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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ________ to ____________ 
Commission File No. 001-35845 
HUNT COMPANIES FINANCE TRUST, INC.
(Exact name of registrant as specified in its charter) 
Maryland 45-4966519
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
230 Park Avenue, 19th Floor, New York, New York 10169
(Address of principal executive office) (Zip Code)
(212) 521-6323
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report) 
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class: Trading Symbol(s) Name of Exchange on Which Registered:
Common Stock, par value $0.01 per share HCFT New York Stock Exchange
Indicate 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 the preceding 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 the past 90 days:
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” "smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.  
Large accelerated filer ☐
Accelerated Filer ☒
Non-accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class   Outstanding at August 7, 2020
Common stock, $0.01 par value   24,943,383




HUNT COMPANIES FINANCE TRUST, INC.
 
INDEX
 
PART I - Financial Information
 
     
Item 1.  
 
1
 
2
 
3
 
5
 
6
Item 2.
23
Item 3.
35
Item 4.
36
     
36
     
Item 1.
36
Item 1A.
Risk Factors
36
Item 2.
36
Item 3.
36
Item 4.
36
Item 5.
37
Item 6.
37
     
 
38




PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 

HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
 
June 30, 2020(1)
December 31, 2019(1)
  (unaudited)  
ASSETS    
Cash and cash equivalents $ 8,856,854    $ 10,942,115   
Restricted cash 7,414,097    5,069,715   
Commercial mortgage loans held-for-investment, at amortized cost 609,847,568    635,260,420   
Mortgage servicing rights, at fair value 1,447,282    2,700,207   
Deferred offering costs 13,333    40,000   
Accrued interest receivable 2,172,612    2,342,354   
Investment related receivable 23,781,668    —   
Other assets 2,118,494    1,547,187   
Total assets $ 655,651,908    $ 657,901,998   
LIABILITIES AND EQUITY    
LIABILITIES:    
Collateralized loan obligations, net 498,311,273    505,930,065   
Secured term loan, net 39,469,649    39,384,041   
Accrued interest payable 428,620    805,126   
Dividends payable 1,870,754    1,776,912   
Fees and expenses payable to Manager 955,500    991,981   
Other accounts payable and accrued expenses 554,593    369,161   
Total liabilities 541,590,389    549,257,286   
COMMITMENTS AND CONTINGENCIES (NOTES 11 & 12)
EQUITY:    
Common Stock: par value $0.01 per share; 450,000,000 shares authorized, 24,943,383 and 23,692,164 shares issued and outstanding, at June 30, 2020 and December 31, 2019, respectively
249,389    236,877   
Additional paid-in capital 233,857,707    228,135,116   
Cumulative distributions to stockholders (125,985,651)   (122,236,981)  
Accumulated earnings 5,840,574    2,410,200   
Total stockholders' equity 113,962,019    108,545,212   
Noncontrolling interests $ 99,500    $ 99,500   
Total equity $ 114,061,519    $ 108,644,712   
Total liabilities and equity $ 655,651,908    $ 657,901,998   

(1)  Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2020 and December 31, 2019, assets of consolidated VIEs related to Hunt CRE 2017-F1, Ltd. and Hunt CRE 2018-FL2, Ltd. totaled $627,983,822 and $636,541,489, respectively and the liabilities of consolidated VIEs related to Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd totaled $498,666,940 and $506,662,238 respectively. See Note 5 for further discussion.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1



HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended June 30, 2020 Three Months Ended June 30, 2019 Six Months Ended June 30, 2020 Six Months Ended June 30, 2019
Revenues:    
Interest income:    
Commercial mortgage loans held-for-investment $ 8,472,153    $ 10,289,117    $ 17,637,958    $ 20,193,305   
Multi-family loans held in securitization trusts —    —    —    78,361   
Cash and cash equivalents 7,620    —    35,787    —   
Interest expense:    
Collateralized loan obligations (2,915,638)   (5,456,288)   (7,153,527)   (10,903,177)  
Secured term loan (780,441)   (786,114)   (1,560,882)   (1,115,227)  
Net interest income 4,783,694    4,046,715    8,959,336    8,253,262   
Other income:    
Realized (loss) on investments, net —    —    —    (709,439)  
Unrealized (loss) on mortgage servicing rights (375,176)   (459,119)   (1,252,925)   (839,117)  
Unrealized gain on multi-family loans held in securitization trusts —    —    —    694,339   
Servicing income, net 204,380    185,465    398,527    433,679   
Other income —    —    2    —   
Total other (loss) (170,796)   (273,654)   (854,396)   (420,538)  
Expenses:    
Management fee 590,211    566,164    1,175,032    1,119,623   
General and administrative expenses 978,842    895,659    1,744,734    2,362,344   
Operating expenses reimbursable to Manager 346,653    517,000    807,774    1,057,037   
Other operating expenses 833,998    147,259    1,134,924    185,016   
Compensation expense 52,762    50,064    106,894    100,087   
Total expenses 2,802,466    2,176,146    4,969,358    4,824,107   
Net income before provision for income taxes 1,810,432    1,596,915    3,135,582    3,008,617   
Benefit (provision) from income taxes 68,271    (202,745)   294,792    (139,680)  
Net income 1,878,703    1,394,170    3,430,374    2,868,937   
Dividends to preferred stockholders (3,750)   (3,792)   (7,500)   (484,264)  
Deemed dividend on preferred stock related to redemption —    —    —    (3,093,028)  
Net income (loss) attributable to common stockholders $ 1,874,953    $ 1,390,378    $ 3,422,874    $ (708,355)  
Earnings (loss) per share:    
Net income (loss) attributable to common stockholders (basic and diluted) $ 1,874,953    $ 1,390,378    $ 3,422,874    $ (708,355)  
Weighted average number of shares of common stock outstanding 24,939,575    23,687,664    24,925,529    23,687,664   
Basic and diluted income (loss) per share $ 0.08    $ 0.06    $ 0.14    $ (0.03)  
Dividends declared per share of common stock $ 0.08    $ 0.08    $ 0.15    $ 0.15   

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2



HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Equity
(unaudited)
  Common Stock Additional
Paid-in
Capital 		Cumulative
Distributions to
Stockholders 		Accumulated Earnings Total Stockholders' Equity Noncontrolling interests Total
Equity
  Shares Par Value
Balance at December 31, 2019 23,692,164    $ 236,877    $ 228,135,116    $ (122,236,981)   $ 2,410,200    $ 108,545,212    $ 99,500    $ 108,644,712   
Issuance of common stock 1,246,719    12,467    5,734,908    —    —    $ 5,747,375    —    $ 5,747,375   
Cost of issuing common stock —    —    (13,333)   —    —    $ (13,333)   —    $ (13,333)  
Restricted stock compensation expense —    —    7,882    —    —    $ 7,882    —    $ 7,882   
Net income (loss) —    —    —    —    1,551,671    $ 1,551,671    —    $ 1,551,671   
Common dividends declared —    —    —    (1,870,416)   —    $ (1,870,416)   —    $ (1,870,416)  
Preferred dividends declared —    —    —    (3,750)   —    (3,750)   —    $ (3,750)  
Balance at March 31, 2020 24,938,883    $ 249,344    $ 233,864,573    $ (124,111,147)   $ 3,961,871    $ 113,964,641    $ 99,500    $ 114,064,141   
Issuance of common stock 4,500    45    14,940    —    —    $ 14,985    —    $ 14,985   
Cost of issuing common stock —    —    (13,333)   —    —    $ (13,333)   —    $ (13,333)  
Restricted stock compensation expense —    —    (8,473)   —    —    $ (8,473)   —    $ (8,473)  
Net income (loss) —    —    —    —    1,878,703    $ 1,878,703    —    $ 1,878,703   
Common dividends declared —    —    —    (1,870,754)   —    $ (1,870,754)   —    $ (1,870,754)  
Preferred dividends declared —    —    —    (3,750)   —    $ (3,750)   —    $ (3,750)  
Balance at June 30, 2020 24,943,383    249,389    233,857,707    (125,985,651)   5,840,574    113,962,019    99,500    114,061,519   
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3



HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Equity
(unaudited)

Preferred Stock Common Stock Additional
Paid-in
Capital 		Cumulative
Distributions to
Stockholders 		Accumulated
Earnings
(Deficit) 		Total Stockholders' Equity Noncontrolling interests Total
Equity
Shares Par Value Shares Par Value
Balance at December 31, 2018 1,610,000    $ 37,156,972    23,687,664    $ 236,832    $ 231,305,743    $ (114,757,019)   $ (3,838,690)   $ 150,103,838    $ 99,500    $ 150,203,338   
Cost of issuing common stock —    —    —    —    (22,383)   —    —    $ (22,383)   —    $ (22,383)  
Redemption of preferred stock, net (1,610,000)   (37,156,972)   —    —    (3,093,028)   —    —    $ (40,250,000)   —    $ (40,250,000)  
Restricted stock compensation expense —    —    —    —    3,773    —    —    $ 3,773    —    $ 3,773   
Net income —    —    —    —    —    —    1,474,767    $ 1,474,767    —    $ 1,474,767   
Common dividends declared —    —    —    —    —    (1,658,136)   —    $ (1,658,136)   —    $ (1,658,136)  
Preferred dividends declared —    —    —    —    —    (480,472)   —    $ (480,472)   —    $ (480,472)  
Balance at March 31, 2019 —    —    23,687,664    236,832    228,194,105    (116,895,627)   (2,363,923)   109,171,387    99,500    109,270,887   
Cost of issuing common stock —    —    —    —    (22,382)   —    —    $ (22,382)   —    $ (22,382)  
Redemption of preferred stock, net —    —    —    —    —    —    —    $ —    —    $ —   
Restricted stock compensation expense —    —    —    —    3,814    —    —    $ 3,814    —    $ 3,814   
Net income —    —    —    —    —    —    1,394,170    $ 1,394,170    —    $ 1,394,170   
Common dividends declared —    —    —    —    —    (1,776,575)   —    $ (1,776,575)   —    $ (1,776,575)  
Preferred dividends declared —    —    —    —    —    (3,792)   —    $ (3,792)   —    $ (3,792)  
Balance at June 30, 2019 —    —    23,687,664    236,832    228,175,537    (118,675,994)   (969,753)   108,766,622    99,500    108,866,122   

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4



HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended
June 30, 2020 		Six Months Ended
June 30, 2019
Cash flows from operating activities:    
Net income $ 3,430,374    $ 2,868,937   
Adjustments to reconcile net income to net cash provided by operating activities:    
Amortization of collateralized loan obligations discounts, net 570,039    543,372   
Amortization of deferred offering costs (26,667)   (44,765)  
Amortization of deferred financing costs 512,136    493,750   
Realized loss on investments, net —    709,439   
Unrealized loss on mortgage servicing rights 1,252,925    839,117   
Unrealized (gain) on multi-family loans held in securitization trusts —    (694,339)  
Restricted stock compensation expense 14,394    7,587   
Net change in:    
Accrued interest receivable 169,742    (164,388)  
Deferred offering costs 26,667    44,766   
Other assets (571,307)   (695,988)  
Accrued interest payable (376,506)   (10,768)  
Fees and expenses payable to Manager (36,481)   55,900   
Other accounts payable and accrued expenses 185,432    (1,618,081)  
Net cash provided by operating activities 5,150,748    2,334,539   
Cash flows from investing activities:    
Purchase of commercial mortgage loans held-for-investment (41,990,011)   (117,536,027)  
Principal payments from retained beneficial interests —    4,747,049   
Principal payments from commercial mortgage loans held-for-investment 67,402,863    72,938,556   
Investment related receivable (23,781,668)   33,042,234   
Net cash provided by (used in) investing activities 1,631,184    (6,808,188)  
Cash flows from financing activities:    
Proceeds from issuance of common stock 5,747,375    —   
Redemption of preferred stock —    (40,250,000)  
Dividends paid on common stock (3,647,328)   (3,079,396)  
Dividends paid on preferred stock (7,500)   (528,614)  
Proceeds from collateralized loan obligations —    —   
Proceeds from secured term loan —    40,250,000   
Payment of collateralized loan obligations (8,615,358)   —   
Payment of deferred financing costs —    (1,090,372)  
Net cash (used in) financing activities (6,522,811)   (4,698,382)  
Net increase (decrease) in cash, cash equivalents and restricted cash 259,121    (9,172,031)  
Cash, cash equivalents and restricted cash, beginning of period 16,011,830    59,213,812   
Cash, cash equivalents and restricted cash, end of period $ 16,270,951    $ 50,041,781   
Supplemental disclosure of cash flow information    
Cash paid for interest $ 8,008,740    $ 10,992,050   
Non-cash investing and financing activities information    
Dividends declared but not paid at end of period $ 1,870,754    $ 1,776,575   

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS

Hunt Companies Finance Trust, Inc. (together with its consolidated subsidiaries, the "Company"), is a Maryland corporation that focuses primarily on investing in, financing and managing a portfolio of commercial real estate debt investments. Effective January 3, 2020, the Company is externally managed by OREC Investment Management, LLC (the "Manager" or "OREC IM"), who replaced the prior manager, Hunt Investment Management, LLC ("HIM"). The Company's common stock is listed on the NYSE under the symbol "HCFT."

The Company was incorporated on March 28, 2012 and commenced operations on May 16, 2012. The Company began trading as a publicly traded company on March 22, 2013.

The Company has elected to be taxed as a real estate investment trust ("REIT") and to comply with Sections 856 through 859 of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Company generally will not be subject to U.S. federal income tax to the extent of its distributions to stockholders and as long as certain asset, income and share ownership tests are met.
 
On February 14, 2019, the Company drew on its secured term loan ("Secured Term Loan") in the aggregate principal amount of $40.25 million and used the net proceeds of $39.2 million and working capital of $1.1 million to redeem all 1,610,000 shares of its outstanding 8.75% Series A Cumulative Redeemable Preferred Stock at its $25 per share liquidation preference plus accrued and unpaid dividends.

On March 18, 2019, the Company entered into a support agreement with HIM, pursuant to which HIM agreed to reduce the expense reimbursement cap by 25% per annum (subject to such reduction not exceeding $568,000 per annum) until such time as the aggregate support provided thereunder equaled approximately $1.96 million. The terms of the support agreement are materially unchanged in the new management agreement with the Manager.

On January 3, 2020, the Company and HIM entered into a termination agreement to which the Company and HIM agreed to mutually and immediately terminate its management agreement dated January 18, 2018. The Company simultaneously entered into a new management agreement with OREC IM. Pursuant to the terms of the termination agreement between the Company and HIM, the termination of the management agreement did not trigger, and HIM was not paid, a termination fee by the Company. See Note 10 for further discussion.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited condensed consolidated financial statements and related notes have been prepared in accordance with GAAP for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally included in the financial statements prepared under GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with the Company’s financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission (“SEC”) on March 16, 2020.

Principles of Consolidation

The accompanying condensed consolidated financial statements of the Company include the accounts of the Company and all subsidiaries which it controls (i) through voting or similar rights or (ii) by means other than voting rights if the Company is the primary beneficiary of a variable interest entity ("VIE"). Entities which the Company does not control and entities which are VIEs in which the Company is not the primary beneficiary are accounted for under the equity method or other appropriate GAAP. All significant intercompany transactions have been eliminated on consolidation.

VIEs

An entity is considered a VIE when any of the following applies: (1) the equity investors (if any) lack one or more essential characteristics of a controlling financial interest; (2) the equity investment at risk is not sufficient to finance that entity's activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company consolidates VIEs in which it is considered to be the primary beneficiary. The primary beneficiary is defined as the entity having both the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE's performance; and (2) the obligation to absorb losses and right to receive returns from the VIE that would be significant to the VIE.

The Company evaluates quarterly its junior retained notes and preferred shares of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. for potential consolidation. At June 30, 2020, the Company determined it was the primary beneficiary of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. based on its obligation to absorb losses derived from ownership of its preferred shares. Accordingly, the Company consolidated the assets, liabilities, income and expenses of the underlying issuing entities. The Company's maximum exposure to loss from collateralized loan obligations was $124,046,671 at June 30, 2020 and December 31, 2019.

Use of Estimates

The financial statements have been prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires the Company to make a number of significant estimates. On March 11, 2020, the World Health Organization ("WHO") declared COVID-19 a global pandemic, which continues to spread throughout the United States and around the world. The outbreak has adversely impacted, and continues to adversely impact economic and market conditions globally, nationally and locally. Actions taken around the world to help mitigate the spread of COVID-19 include imposition of quarantines, "stay-at-home" orders, restrictions on travel and forced closures for certain types of public places, businesses and schools. The prolonged duration of the COVID-19 pandemic and its impact on our borrowers and their tenants, cash flows and future results of operations could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted. We believe the estimates and
6


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of June 30, 2020, however uncertainty over the ultimate impact of COVID-19 on the global economy generally, and our business in particular, makes any estimates and assumptions inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results could differ from its estimates and the differences may be material.

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents at time of purchase include cash held in bank accounts on an overnight basis and other short term deposit accounts with banks having maturities of 90 days or less. The Company maintains its cash and cash equivalents with highly rated financial institutions, and at times these balances exceed insurable amounts.

Restricted cash includes cash held within Hunt CRE 2018-FL2 for the period ended June 30, 2020 and within Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. for the period ended December 31, 2019 for purposes of reinvestment in qualifying commercial mortgage loans. The reinvestment period for Hunt CRE 2017-FL1 expired on February 20, 2020.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the statements of cash flows.
June 30, 2020 December 31, 2019
Cash and cash equivalents $ 8,856,854    $ 10,942,115   
Restricted cash CRE 2017-FL1, Ltd. —    2,158,497   
Restricted cash CRE 2018-FL2, Ltd. $ 7,414,097    $ 2,911,218   
Total cash, cash equivalents and restricted cash $ 16,270,951    $ 16,011,830   

Deferred Offering Costs

Direct costs incurred to issue shares classified as equity, such as legal and accounting fees, are deducted from the related proceeds and the net amount recorded as stockholders’ equity. Accordingly, payments made by the Company in respect of such costs related to the issuance of shares are recorded as an asset in the accompanying consolidated balance sheets in the line item “Deferred offering costs”, for subsequent deduction from the related proceeds upon closing of the offering. To the extent that certain costs, in particular legal fees, are known to have been accrued but have not yet been invoiced and paid, they are included in “Other accounts payable and accrued expenses” on the accompanying consolidated balance sheets.

Fair Value Measurements

The "Fair Value Measurements and Disclosures" Topic 820 of the FASB, or ASC 820, defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurement under GAAP. Specifically, the guidance defines fair value based on exit price, or the price that would be received upon the sale of an asset or the transfer of a liability in an orderly transaction between market participants at measurement date. ASC 820 specifies a hierarchy of valuation techniques based on the inputs used in measuring fair value.

Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable market data from independent sources, while unobservable inputs reflect the Company's market assumptions. The three levels are defined as follows:

•Level 1 Inputs – Quoted prices for identical instruments in active markets.
•Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
•Level 3 Inputs – Instruments with primarily unobservable value drivers.

Pursuant to ASC 820 we disclose fair value information about financial instruments, which are not otherwise reported at fair value in our consolidated balance sheet, to the extent it is practicable to estimate fair value for those certain instruments.

The following methods and assumptions are used to estimate the fair value of each class of financial instrument, for which it is practicable to estimate that value:

•Cash and cash equivalents: The carrying amount of cash and cash equivalents approximates fair value.
•Restricted cash: The carrying amount of restricted cash approximates fair value.
•Commercial mortgage loans: The Company determines the fair value of commercial mortgage loans by utilizing a pricing model based on discounted cash flow methodologies using discount rates, which reflect current market interest rates that would be offered for loans with similar characteristics and credit quality. Additionally, the Company may record fair value adjustments on a non-recurring basis when it has determined it necessary to record a specific impairment reserve or charge-off against a loan and the Company measures such specific reserve or charge-off using the fair value of the loan's collateral. To determine the fair value of loan collateral, the Company employs the income capitalization approach, appraised values, broker opinion of value, sale offers, letter of intentions of purchase, or other valuation benchmarks, as applicable, depending upon the nature of such collateral and other relevant market factors.
•Mortgage servicing rights: The Company determines the fair value of MSRs from a third-party pricing service on a recurring basis. The third-party pricing service uses common market pricing methods that include using discounted cash flow models to calculate the present value, estimated net servicing income and observed market pricing for MSR purchase and sale transactions. The model considers contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors.
7


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

•Collateralized loan obligations: The Company determines the fair value of collateralized loan obligations by utilizing a third-party pricing service. In determining the value of a particular investment, pricing service providers may use market spreads, inventory levels, trade and bid list history, as well as market insight from clients, trading desks and global research platform.
•Secured term loan: The Company determines the fair value of its secured term loan based on a discounted cash flow methodology.

Commercial Mortgage Loans Held-for-Investment

Commercial mortgage loans held-for-investment represent floating-rate transitional loans and other commercial mortgage loans purchased by the Company. These loans include loans sold into securitizations that the Company consolidates. Commercial mortgage loans held-for-investment are intended to be held-to-maturity and, accordingly, are carried at their unpaid principal balances, adjusted for net unamortized loan fees and costs (in respect of originated loans), premiums and discounts (in respect of purchased loans) and impairment, if any.

Interest income is recognized as revenue using the effective interest method and is recorded on the accrual basis according to the terms of the underlying loan agreement. Any fees, costs, premiums and discounts associated with these loan investments are deferred and amortized over the term of the loan using the effective interest method, or on a straight line basis when it approximates the effective interest method. Income accrual is generally suspended and loans are placed on non-accrual status on the earlier of the date at which payment has become 90 days past due or when full and timely collection of interest and principal is considered not probable. The Company may return a loan to accrual status when repayment of principal and interest is reasonably assured under the terms of the underlying loan agreement. As of June 30, 2020, the Company did not hold any loans placed on non-accrual status.

