mortgage loan portfolio acquisitions during the year ended December 31, 2015. While it intends to continue to review and assess the acquisition ofportfolios of residential mortgage loans, Residential may not pursue further acquisitions of such loans. Further, there can be no assurance that Residential will beable to identify and successfully acquire portfolios of single-family rental properties or related assets on favorable terms or at all.We anticipate significant growth in Residential's rental portfolio, which may result in our inability to effectively manage its rental portfolio, including, but notlimited to, delays in renovations, poor tenant selection and other operational inefficiencies that could reduce Residential's profitability or damage its reputation.Generally, we expect that Residential's single-family rental portfolios may grow at an uneven pace, if at all, as opportunities to acquire single-family rentalportfolios on acceptable terms may be irregularly timed and may involve large or small portfolios of single-family rental properties. The timing and extent ofResidential's success in acquiring such assets cannot be predicted due to market conditions, limited financial resources or other constraints.Commencing in the third quarter of 2015, Residential began to package and sell portfolios of non-performing loans to unaffiliated third parties. Residential willcontinue to evaluate the opportunistic sale of additional portfolios of non-performing loans in the future. The timing and extent of Residential's success in sellingsuch assets on acceptable terms or at all cannot be predicted due to market conditions, including the demand for residential mortgage loans. It is anticipated that theproceeds generated from such transactions will be utilized, in part, to facilitate Residential's strategy to purchase single-family residential properties either in bulkor on a one-by-one basis. Residential's inability to sell portfolios of residential mortgage loans on acceptable terms and/or in accordance with its preferred timingcould potentially cause a strain on its liquidity, and Residential may be forced to reduce prices, continue to hold such residential mortgage loans at less than idealleverage ratios and/or bear other costs, which could materially and adversely affect Residential's financial condition and its ability to make further acquisitions.The success of Residential's loan resolution efforts remains an important aspect of its business. It could take longer than originally expected, and therefore be morecostly, for a significant portion of loans in any given portfolio to be converted into single-family rental properties or an underlying property to be liquidated orsold. Accordingly, if Residential is not able to generate sufficient cash flows from its loan modification and refinancing or other activities, it may not have cashavailable for distribution to its stockholders for an extended period of time.As a result of the foregoing developments, results from prior periods are not necessarily indicative of Residential's results for any future period, and Residentialmay not have sufficient additional capital to implement its business model. There can be no assurance that Residential's business will remain profitable or that itsprofitability will be sustainable. The earnings potential of Residential's business is unproven, and its limited operating history makes it difficult to evaluateResidential's prospects. Residential may not be able to implement its business strategy as planned, which could materially and adversely affect Residential.Residential's business could be negatively affected as a result of shareholder activism, which could cause it to incur significant expense, hinder execution of itsbusiness strategy and impact the trading value of the its securities.Activist shareholders are currently publicly advocating for certain governance and strategic changes at Residential, and there is no assurance that such efforts willnot be successful or that Residential will not be subject to additional shareholder activity or demands in the future. Shareholder activism, including potential proxycontests, requires significant time and attention by management and the Board of Directors, potentially interfering with Residential's ability to execute its strategicplan. Additionally, such shareholder activism could give rise to perceived uncertainties as to Residential's future direction and adversely affect its relationshipswith key business partners. Also, Residential may be required to incur significant legal fees and other expenses related to activist shareholder matters. Any of theseimpacts could materially and adversely affect Residential's business and operating results. Further, the market price of Residential's common stock could be subjectto significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties described above.22(table of contents)Residential is operating in an emerging industry, and the long-term viability of its investment strategy on an institutional scale is unproven.Large-scale institutional investment in single-family residential homes for rent is a relatively recent phenomenon that has emerged out of the mortgage and housingcrisis that began in late 2007. Prior to that time, single-family rental homes were generally not viewed as viable assets for investment on a large scale byinstitutional investors. Consequently, the long-term viability of the single-family rental property investment strategy on an institutional scale has not yet beenproven. As a participant in this emerging industry, Residential is subject to the risk that single-family rental properties may not prove to be a viable long-terminvestment strategy for a permanent capital vehicle on an institutional scale. If it turns out that this investment strategy is not a viable one, Residential would bematerially and adversely affected and may not be able to sustain the growth of its assets and operations that it seeks.Residential's failure to raise equity capital and/or obtain adequate debt financing could adversely affect its ability to increase its portfolio, manage its existingassets and generate shareholder returns.Residential's success has been, may continue to be, largely dependent on its ability to raise equity capital and obtain debt financing to increase its rental portfolio,manage its existing assets and generate attractive stockholder returns. Residential requires significant financial resources and relies heavily on cost-effectiveleverage to maintain its obligations under its debt facilities and to continue to acquire portfolios of single-family residential properties and residential mortgageloans. If Residential is unable to continue to raise equity capital, or leverage its portfolio through repurchase facilities and/or securitizations, its current portfolioand cash from operations may become inadequate to meet its financial obligations.Residential uses leverage as a component of its financing strategy in an effort to enhance its returns. We can provide no assurance that Residential will be able totimely access all funds available under its financing arrangements or obtain other debt or equity financing on favorable terms or at all. To qualify as a REIT,Residential will be required to distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any netcapital gain, each year to its stockholders. As a result, Residential's ability to retain earnings to support its financing activity and fund acquisitions, propertyrenovations or other capital expenditures will be limited.Limited availability of credit may have an adverse effect on Residential's ability to obtain financing on favorable terms, thereby increasing financing costs and/orrequiring Residential to accept financing with increasing restrictions. Residential's long-term ability to grow through additional investments will be limited if itcannot obtain additional debt or equity financing, which could materially and adversely affect our ability to generate incentive management fees.Residential may not be able to successfully operate its business or generate sufficient operating cash flows to make or sustain distributions to its stockholders.There can be no assurance that Residential will be able to successfully operate its business or generate sufficient cash to make distributions to its stockholders.Residential's ability to make or sustain distributions to its stockholders depends on many factors, including the following: the availability of attractive risk-adjustedinvestment opportunities that satisfy its investment strategy and its success in identifying and consummating such opportunities on favorable terms; its ability tosell residential mortgage loans on favorable terms, or at all; the success of its loan resolution efforts; the ability of borrowers to refinance its loans with otherlenders; its ability to sell modified loans on favorable terms; the availability of short-term and long-term financing on favorable terms; the length of time requiredto convert a distressed loan into a single-family rental property; the level and expected movement of home prices; the occupancy rates and rent levels of properties;the restoration, maintenance, marketing and other operating costs; our ability to effectively manage a significant increase in the number of properties in its single-family rental portfolio; the level and volatility of interest rates, conditions in the financial, real estate, housing and mortgage markets and the economy, as to whichno assurance can be given. We cannot assure you that Residential will be able to make investments with attractive risk-adjusted returns or will not seek investmentswith greater risk to obtain the same level of returns or that the value of its investments in the future will not decline substantially. Existing and future governmentregulations may result in additional costs or delays, which could adversely affect the implementation of Residential's investment strategy, which could materiallyand adversely affect our results of operations and financial condition.23(table of contents)Residential has leveraged its investments and expects to continue to do so, which may materially and adversely affect its return on investments and may reducecash available for distribution to Residential's stockholders.To the extent available, we intend to continue to leverage Residential's investments through borrowings, the level of which may vary based on the particularcharacteristics of Residential's investment portfolio and on market conditions. We have leveraged certain of Residential's investments to date through itsrepurchase agreements. When Residential enters into any repurchase agreement, it may sells securities, residential mortgage loans or residential properties tolenders ( i.e ., repurchase agreement counterparties) and receives cash from the lenders. The lenders are obligated to resell the same assets back to Residential at theend of the term of the transaction. Because the cash Residential receives from the lender when it initially sells the assets to the lender is less than the value of thoseassets, if the lender defaults on its obligation to resell the same assets back to Residential, it could incur a loss on the transaction. In addition, repurchaseagreements generally allow the counterparties, to varying degrees, to determine a new market value of the collateral to reflect current market conditions or forother reasons. If such counterparty determines that the value of the collateral has decreased, it may initiate a margin call and require Residential to either postadditional collateral to cover such decrease or repay a portion of the outstanding borrowing. Should this occur, in order to obtain cash to satisfy a margin call,Residential may be required to liquidate assets at a disadvantageous time, which could cause it to incur further losses. In the event Residential is unable to satisfy amargin call, its counterparty may sell the collateral, which may result in significant losses to Residential. Residential's repurchase agreements generally require it tocomply with various financial covenants, including those relating to tangible net worth, profitability and its ratio of total liabilities to tangible net worth, and tomaintain minimum amounts of cash or cash equivalents sufficient to maintain a specified liquidity position. We expect any future repurchase agreements or otherfinancing arrangements will have similar provisions. In the event that Residential is unable to satisfy these requirements, it could be forced to sell additionalinvestments at a loss which could materially and adversely affect Residential.Residential's repurchase agreements to finance sub-performing and non-performing loans are complex and difficult to manage. In part, this is due to the fact thatthe residential mortgage loan portfolios and single-family rental properties that will collateralize these repurchase agreements do not produce consistent cash flowsand require specific activities to be performed at specific points in time in order to preserve value. Residential's inability to comply with the terms and conditions ofthese agreements could materially and adversely impact it. In addition, Residential's outstanding repurchase agreements contain, and we expect any futurerepurchase agreements will contain, events of default, including payment defaults, substantial margin calls, breaches of financial and other covenants and/or certainrepresentations and warranties, cross-defaults, servicer termination events, guarantor defaults, bankruptcy or insolvency proceedings and other events of defaultcustomary for these types of agreements. The remedies for such events of default are also customary for these types of agreements and include the acceleration ofthe outstanding principal amount, requirements that Residential repurchase a portion or all of the collateral, the liquidation by the lender of the assets then subjectto the agreements and the avoidance of other repurchase transactions with Residential. Because Residential's financing agreements will typically contain cross-default provisions, a default that occurs under any one agreement could allow the lenders under its other agreements to also declare a default. Any lossesResidential incurs on its repurchase agreements could materially and adversely affect Residential.Residential has utilized repurchase facilities and securitization transactions to finance its portfolio and may in the future utilize other sources of borrowings,including bank credit facilities, warehouse lines of credit and structured financing arrangements, among others, each of which has similar risks to repurchaseagreement financing and securitizations, including, but not limited to, covenant compliance, events of default, acceleration and margin calls. The percentage ofleverage Residential employs, which could increase substantially in the future, varies depending on assets in its portfolios, its available capital, its ability to obtainand access financing arrangements with lenders and the lenders’ and rating agencies’ estimate of the stability of its investment portfolio’s cash flow. There can beno assurance that new sources of financing will be available to Residential in the future or that existing sources of financing will continue to be available to it.Residential's governing documents contain no limitation on the amount of debt it may incur. Residential's return on investments and cash available for distributionto its stockholders may be reduced to the extent that changes in market conditions increase the cost of its financing relative to the income that can be derived fromthe investments acquired. Residential's debt service payments will reduce cash flow available for distribution to stockholders. Residential may not be able to meetits debt service obligations and, to the extent that it cannot, it risks the loss of some or all of its assets to foreclosure or sale to satisfy the obligations.If these risks are realized by Residential, our ability to generate incentive management fees could be harmed and our results of operations and financial conditioncould be materially and adversely affected.24(table of contents)If and when non-recourse long-term financing structures become available to Residential and are utilized, such structures expose it to risks which could resultin losses to Residential.Residential may use securitization and other non-recourse long-term financing for its investments if, and to the extent, available. In such structures, Residential'slenders typically have only a claim against the assets included in the securitizations rather than a general claim against Residential as an entity. Prior to any suchfinancing, Residential seeks to finance its investments with relatively short-term facilities until a sufficient portfolio is accumulated. Conditions in the capitalmarkets may make the issuance of any such securitization less attractive to Residential. While Residential intends to retain the unrated equity component ofsecuritizations and, therefore, still have exposure to any investments included in such securitizations, its inability to enter into such securitizations may increase itsoverall exposure to risks associated with direct ownership of such investments, including the risk of default.Residential's inability to refinance any short-term facilities would also increase its risk because borrowings thereunder would likely be recourse to it as an entity. IfResidential is unable to obtain and renew short-term facilities or to consummate securitizations to finance its investments on a long-term basis, it may be requiredto seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price, which could materially and adversely affect ourability to generate incentive management fees.Failure of Altisource to effectively perform its obligations under various agreements with Residential and us, including the master services agreement, couldmaterially and adversely affect Residential.Both Residential and we have engaged Altisource to provide services. If for any reason Altisource is unable to perform the services described under theseagreements at the level and/or the cost that we anticipate, qualified alternate service providers may not be readily available on favorable terms, or at all, whichcould adversely affect our performance under the Residential asset management agreement. Altisource’s failure to perform the services under these agreementswith Residential or us or our inability to retain qualified alternate service providers to replace and/or supplement Altisource could have a material adverse effect onus.Failure of our third party mortgage servicers, including Ocwen Financial Corporation, to effectively perform their servicing obligations under our servicingagreements could have an adverse effect on Residential.Residential is contractually obligated to service the residential mortgage loans that it acquires. Residential does not have any employees, servicing platform,licenses or technical resources necessary to service its acquired loans. Consequently, Residential has engaged mortgage servicers to service the non-performing andsub-performing and non-performing loans it acquires. Through 2014, Residential had exclusively engaged Ocwen Financial Corporation (“Ocwen”) to service theresidential mortgage loans in its portfolio.Ocwen has been and is subject to a number of pending regulatory investigations, inquiries, requests for information and legal proceedings that could result inadverse regulatory or other actions against Ocwen. As a result of these various difficulties faced by Ocwen, its debt and servicer ratings have been downgraded. Given the recent challenges and regulatory scrutiny faced by Ocwen, through our connections and experience, Residential has engaged additional alternateservicers to service Residential’s loans. Residential has begun to move certain loans to these new servicers to diversify its servicing service providers. However, asubstantial number of the loans Residential owns continue to be serviced by Ocwen. It is possible, even as Residential transfers all or a portion of its mortgage loanportfolio to such other servicers, the alternate servicers may not be able to service our loans or resolve our non-performing loans. If for any reason Residential'smortgage servicers, including Ocwen, are unable to service these loans at the level and/or the cost that Residential anticipates, or if Residential fails to pay orotherwise defaults under the servicing agreements, causing one or more mortgage servicers cease to act as its servicers, alternate servicers may not be readilyavailable on favorable terms, or at all, which could have a material adverse effect on Residential.Residential may incur significant costs in renovating its properties, and it may underestimate the costs or amount of time necessary to complete restorations.Before renting a property, we perform a detailed assessment, with an on-site review of the property, to identify the scope of renovation to be completed. Beyondcustomary repairs, Residential may undertake improvements designed to optimize overall property appeal and increase the value of the property. We expect thatnearly all of Residential's rental properties will require some level of renovation immediately upon their acquisition or in the future following expiration of a leaseor otherwise. Residential may acquire properties that we plan to extensively renovate and restore. In addition, in order to reposition properties25(table of contents)in the rental market, Residential will be required to make ongoing capital improvements and may need to perform significant renovations and repairs from time totime. Consequently, Residential is exposed to the risks inherent in property renovation, including potential cost overruns, increases in labor and materials costs,delays by contractors in completing work, delays in the timing of receiving necessary work permits and certificates of occupancy and poor workmanship. If ourassumptions regarding the cost or timing of renovations across Residential's properties prove to be materially inaccurate, it may be more difficult or takesignificantly more time than anticipated to develop and grow its single-family rental portfolio, which could materially and adversely affect Residential. This could,in turn, materially and adversely affect our ability to generate incentive management fees.Difficulties in selling REO properties and/or single-family rental properties could limit Residential's flexibility and/or harm its liquidity.Federal tax laws may limit Residential's ability to earn a gain on the sale of its properties if it is found to have held or acquired the properties with the intent toresell, and this limitation may adversely affect its willingness to sell single-family rental properties under favorable conditions or if necessary for funding purposes.Residential typically contributes properties that will not meet its rental profile to its taxable REIT subsidiary in order to sell and generate gains or losses at thetaxable REIT subsidiary upon such sales. In addition, Residential's REO properties that it intends to sell can at times be difficult to dispose of quickly or atfavorable prices. These potential difficulties in selling real estate in Residential's markets may limit its ability to either sell properties that it deems unsuitable forrental or change or reduce the single-family rental properties in its portfolio promptly in response to changes in economic or other conditions. Residential's failureto sell or delays in selling its REO properties could potentially cause a strain on its liquidity, and it may be forced to reduce prices and/or continue to hold suchREO properties without leverage, which could materially and adversely affect our ability to generate incentive management fees.The growth of Residential's single-family rental portfolio, at least in the short term, is expected to be dependent on its ability to sell portfolios of our non-performing and re-performing mortgage loans at or near the carrying value for those loans or at a profit. If Residential is unable to sell these portfolios of mortgageloans at optimal prices or on a timely basis, or if the market shifts, creating lower sales prices of non-performing mortgage loans, Residential's ability to utilize theequity embedded in these loans would be harmed and have a material adverse effect on its ability to convert the proceeds of such sales into buying power for theacquisition of single-family rental properties. Furthermore, a large portion of the sale proceeds of such non-performing mortgage loans are utilized to purchase theloans off of Residential's repurchase facilities for which the non-performing mortgage loans are collateral. If a higher than expected portion of the loan saleconsideration must be utilized to repurchase loans off of its facilities, Residential's ability to purchase single-family rental properties may also be adverselyaffected, which would slow the growth of its rental portfolio.A significant portion of the residential mortgage loans that Residential has acquired, and may continue to acquire, are, or may become, sub-performing ornon-performing loans, which increases its risk of loss.Residential has acquired, an may continue to acquire, distressed residential mortgage loans where the borrower has failed to make timely payments of principaland/or interest. As part of the residential mortgage loan portfolios Residential purchases, it also may acquire performing loans that subsequently become sub-performing or non-performing. Under current market conditions, it is likely that many of these loans will have current loan-to-value ratios in excess of 100%,meaning the amount owed on the loan exceeds the value of the underlying real estate. Further, the borrowers on such loans may be in economic distress and/or mayhave become unemployed, bankrupt or otherwise unable or unwilling to make payments when due. Even though Residential typically pays less than the amountowed on these loans to acquire them, if actual results are different from its assumptions in determining the price for such loans, it may incur significant losses.There are no limits on the percentage of sub-performing or non-performing loans Residential may hold. Any loss Residential incurs may be significant and couldmaterially and adversely affect it, which could materially and adversely affect our results of operations and financial condition.26(table of contents)Many of Residential's assets may be illiquid, and this lack of liquidity could significantly impede its ability to vary its portfolio in response to changes ineconomic and other conditions or to realize the value at which such assets are carried if it is required to dispose of them.The distressed residential mortgage loans Residential has acquired are generally illiquid in that there are a limited number of qualified or interested parties toacquire the portfolios held for sale. Illiquidity may result from the absence of an established market for the distressed residential mortgage loans, as well as legal orcontractual restrictions on their resale, refinancing or other disposition. Such restrictions would interfere with subsequent sales of such loans or adversely affect theterms that could be obtained upon any disposition thereof. Residential recently completed the sale of two portfolios of non-performing loans to unaffiliated thirdparties and will continue to evaluate the opportunistic sale of additional portfolios of non-performing loans in the future. The timing and extent of its success inselling such assets on acceptable terms or at all cannot be predicted due to their illiquid nature. Residential's inability to sell portfolios of residential mortgage loanson acceptable terms and/or in accordance with its anticipated timing could potentially cause a strain on its liquidity, which could materially and adversely affectour results of operations and financial conditionResidential mortgage loan modification and refinance programs, future legislative action, and other actions and changes may materially and adversely affectthe supply of, value of and the returns on single-family rental properties and sub-performing and non-performing loans.Residential's business model is partially dependent on the success of its single-family rental property direct purchases and loan modification and other resolutionefforts and the conversion of a significant portion of those loans to REO. The number of single-family rental properties as well as sub-performing and non-performing loans available for purchase may be reduced by uncertainty in the lending industry and the governmental sector and/or as a result of general economicvolatility, decline or improvement. Sellers of residential rental properties may be unwilling or unable to sell their assets. In addition, for non-performing mortgageloans, lenders may choose to delay foreclosure proceedings, renegotiate interest rates or refinance loans for borrowers who face foreclosure. In recent years, thefederal government has instituted a number of programs aimed at assisting at-risk homeowners and reducing the number of properties going into foreclosure orgoing into non-performing status.For example, the U.S. Government, through the Federal Reserve, the Federal Housing Administration or “FHA” and the Federal Deposit Insurance Corporation or“FDIC” has implemented a number of federal programs designed to assist homeowners, including (i) the Home Affordable Modification Program or “HAMP”,which provides homeowners with assistance in avoiding defaults on residential mortgage loans, (ii) the Hope for Homeowners Program or “H4H Program”, whichallows certain distressed borrowers to refinance their residential mortgage loans into FHA-insured loans in order to avoid residential mortgage loan foreclosuresand (iii) the Home Affordable Refinance Program, or the “HARP Program,” which allows borrowers who are current on their mortgage payments to refinance andreduce their monthly mortgage payments without new mortgage insurance, up to an unlimited loan-to-value ratio for fixed-rate mortgages. HAMP, the H4HProgram, the HARP Program and other loss mitigation programs may involve, among other things, the modification of residential mortgage loans to reduce theprincipal amount of the loans (through forbearance and/or forgiveness) and/or the rate of interest payable on the loans and/or to extend the payment terms of theloans. These loan modification programs, future legislative or regulatory actions including possible amendments to the bankruptcy laws that result in themodification of outstanding residential mortgage loans as well as changes in the requirements necessary to qualify for refinancing residential mortgage loans, maymaterially and adversely affect the value of, and the returns on, Residential's portfolio of sub-performing and non-performing loans.Other governmental actions may affect Residential's business by hindering the pace of foreclosures. In recent periods, there has been a backlog of foreclosures, dueto a combination of volume constraints and legal actions, including those brought by the U.S. Department of Justice (the “DOJ”), the Department of Housing andUrban Development (“HUD”), State Attorneys General, the Office of the Comptroller of the Currency (the “OCC”) and the Federal Reserve Board againstmortgage servicers alleging wrongful foreclosure practices. Financial institutions have also been subjected to regulatory restrictions and limitations on foreclosureactivity by the FDIC. Legal claims brought or threatened by the DOJ, HUD and 49 State Attorneys General against residential mortgage servicers and anenforcement action threatened by the OCC against residential mortgage servicers have both produced large settlements. A portion of the funds from eachsettlement will be directed to homeowners seeking to avoid foreclosure through mortgage modifications, and servicers are required to adopt specified measures toreduce mortgage obligations in certain situations. It is expected that the settlements will help many homeowners avoid foreclosures that would otherwise haveoccurred in the near-term. It is also possible that other residential mortgage servicers will agree to similar settlements. These developments will reduce the numberof homes in the process of foreclosure and decrease the supply of properties that meet Residential's investment criteria.27(table of contents)In addition, the U.S. Congress and numerous state legislatures have considered, proposed or adopted legislation to constrain foreclosures, or may do so in thefuture. The Dodd-Frank Act also created the Consumer Financial Protection Bureau, or “CFPB,” which supervises and enforces federal consumer protection lawsas they apply to banks, credit unions and other financial companies, including mortgage servicers. It remains uncertain as to whether any of these CFPB or otherrelatedmeasures will have a significant impact on foreclosure volumes or what the timing or extent of that impact would be. If foreclosure volumes were to declinesignificantly, Residential may experience difficulty in finding target assets at attractive prices, which would materially and adversely affect Residential. Also, thenumber of families seeking rental housing might be reduced by such legislation, reducing rental housing demand for properties in Residential's markets.Residential may be, or may become, subject to the regulation of various states, including licensing requirements and consumer protection statutes. Residential'sfailure to comply with any such laws, if applicable to it, would adversely affect its ability to implement its business strategy, which could materially and adverselyaffect Residential. If these risks are realized by Residential, our ability to generate incentive management fees would be harmed and our results of operations andfinancial condition could be materially and adversely affected.Certain jurisdictions require licenses to purchase, hold, enforce or sell residential mortgage loans. In the event that any such licensing requirement isapplicable and Residential is not able to obtain such licenses in a timely manner or at all, its ability to implement its business strategy could be adverselyaffected, which could materially and adversely affect Residential.Certain jurisdictions require a license to purchase, hold, enforce or sell residential mortgage loans. Residential currently owns its loans in Delaware statutory trustswith a nationally-chartered bank as the trustee. Therefore, it does not hold any such licenses. Because Residential has contributed its acquired sub-performing andnon-performing residential mortgage loans to wholly-owned trusts whose trustee is a nationally-chartered bank, it may be exempt from state licensingrequirements. However, there is no assurance that Residential will ever seek or be required to obtain such licenses or, if obtained, that it will be able to maintainthem. Residential's failure to obtain or maintain such licenses could restrict its ability to invest in loans in these jurisdictions if such licensing requirements becomeapplicable. If Residential's subsidiaries obtain the required licenses, any trust holding loans in the applicable jurisdictions may transfer such loans to suchsubsidiaries, resulting in these loans being held by a state-licensed entity. There can be no assurance that Residential will be able to obtain the requisite licenses ina timely manner or at all or in all necessary jurisdictions, or that the use of the trusts will reduce the requirement for licensing, any of which could limit its ability toinvest in residential mortgage loans in the future and have a material adverse effect on Residential. If these risks are realized by Residential, our ability to generateincentive management fees could be harmed and our results of operations and financial condition could be materially and adversely affected.The availability of portfolios of single-family residential properties for purchase on favorable terms may decline as market conditions change, our industrymatures and/or additional purchasers for such portfolios emerge, and the prices for such portfolios may increase, any of which could materially and adverselyaffect us.In recent years, there has been an increase in supply of single-family residential property portfolios available for sale. Because Residential operates in an emergingindustry, market conditions may be volatile, and the prices at which portfolios of single-family residential properties can be acquired may increase from time totime, or permanently, due to new market participants seeking such portfolios, a decrease in the supply of desirable portfolios or other adverse changes in thegeographic areas that we may target from time to time. For these reasons, the supply of single-family residential properties that Residential may acquire maydecline over time, which could materially and adversely affect Residential.Portfolios of properties that Residential has acquired or may acquire may include properties that do not fit its investment criteria, and divestiture of suchproperties may be costly or time consuming or both, which may adversely affect its operating results.Residential acquired, and expects to continue to acquire, portfolios of single-family residential properties, many of which are, or will be, subject to existing leases.To the extent the management and leasing of such properties has not been consistent with its property management and leasing standards, Residential may besubject to a variety of risks, including risks relating to the condition of the properties, the credit quality and employment stability of the tenants and compliancewith applicable laws, among others. In addition, financial and other information provided to Residential regarding such portfolios during our due diligence may beinaccurate, and Residential may not be able to obtain relief under contractual remedies, if any. If Residential concludes that certain properties acquired as part of aportfolio do not fit its investment criteria, it may decide to sell such properties and may be required to renovate the properties prior to sale, to hold the propertiesfor an extended marketing period and/or sell the property at an unfavorable price, any of which could materially and adversely affect Residential.28(table of contents)The supply of sub-performing and non-performing loans may decline over time as a result of higher credit standards for new loans and/or general economicimprovement and the prices for sub-performing and non-performing loans may increase, which could materially and adversely affect Residential.Over the last several years, there has been an increase in supply of sub-performing and non-performing loans available for sale. However, in response to theeconomic crisis, the origination of jumbo, subprime, Alt-A and second lien residential mortgage loans has dramatically declined as lenders have increased theirstandards of credit-worthiness in originating new loans and fewer homeowners may go into sub-performing or non-performing status on their residential mortgageloans. In addition, the prices at which sub-performing and non-performing loans can be acquired may increase from time to time, or permanently, due to the entryof new participants into the distressed loan marketplace or a lower supply of sub-performing and non-performing loans in the marketplace. For these reasons, alongwith the general improvement in the economy, the supply of sub-performing and non-performing residential mortgage loans that Residential may acquire maydecline over time and could materially and adversely affect Residential. If these risks are realized by Residential, our ability to generate incentive management feescould be harmed and our results of operations and financial condition could be materially and adversely affected.Competition in identifying and acquiring non-performing loans could adversely affect Residential's ability to implement its business strategy, which couldmaterially and adversely affect Residential.Residential faces competition from various sources for investment opportunities in sub-performing and non-performing loans including REITs, hedge funds,private equity funds, partnerships and developers. Some third-party competitors have substantially greater financial resources and access to capital than Residentialdoes and may be able to accept more risk than Residential can. Competition from these companies may reduce the number of attractive sub-performing and non-performing loan investment opportunities available to Residential or increase the bargaining power of asset owners seeking to sell, which would increase the pricesfor sub-performing and non-performing loans. If such events occur, Residential's ability to implement its business strategy could be adversely affected, whichcould materially and adversely affect Residential. Given the existing competition, complexity of the market and requisite time needed to make such investments,no assurance can be given that Residential will be successful in acquiring investments that generate attractive risk-adjusted returns. Furthermore, there is noassurance that such investments, once acquired, will perform as expected. If these risks are realized by Residential, our ability to generate incentive managementfees could be harmed and our results of operations and financial condition could be materially and adversely affected.Residential's inability to promptly foreclose upon defaulted residential mortgage loans could increase its costs and/or diminish its expected return oninvestments.Residential's ability seek alternative resolutions for the underlying properties and, in certain cases, where appropriate, to promptly foreclose upon defaultedresidential mortgage loans plays a critical role in our valuation of the residential mortgage assets in which it invests and its expected return on those investments.We expect the timeline to convert acquired loans into single-family rental properties will vary significantly by loan. Certain of Residential's acquired loans mayalready be in foreclosure proceedings, in which case conversion could be as soon as three to six months following acquisition, but in other cases conversion couldtake up to 24 months or longer. There are a variety of factors that may inhibit Residential's ability, through its mortgage servicers, to foreclose upon a residentialmortgage loan and get access to the real property within the timelines modeled as part of our valuation process. These factors include, without limitation: stateforeclosure timelines and deferrals associated therewith (including with respect to litigation, bankruptcy and statute of limitations); unauthorized occupants livingin the property; federal, state or local legislative action or initiatives designed to provide homeowners with assistance in avoiding residential mortgage loanforeclosures and that serve to delay the foreclosure process; HAMP and similar programs that require specific procedures to be followed to explore the refinancingof a residential mortgage loan prior to the commencement of a foreclosure proceeding; and continued declines in real estate values and sustained high levels ofunemployment that increase the number of foreclosures and place additional pressure on the already overburdened judicial and administrative systems.In addition, certain issues, including “robo-signing,” have been identified throughout the mortgage industry that relate to affidavits used in connection with theresidential mortgage loan foreclosure process. A substantial portion of Residential's investments are, and in the future may be, sub-performing and non-performingresidential mortgage loans, many of which are already subject to foreclosure proceedings at the time of purchase. There can be no assurance that similar practiceshave not been followed in connection with residential mortgage loans that are already subject to foreclosure proceedings at the time of purchase. To the extent wedetermine that any of the loans Residential acquires are impacted by these issues, Residential may be required to recommence the foreclosure proceedings relatingto such loans, thereby resulting in additional delay that could29(table of contents)have the effect of increasing its costs and/or diminishing its expected return on its investments. The uncertainty surrounding these issues could also result in legal,regulatory or industry changes to the foreclosure process as a whole, any or all of which could lengthen the foreclosure process and negatively impact Residential'sbusiness.If these risks are realized by Residential, our ability to generate incentive management fees could be harmed and our results of operations and financial conditioncould be materially and adversely affected.Residential may be materially and adversely affected by risks affecting borrowers or the single-family rental properties in which its investments may beconcentrated at any given time, as well as from unfavorable changes in the related geographic regions.Residential's assets are not subject to any geographic diversification requirements or concentration limitations. Entities that sell distressed mortgage loan orresidential rental portfolios may group the portfolios by location or other metrics that could result in a concentration of Residential's portfolio by geography, single-family rental property characteristics and/or borrower demographics. Such concentration could increase the risk of loss to Residential if the particular concentrationin its portfolio is subject to greater risks or undergoing adverse developments. In addition, adverse conditions in the areas where the properties or borrowers arelocated (including business layoffs or downsizing, industry slowdowns, changing demographics, oversupply, reduced demand and other factors) may have anadverse effect on the value of its investments. A material decline in the demand for single-family housing or rentals in these or other areas where Residential ownsassets may materially and adversely affect Residential. Lack of diversification can increase the correlation of non-performance and foreclosure risks amongResidential's investments. If these risks are realized by Residential, our ability to generate incentive management fees could be harmed and our results ofoperations and financial condition could be materially and adversely affected.Short-term leases of residential property expose Residential more quickly to the effects of declining market rents.We anticipate that a majority of Residential's leases to tenants of single-family rental properties will be for a term of one to two years. As these leases permit theresidents to leave at the end of the lease term without penalty, we anticipate Residential's rental revenues will be affected by declines in market rents more quicklythan if its leases were for longer terms. Short-term leases may result in high turnover, resulting in additional cost to renovate and maintain the property and loweroccupancy levels. Because Residential has a limited operating history, its tenant turnover rate and related cost estimates may be less accurate than if we had moreoperating data upon which to base these estimates.Residential may be unable to secure funds for future tenant or other capital improvements, which could limit its ability to attract or replace tenants.When Residential acquires or otherwise takes title to single-family properties or when tenants fail to renew their leases or otherwise vacate their space, Residentialgenerally will be required to expend funds for property restoration and leasing commissions in order to lease the property. If Residential has not establishedreserves or set aside sufficient funds for such expenditures, it may have to obtain financing from other sources, as to which no assurance can be given. Residentialmay also have future financing needs for other capital improvements to restore its properties. If Residential needs to secure financing for capital improvements inthe future but are unable to secure such financing on favorable terms or at all, Residential may be unable or unwilling to make capital improvements or it may berequired or may choose to defer such improvements. If this happens, Residential's properties may suffer from a greater risk of obsolescence or a decline in value, ora greater risk of decreased cash flow as a result of fewer potential tenants being attracted to the property or existing tenants not renewing their leases. If Residentialdoes not have access to sufficient funding in the future, it may not be able to make necessary capital improvements to its properties, and its properties’ ability togenerate revenue may be significantly impaired. If these risks are realized by Residential, our ability to generate incentive management fees could be harmed andour results of operations and financial condition could be materially and adversely affected.Residential's revenue and expenses are not directly correlated, and, because a large percentage of its costs and expenses are fixed and some variable expensesmay not decrease over time, it may not be able to adapt its cost structure to offset any declines in its revenue.Many of the expenses associated with Residential's business, such as acquisition costs, restoration and maintenance costs, HOA fees, personal and real propertytaxes, insurance, compensation and other general expenses are fixed and would not necessarily decrease proportionally with any decrease in revenue. Residential'sassets also will likely require a significant amount of ongoing capital expenditure. Residential's expenses, including capital expenditures, will be affected by,among other things, any inflationary increases, and cost increases may exceed the rate of inflation in any given period. Certain expenses, such as HOA30(table of contents)fees, taxes, insurance and maintenance costs are recurring in nature and may not decrease on a per-unit basis as Residential's portfolio grows through additionalproperty acquisitions. By contrast, Residential's revenue is affected by many factors beyond our control, such as the availability and price of alternative rentalhousing and economic conditions in its markets. As a result, Residential may not be able to fully, or even partially, offset any increase in its expenses with acorresponding increase in its revenues. In addition, state and local regulations may require Residential to maintain its properties, even if the cost of maintenance isgreater than the potential benefit. If these risks are realized by Residential, our ability to generate incentive management fees could be harmed and our results ofoperations and financial condition could be materially and adversely affected.Fair values of Residential's mortgage loans are imprecise and may materially and adversely affect its operating results and credit availability, which, in turn,would materially and adversely affect Residential.The values of Residential's mortgage loans may not be readily determinable. We measure the fair value of Residential's mortgage loans monthly, but the fair valueat which Residential's mortgage loans are recorded may not be an indication of their realizable value. Ultimate realization of the value of a mortgage loan dependsto a great extent on economic and other conditions that are beyond our control. Further, fair value is only an estimate based on good faith judgment of the price atwhich a mortgage loan can be sold since market prices of mortgage loans can only be determined by negotiation between a willing buyer and seller. In certaincases, our estimation of the fair value of Residential's mortgage loans includes inputs provided by third-party dealers and pricing services, and valuations of certainsecurities or other assets in which we invest are often difficult to obtain and are subject to judgments that may vary among market participants. Changes in theestimated fair values of Residential's mortgage loans are directly charged or credited to earnings for the period. If Residential were to liquidate a particularmortgage loan, the realized value may be more than or less than the amount at which such mortgage loan was recorded. We could be materially and adverselyaffected by negative determinations that reduce the fair value of Residential's mortgage loans, and such valuations may fluctuate over short periods of time.We value the properties underlying Residential's mortgage loans and recognize unrealized gains in each period when Residential's mortgage loans are transferred toreal estate owned. The fair value of residential properties is estimated using broker price opinions, or “BPOs,” provided by third-party brokers. BPOs are subject tothe judgments of the particular broker formed by visiting the property, assessing general home values in the area, reviewing comparable listings and reviewingcomparable completed sales. These judgments may vary among brokers and may fluctuate over time based on housing market activities and the influx of additionalcomparable listings and sales. Residential's results could be materially and adversely affected if the judgments used by the brokers prove to be incorrect orinaccurate.If these risks are realized by Residential, our ability to generate incentive management fees could be harmed and our results of operations and financial conditioncould be materially and adversely affected.Challenges to the MERS ® System could materially and adversely affect Residential.MERSCORP, Inc. is a privately held company that maintains an electronic registry, referred to as the MERS System, which tracks servicing rights and ownershipof loans in the United States. Mortgage Electronic Registration Systems, Inc., or “MERS,” a wholly owned subsidiary of MERSCORP, Inc., can serve as anominee for the owner of a residential mortgage loan and in that role initiate foreclosures and/or become the mortgagee of record for the loan in local land records.We may choose to use MERS as a nominee. The MERS System is widely used by participants in the mortgage finance industry. Several legal challenges have beenmade disputing MERS’s legal standing to initiate foreclosures and/or act as nominee in local land records. These challenges could negatively affect MERS’s abilityto serve as the mortgagee of record in some jurisdictions. In addition, where MERS is the mortgagee of record, it must execute assignments of mortgages,affidavits and other legal documents in connection with foreclosure proceedings. As a result, investigations by governmental authorities and others into the servicerforeclosure process deficiencies described with respect to “Residential's inability to promptly foreclose upon defaulted residential mortgage loans could increase itscost of doing business and/or diminish its expected return on investments” may impact MERS. Failures by MERS to apply prudent and effective process controlsand to comply with legal and other requirements in the foreclosure process could pose operational, reputational and legal risks that may materially and adverselyaffect Residential, which could materially and adversely affect our results of operations and financial condition.31(table of contents)We utilize analytical models and data in connection with the valuation of Residential's investments, and any incorrect, misleading or incomplete informationused in connection therewith would subject Residential to potential risks.Given the complexity of Residential's investments and strategies, we must rely heavily on models and data, including analytical models (both proprietary modelsdeveloped by us and those supplied by third parties) and information and data supplied by third parties. Models and data are used to value investments or potentialinvestments and also in connection with performing due diligence on Residential's investments. In the event models and data prove to be incorrect, misleading orincomplete, any decisions made in reliance thereon expose us to potential risks. For example, by relying on incorrect models and data, especially valuation models,Residential may be induced to buy certain investments at prices that are too high, to sell certain other investments at prices that are too low or to miss favorableopportunities altogether, all of which could adversely affect our ability to generate incentive management fees.Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirementsResidential is subject to as a stand-alone reporting public company.Residential is subject to reporting and other obligations under the Exchange Act, as amended. Under the Sarbanes-Oxley Act of 2002, or the “Sarbanes-OxleyAct,” Residential is required to maintain effective disclosure controls and procedures. To comply with these requirements, Residential may need to implementadditional financial and management controls, reporting systems and procedures. Residential has incurred, and expects to incur, additional annual expenses for thepurpose of addressing these requirements, and these expenses may be significant. If Residential is unable to implement additional controls, reporting systems,information technology systems and procedures in a timely and effective fashion, its ability to comply with its financial reporting requirements and other rules thatapply to reporting companies under the Exchange Act could be impaired. Any failure to achieve and maintain effective internal controls could have a materialadverse effect on Residential. Residential is also required to comply with Section 404 of the Sarbanes-Oxley Act, which requires annual management assessmentsof the effectiveness of its internal control over financial reporting and a report thereon by its independent registered public accounting firm. These reporting andother obligations may place significant demands on its management, administrative and operational resources, including accounting systems and resources.Changes in global economic and capital market conditions, including periods of generally deteriorating occupancy and real estate industry fundamentals maymaterially and adversely affect Residential.There are risks to the ownership of real estate and real estate related assets, including decreases in residential property values, changes in global, national, regionalor local economic, demographic and real estate market conditions as well as other factors particular to the locations of Residential's investments. A prolongedrecession and a slow recovery could materially and adversely affect Residential as a result of, among other items, the following:•joblessness or unemployment rates that adversely affect the local economy;•an oversupply of or a reduced demand for single-family rental properties for rent;•a decline in employment or lack of employment growth;•the inability or unwillingness of residents to pay rent increases or fulfill their lease obligations;•a decline in rental rate which may be accentuated since we expect Residential to have rent terms of one to two years;•rent control or rent stabilization laws or other laws regulating housing that could prevent us from raising rents to offset increases in operating costs;•changes in interest rates, availability and terms of debt financing; and•economic conditions that could cause an increase in Residential's operating expenses such as increases in property taxes, utilities and routine maintenance.These conditions could also adversely impact the financial condition and liquidity of the renters that will occupy Residential's real estate properties and, as a result,their ability to pay rent to Residential.Inflation or deflation may adversely affect Residential's results of operations and cash flows.Increased inflation could have an adverse impact on interest rates, property management expenses and general and administrative expenses, as these costs couldincrease at a rate higher than Residential's rental and other revenue. Conversely, deflation could lead to downward pressure on rents and other sources of incomewithout an accompanying reduction in Residential's expenses. Accordingly, inflation or deflation may adversely affect Residential's results of operations and cashflows, which could materially and adversely affect our ability to generate incentive management fees.32(table of contents)Changes in applicable laws or noncompliance with applicable law could materially and adversely affect Residential.As an owner of real estate, Residential is required to comply with numerous federal, state and local laws and regulations, some of which may conflict with oneanother or be subject to limited judicial or regulatory interpretations. These laws and regulations may include zoning laws, building codes, landlord-tenant laws andother laws generally applicable to business operations. Noncompliance with laws or regulations could expose Residential to liability.Lower revenue growth or significant unanticipated expenditures may result from Residential's need to comply with changes in (i) laws imposing remediationrequirements and potential liability for environmental conditions existing on properties or the restrictions on discharges or other conditions, (ii) rent control or rentstabilization laws or other residential landlord-tenant laws or (iii) other governmental rules and regulations or enforcement policies affecting the rehabilitation, useand operation of Residential's single-family rental properties including changes to building codes and fire and life-safety codes. If these risks are realized byResidential, our ability to generate incentive management fees could be harmed and our results of operations and financial condition could be materially andadversely affected.In addition, NewSource has registered as a Class 3A Bermuda insurance company and is subject to regulation and supervision in Bermuda by the BMA. Changesin Bermuda insurance statutes, regulations and policies could result in restrictions on NewSource’s ability to pursue its business plans, issue reinsurance policies,distribute funds and execute its investment strategy. In addition, NewSource may become subject to regulation and supervision by insurance authorities in anyother jurisdictions in which it operates. Failure to comply with or to obtain appropriate authorizations and/or exemptions under any applicable laws could result inrestrictions on NewSource’s ability to do business or certain activities that are regulated in one or more of the jurisdictions in which it operates and could subjectNewSource to fines and other sanctions, which could have a material adverse effect on NewSource’s business. As a result, the value of our investment inNewSource could decline.Competition could limit Residential's ability to lease single-family rental properties or increase or maintain rents.Residential's single-family rental properties, when acquired, will compete with other housing alternatives to attract residents, including rental apartments,condominiums and other single-family homes available for rent as well as new and existing condominiums and single-family homes for sale. Residential'scompetitors’ single-family rental properties may be better quality, in a more desirable location or have leasing terms more favorable than Residential can provide.In addition, Residential's ability to compete and generate favorable returns depends upon, among other factors, trends of the national and local economies, thefinancial condition and liquidity of current and prospective renters, availability and cost of capital, taxes and governmental regulations. Given Residential'ssignificant competition, we cannot assure you that it will be successful in acquiring or managing single-family rental properties that generate favorable returns,which would materially and adversely affect our ability to generate incentive management fees.If rents in Residential's markets do not increase sufficiently to keep pace with rising costs of operations, its operating results and cash available for distributionwill decline.The success of Residential's business model will substantially depend on conditions in the single-family rental property market in its geographic markets.Residential's asset acquisitions are premised on assumptions about, among other things, occupancy and rent levels. If those assumptions prove to be inaccurate,Residential's operating results and cash available for distribution will be lower than expected, potentially materially. This, in turn, could materially and adverselyaffect our ability to generate incentive management fees. Rental rates and occupancy levels have benefited in recent periods from macroeconomic trends affectingthe U.S. economy and residential real estate and mortgage markets in particular, including:•a tightening of credit that has made it more difficult to finance a home purchase, combined with efforts by consumers generally to reduce their exposureto credit;•economic and employment conditions that have increased foreclosure rates; and•reduced real estate values that challenged the traditional notion that homeownership is a stable investment.If the current trend favoring renting rather than homeownership reverses, the single-family rental market could decline.The single-family rental market is currently significantly larger than in historical periods. We do not expect the favorable trends in the single-family rental marketto continue indefinitely. Eventually, a strengthening of the U.S. economy and job growth, together with the large supply of foreclosed single-family rentalproperties, the current availability of low residential mortgage rates and government sponsored programs promoting home ownership, may contribute to astabilization or reversal of the current trend that favors renting rather than homeownership. In addition, we expect that as investors increasingly seek to33(table of contents)capitalize on opportunities to purchase undervalued housing properties and convert them to productive uses, the supply of single-family rental properties willdecrease and the competition for tenants will intensify. A softening of the rental property market in Residential's markets would adversely affect its operatingresults and cash available for distribution, potentially materially. This, in turn, could materially and adversely affect our ability to generate incentive managementfees.Single-family rental properties that are subject to foreclosure or short-sales are subject to risks of theft, vandalism or other damage that could impair theirvalue.When a single-family rental property is subject to foreclosure, it is possible that the homeowner may cease to maintain the property adequately, or that the propertymay be abandoned by the homeowner and become susceptible to theft or vandalism. Lack of maintenance, theft and vandalism can substantially impair the value ofthe property. To the extent Residential initiates foreclosure proceedings, some of its properties could be impaired.Contingent or unknown liabilities could materially and adversely affect Residential.Residential's acquisition activities are subject to many risks. Residential may acquire properties that are subject to unknown or contingent liabilities, includingliabilities for or with respect to liens attached to properties, unpaid real estate taxes, utilities or HOA charges for which a prior owner remains liable, clean-up orremediation of environmental conditions or code violations, claims of vendors or other persons dealing with the acquired properties and tax liabilities, among otherthings. In each case, Residential's acquisition may be without any, or with only limited, recourse with respect to unknown or contingent liabilities or conditions. Asa result, if any such liability were to arise relating to Residential's properties, or if any adverse condition exists with respect to Residential's properties that is inexcess of its insurance coverage, Residential might have to pay substantial sums to settle or cure it, which could materially and adversely affect Residential. Theproperties Residential acquires may also be subject to covenants, conditions or restrictions that restrict the use or ownership of such properties, includingprohibitions on leasing or requirements to obtain the approval of HOAs prior to leasing. We may not discover such restrictions during the acquisition process andsuch restrictions may adversely affect Residential's ability to operate such properties as it intends. This, in turn, could materially and adversely affect our ability togenerate incentive management fees.The costs and amount of time necessary to secure possession and control of a newly acquired property may exceed our assumptions, which would delayResidential's receipt of revenue from, and return on, the property.Upon acquiring a property, Residential may have to evict occupants who are in unlawful possession before it can secure possession and control of the property.The holdover occupants may be the former owners or tenants of a property, or they may be squatters or others who are illegally in possession. Securing control andpossession from these occupants can be both costly and time-consuming. If these costs and delays exceed our expectations, Residential's and our financialperformance may suffer because of the increased expenses incurred or the unexpected delays in turning the properties into revenue-producing rental properties.Poor tenant selection and defaults by Residential's tenants may materially and adversely affect Residential.Residential's success will depend, in large part, upon its ability to attract and retain qualified tenants for its properties. This will depend, in turn, upon Residential'sability to screen applicants, identify good tenants and avoid tenants who may default. Residential will inevitably make mistakes in its selection of tenants, and itmay rent to tenants whose default on its leases or failure to comply with the terms of the lease or HOA regulations could materially and adversely affectResidential. For example, tenants may default on payment of rent, make unreasonable and repeated demands for service or improvements, make unsupported orunjustified complaints to regulatory or political authorities, make use of Residential's properties for illegal purposes, damage or make unauthorized structuralchanges to its properties which may not be fully covered by security deposits, refuse to leave the property when the lease is terminated, engage in domesticviolence or similar disturbances, disturb nearby residents with noise, trash, odors or eyesores, fail to comply with HOA regulations, sub-let to less desirableindividuals in violation of Residential's leases or permit unauthorized persons to live with them. The process of evicting a defaulting tenant from a family residencecan be adversarial, protracted and costly. Furthermore, some tenants facing eviction may damage or destroy the property. Damage to Residential's properties maysignificantly delay re-leasing after eviction, necessitate expensive repairs or impair the rental revenue or value of the property. In addition, Residential will incurturnover costs associated with re-leasing the properties, such as marketing expense and brokerage commissions, and will not collect revenue while the property isvacant. Although Residential will attempt to work with tenants to prevent such damage or destruction, there can be no assurance that it will be successful in all ormost cases. Such tenants will not only cause Residential not to achieve its financial objectives for the properties in which they live, but may subject Residential toliability, and may damage Residential's reputation with its other tenants and in the communities where it does business. If these risks are realized by Residential,our34(table of contents)ability to generate incentive management fees could be harmed and our results of operations and financial condition could be materially and adversely affected.Eminent domain could lead to material losses on Residential's investments.It is possible that governmental authorities may exercise eminent domain to acquire land on which Residential's properties are built in order to build roads or otherinfrastructure. Any such exercise of eminent domain would allow Residential to recover only the fair value of the affected properties, which we believe may beinterpreted to be substantially less than the actual value of the property. Several cities are also exploring proposals to use eminent domain to acquire residentialloans to assist borrowers to remain in their homes, potentially reducing the supply of single-family properties for sale in Residential's markets. Any of these eventscan cause a material loss to Residential, which could materially and adversely affect our ability to generate incentive management fees.A significant uninsured property or liability loss could have a material adverse effect on Residential.Residential will carry commercial general liability insurance and property insurance with respect to its single-family rental properties on terms we considercommercially reasonable. There are, however, certain types of losses (such as losses arising from acts of war or earthquake) that are not insured, in full or in part,because they are either uninsurable or the cost of insurance makes it economically impractical. If an uninsured property loss or a property loss in excess of insuredlimits were to occur, Residential could lose its capital invested in a single-family rental property or group of rental properties as well as the anticipated futurerevenues from such single-family rental property or group of properties. If an uninsured liability to a third party were to occur, Residential would incur the cost ofdefense and settlement with or court ordered damages to that third party. A significant uninsured property or liability loss could materially and adversely affectResidential, which could materially and adversely affect our ability to generate incentive management fees.A significant number of Residential's single-family rental properties may be part of homeowners’ associations. Residential and its renters will be subject to therules and regulations of such homeowners’ associations which may be arbitrary or restrictive and violations of such rules may subject us to additional fees andpenalties and litigation which may be costly.A significant number of Residential's single-family rental properties, when acquired, may be subject to HOAs which are private entities that regulate the activitiesof and levy assessments on properties in a residential subdivision. Some of the HOAs that will govern Residential's single-family rental properties may enactonerous or arbitrary rules that restrict Residential's ability to renovate, market or lease its single-family rental properties or require it to renovate or maintain suchproperties at standards or costs that are in excess of our planned operating budgets. Such rules may include requirements for landscaping, limitations on signagepromoting a property for lease or sale or the use of specific construction materials to be used in renovations. Some HOAs also impose limits on the number ofproperty owners who may rent their homes which, if met or exceeded, may cause Residential to incur additional costs to sell the affected single-family rentalproperty and opportunity costs of lost rental income. Furthermore, many HOAs impose restrictions on the conduct of occupants of homes and the use of commonareas, and Residential may have renters who violate these HOA rules for which Residential may be liable as the property owner. Additionally, the boards ofdirectors of the HOAs that will govern its single-family rental properties may not make important disclosures or may block Residential's access to HOA records,initiate litigation, restrict its ability to sell, impose assessments or arbitrarily change the HOA rules. Residential may be unaware of or unable to review or complywith certain HOA rules before acquiring a single-family rental property, and any such excessively restrictive or arbitrary regulations may cause Residential to sellsuch property, if possible, prevent it from renting such property or otherwise reduce its cash flow from such property. Any of the above-described occurrences maymaterially and adversely affect Residential’s and our results of operations and financial condition.35(table of contents)We rely on information supplied by prospective tenants in managing Residential's business.We rely on information supplied to us by prospective tenants in their rental applications as part of our due diligence process to make leasing decisions, and wecannot be certain that this information is accurate. In particular, we rely on information submitted by prospective tenants regarding household income, tenure atcurrent job, number of children and size of household. Moreover, these applications are submitted to us at the time we evaluate a prospective tenant, and we do notrequire tenants to provide us with updated information during the terms of their leases, notwithstanding the fact that this information can, and frequently does,change over time. Even though this information is not updated, we will use it to evaluate the overall average credit characteristics of Residential's portfolio overtime. If tenant-supplied information is inaccurate or Residential's tenants’ creditworthiness declines over time, we may make poor leasing decisions andResidential's portfolio may contain more credit risk than we believe exists, which could harm Residential’s and our results of operations and financial condition.We are subject to the risks of securities laws liability and related civil litigation.We may be subject to risk of securities litigation and derivative actions from time to time as a result of being publicly traded. For example, in January 2015, apurported shareholder filed a derivative action against the members of Residential's Board of Directors, Residential and us in connection with Residential's assetmanagement agreement with us, which Residential ultimately agreed to settle for $6.0 million. This settlement was covered by and paid for with Directors &Officers Insurance, but other ongoing and/or future claims may not be covered or partially covered, which could have a material adverse effect on our earnings inone or more periods. Other derivative actions and class actions were also filed against us and/or Residential during 2015, either as the primary defendant or as anaiding and abetting defendant. There can be no assurance that any settlement or liabilities in these actions would be covered by Residential's or our insurancepolicies. For more information concerning these matters, please see “Item 3. Legal Proceedings.” While we and Residential and our respective Boards of Directorsdeny the allegations of wrongdoing in the actions initiated against us, there can be no assurance as to the ultimate outcome or timing of their resolution. The rangeof possible resolutions could include determinations and judgments against Residential or us or settlements that could require substantial payments by Residentialor us, including the costs of defending such investigations and suits, which could have a material adverse effect on our financial condition, results of operations andcash flows. An adverse resolution of any future lawsuits or claims against Residential or us could have an adverse effect on our business, financial condition and/oroperating results.Residential likely will incur costs due to litigation, including but not limited to, class actions, tenant rights claims and consumer demands.There are numerous tenants’ rights and consumer rights organizations throughout the country. As Residential grows in scale, it may attract attention from some ofthese organizations and become a target of legal demands or litigation. Many such consumer organizations have become more active and better funded inconnection with mortgage foreclosure-related issues and displaced home ownership. Some of these organizations may shift their litigation, lobbying, fundraisingand grass roots organizing activities to focus on landlord-tenant issues as more entities engage in the single-family rental property market. Additional actions thatmay be targeted at Residential include eviction proceedings and other landlord-tenant disputes, challenges to title and ownership rights (including actions broughtby prior owners alleging wrongful foreclosure by their lender or servicer) and issues with local housing officials arising from the condition or maintenance of asingle-family rental property. While we intend to conduct Residential's rental business lawfully and in compliance with applicable landlord-tenant and consumerlaws, such organizations might work in conjunction with trial and pro bono lawyers in one state or multiple states to attempt to bring claims against Residential ona class action basis for damages or injunctive relief. We cannot anticipate what form such legal actions might take or what remedies they may seek. Any of suchclaims may result in a finding of liability that may materially and adversely affect Residential.Additionally, these organizations may lobby local county and municipal attorneys or state attorneys general to pursue enforcement or litigation against Residentialor may lobby state and local legislatures to pass new laws and regulations to constrain Residential's business operations. If they are successful in any suchendeavors, they could directly limit and constrain Residential's business operations and impose on Residential significant litigation expenses, including settlementsto avoid continued litigation or judgments for damages or injunctions. Any of the above-described occurrences may materially and adversely affect Residential,which could materially and adversely affect our ability to generate incentive management fees.Security breaches and other disruptions could compromise Residential's and/or our information and expose us to liability, which would cause our business andreputation to suffer.In the ordinary course of Residential's and our business, we, through Altisource or Residential's mortgage servicers, may acquire and store sensitive data on ournetwork, such as our proprietary business information and personally identifiable36(table of contents)information of Residential's prospective and current tenants. The secure processing and maintenance of this information is critical to our business strategy. Despiteour security measures, our information technology and infrastructure may be subject to attacks by hackers or breached due to employee error, malfeasance or otherdisruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any suchaccess, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information,regulatory penalties, disruption to our operations and the services we provide to customers or damage our reputation, which could materially and adversely affectResidential and/or us.Residential may incur substantial costs due to environmental contamination or non-compliance.Under various federal, state and local environmental and public health laws, regulations and ordinances, Residential may be required, regardless of knowledge orresponsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at its single-family rental properties(including in some cases, asbestos-containing construction materials, lead-based paints, contaminants migrating from offsite sources and natural substances such asmethane, mold and radon gas) and may be held liable under these laws or common law to a governmental entity or to third parties for property, personal injury ornatural resources damages and for investigation and remediation costs incurred as a result of the contamination. These damages and costs may be substantial andmay exceed any insurance coverage Residential may have for such events, either of which could materially and adversely affect Residential. The presence of suchsubstances or the failure to properly remediate the contamination may adversely affect Residential's ability to borrow against, sell or rent the affected single-familyrental property. In addition, some environmental laws create or allow a government agency to impose a lien on the contaminated site in favor of the government fordamages and costs it incurs as a result of the contamination, which may also adversely affect Residential's ability to borrow against, sell or rent the affected single-family rental property. If these risks are realized by Residential, our ability to generate incentive management fees could be harmed and our results of operationsand financial condition could be materially and adversely affected.Residential properties will be subject to property and other taxes that may increase over time.Residential will be responsible for property taxes for its single-family rental properties, when acquired which may increase as tax rates change and properties arereassessed by taxing authorities. If Residential fails to pay any such taxes, the applicable taxing authorities may place a lien on the property and the property maybe subject to a tax sale. Increases in property taxes would also adversely affect Residential's yield from rental properties. Any such occurrence may materially andadversely affect Residential which, in turn, could materially and adversely affect us.If Residential is deemed to be an investment company under the Investment Company Act, it would have significant adverse consequences to Residential andus.Residential does not intend or expect to be an investment company under the Investment Company Act of 1940, as amended, which we refer to as the “InvestmentCompany Act,” since it will not engage primarily or hold itself out as being engaged primarily in the business of investing, reinvesting or trading in securities.Rather, Residential will be primarily engaged in the business of purchasing or otherwise acquiring real estate and mortgages on real estate, specifically singlefamily rental assets and sub-performing and non-performing loans. To the extent that the SEC determines that Residential is in fact an investment company,Residential intends to rely on the exception from the Investment Company Act set forth in Section 3(c)(5)(C) of the Investment Company Act, which excludesfrom the definition of investment company ''any person who is not engaged in the business of issuing redeemable securities, face-amount certificates of theinstallment type or periodic payment plan certificates, and who is primarily engaged in one or more of the following businesses: . . .(C) purchasing or otherwiseacquiring mortgages and other liens on and interests in real estate.'' The SEC has historically taken the position that an issuer may rely on the exception providedby Section 3(c)(5)(C) as long as at least 55% of its assets consist of ''qualifying interests,'' such as mortgage loans which are secured by real estate and other lienson and interests in real estate, and an additional 25% consists of real estate-type interests. The SEC has also historically indicated that up to 20% of an issuer's totalassets may be invested in miscellaneous investments. Residential believes that all of its assets will fall within the definition of ''qualifying assets.'' Additionally,Residential does not currently expect to issue redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates, as thoseterms are defined by the Investment Company Act. Consequently, Residential believes that it will not be required to register under the Investment Company Act.In August 2011, the SEC issued a concept release that indicated that the SEC is reviewing whether certain mortgage related pools which rely (like Residential) onthe exception from registration under Section 3(c)(5)(C), should continue to be allowed to rely on such exception from registration. Since Residential's primaryinvestment strategy is to directly invest in REO Properties and mortgages secured by real estate, Residential does not believe that the SEC's review will have amaterial impact37(table of contents)on its status as a non-investment company business or its ability to continue to rely on the Section 3(c)(5)(C) exception; however, Residential cannot provide anyassurance that the outcome of the SEC's review will not require Residential to register under the Investment Company Act. If Residential is determined to be aninvestment company or it fails to qualify for this exception from registration as an investment company, or the SEC determines that companies that engage inbusinesses similar to Residential's are no longer able to rely on this exception, Residential may be required to register as an investment company under theInvestment Company Act.Registration under the Investment Company Act would require Residential to comply with a variety of substantive requirements that impose, among other things:•limitations on capital structure;•restrictions on specified investments;•restrictions on retaining earnings;•restrictions on leverage or senior securities;•restrictions on unsecured borrowings;•requirements that Residential's income be derived from certain types of assets;•prohibitions on transactions with affiliates and•compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly increase Residential'soperating expenses.If Residential were required to register as an investment company but failed to do so, it would be prohibited from engaging in its business, and criminal and civilactions could be brought against it.Registration with the SEC as an investment company would be costly, would subject Residential to a host of complex regulations and would divert attention fromthe conduct of Residential's business. In addition, if Residential purchases or sells any real estate assets to avoid becoming an investment company under theInvestment Company Act, it could materially adversely affect its net asset value, the amount of funds available for investment and its ability to pay distributions toits shareholders. Any such occurrences would adversely impact our income from the incentive management fees paid by Residential.Risks Related to Our Management and Our RelationshipsWe could have conflicts with Residential, and our former Chairman, other members of our Board of Directors or management could have conflicts of interestdue to his, her or their relationship with Altisource, Ocwen or Residential, which may be resolved in a manner adverse to us.We have engaged, and continue to engage, in a substantial amount of business with Residential. Conflicts may arise between Residential and us because of ourongoing agreement with Residential and because of the nature of our respective businesses.Prior to his stepping down from the Board of Directors in January 2015, our former Chairman was also the Chairman of Altisource, Ocwen and Residential. As aresult, he had obligations to us as well as to these other entities, which potentially could have resulted in conflicts of interest with respect to matters potentially oractually involving or affecting us and Altisource, Ocwen or Residential, as the case may be. Our former Chairman also has substantial investments in Altisource,Ocwen and Residential, and certain of our other officers own stock or options in Altisource, Ocwen and/or Residential. Such ownership interests may have created,or appeared to create, conflicts of interest with respect to matters potentially or actually involving or affecting us and Altisource, Ocwen and Residential, as thecase may be.Each of our executive officers is also an executive officer of Residential and has interests in our relationship with Residential that may be different than theinterests of our stockholders. As a result, they may have obligations to us and Residential, and could have conflicts of interest with respect to matters potentially oractually involving or affecting us and Residential. In particular, these individuals have a direct interest in the financial success of Residential that may encouragethese individuals to support strategies in furtherance of the financial success of Residential that could potentially adversely impact usWe follow policies, procedures and practices to avoid potential conflicts with respect to our dealings with Residential or AAMC, including where necessary,certain of our officers recusing themselves from discussions on, and approvals of transactions with Residential. We also manage potential conflicts of interestthrough oversight by independent members of our Board of Directors (independent directors constitute a majority of our Board of Directors), and we will also seekto manage these potential conflicts through dispute resolution and other provisions of our agreements with Residential. Although we38(table of contents)continue to seek ways to lessen many of these potential conflicts of interest, there can be no assurance that such measures will be effective, that we will be able toresolve all conflicts with Residential, or that the resolution of any such conflicts will be no less favorable to us than if we were dealing with a third party that hadnone of the connections we have with Residential.Our Directors have the right to engage or invest in the same or similar businesses as ours.Our Directors may have other investments and business activities in addition to their interest in, and responsibilities to, us. Under the provisions of our Charter andour bylaws (the “Bylaws”), our Directors have no duty to abstain from exercising the right to engage or invest in the same or similar businesses as ours or employor otherwise engage any of the other Directors. If any of our Directors who are also directors, officers or employees of any company acquires knowledge of acorporate opportunity or is offered a corporate opportunity outside of his capacity as one of our Directors, then our Bylaws provide that such Director will bepermitted to pursue that corporate opportunity independently of us, so long as the Director has acted in good faith. Our Bylaws provide that, to the fullest extentpermitted by law, such a Director will be deemed to have satisfied his fiduciary duties to us and will not be liable to us for pursuing such a corporate opportunityindependently of us. This may create conflicts of interest between us and certain of our Directors and result in less than favorable treatment of us and ourstockholders. As of this date, none of our Directors is directly involved as a director, officer or employee of a business that competes with us, but there can be noassurance that will remain unchanged in the future.Risks Related to Residential's Qualification as a REITResidential’s failure to qualify as a REIT would materially and adversely affect Residential and us.Residential made an election to be treated as a REIT for U.S. federal income tax purposes beginning with the year ended December 31, 2013. However, we cannotassure you that Residential will remain qualified as a REIT. Moreover, Residential's qualification and taxation as a REIT will depend upon its ability to meet on acontinuing basis, through actual operating results, certain qualification tests set forth in the federal income tax laws. Accordingly, no assurance can be given thatResidential's actual results of operations for any particular taxable year will satisfy such requirements. If Residential fails to qualify as a REIT in any taxable year,it will face serious tax consequences that will substantially reduce the funds available for distribution to its stockholders because:•Residential would not be allowed a deduction for dividends paid to stockholders in computing its taxable income;•Residential could be subject to the federal alternative minimum tax to a greater extent and possibly increased state and local taxes; and•unless Residential is entitled to relief under certain federal income tax laws, it could not re-elect REIT status until the fifth calendar year after the year inwhich it failed to qualify as a REIT. In addition, if Residential fails to qualify as a REIT, it will no longer be required to make distributions.As a result of all these factors, Residential's failure to qualify as a REIT could impair its ability to expand its business and raise capital, and it could materially andadversely affect Residential and the market price of its common stock. If these risks are realized by Residential, our ability to generate incentive management feescould be harmed and our results of operations and financial condition could be materially and adversely affected.Residential's tax position with respect to the accrual of interest and market discount income with respect to distressed mortgage loans involves risk.Residential does not accrue interest income or market discount on defaulted or delinquent loans when certain criteria are satisfied. The criteria generally relate towhether those amounts are uncollectible or of doubtful collectability. If the Internal Revenue Service were to challenge this position successfully, Residential couldbe subject to entity level excise tax as a result of “deficiency dividends” that it may be required to pay to its stockholders at the time of such an adjustment to itsincome in order to maintain its qualification as a REIT. This, in turn, could materially and adversely affect our ability to generate incentive management fees.39(table of contents)Compliance with REIT requirements may cause Residential to forego otherwise attractive opportunities which may hinder or delay its ability to meet itsinvestment objectives and reduce your overall return.To qualify as a REIT, Residential is required at all times to satisfy certain tests relating to, among other things, the sources of our income, the nature anddiversification of its assets, its financing, hedging and investment strategies, the ownership of its stock and amounts it distributes to its stockholders. Compliancewith the REIT requirements may preclude Residential from certain financing or hedging strategies or cause it to forego otherwise attractive opportunities whichmay hinder or delay its ability to meet its investment objectives and reduce your overall return. For example, Residential may be required to pay distributions tostockholders at disadvantageous times or when it does not have funds readily available for distribution.Compliance with REIT requirements may force Residential to liquidate otherwise attractive investments, which could materially adversely affect Residential.To qualify as a REIT, at the end of each calendar quarter, at least 75% of Residential's assets must consist of qualified real estate assets, cash, cash items andgovernment securities. In addition, no more than 25% of the value of Residential's assets may be represented by securities of one or more taxable REITsubsidiaries. Except for securities that qualify for purposes of the 75% asset test above and investments in Residential's qualified REIT subsidiaries and its taxableREIT subsidiaries, its investment in the value of any one issuer’s securities may not exceed 5% of the value of its total assets, and it may not own more than 10%of the total vote or value of the outstanding securities of any one issuer, except, in the case of the 10% value test, certain “straight debt” securities. In order tosatisfy these requirements, Residential may be forced to liquidate otherwise attractive investments, potentially at a loss, which could materially and adverselyaffect Residential. This, in turn, could materially and adversely affect our ability to generate incentive management fees.Failure to make required distributions would subject Residential to federal corporate income tax.We intend to continue to operate Residential in a manner so as to qualify as a REIT for federal income tax purposes. In order to qualify as a REIT, Residentialgenerally is required to distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capitalgain, each year to its stockholders. To the extent that Residential satisfies this distribution requirement, but distribute less than 100% of its REIT taxable income, itwill be subject to federal corporate income tax on its undistributed taxable income. In addition, Residential will be subject to a 4% nondeductible excise tax if theactual amount that it pays out to its stockholders in a calendar year is less than a minimum amount specified under the Code.The IRS may deem the gains from sales of Residential's properties to be subject to a 100% prohibited transaction tax.From time to time, Residential may be forced to sell properties that do not meet its investment objectives or it may need to sell properties, mortgage loans or otherassets either because they do not meet its rental portfolio objectives or to satisfy its REIT distribution requirements. In general, REITs do not sell residential assetsout of the REIT so they are not determined to be a “dealer.” If Residential were to purchase real estate assets with a view toward re-selling them, it could beconsidered a “dealer” of real estate, which could cause Residential to fail to meet its REIT requirements or such sales could be considered “prohibitedtransactions.” Because Residential has historically purchased large portfolios of mortgage loans with a view toward converting them into rental homes, there arealways going to be assets that it purchases as part of all-or none portfolios that are not acceptable for its portfolio and necessary to sell. Typically, Residentialcontributes REO properties that it determines will not meet its rental portfolio criteria to its taxable REIT subsidiary to prevent the sales from being deemedprohibited transactions. In addition, Residential has been selling its non-performing loan portfolios from its qualified REIT subsidiaries, but Residential expects tolimit such portfolios to fewer than six in any calendar year based on guidance that fewer than six sales per year would not result in these transactions being“prohibited transactions.” The IRS may deem one or more sales of Residential's properties to be “prohibited transactions.” If the IRS takes the position thatResidential has engaged in a “prohibited transaction” (i.e., if Residential sells a property held by us primarily for sale in the ordinary course of our trade orbusiness), the gain it recognizes from such sale would not disqualify Residential as a REIT, but such gains would be subject to a 100% tax. The Code sets forth asafe harbor for REITs that wish to sell property without risking the imposition of the 100% tax; however, there is no assurance that Residential will be able toqualify for the safe harbor. Residential does not intend to hold property for sale in the ordinary course of business; however, there is no assurance that its positionwill not be challenged by the IRS especially if it makes frequent sales or sales of property in which it has short holding periods. This, in turn, could materially andadversely affect our ability to generate incentive management fees.40(table of contents)The “taxable mortgage pool” rules may increase the taxes that Residential or Residential’s stockholders may incur, and may limit the manner in which weeffect future securitizations.Securitizations by us or our subsidiaries could result in the creation of taxable mortgage pools for U.S. federal income tax purposes, resulting in “excess inclusionincome.” As a REIT, so long as we own 100% of the equity interests in a taxable mortgage pool, we generally would not be adversely affected by thecharacterization of the securitization as a taxable mortgage pool. Certain categories of stockholders, however, such as non-U.S. stockholders eligible for treaty orother benefits, stockholders with net operating losses, and certain tax-exempt U.S. stockholders that are subject to unrelated business income tax, could be subjectto increased taxes on a portion of their dividend income from us that is attributable to the excess inclusion income. In the case of a stockholder that is a REIT, aregulated investment company, or RIC, common trust fund or other pass-through entity, our allocable share of our excess inclusion income could be consideredexcess inclusion income of such entity. In addition, to the extent that our stock is owned by tax-exempt “disqualified organizations,” such as certain government-related entities and charitable remainder trusts that are not subject to tax on unrelated business income, we may incur a corporate level tax on a portion of anyexcess inclusion income. Because this tax generally would be imposed on us, all of our stockholders, including stockholders that are not disqualified organizations,generally would bear a portion of the tax cost associated with the classification of us or a portion of our assets as a taxable mortgage pool. A RIC, or other pass-through entity owning our stock in record name will be subject to tax at the highest U.S. federal corporate tax rate on any excess inclusion income allocated to theirowners that are disqualified organizations. Moreover, we could face limitations in selling equity interests in these securitizations to outside investors, or selling anydebt securities issued in connection with these securitizations that might be considered to be equity interests for tax purposes. Finally, if we were to fail to maintainour REIT qualification, any taxable mortgage pool securitizations would be treated as separate taxable corporations for U.S. federal income tax purposes that couldnot be included in any consolidated U.S. federal income tax return. These limitations may prevent us from using certain techniques to maximize our returns fromsecuritization transactions.In the future, Residential could be required to sell assets, borrow funds or raise equity capital to fund its distributions or to make a portion of its distributionsin the form of a taxable stock distribution.Residential's Board of Directors has the sole discretion to determine the timing, form and amount of any distributions to its stockholders, and the amount of suchdistributions may be limited. In the future, Residential could be required to sell assets, borrow funds or raise equity capital to fund its distributions or to make aportion of its distributions in the form of a taxable stock distribution. Residential's Board of Directors will make determinations regarding distributions based uponvarious factors, including its historical and projected financial condition and requirements, liquidity and results of operations, financing covenants, maintenance ofits REIT qualification, applicable law and other factors, as its Board of Directors may deem relevant from time to time. To the extent that Residential is required tosell assets in adverse market conditions or borrow funds at unfavorable rates, it could be materially and adversely affected. To the extent Residential may have toraise equity capital, it may be unable to do so at attractive prices, on a timely basis or at all, which could adversely affect its ability to make distributions to itsstockholders. This, in turn, could materially and adversely affect our ability to generate incentive management fees.Even if Residential qualifies as a REIT, it may be subject to tax liabilities that could materially and adversely affect Residential.Even if Residential qualifies for taxation as a REIT, it may be subject to certain federal, state and local taxes on its income and assets, including taxes on anyundistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. In addition,Residential could, in certain circumstances, be required to pay an excise tax or penalty tax (which could be significant in amount) in order to utilize one or more ofthe relief provisions under the Code to maintain its qualification as a REIT. In order to meet the REIT qualification requirements or to avert the imposition of