SecProbe.io

Mail Stop 3233
June 7, 2016

Via E -mail
Michael Szymanski
Chief Executive Officer
ZAIS Financial Corp.
Two Bridge Avenue, Suite 322
Red Bank, New Jersey 07701 -1106

Re: ZAIS Financial Corp.
Registration Statement on Form S -4
Filed May 10, 2016
  File No. 333 -211251
  Form 10 -K for Fiscal Year Ended December 31, 2015
  File No. 001 -35808

Dear Mr. Szymanski :

We have reviewed your registration statement  and have the following comments.  In
some of our comments, we may ask you to provide us with information so we may better
understand your disclosure.

Please respond to this letter by amending your registration statement and providing the
requested information .  If you do not believe our c omments apply to your facts and
circumstances or do not believe an amendment is appropriate, please tell us why in your
response.

After reviewing any amendment to your registration statement and the information you
provide in response to these  comments,  we may have additional comments.

Registration Statement on Form S -4 Filed May 10, 2016

General

1. We note that upon completion of the mergers, the combined company will focus on small
balance commercial lending with approximately 10% target equity alloc ation to
residential mortgages.  We further note that you intend to operate your business in a
manner that will permit you to maintain an exemption from registration under the 1940
Act.  Please provide us with a detailed analysis of the exemption that you and your
subsidiaries intend to rely on and how your investment strategy will support the
exemption.  Please note that we will refer your response to the Division of Investment
Management for further review.

Michael Szymanski
ZAIS Financial Corp.
June 7, 2016
Page 2

 2. Please tell us what consideration you gave to in cluding a discussion and corresponding
risk factor related to the material weaknesses identified by Sutherland’s independent
public registered public accounting firm in connection with the audit of its financial
statements for the year ended December 31, 2 014.

3. With respect to each person who will serve as a director or executive officer of the
surviving company, please provide the disclosure required by Item 402 of Regulation S -
K or advise.  We note that Mr. Herbst served as CFO of Sutherland and dedicated  his
time exclusively to its affairs.

4. Please revise to include the disclosure required by Item 407(a) of Regulation S -K or
advise.  Refer to Item 18(a)(7)(iii) of Form S -4.

Joint Letter to Stockholders

5. Please revise the joint letter to stockholders to clarify, if true, that the tender offer price
will be at a discount to the merger consideration and/or market capitalization of the
combined company.  Please also tell us what consideration you gave to presenting
ownership percentages of the combined compa ny assuming the tender offer is not fully
subscribed.

Questions and Answers, page 1

6. On page 3 you discuss how ZAIS Financial stockholders will be affected by the mergers
and the issuance of shares to Sutherland.  The answer presents an assumed exchange r atio
as of December 31, 2015, assuming the tender offer is fully subscribed.  Please balance to
present the exchange ratio as of December 31, 2015 assuming the tender offer is not fully
subscribed or advise.

Risk Factors, page 30

We anticipate that a sig nificant portion of the combined company’s investments will be in the
form of SBC loans which are subject to increased risks, page 35

7. Please quantify the aggregate dollar carrying value of Sutherland’s sub -performing and
non-performing loans.

The combine d company and GMFS are subject to risks and can be exposed to significant losses
relating to inaccurate representations made in connection with loan sales to third parties, page 59

8. Please quantify the loan indemnification reserve to provide context to you r statement that
losses in excess of the loan indemnification reserve, total contingent consideration and
the escrow account could have a material adverse impact on ZAIS Financial’s and the
combined company’s results of operations, financial position or ca sh flows.

Michael Szymanski
ZAIS Financial Corp.
June 7, 2016
Page 3

Sutherland is a seller/servicer approved to sell mortgage loans to Freddie Mac and failure to
maintain the combined company’s status as an approved seller/servicer could harm the combined
company’s business, page 65

9. We understand that the combi ned company could be required to re -purchase loans
previously sold to Freddie Mac if it fails to maintain status as an approved seller/servicer.
Please quantify the amount of loans that may be required to be re -purchased to provide
additional context to t his risk factor.

Counterparties to certain significant agreements with Sutherland and ZAIS Financial may have
consent rights in connection with the mergers, page 73

10. Please expand to discuss, with greater specificity, those agreements with consent rights
that may result in default or termination rights, to the extent material.

The Mergers, page 104

Background of the Mergers, page 104

11. Please revise the paragraph discussing the July 31, 2015 ZAIS Financial board meeting to
explain the nature of the update  ZAIS Financial management provided to the board.
Please describe in greater detail the “other potential alternatives” discussed at this
meeting.