Quarterly, the Company assesses the risk factors of each loan classified as held-for-investment and assigns a risk rating based on a variety of factors, including, without limitation, debt-service coverage ratio ("DSCR"), loan-to-value ratio ("LTV"), property type, geographic and local market dynamics, physical condition, leasing and tenant profile, adherence to business plan and exit plan, maturity default risk and project sponsorship. The Company's loans are rated on a 5-point scale, from least risk to greatest risk, respectively, which ratings are described as follows:

1.Very Low Risk: exceeds expectations and is outperforming underwriting or it is very likely that the underlying loan can be refinanced easily in the period's prevailing capital market conditions
2.Low Risk: meeting or exceeding underwritten expectations
3.Moderate Risk: in-line with underwritten expectations or the sponsor may be in the early stages of executing the business plan and the loan structure appropriately mitigates additional risks
4.High Risk: potential risk of default, a loss may occur in the event of default
5.Default Risk: imminent risk of default, a loss is likely in the event of default

The Company evaluates each loan rated High Risk or above as to whether it is impaired on a quarterly basis. Impairment occurs when the Company determines that the facts and circumstances of the loan deem it probable that the Company will not be able to collect all amounts due in accordance with the contractual terms of the loan. If a loan is considered to be impaired, an allowance is recorded to reduce the carrying value of the loan through a charge to the provision for loan losses. Impairment of these loans, which are collateral dependent, is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, actions of other lenders, and other factors deemed necessary by the Manager. Actual losses, if any, could ultimately differ from estimated losses.

In addition, the Company evaluates the entire portfolio to determine whether the portfolio has any impairment that requires a valuation allowance on the remainder of the loan portfolio. As of June 30, 2020, the Company has not recognized any impairments on its loans held-for-investment. We also assessed the remainder of the portfolio, considering the absence of delinquencies and current market conditions, and, as such have not recorded any allowance for loan losses.

Mortgage Servicing Rights, at Fair Value

Mortgage servicing rights (“MSRs”) are associated with residential mortgage loans that the Company historically purchased and subsequently sold or securitized. MSRs are held and managed at Five Oaks Acquisition Corp. ("FOAC"), the Company’s taxable REIT subsidiary ("TRS"). As the owner of MSRs, the Company is entitled to receive a portion of the interest payments from the associated residential mortgage loan, and is obligated to service, directly or through a sub-servicer, the associated loan. MSRs are reported at fair value. Residential mortgage loans for which the Company owns the MSRs are directly serviced by two sub-servicers retained by the Company. The Company does not directly service any residential mortgage loans.
 
MSR income is recognized at the contractually agreed upon rate, net of the costs of sub-servicers retained by the Company. If a sub-servicer with which the Company contracts were to default, an evaluation of MSR assets for impairment would be undertaken at that time.

Collateralized Loan Obligations

Collateralized loan obligations represent third-party liabilities of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. (the "CLOs"). The CLOs are VIEs that the Company has determined it is the primary beneficiary of and accordingly are consolidated in the Company's financial statements, excluding liabilities of the CLOs acquired by the Company that are eliminated on consolidation. The third-party obligations of the CLOs do not have any recourse to the Company as the consolidator of the CLOs. CLOs are carried at their outstanding unpaid principal balances, net of any unamortized discounts or deferred financing costs. Any premiums, discounts or deferred financing costs associated with these liabilities are amortized to interest expense using the effective interest method over the expected average life of the related obligations, or on a straight line basis when it approximates the effective interest method. In light of the current market environment, which has been impacted by the ongoing COVID-19 pandemic, the Company has determined it is unlikely that a collateralized loan obligation transaction that had been contemplated will be executed by year-end. Accordingly, $624,816 in costs related to the contemplated transaction were expensed as "Other operating expenses" in the consolidated statements of operations in the quarter ended June 30, 2020. Such costs had previously been deferred as "Other assets" in the consolidated balance sheets.

8


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Secured Term Loan

The Company and certain of its subsidiaries are party to a $40.25 million credit and guaranty agreement with the lenders referred to therein and Cortland Capital Service LLC, as administrative agent and collateral agent for the lenders (the "Secured Term Loan"). The Secured Term Loan is carried at its unpaid principal balance, net of deferred financing costs. Deferred financing costs of $1,017,419 associated with this liability are amortized to interest expense on a straight line basis when it approximates the effective interest method.

Common Stock

At June 30, 2020 and December 31, 2019, the Company was authorized to issue up to 450,000,000 shares of common stock, par value $0.01 per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s Board of Directors. The Company had 24,943,383 shares of common stock issued and outstanding at June 30, 2020 and 23,692,164 at December 31, 2019.

Stock Repurchase Program

On December 15, 2015, the Company’s Board of Directors authorized a stock repurchase program (“Repurchase Program”), to repurchase up to $10 million of the Company’s outstanding common stock. Subject to applicable securities laws, repurchase of common stock under the Repurchase Program may be made at times and in amounts as the Company deems appropriate, using available cash resources. Shares of common stock repurchased by the Company under the Repurchase Program, if any, will be canceled and, until reissued by the Company, will be deemed to be authorized but unissued shares of common stock. The Repurchase Program may be suspended or discontinued by the Company at any time and without prior notice.

Preferred Stock

On February 14, 2019, the Company redeemed all 1,610,000 shares of its outstanding 8.75% Series A Cumulative Redeemable Preferred Stock at its $25 per share liquidation preference plus accrued and unpaid dividends.

Income Taxes

The Company has elected to be taxed as a REIT under the Code for U.S. federal income tax purposes, commencing with the Company’s short taxable period ended December 31, 2012. A REIT is generally taxable as a U.S. C-Corporation; however, so long as the Company qualifies as a REIT it is entitled to a special deduction for dividends paid to shareholders not otherwise available to corporations. Accordingly, the Company generally will not be subject to U.S. federal income tax to the extent its distributions to stockholders equals, or exceeds, its REIT taxable income for the year. In addition, the Company must continue to meet certain REIT qualification requirements with respect to distributions, as well as certain asset, income and share ownership tests, in accordance with Sections 856 through 860 of the Code, as summarized below. In addition, the TRS is maintained to perform certain services and earn income for the Company that the Company is not permitted as a REIT.

To maintain its qualification as a REIT, the Company must meet certain requirements, including but not limited to the following: (i) distribute at least 90% of its REIT taxable income to its stockholders; (ii) invest at least 75% of its assets in REIT qualifying assets, with additional restrictions with respect to asset concentration risk; and (iii) earn at least 95% of its gross income from qualifying sources of income, including at least 75% from qualifying real estate and real estate related sources. Regardless of the REIT election, the Company may also be subject to certain state, local and franchise taxes. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. If the Company were to fail to meet these requirements, it would be subject to U.S. federal income tax as a U.S. C-Corporation, which could have a material adverse impact on its results of operations and amounts available for distributions to its stockholders. The Company has historically met the requisite ownership, asset and income tests, with the exception of a failure to meet the 75% gross income test for the 2018 calendar year ("2018 75% Income Test Failure"). The failure to meet the 75% gross income test for the 2018 calendar year was a result of gains generated from the termination of hedges associated with the disposition of an Agency RMBS portfolio during 2018. The Company accrued a tax liability of $1.96 million as of December 31, 2018 which was paid on April 12, 2019, in connection with filing its 2018 tax extensions. The Company in consultation with its external tax advisor requested a pre-filing agreement from the IRS concerning the application of Section 856(c)(6) ("Section 856(c)(6)") of the Code, a statutory relief provision. In October 2019, the Company filed its 2018 tax return taking relief under Section 856(c)(6). On July 13, 2020, the Company entered into a closing agreement with the IRS in which it was agreed that (i) the 2018 75% Income Test Failure was due to reasonable cause and not due to willful neglect within the meaning of Section 856(c)(6); (ii) the Company satisfied the requirements of Section 856(c)(6) with respect to the 2018 75% Income Test Failure and; (iii) such failure will not cause the Company to be treated as failing to satisfy the 75% gross income test for the 2018 taxable year. Accordingly, the Company's REIT election will not be impacted by the 2018 75% Income Test Failure.

Certain activities of the Company are conducted through a TRS and therefore are taxed as a standalone U.S. C-Corporation. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
 
The TRS is not subject to a distribution requirement with respect to its REIT owner. The TRS may retain earnings annually, resulting in an increase in the consolidated book equity of the Company and without a corresponding distribution requirement by the REIT. If the TRS generates net income, and declares dividends to the Company, such dividends will be included in its taxable income and necessitate a distribution to its stockholders in accordance with the REIT distribution requirements.

The Company assesses its tax positions for all open tax years and determines whether the Company has any material unrecognized liabilities in accordance with ASC 740, Income Taxes. The Company records these liabilities to the extent the Company deems them more likely than not to be incurred. The Company's accounting policy with respect to interest and penalties is to classify these amounts as other interest expense.


9


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings per Share

The Company calculates basic and diluted earnings per share by dividing net income attributable to common stockholders for the period by the weighted-average shares of the Company’s common stock outstanding for that period. Diluted earnings per share takes into account the effect of dilutive instruments, such as warrants, stock options, and unvested restricted stock, but use the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding. See Note 14 for details of the computation of basic and diluted earnings per share.

Stock-Based Compensation

The Company is required to recognize compensation costs relating to stock-based payment transactions in the consolidated financial statements. The Company accounts for share-based compensation issued to its Manager and non-management directors using the fair-value based methodology prescribed by ASC 505, Equity (“ASC 505”), or ASC 718, Share-Based Payment (“ASC 718”), as appropriate. Compensation cost related to restricted common stock issued to the Manager is initially measured at estimated fair value at the grant date, and is re-measured on subsequent dates to the extent the awards are unvested. Additionally, the compensation cost related to restricted common stock issued to the non-management directors is measured at its estimated fair value at the grant date and amortized and expensed over the vesting period. See Note 10 for details of stock-based awards issuable under the Manager Equity Plan.

Comprehensive Income (Loss) Attributable to Common Stockholders

For the three and six months ended June 30, 2020 and 2019, comprehensive income equaled net income; therefore, a separate consolidated statement of comprehensive income is not included in the accompanying consolidated financial statements.

Recently Issued and/or Adopted Accounting Standards

Credit Losses

In June 2016, the FASB issued ASU 2016-13, which is a comprehensive amendment of credit losses on financial instruments. Currently GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The standard’s core principle is that an entity replaces the “incurred loss” impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to support credit loss estimates. For public business entities that are SEC filers, the amendment in this update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

In November 2019, the FASB issued ASU 2019-10 which amended the effective dates for implementation of ASU 2016-13. ASU 2019-10 defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, public business entities that are not SEC filers and all other companies, including not-for-profit companies and employee benefit plans for fiscal years beginning after December 15 2022, including interim periods within those fiscal years. The Company is designated as a smaller reporting company and has deferred implementation of ASU 2016-13 pursuant to ASU 2019-10 and is continuing to assess the impact of this guidance.

In February 2020, the FASB issued ASU 2020-02, amending SEC paragraphs in the Codification to reflect the issuance of SEC Staff Accounting Bulletin ("SAB") No. 119 related to the new credit losses standard and revised effective date of the new leases standard. SAB No. 119 provides interpretive guidance on methodologies and supporting documentation for measuring credit losses, with a focus on the documentation the staff would normally expect registrants engaged in lending transactions to prepare and maintain to support estimates of current expected credit losses for loan transactions. This new guidance is effective for fiscal years beginning after December 15, 2022 for smaller reporting companies.

Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This guidance eliminates certain exceptions to the general principles in Topic 740. This new guidance is effective for us on January 1, 2021, with early adoption permitted. We are evaluating the potential impact of this new guidance on our consolidated financial statements.

Financial Instruments

In March 2020, the FASB issued ASU 2020-03 which makes improvements to financial instruments guidance, including the current expected credit losses (CECL) guidance. The improvements include 7 issues. Issue 1, effective upon issuance, requires all entities to provide fair value option disclosures is the only issue applicable to the Company. MSRs are reported at fair value as a result of the fair value election, disclosed in Mortgage Servicing Rights, at Fair Value above.

CARES Act

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). Section 4013 of the CARES Act includes a provision that permits financial institutions an election to suspend temporarily troubled debt restructuring ("TDR") accounting under ASC Subtopic 310-40 in certain circumstances ("Section 4013 Elections"). Additionally, Section 4014 of the CARES Act includes a provision that permits deferral of the effective date of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), for insured depository institutions, bank holding companies, or any affiliates thereof ("Section 4014 Election"). The Company is not a financial institution, nor a depository institution, bank holding company or an affiliate of one and therefore would not be permitted to make Section 4013 or Sections 4014 Elections. The Company is designated as a smaller reporting company and has previously deferred implementation of ASU 2016-13 until January 1, 2023 pursuant to ASU 2019-10.

10


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 3 – COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT


The following tables summarize certain characteristics of the Company's investments in commercial mortgage loans as of June 30, 2020 and December 31, 2019:

Weighted Average
Loan Type Unpaid Principal Balance Carrying Value Loan Count Floating Rate Loan %
Coupon(1)
Remaining
Term
 (Years)(2)
June 30, 2020
Loans held-for-investment
Senior secured loans(3)
$ 609,847,568    $ 609,847,568    45    100.0  % 5.1  % 3.5
609,847,568    609,847,568    45    100.0  % 5.1  % 3.5

Weighted Average
Loan Type Unpaid Principal Balance Carrying Value Loan Count Floating Rate Loan %
Coupon(1)
Remaining
Term
 (Years)(2)
December 31, 2019
Loans held-for-investment
Senior secured loans(3)
$ 635,260,420    $ 635,260,420    51    100.0  % 5.4  % 3.8
635,260,420    635,260,420    51    100.0  % 5.4  % 3.8

(1) Weighted average coupon assumes applicable one-month LIBOR of 0.17% and 1.70% as of June 30, 2020 and December 31, 2019, respectively, inclusive of weighted average floors of 1.61% and 1.56%, respectively.
(2) Weighted average remaining term assumes all extension options are exercised by the borrower, provided, however, that our loans may be repaid prior to such date.
(3) As of June 30, 2020, $594,668,851 of the outstanding senior secured loans were held in VIEs and $15,178,717 of the outstanding senior secured loans are held outside VIEs. As of December 31, 2019, $629,157,956 of the outstanding senior secured loans were held in VIEs and $6,102,464 of the outstanding senior secured loans were held outside VIEs.

Activity: For the six months ended June 30, 2020, the loan portfolio activity was as follows:
Commercial Mortgage Loans Held-for-Investment
Balance at December 31, 2019 $ 635,260,420   
Purchases and fundings 41,990,011   
Proceeds from principal payments (67,402,863)  
Balance at June 30, 2020 $ 609,847,568   

Loan Risk Ratings: As further described in Note 2, the Company evaluates the commercial mortgage loan portfolio on a quarterly basis and assigns a risk rating based on a variety of factors. The following tables present the principal balance and net book value of the loan portfolio based on the Company's internal risk ratings utilized as of June 30, 2020 and December 31, 2019:

June 30, 2020 December 31, 2019
Risk Rating Number of Loans Unpaid Principal Balance Net Carrying Value Number of Loans Unpaid Principal Balance Net Carrying Value
1 —    $ —    —    1    9,000,000    9,000,000   
2 7    64,922,724    64,922,724    9    87,176,088    87,176,088   
3 30    412,508,744    412,508,744    37    487,513,256    487,513,256   
4 8    132,416,100    132,416,100    4    51,571,076    51,571,076   
5 —    —    —    —    —    —   
45    $ 609,847,568    609,847,568    51    635,260,420    635,260,420   

As of June 30, 2020, the average risk rating of the commercial mortgage loan portfolio was 3.0 (Moderate Risk), weighted by investment carrying value, with 78.3% of commercial loans held-for-investment rated 3 (Moderate Risk) or better by the Company's Manager.

As of December 31, 2019, the average risk rating of the commercial mortgage loan portfolio was 2.8 (Moderate Risk), weighted by investment carrying value, with 91.9% of commercial loans held-for-invested rated 3 (Moderate Risk) or better by the Company's Manager.

11


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 3 - COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT (Continued)
The increase in the average risk rating during 2020 is primarily the result of downgrade of several non multi-family loans to a risk rating of "4" to reflect higher risk in loans collateralized by retail and office properties that are particularly negatively impacted by the COVID-19 pandemic.
Concentration of Credit Risk: The following tables present the geographic and property types of collateral underlying the Company's commercial mortgage loans as a percentage of the loans' carrying value as of June 30, 2020 and December 31, 2019:

Loans Held-for-Investment
June 30, 2020 December 31, 2019
Geography
Southwest 39.8  % 38.7  %
South 34.7    27.5   
Midwest 16.9    16.9   
Mid-Atlantic 6.9    8.4   
West 1.7    3.0   
Various —    5.5   
Total 100.0  % 100.0  %

June 30, 2020(1)
December 31, 2019
Collateral Property Type
Multi-Family 90.6  % 93.9  %
Retail 5.8    2.7   
Office 2.9    2.0   
Self-Storage 0.7    0.7   
Mixed-Use —    0.7   
Total 100.0  % 100.0  %
(1) During the period ended June 30, 2020, two multi-family loans were reclassified to retail and office, respectively, due to the primary nature of the underlying properties. The reclassification represents a reduction in multi-family of 3.6% and an increase to retail and office of 2.8% and 0.8%, respectively, to the percentages presented for December 31, 2019.

We did not have any impaired loans, nonaccrual loans, or loans in maturity default as of June 30, 2020 or December 31, 2019.

NOTE 4 - THE FREMF TRUSTS

As of June 30, 2020 the Company no longer held any FREMF Trusts.

The Company previously elected the fair value option on the assets and liabilities of the FREMF 2012-KF01 Trust, which required that changes in valuations of the trust be reflected in the Company’s statements of operations. The Company’s net investment in the trust was limited to the Multi-Family MBS comprised of first loss PO securities and IO securities acquired by the Company in 2014. On January 25, 2019, the FREMF 2012-KF01 trust was paid-in full.

The condensed consolidated statement of operations of the FREMF trusts for the three and six months ended June 30, 2019 are as follows:

Statements of Operations Three Months Ended
June 30, 2019 		Six Months Ended June 30, 2019
Interest income $ —    $ 78,361   
Net interest income $ —    $ 78,361   
Realized (loss) on multi-family loans held in securitization trusts —    (709,439)  
Unrealized gain on multi-family loans held in securitization trusts —    694,339   
Net income (loss) $ —    $ 63,261   

NOTE 5 - USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES

As further discussed in Notes 2 and 4, the Company evaluated its investment in Multi-Family MBS and determined that it was a VIE. The Company determined that it was the primary beneficiary of the FREMF 2012-KF01 Trust through January 25, 2019, the repayment date of the underlying security. Accordingly, the Company consolidated the assets, liabilities, income and expenses of this trust in its financial statements through January 25, 2019. However, the assets of the trust were restricted, and could only have been used to fulfill the obligations of the trust. Additionally, the obligations of the trust did not have any recourse to the Company as the consolidator of the trust. The Company had elected the fair value option in respect of the assets and liabilities of the trust. As noted in Note 4, the FREMF 2012-KF01 was paid-in full effective January 25, 2019, and henceforth the Company no longer consolidates this trust.

On April 30, 2018, the Company acquired Hunt CMT Equity LLC, which was comprised of commercial mortgage loans financed through collateralized loan obligations ("Hunt CRE 2017-FL1, Ltd."), a licensed commercial mortgage lender and eight loan participations. The Company determined Hunt CRE 2017-FL1, Ltd. was a VIE and that the Company was the primary beneficiary of the issuing entity, and accordingly consolidated its assets and liabilities into the
12


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 5 – USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES (Continued)
Company's financial statements in accordance with GAAP. On August 20, 2018, the Company closed a collateral loan obligation ("Hunt CRE 2018-FL2, Ltd."). The Company determined Hunt CRE 2018-FL2, Ltd. was a VIE and the Company was the primary beneficiary of the issuing entity, and accordingly consolidated its assets and liabilities into the Company's financial statements in accordance with GAAP. However, the assets of each of the trusts are restricted, and can only be used to fulfill the obligations of the respective trusts. Additionally, the obligations of each of the trusts do not have any recourse to the Company as the consolidator of the trusts. At June 30, 2020, the Company continued to determine it was the primary beneficiary of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. based on its obligations to absorb losses derived from ownership of preferred shares.

The CLOs we consolidate are subject to collateralization and coverage tests that are customary for these types of securitizations. As of June 30, 2020 and December 31, 2019 all such collateralization and coverage tests in the CLOs we consolidate were met. If the duration of the COVID-19 pandemic continues to prolong, its impact on our borrowers and their tenants could result in a sustained deterioration in a material amount of assets and may impact these tests.

The carrying values of the Company's total assets and liabilities related to Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. at June 30, 2020 and December 31, 2019 included the following VIE assets and liabilities:

ASSETS June 30, 2020 December 31, 2019
Cash, cash equivalents and restricted cash $ 7,414,097    $ 5,069,715   
Accrued interest receivable 2,119,206    2,313,818   
Investment related receivable(1)
23,781,668    —   
Loans held for investment 594,668,851    629,157,956   
Total Assets $ 627,983,822    $ 636,541,489   
LIABILITIES
Accrued interest payable $ 355,667    $ 732,173   
Collateralized loan obligations(2)
498,311,273    505,930,065   
Total Liabilities $ 498,666,940    $ 506,662,238   
Equity 129,316,882    129,879,251   
Total liabilities and equity $ 627,983,822    $ 636,541,489   
(1) Investment related receivable includes 3 unsettled loans in Hunt CRE 2017-FL1 with a principal amount due of $19,125,000 which will be used to pay down the Class A Notes of the CLO and $186,831 of interest and exit fees receivable, and 1 unsettled loan in Hunt CRE 2018-FL2 with a principal amount due of $4,404,365 which will be deposited to restricted and $65,472 of interest and exit fees receivable. All payments settled subsequent to June 30, 2020.
(2)  The stated maturity of the collateral loan obligations per the terms of the underlying collateralized loan obligation agreement is August 15, 2034 for Hunt CRE 2017-FL1, Ltd. and August 15, 2028 for Hunt CRE 2018-FL2, Ltd.