a100% tax that applies to certain gains derived by a REIT from sales of “dealer property,” Residential may also move or hold some of its assets or conduct activitiesthrough a TRS. In addition, if Residential lends money to a TRS, the TRS may be unable to deduct all or a portion of the interest paid to Residential, which couldresult in an even higher corporate level tax liability. Any of these taxes would decrease cash available for distribution to Residential's stockholders.Furthermore, the Code imposes a 100% tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s length basis. We willstructure Residential's transaction with any TRS on terms that we believe are arm’s length to avoid incurring the 100% excise tax described above. There can be noassurances, however, that Residential will be able to avoid application of the 100% tax. Any such additional tax liabilities would have an adverse effect onResidential and us.41(table of contents)Residential may be subject to legislative or regulatory tax changes that could materially and adversely affect Residential.At any time, the federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended. Wecannot predict when or if any new federal income tax law, regulation or administrative interpretation or any amendment to any existing federal income tax law,regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effectretroactively. Residential and its stockholders could be materially and adversely affected by any such change in or any new, federal income tax law, regulation oradministrative interpretation. This, in turn, could materially and adversely affect our ability to generate incentive management fees.Our planned use of taxable REIT subsidiaries by Residential may cause it to fail to qualify to be taxed as a REIT.The net income of Residential's TRSs is not required to be distributed to Residential, and income that is not distributed to Residential generally will not be subjectto the REIT income distribution requirement. However, there may be limitations on Residential's ability to accumulate earnings in its TRSs and the accumulationor reinvestment of significant earnings in its TRSs could result in adverse tax treatment. In particular, if the accumulation of cash in Residential's TRSs causes thefair market value of its securities in our TRSs and certain other nonqualifying assets to exceed 25% of the fair market value of its assets, it would fail to qualify tobe taxed as a REIT, which could materially and adversely affect us.Risks related to our common stockThe market price and trading volume of our common stock may be volatile and may be affected by market conditions beyond our control.The price at which our common stock trades has fluctuated, and may continue to fluctuate, significantly. The market price of our common stock may fluctuate inresponse to many things, including but not limited to:•variations in actual or anticipated results of our operations, liquidity or financial condition;•changes in, or the failure to meet, our financial estimates or those of by securities analysts;•actions or announcements by our competitors;•potential conflicts of interest, or the discontinuance of our strategic relationships with Residential, Altisource and Ocwen;•actual or anticipated accounting problem;•regulatory actions;•lack of liquidity;•changes in the financial condition or stock price of Residential;•changes in the market outlook for the real estate, mortgage or housing markets;•technology changes in our business;•changes in interest rates that lead purchasers of our common stock to demand a higher yield;•actions by our stockholders;•speculation in the press or investment community;•general market, economic and political conditions, including an economic slowdown or dislocation in the global credit markets;•failure to maintain the listing of our common stock on the NYSE MKT;•failure of Residential to qualify or maintain qualification as a REIT;•failure of Residential to maintain its exemption from registration under the Investment Company Act;•changes in accounting principles;•passage of legislation or other regulatory developments that adversely affect us or our industry; and•departure of our key personnel.The market prices of securities of asset management service providers have experienced fluctuations that often have been unrelated or disproportionate to theoperating results of these companies. These market fluctuations could result in extreme volatility in the market price of our common stock.Furthermore, our small size and different investment characteristics may not continue to appeal to our current investor base that may seek to dispose of largeamounts of our common stock. There is no assurance that there will be sufficient buying interest to offset those sales, and, accordingly, the market price of ourcommon stock could be depressed and/or experience periods of high volatility.42(table of contents)Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesOur principal executive offices are 36C Strand Street, Christiansted, St. Croix, United States Virgin Islands 00820.On April 16, 2015, we entered into a lease with respect to office space in Christiansted, St. Croix in the U.S. Virgin Islands. The lease has an initial term of fiveyears, and we have an option to extend the lease for an additional five-year term. The office space under the lease is approximately 5,000 square feet and is locatedat Plot No. 56, Estate Southgate Farm, Christiansted, VI 00820.The annual rent during the initial five-year term under the lease is $120,000, which increases to $130,800 per annum during the renewal term. The landlord isrequired to make renovations and build offices in the premises under the lease, and the renovations are expected to be completed during 2016. During therenovation period, the landlord has provided AAMC with approximately 4,000 square feet of temporary space, located at 36C Strand Street, Christiansted, VI00820, at a rent of $4,000 per month.For information concerning Residential's mortgage loans at fair value and its real estate assets, see “Item 1. Business.”Item 3. Legal proceedingsFrom time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. Set forth below is a summary of legalproceedings to which we are a party as of December 31, 2015 or which settled during 2015:Police Retirement System of St. Louis v. Erbey, et al. On January 15, 2015, a stockholder derivative action was filed in the Circuit Court of Maryland for BaltimoreCity by a purported stockholder of Residential under the caption The Police Retirement System of Saint Louis v. Erbey, et al. , 24-C-15-000223. The action namedas defendants William C. Erbey and each of the members of Residential’s Board of Directors and alleged that Mr. Erbey and Residential’s Directors breached theirfiduciary duties in connection with the asset management agreement among Residential, Altisource Residential, L.P. and us. The action also named AltisourceResidential, L.P. and AAMC as defendants and alleged that we aided and abetted the purported breaches of fiduciary duty and have been unjustly enriched by theasset management agreement. The complaint also named Residential as a nominal defendant. The plaintiff sought, among other things, an order declaring that Mr.Erbey and the director defendants have breached their fiduciary duties, an order declaring that Mr. Erbey and AAMC have been unjustly enriched, an orderdeclaring that the asset management agreement is unenforceable and directing Residential’s Board of Directors to terminate the asset management agreement,damages, disgorgement by Mr. Erbey and AAMC of allegedly wrongful profits, changes to Residential’s corporate governance and an award of attorney’s andother fees and expenses.On March 31, 2015, we and Residential entered into the New AMA to replace the Original AMA. This New AMA was publicly announced on March 31, 2015. Inconnection with the entry into the New AMA, the Defendants (including all the individual defendants, Residential, AAMC and Altisource Residential, L.P.) andPlaintiff entered into a Memorandum of Understanding (the “MOU”) to settle the action for the consideration of the New AMA and an application for an award ofattorneys’ fees and litigation expenses for plaintiff’s counsel of an amount not to exceed $6.0 million .On June 30, 2015, The Police Retirement System of Saint Louis and the defendants entered into a Stipulation and Agreement of Compromise, Settlement andRelease (the “Settlement Stipulation”) for the settlement of this derivative action (the “Settlement”), and the parties filed the Settlement Stipulation with the courton the same day. By Order dated August 3, 2015, the court preliminarily approved the Settlement, scheduled a hearing on November 9, 2015 to consider finalapproval of the Settlement and authorized Residential to provide notice of the proposed Settlement to its stockholders.On November 9, 2015, the Settlement was approved by the court, and no shareholders objected to the Settlement. Therefore, the matter was resolved and all claimsin the action that were, or could have been, brought by or on behalf of Residential challenging the Original AMA among Residential, Altisource Residential L.P.and AAMC, or the negotiation of, the terms and provisions of, or the approval of the New AMA. Pursuant to the Settlement, the defendants paid the attorneys’ feesand expenses of plaintiff’s counsel in an amount of $6.0 million . This payment was a 100% covered claim under Residential’s and our insurance policy, and werecognized no loss in connection with this settlement.43(table of contents)Hulstrom v. William C. Erbey, et al. On April 23, 2015, a shareholder derivative action was filed in the Superior Court of the Virgin Islands, Division of St. Croix,by a purported shareholder of Residential under the caption Kirk Hulstrom v. William Erbey, et al ., SX-15-CV-158. The action named as defendants William C.Erbey, each of the current and former members of Residential’s Board of Directors, certain officers of Residential, AAMC and Ocwen. In the complaint, plaintiffasserted claims against the individual defendants for breach of fiduciary duty, abuse of control and gross mismanagement in connection with the asset managementagreement between Residential and us. As to AAMC and Ocwen, plaintiff alleged that both companies aided and abetted the purported breaches of fiduciary dutyand have been unjustly enriched by the asset management agreement. The complaint also named Residential as a nominal defendant.In November 2015, the parties agreed that plaintiff Hulstrom would become party to the Settlement in the Police Retirement System of St. Louis action describedabove with no additional Settlement payment by the defendants. In connection therewith, on December 10, 2015, Hulstrom filed a notice of voluntary dismissal ofthis matter, which released and resolved all claims asserted in this action. Therefore, there is no expected liability to us in this matter.City of Cambridge Retirement System v. Altisource Asset Management Corp., et al. On January 16, 2015, a putative shareholder class action complaint was filed inthe United States District Court of the Virgin Islands by a purported shareholder of AAMC under the caption City of Cambridge Retirement System v. AltisourceAsset Management Corp., et al. , 15-cv-00004. The action names as defendants AAMC, Mr. Erbey and certain officers of AAMC and alleges that the defendantsviolated federal securities laws by failing to disclose material information to AAMC shareholders concerning alleged conflicts of interest held by Mr. Erbey withrespect to AAMC’s relationship and transactions with Residential, Altisource, Home Loan Servicing Solutions, Ltd., Southwest Business Corporation, NewSourceReinsurance Company and Ocwen Financial Corporation, including allegations that the defendants failed to disclose (i) the nature of relationships betweenMr. Erbey, AAMC and those entities; and (ii) that the transactions were the result of an allegedly unfair process from which Mr. Erbey failed to recuse himself.The action seeks, among other things, an award of monetary damages to the putative class in an unspecified amount and an award of attorney’s and other fees andexpenses. AAMC and Mr. Erbey are the only defendants who have been served with the complaint.On May 12, 2015, the court entered an order granting the motion of Denver Employees Retirement Plan to be lead plaintiff. On May 15, 2015, the court entered ascheduling order requiring plaintiff to file an amended complaint on or before June 19, 2015, and setting a briefing schedule for any motion to dismiss. Plaintifffiled an amended complaint on June 19, 2015. On July 20, 2015, AAMC and Mr. Erbey filed a motion to dismiss the amended complaint. Briefing on the motion todismiss was completed on September 3, 2015, and we are awaiting a decision from the court on the motion. We believe the amended complaint is without merit. Atthis time, we are not able to predict the ultimate outcome of this matter, nor can we estimate the range of possible loss, if any.Kanga v. Altisource Asset Management Corporation, et al. On March 12, 2015, a shareholder derivative action was filed in the Superior Court of the VirginIslands, Division of St. Croix, by a purported shareholder of AAMC under the caption Nanzeen Kanga v. William Erbey, et al. , SX-15-CV-105. The actionnames as defendants William C. Erbey and each of the current and former members of AAMC's Board of Directors and alleges that Mr. Erbey and AAMC’sdirectors breached fiduciary duties in connection with the disclosures that are the subject of the City of Cambridge Retirement System case described above andcertain other matters involving the relationship of Residential and AAMC.On May 15, 2015, the plaintiff and the defendants filed an agreed motion to stay the action until the earliest of any of the following events: (i) the City ofCambridge Retirement System action is dismissed with prejudice; (ii) any of the defendants in the City of Cambridge Retirement System action file an answer inthat action; and (iii) defendants do not move to stay any later-filed derivative action purportedly brought on behalf of us arising from similar facts asthe Kanga action and relating to the same time frame or such motion to stay is denied.At this time, we are not able to predict the ultimate outcome of this matter, nor can we estimate the range of possible loss, if any.Sokolowski v. Erbey, et al. On December 24, 2014, a shareholder derivative action was filed in the United States District Court for the Southern District of Floridaby a purported shareholder of Ocwen. The action named the directors of Ocwen as defendants and alleged, among other things, various breaches of fiduciary dutiesby the directors of Ocwen.On February 11, 2015, plaintiff filed an amended complaint naming the directors of Ocwen as defendants and also naming Residential, AAMC, Altisource andHome Loan Servicing Solutions, Ltd. as alleged aiders and abettors of the purported breaches of fiduciary duties. The amended complaint alleges that the directorsof Ocwen breached their fiduciary duties by,44(table of contents)among other things, allegedly failing to exercise oversight over Ocwen’s compliance with applicable laws, rules and regulations; failing to exercise oversightresponsibilities with respect to the accounting and financial reporting processes of Ocwen; failing to prevent conflicts of interest and allegedly improper relatedparty transactions; failing to adhere to Ocwen’s code of conduct and corporate governance guidelines; selling personal holdings of Ocwen stock on the basis ofmaterial adverse inside information; and disseminating allegedly false and misleading statements regarding Ocwen’s compliance with regulatory obligations andallegedly self-dealing transactions with related companies. Plaintiff claims that as a result of the alleged breaches of fiduciary duties, Ocwen has suffered damages,including settlements with regulatory agencies in excess of $2 billion, injury to its reputation and corporate goodwill and exposure to governmental investigationsand securities and consumer class action lawsuits. In addition to the derivative claims, the plaintiff also alleges an individual claim that Ocwen’s 2014 proxystatement allegedly contained untrue statements of material fact and failed to disclose material information in violation of federal securities laws. The plaintiffseeks, among other things, an order requiring the defendants to repay to Ocwen unspecified amounts by which Ocwen has been damaged or will be damaged, anaward of an unspecified amount of exemplary damages, changes to Ocwen's corporate governance and an award of attorneys’ and other fees and expenses.On April 13, 2015, nominal defendant Ocwen and defendants Mr. Erbey and Mr. Faris filed a motion to stay the action.On July 16, 2015, we filed a motion to dismiss all claims against us in the action, based upon, among other arguments, lack of personal jurisdiction and failure tostate a claim. Co-defendant Residential filed a similar motion to dismiss the complaint as to all claims asserted against it.On December 8, 2015, the court granted Residential's and our motions to dismiss for lack of personal jurisdiction with leave to amend the jurisdiction allegationsno later than January 4, 2016.On December 15, 2015, Hutt v. Erbey, et al. , Case No. 15-cv-81709-WPD, was transferred to the Southern District of Florida from the Northern District ofGeorgia. That same day, a third related derivative action, Lowinger v. Erbey, et al. , Case No. 15-cv-62628-WPD, was also filed in the Southern District of Florida.The court then requested that the parties file a response stating their positions as to whether the actions should be consolidated. On December 29, 2015, we filed aresponse stating that we took no position on the issue of consolidation, so long as our defenses were fully reserved should plaintiff Sokolowski seek to file anamended complaint. Neither plaintiff Sokolowski nor plaintiff Hutt opposed consolidation in their responses. On December 30, 2015, the court issued an order that,among other things, extended the deadline for plaintiff Sokolowski to file its amended complaint to cure the jurisdictional defects as to Residential and us untilJanuary 13, 2016. On January 8, 2016, the court issued an order consolidating the three related actions.On February 2, 2016, Plaintiffs Sokolowski and Lowinger filed competing motions for appointment of lead counsel in the consolidated action. These motions werefully briefed on February 5, 2016. Subsequently, on February 17, 2016, the court issued an order appointing Sokolowski’s counsel as lead counsel with Lowinger’sand Hutt’s counsel serving on the executive committee of the plaintiffs. It also ordered that a consolidated complaint in the matter shall be filed no later than March8, 2016.We believe the complaint against us is without merit. At this time, we are not able to predict the ultimate outcome of this matter, nor can we estimate the range ofpossible loss, if any.Management does not believe that we have incurred an estimable, probable or material loss by reason of any of the above actions.Item 4. Mine safety disclosures Not applicable.45(table of contents)Part IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationOur common stock has been listed on the NYSE MKT under the symbol “AAMC” since December 13, 2013. The following table sets forth the high and low closeof day sales prices for our common stock as reported by the New York Stock Exchange and dividends declared per share for the periods indicated: 2015 2014Quarter ended High Low High LowMarch 31 $342.85 $156.33 $1196.36 $769.59June 30 259.95 140.50 1,112.37 723.06September 30 147.10 23.55 763.75 540.00December 31 38.00 11.34 699.92 310.12The number of holders of record of our common stock as of February 22, 2016 was 51. The number of beneficial stockholders is substantially greater than thenumber of holders as a large portion of our stock is held through brokerage firms. Information regarding s ecurities authorized for issuance under equitycompensation plans is set forth in Note 10 to the consolidated financial statements.DividendsWe will pay dividends at the sole and absolute discretion of our Board of Directors in the light of conditions then existing, including our earnings, financialcondition, liquidity, capital requirements, the availability of capital, general overall economic conditions and other factors. We paid no dividends from inception toDecember 31, 2015 .Issuer Purchases of Equity SecuritiesThe Board of Directors has authorized total repurchases of $300.0 million of common stock. At December 31, 2015 , we have remaining approximately $50.9million authorized by our Board of Directors for share repurchases. Repurchased shares are held as treasury stock and available for general corporatepurposes. Below is a summary of our stock repurchases for the quarter ending December 31, 2015 (dollars in thousands except per share amounts). (a) Total Numberof SharesPurchased (b) Average PricePaid per Share (c) Total Number ofShares Purchased as Partof PubliclyAnnounced Plans orPrograms (d) Maximum Dollar Value ofShares that may yet bePurchased under Plans orPrograms (1)October 2015 — $— 292,450 $53,588November 2015 — — 292,450 53,588December 2015 206,013 12.95 498,463 50,919For the quarter ended December 31, 2015 206,013 $12.95 498,463 $50,919__________(1) Since Board approval of repurchases is based on dollar amount, we cannot estimate the number of shares yet to be purchased.(2) The number of shares above excludes shares of common stock tendered to satisfy the tax withholding on equity awards as part of our equity incentive plan. For the yearended December 31, 2015 , 4,969 shares were reacquired at a weighted average per share price of $216.26 pursuant to our equity incentive plan.46(table of contents)Performance GraphThe following stock price performance graph compares the performance of our common stock to the S&P 500 and the Dow Jones U.S. Asset Manager Index. Thestock price performance graph assumes an investment of $100 in our common stock and the two indices on December 13, 2012 and further assumes thereinvestment of all dividends. Stock price performance is not necessarily indicative of future results. For the period from December 13, 2012 to December 31,Index 2012 2013 2014 2015Altisource Asset Management Corporation $546.67 $6,200.00 $2,067.47 $114.40S&P 500 100.47 130.22 145.05 144.00Dow Jones U.S. Asset Manager Index 102.86 147.79 159.28 140.23The performance graph above is being furnished as part of this Annual Report solely in accordance with the requirement under Rule 14a-3(b)(9) to furnish theCompany’s stockholders with such information and, therefore, is not deemed to be filed, or incorporated by reference in any filing, by the Company under theSecurities Act of 1933 or the Securities Exchange Act of 1934.47(table of contents)Item 6. Selected Financial DataThe following table sets forth selected financial data which is derived from our audited consolidated financial statements ($ in thousands, except per share data).The historical results presented below may not be indicative of our future performance and do not necessarily reflect what our financial position would have beenhad we operated as a separate, stand-alone entity since inception. The data should be read in conjunction with our consolidated financial statements and notesthereto, included elsewhere in this report, and “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.” Year endedDecember 31,2015 Year ended December 31, 2014 Year endedDecember 31, 2013 March 15, 2012(inception) toDecember 31, 2012Total revenue$248,099 $423,298 $72,297 $—Net (loss) income attributable to common stockholders(3,290) 59,679 (5,293) (46)(Loss) earnings per basic share(1.59) 26.31 (2.26) (0.02)(Loss) earnings per diluted share(1.59) 21.07 (2.26) (0.02) December 31, 2015 December 31, 2014 December 31, 2013 December 31, 2012Total assets$2,525,776 $2,760,698 $1,405,104 $105,815Repurchase agreements767,513 1,015,000 602,382 —Other secured borrowings505,630 324,082 — —Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsOverviewOur primary business is to provide asset management and certain corporate governance services to institutional investors. In October 2013, we applied for andwere granted registration by the SEC as a registered investment adviser under section 203(c) of the Investment Advisers Act of 1940. Our primary clients isResidential.We have a capital light operating strategy. Residential is currently our primary source of revenue and will drive our results. On March 31, 2015, we entered into theNew AMA with an effective date of April 1, 2015. The Original AMA had a different incentive fee structure that gave us a share of Residential’s cash flowavailable for distribution to its stockholders as well as reimbursement for certain overhead and operating expenses. Although the New AMA provides for a new feestructure in which we are entitled to a base management fee, an incentive management fee and a conversion fee for loans and REO properties that become rentalproperties during each quarter, our operating results are highly dependent on Residential's operating results.We have concluded that Residential is a VIE because Residential’s equity holders lack the ability through voting rights to make decisions about Residential’sactivities that have a significant effect on the success of Residential. We have also concluded that we are the primary beneficiary of Residential’s financialcondition and results of operations because under the Residential asset management agreement we have the power to direct the activities of Residential that mostsignificantly impact Residential’s economic performance including establishing Residential’s investment and business strategy. As a result, we consolidateResidential’s financial results in our consolidated financial statements. As discussed in Note 1 to the consolidated financial statements, we expect to deconsolidateResidential from our consolidated financial statements effective January 1, 2016 after our adoption Accounting Standards Update (“ASU”) 2015-02, Consolidation(Topic 810) – Amendments to the Consolidation Analysis.Additionally, we provide management services to NewSource. On December 2, 2013, NewSource became registered as a licensed reinsurer with the BMA.Because we own 100% of voting common stock of NewSource and there are no substantive kick-out rights granted to other equity owners, we consolidateNewSource in our consolidated financial statements.48(table of contents)The 2015 fiscal year has been a period of marked change for Residential. We advised Residential through many crucial steps that we believe are necessary andappropriate for Residential to become one of the preeminent single family rental operators in the industry and position it for future growth and success. Amongothers, these important steps include:•We facilitated Residential's transfer of approximately two-thirds of servicing, representing almost all of its non-securitized loans, away from Ocwen to itstwo new mortgage loan servicing vendors, Fay Servicing and BSI Financial Services. These servicing transfers diversified Residential's servicing baseand provided it with more bandwidth to service and convert its loan portfolio into single-family rentals.•We advised Residential on its renewal, extension and upsize of its repurchase and loan facilities with its lenders throughout 2015 and continued tosecuritize its non-performing loan portfolios. Residential's amended repurchase and loan facilities have also provided it with substantially more financingcapacity for its REO portfolio as its total portfolio has been transitioning from one dominated by non-performing loans to a portfolio with substantial REOand single-family rental properties. We expect that the amended agreements will also enable Residential to leverage and sell more properties that do notmeet its rental criteria, providing it with more liquidity to purchase properties for its rental portfolio. Residential's total funding capacity under these newand amended facilities as of December 31, 2015 was $1.3 billion , and its remaining available financing capacity as of December 31, 2015 wasapproximately $512.4 million .•We advised Residential on the diversification of its single-family acquisition strategies to acquire single-family rentals in bulk and/or directly purchaseREOs on a one-by-one basis to more quickly and efficiently build its rental portfolio, as non-performing loans have become higher priced andeconomically unattractive. In August 2015, Residential purchased a portfolio of 1,314 single-family rental properties in Atlanta, of which more than 94%were occupied by tenants with stabilized rental income. In December 2015, Residential also bid for, and was awarded, a portfolio of 627 rental propertiesin Illinois, North Carolina, South Carolina, Georgia and Florida. On February 9, 2016, Residential executed the purchase agreement for this portfolio and,subject to completing confirmatory due diligence, expects to close this transaction prior to the end of the first quarter of 2016. Since Residentialcommenced this diversified acquisition strategy, it has increased its rental portfolio from properties 787 at December 31, 2014 to 2,732 properties atDecember 31, 2015 , a 247% increase.•We managed Residential's commencement of efforts to certain sell non-performing loans to take advantage of attractive market pricing, completing salesof non-performing loans representing approximately 15% of Residential's non-performing loan portfolio in the fourth quarter and agreeing in principal tosell 24% of its remaining non-performing loan portfolio in January 2016. The portfolios sold during the fourth quarter of 2015 were sold at a price withinapproximately 1% of Residential's balance sheet carrying value for the loans, and the portfolio pending sale is expected to be sold at a price withinapproximately 1% of its balance sheet carrying value. This evidences that, not only has the market for non-performing loans remained strong, but also thatour recorded valuation of these loans was accurate. We expect that non-performing loan sales will allow Residential to recycle capital that it may use topurchase rental properties that meet its return profile.•We have advised Residential on building and maintaining a stabilized rental portfolio with high occupancy rates and attractive long-term operatingmargin prospects. Residential has developed and employed internal proprietary models to identify and purchase rental properties with optimal rentalreturn metrics in service areas that have attractive occupancy levels and rental margins. We believe Residential's initial areas of focus have begun togenerate attractive rental yields. We will continue to facilitate Residential's efforts to develop its rental portfolio in targeted locations that continue to meetits objectives and where it can build scale without saturating the market.•Residential has continued to develop its relationship with Altisource to make the services, renovation and property management processes more efficientand cost effective while also providing operational scale. We believe Altisource provides Residential with a competitive advantage by providing a low-cost, single source for full lifecycle rental property management services, including due diligence and acquisition support, renovations and repairs, leasemarketing, tenant management and customer care. As of December 31, 2015 , Altisource managed more than 41,000 vacant pre-foreclosure and REOassets in all 50 states, and these types of properties are far more intensive to manage than tenant-occupied rentals. Altisource has the capacity to conductmore than 247,000 inspections and 133,000 repair and maintenance orders on a monthly basis and has more than 9,300 centrally managed vendorsoperating nationwide. Altisource also leverages sophisticated systems and strong vendor oversight to mitigate risks for its clients, stringent enough tosatisfy the requirements of two top-10 bank clients and one of the largest non-bank mortgage servicers in49(table of contents)the United States. At least one analyst firm has ranked Altisource as the number seven brokerage company in the United States, operating in 50 states andmanaging over 32,000 transactions annually.•We are also assisting Residential with its grass roots efforts to offer quality, affordable rental homes to working class families while offering themincentives and beneficial programs to increase their home ownership opportunities and provide them with additional opportunities to improve their livingsituations. For example, Residential is commencing programs to offer incentives to renters who consistently pay their rents in a timely fashion, includingrent discounts and the flexibility to move to bigger and better properties within its rental portfolio. Residential is also considering implementing rent-to-own programs for qualified renters and are offering access to pre-purchase housing and other counseling through third parties to help provide informationto families to improve their credit profiles. Residential is also in the process of implementing a program to offer rental homes with internet connectivity,as it believes internet capability will provide families who rent its homes with better educational capacity and availability. We believe these incentiveswill make Residential's rental properties highly attractive in the markets in which it competes.Although these crucial steps have presented short-term challenges to Residential's financial performance, we believe they are critical to Residential's strategy ofbuilding long term shareholder value through the creation of a large portfolio of single-family rental homes that it targets operating at a best-in-class yield.Observations on Current Market OpportunitiesWe believe that the economic crash of 2008 and other events affecting the housing and mortgage market in recent years have created a significant demand forsingle-family rental properties. Residential historically has had opportunities to acquire single-family properties through the acquisition of sub-performing and non-performing loan portfolios at attractive valuations. We believe that an integrated approach of acquiring sub-performing and non-performing residential mortgageloans and converting them to rental properties as well as direct purchases of rental properties has enabled Residential to compete more effectively for attractiveopportunities to expand our portfolio, including, without limitation, through the acquisition of distressed mortgage loans, portfolios of single-family rentalproperties and REO properties.In the first two and one-half years of Residential's operations, although we had considered the alternative approaches to acquiring single-family rental homesdescribed above, our most opportunistic acquisition strategy involved acquiring portfolios of non-performing loans. However, as market conditions have continuedto evolve and non-performing mortgage loan pools have become relatively higher priced, opportunities in these alternative acquisition strategies have increasedand become more prevalent in the marketplace. Although we continue to review, assess and assist Residential in bidding on portfolios of non-performing mortgageloans, entities are seeking to sell portfolios of REO properties and rental properties. Residential has now commenced acquisitions through these other sources ofsingle-family rental assets, including the acquisition of portfolios of single-family rental properties and the purchase of certain REO properties on a one-by-onebasis, as we believe they may also provide alternative attractive avenues to grow Residential's rental portfolio.Prior to 2015, Residential had acquired its non-performing and re-performing mortgage loans through direct acquisitions from institutions such as banks, HUD andprivate equity funds. We expect to continue to review and acquire portfolios of non-performing loan portfolios at attractive prices, but we expect to be disciplinedin doing so, rather than acquiring non-performing loans at inflated prices that do not fit Residential's investment criteria.Overview of Residential's PortfolioReal Estate AssetsAs of December 31, 2015 , Residential owned 6,516 REO properties with an aggregate carrying value of $986.4 million , of which 4,933 were held for use and1,583 were held for sale. Of the 4,933 REO properties held for use, 2,118 properties had been leased, 264 were listed and ready for rent, and 350 were in varyingstages of renovation and unit turn status. With respect to the remaining 2,201 REO properties held for use, we will make a final determination whether eachproperty meets Residential's rental profile after (a) applicable state redemption periods have expired, (b) the foreclosure sale has been ratified, (c) Residential hasrecorded the deed for the property, (d) utilities have been activated and (e) we have secured access for interior inspection.As of December 31, 2014 , Residential had 3,960 REO properties, consisting of 3,349 REO properties held for use and 611 properties held for sale. Of the 3,349properties held for use, 336 had been leased, 197 were listed and ready for rent and 25450(table of contents)were in various stages of renovation. With respect to the remaining 2,562 REO properties at December 31, 2014 , we were in the process of determining whetherthese properties would meet Residential's rental profile.Real Estate AcquisitionsOn August 18, 2015, Residential completed the acquisition of 1,314 single-family residential properties in the Atlanta, Georgia market, of which 94% were leasedas of the acquisition date, from an unrelated third party for an aggregate purchase price of approximately $111.4 million . Acquisition costs related to this portfolioacquisition of $0.6 million were recognized in general and administrative expenses. The value of in-place leases was estimated at $1.3 million based upon the costswe would have incurred to lease the properties and is being amortized over the weighted-average remaining life of the leases of 7 months as of the acquisition date.In December 2015, Residential also bid for, and was awarded, a portfolio of 627 rental properties in Illinois, North Carolina, South Carolina, Georgia and Florida.On February 9, 2016, Residential executed the purchase agreement for this portfolio and, subject to completing confirmatory due diligence, expects to close thistransaction prior to the end of the first quarter of 2016.During the third quarter of 2015, Residential initiated a program to purchase single-family residential properties on a one-by-one basis, sourcing listed propertiesfrom the Multiple Listing Service and alternative listing sources. Residential acquired 98 properties under this program during 2015.During the year ended December 31, 2014, Residential acquired 237 REO properties as part of its mortgage loan portfolio acquisitions. The aggregate purchaseprice attributable to these acquired REO properties was $34.1 million.During the year ended December 31, 2013, Residential acquired 40 REO properties as part of its mortgage loan portfolio acquisitions. The aggregate purchaseprice attributable to these acquired REO properties was $6.2 million.Real Estate DispositionsDuring the year ended December 31, 2015 , Residential disposed of 1,321 REO properties and recorded $50.9 million of net realized gains on real estate.During the year ended December 31, 2014 , Residential disposed of 221 REO properties and recorded $9.5 million of net realized gains on real estate.During the year ended December 31, 2013, Residential disposed of four residential properties. There were no significant gains or losses on the dispositions in 2013.Mortgage Loan AssetsAs of December 31, 2015 , Residential's portfolio of mortgage loans at fair value consisted of 5,739 loans, substantially all of which were non-performing, havingan aggregate UPB of approximately $1.4 billion and an aggregate market value of underlying properties of $1.3 billion . Residential also owned 1,297 mortgageloans held for sale having an aggregate UPB of approximately $440.4 million and an aggregate market value of underlying properties of approximately $465.0million as of December 31, 2015 .As of December 31, 2014, Residential's portfolio of mortgage loans consisted of 10,963 residential mortgage loans, substantially all of which were non-performing, having an aggregate UPB of approximately $2.9 billion and an aggregate market value of underlying properties of $2.7 billion. Residential also owned102 mortgage loans held for sale having an aggregate UPB of approximately $18.4 million and an aggregate market value of underlying properties ofapproximately $22.5 million as of December 31, 2014.Mortgage Loan AcquisitionsResidential did not complete any residential mortgage loan portfolio acquisitions during the year ended December 31, 2015.51(table of contents)During 2014, Residential completed the acquisition of an aggregate of 7,326 residential mortgage loans, substantially all of which were non-performing, having anaggregate UPB of approximately $1.9 billion and an aggregate market value of underlying properties of approximately $1.8 billion. The aggregate purchase pricefor these acquisitions was approximately $1.2 billion. Additionally, in June 2014, Residential acquired 879 re-performing mortgage loans with an aggregate marketvalue of underlying properties of $271.1 million for an aggregate purchase price of $144.6 million.During 2013, Residential completed the acquisition of an aggregate of 8,491 residential mortgage loans, substantially all of which were non-performing, having anaggregate unpaid principal balance (“UPB”) of approximately $2.2 billion and an aggregate market value of underlying properties of approximately $1.8 billion.The aggregate purchase price for these acquisitions was approximately $1.2 billion.Mortgage Loan Resolutions and DispositionsFrom inception through December 31, 2015 , Residential modified an aggregate of 1,062 mortgage loans, converted an aggregate of 6,351 mortgage loans at fairvalue and 22 mortgage loans held for sale into REO properties and resolved an aggregate of 1,673 mortgage loans at fair value and 21 mortgage loans held for salethrough short sale, refinancing or other liquidation events.Residential strives to modify as many sub-performing and non-performing loans as possible. We believe modification followed by refinancing generates near-termcash flows, provides the highest possible economic outcome for Residential and is a socially responsible business strategy because it keeps more families in theirhomes.As market conditions in the non-performing residential mortgage loan industry have continued to develop and pricing of non-performing loan portfolios haveincreased, we have been reviewing Residential's portfolio of non-performing loans that we know will not be rented by Residential to consider offering portions ofResidential's portfolio for sale to eligible purchasers. We believe that such potential sales will enable Residential to recycle its assets to provide it with moreliquidity and buying power to purchase additional single-family rental assets. As such, we view Residential's portfolio of non-performing loans as a potentialgrowth engine for its business to purchase single-family assets, which we believe provides Residential with an advantage, particularly at times when it ischallenging to access equity markets.During December 2015, Residential sold a total of 306 of its mortgage loans held for sale to third party purchasers. In connection with these sales, Residentialrecorded $14.0 million of net realized gains on mortgage loans.During November 2015, Residential sold 466 of its mortgage loans held for sale to a third party purchaser. In connection with this sale, Residential recorded $21.9million of net realized gains on mortgage loans.During June 2015, Residential sold an aggregate of 189 re-performing loans to a third party purchaser. The sale included 52 loans from the re-performing mortgageloans purchased in June 2014 and 137 loans that had transitioned to re-performing status from prior non-performing loan acquisitions. In connection with this sale,Residential recorded $0.5 million of net realized gains on mortgage loans held for sale related to the re-performing loans and $5.9 million of net realized gains onmortgage loans related to the non-performing loans that had transitioned to re-performing status.During October 2014, Residential sold 934 re-performing loans to an unrelated third party and recognized $2.8 million of net realized gains on mortgage loans heldfor sale. The sale included 770 loans from the re-performing mortgage loans held for sale purchased in June 2014 and 164 loans that had transitioned to re-performing status from prior non-performing loan acquisitions that had a clean pay history of at least six months .52(table of contents)The following table summarizes changes in Residential's mortgage loans at fair value and real estate portfolios for the periods indicated: Year ended December31, 2015 Year ended December31, 2014 Year ended December31, 2013Mortgage Loans (1) Beginning balance 10,963 8,054 —Acquisitions — 7,326 8,491Dispositions (727) (735) (211)Transferred to held for sale (2,054) — —Mortgage loan conversions to REO (2,507) (3,718) (228)Reversions to mortgage loans (2) 64 36 2Ending balance 5,739 10,963 8,054 Modifications 443 518 101Loan reinstatements 205 168 28 Real Estate Assets Beginning balance 3,960 262 —Acquisitions 1,412 237 40Dispositions (1,321) (221) (4)Mortgage loan conversions to REO (3) 2,529 3,718 228Reversions to mortgage loans (2) (64) (36) (2)Ending balance 6,516 3,960 262 Leased 2,118 336 14Listed and ready for rent 264 197 11Renovation or unit turn 350 254 18Other (4) 3,784 3,173 219 6,516 3,960 262_____________(1)Excludes mortgage loans held for sale.(2)Subsequent to the foreclosure sale, Residential may be notified that the foreclosure sale was invalidated for certain reasons.(3)During 2015, conversions to REO included 22 properties that were previously in Residential's mortgage loans held for sale.