12. We note that a representative of BofA Merrill Lynch provided a report on the proposed
transaction with ZAIS Financial to the Sutherland board on November 12, 2015.  Please
elaborate on the nature of this report and provide all disclosure required by Item 4(b) of
Form S -4, to the extent applicable.

13. Please revise the discussion of the initial non -binding indicati on of interest ZAIS
Financial received on November 19, 2015 to disclose the exchange ratio contemplated for
the stock -for-stock merger.

14. On page 111 you state that ZAIS Financial entered into expense reimbursement
agreements with party A, party B and Suthe rland.  On page 112, you state that party B
and Sutherland entered into expense reimbursement agreements.  Please revise to ensure
consistency.

15. We understand that the revised draft merger agreement Alston distributed to Sidley on
February 15, 2016  contemplated a repurchase of $64.3 million aggregate value of shares
in a tender offer “based on the $7.23 per  share price indicated by Sutherland in its
January 8 proposal.”   The prior discussion of the January 8 proposal referenced a stock -
for-stock mer ger as well as a pre -merger, one -time cash payout of $7.23 per share to

Michael Szymanski
ZAIS Financial Corp.
June 7, 2016
Page 4

 ZAIS Financial stockholders.  Please revise to clarify if the January 8 proposal
contemplated a tender offer, as opposed to a pre -merger cash payout to ZAIS Financial
stockholders

16. Please revise the discussion of the period between February 27, 2016 and March 7, 2016
to explain the considerations taken into account in connection with the parties’ tentative
agreement to reduce ZAIS Financial’s book value by $15 million for purposes of
determining the exchange ratio.

17. Please revise to describe the impact of Sutherland’s exchange ratio and tender offer price,
as contemplated by the draft merger agreement distributed on March 11, 2016 and how it
compared to the proposal submitted by Alston o n March 8, 2016.

18. Please discuss in greater detail the proposed resolutions contained in the March 19, 2016
draft merger agreement.  Please similarly describe material modifications to the merger
agreement during the negotiations that took place between Ma rch 21 and March 30,
2016.

Opinion of Financial Advisor to ZAIS Financial, page 126

19. Please provide us with copies of the materials that Houlihan and BofA Merrill Lynch
prepared in connection with their fairness opinions or otherwise provided to each boar d
of directors in connection with this transaction, including any board books, drafts of
fairness opinions, and summaries of oral presentations made to the board.  We may have
additional comments after we review this material.

20. We understand that ZAIS Fina ncial provided financial projections to Houlihan, which it
considered in conducting its net liquidation value analysis.  Please revise to describe the
financial projections provided, assuming that GMFS was placed into a liquidating trust,
and explain the m ethodology used to determine the discount rate of 14.2%.

21. In your discussion of the Selected Public Companies Analysis, please state if there were
any companies that fit your selection criteria but were excluded from the analyses.
Please explain the reas on(s) for the exclusion.

22. On page 136, under the heading “Other Information – ZAIS Financial and Sutherland,”
you disclose the implied value assuming a cash tender offer taking into account the
termination of the existing management agreement (of $8 millio n) and a $4 million
transaction related adjustment.  It appears that Houlihan did not consider the adjustment
to the tender offer price for expenses and reserves associated with certain litigation
relating to the mergers.  Please clarify the extent to whic h Houlihan’s analysis is based on
adjustments that differ from the manner in which the cash tender offer price will be
calculated.

Michael Szymanski
ZAIS Financial Corp.
June 7, 2016
Page 5

 Opinion of Financial Advisor to Sutherland, page 137

23. Please revise the Selected Publicly Traded Companies Analysis to explain the selection
criteria BofA Merrill Lynch utilized to select the companies identified.  If any companies
fit the selection criteria but were excluded from the analysis, please explain  the reason(s)
for the exclusion.

24. We understand that the discounted cash flow analysis is based on the Sutherland
Forecasts and the Sutherland -ZAIS Remain Co. Forecasts.  Please revise to describe these
forecasts or advise us why you believe the forecasts  are not necessary for shareholders to
appropriately evaluate the discounted cash flow analysis.

25. We note that Sutherland agreed to pay BofA Merrill Lynch an aggregate fee of $3
million, a significant portion of which is contingent upon completion of the m erger.
Please quantify the contingent portion of the fee.

26. We note that the description of the material relationships between BofA Merrill Lynch
and Sutherland or ZAIS does not provide a quantitative description of the fees paid to
BofA Merrill Lynch and its affiliates by Sutherland and its affiliates or ZAIS and its
affiliates.  Please revise to provide this disclosure or advise.