The following tables present certain loan and borrowing characteristics of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. as of June 30, 2020 and December 31, 2019:
As of June 30, 2020
Collateralized Loan Obligations Count Principal Value
Carrying Value(1)
Wtd. Avg. Yield
Collateral (loan investments) 45 $ 594,668,851    $ 594,668,851   
L + 3.53%
Financings provided 2 501,565,642    498,311,273   
L + 1.41%

As of December 31, 2019
Collateralized Loan Obligations Count Principal Value
Carrying Value(1)
Wtd. Avg. Yield
Collateral (loan investments) 51 $ 629,157,956    $ 629,157,956   
L + 3.60%
Financing provided 2 510,181,000    505,930,065   
L + 1.40%
(1)  The carrying value for Hunt CRE 2017-FL1, Ltd. is net of discount of $774,885 and $1,344,923 for June 30, 2020 and December 31, 2019, respectively and the carrying value for Hunt CRE 2018-FL2, Ltd. is net of debt issuance costs of $2,479,484 and $2,906,012 for June 30, 2020 and December 31, 2019, respectively.

The statement of operations related to Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. for the three and six months ended June 30, 2020 and June 30, 2019 include the following income and expense items:

13


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 5 – USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES (Continued)
Statements of Operations Three Months Ended June 30, 2020 Three Months Ended June 30, 2019
Interest income $ 8,292,797    $ 10,165,682   
Interest expense (2,915,638)   (5,456,288)  
$ 5,377,159    $ 4,709,394   
General and administrative fees (149,643)   (121,307)  
Net income $ 5,227,516    $ 4,588,087   

Statements of Operations Six Months Ended June 30, 2020 Six Months Ended June 30, 2019
Interest income $ 17,324,969    $ 19,978,158   
Interest expense (7,153,527)   (10,903,177)  
$ 10,171,442    $ 9,074,981   
General and administrative fees (295,629)   (281,759)  
Net income (loss) $ 9,875,813    $ 8,793,222   

NOTE 6 - RESTRICTED CASH

Hunt CRE 2017-FL1, Ltd. was actively managed with an initial reinvestment period of 30 months which expired on February 20, 2020. Hunt CRE 2018-FL2, Ltd. is actively managed with an initial reinvestment periods of 36 months. As loans payoff or mature, as applicable, during this reinvestment period, cash received is restricted and intended to be reinvested within Hunt CRE 2018-FL2, Ltd. in accordance with the terms and conditions of their respective governing agreements.

NOTE 7 - SECURED TERM LOAN

On January 15, 2019, the Company, together with its FOAC and Hunt CMT Equity subsidiaries (together with the Company, the "Credit Parties"), entered into the Secured Term Loan, as amended on February 13, 2019 and July 9, 2020 with the lenders party thereto and Cortland Capital Market Services, LLC, as administrative agent (in such capacity, the "Agent"), providing for a term facility ("Credit Agreement") to be drawn in an aggregate principal amount of $40.25 million with a maturity of 6 years.

On February 14, 2019, the Company drew on the Secured Term Loan in the aggregate principal amount of $40.25 million generating net proceeds of $39.2 million. The outstanding balance of the Secured Term Loan in the table below is presented gross of deferred financing costs ($780,351 and $865,959 at June 30, 2020 and December 31, 2019, respectively). As of June 30, 2020 and December 31, 2019, the outstanding balance and total commitment under the Credit Agreement consisted of the following:

June 30, 2020 December 31, 2019
Outstanding Balance Total Commitment Outstanding Balance Total Commitment
Secured Term Loan $ 40,250,000    $ 40,250,000    $ 40,250,000    $ 40,250,000   
Total $ 40,250,000    $ 40,250,000    $ 40,250,000    $ 40,250,000   

The borrowings under the Secured Term Loan are joint and several obligations of the Credit Parties. In addition, the Credit Parties’ obligations under the Secured Term Loan are secured by substantially all the assets of the Credit Parties through pledge and security documentation. Amounts advanced under the Secured Term Loan are subject to compliance with a borrowing base comprised of assets of the Credit Parties and certain of their subsidiaries, and includes senior and subordinated commercial real estate mortgage loans, preferred equity in commercial real estate assets (directly or indirectly), commercial real estate construction mortgage loans and certain types of equity interests (the “Eligible Assets”). Borrowings under the Secured Term Loan bear interest at a fixed rate of 7.25% for the five-year period following the initial draw-down, which is subject to step up by 0.25% for the first four months after the fifth anniversary of the borrowing of the Senior Secured Term Loan, then by 0.375% for the following four months, then by 0.50% for the last four months until the maturity.

In response to the continued COVID-19 pandemic, on July 9, 2020, the Company successfully entered into the Second Amendment to the Credit and Guaranty Agreement. This amendment provides the Company with additional flexibility to effectively manage any potential borrower distress related to COVID-19 that were not originally contemplated in loan documentation.

The Credit Agreement contains affirmative and negative covenants binding the Company and its subsidiaries that are customary for credit facilities of this type, including, but not limited to: minimum asset coverage ratio; minimum unencumbered assets ratio; maximum total net leverage ratio; minimum tangible net worth; and an interest charge coverage ratio. As of June 30, 2020 and December 31, 2019 we were in compliance with these covenants. If the duration of the COVID-19 pandemic continues to prolong, its impact on our borrowers and their tenants could result in a sustained deterioration in a material amount of assets and may impact these covenants.

The Credit Agreement contains events of default that are customary for facilities of this type, including, but not limited to, nonpayment of principal, interest, fees and other amounts when due, violation of covenants, cross default with material indebtedness, and change of control.

14


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 8 – MSRs
As of June 30, 2020, the Company retained the servicing rights associated with an aggregate principal balance of $274,570,339 of residential mortgage loans that the Company had previously transferred to residential mortgage loan securitization trusts. The Company’s MSRs are held and managed at the Company’s TRS, and the Company employs two licensed sub-servicers to perform the related servicing activities.

The following table presents the Company’s MSR activity for the six months ended June 30, 2020 and the six months ended June 30, 2019:

  June 30, 2020 June 30, 2019
Balance at beginning of period $ 2,700,207    $ 3,997,786   
Changes in fair value due to:
Changes in valuation inputs or assumptions used in valuation model (777,330)   (589,660)  
Other changes to fair value(1)
(475,595)   (249,457)  
Balance at end of period $ 1,447,282    $ 3,158,669   
Loans associated with MSRs(2)
$ 274,570,339    $ 381,847,136   
MSR values as percent of loans(3)
0.53  % 0.83  %

(1)Amounts represent changes due to realization of expected cash flows.
(2)Amounts represent the unpaid principal balance of loans associated with MSRs outstanding at June 30, 2020 and June 30, 2019, respectively.
(3)Amounts represent the carrying value of MSRs at June 30, 2020 and June 30, 2019, respectively divided by the outstanding balance of the loans associated with these MSRs

The following table presents the servicing income recorded on the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2020 and June 30, 2019:
Three Months Ended
June 30, 2020 		Three Months Ended
June 30, 2019
Servicing income, net $ 204,380    $ 185,465   
Total servicing income $ 204,380    $ 185,465   

Six Months Ended June 30, 2020 Six Months Ended June 30, 2019
Servicing income, net $ 398,527    $ 433,679   
Total servicing income $ 398,527    $ 433,679   

NOTE 9 - FAIR VALUE

The following tables summarize the valuation of the Company’s assets and liabilities carried at fair value on a recurring basis within the fair value hierarchy levels as of June 30, 2020 and December 31, 2019:

  June 30, 2020
Quoted prices in
active markets
for identical assets
Level 1 		Significant
other observable
inputs
Level 2 		Unobservable
inputs
Level 3 		Balance as of June 30, 2020
Assets:        
Mortgage servicing rights —    —    1,447,282    1,447,282   
Total $ —    $ —    $ 1,447,282    $ 1,447,282   

  December 31, 2019
Quoted prices in
active markets
for identical assets
Level 1 		Significant
other observable
inputs
Level 2 		Unobservable
inputs
Level 3 		Balance as of
December 31, 2019
Assets:        
Mortgage servicing rights —    —    2,700,207    2,700,207   
Total $ —    $ —    $ 2,700,207    $ 2,700,207   

15


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 9 – FAIR VALUE (Continued)
As of June 30, 2020 and December 31, 2019, the Company had $1,447,282 and $2,700,207, respectively, in Level 3 assets. The Company’s Level 3 assets are comprised of MSRs. For more detail about Level 3 assets, also see Notes 2 and 8.

The following table provides quantitative information about the significant unobservable inputs used in the fair value measurement of the Company’s MSRs classified as Level 3 fair value assets at June 30, 2020 and December 31, 2019:

As of June 30, 2020
Valuation Technique Unobservable Input Range Weighted Average
Discounted cash flow Constant prepayment rate
11.4 - 28.6%
20.1  %
  Discount rate 12.0  % 12.0  %

As of December 31, 2019
Valuation Technique Unobservable Input Range Weighted Average
Discounted cash flow Constant prepayment rate
7.4 - 27.6%
13.3  %
  Discount rate 12.0  % 12.0  %
As discussed in Note 2, GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the condensed consolidated balance sheets, for which it is practicable to estimate that value. The following table details the carrying amount, face amount and fair value of the financial instruments described in Note 2:
June 30, 2020
Level in Fair Value Hierarchy Carrying Value Face Amount Fair Value
Assets:
Cash and cash equivalents 1 8,856,854    8,856,854    8,856,854   
Restricted cash 1 7,414,097    7,414,097    7,414,097   
Commercial mortgage loans held-for-investment 3 609,847,568    609,847,568    602,130,098   
Total $ 626,118,519    $ 626,118,519    $ 618,401,049   
Liabilities:
Collateralized loan obligations 2 498,311,273    501,565,642    483,149,938   
Secured Term Loan 3 39,469,649    40,250,000    40,803,896   
Total $ 537,780,922    $ 541,815,642    $ 523,953,834   

December 31, 2019
Level in Fair Value Hierarchy Carrying Value Face Amount Fair Value
Assets:
Cash and cash equivalents 1 10,942,115    10,942,115    10,942,115   
Restricted cash 1 5,069,715    5,069,715    5,069,715   
Commercial mortgage loans held-for-investment 3 635,260,420    635,260,420    635,260,420   
Total $ 651,272,250    $ 651,272,250    $ 651,272,250   
Liabilities:
Collateralized loan obligations 2 505,930,065    510,181,000    510,834,435   
Secured term loan 3 39,384,041    40,250,000    42,999,082   
Total $ 545,314,106    $ 550,431,000    $ 553,833,517   

Estimates of cash and cash equivalents and restricted cash are measured using quoted market prices, or Level 1 inputs. Estimates of the fair value of collateralized loan obligations are measured using observable, quoted market prices, in active markets, or Level 2 inputs. All other fair value significant estimates are measured using unobservable inputs, or Level 3 inputs. See Note 2 for further discussion regarding fair value measurement of certain of our assets and liabilities.

16


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 10 - RELATED PARTY TRANSACTIONS

Management Fee

The Company is externally managed and advised by the Manager and through January 3, 2020 by HIM, our prior manager. Pursuant to the terms of the prior management agreement in effect for the year ended December 31, 2019, the Company paid the prior manager a management fee equal to 1.5% per annum, calculated and payable quarterly (0.375% per quarter) in arrears. For purposes of calculating the management fee, the Company’s stockholders’ equity included the sum of the net proceeds from all issuances of the Company’s equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus the Company’s retained earnings at the end of the most recently completed calendar quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less any amount that the Company paid for repurchases of the Company’s common stock since inception, and excluding any unrealized gains, losses or other items that did not affect realized net income (regardless of whether such items were included in other comprehensive income or loss, or in net income). This amount was adjusted to exclude one-time events pursuant to changes in GAAP and certain non-cash items after discussions between the manager and the Company’s independent directors and approval by a majority of the Company’s independent directors. To the extent asset impairment reduced the Company’s retained earnings at the end of any completed calendar quarter, it would reduce the management fee for such quarter. The Company’s stockholders’ equity for the purposes of calculating the management fee could be greater than the amount of stockholders’ equity shown on the consolidated financial statements. Additionally, under the terms of the prior management agreement, starting in the first full calendar quarter following January 18, 2019, the Company was also required to pay the Manager a quarterly incentive fee equal to 20% of the excess of Core Earnings (as defined in the management agreement) over the product of (i) Stockholders' Equity as of the end of such fiscal quarter, and (ii) 8% per annum. On January 3, 2020, the management agreement in effect for the year ended December 31, 2019 was terminated, and a new management agreement with the Manager became effective. Pursuant to the terms of the new management contract, the Company is required to pay the Manager an annual base management fee of 1.50% of Stockholders' Equity (as defined in the management agreement), payable quarterly (0.375% per quarter) in arrears. The definition of stockholders' equity in the new management agreement is materially unchanged from the definition in the prior management agreement. Additionally, starting in the first full calendar quarter following January 3, 2020, the Company is also required to pay the Manager a quarterly incentive fee equal to 20% of the excess of Core Earnings (as defined in the management agreement) over the product of (i) the Stockholders' Equity as of the end of such fiscal quarter, and (ii) 8% per annum.

For the three months ended June 30, 2020, the Company incurred management fees of $590,211 (June 30, 2019: $566,164), recorded as "Management Fee" in the condensed consolidated statement of operations, of which $588,000 (June 30, 2019: $567,000) was accrued but had not been paid, included in "fees and expenses payable to Manager" in the condensed consolidated balance sheets.

For the six months ended June 30, 2020, the Company incurred management fees of $1,175,032 (June 30, 2019: 1,119,623), recorded as "Management Fee" in the condensed consolidated statement of operations, of which $588,000 (June 30, 2019: 567,000) was accrued but had not been paid, included in "fees and expenses payable to Manager" in the condensed consolidated financial statements.

For the three and six months ended June 30, 2020 and June 30, 2019, the Company did not incur any incentive fees.

Expense Reimbursement

Pursuant to the management agreement, the Company is required to reimburse the Manager for operating expenses related to the Company incurred by the Manager, including accounting, auditing and tax services, technology and office facilities, operations, compliance, legal and filing fees, and miscellaneous general and administrative costs, including the cost of non-investment management personnel of the Manager who spend all or a portion of their time managing the Company’s affairs. The Manager has agreed to certain limitations on manager expense reimbursement from the Company.

On March 18, 2019, the Company entered into a support agreement with the prior manager, pursuant to which, the prior manager agreed to reduce the reimbursement cap by 25% per annum (subject to such reduction not exceeding $568,000 per annum) until such time as the aggregate support provided thereunder equaled approximately $1.96 million. Pursuant to the new management agreement, the terms of the support agreement are materially unchanged. As of June 30, 2020, $89,379 in expense reimbursement has exceeded the reimbursement cap and was not paid.

For the three months ended June 30, 2020, the Company incurred reimbursable expenses of $346,653 (June 30, 2019: $517,000), recorded as "operating expenses reimbursable to Manager" in the condensed consolidated statement of operations, of which $367,500 (June 30, 2019: $663,900) was accrued but had not yet been paid, included in "fees and expenses payable to Manager" in the condensed consolidated balance sheets. Per the management agreement, any exit fees waived by the Company as a result of permanent financing by the Manager or any of its affiliates, shall result in a reduction to reimbursed expenses by an amount equal to 50% of the amount of any such waived exit fee. For the three months ended June 30, 2020, the Company waived $147,097 of reimbursable expenses and for the three months ended June 30, 2019, the Company did not waive any exit fees.

For the six months ended June 30, 2020, the Company incurred reimbursable expenses of $807,774 (June 30, 2019: $1,057,037), recorded as "operating expenses reimbursable to Manager" in the condensed consolidated statement of operations, of which $367,500 (June 30, 2019: $663,900) was accrued but had not yet been paid, included in "fees and expense payable to Manager" in the condensed consolidated balance sheets. Per the management agreement, any exit fees waived by the Company as a result of permanent financing by the Manager or any of its affiliates, shall result in a reduction to reimbursed expenses by an amount equal to 50% of the amount of any such waived exit fee. For the six months ended June 30, 2020, the Company waived $73,549 of reimbursable expense and for the six months ended June 30, 2019, the Company did not waive any reimbursable expense.

Manager Equity Plan

The Company has in place a Manager Equity Plan under which the Company may compensate the Manager and the Company’s independent directors or consultants, or officers whom it may employ in the future. In turn, the Manager, in its sole discretion, grants such awards to its directors, officers, employees or consultants. The Company is able to issue under the Manager Equity Plan up to 3.0% of the total number of issued and outstanding shares of common stock (on a fully diluted basis) at the time of each award. Stock based compensation arrangements may include incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock awards and other awards based on the Company’s common stock.


17


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 10 - RELATED PARTY TRANSACTIONS

The following table summarizes the activity related to restricted common stock for the six months ended June 30, 2020 and June 30, 2019:

Six Months Ended June 30,
2020 2019
Shares Weighted Average Grant Date Fair Market Value Shares Weighted Average Grant Date Fair Market Value
Outstanding Unvested Shares at Beginning of Period 4,500    $ 3.33    4,500    $ 3.40   
Granted 4,500    2.60    —    —   
Vested (4,500)   3.33    —    —   
Outstanding Unvested Shares at End of Period 4,500    $ 2.60    4,500    $ 3.40   

For the period ended June 30, 2020, the Company recognized compensation expense related to restricted common stock of $14,394 (2019: $7,587). The Company has unrecognized compensation expense of $11,251 as of June 30, 2020 (2019: $335) for unvested shares of restricted common stock. As of June 30, 2020, the weighted average period for which the unrecognized compensation expense will be recognized is 11.7 months.

OREC Structured Finance, LLC

During the first quarter of 2020, Hunt CRE 2017-FL1, Ltd. purchased two loans with an aggregate unpaid principal balance of $31,940,000 at par from OREC Structured Finance, LLC ("OREC SF"), an affiliate of our Manager.

During the first quarter of 2019, Hunt CRE 2017-FL1, Ltd. purchased three loans with an aggregate unpaid principal balance of $40,820,000 at par and Hunt CRE 2018-FL2 purchased one loan with an unpaid principal balance of $18,000,000 at par and funded nine loan advances with an unpaid principal balance of $3,975,905 from OREC SF, an affiliate of our Manager.

During the second quarter of 2019, Hunt CRE 2017-FL1, Ltd. purchased seven loans with an aggregate principal balance of $41,318,000 at par from OREC SF.

On August 5, 2020, the Company entered into an amendment to its Participation Agreements amongst Hunt CRE 2017-FL1 Seller LLC ("FL1 Seller"), Hunt Commercial Mortgage Trust and ORIX Real Estate Capital LLC to transfer future funding participation interests from FL1 Seller to OREC SF, an affiliate of the Manager (the "FL1 Future Funding Participation Transfer"). As a result of the FL1 Future Funding Participation Transfer, OREC SF will make all advances pursuant to the unfunded loan commitments. In connection with the FL1 Future Funding Participation transfer, the Company has agreed that at such time it (i) has available excess capital and (ii) the satisfaction of the applicable requirements for acquiring such assets, each as determined by the Manager, it will purchase from OREC SF, at a price equal to par, any FL1 Participations funded by OREC SF. The maximum amount of future payments that the Company could be required to purchase from OREC SF under the Future Funding Participation Transfer, which represents the unfunded commitments of Hunt CRE 2017-FL1, Ltd., was estimated to be $31.6 million as of August 5, 2020.

Hunt Servicing Company, LLC

Hunt Servicing Company, LLC, an affiliate of the Manager, was appointed as the sub-servicer to the servicer with respect to mortgage assets for Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. by KeyBank in its capacity as servicer of both CLOs. Additionally, Hunt Servicing Company, LLC has been appointed by KeyBank as servicer to act as special servicer of any serviced mortgage loan that becomes a specially serviced mortgage loan.

NOTE 11 - GUARANTEES

The Company, through FOAC, is party to customary and standard loan repurchase obligations in respect of residential mortgage loans that it has sold into securitizations or to third parties, to the extent it is determined that there has been a breach of standard seller representations and warranties in respect of such loans. To date, the Company has not been required to repurchase any loan due to a claim of breached seller representations and warranties.

In July 2016, the Company announced that it would no longer aggregate and securitize residential mortgage loans; however, the Company sought to capitalize on its infrastructure and knowledge to become the provider of seller eligibility review and backstop services to MAXEX. See Note 13 for a further description of MAXEX. MAXEX's wholly owned clearinghouse subsidiary, MAXEX Clearing LLC, formerly known as Central Clearing and Settlement LLC ("MAXEX Clearing LLC"), functions as the central counterparty with which buyers and sellers transact, and acts as the buyer's counterparty for each transaction. Pursuant to a Master Agreement dated June 15, 2016, as amended on August 29, 2016, January 30, 2017 and June 27, 2018, among MAXEX, MAXEX Clearing LLC and FOAC (the "Master Agreement"), FOAC provided seller eligibility review services under which it reviewed, approved and monitored sellers that sold loans via MAXEX Clearing LLC. Once approved, and having signed the standardized loan sale contract, the seller sold loan(s) to MAXEX Clearing LLC, and MAXEX Clearing LLC simultaneously sold loan(s) to the buyer on substantially the same terms including representations and warranties. The Master Agreement was terminated on November 28, 2018 (the "MAXEX Termination Date"). To the extent that a seller approved by FOAC prior to the MAXEX Termination Date failed to honor its obligations to repurchase a loan based on an arbitration finding that it breached its representations and warranties, FOAC was obligated to backstop the seller's repurchase obligation. The term of the backstop guarantee is the earlier of the contractual maturity of the underlying mortgage, or its earlier repayment in full; however, the incidence of claims for breaches of representations and warranties over time is considered unlikely to occur more than five years from the sale of a mortgage. FOAC's obligations to provide further seller eligibility review and backstop guarantee services terminated on the MAXEX Termination Date. Pursuant to an Assumption Agreement dated December 31, 2018, among MAXEX Clearing LLC and FOAC, MAXEX Clearing LLC assumed all of FOAC's obligations under its backstop guarantees and agreed to indemnify and hold FOAC harmless against any losses, liabilities, costs, expenses and obligations under the backstop guarantee. FOAC paid MAXEX Clearing LLC, as the replacement backstop
18


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 11 - GUARANTEES (Continued)
provider, a fee of $426,770 (the "Alternate Backstop Fee"). MAXEX Clearing LLC represented to FOAC in the Assumption Agreement that it (i) is rated at least "A" (or equivalent) by at least one nationally recognized statistical rating agency or (ii) has (a) adjusted tangible net worth of at least $20,000,000 and (b) minimum available liquidity equal to the greater of (x) $5,000,000 and (y) 0.1% multiplied by the scheduled unpaid principal balance of each outstanding loan covered by the backstop guarantees. MAXEX's chief financial officer is required to certify ongoing compliance by MAXEX Clearing LLC with the aforementioned criteria on a quarterly basis and if MAXEX Clearing LLC fails to satisfy such criteria, MAXEX Clearing LLC is required to deposit into an escrow account for FOAC's benefit an amount equal to the greater of (A) the unamortized Alternate Backstop Fee for each outstanding loan covered by the backstop guarantee and (B) the product of 0.01% multiplied by the scheduled unpaid principal balance of each outstanding loan covered by the backstop guarantees.

