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Residential Loans
 12 Months Ended
Dec. 31, 2017
Receivables [Abstract]  
Residential Loans
Residential Loans
We acquire residential loans from third-party originators and may sell or securitize these loans or hold them for investment. The following table summarizes the classifications and carrying values of the residential loans owned at Redwood and at consolidated Sequoia entities at December 31, 2017 and December 31, 2016.
Table 6.1 – Classifications and Carrying Values of Residential Loans
December 31, 2017
 
 
 
Legacy
 
Sequoia
 
 
(In Thousands)
 
Redwood
 
Sequoia
 
Choice
 
Total
Held-for-sale
 
 
 
 
 
 
 
 
At fair value
 
$
1,427,052

 
$
—

 
$
—

 
$
1,427,052

At lower of cost or fair value
 
893

 
—

 
—

 
893

Total held-for-sale
 
1,427,945

 
—


—

 
1,427,945

Held-for-investment at fair value
 
2,434,386

 
632,817

 
620,062

 
3,687,265

Total Residential Loans
 
$
3,862,331

 
$
632,817


$
620,062

 
$
5,115,210

December 31, 2016
 
 
 
Legacy
 
Sequoia
 
 
(In Thousands)
 
Redwood
 
Sequoia
 
Choice
 
Total
Held-for-sale
 
 
 
 
 
 
 
