10-Q

UNITED STATES OF AMERICA

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: September 30, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______________ to _______________.

Commission File Number 1-13759

REDWOOD TRUST, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	68-0329422
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

One Belvedere Place, Suite 300
Mill Valley,	California	94941
(Address of Principal Executive Offices)		(Zip Code)

(415) 389-7373

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	RWT	New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock, $0.01 par value per share 111,928,020  shares outstanding as of November 2, 2020

REDWOOD TRUST, INC.

2020 FORM 10-Q REPORT

TABLE OF CONTENTS

		Page
PART I —	FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Consolidated Balance Sheets at September 30, 2020 (Unaudited) and December 31, 2019	2
	Consolidated Statements of Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)	3
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)	4
	Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	9
	Note 1. Organization	9
	Note 2. Basis of Presentation	9
	Note 3. Summary of Significant Accounting Policies	12
	Note 4. Principles of Consolidation	16
	Note 5. Fair Value of Financial Instruments	24
	Note 6. Residential Loans	33
	Note 7. Business Purpose Residential Loans	35
	Note 8. Multifamily Loans	38
	Note 9. Real Estate Securities	39
	Note 10. Other Investments	43
	Note 11. Derivative Financial Instruments	46
	Note 12. Other Assets and Liabilities	48
	Note 13. Short-Term Debt	49
	Note 14. Asset-Backed Securities Issued	51
	Note 15. Long-Term Debt	52
	Note 16. Commitments and Contingencies	54
	Note 17. Equity	59
	Note 18. Equity Compensation Plans	62
	Note 19. Mortgage Banking Activities, Net	64
	Note 20. Other Income	65
	Note 21. General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses	66
	Note 22. Taxes	67
	Note 23. Segment Information	68
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	73
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	104
Item 4.	Controls and Procedures	104
PART II —	OTHER INFORMATION
Item 1.	Legal Proceedings	105
Item 1A.	Risk Factors	106
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	107
Item 3.	Defaults Upon Senior Securities	107
Item 4.	Mine Safety Disclosures (Not Applicable)	107
Item 5.	Other Information	107
Item 6.	Exhibits	108
Signatures		110

i

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

REDWOOD TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, except Share Data) (Unaudited)	September 30, 2020		December 31, 2019
ASSETS (1)
Residential loans, held-for-sale, at fair value	$	105,128	$	536,385
Residential loans, held-for-investment, at fair value	4,389,808		7,178,465
Business purpose residential loans, held-for-sale, at fair value	285,549		331,565
Business purpose residential loans, held-for-investment, at fair value	3,670,552		3,175,178
Multifamily loans, held-for-investment, at fair value	491,415		4,408,524
Real estate securities, at fair value	351,335		1,099,874
Other investments	384,628		358,130
Cash and cash equivalents	450,684		196,966
Restricted cash	73,594		93,867
Goodwill and intangible assets	60,737		161,464
Derivative assets	14,709		35,701
Other assets	124,273		419,321
Total Assets	$	10,402,412	$	17,995,440
LIABILITIES AND EQUITY (1)
Liabilities
Short-term debt, net	$	482,761	$	2,329,145
Derivative liabilities	1,612		163,424
Accrued expenses and other liabilities	155,989		206,893
Asset-backed securities issued (includes $6,969,376 and $10,515,475 at fair value), net	7,172,398		10,515,475
Long-term debt, net	1,536,188		2,953,272
Total liabilities	9,348,948		16,168,209
Commitments and Contingencies (see Note 16)
Equity
Common stock, par value $0.01 per share, 395,000,000 and 270,000,000 shares authorized; 111,904,322 and 114,353,036 issued and outstanding	1,119		1,144
Additional paid-in capital	2,261,911		2,269,617
Accumulated other comprehensive (loss) income	(20,560)		41,513
Cumulative earnings	942,982		1,579,124
Cumulative distributions to stockholders	(2,131,988)		(2,064,167)
Total equity	1,053,464		1,827,231
Total Liabilities and Equity	$	10,402,412	$	17,995,440

——————

(1)Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

The accompanying notes are an integral part of these consolidated financial statements.

2

REDWOOD TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In Thousands, except Share Data)	Three Months Ended September 30,				Nine Months Ended September 30,
(Unaudited)	2020		2019		2020		2019
Interest Income
Residential loans	$	44,921	$	77,070	$	179,331	$	230,308
Business purpose residential loans	55,637		5,446		161,710		12,231
Multifamily loans	4,918		36,829		49,960		94,134
Real estate securities	10,135		23,047		38,471		72,514
Other interest income	6,371		7,725		20,537		20,513
Total interest income	121,982		150,117		450,009		429,700
Interest Expense
Short-term debt	(5,145)		(24,239)		(45,119)		(70,732)
Asset-backed securities issued	(66,514)		(71,065)		(232,316)		(196,473)
Long-term debt	(28,752)		(21,300)		(72,313)		(64,895)
Total interest expense	(100,411)		(116,604)		(349,748)		(332,100)
Net Interest Income	21,571		33,513		100,261		97,600
Non-interest Income (Loss)
Mortgage banking activities, net	59,395		9,515		24,511		40,984
Investment fair value changes, net	107,047		11,444		(611,557)		34,741
Other income, net	(114)		4,356		3,979		13,840
Realized gains, net	602		4,714		30,419		18,227
Total non-interest income (loss), net	166,930		30,029		(552,648)		107,792
General and administrative expenses	(27,630)		(24,899)		(84,832)		(70,722)
Loan acquisition costs	(2,158)		(1,916)		(7,716)		(5,507)
Other expenses	(7,788)		(2,531)		(104,286)		(6,021)
Net Income (Loss) before (Provision for) Benefit from Income Taxes	150,925		34,196		(649,221)		123,142
(Provision for) benefit from income taxes	(9,113)		114		13,079		(3,102)
Net Income (Loss)	$	141,812	$	34,310	$	(636,142)	$	120,040
Basic earnings (loss) per common share	$	1.21	$	0.33	$	(5.60)	$	1.20
Diluted earnings (loss) per common share	$	1.02	$	0.31	$	(5.60)	$	1.09
Basic weighted average shares outstanding	113,403,102		101,872,126		113,952,308		97,214,064
Diluted weighted average shares outstanding	141,969,977		136,522,709		113,952,308		131,202,689

The accompanying notes are an integral part of these consolidated financial statements.

3

REDWOOD TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
(Unaudited)	2020		2019		2020		2019
Net Income (Loss)	$	141,812	$	34,310	$	(636,142)	$	120,040
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities	8,236		4,484		(19,890)		19,764
Reclassification of unrealized gain on available-for-sale securities to net income	(445)		(3,492)		(11,525)		(15,807)
Net unrealized loss on interest rate agreements	—		(11,791)		(32,806)		(27,130)
Reclassification of unrealized loss on interest rate agreements to net income	1,040		—		2,148		—
Total other comprehensive income (loss)	8,831		(10,799)		(62,073)		(23,173)
Total Comprehensive Income (Loss)	$	150,643	$	23,511	$	(698,215)	$	96,867

The accompanying notes are an integral part of these consolidated financial statements.

4

REDWOOD TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the Three Months Ended September 30, 2020

(In Thousands, except Share Data)	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Cumulative Earnings		Cumulative Distributions to Stockholders		Total
(Unaudited)	Shares	Amount
June 30, 2020	114,940,197	$	1,149	$	2,279,625	$	(29,391)	$	801,170	$	(2,115,977)	$	936,576
Net income	—	—		—		—		141,812		—		141,812
Other comprehensive income	—	—		—		8,831		—		—		8,831
Employee stock purchase and incentive plans	11,460	—		9		—		—		—		9
Non-cash equity award compensation	—	—		3,906		—		—		—		3,906
Share repurchases	(3,047,335)	(30)		(21,629)		—		—		—		(21,659)
Common dividends declared ($0.14 per share)	—	—		—		—		—		(16,011)		(16,011)
September 30, 2020	111,904,322	$	1,119	$	2,261,911	$	(20,560)	$	942,982	$	(2,131,988)	$	1,053,464

For the Nine Months Ended September 30, 2020

(In Thousands, except Share Data)	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Cumulative Earnings		Cumulative Distributions to Stockholders		Total
(Unaudited)	Shares	Amount
December 31, 2019	114,353,036	$	1,144	$	2,269,617	$	41,513	$	1,579,124	$	(2,064,167)	$	1,827,231
Net loss	—	—		—		—		(636,142)		—		(636,142)
Other comprehensive loss	—	—		—		(62,073)		—		—		(62,073)
Issuance of common stock	350,088	3		5,544		—		—		—		5,547
Employee stock purchase and incentive plans	248,533	2		(2,767)		—		—		—		(2,765)
Non-cash equity award compensation	—	—		11,146		—		—		—		11,146
Share repurchases	(3,047,335)	(30)		(21,629)		—		—		—		(21,659)
Common dividends declared ($0.585 per share)	—	—		—		—		—		(67,821)		(67,821)
September 30, 2020	111,904,322	$	1,119	$	2,261,911	$	(20,560)	$	942,982	$	(2,131,988)	$	1,053,464

For the Three Months Ended September 30, 2019

(In Thousands, except Share Data)	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income		Cumulative Earnings		Cumulative Distributions to Stockholders		Total
(Unaudited)	Shares	Amount
June 30, 2019	97,715,021	$	977	$	2,013,044	$	48,923	$	1,495,671	$	(1,994,583)	$	1,564,032
Net income	—	—		—		—		34,310		—		34,310
Other comprehensive loss	—	—		—		(10,799)		—		—		(10,799)
Issuance of common stock	14,375,000	144		228,339		—		—		—		228,483
Employee stock purchase and incentive plans	11,710	—		154		—		—		—		154
Non-cash equity award compensation	—	—		3,297		—		—		—		3,297
Common dividends declared ($0.30 per share)	—	—		—		—		—		(34,418)		(34,418)
September 30, 2019	112,101,731	$	1,121	$	2,244,834	$	38,124	$	1,529,981	$	(2,029,001)	$	1,785,059

5

REDWOOD TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)

For the Nine Months Ended September 30, 2019

(In Thousands, except Share Data)	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income		Cumulative Earnings		Cumulative Distributions to Stockholders		Total
(Unaudited)	Shares	Amount
December 31, 2018	84,884,344	$	849	$	1,811,422	$	61,297	$	1,409,941	$	(1,934,715)	$	1,348,794
Net income	—	—		—		—		120,040		—		120,040
Other comprehensive loss	—	—		—		(23,173)		—		—		(23,173)
Issuance of common stock	26,666,191	267		418,324		—		—		—		418,591
Direct stock purchase and dividend reinvestment plan	399,838	4		6,303		—		—		—		6,307
Employee stock purchase and incentive plans	151,358	1		(1,767)		—		—		—		(1,766)
Non-cash equity award compensation	—	—		10,552		—		—		—		10,552
Common dividends declared ($0.90 per share)	—	—		—		—		—		(94,286)		(94,286)
September 30, 2019	112,101,731	$	1,121	$	2,244,834	$	38,124	$	1,529,981	$	(2,029,001)	$	1,785,059

The accompanying notes are an integral part of these consolidated financial statements.

6

REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands) (Unaudited)	Nine Months Ended September 30,
	2020		2019
Cash Flows From Operating Activities:
Net (loss) income	$	(636,142)	$	120,040
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Amortization of premiums, discounts, and securities issuance costs, net	6,213		(3,486)
Depreciation and amortization of non-financial assets	13,166		5,673
Originations of held-for-sale loans	(654,820)		(124,392)
Purchases of held-for-sale loans	(2,893,246)		(4,002,509)
Proceeds from sales of held-for-sale loans	3,224,526		2,971,811
Principal payments on held-for-sale loans	53,677		77,100
Net settlements of derivatives	(187,130)		(32,902)
Non-cash equity award compensation expense	11,146		10,552
Goodwill impairment expense	88,675		—
Market valuation adjustments	606,764		(62,720)
Realized gains, net	(30,419)		(18,227)
Net change in:
Accrued interest receivable and other assets	304,147		(141,197)
Accrued interest payable and accrued expenses and other liabilities	(82,489)		(1,049)
Net cash used in operating activities	(175,932)		(1,201,306)
Cash Flows From Investing Activities:
Originations of loan investments	(327,494)		(171,915)
Purchases of loan investment	—		(49,489)
Proceeds from sales of loan investments	1,574,160		9,422
Principal payments on loan investments	1,652,418		1,091,652
Purchases of real estate securities	(106,422)		(309,839)
Purchases of residential securities held in consolidated securitization trust	—		(193,212)
Purchases of multifamily securities held in consolidated securitization trusts	—		(68,601)
Sales of multifamily securities held in consolidated securitization trusts	142,990		—
Proceeds from sales of real estate securities	634,709		487,469
Principal payments on real estate securities	19,446		62,711
Purchases of servicer advance investments	(179,419)		(69,610)
Principal repayments from servicer advance investments	83,124		150,512
Acquisition of 5 Arches, net of cash acquired	—		(3,714)
Net investment in participation in loan warehouse facility	—		38,209
Net investment in multifamily loan fund	40,898		(33,090)
Other investing activities, net	(19,865)		(24,989)
Net cash provided by investing activities	3,514,545		915,516
Cash Flows From Financing Activities:
Proceeds from borrowings on short-term debt	3,981,572		4,009,083
Repayments on short-term debt	(5,828,972)		(4,435,823)
Proceeds from issuance of asset-backed securities	1,343,845		1,020,136
Repayments on asset-backed securities issued	(1,037,546)		(720,651)
Proceeds from issuance of long-term debt	1,251,850		387,053
Deferred long-term debt issuance costs paid	(9,526)		(7,023)
Repayments on long-term debt	(2,640,007)		—
Net settlements of derivatives	(84,336)		—
Net proceeds from issuance of common stock	5,791		426,970
Net payments on repurchase of common stock	(21,659)		—
Taxes paid on equity award distributions	(3,009)		—
Dividends paid	(67,821)		(94,286)
Other financing activities, net	4,650		1,400
Net cash (used in) provided by financing activities	(3,105,168)		586,859
Net increase in cash, cash equivalents and restricted cash	233,445		301,069
Cash, cash equivalents and restricted cash at beginning of period (1)	290,833		205,077
Cash, cash equivalents and restricted cash at end of period (1)	$	524,278	$	506,146

7

REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In Thousands) (Unaudited)	Nine Months Ended September 30,
	2020		2019
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest	$	364,875	$	319,036
Taxes	218		6,977
Supplemental Noncash Information:
Real estate securities retained from loan securitizations	$	46,560	$	7,759
Retention of mortgage servicing rights from loan securitizations and sales	—		868
Consolidation of residential loans held in securitization trusts	—		1,190,995
Consolidation of residential ABS	—		997,783
(Deconsolidation) consolidation of multifamily loans held in securitization trusts	(3,849,779)		1,481,554
(Deconsolidation) consolidation of multifamily ABS	(3,706,789)		1,408,002
Transfers from loans held-for-sale to loans held-for-investment	770,754		1,361,015
Transfers from residential loans to real estate owned	12,547		5,280
Right-of-use asset obtained in exchange for operating lease liability	5,362		13,016
Reduction in operating lease liability due to lease modification	1,466		—

(1)    Cash, cash equivalents, and restricted cash at September 30, 2020 includes cash and cash equivalents of $451 million and restricted cash of $74 million, and at December 31, 2019 includes cash and cash equivalents of $197 million and restricted cash of $94 million.

The accompanying notes are an integral part of these consolidated financial statements.

8

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 1. Organization

Redwood Trust, Inc., together with its subsidiaries, is a specialty finance company focused on making credit-sensitive investments in single-family residential and multifamily mortgages and related assets and engaging in mortgage banking activities. Our goal is to provide attractive returns to shareholders through a stable and growing stream of earnings and dividends, as well as through capital appreciation. We operate our business in three segments: Residential Lending, Business Purpose Lending, and Third-Party Investments.

Our primary sources of income are net interest income from our investments and non-interest income from our mortgage banking activities. Net interest income consists of the interest income we earn on investments less the interest expense we incur on borrowed funds and other liabilities. Income from mortgage banking activities is generated through the origination and acquisition of loans, and their subsequent sale, securitization, or transfer to our investment portfolios.

Redwood Trust, Inc. has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), beginning with its taxable year ended December 31, 1994. We generally refer, collectively, to Redwood Trust, Inc. and those of its subsidiaries that are not subject to subsidiary-level corporate income tax as “the REIT” or “our REIT.” We generally refer to subsidiaries of Redwood Trust, Inc. that are subject to subsidiary-level corporate income tax as “our taxable REIT subsidiaries” or “TRS.”

Redwood was incorporated in the State of Maryland on April 11, 1994, and commenced operations on August 19, 1994. On March 1, 2019, Redwood completed the acquisition of 5 Arches, LLC ("5 Arches"), at which time 5 Arches became a wholly-owned subsidiary of Redwood. On October 15, 2019, Redwood acquired CoreVest American Finance Lender, LLC and certain affiliated entities ("CoreVest"), at which time CoreVest became wholly owned by Redwood. References herein to “Redwood,” the “company,” “we,” “us,” and “our” include Redwood Trust, Inc. and its consolidated subsidiaries, unless the context otherwise requires.

Note 2. Basis of Presentation

The consolidated financial statements presented herein are at September 30, 2020 and December 31, 2019, and for the three and nine months ended September 30, 2020 and 2019. These interim unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in our annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") — as prescribed by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) — have been condensed or omitted in these interim financial statements according to these SEC rules and regulations. Management believes that the disclosures included in these interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the company's Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, all normal and recurring adjustments to present fairly the financial condition of the company at September 30, 2020 and results of operations for all periods presented have been made. The results of operations for the three and nine months ended September 30, 2020 should not be construed as indicative of the results to be expected for the full year.

Principles of Consolidation

In accordance with GAAP, we determine whether we must consolidate transferred financial assets and variable interest entities (“VIEs”) for financial reporting purposes. We currently consolidate the assets and liabilities of certain Sequoia securitization entities issued prior to 2012 where we maintain an ongoing involvement ("Legacy Sequoia"), as well as entities formed in connection with the securitization of Redwood Choice expanded-prime loans ("Sequoia Choice"). We also consolidate the assets and liabilities of certain Freddie Mac K-Series and Freddie Mac Seasoned Loans Structured Transaction ("SLST") securitizations we invested in. Finally, we consolidated the assets and liabilities of certain CoreVest American Finance Lender ("CAFL") securitizations beginning in the fourth quarter of 2019, in connection with our acquisition of CoreVest. Each securitization entity is independent of Redwood and of each other and the assets and liabilities are not owned by and are not legal obligations of Redwood Trust, Inc. Our exposure to these entities is primarily through the financial interests we have purchased or retained, although for the consolidated Sequoia and CAFL entities we are exposed to certain financial risks associated with our role as a sponsor, servicing administrator, or depositor of these entities or as a result of our having sold assets directly or indirectly to these entities.

9

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 2. Basis of Presentation - (continued)

For financial reporting purposes, the underlying loans owned at the consolidated Sequoia and Freddie Mac SLST entities are shown under Residential loans held-for-investment at fair value, the underlying loans at the consolidated Freddie Mac K-Series are shown under Multifamily loans held-for-investment at fair value, and the underlying single-family rental loans at the consolidated CAFL entities are shown under Business purpose residential loans held-for-investment at fair value on our consolidated balance sheets. The asset-backed securities (“ABS”) issued to third parties by these entities are shown under ABS issued. In our consolidated statements of income (loss), we recorded interest income on the loans owned at these entities and interest expense on the ABS issued by these entities as well as other income and expenses associated with these entities' activities. See Note 14 for further discussion on ABS issued.

During the first quarter of 2020, we sold subordinate securities issued by four of these Freddie Mac K-Series securitization trusts and determined that we should derecognize the associated assets and liabilities of each of these entities for financial reporting purposes. We deconsolidated $3.86 billion of multifamily loans and other assets and $3.72 billion of multifamily ABS issued and other liabilities, for which we realized market valuation losses of $72 million, which were recorded through Investment fair value changes, net on our consolidated statements of income (loss) for the three months ended March 31, 2020.

We also consolidate two partnerships ("Servicing Investment" entities) through which we have invested in servicing-related assets. We maintain an 80% ownership interest in each entity and have determined that we are the primary beneficiary of these partnerships.

Beginning in the first quarter of 2019, we consolidated 5 Arches, LLC ("5 Arches"), an originator of business purpose residential loans, pursuant to the exercise of our purchase option and the acquisition of the remaining equity in the company. In the fourth quarter of 2019, we acquired and consolidated CoreVest, an originator and portfolio manager of business purpose residential loans.

See Note 4 for further discussion on principles of consolidation.

Use of Estimates

The preparation of financial statements requires us to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amounts and timing of credit losses, prepayment rates, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the consolidated financial statements and the reported amounts of certain revenues and expenses during the reported periods. It is likely that changes in these estimates (e.g., valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. Our estimates are inherently subjective in nature and actual results could differ from our estimates and the differences could be material.

Acquisitions

In May 2018, Redwood acquired a 20% minority interest in 5 Arches, an originator of business purpose residential loans. On March 1, 2019, we completed the acquisition of the remaining 80% interest in 5 Arches. On October 15, 2019, we acquired CoreVest, an originator and portfolio manager of business purpose residential loans. Refer to our Annual Report on Form 10-K for the year ended December 31, 2019 for additional information regarding these acquisitions, including purchase price allocations.

10

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 2. Basis of Presentation - (continued)

In connection with the acquisitions of 5 Arches and CoreVest, we identified and recorded finite-lived intangible assets totaling $25 million and $57 million, respectively. The amortization period for each of these assets and the activity for the nine months ended September 30, 2020 is summarized in the table below.

Table 2.1 – Intangible Assets – Activity

	Carrying Value at December 31, 2019		Additions		Amortization Expense		Carrying Value at September 30, 2020		Weighted Average Amortization Period (in years)
(Dollars in Thousands)
Borrower network	$	43,952	$	—	$	(4,854)	$	39,098	7
Broker network	15,083		—		(2,715)		12,368		5
Non-compete agreements	8,236		—		(2,375)		5,861		3
Tradenames	3,472		—		(1,000)		2,472		3
Developed technology	1,613		—		(675)		938		2
Loan administration fees on existing loan assets	433		—		(433)		—		1
Total	$	72,789	$	—	$	(12,052)	$	60,737	6

All of our intangible assets are amortized on a straight-line basis. Estimated future amortization expense is summarized in the table below.

Table 2.2 – Intangible Asset Amortization Expense by Year

(In Thousands)	September 30, 2020
2020 (3 months)	$	3,873
2021	15,304
2022	12,800
2023	10,091
2024	7,073
2025 and thereafter	11,596
Total Future Intangible Asset Amortization	$	60,737

We recorded total goodwill of $89 million in 2019 as a result of the total consideration exceeding the fair value of the net assets acquired from 5 Arches and CoreVest. The goodwill was attributed to the expected business synergies and expansion into business purpose loan markets, as well as access to the knowledgeable and experienced workforces continuing to provide services to the business. We expect $75 million of this goodwill to be deductible for tax purposes. For reporting purposes, we included the intangible assets and goodwill from these acquisitions within the Business Purpose Lending segment.

11

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 2. Basis of Presentation - (continued)

During the first quarter of 2020, as a result of the deterioration in economic conditions caused by the spread of the COVID-19 pandemic (the "pandemic"), and its impact on our business, including a significant decline in the market price of our common stock, we determined that it was more likely than not that the fair value of our Business Purpose Lending reporting unit was lower than its carrying amount, including goodwill. Based on this analysis, we determined that an interim goodwill impairment test should be performed as of March 31, 2020 and prepared updated cash flow projections for the reporting unit, resulting in a reduction in the long-term forecasts of profitability for our Business Purpose Lending reporting unit as compared to the prior year forecasts. Using these projections, we concluded that the fair value of our Business Purpose Lending reporting unit was less than its carrying value, including goodwill. As a result of this evaluation, we recorded a non-cash $89 million goodwill impairment expense through Other expenses on our consolidated statements of income (loss) during the three months ended March 31, 2020. In conjunction with our assessment of goodwill, we also assessed our intangible assets for impairment at March 31, 2020 and determined they were not impaired. On a quarterly basis, we evaluate our finite-lived intangible assets for impairment indicators and additionally evaluate the useful lives of our intangible assets to determine if revisions to the remaining periods of amortization are warranted.

The liability resulting from the contingent consideration arrangement with 5 Arches was recorded at its acquisition-date fair value of $25 million as part of total consideration for the acquisition of 5 Arches. These contingent earn-out payments were classified as a contingent consideration liability and carried at fair value prior to March 31, 2020. During the three months ended March 31, 2020, we made a cash payment of $11 million and granted $3 million of Redwood common stock in connection with the first anniversary of the purchase date. Additionally, as a result of an amendment to the agreement, we reclassified the contingent liability to a deferred liability, as the remaining payments became payable on a set timetable without any remaining contingencies. At September 30, 2020, the carrying value of this deferred liability was $14 million and was recorded as a component of Accrued expenses and other liabilities on our consolidated balance sheets. During the three and nine months ended September 30, 2020, we recorded $0.1 million and $0.6 million of contingent consideration expense, respectively, through Other expenses on our consolidated statements of income (loss). See Note 16 for additional information on our contingent consideration liability.

The following unaudited pro forma financial information presents Net interest income, Non-interest income, and Net income of Redwood, 5 Arches, and CoreVest combined, for the three and nine months ended September 30, 2019, as if the acquisitions occurred as of January 1, 2018. These pro forma amounts have been adjusted to include the amortization of intangible assets and acquisition-related compensation expense for both periods, and to exclude the income statement impacts related to our equity method investment in 5 Arches. The unaudited pro forma financial information is not intended to represent or be indicative of the consolidated financial results of operations that would have been reported if the acquisitions had been completed as of January 1, 2018 and should not be taken as indicative of our future consolidated results of operations.

Table 2.3 – Unaudited Pro Forma Financial Information

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
(In Thousands)
Supplementary pro forma information:
Net interest income	$	45,702	$	133,446
Non-interest income	38,177		116,649
Net income	46,609		140,790

Note 3. Summary of Significant Accounting Policies

Significant Accounting Policies

Included in Note 3 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2019 is a summary of our significant accounting policies. Provided below is a summary of additional accounting policies that are significant to the company’s consolidated financial position and results of operations for the three and nine months ended September 30, 2020.

12

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 3. Summary of Significant Accounting Policies - (continued)

Available-for-Sale Securities

Upon adoption of ASU 2016-13, "Financial Instruments - Credit Losses" in the first quarter of 2020, we modified our policy for recording impairments on available-for-sale securities. This new guidance requires that credit impairments on our available-for-sale securities be recorded in earnings using an allowance for credit losses, with the allowance limited to the amount by which the security's fair value is less than its amortized cost basis. The allowance for credit losses is calculated using a discounted cash flow approach and is measured as the difference between the beneficial interest’s amortized cost and the estimate of cash flows expected to be collected, discounted at the effective interest rate used to accrete the beneficial interest. Any allowance for credit losses in excess of the unrealized losses on the beneficial interests are accounted for as a prospective reduction of the effective interest rate. No allowance is recorded for beneficial interests in an unrealized gain position. Favorable changes in the discounted cash flows will result in a reduction in the allowance for credit losses, if any. Any reduction in allowance for credit losses is recorded in earnings. If the allowance for credit losses has been reduced to zero, the remaining favorable changes are reflected as a prospective increase to the effective interest rate. If we intend to sell or it is more likely than not that we will be required to sell the security before it recovers in value, the entire impairment amount will be recognized in earnings with a corresponding adjustment to the security's amortized cost basis.

Goodwill

Pursuant to our adoption of ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" in the first quarter of 2020, we modified our goodwill impairment testing policy. We first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If, based on that assessment, we believe it is more likely than not that the fair value of the reporting unit is less than its carrying value, we measure the fair value of reporting unit and record a goodwill impairment charge for the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill. Any such impairment charges would be recorded through Other expenses on our consolidated statements of income (loss).

Recent Accounting Pronouncements

Newly Adopted Accounting Standards Updates ("ASUs")

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." This new guidance amends previous guidance by removing and modifying certain existing fair value disclosure requirements, while adding other new disclosure requirements. This new guidance is effective for fiscal years beginning after December 15, 2019. We adopted this new guidance, as required, in the first quarter of 2020, which did not have a material impact on our consolidated financial statements but impacted certain of our fair value footnote disclosures.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. This new guidance is effective for fiscal years beginning after December 15, 2019. We adopted this new guidance, as required, in the first quarter of 2020, which did not have a material impact on our consolidated financial statements.

13

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 3. Summary of Significant Accounting Policies - (continued)

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses." This new guidance provides a new impairment model that is based on expected losses rather than incurred losses to determine the allowance for credit losses. This new guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years beginning after December 15, 2018. In November 2018, the FASB issued ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses," which clarifies the scope of the amendments in ASU 2016-13. In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," which is intended to clarify this guidance. In May 2019, the FASB issued ASU 2019-05, "Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief," which provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost. In November 2019, the FASB issued ASU 2019-11, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses," which is intended to clarify Codification guidance. In February 2020, the FASB issued ASU 2020-02, "Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) (SEC Update)," and in March 2020, the FASB issued ASU 2020-03, "Codification Improvements to Financial Instruments." These updates amend certain sections of the guidance. We currently have only a small balance of loans receivable that are not carried at fair value and would be subject to this new guidance for allowance for credit losses. Separately, we accounted for our available-for-sale securities under the other-than-temporary impairment ("OTTI") model for debt securities prior to the issuance of this new guidance. This new guidance requires that credit impairments on our available-for-sale securities be recorded in earnings using an allowance for credit losses, with the allowance limited to the amount by which the security's fair value is less than its amortized cost basis. Subsequent reversals in credit loss estimates are recognized in income. We adopted this guidance, as required, in the first quarter of 2020, which did not have a material impact on our consolidated financial statements.

Other Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40)." This new guidance simplifies the accounting for convertible debt by reducing the number of accounting models to separately present certain conversion features in equity. This new guidance is effective for fiscal years beginning after December 31, 2021. Early adoption is permitted. We plan to adopt this new guidance by the required date and do not anticipate that this update will have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This new guidance is effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact the adoption of this standard would have on our consolidated financial statements. Through September 30, 2020, we have not elected to apply the optional expedients and exceptions to any of our existing contracts, hedging relationships, or other transactions.

In January 2020, the FASB issued ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)." This new guidance clarifies the interaction of the accounting for equity securities, equity method investments, and certain forward contracts and purchased options. This new guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. We plan to adopt this new guidance by the required date and do not anticipate that this update will have a material impact on the consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This new guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by clarifying and amending existing guidance. This new guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. We plan to adopt this new guidance by the required date and do not anticipate that this update will have a material impact on our consolidated financial statements.

14

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 3. Summary of Significant Accounting Policies - (continued)

Balance Sheet Netting

Certain of our derivatives and short-term debt are subject to master netting arrangements or similar agreements. Under GAAP, in certain circumstances we may elect to present certain financial assets, liabilities and related collateral subject to master netting arrangements in a net position on our consolidated balance sheets. However, we do not report any of these financial assets or liabilities on a net basis, and instead present them on a gross basis on our consolidated balance sheets.

The table below presents financial assets and liabilities that are subject to master netting arrangements or similar agreements categorized by financial instrument, together with corresponding financial instruments and corresponding collateral received or pledged at September 30, 2020 and December 31, 2019.

