Residential Loans

We acquire residential loans from third-party originators. The following table summarizes the classifications and carrying values of the residential loans owned at Redwood and at consolidated Sequoia entities at June 30, 2015 and December 31, 2014.



June 30, 2015
(In Thousands)	Redwood		Sequoia ⁽¹⁾		Total
Held-for-sale
Fair value - conforming	$	248,157	$	—	$	248,157
Fair value - jumbo	642,466		—		642,466
Lower of cost or fair value	1,458		—		1,458
Held-for-investment
Fair value - Jumbo	1,157,285		1,237,114		2,394,399
Total Residential Loans	$	2,049,366	$	1,237,114	$	3,286,480



December 31, 2014
(In Thousands)	Redwood		Sequoia ⁽¹⁾		Total
Held-for-sale
Fair value - conforming	$	244,714	$	—	$	244,714
Fair value - jumbo	1,096,317		—		1,096,317
Lower of cost or fair value	1,488		—		1,488
Held-for-investment
Fair value - jumbo	581,668		—		581,668
At amortized cost	—		1,474,386		1,474,386
Total Residential Loans	$	1,924,187	$	1,474,386	$	3,398,573


(1)	Upon adoption of ASU 2014-13 on January 1, 2015, loans held-for-investment at consolidated Sequoia entities began to be recorded at fair value. See Note 3 for further discussion.

At June 30, 2015, we owned mortgage servicing rights associated with $1.82 billion (principal balance) of consolidated residential loans purchased from third-party originators. The value of these MSRs is included in the carrying value of the associated loans on our balance sheet. We contract with a licensed sub-servicer that performs servicing functions for these loans.

Residential Loans Held-for-Sale

Residential Loans at Fair Value

At June 30, 2015, we owned 1,682 loans held-for-sale at fair value with an unpaid principal balance of $876 million, compared to 2,273 loans with an unpaid principal balance of $1.30 billion at December 31, 2014. At June 30, 2015 and December 31, 2014, none of these loans were greater than 90 days delinquent and none of the loans were in foreclosure.

During the three and six months ended June 30, 2015, we purchased $2.78 billion and $5.18 billion (principal balance) of loans, respectively, for which we elected the fair value option and recorded $3 million and $1 million of negative valuation adjustments, respectively, on residential loans held-for-sale at fair value through mortgage banking and investment activities, net, a component of our consolidated statements of income. During the three and six months ended June 30, 2015, we sold $2.74 billion and $4.93 billion (principal balance) of loans held-for-sale, respectively. At June 30, 2015 loans held-for-sale with a principal balance of $848 million were pledged as collateral under short-term borrowing agreements.

Residential Loans at Lower of Cost or Fair Value

At June 30, 2015 and December 31, 2014, we held nine residential loans at the lower of cost or fair value with $2 million in outstanding principal balance and a carrying value of $1 million for both periods.

Residential Loans Held-for-Investment at Fair Value

Residential Loans at Redwood

At June 30, 2015, we owned 1,519 held-for-investment loans at Redwood with an unpaid principal balance of $1.13 billion, compared to 803 loans with an unpaid principal balance of $566 million at December 31, 2014. At June 30, 2015 and December 31, 2014, one of these loans was greater than 90 days delinquent and none of the loans were in foreclosure.

During the three and six months ended June 30, 2015, we transferred loans with a principal balance of $213 million and $650 million and a fair value of $215 million and $662 million, respectively, from held-for-sale to held-for-investment, bringing the total amount of loans held-for-investment at fair value to $1.16 billion at June 30, 2015. During the three and six months ended June 30, 2015, we recorded negative $6 million and negative $4 million of valuation adjustments, respectively, on residential loans held-for-investment at fair value through mortgage banking and investment activities, net, a component of our consolidated statements of income. At June 30, 2015, $1.02 billion of these loans were pledged as collateral under a borrowing agreement with the FHLBC.

The outstanding loans held-for-investment at Redwood at June 30, 2015 were originated in 2014 and 2015 and the weighted average FICO score of borrowers backing these loans was 772 (at origination) and the weighted average loan-to-value ("LTV") ratio of these loans was 65% (at origination). At June 30, 2015, these loans were comprised of 91% fixed-rate loans with a weighted average coupon of 4.06%, and the remainder were hybrid loans with a weighted average coupon of 3.30%.

Residential Loans at Consolidated Sequoia Entities

On January 1, 2015, we eliminated $13 million of unamortized premium, net and $21 million of allowance for loan losses, related to loans at our consolidated Sequoia entities as part of our initial adoption of ASU 2014-13 and recorded a valuation adjustment on these loans to reduce the loan carrying values to their estimated fair values. See Note 3 for further discussion.

The following table details the carrying value for residential loans held-for-investment at consolidated Sequoia entities at June 30, 2015 and December 31, 2014.



(In Thousands)	June 30, 2015			December 31, 2014
Principal balance	$	1,343,333		$	1,483,213
Unamortized premium, net	—			12,511
Allowance for loan losses	—			(21,338		)
Valuation adjustment	(106,219		)	—
Carrying value	$	1,237,114		$	1,474,386

At June 30, 2015, we owned 4,999 held-for-investment loans at consolidated Sequoia entities, as compared to 5,315 loans at December 31, 2014. The weighted average FICO score of borrowers backing these loans was 732 (at origination) and the weighted average LTV ratio of these loans was 66% (at origination). At June 30, 2015 and December 31, 2014, the unpaid principal balance of loans at consolidated Sequoia entities delinquent greater than 90 days was $66 million and $73 million, respectively, and the unpaid principal balance of loans in foreclosure was $36 million and $39 million, respectively. During the three and six months ended June 30, 2015, we recorded positive $2 million and $5 million, respectively, of net valuation adjustments on these loans through mortgage banking and investment activities, net on our consolidated statements of income.