The maximum potential amount of future payments that the Company could be required to make under the outstanding backstop guarantees, which represents the outstanding balance of all underlying mortgage loans sold by approved sellers to MAXEX Clearing LLC, was estimated to be $1,405,182,222 as of June 30, 2020 and December 31, 2019, although the Company believes this amount is not indicative of the Company's actual potential losses. Amounts payable in excess of the outstanding principal balance of the related mortgage, for example any premium paid by the loan buyer or costs associated with collecting mortgage payments, are not currently estimable. Amounts that may become payable under the backstop guarantee are normally recoverable from the related seller, as well as from any payments received on (or from sale of property securing) the mortgage loan repurchased and, as noted above, MAXEX Clearing LLC has assumed all of FOAC's obligations in respect of its backstop guarantees. Pursuant to the Master Agreement, FOAC is required to maintain minimum available liquidity equal to the greater of (i) $5.0 million or (ii) 0.10% of the aggregate unpaid principal balance of loans backstopped by FOAC, either directly or through a credit support agreement acceptable to MAXEX. As of June 30, 2020, the Company was not aware of any circumstances expected to lead to the triggering of a backstop guarantee obligation.

In addition, the Company enters into certain contracts that contain a variety of indemnification obligations, principally with the Manager, brokers and counterparties to repurchase agreements. The maximum potential future payment amount the Company could be required to pay under these indemnification obligations is unlimited. The Company has not incurred any costs to defend lawsuits or settle claims related to the indemnification obligations. As a result, the estimated fair value of these agreements is minimal. Accordingly, the Company recorded no liabilities for these agreements as of June 30, 2020.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

Impact of COVID-19

As further discussed in Note 2, the full extent of the impact of COVID-19 on the global economy generally, and our business in particular, remains uncertain. As of June 30, 2020, no contingencies have been recorded on our consolidated balance sheet as a result of COVID-19, however, as the global pandemic continues and the economic implications worsen, it may have long-term impacts on our financial condition, results of operations, and cash flows. Refer to Note 2 for further discussion of COVID-19.

Unfunded Commitments

As of June 30, 2020 and December 31, 2019, the Company had $32.6 million and $50.5 million of unfunded commitments related to loans held in Hunt CRE 2017-FL1, Ltd. These commitments are not reflected on the Company's condensed consolidated balance sheets. See Note 10 for discussion of August 5, 2020 FL1 Future Funding Participation Transfer.

As of June 30, 2020 and December 31, 2019, OREC SF, an affiliate of the Manager, had $41.4 million and $41.6 million, respectively, of unfunded commitments related to loans held in Hunt CRE 2018-FL2, Ltd. These commitments are not reflected on the Company's condensed consolidated balance sheets.

Future loan fundings comprise funding for capital improvements, leasing costs, interest and carry costs, and fundings will vary depending on the progress of the business plan and cash flows at the mortgage assets. Therefore, the exact timing and amounts of such future loan fundings are uncertain and will depend on the current and future performance of the underlying mortgage assets. Due to the ongoing COVID-19 pandemic, the progress of capital improvements and leasing is anticipated to be slower than otherwise expected, and, as such the pace of future funding relating to these capital needs may be commensurately lower.

NOTE 13 - EQUITY

Common Stock

The Company has 450,000,000 authorized shares of common stock, par value $0.01 per share, with 24,943,383 and 23,692,164 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively.

On January 3, 2020, the Company issued 1,246,719 shares of common stock to an affiliate of the Manager in a private placement at a purchase price of $4.61 per share resulting in aggregate net proceeds of $5.7 million.

Stock Repurchase Program

On December 15, 2015, the Company’s board of directors authorized a stock repurchase program (or the “Repurchase Program”), to repurchase up to $10 million of the Company’s outstanding common stock. Shares of the Company’s common stock may be purchased in the open market, including through block purchases, or through privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b18(b)(1) of the Securities Exchange Act of 1934, as amended. The timing, manner, price and amount of any repurchases will be determined at the Company’s discretion and the program may be suspended, terminated or modified at any time for any reason. Among other factors, the Company intends to only consider repurchasing shares of the Company’s common stock when the purchase price is less than the Company’s estimate of the Company’s current net asset value per common share. Shares of common stock repurchased by the Company under the Repurchase Program, if any, will be canceled and, until reissued by the Company, will
19


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)
NOTE 13 – EQUITY (Continued)
be deemed to be authorized but unissued shares of the Company’s common stock. Through June 30, 2020, the Company had repurchased 126,856 shares of common stock at a weighted average share price of $5.09. No share repurchases have been made since January 19, 2016. As of June 30, 2020, $9.4 million of common stock remained authorized for future share repurchase under the Repurchase Program.

Preferred Stock

The Company had 50,000,000 authorized shares of preferred stock, par value $0.01 per share, with 1,610,000 shares of 8.75% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”), par value of $0.01 per share and liquidation preference of $25.00 per share, issued and outstanding as of December 31, 2018. The Series A Preferred Stock was entitled to receive a dividend rate of 8.75% per year on the $25 liquidation preference and was senior to the common stock with respect to distributions upon liquidation, dissolution or winding up. The Company declared quarterly and paid monthly dividends on the shares of the Series A Preferred Stock, in arrears, on the 27th day of each month to holders of record at the close of business on the 15th day of each month. No dividends may be paid on the Company's common stock unless full cumulative dividends have been paid on the preferred stock. The Company paid full cumulative dividends on its preferred stock on a monthly basis since it was first issued in December 2013. On February 14, 2019, the Company redeemed all 1,610,000 shares of its outstanding 8.75% Series A Cumulative Redeemable Preferred Stock at its $25 per share liquidation preference plus accrued and unpaid dividends.

Distributions to stockholders

For the 2020 taxable year to date, the Company has declared dividends to common stockholders totaling $3,741,170, or $0.15 per share. The following table presents cash dividends declared by the Company on its common stock during the six months ended June 30, 2020:
Declaration Date Record Date Payment Date Dividend Amount Cash Dividend Per Weighted Average Share
March 12, 2020 March 31, 2020 April 15, 2020 $ 1,870,416    $ 0.07504   
June 17, 2020 June 30, 2020 July 15, 2020 $ 1,870,754    $ 0.07505   

Non-controlling interests
 
On November 29, 2018, Hunt Commercial Mortgage Trust (“HCMT”), an indirect wholly-owned subsidiary of the Company that has elected to be taxed as a REIT issued 125 shares of Series A Preferred Shares (“HCMT Preferred Shares”).  Net proceeds to HCMT were $99,500 representing $125,000 in equity raised, less $25,500 in expenses and is reflected as “Non-controlling interests” in the Company’s consolidated balance sheets.  Dividends on the HCMT Preferred Shares are cumulative annually, in an amount equal to 12% of the initial purchase price plus any accrued unpaid dividends.  The HCMT Preferred Shares are redeemable at any time by HCMT.  The redemption price through December 31, 2020 is 1.1x the initial purchase price plus all accrued and unpaid dividends, and the initial purchase price plus all accrued and unpaid dividends thereafter.  The holders of the HCMT Preferred Shares have limited voting rights, which do not entitle the holders to participate or otherwise direct the management of HCMT or the Company.  The HCMT Preferred Shares are not convertible into or exchangeable for any other property or securities of HCMT or the Company.  Dividends on the HCMT Preferred Shares, which amounted to $15,000 for the year ended December 31, 2019 are reflected in “Dividends to preferred stockholders” in the Company’s consolidated statements of operations. As of June 30, 2020, HCMT paid $7,500 in dividends on the preferred shares which are reflected in "Dividends payable" in the Company's condensed consolidated balance sheet and in "Dividends to preferred stockholders" in the Company's condensed consolidated statements of operations.

NOTE 14 - EARNINGS PER SHARE

In accordance with ASC 260, outstanding instruments that contain rights to non-forfeitable dividends are considered participating securities. The Company is required to apply the two-class method or the treasury stock method of computing basic and diluted earnings per share when there are participating securities outstanding. The Company has determined that outstanding unvested restricted shares issued under the Manager Equity Plan are participating securities, and they are therefore included in the computation of basic and diluted earnings per share. The following tables provide additional disclosure regarding the computation for the three and six months ended June 30, 2020 and June 30, 2019:

  Three Months Ended June 30, 2020 Three Months Ended June 30, 2019
Net income $ 1,878,703    $ 1,394,170   
Less dividends:        
Common stock $ 1,870,754      $ 1,776,575     
Preferred stock 3,750      3,792     
  1,874,504      1,780,367   
Undistributed earnings (deficit) $ 4,199    $ (386,197)  

Unvested Share-Based
Payment Awards 		Common Stock Unvested Share-Based
Payment Awards 		Common Stock
Distributed earnings $ 0.08    $ 0.08    $ 0.07    $ 0.07   
Undistributed earnings (deficit) —    —    —    (0.01)  
Total $ 0.08    $ 0.08    $ 0.07    $ 0.06   

For the three months ended June 30,
2020 2019
Basic weighted average shares of common stock 24,935,372    23,683,164   
Weighted average of non-vested restricted stock 4,203    4,500   
Diluted weighted average shares of common stock outstanding 24,939,575    23,687,664   

Six Months Ended June 30, 2020 Six Months Ended June 30, 2019
Net income $ 3,430,374    $ 2,868,937   
Less dividends:
Common stock $ 3,741,170    $ 3,434,711   
Preferred stock 7,500    484,264   
Deemed dividend on preferred stock related to redemption —    3,093,028   
3,748,670    7,012,003   
Undistributed earnings (deficit) $ (318,296)   $ (4,143,066)  

Unvested Share-Based
Payment Awards 		Common Stock Unvested Share-Based
Payment Awards 		Common Stock
Distributed earnings $ 0.15    $ 0.15    $ 0.14    $ 0.14   
Undistributed earnings (deficit) $ —    $ (0.01)   $ —    $ (0.17)  
Total $ 0.15    $ 0.14    $ 0.14    $ (0.03)  

For the six months ended June 30,
2020 2019
Basic weighted average shares of common stock 24,921,177    23,683,164   
Weighted average of non-vested restricted stock 4,352    4,500   
Diluted weighted average shares of common stock outstanding 24,925,529    23,687,664   

NOTE 15 - SEGMENT REPORTING

The Company invests in a portfolio comprised of commercial mortgage loans and other mortgage-related investments, and operates as a single reporting segment.

NOTE 16 - INCOME TAXES

The Company has elected to be treated as a REIT under federal income tax laws. As a REIT, the Company is generally not subject to federal income taxation at the corporate level to the extent that it distributes 100% of its taxable earnings to shareholders annually and does not engage in prohibited transactions. Certain activities of the Company that produce prohibited income are conducted through a TRS, FOAC, to protect REIT election and FOAC is therefore subject to tax as a U.S. C-Corporation. To maintain our REIT election, the Company must continue to meet certain ownership, asset and income requirements set forth in the Code. As further discussed below, the Company may be subject to non-income taxes on excess amounts of assets or income that cause a failure of any of the REIT testing requirements.

REIT Testing and Tax on 75% Income Test Failure

During tax years 2018 and 2019 the Company passed all the requisite ownership, asset and income tests, with the exception of the 2018 test under Section 856(c)(3) of the Code, also known as the 75% Income Test ("2018 75% Income Test Failure"). The 75% Income Test required that at least 75% of the gross income earned by the Company be generated by qualifying real estate income, including interest income on mortgages and realized gain on the sale of real estate assets. In our case, the gains generated by the asset protection hedging strategy resulting from the complete dissolution of the MBS asset portfolio during 2018 were determined to be non-qualified income for the purpose of the 75% Income Test and resulted in a failure of the 75% Income Test for the year-ended December 31, 2018. As a result, the Company also owed an income tax on the amount of the gross income that exceeded the 75% Income Test threshold. The calculation of the tax under Section 857(b)(5) of the Code resulted in an accrued tax liability of $1.96 million for 2018, which was paid by the Company on April 12, 2019, in connection with filing its 2018 tax extensions. The Company in consultation with its external tax advisor requested a pre-filing agreement
20


HUNT COMPANIES FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2020 (unaudited)  
NOTE 16 - INCOME TAXES (Continued)
from the IRS concerning the application of Section 856(c)(6), a statutory relief provision. In October 2019, the Company filed its 2018 tax return taking relief under Section 856(c)(6). On July 13, 2020, the Company entered into a closing agreement with the IRS in which it was agreed that (i) the 2018 75% Income Test Failure was due to reasonable cause and not due to willful neglect within the meaning of Section 856(c)(6); (ii) the Company satisfied the requirements of Section 856(c)(6) with respect to the 2018 75% Income Test Failure and; (iii) such failure will not cause the Company to be treated as failing to satisfy the 75% gross income test for the 2018 taxable year. Accordingly, the Company's REIT election will not be impacted by the 2018 75% Income Test Failure.

NOTE 17 - SUBSEQUENT EVENTS

We have reviewed subsequent events occurring through the date that these condensed consolidated financial statements were issued, and determined that no subsequent events occurred that would require accrual or additional disclosure other than those already disclosed.
21



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
In this Quarterly Report on Form 10-Q, or this “report”, we refer to Hunt Companies Finance Trust as “we,” ”us,” or “our,” unless we specifically state otherwise or the context indicates otherwise. We refer to our external manager, OREC Investment Management, LLC, as our “Manager” or “OREC IM”.
 
The following discussion should be read in conjunction with our condensed consolidated financial statements and the accompanying notes to our financial statements which are included in Item 1 of this report, as well as information contained in our Annual Report on Form 10-K for the year ended December 31, 2019, or our 2019 10-K, filed with the Securities and Exchange Commission, or SEC, on March 16, 2020.
 
Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended. Forward-looking statements are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. You can identify forward-looking statements by use of words such as “believe,” “expect,” “anticipate,” "project," “estimate,” “plan,” “continue,” “intend,” “should,” “may,” "will," "seek," "would," "could" or similar expressions or other comparable terms, or by discussions of strategy, plans or intentions. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. Forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us on the date of this quarterly report. Actual results may differ from expectations, estimates and projections. Readers are cautioned not to place undue reliance on forward-looking statements in this quarterly report and should consider carefully the risk factors described in Part I, Item IA "Risk Factors" in our annual report on Form10-K for the year ended December 31, 2019 in evaluating these forward-looking statements. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the COVID-19 pandemic. It is not possible to predict or identify all such risks. Additional information concerning these and other risk factors are contained in our 2019 10-K which is available on the Securities and Exchange Commission’s website at www.sec.gov.
 
Overview 
 
We are a Maryland corporation that is focused on investing in, financing and managing a portfolio of commercial real estate debt investments.
 
In January 2020, we entered into a series of transactions with subsidiaries of ORIX Corporation USA ("ORIX USA"), a diversified financial company with the ability to provide investment capital and asset management services to clients in the corporate, real estate and municipal finance sectors. We entered into a new management agreement with OREC Investment Management, LLC ("OREC IM"), while another affiliate of ORIX USA purchased an ownership stake of approximately 5.0% through a privately-placed stock issuance. These transactions are expected to enhance the scale of HCFT and generate shareholder value through leveraging ORIX USA's expansive originations, asset management and servicing platform.

Today, we primarily invest in transitional floating rate commercial mortgage loans with an emphasis on middle market multi-family assets. We may also invest in other commercial real estate-related investments including mezzanine loans, preferred equity, commercial mortgage-backed securities, fixed rate loans, construction loans and other commercial real estate debt instruments. We finance our current investments in transitional multi-family and other commercial real estate loans primarily through match term collateralized loan obligations, and may utilize warehouse repurchase agreement financing in the future. Our primary sources of income are net interest from our investment portfolio and non-interest income from our mortgage loan-related activities. Net interest income represents the interest we earn on investments less the expense of funding these investments.

Today, the loans we target for origination and investment typically have the following characteristics:
 
•Sponsors with experience in particular real estate sectors and geographic markets
•Located in markets in the U.S. with multiple demand drivers, such as growth in employment and household formation
•Fully funded principal balance greater than $5 million
•Loan to Value ratio up to 85% of as-is value and up to 75% of as stabilized value
•Floating rate loans tied to one-month LIBOR or any index replacement
•Three-year term with two one-year extension options

We believe that our current investment strategy provides significant opportunities to our stockholders for attractive risk-adjusted returns over time. However, to capitalize on the investment opportunities at different points in the economic and real estate investment cycle, we may modify or expand our investment strategy. We believe that the flexibility of our strategy supported by our Manager's significant commercial real estate experience and the extensive resources of ORIX USA will allow us to take advantage of changing market conditions to maximize risk-adjusted returns to our stockholders.

We have elected to be taxed as a REIT and comply with the provisions of the Internal Revenue Code with respect thereto. Accordingly, we are generally not subject to federal income tax on our REIT taxable income that we currently distribute to our stockholders so long as we maintain our qualification as a REIT. Our continued qualification as a REIT depends on our ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code relating to, among other things, the source of our gross income, the composition and values of our assets, our distribution levels and the concentration of ownership of our capital stock. Even if we maintain our qualification as a REIT, we may become subject to some federal, state and local taxes on our income generated in our wholly owned taxable REIT subsidiary, Five Oaks Acquisition Corp. ("FOAC").

Second Quarter 2020 Summary
 
•Funded $3.4 million in future funding obligations associated with existing loans with a weighted average interest rate of LIBOR plus 3.15%
•On June 17, 2020, the Company announced its second quarter dividend of $0.075 per share of common stock, in line with the previous quarter.


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The ORIX Transaction
On January 6, 2020 we announced the entry into a new external management agreement with OREC IM and the concurrent mutual termination of our management agreement with HIM. OREC IM is part of ORIX Real Estate Capital's finance and investment management platform, which was created through the combination of RED Capital Group, Lancaster Pollard and Hunt Real Estate Capital. The terms of the new management agreement align with the terms of HCFT's prior management agreement with HIM in all material respects, including a cap on reimbursable expenses. Pursuant to the terms of the termination agreement between the Company and HIM, the termination of the management agreement did not trigger, and HIM was not paid, a termination fee by the Company.
In connection with the transaction, an affiliate of ORIX USA purchased 1,246,719 shares of the Company's common stock in a private placement by the Company at a purchase price of $4.61 per share, resulting in an aggregate capital raise of $5,747,375. The purchase price per share represented a 43% premium over the HCFT common share price on January 2, 2020. As a result of this share purchase, an affiliate of ORIX USA owns approximately 5% of HCFT's outstanding common shares. Also, in connection with the transaction, James C. Hunt resigned as the Company's Chairman of the Board, but continues to serve as a member of the Board. In addition, the Board appointed Interim Chief Financial Officer James A. Briggs as Chief Financial Officer of the Company. James Flynn continues to serve as Chief Executive Officer and now serves as Chairman of the Board, and Michael Larsen continues to serve as President.
Recent Developments
On March 11, 2020, the World Health Organization ("WHO") declared COVID-19 a global pandemic, which continues to spread throughout the United States and around the world. The outbreak continues to adversely impact economic and market conditions globally, nationally and locally. Actions taken around the world to help mitigate the spread of COVID-19 include imposition of quarantines, "stay-at-home" orders, restrictions on travel and forced closures for certain types of public places, businesses and schools. Such actions have created disruption in global supply chains, increasing rates of global unemployment and adversely impacted many industries. The outbreak could have a continued adverse impact on economic and market conditions and a continued period of global economic slowdown.
Although we are still uncertain of the potential full magnitude or duration of the COVID-19 outbreak and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas, we face future uncertainty and risk with respect to our financial condition, results of operations, liquidity and ability to pay distributions. The full extent of the impact and effects of COVID-19 will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with travel advisories, quarantines and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, and uncertainty with respect to the duration of the economic slowdown.
The effects of the COVID-19 pandemic did not significantly impact our operating results for the three and six months ended June 30, 2020, other than previously deferred debt issuance costs of $624,816 expensed in the second quarter as a result of the current market environment related to a collateralized loan obligation transaction that has been determined as unlikely to be executed by year-end. However, should the pandemic and resulting economic deterioration persist, we expect it may further affect our financial condition and results of operations going forward, including but not limited to, interest income, credit losses and commercial mortgage loan reinvestment.
Factors Impacting Our Operating Results

Market conditions.    The results of our operations are and will continue to be affected by a number of factors and primarily depend on, among other things, the level of our net interest income, the market value of our assets and the supply of, and demand for, our target assets in the marketplace. Our net interest income, will vary primarily as a result of changes in market interest rates and prepayment speeds, and by the ability of the borrowers underlying our commercial mortgage loans to continue making payments in accordance with the contractual terms of their loans, which may be impacted by unanticipated credit events experienced by such borrowers, particularly in light of the ongoing COVID-19 pandemic. Interest rates vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty, and have most recently been impacted by the ongoing COVID-19 pandemic. Our operating results will also be affected by general U.S. real estate fundamentals and the overall U.S. economic environment, including the pace and degree of recovery from the ongoing COVID-19 pandemic. In particular, our strategy is influenced by the specific characteristics of the underlying real estate markets, including prepayment rates, credit market conditions and interest rate levels.
 