 
At fair value
 
$
834,193

 
$
—

 
$
—

 
$
834,193

At lower of cost or fair value
 
1,206

 
—

 
—

 
1,206

Total held-for-sale
 
835,399

 
—


—

 
835,399

Held-for-investment at fair value
 
2,261,016

 
791,636

 
—

 
3,052,652

Total Residential Loans
 
$
3,096,415

 
$
791,636


$
—

 
$
3,888,051


At December 31, 2017, we owned mortgage servicing rights associated with $3.03 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 consolidated balance sheets. We contract with licensed sub-servicers that perform servicing functions for these loans.
Residential Loans Held-for-Sale
At Fair Value
At December 31, 2017, we owned 2,009 loans held-for-sale at fair value with an aggregate unpaid principal balance of $1.41 billion and a fair value of $1.43 billion, compared to 1,114 loans with an aggregate unpaid principal balance of $0.83 billion and a fair value of $0.83 billion at December 31, 2016. At December 31, 2017, one of these loans with a fair value of $0.5 million was greater than 90 days delinquent and none of these loans were in foreclosure. At December 31, 2016, none of these loans were greater than 90 days delinquent or in foreclosure.
During the years ended December 31, 2017 and 2016, we purchased $5.64 billion and $4.85 billion (principal balance) of loans, respectively, for which we elected the fair value option, and we sold $4.21 billion and $4.04 billion (principal balance) of loans, respectively, for which we recorded net market valuation gains of $31 million and $6 million, respectively, through Mortgage banking activities, net on our consolidated statements of income. At December 31, 2017, loans held-for-sale with a market value of $1.15 billion were pledged as collateral under short-term borrowing agreements.
At Lower of Cost or Fair Value
At December 31, 2017 and December 31, 2016, we held four and seven residential loans, respectively, at the lower of cost or fair value with $1 million and $2 million in outstanding principal balance, respectively, and a carrying value of $1 million for both periods. At both December 31, 2017 and December 31, 2016, one of these loans with an unpaid principal balance of $0.3 million was greater than 90 days delinquent and none of these loans were in foreclosure.
Residential Loans Held-for-Investment at Fair Value
At Redwood
At December 31, 2017, we owned 3,292 held-for-investment loans at Redwood with an aggregate unpaid principal balance of $2.41 billion and a fair value of $2.43 billion, compared to 3,068 loans with an aggregate unpaid principal balance of $2.23 billion and a fair value of $2.26 billion at December 31, 2016. At December 31, 2017, none of these loans was greater than 90 days delinquent or in foreclosure. At December 31, 2016, one of these loans with an unpaid principal balance of $0.2 million was greater than 90 days delinquent and none of these loans were in foreclosure.
During the years ended December 31, 2017 and 2016, we transferred loans with a fair value of $0.60 billion and $1.06 billion, respectively, from held-for-sale to held-for-investment. During the years ended December 31, 2017 and 2016, we transferred loans with a fair value of $99 million and $56 million, respectively, from held-for-investment to held-for-sale.
During the years ended December 31, 2017 and 2016, we recorded net market valuation losses of $5 million and $23 million, respectively, on residential loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income. At December 31, 2017, loans with a fair value of $2.43 billion were pledged as collateral under a borrowing agreement with the FHLBC.
The outstanding loans held-for-investment at Redwood at December 31, 2017 were prime-quality, first lien loans, of which 96% were originated between 2013 and 2017, and 4% were originated in 2012 and prior years. The weighted average FICO score of borrowers backing these loans was 770 (at origination) and the weighted average loan-to-value ("LTV") ratio of these loans was 65% (at origination). At December 31, 2017, these loans were comprised of 92% fixed-rate loans with a weighted average coupon of 4.08%, and the remainder were hybrid or ARM loans with a weighted average coupon of 4.07%.
At Consolidated Legacy Sequoia Entities
At December 31, 2017, we owned 3,178 held-for-investment loans at consolidated Legacy Sequoia entities, with an aggregate unpaid principal balance of $698 million and a fair value of $633 million, as compared to 3,735 loans at December 31, 2016 with an aggregate unpaid principal balance of $887 million and a fair value of $792 million. At origination, the weighted average FICO score of borrowers backing these loans was 728, the weighted average LTV ratio of these loans was 66%, and the loans were nearly all first lien and prime-quality.
At December 31, 2017 and December 31, 2016, the unpaid principal balance of loans at consolidated Sequoia entities delinquent greater than 90 days was $25 million and $30 million, respectively, of which the unpaid principal balance of loans in foreclosure was $10 million and $11 million, respectively. During the years ended December 31, 2017 and 2016, we recorded a net market valuation gain of $23 million and a net market valuation loss of $14 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income. Pursuant to the collateralized financing entity guidelines, the market valuation changes of these loans are based on the estimated fair value of the associated ABS issued. The net impact to our income statement associated with our retained economic investment in the Legacy Sequoia securitization entities is presented in Note 5.
At Consolidated Sequoia Choice Entities
At December 31, 2017, we owned 806 held-for-investment loans at consolidated Sequoia Choice entities, with an aggregate unpaid balance of $605 million and a fair value of $620 million. There were no loans held at the Sequoia Choice entities at December 31, 2016. At origination, the weighted average FICO score of borrowers backing these loans was 742, the weighted average LTV ratio of these loans was 75%, and the loans were all first lien and prime-quality. At December 31, 2017, none of these loans were greater than 90 days delinquent or in foreclosure.
During the year ended December 31, 2017, we transferred loans with a fair value of $646 million from held-for-sale to held-for-investment, associated with Choice securitizations. During the year ended December 31, 2017, we recorded a net market valuation loss of $5 million on these loans through Investment fair value changes, net on our consolidated statements of income. Pursuant to the collateralized financing entity guidelines, the market valuation changes of these loans are based on the estimated fair value of the ABS issued associated with Choice securitizations. The net impact to our income statement associated with our retained economic investment in the Sequoia Choice securitization entities is presented in Note 5.
Residential Loan Characteristics
The following table presents the geographic concentration of residential loans recorded on our consolidated balance sheets at December 31, 2017 and December 31, 2016.
Table 6.2 – Geographic Concentration of Residential Loans
 
 
December 31, 2017
Geographic Concentration
(by Principal)
 
Held-for-Sale
 
Held-for-
Investment at Legacy Sequoia
 
Held-for-
Investment at Sequoia Choice
 
Held-for-
Investment at
FVO
California
 
35
%
 
18
%
 
39
%
 
45
%
Washington
 
9
%
 
2
%
 
7
%
 
5
%
Texas
 
7
%
 
5
%
 
10
%
 
9
%
Florida
 
4
%
 
13
%
 
4
%
 
5
%
Georgia
 
2
%
 
5
%
 
3
%
 
1
%
New York
 
2
%
 
9
%
 
3
%
 
4
%
Other states (none greater than 5%)
 
