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Principles of Consolidation (Tables)

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Assets and Liabilities of Consolidated VIEs

The following table presents a summary of the assets and liabilities of these VIEs.

Table 4.1 – Assets and Liabilities of Consolidated VIEs



September 30, 2019	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Total Consolidated VIEs
Residential loans, held-for-investment	$	429,159	$	2,618,316	$	2,441,223	$	—	$	—	$	5,488,698
Multifamily loans, held-for-investment	—		—		—		3,791,622		—		3,791,622
Other investments	—		—		—		—		238,316		238,316
Cash and cash equivalents	—		—		—		—		21,240		21,240
Restricted cash	143		15		—		—		21,450		21,608
Accrued interest receivable	716		10,806		7,215		11,300		4,472		34,509
REO	460		—		84		—		—		544
Total Assets	$	430,478	$	2,629,137	$	2,448,522	$	3,802,922	$	285,478	$	9,596,537
Short-term debt	$	—	$	—	$	—	$	—	$	191,203	$	191,203
Accrued interest payable	456		8,949		5,498		10,805		247		25,955
Accrued expenses and other liabilities	—		15		—		—		19,371		19,386
Asset-backed securities issued	419,890		2,361,111		1,987,473		3,577,577		—		8,346,051
Total Liabilities	$	420,346	$	2,370,075	$	1,992,971	$	3,588,382	$	210,821	$	8,582,595

Number of VIEs	20		9		2		4		3		38



December 31, 2018	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Total Consolidated VIEs
Residential loans, held-for-investment	$	519,958	$	2,079,382	$	1,222,669	$	—	$	—	$	3,822,009
Multifamily loans, held-for-investment	—		—		—		2,144,598		—		2,144,598
Other investments	—		—		—		—		312,688		312,688
Restricted cash	146		1,022		—		—		25,363		26,531
Accrued interest receivable	822		8,988		3,926		6,595		1,091		21,422
REO	3,943		—		—		—		—		3,943
Total Assets	$	524,869	$	2,089,392	$	1,226,595	$	2,151,193	$	339,142	$	6,331,191
Short-term debt	$	—	$	—	$	—	$	—	$	262,740	$	262,740
Accrued interest payable	571		7,180		2,907		6,239		483		17,380
Accrued expenses and other liabilities	—		1,022		—		—		18,592		19,614
Asset-backed securities issued	512,240		1,885,010		993,748		2,019,075		—		5,410,073
Total Liabilities	$	512,811	$	1,893,212	$	996,655	$	2,025,314	$	281,815	$	5,709,807

Number of VIEs	20		6		1		3		3		33

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 three and nine months ended September 30, 2019 and 2018.

Table 4.2 – Securitization Activity Related to Unconsolidated VIEs Sponsored by Redwood



	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2019		2018		2019		2018
Principal balance of loans transferred	$	366,999	$	327,511	$	1,116,092	$	2,735,644
Trading securities retained, at fair value	1,228		2,583		4,736		48,831
AFS securities retained, at fair value	1,069		776		3,023		6,728

The following table summarizes the cash flows during the three and nine months ended September 30, 2019 and 2018 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



	Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands)	2019			2018			2019			2018
Proceeds from new transfers	$	376,126		$	329,231		$	1,138,778		$	2,723,012
MSR fees received	2,919			3,405			9,084			10,216
Funding of compensating interest, net	(76		)	(46		)	(213		)	(102		)
Cash flows received on retained securities	6,603			7,267			20,892			21,720

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 the three and nine months ended September 30, 2019 and 2018.

Table 4.4 – Assumptions Related to Assets Retained from Unconsolidated VIEs Sponsored by Redwood



	Three Months Ended September 30, 2019				Three Months Ended September 30, 2018
At Date of Securitization	Senior IO Securities		Subordinate Securities		Senior IO Securities		Subordinate Securities
Prepayment rates	37	%	15	%	9	%	9	%
Discount rates	14	%	7	%	14	%	7	%
Credit loss assumptions	0.20	%	0.20	%	0.20	%	0.20	%



	Nine Months Ended September 30, 2019				Nine Months Ended September 30, 2018
At Date of Securitization	Senior IO Securities		Subordinate Securities		Senior IO Securities		Subordinate Securities
Prepayment rates	25	%	15	%	9	%	10	%
Discount rates	14	%	7	%	14	%	5	%
Credit loss assumptions	0.20	%	0.20	%	0.20	%	0.20	%

Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents additional information at September 30, 2019 and December 31, 2018, related to unconsolidated VIEs sponsored by Redwood and accounted for as sales since 2012.

Table 4.5 – Unconsolidated VIEs Sponsored by Redwood



(In Thousands)	September 30, 2019		December 31, 2018
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading	$	106,691	$	129,111
Subordinate securities, classified as AFS	141,568		162,314
Mortgage servicing rights	37,904		58,572
Maximum loss exposure ⁽¹⁾	$	286,163	$	349,997
Assets transferred:
Principal balance of loans outstanding	$	10,360,700	$	10,580,216
Principal balance of loans 30+ days delinquent	28,782		21,805

(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 September 30, 2019 and December 31, 2018.