Table 3.1 – Offsetting of Financial Assets, Liabilities, and Collateral

	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in Consolidated Balance Sheet		Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		Gross Amounts Not Offset in Consolidated Balance Sheet (1)				Net Amount
September 30, 2020 (In Thousands)							Financial Instruments		Cash Collateral (Received) Pledged
Assets (2)
Interest rate agreements	$	3,471	$	—	$	3,471	$	(15)	$	(1,240)	$	2,216
TBAs	402		—		402		—		(263)		139
Futures	63		—		63		—		—		63
Total Assets	$	3,936	$	—	$	3,936	$	(15)	$	(1,503)	$	2,418
Liabilities (2)
Interest rate agreements	$	(15)	$	—	$	(15)	$	15	$	—	$	—
TBAs	(263)		$	—	(263)		—		263		—
Loan warehouse debt	(81,898)		$	—	(81,898)		81,898		—		—
Security repurchase agreements	(75,054)		—		(75,054)		75,054		—		—
Total Liabilities	$	(157,230)	$	—	$	(157,230)	$	156,967	$	263	$	—

15

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 3. Summary of Significant Accounting Policies - (continued)

	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in Consolidated Balance Sheet		Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		Gross Amounts Not Offset in Consolidated Balance Sheet (1)				Net Amount
December 31, 2019 (In Thousands)							Financial Instruments		Cash Collateral (Received) Pledged
Assets (2)
Interest rate agreements	$	19,020	$	—	$	19,020	$	(14,178)	$	(915)	$	3,927
TBAs	5,755		—		5,755		(5,755)		—		—
Futures	137		—		137		—		—		137
Total Assets	$	24,912	$	—	$	24,912	$	(19,933)	$	(915)	$	4,064
Liabilities (2)
Interest rate agreements	$	(148,765)	$	—	$	(148,765)	$	14,178	$	134,587	$	—
TBAs	(13,359)		—		(13,359)		5,755		6,673		(931)
Loan warehouse debt	(432,126)		—		(432,126)		432,126		—		—
Security repurchase agreements	(1,096,578)		—		(1,096,578)		1,096,578		—		—
Total Liabilities	$	(1,690,828)	$	—	$	(1,690,828)	$	1,548,637	$	141,260	$	(931)

(1)Amounts presented in these columns are limited in total to the net amount of assets or liabilities presented in the prior column by instrument. In certain cases, there is excess cash collateral or financial assets we have pledged to a counterparty (which may, in certain circumstances, be a clearinghouse) that exceed the financial liabilities subject to a master netting arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to us that exceeds our corresponding financial assets. In each case, any of these excess amounts are excluded from the table although they are separately reported in our consolidated balance sheets as assets or liabilities, respectively.

(2)Interest rate agreements and TBAs are components of derivatives instruments on our consolidated balance sheets. Loan warehouse debt, which is secured by certain residential and business purpose residential loans, and security repurchase agreements are components of Short-term debt and Long-term debt on our consolidated balance sheets.

For each category of financial instrument set forth in the table above, the assets and liabilities resulting from individual transactions within that category between us and a counterparty are subject to a master netting arrangement or similar agreement with that counterparty that provides for individual transactions to be aggregated and treated as a single transaction. For certain categories of these instruments, some of our transactions are cleared and settled through one or more clearinghouses that are substituted as our counterparty. References herein to master netting arrangements or similar agreements include the arrangements and agreements governing the clearing and settlement of these transactions through the clearinghouses. In the event of the termination and close-out of any of those transactions, the corresponding master netting agreement or similar agreement provides for settlement on a net basis. Any such settlement would include the proceeds of the liquidation of any corresponding collateral, subject to certain limitations on termination, settlement, and liquidation of collateral that may apply in the event of the bankruptcy or insolvency of a party. Such limitations should not inhibit the eventual practical realization of the principal benefits of those transactions or the corresponding master netting arrangement or similar agreement and any corresponding collateral.

Note 4. Principles of Consolidation

GAAP requires us to consider whether securitizations we sponsor and other transfers of financial assets should be treated as sales or financings, as well as whether any VIEs that we hold variable interests in – for example, certain legal entities often used in securitization and other structured finance transactions – should be included in our consolidated financial statements. The GAAP principles we apply require us to reassess our requirement to consolidate VIEs each quarter and therefore our determination may change based upon new facts and circumstances pertaining to each VIE. This could result in a material impact to our consolidated financial statements during subsequent reporting periods.

16

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 4. Principles of Consolidation - (continued)

Analysis of Consolidated VIEs

At September 30, 2020, we consolidated Legacy Sequoia, Sequoia Choice, Freddie Mac SLST, Freddie Mac K-Series and CAFL securitization entities that we determined were VIEs and for which we determined we were the primary beneficiary. Each of these entities is independent of Redwood and of each other and the assets and liabilities of these entities are not owned by and are not legal obligations of ours. Our exposure to these entities is primarily through the financial interests we have retained, although for the consolidated Sequoia and CAFL entities we are exposed to certain financial risks associated with our role as a sponsor, servicing administrator, or depositor of these entities or as a result of our having sold assets directly or indirectly to these entities. At September 30, 2020, the estimated fair value of our investments in the consolidated Legacy Sequoia, Sequoia Choice, Freddie Mac SLST, Freddie Mac K-Series and CAFL entities was $5 million, $211 million, $418 million, $27 million, and $232 million, respectively.

During the first quarter of 2020, we sold subordinate securities issued by four of these Freddie Mac K-Series securitization trusts and determined that we should derecognize the associated assets and liabilities of each of these entities for financial reporting purposes. We deconsolidated $3.86 billion of multifamily loans and other assets and $3.72 billion of multifamily ABS issued and other liabilities, for which we realized market valuation losses of $72 million, which were recorded through Investment fair value changes, net on our consolidated statements of income (loss) for the three months ended March 31, 2020.

Beginning in 2018, we consolidated two Servicing Investment entities formed to invest in servicing-related assets that we determined were VIEs and for which we determined we were the primary beneficiary. At September 30, 2020, we held an 80% ownership interest in, and were responsible for the management of, each entity. See Note 10 for a further description of these entities and the investments they hold and Note 12 for additional information on the minority partner’s interest. Additionally, beginning in 2018, we consolidated an entity that was formed to finance servicer advances that we determined was a VIE and for which we, through our control of one of the aforementioned partnerships, were the primary beneficiary. The servicer advance financing consists of non-recourse short-term securitization debt, secured by servicer advances. We consolidate the securitization entity, but the securitization entity is independent of Redwood and the assets and liabilities are not owned by and are not legal obligations of Redwood. See Note 13 for additional information on the servicer advance financing. At September 30, 2020, the estimated fair value of our investment in the Servicing Investment entities was $65 million.

17

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 4. Principles of Consolidation - (continued)

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

Table 4.1 – Assets and Liabilities of Consolidated VIEs Accounted for as Collateralized Financing Entities

September 30, 2020	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment	$	296,765	$	1,836,361	$	2,256,682	$	—	$	—	$	—	$	4,389,808
Business purpose residential loans, held-for-investment	—		—		—		—		2,969,692		—		2,969,692
Multifamily loans, held-for-investment	—		—		—		491,415		—		—		491,415
Other investments	—		—		—		—		—		278,487		278,487
Cash and cash equivalents	—		—		—		—		—		10,425		10,425
Restricted cash	146		—		—		—		—		20,649		20,795
Accrued interest receivable	402		7,292		6,928		1,342		12,071		2,609		30,644
Other assets	784		—		887		—		4,158		—		5,829
Total Assets	$	298,097	$	1,843,653	$	2,264,497	$	492,757	$	2,985,921	$	312,170	$	8,197,095
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	228,998	$	228,998
Accrued interest payable	180		5,652		5,009		1,182		9,337		137		21,497
Accrued expenses and other liabilities	—		47		—		—		—		18,129		18,176
Asset-backed securities issued	292,484		1,626,564		1,841,313		464,865		2,744,150		—		6,969,376
Total Liabilities	$	292,664	$	1,632,263	$	1,846,322	$	466,047	$	2,753,487	$	247,264	$	7,238,047
Number of VIEs	20		10		2		1		13		3		49

December 31, 2019	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment	$	407,890	$	2,291,463	$	2,367,215	$	—	$	—	$	—	$	5,066,568
Business purpose residential loans, held-for-investment	—		—		—		—		2,192,552		—		2,192,552
Multifamily loans, held-for-investment	—		—		—		4,408,524		—		—		4,408,524
Other investments	—		—		—		—		—		184,802		184,802
Cash and cash equivalents	—		—		—		—		—		9,015		9,015
Restricted cash	143		27		—		—		—		21,766		21,936
Accrued interest receivable	655		9,824		7,313		13,539		9,572		4,869		45,772
Other assets	460		—		445		—		1,795		—		2,700
Total Assets	$	409,148	$	2,301,314	$	2,374,973	$	4,422,063	$	2,203,919	$	220,452	$	11,931,869
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	152,554	$	152,554
Accrued interest payable	395		7,732		5,374		12,887		7,485		187		34,060
Accrued expenses and other liabilities	—		27		—		—		—		14,956		14,983
Asset-backed securities issued	402,465		2,037,198		1,918,322		4,156,239		2,001,251		—		10,515,475
Total Liabilities	$	402,860	$	2,044,957	$	1,923,696	$	4,169,126	$	2,008,736	$	167,697	$	10,717,072
Number of VIEs	20		9		2		5		10		3		49

18

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 4. Principles of Consolidation - (continued)

The following table presents income (loss) from these VIEs for the three and nine months ended September 30, 2020 and 2019.

Table 4.2 – Income (Loss) from Consolidated VIEs Accounted for as Collateralized Financing Entities

	Three Months Ended September 30, 2020
	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	1,795	$	20,919	$	21,696	$	4,918	$	36,181	$	4,403	$	89,912
Interest expense	(1,058)		(17,828)		(15,473)		(4,426)		(27,499)		(1,587)		(67,871)
Net interest income	737		3,091		6,223		492		8,682		2,816		22,041
Non-interest income
Investment fair value changes, net	(81)		7,851		82,214		2,166		9,692		(422)		101,420
Total non-interest income, net	(81)		7,851		82,214		2,166		9,692		(422)		101,420
General and administrative expenses	—		—		—		—		—		(41)		(41)
Other expenses	—		—		—		—		—		(471)		(471)
Income from Consolidated VIEs	$	656	$	10,942	$	88,437	$	2,658	$	18,374	$	1,882	$	122,949

	Nine Months Ended September 30, 2020
	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	7,675	$	68,566	$	64,869	$	49,960	$	99,169	$	13,026	$	303,265
Interest expense	(5,098)		(58,455)		(47,495)		(47,154)		(75,600)		(4,961)		(238,763)
Net interest income	2,577		10,111		17,374		2,806		23,569		8,065		64,502
Non-interest income
Investment fair value changes, net	(702)		(22,065)		(33,081)		(82,744)		(41,841)		(9,015)		(189,448)
Total non-interest income, net	(702)		(22,065)		(33,081)		(82,744)		(41,841)		(9,015)		(189,448)
General and administrative expenses	—		—		—		—		—		(784)		(784)
Other expenses	—		—		—		—		—		346		346
Income (Loss) from Consolidated VIEs	$	1,875	$	(11,954)	$	(15,707)	$	(79,938)	$	(18,272)	$	(1,388)	$	(125,384)

	Three Months Ended September 30, 2019
	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	4,295	$	27,555	$	11,830	$	36,829	$	—	$	3,922	$	84,431
Interest expense	(3,452)		(23,576)		(8,709)		(35,328)		—		(2,891)		(73,956)
Net interest income	843		3,979		3,121		1,501		—		1,031		10,475
Non-interest income
Investment fair value changes, net	(407)		2,722		17,300		7,445		—		963		28,023
Total non-interest income, net	(407)		2,722		17,300		7,445		—		963		28,023
General and administrative expenses	—		—		—		—		—		(16)		(16)
Other expenses	—		—		—		—		—		(395)		(395)
Income from Consolidated VIEs	$	436	$	6,701	$	20,421	$	8,946	$	—	$	1,583	$	38,087

19

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 4. Principles of Consolidation - (continued)

	Nine Months Ended September 30, 2019
	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	13,924	$	80,045	$	35,221	$	94,134	$	—	$	10,847	$	234,171
Interest expense	(11,548)		(68,823)		(26,013)		(90,089)		—		(9,905)		(206,378)
Net interest income	2,376		11,222		9,208		4,045		—		942		27,793
Non-interest income
Investment fair value changes, net	(904)		8,866		31,702		13,810		—		3,462		56,936
Total non-interest income, net	(904)		8,866		31,702		13,810		—		3,462		56,936
General and administrative expenses	—		—		—		—		—		(87)		(87)
Other expenses	—		—		—		—		—		(864)		(864)
Income from Consolidated VIEs	$	1,472	$	20,088	$	40,910	$	17,855	$	—	$	3,453	$	83,778

We consolidate the assets and liabilities of certain Sequoia and CAFL securitization entities, as we did not meet the GAAP sale criteria at the time we transferred financial assets to these entities. Our involvement in consolidated Sequoia and CAFL entities continues in the following ways: (i) we continue to hold subordinate investments in each entity, and for certain entities, more senior investments; (ii) we maintain certain discretionary rights associated with our sponsorship of, or our subordinate investments in, each entity; and (iii) we continue to hold a right to call the assets of certain entities (once they have been paid down below a specified threshold) at a price equal to, or in excess of, the current outstanding principal amount of the entity’s asset-backed securities issued. These factors have resulted in our continuing to consolidate the assets and liabilities of these Sequoia and CAFL entities in accordance with GAAP.

We consolidate the assets and liabilities of certain Freddie Mac K-Series and SLST securitization trusts resulting from our investment in subordinate securities issued by these trusts, and in the case of certain CAFL securitizations, resulting from securities acquired through our acquisition of CoreVest. Additionally, we consolidate the assets and liabilities of Servicing Investment entities from our investment in servicer advance investments and excess MSRs. In each case, we maintain certain discretionary rights associated with the ownership of these investments that we determined reflected a controlling financial interest, as we have both the power to direct the activities that most significantly impact the economic performance of the VIEs and the right to receive benefits of and the obligation to absorb losses from the VIEs that could potentially be significant to the VIEs.

During the third quarter of 2020, we re-securitized subordinate securities we owned in our consolidated Freddie Mac SLST securitization trusts, through the transfer of these financial assets to a re-securitization trust that we sponsored. We retain a subordinate investment in the re-securitization trust and maintain certain discretionary rights associated with the ownership of this investment that we determined reflected a controlling financial interest in the entity, as we have both the power to direct the activities that most significantly impact the performance of the VIE and the right to receive benefits of and the obligation to absorb losses from the VIE that could potentially be significant to the VIE. At securitization, we issued $210 million of ABS and have elected to account for the ABS issued at amortized cost.

Analysis of Unconsolidated VIEs with Continuing Involvement

Since 2012, we have transferred residential loans to 51 Sequoia securitization entities sponsored by us that are still outstanding as of September 30, 2020, and accounted for these transfers as sales for financial reporting purposes, in accordance with ASC 860. We also determined we were not the primary beneficiary of these VIEs as we lacked the power to direct the activities that will have the most significant economic impact on the entities. For certain of these transfers to securitization entities, for the transferred loans where we held the servicing rights prior to the transfer and continued to hold the servicing rights following the transfer, we recorded mortgage servicing rights ("MSRs") on our consolidated balance sheets, and classified those MSRs as Level 3 assets. We also retained senior and subordinate securities in these securitizations that we classified as Level 3 assets. Our continuing involvement in these securitizations is limited to customary servicing obligations associated with retaining servicing rights (which we retain a third-party sub-servicer to perform) and the receipt of interest income associated with the securities we retained.

20

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 4. Principles of Consolidation - (continued)

The following table presents information related to securitization transactions that occurred during the three and nine months ended September 30, 2020 and 2019.

Table 4.3 – Securitization Activity Related to Unconsolidated VIEs Sponsored by Redwood

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Principal balance of loans transferred	$	—	$	366,999	$	1,573,703	$	1,116,092
Trading securities retained, at fair value	—		1,228		43,362		4,736
AFS securities retained, at fair value	—		1,069		3,198		3,023

The following table summarizes the cash flows during the three and nine months ended September 30, 2020 and 2019 between us and the unconsolidated VIEs sponsored by us and accounted for as sales since 2012.

Table 4.4 – Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Proceeds from new transfers	$	—	$	376,126	$	1,610,761	$	1,138,778
MSR fees received	2,280		2,919		7,445		9,084
Funding of compensating interest, net	4		(76)		(293)		(213)
Cash flows received on retained securities	5,873		6,603		19,242		20,892

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, 2020 and 2019.

Table 4.5 – Assumptions Related to Assets Retained from Unconsolidated VIEs Sponsored by Redwood

	Three Months Ended September 30, 2020		Three Months Ended September 30, 2019
At Date of Securitization	Senior IO Securities	Subordinate Securities	Senior IO Securities		Subordinate Securities
Prepayment rates	N/A	N/A	37	%	15	%
Discount rates	N/A	N/A	14	%	7	%
Credit loss assumptions	N/A	N/A	0.20	%	0.20	%

	Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
At Date of Securitization	Senior IO Securities		Subordinate Securities		Senior IO Securities		Subordinate Securities
Prepayment rates	41	%	13	%	25	%	15	%
Discount rates	16	%	6	%	14	%	7	%
Credit loss assumptions	0.21	%	0.22	%	0.20	%	0.20	%

21

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 4. Principles of Consolidation - (continued)

The following table presents additional information at September 30, 2020 and December 31, 2019, related to unconsolidated VIEs sponsored by Redwood and accounted for as sales since 2012.

Table 4.6 – Unconsolidated VIEs Sponsored by Redwood

(In Thousands)	September 30, 2020		December 31, 2019
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading	$	19,878	$	88,425
Subordinate securities, classified as AFS	124,132		140,649
Mortgage servicing rights	14,240		40,254
Maximum loss exposure (1)	$	158,250	$	269,328
Assets transferred:
Principal balance of loans outstanding	$	8,571,916	$	10,299,442
Principal balance of loans 30+ days delinquent	200,910		41,809

(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.

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, 2020 and December 31, 2019.

Table 4.7 – Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated VIEs Sponsored by Redwood

September 30, 2020	MSRs			Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at September 30, 2020	$	14,240		$	16,226		$	127,783
Expected life (in years) (2)	3			3			10
Prepayment speed assumption (annual CPR) (2)	26		%	30		%	27		%
Decrease in fair value from:
10% adverse change	$	1,105		$	1,622		$	1,075
25% adverse change	2,678			3,675			3,735
Discount rate assumption (2)	12		%	17		%	6		%
Decrease in fair value from:
100 basis point increase	$	383		$	327		$	10,219
200 basis point increase	746			638			19,348
Credit loss assumption (2)	N/A			0.38		%	0.38		%
Decrease in fair value from:
10% higher losses	N/A			$	—		$	2,274
25% higher losses	N/A			—			5,500

22

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 4. Principles of Consolidation - (continued)

December 31, 2019	MSRs			Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at December 31, 2019	$	40,254		$	48,765		$	180,309
Expected life (in years) (2)	6			6			14
Prepayment speed assumption (annual CPR) (2)	11		%	14		%	16		%
Decrease in fair value from:
10% adverse change	$	1,643		$	1,908		$	205
25% adverse change	3,913			5,086			1,434
Discount rate assumption (2)	11		%	12		%	5		%
Decrease in fair value from:
100 basis point increase	$	1,447		$	1,079		$	18,127
200 basis point increase	2,795			2,482			33,630
Credit loss assumption (2)	N/A			0.21		%	0.21		%
Decrease in fair value from:
10% higher losses	N/A			$	—		$	1,804
25% higher losses	N/A			—			4,520

(1)Senior securities included $16 million and $49 million of interest-only securities at September 30, 2020 and December 31, 2019, respectively.

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

Analysis of Unconsolidated Third-Party VIEs

Third-party VIEs are securitization entities in which we maintain an economic interest, but do not sponsor. Our economic interest may include several securities and other investments from the same third-party VIE, and in those cases, the analysis is performed in consideration of all of our interests. The following table presents a summary of our interests in third-party VIEs at September 30, 2020 and December 31, 2019, grouped by asset type.

Table 4.8 – Third-Party Sponsored VIE Summary

(In Thousands)	September 30, 2020		December 31, 2019
Mortgage-Backed Securities
Senior	$	11,865	$	127,094
Mezzanine	2,016		508,195
Subordinate	193,445		235,510
Total Mortgage-Backed Securities	207,326		870,799
Excess MSR	15,205		16,216
Total Investments in Third-Party Sponsored VIEs	$	222,531	$	887,015

We determined that we are not the primary beneficiary of these third-party VIEs, as we do not have the required power to direct the activities that most significantly impact the economic performance of these entities. Specifically, we do not service or manage these entities or otherwise solely hold decision making powers that are significant. As a result of this assessment, we do not consolidate any of the underlying assets and liabilities of these third-party VIEs – we only account for our specific interests in them.

Our assessments of whether we are required to consolidate a VIE may change in subsequent reporting periods based upon changing facts and circumstances pertaining to each VIE. Any related accounting changes could result in a material impact to our financial statements.

23

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 5. Fair Value of Financial Instruments

For financial reporting purposes, we follow a fair value hierarchy established under GAAP that is used to determine the fair value of financial instruments. This hierarchy prioritizes relevant market inputs in order to determine an “exit price” at the measurement date, or the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale. Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Level 2 inputs are observable inputs other than quoted prices for an asset or liability that are obtained through corroboration with observable market data. Level 3 inputs are unobservable inputs (e.g., our own data or assumptions) that are used when there is little, if any, relevant market activity for the asset or liability required to be measured at fair value.

In certain cases, inputs used to measure fair value fall into different levels of the fair value hierarchy. In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured.

24

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)

The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at September 30, 2020 and December 31, 2019.

Table 5.1 – Carrying Values and Fair Values of Assets and Liabilities

	September 30, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
(In Thousands)
Assets
Residential loans, held-for-sale at fair value	$	105,091	$	105,091	$	536,385	$	536,509
Residential loans, held-for-investment	4,389,808		4,389,808		7,178,465		7,178,465
Business purpose residential loans, held-for-sale	285,549		285,549		331,565		331,565
Business purpose residential loans, held-for-investment	3,670,552		3,670,552		3,175,178		3,175,178
Multifamily loans	491,415		491,415		4,408,524		4,408,524
Real estate securities	351,335		351,335		1,099,874		1,099,874
Servicer advance investments (1)	258,621		258,621		169,204		169,204
MSRs (1)	14,878		14,878		42,224		42,224
Excess MSRs (1)	35,070		35,070		31,814		31,814
Shared home appreciation options (1)	41,758		41,758		45,085		45,085
Cash and cash equivalents	450,684		450,684		196,966		196,966
Restricted cash	73,594		73,594		93,867		93,867
Derivative assets	14,709		14,709		35,701		35,701
REO (2)	8,535		9,654		9,462		10,389
Margin receivable (2)	3,809		3,809		209,776		209,776
FHLBC stock (2)	5,000		5,000		43,393		43,393
Guarantee asset (2)	579		579		1,686		1,686
Pledged collateral (2)	8,172		8,172		32,945		32,945
Liabilities
Short-term debt	$	482,761	$	482,761	$	2,329,145	$	2,329,145
Margin payable (3)	—		—		1,700		1,700
Guarantee obligation (3)	11,264		10,185		14,009		13,754
Contingent consideration (3)	—		—		28,484		28,484
Derivative liabilities	1,612		1,612		163,424		163,424
ABS issued, net
Fair value	6,969,376		6,969,376		10,515,475		10,515,475
Amortized cost	203,022		207,812		—		—
FHLBC long-term borrowings	1,000		1,000		1,999,999		1,999,999
Other long-term debt, net	886,054		885,172		183,520		184,666
Convertible notes, net	510,472		476,071		631,125		661,985
Trust preferred securities and subordinated notes, net	138,663		73,238		138,628		99,045

(1)These investments are included in Other investments on our consolidated balance sheets.

(2)These assets are included in Other assets on our consolidated balance sheets.

(3)These liabilities are included in Accrued expenses and other liabilities on our consolidated balance sheets.

During the three and nine months ended September 30, 2020, we elected the fair value option for $18 million and $96 million of securities, respectively, $172 million and $2.86 billion of residential loans (principal balance), respectively, $260 million and $956 million of business purpose residential loans (principal balance), respectively, zero and $179 million of servicer advance investments, respectively, zero and $11 million of excess MSRs, respectively, and zero and $4 million of shared home appreciation options, respectively. We anticipate electing the fair value option for all future purchases of residential and business purpose residential loans that we intend to sell to third parties or transfer to securitizations, as well as for certain securities we purchase, including IO securities and fixed-rate securities rated investment grade or higher.

25

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)

The following table presents the assets and liabilities that are reported at fair value on our consolidated balance sheets on a recurring basis at September 30, 2020 and December 31, 2019, as well as the fair value hierarchy of the valuation inputs used to measure fair value.

Table 5.2 – Assets and Liabilities Measured at Fair Value on a Recurring Basis

September 30, 2020	Carrying Value		Fair Value Measurements Using
(In Thousands)			Level 1		Level 2		Level 3
Assets
Residential loans	$	4,494,899	$	—	$	—	$	4,494,899
Business purpose residential loans	3,956,101		—		—		3,956,101
Multifamily loans	491,415		—		—		491,415
Real estate securities	351,335		—		—		351,335
Servicer advance investments	258,621		—		—		258,621
MSRs	14,878		—		—		14,878
Excess MSRs	35,070		—		—		35,070
Shared home appreciation options	41,758		—		—		41,758
Derivative assets	14,709		464		3,472		10,773
Pledged collateral	8,172		8,172		—		—
FHLBC stock	5,000		—		5,000		—
Guarantee asset	579		—		—		579
Liabilities
Derivative liabilities	$	1,612	$	263	$	15	$	1,334
ABS issued	6,969,376		—		—		6,969,376

26

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)

December 31, 2019	Carrying Value		Fair Value Measurements Using
(In Thousands)			Level 1		Level 2		Level 3
Assets
Residential loans	$	7,714,745	$	—	$	—	$	7,714,745
Business purpose residential loans	3,506,743		—		—		3,506,743
Multifamily loans	4,408,524		—		—		4,408,524
Real estate securities	1,099,874		—		—		1,099,874
Servicer advance investments	169,204		—		—		169,204
MSRs	42,224		—		—		42,224
Excess MSRs	31,814		—		—		31,814
Shared home appreciation options	45,085		—		—		45,085
Derivative assets	35,701		6,531		19,020		10,150
Pledged collateral	32,945		32,945		—		—
FHLBC stock	43,393		—		43,393		—
Guarantee asset	1,686		—		—		1,686
Liabilities
Contingent consideration	$	28,484	$	—	$	—	$	28,484
Derivative liabilities	163,424		13,368		148,766		1,290
ABS issued	10,515,475		—		—		10,515,475

The following table presents additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2020.

Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis

	Assets
	Residential Loans		Business Purpose Residential Loans		Multifamily Loans		Trading Securities		AFS Securities		Servicer Advance Investments		MSRs		Excess MSRs		Shared Home Appreciation Options
(In Thousands)
Beginning balance - December 31, 2019	$	7,714,745	$	3,506,743	$	4,408,524	$	860,540	$	239,334	$	169,204	$	42,224	$	31,814	$	45,085
Acquisitions	2,927,697		—		—		96,318		56,664		179,419		—		10,906		3,517
Originations	—		982,315		—		—		—		—		—		—		—
Sales	(4,783,682)		(53,434)		—		(579,466)		(55,193)		—		—		—		—
Principal paydowns	(1,210,117)		(489,243)		(5,830)		(8,502)		(10,345)		(83,124)		—		—		(2,558)
Deconsolidations	—		—		(3,849,779)		—		—		—		—		—		—
Gains (losses) in net income (loss), net	(152,145)		16,246		(61,500)		(224,728)		(23,287)		(6,878)		(27,346)		(7,650)		(4,286)
Other settlements, net (1)	(1,599)		(6,526)		—		—		—		—		—		—		—
Ending balance - September 30, 2020	$	4,494,899	$	3,956,101	$	491,415	$	144,162	$	207,173	$	258,621	$	14,878	$	35,070	$	41,758

27

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)

Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis (continued)

	Assets				Liabilities
	Guarantee Asset		Derivatives (2)		Contingent Consideration		ABS Issued
(In Thousands)
Beginning balance - December 31, 2019	$	1,686	$	8,860	$	28,484	$	10,515,475
Acquisitions	—		—		—		1,137,656
Principal paydowns	—		—		(13,353)		(1,035,359)
Deconsolidations	—		—		—		(3,706,789)
Gains (losses) in net income (loss), net	(1,107)		34,620		(446)		58,393
Other settlements, net (1)	—		(34,041)		(14,685)		—
Ending balance - September 30, 2020	$	579	$	9,439	$	—	$	6,969,376

(1)    Other settlements, net for residential and business purpose residential loans represents the transfer of loans to REO, and for derivatives, the settlement of forward sale commitments and the transfer of the fair value of loan purchase or interest rate lock commitments at the time loans are acquired to the basis of residential and single-family rental loans. Other settlements, net for contingent consideration reflects the reclassification from a contingent liability to a deferred liability during the period due to an amendment in the underlying agreement. See Note 16 for further discussion.

(2)    For the purpose of this presentation, derivative assets and liabilities, which consist of loan purchase commitments and interest rate lock commitments, are presented on a net basis.

28

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)

The following table presents the portion of gains or losses included in our consolidated statements of income (loss) that were attributable to Level 3 assets and liabilities recorded at fair value on a recurring basis and held at September 30, 2020 and 2019. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the three and nine months ended September 30, 2020 and 2019 are not included in this presentation.

Table 5.4 – Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at September 30, 2020 and 2019 Included in Net Income

	Included in Net Income
	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Assets
Residential loans at Redwood	$	(107)	$	17,771	$	(865)	$	82,408
Business purpose residential loans	21,155		584		17,901		4,069
Net investments in consolidated Sequoia entities (1)	7,700		1,860		(22,802)		7,051
Net investments in consolidated Freddie Mac SLST entities (1)	82,209		17,300		(33,087)		31,702
Net investments in consolidated Freddie Mac K-Series entities (1)	2,165		7,445		(11,014)		13,810
Net investments in consolidated CAFL entities (1)	9,673		—		(41,048)		—
Trading securities	(3,549)		11,206		(80,358)		33,196
Servicer advance investments	25		1,585		(6,172)		3,025
MSRs	(2,376)		(5,892)		(16,798)		(16,971)
Excess MSRs	(1,127)		(1,634)		(7,650)		(2,137)
Shared home appreciation options	2,384		29		(4,286)		29
Loan purchase and interest rate lock commitments	10,791		4,678		10,773		4,757
Other assets - Guarantee asset	(191)		(216)		(1,107)		(834)
Liabilities
Loan purchase commitments	$	420	$	(1,668)	$	(1,334)	$	(1,669)

(1)    Represents the portion of net gains or losses included in our consolidated statements of income (loss) related to loans and the associated ABS issued at our consolidated securitization entities held at September 30, 2020 and 2019, which netted together represent the change in value of our investments at the consolidated VIEs.

The following table presents information on assets recorded at fair value on a non-recurring basis at September 30, 2020. This table does not include the carrying value and gains or losses associated with the asset types below that were not recorded at fair value on our consolidated balance sheets at September 30, 2020.

Table 5.5 – Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis at September 30, 2020

									Gain (Loss) for
September 30, 2020	Carrying Value		Fair Value Measurements Using						Three Months Ended		Nine Months Ended
(In Thousands)			Level 1		Level 2		Level 3		September 30, 2020		September 30, 2020
Assets
REO	$	3,523	$	—	$	—	$	3,523	$	(805)	$	(840)

29

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)

The following table presents the net market valuation gains and losses recorded in each line item of our consolidated statements of income for the three and nine months ended September 30, 2020 and 2019.

Table 5.6 – Market Valuation Gains and Losses, Net

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Mortgage Banking Activities, Net
Residential loans held-for-sale, at fair value	$	(478)	$	(6,623)	$	(15,972)	$	289
Residential loan purchase and forward sale commitments	13,067		12,943		35,123		41,142
Single-family rental loans held-for-sale, at fair value	43,191		1,283		55,868		4,200
Single-family rental loan purchase and interest rate lock commitments	—		564		341		1,273
Residential bridge loans	938		1,010		(4,256)		2,108
Risk management derivatives, net	(99)		(2,972)		(52,931)		(15,387)
Total mortgage banking activities, net (1)	$	56,619	$	6,205	$	18,173	$	33,625
Investment Fair Value Changes, Net
Residential loans held-for-investment, at Redwood	$	218	$	7,667	$	(93,314)	$	71,323
Single-family rental loans held-for-investment	—		22		(20,806)		22
Residential bridge loans held-for-investment	6,812		(742)		(10,016)		(1,363)
Trading securities	(3,600)		15,275		(224,679)		55,577
Servicer advance investments	26		1,585		(6,172)		3,025
Excess MSRs	(1,127)		(1,635)		(7,650)		(2,137)
Net investments in Legacy Sequoia entities (2)	(81)		(407)		(702)		(904)
Net investments in Sequoia Choice entities (2)	7,851		2,722		(22,065)		8,866
Net investments in Freddie Mac SLST entities (2)	82,214		17,300		(33,081)		31,702
Net investments in Freddie Mac K-Series entities (2)	2,166		7,445		(82,744)		13,810
Net investments in CAFL entities (2)	9,673		—		(41,048)		—
Other investments	2,451		(355)		(9,111)		(632)
Risk management derivatives, net	—		(37,433)		(59,142)		(144,548)
Credit recoveries (losses) on AFS securities	444		—		(1,027)		—
Total investment fair value changes, net	$	107,047	$	11,444	$	(611,557)	$	34,741
Other Income
MSRs	$	(4,783)	$	(7,489)	$	(27,346)	$	(21,243)
Risk management derivatives, net	—		4,389		13,966		13,157
Gain on re-measurement of 5 Arches investment	—		—		—		2,440
Total other income (3)	$	(4,783)	$	(3,100)	$	(13,380)	$	(5,646)
Total Market Valuation Gains (Losses), Net	$	158,883	$	14,549	$	(606,764)	$	62,720

(1)Mortgage banking activities, net presented above does not include fee income from loan originations or acquisitions, provisions for repurchases expense, and other expenses that are components of Mortgage banking activities, net presented on our consolidated statements of income (loss), as these amounts do not represent market valuation changes.