41
%
 
48
%
 
34
%
 
31
%
Total
 
100
%
 
100
%

100
%
 
100
%
 
 
December 31, 2016
Geographic Concentration
(by Principal)
 
Held-for-Sale
 
Held-for-
Investment at Legacy Sequoia
 
Held-for-
Investment at Sequoia Choice
 
Held-for-
Investment at
FVO
California
 
40
%
 
18
%
 
—
%
 
42
%
Texas
 
9
%
 
6
%
 
—
%
 
10
%
Washington
 
8
%
 
2
%
 
—
%
 
4
%
Florida
 
3
%
 
14
%
 
—
%
 
5
%
Georgia
 
2
%
 
5
%
 
—
%
 
1
%
New York
 
2
%
 
8
%
 
—
%
 
4
%
Other states (none greater than 5%)
 
36
%
 
47
%
 
—
%
 
34
%
Total
 
100
%
 
100
%

—
%
 
100
%

The following table displays the loan product type and accompanying loan characteristics of residential loans recorded on our consolidated balance sheets at December 31, 2017 and December 31, 2016.
Table 6.3 – Product Types and Characteristics of Residential Loans
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan Balance
 
 
Number of
Loans
 
Interest
 Rate(1)
 
Maturity
Date
 
Total
Principal
 
30-89
Days
DQ
 
90+
Days
DQ
Held-for-Investment at Redwood:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hybrid ARM loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
—

to
$250
 
 
7

 
3.50
%
to
3.88%
 
2043-08
-
2044-01
 
$
1,589

 
$
438

 
$
—

 
$
251

to
$500
 
 
43

 
2.63
%
to
4.88%
 
2043-07
-
2047-10
 
16,703

 
566

 
—

 
$
501

to
$750
 
 
87

 
2.88
%
to
5.13%
 
2040-09
-
2047-11
 
55,709

 
1,226

 
—

 
$
751

to
$1,000
 
 
82

 
2.88
%
to
6.00%
 
2043-12
-
2047-11
 
71,819

 
984

 
—

 
 
over
$1,000
 
 
40

 
3.00
%
to
5.00%
 
2040-10
-
2047-11
 
57,641

 
—

 
—

 
 
 
 
 
 
259

 
 
 
 
 
 
 
 
 
203,461

 
3,214

 
—

Fixed loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
—

to
$250
 
 
34

 
3.13
%
to
5.08%
 
2022-10
-
2046-02
 
6,758

 
—

 
—

 
$
251

to
$500
 
 
681

 
2.80
%
to
6.13%
 
2028-02
-
2047-12
 
296,950

 
1,380

 
—

 
$
501

to
$750
 
 
1,261

 
2.75
%
to
6.75%
 
2027-09
-
2047-12
 
777,103

 
3,818

 
—

 
$
751

to
$1,000
 
 
649

 
2.75
%
to
5.00%
 
2027-07
-
2047-12
 
559,426

 
2,566

 
—

 


over
$1,000
 
 
408

 
2.80
%
to
5.00%
 
2030-11
-
2048-01
 
564,295

 
—

 
—

 
 
 
 
 
 
3,033

 
 
 
 
 
 
 
 
 
2,204,532

 
7,764

 
—

Total HFI at Redwood:
 
3,292

 
 
 
 
 
 
 
 