(4)Includes properties with a status of evaluating strategy or held for sale.In addition, as of December 31, 2015 , 97 of our mortgage loans were on trial modification plans, compared to 207 mortgage loans on trial modification plans as ofDecember 31, 2014 .Asset Management Agreement with ResidentialPursuant to the asset management agreement, we design and implement Residential's business strategy, administer its business activities and day-to-day operationsand provide corporate governance services, subject to oversight by Residential's Board of Directors. We are responsible for, among other duties: (1) performingand administering all of Residential's day-to-day operations, (2) defining investment criteria in Residential's investment policy in cooperation with its Board ofDirectors, (3) sourcing, analyzing and executing asset acquisitions, including the related financing activities, (4) analyzing and executing sales of properties andresidential mortgage loans, (5) overseeing Altisource’s renovation, leasing and property management of Residential's single-family rental properties, (6) overseeingthe servicing of Residential's residential mortgage loan portfolios, (7) performing asset management duties and (8) performing corporate governance and othermanagement functions, including financial, accounting and tax management services.53(table of contents)We provide Residential with a management team and appropriate support personnel who have substantial experience in the management of residential mortgageloans and residential rental properties. Our management also has significant corporate governance experience that enables us to manage Residential's business andorganizational structure efficiently. We have agreed not to provide the same or substantially similar services without the prior written consent of Residential'sboard of directors to any business or entity competing against Residential in (a) the acquisition or sale of portfolios of REO properties, (b) the carrying on of asingle-family rental business, (c) the acquisition or sale of single-family rental properties, non-performing and re-performing mortgage loans or other similarassets, (d) the purchase of portfolios of sub-performing or non-performing residential mortgage loans or (e) any other activity in which Residential engages.Notwithstanding the foregoing, we may engage in any other business or render similar or different services to any businesses engaged in lending or insuranceactivities or any other activity other than those described above. Further, at any time following Residential's determination and announcement that it will no longerengage in any of the above-described competitive activities, we would be entitled to provide advisory or other services to businesses or entities in such competitiveactivities without Residential's prior consent.On March 31, 2015, we entered into the New AMA with Residential. The New AMA, which became effective on April 1, 2015, provides for a new managementfee structure, which replaces the incentive fee structure under the Original AMA, as follows:•Base Management Fee . We are entitled to a quarterly Base Management Fee equal to 1.5% of the product of (i) Residential's average invested equitycapital for the quarter multiplied by (ii) 0.25 , while it has fewer than 2,500 single-family rental properties actually rented (“Rental Properties”). TheBase Management Fee percentage increases to 1.75% of invested capital while Residential has between 2,500 and 4,499 Rental Properties and increasesto 2.0% of invested capital while it has 4,500 or more Rental Properties; •Incentive Management Fee . We are entitled to a quarterly Incentive Management Fee equal to 20% of the amount by which Residential's return oninvested capital (based on AFFO, defined as net income attributable to holders of common stock calculated in accordance with GAAP plus real estatedepreciation expense minus recurring capital expenditures on all real estate assets owned by Residential) exceeds an annual hurdle return rate of between7.0% and 8.25% (depending on the 10 -year treasury rate). The Incentive Management Fee increases to 22.5% while Residential has between 2,500 and4,499 Rental Properties and increases to 25% while it has 4,500 or more Rental Properties; and •Conversion Fee . We are entitled to a quarterly Conversion Fee equal to 1.5% of the market value of assets converted into leased single-family homes byResidential for the first time during the quarter. Residential has the flexibility to pay up to 25% of the Incentive Management Fee to us in shares of its common stock.Under the New AMA, Residential will not berequired to reimburse us for the allocable compensation and routine overhead expenses of our employees and staff, all of which will now be covered by the BaseManagement Fee described above.Under the New AMA, we will continue to be the exclusive asset manager for Residential for an initial term of 15 years from April 1, 2015, with two potential five-year extensions, subject to Residential achieving an average annual return on invested capital of at least 7.0% during the then-current term. The Original AMAhad a 15 year term, but provided Residential with significant termination rights, including the ability to terminate the agreement if Residential’s board determined,in its sole discretion, that our performance was unsatisfactory or our compensation was reasonable. However, under the New AMA, Residential’s terminationrights are significantly limited. Under the New AMA, neither party is entitled to terminate the New AMA prior to the end of the initial term, or each renewal term,other than termination by (a) us and/or Residential “for cause” for certain events such as a material breach of the New AMA and failure to cure such breach, (b)Residential for certain other reasons such as its failure to achieve a return on invested capital of at least 7.0% for two consecutive fiscal years after the thirdanniversary of the New AMA or (c) Residential in connection with certain change of control events.Under the amended fee structure of the New AMA, the fees from Residential declined from $74.0 million for the year ended December 31, 2014 to $23.7 millionfor the year ended December 31, 2015 . The $23.7 million fees due from Residential for the year ended December 31, 2015 consists of a $13.9 million BaseManagement Fee, a $1.0 million Conversion Fee, a $8.0 million incentive fee under the Original AMA, a $2.0 million professional fee for negotiation of the NewAMA and $0.8 million of expense reimbursements under the Original AMA.No Incentive Management Fee under the New AMA was due from Residential under the New AMA during 2015 because Residential's return on invested capital(as defined in the New AMA) for the each of the three quarters covered by the new AMA was below the required hurdle rate. Under the New AMA, to the extentResidential has an aggregate shortfall in its return rate over the previous seven quarters, that aggregate return rate shortfall gets added to the normal quarterly1.75% return hurdle54(table of contents)for the next quarter before we are entitled to an Incentive Management Fee. As of December 31, 2015 , the aggregate return shortfall from the prior three quartersunder the New AMA was approximately 10.77% of invested capital. Therefore, Residential must achieve a 12.52% return on invested capital in the first quarter of2016 before any Incentive Management Fee will be due from Residential for the first quarter of 2016. In future quarters, return on invested capital must exceed therequired hurdle for the current quarter plus any carried-forward cumulative additional hurdle shortfall from the prior seven quarters before any IncentiveManagement Fee will be due from Residential.If the New AMA were terminated by Residential, our financial position and future prospects for revenues and growth would be materially adversely affected.Metrics Affecting Our Consolidated ResultsAs described above, our operating results depend heavily on Residential’s operating results. Residential’s results are affected by various factors, some of which arebeyond our control, including the following:RevenuesResidential’s revenues primarily consist of the following:i.Rental revenues. Minimum contractual rents from leases are recognized on a straight-line basis over the terms of the leases in residential rental revenues.Therefore, actual amounts billed in accordance with the lease during any given period may be higher or lower than the amount of rental revenuerecognized for the period. As a greater number of Residential's REO properties are renovated and deemed suitable for rental and as the number of itsacquired assets that are REO properties to be held for rent increases, we expect a greater portion of Residential's revenues will be rental revenues. Webelieve the key variables that will affect Residential's rental revenues over the long term will be average occupancy levels and rental rates.ii.Net realized gain on mortgage loans. Residential records net realized gains, including the reclassification of previously accumulated net unrealized gains,upon the liquidation of a loan, which may consist of short sale, third party sale of the underlying property, refinancing or full debt pay-off of the loan.Residential also records realized gains upon the sale of its mortgage loans held for sale, which generally occurs in a bulk sale transaction. For loans notsold as part of a bulk sale, we expect the timeline to liquidate loans will vary significantly by loan, which could result in fluctuations in revenuerecognition and operating performance from period to period. Additionally, the proceeds from loan liquidations may vary significantly depending on theresolution methodology. Residential generally expects to collect proceeds of loan liquidations in cash and, thereafter, have no continuing involvementwith the asset.iii.Net unrealized gains from the conversion of loans to REO. Upon conversion of loans to REO, Residential marks the properties to the most recent marketvalue. The difference between the carrying value of the asset at the time of conversion and the most recent market value, based on BPOs, is recorded inResidential's statement of operations as net unrealized gain on mortgage loans. We expect the timeline to convert acquired loans into REO will varysignificantly by loan, which could result in fluctuations in Residential's revenue recognition and its operating performance from period to period. Thefactors that may affect the timelines to foreclose upon a residential mortgage loan include, without limitation, state foreclosure timelines and deferralsassociated therewith; unauthorized parties occupying the property; inadequacy of documents necessary to foreclose; bankruptcy proceedings initiated byborrowers; federal, state or local legislative action or initiatives designed to provide homeowners with assistance in avoiding residential mortgage loanforeclosures and continued declines in real estate values and/or sustained high levels of unemployment that increase the number of foreclosures and whichplace additional pressure and/or delays on the judicial and administrative proceedings.iv.Net unrealized gains from the change in fair value of loans. After Residential's sub-performing and non-performing mortgage loans are acquired, the fairvalue of each loan is adjusted in each subsequent reporting period as the loan proceeds to a particular resolution (i.e., modification, or conversion to realestate owned). As a loan approaches resolution, the resolution timeline for that loan decreases and costs embedded in the discounted cash flow model forloan servicing, foreclosure costs and property insurance are incurred and removed from future expenses. The shorter resolution timelines and reducedfuture expenses each increase the fair value of the loan. The increase in the value of the loan is recognized in net unrealized gain on mortgage loans in ourconsolidated statements of operations. The exact nature of resolution will be dependent on a number of factors that are beyond our control, includingborrower55(table of contents)willingness to pay, property value, availability of refinancing, interest rates, conditions in the financial markets, the regulatory environment and otherfactors.v.Net realized gain on real estate. REO properties that do not meet Residential's investment criteria are sold out of its taxable REIT subsidiary. The realizedgain or loss recognized in financial statements reflects the net amount of realized and unrealized gains on sold REOs from the time of acquisition to salecompletion.As a greater number of Residential's REO properties are renovated and deemed suitable for rental and as the number of its acquired assets that are REO propertiesto be held for rent increases, we expect a greater portion of Residential's revenues will be rental revenues. For the non-performing loans Residential has acquired todate, the average number of days to determine whether a property met its rental profile was 209 days for the 491 properties on which renovations began during2015 . The average renovation expense was $25,006 per property for 792 renovations completed during 2015 , the average number of days betweencommencement of renovation and listing of the property for rent was 60 days for 491 properties for which renovation began during 2015 , and the average numberof days from listing to leasing a property was 27 days for 560 properties listed in 2015 .We believe the key variables that will affect Residential's rental revenues over the long term will be average occupancy levels and rental rates. We anticipate that amajority of Residential's leases of single-family rental properties to tenants will be for a term of one to two years. As these leases permit the residents to leave atthe end of the lease term without penalty, we anticipate Residential's rental revenues will be affected by declines in market rents more quickly than if its leaseswere for longer terms. Short-term leases may result in high turnover, which involves expenses such as additional renovation costs and leasing expenses, or reducedrental revenues. Residential's occupancy rate is defined as leases in force in which the tenant is in place and occupying the property and leases in force in which thetenant is expected to move in shortly. Residential's occupancy rate at December 31, 2015 was 89% . Residential's rental properties had an average annual rentalrate of $12,327 per home for the 2,118 properties that were leased at December 31, 2015 .Although Residential seeks to lease the majority of REO properties it acquires, it may also sell the properties that do not meet its rental investment criteria togenerate additional cash for reinvestment in other acquisitions. The real estate market and home prices will determine proceeds from any sale of real estate. Inaddition, while we seek to track real estate price trends and estimate the effects of those trends on the valuations of Residential’s portfolios of residential mortgageloans, future real estate values are subject to influences beyond our control.ExpensesResidential's expenses primarily consist of residential property operating expenses, depreciation and amortization, acquisition fees and costs, real estate andmortgage loan selling costs and impairment, mortgage loan servicing, interest expense, general and administrative expenses, expense reimbursement as well as feesto from Residential under the Original AMA or the New AMA, as applicable. Residential property operating expenses are expenses associated with Residential'sownership and operation of rental properties, including expenses such as property management fees, expenses towards repairs, utility expenses on vacantproperties, turnover costs, property taxes, insurance and HOA dues. Depreciation and amortization is a non-cash expense associated with the ownership of realestate and generally remains relatively consistent each year in relation to Residential's asset levels since these properties are depreciated on a straight-line basisover a fixed life. Acquisition fees and costs include due diligence fees, property inspection fees, real estate commissions and other fees and costs involved inResidential's efforts to acquire assets. Real estate and mortgage loan selling costs and impairment represents Residential's estimate for the costs to be incurred tosell a property or mortgage loan and an amount that represents the carrying amount over the estimated fair value less costs to sell. Mortgage loan servicing costsare primarily for servicing fees, foreclosure fees and advances of residential property insurance. Interest expense consists of the costs to borrow money inconnection with Residential's debt financing of its portfolios. General and administrative expenses consist of the costs related to the general operation and overalladministration of Residential's and our business. Historically, expense reimbursement consisted primarily of our employee salaries in direct correlation to theservices they provide on Residential’s behalf and other personnel costs and corporate overhead. Under the New AMA, there are no general expense or salaryreimbursements. The fees from Residential consist of compensation due from Residential under the applicable asset management agreement. Historically, fees duefrom Residential were based on the amount of cash available for distribution to its stockholders for each period. Under the New AMA the management fees wereceive from Residential are based on a combination of a percentage of Residential's invested capital, a conversion fee for assets that convert to single-familyrentals during each period and Residential's return on invested capital. The percentage payment on each of these metrics will vary based on Residential's number ofleased properties. The fees due from Residential under the respective asset management agreements are eliminated in consolidation but increase our net income byreducing the amount of net income attributable to noncontrolling interest.56(table of contents)Other Factors Affecting Our Consolidated ResultsWe expect Residential’s results of operations to be affected by various additional factors, many of which are beyond our control, including the following:AcquisitionsResidential’s operating results will depend on our ability to source sub-performing and non-performing loans, as well as other residential mortgage loans and REOproperty assets. We believe that there is currently a large supply of sub-performing and non-performing mortgage loans available to Residential for acquisition. Webelieve the available supply provides for a steady acquisition pipeline of assets since we plan on targeting just a small percentage of the population.Generally, we expect that Residential’s mortgage loan portfolio may grow at an uneven pace, as opportunities to acquire distressed residential mortgage loans maybe irregularly timed and may at times involve large or small portfolios of loans, and the timing and extent of Residential's success in acquiring such loans cannot bepredicted. 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 beresolved prior to the closing date or may fail to meet our diligence standards. Although the number of unacquired loans typically constitutes a relatively smallportion of a particular portfolio, in certain cases, the number of loans we do not acquire could be a significant portion of a particular portfolio. In any case wherewe do not acquire the full portfolio, appropriate adjustments are made to the applicable purchase price.FinancingOur ability to grow Residential’s business is dependent on the availability of adequate financing, including additional equity financing, debt financing or both inorder to meet Residential’s objectives. We intend to leverage Residential’s investments with debt, the level of which may vary based upon the particularcharacteristics of its portfolio and on market conditions. To the extent available at the relevant time, Residential’s financing sources may include bank creditfacilities, warehouse lines of credit, structured financing arrangements and repurchase agreements, among others. We may also seek to raise additional capital forResidential through public or private offerings of debt or equity securities, depending upon market conditions. To qualify as a REIT under the Code, Residentialwill need to distribute at least 90% of its taxable income each year to its stockholders. This distribution requirement limits its ability to retain earnings and therebyreplenish or increase capital to support its activities.Residential's Loan Resolution ActivitiesThe management and/or sale of Residential's legacy portfolio of residential mortgage loans is an important focus of its business. For the mortgage loans remainingin its portfolio, Residential seeks to employ various loan resolution methodologies, through its servicers, with respect to its residential mortgage loans, includingloan modification, collateral resolution and collateral disposition. To help Residential achieve its business objective, we continue to focus on (1) converting aportion of our sub-performing and non-performing loans to performing status and (2) managing the foreclosure process and timelines with respect to the remainderof those loans. Due to the continually evolving market dynamics and pricing of distressed mortgage loans, we are opportunistically evaluating the differentalternatives with respect to our loan portfolio, including potential sales, continued resolution and possible acquisitions of such loans.Disposition of LoansAs discussed above, Residential's loan resolution strategy has typically led to the disposition of non-performing mortgage loans primarily through short sales,refinancing, foreclosure sales, and sale of loans that had transitioned to re-performing loans from prior non-performing loan acquisitions.In the third quarter of 2015, we also managed Residential's commencement of efforts to certain sell non-performing loans to take advantage of attractive marketpricing and evolving market conditions. Non-performing loan sales are expected to be a growth engine for Residential, allowing it to recycle capital that may beused to purchase rental properties that meet its return profile. In the fourth quarter, Residential opportunistically sold a portfolio of non-performing loans, in twoseparate closings to two unaffiliated third parties. In addition, Residential commenced an auction to sell an additional portfolio of non-performing mortgage loansrepresenting approximately 24% of its loan portfolio by UPB. To date, Residential has finalized agreements for the sale of 2,227 non-performing loans with anaggregate UPB of $790.5 million , subject to adjustment depending on the final57(table of contents)diligence results and further negotiation by the parties for those sales that have not yet been consummated. Residential may market additional portfolios of non-performing loans in the future. It is anticipated that the proceeds generated from any such transactions would be utilized, in part, to facilitate Residential's strategyto substantially grow its single-family rental assets through the purchase of portfolios of single-family residential properties and on a one-by-one basis.Resolution of LoansFor the non-performing and sub-performing mortgage loans that Residential continues to hold and acquire, the preferred resolution methodology has been tomodify them. Once successfully modified, we expect that certain borrowers will refinance their loans with other lenders or Residential will sell the modified loansafter establishing a payment history at or near the estimated value of the underlying property, potentially generating attractive returns for Residential. We believemodification followed by refinancing generates near-term cash flows, provides the highest possible economic outcome for Residential and is a socially responsiblebusiness strategy because it keeps more families in their homes.Certain of Residential's residential mortgage loans are liquidated as a result of a short sale, third party sale of the underlying property, refinancing or full debt pay-off of the loan. Upon liquidation of a loan, Residential records net realized gains, including the reclassification of previously accumulated net unrealized gains onthose mortgage loans. We expect the timeline to liquidate loans will vary significantly by loan, which could result in fluctuations in Residential's revenuerecognition and operating performance from period to period. Additionally, the proceeds from loan liquidations may vary significantly depending on the resolutionmethodology used for each loan.A portion of our residential mortgage loans become REO either through foreclosure or as a result of Residential's acquisition of the property via alternativeresolution such as deed-in-lieu of foreclosure. Upon conversion of loans to REO, Residential marks the properties to the most recent market value and recognizenet unrealized gains for the difference between the carrying value of the asset at the time of conversion and the most recent market value, which is based on brokerprice opinions (“BPOs”). The timeline to convert acquired loans into REO can vary significantly by loan, which can result in fluctuations in Residential's revenuerecognition and our operating performance from period to period. The factors that may affect the timelines to foreclose upon a residential mortgage loan include,without limitation, state foreclosure timelines and deferrals associated therewith; unauthorized parties occupying the property; federal, state or local legislativeaction or initiatives designed to provide homeowners with assistance in avoiding residential mortgage loan foreclosures; continued declines in real estate valuesand/or sustained high levels of unemployment that increase the number of foreclosures and that place additional pressure and/or delays on the alreadyoverburdened judicial and administrative proceedings.We anticipate that REO properties that meet Residential's investment criteria will be converted into single-family rental properties, which we believe will generatelong-term returns for Residential's stockholders. If an REO property does not meet Residential's rental investment criteria, we expect Residential to engage in REOliquidation to dispose of the property and generate cash for reinvestment in other acquisitions and dividend distributions.Portfolio SizeThe size of Residential’s investment portfolio will also be a key revenue driver. Generally, as the size of Residential’s investment portfolio grows, the amount ofrevenue it expects to generate will increase. A growing investment portfolio, however, will drive increased expenses including possibly higher servicing fees,property management fees to Altisource and fees due from Residential. Residential may also incur additional interest expense if it incurs additional debt to financethe purchase of its assets.58(table of contents)Summary Management Reporting InformationIn addition to evaluating our consolidated financial performance, we also evaluate the operations of AAMC on a stand-alone basis because our financial statementsconsolidate the results of Residential and NewSource under U.S. GAAP. In evaluating our operating performance and managing our business under the New AMAor the Original AMA, as applicable, we consider the fees due to us from Residential under the applicable asset management agreement as well as our stand-aloneoperating expenses. We maintain our internal management reporting on this basis.The following tables present for the periods indicated our consolidating balance sheets and statements of operations, which are reconciled to U.S. GAAP.Accordingly, the entries necessary to consolidate AAMC's subsidiaries, including, but not limited to, elimination of investment in subsidiaries, elimination ofintercompany receivables and payables, and elimination of fees paid under the asset management agreement and reimbursed expenses, are reflected in theConsolidating Entries column. The following tables include non-GAAP performance measures that we believe are useful to assist investors in gaining anunderstanding of the trends and operating results for our business. This information should be considered in addition to, and not as a substitute for, our financialresults determined in accordance with U.S. GAAP.59(table of contents)Altisource Asset Management CorporationConsolidating Statement of OperationsYear ended December 31, 2015(In thousands) Residential(GAAP) NewSource Stand-alone (Non-GAAP) AAMC Stand-alone(Non-GAAP) ConsolidatingEntries AAMCConsolidated(GAAP)Revenues: Rental revenues$13,233 $— $— $— $13,233Net unrealized gain on mortgage loans88,829 — — — 88,829Net realized gain on mortgage loans58,061 — — — 58,061Net realized gain on mortgage loans held forsale36,432 — — — 36,432Net realized gain on real estate50,932 — — — 50,932Interest income611 564 — (563) 612Conversion fee— — 1,037 (1,037) —Base management fee— — 14,565 (14,565) —Incentive management fee— — 7,994 (7,994) —Expense reimbursements— — 750 (750) —Total revenues248,098 564 24,346 (24,909) 248,099Expenses: Residential property operating expenses66,266 — — — 66,266Real estate depreciation and amortization7,472 — — — 7,472Acquisition fees and costs2,292 — — — 2,292Real estate and mortgage loan selling costs andimpairment72,230 — — — 72,230Mortgage loan servicing costs62,346 — — — 62,346Interest expense53,694 — — (563) 53,131General and administrative9,539 199 23,158 — 32,896Related party general and administrative23,716 630 2,000 (26,346) —Total expenses297,555 829 25,158 (26,909) 296,633Other income3,518 — 211 (3,729) —Loss before income taxes(45,939) (265) (601) (1,729) (48,534)Income tax expense66 — 288 — 354Net loss(46,005) (265) (889) (1,729) (48,888)Net loss attributable to noncontrolling interestin consolidated affiliate— — — 45,598 45,598Net loss attributable to commonstockholders$(46,005) $(265) $(889) $43,869 $(3,290)60(table of contents)Altisource Asset Management CorporationConsolidating Statement of OperationsYear ended December 31, 2014(In thousands) Residential(GAAP) NewSource Stand-alone (Non-GAAP) AAMC Stand-alone(Non-GAAP) ConsolidatingEntries AAMCConsolidated(GAAP)Revenues: Rental revenues$1,564 $— $— $— $1,564Net unrealized gain on mortgage loans350,822 — — — 350,822Net realized gain on mortgage loans55,766 — — — 55,766Net realized gain on mortgage loans held forsale2,771 — — — 2,771Net realized gain on real estate9,482 — — — 9,482Interest income2,893 156 — (156) 2,893Base management fee— — 941 (941) —Incentive management fee— — 67,949 (67,949) —Expense reimbursements— — 6,070 (6,070) —Total revenues423,298 156 74,960 (75,116) 423,298Expenses: Residential property operating expenses26,018 — — — 26,018Real estate depreciation and amortization1,067 — — — 1,067Acquisition fees and costs1,545 — — — 1,545Related party acquisition fees and costs1,039 — — (1,039) —Real estate selling costs and impairment21,788 — — — 21,788Mortgage loan servicing costs68,181 — — — 68,181Interest expense35,812 — — (165) 35,647General and administrative5,502 4,168 8,676 — 18,346Related party general and administrative75,991 941 2,474 (73,921) 5,485Total expenses236,943 5,109 11,150 (75,125) 178,077Other income2,543 5,015 9 (2,160) 5,407Income before income taxes188,898 62 63,819 (2,151) 250,628Income tax expense45 — 2,051 — 2,096Net income188,853 62 61,768 (2,151) 248,532Net income attributable to noncontrollinginterest in consolidated affiliate— — — (188,853) (188,853)Net income attributable to commonstockholders$188,853 $62 $61,768 $(191,004) $59,67961(table of contents)Altisource Asset Management CorporationConsolidating Statement of OperationsYear ended December 31, 2013(In thousands) Residential(GAAP) NewSource Stand-alone (Non-GAAP) AAMC Stand-alone(Non-GAAP) ConsolidatingEntries AAMCConsolidated(GAAP)Revenues: Rental revenues$36 $— $— $— $36Net unrealized gain on mortgage loans61,092 — — — 61,092Net realized gain on mortgage loans10,482 — — — 10,482Interest income687 — — — 687Incentive management fee— — 4,880 (4,880) —Expense reimbursements— — 5,411 (5,411) —Total revenues72,297 — 10,291 (10,291) 72,297Expenses: Residential property operating expenses767 — — — 767Real estate depreciation and amortization25 — — — 25Acquisition fees and costs1,408 — — — 1,408Related party acquisition fees and costs115 — — — 115Real estate selling costs and impairment184 — — — 184Mortgage loan servicing costs10,418 — — — 10,418Interest expense4,568 — — — 4,568General and administrative2,800 77 13,980 — 16,857Related party general and administrative12,416 — 1,527 (10,291) 3,652Total expenses32,701 77 15,507 (10,291) 37,994Other income— — — — —Net income39,596 (77) (5,216) — 34,303Net income attributable to noncontrollinginterest in consolidated affiliate— — — (39,596) (39,596)Net income attributable to commonstockholders$39,596 $(77) $(5,216) $(39,596) $(5,293)62(table of contents)Altisource Asset Management CorporationConsolidating Balance SheetDecember 31, 2015(In thousands) Residential(GAAP) NewSource stand-alone (non-GAAP) AAMC Stand-alone(Non-GAAP) ConsolidatingEntries AAMCConsolidated(GAAP)Assets: Real estate held for use: Land$56,346 $— $— $— $56,346Rental residential properties, net224,040 — — — 224,040Real estate owned455,483 — — — 455,483Total real estate held for use, net735,869 — — — 735,869Real estate assets held for sale250,557 — — — 250,557Mortgage loans at fair value960,534 — — — 960,534Mortgage loans held for sale317,336 — — — 317,336Cash and cash equivalents116,702 4,583 63,259 — 184,544Restricted cash20,566 — — — 20,566Accounts receivable45,903 — 123 — 46,026Related party receivables2,180 — — (2,180) —Investment in affiliate— — 12,007 (12,007) —Deferred leasing and financing costs, net7,886 — — — 7,886Prepaid expenses and other assets415 5 2,028 10 2,458Total assets$2,457,948 $4,588 $77,417 $(14,177) $2,525,776Liabilities: Repurchase agreements$767,513 $— $— $— $767,513Other secured borrowings505,630 — — — 505,630Accounts payable and accrued liabilities32,448 1,546 4,728 — 38,722Related party payables— — 2,180 (2,180) —Total liabilities1,305,591 1,546 6,908 (2,180) 1,311,865Commitments and contingencies— — — — —Preferred stock— — 249,133 — 249,133Equity: Common stock572 — 26 (572) 26Additional paid-in capital1,227,385 7,000 21,089 (1,232,055) 23,419(Accumulated deficit) retained earnings(50,617) (3,958) 55,245 50,008 50,678Treasury stock(24,983) — (254,984) 24,983 (254,984)Total stockholders' equity1,152,357 3,042 (178,624) (1,157,636) (180,861)Noncontrolling interest in consolidated affiliate— — — 1,145,639 1,145,639Total equity1,152,357 3,042 (178,624) (11,997) 964,778Total liabilities and equity$2,457,948 $4,588 $77,417 $(14,177) $2,525,77663(table of contents)Altisource Asset Management CorporationConsolidating Balance SheetDecember 31, 2014(In thousands) Residential(GAAP) NewSource stand-alone (non-GAAP) AAMC Stand-alone(Non-GAAP) ConsolidatingEntries AAMCConsolidated(GAAP)Assets: Real estate held for use: Land$14,424 $— $— $— $14,424Rental residential properties, net60,908 — — — 60,908Real estate owned457,045 — — — 457,045Total real estate held for use, net532,377 — — — 532,377Real estate assets held for sale92,230 — — — 92,230Mortgage loans at fair value1,959,044 — — — 1,959,044Mortgage loans held for sale12,535 — — — 12,535Cash and cash equivalents66,166 6,026 44,590 — 116,782Restricted cash13,282 — — — 13,282Accounts receivable10,313 919 1 (165) 11,068Related party receivables17,491 14,991 28,512 (43,503) 17,491Investment in affiliate18,000 — 2,000 (20,000) —Deferred leasing and financing costs, net4,251 — — — 4,251Prepaid expenses and other assets373 3 1,262 — 1,638Total assets$2,726,062 $21,939 $76,365 $(63,668) $2,760,698Liabilities: Repurchase agreements$1,015,000 $— $— $— $1,015,000Other secured borrowings339,082 — — (15,000) 324,082Accounts payable and accrued liabilities11,678 3,173 2,040 (165) 16,726Related party payables33,391 941 349 (28,512) 6,169Total liabilities1,399,151 4,114 2,389 (43,677) 1,361,977Commitments and contingencies— — — — —Preferred stock— — 248,927 — 248,927Equity: Common stock572 — 25 (572) 25Additional paid-in capital1,227,091 20,000 14,152 (1,247,091) 14,152Retained earnings (accumulated deficit)99,248 (2,175) 56,340 (99,239) 54,174Treasury stock— — (245,468) — (245,468)Total stockholders' equity1,326,911 17,825 (174,951) (1,346,902) (177,117)Noncontrolling interest in consolidated affiliate— — — 1,326,911 1,326,911Total equity1,326,911 17,825 (174,951) (19,991) 1,149,794Total liabilities and equity$2,726,062 $21,939 $76,365 $(63,668) $2,760,69864(table of contents)Primary Driver of Our Stand-alone Operating ResultsAs described above under “Metrics Affecting Our Consolidated Results,” and “Other Factors Affecting Our Consolidated Results,” under the Original AMA, ourincentive management fees were directly linked to the results of Residential. The results of Residential historically have been affected by various factors including,but not limited to, the number and performance of Residential's single-family residential property and mortgage loan acquisitions, its ability to use financing togrow its business, its ability to convert mortgage loans into residential rental properties, its operating expenses, the success of its loan resolution methodologies andthe size of its portfolio.The extent to which we have been successful in managing these factors for Residential under the Original AMA affected our ability togenerate incentive management fees, which were our sole source of income other than the reimbursement of our expenses pursuant to the Original AMA. Underthe Original AMA, as Residential generated taxable income, our incentive management fees provided us with a share of Residential's cash available for distributionto its stockholders. If there was a decline in the cash distributable by Residential to its stockholders in any period, or if Residential was unable to make distributionsto its stockholders in any period, under the Original AMA, the amount of our incentive management fees would have been adversely affected.Under the New AMA, although our Incentive Management Fees continue to be directly linked to the results of Residential, we also are entitled to a BaseManagement Fee, which is derived as a percentage of Residential’s invested capital, and a Conversion Fee, which is based on the number and value of mortgageloans and/or REO properties that Residential converts to rental properties in each period. Although our quarterly Incentive Management Fee is earned only ifResidential exceeds the current 7% threshold return on invested capital (as defined in the New AMA) and the Conversion Fee is affected by the number ofproperties we rent for the first time in a given quarter, the Base Management Fee provides us with quarterly minimum revenues that are meant to cover ouremployment and other overhead costs and expenses. Our performance in each particular period, however, will be affected by our ability to manage Residential’sbusiness and rental portfolio effectively. If there are declines in Residential’s performance in either return on invested capital or in growing Residential’s rentalportfolio, our fees in each such period would be adversely affected. With respect to our Incentive Management Fee, in the event Residential’s return on investedcapital is below the required hurdle rate in a quarter, a return rate shortfall in Incentive Management Fees is created that is carried forward and added to the nextquarter's hurdle for up to seven future quarters or until the shortfall is reduced by Residential's future performance above the hurdle rate. As of December 31, 2015, the aggregate return shortfall from the prior three quarters under the New AMA was approximately 10.77% of invested capital. Therefore, Residential mustachieve a 12.52% return on invested capital in the first quarter of 2016 before any Incentive Management Fee will be due from Residential for the first quarter of2016. In future quarters, Residential's return on invested capital must exceed the required hurdle for the current quarter plus any carried-forward cumulativeadditional hurdle shortfall from the prior seven quarters before any Incentive Management Fee will be due from Residential.Results of OperationsThe following sets forth discussion of our results of operations for the years ended December 31, 2015 , 2014 and 2013 . Because the results of Residential areconsolidated into our financial statements, the results of operations disclosures set forth below include the results of Residential. We eliminate all intercompanyamounts in our consolidated financial statements, including the fees due from Residential under the respective asset management agreements. However, the effectof such amounts received from Residential is still recognized in net income attributable to our stockholders through the adjustment for earnings attributable tononcontrolling interest.Fiscal year ended December 31, 2015 compared to fiscal year ended December 31, 2014Rental RevenuesResidential's rental revenues increased to $13.2 million for the year ended December 31, 2015 from $1.6 million for the year ended December 31, 2014 . Thenumber of leased properties increased to 2,118 leased properties at December 31, 2015 from 336 at December 31, 2014 , primarily due to Residential's acquisitionof 1,314 rental properties in August 2015 and its other efforts to achieve scale in our rental portfolio. We expect Residential to generate increasing rental revenuesas it continues to renovate, list and rent additional residential rental properties. Residential's rental revenues will depend primarily on occupancy levels and rentalrates for its residential rental properties. Because Residential's lease terms generally are expected to be two or fewer years, Residential's occupancy levels andrental rates will be highly dependent on localized residential rental markets, its ability to manage maintenance and upkeep costs and its renters’ desire to remain inits properties.65(table of contents)Net Unrealized Gain on Mortgage LoansResidential's net unrealized gains on mortgage loans decreased to $88.8 million for the year ended December 31, 2015 from $350.8 million for the year endedDecember 31, 2014 . This decrease was primarily related to lower unrealized gains on loans converted to REO status and continued friction costs due toResidential's servicing transfers during 2015. This decline was further emphasized by the fact that Residential did not purchase any portfolios of mortgage loans in2015, which led to fewer loans available for conversion to REO. Further, the timeline to resolution for Residential's mortgage loan portfolios may extend beyondthe original expectations. In the absence of newly acquired loans, we expect the amount of unrealized gains to decline as the portfolio ages.The net unrealized gains for the year ended December 31, 2015 and 2014 can be broken down into the following three components:•First, Residential recognized an aggregate of $91.3 million in unrealized gains upon conversion of mortgage loans to REO for the year ended December31, 2015 compared to $124.9 million for the year ended December 31, 2014 . Upon conversion of these mortgage loans to REO, Residential marks theseproperties to the most recent market value. During the year ended December 31, 2015 , Residential converted a net of 2,443 mortgage loans to REO statuscompared to a net of 3,682 mortgage loans converted to REO status during the year ended December 31, 2014 ;•Second, Residential recognized an aggregate of $122.4 million in unrealized gains from the net increase in the fair value of loans for the year endedDecember 31, 2015 compared to $241.9 million in unrealized gains during the year ended December 31, 2014 . Adjustments to the fair value of loansafter acquisition represent, among other factors, a reduction in the expected time remaining to complete the foreclosure process due to the passage of timesince acquisition and a reduction in future foreclosure expenses to the extent Residential has already incurred them. The reduction in time remaining tocomplete the foreclosure is driven by the completion of activities in the foreclosure process after Residential acquired the loans. This reduction in timelineresults in reduced carrying costs and reduced future expenses for the loans, each of which increases the fair value of the loans; and•Third, Residential reclassified an aggregate of $124.9 million from unrealized gains on mortgage loans to realized gains on real estate and mortgage loans,reflecting real estate sold and the disposition of mortgage loans for the year ended December 31, 2015 . This compares to an aggregate of $22.6 millionreclassified from unrealized gains on mortgage loans to realized gains for the year ended December 31, 2014 .Through its resolution of mortgage loans and the transfer of 2,054 mortgage loans to held for sale, Residential's portfolio of mortgage loans at fair value hasdecreased from 10,963 loans at December 31, 2014 to 5,739 loans at December 31, 2015 . The fair value of mortgage loans is based on a number of factors that aredifficult to predict and may be subject to positive or adverse changes in value depending on the financial condition of borrowers, as well as geographic, economic,market and other conditions. Therefore, Residential may experience unrealized losses or additional unrealized gains on its mortgage loans in the future.Net Realized Gain on Mortgage LoansResidential's net realized gain on mortgage loans increased to $58.1 million for the year ended December 31, 2015 from $55.8 million for the year endedDecember 31, 2014 , primarily due to slightly improved average resolution economics. Residential disposed of 727 mortgage loans at fair value in the year endedDecember 31, 2015 compared to its resolution of 735 mortgage loans at fair value in the year ended December 31, 2014 . These resolutions occurred primarilythrough short sales, refinancing or other liquidation events.66(table of contents)Net Realized Gain on Mortgage Loans Held for SaleNet realized gain on mortgage loans held for sale increased to $36.4 million for the year ended December 31, 2015 from $2.8 million for the year ended December31, 2014 . This increase was principally due to the difference in the composition of the pools of mortgage loans sold in applicable year. The 772 mortgage loansheld for sale that were sold during the year ended December 31, 2015 consisted primarily of non-performing loans that Residential sold as attractive marketopportunities became available. The 770 mortgage loans held for sale that were sold during the year ended December 31, 2014 consisted of re-performing loansthat were acquired during June 2014 and were sold shortly after acquisition.Net Realized Gain on Real EstateNet realized gain on real estate was $50.9 million for the year ended December 31, 2015 , during which Residential disposed of 1,321 residential properties,compared to $9.5 million for the year ended December 31, 2014 , during which Residential disposed of 221 residential properties.Interest IncomeInterest income decreased to $0.6 million for year ended December 31, 2015 from $2.9 million for the year ended December 31, 2014 primarily primarily due todispositions of the re-performing loans acquired in June 2014. During the year ended December 31, 2015 , Residential accreted $0.6 million into interest incomewith respect to these re-performing loans compared to $2.6 million for the year ended December 31, 2014 .Residential Property Operating ExpensesResidential incurred $66.3 million of residential property operating expenses for the year ended December 31, 2015 compared to $26.0 million for the year endedDecember 31, 2014 , primarily due to increases in the scale of its real estate portfolio. At December 31, 2015, Residential had a total of 6,516 REO properties, ofwhich 2,118 were leased, compared to 3,960 REO properties, of which 336 were leased, as of December 31, 2014. Residential expects to incur increasingresidential property operating expenses as it converts more mortgage loans to and/or acquire more residential properties. Residential's residential propertyoperating expenses for rental properties will be dependent primarily on residential property taxes and insurance, property management fees, HOA dues and repairand maintenance expenditures. Residential's residential property operating expenses for properties held while we are evaluating strategy also will be dependentprimarily on residential property taxes and insurance, property management fees, HOA dues, utilities, property preservation and repairs and maintenance.Real Estate Depreciation and AmortizationResidential incurred $7.5 million of real estate depreciation and amortization for the year ended December 31, 2015 compared to a $1.1 million for the year endedDecember 31, 2014 , reflecting the growth in its rental portfolio. We expect Residential to incur increasing real estate depreciation and amortization as it convertsmore mortgage loans to, and owns more, residential rental properties. Real estate depreciation and amortization are non-cash expenditures that generally are notexpected to be indicative of the market value or condition of Residential's residential rental properties.Acquisition Fees and CostsResidential incurred $2.3 million of acquisition fees and costs for the year ended December 31, 2015 compared to $1.5 million for the year ended December 31,2014 . This fluctuation is primarily due to acquisition fees and costs of $1.0 million related to services provided by Ocwen and Altisource being included in relatedparty acquisition fees and costs in 2014.Real Estate and Mortgage Loan Selling Costs and ImpairmentReal estate selling costs of REO held for sale were $33.6 million for the year ended December 31, 2015 compared to $13.9 million for the year ended December31, 2014 . Residential also recognized $36.5 million of REO valuation impairment for the year ended December 31, 2015 compared to $7.9 million for the yearended December 31, 2014 . In addition, Residential recognized $2.1 million in mortgage loan selling costs for the year ended December 31, 2015 related to itsmortgage loans held for sale.Residential records residential properties held for sale at the lower of either the carrying amount or its estimated fair value less estimated selling costs. If thecarrying amount exceeds the estimated fair value, as adjusted, Residential records impairment67(table of contents)equal to the amount of such excess. If an increase in fair value is noted at a subsequent measurement date, a gain is recognized to the extent of any previousimpairment recognized. However, GAAP does not permit Residential to recognize a gain where market value exceeds the original carrying value. At December 31,2015 and 2014, the carrying value of our real estate held for sale was $250.6 million and $92.2 million , respectively, with an aggregate market value of $288.0million and $103.9 million , respectively.Mortgage Loan Servicing CostsResidential incurred $62.3 million of mortgage loan servicing costs, primarily for servicing fees, foreclosure fees and advances of residential property insurance forthe year ended December 31, 2015 compared to $68.2 million for the year ended December 31, 2014 . This reduction of servicing costs was primarily due to theconversion, sale or other disposition of Residential's mortgage loans without replenishing its loan portfolio in other loan acquisitions. Residential incurs mortgageloan servicing and foreclosure costs as its mortgage servicers provide servicing for its loans and pay for advances relating to property insurance, foreclosureattorney fees, foreclosure costs and property preservation. Residential's loan servicing costs fluctuate based on the size of its mortgage portfolio.Interest ExpenseResidential incurred $53.1 million of interest expense for the year ended December 31, 2015 related to borrowings under its repurchase and loan facilities(including amortization of deferred financing costs) compared to $35.6 million for the year ended December 31, 2014 , when market interest rates were athistorically low levels. The interest rate under Residential's repurchase and loan facilities is subject to change based on changes in the relevant index. We alsoexpect Residential's interest expense to increase as its debt increases to fund and/or leverage its ownership of existing and additional portfolios.General and Administrative ExpensesGeneral and administrative expenses increased to $32.9 million for the year ended December 31, 2015 from $18.3 million for the year ended December 31, 2014 ,primarily due to increased litigation-based expenses, an increase in salaries and benefits attributable to the hiring of additional personnel to provide services onbehalf of Residential, expenses related to services provided by Ocwen and Altisource that were included in related party general and administrative expenses in2014 and higher insurance costs due to the growth in Residential's single-family rental portfolio.Related Party General and Administrative ExpensesRelated party general and administrative expenses primarily consist of salaries and benefits and professional fees attributable to services provided by Ocwen andAltisource on behalf of our and Residential's business. There were no related party general and administrative expenses for the year ended December 31, 2015 , asOcwen and Altisource are no longer considered related parties by us or Residential (see Note 9 of our consolidated financial statements). These expenses are nowincluded in general and administrative expenses as discussed above. Residential and we incurred $4.4 million of related party general and administrative expensesfor the year ended December 31, 2014 .Net (Loss) Income Attributable to Noncontrolling Interest in Consolidated AffiliateFor entities that are consolidated, but not 100% owned, a portion of the income or loss is allocated to noncontrolling interest in consolidated affiliate. For the yearended December 31, 2015 , we recognized a net loss attributable to noncontrolling interest in consolidated affiliate of $45.6 million compared to net incomeattributable to noncontrolling interest in consolidated affiliate $188.9 million for the year ended December 31, 2014 .Management Fees and Expense ReimbursementsWe recorded management incentive fees of $8.0 million and expense reimbursements of $0.8 million under the Original AMA for the year ended December 31,2015 , all of which related to the first quarter of 2015. In addition, we recorded Base Management Fees of $13.9 million and Conversion Fees of $1.0 million underthe New AMA for the year ended December 31, 2015 . The $8.0 million in incentive fees for the first quarter of 2015 reflects the recordation of our requirement toreturn a portion of the management fees paid to us by Residential in connection with the first quarter of 2015 in the amount of $6.9 million. Because the fees paidto us for the first quarter of 2015 was based on an average of the fees payable for the quarter under the Original AMA and the New AMA and Residential’s annualdividend was less than a projected $2.20 per share annual dividend, we were required to true-up the first quarter incentive fee under the Original AMA, whichresulted in the requirement68(table of contents)that we pay $6.9 million to Residential for the over-payment of fees to us when averaging the amounts payable under the Original AMA and the New AMA.Lastly, under the New AMA, we recorded a one-time $2.0 million fee in the first quarter of 2015 in connection with the negotiation of the New AMA and thetermination of the Original AMA. For the year ended December 31, 2014 , we recorded management incentive fees of $67.9 million and expense reimbursementsof $7.0 million under the Original AMA.No Incentive Management Fee under the New AMA was due from Residential for 2015 because its return on invested capital (as defined in the New AMA) wasbelow the required hurdle rate, as adjusted by the prior quarter hurdle shortfall against the required 1.75% quarterly return on invested capital hurdle rate. Theamount by which return on invested capital was below the required hurdle rate during 2015 is a hurdle shortfall that is carried forward for up to seven futurequarters or until the shortfall is reduced by Residential's future performance above the hurdle rate. In future quarters, return on invested capital must exceed therequired hurdle for the current quarter plus any carried-forward cumulative additional hurdle shortfall from the prior seven quarters before any IncentiveManagement Fee will be due from Residential.We recorded management fees of $0.6 million and $0.9 million from NewSource for the years ended December 31, 2015 and 2014, respectively. Effective October1, 2015, we suspended further charges to NewSource for services under the related management agreement.These management fees and expense reimbursements have been eliminated under U.S. GAAP in consolidation.Other IncomeWe recognized no other income for the year ended December 31, 2015 . Other income was $5.4 million for the year ended December 31, 2014, primarily reflectingNewSource’s net written reinsurance premiums of $5.0 million for the year ended December 31, 2014.Fiscal Year ended December 31, 2014 Compared to Fiscal Year ended December 31, 2013Rental RevenuesResidential's rental revenues increased to $1.6 million for the year ended December 31, 2014 from $36,000 for the year ended December 31, 2013. The number ofleased properties increased to 336 leased properties at December 31, 2014 from 14 at December 31, 2013.Net Unrealized Gain on Mortgage LoansResidential's net unrealized gains on mortgage loans increased to $350.8 million for the year ended December 31, 2014 from $61.1 million for the year endedDecember 31, 2013. These increases were primarily related to an increase in the number of loans for which unrealized gains were estimated and the continueddiscounts at which Residential has been able to acquire non-performing loans into its portfolio.The net unrealized gains for the year ended December 31, 2014 and 2013 can be broken down into the following three components:•First, Residential recognized an aggregate of $131.5 million in unrealized gains upon conversion of mortgage loans to REO for the year ended December31, 2014 compared to $8.4 million for the year ended December 31, 2013. Upon conversion of these mortgage loans to REO, Residential marks theseproperties to the most recent market value. During the year ended December 31, 2014, Residential converted a net of 3,682 mortgage loans to REO statuscompared to a net of 226 mortgage loans converted to REO status during the year ended December 31, 2013, respectively;•Second, Residential recognized an aggregate of $241.9 million in unrealized gains from the net increase in the fair value of loans for the year endedDecember 31, 2014 compared to $54.0 million in unrealized gains during the year ended December 31, 2013. Adjustments to the fair value of loans afteracquisition represent, among other factors, a reduction in the expected time remaining to complete the foreclosure process due to the passage of time sinceacquisition and a reduction in future foreclosure expenses to the extent Residential has already incurred them. The reduction in time remaining tocomplete the foreclosure is driven by the completion of activities in the foreclosure69(table of contents)process after Residential acquired the loans. This reduction in timeline results in reduced carrying costs and reduced future expenses for the loans, each ofwhich increases the fair value of the loans; and•Third, Residential reclassified an aggregate of $22.6 million from unrealized gains on mortgage loans to realized gains on real estate and mortgage loans,reflecting real estate sold and the disposition of mortgage loans for the year ended December 31, 2014. This compares to an aggregate of $1.3 millionreclassified from unrealized gains on mortgage loans to realized gains for the year ended December 31, 2013.Through Residential's acquisitions, the number of sub-performing and non-performing loans in its mortgage loan portfolio grew from 8,054 loans at December 31,2013 to 10,963 loans at December 31, 2014Net Realized Gain on Mortgage LoansResidential's net realized gain on mortgage loans increased to $55.8 million for the year ended December 31, 2014 from $10.5 million for the year endedDecember 31, 2013, primarily due to its disposition of mortgage loans through loan sales, refinancings, short sales and foreclosure sales. Residential disposed of735 mortgage loans in the year ended December 31, 2014 and 211 mortgage loans in the year ended December 31, 2013, primarily from short sales and foreclosuresales.Net Realized Gain on Mortgage Loans Held for Sale Net realized gain on re-performing mortgage loans were $2.8 million for the year ended December 31, 2014, during which Residential disposed of 770 re-performing loans. Residential did not dispose of any re-performing loans in 2013.Net Realized Gain on Real EstateNet realized gain on real estate was $9.5 million for the year ended December 31, 2014, during which Residential disposed of 221 residential properties.Residential disposed