(2)Includes changes in fair value of the residential loans held-for-investment, REO and the ABS issued at the entities, which netted together represent the change in value of our investments at the consolidated VIEs.

(3)Other income presented above does not include net MSR fee income or provisions for repurchases for MSRs, as these amounts do not represent market valuation adjustments.

30

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)

At September 30, 2020, our valuation policy and processes had not changed from those described in our Annual Report on Form 10-K for the year ended December 31, 2019. The following table provides quantitative information about the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value.

Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments

September 30, 2020	Fair Value			Input Values
(Dollars in Thousands, except Input Values)			Unobservable Input	Range						Weighted Average(1)
Assets
Residential loans, at fair value:
Jumbo fixed-rate loans	$	6,312	Prepayment rate (annual CPR)	20		-	20		%	20		%
			Whole loan spread to swap rate	350		-	350		bps	350		bps
Jumbo loans committed to sell	98,779		Whole loan committed sales price	$	101.61	-	$	103.40		$	103.23
Loans held by Legacy Sequoia (2)	296,765		Liability price				N/A			N/A
Loans held by Sequoia Choice (2)	1,836,361		Liability price				N/A			N/A
Loans held by Freddie Mac SLST (2)	2,256,682		Liability price				N/A			N/A
Business purpose residential loans:
Single-family rental loans	285,549		Senior credit spread	130		-	130		bps	130		bps
			Subordinate credit spread	200		-	1,600		bps	551		bps
			Senior credit support	30		-	32		%	31		%
			IO discount rate	8		-	9		%	9		%
			Prepayment rate (annual CPR)	—		-	3		%	3		%
			Non-securitizable loan dollar price	$	101	-	$	101		$	101
Single-family rental loans held by CAFL	2,969,692		Liability price				N/A			N/A
Residential bridge loans	700,860		Discount rate	6		-	12		%	8		%
			Non-performing loan dollar price	$	3	-	$	100		$	89
Multifamily loans held by Freddie Mac K-Series (2)	491,415		Liability price				N/A			N/A
Trading and AFS securities	351,335		Discount rate	3		-	34		%	9		%
			Prepayment rate (annual CPR)	7		-	65		%	24		%
			Default rate	—		-	26		%	1		%
			Loss severity	—		-	50		%	19		%
			CRT dollar price	$	49	-	$	103		$	84
Servicer advance investments	258,621		Discount rate	3		-	4		%	4		%
			Prepayment rate (annual CPR)	8		-	14		%	13		%
			Expected remaining life (3)	1		-	2		years	2		years
			Mortgage servicing income	6		-	16		bps	8		bps
MSRs	14,878		Discount rate	12		-	12		%	12		%
			Prepayment rate (annual CPR)	8		-	97		%	26		%
			Per loan annual cost to service	$	95	-	$	95		$	95
Excess MSRs	35,070		Discount rate	15		-	21		%	18		%
			Prepayment rate (annual CPR)	10		-	13		%	11		%
			Excess mortgage servicing income	9		-	17		bps	12		bps

31

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)

Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments (continued)

September 30, 2020	Fair Value			Input Values
(Dollars in Thousands, except Input Values)			Unobservable Input	Range						Weighted Average (1)
Assets (continued)
Shared home appreciation options	$	41,758	Discount rate	16		-	16		%	16		%
			Prepayment rate (annual CPR)	8		-	26		%	19		%
			Home price appreciation	2		-	3		%	3		%
Guarantee asset	579		Discount rate	12		-	12		%	12		%
			Prepayment rate (annual CPR)	42		-	42		%	42		%
REO	3,523		Loss severity	3		-	63		%	23		%
Residential loan purchase commitments, net	10,282		Committed sales price	$	100.89	-	$	103.40		$	102.59
			Pull-through rate	13		-	100		%	58		%
			Whole loan spread to TBA price	$	2.00	-	$	2.00		$	2.00
			Whole loan spread to swap rate - fixed rate	350		-	350		bps	350		bps
			Prepayment rate (annual CPR)	15		-	15		%	15		%
			MSR multiple	0.8		-	4.1		x	3.4		x
Liabilities
ABS issued (2):
At consolidated Sequoia entities	1,919,048		Discount rate	2		-	30		%	3		%
			Prepayment rate (annual CPR)	5		-	53		%	27		%
			Default rate	—		-	40		%	2		%
			Loss severity	—		-	50		%	31		%
At consolidated Freddie Mac SLST entities	1,841,313		Dollar price	$	1	-	$	108		$	99
At consolidated Freddie Mac K-Series entities (4)	464,865		Discount rate	1		-	18		%	2		%
At consolidated CAFL entities (4)	2,744,150		Discount rate	0.2		-	40		%	3		%
			Prepayment rate (annual CPR)	—		-	3		%	—		%
			Default rate	—		-	18		%	11		%
			Loss severity	30		-	30		%	30		%

(1)The weighted average input values for all loan types are based on the unpaid principal balance. The weighted average input values for all other assets and liabilities are based on relative fair value.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities. At September 30, 2020, the fair value of securities we owned at the consolidated Sequoia, Freddie Mac SLST, Freddie Mac K-Series, and CAFL entities was $215 million, $416 million, $27 million, and $229 million, respectively.

(3)Represents the estimated average duration of outstanding servicer advances at a given point in time (not taking into account new advances made with respect to the pool).

(4)As a market convention, certain securities are priced to a no-loss yield and therefore do not include default and loss severity assumptions.

Determination of Fair Value

We generally use both market comparable information and discounted cash flow modeling techniques to determine the fair value of our Level 3 assets and liabilities. Use of these techniques requires determination of relevant input and assumptions, some of which represent significant unobservable inputs as indicated in the preceding table. Accordingly, a significant increase or decrease in any of these inputs - such as anticipated credit losses, prepayment rates, interest rates, or other valuation assumptions - in isolation would likely result in a significantly lower or higher fair value measurement.

32

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)

Included in Note 5 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2019 is a more detailed description of our financial instruments measured at fair value and their significant inputs, as well as the general classification of such instruments pursuant to the Level 1, Level 2, and Level 3 valuation hierarchy.

Note 6. 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 and Freddie Mac SLST entities at September 30, 2020 and December 31, 2019.

Table 6.1 – Classifications and Carrying Values of Residential Loans

September 30, 2020			Legacy		Sequoia		Freddie Mac
(In Thousands)	Redwood		Sequoia		Choice		SLST		Total
Held-for-sale at fair value	$	105,128	$	—	$	—	$	—	$	105,128
Held-for-investment at fair value	—		296,765		1,836,361		2,256,682		4,389,808
Total Residential Loans	$	105,128	$	296,765	$	1,836,361	$	2,256,682	$	4,494,936

December 31, 2019			Legacy		Sequoia		Freddie Mac
(In Thousands)	Redwood		Sequoia		Choice		SLST		Total
Held-for-sale at fair value	$	536,385	$	—	$	—	$	—	$	536,385
Held-for-investment at fair value	2,111,897		407,890		2,291,463		2,367,215		7,178,465
Total Residential Loans	$	2,648,282	$	407,890	$	2,291,463	$	2,367,215	$	7,714,850

At September 30, 2020, we owned mortgage servicing rights associated with $103 million (principal balance) of residential loans owned at Redwood that were 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

The following table summarizes the characteristics of residential loans held-for-sale at September 30, 2020 and December 31, 2019.

Table 6.2 – Characteristics of Residential Loans Held-for-Sale

(Dollars in Thousands)	September 30, 2020		December 31, 2019
Number of loans	118		669
Unpaid principal balance	$	102,921	$	524,928
Fair value of loans	$	105,128	$	536,280
Number of loans with 90+ day delinquencies	2		1
Unpaid principal balance of loans with 90+ day delinquencies	$	2,356	$	747
Fair value of loans with 90+ day delinquencies	$	1,767	$	616
Number of loans in foreclosure	—		—
Market value of loans pledged as collateral under short-term borrowing agreements	$	95,023	$	201,949

33

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 6. Residential Loans - (continued)

The following table provides the activity of residential loans held-for-sale during the three and nine months ended September 30, 2020 and 2019.

Table 6.3 – Quarterly Activity of Residential Loans Held-for-Sale

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Principal balance of loans acquired	$	172,162	$	1,446,750	$	2,859,813	$	3,936,111
Principal balance of loans sold	87,868		1,534,315		5,024,663		3,921,280
Net market valuation gains (losses) recorded (1)	(478)		(6,623)		(15,972)		286

(1)Net market valuation gains (losses) on residential loans held-for-sale are recorded through Mortgage banking activities, net on our consolidated statements of income (loss).

Residential Loans Held-for-Investment at Fair Value

The following tables summarize the characteristics of the residential loans owned at Redwood and at consolidated Sequoia and Freddie Mac SLST entities at September 30, 2020 and December 31, 2019.

Table 6.4 – Characteristics of Residential Loans Held-for-Investment

September 30, 2020			Legacy		Sequoia		Freddie Mac
(Dollars in Thousands)	Redwood		Sequoia		Choice		SLST
Number of loans	—		1,976		2,546		13,893
Unpaid principal balance	$	—	$	352,392	$	1,811,967	$	2,304,047
Fair value of loans	$	—	$	296,765	$	1,836,361	$	2,256,683
Number of loans with 90+ day delinquencies (1)	—		49		132		1,772
Unpaid principal balance of loans with 90+ day delinquencies	$	—	$	16,076	$	102,693	$	339,537
Fair value of loans with 90+ day delinquencies (2)	$	—	N/A		N/A		N/A
Number of loans in foreclosure	—		21		3		175
Unpaid principal balance of loans in foreclosure	$	—	$	4,820	$	1,814	$	28,380

December 31, 2019			Legacy		Sequoia		Freddie Mac
(Dollars in Thousands)	Redwood		Sequoia		Choice		SLST
Number of loans	2,940		2,198		3,156		14,502
Unpaid principal balance	$	2,052,778	$	424,829	$	2,240,679	$	2,428,035
Fair value of loans	$	2,111,897	$	407,890	$	2,291,463	$	2,367,215
Number of loans with 90+ day delinquencies (1)	2		39		9		587
Unpaid principal balance of loans with 90+ day delinquencies	$	1,585	$	9,803	$	6,755	$	134,680
Fair value of loans with 90+ day delinquencies (2)	$	1,424	N/A		N/A		N/A
Number of loans in foreclosure	—		16		3		208
Unpaid principal balance of loans in foreclosure	$	—	$	3,673	$	2,290	$	33,042

(1)For loans held at consolidated entities, the number of loans greater than 90 days delinquent includes loans in foreclosure.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities.

34

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 6. Residential Loans - (continued)

The following table provides the activity of residential loans held-for-investment at Redwood during the three and nine months ended September 30, 2020 and 2019.

Table 6.5 – Quarterly Activity of Residential Loans Held-for-Investment at Redwood

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Principal balance of loans acquired	$	—	$	—	$	—	$	39,194
Principal balance of loans sold	—		—		—		—
Fair value of loans transferred from HFS to HFI	—		—		13,258		68,703
Fair value of loans transferred from HFI to HFS	—		—		1,870,986		22,814
Net market valuation gains (losses) recorded (1)	218		7,667		(93,314)		71,323

(1)Net market valuation gains (losses) on residential loans held-for-investment at Redwood are recorded through Investment fair value changes, net on our consolidated statements of income (loss).

The following table provides the activity of residential loans held-for-investment at consolidated entities during the three and nine months ended September 30, 2020 and 2019.

Table 6.6 – Quarterly Activity of Residential Loans Held-for-Investment at Consolidated Entities

	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
	Legacy		Sequoia		Freddie Mac		Legacy		Sequoia		Freddie Mac
(In Thousands)	Sequoia		Choice		SLST		Sequoia		Choice		SLST
Fair value of loans transferred from HFS to HFI (1)	N/A		$	—	N/A		N/A		$	270,506	N/A
Net market valuation gains (losses) recorded (2)	$	21,938	$	(5,175)	$	159,687	$	(38,996)	$	(21,727)	$	15,254

	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Legacy		Sequoia		Freddie Mac		Legacy		Sequoia		Freddie Mac
(In Thousands)	Sequoia		Choice		SLST		Sequoia		Choice		SLST
Fair value of loans transferred from HFS to HFI (1)	N/A		$	727,088	N/A		N/A		$	1,076,671	N/A
Net market valuation gains (losses) recorded (2)	$	(103)	$	(11,029)	$	39,783	$	5,271	$	4,841	$	94,788

(1)Represents the transfer of loans from held-for-sale to held-for-investment associated with Sequoia Choice securitizations.

(2)For loans held at our consolidated Legacy Sequoia, Sequoia Choice, and Freddie Mac SLST entities, market value changes are based on the estimated fair value of the associated ABS issued, pursuant to collateralized financing entity guidelines. The net impact to our income statement associated with our economic investments in these securitization entities is presented in Note 5.

Note 7. Business Purpose Residential Loans

We originate business purpose residential loans, including single-family rental loans and residential bridge loans. This origination activity commenced in connection with our acquisitions of 5 Arches and CoreVest in 2019.

35

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 7. Business Purpose Residential Loans - (continued)

Business Purpose Residential Loan Originations

During the three months ended September 30, 2020, we funded $261 million of business purpose residential loans and sold $2 million of residential bridge loans and $2 million of single-family rental loans to third parties. The remaining business purpose residential loans were transferred to our investment portfolio (residential bridge loans), or retained in our mortgage banking business (single-family rental loans) for future securitizations. Prior to the transfer of residential bridge loans to our investment portfolio, we recorded a net market valuation gain of less than $0.1 million on these loans through Mortgage banking activities, net on our consolidated statements of income (loss) for the three months ended September 30, 2020. Market valuation adjustments on our single-family rental loans are also recorded in Mortgage banking activities, net on our consolidated statements of income (loss) prior to their sale or securitization. Additionally, during the three and nine months ended September 30, 2020, we recorded loan origination fee income associated with business purpose residential loans of $3 million and $13 million, respectively, through Mortgage banking activities, net on our consolidated statements of income (loss).

The following table summarizes the classifications and carrying values of the business purpose residential loans owned at Redwood at September 30, 2020 and December 31, 2019.

Table 7.1 – Classifications and Carrying Values of Business Purpose Residential Loans

September 30, 2020	Single-Family Rental				Residential
(In Thousands)	Redwood		CAFL		Bridge		Total
Held-for-sale at fair value	$	285,549	—		$	—	$	285,549
Held-for-investment at fair value	—		2,969,692		700,860		3,670,552
Total Business Purpose Residential Loans	$	285,549	$	2,969,692	$	700,860	$	3,956,101

December 31, 2019	Single-Family Rental				Residential
(In Thousands)	Redwood		CAFL		Bridge		Total
Held-for-sale at fair value	$	331,565	$	—	$	—	$	331,565
Held-for-investment at fair value	237,620		2,192,552		745,006		3,175,178
Total Business Purpose Residential Loans	$	569,185	$	2,192,552	$	745,006	$	3,506,743

The following tables summarize the characteristics of the business purpose residential loans owned at Redwood at September 30, 2020 and December 31, 2019.

Table 7.2 – Characteristics of Business Purpose Residential Loans

September 30, 2020	Single-Family Rental at Redwood			Single-Family Rental at CAFL			Residential Bridge
(Dollars in Thousands)
Number of loans	140			1,027			2,262
Unpaid principal balance	$	272,492		$	2,815,045		$	708,555
Fair value of loans	$	285,549		$	2,969,692		$	700,860
Weighted average coupon	5.26		%	5.50		%	8.02		%
Weighted average remaining loan term (years)	7			6			1
Number of loans with 90+ day delinquencies (1)	6			26			24
Unpaid principal balance of loans with 90+ day delinquencies	$	3,018		$	70,949		$	38,437
Fair value of loans with 90+ day delinquencies (2)	$	2,954		N/A			$	33,464
Number of loans in foreclosure	—			9			24
Unpaid principal balance of loans in foreclosure	$	—		$	14,032		$	39,755
Fair value of loans in foreclosure (2)	$	—		N/A			$	34,489

36

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 7. Business Purpose Residential Loans - (continued)

December 31, 2019	Single-Family Rental at Redwood			Single-Family Rental at CAFL			Residential Bridge
(Dollars in Thousands)
Number of loans	308			783			2,653
Unpaid principal balance	$	552,848		$	2,078,214		$	742,528
Fair value of loans	$	569,185		$	2,192,552		$	745,006
Weighted average coupon	4.96		%	5.70		%	8.11		%
Weighted average remaining loan term (years)	9			7			2
Number of loans with 90+ day delinquencies (1)	2			18			31
Unpaid principal balance of loans with 90+ day delinquencies	$	1,688		$	29,039		$	14,186
Fair value of loans with 90+ day delinquencies (2)	$	1,818		N/A			$	12,111
Number of loans in foreclosure	1			5			15
Unpaid principal balance of loans in foreclosure	$	130		$	9,169		$	8,987
Fair value of loans in foreclosure (2)	$	130		N/A			$	6,917

(1)The number of loans greater than 90 days delinquent includes loans in foreclosure.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities.

Single-Family Rental Loans

During the three and nine months ended September 30, 2020, we originated $196 million and $632 million of single-family rental loans, respectively. During the nine months ended September 30, 2020, we transferred $925 million of single-family rental loans from held-for-sale to held-for-investment associated with three CAFL securitizations and sold $34 million to third parties. Additionally, at March 31, 2020, we transferred all held-for-investment single-family rental loans to held-for-sale. During the three and nine months ended September 30, 2020, we recorded net market valuation gains of $43 million and $34 million, respectively, on single-family rental loans. The $43 million of net market valuation gains recorded during the three months ended September 30, 2020 were recorded through Mortgage banking activities, net on our consolidated statements of income (loss). Of the $34 million of net market valuation gains recorded during the nine months ended September 30, 2020, $55 million of net market valuation gains were recorded through Mortgage banking activities, net and $21 million of net market valuation losses were recorded through Investment fair value changes, net on our consolidated statements of income (loss). During the three and nine months ended September 30, 2019, we recorded net market valuation gains of $1 million and $3 million, respectively, on single-family rental loans through Mortgage banking activities, net on our consolidated statements of income (loss).

Single-Family Rental Loans Held-for-Investment at CAFL

    In conjunction with our acquisition of CoreVest in the fourth quarter of 2019, we consolidated the single-family rental loans owned at certain CAFL securitization entities. The outstanding single-family rental loans held-for-investment at CAFL at September 30, 2020 were first-lien, fixed-rate loans with original maturities of five, seven, or ten years.

During the three and nine months ended September 30, 2020, we recorded a net market valuation gain of $88 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 (loss). 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 CAFL securitizations. The net impact to our income statement associated with our retained economic investment in the CAFL securitization entities is presented in Note 5.

Residential Bridge Loans Held-for-Investment

The outstanding residential bridge loans held-for-investment at September 30, 2020 were first lien, fixed-rate, interest-only loans with original maturities of six to 24 months. During the nine months ended September 30, 2020, we transferred four loans with a fair value of $5 million to REO, which is included in Other assets on our consolidated balance sheets.

37

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 7. Business Purpose Residential Loans - (continued)

During the three and nine months ended September 30, 2020, $64 million and $324 million of newly originated residential bridge loans, respectively, were transferred to our investment portfolio. During the three and nine months ended September 30, 2020, we recorded a net market valuation gain of $7 million and a net market valuation loss of $10 million, respectively, on residential bridge loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income (loss). During both the three and nine months ended September 30, 2019, we recorded net market valuation losses of $1 million on residential bridge loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income (loss).

At September 30, 2020, we had a $225 million commitment to fund residential bridge loans. See Note 16 for additional information on this commitment.

Note 8. Multifamily Loans

Since 2018, we have invested in multifamily subordinate securities issued by Freddie Mac K-Series securitization trusts and were required to consolidate the underlying multifamily loans owned at these entities for financial reporting purposes in accordance with GAAP. During the first quarter of 2020, we sold subordinate securities issued by four such Freddie Mac K-Series securitization trusts and deconsolidated $3.85 billion of multifamily loans. See Note 2 for further discussion.

The following table summarizes the characteristics of the multifamily loans consolidated at Redwood at September 30, 2020 and December 31, 2019.

Table 8.1 – Characteristics of Multifamily Loans

(Dollars in Thousands)	September 30, 2020			December 31, 2019
Number of loans	28			279
Unpaid principal balance	$	464,680		$	4,195,000
Fair value of loans	$	491,415		$	4,408,524
Weighted average coupon	4.25		%	4.13		%
Weighted average remaining loan term (years)	5			6
Number of loans with 90+ day delinquencies	—			—
Number of loans in foreclosure	—			—

The outstanding multifamily loans held-for-investment at the Freddie Mac K-Series entities at September 30, 2020 were first-lien, fixed-rate loans that were originated in 2015 and had original loan terms of ten years. The following table provides the activity of multifamily loans held-for-investment during the three and nine months ended September 30, 2020 and 2019.

Table 8.2 – Quarterly Activity of Multifamily Loans Held-for-Investment

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Net market valuation gains (losses) recorded (1)	$	2,340	$	47,353	$	(61,500)	$	178,374

(1)Net market valuation gains (losses) on multifamily loans held-for-investment are recorded through Investment fair value changes, net on our consolidated statements of income (loss). For loans held at our consolidated Freddie Mac K-Series entities, market value changes are based on the estimated fair value of the associated ABS issued, pursuant to collateralized financing entity guidelines. The net impact to our income statement associated with our economic investment in these securitization entities is presented in Note 5.

38

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 9. Real Estate Securities

We invest in real estate securities that we acquire from third parties or create and retain from our Sequoia securitizations. The following table presents the fair values of our real estate securities by type at September 30, 2020 and December 31, 2019.

Table 9.1 – Fair Values of Real Estate Securities by Type

(In Thousands)	September 30, 2020		December 31, 2019
Trading	$	144,162	$	860,540
Available-for-sale	207,173		239,334
Total Real Estate Securities	$	351,335	$	1,099,874

Our real estate securities include mortgage-backed securities, which are presented in accordance with their general position within a securitization structure based on their rights to cash flows. Senior securities are those interests in a securitization that generally have the first right to cash flows and are last in line to absorb losses. Mezzanine securities are interests that are generally subordinate to senior securities in their rights to receive cash flows, and have subordinate securities below them that are first to absorb losses. Many of our mezzanine classified securities were initially rated AA through BBB- and issued in 2012 or later. Subordinate securities are all interests below mezzanine. Excluding our re-performing loan securities, nearly all of our residential securities are supported by collateral that was designated as prime at the time of issuance.

Trading Securities

The following table presents the fair value of trading securities by position and collateral type at September 30, 2020 and December 31, 2019.

Table 9.2 – Trading Securities by Position

(In Thousands)	September 30, 2020		December 31, 2019
Senior	$	28,091	$	150,067
Mezzanine	3,651		538,489
Subordinate	112,420		171,984
Total Trading Securities	$	144,162	$	860,540

We elected the fair value option for certain securities and classify them as trading securities. Our trading securities include both residential and multifamily mortgage-backed securities, and our residential securities also include securities backed by re-performing loans ("RPL"). At September 30, 2020 and December 31, 2019, our senior trading securities included $28 million and $64 million of interest-only securities, respectively, for which there is no principal balance, and the unpaid principal balance of our remaining senior trading securities was zero and $84 million, respectively. Our interest-only securities included $12 million and $36 million of certificated mortgage servicing rights at September 30, 2020 and December 31, 2019, respectively, which are securities we retained from certain of our Sequoia securitizations that represent certificated servicing strips. At September 30, 2020 and December 31, 2019, our trading securities included $60 million and $161 million of RPL securities, respectively.

At September 30, 2020 and December 31, 2019, our mezzanine trading securities had an unpaid principal balance of $4 million and $537 million, respectively. At September 30, 2020 and December 31, 2019, the fair value of our mezzanine securities was $4 million and $538 million, respectively, and included $4 million and $39 million of Sequoia securities, respectively, zero and $395 million of multifamily securities, respectively, and zero and $104 million of other third-party residential securities, respectively, including zero and $30 million of RPL securities, respectively.

At September 30, 2020 and December 31, 2019, our subordinate trading securities had an unpaid principal balance of $266 million and $302 million, respectively. At September 30, 2020 and December 31, 2019, the fair value of our subordinate securities was $112 million and $172 million, respectively, and included $50 million and $90 million, respectively, of Agency residential mortgage credit risk transfer (or "CRT") securities, and $55 million and $82 million, respectively, of other third-party residential securities, including $51 million and $76 million of RPL securities, respectively.

39

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 9. Real Estate Securities - (continued)

During the three and nine months ended September 30, 2020, we acquired $11 million and $78 million (principal balance), respectively, of securities for which we elected the fair value option and classified as trading, and sold $16 million and $721 million, respectively, of such securities. During the three and nine months ended September 30, 2019, we acquired $66 million and $335 million (principal balance), respectively, of securities for which we elected the fair value option and classified as trading, and sold $236 million and $397 million, respectively, of such securities.

During the three and nine months ended September 30, 2020, we recorded net market valuation losses of $4 million and $225 million, respectively, on trading securities, included in Investment fair value changes, net on our consolidated statements of income (loss). During the three and nine months ended September 30, 2019, we recorded net market valuation gains of $15 million and $56 million, respectively, on trading securities, included in Investment fair value changes, net on our consolidated statements of income (loss).

AFS Securities

The following table presents the fair value of our available-for-sale securities by position and collateral type at September 30, 2020 and December 31, 2019.

Table 9.3 – Available-for-Sale Securities by Position

(In Thousands)	September 30, 2020		December 31, 2019
Senior	$	—	$	25,792
Mezzanine	2,016		13,687
Subordinate	205,157		199,855
Total AFS Securities	$	207,173	$	239,334

At September 30, 2020 and December 31, 2019, our available-for-sale securities were comprised of $160 million and $230 million of residential mortgage-backed securities, respectively, and $48 million and $9 million of multifamily mortgage-backed securities, respectively. At September 30, 2020 and December 31, 2019, our residential available-for-sale securities were comprised of $124 million and $141 million of residential mortgage-backed securities we retained from our Sequoia securitizations, respectively, and $35 million and $90 million of other third-party residential securities, respectively.

During the three and nine months ended September 30, 2020, we purchased $25 million and $57 million of AFS securities, respectively, and sold zero and $55 million of AFS securities, respectively, which resulted in net realized gains of zero and $5 million, respectively. During the three and nine months ended September 30, 2019, we purchased $12 million and $21 million of AFS securities, respectively, and sold $15 million and $82 million of AFS securities, respectively, which resulted in net realized gains of $4 million and $13 million, respectively.

We often purchase AFS securities at a discount to their outstanding principal balances. To the extent we purchase an AFS security that has a likelihood of incurring a loss, we do not amortize into income the portion of the purchase discount that we do not expect to collect due to the inherent credit risk of the security. We may also expense a portion of our investment in the security to the extent we believe that principal losses will exceed the purchase discount. We designate any amount of unpaid principal balance that we do not expect to receive and thus do not expect to earn or recover as a credit reserve on the security. Any remaining net unamortized discounts or premiums on the security are amortized into income over time using the effective yield method.

At September 30, 2020, we had $45 million of AFS securities with contractual maturities less than five years, $3 million with contractual maturities greater than five years but less than ten years, and the remainder of our AFS securities had contractual maturities greater than ten years.

40

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 9. Real Estate Securities - (continued)

The following table presents the components of carrying value (which equals fair value) of AFS securities at September 30, 2020 and December 31, 2019.

Table 9.4 – Carrying Value of AFS Securities

September 30, 2020
(In Thousands)	Senior		Mezzanine		Subordinate		Total
Principal balance	$	—	$	2,000	$	287,659	$	289,659
Credit reserve	—		—		(43,186)		(43,186)
Unamortized discount, net	—		—		(99,221)		(99,221)
Amortized cost	—		2,000		145,252		147,252
Gross unrealized gains	—		16		63,439		63,455
Gross unrealized losses	—		—		(2,507)		(2,507)
Allowance for credit losses	—		—		(1,027)		(1,027)
Carrying Value	$	—	$	2,016	$	205,157	$	207,173

December 31, 2019
(In Thousands)	Senior		Mezzanine		Subordinate		Total
Principal balance	$	26,331	$	13,512	$	264,234	$	304,077
Credit reserve	(533)		—		(32,407)		(32,940)
Unamortized discount, net	(10,427)		(527)		(113,301)		(124,255)
Amortized cost	15,371		12,985		118,526		146,882
Gross unrealized gains	10,450		702		81,329		92,481
Gross unrealized losses	(29)		—		—		(29)
Carrying Value	$	25,792	$	13,687	$	199,855	$	239,334

The following table presents the changes for the three and nine months ended September 30, 2020, in unamortized discount and designated credit reserves on AFS securities.

Table 9.5 – Changes in Unamortized Discount and Designated Credit Reserves on AFS Securities

	Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
	Credit Reserve		Unamortized Discount, Net		Credit Reserve		Unamortized Discount, Net
(In Thousands)
Beginning balance	$	37,785	$	104,260	$	32,940	$	124,255
Amortization of net discount	—		(1,766)		—		(4,607)
Realized credit losses	(194)		—		(897)		—
Acquisitions	1,303		1,019		6,487		1,796
Sales, calls, other	—		—		(726)		(16,841)
(Release of) transfers to credit reserves, net	4,292		(4,292)		5,382		(5,382)
Ending Balance	$	43,186	$	99,221	$	43,186	$	99,221

41

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 9. Real Estate Securities - (continued)

AFS Securities with Unrealized Losses

The following table presents the components comprising the total carrying value of AFS securities that were in a gross unrealized loss position at September 30, 2020 and December 31, 2019.

Table 9.6 – Components of Fair Value of AFS Securities by Holding Periods

	Less Than 12 Consecutive Months						12 Consecutive Months or Longer
	Amortized Cost		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Losses		Fair Value
(In Thousands)
September 30, 2020	$	32,890	$	(2,507)	$	30,330	$	—	$	—	$	—
December 31, 2019	—		—		—		5,830		(29)		5,801

At September 30, 2020, after giving effect to purchases, sales, and extinguishment due to credit losses, our consolidated balance sheet included 96 AFS securities, of which seven were in an unrealized loss position and zero were in a continuous unrealized loss position for 12 consecutive months or longer. At December 31, 2019, our consolidated balance sheet included 107 AFS securities, of which one was in an unrealized loss position and one was in a continuous unrealized loss position for 12 consecutive months or longer.

Evaluating AFS Securities for Credit Losses

Gross unrealized losses on our AFS securities were $3 million at September 30, 2020. Pursuant to our adoption of ASU 2016-13, "Financial Instruments - Credit Losses" in the first quarter of 2020, we evaluate all securities in an unrealized loss position to determine if the impairment is credit-related (resulting in an allowance for credit losses recorded in earnings) or non-credit-related (resulting in an unrealized loss through other comprehensive income). At September 30, 2020, we did not intend to sell any of our AFS securities that were in an unrealized loss position, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost basis, which may be at their maturity. We review our AFS securities that are in an unrealized loss position to identify those securities with losses based on an assessment of changes in expected cash flows for such securities, which considers recent security performance and expected future performance of the underlying collateral.

At September 30, 2020, our allowance for credit losses related to our AFS securities was $1 million. AFS securities for which an allowance is recognized have experienced, or are expected to experience, credit-related adverse cash flow changes. In determining our estimate of cash flows for AFS securities we may consider factors such as structural credit enhancement, past and expected future performance of underlying mortgage loans, including timing of expected future cash flows, which are informed by prepayment rates, default rates, loss severities, delinquency rates, percentage of non-performing loans, FICO scores at loan origination, year of origination, loan-to-value ratios, and geographic concentrations, as well as general market assessments. Changes in our evaluation of these factors impacted the cash flows expected to be collected at the assessment date and were used to determine if there were credit-related adverse cash flows and if so, the amount of credit related losses. Significant judgment is used in both our analysis of the expected cash flows for our AFS securities and any determination of security credit losses.