Changes in market interest rates.    Our business model is such that rising interest rates will generally increase our net interest income, while declining rates will generally decrease our net interest income. Substantially all of our investment portfolio and all of our collateralized loan obligations are indexed to 30-day LIBOR, and as a result we are less sensitive to variability in our net interest income resulting from interest rate changes. Additionally, we benefit from 100% of our commercial loan portfolio having LIBOR floors as a further mitigant to interest variability, with a weighted average LIBOR floor of 1.61% as of June 30, 2020. With the drastic decline in LIBOR due to COVID-19, 100.0% of our current commercial loan portfolio has a LIBOR floor greater than the current spot LIBOR rate. While we expect low LIBOR rates to persist amidst the current COVID-19 pandemic, no assurance can be made that our current portfolio profile, including its LIBOR floors will be maintained. A decrease to the weighted average LIBOR floor would result in a decrease to net interest income if the prevailing spot LIBOR rate is less than the weighted average LIBOR floor. LIBOR is expected to be discontinued after 2021. As of June 30, 2020, 100% of commercial mortgage loans by principal balance earned a floating rate of interest indexed to LIBOR, and 100% of our outstanding collateralized loan obligations bear interest indexed to LIBOR. All of these arrangements provide procedures for determining an alternative base rate in the event that LIBOR is discontinued. Regardless, there can be no assurances as to what alternative base rates may be and whether such base rate will be more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and work with our borrowers to minimize the impact of any LIBOR transition on our financial condition and results of operations, but can provide no assurances regarding the impact of the discontinuation of LIBOR. We finance a portion of our commercial loan portfolio with equity, and as such, decreases in interest rates may reduce our net interest income and may impact the competition for and supply of new investment opportunities. In addition to the risk related to fluctuations in cash flows associated with movements in interest rates, there is also the risk of non-performance on floating rate assets. In the case of significant increase in interest rates, the additional debt service payments due from our borrowers may strain the operating cash flows of the real estate assets underlying our mortgages and, potentially, contribute to non-performance or, in severe cases, default.
 
Credit risk.    Our commercial mortgage loans and other investments are also subject to credit risk. The performance and value of our loans and other investments depend upon the sponsor's ability to operate properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, the Manager's asset management team reviews our portfolio and maintains regular contact with borrowers, co-lenders and local market experts to monitor the performance of the underlying collateral, anticipate borrower, property and market issues and, to the extent necessary or appropriate, enforce our rights as lender. The market values of commercial mortgage assets are subject to volatility and may be adversely affected by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other
23



factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses. As of June 30, 2020, 100% of the commercial mortgage loans in our portfolio were current as to principal and interest. Furthermore, 100% of commercial mortgage loans in our portfolio made their July payments. Additionally, we have reviewed the loans designated as High Risk for impairment. Impairment of these loans, which are collateral dependent, is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. As of June 30, 2020, the Company has not recognized any impairments on its loan portfolio. However, due to the continued widespread impact of the COVID-19 pandemic we consider there to be heightened credit risk associated with our commercial mortgage loan portfolio. Uncertainty about the severity and duration of the economic impact of the COVID-19 pandemic persist and potential exists for the credit risk of our portfolio to heighten further. We can provide no assurances that our borrowers will remain current as to principal and interest, or that we will not enter into forbearance agreements or loan modifications in order to protect the value of our commercial mortgage loan assets. Should that occur, it could have a material negative impact on our results of operations.

Liquidity and financing markets. Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments and repay borrowings and other general business needs. Our primary sources of liquidity are net proceeds of common or preferred stock issuances, net proceeds from corporate debt obligations, net cash provided by operating activities, and other financing arrangements. We finance our commercial mortgage loans primarily with collateralized loan obligations, the maturities of which are matched to the maturities of the loans, and which are not subject to margin calls or additional collateralization requirements. However, to the extent that we seek to invest in additional commercial mortgage loans, we will in part be dependent on our ability to issue additional collateralized loan obligations, to secure alternative financing facilities or to raise additional common or preferred equity.

Prepayment risk.    Prepayment risk is the risk that principal will be repaid at a different rate than anticipated, causing the return on certain investments to be less than expected. As we receive prepayments of principal on our assets, any premiums paid on such assets are amortized against interest income. In general, an increase in prepayment rates accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest earned on the assets. All of our commercial mortgage loans were acquired at par, and accordingly we do not believe this to be a material risk for us at present. Additionally, we are subject to prepayment risk associated with the terms of our collateralized loan obligations. Due to the generally short-term nature of transitional floating-rate commercial mortgage loans, our CLOs include a reinvestment period during which principal repayments and prepayments on our commercial mortgage loans may be reinvested in similar assets, subject to meeting certain eligibility criteria. The reinvestment period for Hunt CRE 2017-FL1 expired on February 20, 2020 and remains in place for Hunt CRE 2018-FL2. As of June 30, 2020 we have experienced $8.6 million in loan prepayments in Hunt CRE 2017-FL1 subsequent to the expiration of its reinvestment period. While the interest-rate spreads of our collateralized loan obligations are fixed until they are repaid, the terms, including spreads, of newly originated loans are subject to uncertainty based on a variety of factors, including market and competitive conditions, which remain uncertain and volatile in light of the COVID-19 pandemic. To the extent that such conditions result in lower spreads on the assets in which we reinvest, we may be subject to a reduction in interest income in the future.
 
Changes in market value of our assets.    We account for our commercial mortgage loans at amortized cost. As such, our earnings will generally not be directly impacted by changes in the market values of these loans. However, if a loan is considered to be impaired as a result of adverse credit performance, an allowance is recorded to reduce the carrying value through a charge to the provision for loan losses. Impairment is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. Provisions for loan losses will directly impact our earnings. Given the widespread impact of the COVID-19 pandemic, we consider there to be a heightened credit risk associated with our commercial mortgage loan portfolio.

 Governmental actions. Since 2008, when both Fannie Mae and Freddie Mac were placed under the conservatorship of the U.S. government, there have been a number of proposals to reform the U.S. housing finance system in general, and Fannie Mae and Freddie Mac in particular. As a result of the 2016 change in presidential administration, we anticipate debate on residential housing and mortgage reform to continue through 2020 and beyond, but a deep divide persists between factions in Congress and as such it remains unclear what shape any reform would take and what impact, if any, reform would have on mortgage REITs.

Managing Our Business through COVID-19

As of March 13, 2020, our Manager, and its affiliates, implemented a work from home ("WFH") policy for employees in all locations. The WFH policy remains in effect as of the date of this filing. Our Manager's highly experienced senior team and dedicated employees are fully operational during this ongoing disruption and are continuing to execute on all investment management, asset management, servicing, portfolio monitoring, financial reporting and related control activities. Our Manager's and affiliates employees are in constant communication to ensure timely coordination and early identification of issues. We continue to engage in ongoing active dialogue with the borrowers in our commercial mortgage loan portfolio to understand what is taking place at the properties collateralizing our investments.

Considering the current economic environment caused by COVID-19 we are taking a more measured approach in our new investment activity and our evaluation of any new investments incorporates the impact of COVID-19. We are mindful of local ordinance constraints on lender protection and continue to monitor the impact of fiscal stimulus on our loan portfolio. Additionally, due to COVID-19, there are potential challenges facing third-party providers, such as appraisers, environmental and engineering consultants we rely on to make new investments which may make it more difficult to make these investments.

Investment Portfolio

Commercial Mortgage Loans

As of June 30, 2020, we have determined that we are the primary beneficiary of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. based on our obligation to absorb losses derived from ownership of our residual interests. Accordingly, the Company consolidated the assets, liabilities, income and expenses of the underlying issuing entities, collateralized loan obligations.

The following table details our loan activity by unpaid principal balance:



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Commercial Mortgage Loans Held-for-Investment
Balance at December 31, 2019 $ 635,260,420   
Purchases and fundings 41,990,011   
Proceeds from principal repayments (67,402,863)  
Balance at June 30, 2020 $ 609,847,568   

The following table details overall statistics for our loan portfolio as of June 30, 2020 and December 31, 2019:

Weighted Average
Loan Type Unpaid Principal Balance Carrying Value Loan Count Floating Rate Loan %
Coupon(1)
Remaining
 Term
 (Years)(2)
June 30, 2020
Loans held-for-investment
Senior secured loans(3) $ 609,847,568    $ 609,847,568    45    100.0  % 5.1  % 3.5
$ 609,847,568    $ 609,847,568    45    100.0  % 5.1  % 3.5

Weighted Average
Loan Type Unpaid Principal Balance Carrying Value Loan Count Floating Rate Loan %
Coupon(1)
Remaining
 Term
 (Years)(2)
December 31, 2019
Loans held-for-investment
Senior secured loans(3) $ 635,260,420    $ 635,260,420    51    100.0  % 5.4  % 3.8
$ 635,260,420    $ 635,260,420    51    100.0  % 5.4  % 3.8

(1) Weighted average coupon assumes applicable one-month LIBOR of 0.17% and 1.70% as of June 30, 2020 and December 31, 2019, respectively, inclusive of weighted average floors of 1.61% and 1.56%, respectively.
(2) Weighted average remaining term assumes all extension options are exercised by the borrower, provided, however, that our loans may be repaid prior to such date.
(3) As of June 30, 2020, $594,668,851 of the outstanding senior secured loans are held in VIEs and $15,178,717 of the outstanding senior secured loans were held outside VIEs. As of December 31, 2019, $629,157,956 of the outstanding senior secured loans were held in VIEs and $6,102,464 of the outstanding senior secured loans were held outside VIEs.

The table below sets forth additional information relating to the Company's portfolio as of June 30, 2020:

Loan # Form of Investment Origination Date Total Loan Commitment Current Principal Amount Location Property Type Coupon Max Remaining Term (Years) LTV
1     Senior secured June 5, 2018 $ 44,699,829    $ 35,625,000     Palatine, IL  Multi-Family 1mL + 4.3 3.0 68.5  %
2     Senior secured November 30, 2018 $ 35,441,350    $ 35,245,711     Nacogdoches, TX  Multi-Family 1mL + 4.1 3.5 70.4  %
3     Senior secured July 9, 2018 $ 33,830,000    $ 33,579,255     Pikesville, MD  Multi-Family 1mL + 3.3 3.2 77.6  %
4     Senior secured August 8, 2018 $ 35,000,000    $ 32,526,660     Dallas, TX  Multi-Family 1mL + 3.7 3.2 81.2  %
5     Senior secured November 22, 2019 $ 31,163,300    $ 26,500,000     Virginia Beach, VA  Multi-Family 1mL + 2.8 4.5 77.1  %
6     Senior secured May 18, 2018 $ 28,000,000    $ 25,355,117     Woodridge, IL  Multi-Family 1mL + 3.8 3.0 76.4  %
7     Senior secured December 10, 2019 $ 26,871,000    $ 24,411,254     San Antonio, TX  Multi-Family 1mL + 3.2 4.6 71.9  %
8     Senior secured January 15, 2020 $ 27,350,000    $ 24,180,000     Chattanooga, TN  Multi-Family 1mL + 3 4.7 80.6  %
9     Senior secured May 31, 2018 $ 24,700,000    $ 20,853,067     Omaha, NE  Multi-Family 1mL + 3.7 3.0 77.3  %
10     Senior secured November 26, 2019 $ 21,625,000    $ 20,000,000     Doraville, GA  Multi-Family 1mL + 2.8 4.5 76.1  %
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11     Senior secured December 6, 2018 $ 21,000,000    $ 18,703,039     Greensboro, NC  Multi-Family 1mL + 3.4 3.5 79.8  %
12     Senior secured December 28, 2018 $ 20,850,000    $ 18,000,000     Austin, TX  Retail 1mL + 3.9 2.6 71.4  %
13     Senior secured July 10, 2019 $ 19,000,000    $ 17,754,112     Amarillo, TX  Multi-Family 1mL + 2.9 4.2 76.4  %
14     Senior secured December 28, 2018 $ 24,123,000    $ 17,172,624     Austin, TX  Retail 1mL + 4.1 2.6 60.5  %
15     Senior secured March 13, 2019 $ 19,360,000    $ 16,707,856     Baytown, TX  Multi-Family 1mL + 3.1 2.8 80.5  %
16     Senior secured June 28, 2018 $ 17,000,000    $ 15,245,253     Greenville, SC  Multi-Family 1mL + 3.9 3.1 76.3  %
17     Senior secured August 29, 2019 $ 16,800,000    $ 14,201,707     Austell, GA  Multi-Family 1mL + 3.4 4.3 72.5  %
18     Senior secured July 23, 2018 $ 16,200,000    $ 12,828,794     Chicago, IL  Office 1mL + 3.8 3.2 72.7  %
19     Senior secured August 8, 2019 $ 14,400,000    $ 12,649,099     Fort Worth, TX  Multi-Family 1mL + 3 4.3 75.8  %
20     Senior secured May 24, 2018 $ 12,720,000    $ 12,257,454     Austin, TX  Multi-Family 1mL + 3.6 3.0 80.2  %
21     Senior secured January 9, 2018 $ 10,317,000    $ 10,158,934     North Highlands, CA  Multi-Family 1mL + 4 2.7 79.0  %
22     Senior secured March 29, 2019 $ 10,000,000    $ 10,000,000     Portsmouth, VA  Multi-Family 1mL + 3.3 1.8 61.4  %
23     Senior secured May 25, 2018 $ 11,000,000    $ 9,794,371     Phoenix, AZ  Multi-Family 1mL + 3.9 3.0 69.4  %
24     Senior secured October 9, 2018 $ 9,250,000    $ 9,247,423     Dallas, TX  Multi-Family 1mL + 3.7 3.4 78.4  %
25     Senior secured September 11, 2019 $ 11,135,000    $ 9,135,000     Orlando, FL  Multi-Family 1mL + 2.8 4.3 69.2  %
26     Senior secured February 15, 2018 $ 10,500,000    $ 9,047,396     Atlanta, GA  Multi-Family 1mL + 4.3 2.8 80.2  %
27     Senior secured August 30, 2018 $ 9,034,000    $ 8,675,645     Blacksburg, VA  Multi-Family 1mL + 3.9 3.3 66.6  %
28     Senior secured March 12, 2018 $ 8,612,000    $ 8,612,000     Waco, TX  Multi-Family 1mL + 4.8 2.8 72.9  %
29     Senior secured January 18, 2019 $ 10,750,000    $ 8,238,438     Philadelphia, PA  Multi-Family 1mL + 4 1.7 71.3  %
30     Senior secured August 7, 2018 $ 9,000,000    $ 8,235,825     Birmingham, AL  Multi-Family 1mL + 3.5 3.3 78.0  %
31     Senior secured February 23, 2018 $ 8,070,000    $ 8,070,000     Little Rock, AR  Multi-Family 1mL + 4.3 2.8 81.3  %
32     Senior secured January 13, 2020 $ 8,510,000    $ 7,877,094     Fort Lauderdale, FL  Multi-Family 1mL + 3.2 4.7 78.4  %
33     Senior secured November 13, 2019 $ 9,310,000    $ 7,780,000     Holly Hill, FL  Multi-Family 1mL + 2.9 2.5 77.8  %
34     Senior secured June 10, 2019 $ 7,000,000    $ 6,525,817     San Antonio, TX  Multi-Family 1mL + 3.4 4.1 77.7  %
35     Senior secured December 9, 2019 $ 6,495,000    $ 6,230,000     Fort Worth, TX  Multi-Family 1mL + 3.2 4.6 77.7  %
36     Senior secured March 29, 2019 $ 6,270,000    $ 5,992,424     Raleigh, NC  Multi-Family 1mL + 3.5 3.8 79.0  %
37     Senior secured August 28, 2019 $ 6,250,000    $ 5,966,157     Austin, TX  Multi-Family 1mL + 3.3 4.3 69.9  %
38     Senior secured June 22, 2018 $ 6,200,000    $ 5,900,550     Chicago, IL  Multi-Family 1mL + 4.1 3.1 80.5  %
39     Senior secured June 10, 2019 $ 6,000,000    $ 5,295,605     San Antonio, TX  Multi-Family 1mL + 2.9 4.1 62.9  %
40     Senior secured November 30, 2018 $ 8,250,000    $ 5,036,066     Decatur, GA  Office 1mL + 4.1 3.4 56.8  %
41     Senior secured December 13, 2019 $ 5,900,000    $ 4,887,120     Jacksonville, FL  Multi-Family 1mL + 2.9 4.6 74.9  %
42     Senior secured May 31, 2019 $ 4,350,000    $ 4,275,035     Austin, TX  Multi-Family 1mL + 3.5 4.0 74.1  %
43     Senior secured November 12, 2019 $ 4,225,000    $ 4,225,000     Chesapeake, VA  Self-Storage 1mL + 3.2 4.5 64.5  %
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44     Senior secured December 13, 2019 $ 4,407,000    $ 4,010,000     Marietta, GA  Multi-Family 1mL + 3 4.6 77.9  %
45     Senior secured June 5, 2018 $ 2,835,667    $ 2,835,666     Palatine, IL  Multi-Family 1mL + 4.3 3.0 68.5  %

(1) See Note 12 Commitments and Contingencies to our condensed consolidated financial statements for further discussion of unfunded commitments.

(2) LTV as of the date the loan was originated by a Hunt/ORIX affiliate and is calculated after giving effect to capex and earn-out reserves, if applicable. LTV has not been updated for any subsequent draws or loan modifications and is not reflective of any changes in value, which may have occurred subsequent to the origination date.

Our loan portfolio is 100% performing with no loan impairments, loan defaults, or non-accrual loans as of June 30, 2020. Furthermore, 100% of commercial mortgage loans in our portfolio made their July payments.

We maintain strong relationships with our borrowers and have utilized those relationships to address potential impacts of the COVID-19 pandemic on our loans secured by properties experiencing cash flow pressure. All of our loans are current with respect to principal and interest, however, some of our borrowers have expressed concern on potential future difficulties due to the prolonged impact of the COVID-19 pandemic. Accordingly, we will engage in discussions with them to work towards the maximization of cash flows and values of our commercial mortgage loan assets should these difficulties arise.

We have not entered into any forbearance agreements or loan modifications to date. However, due to the widespread economic impact of the COVID-19 pandemic we consider there to be heightened credit risk associated with our commercial mortgage loan portfolio. As such, we can provide no assurances that our borrowers will remain current as to principal and interest, or that we will not enter into any forbearance agreements or loan modifications in order to protect the value of our commercial mortgage loan assets.

As discussed in Note 2 to our consolidated financial statements, our Manager performs a quarterly review of our loan portfolio, assesses the performance of each loan, and assigns a risk rating between "1" and "5," from less risk to greater risk. The weighted average risk rating of our total loan exposure was 3.0 and 2.8 as of June 30, 2020 and December 31, 2019, respectively. The increase in risk rating was primarily the result of downgrading non multi-family loans to a risk rating of "4" to reflect higher risk in loans collateralized by retail and office properties that are particularly negatively impacted by the COVID-19 pandemic. The following table presents the principal balance and net book value based on our internal risk ratings:

June 30, 2020
Risk Rating Number of Loans Unpaid Principal Balance Net Carrying Value
1 —    $ —    —   
2 7    64,922,724    64,922,724   
3 30    412,508,744    412,508,744   
4 8    132,416,100    132,416,100   
5 —    —    —   
45    $ 609,847,568    609,847,568   

Collateralized Loan Obligations

We may seek to enhance returns on our commercial mortgage loan investments through securitizations, or CLOs, if available, as well as the utilization of warehouse repurchase agreement financing. To the extent available, we intend to securitize the senior portion of some of our loans, while retaining the subordinate securities in our investment portfolio. The securitizations of this senior portion will be accounted for as either a "sale" or as a "financing." If they are accounted for as a sale, the loan will be removed from the balance sheet and if they are accounted for as a financing the loans will be classified as "commercial mortgage loans held-for-investment" in our consolidated balance sheets, depending on the structure of the securitization. As of June 30, 2020, the carrying amounts and outstanding principal balances of our collateralized loan obligations were $498.3 million and $501.6 million, respectively. See Note 5 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional terms and details of our CLOs.
  
FOAC and Our Residential Mortgage Loan Business
 
In June 2013, we established FOAC as a Taxable REIT Subsidiary, or TRS, to increase the range of our investments in mortgage-related assets. Until August 1, 2016, FOAC aggregated mortgage loans primarily for sale into securitization transactions, with the expectation that we would purchase the subordinated tranches issued by the related securitization trusts, and that these would represent high quality credit investments for our portfolio. Residential mortgage loans for which FOAC owns the MSRs continue to be directly serviced by one or more licensed sub-servicers since FOAC does not directly service any residential mortgage loans.
 
As noted earlier, we previously determined to cease the aggregation of prime jumbo loans for the foreseeable future, and therefore no longer maintain warehouse financing to acquire prime jumbo loans. We do not expect the previous changes to our mortgage loan business strategy to impact the existing MSRs that we own, or the securitizations we have sponsored to date.