of four residential properties during the year ended December 31, 2013, resulting in no meaningful gains or losses on such dispositions.Interest IncomeInterest income increased to $2.9 million for year ended December 31, 2014 from $0.7 million for the year ended December 31, 2013, primarily related to theaccretion of $2.6 million into interest income with respect to Residential's re-performing loans that were acquired during 2014.Residential Property Operating ExpensesResidential incurred $26.0 million of residential property operating expenses for the year ended December 31, 2014 compared to $0.8 million for the year endedDecember 31, 2013 primarily due to its REO portfolio increasing from 262 properties at December 31, 2013 to 3,960 properties at December 31, 2014.Real Estate Depreciation and AmortizationResidential incurred $1.1 million of real estate depreciation and amortization for the year ended December 31, 2014 compared to a nominal amount of real estatedepreciation and amortization for the year ended December 31, 2013 primarily due to its rental portfolio increasing from 43 properties at December 31, 2013 to787 properties at December 31, 2014.Acquisition Fees and CostsResidential incurred $1.5 million of acquisition fees and costs for the year ended December 31, 2014 compared to $1.4 million for the year ended December 31,2013 primarily due to increased acquisition activity in 2014.Related Party Acquisition Fees and CostsResidential incurred $1.0 million of related party acquisition fees and costs for the year ended December 31, 2014 compared to a $0.1 million for the year endedDecember 31, 2013 primarily due to increased acquisition activity in 2014.70(table of contents)Real Estate Selling Costs and ImpairmentReal estate selling costs of REO held for sale were $13.9 million for the year ended December 31, 2014 compared to $0.2 million for the year ended December 31,2013. Residential also recognized $7.9 million impairment of its REO for the year ended December 31, 2014 compared to $0 impairment for the year endedDecember 31, 2013. Residential records residential properties held for sale at the lower of either the carrying amount of REO or its estimated fair value lessestimated selling costs. If the carrying amount exceeds the estimated fair value, as adjusted, Residential records impairment equal to the amount of such excess.Mortgage Loan Servicing CostsResidential incurred $68.2 million of mortgage loan servicing costs primarily for servicing fees, foreclosure fees and advances of residential property insurance forthe year ended December 31, 2014 compared to $10.4 million for the year ended December 31, 2013. Residential incurs mortgage loan servicing and foreclosurecosts as its mortgage servicers provide servicing for its loans and pay for advances relating to property insurance that are made to protect its investment inmortgage loans.Interest ExpenseResidential incurred $35.6 million of interest expense for the year ended December 31, 2014 related to borrowings under its repurchase agreements (includingamortization of deferred financing costs) compared to $4.6 million for the year ended December 31, 2013, primarily due to increases in the average balance of itsinterest-bearing liabilities.General and Administrative ExpensesGeneral and administrative expenses increased to $18.3 million for the year ended December 31, 2014 from $16.9 million for the year ended December 31, 2013,primarily due to increased litigation-based expenses, costs associated with transferring insurance underwriting risk of claims and future losses and higherprofessional fees. The effect of these increases was largely offset by a decrease in compensation costs resulting from a non-employee restricted stock awardaccounted for at fair value.Related Party General and Administrative ExpensesResidential and we incurred $4.4 million of related party general and administrative expenses for the year ended December 31, 2014 compared to $3.7 million forthe year ended December 31, 2013. Related party general and administrative expenses primarily consisted of personnel costs attributable to services provided to usby Altisource on behalf of our business.Net Income Attributable to Noncontrolling Interest in Consolidated AffiliateFor the year ended December 31, 2014 and 2013, we recognized $188.9 million and $39.6 million, respectively, of net income attributable to noncontrollinginterest in consolidated affiliate which is equivalent to Residential's net income because although we consolidate Residential, we had no ownership in Residential.Incentive Management Fees and Expense ReimbursementsWe recorded management incentive fees of $67.9 million for the year ended December 31, 2014 in connection with the cash available for distribution fromResidential. Management incentive fees of $4.9 million were received from Residential for the year ended December 31, 2013. The management incentive feeshave been eliminated under U.S. GAAP in consolidation. For the year ended December 31, 2014 and 2013, we recognized $7.0 million and $5.4 million,respectively, of expense reimbursements from Residential and NewSource that also have been eliminated in consolidation. We are not reimbursed by Residentialfor certain general and administrative expenses pertaining to stock-based compensation and our expenditures that are not for the benefit of Residential.Other IncomeOther income was $5.4 million for the year ended December 31, 2014, primarily reflecting NewSource’s net written reinsurance premiums of $5.0 million for theyear ended December 31, 2014. NewSource commenced its reinsurance activities during the second quarter of 2014.71(table of contents)Liquidity and capital resourcesAs of December 31, 2015 , we had stand-alone cash and cash equivalents of $63.3 million compared to $44.6 million as of December 31, 2014 . We believe thiscash is sufficient to fund our operations since we are generating asset management fees as under the New AMA, and our only stand-alone cash expenditures to dateare leasehold improvements and general and administrative expenses, including unreimbursed salaries and professional expenses.On a consolidated basis, our cash and cash equivalents as of December 31, 2015 was $184.5 million , of which approximately $116.7 million was attributable toResidential. Residential’s liquidity reflects its ability to meet its current obligations (including its operating expenses and, when applicable, retirement of, andmargin calls relating to, its financing arrangements) and make distributions to its stockholders. Residential is required to distribute at least 90% of its taxableincome each year (subject to certain adjustments) to its stockholders to qualify as a REIT under the Internal Revenue Code. This distribution requirement limitsResidential’s ability to retain earnings and thereby replenish or increase capital to support its activities. Our consolidated cash and cash equivalents as ofDecember 31, 2015 also include $4.6 million attributable to NewSource.Residential was initially funded with $100.0 million on December 21, 2012. Since its separation, its primary sources of liquidity have been proceeds from equityofferings, borrowings under its repurchase agreements and securitization financings, interest payments it receives from its portfolio of assets, cash generated fromloan liquidations and cash generated from its rental portfolio. We expect Residential’s existing business strategy will require additional debt and/or equityfinancing. We continue to explore a variety of financing sources to support Residential’s growth, including, but not limited to, debt financing through bankwarehouse lines of credit, additional and/or amended repurchase agreements, term financing, securitization transactions and additional debt or equity offerings.Based on Residential’s current borrowing capacity, leverage ratio, and anticipated additional debt financing transactions, we believe that these sources of liquiditywill be sufficient to enable it to meet anticipated short-term (one year) liquidity requirements, including paying expenses on its existing residential rental and loanportfolios, funding distributions to its stockholders, paying fees to us under the asset management agreement and general corporate expenses. However, there canbe no assurance as to how much additional financing capacity such efforts will produce, what form the financing will take or that such efforts will be successful. Ifwe are unable to renew, replace or expand Residential’s sources of financing, its business, financial condition, liquidity and results of operations may be materiallyand adversely affected.To date, Residential has conducted the following equity offerings, repurchase facilities and securitization transactions: Equity OfferingsWe have facilitated Residential’s completion of three public equity offerings with aggregate net proceeds of approximately $1.1 billion. On May 1, 2013,Residential completed a public offering of 17,250,000 shares of its common stock at $18.75 per share and received net proceeds of approximately $309.5 million.On October 1, 2013, Residential completed its second public offering of 17,187,000 shares of common stock at $21.00 per share and received net proceeds of$349.4 million. On January 22, 2014, Residential completed its third public offering of 14,200,000 shares of common stock at $34.00 per share and received netproceeds of approximately $467.6 million.Repurchase Facilities and Loan AgreementResidential entered into three separate repurchase agreements to finance the acquisition and ownership of residential mortgage loans and REO properties. Themaximum aggregate funding available under these repurchase agreements initially was $425.0 million. In addition, Residential entered into a loan agreementNomura Corporate Funding Americas, LLC (“Nomura”) for the purpose of financing its beneficial ownership of REO properties. A description of each agreementfollows below:•Credit Suisse (“CS”) is the lender on the repurchase agreement entered into on March 22, 2013, (the “CS repurchase agreement”) with an initial aggregatemaximum borrowing capacity of $100.0 million . During 2014 the CS repurchase agreement was amended on several occasions, ultimately increasing theaggregate maximum borrowing capacity to $225.0 million on December 31, 2014 with a maturity date of April 20, 2015, subject to an additional one -year extension with the approval of the lender. On April 20, 2015, we entered into an amended and restated repurchase agreement with CS that increasedour aggregate borrowing capacity from $225.0 million to $275.0 million , increased the REO sublimit under the facility and extended the maturity date toApril 18, 2016. On Residential's behalf, we are in discussions with CS to renew and further extend the repurchase agreement with an ability to obtainadditional funding. No assurance can be provided that we will be able to renew this facility on reasonable terms, on a timely basis or at all. 72(table of contents)•Deutsche Bank (“DB”) is the lender on the repurchase agreement dated September 12, 2013 (the “DB repurchase agreement”). The DB repurchaseagreement matures on March 11, 2016. Under the DB repurchase agreement, Residential has not been eligible for additional funding under the facilitysince March 2015, and its aggregate funding capacity was thereby reduced to $54.9 million , which was the amount outstanding under the facility onDecember 31, 2015. Residential expects to repay the remaining outstanding balance of the DB repurchase agreement during March 2016 primarily withavailable funds and then transfer of all or some of the collateral to its other existing facilities.•Wells Fargo (“Wells”) is the lender under the repurchase agreement dated September 23, 2013 (the “Wells repurchase agreement”) with an initialaggregate maximum borrowing capacity of $200.0 million . Throughout 2013 and 2014, the Wells repurchase agreement was amended several timesincreasing the aggregate maximum borrowing capacity to a high of $1.0 billion , and on December 31, 2014 was reduced to $750.0 million , subject tocertain sublimits, to reflect the securitization of a significant portion of our non-performing loans that previously had been financed under the Wellsrepurchase agreement. On February 20, 2015, we exercised our option to extend the termination date of this facility to March 23, 2016. On September 30,2015, the Wells repurchase agreement was amended to extend the termination date of the facility to September 27, 2017, to re-increase the aggregateamount of available funding to $750.0 million and to further increase the sublimits of REO properties that may collateralize the facility from 10% of theaggregate funding capacity to 40% of the aggregate funding capacity, or $300.0 million of the $750.0 million .•Nomura is the lender under a loan agreement dated April 10, 2015 (the “Nomura loan agreement”) with an initial aggregate maximum funding capacity of$100.0 million . On May 12, 2015, we amended the terms of the Nomura loan agreement to increase the aggregate maximum funding capacity to $200.0million , subject to certain sublimits, eligibility requirements and conditions precedent to each funding. The Nomura loan agreement terminates on April8, 2016. On Residential's behalf, we are in discussions with Nomura to renew and further extend the Nomura loan agreement with an ability to obtainadditional funding. No assurance can be provided that we will be able to renew this facility on reasonable terms, on a timely basis or at all.Following all of the amendments described above, the maximum aggregate funding available to Residential under these repurchase agreements as of December 31,2015 was $1.3 billion , subject to certain sublimits, eligibility requirements and conditions precedent to each funding. As of December 31, 2015 , an aggregate of$767.5 million was outstanding under Residential's repurchase agreements. All obligations under each of these repurchase agreements are fully guaranteed byResidential.Under the terms of each repurchase and loan agreement, as collateral for the funds Residential draws thereunder, subject to certain conditions, Residential’soperating partnership will sell to the applicable lender equity interests in the Delaware statutory trust subsidiary that owns the applicable underlying real estate ormortgage assets on Residential’s behalf, or the trust will directly sell such underlying mortgage assets. In the event the lender determines the value of the collateralhas decreased, the lender has the right to initiate a margin call and require Residential to post additional collateral or to repay a portion of the outstandingborrowings. The price paid by the lender for each underlying mortgage asset Residential finances under the applicable repurchase agreement is subject toagreement between the lender and Residential and is based on a percentage of the market value of the underlying mortgage asset and depends on its delinquencystatus. Residential’s cost of borrowing under the repurchase agreements generally corresponds to LIBOR, or the lender interest at the lender’s cost of funds plus amargin. Residential is also required to pay certain other customary fees, administrative costs and expenses to maintain and administer the repurchase agreements.The repurchase agreements require Residential to maintain various financial and other covenants, including maintaining a minimum adjusted tangible net worth, amaximum ratio of indebtedness to adjusted tangible net worth and specified levels of unrestricted cash. In addition, the repurchase agreements contain customaryevents of default.The Nomura loan agreement requires Residential to maintain various financial and other covenants, including a minimum adjusted tangible net worth, a maximumratio of indebtedness to adjusted tangible net worth and specified levels of unrestricted cash. In addition, the Nomura loan agreement contains events of default(subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties,cross-defaults, certain material adverse changes, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. Theremedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under theNomura loan agreement and the liquidation by Nomura of the REO properties then subject thereto.73(table of contents)Residential is currently in compliance with the covenants and other requirements with respect to its repurchase and loan agreements. We monitor Residential'sbanking partners' ability to perform under the repurchase and loan agreements and have concluded there is currently no reason to doubt that they will continue toperform under the repurchase and loan agreements as contractually obligated.As amended, the three repurchase agreements provide for the lenders to finance Residential's portfolio at advance rates (or purchase prices) ranging from 40% to80% of the “asset value” of the mortgage loans and REO properties. The amounts borrowed under the repurchase agreements are generally subject to theapplication of “haircuts.” A haircut is the percentage discount that a lender applies to the market value of an asset serving as collateral for a borrowing under arepurchase agreement for the purpose of determining whether such borrowing is adequately collateralized. As of December 31, 2015, the weighted averagecontractual haircut applicable to the assets that serve as collateral for Residential's outstanding repurchase agreements was 15.2% . Under these repurchaseagreements, the “asset value” generally is an amount that is based on the market value of the mortgage loan or REO property as determined by the lender. Webelieve these are typical market terms that are designed to provide protection for the lender to collateralize its advances to Residential in the event the collateraldeclines in value. Under each of the repurchase agreements, if the carrying value of the collateral declines beyond certain limits, Residential would have to either(a) provide additional collateral or (b) repurchase certain assets under the agreement to maintain the applicable advance rate.The decrease in amounts outstanding under Residential's repurchase agreements and the Nomura loan agreement from December 31, 2014 to December 31, 2015relate in part to amounts paid down with the proceeds from the sale of secured notes issued in connection with our securitizations. Residential's overall advancerate under the repurchase agreements and the Nomura loan agreement declined from 55.8% at December 31, 2014 to 55.7% at December 31, 2015 as the value ofthe underlying collateral has increased with time due to our resolution efforts. We do not collateralize any of our repurchase facilities with cash. See Note 7 to ourconsolidated financial statements.The following table sets forth data with respect to Residential's repurchase agreements as of and for the years ended as indicated ($ in thousands): Year ended December 31,2015 Year ended December31, 2014 Year ended December31, 2013Balance at end of period$767,513 $1,015,000 $602,382Maximum month-end balance outstanding during the period997,161 1,413,357 602,382Weighted average balance915,785 976,176 137,594Amount of available funding at end of period512,431 210,000 147,618SecuritizationsOn June 29, 2015, Residential completed a securitization transaction in which ARLP Securitization Trust, Series 2015-1 (“ARLP 2015-1”) issued $205.0 million inARLP 2015-1 Class A Notes with a weighted coupon of approximately 4.01% and $60.0 million in ARLP 2015-1 Class M Notes. ARLP 2015-1 is a Delawarestatutory trust that is wholly-owned by Residential's operating partnership with a federally-chartered bank as its trustee. Residential retained $34.0 million of theARLP 2015-1 Class A Notes and all of the ARLP 2015-1 Class M Notes. No interest will be paid on any ARLP 2015-1 Class M Notes while any ARLP 2015-1Class A Notes remain outstanding. The ARLP 2015-1 Class A Notes and ARLP 2015-1 Class M Notes are non-recourse to Residential and are secured solely bythe non-performing mortgage loans and REO properties of ARLP 2015-1 but not by any of Residential's other assets. The assets of ARLP 2015-1 are the onlysource of repayment and interest on the ARLP 2015-1 Class A Notes and the ARLP 2015-1 Class M Notes, thereby making the cash proceeds received by ARLP2015-1 of loan payments, loan liquidations, loan sales and sales of converted REO properties the sole sources of the payment of interest and principal by ARLP2015-1 to the bond holders. The ARLP 2015-1 Class A Notes and the ARLP 2015-1 Class M Notes mature on May 25, 2055, and Residential does not guaranteeany of the obligations of ARLP 2015-1 under the terms of the indenture governing the notes or otherwise. As of December 31, 2015, the book value of theunderlying securitized assets held by ARLP 2015-1 was $282.1 million .On November 25, 2014, Residential completed a securitization transaction in which ARLP Securitization Trust, Series 2014-2 (“ARLP 2014-2”) issued $270.8million in ARLP 2014-2 Class A Notes with a weighted yield of approximately 3.85% and $234.0 million in ARLP 2014-2 Class M Notes. Residential initiallyretained $95.8 million of the ARLP 2014-2 Class A Notes and all of the ARLP 2014-2 Class M Notes. On February 9, 2015, Residential sold $50.7 million of theretained ARLP 2014-2 Class A Notes to an unrelated third party. No interest will be paid on any ARLP 2014-2 Class M Notes while any ARLP 2014-274(table of contents)Class A Notes remain outstanding. The ARLP 2014-2 Class A Notes and ARLP 2014-2 Class M Notes are secured solely by the non-performing mortgage loansand REO properties of ARLP 2014-2 and not by any of Residential's other assets. The assets of ARLP 2014-2 are the only source of repayment and interest on theARLP 2014-2 Class A Notes and the ARLP 2014-2 Class M Notes. The ARLP 2014-2 Class A Notes and the ARLP 2014-2 Class M Notes mature on January 26,2054, and Residential does not guaranty any of the obligations of ARLP 2014-2 under the terms of the indenture governing the notes or otherwise. As ofDecember 31, 2015 , the book value of the underlying securitized assets held by ARLP 2014-2 was $322.5 million .On September 25, 2014, Residential completed a securitization transaction in which ARLP Securitization Trust, Series 2014-1 (“ARLP 2014-1”) issued $150.0million in Class A Notes with a weighted yield of approximately 3.47% and $32.0 million in Class M Notes with a weighted yield of 4.25% . The ARLP 2014-1Class A Notes and the ARLP 2014-1 Class M Notes are secured solely by the non-performing mortgage loans and REO properties of ARLP 2014-1 and not by anyof Residential's other assets. The assets of ARLP 2014-1 are the only source of repayment and interest on the ARLP 2014-1 Class A Notes and the ARLP 2014-1Class M Notes. The ARLP 2014-1 Class A Notes and the ARLP 2014-1 Class M Notes mature on September 25, 2044, and Residential does not guaranty any ofthe obligations of ARLP 2014-1 under the terms of the indenture governing the notes or otherwise. As of December 31, 2015 , the book value of the underlyingsecuritized assets held by ARLP 2014-1 was $202.3 million .Residential retained all of the Class M Notes issued by ARLP 2014-1 in its TRS. On September 30, 2014, pursuant to a master repurchase agreement, the TRS sold$15.0 million of the ARLP 2014-1 Class M Notes to NewSource. On September 22, 2015, the TRS completed its repurchase of the ARLP 2014-1 Class M notesfrom NewSource at a 5.0% yield.75(table of contents)The following table sets forth data with respect to these notes as of December 31, 2015 and 2014 ($ in thousands): Interest Rate Amount OutstandingDecember 31, 2015: ARLP Securitization Trust, Series 2014-1 ARLP 2014-1 Class A Notes due September 25, 2044 (1) 3.47% $136,404ARLP 2014-1 Class M Notes due September 25, 2044 (2) 4.25% 32,000ARLP Securitization Trust, Series 2014-2 ARLP 2014-2 Class A Notes due January 26, 2054 (3) 3.63% 244,935ARLP 2014-2 Class M Notes due January 26, 2054 —% 234,010ARLP Securitization Trust, Series 2015-1 ARLP 2015-1 Class A Notes due May 25, 2055 (4) 4.01% 203,429ARLP 2015-1 Class M Notes due May 25, 2044 —% 60,000Intercompany eliminations Elimination of ARLP 2014-1 Class M Notes due to ARNS, Inc. (32,000)Elimination of ARLP 2014-2 Class A Notes due to ARNS, Inc. (45,138)Elimination of ARLP 2014-2 Class M Notes due to ARLP (234,010)Elimination of ARLP 2015-1 Class A Notes due to ARNS, Inc. (34,000)Elimination of ARLP 2015-1 Class M Notes due to ARLP (60,000) $505,630December 31, 2014: ARLP Securitization Trust, Series 2014-1 ARLP 2014-1 Class A Notes due September 25, 2044 (1) 3.47% $150,000ARLP 2014-1 Class M Notes due September 25, 2044 (2) 4.25% 32,000ARLP Securitization Trust, Series 2014-2 ARLP 2014-2 Class A Notes due January 26, 2054 (3) 3.85% 269,820ARLP 2014-2 Class M Notes due January 26, 2054 —% 234,010ARNS, Inc. Securities sold under agreement to repurchase due March 27, 2015 5.00% 14,991Intercompany eliminations Elimination of ARLP 2014-1 Class A Notes due to ARNS, Inc. (15,000)Elimination of ARLP 2014-1 Class M Notes due to ARNS, Inc. (32,000)Elimination of ARLP 2014-2 Class A Notes due to ARNS, Inc. (95,729)Elimination of ARLP 2014-2 Class M Notes due to ARNS, Inc. (234,010) $324,082__________________(1)The expected redemption date for the Class A Notes ranges from September 25, 2017 to September 25, 2018.(2)The expected redemption date for the Class M Notes is September 25, 2018.(3)The expected redemption date for the Class A Notes ranges from November 27, 2017 to November 27, 2018.(4)The expected redemption date for the Class A Notes ranges from June 25, 2018 to June 25, 2019.Treasury SharesAt December 31, 2015 , a total of $249.1 million in shares of our common stock have been repurchased under the authorization by our Board of Directors torepurchase up to $300.0 million in shares of our common stock. Repurchased shares are held as treasury stock and are available for general corporate purposes. Wehave an aggregate of $50.9 million remaining for repurchases under our Board-approved repurchase plan76(table of contents)Cash FlowsWe report and analyze our cash flows based on operating activities, investing activities and financing activities. The following table summarizes our cash flows forthe periods indicated ($ in thousands): Year ended December 31,2015 Year ended December 31,2014 Year ended December 31,2013Net cash used in operating activities$(183,237) $(135,359) $(21.825)Net cash provided by (used in) investing activities459,657 (974,920) (1,188.23)Net cash (used in) provided by financing activities(208,658) 1,087,061 1,245.041Total cash flows$67,762 $(23,218) $34.986Net cash used in operating activities for the year ended December 31, 2015 , 2014 and 2013 by Residential and us consisted primarily of residential propertyoperating expenses, mortgage loan servicing costs (including servicing fees, foreclosure fees and advances of residential property insurance on delinquent loans),interest expense, professional fees, acquisition costs and salaries and benefits.Net cash provided by investing activities for the year ended December 31, 2015 consisted primarily of Residential's mortgage loan and real estate dispositions,partly offset by investments in real estate and renovations of rental properties. Net cash used in investing activities for the year ended December 31, 2014 consistedprimarily of Residential's investments in non-performing and re-performing loan portfolios, partly offset by proceeds from the disposition of loans. Net cash usedin investing activities for the year ended December 31, 2013 consisted primarily of Residential's investments in non-performing loan portfolios. During periods inwhich Residential purchases a significant number of real estate or mortgage loan assets and/or conducts substantial renovations of residential real estate, its cashused in investing activities is generally expected to exceed cash provided by investing activities.Net cash used in financing activities for the year ended December 31, 2015 consisted primarily of payments for share repurchases of Residential's and our commonstock under the respective share repurchase programs, payment of dividends by Residential and net repayments of Residential's borrowings. Net cash provided byfinancing activities for the year ended December 31, 2014 included proceeds of $250.0 million from the issuance of our preferred stock and payments for sharerepurchases of $240.6 million under our share repurchase program. In addition, net cash provided by financing activities for the year ended December 31, 2014included Residential's net proceeds from the issuance of common stock, payment of dividends and net borrowings under repurchase agreements and other securedborrowings. Net cash provided by financing activities for the year ended December 31, 2013 consisted primarily of Residential's net proceeds from the issuance ofcommon stock and net borrowings under repurchase agreements. Net cash related to financing activities will generally consist of the incurrence by Residential ofdebt, repayment of debt previously incurred by Residential, payment of dividends by Residential and the issuance of common stock by Residential.Off-balance Sheet ArrangementsResidential and we have no off-balance sheet arrangements as of December 31, 2015 and did not have any off-balance sheet arrangements as of December 31,2014.77(table of contents)Contractual ObligationsThe following table sets forth a summary regarding Residential's and our known contractual obligations. Residential's borrowing obligations below are based onthe current principal outstanding and contractual terms of the debt obligations, including current interest rates, at December 31, 2015 ($ in thousands): Amount Due during the Years ending December 31, Total 2016 2017 - 2018 2019 - 2020 ThereafterBorrowings (1)$1,273,143 $396,383 $371,130 $— $505,630Interest (2)701,616 34,035 45,708 37,481 584,392 $1,974,759 $430,418 $416,838 $37,481 $1,090,022______________(1)Does not consider the expected redemption dates for secured notes. The securitized assets are the only source of repayment for the secured notes and are expected to providefunding for these liabilities (see Note 7).(2)Assumes interest rates as of December 31, 2015 remain in effect for the remaining term of the borrowings. Actual payments could vary.The table above does not include amounts due under the asset management agreement as those obligations do not have fixed and determinable payments.We enter into certain contracts that contain a variety of indemnification obligations. The maximum potential future payment amount we could be required to payunder these indemnification obligations is unlimited. We have not incurred any costs to defend lawsuits or settle claims related to these indemnificationobligations. As a result, the estimated fair value of these agreements is minimal. Accordingly, we recorded no liabilities for these agreements as of December 31,2015 or 2014.Recent accounting pronouncementsSee Note 1, “Organization and basis of presentation - Recently issued accounting standards” to our consolidated financial statements.Critical Accounting Judgments Accounting standards require information in financial statements about the risks and uncertainties inherent in significant estimates, and the application of generallyaccepted accounting principles involves the exercise of varying degrees of judgment. Certain amounts included in or affecting our financial statements and relateddisclosures must be estimated requiring us to make certain assumptions with respect to values or conditions that cannot be known with certainty at the time ourconsolidated financial statements are prepared. These estimates and assumptions affect the amounts we report for our assets and liabilities and our revenues andexpenses during the reporting period and our disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Actual results maydiffer significantly from our estimates and any effects on our business, financial position or results of operations resulting from revisions to these estimates arerecorded in the period in which the facts that give rise to the revision become known.We consider our critical accounting judgments to be those used in the determination of the reported amounts and disclosure related to the following:ConsolidationsThe consolidated financial statements include wholly owned subsidiaries and would include those subsidiaries in which we own a majority voting interest with theability to control operations of the subsidiaries and where no substantive participating rights or substantive kick out rights have been granted to the noncontrollinginterests. Additionally, we consolidate partnerships, joint ventures and limited liability companies when we control the major operating and financial policies of theentity through majority ownership, in our capacity as general partner or managing member or by contract. Lastly, we consolidate those entities deemed to bevariable interest entities in which we are determined to be the primary beneficiary.While the results of operations of consolidated entities are included in net income in our consolidated financial statements, net income attributable to commonstockholders does not include the portion attributable to noncontrolling interests. Additionally, noncontrolling interest in consolidated affiliate is recorded in ourconsolidated balance sheets and our consolidated statements of equity within the equity section but separate from our equity.78(table of contents)Income taxesIncome taxes are provided for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable todifferences between the carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured usingenacted rates expected to apply to taxable income in the years in which management expects those temporary differences to be recovered or settled. The effect ondeferred taxes of a change in tax rates is recognized in income in the period in which the change occurs. Subject to our judgment, we reduce a deferred tax asset bya valuation allowance if it is “more likely than not” that some or the entire deferred tax asset will not be realized. Tax laws are complex and subject to differentinterpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in evaluating tax positions, and we recognize taxbenefits only if it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authority.Residential elected REIT status upon the filing of its 2013 income tax return. We believe that Residential has complied with the provisions of the federal incometax code applicable to REITs for each financial year commencing in the year ended December 31, 2013. Accordingly, we believe that Residential will not besubject to federal income tax on the portion of its REIT taxable income that was distributed to its stockholders for such years, nor do we expect Residential to betaxed on future distributions of its REIT taxable income as long as certain asset, income and share ownership tests continue to be met. If after electing to be taxedas a REIT, Residential subsequently fails to qualify as a REIT in any taxable year, it generally will not be permitted to qualify for treatment as a REIT for federalincome tax purposes for the four taxable years following the year during which qualification is lost unless the IRS grants relief under certain statutory provisions.Such an event could materially adversely affect Residential’s net income and net cash available for distribution to stockholders. Its taxable REIT subsidiarieswould also be subject to federal and state income taxes.Mortgage loans at fair valueUpon the acquisition of mortgage loans, Residential records the assets at fair value which is the purchase price it paid for the loans on the acquisition date.Mortgage loans are subsequently accounted for at fair value under the fair value option election with unrealized gains and losses recorded in current periodearnings. We have concluded that mortgage loans accounted for at fair value timely reflect the results of Residential’s investment performance. We determine the purchase price for Residential’s mortgage loans at the time of acquisition by using a discounted cash flow valuation model and consideringalternate loan resolution probabilities including modification, liquidation or conversion to rental property. Observable inputs to the model include current interestrates, loan amounts, status of payments and property types. Unobservable inputs to the model include discount rates, forecast of future home prices, alternate loanresolution probabilities, resolution timelines and the value of underlying properties. After mortgage loans are acquired, the fair value of each loan is adjusted in each subsequent reporting period as the loan proceeds to a particular resolution (i.e.,modification, or conversion to real estate owned). As a loan approaches resolution, the resolution timeline for that loan decreases and costs embedded in thediscounted cash flow model for loan servicing, foreclosure costs and property insurance are incurred and removed from future expenses. The shorter resolutiontimelines and reduced future expenses each increase the fair value of the loan. The increase in the value of the loan is recognized in net unrealized gain onmortgage loans in Residential’s, and therefore, our consolidated statements of operations. Residential also recognizes unrealized gains and losses in the fair value of the loans in each reporting period when its mortgage loans are transferred to real estateowned. The transfer to real estate owned occurs when Residential has obtained title to the property through completion of the foreclosure process. The fair value ofthese assets at the time of transfer to real estate owned is estimated using BPOs.Our capital markets group determines the fair value of mortgage loans monthly and has developed procedures and controls governing the valuation process relatingto these assets. The capital markets group reports to Residential’s Investment Committee, which is a committee of Residential’s Chairman, its Chief ExecutiveOfficer and its Chief Financial Officer that oversees and approves the valuations. The capital markets group also monitors the valuation model for performanceagainst actual results which is reported to the Investment Committee and used to continuously improve the model.79(table of contents)Mortgage loans held for saleMortgage loans held for sale are recorded at the lower of cost or fair value. Residential does not originate loans. Residential's mortgage loans held for sale includethe remaining re-performing residential mortgage loans that it initially acquired in June 2014 and certain non-performing loans identified by management for sale.Residential's re-performing loans were initially acquired for investment and had evidence of deteriorated credit quality at the time of acquisition, and the fair valueoption was not elected for these loans. Therefore, Residential's re-performing loans are accounted for in accordance with the provisions of ASC Topic 310-30,Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality. Under ASC 310-30, acquired loans may be aggregated and accounted for as apool of loans if the loans being aggregated have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and anaggregate expectation of cash flows. These re-performing loans were determined to have common risk characteristics and have been accounted for as a single loanpool.Under ASC Topic 310-30, we estimate cash flows expected to be collected, adjusted for expected prepayments and defaults expected to be incurred over the life ofthe loan pool. Residential determines the excess of the loan pool's contractually required principal and interest payments over the expected cash flows as an amountthat should not be accreted, the nonaccretable yield. The difference between expected cash flows and the present value of the expected cash flows is referred to asthe accretable yield, which represents the amount that is expected to be recorded as interest income over the remaining life of the loan pool.Residential propertiesPurchases of real estate properties are evaluated by Residential to determine whether they meet the definition of an asset acquisition or of a business combinationunder U.S. GAAP. For asset acquisitions, Residential capitalizes pre-acquisition costs to the extent such costs would have been capitalized had Residential ownedthe asset when the cost was incurred and capitalizes closing and other direct acquisition costs. Residential then allocates the total cost of the property, including theacquisition costs, between land, building and any identified intangible assets and liabilities (including in-place leases and above and below-market leases). Foracquisitions that qualify as business combinations, Residential expenses the acquisition costs in the period in which the costs were incurred and allocates the costof the property among land, building and any identified intangible assets and liabilities. Lease intangibles are recorded at the estimated fair value, which is theestimated costs that would have been incurred to lease the property net of any above or below-market lease concessions, and are amortized on a straight-line basisover the remaining life of the related lease or, in the case of acquisitions of real estate pools, over the weighted average remaining life of the related pool of leases.Upon the acquisition of real estate through the completion of foreclosure, Residential records the assets at fair value as of the acquisition date as a component ofreal estate owned based on information obtained from a BPO, a full appraisal or the price given in a current contract of sale of the property. Fair valuemeasurements for assets where there exists limited or no observable market data and, therefore, are based primarily upon management's or other third-partyestimates, are often calculated based on the characteristics of the asset, the economic environment and other such factors. Based on professional judgment andknowledge of the particular situation, management determines the appropriate fair value to be utilized for such property. Residential engages third party vendors,including Altisource, to obtain and evaluate BPOs prepared by other third party brokers for its ultimate use. BPOs are subject to judgments of a particular brokerformed by visiting a property, assessing general home values in an area, reviewing comparable listings and reviewing comparable completed sales. Thesejudgments may vary among brokers and may fluctuate over time based on housing market activities and the influx of additional comparable listings and sales. Ourresults could be materially and adversely affected if the judgments used by a broker prove to be incorrect or inaccurate. Residential has established validationprocedures to confirm the values it receives from third party vendors are consistent with its observations of market values.These validation procedures include establishing thresholds to identify changes in value that require further analysis. Residential’s current policies require that itupdates the fair value estimate of each financed REO property at least every 180 days by obtaining a new BPO, which is subject to the review processes of its thirdparty vendors. We generally perform further analysis for Residential when the value of the property per the new BPO varies from the old BPO by 25% , or $75,000per property. If a newly obtained BPO varies from the old BPO by this established threshold, we perform additional procedures to ensure the BPO accuratelyreflects the current fair value of the property. These procedures include engaging additional third party vendors to compare the old BPOs to the new BPOs and toassist us in evaluating the appropriateness of comparable properties and property-specific characteristics used in Residential’s valuation process. As part of thisevaluation, Residential’s third party vendors often discuss the differing BPOs with the providing brokers to ensure that proper comparable properties80(table of contents)have been identified. These third party vendors also compare the BPOs to past appraisals, if any, of the property to ensure the BPOs are in line with thoseappraisals. Following the consideration and reconciliation of the BPOs, the third party provider may provide Residential with a new property value reflecting theanalysis they performed or confirm the BPO value received by Residential, in which case Residential uses the new property value or the validated BPO,respectively, for its fair value estimate of the property.After an evaluation period, Residential may perform property renovations to those properties that meet its rental investment criteria in order to optimize its rentalproceeds. In some instances, Residential may also perform renovations on REO properties that do not meet its rental investment criteria in order to optimize saleproceeds. Such expenditures are part of Residential's initial investment in a property and, therefore, are classified as investing activities in our consolidatedstatement of cash flows. Subsequently, residential rental properties, including any renovations that improve or extend the life of the asset, are accounted for at cost.REO properties that do not meet Residential's rental investment criteria and that are held for sale are accounted for at the lower of the carrying value or estimatedfair value less cost to sell. The cost basis of residential rental properties is depreciated using the straight-line method over an estimated useful life of three years to27.5 years based on the nature of the components. Interest and other carrying costs incurred during the renovation period are capitalized until the property is readyfor its intended use. Expenditures for ordinary maintenance and repairs are charged to expense as incurred.Expenditures directly related to successful leasing efforts, such as lease commissions, are included in deferred leasing and financing costs, net and are stated atamortized cost. Such expenditures are part of Residential's operations and, therefore, are classified as operating activities in our consolidated statement of cashflows. Capitalized leasing costs are amortized on a straight-line basis over the lease term of the respective leases, which generally are from one to two years.Residential properties are classified either as held for use or held for sale. Residential properties are classified as real estate assets held for sale when sale of theassets has been formally approved and is expected to occur in the next twelve months. Residential records residential properties held for sale at the lower of thecarrying amount or estimated fair value less costs to sell. The impairment loss, if any, is the amount by which the carrying amount exceeds the estimated fair valueless costs to sell.Real estate impairmentWith respect to Residential's rental properties classified as held for use, we perform an impairment analysis using estimated cash flows if events or changes incircumstances 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. These cash flowsare 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 use asset exceeds the sum of its undiscounted future operating and residual cash flows, an impairment loss is recorded for thedifference between estimated fair value of the asset and the carrying amount. Residential generally estimates the fair value of assets held for use by using BPOs. Insome instances, appraisal information may be available and is used in addition to BPOs.Residential rental revenuesMinimum contractual rents from leases are recognized on a straight-line basis over the terms of the leases in residential rental revenues. Therefore, actual amountsbilled in accordance with the lease during any given period may be higher or lower than the amount of rental revenue recognized for the period. Straight-line rentalrevenue commences when the customer takes control of the leased premises. Deferred rents receivable, net represents the amount by which straight-line rentalrevenue exceeds rents currently billed in accordance with lease agreements. Contingent rental revenue is accrued when the contingency is removed. Terminationfee income is recognized when the customer has vacated the rental property, the amount of the fee is determinable and collectability is reasonably assured.Rents receivable and deferred rents receivable are reduced by an allowance for amounts that become uncollectible. We regularly evaluate the adequacy of ourallowance for doubtful accounts. The evaluation takes into consideration the aging of accounts receivable and our analysis of customer personal profile and reviewpast due account balances. Rents receivable and deferred rents receivable are written-off when Residential has deemed that the amounts are uncollectible.81(table of contents)Item 7A. Quantitative and Qualitative Disclosures About Market RiskMarket risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes thataffect market sensitive instruments. The primary market risks that Residential is currently exposed to are real estate risk and interest rate risk. A substantial portionof Residential's investments are, and we expect will continue to be, comprised of non-performing loans and single-family rental properties. The primary driver ofthe value of both these asset classes is the fair value of the underlying real estate. Real Estate Risk Residential property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to: national, regional and localeconomic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as an oversupply of housing);construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. Decreases in property values could causeResidential to suffer losses which would result in fewer or no incentive management fees being earned by us. Interest Rate Risk Residential will be exposed to interest rate risk from its (a) acquisition and ownership of residential mortgage loans and (b) debt financing activities. Interest raterisk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations andother factors beyond Residential's control. Changes in interest rates may affect the fair value of the residential mortgage loans and real estate underlyingResidential's portfolios as well as its financing interest rate expense. We currently do not intend to hedge the risk associated with the residential mortgage loans and real estate underlying Residential's portfolios. However, althoughwe have not yet done so, we may undertake risk mitigation activities with respect to Residential's debt financing interest rate obligations. We expect thatResidential's debt financing will at times be based on a floating rate of interest calculated on a fixed spread over the relevant index, as determined by the particularfinancing arrangement. A significantly rising interest rate environment could have an adverse effect on the cost of Residential's financing. To mitigate this risk, wemay use derivative financial instruments such as interest rate swaps and interest rate options in an effort to reduce the variability of earnings caused by changes inthe interest rates Residential pays on its debt. These derivative transactions will be entered into solely for risk management purposes, not for investment purposes. When undertaken, these derivativeinstruments likely will expose Residential to certain risks such as price and interest rate fluctuations, timing risk, volatility risk, credit risk, counterparty risk andchanges in the liquidity of markets. Therefore, although we expect to transact in these derivative instruments purely for risk management, they may not adequatelyprotect Residential from fluctuations in its financing interest rate obligations.Residential currently borrows funds on its repurchase facilities at variable rates using secured financings. At December 31, 2015 , Residential had $767.5 millionof variable rate debt outstanding not protected by interest rate hedge contracts. The estimated aggregate fair market value of this debt was $767.5 million . If theweighted average interest rate on this variable rate debt had been 100 basis points higher or lower, the annual interest expense would increase or decrease by $7.7million , respectively.Item 8. Consolidated Financial Statements and Supplementary DataSee our consolidated financial statements starting on page F-1.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.82(table of contents)Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresSubsequent to the filing of our Form 10-K for the year ended December 31, 2014, the Public Company Accounting Oversight Board conducted an inspection ofour independent registered public accounting firm’s audit of the Company’s 2014 consolidated financial statements and internal control over financial reporting.Following this inspection, during the fourth quarter of 2015, our independent registered public accounting firm requested a re-evaluation of certain internalcontrols. In re-evaluating these controls, management identified two control deficiencies in internal control over financial reporting and determined that thesedeficiencies were material weaknesses at December 31, 2014. The material weaknesses were in the design of 1) the review of the broker price opinions used torecord real estate owned and real estate assets held for sale, including monitoring the internal controls that are in place at the vendors utilized by the Company toprovide fair value information for individual properties and 2) the review of the assumptions used to determine the fair value of mortgage loans. The materialweaknesses had no impact on the Company’s financial position, results of operations or cash flows as of and for the year ended December 31, 2014.As of December 31, 2015, the Company had remediated the material weakness relating to the review of the broker price opinions used to record real estate ownedand real estate assets held for sale by, among other things, designing and implementing control activities to address the control deficiency, including the addition ofinternal controls to monitor the controls that are in place at the vendors utilized to provide fair value information for individual properties.The Company is in the process of remediating the other material weakness relating to the review of the assumptions used to determine the fair value of mortgageloans. Specifically, management is designing, documenting and implementing additional control procedures related to the review of the assumptions, includingconsideration of market transactions utilized in its determination of the fair value of the mortgage loans.The Company carried out an evaluation required by the 1934 Act, under the supervision and with the participation of our principal executive officer and principalfinancial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the 1934 Act, as ofDecember 31, 2015. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2015, ourdisclosure controls and procedures were not effective solely due to the unremediated material weakness in our internal controls over the accounting for mortgageloans at fair value discussed above.Management’s Report on Internal Control over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the 1934 Act.Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2015 based on criteria established in InternalControl-Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that amaterial misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.Subsequent to the filing of our Form10-K for the year ended December 31, 2014, the Public Company Accounting Oversight Board conducted an inspection of ourindependent registered public accounting firm’s audit of the Company’s 2014 consolidated financial statements and internal control over financial reporting.Following this inspection, during the fourth quarter of 2015, our independent registered public accounting firm requested a re-evaluation of certain internalcontrols. In re-evaluating these controls, management identified two control deficiencies in internal control over financial reporting and determined that thesedeficiencies were material weaknesses at December 31, 2014. The material weaknesses were in the design of 1) the review of the broker price opinions used torecord real estate owned and real estate assets held for sale, including monitoring the internal controls that are in place at the vendors utilized by the Company toprovide fair value information for individual properties and 2) the review of the assumptions used to determine the fair value of the mortgage loans.These control deficiencies did not result in a material misstatement to the Company’s consolidated financial statements for the years ended December 31, 2014 orDecember 31, 2015. However, a material weakness is present even in the absence of a material misstatement if there is a reasonable possibility that a materialmisstatement could have occurred. Accordingly, our management has determined that the control deficiencies constitute material weaknesses.83(table of contents)Solely as a result of the material weakness over the accounting for mortgage loans at fair value, which has not been remediated as of December 31, 2015,management has concluded that our internal control over financial reporting was not effective as of December 31, 2015. Our internal control over financialreporting includes those policies and procedures that 1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactionsand dispositions of the assets of the issuer; 2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statementsin accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizationsof management and directors of the issuer; and 3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition of the issuer's assets that could have a material effect on the financial statements.The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by Deloitte & Touche LLP, an independent registeredpublic accounting firm, as stated in their report that appears herein.84(table of contents)REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofAltisource Asset Management Corporation:We have audited the internal control over financial reporting of Altisource Asset Management Corporation and subsidiaries (the “Company”) as of December 31,2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinion.A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principalfinancial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receiptsand expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on thefinancial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls,material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of theinternal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that amaterial misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following materialweakness has been identified and included in management’s assessment: the Company did not design and maintain effective internal controls related to the reviewof assumptions used to determine the fair value of mortgage loans. This material weakness was considered in determining the nature, timing, and extent of audittests applied in our audit of the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2015 of theCompany and this report does not affect our report on such financial statements and financial statement schedules.In our opinion, because of the effect of the material weakness identified above on the achievement of the objectives of the control criteria, the Company has notmaintained effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control - IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statementsand financial statement schedules as of and for the year ended December 31, 2015 of the Company and our report dated February 29, 2016 expressed anunqualified opinion on those consolidated financial statements85(table of contents)and financial statement schedules and included an explanatory paragraph related to the significance of the revenue generated from Altisource ResidentialCorporation, a consolidated variable interest entity that will be deconsolidated effective January 1, 2016 and the Company’s reliance upon the performance ofservice providers, including Altisource Portfolio Solutions S.A. and Ocwen Financial Corporation (related parties through January 16, 2015)./s/ DELOITTE & TOUCHE LLPAtlanta, GeorgiaFebruary 29, 201686(table of contents)Changes in Internal Control over Financial ReportingIn Management’s Report on Internal Control over Financial Reporting included in our Annual Report on Form 10-K for the year-ended December 31, 2014, ourmanagement, under the supervision of our Chief Executive Officer and Chief Financial Officer, concluded that we maintained effective internal control overfinancial reporting as of December 31, 2014. As described above, we have subsequently concluded that the material weaknesses described above existed as ofDecember 31, 2014. As a result of the material weakness over the accounting for mortgage loans at fair value, which has not yet been remediated, management hasconcluded that we did not maintain effective internal control over financial reporting as of December 31, 2015, based on the criteria in Internal Control-IntegratedFramework (2013), issued by the COSO.Remediation of Material WeaknessesAs of December 31, 2015, the Company had remediated the material weakness relating to the review of the broker price opinions used to record real estate ownedand real estate assets held for sale by, among other things, designing and implementing control activities to address the control deficiency, including the addition ofinternal controls to monitor the controls that are in place at the vendors utilized to provide fair value information for individual properties.The Company is in the process of remediating the other material weakness relating to the review of the assumptions used to determine the fair value of mortgageloans. Specifically, management is designing, documenting and implementing additional control procedures related to the review of the assumptions, includingconsideration of market transactions, utilized in its determination of the fair value of the mortgage loans and real estate owned.Limitations on ControlsOur disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives asspecified above. Management does not expect, however, that our disclosure controls and procedures or our internal control over financial reporting will prevent ordetect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, notabsolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud willnot occur or that all control issues and instances of fraud, if any, within the Company have been detected.Item 9B. Other InformationNone.87(table of contents)Part IIIWe will file a definitive Proxy Statement for our 2016 Annual Meeting of Stockholders, which we refer to as the “2016 Proxy Statement,” with the Securities andExchange Commission, pursuant to Regulation 14A, not later than 120 days after December 31, 2015. Accordingly, certain information required by Part III hasbeen omitted under General Instruction G(3) to Form 10-K. Only those sections of the 2016 Proxy Statement that specifically address the items set forth herein areincorporated by reference.Item 10. Directors, Executive Officers and Corporate GovernanceThe information required by Item 10 is hereby incorporated by reference from our 2016 Proxy Statement under the captions “Election of Directors,” “Section 16(a)Beneficial Ownership Reporting Compliance” and “Code of Ethics.”Item 11. Executive CompensationThe information required by Item 11 is hereby incorporated by reference from our 2016 Proxy Statement under the captions “Executive Compensation” and“Director Compensation.”Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by Item 12 is hereby incorporated by reference from our 2016 Proxy Statement under the caption “Security Ownership of CertainBeneficial Owners and Management.”Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by Item 13 is hereby incorporated by reference from our 2016 Proxy Statement under the captions “Transactions with Related Persons”and “Information Regarding the Board of Directors and Corporate Governance.”Item 14. Principal Accountant Fees and ServicesThe information required by Item 14 is hereby incorporated by reference from our 2016 Proxy Statement under the captions “Independent Registered PublicAccounting Firm Fees” and “Pre-Approval Policy and Procedures.”88(table of contents)Part IVItem 15. ExhibitsExhibitsExhibit Number Description2.1 Separation Agreement, dated as of December 21, 2012, between Altisource Asset Management Corporation and Altisource PortfolioSolutions S.A. (incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed with the Commission onDecember 28, 2012).3.1 Amended and Restated Articles of Incorporation of Altisource Asset Management Corporation (incorporated by reference to Exhibit 3.1 ofthe Registrant's Registration Statement on Form 10 filed with the Commission on December 5, 2012).3.2 First Amended and Restated Bylaws of Altisource Asset Management Corporation (incorporated by reference to Exhibit 3.2 of theRegistrant's Registration Statement on Form 10 filed with the Commission on December 5, 2012).3.3 Certificate of Designations establishing the Company’s Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 ofthe Registrant’s Current Report on Form 8-K filed with the Commission on March 19, 2014).10.1 Support Services Agreement, dated as of December 21, 2012, between Altisource Asset Management Corporation and Altisource SolutionsS.à r.l. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Commission on December28, 2012).10.2 Tax Matters Agreement, dated as of December 21, 2012, between Altisource Asset Management Corporation and Altisource Solutions S.àr.l. (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Commission on December 28,2012).10.3 Asset Management Agreement, dated as of December 21, 2012, between Altisource Residential Corporation, Altisource Residential, L.P.and Altisource Asset Management Corporation (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-Kfiled with the Commission on December 28, 2012).10.4 Trademark License Agreement, dated as of December 21, 2012, between Altisource Asset Management Corporation and AltisourceSolutions S.à r.l. (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed with the Commission onDecember 28, 2012).10.5 Subscription Agreement, dated as of December 21, 2012, between Altisource Asset Management Corporation and NewSource ReinsuranceCompany Ltd. (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed with the Commission onDecember 28, 2012).10.6 Technology Products Services Agreement, between Altisource Asset Management Corporation and Altisource Solutions S.à r.l.(incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K filed with the Commission on December 28,2012).10.7† Altisource Asset Management Corporation 2012 Equity Incentive Plan. (incorporated by reference to Exhibit 10.7 of the Registrant’sCurrent Report on Form 8-K filed with the Commission on December 28, 2012).10.8 † Altisource Asset Management Corporation 2012 Special Equity Incentive Plan. (incorporated by reference to Exhibit 10.8 of theRegistrant’s Current Report on Form 8-K filed with the Commission on December 28, 2012).10.9 Asset Management Agreement, dated March 31, 2015, among Altisource Residential Corporation, Altisource Residential, L.P. andAltisource Asset Management Corporation (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filedwith the Commission on April 2, 2015).10.10 Amendment to Asset Management Agreement, dated April 7, 2015, among Altisource Residential Corporation, Altisource Residential, L.P.and Altisource Asset Management Corporation (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-Kfiled with the Commission on April 13, 2015).10.11 Commercial Lease, dated April 16, 2015 by and between St. Croix Financial Center, Inc. and Altisource Asset Management Corporation(incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed with the Commission on April 22, 2015).21* Schedule of Subsidiaries23* Consent of Deloitte & Touche LLP89(table of contents)24* Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K)31.1* Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act31.2* Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act32.1* Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act32.2* Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act101.INS* XBRL Instance Document101.SCH* XBRL Taxonomy Extension Schema Document101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document101.DEF* XBRL Taxonomy Extension Definition Linkbase Document101.LAB* XBRL Extension Labels Linkbase101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document__________* Filed herewith.† Denotes management contract or compensatory arrangement.90(table of contents)SignaturesPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized. Altisource Asset Management CorporationDate: February 29, 2016By:/s/George G. Ellison George G. Ellison Chief Executive OfficerDate: February 29, 2016By:/s/Robin N. Lowe Robin N. Lowe Chief Financial OfficerPower of AttorneyKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints George G. Ellison and Robin N. Loweand each of them severally, his or her true and lawful attorney-in-fact with power of substitution and resubstitution to sign in his or her name, place and stead, inany and all capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable under the SecuritiesExchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in connection with the Annual Reporton Form 10-K and any and all amendments hereto, as fully for all intents and purposes as he or she might or could do in person, and hereby ratifies and confirmsall said attorneys-in-fact and agents, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of theregistrant and in the capacities indicated:Signature Title Date/s/ George G. Ellison Chairman of the Board of Directors andChief Executive Officer (Principal Executive Officer) February 29, 2016George G. Ellison /s/ Paul T. Bossidy Director February 29, 2016Paul T. Bossidy /s/ Ricardo C. Byrd Director February 29, 2016Ricardo C. Byrd /s/ Dale Kurland Director February 29, 2016Dale Kurland /s/ Nathaniel Redleaf Director February 29, 2016Nathaniel Redleaf /s/ Robin N. Lowe Chief Financial Officer (Principal Financial Officer andPrincipal Accounting Officer) February 29, 2016Robin N. Lowe 91(table of contents)Index to Consolidated Financial StatementsCertain information contained herein is presented as of February 22, 2016 , which we have concluded is the latest practicable date for financial information prior tothe filing of this report.Report of Independent Registered Public Accounting Firm1Consolidated Balance Sheets2Consolidated Statements of Operations3Consolidated Statements of Stockholders’ Equity4Consolidated Statements of Cash Flows5Notes to Consolidated Financial Statements7Financial Statement Schedules3992(table of contents)REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofAltisource Asset Management Corporation:We have audited the accompanying consolidated balance sheets of Altisource Asset Management Corporation and subsidiaries (the "Company") as of December31, 2015 and 2014, and the related consolidated statements of operations, stockholders' equity, and cash flows for the three years in the period ended December 31,2015. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are theresponsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on ouraudits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basisfor our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Altisource Asset Management Corporationand subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the three years in the period ended December 31,2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, whenconsidered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects the information set forth therein.As discussed in Note 1 to the consolidated financial statements, the Company generates substantially all of its revenue through its asset management agreementwith Altisource Residential Corporation, a consolidated variable interest entity that will be deconsolidated effective January 1, 2016 with the adoption of ASU2015-02, Consolidation. Additionally, as discussed in Notes 1 and 9, the Company is reliant upon the performance of service providers, including AltisourcePortfolio Solutions S.A. and Ocwen Financial Corporation (related parties through January 16, 2015).We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control overfinancial reporting as of December 31, 2015, based on the criteria established in Internal Control Integrated Framework (2013) issued by the Committee ofSponsoring Organizations of the Treadway Commission and our report dated February 29, 2016 expressed an adverse opinion on the Company’s internal controlover financial reporting because of a material weakness./s/DELOITTE & TOUCHE LLPAtlanta, GeorgiaFebruary 29, 2016F- 1(table of contents)Altisource Asset Management CorporationConsolidated Balance Sheets(In thousands, except share and per share amounts) December 31, 2015 December 31, 2014Assets: Real estate held for use: Land (from consolidated VIE)$56,346 $14,424Rental residential properties (net of accumulated depreciation of $7,127 and $1,062, respectively -from consolidated VIE)224,040 60,908Real estate owned (from consolidated VIE)455,483 457,045Total real estate held for use, net735,869 532,377Real estate assets held for sale (from consolidated VIE)250,557 92,230Mortgage loans at fair value (from consolidated VIE)960,534 1,959,044Mortgage loans held for sale (from consolidated VIE)317,336 12,535Cash and cash equivalents (including from consolidated VIE $116,702 and $66,166, respectively)184,544 116,782Restricted cash (from consolidated VIE)20,566 13,282Accounts receivable, net (including from consolidated VIE $45,903 and $10,313, respectively)46,026 11,068Related party receivables (from consolidated VIE)— 17,491Deferred leasing and financing costs, net (from consolidated VIE)7,886 4,251Prepaid expenses and other assets (including from consolidated VIE $415 and $373, respectively)2,458 1,638Total assets$2,525,776 $2,760,698Liabilities: Repurchase agreements (from consolidated VIE)$767,513 $1,015,000Other secured borrowings (from consolidated VIE)505,630 324,082Accounts payable and accrued liabilities (including from consolidated VIE $32,448 and $11,678,respectively)38,722 16,726Related party payables (including from consolidated VIE $0 and $4,879, respectively)— 6,169Total liabilities1,311,865 1,361,977Commitments and contingencies (Note 7) Redeemable preferred stock: Preferred stock, $0.01 par value, 250,000 shares issued and outstanding as of December 31, 2015 and2014; redemption value $250,000249,133 248,927Equity: Common stock, $.01 par value, 5,000,000 authorized shares; 2,556,828 and 2,048,223 shares issuedand outstanding, respectively, as of December 31, 2015 and 2,452,101 and 2,188,136 shares issuedand outstanding, respectively as of December 31, 201426 25Additional paid-in capital23,419 14,152Retained earnings (accumulated deficit)50,678 54,174Treasury stock, at cost, 508,605 shares as of December 31, 2015 and 263,965 as of December 31,2014(254,984) (245,468)Total stockholders' equity (deficit)(180,861) (177,117)Noncontrolling interest in consolidated affiliate1,145,639 1,326,911Total equity964,778 1,149,794Total liabilities and equity$2,525,776 $2,760,698See accompanying notes to consolidated financial statements.F- 2(table of contents)Altisource Asset Management CorporationConsolidated Statements of Operations(In thousands, except share and per share amounts) Year ended December 31,2015 Year ended December 31,2014 Year ended December 31,2013Revenues: Rental revenues$13,233 $1,564 $36Net unrealized gain on mortgage loans88,829 350,822 61,092Net realized gain on mortgage loans58,061 55,766 10,482Net realized gain on mortgage loans held for sale36,432 2,771 —Net realized gain on real estate50,932 9,482 —Interest income612 2,893 687Total revenues248,099 423,298 72,297Expenses: Residential property operating expenses66,266 26,018 767Real estate depreciation and amortization7,472 1,067 25Acquisition fees and costs2,292 1,545 1,408Related party acquisition fees and costs— 1,039 115Real estate and mortgage loan selling costs and impairment72,230 21,788 184Mortgage loan servicing costs62,346 68,181 10,418Interest expense53,131 35,647 4,568General and administrative32,896 18,346 16,857Related party general and administrative— 4,446 3,652Total expenses296,633 178,077 37,994Other income— 5,407 —(Loss) income before income taxes(48,534) 250,628 34,303Income tax expense354 2,096 —Net (loss) income(48,888) 248,532 34,303Net (income) loss attributable to noncontrolling interest inconsolidated affiliate45,598 (188,853) (39,596)Net (loss) income attributable to common stockholders$(3,290) $59,679 $(5,293) (Loss) earnings per share of common stock – basic: (Loss) earnings per basic share$(1.59) $26.31 $(2.26)Weighted average common stock outstanding – basic2,202,815 2,261,968 2,346,993(Loss) earnings per share of common stock – diluted: (Loss) earnings per diluted share$(1.59) $21.07 $(2.26)Weighted average common stock outstanding – diluted2,202,815 2,832,188 2,346,993See accompanying notes to consolidated financial statements.F- 3(table of contents)Altisource Asset Management CorporationConsolidated Statements of Equity(In thousands, except share amounts) Common stock Additionalpaid-in capital Retained earnings(accumulateddeficit) Treasurystock Noncontrollinginterest inconsolidatedaffiliate Total equity Number ofshares Amount December 31, 20122,343,213 $23 $4,993 $(46) $— $99,911 $104,881Issuance of common stock11,561 1 20 — — — 21Capital contribution fromnoncontrolling interest— — — — — 659,007 659,007Distribution from noncontrollinginterest— — — — — (13,087) (13,087)Share-based compensation— — 7,842 — — — 7,842Net loss— — — (5,293) — 39,596 34,303December 31, 20132,354,774 24 12,855 (5,339) — 785,427 792,967Issuance of common stock, includingoption exercises97,327 1 46 — — — 47Treasury shares repurchased— — — — (245,468) — (245,468)Capital contribution fromnoncontrolling interest— — — — — 468,429 468,429Distribution from noncontrollinginterest— — — — — (116,025) (116,025)Amortization of preferred stockissuance costs— — — (166) — — (166)Share-based compensation— — 1,251 — — 227 1,478Net income (loss)— — — 59,679 — 188,853 248,532December 31, 20142,452,101 25 14,152 54,174 (245,468) 1,326,911 1,149,794Issuance of common stock, includingoption exercises104,727 1 72 — — — 73Treasury shares repurchased— — — — (9,516) — (9,516)Capital contribution fromnoncontrolling interest— — — — — 111 111Distribution from noncontrollinginterest— — — — — (103,649) (103,649)Repurchase of noncontrolling interest insubsidiaries by affiliate— — — — — (24,983) (24,983)Acquisition of noncontrolling interest inaffiliate— — 2,330 — — (7,337) (5,007)Amortization of preferred stockissuance costs— — — (206) — — (206)Share-based compensation— — 6,865 — — 184 7,049Net loss— — — (3,290) — (45,598) (48,888)December 31, 20152,556,828 $26 $23,419 $50,678 $(254,984) $1,145,639 $964,778See accompanying notes to consolidated financial statements.F- 4(table of contents)Altisource Asset Management CorporationConsolidated Statements of Cash Flows(In thousands) Year ended December31, 2015 Year ended December31, 2014 Year ended December31, 2013Operating activities: Net income (loss)$(48,888) $248,532 $34,303Adjustments to reconcile net income to net cash used in operating activities: Net unrealized gain on mortgage loans(88,829) (350,822) (61,092)Net realized gain on mortgage loans(58,061) (55,766) (10,482)Net realized gain on mortgage loans held for sale(36,432) (2,771) —Net realized gain on sale of real estate(50,932) (9,482) —Real estate depreciation and amortization7,472 1,067 25Real estate and mortgage loan selling costs and impairment72,230 21,788 —Accretion of interest on re-performing mortgage loans(551) (2,610) —Share-based compensation6,865 1,478 7,842Amortization of deferred financing costs7,348 3,425 1,102Loss on retirement of leasehold improvements212 — —Changes in operating assets and liabilities: Accounts receivable, net(21,919) (4,227) —Related party receivables17,491 8,199 (515)Prepaid expenses and other assets(1,023) (1,106) (124)Deferred leasing costs(88) — —Accounts payable and accrued liabilities18,037 3,650 4,761Related party payables(6,169) 3,286 2,355Net cash used in operating activities(183,237) (135,359) (21,825)Investing activities: Investment in mortgage loans— (1,265,890) (1,212,620)Investment in real estate(119,977) (34,104) (6,198)Investment in renovations(27,410) (12,721) (465)Investment in affiliate(5,007) — —Real estate tax advances(29,862) (33,719) (6,472)Mortgage loan dispositions468,111 334,366 38,967Mortgage loan payments26,206 20,900 4,901Disposition of real estate154,880 23,652 685Acquisition-related deposits— — (1,150)Change in restricted cash(7,284) (7,404) (5,878)Net cash provided by (used in) investing activities459,657 (974,920) (1,188,230) See accompanying notes to consolidated financial statements.F- 5(table of contents)Altisource Asset Management CorporationConsolidated Statements of Cash Flows (continued)(In thousands) Year ended December31, 2015 Year ended December31, 2014 Year ended December31, 2013Financing activities: Proceeds from issuance of preferred stock— 250,000 —Cost of issuance of preferred stock— (1,237) —Issuance of common stock, including stock option exercises833 12,389 935Repurchase of common stock(9,516) (245,468) —Payment of tax withholdings on exercise of stock options(760) (12,342) (914)Cost of issuance of common stock— — —Capital contribution from noncontrolling interest111 468,429 659,007Distribution to noncontrolling interest(98,123) (116,025) (13,087)Repurchase of noncontrolling interest in subsidiaries by affiliate(24,983) — —Proceeds from issuance of other secured debt220,931 324,426 —Repayments of secured notes(39,832) (344) —Proceeds from repurchase agreement347,077 1,094,042 689,490Repayments of repurchase agreement(594,564) (681,424) (87,108)Payment of deferred financing costs(9,832) (5,385) (3,282)Related party payables— — —Net cash (used in) provided by financing activities(208,658) 1,087,061 1,245,041Net increase (decrease) in cash and cash equivalents67,762 (23,218) 34,986Cash and cash equivalents as of beginning of the period116,782 140,000 105,014Cash and cash equivalents as of end of the period$184,544 $116,782 $140,000 Supplemental disclosure of cash flow information: Cash paid for interest$46,559 $31,053 $2,445Income taxes paid265 2,778 —Transfer of mortgage loans to real estate owned, net470,221 587,268 31,014Transfer of mortgage loans at fair value to mortgage loans held for sale535,836 — —Change in accrued capital expenditures(1,388) 4,151 —Changes in receivables from mortgage loan dispositions, payments and realestate tax advances, net(592) 10,024 9,812Changes in receivables from real estate owned dispositions15,252 4,640 —Acquisition-related payable— — 1,209Unpaid distribution to noncontrolling interest5,526 — —See accompanying notes to consolidated financial statements.F- 6(table of contents)Altisource Asset Management CorporationNotes to Consolidated Financial StatementsDecember 31, 20151. Organization and basis of presentationWe were incorporated in the United States Virgin Islands on March 15, 2012 (our “inception”). Subsequent to our separation from Altisource Portfolio SolutionsS.A. (“Altisource”) on December 21, 2012, we immediately commenced operations. Our primary business is to provide asset management and certain corporategovernance services to institutional investors. In October 2013, we applied for and were granted registration by the SEC as a registered investment adviser undersection 203(c) of the Investment Advisers Act of 1940.Our primary client currently is Altisource Residential Corporation (“Residential”), a public real estate investment trust (“REIT”) focused on acquiring andmanaging quality, affordable single-family rental properties for working class families throughout the United States. Substantially all of our standalone revenue forall periods presented was generated through our asset management agreement with Residential.Residential focuses on acquiring, owning and managing single-family rental properties throughout the United States and conducts substantially all of its activitiesthrough its wholly owned subsidiary Altisource Residential, L.P. (“ARLP”) and its subsidiaries. Initially, Residential acquired our rental properties primarilythrough the acquisition of sub-performing and non-performing mortgage loan portfolios; however, commencing in the second quarter of 2015, it refocused itsacquisition strategy to opportunistically acquire portfolios of single-family rental properties, both individually and in pools, as an avenue to more quickly achievescale in its rental portfolio.The Company and Residential both have long-term service agreements with Altisource, a leading provider of real estate and mortgage portfolio management, assetrecovery and customer relationship management services. Residential also has servicing agreements with three separate servicers. The Company’s andResidential’s ability to execute their business strategies are reliant, in large part, on the performance of these service providers. Altisource and one of the threeservicers, Ocwen Financial Corporation (“Ocwen”), were related parties through January 16, 2015 (see Note 9).We initially provided services to Residential pursuant to a 15 -year asset management agreement beginning December 21, 2012 (the “Original AMA”). On March31, 2015, we entered into a new asset management agreement with Residential (the “New AMA”) under which we will continue to be the exclusive asset managerfor Residential for an initial term of 15 years from April 1, 2015, with two potential five-year extensions. The Original AMA had a different incentive fee structurethat gave us a share of Residential’s cash flow available for distribution to its stockholders as well as reimbursement for certain overhead and operating expenses.The New AMA provides for a new fee structure in which we are entitled to a base management fee, an incentive management fee and a conversion fee for loansand real estate owned (“REO”) properties that become rental properties during each quarter. Accordingly, our operating results continue to be highly dependent onResidential's operating results. See Note 9 for additional details of the New AMA.Since Residential commenced operations, it has completed three public equity offerings with aggregate net proceeds of approximately $1.1 billion .We ceased to be a development stage enterprise in the second quarter of 2013.Basis of presentation and use of estimatesThe accompanying audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States(“U.S. GAAP”). The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reportedamounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported resultsof operations.The consolidated financial statements include wholly owned subsidiaries and those subsidiaries in which we own a majority voting interest with the ability tocontrol operations of the subsidiaries and where no substantive participating rights orF- 7(table of contents)substantive kick out rights have been granted to the noncontrolling interests. Additionally, we would consolidate partnerships, joint ventures and limited liabilitycompanies when we control the major operating and financial policies of the entity through majority ownership in our capacity as general partner or managingmember or by contract. In addition, we consolidate those entities deemed to be variable interest entities (“VIEs”) in which we are determined to be the primarybeneficiary.Our financial statements include the accounts of our wholly owned subsidiaries as well as one VIE of which we are the primary beneficiary as well as three VIEsof which Residential is the primary beneficiary. We eliminate intercompany accounts and transactions in consolidation.We have concluded that Residential is a VIE because Residential’s equity holders lack the ability through voting rights to make decisions about Residential’sactivities that have a significant effect on the success of Residential. We have also concluded that we are the primary beneficiary of Residential because under theasset management agreement we have the power to direct the activities of Residential that most significantly impact Residential’s economic performance includingestablishing Residential’s investment and business strategy. As a result, we consolidate Residential in our consolidated financial statements. As discussed withinRecently issued accounting standards, upon the adoption of ASU 2015-02, we will deconsolidated Residential from our Consolidated Financial Statementseffective January 1, 2016.For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to noncontrolling interests. While theresults of operations of consolidated entities are included in net income (loss) in our consolidated financial statements, net income (loss) attributable to commonstockholders does not include the portion attributable to noncontrolling interests. Additionally, noncontrolling interest in consolidated affiliates is recorded in ourconsolidated balance sheets and our consolidated statements of equity within the equity section but separate from our equity. Historically, amounts recognized asnoncontrolling interest in our consolidated financial statements were equivalent to Residential's net income and equity because we had no ownership interest inResidential. In the third quarter of 2015, we acquired 324,465 , or approximately 0.58% , of Residential's outstanding shares. Subsequent to our acquisition of theseshares, the noncontrolling interest in consolidated affiliate represents the remaining 99.42% ownership interest held by non-affiliated shareholders of Residential'scommon stock.Residential also has three securitization trusts, ARLP Securitization Trust, Series 2014-1 (“ARLP 2014-1”), ARLP Securitization Trust, Series 2014-2 (“ARLP2014-2”) and ARLP Securitization Trust, Series 2015-1 (“ARLP 2015-1”), that are special purpose entities (“SPEs”) and are classified as VIEs. BecauseResidential is the primary beneficiary, these entities are included in the consolidated financial statements of Residential. See Note 7 for more information regardingthese securitization trusts.Additionally, we provide management services to NewSource Reinsurance Company Ltd. (“NewSource”), a title insurance and reinsurance company in Bermuda.In October 2013, we invested $2.0 million in 100% of the common stock of NewSource, and in September 2015, we contributed an additional $5.0 million toNewSource. On December 2, 2013, NewSource became registered as a licensed reinsurer with the Bermuda Monetary Authority (“BMA”). Because we own 100%of voting common stock of NewSource, we consolidate NewSource in our consolidated financial statements.Preferred stockDuring the first quarter of 2014, we issued $250.0 million of convertible preferred stock. All of the outstanding shares of preferred stock are redeemable by us inMarch 2020, the sixth anniversary of the date of issuance, and every five years thereafter. On these same redemption dates, each holder of preferred stock maycause us to redeem all the shares of preferred stock held by such holder at a redemption price equal to $1,000 per share. Accordingly, we classify these shares asmezzanine equity, outside of permanent stockholders' equity.The holders of shares of Series A Preferred Stock will not be entitled to receive dividends with respect to the Series A Preferred Stock. The shares of Series APreferred Stock are convertible into shares of our common stock at a conversion price of $1,250 per share, subject to certain anti-dilution adjustments.Upon a change of control or upon a liquidation, dissolution or winding up of the Company, holders of the Series A Preferred Stock will be entitled to receive anamount in cash per Series A Preferred Stock equal to the greater of:(i) $1,000 plus the aggregate amount of cash dividends paid on the number of shares of Common Stock into which such share of Series A Preferred Stockwas convertible on each ex-dividend date for such dividends; andF- 8(table of contents)(ii) the number of shares of Common Stock into which the Series A Preferred Stock is then convertible multiplied by the then current market price of theCommon Stock.The Series A Preferred Stock confers no voting rights to holders, except with respect to matters that materially and adversely affect the voting powers, rights orpreferences of the Series A Preferred Stock or as otherwise required by applicable law.With respect to the distribution of assets upon the liquidation, dissolution or winding up of the Company, the Series A Preferred Stock ranks senior to our commonstock and on parity with all other classes of preferred stock that may be issued by us in the future.Recently issued accounting standardsIn January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01 (Subtopic 825-10) - FinancialInstruments - Overall. ASU 2016-01 requires all equity investments to be measured at fair value with changes in the fair value recognized through net income(other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity topresent separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specificcredit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, theamendments eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entitiesand the requirement for to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financialinstruments measured at amortized cost on the balance sheet for public business entities. The amendments in this Update are effective for fiscal years beginningafter December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. We do not expect the impact of adopting this standard tohave a material impact on our consolidated financial statements.In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs. ASU2015-03 requires that debt issuance costs are presented on the balance sheet as a deduction from the carrying amount of the related debt liability instead of beingpresented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. In August 2015, the FASB issued ASU2015-15, Interest - Imputation of Interest (Subtopic 835-30) - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-CreditArrangements. ASU 2015-15 provides additional guidance to ASU 2015-03, which did not address presentation or subsequent measurement of debt issuance costsrelated to line of credit arrangements. ASU 2015-15 noted that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an assetand subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement, regardless of whether there are anyoutstanding borrowings on the line of credit arrangement. These standards require retrospective application and represent a change in accounting principle. Thestandard is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. We do not expect the impact of adopting these standards tohave a material impact on our consolidated financial statements.In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810) – Amendments to the Consolidation Analysis. ASU 2015-02 makes targetedamendments to the current consolidation guidance that change the analysis a reporting entity must perform to determine whether it should consolidate certain typesof legal entities. This guidance addresses concerns that current accounting might require a reporting entity to consolidate another legal entity in situations in whichthe reporting entity’s contractual rights do not give it the ability to act primarily on its own behalf, the reporting entity does not hold a majority of the legal entity’svoting rights, or the reporting entity is not exposed to a majority of the legal entity’s economic benefits or obligations.F- 9(table of contents)ASU 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Upon adoption of this amendmenton January 1, 2016, we will deconsolidate Residential using the modified retrospective approach, which allows for a cumulative-effect adjustment to equity in theperiod of adoption. As a result, periods ending prior to the adoption will not be impacted. The adoption will effectively remove those balances disclosed as fromconsolidated VIE on our consolidated balance sheets and will result in a reduction in consolidated assets and liabilities of $2.4 billion and $1.3 billion ,respectively, on January 1, 2016, resulting in a net deficit of $180.9 million . In addition, the impact of the adoption on noncontrolling interests in consolidatedaffiliate will be a reduction of $1.1 billion on January 1, 2016. Subsequent to adoption, our consolidated revenues will consist primarily of fees received fromResidential under the New AMA, and our consolidated expenses will consist primarily of general and administrative expenses, including salaries and employeebenefits, professional and legal fees, occupancy expenses and other general and administrative expenses. See Note 9 for further discussion of the New AMA. Suchrevenues and expenses for the years ended December 31, 2015, 2014 and 2013 are presented below ($ in thousands): Year ended December 31,2015 Year ended December 31,2014 Year ended December 31,2013Fee revenue from Residential 23,716 74,019 10,291Expenses 25,357 15,318 15,584In May 2014, the FASB issued ASU 2014-09 Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive new revenue recognition modelrequiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive inexchange for those goods or services. ASU 2014-09 may be applied using either a full retrospective or a modified retrospective approach. In August 2015, FASBissued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which effectively delayed the adoption date ofASU 2014-09 by one year. ASU 2014-09 is therefore effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Earlyadoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2016. We are currently evaluating the impact of ASU2014-09 on our consolidated financial statements.2. Summary of significant accounting policiesCash equivalents We consider highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.We maintain our cash and cash equivalents at banking institutions. Certain account balances exceed FDIC insurance coverage and, as a result, there is aconcentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.ConsolidationsThe consolidated financial statements include wholly owned subsidiaries and would include those subsidiaries in which we own a majority voting interest with theability to control operations of the subsidiaries and where no substantive participating rights or substantive kick out rights have been granted to the noncontrollinginterests. Additionally, we consolidate partnerships, joint ventures and limited liability companies when we control the major operating and financial policies of theentity through majority ownership, in our capacity as general partner or managing member or by contract. Lastly, we consolidate those entities deemed to bevariable interest entities in which we are determined to be the primary beneficiary.While the results of operations of consolidated entities are included in net income in our consolidated financial statements, net income attributable to commonstockholders does not include the portion attributable to noncontrolling interests. Additionally, noncontrolling interest in consolidated affiliate is recorded in ourconsolidated balance sheets and our consolidated statements of equity within the equity section but separate from our equity.Comprehensive incomeBecause comprehensive income (loss) equals net income (loss), separate statements of comprehensive income (loss) are not presented as part of our consolidatedfinancial statements.F- 10(table of contents)Earnings per shareBasic earnings per share is computed by dividing net income (loss) less amortization of preferred stock issuance costs by the weighted average common stockoutstanding during the period. Diluted earnings per share is computed by dividing net income (loss) by the weighted average common stock outstanding for theperiod plus the dilutive effect of stock options and restricted stock outstanding using the treasury stock method and if converted method, respectively. Weightedaverage common stock outstanding - basic excludes the impact of unvested restricted stock since dividends paid on such restricted stock are non-participating.Fees under the asset management agreementIn accordance with the asset management agreement, we receive compensation from Residential on a quarterly basis for our efforts in the management ofResidential's business. We recognize these fees in the fiscal quarter in which they are earned. Refer to Note 9 for details of the fee structure under the assetmanagement agreement. Our revenue and Residential's corresponding expense related to these fees are eliminated in consolidation.Fair value of financial instrumentsWe designate fair value measurements into three levels based on the lowest level of substantive input used to make the fair value measurement. Those levels are asfollows:•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 or liabilities; quoted prices in markets that are not active; orother inputs that are observable or can be corroborated by observable market data for substantially the full term of the related 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.Income taxesIncome taxes are provided for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable todifferences between the carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured usingenacted rates expected to apply to taxable income in the years in which management expects those temporary differences to be recovered or settled. The effect ondeferred taxes of a change in tax rates is recognized in income in the period in which the change occurs. Subject to our judgment, we reduce a deferred tax asset bya valuation allowance if it is “more likely than not” that some or the entire deferred tax asset will not be realized. Tax laws are complex and subject to differentinterpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in evaluating tax positions, and we recognize taxbenefits only if it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authority.Residential elected REIT status upon the filing of its 2013 income tax return. We believe that Residential has complied with the provisions of the federal incometax code applicable to REITs for each financial year commencing in the year ended December 31, 2013. Accordingly, we believe that Residential will not besubject to federal income tax on the portion of its REIT taxable income that was distributed to its stockholders for such years, nor do we expect Residential to betaxed on future distributions of its REIT taxable income as long as certain asset, income and share ownership tests continue to be met. If Residential fails to qualifyas a REIT in any taxable year, it will be subject to federal income tax on its REIT taxable income at regular corporate income tax rates. If after electing to be taxedas a REIT, Residential subsequently fails to qualify as a REIT in any taxable year, it generally will not be permitted to qualify for treatment as a REIT for federalincome tax purposes for the four taxable years following the year during which qualification is lost unless the IRS grants relief under certain statutory provisions.Such an event could materially adversely affect Residential’s net income and net cash available for distribution to stockholders. Its taxable REIT subsidiarieswould also be subject to federal and state income taxes.Mortgage loans at fair valueUpon the acquisition of mortgage loans, Residential records the assets at fair value which is the purchase price it paid for the loans on the acquisition date.Mortgage loans are subsequently accounted for at fair value under the fair value option electionF- 11(table of contents)with unrealized gains and losses recorded in current period earnings. We have concluded that mortgage loans accounted for at fair value timely reflect the results ofResidential’s investment performance. We determine the purchase price for Residential’s mortgage loans at the time of acquisition by using a discounted cash flow valuation model and consideringalternate loan resolution probabilities including modification, liquidation or conversion to rental property. Observable inputs to the model include current interestrates, loan amounts, status of payments and property types. Unobservable inputs to the model include discount rates, forecast of future home prices, alternate loanresolution probabilities, resolution timelines and the value of underlying properties. After mortgage loans are acquired, the fair value of each loan is adjusted in each subsequent reporting period as the loan proceeds to a particular resolution (i.e.,modification, or conversion to real estate owned). As a loan approaches resolution, the resolution timeline for that loan decreases and costs embedded in thediscounted cash flow model for loan servicing, foreclosure costs and property insurance are incurred and removed from future expenses. The shorter resolutiontimelines and reduced future expenses each increase the fair value of the loan. The increase in the value of the loan is recognized in net unrealized gain onmortgage loans in Residential’s, and therefore, our consolidated statements of operations. Residential also recognizes unrealized gains and losses in the fair value of the loans in each reporting period when its mortgage loans are transferred to real estateowned. The transfer to real estate owned occurs when Residential has obtained title to the property through completion of the foreclosure process. The fair value ofthese assets at the time of transfer to real estate owned is estimated using broker price opinions (“BPOs”).Our capital markets group determines the fair value of mortgage loans monthly and has developed procedures and controls governing the valuation process relatingto these assets. The capital markets group reports to Residential’s Investment Committee, which is a committee of Residential’s Chairman, its Chief ExecutiveOfficer and its Chief Financial Officer that oversees and approves the valuations. The capital markets group also monitors the valuation model for performanceagainst actual results which is reported to the Investment Committee and used to continuously improve the model.Mortgage loans held for saleMortgage loans held for sale are recorded at the lower of cost or fair value. Residential does not originate loans. Residential's mortgage loans held for sale includethe remaining re-performing residential mortgage loans that it initially acquired in June 2014 and certain non-performing loans identified by management for sale.Residential's re-performing loans were initially acquired for investment and had evidence of deteriorated credit quality at the time of acquisition, and the fair valueoption was not elected for these loans. Therefore, Residential's re-performing loans are accounted for in accordance with the provisions of ASC Topic 310-30,Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality. Under ASC 310-30, acquired loans may be aggregated and accounted for as apool of loans if the loans being aggregated have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and anaggregate expectation of cash flows. These