The table below summarizes the weighted average of the significant credit quality indicators we used for the credit loss allowance on our AFS securities at September 30, 2020.

Table 9.7 – Significant Credit Quality Indicators

September 30, 2020	Subordinate Securities
Default rate	0.5%
Loss severity	20%

42

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 9. Real Estate Securities - (continued)

The following table details the activity related to the allowance for credit losses for AFS securities held at September 30, 2020.

Table 9.8 – Rollforward of Allowance for Credit Losses

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2020		September 30, 2020
Beginning balance allowance for credit losses	$	1,471	$	—
Transition impact from adoption of new standard	—		—
Additions to allowance for credit losses on securities for which credit losses were not previously recorded	339		1,864
Additional increases or decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period	(783)		(837)
Allowance on purchased financial assets with credit deterioration	—		—
Reduction to allowance for securities sold during the period	—		—
Reduction to allowance for securities we intend to sell or more likely than not will be required to sell	—		—
Write-offs charged against allowance	—		—
Recoveries of amounts previously written off	—		—
Ending balance of allowance for credit losses	$	1,027	$	1,027

Gains and losses from the sale of AFS securities are recorded as Realized gains, net, in our consolidated statements of income (loss). The following table presents the gross realized gains and losses on sales and calls of AFS securities for the three and nine months ended September 30, 2020 and 2019.

Table 9.9 – Gross Realized Gains and Losses on AFS Securities

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Gross realized gains - sales	$	—	$	3,656	$	8,779	$	13,143
Gross realized gains - calls	—		1,058		—		5,084
Gross realized losses - sales	—		—		(4,144)		—
Total Realized Gains on Sales and Calls of AFS Securities, net	$	—	$	4,714	$	4,635	$	18,227

Note 10. Other Investments

Other investments at September 30, 2020 and December 31, 2019 are summarized in the following table.

Table 10.1 – Components of Other Investments

(In Thousands)	September 30, 2020		December 31, 2019
Servicer advance investments	$	258,621	$	169,204
Shared home appreciation options	41,758		45,085
Excess MSRs	35,070		31,814
Mortgage servicing rights	14,878		42,224
Investment in multifamily loan fund	(323)		39,802
Other	34,624		30,001
Total Other Investments	$	384,628	$	358,130

43

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 10. Other Investments - (continued)

Servicer advance investments

In 2018, we and a third-party co-investor, through two partnerships (“SA Buyers”) consolidated by us, purchased the outstanding servicer advances and excess MSRs related to a portfolio of legacy residential mortgage-backed securitizations serviced by the co-investor (Refer to our Annual Report on Form 10-K for the year ended December 31, 2019 for additional information regarding the transaction). During the nine months ended September 30, 2020, we funded additional purchases of outstanding servicer advances and excess MSRs under the same partnership structure. At September 30, 2020, we had funded $94 million of total capital to the SA Buyers (see Note 16 for additional detail).

At September 30, 2020, our servicer advance investments had a carrying value of $259 million and were associated with a portfolio of residential mortgage loans with an unpaid principal balance of $9.71 billion. The outstanding servicer advance receivables associated with this investment were $242 million at September 30, 2020, which were financed with short-term non-recourse securitization debt (see Note 13 for additional detail on this debt). The servicer advance receivables were comprised of the following types of advances at September 30, 2020 and December 31, 2019.

Table 10.2 – Components of Servicer Advance Receivables

(In Thousands)	September 30, 2020		December 31, 2019
Principal and interest advances	$	88,370	$	15,081
Escrow advances (taxes and insurance advances)	115,352		96,732
Corporate advances	38,337		39,769
Total Servicer Advance Receivables	$	242,059	$	151,582

We account for our servicer advance investments at fair value and during the three and nine months ended September 30, 2020, we recorded $3 million and $8 million, respectively, of interest income associated with these investments, and recorded net market valuation gain of less than $0.1 million and a net market valuation loss of $6 million, respectively, through Investment fair value changes, net in our consolidated statements of income (loss). During the three and nine months ended September 30, 2019, we recorded $3 million and $9 million, respectively, of interest income associated with these investments for each of these periods, and recorded net market valuation gains of $2 million and $3 million, respectively, through Investment fair value changes, net in our consolidated statements of income (loss).

Mortgage Servicing Rights

We invest in mortgage servicing rights associated with residential mortgage loans and contract with licensed sub-servicers to perform all servicing functions for these loans. The majority of our investments in MSRs were made through the retention of servicing rights associated with the residential jumbo mortgage loans that we acquired and subsequently transferred to third parties. We hold our MSR investments at our taxable REIT subsidiaries.

At September 30, 2020 and December 31, 2019, our MSRs had a fair value of $15 million and $42 million, respectively, and were associated with loans with an aggregate principal balance of $3.14 billion and $4.35 billion, respectively. During the three and nine months ended September 30, 2020, including net market valuation gains and losses on our MSRs and related risk management derivatives, we recorded net losses of $2 million and $6 million, respectively, through Other income on our consolidated statements of income (loss). During the three and nine months ended September 30, 2019, we recognized $0.4 million and $2 million of income, net, respectively, through Other income on our consolidated statements of income (loss).

44

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 10. Other Investments - (continued)

Excess MSRs

In association with our servicer advance investments described above, we (through our consolidated SA Buyers) invested in excess MSRs associated with the same portfolio of legacy residential mortgage-backed securitizations. Additionally, we own excess MSRs associated with specified pools of multifamily loans. We account for our excess MSRs at fair value and during the three and nine months ended September 30, 2020, we recognized $3 million and $9 million of interest income, respectively, through Other interest income, and recorded net market valuation losses of $1 million and $8 million, respectively, through Investment fair value changes, net on our consolidated statements of income (loss). During the three and nine months ended September 30, 2019, we recognized $2 million and $6 million of interest income, respectively, through Other interest income, and recorded net market valuation losses of $2 million for both periods through Investment fair value changes, net on our consolidated statements of income (loss).

Investment in Multifamily Loan Fund

In January 2019, we invested in a limited partnership created to acquire floating rate, light-renovation multifamily loans from Freddie Mac. At September 30, 2020, the carrying amount of our investment in the partnership was zero and we had no remaining funding obligations to the partnership. During the three and nine months ended September 30, 2020, we acquired $28 million and $56 million of securities, respectively, from the partnership's securitization transactions. During the three and nine months ended September 30, 2020, we recorded income of $0.3 million and $0.6 million, respectively, associated with this investment in Other income on our consolidated statements of income (loss). During the three and nine months ended September 30, 2019, we recorded $1 million and $0.5 million of income, respectively, associated with this investment in Other income on our consolidated statements of income (loss).

Shared Home Appreciation Options

In the third quarter of 2019, we entered into a flow purchase agreement to acquire shared home appreciation options. At September 30, 2020, we had acquired $47 million of shared home appreciation options under this flow purchase agreement and had an outstanding commitment to fund up to an additional $3 million under this agreement. We account for these investments under the fair value option and during the three and nine months ended September 30, 2020, we recorded a net market valuation gain of $2 million and a net market valuation loss of $4 million, respectively, related to these assets through Investment fair value changes, net on our consolidated statements of income (loss).

45

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 11. Derivative Financial Instruments

The following table presents the fair value and notional amount of our derivative financial instruments at September 30, 2020 and December 31, 2019.

Table 11.1 – Fair Value and Notional Amount of Derivative Financial Instruments

	September 30, 2020				December 31, 2019
	Fair Value		Notional Amount		Fair Value		Notional Amount
(In Thousands)
Assets - Risk Management Derivatives
Interest rate swaps	$	78	$	25,000	$	17,095	$	1,399,000
TBAs	402		140,000		5,755		2,445,000
Interest rate futures	63		40,000		777		213,700
Swaptions	3,393		285,000		1,925		1,065,000
Assets - Other Derivatives
Loan purchase and interest rate lock commitments	10,773		1,724,207		10,149		1,537,162
Total Assets	$	14,709	$	2,214,207	$	35,701	$	6,659,862
Liabilities - Cash Flow Hedges
Interest rate swaps	$	—	$	—	$	(51,530)	$	139,500
Liabilities - Risk Management Derivatives
Interest rate swaps	(15)		25,000		(97,235)		2,314,300
TBAs	(263)		105,000		(13,359)		4,160,000
Interest rate futures	—		—		(10)		12,300
Liabilities - Other Derivatives
Loan purchase commitments	(1,334)		231,651		(1,290)		303,394
Total Liabilities	$	(1,612)	$	361,651	$	(163,424)	$	6,929,494
Total Derivative Financial Instruments, Net	$	13,097	$	2,575,858	$	(127,723)	$	13,589,356

46

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 11. Derivative Financial Instruments - (continued)

Risk Management Derivatives

To manage, to varying degrees, risks associated with certain assets and liabilities on our consolidated balance sheets, we may enter into derivative contracts. At September 30, 2020, we were party to swaps and swaptions with an aggregate notional amount of $335 million, TBA agreements sold with an aggregate notional amount of $245 million, and interest rate futures contracts with an aggregate notional amount of $40 million. At December 31, 2019, we were party to swaps and swaptions with an aggregate notional amount of $4.78 billion, TBA agreements sold with an aggregate notional amount of $6.61 billion, and interest rate futures contracts with an aggregate notional amount of $226 million.

During the three and nine months ended September 30, 2020, risk management derivatives had net market valuation losses of zero and $98 million, respectively. During the three and nine months ended September 30, 2019, risk management derivatives had net market valuation losses of $36 million and $147 million, respectively. These market valuation gains and losses are recorded in Mortgage banking activities, net, Investment fair value changes, net, and Other income on our consolidated statements of income (loss). During the three months ended March 31, 2020, we settled substantially all of our outstanding derivative contracts as we determined that they were no longer effectively managing the risks associated with certain assets and liabilities.

Loan Purchase and Interest Rate Lock Commitments

LPCs and IRLCs that qualify as derivatives are recorded at their estimated fair values. For the three and nine months ended September 30, 2020, LPCs and IRLCs had net market valuation gains of $14 million and $35 million, respectively, that were recorded in Mortgage banking activities, net on our consolidated statements of income (loss). For the three and nine months ended September 30, 2019, LPCs and IRLCs had net market valuation gains of $14 million and $42 million, respectively, that were recorded in Mortgage banking activities, net on our consolidated statements of income (loss).

Derivatives Designated as Cash Flow Hedges

To manage the variability in interest expense related to portions of our long-term debt and certain adjustable-rate securitization entity liabilities that are included in our consolidated balance sheets for financial reporting purposes, we designated certain interest rate swaps as cash flow hedges.

During the first quarter of 2020, we terminated and settled all of our outstanding derivatives that had been designated as cash flow hedges for our long-term debt, with a payment of $84 million. For interest rate agreements previously designated as cash flow hedges, our total unrealized loss reported in Accumulated other comprehensive income was $82 million and $51 million at September 30, 2020 and December 31, 2019, respectively. We will amortize this loss into interest expense over the remaining term of the trust preferred securities and subordinated notes. As of September 30, 2020, we expect to amortize $4 million of realized losses related to terminated cash flow hedges into interest expense over the next twelve months.

For the three and nine months ended September 30, 2020, changes in the values of designated cash flow hedges were zero and negative $33 million, respectively, and were recorded in Accumulated other comprehensive income, a component of equity. For the three and nine months ended September 30, 2019, changes in the values of designated cash flow hedges were negative $12 million and negative $27 million, respectively, and were recorded in Accumulated other comprehensive income, a component of equity.

The following table illustrates the impact on interest expense of our interest rate agreements accounted for as cash flow hedges for the three and nine months ended September 30, 2020 and 2019.

Table 11.2 – Impact on Interest Expense of Interest Rate Agreements Accounted for as Cash Flow Hedges

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Net interest expense on cash flows hedges	$	—	$	(727)	$	(860)	$	(2,004)
Realized net losses reclassified from other comprehensive income	(1,040)		—		(2,148)		—
Total Interest Expense	$	(1,040)	$	(727)	$	(3,008)	$	(2,004)

47

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 11. Derivative Financial Instruments - (continued)

Derivative Counterparty Credit Risk

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2019, we consider counterparty risk as part of our fair value assessments of all derivative financial instruments at each quarter-end. At September 30, 2020, we assessed this risk as remote and did not record a specific valuation adjustment.

At September 30, 2020, we were in compliance with our derivative counterparty ISDA agreements.

Note 12. Other Assets and Liabilities

Other assets at September 30, 2020 and December 31, 2019 are summarized in the following table.

Table 12.1 – Components of Other Assets

(In Thousands)	September 30, 2020		December 31, 2019
Accrued interest receivable	$	39,330	$	71,058
Investment receivable	25,767		23,330
Right-of-use asset	13,487		11,866
REO	8,535		9,462
Pledged collateral	8,172		32,945
Income tax receivables	8,148		36
FHLBC stock	5,000		43,393
Fixed assets and leasehold improvements (1)	4,408		4,901
Margin receivable	3,809		209,776
Other	7,617		12,554
Total Other Assets	$	124,273	$	419,321

(1)Fixed assets and leasehold improvements had a basis of $12 million and accumulated depreciation of $8 million at September 30, 2020.

Accrued expenses and other liabilities at September 30, 2020 and December 31, 2019 are summarized in the following table.

Table 12.2 – Components of Accrued Expenses and Other Liabilities

(In Thousands)	September 30, 2020		December 31, 2019
Accrued interest payable	$	34,225	$	60,655
Payable to minority partner	17,492		13,189
Accrued compensation	17,127		33,888
Lease liability	15,123		13,443
Deferred consideration	14,442		—
Guarantee obligations	11,264		14,009
Current accounts payable	8,717		5,468
Residential loan and MSR repurchase reserve	8,565		4,268
Residential bridge loan holdbacks	6,350		10,682
Deferred tax liabilities	5,152		5,152
Accrued operating expenses	3,922		4,358
Contingent consideration	—		28,484
Other	13,610		13,297
Total Accrued Expenses and Other Liabilities	$	155,989	$	206,893

48

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 12. Other Assets and Liabilities - (continued)

Refer to our Annual Report on Form 10-K for the year ended December 31, 2019 for additional descriptions of our other assets and liabilities.

Margin Receivable and Payable

Margin receivable and payable resulted from margin calls between us and our counterparties under derivatives, master repurchase agreements, and warehouse facilities, whereby we or the counterparty posted collateral. Through September 30, 2020, we had met all margin calls due.

REO

The carrying value of REO at September 30, 2020 was $9 million, which included $3 million of REO from our residential bridge loan portfolio, $1 million from our consolidated Legacy Sequoia entities, $1 million from our consolidated Freddie Mac SLST entities, and $4 million from consolidated CAFL entities. At September 30, 2020, there were two residential bridge loan REO assets, three REO assets at our Legacy Sequoia entities, nine REO assets at our Freddie Mac SLST entities, and three REO assets at our CAFL entities recorded on our consolidated balance sheets. During the nine months ended September 30, 2020, transfers into REO included a $5 million residential bridge loan, $1 million from Legacy Sequoia entities, $1 million from Freddie Mac SLST entities, and $6 million from CAFL entities. During the nine months ended September 30, 2020, there were REO liquidations of $13 million, resulting in $0.3 million of unrealized losses which were recorded in Investment fair value changes, net, on our consolidated statements of income (loss). At December 31, 2019, there were four residential bridge loan REO assets, four REO assets at our Legacy Sequoia entities, three REO assets at our Freddie Mac SLST entities, and two REO assets at our CAFL entities recorded on our consolidated balance sheets.

Note 13. Short-Term Debt

We enter into repurchase agreements, bank warehouse agreements, and other forms of collateralized (and generally uncommitted) short-term borrowings with several banks and investment banking firms. At September 30, 2020, we had outstanding agreements with several counterparties and we were in compliance with all of the related covenants.

The table below summarizes our short-term debt, including the facilities that are available to us, the outstanding balances, the weighted average interest rate, and the maturity information at September 30, 2020 and December 31, 2019.

Table 13.1 – Short-Term Debt

	September 30, 2020
(Dollars in Thousands)	Number of Facilities	Outstanding Balance		Limit		Weighted Average Interest Rate		Maturity	Weighted Average Days Until Maturity
Facilities
Residential loan warehouse (1)	4	$	81,898	$	600,000	2.90	%	10/2020-8/2021	203
Business purpose residential loan warehouse (2)	2	96,811		500,000		3.28	%	6/2021-5/2022	437
Real estate securities repo (1)	3	75,054		—		2.87	%	10/2020-12/2020	38
Total Short-Term Debt Facilities	9	253,763
Servicer advance financing	1	228,998		400,000		1.96	%	11/2020	61
Total Short-Term Debt		$	482,761

49

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 13. Short-Term Debt - (continued)

	December 31, 2019
(Dollars in Thousands)	Number of Facilities	Outstanding Balance		Limit		Weighted Average Interest Rate		Maturity	Weighted Average Days Until Maturity
Facilities
Residential loan warehouse (1)	4	$	185,894	$	1,425,000	3.23	%	1/2020-10/2020	69
Business purpose residential loan warehouse (2)	8	814,118		1,475,000		4.11	%	12/2020-5/2022	489
Real estate securities repo (1)	10	1,176,579		—		2.94	%	1/2020-3/2020	23
Total Short-Term Debt Facilities	22	2,176,591
Servicer advance financing	1	152,554		400,000		3.56	%	11/2020	335
Total Short-Term Debt		$	2,329,145

(1)Borrowings under our facilities are generally charged interest based on a specified margin over the one-month LIBOR interest rate. At September 30, 2020 and December 31, 2019, all of these borrowings were under uncommitted facilities and were due within 364 days (or less) of the borrowing date.

(2)Due to the revolving nature of the borrowings under these facilities, we have classified these facilities as short-term debt at September 30, 2020. Borrowings under these facilities will be repaid as the underlying loans mature or are sold to third parties or transferred to securitizations.

The following table below presents the value of loans, securities, and other assets pledged as collateral under our short-term debt facilities at September 30, 2020 and December 31, 2019.

Table 13.2 – Collateral for Short-Term Debt Facilities

(In Thousands)	September 30, 2020		December 31, 2019
Collateral Type
Held-for-sale residential loans	$	95,023	$	201,949
Business purpose residential loans	110,505		988,179
Real estate securities
On balance sheet	24,670		618,881
Sequoia Choice securitizations (1)	63,088		111,341
Freddie Mac SLST securitizations (1)	—		381,640
Freddie Mac K-Series securitizations (1)	26,550		252,284
CAFL securitizations (1)	—		127,840
Total real estate securities owned	114,308		1,491,986
Other assets	—		16,252
Total Collateral for Short-Term Debt Facilities	$	319,836	$	2,698,366

(1)Represents securities we have retained from consolidated securitization entities. For GAAP purposes, we consolidate the loans and non-recourse ABS debt issued from these securitizations.

For the three and nine months ended September 30, 2020, the average balances of our short-term debt facilities were $313 million and $1.42 billion, respectively. At September 30, 2020 and December 31, 2019, accrued interest payable on our short-term debt facilities was $1 million and $6 million, respectively.

50

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 13. Short-Term Debt - (continued)

Servicer advance financing consists of non-recourse short-term securitization debt used to finance servicer advance investments. We consolidate the securitization entity that issued the debt, but the entity is independent of Redwood and the assets and liabilities are not owned by and are not legal obligations of Redwood. At September 30, 2020, the fair value of servicer advances, cash and restricted cash collateralizing the securitization financing was $270 million. At September 30, 2020, the accrued interest payable balance on this financing was $0.1 million and the unamortized capitalized commitment costs were $0.2 million.

We also maintain a $10 million committed line of credit with a financial institution that is secured by certain mortgage-backed securities with a fair market value of $3 million at September 30, 2020. At both September 30, 2020 and December 31, 2019, we had no outstanding borrowings on this facility.

Remaining Maturities of Short-Term Debt

The following table presents the remaining maturities of our secured short-term debt by the type of collateral securing the debt as well as our convertible notes at September 30, 2020.

Table 13.3 – Short-Term Debt by Collateral Type and Remaining Maturities

	September 30, 2020
(In Thousands)	Within 30 days		31 to 90 days		Over 90 days		Total
Collateral Type
Held-for-sale residential loans	$	1,217	$	—	$	80,681	$	81,898
Business purpose residential loans	—		—		96,811		96,811
Real estate securities	37,217		37,837		—		75,054
Total Secured Short-Term Debt	38,434		37,837		177,492		253,763
Servicer advance financing	—		228,998		—		228,998
Total Short-Term Debt	$	38,434	$	266,835	$	177,492	$	482,761

Note 14. Asset-Backed Securities Issued

The carrying values of ABS issued by our consolidated securitization entities at September 30, 2020 and December 31, 2019, along with other selected information, are summarized in the following table.

Table 14.1 – Asset-Backed Securities Issued

September 30, 2020	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST (1)		Freddie Mac K-Series			CAFL		Total
(Dollars in Thousands)
Certificates with principal balance	$	347,985	$	1,571,714	$	1,925,144	$	418,212		$	2,528,974	$	6,792,029
Interest-only certificates	1,268		6,805		24,053		13,122			137,064		182,312
Market valuation adjustments	(56,769)		48,045		95,138		33,531			78,112		198,057
ABS Issued, Net	$	292,484	$	1,626,564	$	2,044,335	$	464,865		$	2,744,150	$	7,172,398
Range of weighted average interest rates, by series	0.35% to 1.96%		2.23% to 5.02%		3.50% to 4.75%		3.39		%	3.18% to 5.53%
Stated maturities	2024 - 2036		2047 - 2050		2028 - 2059		2025			2022 - 2048
Number of series	20		10		3		1			13

51

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 14. Asset-Backed Securities Issued - (continued)

December 31, 2019	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST			Freddie Mac K-Series		CAFL		Total
(Dollars in Thousands)
Certificates with principal balance	$	420,056	$	1,979,719	$	1,842,682		$	3,844,789	$	1,875,007	$	9,962,253
Interest-only certificates	1,282		16,514		30,291			217,891		90,134		356,112
Market valuation adjustments	(18,873)		40,965		45,349			93,559		36,110		197,110
ABS Issued, Net	$	402,465	$	2,037,198	$	1,918,322		$	4,156,239	$	2,001,251	$	10,515,475
Range of weighted average interest rates, by series	1.94% to 3.26%		4.40% to 5.05%		3.50		%	3.35% to 4.35%		3.25% to 5.36%
Stated maturities	2024 - 2036		2047 - 2049		2028 - 2029			2025 - 2049		2022 - 2048
Number of series	20		9		2			5		10

(1)Includes $208 million (principal balance) of ABS issued by a re-securitization trust sponsored by Redwood and accounted for at amortized cost.

During the third quarter of 2020, we transferred all of the subordinate securities we owned from two consolidated re-performing loan securitization VIEs sponsored by Freddie Mac SLST to a re-securitization trust, which we determined was a VIE and for which we determined we are the primary beneficiary. At issuance, we sold $210 million (principal balance) of ABS issued to third parties and retained 100% of the remaining beneficial ownership interest in the trust through ownership of a subordinate security issued by the trust. The ABS was issued at a discount and we have elected to account for the ABS issued at amortized cost. At September 30, 2020, the carrying value of the ABS issued was $203 million and the debt discount was $5 million. The stated coupon of the ABS issued was 4.75% at issuance and the final stated maturity occurs in July 2059. The ABS issued is subject to optional redemption and interest rate step-ups prior to the stated maturity according to the terms of the respective governing agreements.

The actual maturity of each class of ABS issued is primarily determined by the rate of principal prepayments on the assets of the issuing entity. Each series is also subject to redemption prior to the stated maturity according to the terms of the respective governing documents of each ABS issuing entity. As a result, the actual maturity of ABS issued may occur earlier than its stated maturity. At September 30, 2020, the majority of the ABS issued and outstanding had contractual maturities beyond five years. See Note 4 for detail on the carrying value components of the collateral for ABS issued and outstanding. The following table summarizes the accrued interest payable on ABS issued at September 30, 2020 and December 31, 2019. Interest due on consolidated ABS issued is payable monthly.

Table 14.2 – Accrued Interest Payable on Asset-Backed Securities Issued

(In Thousands)	September 30, 2020		December 31, 2019
Legacy Sequoia	$	180	$	395
Sequoia Choice	5,652		7,732
Freddie Mac SLST (1)	5,831		5,374
Freddie Mac K-Series	1,182		12,887
CAFL	9,180		7,298
Total Accrued Interest Payable on ABS Issued	$	22,025	$	33,686

(1)Includes accrued interest payable on ABS issued by a re-securitization trust sponsored by Redwood.

Note 15. Long-Term Debt

Refer to our Annual Report on Form 10-K for the year ended December 31, 2019 for a full description of our long-term debt.

52

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 15. Long-Term Debt - (continued)

FHLBC Borrowings

At September 30, 2020, $1 million of advances were outstanding under our FHLBC borrowing agreement, with a weighted average interest rate of 0.35%. These borrowings mature in 2026. At December 31, 2019, $2.00 billion of advances were outstanding under this agreement, which were classified as long-term debt, with a weighted average interest rate of 1.88% and a weighted average maturity of six years. During the three and nine months ended September 30, 2020, we repaid zero and $2.00 billion, respectively, of our FHLBC borrowings. At September 30, 2020, total advances under this agreement were secured by $1 million of restricted cash. We do not expect to increase borrowings under our FHLBC borrowing agreement above the existing $1 million of advances outstanding. This agreement also requires our subsidiary to purchase and hold stock in the FHLBC in an amount equal to a specified percentage of outstanding advances. At September 30, 2020, our subsidiary held $5 million of FHLBC stock that is included in Other assets in our consolidated balance sheets.

Recourse Subordinate Securities Financing Facilities

In 2019, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable (e.g., not subject to margin calls based on the market value of the underlying collateral) recourse debt financing of certain Sequoia securities as well as securities retained from our consolidated Sequoia Choice securitizations. The financing is fully and unconditionally guaranteed by Redwood, with an interest rate of approximately 4.21% through September 2022. The financing facility may be terminated, at our option, in September 2022, and has a final maturity in September 2024, provided that the interest rate on amounts outstanding under the facility increases between October 2022 and September 2024. At September 30, 2020, we had borrowings under this facility totaling $180 million and $1 million of unamortized deferred issuance costs, for a net carrying value of $179 million. At September 30, 2020, the fair value of real estate securities pledged as collateral under this long-term debt facility was $232 million and included Sequoia securities and securities retained from our Sequoia Choice securitizations.

In the first quarter of 2020, a subsidiary of Redwood entered into a second repurchase agreement with similar terms to provide non-marginable recourse debt financing of certain securities retained from our consolidated CAFL securitizations. The financing is fully and unconditionally guaranteed by Redwood, with an interest rate of approximately 4.21% through February 2023. The financing facility may be terminated, at our option, in February 2023, and has a final maturity in February 2025, provided that the interest rate on amounts outstanding under the facility increases between March 2023 and February 2025. At September 30, 2020, we had borrowings under this facility totaling $103 million and $1 million of unamortized deferred issuance costs, for a net carrying value of $102 million. At September 30, 2020, the fair value of real estate securities pledged as collateral under this long-term debt facility was $112 million and included securities retained from our consolidated CAFL securitizations.

Non-Recourse Business Purpose Loan Financing Facilities

In the third quarter of 2020, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable, non-recourse financing primarily for business purpose bridge loans. Borrowings under this facility accrue interest at a per annum rate equal to one-month LIBOR plus 3.85% (with a 0.50% LIBOR floor), through July 2022. We do not have the ability to increase borrowings under this borrowing facility above the existing amounts outstanding. At September 30, 2020, we had borrowings under this facility totaling $158 million and $1 million of unamortized deferred issuance costs, for a net carrying value of $157 million. At September 30, 2020, $216 million of bridge loans were pledged as collateral under this facility.

In the second quarter of 2020, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable, non-recourse financing primarily for business purpose bridge loans. Borrowings under this facility accrue interest at a per annum rate equal to one-month LIBOR plus 7.50% (with a 1.50% LIBOR floor), through June 2022 (facility is fully callable in June 2021). This facility has an aggregate maximum borrowing capacity of $530 million, which consists of a term facility of $355 million and a revolving facility of $175 million. The revolving period ends in June 2021, and amounts borrowed under the term and revolving facilities are due in full in June 2022. At September 30, 2020, we had borrowings under this facility totaling $302 million and $4 million of unamortized deferred issuance costs, for a net carrying value of $298 million. At September 30, 2020, $369 million of bridge loans and $25 million of other BPL investments were pledged as collateral under this facility.

53

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 15. Long-Term Debt - (continued)

Recourse Business Purpose Loan Financing Facilities

In the third quarter of 2020, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable financing for business purpose bridge loans and single-family rental loans. Borrowings under this facility accrue interest at a per annum rate equal to three-month LIBOR plus 3.00% through September 2023 and are recourse to Redwood. This facility has an aggregate maximum borrowing capacity of $250 million. At September 30, 2020, we had no borrowings outstanding under this facility.

In the second quarter of 2020, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable financing for business purpose bridge loans and single-family rental loans. Borrowings under this facility accrue interest at a per annum rate equal to three-month LIBOR plus 3.50% to 4.00% (with a 1.00% LIBOR floor) through May 2022 and are recourse to Redwood. This facility has an aggregate maximum borrowing capacity of $350 million. At September 30, 2020, we had borrowings under this facility totaling $150 million and $1 million of unamortized deferred issuance costs, for a net carrying value of $150 million. At September 30, 2020, $18 million of bridge loans and $194 million of single-family rental loans were pledged as collateral under this facility.

Recourse Revolving Debt Facility

In the first quarter of 2020, a subsidiary of Redwood entered into a secured revolving debt facility agreement collateralized by MSRs and certificated mortgage servicing rights. Borrowings under this facility accrue interest at a per annum rate equal to one-month LIBOR plus 2.75% through January 2021, with an increase in rate between February 2021 and the maturity of the facility in January 2022. This facility has an aggregate maximum borrowing capacity of $50 million. We had no borrowings outstanding under this facility at September 30, 2020. At September 30, 2020, $33 million of MSRs and certificated servicing rights were pledged as collateral under this facility.

Convertible Notes

At September 30, 2020, we had $172 million principal amount outstanding of 5.75% exchangeable senior notes due 2025. During the second quarter of 2020, we repurchased $29 million par value of these notes at a discount and recorded a gain on extinguishment of $6 million in Realized gains, net on our consolidated statements of income (loss). At September 30, 2020, the accrued interest payable balance on this debt was $5 million and the unamortized deferred issuance costs were $4 million.

At September 30, 2020, we had $150 million principal amount outstanding of 5.625% convertible senior notes due 2024. During the second quarter of 2020, we repurchased $50 million par value of these notes at a discount and recorded a gain on extinguishment of $9 million in Realized gains, net on our consolidated statements of income (loss). At September 30, 2020, the accrued interest payable on this debt was $2 million, the unamortized deferred issuance costs were $2 million, and the debt discount was $1 million.

At September 30, 2020, we had $199 million principal amount outstanding of 4.75% convertible senior notes due 2023. During the second quarter of 2020, we repurchased $46 million par value of these notes at a discount and recorded a gain on extinguishment of $10 million in Realized gains, net on our consolidated statements of income (loss). At September 30, 2020, the accrued interest payable balance on this debt was $1 million and the unamortized deferred issuance costs were $3 million.

Trust Preferred Securities and Subordinated Notes

At September 30, 2020, we had trust preferred securities and subordinated notes outstanding of $100 million and $40 million, respectively. At both September 30, 2020 and December 31, 2019, the accrued interest payable balance on our trust preferred securities and subordinated notes was $1 million.

Note 16. Commitments and Contingencies

Lease Commitments

At September 30, 2020, we were obligated under seven non-cancelable operating leases with expiration dates through 2031 for $18 million of cumulative lease payments. Our operating lease expense was $3 million and $2 million for the nine months ended September 30, 2020 and 2019, respectively.

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REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 16. Commitments and Contingencies - (continued)

The following table presents our future lease commitments at September 30, 2020.

Table 16.1 – Future Lease Commitments by Year

(In Thousands)	September 30, 2020
2020 (3 months)	$	930
2021	2,949
2022	2,427
2023	1,913
2024	1,917
2025	8,039
Total Lease Commitments	18,175
Less: Imputed interest	(3,052)
Lease Liability	$	15,123

During the nine months ended September 30, 2020, we entered into three office leases and determined that each of these leases qualified as operating leases. At September 30, 2020, our lease liability was $15 million, which was a component of Accrued expenses and other liabilities, and our right-of-use asset was $13 million, which was a component of Other assets.