 
$
2,407,993

 
$
10,978

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-for-Investment at Legacy Sequoia:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ARM loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
—

to
$250
 
 
2,324

 
1.25
%
to
5.16%
 
2019-02
-
2035-11
 
$
253,438

 
$
7,436

 
$
7,284

 
$
251

to
$500
 
 
541

 
1.00
%
to
5.63%
 
2021-03
-
2036-05
 
189,360

 
9,082

 
9,178

 
$
501

to
$750
 
 
151

 
1.63
%
to
4.00%
 
2024-05
-
2035-09
 
91,244

 
1,995

 
2,589

 
$
751

to
$1,000
 
 
76

 
1.38
%
to
3.38%
 
2022-01
-
2035-07
 
65,276

 
1,790

 
1,725

 


over
$1,000
 
 
53

 
1.00
%
to
4.63%
 
2027-03
-
2036-05
 
83,393

 
—

 
4,040

 
 
 
 
 
 
3,145

 
 
 
 
 
 
 
 
 
682,711

 
20,303

 
24,816

Hybrid ARM loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
—

to
$250
 
 
4

 
3.25
%
to
3.75%
 
2033-08
-
2034-06
 
530

 
—

 
—

 
$
251

to
$500
 
 
17

 
2.63
%
to
3.75%
 
2033-07
-
2034-12
 
6,170

 
—

 
—

 
$
501

to
$750
 
 
11

 
3.38
%
to
3.75%
 
2033-07
-
2034-11
 
7,091

 
—

 
641

 


over
$1,000
 
 
1

 
3.75
%
to
3.75%
 
2033-09
-
2033-09
 
1,420

 
—

 
—

 
 
 
 
 
 
33

 
 
 
 
 
 
 
 
 
15,211

 
—


641

Total HFI at Legacy Sequoia:
 
3,178

 
 
 
 
 
 
 
 
 
$
697,922

 
$
20,303

 
$
25,457

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-for-Investment at Sequoia Choice:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
$
0

to
$250
 
 
4

 
2.75
%
to
4.75%
 
2043-05
-
2047-07
 
$
641

 
$
—

 
$
—

 
$
251

to
$500
 
 
85

 
3.13
%
to
5.75%
 
2042-11
-
2047-10
 
38,900

 
486

 
—

 
$
501

to
$750
 
 
388

 
3.13
%
to
6.25%
 
2037-02
-
2047-11
 
240,538

 
672

 
—

 
$
751

to
$1,000
 
 
239

 
3.25
%
to
6.50%
 
2043-05
-
2047-10
 
210,235

 
—

 
—

 


over
$1,000
 
 
90

 
3.13
%
to
5.88%
 
2045-01
-
2047-10
 
114,433

 
—

 
—

Total HFI at Sequoia Choice:
 
806

 
 
 
 
 
 
 
 
 
$
604,747

 
$
1,158

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-for-Sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ARM loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
58

to
$290
 
 
3

 
1.50
%
to
3.00%
 
2032-11
-
2033-10
 
$
444

 
$
—

 
$
—

Hybrid ARM loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
443

to
$2,000
 
 
93

 
2.88
%
to
4.00%
 
2044-08
-
2048-01
 
78,884

 
—

 
—

Fixed loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
132

to
$1,950
 
 
1,917

 
2.88
%
to
6.25%
 
2029-05
-
2048-01
 
1,329,851

 
1,913

 
459

Total Held-for-Sale
 
2,013

 
 
 
 
 
 
 
 
 
$
1,409,179

 
$
1,913

 
$
459

December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan Balance
 
 
Number of
Loans
 
Interest
 Rate(1)
 
Maturity
Date
 
Total
Principal
 
30-89
Days
DQ
 
90+
Days
DQ
Held-for-Investment at Redwood:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hybrid ARM loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
251

to
$500
 
 
1

 
3.63
%
to
3.63%
 
2044-07
-
2044-07
 
$
264

 
$
—

 
$
—

 
$
501

to
$750
 
 
4

 
2.88
%
to
4.65%
 
2040-09
-
2045-10
 
2,722

 
—

 
—

 
$
751

to
$1,000
 
 
2

 
3.50
%
to
4.00%
 
2045-09
-
2045-10
 
1,726

 
—

 
—

 


over
$1,000
 
 
4

 
3.00
%
to
4.20%
 
2040-10
-
2045-10
 
5,545

 
—

 
—

 
 
