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Principles of Consolidation (Tables)
12 Months Ended
Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Schedule of Variable Interest Entities
The following table presents a summary of the assets and liabilities of these VIEs.
Table 4.1 – Assets and Liabilities of Consolidated VIEs
December 31, 2017
 
Legacy
Sequoia
 
Sequoia
Choice
 
Total
Consolidated
VIEs
(Dollars in Thousands)
 
 
 
Residential loans, held-for-investment
 
$
632,817

 
$
620,062

 
$
1,252,879

Restricted cash
 
147

 
4

 
151

Accrued interest receivable
 
867

 
2,524

 
3,391

REO
 
3,353

 

 
3,353

Total Assets
 
$
637,184


$
622,590

 
$
1,259,774

Accrued interest payable
 
$
537

 
$
2,031

 
$
2,568

Accrued expenses and other liabilities
 

 
4

 
4

Asset-backed securities issued
 
622,445

 
542,140

 
1,164,585

Total Liabilities
 
$
622,982


$
544,175

 
$
1,167,157

 
 
 
 
 
 
 
Number of VIEs
 
20

 
2

 
22

December 31, 2016
 
Legacy
Sequoia
 
Sequoia
Choice
 
Total
Consolidated
VIEs
(Dollars in Thousands)
 
 
 
Residential loans, held-for-investment
 
$
791,636

 
$

 
$
791,636

Restricted cash
 
148

 

 
148

Accrued interest receivable
 
1,000

 

 
1,000

REO
 
5,533

 

 
5,533

Total Assets
 
$
798,317


$

 
$
798,317

Accrued interest payable
 
$
518

 
$

 
$
518

Asset-backed securities issued
 
773,462

 

 
773,462

Total Liabilities
 
$
773,980


$

 
$
773,980

 
 
 
 
 
 
 
Number of VIEs
 
20

 

 
20

Securitization Activity Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood
The following table presents information related to securitization transactions that occurred during the years ended December 31, 2017 and 2016.
Table 4.2 – Securitization Activity Related to Unconsolidated VIEs Sponsored by Redwood
 
 
Years Ended December 31,
(In Thousands)
 
2017
 
2016
Principal balance of loans transferred
 
$
2,573,789

 
$
1,036,584

Trading securities retained, at fair value
 
66,321

 
3,573

AFS securities retained, at fair value
 
13,341

 
5,554

MSRs recognized
 
7,123

 
6,451

Cash Flows Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood
The following table summarizes the cash flows during the years ended December 31, 2017 and 2016 between us and the unconsolidated VIEs sponsored by us and accounted for as sales since 2012.
Table 4.3 – Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood
 
 
Years Ended December 31,
(In Thousands)
 
2017
 
2016
Proceeds from new transfers
 
$
2,563,499

 
$
1,057,688

MSR fees received
 
14,302

 
13,842

Funding of compensating interest, net
 
(151
)
 
(338
)
Cash flows received on retained securities
 
27,156

 
30,191

MSR Assumptions Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood
The following table presents the key weighted average assumptions used to measure MSRs and securities retained at the date of securitization for securitizations completed during 2017 and 2016.
Table 4.4 – Assumptions Related to Assets Retained from Unconsolidated VIEs Sponsored by Redwood
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2017
 
Year Ended December 31, 2016
At Date of Securitization
 
MSRs
 
Senior IO Securities
 
Subordinate Securities
 
MSRs
 
Senior IO Securities
 
Subordinate Securities
Prepayment rates
 
9
%
 
10
%
 
10
%
 
21
%
 
N/A
 
15
%
Discount rates
 
11
%
 
14
%
 
5
%
 
11
%
 
N/A
 
6
%
Credit loss assumptions
 
N/A

 
0.25
%
 
0.25
%
 
N/A

 
N/A
 
0.25
%
Unconsolidated Variable Interest Entity's Sponsored by Redwood Summary
The following table presents additional information at December 31, 2017 and December 31, 2016, related to unconsolidated VIEs sponsored by Redwood and accounted for as sales since 2012.
Table 4.5 – Unconsolidated VIEs Sponsored by Redwood
(In Thousands)
 
December 31, 2017
 
December 31, 2016
On-balance sheet assets, at fair value:
 