We determined that none of our leases contained an implicit interest rate and used a discount rate equal to our incremental borrowing rate on a collateralized basis to determine the present value of our total lease payments. As such, we determined the applicable discount rate for each of our leases using a swap rate plus an applicable spread for borrowing arrangements secured by our real estate loans and securities for a length of time equal to the remaining lease term on the date of adoption. At September 30, 2020, the weighted-average remaining lease term and weighted-average discount rate for our leases was 7 years and 5.0%, respectively.

Commitment to Fund Residential Bridge Loans

As of September 30, 2020, we had commitments to fund up to $225 million of additional advances on existing residential bridge loans. These commitments are generally subject to loan agreements with covenants regarding the financial performance of the customer and other terms regarding advances that must be met before we fund the commitment. At September 30, 2020, we recorded a $1 million derivative liability related to these commitments to fund construction advances (see Note 7 for additional detail). We may also advance funds related to loans sold under a separate loan sale agreement that are generally repaid immediately by the loan purchaser and do not generally expose us to loss. The outstanding commitments related to these loans that we may temporarily fund totaled approximately $15 million at September 30, 2020.

Commitment to Fund Partnerships

In the fourth quarter of 2018, we invested in two partnerships created to acquire and manage certain mortgage servicing related assets (see Note 10 for additional detail). In connection with this investment, we are required to fund future net servicer advances related to the underlying mortgage loans. The actual amount of net servicer advances we may fund in the future is subject to significant uncertainty and will be based on the credit and prepayment performance of the underlying loans.

5 Arches Contingent Consideration

As part of the consideration for our acquisition of 5 Arches, we were committed to make earn-out payments up to $29 million, payable in a mix of cash and Redwood common stock. These contingent earn-out payments were classified as a contingent consideration liability and carried at fair value prior to March 31, 2020. During the first quarter of 2020, we made a cash payment of $11 million and granted $3 million of Redwood common stock in connection with the first anniversary of the purchase date. Additionally, as a result of an amendment to the agreement, we reclassified the contingent liability to a deferred liability, as the remaining payments became payable on a set timetable without any remaining contingencies. At September 30, 2020, the balance of this liability was $14 million, which will be paid in a mix of cash and common stock in March 2021.

55

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 16. Commitments and Contingencies - (continued)

Commitment to Fund Shared Home Appreciation Options

In the third quarter of 2019, we entered into a flow purchase agreement to acquire shared home appreciation options. The counterparty purchases an option to buy a fractional interest in a homeowner's ownership interest in residential property, and subsequently the counterparty sells the option contract to us. Pursuant to the terms of the option contract, we share in both home price appreciation and depreciation. At September 30, 2020, we had acquired $47 million of shared home appreciation options under this agreement, which are included in Other investments on our consolidated balance sheets. At September 30, 2020, we had an outstanding commitment to fund up to an additional $3 million under this agreement.

Loss Contingencies — Risk-Sharing

During 2015 and 2016, we sold conforming loans to the Agencies with an original unpaid principal balance of $3.19 billion, subject to our risk-sharing arrangements with the Agencies. At September 30, 2020, the maximum potential amount of future payments we could be required to make under these arrangements was $44 million and this amount was fully collateralized by assets we transferred to pledged accounts and is presented as pledged collateral in Other assets on our consolidated balance sheets. We have no recourse to any third parties that would allow us to recover any amounts related to our obligations under the arrangements. At September 30, 2020, we had not incurred any losses under these arrangements. For the three and nine months ended September 30, 2020, other income related to these arrangements was $1 million and $3 million, respectively, and net market valuation losses related to these investments were $0.3 million and $0.9 million, respectively. For the three and nine months ended September 30, 2019, other income related to these arrangements was $1 million and $2 million, respectively, and net market valuation losses related to these investments were $0.1 million and $0.2 million, respectively.

All of the loans in the reference pools subject to these risk-sharing arrangements were originated in 2014 and 2015, and at September 30, 2020, the loans had an unpaid principal balance of $1.12 billion and a weighted average FICO score of 758 (at origination) and LTV ratio of 75% (at origination). At September 30, 2020, $42 million of the loans were 90 days or more delinquent, and none of these loans were in foreclosure. At September 30, 2020, the carrying value of our guarantee obligation was $11 million and included $5 million designated as a non-amortizing credit reserve, which we believe is sufficient to cover current expected losses under these obligations.

Our consolidated balance sheets include assets of special purpose entities ("SPEs") associated with these risk-sharing arrangements (i.e., the "pledged collateral" referred to above) that can only be used to settle obligations of these SPEs for which the creditors of these SPEs (the Agencies) do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of such SPEs totaled $47 million and $48 million, respectively, and liabilities of such SPEs totaled $11 million and $14 million, respectively.

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REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 16. Commitments and Contingencies - (continued)

Loss Contingencies — Residential Repurchase Reserve

We maintain a repurchase reserve for potential obligations arising from representation and warranty violations related to residential loans we have sold to securitization trusts or third parties and for conforming residential loans associated with MSRs that we have purchased from third parties. We do not originate residential loans and we believe the initial risk of loss due to loan repurchases (i.e., due to a breach of representations and warranties) would generally be a contingency to the companies from whom we acquired the loans. However, in some cases, for example, where loans were acquired from companies that have since become insolvent, repurchase claims may result in our being liable for a repurchase obligation. Additionally, for certain loans we sold during the second quarter of 2020 that were previously held for investment, we have a direct obligation to repurchase these loans in the event of any early payment defaults (or EPDs) by the underlying mortgage borrowers within certain specified periods following the sales.

At September 30, 2020 and December 31, 2019, our repurchase reserve associated with our residential loans and MSRs was $9 million and $4 million, respectively, and was recorded in Accrued expenses and other liabilities on our consolidated balance sheets.

We received eight and ten repurchase requests during the nine months ended September 30, 2020 and 2019, respectively, and did not repurchase any loans during either of these periods. During the nine months ended September 30, 2020 and 2019, we recorded repurchase provisions of $4 million and reversals of repurchase provisions of $0.2 million, respectively, that were recorded in Mortgage banking activities, net; Investment fair value changes, net; and Other income on our consolidated statements of income (loss).

Loss Contingencies — Litigation, Claims and Demands

There is no significant update regarding the litigation matters described in Note 16 within the financial statements included in Redwood’s Annual Report on Form 10-K for the year ended December 31, 2019 under the heading “Loss Contingencies - Litigation.” At September 30, 2020, the aggregate amount of loss contingency reserves established in respect of the FHLB-Seattle and Schwab litigation matters described in our Annual Report on Form 10-K for the year ended December 31, 2019 was $2 million.

In addition to those matters, as previously disclosed, in connection with the impact of the effects of the pandemic on the non-Agency mortgage finance market and on our business and operations, a number of the counterparties that have regularly sold residential mortgage loans to us believe that we breached perceived obligations to them, and requested or demanded that we purchase loans from them and/or compensate them for perceived damages resulting from our decisions earlier in 2020 not to purchase certain loans from them (“Residential Loan Seller Demands”).

We believe that these Residential Loan Seller Demands are without merit or subject to defenses and we intend to defend vigorously any such allegations and any related demand or claim to which we are or become a party. Despite our beliefs about the legal merits of these allegations, because our ordinary course of business is to seek to continue to regularly engage in mutually beneficial transactions with these counterparties, in some cases we have been willing to engage in discussions with these counterparties with the intention of reaching resolution, including through structuring arrangements that incentivize both the counterparty and us to continue to engage in residential loan purchase and sale transactions in the future.

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REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 16. Commitments and Contingencies - (continued)

With respect to certain of the Residential Loan Seller Demands, these resolution discussions have been successful in resolving, or establishing a framework that we believe will be the basis for successfully resolving, the demands of these counterparties, including through forward-looking joint business undertakings and structured arrangements that incentivize both the counterparty and us to continue to engage in residential loan purchase and sale transactions in the future. With respect to these counterparties, we have incurred or expect to incur certain costs in connection with finalizing these arrangements (including costs that are contingent on the successful completion of future residential loan purchase and sale transactions with these counterparties that we expect to generate future revenue for the Company) and have recorded any such actual costs incurred through September 30, 2020, as well as an accrual for the estimated costs associated with counterparties where a resolution or go-forward framework has been agreed to or has been discussed but not finalized, a portion of which was recorded through Other expense and a portion of which was recorded through Mortgage banking activities, net on our consolidated income statement. In accordance with GAAP, the accrual for estimated costs is based on the opinion of management, that it is probable that these resolutions and forward-looking joint business undertakings and structured arrangements will result in an expense and the amount of expense can be reasonably estimated. In addition, as previously disclosed, one such counterparty filed a breach of contract lawsuit against us in May 2020 alleging that it had suffered in excess of $2 million of losses as a result of our alleged failure to purchase residential mortgage loans from it; and in October 2020 we and the plaintiff agreed to settle the lawsuit on mutually satisfactory terms.

During the three and nine months ended September 30, 2020, we recorded $4 million and $9 million of expenses, respectively, in association with Residential Loan Seller Demands. At September 30, 2020, the aggregate amount of our accrual for estimated costs associated with Residential Loan Seller Demands was $6.5 million, a portion of which would be contingent on the successful completion of future residential loan purchase and sale transactions with certain counterparties, with the expectation of generating future revenue for the Company.

With respect to Residential Loan Seller Demands that have not been resolved or been accrued for, our beliefs about the legal merits of these allegations and our discussions with these counterparties have resulted in us determining that a significant loss from these matters is not probable. With respect to these remaining Residential Loan Seller Demands, based on the foregoing, we have concluded that we can estimate an aggregate range of reasonably possible losses with respect to these Residential Loan Seller Demands of between zero and $1.5 million.

Future developments (including receipt of additional information and documents relating to these matters, new or additional resolution or settlement communications relating to these matters, resolutions of similar claims against other industry participants in similar circumstances, or receipt of additional Residential Loan Seller Demands) could result in our concluding in the future to establish additional accruals or reserves or modify our aggregate range of reasonably possible losses with respect to these Residential Loan Seller Demand matters. Our actual losses, and any accruals or reserves we may establish in the future relating to these matters, may be materially higher than the accruals, reserves and the aggregate range of reasonably possible losses we have estimated above, respectively, including in the event that any of these matters proceed to trial and result in a judgment against us. We cannot be certain that any of these matters that are not already formally resolved will be resolved through a resolution or settlement and we cannot be certain that the resolution of these matters, whether through litigation, settlement, or otherwise, will not have a material adverse effect on our financial condition or results of operations in any future period.

In accordance with GAAP, we review the need for any loss contingency reserves and establish reserves when, in the opinion of management, it is probable that a matter would result in a liability and the amount of loss, if any, can be reasonably estimated. Additionally, we record receivables for insurance recoveries relating to litigation-related losses and expenses if and when such amounts are covered by insurance and recovery of such losses or expenses are due. We review our litigation matters each quarter to assess these loss contingency reserves and make adjustments in these reserves, upwards or downwards, as appropriate, in accordance with GAAP based on our review.

In the ordinary course of any litigation matter, including certain of the above-referenced matters, we have engaged and may continue to engage in formal or informal settlement communications with the plaintiffs or co-defendants. Settlement communications we have engaged in relating to certain of the above-referenced litigation matters are one of the factors that have resulted in our determination to establish the loss contingency reserves described above. We cannot be certain that any of these matters will be resolved through a settlement prior to litigation and we cannot be certain that the resolution of these matters, whether through trial or settlement, will not have a material adverse effect on our financial condition or results of operations in any future period.

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REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 16. Commitments and Contingencies - (continued)

Future developments (including resolution of substantive pre-trial motions relating to these matters, receipt of additional information and documents relating to these matters (such as through pre-trial discovery), new or additional settlement communications with plaintiffs relating to these matters, or resolutions of similar claims against other defendants in these matters) could result in our concluding in the future to establish additional loss contingency reserves or to disclose an estimate of reasonably possible losses in excess of our established reserves with respect to these matters. Our actual losses with respect to the above referenced litigation matters may be materially higher than the aggregate amount of loss contingency reserves we have established in respect of these litigation matters, including in the event that any of these matters proceeds to trial and the plaintiff prevails. Other factors that could result in our concluding to establish additional loss contingency reserves or estimate additional reasonably possible losses, or could result in our actual losses with respect to the above-referenced litigation matters being materially higher than the aggregate amount of loss contingency reserves we have established in respect of these litigation matters include that: there are significant factual and legal issues to be resolved; information obtained or rulings made during the lawsuits could affect the methodology for calculation of the available remedies; and we may have additional obligations pursuant to indemnity agreements, representations and warranties, and other contractual provisions with other parties relating to these litigation matters that could increase our potential losses.

Note 17. Equity

The following table provides a summary of changes to accumulated other comprehensive income by component for the three and nine months ended September 30, 2020 and 2019. During the three and nine months ended September 30, 2020, we recognized net unrealized gains (losses) on our Level 3 AFS securities which we owned as of September 30, 2020 of $8 million and negative $16 million, respectively.

Table 17.1 – Changes in Accumulated Other Comprehensive Income by Component

	Three Months Ended September 30, 2020				Three Months Ended September 30, 2019
(In Thousands)	Available-for-Sale Securities		Interest Rate Agreements Accounted for as Cash Flow Hedges		Available-for-Sale Securities		Interest Rate Agreements Accounted for as Cash Flow Hedges
Balance at beginning of period	$	53,246	$	(82,637)	$	98,307	$	(49,384)
Other comprehensive income (loss) before reclassifications	8,236		—		4,484		(11,791)
Amounts reclassified from other accumulated comprehensive income	(445)		1,040		(3,492)		—
Net current-period other comprehensive income (loss)	7,791		1,040		992		(11,791)
Balance at End of Period	$	61,037	$	(81,597)	$	99,299	$	(61,175)

59

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 17. Equity - (continued)

	Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
(In Thousands)	Available-for-Sale Securities		Interest Rate Agreements Accounted for as Cash Flow Hedges		Available-for-Sale Securities		Interest Rate Agreements Accounted for as Cash Flow Hedges
Balance at beginning of period	$	92,452	$	(50,939)	$	95,342	$	(34,045)
Other comprehensive income (loss) before reclassifications	(19,890)		(32,806)		19,764		(27,130)
Amounts reclassified from other accumulated comprehensive income	(11,525)		2,148		(15,807)		—
Net current-period other comprehensive income (loss)	(31,415)		(30,658)		3,957		(27,130)
Balance at End of Period	$	61,037	$	(81,597)	$	99,299	$	(61,175)

The following table provides a summary of reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2020 and 2019.

Table 17.2 – Reclassifications Out of Accumulated Other Comprehensive Income

		Amount Reclassified From Accumulated Other Comprehensive Income
	Affected Line Item in the	Three Months Ended September 30,
(In Thousands)	Income Statement	2020		2019
Net Realized (Gain) Loss on AFS Securities
Credit loss recovery on AFS securities	Investment fair value changes, net	$	(444)	$	—
Gain on sale of AFS securities	Realized gains, net	—		(3,492)
		$	(444)	$	(3,492)
Net Realized Loss on Interest Rate Agreements Designated as Cash Flow Hedges
Amortization of deferred loss	Interest expense	$	1,040	$	—
		$	1,040	$	—

		Amount Reclassified From Accumulated Other Comprehensive Income
	Affected Line Item in the	Nine Months Ended September 30,
(In Thousands)	Income Statement	2020		2019
Net Realized (Gain) Loss on AFS Securities
Credit loss expense on AFS securities	Investment fair value changes, net	$	1,027	$	—
Gain on sale of AFS securities	Realized gains, net	(12,552)		(15,807)
		$	(11,525)	$	(15,807)
Net Realized Loss on Interest Rate Agreements Designated as Cash Flow Hedges
Amortization of deferred loss	Interest expense	$	2,148	$	—
		$	2,148	$	—

60

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 17. Equity - (continued)

Issuance of Common Stock

In 2018, we established a program to sell up to an aggregate of $150 million of common stock from time to time in at-the-market ("ATM") offerings. In March 2020, we increased the maximum aggregate amount of common stock offered under the ATM program to $175 million. During the nine months ended September 30, 2020, we issued 129,500 common shares for net proceeds of approximately $2 million through ATM offerings. At September 30, 2020, approximately $110 million remained outstanding for future offerings under this program.

Direct Stock Purchase and Dividend Reinvestment Plan

During the nine months ended September 30, 2020, we did not issue any shares of common stock through our Direct Stock Purchase and Dividend Reinvestment Plan. During the nine months ended September 30, 2019, we issued 399,838 shares of common stock through our Direct Stock Purchase and Dividend Reinvestment Plan, resulting in net proceeds of approximately $6 million.

Earnings (Loss) per Common Share

The following table provides the basic and diluted earnings (loss) per common share computations for the three and nine months ended September 30, 2020 and 2019.

Table 17.3 – Basic and Diluted Earnings (Loss) per Common Share

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands, except Share Data)	2020		2019		2020		2019
Basic Earnings (Loss) per Common Share:
Net income (loss) attributable to Redwood	$	141,812	$	34,310	$	(636,142)	$	120,040
Less: Dividends and undistributed earnings allocated to participating securities	(4,067)		(856)		(1,427)		(3,260)
Net income (loss) allocated to common shareholders	$	137,745	$	33,454	$	(637,569)	$	116,780
Basic weighted average common shares outstanding	113,403,102		101,872,126		113,952,308		97,214,064
Basic Earnings (Loss) per Common Share	$	1.21	$	0.33	$	(5.60)	$	1.20
Diluted Earnings (Loss) per Common Share:
Net income (loss) attributable to Redwood	$	141,812	$	34,310	$	(636,142)	$	120,040
Less: Dividends and undistributed earnings allocated to participating securities	(3,512)		(1,036)		(1,427)		(3,625)
Adjust for interest expense and gain on extinguishment of convertible notes for the period, net of tax	6,990		8,887		—		26,271
Net income (loss) allocated to common shareholders	$	145,290	$	42,161	$	(637,569)	$	142,686
Weighted average common shares outstanding	113,403,102		101,872,126		113,952,308		97,214,064
Net effect of dilutive equity awards	—		362,743		—		261,155
Net effect of assumed convertible notes conversion to common shares	28,566,875		34,287,840		—		33,727,470
Diluted weighted average common shares outstanding	141,969,977		136,522,709		113,952,308		131,202,689
Diluted Earnings (Loss) per Common Share	$	1.02	$	0.31	$	(5.60)	$	1.09

We included participating securities, which are certain equity awards that have non-forfeitable dividend participation rights, in the calculations of basic and diluted earnings per common share as we determined that the two-class method was more dilutive than the alternative treasury stock method for these shares. Dividends and undistributed earnings allocated to participating securities under the basic and diluted earnings per share calculations require specific shares to be included that may differ in certain circumstances.

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REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 17. Equity - (continued)

During the three months ended September 30, 2020 and the three and nine months ended September 30, 2019, certain of our convertible notes were determined to be dilutive and were included in the calculation of diluted EPS under the "if-converted" method. Under this method, the periodic interest expense and any realized gains or losses on extinguishment of debt (net of applicable taxes) for dilutive notes is added back to the numerator and the weighted average number of shares that the notes are entitled to (if converted, regardless of whether they are in or out of the money) are included in the denominator.

For the nine months ended September 30, 2020, 32,225,825 of common shares related to the assumed conversion of our convertible notes were antidilutive and were excluded in the calculation of diluted earnings per share. For the three and nine months ended September 30, 2020, the number of outstanding equity awards that were antidilutive totaled 13,560 and 15,457, respectively. For the three and nine months ended September 30, 2019, the number of outstanding equity awards that were antidilutive totaled 11,710 and 9,361, respectively.

Stock Repurchases

In February 2018, our Board of Directors approved an authorization for the repurchase of our common stock, increasing the total amount authorized for repurchases of common stock to $100 million, and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt. This authorization increased the previous share repurchase authorization approved in February 2016 and has no expiration date. This repurchase authorization does not obligate us to acquire any specific number of shares or securities. Under this authorization, shares or securities may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. During the three months ended September 30, 2020, we repurchased 3,047,335 shares of our common stock pursuant to this authorization for $22 million. At September 30, 2020, $78 million of the current authorization remained available for the repurchase of shares of our common stock and we also continued to be authorized to repurchase outstanding debt securities.

Note 18. Equity Compensation Plans

At September 30, 2020 and December 31, 2019, 8,629,455 and 3,637,480 shares of common stock, respectively, were available for grant under our Incentive Plan. During the second quarter of 2020, Redwood shareholders approved for grant an additional 5 million shares of common stock under our Incentive Plan. The unamortized compensation cost of awards issued under the Incentive Plan and purchases under the Employee Stock Purchase Plan totaled $20 million at September 30, 2020, as shown in the following table.

Table 18.1 – Activities of Equity Compensation Costs by Award Type

	Nine Months Ended September 30, 2020
(In Thousands)	Restricted Stock Awards		Restricted Stock Units		Deferred Stock Units		Performance Stock Units		Employee Stock Purchase Plan		Total
Unrecognized compensation cost at beginning of period	$	1,990	$	3,534	$	17,858	$	8,946	$	—	$	32,328
Equity grants	108		3,581		6,780		—		160		10,629
Performance-based valuation adjustment	—		—		—		(7,352)		—		(7,352)
Equity grant forfeitures	(529)		(2,161)		(4,733)		(648)		—		(8,071)
Equity compensation expense	(807)		(1,067)		(6,268)		326		(80)		(7,896)
Unrecognized Compensation Cost at End of Period	$	762	$	3,887	$	13,637	$	1,272	$	80	$	19,638

At September 30, 2020, the weighted average amortization period remaining for all of our equity awards was one year.

62

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 18. Equity Compensation Plans - (continued)

Restricted Stock Awards ("RSAs")

At September 30, 2020 and December 31, 2019, there were 80,550 and 216,470 shares, respectively, of RSAs outstanding. Restrictions on these shares lapse through 2022. During the nine months ended September 30, 2020, there were no RSAs granted, restrictions on 101,063 RSAs lapsed and those shares were distributed, and 34,857 RSAs were forfeited.

Restricted Stock Units ("RSUs")

At September 30, 2020 and December 31, 2019, there were 294,986 and 275,173 shares, respectively, of RSUs outstanding. Restrictions on these shares lapse through 2024. During the nine months ended September 30, 2020, there were 205,482 RSUs granted, 55,514 RSUs distributed, and 130,155 RSUs forfeited.

Deferred Stock Units (“DSUs”)

At September 30, 2020 and December 31, 2019, there were 2,420,737 and 2,630,805 DSUs, respectively, outstanding of which 1,406,190 and 1,286,063, respectively, had vested. During the nine months ended September 30, 2020, there were 494,719 DSUs granted, 413,533 DSUs distributed, and 291,253 DSUs forfeited. Unvested DSUs at September 30, 2020 vest through 2024.

Performance Stock Units (“PSUs”)

At September 30, 2020 and December 31, 2019, the target number of PSUs that were unvested was 739,895 and 839,070, respectively. During the nine months ended September 30, 2020, 99,175 PSUs were forfeited. Vesting for all PSUs will generally occur at the end of three years from their grant date based on various Total Shareholder Return ("TSR") performance calculations, as discussed in our Annual Report on Form 10-K for the year ended December 31, 2019. During the first quarter of 2020, for PSUs granted in 2018 and 2019, we adjusted our vesting estimate to assume that none of these awards will meet the minimum performance thresholds for vesting. This adjustment resulted in a reversal of $1 million of stock-based compensation expense recorded in the first quarter of 2020.

Employee Stock Purchase Plan ("ESPP")

The ESPP allows a maximum of 600,000 shares of common stock to be purchased in aggregate for all employees. As of September 30, 2020 and December 31, 2019, 477,142 and 430,772 shares had been purchased, respectively, and there remained a negligible amount of uninvested employee contributions in the ESPP at September 30, 2020.

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REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 19. Mortgage Banking Activities, Net

The following table presents the components of Mortgage banking activities, net, recorded in our consolidated statements of income (loss) for the three and nine months ended September 30, 2020 and 2019.

Table 19.1 – Mortgage Banking Activities

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Residential Mortgage Banking Activities, Net
Changes in fair value of:
Residential loans, at fair value (1)	$	12,589	$	6,320	$	19,151	$	41,431
Risk management derivatives (2)	(10)		(1,710)		(31,304)		(11,608)
Other income (expense), net (3)	(715)		407		(7,069)		1,380
Total residential mortgage banking activities, net	11,864		5,017		(19,222)		31,203
Business Purpose Mortgage Banking Activities, Net:
Changes in fair value of:
Single-family rental loans, at fair value (1)	43,191		1,847		56,209		5,473
Risk management derivatives (2)	(89)		(1,262)		(21,627)		(3,779)
Residential bridge loans, at fair value	938		1,010		(4,256)		2,108
Other income, net (4)	3,491		2,903		13,407		5,979
Total business purpose mortgage banking activities, net	47,531		4,498		43,733		9,781
Mortgage Banking Activities, Net	$	59,395	$	9,515	$	24,511	$	40,984

(1)For residential loans, includes changes in fair value for associated loan purchase and forward sale commitments. For single-family rental loans, includes changes in fair value for associated interest rate lock commitments.

(2)Represents market valuation changes of derivatives that were used to manage risks associated with our accumulation of loans.

(3)Amounts in this line item include other fee income from loan acquisitions, provisions for repurchases expense, and expense related to resolving residential loan seller demands, presented net.

(4)Amounts in this line item include other fee income from loan originations.

64

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 20. Other Income

The following table presents the components of Other income recorded in our consolidated statements of income (loss) for the three and nine months ended September 30, 2020 and 2019.

Table 20.1 – Other Income

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
MSR (loss) income, net	$	(2,362)	$	431	$	(5,595)	$	2,342
Risk share income	1,200		905		3,146		2,351
FHLBC capital stock dividend	116		541		1,201		1,623
Equity investment income	341		560		615		732
5 Arches loan administration fee income	688		1,344		2,206		3,298
Gain on re-measurement of investment in 5 Arches	—		—		—		2,441
Other	(97)		575		2,406		1,053
Other (Loss) Income	$	(114)	$	4,356	$	3,979	$	13,840

65

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 21. General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses

Components of our general and administrative, and other expenses for the three and nine months ended September 30, 2020 and 2019 are presented in the following table.

Table 21.1 – Components of General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
General and Administrative Expenses
Fixed compensation expense	$	10,103	$	9,391	$	36,605	$	26,740
Variable compensation expense	5,882		3,489		9,171		11,356
Equity compensation expense	2,639		3,155		7,896		10,132
Acquisition-related equity compensation expense (1)	1,212		—		3,636		—
Systems and consulting	2,145		3,230		7,752		7,594
Office costs	1,859		1,517		5,854		4,406
Accounting and legal	1,601		1,767		6,605		3,852
Corporate costs	831		482		2,128		1,701
Other operating expenses	1,358		1,868		5,185		4,941
Total General and Administrative Expenses	27,630		24,899		84,832		70,722
Loan Acquisition Costs
Commissions	879		659		3,027		1,432
Underwriting costs	771		1,074		3,289		3,184
Transfer and holding costs	508		183		1,400		891
Total Loan Acquisition Costs	2,158		1,916		7,716		5,507
Other Expenses
Goodwill impairment expense	—		—		88,675		—
Amortization of purchase-related intangible assets	3,873		1,897		12,052		4,608
Contingent consideration expense (2)	135		236		581		547
Other	3,780		398		2,978		866
Total Other Expenses	7,788		2,531		104,286		6,021
Total General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses	$	37,576	$	29,346	$	196,834	$	82,250

(1)Acquisition-related equity compensation expense relates to 588,260 shares of restricted stock that were issued to members of CoreVest management as a component of the consideration paid to them for our purchase of their interests in CoreVest. The grant date fair value of these restricted stock awards was $10 million, which will be recognized as compensation expense over the two-year vesting period on a straight-line basis in accordance with GAAP.

(2)Contingent consideration expense relates to the acquisition of 5 Arches during 2019. Refer to Note 2 for additional detail.

66

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 21. General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses - (continued)

Variable Compensation Expense

During the three months ended September 30, 2020, $8 million of cash-based retention awards were granted to certain executive and non-executive employees that will vest and be paid over the next three years, subject to continued employment through the vesting periods from 2021 through 2023. Additionally, during the three months ended September 30, 2020, Long-Term Relative TSR Performance Vesting Cash Awards ("Cash Performance Awards") with an aggregate granted award value of $2 million, were granted to certain executive and non-executive employees that will vest between 0% to 400% of granted award value based on a relative total stockholder return measure, and are contingent on continued employment over a three-year service period.

The value of the cash-based retention awards is being amortized into expense on a straight-line basis over each award's respective vesting period. The Cash Performance Awards are amortized on a straight-line basis over three years, however, are remeasured at fair value each quarter-end and the cumulative straight-line expense is trued-up in respect to their updated value. For both the three and nine months ended September 30, 2020, variable compensation expense included $3 million in aggregate, related to the cash-based retention awards and the Cash Performance awards.

Note 22. Taxes

For the nine months ended September 30, 2020 and 2019, we recognized a benefit for income taxes of $13 million and a provision from income taxes of $3 million, respectively. The following is a reconciliation of the statutory federal and state tax rates to our effective tax rate at September 30, 2020 and 2019.

Table 22.1 – Reconciliation of Statutory Tax Rate to Effective Tax Rate

	September 30, 2020		September 30, 2019
Federal statutory rate	21.0	%	21.0	%
State statutory rate, net of Federal tax effect	8.6	%	8.6	%
Differences in taxable (loss) income from GAAP income	(23.6)	%	(2.5)	%
Change in valuation allowance	(4.0)	%	(2.5)	%
Dividends paid deduction (1)	—	%	(22.1)	%
Effective Tax Rate	2.0	%	2.5	%

(1)The dividends paid deduction in the effective tax rate reconciliation is generally representative of the amount of distributions to shareholders that reduce REIT taxable income. For the nine months ended September 30, 2020, the dividends paid deduction is 0% due to our REIT incurring a taxable loss during the period; therefore, there was no REIT taxable income available to apply against the dividends paid.

We assessed our tax positions for all open tax years (i.e., Federal, 2017 to 2020, and State, 2016 to 2020) at September 30, 2020 and December 31, 2019, and concluded that we had no uncertain tax positions that resulted in material unrecognized tax benefits.

67

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 23. Segment Information

Redwood operates in three segments: Residential Lending, Business Purpose Lending, and Third-Party Investments. Beginning in the second quarter of 2020, we combined what was previously our Multifamily Investments segment and Third-Party Residential Investments segment into a new segment called Third-Party Investments. Prior periods have been conformed to the current presentation. Following is a full description of our current segments.

Residential Lending – consists of a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer into our investment portfolio, as well as the investments we retain from these activities. We typically acquire prime, jumbo mortgages and the related mortgage servicing rights on a flow basis from our network of loan sellers and distribute those loans through our Sequoia private-label securitization program or to institutions that acquire pools of whole loans. Our investments in this segment primarily consist of residential mortgage-backed securities ("RMBS") retained from our Sequoia securitizations (some of which we consolidate for GAAP purposes) and MSRs retained from jumbo whole loans we sold or securitized. This segment also includes various derivative financial instruments that we utilize to manage certain risks associated with our inventory of residential loans held-for-sale and long-term investments we hold within this segment. This segment’s main source of revenue is net interest income from its long-term investments and its inventory of loans held-for-sale, as well as income from mortgage banking activities, which includes valuation increases (or gains) on loans we acquire and subsequently sell, securitize, or transfer into our investment portfolio, and the hedges used to manage risks associated with these activities. Additionally, this segment may realize gains and losses upon the sale of securities. Funding expenses, direct operating expenses, and tax expenses associated with these activities are also included in this segment.

Business Purpose Lending – consists of a platform that originates and acquires business purpose residential loans for subsequent securitization or transfer into our investment portfolio, as well as the investments we retain from these activities. We typically originate single-family rental and residential bridge loans and distribute certain single-family rental loans through our CoreVest American Finance Lender ("CAFL") private-label securitization program and retain others for investment along with our residential bridge loans. Single-family rental loans are business purpose residential mortgage loans to investors in single-family (1-4 unit) rental properties. Residential bridge loans are business purpose residential mortgage loans to investors rehabilitating and subsequently reselling or renting residential properties. Our investments in this segment primarily consist of securities retained from our CAFL securitizations (which we consolidate for GAAP purposes), and residential bridge loans. This segment also includes various derivative financial instruments that we utilize to manage certain risks associated with our inventory of single-family rental loans held-for-sale and our investments. This segment’s main source of revenue is net interest income from its investments and loans held-for-sale, as well as income from mortgage banking activities, which includes valuation increases (or gains) on loans we originate or acquire and subsequently sell, securitize or transfer into our investment portfolio, and the hedges used to manage risks associated with these activities. Additionally, this segment may realize gains and losses upon the sale of securities. Funding expenses, direct operating expenses, and tax expenses associated with these activities are also included in this segment.