 
 
 
 
11

 
 
 
 
 
 
 
 
 
10,257

 
—

 
—

Fixed loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
—

to
$250
 
 
26

 
3.67
%
to
5.08%
 
2039-04
-
2045-10
 
4,643

 
—

 
237

 
$
251

to
$500
 
 
633

 
2.80
%
to
5.13%
 
2028-02
-
2046-12
 
278,560

 
264

 
—

 
$
501

to
$750
 
 
1,306

 
2.75
%
to
6.25%
 
2027-09
-
2046-12
 
807,714

 
2,803

 
—

 
$
751

to
$1,000
 
 
690

 
2.75
%
to
5.63%
 
2027-07
-
2046-12
 
597,002

 
—

 
—

 


over
$1,000
 
 
402

 
2.80
%
to
5.00%
 
2027-04
-
2047-01
 
535,621

 
1,232

 
—

 
 
 
 
 
 
3,057

 
 
 
 
 
 
 
 
 
2,223,540

 
4,299

 
237

Total HFI at Redwood:
 
3,068

 
 
 
 
 
 
 
 
 
$
2,233,797

 
$
4,299

 
$
237

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-for-Investment at Legacy Sequoia:
 
 
 
 
 
 
 
 
 
 
 
 
 
ARM loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
—

to
$250
 
 
2,623

 
0.63
%
to
5.60%
 
2019-02
-
2035-11
 
$
297,646

 
$
9,158

 
$
7,410

 
$
251

to
$500
 
 
694

 
0.25
%
to
5.75%
 
2019-12
-
2036-05
 
241,253

 
9,177

 
10,059

 
$
501

to
$750
 
 
203

 
0.88
%
to
3.89%
 
2024-05
-
2035-09
 
121,919

 
5,812

 
5,069

 
$
751

to
$1,000
 
 
100

 
0.63
%
to
3.00%
 
2022-01
-
2035-07
 
86,988

 
2,750

 
3,322

 


over
$1,000
 
 
78

 
0.25
%
to
3.75%
 
2027-03
-
2036-05
 
121,484

 
4,790

 
4,306

 
 
 
 
 
 
3,698

 
 
 
 
 
 
 
 
 
869,290

 
31,687

 
30,166

Hybrid ARM loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
—

to
$250
 
 
4

 
3.00
%
to
3.00%
 
2033-09
-
2034-06
 
453

 
—

 
—

 
$
251

to
$500
 
 
18

 
2.63
%
to
3.13%
 
2033-07
-
2034-12
 
6,516

 
—

 
—

 
$
501

to
$750
 
 
13

 
2.75
%
to
3.13%
 
2033-07
-
2034-12
 
8,483

 
669

 
—

 
$
751

to
$1,000
 
 
1

 
3.13
%
to
3.13%
 
2033-08
-
2033-08
 
751

 
—

 
—

 


over
$1,000
 
 
1

 
3.00
%
to
3.00%
 
2033-09
-
2033-09
 
1,488

 
—

 
—

 
 
 
 
 
 
37

 
 
 
 
 
 
 
 
 
17,691

 
669

 
—

Total HFI at Legacy Sequoia:
 
3,735

 
 
 
 
 
 
 
 
 
$
886,981

 
$
32,356

 
$
30,166

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-for-Sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ARM loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
61

to
$396
 
 
6

 
1.88
%
to
2.75%
 
2033-10
-
2032-11
 
$
882

 
$
—

 
$
300

Hybrid ARM loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
2

to
$1,947
 
 
173

 
2.50
%
to
6.00%
 
2037-06
-
2047-01
 
144,174

 
—

 
—

Fixed loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
404

to
$1,997
 
 
942

 
2.99
%
to
6.25%
 
2026-12
-
2047-01
 
688,329

 
—

 
—

Total Held-for-Sale
 
1,121

 
 
 
 
 
 
 
 
 
$
833,385

 
$
—

 
$
300

(1)
Rate is net of servicing fee for consolidated loans for which we do not own the MSR.