Pursuant to a Master Agreement dated June 15, 2016, as amended on August 29, 2016, January 30, 2017 and June 27, 2018, among MAXEX, LLC ("MAXEX"), MAXEX Clearing LLC, MAXEX's wholly-owned clearinghouse subsidiary and FOAC, FOAC provided seller eligibility review services under which it reviewed, approved and monitored sellers that sold loans via MAXEX Clearing LLC. To the extent that a seller approved by FOAC failed to honor its obligations to repurchase a loan based on an arbitration finding that it breached its representations and warranties, FOAC was obligated to backstop the seller's repurchase obligation. The term of such backstop guarantee was the earlier of the contractual maturity of the underlying mortgage and its repayment in full.
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However, the incidence of claims for breaches of representations and warranties over time is considered unlikely to occur more than five years from the sale of a mortgage. FOAC's obligations to provide such seller eligibility review and backstop guarantee services terminated on November 28, 2018. Pursuant to an Assumption Agreement dated December 31, 2018, among MAXEX Clearing LLC and FOAC, MAXEX Clearing LLC assumed all of FOAC's obligations under its backstop guarantees and agreed to indemnify and hold FOAC harmless against any losses, liabilities, costs, expenses and obligations under the backstop guarantee. FOAC paid MAXEX Clearing LLC, as the replacement backstop provider, a fee of $426,770 (the "Alternative Backstop Fee"). MAXEX Clearing LLC represented to FOAC in the Assumption Agreement that it (i) is rated at least "A" (or equivalent) by at least one nationally recognized statistical rating agency or (ii) has (a) adjusted tangible net worth of at least $20,000,000 and (b) minimum available liquidity equal to the greater of (x) $5,000,000 and (y) 0.1% multiplied by the scheduled unpaid principal balance of each outstanding loan covered by the backstop guarantees. MAXEX's chief financial officer is required to certify ongoing compliance by MAXEX Clearing LLC with the aforementioned criteria on a quarterly basis and if MAXEX Clearing LLC fails to satisfy such criteria, MAXEX Clearing LLC is required to deposit into an escrow account FOAC's benefit an amount equal to the greater of (A) the unamortized Alternative Backstop Fee for each outstanding loan covered by the backstop guarantee and (B) the product of 0.01% multiplied by the scheduled unpaid principal balance of each outstanding loan covered by the backstop guarantees. See Notes 13 and 14 to our condensed consolidated financial statements included in this Quarterly Report on form 10-Q for a further description of MAXEX.
 
 Equity and Book Value Per Share  
 
As of June 30, 2020, our equity was $114.1 million, and our book value per common share was $4.57 on a basic and fully diluted basis. Book value per common share remained constant from the previous quarter-end amount of $4.57.
 
Critical Accounting Policies and Estimates  
 
Our consolidated financial statements are prepared in accordance with GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to understanding our financial statements because they involve significant judgments and uncertainties that could affect our reported assets and liabilities, as well as our reported revenues and expenses. All of these estimates reflect our best judgments about current, and for some estimates, future economic and market conditions and their effects based on information available as of the date of the financial statements. The three and six months ended June 30, 2020 were characterized by heightened uncertainty due to the COVID-19 pandemic which could impact estimates made by management. If conditions change from those expected, it is possible that the judgments and estimates described below could change, which may result in a change in our interest income recognition, allowance for loan losses, tax liability, future impairment of our investments, and valuation of our investment portfolio, among other effects. We believe that the following accounting policies are among the most important to the portrayal of our financial condition and results of operations and require the most difficult, subjective or complex judgments.   

Commercial Mortgage Loans Held-for-Investment

Commercial mortgage loans held-for-investment represent floating-rate transitional loans and other commercial mortgage loans purchased by the Company. These loans include loans sold into securitizations that the Company consolidates. Commercial mortgage loans held-for-investment are intended to be held-to-maturity and, accordingly, are carried at their unpaid principal balances, adjusted for net unamortized loan fees and costs (in respect of originated loans), premiums and discounts (in respect of purchased loans) and impairment, if any.

Interest income is recognized as revenue using the effective interest method and is recorded on the accrual basis according to the terms of the underlying loan agreement. Any fees, costs, premiums and discounts associated with these loan investments are deferred and amortized over the term of the loan using the effective interest method, or on a straight line basis when it approximates the effective interest method. Income accrual is generally suspended and loans are placed on non-accrual status on the earlier of the date at which payment has become 90 days past due or when full and timely collection of interest and principal is considered not probable. The Company may return a loan to accrual status when repayment of principal and interest is reasonably assured under the terms of the underlying loan agreement. As of June 30, 2020, the Company did not hold any loans placed on non-accrual status.

Quarterly, the Company assesses the risk factors of each loan classified as held-for-investment and assigns a risk rating based on a variety of factors, including, without limitation, debt-service coverage ratio ("DSCR"), loan-to-value ratio ("LTV"), property type, geographic and local market dynamics, physical condition, leasing and tenant profile, adherence to business plan and exit plan, maturity default risk and project sponsorship. The Company's loans are rated on a 5-point scale, from least risk to greatest risk, respectively, which ratings are described as follows:


1.Very Low Risk: exceeds expectations and is outperforming underwriting or it is very likely that the underlying loan can be refinanced easily in the period's prevailing capital market conditions
2.Low Risk: meeting or exceeding underwritten expectations
3.Moderate Risk: in-line with underwritten expectations or the sponsor may be in the early stages of executing the business plan and the loan structure appropriately mitigates additional risks
4.High Risk: potential risk of default, a loss may occur in the event of default
5.Default Risk: imminent risk of default, a loss is likely in the event of default

The Company evaluates each loan rated High Risk or above as to whether it is impaired on a quarterly basis. Impairment occurs when the Company determines that the facts and circumstances of the loan deem it probable that the Company will not be able to collect all amounts due in accordance with the contractual terms of the loan. If a loan is considered to be impaired, an allowance is recorded to reduce the carrying value of the loan through a charge to the provision for loan losses. Impairment of these loans, which are collateral dependent, is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, actions of other lenders, and other factors deemed necessary by the Manager. Actual losses, if any, could ultimately differ from estimated losses.

In addition, the Company evaluates the entire portfolio to determine whether the portfolio has any impairment that requires a valuation allowance on the remainder of the loan portfolio. As of June 30, 2020, the Company has not recognized any impairments on its loans held-for-investment. We also assessed the remainder of the portfolio, considering the absence of delinquencies and current market conditions, and, have not recorded any allowance for loan losses.

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Mortgage Servicing Rights, at Fair Value

Mortgage servicing rights (“MSRs”) are associated with residential mortgage loans that the Company historically purchased and subsequently sold or securitized. MSRs are held and managed at Five Oaks Acquisition Corp. ("FOAC"), the Company’s taxable REIT subsidiary ("TRS"). As the owner of MSRs, the Company is entitled to receive a portion of the interest payments from the associated residential mortgage loan, and is obligated to service, directly or through a sub-servicer, the associated loan. MSRs are reported at fair value as a result of a fair value option election. Residential mortgage loans for which the Company owns the MSRs are directly serviced by two sub-servicers retained by the Company. The Company does not directly service any residential mortgage loans.
 
MSR income is recognized at the contractually agreed upon rate, net of the costs of sub-servicers retained by the Company. If a sub-servicer with which the Company contracts were to default, an evaluation of MSR assets for impairment would be undertaken at that time.

See Note 2 to our consolidated financial statements for the complete listing of our significant accounting policies.

Capital Allocation
 
The following tables set forth our allocated capital by investment type at June 30, 2020 and December 31, 2019:

This information represents non-GAAP financial measures within the meaning of Item 10(e) of Regulation S-K, as promulgated by the SEC. We believe that this non-GAAP information enhances the ability of investors to better understand the capital necessary to support each income-earning asset category, and thus our ability to generate operating earnings. While we believe that the non-GAAP information included in this report provides supplemental information to assist investors in analyzing our portfolio, these measures are not in accordance with GAAP, and they should not be considered a substitute for, or superior to, our financial information calculated in accordance with GAAP.
June 30, 2020
  Commercial Mortgage Loans MSRs
Unrestricted Cash(1)
Total(2)
Carrying Value $ 609,847,568    $ 1,447,282    $ 8,856,854    $ 620,151,704   
Collateralized Loan Obligations (498,311,273)   —    —    (498,311,273)  
Other(3)
25,598,613    —    (1,321,973)   24,276,640   
Restricted Cash 7,414,097    —    —    7,414,097   
Capital Allocated $ 144,549,005    $ 1,447,282    $ 7,534,881    $ 153,531,168   
% Capital 94.2  % 0.9  % 4.9  % 100.0  %


December 31, 2019
Commercial Mortgage Loans MSRs
Unrestricted Cash(1)
Total(2)
Carrying Value $ 635,260,420    $ 2,700,207    $ 10,942,115    $ 648,902,742   
Collateralized Loan Obligations (505,930,065)   —    —    (505,930,065)  
Other(3)
1,610,181    —    (1,623,820)   (13,639)  
Restricted Cash 5,069,715    —    —    5,069,715   
Capital Allocated $ 136,010,251    $ 2,700,207    $ 9,318,295    $ 148,028,753   
% Capital 91.9  % 1.8  % 6.3  % 100.0  %

(1)Includes cash and cash equivalents.
(2)Includes the carrying value of our Secured Term Loan.
(3)Includes principal and interest receivable, prepaid and other assets, interest payable, dividend payable and accrued expenses and other liabilities.
 
Results of Operations  
 
As of June 30, 2020, we no longer consolidated the assets and liabilities of the FREMF 2012-KF01 Trust, and as a result, having determined that we are no longer the primary beneficiary of the trust, no longer consolidate the interest and expenses of these trusts. As of June 30, 2020, we consolidated the assets and liabilities of two commercial real estate collateralized loan obligations, Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. Our results of operations were impacted in part by (i) the repayment in full of the FREMF 2012-KF01 in the first quarter of 2019; (ii) the redemption of preferred stock in the first quarter of 2019; and (iii) the draw of Secured Term Loan in the first quarter of 2019. Consequently, our results of operations for the periods ended June 30, 2020 and June 30, 2019 are not directly comparable. Additionally, although the COVID-19 pandemic did not significantly impact our operating results for the period ended June 30, 2020, other than previously deferred debt issuance costs of $624,816 expensed in the second quarter as a result of the current market environment related to a collateralized loan obligation transaction that has been determined as unlikely to be executed by year-end, should the pandemic and resulting economic deterioration persist, we expect it may further affect our business, financial condition, results of operations and cash flows going forward, including but not limited to, interest income, credit losses and commercial mortgage loan reinvestment, in ways that may vary widely depending on the duration and magnitude of the COVID-19 pandemic and ensuing economic turmoil, as well as numerous factors, many of which are outside of our control.

The table below presents certain information from our Statement of Operations for the three and six months ended June 30, 2020 and June 30, 2019, respectively:


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Three Months Ended June 30, 2020 Three Months Ended June 30, 2019 Six Months Ended June 30, 2020 Six Months Ended June 30, 2019
(unaudited) (unaudited)
Revenues:    
Interest income:    
Commercial mortgage loans held-for-investment $ 8,472,153    $ 10,289,117    $ 17,637,958    $ 20,193,305   
Multi-family loans held in securitization trusts —    —    —    78,361   
Cash and cash equivalents 7,620    —    35,787    —   
Interest expense:    
Collateralized loan obligations (2,915,638)   (5,456,288)   (7,153,527)   (10,903,177)  
Secured Term Loan (780,441)   (786,114)   (1,560,882)   (1,115,227)  
Net interest income 4,783,694    4,046,715    8,959,336    8,253,262   
Other income:    
Realized (loss) on investments, net —    —    —    (709,439)  
Unrealized (loss) on mortgage servicing rights (375,176)   (459,119)   (1,252,925)   (839,117)  
Unrealized gain on multi-family loans held in securitization trusts —    —    —    694,339   
Servicing income, net 204,380    185,465    398,527    433,679   
Other income —    —    2    —   
Total other (loss) (170,796)   (273,654)   (854,396)   (420,538)  
Expenses:    
Management fee 590,211    566,164    1,175,032    1,119,623   
General and administrative expenses 978,842    895,659    1,744,734    2,362,344   
Operating expenses reimbursable to Manager 346,653    517,000    807,774    1,057,037   
Other operating expenses 833,998    147,259    1,134,924    185,016   
Compensation expense 52,762    50,064    106,894    100,087   
Total expenses 2,802,466    2,176,146    4,969,358    4,824,107   
Net income before provision for income taxes 1,810,432    1,596,915    3,135,582    3,008,617   
Benefit (provision) from income taxes 68,271    (202,745)   294,792    (139,680)  
Net income 1,878,703    1,394,170    3,430,374    2,868,937   
Dividends to preferred stockholders (3,750)   (3,792)   (7,500)   (484,264)  
Deemed dividend on preferred stock related to redemption —    —    —    (3,093,028)  
Net income (loss) attributable to common stockholders $ 1,874,953    $ 1,390,378    $ 3,422,874    $ (708,355)  
Earnings (loss) per share:    
Net income (loss) attributable to common stockholders (basic and diluted) $ 1,874,953    $ 1,390,378    3,422,874    (708,355)  
Weighted average number of shares of common stock outstanding 24,939,575    23,687,664    24,925,529    23,687,664   
Basic and diluted income (loss) per share $ 0.08    $ 0.06    0.14    (0.03)  
Dividends declared per share of common stock $ 0.08    $ 0.08    0.15    0.15   
 
Net Income Summary
 
For the six months ended June 30, 2020, our net income attributable to common stockholders was $3,422,874, or $0.14 basic and diluted net income per average share, compared with a net loss of $708,355, or $0.03 basic and diluted net loss per average share, for the six months ended June 30, 2019.  The principal drivers of this net income (loss) variance were an increase in net interest income from $8,253,262 for the six months ended June 30, 2019 to $8,959,336 for the six months ended June 30, 2020, a decrease in preferred dividends from $484,264 for the six months ended June 30, 2019 to $7,500 for the six months ended June 30, 2020 and the deemed dividend of $3,093,028 for the six months ended June 30, 2019, which more than offset an increase in total other loss from $420,538 for the six months ended June 30, 2019 to $854,396 for the six months ended June 30, 2020 and an increase in total expenses from $4,824,107 for the six months ended June 30, 2019 to $4,969,358 for the six months ended June 30, 2020.

For the three months ended June 30, 2020, our net income attributable to common shareholders was $1,874,953, or $0.08 basic and diluted net income per average share, compared with net income of $1,390,378, or $0.06 basic and diluted net income per average share. The principal drivers of this net income variance were an increase in net interest income from $4,046,715 for the three months ended June 30, 2019 to $4,783,694 for the three months ended June 30, 2020 and a decrease in total other loss from $273,654 for the three months ended June 30, 2019 to $170,796 for the three months ended June 30, 2020, which more than offset an increase in total expenses from $2,176,146 three months ended June 30, 2019 to $2,802,466 three months ended June 30, 2020.


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Net Interest Income
 
For the six months ended June 30, 2020 and the six months ended June 30, 2019, our net interest income was $8,959,336 and $8,253,262, respectively. The increase was primarily due to (i) a $50.9 million increase in weighted-average principal balance of our loan portfolio; (ii) an increase of 30bps in weighted-average LIBOR floors on our loan portfolio for the six months ended June 30, 2020 compared to the corresponding period in 2019 and; (iii) a decrease in weighted-average LIBOR of 148bps for our CLO liabilities. This was offset by (i) a 43bps decrease in weighted-average spread on the loan portfolio for the six months ended June 30, 2020 compared to the corresponding period in 2019, and (ii) a full period of Secured Term Loan interest expense in 2020, compared to a partial period of interest expense due to the draw of the Secured Term Loan on February 14, 2019.

For the three months ended June 30, 2020 and the three months ended June 30, 2019, our net interest income was $4,783,694 and $4,046,715, respectively. The increase was primarily due to (i) a $35.6 million increase in weighted-average principal balance of our loan portfolio; (iii) an increase of 26bps in weighted-average LIBOR floors on our loan portfolio for the three months ended June 30, 2020, compared to the corresponding period in 2019 and; (iii) a decrease in weighted-average LIBOR of 198bps for our CLO liabilities. This was offset by a 39bps decrease in weighted-average spread on the loan portfolio for the three months ended June 30, 2020, compared to the corresponding period in 2019.

Other Income
 
For the six months ended June 30, 2020, we incurred a loss of $854,396. This loss was driven by the impact of net unrealized losses on mortgage servicing rights of $1,252,925 caused by a decrease in interest rates which increased prepayments and lower projected float income, which more than offset net mortgage servicing income of $398,527.
 
For the six months ended June 30, 2019, we incurred a loss of $420,538. This loss was primarily driven by the impact of (i) net realized losses on sales of investments of $709,439 and (ii) net unrealized losses on mortgage servicing rights of $839,117. These factors were partially offset by (i) net unrealized gains on multi-family mortgage loans held in the FREMF 2012-KF01 Trust of $694,339 and (ii) net mortgage servicing income of $433,679.

The period-over-period increase in other loss was primarily due to the change in unrealized gain (loss) on mortgage servicing rights as a result of lower interest rates and higher prepayment speeds.

For the three months ended June 30, 2020, we incurred a loss of $170,796. This loss was driven by the impact of net unrealized losses on mortgage servicing rights of $375,176 caused by a decrease in interest rates which increased prepayments and lower projected float income, which more than offset net mortgage servicing income of $204,380.
 
For the three months ended June 30, 2019, we incurred a loss of $273,654. This loss was driven by the impact of net unrealized losses on mortgage servicing rights of $459,119, which more than offset net mortgage servicing income of $185,465.

Expenses
 
For the six months ended June 30, 2020, we incurred management fees of $1,175,032 representing amounts payable to our Manager under our management agreement. We also incurred operating expense of $3,794,326, of which $807,774 was payable to our Manager and $2,986,552 was payable directly by us.
 
For the six months ended June 30, 2019, we incurred management fees of $1,119,623 representing amounts payable to our Manager under our management agreement. We also incurred operating expense of $3,704,484 of which $1,057,037 was payable to our Manager and $2,647,447 was payable directly by us.

The period-over-period increase in operating expenses primarily reflects an increase in insurance and legal fees as well as deferred costs expensed during the period, which more than offset decreased expense reimbursement, accounting, audit and other fees.

For the three months ended June 30, 2020, we incurred management fees of $590,211 representing amounts payable to our Manager under our management agreement. We also incurred operating expense of $2,212,255, of which $346,653 was payable to our Manager and $1,865,602 was payable directly by us.
 
For the three months ended June 30, 2019, we incurred management fees of $566,164 representing amounts payable to our Manager under our management agreement. We also incurred operating expense of $1,609,982 of which $517,000 was payable to our Manager and $1,092,982 was payable directly by us.

The period-over-period increase in operating expenses primarily reflects increased accounting, and insurance fees as well as previously deferred costs expensed in the quarter, which more than offset a decrease in other fees and expense reimbursement.
 
Impairment
 
We review each loan classified as held-for-investment for impairment on a quarterly basis. For the three and six months ended June 30, 2020 and the three and six months ended June 30, 2019, the Company has not recognized any impairments on its loans held-for-investment and therefore has not recorded any allowance for loan losses.

Income Tax (Benefit) Expense

For the six months ended June 30, 2020, the Company recognized a benefit from income taxes of $294,792 and for the six months ended June 30, 2019, the Company recognized a provision for income taxes in the amount of $139,680.

For the three months ended June 30, 2020, the Company recognized a benefit from income taxes of $68,271 and for the three months ended June 30, 2019, the Company recognized a provision for income taxes in the amount of $202,745.
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Liquidity and Capital Resources
 
Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments, comply with margin requirements, if any, and repay borrowings and other general business needs. Our primary sources of liquidity have been met with net proceeds of common or preferred stock issuance, net proceeds from debt offerings and net cash provided by operating activities. We finance our commercial mortgage loans primarily with match term collateralized loan obligations, which are not subject to margin calls or additional collateralization requirements. As of June 30, 2020, our balance sheet included $40.2 million of a secured term loan and $498.3 million in collateralized loan financing. Our secured term loan matures in January 2025 and our collateralized loan financing is term-matched and matures in 2028 or later. However, to the extent that we seek to invest in additional commercial mortgage loans, we will in part be dependent on our ability to issue additional collateralized loan obligations to secure alternative financing facilities or to raise additional common or preferred equity. On July 13, 2020, we entered into a closing agreement with the IRS relating to our application of Section 856(c)(6) of the Code in our 2018 tax return, facilitating our ability to execute certain financing transactions and equity capital raises. However, due to the current market environment created by the COVID-19 pandemic, it may make obtaining this financing more difficult.
 
In addition, if we were required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we previously recorded our assets, particularly in a financial market that has been significantly disrupted and less liquid as a result of the ongoing COVID-19 pandemic. Assets that are illiquid are more difficult to finance, and to the extent that we use leverage to finance assets that become illiquid, we may lose that leverage or have it reduced if such leverage is, at least in part, dependent on the market value of our assets. Assets tend to become less liquid during times of financial stress, which is often the time that liquidity is most needed. As a result, our ability to sell assets or vary our portfolio in response to changes in economic and other conditions may be limited by liquidity constraints, which could adversely affect our results of operations and financial condition. We seek to limit our exposure to illiquidity risk to the extent possible, by ensuring that the collateralized loan obligations that we use to finance our commercial mortgage loans are not subject to margin calls or other limitations that are dependent on the market value of the related loan collateral.

We had aggregate unfunded loan commitments of $32.6 million in Hunt CRE 2017-FL1, Ltd. as of June 30, 2020. On August 5, 2020, the Company entered into an amendment to its Participation Agreements amongst Hunt CRE 2017-FL1 Seller LLC ("FL1 Seller"), Hunt Commercial Mortgage Trust and ORIX Real Estate Capital LLC to transfer future funding participation interest from FL1 Seller to OREC Structured Finance, LLC ("OREC SF"), an affiliate of our Manager (the "FL1 Future Funding Participation Transfer"). As a result of the FL1 Future Funding Participation Transfer, OREC SF will make advances pursuant to the unfunded loan commitments. In connection with the FL1 Future Funding Participation Transfer, the Company has agreed that at such time it (i) has available excess capital and (ii) the satisfaction of the applicable requirements for acquiring such assets, each as determined by the Manager, it will purchase from OREC SF, at a price equal to par, any FL1 Participations funded by OREC SF. We will generally finance the purchase of FL1 Participations funded by OREC SF with net cash provided by operating activities. Future loan fundings comprise funding for capital improvements, leasing costs, interest and carry costs, and fundings will vary depending on the progress of the business plan and cash flows at the mortgage assets. Therefore, the exact timing and amounts of such future loan fundings are uncertain and will depend on the current and future performance of the underlying mortgage assets.
 