Table 4.6 – Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated VIEs Sponsored by Redwood



September 30, 2019	MSRs			Senior Securities ⁽¹⁾			Subordinate Securities
(Dollars in Thousands)	MSRs			Senior Securities ⁽¹⁾			Subordinate Securities
Fair value at September 30, 2019	$	37,904		$	41,827		$	206,433
Expected life (in years)⁽²⁾	6			5			13
Prepayment speed assumption (annual CPR)⁽²⁾	14		%	16		%	16		%
Decrease in fair value from:
10% adverse change	$	1,893		$	1,977		$	454
25% adverse change	4,486			5,189			1,802
Discount rate assumption⁽²⁾	11		%	13		%	5		%
Decrease in fair value from:
100 basis point increase	$	1,259		$	848		$	19,313
200 basis point increase	2,436			1,977			35,950
Credit loss assumption ⁽²⁾	N/A			0.21		%	0.21		%
Decrease in fair value from:
10% higher losses	N/A			$	—		$	1,666
25% higher losses	N/A			—			4,153



December 31, 2018	MSRs			Senior Securities ⁽¹⁾			Subordinate Securities
(Dollars in Thousands)	MSRs			Senior Securities ⁽¹⁾			Subordinate Securities
Fair value at December 31, 2018	$	58,572		$	61,178		$	230,247
Expected life (in years)⁽²⁾	8			7			15
Prepayment speed assumption (annual CPR)⁽²⁾	7		%	10		%	9		%
Decrease in fair value from:
10% adverse change	$	1,668		$	2,151		$	201
25% adverse change	4,027			5,127			1,372
Discount rate assumption⁽²⁾	11		%	12		%	6		%
Decrease in fair value from:
100 basis point increase	$	2,323		$	2,190		$	21,982
200 basis point increase	4,493			4,226			40,641
Credit loss assumption ⁽²⁾	N/A			0.20		%	0.20		%
Decrease in fair value from:
10% higher losses	N/A			$	—		$	1,387
25% higher losses	N/A			—			3,471


(1)	Senior securities included $42 million and $61 million of interest-only securities at September 30, 2019 and December 31, 2018, respectively.

(2)

Expected life, prepayment speed assumption, discount rate assumption, and credit loss assumption presented in the tables above represent weighted averages.

Schedule of Third-Party Sponsored VIE Summary

The following table presents a summary of our interests in third-party VIEs at September 30, 2019 and December 31, 2018, grouped by asset type.

Table 4.7 – Third-Party Sponsored VIE Summary



(In Thousands)	September 30, 2019		December 31, 2018
Mortgage-Backed Securities
Senior	$	141,264	$	185,107
Mezzanine	589,189		547,249
Subordinate	306,713		428,713
Total Mortgage-Backed Securities	1,037,166		1,161,069
Excess MSR	17,212		15,092
Total Investments in Third-Party Sponsored VIEs	$	1,054,378	$	1,176,161

- Definition

Tabular disclosure of the significant judgments and assumptions made in determining whether a variable interest (as defined) held by the entity requires the variable interest entity (VIE) (as defined) to be consolidated and (or) disclose information about its involvement with the VIE, individually or in aggregate (as applicable); the nature of restrictions, if any, on the consolidated VIE's assets and on the settlement of its liabilities reported by an entity in its statement of financial position, including the carrying amounts of such assets and liabilities; the nature of, and changes in, the risks associated with involvement in the VIE; how involvement with the VIE affects the entity's financial position, financial performance, and cash flows; the lack of recourse if creditors (or beneficial interest holders) of the consolidated VIE have no recourse to the general credit of the primary beneficiary (if applicable); the terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests, if any, that could require the entity to provide financial support to the VIE, including events or circumstances that could expose the entity to a loss; the methodology used by the entity for determining whether or not it is the primary beneficiary of the variable interest entity; the significant factors considered and judgments made in determining that the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are shared (as defined); the carrying amounts and classification of assets and liabilities of the VIE included in the statement of financial position; the entity's maximum exposure to loss, if any, as a result of its involvement with the VIE, including how the maximum exposure is determined and significant sources of the entity's exposure to the VIE; a comparison of the carrying amounts of the assets and liabilities and the entity's maximum exposure to loss; information about any liquidity arrangements, guarantees, and (or) other commitments by third parties that may affect the fair value or risk of the entity's variable interest in the VIE; whether or not the entity has provided financial support or other support (explicitly or implicitly) to the VIE that it was not previously contractually required to provide or whether the entity intends to provide that support, including the type and amount of the support and the primary reasons for providing the support; and supplemental information the entity determines necessary to provide.

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