 
 
 
Interest-only, senior and subordinate securities, classified as trading
 
$
101,426

 
$
41,909

Subordinate securities, classified as AFS
 
219,255

 
234,025

Mortgage servicing rights
 
60,980

 
58,800

Maximum loss exposure (1)
 
$
381,661

 
$
334,734

Assets transferred:
 
 
 
 
Principal balance of loans outstanding
 
$
8,364,148

 
$
6,870,398

Principal balance of loans 30+ days delinquent
 
27,926

 
21,427

(1)
Maximum loss exposure from our involvement with unconsolidated VIEs pertains to the carrying value of our securities and MSRs retained from these VIEs and represents estimated losses that would be incurred under severe, hypothetical circumstances, such as if the value of our interests and any associated collateral declines to zero. This does not include, for example, any potential exposure to representation and warranty claims associated with our initial transfer of loans into a securitization.
Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated Variable Interest Entity's Sponsored by Redwood
The following table presents key economic assumptions for assets retained from unconsolidated VIEs and the sensitivity of their fair values to immediate adverse changes in those assumptions at December 31, 2017 and December 31, 2016.
Table 4.6 – Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated VIEs Sponsored by Redwood
December 31, 2017
 
MSRs
 
Senior
Securities (1)
 
Subordinate Securities
(Dollars in Thousands)
 
 
 
Fair value at December 31, 2017
 
$
60,980

 
$
33,773

 
$
286,908

Expected life (in years) (2)
 
8

 
6

 
13

Prepayment speed assumption (annual CPR) (2)
 
9
%
 
10
%
 
11
%
Decrease in fair value from:
 
 
 
 
 
 
10% adverse change
 
$
2,022

 
$
1,371

 
$
611

25% adverse change
 
4,839

 
3,289

 
1,506

Discount rate assumption (2)
 
11
%
 
11
%
 
5
%
Decrease in fair value from:
 
 
 
 
 
 
100 basis point increase
 
$
2,386

 
$
1,158

 
$
25,827

200 basis point increase
 
4,597

 
2,265

 
47,885

Credit loss assumption (2)
 
N/A

 
0.25
%
 
0.25
%
Decrease in fair value from:
 
 
 
 
 
 
10% higher losses
 
N/A

 
$

 
$
1,551

25% higher losses
 
N/A

 

 
3,873

December 31, 2016
 
MSRs
 
Senior
Securities (1)
 
Subordinate Securities
(Dollars in Thousands)
 
 
 
Fair value at December 31, 2016
 
$
58,800

 
$
26,618

 
$
249,317

Expected life (in years) (2)
 
7

 
6

 
12

Prepayment speed assumption (annual CPR) (2)
 
11
%
 
8
%
 
12
%
Decrease in fair value from:
 
 
 
 
 
 
10% adverse change
 
$
2,226

 
$
1,075

 
$
997

25% adverse change
 
5,284

 
2,569

 
2,494

Discount rate assumption (2)
 
11
%
 
8
%
 
6
%
Decrease in fair value from:
 
 
 
 
 
 
100 basis point increase
 
$
2,088

 
$
1,105

 
$
19,574

200 basis point increase
 
4,032

 
2,128

 
36,574

Credit loss assumption (2)
 
N/A

 
0.25
%
 
0.25
%
Decrease in fair value from:
 
 
 
 
 
 
10% higher losses
 
N/A

 
$
19

 
$
1,174

25% higher losses
 
N/A

 
49

 
2,933


(1)
Senior securities included $34 million and $27 million of interest-only securities at December 31, 2017 and December 31, 2016, respectively.
(2)
Expected life, prepayment speed assumption, discount rate assumption, and credit loss assumption presented in the tables above represent weighted averages.
Loan Transfers Accounted for as Secured Borrowings
The following table presents a summary of our interests in third-party VIEs at December 31, 2017, grouped by security type.
Table 4.7 – Third-Party Sponsored VIE Summary
(Dollars in Thousands)
 
December 31, 2017
Mortgage-Backed Securities
 
 
Senior
 
$
177,191

Re-REMIC
 
38,875

Subordinate
 
939,763

Total Investments in Third-Party Sponsored VIEs
 
$
1,155,829