Third-Party Investments – consists of investments in RMBS issued by third parties, investments in Freddie Mac K-Series multifamily loan securitizations and SLST reperforming loan securitizations (which we consolidate for GAAP purposes), our servicer advance investments, and other residential and multifamily credit investments not generated through our Residential or Business Purpose Lending segments. This segment’s main sources of revenue are interest income from securities and loans held-for-investment. Additionally, this segment may realize gains and losses upon the sale of securities. Funding expenses, hedging expenses, direct operating expenses, and tax provisions associated with these activities are also included in this segment.

Segment contribution represents the measure of profit that management uses to assess the performance of our business segments and make resource allocation and operating decisions. Certain corporate expenses not directly assigned or allocated to one of our three segments, as well as activity from certain consolidated Sequoia entities, are included in the Corporate/Other column as reconciling items to our consolidated financial statements. These unallocated corporate expenses primarily include indirect general and administrative expenses and other expense.

68

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 23. Segment Information - (continued)

The following tables present financial information by segment for the three and nine months ended September 30, 2020 and 2019.

Table 23.1 – Business Segment Financial Information

	Three Months Ended September 30, 2020
(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
Interest income	$	26,672	$	55,930	$	37,576	$	1,804	$	121,982
Interest expense	(22,541)		(46,027)		(27,534)		(4,309)		(100,411)
Net interest income	4,131		9,903		10,042		(2,505)		21,571
Non-interest income
Mortgage banking activities, net	11,864		47,531		—		—		59,395
Investment fair value changes, net	2,443		16,892		87,890		(178)		107,047
Other income, net	(2,011)		623		340		934		(114)
Realized gains, net	—		—		602		—		602
Total non-interest income, net	12,296		65,046		88,832		756		166,930
General and administrative expenses	(4,602)		(9,321)		(709)		(12,998)		(27,630)
Loan acquisition costs	(304)		(1,660)		(194)		—		(2,158)
Other expenses	(3,309)		(3,874)		(470)		(135)		(7,788)
(Provision for) benefit from income taxes	(826)		(8,544)		257		—		(9,113)
Segment Contribution	$	7,386	$	51,550	$	97,758	$	(14,882)
Net Income									$	141,812
Non-cash amortization (expense) income, net	$	1,785	$	(6,719)	$	117	$	(1,516)	$	(6,333)

	Nine Months Ended September 30, 2020
(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
Interest income	$	123,956	$	162,732	$	155,583	$	7,738	$	450,009
Interest expense	(94,112)		(119,854)		(123,160)		(12,622)		(349,748)
Net interest income	29,844		42,878		32,423		(4,884)		100,261
Non-interest income
Mortgage banking activities, net	(19,222)		43,733		—		—		24,511
Investment fair value changes, net	(159,107)		(84,837)		(366,696)		(917)		(611,557)
Other income, net	(2,278)		3,493		1,072		1,692		3,979
Realized gains, net	2,001		—		3,236		25,182		30,419
Total non-interest income, net	(178,606)		(37,611)		(362,388)		25,957		(552,648)
General and administrative expenses	(12,901)		(29,977)		(4,230)		(37,724)		(84,832)
Loan acquisition costs	(1,512)		(5,630)		(567)		(7)		(7,716)
Other expenses	(3,309)		(100,743)		347		(581)		(104,286)
Benefit from income taxes	7,827		477		4,775		—		13,079
Segment Contribution	$	(158,657)	$	(130,606)	$	(329,640)	$	(17,239)
Net Loss									$	(636,142)
Non-cash amortization (expense) income, net	$	602	$	(18,050)	$	1,105	$	(3,035)	$	(19,378)
Other significant non-cash expense: goodwill impairment	$	—	$	(88,675)	$	—	$	—	$	(88,675)

69

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 23. Segment Information - (continued)

	Three Months Ended September 30, 2019
(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
Interest income	$	69,586	$	5,527	$	70,709	$	4,295	$	150,117
Interest expense	(48,798)		(2,813)		(61,541)		(3,452)		(116,604)
Net interest income	20,788		2,714		9,168		843		33,513
Non-interest income
Mortgage banking activities, net	5,016		4,499		—		—		9,515
Investment fair value changes, net	(11,088)		(1,073)		24,057		(452)		11,444
Other income, net	1,878		1,918		560		—		4,356
Realized gains, net	—		—		4,714		—		4,714
Total non-interest income, net	(4,194)		5,344		29,331		(452)		30,029
General and administrative expenses	(5,581)		(6,028)		(676)		(12,614)		(24,899)
Loan acquisition costs	(867)		(756)		(180)		(113)		(1,916)
Other expenses	—		(1,900)		(395)		(236)		(2,531)
Benefit from (provision for) income taxes	228		(8)		(106)		—		114
Segment Contribution	$	10,374	$	(634)	$	37,142	$	(12,572)
Net Income									$	34,310
Non-cash amortization income (expense), net	$	2,537	$	(2,107)	$	—	$	(1,148)	$	(718)

	Nine Months Ended September 30, 2019
(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
Interest income	$	204,036	$	12,595	$	199,145	$	13,924	$	429,700
Interest expense	(145,795)		(6,590)		(168,167)		(11,548)		(332,100)
Net interest income	58,241		6,005		30,978		2,376		97,600
Non-interest income
Mortgage banking activities, net	31,202		9,782		—		—		40,984
Investment fair value changes, net	(20,910)		(1,833)		58,492		(1,008)		34,741
Other income, net	6,317		4,213		600		2,710		13,840
Realized gains, net	7,728		—		10,499		—		18,227
Total non-interest income, net	24,337		12,162		69,591		1,702		107,792
General and administrative expenses	(17,591)		(13,452)		(2,239)		(37,440)		(70,722)
Loan acquisition costs	(2,859)		(2,017)		(503)		(128)		(5,507)
Other expenses	—		(4,432)		(864)		(725)		(6,021)
(Provision for) benefit from income taxes	(1,757)		25		(1,370)		—		(3,102)
Segment Contribution	$	60,371	$	(1,709)	$	95,593	$	(34,215)
Net Income									$	120,040
Non-cash amortization income (expense), net	$	6,780	$	(4,907)	$	(824)	$	(1,939)	$	(890)

70

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 23. Segment Information - (continued)

The following table presents the components of Corporate/Other for the three and nine months ended September 30, 2020 and 2019.

Table 23.2 – Components of Corporate/Other

	Three Months Ended September 30,
	2020						2019
(In Thousands)	Legacy Consolidated VIEs (1)		Other		Total		Legacy Consolidated VIEs (1)		Other		Total
Interest income	$	1,795	$	9	$	1,804	$	4,295	$	—	$	4,295
Interest expense	(1,058)		(3,251)		(4,309)		(3,452)		—		(3,452)
Net interest income	737		(3,242)		(2,505)		843		—		843
Non-interest income
Investment fair value changes, net	(81)		(97)		(178)		(407)		(45)		(452)
Other income	—		934		934		—		—		—
Total non-interest income, net	(81)		837		756		(407)		(45)		(452)
General and administrative expenses	—		(12,998)		(12,998)		—		(12,614)		(12,614)
Loan acquisition costs	—		—		—		—		(113)		(113)
Other expenses	—		(135)		(135)		—		(236)		(236)
Total	$	656	$	(15,538)	$	(14,882)	$	436	$	(13,008)	$	(12,572)

	Nine Months Ended September 30,
	2020						2019
(In Thousands)	Legacy Consolidated VIEs (1)		Other		Total		Legacy Consolidated VIEs (1)		Other		Total
Interest income	$	7,675	$	63	$	7,738	$	13,924	$	—	$	13,924
Interest expense	(5,098)		(7,524)		(12,622)		(11,548)		—		(11,548)
Net interest income	2,577		(7,461)		(4,884)		2,376		—		2,376
Non-interest income
Investment fair value changes, net	(702)		(215)		(917)		(904)		(104)		(1,008)
Other income	—		1,692		1,692		—		2,710		2,710
Realized gains, net	—		25,182		25,182		—		—		—
Total non-interest income, net	(702)		26,659		25,957		(904)		2,606		1,702
General and administrative expenses	—		(37,724)		(37,724)		—		(37,440)		(37,440)
Loan acquisition costs	—		(7)		(7)		—		(128)		(128)
Other expenses	—		(581)		(581)		—		(725)		(725)
Total	$	1,875	$	(19,114)	$	(17,239)	$	1,472	$	(35,687)	$	(34,215)

(1)     Legacy consolidated VIEs represent Legacy Sequoia entities that are consolidated for GAAP financial reporting purposes. See Note 4 for further discussion on VIEs.

71

REDWOOD TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Note 23. Segment Information - (continued)

The following table presents supplemental information by segment at September 30, 2020 and December 31, 2019.

Table 23.3 – Supplemental Segment Information

(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
September 30, 2020
Residential loans	$	1,941,489	$	—	$	2,256,682	$	296,765	$	4,494,936
Business purpose residential loans	—		3,956,101		—		—		3,956,101
Multifamily loans	—		—		491,415		—		491,415
Real estate securities	146,608		—		204,727		—		351,335
Other investments	14,878		25,713		344,037		—		384,628
Goodwill and intangible assets	—		60,737		—		—		60,737
Total assets	2,148,643		4,134,913		3,315,039		803,817		10,402,412
December 31, 2019
Residential loans	$	4,939,745	$	—	$	2,367,215	$	407,890	$	7,714,850
Business purpose residential loans	—		3,506,743		—		—		3,506,743
Multifamily loans	—		—		4,408,524		—		4,408,524
Real estate securities	229,074		—		870,800		—		1,099,874
Other investments	42,224		21,002		294,904		—		358,130
Goodwill and intangible assets	—		161,464		—		—		161,464
Total assets	5,410,540		3,786,641		8,028,946		769,313		17,995,440

72

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in six main sections:

•    Overview

•    Results of Operations

•    Liquidity and Capital Resources

•    Off-Balance Sheet Arrangements and Contractual Obligations

•    Critical Accounting Policies and Estimates

•    New Accounting Standards

Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and in Part II, Item 8, Financial Statements and Supplementary Data in our most recent Annual Report on Form 10-K, as well as the sections entitled “Risk Factors” in Part I, Item 1A of our most recent Annual Report on Form 10-K and Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as other cautionary statements and risks described elsewhere in this report and our most recent Annual Report on Form 10-K. The discussion in this MD&A contains forward-looking statements that involve substantial risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, such as those discussed in the Cautionary Statement below.

References herein to “Redwood,” the “company,” “we,” “us,” and “our” include Redwood Trust, Inc. and its consolidated subsidiaries, unless the context otherwise requires. Financial information concerning our business is set forth in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and notes thereto, which are included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Our website can be found at www.redwoodtrust.com. We make available, free of charge through the investor information section of our website, access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”). We also make available, free of charge, access to our charters for our Audit Committee, Compensation Committee, and Governance and Nominating Committee, our Corporate Governance Standards, and our Code of Ethics governing our directors, officers, and employees. Within the time period required by the SEC and the New York Stock Exchange, we will post on our website any amendment to the Code of Ethics and any waiver applicable to any executive officer or director of Redwood. In addition, our website includes information concerning purchases and sales of our equity securities by our executive officers and directors, and may include disclosure relating to certain non-GAAP financial measures (as defined in the SEC’s Regulation G) that we may make public orally, telephonically, by webcast, by broadcast, or by similar means from time to time. The information on our website is not part of this Quarterly Report on Form 10-Q.

Our Investor Relations Department can be contacted at One Belvedere Place, Suite 300, Mill Valley, CA 94941, Attn: Investor Relations, telephone (866) 269-4976.

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Our Business

Redwood Trust, Inc., together with its subsidiaries, is a specialty finance company focused on making credit-sensitive investments in single-family residential and multifamily mortgages and related assets and engaging in mortgage banking activities. Our goal is to provide attractive returns to shareholders through a stable and growing stream of earnings and dividends, as well as through capital appreciation. We operate our business in three segments: Residential Lending, Business Purpose Lending, and Third-Party Investments. For a full description of our segments, see Note 23 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Cautionary Statement

This Quarterly Report on Form 10-Q and the documents incorporated by reference herein contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “believe,” “intend,” “seek,” “plan” and similar expressions or their negative forms, or by references to strategy, plans, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, in each case under the caption “Risk Factors.” Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports we file with the SEC, including reports on Forms 10-Q and 8-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Statements regarding the following subjects, among others, are forward-looking by their nature: (i) statements we make regarding Redwood's business strategy and strategic focus, including statements relating to our overall market position, strategy and long-term prospects (including trends driving the flow of capital in the housing finance market, our strategic initiatives designed to capitalize on those trends, our ability to attract capital to finance those initiatives, our approach to raising capital, our ability to pay dividends in the future, and the prospects for federal housing finance reform); (ii) statements related to our financial outlook and expectations for 2020 and future years, including our optimism that we will end 2020 on a high note, that excess liquidity will continue to support higher prices for mortgage related investments and enhance their scarcity value, that our portfolio values still have room to recover value from unrealized losses incurred in the first quarter of 2020, and our belief that secular trends supporting our investment thesis are accelerating due to the COVID-19 pandemic; (iii) expectations with respect to activity in our Residential Lending segment, including our expectation that our expanded prime program will contribute more significantly to our 2021 loan acquisition volumes, and the potential for significantly increased industry-wide jumbo loan origination volumes and for interest rates on jumbo loans to continue to converge towards those for conforming borrowers; (iv) our expectations related to opportunities to provide technology-enabled solutions to disrupt traditional private-sector workflows; (v) statements regarding our capital available for investment, including our statement that we have ample capital available to deploy into our operating businesses and to pursue opportunistic third-party investments; (vi) statements relating to acquiring residential mortgage loans in the future that we have identified for purchase or plan to purchase, including the amount of such loans that we identified for purchase during the third quarter of 2020 and at September 30, 2020, and expected fallout and the corresponding volume of residential mortgage loans expected to be available for purchase, and expected residential mortgage loan sales in the fourth quarter, including through forward sales agreements we entered into during the third quarter; (vii) statements we make regarding future dividends, including with respect to our regular quarterly dividends in 2020; and (viii) statements regarding our expectations and estimates relating to the characterization for income tax purposes of our dividend distributions, our expectations and estimates relating to tax accounting, tax liabilities and tax savings, and GAAP tax provisions, and our estimates of REIT taxable income and TRS taxable income.

Many of the factors that could affect our actual results are summarized below. One of the most significant factors, however, is the ongoing impact of the pandemic on the United States economy, homeowners, renters of housing, the housing market, the mortgage finance markets and the broader financial markets. It is difficult to fully assess the impact of the pandemic at this time, including because of the uncertainty around the severity and duration of the pandemic domestically and internationally, as well as the uncertainty around the efficacy of Federal, State and local governments’ efforts to contain the spread of COVID-19 and respond to its direct and indirect impacts on many aspects of Americans’ lives and economic activity. Moreover, each of the factors summarized below is likely to also be impacted directly or indirectly by the ongoing impact of the pandemic and investors are cautioned to interpret substantially all of the risks identified in the Company’s previously published “Risk Factors” as being heightened as a result of the ongoing impact of the pandemic.

Important factors, among others, that may affect our actual results include:

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•the impact of the current outbreak of COVID-19 or the future outbreak of any other highly infectious or contagious diseases on the U.S. and global economy, financial markets, and our business and operations;

•the ability and willingness of residential mortgage loan borrowers that have been negatively impacted by the pandemic to make payments of principal and interest relating to their mortgage loans;

•liquidity risks from margin calls and potential breaches of the financial covenants under our borrowing facilities;

•changes to our interest rate hedging strategy and our revised approach to addressing interest rate risk;

•the pace at which we redeploy our available capital into new investments and initiatives;

•our ability to scale our platform and systems, particularly with respect to our new initiatives;

•interest rate volatility, changes in credit spreads, and changes in liquidity in the market for real estate securities and loans;

•changes in the demand from investors for residential mortgages and investments, and our ability to distribute residential mortgages through our whole-loan distribution channel;

•our ability to finance our investments in securities and our acquisition of residential mortgages with short-term debt;

•changes in the values of assets we own;

•general economic trends, the performance of the housing, real estate, mortgage, credit, and broader financial markets, and their effects on the prices of earning assets and the credit status of borrowers;

•federal and state legislative and regulatory developments, and the actions of governmental authorities, including the new U.S. presidential administration, and in particular those affecting the mortgage industry or our business;

•state and/or local regulations related to rent control or rent stabilization impacting single-family rental and multifamily properties;

•strategic business and capital deployment decisions we make;

•our recent acquisitions of business purpose lending origination platforms;

•developments related to the fixed income and mortgage finance markets and the Federal Reserve’s statements regarding its future open market activity and monetary policy;

•our exposure to credit risk and the timing of credit losses within our portfolio;

•the concentration of the credit risks we are exposed to, including due to the structure of assets we hold and the geographical concentration of real estate underlying assets we own;

•our exposure to adjustable-rate mortgage loans;

•the efficacy and expense of our efforts to manage or hedge credit risk, interest rate risk, and other financial and operational risks;

•changes in credit ratings on assets we own and changes in the rating agencies’ credit rating methodologies;

•changes in interest rates; changes in mortgage prepayment rates;

•changes in liquidity in the market for real estate securities and loans;

•our ability to finance the acquisition of real estate-related assets with short-term debt;

•the ability of counterparties to satisfy their obligations to us;

•our involvement in securitization transactions, the profitability of those transactions, and the risks we are exposed to in engaging in securitization transactions;

•exposure to claims and litigation, including litigation arising from our involvement in securitization transactions;

•ongoing litigation against various trustees of RMBS transactions;

•whether we have sufficient liquid assets to meet short-term needs;

•our ability to successfully compete and retain or attract key personnel;

•our ability to adapt our business model and strategies to changing circumstances;

•changes in our investment, financing, and hedging strategies and new risks we may be exposed to if we expand our business activities;

•our exposure to a disruption or breach of the security of our technology infrastructure and systems;

•exposure to environmental liabilities;

•our failure to comply with applicable laws and regulations;

•our failure to maintain appropriate internal controls over financial reporting and disclosure controls and procedures;

•the impact on our reputation that could result from our actions or omissions or from those of others;

•changes in accounting principles and tax rules;

•our ability to maintain our status as a REIT for tax purposes;

•limitations imposed on our business due to our REIT status and our status as exempt from registration under the Investment Company Act of 1940;

•decisions about raising, managing, and distributing capital; and

•other factors not presently identified.

This Quarterly Report on Form 10-Q may contain statistics and other data that in some cases have been obtained from or compiled from information made available by servicers and other third-party service providers.

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OVERVIEW

Business Update

In the third quarter of 2020, we positioned ourselves to take advantage of opportunities emerging in our markets. Though we remain wary of a volatile election season and rising rates of COVID-19 infections in many parts of the U.S., our businesses are back to operating at full speed and we are optimistic that we will end 2020 on a high note.

After recasting our balance sheet and positioning our businesses to relaunch from a position of strength, we are now conducting new business at a rapid pace and leveraging industry relationships forged over many business cycles. But after such a profoundly challenging period for our sector and country, we were compelled to think critically about the type of company we want to lead over the long-term – including how we fit into a nation grappling with civil unrest, pandemic fatigue, and a depressed job market.

We emerged with great clarity on who we are and where we are headed. Our business continues moving towards where our capital is most impactful – in our residential and business purpose lending segments, complemented by portfolio strategies where we hold distinct competitive advantages. With the Federal Reserve providing an unprecedented amount of stimulus to financial markets, the detachment of asset prices from certain underlying fundamentals is the most pronounced we have seen since the lead up to the Great Financial Crisis. A vast amount of capital is now in need of deployment, and we believe this excess liquidity will continue to support higher prices for mortgage related investments and exacerbate their scarcity value. As such, it has become a strategic priority for many investment firms to access the whole-loans that underlie such investments. This is exactly what Redwood’s residential and business purpose lending platforms are built to generate.

Demand for loans we originate or acquire has only grown stronger as the year has unfolded. This demand has enabled us to enhance our distribution strategies to compete more effectively for volume while reducing our exposure to market volatility. Recently completed non-mark-to-market financing facilities supporting our residential, business purpose, and third party investments, including financing residential loans in forbearance, helped achieve this reduced exposure. While most of these new facilities were completed with our traditional banking counterparties, we are expanding our reach by also working with non-bank financing sources that will allow us to use our working capital more efficiently.

In the third quarter, our residential mortgage lock volume was $2.12 billion, growing from nearly zero in the second quarter. It was also the highest quarterly volume sourced exclusively through our residential loan seller network in five years. Moreover, we achieved this through purchase activity with only about 40% of our loan sellers. We also have yet to formally relaunch our expanded prime program, Redwood Choice, which we expect to contribute more significantly to our 2021 acquisition volumes. Additionally, the mortgage finance industry remains focused on the refinancing opportunity for conforming mortgage loans. In our view, there is potential for significantly increased jumbo loan origination and acquisition volumes, driven by evolving consumer demand and the potential for interest rates on jumbo mortgage loans to continue converging towards those for conforming mortgage loans. Our recent efforts have positioned us to compete effectively in what may be a substantially larger market. The recent completion of our first Sequoia securitization backed largely by loans originated since the COVID-19 crisis began is an important affirmation of our progress.

Similarly, our business purpose origination activity remained strong in the third quarter – providing us with a favorable combination of robust underwriting coupled with higher margins. Our third quarter single-family rental securitization was met with extremely high demand, with the AAA-rated securities pricing with an interest rate of 1.36%. In addition to the benefit from lower benchmark rates, blended credit spreads for the offered bonds were better than the execution we achieved in our final transaction of 2019, well in advance of this spring’s volatility.

As our operating strategies take shape, our investment portfolio’s asset values have continued to recover since incurring unrealized losses during the first quarter. The significant upside we have seen in these investments appears to be a story unique to Redwood – with many of our competitors exiting their non-agency portfolios in response to the pandemic. Though we can’t predict the pace or extent of a broad-based economic recovery, we believe our portfolio values still have room for further recovery, with the investment portfolio currently yielding in the low- to mid-double digits to our basis in those assets at September 30, 2020.

As we focus on growth opportunities ahead, we believe the secular trends supporting our housing thesis are not just intact, but accelerating due to the COVID-19 pandemic. The nationwide push toward single-family housing – whether rented or owned – is no longer a nuanced data point, but has become widely recognized as families look for more space to live socially distanced, work, and learn from home. As this shift unfolds, densely populated cities continue to see home prices and rents stay relatively flat or decline, while neighboring suburbs enjoy robust demand and home price appreciation – in many cases exceeding 10-20% over prior year levels. With over 65% of single-family homes having 3 bedrooms or more, compared to only 11% of apartment units, we expect the trend towards single-family living to continue and to be supported by low interest rates.

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While we are pleased with our market positioning and expectations for growth, navigating the Company through prolonged market volatility will remain a primary focus. The high standards we have set for service to our customers are well-established, but it is critical for us to maintain an infrastructure that can preserve this standard while allowing us to scale profitably and safely. To accomplish this, we are committed to innovating and investing in our technology.

Our businesses recently completed an updated technology roadmap that identified significant opportunities to provide technology-enabled solutions to our network of loan sellers and sponsors. We aim to disrupt traditional private-sector workflows and ideologies that have inhibited automation in the non-agency mortgage market.

Non-agency residential loan purchase workflows and timelines is one such opportunity. We recently announced the pilot launch of Redwood “Rapid Funding”, a technology-enabled program that will permit qualifying originators to transact with us on a significantly accelerated purchase timeline. Our delegated process allows originators to control their closing timelines; adding this feature will enable them to free up capital more quickly and remove risk from their balance sheets. Our program will also create opportunities for faster settlements to our loan buyer network – particularly depositories – that ultimately could lead to better outcomes for borrowers.

At CoreVest, our business purpose lending subsidiary, technology and data architecture have long been hallmarks of the platform’s advantages in client acquisition and retention. A culture of consistent iteration of the technology suite – particularly in the proprietary use of leading cloud-based systems to automate workflow management – keeps the platform’s first-mover advantage fresh. This client-centric approach keeps customers coming back, as evidenced by our approximately 50% repeat borrower rate, but also positions us to capitalize as this area of the market continues to grow.

Though our business platforms serve different parts of the housing market, our core mission unifies them. We aim to make quality housing accessible to all Americans, whether rented or owned. For example, we finance build-to-rent communities in the Midwest, workforce housing in the South, and high-balance residential mortgages on the coasts. Our mission also speaks to the role we play in our communities, and motivates us to advocate for and advance inclusion and diversity initiatives across our industry. By focusing on financing solutions for all consumers and investors not served by government-sponsored loan programs, we believe we can make a positive impact for our stakeholders – especially our shareholders, employees, and communities.

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Third Quarter Overview

The following table presents key financial metrics for the three and nine months ended September 30, 2020.

Table 1 – Key Financial Metrics

	Three Months Ended		Nine Months Ended
(In Thousands, except per Share Data)	September 30, 2020		September 30, 2020
Net income (loss) per diluted common share	$	1.02	$	(5.60)
Book value per share	$	9.41	$	9.41
REIT taxable income (loss) per share	$	0.07	$	(0.10)
Dividends per share	$	0.14	$	0.585

•Our third quarter 2020 results benefited from renewed momentum in our operating businesses. Volumes grew significantly at our residential business, and business purpose lending results benefited from strong securitization execution and improved valuations on loans held in inventory.

•Our book value increased $1.26 per share to $9.41 per share during the third quarter of 2020, resulting primarily from positive investment fair value changes as well as from improved mortgage banking results. During the third quarter of 2020, we repurchased three million shares of our common stock for $22 million, resulting in a $0.03 per share benefit to book value.

•During the third quarter of 2020, we entered into two separate non-recourse debt transactions and closed two non-marginable (i.e., not subject to margin calls based on the market value of the underlying collateral) loan warehouse facilities. These transactions helped reduce our recourse debt from $1.82 billion at June 30, 2020 to $1.35 billion at September 30, 2020, and reduced our marginable debt from $375 million at June 30, 2020 to $120 million at September 30, 2020. While our new non-marginable and non-recourse financing facilities have reduced our contingent liquidity risks, they generally have higher interest costs, which will marginally impact our net interest income in coming quarters. Additional details on these new financing agreements, including additional details regarding market value-based margin call provisions compared to asset value-based margin call provisions, are provided in the "Liquidity and Capital Resources" section that follows in this MD&A under the heading “Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities."

•Residential jumbo loan purchase commitments were $1.20 billion, and we purchased $176 million of residential jumbo loans during the third quarter of 2020. At September 30, 2020, our pipeline of jumbo residential loans identified for purchase was $1.79 billion.

•Our business purpose lending platform originated $261 million of business purpose mortgage loans in the third quarter, including $196 million of single-family rental loans and $66 million of residential bridge loans. During the quarter, we also completed one $293 million securitization of single-family rental loans.

•During the third quarter of 2020, we sold $13 million of third-party securities, and retained $16 million of single-family rental ("SFR") securities from a securitization we completed during the quarter.

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RESULTS OF OPERATIONS

Within this Results of Operations section, we provide commentary that compares results year-over-year for 2020 and 2019. Most tables include a "change" column that shows the amount by which the results from 2020 are greater or less than the results from the respective period in 2019. Unless otherwise specified, references in this section to increases or decreases during the "three-month periods" refer to the change in results for the third quarter of 2020, compared to the third quarter of 2019, and increases or decreases in the "nine-month periods" refer to the change in results for the first nine months of 2020, compared to the first nine months of 2019.

Consolidated Results of Operations

The following table presents the components of our net income for the three and nine months ended September 30, 2020 and 2019.

Table 2 – Net Income (Loss)

	Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands, except per Share Data)	2020		2019		Change		2020		2019		Change
Net Interest Income	$	21,571	$	33,513	$	(11,942)	$	100,261	$	97,600	$	2,661
Non-interest Income
Mortgage banking activities, net	59,395		9,515		49,880		24,511		40,984		(16,473)
Investment fair value changes, net	107,047		11,444		95,603		(611,557)		34,741		(646,298)
Other income	(114)		4,356		(4,470)		3,979		13,840		(9,861)
Realized gains, net	602		4,714		(4,112)		30,419		18,227		12,192
Total non-interest income (loss), net	166,930		30,029		136,901		(552,648)		107,792		(660,440)
General and administrative expenses	(27,630)		(24,899)		(2,731)		(84,832)		(70,722)		(14,110)
Loan acquisition costs	(2,158)		(1,916)		(242)		(7,716)		(5,507)		(2,209)
Other expenses	(7,788)		(2,531)		(5,257)		(104,286)		(6,021)		(98,265)
Net income (loss) before income taxes	150,925		34,196		116,729		(649,221)		123,142		(772,363)
(Provision for) benefit from income taxes	(9,113)		114		(9,227)		13,079		(3,102)		16,181
Net Income (Loss)	$	141,812	$	34,310	$	107,502	$	(636,142)	$	120,040	$	(756,182)
Diluted earnings (loss) per common share	$	1.02	$	0.31	$	0.71	$	(5.60)	$	1.09	$	(6.69)

Net Interest Income

The decrease in net interest income during the three-month periods was primarily due to lower average asset balances during the third quarter of 2020 resulting from portfolio repositioning in the first half of 2020 related to the COVID-19 pandemic, and higher borrowing costs associated with non-marginable and non-recourse debt facilities we entered into in the second and third quarters of 2020.

The increase in net interest income during the nine-month periods was primarily due to higher net interest income from bridge loans and loans held for investment at CAFL entities, which we consolidated beginning in the fourth quarter of 2019 following the acquisition of CoreVest. These increases were mostly offset by a reduction in net interest income resulting from sales of investments in the first half of 2020 as we repositioned our portfolio in response to the COVID-19 pandemic.

Additional detail on net interest income is provided in the “Net Interest Income” section that follows.

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Mortgage Banking Activities, Net

The increase in income from mortgage banking activities during the three-month periods was primarily due to improved valuations on SFR loans held in inventory at June 30, 2020 and originated during the third quarter of 2020, resulting from improved securitization execution at our business purpose mortgage banking operations.

The decrease in income from mortgage banking activities during the nine-month periods was predominantly due to a decrease in loan acquisition volumes at our residential mortgage banking business, as well as lower margins, in both cases due to pandemic-related market disruptions.

A more detailed analysis of the changes in this line item is included in the “Results of Operations by Segment” section that follows.

Investment Fair Value Changes, Net

Investment fair value changes, net, is primarily comprised of the change in fair values of our portfolio investments accounted for under the fair value option and, prior to the second quarter of 2020, interest rate hedges associated with these investments. During the three months ended September 30, 2020, investment fair value changes reflected further increases in the fair value of our investment assets, as spreads continued to tighten during the third quarter. During the nine months ended September 30, 2020, the negative investment fair value changes reflected significant declines in the value of our investments in the first quarter of 2020 resulting from market dislocations caused by the pandemic. Additional detail on our investment fair value changes is included in the “Results of Operations by Segment” section that follows.

Other Income

The decrease in other income for the three- and nine-month periods was primarily the result of losses on our MSR investments, which were driven primarily by increased prepayment speeds, resulting from recent declines in interest rates. Additionally, we recorded a $2 million gain associated with the re-measurement of our initial minority investment and purchase option in 5 Arches during the nine months ended September 30, 2019.

Realized Gains, Net

During the three and nine months ended September 30, 2020, we realized gains of $1 million and $30 million, respectively, primarily resulting from the sale of zero and $55 million of AFS securities, respectively, and for the nine-month period, a $25 million gain from the repurchase of $125 million of convertible debt during the second quarter of 2020. During the three and nine months ended September 30, 2019, we realized gains of $5 million and $18 million, respectively, primarily from the sale of $15 million and $82 million of AFS securities, respectively, and the call of a seasoned Sequoia securitization. Of note, all of the gains from extinguishment of debt were excluded from our diluted earnings per share for the nine months ended September 30, 2020, in accordance with GAAP. See Note 17 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on this calculation.

General and Administrative Expenses

The increase in general and administrative expenses for the three- and nine-month periods primarily resulted from $4 million and $19 million of additional expenses, respectively, from the consolidation of 5 Arches and CoreVest operations during 2019 after their respective acquisitions.

Loan Acquisition Costs

The increase in loan acquisition costs for the three- and nine-month periods primarily resulted from an increase in origination activity at our business purpose mortgage banking operations, and also increased as a result of the acquisition of CoreVest during the fourth quarter of 2019.