We intend to continue to maintain a level of liquidity in relation to our assets that enables us to meet reasonably anticipated investment requirements and unforeseen business needs but that also allows us to be substantially invested in our target assets. We may misjudge the appropriate amount of our liquidity by maintaining excessive liquidity, which would lower our investment returns, or by maintaining insufficient liquidity, which would force us to liquidate assets into unfavorable market conditions and harm our operating results.  As of June 30, 2020, we had unrestricted cash and cash equivalents of $8.9 million, compared to $10.9 million as of December 31, 2019.
 
As of June 30, 2020, we had $40.2 million in outstanding principal under our Senior Secured Term Loan, with a borrowing rate of 7.25%, which we used to redeem our 8.75% Series A Cumulative Redeemable Preferred Stock during the first quarter of 2019. As of June 30, 2020, the ratio of our recourse debt to equity was 0.4:1.

As of June 30, 2020, we consolidated the assets and liabilities of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. The assets of the trusts are restricted and can only be used to fulfill their respective obligations, and accordingly the obligations of the trusts, which we classify as collateralized loan obligations, do not have any recourse to us as the consolidator of the trusts. As of June 30, 2020, the carrying value of these non-recourse liabilities aggregated to $498,311,273. As of June 30, 2020, our total debt to equity ratio was 4.7:1 on a GAAP basis.

Cash Flows

The following table sets forth changes in cash, cash equivalents and restricted cash for the six months ended June 30, 2020 and 2019:

For the six months ended June 30,
2020 2019
Cash Flows From Operating Activities 5,150,748    2,334,539   
Cash Flows From Investing Activities 1,631,184    (6,808,188)  
Cash Flows From Financing Activities (6,522,811)   (4,698,382)  
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash $ 259,121    $ (9,172,031)  

During the six months ended June 30, 2020 cash, cash equivalents and restricted cash increased by $0.3 million and for the six months ended June 30, 2019, cash, cash equivalents and restricted cash decreased by $9.2 million and $6.8 million, respectively.

Operating Activities

For the six months ended June 30, 2020 and 2019, net cash provided by operating activities totaled $5.2 million and $2.3 million, respectively. For the six months ended June, 2020, our cash flows from operating activities were primarily driven by interest received from the junior retained notes and preferred shares of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd., VIE’s we consolidate, of $10,438,183, interest received from our senior secured loans held outside the VIE’s we consolidate of $288,119 and cash received from mortgage servicing rights of $398,527 exceeding cash interest expense paid on our
32



Secured Term Loan of $1,475,274, management fees of $1,151,651, expense reimbursements of $867,634 and other operating expenditures of $2,912,669. For the six months ended June 30, 2019, our cash flows from operating activities were primarily driven by interest received from the junior retained notes and preferred shares of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd., VIE’s we consolidate, of $9,535,618, interest received from our senior secured loans held outside VIE’s we consolidate of $203,031 and cash received from mortgage servicing rights of $433,679 exceeding cash interest expense paid on our Secured Term Loan of $1,062,500, management fees of $1,140,123, expense reimbursement of $1,126,910 and other operating expenditures of $4,664,952.

Investing Activities

For the six months ended June 30, 2020 net cash provided by investing activities totaled $1.6 million. This was a result of the purchase and funding of commercial mortgage loans held for investment exceeding the cash received from principal repayment of commercial mortgage loans held for investment during the quarter. For the six months ended June 30, 2019 net cash provided by investing activities totaled $6.8 million. This was primarily a result of receiving cash from unsettled trades, principal repayment of loans held for investment and retained beneficial interests exceeding the cash used for the purchase and funding of commercial mortgage loans held for investment for the six months ended June 30, 2019.

Financing Activities

For the six months ended June 30, 2020, net cash used in financing activities totaled $6.5 million and primarily related to proceeds from issuance of common stock of $5,747,375 more than offset by payments of common dividends of $3,647,329 and repayment of collateralized loan obligations of $8,615,358. For the six months ended June 30, 2019, net cash used in financing activities totaled $4.7 million and primarily related to the redemption of preferred stock of $40,250,000, payment of common and preferred dividends of $3,608,010 and payment of deferred financing costs of $1,090,372 partially offset by proceeds from our Secured Term Loan of $40,250,000.

Forward-Looking Statements Regarding Liquidity  
 
Based upon our current portfolio, leverage rate and available borrowing arrangements, we believe that the net proceeds of our prior equity sales combined with cash flow from operations and available borrowing capacity, will be sufficient to enable us to meet anticipated short-term (one year or less) liquidity requirements to fund our investment activities, pay fees under our management agreement, fund our distributions to stockholders and for other general corporate expenses.  

Our ability to meet our long-term (greater than one-year) liquidity and capital resource requirements will be subject to, amongst other things, obtaining additional debt financing and equity capital. We may increase our capital resources by obtaining long-term credit facilities, additional collateralized loan obligations or making additional public or private offerings of equity or debt securities, possibly including classes of preferred stock, common stock and senior and subordinated notes.
 
To maintain our qualification as a REIT, we generally must distribute annually at least 90% of our "REIT taxable income" (determined without regard to the deduction for dividends paid and excluding net capital gain). These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations.  

Off-Balance Sheet Arrangements   
 
As of June 30, 2020, we did not maintain any relationships with unconsolidated financial partnerships, or special purpose or variable interest entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, as of June 30, 2020, we had not guaranteed any obligations of unconsolidated entities or entered into any commitment or intent to provide funding to any such entities.   

In connection with the provision of seller eligibility and backstop guarantee services provided to MAXEX, we previously accounted for the related non-contingent liability at its fair value on our condensed consolidated balance sheet as a liability. As of June 30, 2020, pursuant to an Assumption Agreement dated December 31, 2018, among MAXEX Clearing LLC and FOAC, MAXEX Clearing LLC assumed all of FOAC's obligations under its backstop guarantees and agreed to indemnify and hold FOAC harmless against any losses, liabilities, costs, expenses and obligations under the backstop guarantee, see Note 11 for further information.

Distributions  
 
We intend to continue to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its "REIT taxable income" (determined without regard to the deduction for dividends paid and excluding net capital gain) and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its "REIT taxable income." We have historically made regular monthly distributions, and with effect from the third quarter of 2018 we now make regular quarterly distributions, to our stockholders in an amount equal to all or substantially all of our REIT taxable income. Although FOAC no longer aggregates and securitizes residential mortgages, it continues to generate taxable income from MSRs and other mortgage-related activities. This taxable income will be subject to regular corporate income taxes. We generally anticipate the retention of profits generated and taxed at FOAC. Before we make any distribution on our common stock, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and any debt service obligations on debt payable. If cash available for distribution to our stockholders is less than our taxable income, we could be required to sell assets or borrow funds to make cash distributions, or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.   
 
If substantially all of our taxable income has not been paid by the close of any calendar year, we may declare a special dividend prior to the end of such calendar year, to achieve this result. On June 17, 2020, we announced that our board of directors had declared a cash dividend rate for the second quarter of 2020 of $0.075 per share of common stock which was paid on July 15, 2020.


33



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 
Not applicable.

34



ITEM 4.  CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
Our management is responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)) under the Securities Exchange Act of 1934, as amended, or Exchange Act, that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
 
Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to paragraph (b) of Exchange Act Rules 13a-15 or 15d-15 as of June 30, 2020. Based upon our evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of June 30, 2020.

Changes in Internal Control Over Financial Reporting
 
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 or 15d-15 that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
   
PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings
 
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of the date hereof, neither we nor, to our knowledge, our Manager, are subject to any legal proceedings that we or our Manager considers to be material (individually or in the aggregate). 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
None.

Item 1A. Risk Factors

Other than items noted below, there have been no material changes to the Risk Factors previously disclosed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2019.

The spread of COVID-19 could have a material adverse effect on our business.

Although the full scope and extent of the impacts of COVID-19 on the Company's operations are unknown, we continue to monitor the impacts of the COVID-19 pandemic on the Company's workforce, liquidity and reliability, as well as capital market and macroeconomic conditions and cannot predict with certainty the full extent of the COVID-19 pandemic's impact on its business. However, a protracted slowdown of broad sectors of the economy, changes in demand for commodities, or significant changes in legislation or regulatory policy to address the COVID-19 pandemic may adversely affect the general real estate lending market, lending volume and the market's overall liquidity and may reduce the number of suitable investment opportunities available to us and the pace at which we are able to make investments.

The outbreak of COVID-19 may have a material adverse impact on our financial condition, liquidity, results of operations and the market price of our common stock, among other things. We expect that these impacts are likely to continue to some extent as the outbreak persists and potentially even longer. Although our business has been or could be impacted by COVID-19, we currently believe the following to be among the most material to us:

•COVID-19 could have a significant long-term impact on the global economy and the commercial real estate market generally, which would negatively impact the value of our assets collateralizing our loans. While we believe the principal amount of our loans are protected by the underlying value of the collateral securing the loans, deterioration in the performance of the properties securing out investments may cause deterioration in the performance of our investments and, potentially, principal losses to us;
•We are actively engaged in discussions with our borrowers to monitor their ability to pay principal and interest, some of whom have indicated that due to the COVID-19 pandemic, they may request forbearance agreements or other loan modifications. These forbearance requests or loan modifications may impact our ability to meet our debt obligations to lenders or satisfy our debt covenants and pay dividends at our current rate or at all to preserve liquidity;
•Economic and market conditions may limit our ability to redeploy proceeds from payment of our existing investments in commercial mortgage loans with similar spreads which may reduce future interest income;
•Interest rates and credit spreads have been significantly impacted since the outbreak of COVID-19 which may result in significant changes to the fair value of our floating rate commercial mortgage loans.
•There are potential challenges facing third-party providers, such as appraisers, environmental and engineering consultants we rely on to make new investments which may make it more difficult to make new investments

Item 3. Defaults Upon Senior Securities
 
None.

Item 4. Mine Safety Disclosures
 
35



Not applicable.
 
Item 5. Other Information
 
None.
 
Item 6. Exhibits
 
The exhibits listed on the accompanying Index of Exhibits are filed or furnished herewith, as applicable, as a part of this report. Such Index is incorporated herein by reference.

EXHIBIT INDEX
 
Exhibit
Number 		  Exhibit Description
3.1
3.2
3.3
3.4
3.5
10.1*
10.2*
10.3*
10.4*
31.1*
31.2*
32.1**
32.2**
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith
** Furnished herewith


36




SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
  HUNT COMPANIES FINANCE TRUST, INC.
   
Dated: August 7, 2020 By /s/ James P. Flynn
    James P. Flynn
    Chief Executive Officer (Principal Executive Officer)
     
Dated: August 7, 2020 By /s/ James A. Briggs
    James A. Briggs
    Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)


37

Exhibit 10.1
Execution Version
SECOND AMENDMENT TO CREDIT AND GUARANTY AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AND GUARANTY AGREEMENT (this “Amendment”) is dated as of July 9, 2020 and is entered into by and among, on the one hand, the lenders identified on the signature pages hereof (the “Lenders”) which Lenders constitutes the Required Lenders under the Credit Agreement, Cortland Capital Market Services LLC, as the administrative agent for the Lenders (in such capacity, together with its successors and permitted assigns in such capacity, “Administrative Agent”) and as the collateral agent for the Secured Parties (in such capacity, together with its successors and permitted assigns in such capacity, “Collateral Agent” and, together with the Administrative Agent, the “Agents”), and, on the other hand, Hunt Companies Finance Trust, Inc. a Maryland corporation (“Borrower”), and is made with reference to that certain Credit and Guaranty Agreement, dated January 15, 2019 (as amended by that certain First Amendment to Credit and Guaranty Agreement, dated as of February 13, 2019, and as further amended, restated, supplemented, waived or otherwise modified from time to time prior to the date hereof, the “Credit Agreement”), by and among the Borrower, the Guarantors, the lenders and the other persons party thereto. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement after giving effect to this Amendment (the “Amended Agreement”).
RECITALS
WHEREAS, pursuant to Section 11.2 of the Credit Agreement, the Borrower, the Administrative Agent and the Lenders party hereto, which constitute the Required Lenders, wish to amend the Credit Agreement on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:
SECTION I. AMENDMENTS TO CREDIT AGREEMENT
A.The following definitions are hereby added to Section 1.1 of the Credit Agreement in their appropriate place in alphabetical order:
“COVID Change” has the meaning set forth in the definition of “Material Modification.”
“COVID Relief” has the meaning set forth in the definition of “VAE.”
“COVID Valuation Period” has the meaning set forth in the definition of “Assigned Value.”
“Second Amendment Effective Date” shall mean July 9, 2020.”
B.The definition of “Assigned Value” is hereby amended by adding the following paragraph to the end of such definition:

“Anything to the contrary contained in this Agreement notwithstanding, if after the occurrence of a VAE, the Borrower is unable to obtain a valuation for a Borrowing Base Eligible Asset as a result of the COVID-19 pandemic, the Assigned Value of such Borrowing Base Eligible Asset shall be the Assigned Value that is applicable from and after the occurrence of the VAE until the date that is thirty (30) days following the occurrence of such VAE pursuant to the terms hereof (such period, the “COVID Valuation Period”) and such Assigned Value shall apply until the earlier of (i) the earlier of (x) the receipt of a valuation or (y) the resolution of the VAE or (ii) sixty (60) days following the VAE, unless the Required Lenders consent to further extensions of the COVID Valuation Period; provided that the Borrower shall use commercially reasonable efforts to obtain a valuation as soon as practicable in light of the circumstances at such time and will provide the Agent with such information as the Agent may reasonably request from time to time in connection with verifying the same; provided, further that the unpaid principal balance of Borrowing Base Eligible Assets that the Borrower subjects to this paragraph and subjects to the proviso at the end of the definition of “Borrowing Base Eligible Asset” at any time shall not exceed 25% of the unpaid principal balance of all Borrowing Base Eligible Assets at such time .”

C.The definition of “Borrowing Base Eligible Asset” is hereby amended by (i) deleting the “.” at the end of such definition and (ii) adding the following provision at the end thereof:

“; provided that any Borrowing Base Eligible Asset shall not cease to satisfy the Borrowing Base Eligibility Criteria if the amended definitions of “Material Modification” and “VAE” as of the Second Amendment Effective Date apply to such Borrowing Base Eligible Asset; provided, further that the unpaid principal balance of Borrowing Base Eligible Assets that the Borrower subjects to this proviso and subjects to the paragraph at the end of the definition of “Assigned Value” at any time shall not exceed 25% of the unpaid principal balance of all Borrowing Base Assets at such time.”

D.The definition of “Change of Manager Event” is hereby amended and restated in its entirety as follows:

““Change of Manager Event” means OREC Investment Management, LLC or any of its Affiliates ceases to be the manager of the Borrower in accordance with the terms of that certain Asset Management Agreement dated January 6, 2020 (as amended from time to time, the “Asset Management Agreement”), and a replacement for such manager, which replacement shall be approved by the Required Lenders, has not occurred within ninety (90) days.”


E.The definition of “Material Modification” is hereby amended by adding the following paragraph to the end of such definition:

“; provided that any amendment, waiver, supplement, forbearance or other modification with respect to any Borrowing Base Eligible Asset that directly or indirectly arises out of or is attributable to the COVID-19 pandemic (any such amendment, waiver, supplement, forbearance or other modification, a “COVID Change”) shall notwithstanding anything to the contrary not be deemed to be a “Material Modification” for ninety (90) days following the COVID Change, unless the Required Lenders consent to further extensions, so long as the material terms of the Borrowing Base Eligible Asset at the end of such ninety (90) day period are not materially changed from the material terms applicable to the Borrowing Base Eligible Asset prior to the COVID Change

F.The definition of “VAE” is hereby amended by adding the following paragraph to the end of such definition:

“; provided that any default with respect to any Borrowing Base Eligible Asset that directly or indirectly arises out of or is attributable to the COVID-19 pandemic and for which (i) a forbearance, waiver, amendment or any other modification that results in either abating or postponing the exercise of remedies or otherwise waiving or curing the underlying default has been provided (any such postponement, waiver, forbearance, amendment or other modification, “COVID Relief”) shall not result in a “VAE” for a period of ninety (90) days following such default unless the Required Lenders consent to further extensions or (ii) no COVID Relief has been provided shall not result in a “VAE” for a period of sixty (60) days following such default unless the Required Lenders consent to further extensions; provided that if any COVID Relief is provided, then such Borrowing Base Eligible Asset shall be governed by clause (i) above.”

G.To the extent not already covered under this Section 1, all references to “Hunt Investment Management, LLC” are hereby amended by changing such name to “OREC Investment Management, LLC”.
SECTION II. CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective as of the date hereof only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the “Second Amendment Effective Date”):

A.Executed Counterparts. The Agents shall have received this Amendment, duly executed and delivered by each party thereto;

B.Fees and Expenses. The Borrower shall have paid all fees incurred in connection with the transactions evidenced by this Amendment on the Second Amendment Effective Date and all Lender Group Expenses incurred in connection with the transactions evidenced by this Amendment for which the Borrower received an invoice at least one (1) Business Day prior to the First Amendment Effective Date;

C.Representations and Warranties. The representations and warranties of the Borrower contained in this Amendment and the other Loan Documents shall be true and correct on the Second Amendment Effective Date in all material respects (except that such materiality qualifier shall not be applicable to any representation or warranty to the extent that such representation or warranty is qualified or modified by materiality) on and as of the Second Amendment Effective Date as though made on and as of such date (except to the extent that such representations and warranties solely relate to an earlier date); and

D.No Event of Default or Default. No Event of Default or Default shall have occurred and be continuing on the Second Amendment Effective Date, nor shall either result from the effectiveness of this Amendment on the Second Amendment Effective Date or the consummation of the other transactions contemplated by this Amendment.

SECTION III. REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Administrative Agent, the Collateral Agent and the Lenders that all of the representations and warranties of the Borrowers set forth in each of the Amended Agreement and the other Loan Documents are true and correct in all material respects (or in all respects to the extent such representation or warranty is limited by materiality except that such materiality qualifier shall not be applicable to any representation or warranty to the extent that such representation or warranty is qualified or modified by materiality) as of the Second Amendment Effective Date (except to the extent that such representations and warranties solely relate to an earlier date).
SECTION IV. MISCELLANEOUS
        A. Reference to and Effect on the Credit Agreement and the Other Loan Documents.
(i)This Amendment shall constitute a Loan Document for purposes of each of the Credit Agreement, this Amendment and the other Loan Documents and on and after the Second Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the “Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement.
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(ii)Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.
(iii)The execution, delivery and performance of this Amendment shall not constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Administrative Agent, the Collateral Agent, the Lenders or any other secured party under the Credit Agreement or any of the other Loan Documents.
B. Reaffirmation.
(i)The Borrower hereby (a) agrees that, notwithstanding the occurrence of the Second Amendment Effective Date, each of the guarantees, the Security Agreement and each of the Negative Pledge Agreement, the Borrower DACA continue to be in full force and effect and are not impaired or adversely affected in any manner whatsoever, (b) confirms its guarantee of the Obligations and its grant of a security interest in its assets as Collateral therefor, all as provided in the Loan Documents as originally executed and (c) acknowledges that such guarantee and grant continues in full force and effect in respect of, and to secure, the Obligations under the Amended Agreement and the other Loan Documents.
(ii)The Guarantors hereby (a) agree that, notwithstanding the occurrence of the Second Amendment Effective Date, each of the guarantees, the Security Agreement and each of the Negative Pledge Agreement, the Mezz DACAs continue to be in full force and effect and are not impaired or adversely affected in any manner whatsoever, (b) confirms its guarantee of the Obligations and its grant of a security interest in its assets as Collateral therefor, all as provided in the Loan Documents as originally executed and (c) acknowledges that such guarantee and grant continues in full force and effect in respect of, and to secure, the Obligations under the Amended Agreement and the other Loan Documents.