re-performing loans were determined to have common risk characteristics and have been accounted for as a single loanpool.Under ASC Topic 310-30, we estimate cash flows expected to be collected, adjusted for expected prepayments and defaults expected to be incurred over the life ofthe loan pool. Residential determines the excess of the loan pool's contractually required principal and interest payments over the expected cash flows as an amountthat should not be accreted, the nonaccretable yield. The difference between expected cash flows and the present value of the expected cash flows is referred to asthe accretable yield, which represents the amount that is expected to be recorded as interest income over the remaining life of the loan pool.Residential propertiesPurchases of real estate properties are evaluated by Residential to determine whether they meet the definition of an asset acquisition or of a business combinationunder U.S. GAAP. For asset acquisitions, Residential capitalizes pre-acquisition costs to the extent such costs would have been capitalized had Residential ownedthe asset when the cost was incurred and capitalizes closing and other direct acquisition costs. Residential then allocates the total cost of the property, including theacquisition costs, between land, building and any identified intangible assets and liabilities (including in-place leases and above and below-market leases). Foracquisitions that qualify as business combinations, Residential expenses the acquisition costs in the period in which the costs were incurred and allocates the costof the property among land, building and any identified intangible assets and liabilities. Lease intangibles are recorded at the estimated fair value, which is theestimated costs that would have been incurred to lease the property net of any above or below-market lease concessions, and are amortized on a straight-line basisF- 12(table of contents)over the remaining life of the related lease or, in the case of acquisitions of real estate pools, over the weighted average remaining life of the related pool of leases.Upon the acquisition of real estate through the completion of foreclosure, Residential records the assets at fair value as of the acquisition date as a component ofreal estate owned based on information obtained from a BPO, a full appraisal or the price given in a current contract of sale of the property. Fair valuemeasurements for assets where there exists limited or no observable market data and, therefore, are based primarily upon management's or other third-partyestimates, are often calculated based on the characteristics of the asset, the economic environment and other such factors. Based on professional judgment andknowledge of the particular situation, management determines the appropriate fair value to be utilized for such property. Residential engages third party vendors,including Altisource, to obtain and evaluate BPOs prepared by other third party brokers for its ultimate use. BPOs are subject to judgments of a particular brokerformed by visiting a property, assessing general home values in an area, reviewing comparable listings and reviewing comparable completed sales. Thesejudgments may vary among brokers and may fluctuate over time based on housing market activities and the influx of additional comparable listings and sales. Ourresults could be materially and adversely affected if the judgments used by a broker prove to be incorrect or inaccurate. Residential has established validationprocedures to confirm the values it receives from third party vendors are consistent with its observations of market values.These validation procedures include establishing thresholds to identify changes in value that require further analysis. Residential’s current policies require that itupdates the fair value estimate of each financed REO property at least every 180 days by obtaining a new BPO, which is subject to the review processes of its thirdparty vendors. We generally perform further analysis for Residential when the value of the property per the new BPO varies from the old BPO by 25% , or $75,000per property. If a newly obtained BPO varies from the old BPO by this established threshold, we perform additional procedures to ensure the BPO accuratelyreflects the current fair value of the property. These procedures include engaging additional third party vendors to compare the old BPOs to the new BPOs and toassist us in evaluating the appropriateness of comparable properties and property-specific characteristics used in Residential’s valuation process. As part of thisevaluation, Residential’s third party vendors often discuss the differing BPOs with the providing brokers to ensure that proper comparable properties have beenidentified. These third party vendors also compare the BPOs to past appraisals, if any, of the property to ensure the BPOs are in line with those appraisals.Following the consideration and reconciliation of the BPOs, the third party provider may provide Residential with a new property value reflecting the analysis theyperformed or confirm the BPO value received by Residential, in which case Residential uses the new property value or the validated BPO, respectively, for its fairvalue estimate of the property.After an evaluation period, Residential may perform property renovations to those properties that meet its rental investment criteria in order to optimize its rentalproceeds. In some instances, Residential may also perform renovations on REO properties that do not meet its rental investment criteria in order to optimize saleproceeds. Such expenditures are part of Residential's initial investment in a property and, therefore, are classified as investing activities in our consolidatedstatement of cash flows. Subsequently, residential rental properties, including any renovations that improve or extend the life of the asset, are accounted for at cost.REO properties that do not meet Residential's rental investment criteria and that are held for sale are accounted for at the lower of the carrying value or estimatedfair value less cost to sell. The cost basis of residential rental properties is depreciated using the straight-line method over an estimated useful life of three years to27.5 years based on the nature of the components. Interest and other carrying costs incurred during the renovation period are capitalized until the property is readyfor its intended use. Expenditures for ordinary maintenance and repairs are charged to expense as incurred.Expenditures directly related to successful leasing efforts, such as lease commissions, are included in deferred leasing and financing costs, net and are stated atamortized cost. Such expenditures are part of Residential's operations and, therefore, are classified as operating activities in our consolidated statement of cashflows. Capitalized leasing costs are amortized on a straight-line basis over the lease term of the respective leases, which generally are from one to two years.Residential properties are classified either as held for use or held for sale. Residential properties are classified as real estate assets held for sale when sale of theassets has been formally approved and is expected to occur in the next twelve months. Residential records residential properties held for sale at the lower of thecarrying amount or estimated fair value less costs to sell. The impairment loss, if any, is the amount by which the carrying amount exceeds the estimated fair valueless costs to sell.F- 13(table of contents)Real estate impairmentWith respect to Residential's rental properties classified as held for use, we perform an impairment analysis using estimated cash flows if events or changes incircumstances 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. These cash flowsare 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 use asset exceeds the sum of its undiscounted future operating and residual cash flows, an impairment loss is recorded for thedifference between estimated fair value of the asset and the carrying amount. Residential generally estimates the fair value of assets held for use by using BPOs. Insome instances, appraisal information may be available and is used in addition to BPOs.Residential rental revenuesMinimum contractual rents from leases are recognized on a straight-line basis over the terms of the leases in residential rental revenues. Therefore, actual amountsbilled in accordance with the lease during any given period may be higher or lower than the amount of rental revenue recognized for the period. Straight-line rentalrevenue commences when the customer takes control of the leased premises. Deferred rents receivable, net represents the amount by which straight-line rentalrevenue exceeds rents currently billed in accordance with lease agreements. Contingent rental revenue is accrued when the contingency is removed. Terminationfee income is recognized when the customer has vacated the rental property, the amount of the fee is determinable and collectability is reasonably assured.Rents receivable and deferred rents receivable are reduced by an allowance for amounts that become uncollectible. We regularly evaluate the adequacy of ourallowance for doubtful accounts. The evaluation takes into consideration the aging of accounts receivable and our analysis of customer personal profile and reviewpast due account balances. Rents receivable and deferred rents receivable are written-off when Residential has deemed that the amounts are uncollectible.Restricted cashRestricted cash represents cash deposits that are legally restricted or held by third parties on Residential’s or our behalf, as applicable, such as escrows and reservesfor debt service established pursuant to certain of our repurchase agreements.Treasury StockWe account for repurchased common stock under the cost method and include such treasury stock as a component of total shareholders’ equity. We haverepurchased shares of our common stock (i) under our Board approval to repurchase up to $300.0 million in shares of our common stock and (ii) upon ourwithholding of shares of our common stock to satisfy tax withholding obligations in connection with the vesting of our restricted stock.3. Asset acquisitions and dispositionsReal estate assetsAcquisitions, including those accounted for as business combinationsOn August 18, 2015, Residential completed the acquisition of 1,314 single-family residential properties in the Atlanta, Georgia market, of which 94% were leasedas of the acquisition date, from an unrelated third party for an aggregate purchase price of approximately $111.4 million . Residential recognized acquisition feesand costs related to this portfolio acquisition of $0.6 million . The value of in-place leases was estimated at $1.3 million based upon the costs Residential wouldhave incurred to lease the properties and is being amortized over the weighted-average remaining life of the leases of 7 months as of the acquisition date.During the third quarter of 2015, Residential initiated a program to purchase single-family residential properties on a one-by-one basis, sourcing listed propertiesfrom the Multiple Listing Service and alternative listing sources. Residential acquired 98 properties under this program during 2015.F- 14(table of contents)The aggregate purchase price attributable to these acquired properties was $120.0 million for the year ended December 31, 2015 .During the year ended December 31, 2014 , Residential acquired 237 single-family residential properties. The aggregate purchase price attributable to theseacquired properties was $34.1 million .DispositionsDuring the year ended December 31, 2015 , Residential disposed of 1,321 residential properties and recorded $50.9 million of net realized gains on real estate.Residential disposed of 221 residential properties during the year ended December 31, 2014 and recorded $9.5 million of net realized gains on real estate.Mortgage loan assetsAcquisitionsResidential did not acquire any mortgage loans during the year ended December 31, 2015. During the year ended December 31, 2014, Residential acquired anaggregate of 8,205 mortgage loans, consisting of the following:Acquisitions of non-performing residential mortgage loansDuring the year ended December 31, 2014, Residential acquired an aggregate of 7,326 residential mortgage loans, substantially all of which were non-performing,having an aggregate UPB of approximately $1.9 billion and an aggregate market value of underlying properties of $1.8 billion . The aggregate purchase price forthese acquisitions was $1.2 billion .Acquisition of re-performing residential mortgage loansOn June 27, 2014, Residential acquired 879 re-performing mortgage loans with an aggregate market value of underlying properties of $271.1 million for anaggregate purchase price of $144.6 million .Throughout this report, all unpaid principal balance and market value amounts for the portfolios acquired are provided as of “cut-off date” for each transactionunless otherwise indicated. The “cut-off date” for each acquisition is a date shortly before the closing used to identify the final loans being purchased and therelated unpaid principal balance, market value of underlying properties and other characteristics of the loans.Resolutions and dispositionsDuring the year ended December 31, 2015, Residential resolved 590 mortgage loans, primarily through short sales, refinancing and foreclosure sales. In addition,Residential sold 137 loans that had transitioned to re-performing status from prior non-performing loan acquisitions to a third party purchaser during June 2015. Inconnection with these disposals, Residential recorded $58.1 million of net realized gains on mortgage loans.During December 2015, Residential sold a total of 306 of our mortgage loans held for sale to third party purchasers. In connection with these sales, Residentialrecorded $14.0 million of net realized gains on mortgage loans held for sale.During November 2015, Residential sold 466 of our mortgage loans held for sale to a third party purchaser. In connection with this sale, Residential recorded $21.9million of net realized gains on mortgage loans held for sale.During June 2015, Residential sold 52 loans from the re-performing mortgage loans purchased in June 2014 to a third party purchaser. In connection with this sale,Residential recorded $0.5 million of net realized gains on mortgage loans held for sale.During the year ended December 31, 2014 , Residential resolved 735 mortgage loans, primarily through short sales, refinancing and foreclosure sales. Inconnection with these resolutions, Residential recorded $55.8 million of net realized gains on mortgage loans. During October 2014, Residential sold 934 re-performing loans to an unrelated third party and recognized $2.8 million of net realized gains on mortgage loans held for sale. The sale included 770 loans from there-performing mortgage loans held for sale purchased in June 2014 and 164 loans that had transitioned to re-performing status from prior non-performing loanacquisitions that had a clean pay history of at least six months .F- 15(table of contents)Transfers of mortgage loans to real estate ownedDuring the years ended December 31, 2015 and 2014 , Residential transferred an aggregate of 2,443 and 3,682 mortgage loans, respectively, to REO at anaggregate fair value based on BPOs of $470.2 million and $587.3 million , respectively. Such transfers occur when the foreclosure sale is complete. In connectionwith these transfers to REO, Residential recorded $91.3 million and $124.9 million (net of $6.6 million of gains reclassified on REO sold), respectively, in netunrealized gains on mortgage loans.Due diligence costsDuring the years ended December 31, 2015, 2014 and 2013, Residential recognized $0.4 million , $3.1 million and $3.5 million , respectively, for due diligencecosts related to these and other transactions in general and administrative expense during the year ended December 31, 2015 and in both general and administrativeexpense and related party general and administrative expense during the years ended December 31, 2014 and 2013.4. Real estate assets, netReal estate held for useAs of December 31, 2015 , Residential had 4,933 single-family residential properties held for use. Of these properties, 2,118 had been leased, 264 were listed andready for rent and 350 were in varying stages of renovation and unit turn status. With respect to the remaining 2,201 REO properties, we will make a finaldetermination whether each property meets Residential's rental profile after (a) applicable state redemption periods have expired, (b) the foreclosure sale has beenratified, (c) Residential has recorded the deed for the property, (d) utilities have been activated and (e) we have secured access for interior inspection. A majority ofthe REO properties are subject to state regulations that require Residential to await the expiration of a redemption period before a foreclosure can be finalized.Residential includes these redemption periods in its portfolio pricing, which generally reduces the price it pays for the mortgage loans. Once the redemption periodexpires, Residential immediately proceeds to record the new deed, take possession of the property, activate utilities, and start the inspection process in order tomake a final determination on whether to rent or liquidate the property. If an REO property meets Residential's rental investment criteria, we determine the extentof renovations that are needed to generate an optimal rent and maintain consistency of renovation specifications for future branding. If it is determined that theREO property will not meet Residential's rental investment criteria, the property is listed for sale, in some instances after renovations are made to optimize the saleproceeds.As of December 31, 2014 , Residential had 3,349 REO properties held for use. Of these properties, 336 had been leased, 197 were listed and ready for rent and 254were in various stages of renovation. With respect to the remaining 2,562 REO properties, we were in the process of determining whether these properties wouldmeet Residential's rental profile.We generally rent our REO properties under non-cancelable leases with a term of one to two years. Future minimum rental revenues under leases existing for the2,118 properties that were leased as of December 31, 2015 are as follows ($ in thousands):2016 $16,6612017 1,3112018 1592019 1672020 and thereafter — $18,298Residential recognized $36.5 million , $7.9 million and $0 of REO valuation impairment for the years ended December 31, 2015, 2014 and 2013, respectively.F- 16(table of contents)Real estate held for saleAs of December 31, 2015 , Residential classified 1,583 properties having an aggregate carrying value of $250.6 million as real estate held for sale as they do notmeet its residential rental property investment criteria. As of December 31, 2014 , Residential had 611 REO properties having an aggregate carrying value of $92.2million held for sale.5. Mortgage loansThe following table sets forth the fair value of Residential's mortgage loans, the related unpaid principal balance and market value of underlying properties bydelinquency status as of December 31, 2015 and December 31, 2014 ($ in thousands): Number of Loans Carrying Value Unpaid Principal Balance Market Value ofUnderlying PropertiesDecember 31, 2015 Current 730 $124,595 $165,645 $177,34830 80 12,003 18,142 21,85860 38 5,688 8,088 8,76690 984 130,784 216,717 196,963Foreclosure 3,907 687,464 946,962 917,671Mortgage loans at fair value 5,739 $960,534 $1,355,554 $1,322,606 December 31, 2014 Current 670 $107,467 $159,731 $160,65430 109 15,424 22,629 24,04660 57 7,921 11,624 12,51090 2,286 361,434 569,930 544,709Foreclosure 7,841 1,466,798 2,172,047 1,951,606Mortgage loans at fair value 10,963 $1,959,044 $2,935,961 $2,693,525The following table sets forth the carrying value of Residential's mortgage loans held for sale, the related unpaid principal balance and market value of underlyingproperties by delinquency status as of December 31, 2015 and December 31, 2014 ($ in thousands): Number of Loans Carrying Value Unpaid Principal Balance Market Value ofUnderlying PropertiesDecember 31, 2015 Current 58 $10,864 $13,466 $17,77630 26 7,616 10,013 12,20060 6 668 775 1,06390 328 73,164 101,121 103,395Foreclosure 879 $225,024 $314,991 $330,573Mortgage loans held for sale 1,297 $317,336 $440,366 $465,007 December 31, 2014 Current 68 $8,317 $11,938 $15,15430 6 1,118 1,667 2,00460 4 359 644 67090 24 2,741 4,149 4,624Mortgage loans held for sale 102 $12,535 $18,398 $22,452F- 17(table of contents)Residential's mortgage loans held for sale include our remaining re-performing residential mortgage loans that it initially acquired in June 2014 and certain non-performing loans identified by management for sale. Residential transferred these mortgage loans to mortgage loans held for sale to take advantage of attractivemarket pricing and because it does not expect them to be rental candidates.In addition, in December 2015, Residential commenced an auction to sell an additional portfolio of 1,266 non-performing and re-performing mortgage loans withan aggregate UPB of $434.3 million , representing approximately 24% of its loan portfolio by UPB. On January 19, 2016, following the auction process, we agreedin principle to award the sale to an unrelated third party.Re-performing residential mortgage loansFor the year ended December 31, 2015 and 2014 , Residential recognized no provision for loan loss and no adjustments to the amount of the accretable yield. Forthe year ended December 31, 2015 and 2014 , Residential accreted $0.6 million and $2.6 million into interest income with respect to these re-performing loans. Asof December 31, 2015 and 2014 , these re-performing loans, having a UPB of $6.0 million and $18.4 million , respectively, and a carrying value of $4.0 millionand $12.5 million , respectively, were included in mortgage loans held for sale.The following table presents information regarding the estimates of the contractually required payments and the cash flows expected to be collected as of the dateof the acquisition of June 27, 2014 ($ in thousands):Contractually required principal and interest at the date of acquisition $325,000Non-accretable yield (96,263)Expected cash flows to be collected 228,737Accretable yield (84,728)Fair value at the date of acquisition $144,009The following table presents changes in the balance of the accretable yield for the periods indicated:Accretable Yield Year ended December 31,2015 Year ended December 31,2014Balance at the beginning of the period $7,640 $—Acquisitions — 84,728Loans sold (4,943) (74,478)Accretion (551) (2,610)Balance at the end of the period $2,146 $7,640F- 18(table of contents)6. Fair value of financial instrumentsThe following table sets forth the fair value of financial assets and liabilities by level within the fair value hierarchy as of December 31, 2015 and December 31,2014 ($ in thousands): Level 1 Level 2 Level 3 Quoted Prices inActive Markets Observable InputsOther Than Level 1Prices UnobservableInputsDecember 31, 2015 Recurring basis (assets) Mortgage loans at fair value $— $— $960,534Nonrecurring basis (assets) Real estate assets held for sale — — 250,557Not recognized on consolidated balance sheets at fair value (assets) Mortgage loans held for sale — — 317,336Not recognized on consolidated balance sheets at fair value (liabilities) Repurchase agreements at fair value — 767,513 —Other secured borrowings — 502,268 — December 31, 2014 Recurring basis (assets) Mortgage loans at fair value $— $— $1,959,044Nonrecurring basis (assets) Real estate assets held for sale — — 96,041Not recognized on consolidated balance sheets at fair value (assets) Mortgage loans held for sale — — 12,535Not recognized on consolidated balance sheets at fair value (liabilities) Repurchase agreements at fair value — 1,015,000 —Other secured borrowings — 321,409 —No assets were transferred from one level to another level during the year ended December 31, 2015 or 2014 .The carrying values of Residential's and our cash and cash equivalents, restricted cash, related party receivables, accounts payable and accrued liabilities, relatedparty payables, preferred stock, and investment in NewSource are equal to or approximate fair value. The fair value of mortgage loans at fair value and non-performing mortgage loans held for sale is estimated using our proprietary pricing model. The fair value of re-performing mortgage loans held for sale is estimatedusing the present value of the future estimated principal and interest payments of the loan, with the discount rate used in the present value calculation representingthe estimated effective yield of the loan. The fair value of the repurchase agreements is estimated using the income approach based on credit spreads availablecurrently in the market for similar floating rate debt. The fair value of other secured borrowings is estimated using observable market data.F- 19(table of contents)The following table sets forth the changes in Residential's level 3 assets that are measured at fair value on a recurring basis ($ in thousands): Year ended December 31,2015 Year ended December 31,2014Mortgage loans at fair value Beginning balance$1,959,044 $1,207,163Investment in mortgage loans at fair value— 1,122,408Net unrealized gain on mortgage loans at fair value177,545 350,822Net realized gain on mortgage loans at fair value58,061 55,766Transfers of mortgage loans at fair value to mortgage loans held for sale(535,836) —Mortgage loans at fair value dispositions and payments(257,505) (235,743)Real estate tax advances to borrowers29,261 36,842Reclassification of realized gains on real estate sold from unrealized gains— 9,054Transfer of real estate owned to mortgage loans at fair value15,974 8,400Transfer of mortgage loans at fair value to real estate owned(486,010) (595,668)Ending balance at December 31$960,534 $1,959,044 Net unrealized gain on mortgage loans at fair value held at the end of the period$78,453 $222,034The significant unobservable inputs used in the fair value measurement of Residential's mortgage loans are discount rates, forecasts of future home prices, alternateloan resolution probabilities, resolution timelines and the value of underlying properties. Significant changes in any of these inputs in isolation could result in asignificant change to the fair value measurement. A decline in the discount rate in isolation would increase the fair value. A decrease in the housing pricing indexin isolation would decrease the fair value. Individual loan characteristics such as location and value of underlying collateral affect the loan resolution probabilitiesand timelines. An increase in the loan resolution timeline in isolation would decrease the fair value. A decrease in the value of underlying properties in isolationwould decrease the fair value.The following table sets forth quantitative information about the significant unobservable inputs used to measure the fair value of Residential's mortgage loans asof December 31, 2015 and December 31, 2014 :Input December 31, 2015 December 31, 2014Equity discount rate 15.0% 15.0%Debt to asset ratio 65.0% 65.0%Cost of funds 3.5% over 1 month LIBOR 3.5% over 1 month LIBORAnnual change in home pricing index 0.0% to 10.2% -0.1% to 7.6%Loan resolution probabilities — modification 0% to 44.7% 0% to 44.7%Loan resolution probabilities — rental 0% to 100.0% 0% to 100.0%Loan resolution probabilities — liquidation 0% to 100.0% 0% to 100.0%Loan resolution timelines (in years) 0.1 to 5.6 0.1 - 5.3Value of underlying properties $3,000 - $4,500,000 $3,000 - $5,300,0007. BorrowingsRepurchase and loan agreementsResidential's operating partnership and certain of its Delaware Statutory Trust subsidiaries, as applicable, have entered into master repurchase agreements withmajor financial institutions. The purpose of these repurchase agreements is to finance the acquisition and ownership of mortgage loans and REO properties in itsportfolio. Residential has effective control of the assets associated with these agreements and therefore has concluded these are financing arrangements. As ofDecember 31, 2015 , the weighted average annualized interest rate on borrowing under Residential's repurchase and loan agreements was 3.35% , excludingamortization of deferred financing costs.F- 20(table of contents)Residential has entered into three separate repurchase agreements and a loan agreement to finance the acquisition and ownership of its residential mortgage loansand REO properties. Below is a description of each agreement:•Credit Suisse (“CS”) is the lender on the repurchase agreement entered into on March 22, 2013, (the “CS repurchase agreement”) with an initial aggregatemaximum borrowing capacity of $100.0 million . During 2014 the CS repurchase agreement was amended on several occasions, ultimately increasing theaggregate maximum borrowing capacity to $225.0 million on December 31, 2014 with a maturity date of April 20, 2015, subject to an additional one -year extension with the approval of the lender. On April 20, 2015, Residential entered into an amended and restated repurchase agreement with CS thatincreased its aggregate borrowing capacity from $225.0 million to $275.0 million , increased the REO sublimit under the facility and extended thematurity date to April 18, 2016. On Residential's behalf, we are in discussions with CS to renew and further extend the repurchase agreement with anability to obtain additional funding. No assurance can be provided that we will be able to renew this facility on reasonable terms, on a timely basis or atall.•Deutsche Bank (“DB”) is the lender on the repurchase agreement dated September 12, 2013 (the “DB repurchase agreement”). The DB repurchaseagreement matures on March 11, 2016. Under the DB repurchase agreement, Residential has not been eligible for additional funding under the facilitysince March 2015, and its aggregate funding capacity was thereby reduced to $54.9 million , which was the amount outstanding under the facility onDecember 31, 2015. Residential expects to repay the remaining outstanding balance of the DB repurchase agreement during March 2016 primarily withavailable funds and then transfer of all or some of the collateral to its other existing facilities.•Wells Fargo (“Wells”) is the lender under the repurchase agreement dated September 23, 2013 (the “Wells repurchase agreement”) with an initialaggregate maximum borrowing capacity of $200.0 million . Throughout 2013 and 2014, the Wells repurchase agreement was amended several timesincreasing the aggregate maximum borrowing capacity to a high of $1.0 billion , and on December 31, 2014 was reduced to $750.0 million , subject tocertain sublimits, to reflect the securitization of a significant portion of Residential's non-performing loans that previously had been financed under theWells repurchase agreement. On February 20, 2015, Residential exercised its option to extend the termination date of this facility to March 23, 2016. OnSeptember 30, 2015, the Wells repurchase agreement was amended to extend the termination date of the facility to September 27, 2017, to re-increase theaggregate amount of available funding to $750.0 million and to further increase the sublimits of REO properties that may collateralize the facility from10% of the aggregate funding capacity to 40% of the aggregate funding capacity, or $300.0 million of the $750.0 million .•Nomura Corporate Funding Americas, LLC (“Nomura”) is the lender under a loan agreement dated April 10, 2015 (the “Nomura loan agreement”) withan initial aggregate maximum funding capacity of $100.0 million . On May 12, 2015, Residential amended the terms of the Nomura loan agreement toincrease the aggregate maximum funding capacity to $200.0 million , subject to certain sublimits, eligibility requirements and conditions precedent toeach funding. The Nomura loan agreement terminates on April 8, 2016. On Residential's behalf, we are in discussions with Nomura to renew and furtherextend the Nomura loan agreement with an ability to obtain additional funding. No assurance can be provided that we will be able to renew this facility onreasonable terms, on a timely basis or at all.Following all of the amendments described above, the maximum aggregate funding available to Residential under these repurchase and loan agreements as ofDecember 31, 2015 was $1.3 billion , subject to certain sublimits, eligibility requirements and conditions precedent to each funding. As of December 31, 2015 , anaggregate of $767.5 million was outstanding under these repurchase and loan agreements. All obligations under each of these repurchase and loan agreements arefully guaranteed by Residential.F- 21(table of contents)The following table sets forth data with respect to Residential's repurchase and loan agreements as of December 31, 2015 and December 31, 2014 ($ in thousands): MaximumBorrowingCapacity Book Value ofCollateral AmountOutstanding Amount ofAvailable FundingDecember 31, 2015 CS repurchase agreement due April 18, 2016 $275,000 $335,184 $194,346 $80,654Wells repurchase agreement due September 27, 2017 750,000 708,275 371,130 378,870DB repurchase agreement due March 11, 2016 54,944 130,863 54,944 —Nomura loan agreement due April 8, 2016 200,000 204,578 147,093 52,907 $1,279,944 $1,378,900 $767,513 $512,431December 31, 2014 CS repurchase agreement due April 20, 2015 $225,000 $332,618 $222,044 $2,956Wells repurchase agreement due March 23, 2015 750,000 1,036,409 569,509 180,491DB repurchase agreement due March 11, 2016 250,000 450,532 223,447 26,553 $1,225,000 $1,819,559 $1,015,000 $210,000Under the terms of each repurchase agreements, as collateral for the funds Residential draws thereunder, subject to certain conditions, Residential's operatingpartnership will sell to the applicable lender equity interests in its Delaware statutory trust subsidiaries that owns the applicable underlying assets on its behalf, orthe trust will directly sell such underlying mortgage assets. In the event the lender determines the value of the collateral has decreased, the lender has the right toinitiate a margin call and require Residential, or the applicable trust subsidiary, to post additional collateral or to repay a portion of the outstanding borrowings. Theprice paid by the lender for each mortgage asset Residential finances under the repurchase agreements is based on a percentage of the market value of the mortgageasset and may depend on its delinquency status. With respect to funds drawn under the repurchase agreements, Residential's operating partnership is required topay the lender interest based on LIBOR or at the lender's cost of funds plus a spread calculated based on the type of applicable mortgage assets collateralizing thefunding, as well as certain other customary fees, administrative costs and expenses to maintain and administer the repurchase agreements. Residential does notcollateralize any of its repurchase facilities with cash.Pursuant to the CS repurchase agreement, Residential is entitled to collateralize a portion of the facility with securities. As of December 31, 2015, approximately$19.8 million of the amounts outstanding under the CS repurchase agreement was collateralized by $32.0 million of the Class M Notes issued and retained byResidential in connection with the securitization completed in September 2014 by ARLP 2014-1, approximately $29.2 million of the amounts outstanding underthe CS repurchase agreement was collateralized by $45.1 million of the Class A-2 Notes issued and retained by Residential in connection with the securitizationcompleted in November 2014 by ARLP 2014-2, and approximately $21.0 million of the amounts outstanding under the CS repurchase agreement wascollateralized by $34.0 million of the Class A-2 Notes issued and retained by Residential in connection with the securitization completed in July 2015 by ARLP2015-1.The repurchase agreements require Residential to maintain various financial and other covenants, including maintaining a minimum adjusted tangible net worth, amaximum ratio of indebtedness to adjusted tangible net worth and specified levels of unrestricted cash. In addition, the repurchase agreements contain customaryevents of default. Residential is restricted by the terms of its repurchase agreements from paying dividends greater than its REIT taxable income in a calendar year.Under the terms of the Nomura loan agreement, subject to certain conditions, Nomura may advance funds to Residential from time to time, with such advancescollateralized by REO properties. The advances paid under the Nomura loan agreement with respect to the REO properties from time to time will be based on apercentage of the market value of the applicable REO properties. Under the terms of the Nomura loan agreement, Residential is required to pay interest based onthe one-month LIBOR plus a spread and certain other customary fees, administrative costs and expenses in connection with Nomura's structuring, management andongoing administration of the facility.The Nomura loan agreement requires Residential to maintain various financial and other covenants, including a minimum adjusted tangible net worth, a maximumratio of indebtedness to adjusted tangible net worth and specified levels of unrestricted cash. In addition, the Nomura loan agreement contains events of default(subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties,cross-defaults, certain material adverse changes, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. Theremedies for such events of default are also customary for this type of transaction and include the accelerationF- 22(table of contents)of the principal amount outstanding under the Nomura loan agreement and the liquidation by Nomura of the REO properties then subject thereto.Residential is currently in compliance with the covenants and other requirements with respect to its repurchase and loan agreements. We monitor Residential'sbanking partners' ability to perform under the repurchase and loan agreements and have concluded there is currently no reason to doubt that they will continue toperform under the repurchase and loan agreements as contractually obligated.Other secured debtOn June 29, 2015, Residential completed a securitization transaction in which ARLP 2015-1 issued $205.0 million in ARLP 2015-1 Class A Notes with a weightedcoupon of approximately 4.01% and $60.0 million in ARLP 2015-1 Class M Notes. ARLP 2015-1 is a Delaware statutory trust that is wholly-owned byResidential's operating partnership with a federally-chartered bank as its trustee. Residential retained $34.0 million of the ARLP 2015-1 Class A Notes and all ofthe ARLP 2015-1 Class M Notes. No interest will be paid on any ARLP 2015-1 Class M Notes while any ARLP 2015-1 Class A Notes remain outstanding. TheARLP 2015-1 Class A Notes and ARLP 2015-1 Class M Notes are non-recourse to Residential and are secured solely by the non-performing mortgage loans andREO properties of ARLP 2015-1 but not by any of Residential's other assets. The assets of ARLP 2015-1 are the only source of repayment and interest on theARLP 2015-1 Class A Notes and the ARLP 2015-1 Class M Notes, thereby making the cash proceeds received by ARLP 2015-1 of loan payments, loanliquidations, loan sales and sales of converted REO properties the sole sources of the payment of interest and principal by ARLP 2015-1 to the bond holders. TheARLP 2015-1 Class A Notes and the ARLP 2015-1 Class M Notes mature on May 25, 2055, and Residential does not guarantee any of the obligations of ARLP2015-1 under the terms of the indenture governing the notes or otherwise. As of December 31, 2015, the book value of the underlying securitized assets held byARLP 2015-1 was $282.1 million .On November 25, 2014, Residential completed a securitization transaction in which ARLP 2014-2 issued $270.8 million in ARLP 2014-2 Class A Notes with aweighted yield of approximately 3.85% and $234.0 million in ARLP 2014-2 Class M Notes. Residential initially retained $95.8 million of the ARLP 2014-2 ClassA Notes and all of the ARLP 2014-2 Class M Notes. On February 9, 2015, Residential sold $50.7 million of the retained ARLP 2014-2 Class A Notes to anunrelated third party. No interest will be paid on any ARLP 2014-2 Class M Notes while any ARLP 2014-2 Class A Notes remain outstanding. The ARLP 2014-2Class A Notes and ARLP 2014-2 Class M Notes are secured solely by the non-performing mortgage loans and REO properties of ARLP 2014-2 and not by any ofResidential's other assets. The assets of ARLP 2014-2 are the only source of repayment and interest on the ARLP 2014-2 Class A Notes and the ARLP 2014-2Class M Notes. The ARLP 2014-2 Class A Notes and the ARLP 2014-2 Class M Notes mature on January 26, 2054, and Residential does not guaranty any of theobligations of ARLP 2014-2 under the terms of the indenture governing the notes or otherwise. As of December 31, 2015 , the book value of the underlyingsecuritized assets held by ARLP 2014-2 was $322.5 million .On September 25, 2014, Residential completed a securitization transaction in which ARLP 2014-1 issued $150.0 million in Class A Notes with a weighted yield ofapproximately 3.47% and $32.0 million in Class M Notes with a weighted yield of 4.25% . The ARLP 2014-1 Class A Notes and the ARLP 2014-1 Class M Notesare secured solely by the non-performing mortgage loans and REO properties of ARLP 2014-1 and not by any of Residential's other assets. The assets of ARLP2014-1 are the only source of repayment and interest on the ARLP 2014-1 Class A Notes and the ARLP 2014-1 Class M Notes. The ARLP 2014-1 Class A Notesand the ARLP 2014-1 Class M Notes mature on September 25, 2044, and Residential does not guaranty any of the obligations of ARLP 2014-1 under the terms ofthe indenture governing the notes or otherwise. As of December 31, 2015 , the book value of the underlying securitized assets held by ARLP 2014-1 was $202.3million .Residential retained all of the Class M Notes issued by ARLP 2014-1 in its TRS. On September 30, 2014, pursuant to a master repurchase agreement, the TRS sold$15.0 million of the ARLP 2014-1 Class M Notes to NewSource. On September 22, 2015, the TRS completed its repurchase of the ARLP 2014-1 Class M notesfrom NewSource at a 5.0% yield.F- 23(table of contents)The following table sets forth data with respect to these notes as of December 31, 2015 and 2014 ($ in thousands): Interest Rate Amount OutstandingDecember 31, 2015: ARLP Securitization Trust, Series 2014-1 ARLP 2014-1 Class A Notes due September 25, 2044 (1) 3.47% $136,404ARLP 2014-1 Class M Notes due September 25, 2044 (2) 4.25% 32,000ARLP Securitization Trust, Series 2014-2 ARLP 2014-2 Class A Notes due January 26, 2054 (3) 3.63% 244,935ARLP 2014-2 Class M Notes due January 26, 2054 —% 234,010ARLP Securitization Trust, Series 2015-1 ARLP 2015-1 Class A Notes due May 25, 2055 (4) 4.01% 203,429ARLP 2015-1 Class M Notes due May 25, 2044 —% 60,000Intercompany eliminations Elimination of ARLP 2014-1 Class M Notes due to ARNS, Inc. (32,000)Elimination of ARLP 2014-2 Class A Notes due to ARNS, Inc. (45,138)Elimination of ARLP 2014-2 Class M Notes due to ARLP (234,010)Elimination of ARLP 2015-1 Class A Notes due to ARNS, Inc. (34,000)Elimination of ARLP 2015-1 Class M Notes due to ARLP (60,000) $505,630December 31, 2014: ARLP Securitization Trust, Series 2014-1 ARLP 2014-1 Class A Notes due September 25, 2044 (1) 3.47% $150,000ARLP 2014-1 Class M Notes due September 25, 2044 (2) 4.25% 32,000ARLP Securitization Trust, Series 2014-2 ARLP 2014-2 Class A Notes due January 26, 2054 (3) 3.85% 269,820ARLP 2014-2 Class M Notes due January 26, 2054 —% 234,010ARNS, Inc. Securities sold under agreement to repurchase due March 27, 2015 5.00% 14,991Intercompany eliminations Elimination of ARLP 2014-1 Class A Notes due to ARNS, Inc. (15,000)Elimination of ARLP 2014-1 Class M Notes due to ARNS, Inc. (32,000)Elimination of ARLP 2014-2 Class A Notes due to ARNS, Inc. (95,729)Elimination of ARLP 2014-2 Class M Notes due to ARNS, Inc. (234,010) $324,082__________________(1)The expected redemption date for the Class A Notes ranges from September 25, 2017 to September 25, 2018.(2)The expected redemption date for the Class M Notes is September 25, 2018.(3)The expected redemption date for the Class A Notes ranges from November 27, 2017 to November 27, 2018.(4)The expected redemption date for the Class A Notes ranges from June 25, 2018 to June 25, 2019.F- 24(table of contents)8. Commitments and contingenciesLitigation, claims and assessmentsFrom time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. Set forth below is a summary of legalproceedings to which we are a party as of December 31, 2015 or which settled during 2015:Police Retirement System of St. Louis v. Erbey, et al. On January 15, 2015, a stockholder derivative action was filed in the Circuit Court of Maryland for BaltimoreCity by a purported stockholder of Residential under the caption The Police Retirement System of Saint Louis v. Erbey, et al. , 24-C-15-000223. The action namedas defendants William C. Erbey and each of the members of Residential’s Board of Directors and alleged that Mr. Erbey and Residential’s Directors breached theirfiduciary duties in connection with the asset management agreement among Residential, Altisource Residential, L.P. and us. The action also named AltisourceResidential, L.P. and AAMC as defendants and alleged that we aided and abetted the purported breaches of fiduciary duty and have been unjustly enriched by theasset management agreement. The complaint also named Residential as a nominal defendant. The plaintiff sought, among other things, an order declaring that Mr.Erbey and the director defendants have breached their fiduciary duties, an order declaring that Mr. Erbey and AAMC have been unjustly enriched, an orderdeclaring that the asset management agreement is unenforceable and directing Residential’s Board of Directors to terminate the asset management agreement,damages, disgorgement by Mr. Erbey and AAMC of allegedly wrongful profits, changes to Residential’s corporate governance and an award of attorney’s andother fees and expenses.On March 31, 2015, we and Residential entered into the New AMA to replace the Original AMA. This New AMA was publicly announced on March 31, 2015. Inconnection with the entry into the New AMA, the Defendants (including all the individual defendants, Residential, AAMC and Altisource Residential, L.P.) andPlaintiff entered into a Memorandum of Understanding (the “MOU”) to settle the action for the consideration of the New AMA and an application for an award ofattorneys’ fees and litigation expenses for plaintiff’s counsel of an amount not to exceed $6.0 million .On June 30, 2015, The Police Retirement System of Saint Louis and the defendants entered into a Stipulation and Agreement of Compromise, Settlement andRelease (the “Settlement Stipulation”) for the settlement of this derivative action (the “Settlement”), and the parties filed the Settlement Stipulation with the courton the same day. By Order dated August 3, 2015, the court preliminarily approved the Settlement, scheduled a hearing on November 9, 2015 to consider finalapproval of the Settlement and authorized Residential to provide notice of the proposed Settlement to its stockholders.On November 9, 2015, the Settlement was approved by the court, and no shareholders objected to the Settlement. Therefore, the matter was resolved and all claimsin the action that were, or could have been, brought by or on behalf of Residential challenging the Original AMA among Residential, Altisource Residential L.P.and AAMC, or the negotiation of, the terms and provisions of, or the approval of the New AMA. Pursuant to the Settlement, the defendants paid the attorneys’ feesand expenses of plaintiff’s counsel in an amount of $6.0 million . This payment was a 100% covered claim under Residential’s and our insurance policy, and werecognized no loss in connection with this settlement.Hulstrom v. William C. Erbey, et al. On April 23, 2015, a shareholder derivative action was filed in the Superior Court of the Virgin Islands, Division of St. Croix,by a purported shareholder of Residential under the caption Kirk Hulstrom v. William Erbey, et al ., SX-15-CV-158. The action named as defendants William C.Erbey, each of the current and former members of Residential’s Board of Directors, certain officers of Residential, AAMC and Ocwen. In the complaint, plaintiffasserted claims against the individual defendants for breach of fiduciary duty, abuse of control and gross mismanagement in connection with the asset managementagreement between Residential and us. As to AAMC and Ocwen, plaintiff alleged that both companies aided and abetted the purported breaches of fiduciary dutyand have been unjustly enriched by the asset management agreement. The complaint also named Residential as a nominal defendant.In November 2015, the parties agreed that plaintiff Hulstrom would become party to the Settlement in the Police Retirement System of St. Louis action describedabove with no additional Settlement payment by the defendants. In connection therewith, on December 10, 2015, Hulstrom filed a notice of voluntary dismissal ofthis matter, which released and resolved all claims asserted in this action. Therefore, there is no expected liability to us in this matter.City of Cambridge Retirement System v. Altisource Asset Management Corp., et al. On January 16, 2015, a putative shareholder class action complaint was filed inthe United States District Court of the Virgin Islands by a purported shareholder of AAMC under the caption City of Cambridge Retirement System v. AltisourceAsset Management Corp., et al. , 15-cv-00004. The action names as defendants AAMC, Mr. Erbey and certain officers of AAMC and alleges that the defendantsviolated federal securities laws by failing to disclose material information to AAMC shareholders concerning alleged conflicts of interest held by Mr.F- 25(table of contents)Erbey with respect to AAMC’s relationship and transactions with Residential, Altisource, Home Loan Servicing Solutions, Ltd., Southwest Business Corporation,NewSource Reinsurance Company and Ocwen, including allegations that the defendants failed to disclose (i) the nature of relationships between Mr. Erbey,AAMC and those entities; and (ii) that the transactions were the result of an allegedly unfair process from which Mr. Erbey failed to recuse himself. The actionseeks, among other things, an award of monetary damages to the putative class in an unspecified amount and an award of attorney’s and other fees andexpenses.AAMC and Mr. Erbey are the only defendants who have been served with the complaint.On May 12, 2015, the court entered an order granting the motion of Denver Employees Retirement Plan to be lead plaintiff. On May 15, 2015, the court entered ascheduling order requiring plaintiff to file an amended complaint on or before June 19, 2015, and setting a briefing schedule for any motion to dismiss. Plaintifffiled an amended complaint on June 19, 2015. On July 20, 2015, AAMC and Mr. Erbey filed a motion to dismiss the amended complaint. Briefing on the motion todismiss was completed on September 3, 2015, and we are awaiting a decision from the court on the motion. We believe the amended complaint is without merit. Atthis time, we are not able to predict the ultimate outcome of this matter, nor can we estimate the range of possible loss, if any.Kanga v. Altisource Asset Management Corporation, et al. On March 12, 2015, a shareholder derivative action was filed in the Superior Court of the VirginIslands, Division of St. Croix, by a purported shareholder of AAMC under the caption Nanzeen Kanga v. William Erbey, et al. , SX-15-CV-105. The actionnames as defendants William C. Erbey and each of the current and former members of AAMC's Board of Directors and alleges that Mr. Erbey and AAMC’sdirectors breached fiduciary duties in connection with the disclosures that are the subject of the City of Cambridge Retirement System case described above andcertain other matters involving the relationship of Residential and AAMC.On May 15, 2015, the plaintiff and the defendants filed an agreed motion to stay the action until the earliest of any of the following events: (i) the City ofCambridge Retirement System action is dismissed with prejudice; (ii) any of the defendants in the City of Cambridge Retirement System action file an answer inthat action; and (iii) defendants do not move to stay any later-filed derivative action purportedly brought on behalf of us arising from similar facts asthe Kanga action and relating to the same time frame or such motion to stay is denied.At this time, we are not able to predict the ultimate outcome of this matter, nor can we estimate the range of possible loss, if any.Sokolowski v. Erbey, et al. On December 24, 2014, a shareholder derivative action was filed in the United States District Court for the Southern District of Floridaby a purported shareholder of Ocwen. The action named the directors of Ocwen as defendants and alleged, among other things, various breaches of fiduciary dutiesby the directors of Ocwen.On February 11, 2015, plaintiff filed an amended complaint naming the directors of Ocwen as defendants and also naming Residential, AAMC, Altisource andHome Loan Servicing Solutions, Ltd. as alleged aiders and abettors of the purported breaches of fiduciary duties. The amended complaint alleges that the directorsof Ocwen breached their fiduciary duties by, among other things, allegedly failing to exercise oversight over Ocwen’s compliance with applicable laws, rules