Other Expenses

The increase in other expenses for the three-month periods was primarily due to higher amortization expense from intangible assets we recorded in association with the acquisitions of 5 Arches and CoreVest in 2019. The increase in other expenses for the nine-month periods was primarily due to $89 million of goodwill impairment expense at our Business Purpose Lending segment recorded in the first quarter of 2020.

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Provision for Income Taxes

Our provision for income taxes is almost entirely related to activity at our taxable REIT subsidiaries, which primarily includes our mortgage banking activities and MSR investments, as well as certain other investment and hedging activities. For the three-month periods, the increase in provision for income taxes was the result of higher GAAP income earned at our TRS in the current year versus the prior year. For the nine-month periods, the change to a benefit from income taxes from a provision for income taxes in the prior year was the result of year-to-date GAAP losses at our TRS in 2020. The benefit from income taxes in 2020 was partially offset by a valuation allowance being recorded against our federal net ordinary deferred tax assets. For additional detail on income taxes, see the “Taxable Income and Tax Provision” section that follows.

Net Interest Income

The following table presents the components of net interest income for the three and nine months ended September 30, 2020 and 2019.

Table 3 – Net Interest Income

	Three Months Ended September 30,
	2020						2019
(Dollars in Thousands)	Interest Income/ (Expense)		Average    Balance (1)		Yield		Interest Income/ (Expense)		Average    Balance (1)		Yield
Interest Income
Residential loans, held-for-sale	$	434	$	53,297	3.3	%	$	10,583	$	973,917	4.3	%
Residential loans - HFI at Redwood (2)	77		—		—	%	22,809		2,325,304		3.9	%
Residential loans - HFI at Legacy Sequoia (2)	1,795		285,077		2.5	%	4,293		436,963		3.9	%
Residential loans - HFI at Sequoia Choice (2)	20,919		1,910,771		4.4	%	27,555		2,320,989		4.7	%
Residential loans - HFI at Freddie Mac SLST (2)	21,696		2,153,447		4.0	%	11,830		1,278,036		3.7	%
Business purpose residential loans	19,456		1,149,171		6.8	%	5,446		296,037		7.4	%
Single-family rental loans - HFI at CAFL	36,181		2,663,541		5.4	%	—		—		—	%
Multifamily loans - HFI at Freddie Mac K-Series	4,918		489,736		4.0	%	36,829		3,767,847		3.9	%
Trading securities	6,539		140,892		18.6	%	17,877		1,168,952		6.1	%
Available-for-sale securities	3,596		135,942		10.6	%	5,170		174,530		11.8	%
Other interest income	6,371		859,808		3.0	%	7,725		612,554		5.0	%
Total interest income	121,982		9,841,682		5.0	%	150,117		13,355,129		4.5	%
Interest Expense
Short-term debt facilities	(3,558)		313,190		(4.5)	%	(18,209)		1,974,174		(3.7)	%
Short-term debt - servicer advance financing	(1,587)		218,885		(2.9)	%	(2,891)		212,988		(5.4)	%
Short-term debt - convertible notes, net	—		—		—	%	(3,139)		200,445		(6.3)	%
ABS issued - Legacy Sequoia (2)	(1,058)		280,954		(1.5)	%	(3,452)		428,101		(3.2)	%
ABS issued - Sequoia Choice (2)	(17,828)		1,708,687		(4.2)	%	(23,576)		2,085,622		(4.5)	%
ABS issued - Freddie Mac SLST (2)	(16,819)		1,892,967		(3.6)	%	(8,709)		1,023,046		(3.4)	%
ABS issued - Freddie Mac K-Series	(4,426)		464,693		(3.8)	%	(35,328)		3,559,970		(4.0)	%
ABS issued - CAFL	(26,383)		2,509,828		(4.2)	%	—		—		—	%
Long-term debt - FHLBC	(1)		1,000		(0.4)	%	(12,311)		1,999,999		(2.5)	%
Long-term debt - other	(28,751)		1,743,531		(6.6)	%	(8,989)		602,434		(6.0)	%
Total interest expense	(100,411)		9,133,735		(4.4)	%	(116,604)		12,086,779		(3.9)	%
Net Interest Income	$	21,571					$	33,513

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	Nine Months Ended September 30,
	2020						2019
(Dollars in Thousands)	Interest Income/ (Expense)		Average    Balance (1)		Yield		Interest Income/ (Expense)		Average    Balance (1)		Yield
Interest Income
Residential loans, held-for-sale	$	17,220	$	599,609	3.8	%	$	30,056	$	886,902	4.5	%
Residential loans - HFI at Redwood (2)	21,003		659,998		4.2	%	71,089		2,368,340		4.0	%
Residential loans - HFI at Legacy Sequoia (2)	7,673		327,460		3.1	%	13,916		466,580		4.0	%
Residential loans - HFI at Sequoia Choice (2)	68,566		1,957,484		4.7	%	80,026		2,227,573		4.8	%
Residential loans - HFI at Freddie Mac SLST (2)	64,869		2,203,677		3.9	%	35,221		1,238,334		3.8	%
Business purpose residential loans	62,541		1,266,493		6.6	%	12,231		219,132		7.4	%
Single-family rental loans - HFI at CAFL	99,169		2,411,312		5.5	%	—		—		—	%
Multifamily loans - HFI at Freddie Mac K-Series	49,960		1,711,123		3.9	%	94,134		3,191,093		3.9	%
Trading securities	26,789		336,151		10.6	%	56,138		1,188,563		6.3	%
Available-for-sale securities	11,682		139,487		11.2	%	16,376		189,881		11.5	%
Other interest income	20,537		763,898		3.6	%	20,513		582,795		4.7	%
Total interest income	450,009		12,376,692		4.8	%	429,700		12,559,193		4.6	%
Interest Expense
Short-term debt facilities	(40,158)		1,415,975		(3.8)	%	(51,424)		1,814,088		(3.8)	%
Short-term debt - servicer advance financing	(4,961)		199,517		(3.3)	%	(9,905)		239,218		(5.5)	%
Short-term debt - convertible notes, net	—		—		—	%	(9,403)		200,135		(6.3)	%
ABS issued - Legacy Sequoia (2)	(5,099)		322,829		(2.1)	%	(11,548)		458,173		(3.4)	%
ABS issued - Sequoia Choice (2)	(58,455)		1,757,851		(4.4)	%	(68,823)		2,018,406		(4.5)	%
ABS issued - Freddie Mac SLST (2)	(48,840)		1,861,309		(3.5)	%	(26,014)		997,460		(3.5)	%
ABS issued - Freddie Mac K-Series	(47,154)		1,614,333		(3.9)	%	(90,088)		3,012,017		(4.0)	%
ABS issued - CAFL	(72,768)		2,247,583		(4.3)	%	—		—		—	%
Long-term debt - FHLBC	(10,411)		786,790		(1.8)	%	(38,728)		1,999,999		(2.6)	%
Long-term debt - other	(61,902)		1,349,802		(6.1)	%	(26,167)		582,753		(6.0)	%
Total interest expense	(349,748)		11,555,989		(4.0)	%	(332,100)		11,322,249		(3.9)	%
Net Interest Income	$	100,261					$	97,600

(1)Average balances for residential loans held-for-sale, residential loans held-for-investment, business purpose residential loans, multifamily loans held-for-investment, and trading securities are calculated based upon carrying values, which represent estimated fair values. Average balances for available-for-sale securities and debt are calculated based upon amortized historical cost, except for ABS issued, which is based upon fair value.

(2)Interest income from residential loans held-for-investment ("HFI") at Redwood exclude loans HFI at consolidated Sequoia or Freddie Mac SLST entities. Interest income from residential loans - HFI at Legacy Sequoia and the interest expense from ABS issued - Legacy Sequoia represent activity from our consolidated Legacy Sequoia entities. Interest income from residential loans - HFI at Sequoia Choice and the interest expense from ABS issued - Sequoia Choice represent activity from our consolidated Sequoia Choice entities. Interest income from residential loans - HFI at Freddie Mac SLST and the interest expense from ABS issued - Freddie Mac SLST represent activity from our consolidated Freddie Mac SLST entities.

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The following table presents net interest income by segment for the three and nine months ended September 30, 2020 and 2019.

Table 4 – Net Interest Income by Segment

	Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands)	2020		2019		Change		2020		2019		Change
Net Interest Income by Segment
Residential Lending	$	4,131	$	20,788	$	(16,657)	$	29,844	$	58,241	$	(28,397)
Business Purpose Lending	9,903		2,714		7,189		42,878		6,005		36,873
Third-Party Investments	10,042		9,168		874		32,423		30,978		1,445
Corporate/Other	(2,505)		843		(3,348)		(4,884)		2,376		(7,260)
Net Interest Income	$	21,571	$	33,513	$	(11,942)	$	100,261	$	97,600	$	2,661

The Corporate/Other line item in the table above includes net interest income from consolidated Legacy Sequoia entities, and for the three and nine months ended September 30, 2020, also includes $3 million and $8 million, respectively, of interest expense on our convertible debt and trust-preferred securities. While our convertible debt and trust-preferred interest expense is generally allocated to our segments, given the large balance of undeployed capital (cash) held at a corporate level during the second and third quarters of 2020, a portion of the convertible debt expense was allocated against this capital.

Results of Operations by Segment

We report on our business using three distinct segments: Residential Lending, Business Purpose Lending, and Third-Party Investments. Beginning in the second quarter of 2020, we combined what was previously our Multifamily Investments segment and Third-Party Residential Investments segment into a new segment called Third-Party Investments. Prior periods have been conformed to the current presentation. For additional information on our segments, refer to Note 23 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. The following table presents the segment contribution from our segments for the three and nine months ended September 30, 2020 and 2019.

Table 5 – Segment Results Summary

	Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands)	2020		2019		Change		2020		2019		Change
Segment Contribution from:
Residential Lending	$	7,386	$	10,374	$	(2,988)	$	(158,657)	$	60,371	$	(219,028)
Business Purpose Lending	51,550		(634)		52,184		(130,606)		(1,709)		(128,897)
Third-Party Investments	97,758		37,142		60,616		(329,640)		95,593		(425,233)
Corporate/Other	(14,882)		(12,572)		(2,310)		(17,239)		(34,215)		16,976
Net Income (Loss)	$	141,812	$	34,310	$	107,502	$	(636,142)	$	120,040	$	(756,182)

The following sections provide a discussion of the results of operations at each of our three business segments for the three and nine months ended September 30, 2020.

The decrease in net income from Corporate/Other for the three-month periods was primarily due to $3 million of convertible debt expense allocated to this segment for the third quarter of 2020, as discussed above. The increase in net income from Corporate/Other for the nine-month periods was primarily due to a $25 million gain associated with the repurchase of $125 million of convertible debt in the second quarter of 2020.

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Residential Lending Segment

Overview

Our Residential Lending segment generated $7 million of net income during the third quarter of 2020, driven primarily by $12 million of mortgage banking income and $6 million of net interest income from investments. Residential mortgage banking activities improved significantly during the third quarter of 2020, as loan purchase commitments increased to $1.20 billion and gross margins recovered to pre-pandemic levels.

Our Residential Lending segment generated $33 million of net income during the second quarter of 2020, driven primarily by $35 million of positive investment fair value changes. Mortgage banking income was negative for the second quarter of 2020 as we incurred incremental costs associated with the sale of our remaining loan inventory from the end of the first quarter and loan lock volumes were substantially reduced. During the second quarter, we resumed locking loans through our conduit operations, and purchased $56 million of loans during the quarter.

Our Residential Lending segment incurred a $199 million net loss during the first quarter of 2020, driven primarily by $197 million of negative investment fair value changes triggered by the pandemic and a $19 million net loss from mortgage banking operations, which was driven by decreased profitability on securitizations that settled later in the first quarter and from lower marks on loan inventory held at quarter-end, resulting from pandemic-related market dislocations.

Investment Portfolio

The following table presents details of our Residential Lending investment portfolio at September 30, 2020 and December 31, 2019.

Table 6 – Residential Lending Investments

(In Thousands)	September 30, 2020		December 31, 2019
Residential loans at Redwood (1)	$	—	$	2,111,897
Residential securities at Redwood	146,608		229,074
Residential securities at consolidated Sequoia Choice entities (2)	209,797		254,265
Other investments	14,878		42,224
Total Segment Investments	$	371,283	$	2,637,460

(1)Excludes Sequoia Choice loans held at VIEs that we consolidate for GAAP purposes.

(2)Represents our retained economic investment in the consolidated Sequoia Choice securitization VIEs. For GAAP purposes, we consolidated $1.84 billion of loans and $1.63 billion of ABS issued associated with these investments at September 30, 2020.

During the third quarter of 2020, we did not add or dispose of any securities within our residential lending investment portfolio. During the second quarter of 2020, we sold $29 million of securities from our residential lending investment portfolio and retained $20 million of investment securities from a $271 million Sequoia securitization we completed during the quarter. During the first quarter of 2020, we sold $83 million of securities from our residential lending investment portfolio and retained $13 million of investment securities from three Sequoia securitizations we completed during the quarter.

As a result of the economic and financial market impacts of the pandemic, the terms of our FHLBC facility evolved and in March we began entering into transactions to sell several pools of residential whole loans financed through this facility with the objective to pay down our FHLBC borrowings. During the second quarter of 2020, we completed the sale of nearly all of our residential loans previously financed at the FHLBC, and repaid all but $1 million of borrowings under this facility. We do not expect to increase borrowings under our FHLBC facility above the existing $1 million of borrowings outstanding.

See the "Investments" section that follows for additional details on investments at this segment and their associated borrowings.

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The following table presents the components of investment fair value changes for our Residential Lending segment by investment type for the three and nine months ended September 30, 2020.

Table 7 – Investment Fair Value Changes, Net from Residential Lending

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2020		September 30, 2020
Investment Fair Value Changes, Net
Changes in fair value of:
Residential loans held-for-investment, at Redwood	$	218	$	(93,314)
Trading securities	(5,145)		(50,633)
Net investments in Sequoia Choice entities (1)	7,851		(22,065)
Risk-sharing and other investments	(272)		(3,350)
Risk management derivatives, net	—		10,735
Impairments on AFS securities	(209)		(480)
Investment Fair Value Changes, Net	$	2,443	$	(159,107)

(1)Includes changes in fair value for loan purchase and forward sale commitments.

Spreads generally continued to tighten during the third quarter of 2020, which resulted in positive fair value changes for many of our investments, recovering a further portion of the negative fair value changes incurred during the first quarter of 2020 due to the pandemic. Additionally, during the third quarter of 2020, most of our investment securities experienced increased prepayments, which generally benefited our subordinate securities, but negatively impacted our interest-only and certificated servicing securities and caused a net negative fair value change for our trading securities. Certain of our subordinate securities also experienced negative fair value changes due to increased delinquencies and loss expectations.

Mortgage Banking

The following table provides the activity of residential loans held in inventory for sale at our mortgage banking business during the three and nine months ended September 30, 2020.

Table 8 – Loan Inventory for Residential Mortgage Banking Operations — Activity

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2020		September 30, 2020
Balance at beginning of period	$	20,233	$	536,385
Acquisitions	176,106		2,927,700
Sales	(88,634)		(3,528,715)
Transfers between portfolios (1)	—		263,172
Principal repayments	(2,317)		(80,307)
Changes in fair value, net	(260)		(13,107)
Balance at End of Period	$	105,128	$	105,128

(1)Represents the net transfers of loans from held-for-investment to held-for-sale within our Residential Lending investment portfolio.

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The following table provides the fair value changes of our residential loan purchase and forward sale commitments during the three and nine months ended September 30, 2020.

Table 8a – Residential Loan Purchase and Forward Sale Commitments and Associated Gains

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2020		September 30, 2020
Loan purchase commitments entered into	$	2,117,808	$	5,475,334
Market valuation gains, net	$	13,067	$	35,123

Income from mortgage banking activities is comprised of mark-to-market adjustments on loans from the time they are purchased to when they are sold, mark-to-market adjustments on new and outstanding loan purchase commitments, gains/losses from associated hedges, and other miscellaneous income/expenses (see Note 19 of our Notes to Consolidated Financial Statements in Part I, Item I of this Quarterly Report on Form 10-Q).

During the three months ended September 30, 2020, our residential mortgage loan conduit entered into loan purchase commitments of $2.12 billion, purchased $176 million of prime residential jumbo loans and sold $89 million of loans to third parties. At September 30, 2020, we had identified $1.79 billion of loans for purchase (gross loan locks outstanding, unadjusted for fallout) and had outstanding forward sale agreements for $525 million of loans. This activity resulted in income from mortgage banking activities of $12 million for the third quarter of 2020.

During the second quarter of 2020, our residential mortgage loan conduit entered into loan purchase commitments of $112 million, purchased $56 million of prime residential jumbo loans, and sold $711 million of loans to third parties. Additionally, during the second quarter of 2020, we transferred $271 million of loans to a Sequoia securitization. This activity, along with $2 million of repurchase reserve accrual expense and $5 million of expenses associated with resolving residential loan seller demands, resulted in a loss from mortgage banking activities of $8 million for the second quarter of 2020.

During the first quarter of 2020, our residential mortgage loan conduit entered into loan purchase commitments of $3.25 billion, purchased $2.70 billion of prime residential jumbo loans, transferred $1.62 billion of loans to a Sequoia Select securitization that were accounted for as sales, and sold $1.11 billion of jumbo loans to third parties. This activity resulted in a loss from mortgage banking activities of $23 million for the first quarter of 2020.

We utilize a combination of capital and our residential loan warehouse facilities to manage our inventory of residential loans held-for-sale. At September 30, 2020, we had residential warehouse facilities outstanding with four different counterparties, with $600 million of total capacity and $518 million of available capacity. These included non-marginable (i.e., not subject to margin calls based on the market value of the underlying collateral) facilities with $200 million of total capacity and marginable facilities with $400 million of total capacity.

Business Purpose Lending Segment

Overview

Our Business Purpose Lending segment generated $52 million of net income during the third quarter of 2020, driven primarily by $48 million of mortgage banking income and $17 million of positive investment fair value changes. Business purpose mortgage banking activities improved from the second quarter of 2020, as spreads tightened significantly on securitization execution, resulting in improved valuations on SFR loans.

Our Business Purpose Lending segment generated $46 million of net income during the second quarter of 2020, driven primarily by $40 million of positive investment fair value changes and $14 million of net interest income from investments. Business purpose mortgage banking activities improved from the first quarter of 2020, as origination volumes began to pick up in late May and securitization pricing in the market improved into quarter end.

During the first quarter of 2020, our Business Purpose Lending segment incurred a $228 million net loss, driven primarily by $142 million of negative investment fair value changes and a $12 million net loss from mortgage banking operations, exclusive of an $89 million charge related to the full impairment of this segment's goodwill. The declines in investment fair values were triggered by the pandemic. Mortgage banking income decreased due to decreased profitability on a securitization that settled later in the first quarter and from lower marks on loan inventory held at quarter-end, resulting from the pandemic-related market dislocation.

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Investment Portfolio

The following table presents details of our Business Purpose Lending investment portfolio at September 30, 2020 and December 31, 2019.

Table 9 – Business Purpose Lending Investments

(In Thousands)	September 30, 2020		December 31, 2019
Single-family rental loans at Redwood (1)	$	—	$	237,620
Residential bridge loans at Redwood	700,860		745,006
Single-family rental securities at consolidated CAFL entities (2)	229,315		191,301
Other investments	25,713		21,002
Total Segment Investments	$	955,888	$	1,194,929

(1)Excludes loans held at VIEs that we consolidate for GAAP purposes.

(2)Represents our economic investment in securities issued by consolidated CAFL securitization VIEs. For GAAP purposes, we consolidated $2.97 billion of loans and $2.74 billion of ABS issued associated with these investments at September 30, 2020.

During the third quarter of 2020, we funded $66 million of business purpose bridge loans and received principal payments of $155 million. In addition, we retained $16 million of securities from a $323 million (principal balance) single-family rental loan securitization we completed during the third quarter.

During the second quarter of 2020, we funded $54 million of business purpose bridge loans and received principal payments of $86 million of such loans. In addition, we retained $20 million of securities from a $221 million single-family rental loan securitization we completed during the second quarter.

During the first quarter of 2020, we funded $206 million of business purpose bridge loans and received principal payments of $114 million of such loans. In addition, we retained $42 million of securities from a single-family rental loan securitization we completed during the first quarter. During the first quarter of 2020, we reclassified our single-family rental loans financed at the FHLBC to held-for-sale and consider them as part of our mortgage banking loan inventory as we plan to securitize these loans.

See the "Investments" sections that follow for additional details on investments at this segment and their associated borrowings.

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The following table presents the components of investment fair value changes for our Business Purpose Lending segment by investment type for the three and nine months ended September 30, 2020.

Table 10 – Investment Fair Value Changes, Net from Business Purpose Lending

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2020		September 30, 2020
Investment Fair Value Changes, Net
Changes in fair value of:
Single-family rental loans held-for-investment	$	—	$	(20,806)
Residential bridge loans held-for-investment	6,812		(10,016)
REO	407		(356)
Net investments in CAFL entities (1)	9,673		(41,048)
Other	—		(1,011)
Risk management derivatives, net	—		(11,600)
Investment Fair Value Changes, Net	$	16,892	$	(84,837)

(1)Includes changes in fair value of the loans held-for-investment and the ABS issued at the entities, which netted together represent the change in value of our investments (subordinate securities) at the consolidated VIEs.

Spreads generally continued to tighten during the third quarter of 2020, which resulted in positive fair value changes for many of our investments, recovering a further portion of the negative fair value changes incurred during the first quarter of 2020 due to the pandemic. While spreads generally tightened on most of our CAFL securities investments, certain of our subordinate securities experienced negative fair value changes due to increased delinquencies and loss expectations. Additionally, while spreads generally tightened on most of our residential bridge loans, we also experienced an increase in non-performing residential bridge loans (see Investments section that follows for additional information on our residential bridge loans and associated delinquencies).

Mortgage Banking

The following table provides the business purpose residential loans origination activity at Redwood during the three and nine months ended September 30, 2020.

Table 11 – Business Purpose Residential Loans — Origination Activity

	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
(In Thousands)	Single-Family Rental		Residential Bridge(1)		Total		Single-Family Rental		Residential Bridge(1)		Total
Fair value at beginning of period	$	379,795	$	—	$	379,795	$	331,565	$	—	$	331,565
Originations	195,744		65,517		261,261		631,936		351,353		983,289
Sales	(7,695)		(1,567)		(9,262)		(33,843)		(23,860)		(57,703)
Transfers between portfolios (2)	(322,829)		(63,979)		(386,808)		(706,443)		(324,081)		(1,030,524)
Principal repayments	(2,577)		—		(2,577)		(4,847)		—		(4,847)
Changes in fair value, net	43,111		29		43,140		67,181		(3,412)		63,769
Fair Value at End of Period	$	285,549	$	—	$	285,549	$	285,549	$	—	$	285,549

(1)Our residential bridge loans are generally originated at our TRS and the majority are transferred to our REIT and a smaller portion sold. Origination fees and any mark-to-market changes on these loans prior to transfer are recognized as mortgage banking income. The loans held at our REIT are classified as held-for-investment, with subsequent fair value changes recorded through Investment fair value changes, net on our consolidated statements of income (loss). For the carrying value and activity of our residential bridge loans held-for-investment, see the Investments section that follows.

(2)For single-family rental loans, amounts represent transfers of loans from held-for-sale to held-for-investment, including when loans are securitized (and consolidated for GAAP purposes) or transferred from our TRS to our REIT with the intent to hold for long-term investment. For residential bridge loans, represents the transfer of loans from our TRS to REIT as described in preceding footnote.

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During the three months ended September 30, 2020, we funded $196 million of single-family rental loans and sold $2 million of such loans to a third party. All of our outstanding SFR loans are held as inventory in our mortgage banking business and classified as held-for-sale. During the three months ended September 30, 2020, we funded $66 million of residential bridge loans, sold $2 million of loans to a third party and transferred $64 million of loans to our BPL investment portfolio. Additionally, we completed a single-family rental loan securitization, receiving gross proceeds of $323 million, backed by a combination of loans held in inventory at June 30, 2020 and newly-originated loans during the third quarter.

During the second quarter of 2020, we funded $176 million of single-family rental loans, all of which were retained in our mortgage banking portfolio and classified as held-for-sale. During the second quarter of 2020, we funded $58 million of residential bridge loans, of which $2 million were sold to a third party and the remaining loans were transferred to our BPL investment portfolio. Additionally, we completed a $221 million single-family rental loan securitization, consisting of loans we held at the end of the first quarter of 2020.

During the first quarter of 2020, we funded $260 million of single-family rental loans and $227 million of residential bridge loans, of which $21 million of bridge loans were sold to a third party and the remaining bridge loans were transferred to our BPL investment portfolio. Additionally, during the first quarter, we completed a $378 million single-family rental loan securitization in early March.

We utilize a combination of capital and loan warehouse facilities to manage our inventory of single-family rental loans that we hold for sale. At September 30, 2020, we had business purpose warehouse facilities outstanding with four different counterparties, with $1.10 billion of total capacity and $853 million of available capacity. All of these facilities are non-marginable (i.e., not subject to margin calls based on the market value of the underlying collateral).

Third-Party Investments Segment

Overview

As a result of asset sales during the first half of 2020 that were driven by the impact of the pandemic, the composition of our portfolio evolved and in the second quarter of 2020 we combined our previously reported Multifamily Investments segment with our Third-Party Residential Investments segment into a new segment called Third-Party Investments.

Our Third-Party Investments segment: generated $98 million of net income during the third quarter of 2020, driven primarily by $88 million of positive investment fair value changes and $10 million of net interest income; generated $77 million of net income during the second quarter of 2020, driven primarily by $77 million of positive investment fair value changes and $9 million of net interest income; and incurred a net loss of $504 million during the first quarter of 2020, driven primarily by $532 million of negative investment fair value changes that were triggered by the pandemic.

Investment Portfolio

The following table presents details of the investments in our Third-Party Investments segment at September 30, 2020 and December 31, 2019.

Table 12 – Third-Party Investments

(In Thousands)	September 30, 2020		December 31, 2019
Residential securities at Redwood	$	149,192	$	466,672
Residential securities at consolidated Freddie Mac SLST entities (1)	416,256		448,893
Multifamily securities at Redwood	55,535		404,128
Multifamily securities at consolidated Freddie Mac K-Series entities (2)	26,550		252,285
Other investments	344,037		294,904
Total Segment Investments	$	991,570	$	1,866,882

(1)Represents our economic investment in securities issued by consolidated Freddie Mac SLST securitization entities. For GAAP purposes, we consolidated $2.26 billion of loans and $1.84 billion of ABS issued associated with these investments at September 30, 2020.

(2)Represents our economic investment in securities issued by consolidated Freddie Mac K-Series securitization entities. For GAAP purposes, we consolidated $491 million of loans and $465 million of ABS issued associated with these investments at September 30, 2020.

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During the third quarter, we retained $28 million of multifamily securities from a securitization issued through our multifamily joint venture, purchased $15 million of CRT and third-party investments, and sold $13 million of CRT and third-party investments.

See the "Investments" section that follows for additional details on these investments.

The following table presents the components of investment fair value changes for our Third-Party Investments segment by investment type for the three and nine months ended September 30, 2020.

Table 13 – Investment Fair Value Changes, Net from Third-Party Investments

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2020		September 30, 2020
Investment Fair Value Changes, Net
Changes in fair value of:
Trading securities	$	1,544	$	(174,047)
Servicer advance investments	26		(6,172)
Excess MSRs	(1,127)		(7,650)
Shared home appreciation options	2,384		(4,286)
Net investments in Freddie Mac SLST entities (1)	82,214		(33,081)
Net investments in Freddie Mac K-Series entities (1)	2,166		(82,744)
Risk management derivatives, net	—		(58,158)
Other	30		(11)
Impairments on AFS securities	653		(547)
Investment Fair Value Changes, Net	$	87,890	$	(366,696)

(1)Includes changes in fair value of the loans held-for-investment and the ABS issued at the entities, which netted together represent the change in value of our investments (subordinate securities) at the consolidated VIEs.

Spreads generally continued to tighten during the third quarter of 2020, which resulted in positive fair value changes for many of our investments, particularly our investments in consolidated Freddie Mac SLST securitizations, recovering a further portion of the negative fair value changes incurred during the first quarter of 2020 due to the pandemic. While spreads generally tightened on most of our third-party investments, certain of our subordinate securities experienced negative fair value changes due to increased delinquencies and loss expectations. Additionally, during the third quarter of 2020, most of our investment securities experienced increased prepayments, which generally benefited our subordinate securities, but negatively impacted our interest-only trading securities and excess MSR investments, and caused a net negative fair value change for excess MSRs.

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Investments

This section presents additional details on our investment assets and their activity during the three and nine months ended September 30, 2020.

Residential Loans at Residential Lending Investment Portfolio

The following table provides the activity of residential loans at our Residential Lending investment portfolio during the three and nine months ended September 30, 2020.

Table 14 – Residential Loans at Residential Lending Investment Portfolio - Activity

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2020		September 30, 2020
Fair value at beginning of period	$	—	$	2,111,897
Sales	—		(1,254,935)
Transfers between portfolios (1)	—		(533,612)
Principal repayments	—		(229,818)
Changes in fair value, net	—		(93,532)
Fair Value at End of Period	$	—	$	—

(1)Represents the net transfers of loans into or out of our investment portfolio and their reclassification between held-for-sale and held-for-investment.

During the second quarter of 2020, we completed the sale of nearly all of our residential loans previously held for investment and financed at our FHLBC facility, and repaid all but $1 million of borrowings under this facility. The remaining loans were reclassified as held-for-sale and included as part of our residential mortgage banking loan inventory. We do not expect to increase borrowings under our FHLBC facility above the existing $1 million of borrowings outstanding.

Single-Family Rental Loans at Business Purpose Lending Investment Portfolio

The following table provides the activity of single-family rental loans at our Business Purpose Lending investment portfolio during the three and nine months ended September 30, 2020.

Table 15 –Single-Family Rental Loans at Business Purpose Lending Investment Portfolio - Activity

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2020		September 30, 2020
Fair value at beginning of period	$	—	$	237,620
Transfers between portfolios	—		(215,417)
Principal repayments	—		(1,397)
Changes in fair value, net	—		(20,806)
Fair Value at End of Period	$	—	$	—

During the second quarter, we transferred all of our single-family rental loans previously financed at the FHLBC and held for investment to newly established non-marginable warehouse facilities, repaid our associated FHLBC debt, and now classify these loans as held-for-sale as part of our business purpose mortgage banking loan inventory.

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Residential Bridge Loans Held-for-Investment at Redwood Portfolio

The following table provides the activity of residential bridge loans held-for-investment at Redwood during the three and nine months ended September 30, 2020.

Table 16 – Residential Bridge Loans Held-for-Investment at Redwood - Activity

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2020		September 30, 2020
Fair value at beginning of period	$	787,367	$	745,006
Transfers between portfolios (1)	63,979		323,945
Transfers to REO	(2,691)		(4,598)
Principal repayments	(154,572)		(354,167)
Changes in fair value, net	6,777		(9,326)
Fair Value at End of Period	$	700,860	$	700,860

(1)All of our residential bridge loans are originated at our TRS then transferred to our REIT. Origination fees and any mark-to-market changes on these loans prior to transfer are recognized as mortgage banking income. Once the loans are transferred to our REIT, they are classified as held-for-investment, with subsequent fair value changes recorded through Investment fair value changes, net on our consolidated statements of income (loss).

Our $701 million of residential bridge loans held-for-investment at September 30, 2020 were comprised of first-lien, fixed-rate, interest-only loans with a weighted average coupon of 8.02% and original maturities of six to 24 months. At origination, the weighted average FICO score of borrowers backing these loans was 730 and the weighted average LTV ratio of these loans was 67%. At September 30, 2020, of the 2,262 loans in this portfolio, 24 of these loans with an aggregate fair value of $33 million and an unpaid principal balance of $38 million were greater than 90 days delinquent, of which 24 loans with an aggregate fair value of $34 million and an unpaid principal balance of $40 million were in foreclosure.

During the second and third quarters of 2020, we entered into new non-recourse facilities to finance bridge loan investments and we entered into new non-marginable (i.e., not subject to margin calls based on the market value of the underlying collateral) recourse facilities that will be used to finance business purpose bridge loans. While our new non-marginable and non-recourse financing facilities have reduced our contingent liquidity risks, they generally have higher interest costs, which will marginally impact our net interest income in coming quarters.

Real Estate Securities Portfolio

The following table sets forth our real estate securities activity by collateral type for the three and nine months ended September 30, 2020.