Other Agreements, page 205

Incentive Distribution, page 209

27. Given the complexity of the incentive fee calculation, please co nsider including a
hypothetical example in the joint proxy statement/prospectus.

Sutherland Management’s Discussion and Analysis of Financial Condition  and Results of
Operation s, page 222

Critical Accounting Policies and Use of Estimates , page 225

Servi cing rights, page 229

28. On page F -40, we note your disclosure of significant assumptions and that your
assumptions for forward prepayment rates and forward default rates changed from
December 31, 2014 to December 31, 2015.  Please tell us the basis for thes e changes and
revise your filing to disclose the basis for these changes in assumptions.

Liquidity and Ca pital Resources, page 239

29. We note that you accounted for repurchase agreements as collateralized financing
transactions.  Please expand your disclosure to quantify the average quarterly balance of

Michael Szymanski
ZAIS Financial Corp.
June 7, 2016
Page 6

 your repurchase agreements for each of the past three years.  In addition, quantify the
period end balance for each of those quarters and the maximum balance at any month -
end.  Explain the causes and business reasons for any significant variances among these
amounts.

Contractual Obligations, page 245

30. It appears that your contractual obligation table does not include all contractual
obligations on the balance sheet such as securitiz ed debt obligations of consolidated VIE
and Guaranteed loan financings.  Please explain to us why these items are not included in
the contractual obligations table and/or make changes to include all of the contractual
obligations in the next amendment.  To  the extent that you do not revise your filing to
include the securitized debt obligations of consolidated VIEs, please revise to footnote
your table to disclose that such obligation and the related interest payments are excluded
from this table and disclo se your basis  for the exclusion.

31. It does not appear that you have included interest payments in your contractual
obligations table.  Please revise to disclose the amount of interest related to your debt in
future filings, or advise.  Please refer to footnote 46 in our Release 33 -8350.

32. We note your qualitative disclosure of interest rate risk associated with your various
financial instruments and outstanding debt.  Please expand to provide your market risk
disclosure using one of the three disclosure alternatives as prescribed under Item 305 of
Regulation S -K.

Unaudited Pro Forma Condensed Combined Financial Information, page 248

33. Please revise adjustment s to adjustment r and revise adjustment u to adjustment s in the
ZAIS  Financial Reclass column on  page 250.

34. We note Sutherland does not record its mortgage servicing rights at fair value and ZAIS
records its mortgage servicing rights at fair value.  We note you do not include an
adjustment to remove the change in fair value of mortgage servicing righ ts.  Please tell us
and revise your filing to clarify if you will continue to record the ZAIS  mortgage
servicing rights at fair value or if you will apply Sutherland’s accounting policy to these
mortgage servicing rights.  To the extent you will account fo r these mortgage servicing
rights at fair value, please tell us your basis in U.S. GAAP for applying two different
accounting policies to your mortgage servicing rights.  To the extent you will account for
the mortgage servicing rights under Sutherland’s a ccounting policy, please tell us how
you have determined it was not necessary to include a pro forma adjustment f or mortgage
servicing rights.

35. It appears that ZAIS  allocates a portion of the change of fair value of certain mortgage
loans held for investme nt to interest income.  It does not appear that Sutherland allocates

Michael Szymanski
ZAIS Financial Corp.
June 7, 2016
Page 7

 a portion of the change of fair value of certain mortgage loans held for investment to
interest income.  We note you do not include a pro forma adjustment to account for the
difference in  accounting policies.  Please tell us and revise your filing to clarify how you
will account for this fair value change in future periodic filings.  To the extent you will
account for these changes under two different methods, please tell us your basis in U.S.
GAAP for applying two different accounting policies.  To the extent you will account for
these changes under Sutherland’s accounting policy, please tell us how you have
determined it was not necessary to include a pro forma adjustment.

36. Refer to your adjustment for net income attributable to non -controlling interests.  Please
revise to include an e xplanation of such adjustment.

37. Refer to footnote (A). We note you disclose an estimated bargain purchase gain of
$21,502 resulting from the merger transacti on.  We also note the disclosed reasons for the
ZAIS  acquisition on page 125 that ZAIS  offers strategic and financial opportunities,
knowledge of current operating environment, economic of scales as well as access to
public market.   In that regard, please explain to us how you consider the guidance within
ASC 805 -30-25-4 and ASC 805 -30-30-4 to 6 in determining whether you have
unidentified assets and liabilities including any intellectual property or customer related
intangible asse