andregulations; failing to exercise oversight responsibilities with respect to the accounting and financial reporting processes of Ocwen; failing to prevent conflicts ofinterest and allegedly improper related party transactions; failing to adhere to Ocwen’s code of conduct and corporate governance guidelines; selling personalholdings of Ocwen stock on the basis of material adverse inside information; and disseminating allegedly false and misleading statements regarding Ocwen’scompliance with regulatory obligations and allegedly self-dealing transactions with related companies. Plaintiff claims that as a result of the alleged breaches offiduciary duties, Ocwen has suffered damages, including settlements with regulatory agencies in excess of $2 billion, injury to its reputation and corporategoodwill and exposure to governmental investigations and securities and consumer class action lawsuits. In addition to the derivative claims, the plaintiff alsoalleges an individual claim that Ocwen’s 2014 proxy statement allegedly contained untrue statements of material fact and failed to disclose material information inviolation of federal securities laws. The plaintiff seeks, among other things, an order requiring the defendants to repay to Ocwen unspecified amounts by whichOcwen has been damaged or will be damaged, an award of an unspecified amount of exemplary damages, changes to Ocwen's corporate governance and an awardof attorneys’ and other fees and expenses.On April 13, 2015, nominal defendant Ocwen and defendants Mr. Erbey and Mr. Faris filed a motion to stay the action.On July 16, 2015, we filed a motion to dismiss all claims against us in the action, based upon, among other arguments, lack of personal jurisdiction and failure tostate a claim. Co-defendant Residential filed a similar motion to dismiss the complaint as to all claims asserted against it.F- 26(table of contents)On December 8, 2015, the court granted Residential's and our motions to dismiss for lack of personal jurisdiction with leave to amend the jurisdiction allegationsno later than January 4, 2016.On December 15, 2015, Hutt v. Erbey, et al. , Case No. 15-cv-81709-WPD, was transferred to the Southern District of Florida from the Northern District ofGeorgia. That same day, a third related derivative action, Lowinger v. Erbey, et al. , Case No. 15-cv-62628-WPD, was also filed in the Southern District of Florida.The court then requested that the parties file a response stating their positions as to whether the actions should be consolidated. On December 29, 2015, we filed aresponse stating that we took no position on the issue of consolidation, so long as our defenses were fully reserved should plaintiff Sokolowski seek to file anamended complaint. Neither plaintiff Sokolowski nor plaintiff Hutt opposed consolidation in their responses. On December 30, 2015, the court issued an order that,among other things, extended the deadline for plaintiff Sokolowski to file its amended complaint to cure the jurisdictional defects as to Residential and us untilJanuary 13, 2016. On January 8, 2016, the court issued an order consolidating the three related actions.On February 2, 2016, Plaintiffs Sokolowski and Lowinger filed competing motions for appointment of lead counsel in the consolidated action. These motions werefully briefed on February 5, 2016. Subsequently, on February 17, 2016, the court issued an order appointing Sokolowski’s counsel as lead counsel with Lowinger’sand Hutt’s counsel serving on the executive committee of the plaintiffs. It also ordered that a consolidated complaint in the matter shall be filed no later than March8, 2016.We believe the complaint against us is without merit. At this time, we are not able to predict the ultimate outcome of this matter, nor can we estimate the range ofpossible loss, if any.Management does not believe that we have incurred an estimable, probable or material loss by reason of any of the above actions.9. Related-party transactionsThrough January 16, 2015, William C. Erbey served as our Chairman as well as the Executive Chairman of Ocwen, Chairman of Altisource and Chairman ofResidential. Effective January 16, 2015, Mr. Erbey stepped down as the Executive Chairman of Ocwen and Chairman of each of us, Altisource and Residential andis no longer a member of the Board of Directors for any of these companies. Accordingly, at that point, Ocwen and Altisource are no longer considered relatedparties of Residential or AAMC as defined by FASB Accounting Standards Codification (“ASC”) Topic 850, Related Party Disclosures .Asset Management Agreement with ResidentialPursuant to the asset management agreement, we design and implement Residential's business strategy, administer its business activities and day-to-day operationsand provide corporate governance services, subject to oversight by Residential's Board of Directors. We are responsible for, among other duties: (1) performingand administering all of Residential's day-to-day operations, (2) defining investment criteria in Residential's investment policy in cooperation with its Board ofDirectors, (3) sourcing, analyzing and executing asset acquisitions, including the related financing activities, (4) analyzing and executing sales of properties andresidential mortgage loans, (5) overseeing Altisource’s renovation, leasing and property management of Residential's single-family rental properties, (6) overseeingthe servicing of Residential's residential mortgage loan portfolios, (7) performing asset management duties and (8) performing corporate governance and othermanagement functions, including financial, accounting and tax management services.We provide Residential with a management team and appropriate support personnel who have substantial experience in the management of residential mortgageloans and residential rental properties. Our management also has significant corporate governance experience that enables us to manage Residential's business andorganizational structure efficiently. We have agreed not to provide the same or substantially similar services without the prior written consent of Residential'sboard of directors to any business or entity competing against Residential in (a) the acquisition or sale of portfolios of REO properties, (b) the carrying on of asingle-family rental business, (c) the acquisition or sale of single-family rental properties, non-performing and re-performing mortgage loans or other similarassets, (d) the purchase of portfolios of sub-performing or non-performing residential mortgage loans or (e) any other activity in which Residential engages.Notwithstanding the foregoing, we may engage in any other business or render similar or different services to any businesses engaged in lending or insuranceactivities or any other activity other than those described above. Further, at any time following Residential's determination and announcement that it will no longerengage in any of the above-described competitive activities, we would be entitled to provide advisory or other services to businesses or entities in such competitiveactivities without Residential's prior consent.F- 27(table of contents)On March 31, 2015, we entered into the New AMA with Residential. The New AMA, which became effective on April 1, 2015, provides for a new managementfee structure, which replaces the incentive fee structure under the Original AMA, as follows:•Base Management Fee . We are entitled to a quarterly Base Management Fee equal to 1.5% of the product of (i) Residential's average invested equitycapital for the quarter multiplied by (ii) 0.25 , while it has fewer than 2,500 single-family rental properties actually rented (“Rental Properties”). TheBase Management Fee percentage increases to 1.75% of invested capital while Residential has between 2,500 and 4,499 Rental Properties and increasesto 2.0% of invested capital while it has 4,500 or more Rental Properties; •Incentive Management Fee . We are entitled to a quarterly Incentive Management Fee equal to 20% of the amount by which Residential's return oninvested capital (based on AFFO, defined as net income attributable to holders of common stock calculated in accordance with GAAP plus real estatedepreciation expense minus recurring capital expenditures on all real estate assets owned by Residential) exceeds an annual hurdle return rate of between7.0% and 8.25% (depending on the 10 -year treasury rate). The Incentive Management Fee increases to 22.5% while Residential has between 2,500 and4,499 Rental Properties and increases to 25% while it has 4,500 or more Rental Properties; and •Conversion Fee . We are entitled to a quarterly Conversion Fee equal to 1.5% of the market value of assets converted into leased single-family homes byResidential for the first time during the quarter. Residential has the flexibility to pay up to 25% of the Incentive Management Fee to us in shares of its common stock. Under the New AMA, Residential will notbe required to reimburse us for the allocable compensation and routine overhead expenses of our employees and staff, all of which will now be covered by the BaseManagement Fee described above.Under the New AMA, we will continue to be the exclusive asset manager for Residential for an initial term of 15 years from April 1, 2015, with two potential five-year extensions, subject to Residential achieving an average annual return on invested capital of at least 7.0% during the then-current period. The Original AMAhad a 15 year term, but provided Residential with significant termination rights including the ability to terminate the agreement if Residential’s board determined,in its sole discretion, that our performance was unsatisfactory or our compensation was reasonable. However, under the New AMA, Residential’s terminationrights are significantly limited. Under the New AMA, neither party is entitled to terminate the New AMA prior to the end of the initial term, or each renewal term,other than termination by (a) us and/or Residential “for cause” for certain events such as a material breach of the New AMA and failure to cure such breach, (b)Residential for certain other reasons such as its failure to achieve a return on invested capital of at least 7.0% for two consecutive fiscal years after the thirdanniversary of the New AMA or (c) Residential in connection with certain change of control events.Under the Old AMA, Residential paid us a quarterly incentive management fee as follows:(i)2% of all cash available for distribution by Residential to its stockholders and to us as incentive management fee, which we referred to as “availablecash,” until the aggregate amount per share of available cash for the quarter (based on the average number of shares of our common stock outstandingduring the quarter), which we referred to as the “quarterly per share distribution amount,” exceeded $0.161 , then(ii)15% of all additional available cash for the quarter until the quarterly per share distribution amount exceeded $0.193 , then(iii)25% of all additional available cash for the quarter until the quarterly per share distribution amount exceeded $0.257 , and thereafter(iv)50% of all additional available cash for the quarter,in each case set forth in clauses (i) through (iv), as such amounts would have been appropriately adjusted from time to time to take into account the effect of anystock split, reverse stock split or stock dividend, should any have occurred.Residential distributed any quarterly distribution to its stockholders after the application of the incentive management fee payable to us. Residential was required to reimburse us on a monthly basis for the (i) direct and indirect expenses we incurred or payments we made on Residential’s behalf,including, but not limited to, the allocable compensation and routine overhead expenses of all of our employees and staff and (ii) all other reasonable operating andoverhead expenses we incurred related to the asset management services we provided to Residential.F- 28(table of contents)Agreements with AltisourceWe have engaged Altisource to provide services for us as detailed below. If for any reason Altisource is unable to perform the services described under theseagreements at the level and/or the cost that we anticipate, alternate service providers may not be readily available on favorable terms, or at all, which couldadversely affect our performance. Altisource’s failure to perform the services under these agreements with Residential or us could have a material adverse effect onus. Support services agreementsUnder separate support services agreement with each of Residential and us, Altisource may provide services in such areas as human resources, vendor managementoperations, corporate services, risk management, quality assurance, consumer psychology, treasury, finance and accounting, legal, tax, compliance and othersupport services where Residential or we may need assistance and support. The support services agreement provides generally that Altisource will undertake toprovide the support services in a manner generally consistent with the manner and level of care with which such service, if any, was performed or provided prior toour separation from Altisource. Each support services agreement may be extended for two years after the separation and automatically renews every yearthereafter, but may be terminated earlier under certain circumstances including a default. The fees for all support services provided pursuant to each supportservices agreement are based on the fully-allocated cost of providing the service. “Fully-allocated cost” means the all-in cost of providing such service, includingdirect charges and allocable amounts reflecting compensation and benefits, technology expenses, occupancy and equipment expense and third-party payments (butnot taxes incurred in connection therewith). During 2015, we internalized certain of the support services that had been provided to us by Altisource by directly hiring 31 of the Altisource employees that hadprovided those services. We believe the direct hire of these employees has further increased our infrastructure so that we are better able to serve Residentialoperationally while enabling Altisource to focus on the property management, maintenance and brokerage services that matter most to Residential.The total fees incurred by Residential or us under these agreements are dependent upon business activity and the level of services required in connectiontherewith. In the event our asset management agreement with Residential expires or is terminated, the support services agreements will terminate within 30 days.Technology services agreementUnder the technology services agreement, Altisource provides certain technology products and services to us, including telephone and network administration. Thetotal fees incurred by us under this agreement will be dependent upon our business activity and the level of services required.Tax matters agreementThe tax matters agreement with Altisource sets our each party's rights and obligations with respect to deficiencies and refunds, if any, of Luxembourg, U.S. federal,state, local or other foreign taxes for periods before and after our separation from Altisource and related matters such as the filing of tax returns and the conduct ofIRS and other audits. In general, under this agreement, we are responsible for taxes attributable to our business incurred after the separation, and Altisource isresponsible for taxes attributable to our business incurred prior to the separation.Trademark license agreement Under the trademark license agreement, Altisource granted us a non-exclusive, non-transferable, non-sublicensable, royalty free license to use the name“Altisource.” The agreement has no specified term and may be terminated by either party upon 30 days’ written notice, with or without cause. In the event that thisagreement is terminated, all rights and licenses granted thereunder, including, but not limited to, the right to use “Altisource” in our name will terminate. In the event our asset management agreement with Residential expires or is terminated, the trademark license agreement will terminate within 30 days. F- 29(table of contents)Agreement Residential has with AltisourceMaster services agreementResidential has engaged Altisource to provide property management, leasing, renovation management and valuation services associated with the single-familyrental properties they acquire upon conversion of residential mortgage loans that continue to be sub-performing or non-performing. The agreement provides for aninitial term of 15 years, which term will automatically renew for successive two -year terms unless either party sends a notice of non-renewal to the other party atleast nine months before the completion of the initial or renewal term, as applicable. We work directly with Altisource’s vendor management team on behalf ofResidential, and our construction management team often interfaces with the general contractors and vendors to maintain relationships with the vendor network.Through our team, Residential coordinates with Altisource and its personnel as well as the vendor network to establish a collective approach to the renovationmanagement, maintenance, repair and materials supply chain. We believe our experience and these coordinated efforts with Altisource provide us with thecapabilities to replicate Altisource’s vendor network, if necessary.The total fees incurred by Residential under this agreement will be dependent upon the property management, leasing and renovation management servicesrequired on an asset-specific basis and will vary significantly based upon the location and condition of the asset as well as current market conditions and tenantturnover.In the event Residential’s asset management agreement with us is terminated without cause by Residential, the master services agreement with Altisource may beterminated at its sole discretion.Agreements with OcwenSupport services agreementUnder the support services agreement, Ocwen may provide us with business development services, as well as analytical services in connection with ourmanagement and valuation of Residential’s portfolio and administrative services in connection with the operation of our business. The support services agreementmay be terminated by either us or Ocwen upon 30 days prior notice. The fees for all support services provided pursuant to the support services agreement are basedon the fully-allocated cost of providing the service. “Fully-allocated cost” means the all-in cost of providing such service, including direct charges and allocableamounts reflecting compensation and benefits, technology expenses, occupancy and equipment expense and third-party payments (but not taxes incurred inconnection therewith). The Ocwen support services agreement was terminated in February 2016.The total fees incurred by us under this agreement are dependent upon our business activity and the level of services required in connection therewith. Aircraft time sharing agreementOn November 15, 2013, we entered into an Aircraft Time Sharing Agreement, or the “Timeshare Agreement,” with Ocwen pursuant to which Ocwen will make itscorporate plane available to us for business-related travel from time to time. Under the Time Sharing Agreement, Ocwen agreed to provide us, on a time sharingbasis, access to its plane in consideration of our reimbursement to Ocwen of the sum of its direct expenses of operating the plane plus an additional charge equal to100% of such expenses. The amounts actually charged to us in any period will directly correlate to our use of the aircraft in each period, which will vary dependingon our needs and business use. The Timeshare Agreement was terminated in February 2016.SubleaseUntil the second quarter of 2015, we subleased approximately 2,000 square feet from Ocwen. The annual rent under the sublease was $40,000 per year until June30, 2014 and $45,000 per year until the termination date of the lease, plus 50% of the lease-related operating expenses and leasehold improvements. The subleasewas terminated in April 2015.F- 30(table of contents)Agreement Residential has with OcwenServicing agreementResidential has engaged Ocwen to service certain of its residential mortgage loans and to provide loan modification, assisted deed-in-lieu, assisted deed-for-leaseand other loss mitigation programs. The agreement provides for an initial term of 15 years. In the event Residential’s asset management agreement with us expiresor is terminated, the servicing agreement will terminate within 30 days. From Residential's inception through 2014, Residential had exclusively engaged Ocwen toservice the residential mortgage loans in its portfolio. During 2015, Residential transferred servicing of a portion of its portfolio to two additional mortgageservicers.The total fees incurred by Residential under this agreement are dependent upon the number and type of acquired residential mortgage loans that Ocwen servicespursuant to the terms of the agreement.F- 31(table of contents)Related party transaction summaryOur consolidated statements of operations include the following significant related party transactions for the periods indicated ($ in thousands): Amount Counter-party Location within Consolidated Statements of OperationsYear ended December 31, 2015 Base management fee$13,935 Residential Net income attributable to noncontrolling interest in consolidatedaffiliateConversion fee1,037 Residential Net income attributable to noncontrolling interest in consolidatedaffiliateExpense reimbursements750 Residential Net income attributable to noncontrolling interest in consolidatedaffiliateManagement incentive fee7,994 Residential Net income attributable to noncontrolling interest in consolidatedaffiliateProfessional fee sharing for negotiation of AMA2,000 Residential Net income attributable to noncontrolling interest in consolidatedaffiliate Year ended December 31, 2014 Residential property operating expenses (1)$21,612 Ocwen/Altisource Residential property operating expensesMortgage loan servicing costs65,363 Ocwen Mortgage loan servicing costsAcquisition fees and costs1,039 Altisource Related party acquisition fees and costsOffice and occupancy costs349 Ocwen Related party general and administrative expensesSalaries and benefits2,028 Ocwen/Altisource Related party general and administrative expensesOther general and administrative expenses2,069 Altisource Related party general and administrative expensesExpense reimbursements6,070 Residential Net income attributable to noncontrolling interest in consolidatedaffiliateManagement incentive fee67,949 Residential Net income attributable to noncontrolling interest in consolidatedaffiliate Year ended December 31, 2013 Residential property operating expenses (1)$767 Ocwen/Altisource Residential property operating expensesMortgage loan servicing costs9,335 Ocwen Mortgage loan servicing costsAcquisition fees and costs115 Altisource Related party acquisition fees and costsOffice and occupancy costs256 Ocwen Related party general and administrative expensesSalaries and benefits1,273 Ocwen/Altisource Related party general and administrative expensesOther general and administrative expenses2,123 Altisource Related party general and administrative expensesExpense reimbursements5,411 Residential Net loss (income) attributable to noncontrolling interest inconsolidated affiliateManagement incentive fee4,880 Residential Net loss (income) attributable to noncontrolling interest inconsolidated affiliate_______________(1)Residential property operating expenses include costs associated with Residential's ownership and operation of rental properties, including valuation services. Residentialengages third party vendors, including Altisource, to obtain and evaluate BPOs prepared by other third party brokers for its ultimate use.No Incentive Management Fee under the New AMA was earned by us during 2015 because Residential's return on invested capital (as defined in the New AMA)for the three quarters covered by the new AMA was below the required hurdle rate. Under the New AMA, to the extent Residential has an aggregate shortfall in itsreturn rate over the previous seven quarters, thatF- 32(table of contents)aggregate return rate shortfall gets added to the normal quarterly 1.75% return hurdle for the next quarter before we are entitled to an Incentive Management Fee.As of December 31, 2015 , the aggregate return shortfall from the prior three quarters under the New AMA was approximately 10.77% of invested capital.Therefore, Residential must achieve a 12.52% return on invested capital in the first quarter of 2016 before any Incentive Management Fee will be payable to us forthe first quarter of 2016. In future quarters, return on invested capital must exceed the required hurdle for the current quarter plus any carried-forward cumulativeadditional hurdle shortfall from the prior seven quarters before any Incentive Management Fee will be payable to us.In September 2015, we contributed an additional $5.0 million to NewSource.In the third quarter of 2015, we acquired 324,465 shares of Residential's common stock in open market transactions, representing approximately 0.58% ofResidential's outstanding common stock as of December 31, 2015 .Transactions under our agreements with Ocwen and Altisource for the period January 1, 2015 through January 16, 2015 were not material to our consolidatedresults of operations.On September 30, 2014, pursuant to a master repurchase agreement, Residential's TRS sold $15.0 million of the ARLP 2014-1 Class M Notes to NewSource. OnSeptember 22, 2015, the TRS completed its repurchase of the ARLP 2014-1 Class M Notes from NewSource at a 5.0% yield.During the year ended December 31, 2013 , Residential acquired a portfolio from Ocwen Financial Corporation ("Ocwen") of non-performing first lien residentialmortgage loans having aggregate market value of underlying properties of $94 million . The aggregate purchase price for this portfolio was $64 million .10. Incentive compensation and share-based paymentsLong-Term Incentive CompensationOur named executives and certain employees participate in an annual non-equity incentive program whereby they are eligible for incentive cash payments based ona percentage of their annual base salary. Each officer has a target annual non-equity incentive payment percentage that ranges from 0% to 150% of base salary. Theofficer's actual incentive payment for the year is determined by (i) the Company's performance versus the objectives established in the corporate scorecard ( 80% )and (ii) a performance appraisal ( 20% ).Our named executive officers and certain employees have and will receive grants of stock options and restricted stock under the 2012 Equity Incentive Plan (the“2012 Plan”). In addition, a special grant of stock options and restricted stock was made to certain Ocwen employees related to the separation under the 2012Special Equity Incentive Plan (the “2012 Special Plan”). Dividends received on restricted stock are forfeitable and are accumulated until the time of vesting at thesame rate and on the same date as on shares of common stock. The aggregate number of shares of common stock that may be issued under the 2012 Plan isapproximately 15% of our outstanding shares, subject to proportionate adjustment in the event of stock splits and similar events. Upon the vesting of stock optionsand restricted stock, we may withhold up to the statutory minimum to satisfy the resulting employee tax obligation.The 2012 Plan also allows for the grant of performance awards and other awards such as purchase rights, equity appreciation rights, shares of common stockawarded without restrictions or conditions, convertible securities, exchangeable securities or other rights convertible or exchangeable into shares of common stock,as the Compensation Committee in its discretion may determine.The following table sets forth the number of shares of common stock reserved for future issuance: December 31, 2015Stock options outstanding 181,702Possible future issuances under equity incentive plan 114,196 295,898As of December 31, 2015 , we had 2,951,777 remaining shares of common stock authorized to be issued under our charter.F- 33(table of contents)Stock optionsThe following table sets forth the activity of our outstanding options: Number of Options Weighted AverageExercise Price per ShareDecember 31, 2012 305,824 1.36Exercised (10,215) 1.89Forfeited or canceled (14,388) 5.87December 31, 2013 281,221 1.11Exercised (41,685) 1.16Forfeited or canceled (476) 1.51December 31, 2014 239,060 1.10Exercised (54,261) 1.35Forfeited or canceled (3,097) 4.14December 31, 2015 (1) (2) 181,702 0.98______________(1) The outstanding options as of December 31, 2015 had a weighted average remaining life of 2.9 years with total intrinsic value of $2.9 million .(2) We have 181,211 options exercisable as of December 31, 2015 with a weighted average exercise price of $0.97 , weighted average remaining life of 2.9 years and intrinsicvalue of $2.9 million . Of these exercisable options, none had exercise prices higher than the market price of our common stock as of December 31, 2015 .Restricted stockDuring the year ended December 31, 2015 and 2014 , we granted 52,409 and 30,663 shares, respectively, of market-based restricted stock to certain members ofexecutive management under the 2012 Plan with a weighted average grant date fair value per share of $174.59 and $695.78 , respectively.Restricted stock granted in 2015 and 2014 generally vests based on achievement of the following performance hurdles and vesting schedule:•Twenty-five percent ( 25% ) of the grant will vest in accordance with the vesting schedule set forth below if the market value of our stock meets both ofthe following conditions: (i) the market value has realized a compounded annual gain of at least twenty percent ( 20% ) over the market value on the dateof the grant; and (ii) the market value is at least double the market value on the date of the grant;•Fifty percent ( 50% ) of the grant will vest in accordance with the vesting schedule set forth below if the market value of our stock meets both of thefollowing conditions: (i) the market value has realized a compounded annual gain of at least twenty-two and a half percent ( 22.5% ) over the marketvalue on the date of the grant; and (ii) the market value is at least triple the market value on the date of the grant and•Twenty-five percent ( 25% ) of the grant will vest in accordance with the vesting schedule set forth below if the market value of Company stock meetsboth of the following conditions: (i) the market value has realized a compounded annual gain of at least twenty-five percent ( 25% ) over the market valueon the date of the grant; and (ii) the market value is at least quadruple the market value on the date of the grant.•After the performance hurdles have been achieved, 25% of the restricted stock will vest on the first anniversary of the date that the performance hurdle forthat tranche was met and the remaining 75% of that tranche will vest on the second anniversary of the date that the performance hurdle was met.Restricted stock granted in 2013 vests based on achievement of the following performance hurdles and vesting schedule:•Twenty-five percent ( 25% ) of the grant will vest in accordance with the vesting schedule set forth below if the market value of our stock meets all threeof the following conditions: (i) the market value is at least equal to $250 million ; (ii) the market value has realized a compounded annual gain of at leasttwenty percent ( 20% ) over the market value on the date of the grant; and (iii) the market value is at least double the market value on the date of thegrant;•Fifty percent ( 50% ) of the grant will vest in accordance with the vesting schedule set forth below if the market value of our stock meets all three of thefollowing conditions: (i) the market value is at least equal to $500 million ; (ii) theF- 34(table of contents)market value has realized a compounded annual gain of at least twenty-two and a half percent ( 22.5% ) over the market value on the date of the grant;and (iii) the market value is at least triple the market value on the date of the grant and•Twenty-five percent ( 25% ) of the grant will vest in accordance with the vesting schedule set forth below if the market value of Company stock meets allthree of the following conditions: (i) the market value is at least equal to $750 million ; (ii) the market value has realized a compounded annual gain of atleast twenty-five percent ( 25% ) over the market value on the date of the grant; and (iii) the market value is at least quadruple the market value on thedate of the grant.•After the performance hurdles have been achieved, 25% of the restricted stock will vest on each of the first four anniversaries of the date that theperformance hurdles were met.We granted shares of restricted stock under the 2012 Plan and 2012 Special Plan related to the separation. We include no share-based compensation in ourConsolidated Financial Statements for the portion of these grants made to Altisource employees.Additionally, our Directors each receive annual grants of restricted stock equal to $60,000 based on the market value of our common stock at the time of the annualstockholders meeting. This restricted stock vests and is issued after a one -year service period subject to each Director attending at least 75% of the Board andcommittee meetings. No dividends are paid on the shares until the award is issued. During the years ended December 31, 2015 and 2014 , we granted 1,122 and214 shares of stock, respectively, pursuant to our 2013 Director Equity Plan with a weighted average grant date fair value per share of $162.66 and $940.32 ,respectively.We recorded $6.9 million and $1.3 million of compensation expense related to these grants for the years ended December 31, 2015 and 2014 , respectively. As ofDecember 31, 2015 and 2014 , we had $18.7 million and $21.1 million , respectively, of total unrecognized share-based compensation cost to be recognized over aweighted average remaining estimated term of 2.9 years and 3.0 years , respectively.The following table sets forth the activity of our restricted stock: Number of Shares Weighted Average GrantDate Fair ValueDecember 31, 2012 205,512 $5.90Granted 32,667 70.16Vested (1) (660) 5.90Forfeited or canceled (8,765) 5.90December 31, 2013 228,754 15.32Granted 30,877 697.48Vested (1) (56,328) 16.53Forfeited or canceled (27,814) 294.59December 31, 2014 175,489 90.51Granted 53,531 174.34Vested (1) (51,305) 11.53Forfeited or canceled (23,389) 6.65December 31, 2015 154,326 158.84_____________(1)The vesting date fair value of restricted stock that vested during the year ended December 31, 2015 , 2014 and 2013 was $11.6 million , $52.6 million and $0.2 million ,respectively.F- 35(table of contents)Restricted stock granted to our employeesWe calculate the grant date fair value of restricted stock using a Monte Carlo simulation and amortize the resulting compensation expense over the respectivevesting or service period. The fair value of restricted stock granted was determined using the following assumptions, weighted by number of shares: Year ended December 31,2015 Year ended December 31,2014 Year ended December 31,2013Risk Free Interest Rate (1) 2.89% to 3.27% 3.07% to 3.73% 3.18%Common Stock Dividend Yield (2) 0% 0% 0%Expected Volatility (3) 92.04% to 96.46% 74.61% to 82.66% 36.31%_____________(1)Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the restricted stock grants.(2)At the date of grant, we had no history of dividend payments.(3)Based on the historical volatility of comparable companies, adjusted for our expected additional cash flow volatility.On December 31, 2015, we modified 74,307 unvested shares of restricted stock related to three employees. Subsequent to the modification, the performancehurdles that must be met prior to vesting are measured based on the market value as of the modification date. We recognized a nominal amount of expense inconnection with these modifications during the year ended December 31, 2015. At December 31, 2015, we had approximately $59,000 of unrecognized share-based compensation cost related to the modified awards that will be recognized over a weighted average remaining estimated term of 2.6 years.Restricted stock granted to an Ocwen employeeAs part of the separation, we granted restricted stock to an employee of Ocwen. We calculated the fair value of non-employee restricted stock using a Monte Carlosimulation until each market hurdle was met. Subsequent to the market hurdle being met, we calculate the fair value of non-employee restricted stock based on themarket value of shares quoted on the NYSE. The fair value is re-measured each accounting period with amortization of the resulting servicing expense over thevesting period. These instruments qualify for equity classification.11. Income taxesWe are domiciled in the United States Virgin Islands (“USVI”) and under current USVI law are obligated to pay taxes in the USVI on our income and/or capitalgains. We applied for tax benefits from the USVI Economic Development Commission and received our certificate of benefits, effective as of February 1, 2013.Under the certificate of benefits, so long as we comply with the provisions of the certificate, we will receive a 90% exemption on our USVI-sourced income taxesuntil 2043. NewSource is considered a controlled foreign corporation (“CFC”) to AAMC. CFC Subpart F income generated is taxed currently in the USVI anddoes not receive the reduced tax rate under the certificate of benefits.During the years ended December 31, 2015 and 2014 , Residential qualified as a REIT, distributed the necessary amount of taxable income and, therefore, incurredno federal income tax expense; accordingly, the only federal income taxes included in the accompanying consolidated financial statements are in connection withits taxable REIT subsidiary.The following table sets forth the components of income (loss) before income taxes: Year ended December 31,2015 Year ended December 31,2014 Year ended December 31,2013U.S. Virgin Islands $(1,249) $70,670 $(5,261)Other (1,687) (8,895) (32)(Loss) income before income taxes $(2,936) $61,775 $(5,293)F- 36(table of contents)The following table sets forth the components of our deferred tax assets: December 31, 2015 December 31, 2014Deferred tax assets: Stock compensation and other $531 $339Accrued expenses 387 172Real estate and mortgage loan fair value adjustments 1,492 2,981Other 6 —Net operating loss 21,592 468 24,008 3,960Deferred tax liability: Depreciation 4 4 24,004 3,956Valuation allowance (23,100) (3,491)Deferred tax asset, net $904 $465The following table sets for the reconciliation of the statutory USVI income tax rate to our effective income tax rate: Year ended December 31,2015 Year ended December 31,2014 Year ended December 31,2013U.S. Virgin Islands income tax rate 38.5 % 38.5 % 38.5 %State and local income tax rates 4.7 (0.1) —Excluded REIT income 2.6 (27.3) (40.5)EDC benefits (0.7) (8.9) 4.8Rate differential (3.5) (2.6) (3.9)Permanent and other (1.7) — —Valuation allowance (40.6) 1.2 1.1Effective income tax rate (0.7)% 0.8 % — %As of December 31, 2015 and 2014 , neither Residential nor we accrued interest or penalties associated with any unrecognized tax benefits during the year endedDecember 31, 2015 and 2014 . Residential recorded nominal state and local tax expense along with nominal penalties and interest on income and property for theyears ended December 31, 2015 and 2014 . Our subsidiaries and we remain subject to tax examination for the period from inception to December 31, 2015 .F- 37(table of contents)12. Earnings per shareThe following table sets forth the components of diluted earnings per share (in thousands, except share and per share amounts): Year ended December31, 2015 Year ended December31, 2014 Year ended December31, 2013Numerator Net (loss) income $(3,290) $59,679 $(5,293)Amortization of preferred stock issuance costs 206 166 —Numerator for basic EPS - (loss) income available to common stockholders (3,496) 59,513 (5,293)Add back amortization of preferred stock issuance costs — 166 —Numerator for diluted EPS - (loss) income available to common stockholdersafter assumed conversions $(3,496) $59,679 $(5,293) Denominator Weighted average common stock outstanding – basic 2,202,815 2,261,968 2,346,993Stock options using treasury method — 251,967 —Restricted stock — 160,475 —Preferred shares, if converted — 157,778 —Weighted average common stock outstanding – diluted 2,202,815 2,832,188 2,346,993 (Loss) earnings per basic share $(1.59) $26.31 $(2.26)(Loss) earnings per diluted share $(1.59) $21.07 $(2.26)We excluded the items presented below from the calculation of diluted earnings per share as they were antidilutive for the periods indicated: Year ended December31, 2015 Year ended December31, 2014 Year ended December31, 2013Numerator (in dollars) Amortization of preferred stock issuance costs $206 $— $— Denominator (in weighted-average shares) Stock options 222,566 — 286,264Restricted stock 85,121 — 226,481Preferred stock, if converted 200,000 — —13. Segment informationOur primary business is to provide asset management and certain corporate governance services to Residential. Residential's primary business is the acquisitionand ownership of single-family rental assets. Residential's primary sourcing strategy is to acquire these assets by purchasing sub-performing and non-performingmortgage loans and single-family rental properties, either on an individual basis or in pools. As a result, we operate in a single segment focused on the acquisitionand management of Residential's resolution of sub-performing and non-performing mortgages and acquisition and ownership of rental residential properties.F- 38(table of contents)14. Quarterly financial information (unaudited) The following tables set forth our quarterly financial information (unaudited, $ in thousands except per share amounts): 2015 First Quarter Second Quarter Third Quarter Fourth Quarter Full YearTotal revenues $88,915 $76,519 $58,523 $24,142 $248,099 Net income (loss) 6,888 743 (1,980) (8,941) (3,290)Earnings (loss) per share of common stock – basic: Earnings (loss) per share basic 3.10 0.31 (0.92) (4.12) (1.59)Earnings (loss) per share of common stock – diluted: Earnings (loss) per share diluted 2.50 0.27 (0.92) (4.12) (1.59) 2014 First Quarter Second Quarter Third Quarter Fourth Quarter Full YearTotal revenues $74,628 $117,357 $109,102 $122,211 $423,298 Net income 6,828 13,230 17,698 21,923 59,679Earnings per share of common stock – basic: Earnings per share basic 2.88 5.87 7.91 9.99 26.31Earnings per share of common stock – diluted: Earnings per share diluted 2.39 4.60 6.25 7.92 21.07F- 39(table of contents)Altisource Asset Management CorporationSchedule III - Real Estate and Accumulated DepreciationDecember 31, 2015($ in thousands)StateNo. ofPropsTypeEncum- brancesInitial Cost toCompanyCapitalizedCostsSubsequent toAcquisitionGross Amount atwhich Carried atClose of Period (2)Accum Deprand ReservesWA Age(1)Date AcquiredLife on whichDepr is CalcAlabama39SFR$1,754$5,225$174$5,399$44123.82014 - 20153-27.5 yearsAlaska1SFR84185—185—32.02014 - 2014Arizona110SFR6,71923,36958523,9541,02121.02013 - 20153-27.5 yearsArkansas30SFR6672,9551923,14770036.72013 - 20153-27.5 yearsCalifornia624SFR59,306205,8383,157208,9959,83036.12013 - 20153-27.5 yearsColorado37SFR1,5589,0273629,38940828.52014 - 20153-27.5 yearsConnecticut53SFR4,0249,7892039,99284459.12013 - 20153-27.5 yearsDelaware21SFR8753,146303,17635543.52014 - 20153-27.5 yearsDistrict of Columbia1SFR136241324426105.02014 - 20143-27.5 yearsFlorida922SFR40,610140,0329,158149,1898,03727.12013 - 20153-27.5 yearsGeorgia1,753SFR99,034163,9134,189168,1023,60236.32013 - 20153-27.5 yearsHawaii3SFR112534—534442.22013 - 20153-27.5 yearsIdaho19SFR1,1392,941873,02911033.92014 - 20153-27.5 yearsIllinois387SFR19,00663,2163,33466,5517,70042.82013 - 20153-27.5 yearsIndiana188SFR6,85419,9032,00521,9091,66330.62013 - 20153-27.5 yearsIowa12SFR2581,14661,1522746.52014 - 20153-27.5 yearsKansas23SFR5311,7551731,92818954.12014 - 20153-27.5 yearsKentucky58SFR2,4256,5382366,77497735.32013 - 20153-27.5 yearsLouisiana21SFR7322,2051352,33933535.92013 - 20153-27.5 yearsMaine6SFR3718052807139166.22014 - 20153-27.5 yearsMaryland310SFR12,43061,2551,38362,6382,04837.22013 - 20153-27.5 yearsMassachusetts56SFR2,26711,18752311,71037576.32014 - 20153-27.5 yearsMichigan95SFR3,61712,42854612,9741,19341.02014 - 20153-27.5 yearsMinnesota62SFR2,92810,61643711,0541,08443.72014 - 20153-27.5 yearsMississippi14SFR3871,349501,39933430.42014 - 20153-27.5 yearsMissouri57SFR1,6345,7835676,35077743.92013 - 20153-27.5 yearsMontana3SFR364790379315828.82014 - 20153-27.5 yearsNebraska5SFR234725773121159.82014 - 20153-27.5 yearsNevada25SFR1,4483,787933,88013221.02013 - 20153-27.5 yearsNew Hampshire13SFR5742,08612,08721973.42014 - 20153-27.5 yearsNew Jersey89SFR3,62614,96053015,49080260.42013 - 20153-27.5 yearsNew Mexico34SFR1,7394,5843804,96412620.42013 - 20153-27.5 yearsNew York68SFR3,31013,25536213,61770071.82013 - 20153-27.5 yearsNorth Carolina222SFR10,83526,9532,53929,4922,38619.72013 - 20153-27.5 yearsOhio118SFR4,51614,51374715,2601,96741.22013 - 20153-27.5 yearsOklahoma17SFR4551,7571381,8946335.12014 - 20153-27.5 yearsOregon16SFR6972,71442,718—45.52014 - 2015Pennsylvania250SFR8,69534,4911,48735,9784,17254.62013 - 20153-27.5 yearsRhode Island54SFR1,4806,5726797,25135183.62014 - 20153-27.5 yearsSouth Carolina127SFR5,66815,79687916,67693623.12013 - 20153-27.5 yearsSouth Dakota3SFR166390—390—50.42014 - 2015F- 40(table of contents)Tennessee73SFR3,6099,37277110,14386024.42014 - 20153-27.5 yearsTexas176SFR7,19225,2432,24127,4851,44025.22013 - 20153-27.5 yearsUtah73SFR5,85313,24742813,6741,33231.72013 - 20153-27.5 yearsVermont5SFR293866186673108.62014 - 20153-27.5 yearsVirginia86SFR4,98326,71570627,4211,33828.62013 - 20153-27.5 yearsWashington49SFR2,61310,73329111,02327233.82013 - 20153-27.5 yearsWest Virginia2SFR139475—4762012.12014 - 20153-27.5 yearsWisconsin105SFR4,09712,18845012,6381,87350.32014 - 20153-27.5 yearsWyoming1SFR—275—2756625.02014 - 20143-27.5 yearsTotal (2)6,516 342,0441,007,86840,2741,048,14261,71636.4 __________(1)Weighted average age is based on the age of the property weighted by gross amount at which carried at close of period.(2)The following table sets forth the activity of real estate assets and accumulated depreciation ($ in thousands): Year ended December31, 2015 Year ended December31, 2014 Year ended December 31,2013Real estate assets: Beginning balance $643,974 $37,113 $—Acquisitions through foreclosure 470,221 587,268 31,014Other acquisitions 118,297 34,104 6,198Improvements 25,802 16,872 586Cost of real estate sold (210,152) (31,383) (685)Ending balance (1) $1,048,142 $643,974 $37,113 Accumulated depreciation and reserves for selling costs and impairment: Beginning balance $19,367 $25 $—Depreciation expense 6,414 1,067 25Selling cost and impairment 70,124 21,788 —Real estate sold (34,189) (3,513) —Ending balance $61,716 $19,367 $25___________(1) The aggregate cost for federal income tax purposes is $1,049.6 million as of December 31, 2015 .F- 41(table of contents)Altisource Asset Management CorporationSchedule IV - Mortgage Loans on Real EstateDecember 31, 2015($ in thousands)Description (FaceValue of Loan) Loan Count Interest Rate Maturity Carrying Amount ofMortgages(1) Principal Amount ofLoans Subject toDelinquent Principal orInterest$0-49,999 310 2.000% - 15.875% 05/01/2009 - 01/01/2054 $11,835 $9,040$50,000-99,999 710 0.000% - 13.600% 06/01/2010 - 04/01/2055 43,369 45,871$100,000-149,999 1,043 2.000% - 13.600% 10/01/2010 - 04/01/2055 95,719 111,846$150,000-199,999 978 1.375% - 12.480% 08/01/2010 - 07/01/2055 116,429 148,364$200,000-249,999 787 1.500% - 12.000% 10/01/2015 - 10/01/2054 115,591 153,693$250,000+ 1,911 1.000% - 12.375% 03/01/2011 - 06/01/2055 577,591 721,094Total (2) (3) 5,739 $960,534 $1,189,908_____________(1)The carrying value of an asset is based on our fair value model. The significant unobservable inputs used in the fair value measurement of our mortgage loans are discountrates, forecasts of future home prices, alternate loan resolution probabilities, resolution timelines and the value of underlying properties. Significant changes in any of theseinputs in isolation could result in a significant change to the fair value measurement. The substantial majority of the mortgage loans are significantly delinquent and havevarying monthly payment requirements. For a more complete description of the fair value measurements and the factors that may significantly affect the carrying value ofour assets, please see Note 6 to our consolidated financial statements.(2)The aggregate cost for federal income tax purposes is $1,200.2 million as of December 31, 2015 .(3)The following table sets forth the activity of mortgage loans ($ in thousands): Year ended December 31,2015 Year ended December 31,2014 Year ended December 31,2013Mortgage loans Beginning balance $1,959,044 $1,207,163 $—Investment in mortgage loans — 1,122,408 1,213,811Net unrealized gain on mortgage loans 177,545 350,822 61,092Cost of mortgages sold (174,894) (151,624) (38,297)Mortgage loan payments (24,550) (19,299) (4,901)Real estate tax advances to borrowers 29,261 36,842 6,472Transfer of mortgage loans to held for sale (535,836) — —Transfer of real estate owned to mortgage loans 15,974 8,400 —Transfer of mortgage loans to real estate owned (486,010) (595,668) (31,014)Ending balance $960,534 $1,959,044 $1,207,163F- 42Exhibit 21Subsidiaries of Altisource Asset Management CorporationName of Entity Jurisdiction of Incorporation Altisource Consulting S.á r.l LuxembourgAAMC Cayman SEZC Limited Cayman IslandsRiver Business Solutions Private Limited IndiaNewSource Reinsurance Company Ltd. BermudaExhibit 23CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statements Nos. 333-185947 and 333-194112 on Form S-8 and Registration Statement No. 333-195997 on Form S-3 of our report dated February 29, 2016, relating to the consolidated financial statements and financial statement schedules of Altisource AssetManagement Corporation and subsidiaries (the “Company”) (which report expressed an unqualified opinion and included an explanatory paragraph related to thesignificance of the revenue generated from Altisource Residential Corporation, a consolidated variable interest entity that will be deconsolidated effective January1, 2016 and the Company’s reliance upon the performance of service providers, including Altisource Portfolio Solutions S.A. and Ocwen Financial Corporation(related parties through January 15, 2015)), and our report dated February 29, 2016, relating to internal control over financial reporting (which report expressed anadverse opinion on the effectiveness of the Company’s internal control over financial reporting because of a material weakness), appearing in this Annual Reporton Form 10-K of the Company for the year ended December 31, 2015./s/ DELOITTE & TOUCHE LLPAtlanta, GeorgiaFebruary 29, 2016Exhibit 31.1Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, George G. Ellison, certify that:1. I have reviewed this annual report on Form 10-K of Altisource Asset Management Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the Registrant andhave:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’sauditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date:February 29, 2016By:/s/George G. Ellison George G. Ellison Chief Executive OfficerExhibit 31.2Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Robin N. Lowe , certify that:1. I have reviewed this annual report on Form 10-K of Altisource Asset Management Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the Registrant andhave:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’sauditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date:February 29, 2016By:/s/Robin N. Lowe Robin N. Lowe Chief Financial OfficerExhibit 32.1Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002The undersigned, the Chief Executive Officer of Altisource Asset Management Corporation (the “Company”), hereby certifies on the date hereof, pursuant to 18U.S.C. §1350(a), as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that the annual report on Form 10-K for the year ended December 31,2015 (“Form 10-K”), filed concurrently herewith by the Company, fully complies with the requirements of Section 13(a) or Section 15(d) of the SecuritiesExchange Act of 1934, as amended, and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and resultsof operations of the Company.A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to theSecurities and Exchange Commission or its staff upon request.Date:February 29, 2016By:/s/George G. Ellison George G. Ellison Chief Executive OfficerExhibit 32.2Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002The undersigned, the Chief Financial Officer of Altisource Asset Management Corporation (the “Company”), hereby certifies on the date hereof, pursuant to 18U.S.C. §1350(a), as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that the annual report on Form 10-K for the year ended December 31,2015 (“Form 10-K”), filed concurrently herewith by the Company, fully complies with the requirements of Section 13(a) or Section 15(d) of the SecuritiesExchange Act of 1934, as amended, and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and resultsof operations of the Company.A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to theSecurities and Exchange Commission or its staff upon request.Date:February 29, 2016By:/s/Robin N. Lowe Robin N. Lowe Chief Financial Officer

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