C.Headings. Section headings used in this Amendment are for convenience of reference only and are not to affect the construction hereof or to be taken in consideration in the interpretation hereof.
D.GOVERNING LAW. EXCEPT AS SPECIFICALLY SET FORTH IN ANY OTHER LOAN DOCUMENT: (A) THIS AMENDMENT SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW YORK; AND (B) THE VALIDITY OF THIS AMENDMENT, AND THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
E.JURISDICTION AND VENUE. TO THE EXTENT THEY MAY LEGALLY DO SO, THE PARTIES HERETO AGREE THAT ALL ACTIONS, SUITS, OR PROCEEDINGS ARISING BETWEEN ANY MEMBER OF THE LENDER GROUP OR THE BORROWER AND ITS SUBSIDIARIES IN CONNECTION WITH THIS AMENDMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED HOWEVER THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT AT ANY AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE ANY AGENT ELECTS TO BRING SUCH ACTION TO THE EXTENT SUCH COURTS HAVE IN PERSONAM JURISDICTION OVER THE RELEVANT OBLIGOR OR IN REM JURISDICTION OVER SUCH COLLATERAL OR OTHER PROPERTY. THE BORROWER AND ITS SUBSIDIARIES AND EACH MEMBER OF THE LENDER GROUP, TO THE EXTENT THEY MAY LEGALLY DO SO, HEREBY WAIVE ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION AND STIPULATE THAT THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE IN PERSONAM JURISDICTION AND VENUE OVER SUCH PERSON FOR THE PURPOSE OF LITIGATING ANY SUCH DISPUTE, CONTROVERSY, OR PROCEEDING ARISING OUT OF OR RELATED TO THIS AMENDMENT. TO THE EXTENT PERMITTED BY LAW, SERVICE OF PROCESS SUFFICIENT FOR PERSONAL JURISDICTION IN ANY ACTION AGAINST BORROWER OR ANY MEMBER OF THE LENDER GROUP MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS ADDRESS INDICATED ON EXHIBIT 11.3 OF THE INDENTURE.
F.WAIVER OF TRIAL BY JURY. THE BORROWER AND ITS SUBSIDIARIES AND EACH MEMBER OF THE LENDER GROUP, TO THE EXTENT THEY MAY LEGALLY DO SO, HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS AMENDMENT, OR IN ANY WAY CONNECTED WITH, OR RELATED TO, OR INCIDENTAL TO, THE DEALINGS OF THE PARTIES HERETO WITH RESPECT TO THIS AMENDMENT, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND IRRESPECTIVE OF WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE. TO THE EXTENT THEY MAY LEGALLY DO SO, THE BORROWER AND ITS SUBSIDIARIES AND EACH MEMBER OF THE LENDER GROUP HEREBY AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE OTHER PARTY OR PARTIES HERETO TO WAIVER OF ITS OR THEIR RIGHT TO TRIAL BY JURY.
G.Severability. Any provision of this Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
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110225891\V-2 



H.Counterparts; Electronic Execution.
(i)This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Amendment or any document or instrument delivered in connection herewith by facsimile transmission or electronic image scan transmission (e.g., PDF) shall be effective as delivery of a manually executed counterpart of this Amendment or such other document or instrument, as applicable.
(ii)The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
[Remainder of Page Intentionally Blank; Signature Pages Follow]


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110225891\V-2 



IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

HUNT COMPANIES FINANCE TRUST, INC.,
a Maryland corporation, as Borrower
By: /s/ James A. Briggs
Title: Chief Financial Officer
FIVE OAKS ACQUISITION CORP.,
a Delaware corporation, as Guarantor
By: /s/ James A. Briggs
Title: Chief Financial Officer

HUNT CMT EQUITY, LLC,
a Delaware limited liability company, as Guarantor
By: /s/ James A. Briggs
Title: Chief Financial Officer
5
110225891\V-2 



CORTLAND CAPITAL MARKET SERVICES LLC,
as Administrative Agent and Collateral Agent,
By: /s/ Matthew Trybula
Title: Associate Counsel
6
110225891\V-2 



LENDERS:
JPMORGAN GLOBAL BOND OPPORTUNITIES FUND
By: J.P. Morgan Investment Management Inc., its Investment Advisor
By: /s/ Kent R. Weber
Title: Managing Director
JPMORGAN INCOME FUND
By: J.P. Morgan Investment Management Inc., its Investment Advisor
By: /s/ Kent R. Weber
Title: Managing Director
JPMORGAN CORE PLUS BOND FUND
By: J.P. Morgan Investment Management Inc., its Investment Advisor

By: J.P. Morgan Investment Management Inc., its Investment Advisor
By: /s/ Kent R. Weber
Title: Managing Director
COMMINGLED PENSION TRUST FUND (CORE PLUS BOND) OF JPMORGAN CHASE BANK, N.A.
By: J.P. Morgan Investment Management Inc., its Investment Advisor
By: /s/ Kent R. Weber
Title: Managing Director
7
110225891\V-2 




Exhibit 10.2
EXECUTION VERSION
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this “Agreement”) is made and entered into effective as of August __, 2020, by and among Hunt Companies Finance Trust, Inc. (“HCFT”) and OREC Structured Finance Co., LLC (“OSF”).
RECITALS
A.On or about August 5, 2020, Hunt CRE 2017-FL1 Seller, LLC (“Seller”), a wholly owned subsidiary of HCFT, ORIX Real Estate Capital Holdings, LLC (“ORECH”), OSF and HUNT CRE 2017-FL1, LTD. (“Issuer”) entered into Amendment No. 1 to Participation Agreements (the “Participation Amendment”) joining OSF as the “Future Funding Participation Holder”, as defined in certain Participation Agreements to which Seller, Hunt Real Estate Capital, LLC (f/k/a Hunt Mortgage Group, LLC), and Issuer are parties (the “Participation Agreements”).
B.On or about August 5, 2020, Hunt Commercial Mortgage Trust (“HCMT”), a wholly owned subsidiary of HFCT, Seller, ORECH, OSF and Wells Fargo Bank, National Association (“Bank”), entered into Amendment No. 1 to the Future Funding Agreement (the “Future Funding Amendment”), pursuant to which OSF assumed Seller’s obligations under the Future Funding Agreement.
C.On or about August __, 2020, Seller and OSF entered into certain Assignment and Assumptions, pursuant to which Seller assigned to OSF all of its right, title and interest in and to certain unfunded Future Funding Participations listed on Schedule 1 to this Agreement (the “Schedule 1 Participations”).
D.Pursuant to the Future Funding Amendment, the parties contemplate that OSF will make one or more advances to borrowers of the mortgage loans to which the Participation Agreements apply (each advance, a “Funding Advance”).
E.Pursuant to the Participation Amendment and in exchange for each Funding Advance, OSF will receive a pari passu participation interest in the related mortgage loan (individually, a “Participation Interest” and, collectively, the “Participation Interests”). The Schedule 1 Participations and the Participation Interests are referred to in this Agreement individually as a “Participation” and collectively as the “Participations”.
F.HCFT and OSF now wish to enter into this Agreement setting forth their respective rights and obligations with respect to the sale and purchase of the Participations.
AGREEMENT
1.Definitions. Each capitalized term used herein and not otherwise defined herein will have the meaning given to such term in the Future Funding Amendment, the Participation Amendment and the Participation Agreements.
2.Purchase and Sale of Participations. HCFT agrees to purchase from OSF from time to time, and OSF agrees to convey, without recourse to OSF, each of the Participations for a purchase price of the par amount of such Participation on the date of the settlement of each such purchase, subject to any adjustment mutually agreed to by OSF and HCFT.
3.Conditions Precedent to the Purchases. The obligation of HCFT to purchase the Participations is subject to (i) the availability of adequate capital capacity for HCFT and (ii) the satisfaction of the required approvals by OREC Investment Management, LLC (“ORECIM”), the manager of HCFT, for acquiring such assets, each as determined in the good faith judgment of ORECIM from time to time.
4.Representations and Warranties of HCFT. HCFT hereby represents and warrants:
(a) HCFT has full right, power and authority to enter into this Agreement;
(b)As of the date of any purchase of a Participation hereunder, HCFT will have full right, power and authority to purchase such Participation Interest from OSF;
(c)Except with respect to any willful misconduct on the part of OSF, the conveyance of the Participation by OSF to HCFT pursuant to this Agreement shall be without recourse of any nature against OSF;
(d)HCFT represents and warrants to OSF that (i) HCFT does not consider the purchase of any Participation hereunder to constitute the “purchase” or “sale” of a “security” within the meaning of the Securities Act of 1933, the Securities Exchange Act of 1934 or Rule 10b-5 promulgated thereunder, the Trust Indenture Act of 1939, the securities laws of the State of Delaware or State of Ohio, any other applicable securities statute or law, or any rule or regulations under any of the foregoing (collectively, as amended, the “Acts”), (ii) HCFT has no expectation that HCFT will derive profits from the efforts of OSF or any third party in respect of the purchase of the Participation hereunder, (iii) such purchase of each Participation constitutes a commercial transaction between HCFT and OSF regarding each Participation with respect to the obligations of the related Borrower under the Mortgage Loan and does not represent an “investment” (as that term is commonly understood) in OSF, (iv) HCFT is repurchasing the Participation hereunder for its own account in respect of a commercial transaction made in the ordinary course of its business and


not with a view to or in connection with any subdivision, resale, or distribution thereof, and (v) HCFT is engaged in the business of entering into commercial transactions (including transactions of the nature contemplated herein);
5.Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter contained herein. The terms of this Agreement shall not be waived, altered, modified, amended, supplemented or terminated in any manner whatsoever except by written instrument signed by the parties.

6.Successors and Assigns. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto.
7.Relationship of Parties. With respect to the purchase of the Participations, HCFT and OSF shall occupy the relationship of seller and buyer of a property interest. There is not intended hereby and shall not be construed to exist any fiduciary relationship between HCFT and OSF. In no event shall either party be considered an agent of the other party.
8.Notices. All notices, demands, requests, consents, approvals or other communications required or permitted to be given hereunder shall be in writing and shall be sent, and be deemed given, as provided in the Participation Agreements to the addresses set forth on Schedule 2 hereto.
9.Governing Law. This Agreement and the rights and obligations of the respective parties hereunder shall be governed by and interpreted in accordance with the laws of the State of New York, without reference to its choice of law rules.
10.Headings. All headings herein are inserted only for convenience and ease of reference and are not to be considered in the construction or interpretation of any provision of this Agreement.
11.Counterparts. This Agreement may be executed in a number of counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement.
12.Further Assurances. HCFT and OSF will each execute and deliver to the other such reasonable and appropriate additional documents, instruments or agreements as may be necessary or appropriate to effect the purposes of this Agreement.

[The remainder of this page was intentionally left blank.]




Exhibit 10.2
EXECUTION VERSION

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above.


OREC STRUCTURED FINANCE CO., LLC

        
By: /s/ Bob Kirkwood 
Title: Chief Financial Officer

HUNT COMPANIES FINANCE TRUST, INC.

        
By: /s/ Michael Larsen 
Title: President








        
        


Schedule 11
Future Funding Participations and Participation Agreements
1.Participation Certificate No. FF-3 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of March 29, 2019, between Hunt CRE 2017-FL1 Seller, LLC (“Seller”) and Hunt Real Estate Capital, LLC (formerly known as Hunt Mortgage Group, LLC) (“HREC”), relating to that certain mortgage loan secured by real property located at 6406 North Interstate Highway 35, Austin, Texas. (The Linc).
2.Participation Certificate No. 1 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of January 24, 2020, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 6406 North Interstate Highway 35, Austin, Texas. (The Rise at Signal Mountain).
3.Participation Certificate No. FF-2 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of December 27, 2019, between Seller and HREC, relating to that certain mortgage loan secured by real properties located at 4411 Gardendale Street, 8710 Datapoint Drive, and 14001 Oak Meadows, Austin, Texas. (The San Antonio Lynd Portfolio).
4.Participation Certificate No. 2 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of March 29, 2019, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 2500 East James Avenue, Baytown, Texas (Flats at James Place).
5.Participation Certificate No. FF-2 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of August 30, 2019, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 648 Whisper Trail, Austell, Georgia (Villas at Riverside).
6.Participation Certificate No. FF-2 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of February 8, 2019, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 257 South 16th Street, Philadelphia, Pennsylvania (The Bentley).
7.Participation Certificate No. FF-3 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of August 9, 2018, among Seller, Hunt Commercial Mortgage Trust (“HCMT”), and HREC, relating to that certain mortgage loan secured by real property located at 9690 Forest Lane, Dallas, Texas (Park Ninety Six 90).
8.Participation Certificate No. FF-4 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of December 21, 2018, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 1373 Lee's Chapel Road, Greensboro, North Carolina (Northwinds Apartments).
9.Participation Certificate No. FF-2 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of September 13, 2019, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 8225 Calmont Avenue, Fort Worth, Texas (Manitoba Apartments).
10.Participation Certificate No. FF-3 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of July 12, 2019, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 7101 Wolflin Avenue, Amarillo, Texas (Rock Island Apartments).
11.Participation Certificate No. FF-2 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of December 18, 2019, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 2943 Spring Park Road, Jacksonville, Florida (Spring Park Place).
12.Participation Certificate No. FF-2 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of June 25, 2019, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 2447 Harry Wurzbach Road, San Antonio, Texas (Brix at Terrell Hills).
13.Participation Certificate No. FF-2 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of January 16, 2020, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 1030 NE 7th Avenue, Fort Lauderdale, Florida (Privilege Apartments).
14.Participation Certificate No. FF-2 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of June 17, 2019, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 11726 West Avenue, San Antonio, Texas (Autumn Brook Apartments).
1 Initial parties are listed.


15.Participation Certificate No. 1 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of December 18, 2019, between Seller and HREC, relating to that certain mortgage loan secured by real properties located at 246 Chestnut Hill Road and 1565 Austell Road, Marietta, Georgia. (The Marietta Portfolio).
16.Participation Certificate No. FF-3 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of September 13, 2019, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 918 East 40th Street, Austin, Texas (Miller Square Apartments).
17.Participation Certificate No. 2 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of April 12, 2019, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 5581 Burnlee Place, Raleigh, North Carolina (Colony Townhomes).
18.Participation Certificate No. FF-5 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of April 30, 2018, among Seller, HCMT, and HREC, relating to that certain mortgage loan secured by real property located at 3430-3448 Freedom Park Drive, North Highlands, California (Freedom Park Apartments).
19.Participation Certificate No. FF-3 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of June 14, 2019, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 1501 Kinney Avenue, Austin, Texas (Barton Ridge).
20.Participation Certificate No. FF-4 issued pursuant to the Participation Agreement and Future Funding Indemnification Agreement, dated as of November 7, 2018, between Seller and HREC, relating to that certain mortgage loan secured by real property located at 1540 Chenault Street, Dallas, TX (Royal Orleans).



Schedule 2
Notice Addresses
If to OREC SF:
OREC Structured Finance, LLC
10 West Broad Street, 8th Floor
Columbus, OH 43215
Attention: Legal Department
Phone: (614) 857-1400
Email: James.Henson@orixrealestatecapital.com

If to HCFT:
Hunt Companies Finance Trust, Inc.
230 Park Avenue, 23rd Floor
New York, NY 10169
Attention: Legal Department
Phone: (212) 317-570
Email: Mustafa.Haque@huntrealestatecapital.com



Exhibit 10.3
EXECUTION VERSION
AMENDMENT NO. 1 TO PARTICIPATION AGREEMENTS

THIS AMENDMENT NO. 1 TO PARTICIPATION AGREEMENTS, dated as of
August 5, 2020 (this “Amendment”), is entered into by and among HUNT CRE 2017-FL1 SELLER, LLC (“Seller”), HUNT CRE 2017-FL1, LTD. (“Issuer”), ORIX REAL ESTATE
CAPITAL HOLDINGS, LLC (“Future Funding Indemnitor”), and OREC STRUCTURED FINANCE CO., LLC (“OSF”).

W I T N E S S E T H:

WHEREAS, Seller, Hunt Real Estate Capital, LLC (f/k/a Hunt Mortgage Group, LLC) and Issuer (as the current holder of the Initial Funded Participation A (as defined in the Participation Agreements)) are parties to those certain participation agreements as more particularly described on Schedule 1 hereto (collectively, the “Participation Agreements”);

WHEREAS, Future Funding Indemnitor succeeded to the interests of Hunt Real Estate Capital, LLC (f/k/a Hunt Mortgage Group, LLC) by merger on April 1, 2020;

WHEREAS, Seller intends to transfer the unfunded portion of all of its Future Funding Participation Interests under the Participation Agreements (the “Acquired Future Funding Participation Interests”) to OSF, a wholly owned subsidiary of Future Funding Indemnitor;

NOW, THEREFORE, in consideration of the premises herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1.Qualified Transferee. The definition of “Qualified Transferee” in each Participation Agreement is hereby amended by adding the expression “, ORIX Real Estate Capital Holdings, LLC, or any of its direct or indirect subsidiaries” after the words “Hunt Commercial Mortgage Trust, or any of its direct or indirect subsidiaries” or the words “the Initial Funded Participation A Holder or any of its direct or indirect subsidiaries”, as the case may be.

2.Transfer of Future Funding Participation Interests. The fourth sentence of Section 8(a) is amended by adding the following to the end: “or (iv) to ORIX Real Estate Capital Holdings, LLC, or any of its direct or indirect subsidiaries”.

3.Joinder. By its signature hereto, OSF hereby joins in the Participation Agreements (as amended hereby), and the parties hereto agree that OSF shall be subject to all of the responsibilities, duties, liabilities and obligations, and entitled to all of the rights and benefits of, the “Future Funding Participation Interest Holder” thereunder as they relate to the Acquired Future Funding Participation Interests.

4.Defined Terms. Unless otherwise noted herein, terms defined in the Participation Agreements and used herein shall have the meanings given to them in the Participation Agreements.





















IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the date first above written.
SELLER:

HUNT CRE 2017-FL1 SELLER, LLC

By: /s/ Nicholas Capogrosso 
Title: Vice President

ISSUER:

HUNT CRE 2017-FL1, LTD.

By: /s/ Nicholas Capogrosso 
Title: Vice President

FUTURE FUNDING INDEMNITOR:

ORIX REAL ESTATE CAPITAL HOLDINGS, LLC

        
By: /s/ Bob Kirkwood 
Title: Chief Financial Officer

OSF:

OREC STRUCTURED FINANCE CO., LLC

By: /s/ Bob Kirkwood 
Title: Chief Financial Officer








         
Exhibit 10.4
EXECUTION VERSION



AMENDMENT NO. 1 TO FUTURE FUNDING AGREEMENT

THIS AMENDMENT NO. 1 TO FUTURE FUNDING AGREEMENT, dated as of
August 5, 2020 (this “Amendment”), is entered into by and among HUNT CRE 2017-FL1 SELLER, LLC (“Seller”), HUNT COMMERCIAL MORTGAGE TRUST (“Pledgor”), ORIX REAL ESTATE CAPITAL HOLDINGS, LLC (“Future Funding Indemnitor”), WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee (“Secured Party”), and OREC STRUCTURED FINANCE CO., LLC (“OSF”).

W I T N E S S E T H:

WHEREAS, Seller, Pledgor, Hunt Mortgage Group, LLC and Secured Party are parties to that certain Future Funding Agreement, dated as of August 15, 2017 (the “Future Funding Agreement”);

WHEREAS, Future Funding Indemnitor succeeded to the interests of Hunt Real Estate Capital, LLC (f/k/a Hunt Mortgage Group, LLC) by merger on April 1, 2020;

WHEREAS, Seller intends to transfer the unfunded portion of all of its Future Funding Participations to OSF, itself a wholly owned subsidiary of Future Funding Indemnitor;

NOW, THEREFORE, in consideration of the premises herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1.Obligor. For purposes of Sections 2, 3, 5, 6 and 10 of the Future Funding Agreement, the term “Obligor” shall mean OSF, and OSF hereby joins in such provisions of the Future Funding Agreement (as amended hereby) and the parties hereto agree that OSF shall be subject to all of the responsibilities, duties, liabilities and obligations, and entitled to all of the rights and benefits of, the “Obligor” thereunder.

2.Notices.

(a) For purposes of Section 9 (a) of the Future Funding Agreement, all demands, notices and communications to the Obligor (as defined therein), shall be in writing and addressed to the following:

OREC Structured Finance Co., LLC 10 W. Broad Street, 8th Floor Columbus, Ohio 43215
Attention: General Counsel Phone: 614-857-1517
Email: james.henson@orixrealestatecapital.com

















IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the date first above written.

SELLER:

HUNT CRE 2017-FL1 SELLER, LLC

By: /s/ Nicholas Capogrosso 
Title: Vice President

PLEDGOR:

HUNT COMMERCIAL MORTGAGE TRUST

By: /s/ Precilla Torres 
Title: Executive Vice President

FUTURE FUNDING INDEMNITOR:

ORIX REAL ESTATE CAPITAL HOLDINGS, LLC

        
By: /s/ Bob Kirkwood 
Title: Chief Financial Officer

OSF:

OREC STRUCTURED FINANCE CO., LLC

By: /s/ Bob Kirkwood 
Title: Chief Financial Officer






















Hunt CRE 2017-FL1 – Amendment No. 1 to Future Funding Agreement


Exhibit 31.1
 
Certification of Principal Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
 
I, James P. Flynn, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Hunt Companies Finance Trust, Inc.
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 statements made, 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 financial condition, 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 Act Rules 13a-15(e) and 15d-15(e)) and internal control over the financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during 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 in accordance 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 effectiveness of 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 fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.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's auditors 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 likely to 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 over financial reporting.

Date: August 7, 2020 /s/ James P. Flynn
  James P. Flynn
  Chief Executive Officer



Exhibit 31.2
 
Certification of Principal Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
 
I, James A. Briggs, certify that:
 
1.I have reviewed this Quarterly Report on Form 10-Q of Hunt Companies Finance Trust, Inc.
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 statements made, 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 financial condition, 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 Act Rules 13a-15(e) and 15d-15(e)) and internal control over the financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during 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 in accordance 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 effectiveness of 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 fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.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's auditors 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 likely to 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 over financial reporting.

Date: August 7, 2020 /s/ James A. Briggs
  James A. Briggs
  Chief Financial Officer (principal financial officer and principal accounting officer)



Exhibit 32.1
 
CERTIFICATION PURSUANT TO
17 CFR 240.15d-14(b) AND
18 U.S.C. SECTION 1350

 
In connection with the Quarterly Report on Form 10-Q of Hunt Companies Finance Trust, Inc. (the “Company”) for the period ended June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James P. Flynn, as Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 17 CFR 240.15d-14(b) and 18 U.S.C. Section 1350, that, to the best of my knowledge:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: August 7, 2020 /s/ James P. Flynn
  James P. Flynn
  Chief Executive Officer (principal executive officer)
 
A signed original of this written statement required by Section 906 has been provided to Hunt Companies Finance Trust, Inc. and will be retained by it and furnished to the Securities and Exchange Commission or its staff upon request.



Exhibit 32.2
 
CERTIFICATION PURSUANT TO
17 CFR 240.15d-14(b) AND
18 U.S.C. SECTION 1350

 
In connection with the Quarterly Report on Form 10-Q of Hunt Companies Finance Trust, Inc. (the “Company”) for the period ended June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James A. Briggs, as Chief Financial Officer (principal financial officer and principal accounting officer) of the Company, certify, pursuant to 17 CFR 240.15d-14(b) and 18 U.S.C. Section 1350, that, to the best of my knowledge:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: August 7, 2020 /s/ James A. Briggs
  James A. Briggs
  Chief Financial Officer (principal financial officer and principal accounting officer)
 
A signed original of this written statement required by Section 906 has been provided to Hunt Companies Finance Trust, Inc. and will be retained by it and furnished to the Securities and Exchange Commission or its staff upon request.