Table 17 – Real Estate Securities Activity by Collateral Type

Three Months Ended September 30, 2020	Residential						Multifamily		Total
(In Thousands)	Senior		Mezzanine		Subordinate		Mezzanine
Beginning fair value	$	32,860	$	3,514	$	252,901	$	27,161	$	316,436
Acquisitions
Third-party securities	2,598		2,000		11,000		28,314		43,912
Sales
Third-party securities	—		—		(12,929)		—		(12,929)
Effect of principal payments (1)	—		(17)		(889)		(546)		(1,452)
Change in fair value, net	(7,367)		170		11,959		606		5,368
Ending Fair Value (2)	$	28,091	$	5,667	$	262,042	$	55,535	$	351,335

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Nine Months Ended September 30, 2020	Residential						Multifamily		Total
(In Thousands)	Senior		Mezzanine		Subordinate		Mezzanine
Beginning fair value	$	175,859	$	151,797	$	368,090	$	404,128	$	1,099,874
Acquisitions
Sequoia securities	43,363		—		3,198		—		46,561
Third-party securities	19,225		2,000		25,750		59,446		106,421
Sales
Sequoia securities	(33,375)		(31,334)		(6,394)		—		(71,103)
Third-party securities	(115,354)		(93,728)		(66,991)		(287,483)		(563,556)
Gains on sales and calls, net	3,357		400		2,482		(1,604)		4,635
Effect of principal payments (1)	(4,464)		(991)		(4,989)		(4,561)		(15,005)
Change in fair value, net	(60,520)		(22,477)		(59,104)		(114,391)		(256,492)
Ending Fair Value (2)	$	28,091	$	5,667	$	262,042	$	55,535	$	351,335

(1)The effect of principal payments reflects the change in fair value due to principal payments, which is calculated as the cash principal received on a given security during the period multiplied by the prior quarter ending price or acquisition price for that security.

(2)At September 30, 2020, excludes $210 million and $229 million of securities retained from our consolidated Sequoia Choice and CAFL securitizations, respectively, as well as $416 million and $27 million of securities we owned that were issued by consolidated Freddie Mac SLST and Freddie Mac K-Series securitizations, respectively.

During the three months ended September 30, 2020, we sold $13 million of securities and during the three months ended June 30, 2020, we sold $82 million of securities, in our normal course of business. During the three months ended March 31, 2020, we sold $540 million of securities to reposition our portfolio and generate liquidity in response to the pandemic. At September 30, 2020, our securities consisted of fixed-rate assets (81%), adjustable-rate assets (16%), hybrid assets that reset within the next year (2%), and hybrid assets that reset between 12 and 36 months (1%).

We directly finance our holdings of real estate securities with a combination of capital and collateralized debt in the form of repurchase (or “repo”) financing. The following table presents the fair value of our residential securities that were financed with repurchase debt at September 30, 2020.

Table 18 – Real Estate Securities Financed with Repurchase Debt

September 30, 2020	Real Estate Securities (1)		Repurchase Debt		Allocated Capital		Weighted Average Price(2)		Financing Haircut(3)
(Dollars in Thousands, except Weighted Average Price)
Residential Securities
Mezzanine (4)	$	63,088	$	(44,459)	$	18,629	$	102	30	%
Total Residential Securities	63,088		(44,459)		18,629		102		30	%
Multifamily Securities (5)	51,220		(30,595)		20,625		69		40	%
Total	$	114,308	$	(75,054)	$	39,254

(1)Amounts represent carrying value of securities, which are held at GAAP fair value.

(2)GAAP fair value per $100 of principal.

(3)Allocated capital divided by GAAP fair value.

(4)Includes $63 million of securities we owned that were issued by consolidated Sequoia Choice securitizations, which we consolidate in accordance with GAAP.

(5)Includes $27 million of securities we owned that were issued by consolidated Freddie Mac K-Series securitizations, which we consolidate in accordance with GAAP.

At September 30, 2020, we had short-term debt incurred through repurchase facilities of $75 million, which was secured by $114 million of real estate securities (including securities owned in consolidated securitization entities). Our repo borrowings were made under facilities with three different counterparties, and the weighted average cost of funds for these facilities during the third quarter of 2020 was approximately 3.57% per annum.

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At September 30, 2020, real estate securities with a fair value of $345 million (including securities owned in consolidated Sequoia Choice and CAFL securitization entities), were financed with long-term, non-mark-to-market recourse debt through our subordinate securities financing facilities. Additionally, at September 30, 2020, we had $416 million of re-performing loan securities financed with $208 million of non-recourse securitization debt. The remaining $358 million of our securities, including certain securities we own that were issued by consolidated securitization entities, were financed with capital.

The following table presents our real estate securities at September 30, 2020, categorized by portfolio vintage (the years the securities were issued), and by priority of cash flows (senior, mezzanine, and subordinate). We have additionally separated securities issued through our Sequoia platform or by third parties, including the Agencies.

Table 19 – Real Estate Securities by Vintage and Type

September 30, 2020	Sequoia 2012-2020		Third Party 2013-2020		Agency CRT 2018-2020		Third Party <=2008		Total Residential Securities		Multifamily 2019-2020		Total Real Estate Securities
(In Thousands)
Senior (1)	$	16,226	$	11,862	$	—	$	3	$	28,091	$	—	$	28,091
Mezzanine (2)	3,651		2,016		—		—		5,667		—		5,667
Subordinate (1)	124,132		82,168		49,761		5,981		262,042		55,535		317,577
Total Securities (3)	$	144,009	$	96,046	$	49,761	$	5,984	$	295,800	$	55,535	$	351,335

(1)At September 30, 2020, senior Sequoia and third-party securities included $28 million of IO securities. At September 30, 2020, subordinate third-party securities included $13 million of IO securities. Our interest-only securities included $12 million of certificated mortgage servicing investments securities at September 30, 2020 that we retained from certain of our Sequoia securitizations. These securities represent certificated servicing strips and therefore may be negatively impacted by the operating and funding costs related to servicing the associated securitized mortgage loans.

(2)Mezzanine includes securities initially rated AA through BBB- and issued in 2012 or later.

(3)At September 30, 2020, excluded $210 million, $416 million, $27 million, and $229 million of securities we owned that were issued by consolidated Sequoia Choice, Freddie Mac SLST, Freddie Mac K-Series, and CAFL securitizations, respectively. For GAAP purposes we consolidated $7.55 billion of loans and $6.68 billion of non-recourse ABS debt associated with these retained securities.

The following tables present the components of the interest income we earned on AFS securities for the three and nine months ended September 30, 2020.

Table 20 – Interest Income — AFS Securities

Three Months Ended September 30, 2020									Yield as a Result of
	Interest Income		Discount (Premium) Amortization		Total Interest Income		Average Amortized Cost		Interest Income		Discount (Premium) Amortization		Total Interest Income
(Dollars in Thousands)
Residential
Mezzanine	$	6	$	—	$	6	$	782	3.07	%	—	%	3.07	%
Subordinate	1,824		1,766		3,590		135,160		5.40	%	5.23	%	10.63	%
Total AFS Securities	$	1,830	$	1,766	$	3,596	$	135,942	5.38	%	5.20	%	10.58	%

Nine Months Ended September 30, 2020									Yield as a Result of
	Interest Income		Discount (Premium) Amortization		Total Interest Income		Average Amortized Cost		Interest Income		Discount (Premium) Amortization		Total Interest Income
(Dollars in Thousands)
Residential
Senior	$	221	$	529	$	750	$	4,481	6.58	%	15.74	%	22.32	%
Mezzanine	103		14		117		3,251		4.22	%	0.57	%	4.79	%
Subordinate	6,751		4,064		10,815		131,755		6.83	%	4.11	%	10.94	%
Total AFS Securities	$	7,075	$	4,607	$	11,682	$	139,487	6.77	%	4.40	%	11.17	%

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Taxable Income and Tax Provision

Taxable Income

The following table summarizes our taxable income and distributions to shareholders for the three and nine months ended September 30, 2020 and 2019.

Table 21 – Taxable Income

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands, except per Share Data)	2020 est. (1)		2019		2020 est. (1)		2019
REIT taxable (loss) income	$	7,362	$	38,626	$	(13,016)	$	91,948
Taxable REIT subsidiary income	34,975		2,821		26,890		25,865
Total Taxable (Loss) Income	$	42,337	$	41,447	$	13,874	$	117,813
REIT taxable (loss) income per share	$	0.07	$	0.34	$	(0.10)	$	0.89
Total taxable income per share	$	0.38	$	0.37	$	0.14	$	1.16
Distributions to shareholders	$	15,701	$	33,627	$	66,808	$	91,931
Distributions to shareholders per share	$	0.14	$	0.30	$	0.585	$	0.90

(1)Our tax results for the three and nine months ended September 30, 2020 are estimates until we file tax returns for this year.

In accordance with Internal Revenue Code rules applicable to disaster losses, TRS taxable income for the nine months ended September 30, 2020, was adjusted to recognize $59 million of losses incurred in the first quarter of 2020 into the fourth quarter of 2019.

Under normal circumstances, our minimum REIT dividend requirement would be 90% of our annual REIT taxable income. However, we currently maintain a $28 million federal net operating loss carry forward (NOL) at the REIT that affords us the option of retaining REIT taxable income up to the NOL amount, tax free, rather than distributing it as dividends. Federal income tax rules require the dividends paid deduction to be applied to reduce REIT taxable income before the applicability of NOLs is considered; therefore, REIT taxable income must exceed our dividend distribution for us to utilize a portion of our NOL and any remaining amount will carry forward into future years. If annual REIT taxable income, exclusive of the dividends paid deduction, is a taxable loss, the NOL carryforward will be increased by the taxable loss.

Our dividend characterization for 2020 will be determined based on our full-year taxable income and dividend distributions. We currently expect only a small portion, if any, of the distributions to shareholders in 2020 will be taxable as dividend income and the remainder will be a return of capital, which is generally nontaxable. Under the federal income tax rules applicable to REITs, none of our 2020 dividend distributions are currently expected to be characterized as long-term capital gains.

Tax Provision under GAAP

For the three and nine months ended September 30, 2020, we recorded a tax provision of $9 million and a tax benefit of $13 million, respectively. For the three and nine months ended September 30, 2019, we recorded a tax benefit of $0.1 million and a tax provision of $3 million, respectively. Our tax provision is primarily derived from the activities at our TRS as we do not book a material tax provision associated with income generated at our REIT. The switch to a benefit from income taxes from provision for income taxes year-over-year was primarily the result of  GAAP losses being recorded at our TRS in 2020 versus TRS GAAP income in 2019. The benefit from income taxes recorded in 2020 was partially offset by a valuation allowance being recorded against our federal net ordinary deferred tax assets. Our TRS effective tax rate in 2020 is expected to be significantly less than the federal statutory corporate tax rate, due to the valuation allowance and other permanent GAAP to tax differences. The income or loss generated at our TRS will not directly affect the tax characterization of our 2020 dividends.

Realization of our deferred tax assets ("DTAs") is dependent on many factors, including generating sufficient taxable income prior to the expiration of NOL carryforwards and generating sufficient capital gains in future periods prior to the expiration of capital loss carryforwards. We determine the extent to which realization of our DTAs is not assured and establish a valuation allowance accordingly. At December 31, 2019, we reported net federal ordinary and capital deferred tax liabilities ("DTLs"), and, as such, had no associated valuation allowance.

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As a result of GAAP losses at our TRS in 2020, we forecast that we will report net federal ordinary and capital DTAs at December 31, 2020 and consequently a valuation allowance was recorded against our net federal ordinary DTAs. However, no valuation allowance was recorded against our net federal capital DTAs as we currently expect to utilize these DTAs due to our ability to recognize capital losses and carry them back to prior years. Consistent with prior periods, we continued to maintain a valuation allowance against our net state DTAs. Our estimate of net deferred tax assets could change in future periods to the extent that actual or revised estimates of future taxable income during the carryforward periods change from current expectations.

Potential Taxable Income Volatility

We expect period-to-period volatility in our estimated taxable income. A description of the factors that can cause this volatility is described in the Taxable Income portion of the Results of Operations section in the MD&A included in Part II, Item 7, of our Annual Report on Form 10-K.

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LIQUIDITY AND CAPITAL RESOURCES

Summary

In addition to the proceeds from equity and debt capital-raising transactions, our principal sources of cash consist of borrowings under mortgage loan warehouse facilities, securities repurchase agreements, payments of principal and interest we receive from our investment portfolios, proceeds from the sale of portfolio assets, and cash generated from our operating activities. Our most significant uses of cash are to purchase and originate mortgage loans for our mortgage banking operations, to purchase investment securities and make other investments, to repay principal and interest on our debt, to meet margin calls associated with our debt and other obligations, to make dividend payments on our capital stock, and to fund our operations.

At September 30, 2020, our total capital was $1.70 billion and included $1.05 billion of equity capital and $0.65 billion of convertible notes and long-term debt on our consolidated balance sheet, including $199 million of convertible debt due in 2023, $150 million of convertible debt due in 2024, $172 million of exchangeable debt due in 2025, and $140 million of trust-preferred securities due in 2037.

As of September 30, 2020, our unrestricted cash was $451 million. While we believe our available cash is sufficient to fund our operations, we may raise equity or debt capital from time to time to increase our unrestricted cash and liquidity, to repay existing debt, to make long-term portfolio investments, to fund strategic acquisitions and investments, or for other purposes. To the extent we seek to raise additional capital, our approach will continue to be based on what we believe to be in the best interests of the company.

We are subject to risks relating to our liquidity and capital resources, including risks relating to incurring debt under residential loan warehouse facilities, securities repurchase facilities, and other short- and long-term debt facilities and other risks relating to our use of derivatives. A further discussion of these risks is set forth below under the heading “Risks Relating to Debt Incurred under Short-and Long-Term Borrowing Facilities."

Cash Flows and Liquidity for the Nine Months Ended September 30, 2020

Cash flows from our mortgage banking activities and our investments can be volatile from quarter to quarter depending on many factors, including the timing and amount of securities acquisitions, sales and repayments, the profitability of mortgage banking activities, as well as changes in interest rates, prepayments, and credit losses. Therefore, cash flows generated in the current period are not necessarily reflective of the long-term cash flows we will receive from these investments or activities.

During the first nine months of 2020, in response to the pandemic, we sold a significant amount of investments and repaid a significant amount of debt, which allowed us to reposition and de-lever our balance sheet and generate additional liquidity. Additionally, we entered into several new financing agreements that are non-marginable (i.e., not subject to margin calls based on the market value of the underlying collateral) and non-recourse, and have longer dated maturities than agreements they replaced that were marginable and recourse to us. While the asset sales and pay-down of debt, along with these new financing agreements, strengthened our liquidity and capital position by removing sources of contingent liquidity risk (from potential market value-based margin calls), they have also reduced our overall amount of earning assets and increased our borrowing costs. In the near-term, while we maintain a higher balance of cash, this will reduce our cash flows from operations. However, given our significant cash position, we believe we are positioned well to meet our near-term liquidity needs.

Cash Flows from Operating Activities

Cash flows from operating activities were negative $176 million during the nine months ended September 30, 2020. This amount includes the net cash utilized during the period from the purchase and sale of residential mortgage loans and the origination and sale of our business purpose loans associated with our mortgage banking activities. Purchases of loans are financed to a large extent with short-term and long-term debt, for which changes in cash are included as a component of financing activities. Excluding cash flows from the purchase, origination, sale, and principal payments of loans classified as held-for-sale, cash flows from operating activities were positive $94 million and negative $123 million during the first nine months of 2020 and 2019, respectively.

As a result of the pandemic, in late March we determined that our hedges were no longer effectively managing the risks associated with certain of our assets and liabilities and we settled nearly all of our outstanding derivative positions. As a result of these settlements and other hedging activity during the quarter, we made $187 million of cash payments. Additionally, during the six months ended June 30, 2020, our margin receivable (which was primarily associated with our hedges), decreased by $207 million, resulting in an increase to our cash flows from operations. These changes in operating cash flows resulted from actions taken in response to the pandemic that we would generally not expect to recur at such a magnitude in subsequent periods. Additionally, during the six months ended June 30, 2020, we received $38 million in cash related to FHLBC stock that was transferred back to the FHLBC, upon the repayment of substantially all of our borrowings from the FHLBC.

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Cash Flows from Investing Activities

During the nine months ended September 30, 2020, our net cash provided by investing activities was $3.51 billion and primarily resulted from proceeds from sales of loans and real estate securities, as well as principal payments on loans. Although we generally intend to hold our loans and investment securities as long-term investments, we may sell certain of these assets in order to manage our liquidity needs and interest rate risk, to meet other operating objectives, and to adapt to market conditions.

Because many of our investment securities and loans are financed through various borrowing agreements, a significant portion of the proceeds from any sales or principal payments of these assets are generally used to repay balances under these financing sources. Similarly, all or a significant portion of cash flows from principal payments of loans at consolidated securitization entities would generally be used to repay ABS issued by those entities.

As presented in the "Supplemental Noncash Information" subsection of our consolidated statements of cash flows, during the nine months ended September 30, 2020, we transferred residential loans between held-for-sale and held-for-investment classification, retained securities from Sequoia and CAFL securitizations we sponsored, and deconsolidated certain multifamily residential securitization trusts, which represent significant non-cash transactions that were not included in cash flows from investing activities.

Cash Flows from Financing Activities

During the nine months ended September 30, 2020, our net cash used in financing activities was $3.11 billion. This primarily resulted from $1.85 billion of net repayments of short-term debt and $2.64 billion of repayments of long-term debt, including repayments of $2.00 billion of FHLBC borrowings, which were associated with the sales of a significant amount of assets noted in the investing activities section above. Additionally, we paid $97 million to purchase and retire $125 million of our convertible debt in the second quarter of 2020, and repurchased $22 million of stock in the third quarter. These outflows of cash were partially offset by $306 million of net proceeds from the issuance and settlements of ABS issued. Additionally, during the nine months ended September 30, 2020, we had cash inflows of $1.25 billion related to borrowings under three new non-marginable facilities that were generally used to repay existing borrowings from marginable facilities.

During the nine months ended September 30, 2020, we declared dividends of $0.585 per common share. On September 11, 2020, the Board of Directors declared a regular dividend of $0.14 per share for the third quarter of 2020, which was paid on September 29, 2020 to shareholders of record on September 22, 2020.

In accordance with the terms of our outstanding deferred stock units and restricted stock units, which are stock-based compensation awards, each time we declare and pay a dividend on our common stock, we are required to make a dividend equivalent payment in that same per share amount on each outstanding deferred stock unit and restricted stock unit.

Repurchase Authorization

In February 2018, our Board of Directors approved an authorization for the repurchase of our common stock, increasing the total amount authorized for repurchases of common stock to $100 million, and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt. This authorization increased the previous share repurchase authorization approved in February 2016 and has no expiration date. This repurchase authorization does not obligate us to acquire any specific number of shares or securities. Under this authorization, shares or securities may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. During the three months ended September 30, 2020, we repurchased 3,047,335 shares of our common stock pursuant to this authorization for $22 million. At September 30, 2020, $78 million of the current authorization remained available for the repurchase of shares of our common stock and we also continued to be authorized to repurchase outstanding debt securities. Like other investments we may make, any repurchases of our common stock or debt securities under this authorization would reduce our available capital and unrestricted cash described above.

Loan Warehouse Facilities

We maintain loan warehouse facilities to finance our residential jumbo loan inventory, SFR loan inventory and for our bridge loan investments. These facilities can be classified as short-term or long-term depending on their specific terms and provisions. At September 30, 2020, we had residential warehouse facilities outstanding with four different counterparties, with $600 million of total capacity and $518 million of available capacity. These included non-marginable facilities with $200 million of total capacity and marginable facilities with $400 million of total capacity. At September 30, 2020, we had business purpose warehouse facilities outstanding with four different counterparties, with $1.1 billion of total capacity and $853 million of available capacity. All of these facilities are non-marginable.

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Short-Term Debt

In the ordinary course of our business, we use recourse debt through several different types of borrowing facilities and use cash borrowings under these facilities to, among other things, fund the acquisition of residential loans (including those we acquire and originate in anticipation of securitization), finance investments in securities and other investments, and otherwise fund our business and operations. At September 30, 2020, we had $483 million of short-term debt outstanding. During the first nine months of 2020, the highest balance of our short-term debt outstanding was $3.23 billion.

For further detail on our short-term debt, see Note 13 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Long-Term Debt

The following discusses significant activity during the first nine months of 2020 and other information about our long-term debt. For further detail on our long-term debt, see Note 15 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Convertible Notes

During the second quarter of 2020, we repurchased $29 million par value of our 5.75% exchangeable senior notes due 2025 at a discount and recorded a gain on extinguishment of $6 million in Realized gains, net on our consolidated statements of income (loss).

During the second quarter of 2020, we repurchased $50 million par value of our 5.625% convertible senior notes due 2024 at a discount and recorded a gain on extinguishment of $9 million in Realized gains, net on our consolidated statements of income (loss).

During the second quarter of 2020, we repurchased $46 million par value of our 4.75% convertible senior notes at a discount and recorded a gain on extinguishment of $10 million in Realized gains, net on our consolidated statements of income (loss).

FHLBC Borrowings

As a result of the economic and financial market impacts of the pandemic, the terms of our borrowing facility with the Federal Home Loan Bank of Chicago (our "FHLBC Facility") evolved and we decided to significantly reduce the financing we obtain from the FHLBC. During the second quarter of 2020, we completed the sale of nearly all residential loans financed through this facility and repaid all but $1 million of borrowings under this facility. We do not expect to increase borrowings under our FHLBC Facility above the existing $1 million of borrowings outstanding.

Non-Recourse Business Purpose Loan Financing Facilities

In the third quarter of 2020, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable, non-recourse financing primarily for business purpose bridge loans. Borrowings under this facility accrue interest at a per annum rate equal to one-month LIBOR plus 3.85% (with a 0.50% LIBOR floor), through July 2022. At September 30, 2020, we had borrowings under this facility totaling $158 million and $1 million of unamortized deferred issuance costs, for a net carrying value of $157 million. At September 30, 2020, $216 million of bridge loans were pledged as collateral under this facility.

In the second quarter of 2020, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable, non-recourse financing primarily for business purpose bridge loans. Borrowings under this facility accrue interest at a per annum rate equal to one-month LIBOR plus 7.50% (with a 1.50% LIBOR floor), through June 2022. Borrowings under this facility may be repaid in full at our option and the facility terminated without penalty beginning in June 2021. This facility has an aggregate maximum borrowing capacity of $530 million, which consists of a term facility of $355 million and a revolving facility of $175 million. The revolving period ends in June 2021, and amounts borrowed under the term and revolving facilities are due in full in June 2022. At September 30, 2020, we had borrowings under this facility totaling $302 million and $4 million of unamortized deferred issuance costs, for a net carrying value of $298 million. At September 30, 2020, $369 million of bridge loans and $25 million of other BPL investments were pledged as collateral under this facility.

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Recourse Business Purpose Loan Financing Facilities

In the third quarter of 2020, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable financing for business purpose bridge loans and single-family rental loans. Borrowings under this facility accrue interest at a per annum rate equal to three-month LIBOR plus 3.00% through September 2023 and are recourse to Redwood. This facility has an aggregate maximum borrowing capacity of $250 million. At September 30, 2020, we had no borrowings outstanding under this facility.

In the second quarter of 2020, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable financing for business purpose bridge loans and single-family rental loans. Borrowings under this facility accrue interest at a per annum rate equal to three-month LIBOR plus 3.50% to 4.00% (with a 1.00% LIBOR floor) through May 2022 and are recourse to Redwood. This facility has an aggregate maximum borrowing capacity of $350 million. At September 30, 2020, we had borrowings under this facility totaling $150 million and $1 million of unamortized deferred issuance costs, for a net carrying value of $150 million. At September 30, 2020, $18 million of bridge loans and $194 million of single-family rental loans were pledged as collateral under this facility.

Recourse Subordinate Securities Financing Facility

In the first quarter of 2020, we entered into a repurchase agreement providing non-marginable recourse debt financing for $112 million of securities retained from our consolidated CAFL securitizations. The financing is fully and unconditionally guaranteed by Redwood, with an interest rate of approximately 4.21% through February 2023. The financing facility may be terminated, at our option, in February 2023, and has a final maturity in February 2025, provided that the interest rate on amounts outstanding under the facility increases between March 2023 and February 2025.

Recourse Revolving Debt Facility

In the first quarter of 2020, a subsidiary of Redwood entered into a secured revolving debt facility agreement collateralized by MSRs and certificated mortgage servicing rights. Borrowings under this facility accrue interest at a per annum rate equal to one-month LIBOR plus 2.75% through January 2021, with an increase in rate between February 2021 and the maturity of the facility in January 2022. This facility has an aggregate maximum borrowing capacity of $50 million. We had no borrowings outstanding under this facility at September 30, 2020. At September 30, 2020, $33 million of MSRs and interest-only securities were pledged as collateral under this facility.

 Asset-Backed Securities Issued

During the first quarter of 2020, we sold subordinate securities issued by four Freddie Mac K-Series securitization trusts we previously consolidated and determined that we should derecognize the associated assets and liabilities of each of these entities for financial reporting purposes. As a result, during the first quarter of 2020, we deconsolidated $3.86 billion of multifamily loans and other assets and $3.72 billion of multifamily ABS issued.

During the three and nine months ended September 30, 2020, we issued $515 million and $1.30 billion of ABS, respectively, through our consolidated securitization entities. This included $310 million and $847 million of CAFL ABS issued during the three and nine months ended September 30, 2020, respectively, and zero and $249 million of Sequoia Choice ABS issued during the three and nine months ended September 30, 2020, respectively. Additionally, for the three months ended September 30, 2020, this includes $205 million of ABS issued through a re-securitization entity sponsored by us. For further detail on our Asset-backed Securities Issued, see Note 14 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Other Commitments and Contingencies

For additional information on commitments and contingencies that could impact our liquidity and capital resources, see Note 16 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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COVID-19 Pandemic-Related Mortgage Payment Forbearances

In response to the personal financial impacts of the pandemic, many residential mortgage borrowers have sought, or are seeking, forbearance with respect to monthly mortgage payment obligations. We are exposed to the negative financial impact of COVID-19 related payment forbearances with respect to loans securitized in Sequoia transactions, loans held for investment or sale, and a variety of other investments, including third-party issued mortgage-backed securities, mortgage servicing rights and related cash flows, and re-performing residential mortgage loans. Business purpose mortgage loan borrowers may also seek payment forbearances. In addition, transactions we have entered into, including to finance loans with warehouse financing providers and to sell whole loans to third parties, may be negatively impacted by COVID-19 related payment forbearances, including by reducing our proceeds from these transactions or if we are required to repurchase impacted loans.

Mortgage Servicing Advance Obligations

Redwood's liquidity exposure to advancing obligations associated with residential mortgage servicing rights (MSRs) is primarily related to our Sequoia private-label residential mortgage backed securities (RMBS). The residential mortgage loans backing our Sequoia securities were generally originated as prime quality residential mortgage loans with strong credit characteristics. These loans were sourced from our residential mortgage platform through our network of loan sellers, including banks and independent mortgage companies, and were acquired after undergoing our review and underwriting process.

We outsource our residential mortgage servicing activity to third-party sub-servicers and do not directly service residential mortgage loans. We carry out a servicing oversight function and, in some cases, are obligated to reimburse our sub-servicers when they fund advances of principal and interest (P&I), taxes and insurance (T&I), and certain other amounts related to securitized mortgage loans.

As of September 30, 2020, we had no servicing advances outstanding related to principal and interest on Sequoia securitized loans for which we had servicing advance funding obligations.

Risks Relating to Debt Incurred Under Short- and Long-Term Borrowing Facilities

As described above under the heading “Results of Operations,” in the ordinary course of our business, we use debt financing obtained through several different types of borrowing facilities to, among other things, finance the origination and acquisition of mortgage loans (including those we originate or acquire in anticipation of sale or securitization), and finance investments in securities and other investments. We may also use short- and long-term borrowings to fund other aspects of our business and operations, including the repurchase of shares of our common stock or outstanding debt securities. Debt incurred under these facilities is generally either the direct obligation of Redwood Trust, Inc., or the direct obligation of subsidiaries of Redwood Trust, Inc. and guaranteed by Redwood Trust, Inc. Risks relating to debt incurred under these facilities are described in Part I, Item 2 of our Annual Report on Form 10-K for the year ended December 31, 2019, under the caption “Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities,” and under the caption “Our use of financial leverage exposes us to increased risks, including liquidity risks from margin calls and potential breaches of the financial covenants under our borrowing facilities, which could result in our being required to immediately repay all outstanding amounts borrowed under these facilities and these facilities being unavailable to use for future financing needs, as well as triggering cross-defaults under other debt agreements” in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the "Q1 2020 10-Q"). Many of the risks described above materialized during the first quarter of 2020 as a result of the pandemic and its impact on the economy and financial markets, as described under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations” within our Q1 2020 Quarterly Report on Form 10-Q.

Our sources of debt financing include secured borrowings under residential and business purpose mortgage loan warehouse facilities (including recourse and non-recourse warehouse facilities), short-term securities repurchase facilities, a $10 million committed line of short-term secured credit from a bank, short-term servicer advance financing, a secured, revolving debt facility collateralized by mortgage servicing rights, and subordinate securities financing facilities. During the second quarter of 2020, we repaid secured borrowings by our wholly-owned subsidiary, RWT Financial, LLC, under its borrowing facility with the FHLBC and at September 30, 2020, $1 million of advances remained outstanding. We do not expect to be able to increase borrowings under this borrowing facility above the existing $1 million of advances outstanding.

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Aggregate borrowing limits are stated under certain of these facilities, and certain other facilities have no stated borrowing limit, but many of the facilities are uncommitted, which means that any request we make to borrow funds under these uncommitted facilities may be declined for any reason, even if at the time of the borrowing request we have then-outstanding borrowings that are less than the borrowing limits under these facilities. In general, financing under these facilities is obtained by transferring or pledging mortgage loans or securities to the counterparty in exchange for cash proceeds (in an amount less than 100% of the principal amount of the transferred or pledged assets).

Under many of our mortgage loan warehouse facilities, our short-term securities repurchase facilities, and our secured, revolving debt facility collateralized by mortgage service rights, while transferred or pledged assets are financed under the facility, to the extent the value of the assets, or the collateral underlying those assets, declines, we are generally required to either immediately reacquire the assets or meet a margin requirement to transfer or pledge additional assets or cash in an amount at least equal to the decline in value. During the second quarter of 2020, we amended several of our mortgage loan warehouse facilities to revise these margin call provisions to remove obligations to make margin calls for changes in the market value of transferred or pledged assets, which determinations of market value were generally within the sole discretion of the lending counterparty. Under these revised agreements, if the estimated value of a property securing a financed mortgage loan declines, based on, for example, an appraisal or broker-price opinion, then the creditor may demand that we transfer additional collateral to the creditor (in the form of cash, U.S. Treasury obligations (in certain cases), or additional residential mortgage loans) with a value equal to the amount of the decline. Of our active financing arrangements with outstanding balances at September 30, 2020, only our short-term securities repurchase facilities (with $75 million of borrowings outstanding at September 30, 2020), and two of our residential mortgage loan warehouse facilities (with $8 million of borrowings outstanding at September 30, 2020) retain market-value based margin call provisions.

Margin call provisions under these facilities are further described in Part I, Item 2 of our Annual Report on Form 10-K for the year ended December 31, 2019 under the caption “Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities - Margin Call Provisions Associated with Short-Term Debt and Other Debt Financing.” Financial covenants included in these facilities are further described Part I, Item 2 of our Annual Report on Form 10-K for the year ended December 31, 2019 under the caption “Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities - Financial Covenants Associated with Short-Term Debt and Other Debt Financing.”

Because many of these borrowing facilities are uncommitted, at any given time we may not be able to obtain additional financing under them when we need it, exposing us to, among other things, liquidity risks of the types described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 under the heading “Risk Factors,” and in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019 under the heading “Market Risks.” In addition, with respect to mortgage loans that at any given time are already being financed through these warehouse facilities, we are exposed to market, credit, liquidity, and other risks of the types described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 under the heading “Risk Factors,” and in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019 under the heading “Market Risks,” if and when those loans or securities become ineligible to be financed, decline in value, or have been financed for the maximum term permitted under the applicable facility.

At September 30, 2020, and through the date of this Quarterly Report on Form 10-Q, we were in compliance with the financial covenants associated with our short-term debt and other debt financing facilities. However, significant and widespread decreases in the fair values of our assets, including decreases of the magnitude that resulted from the impact of the pandemic during the first quarter of 2020, could cause us to breach the financial covenants under our borrowing facilities related to net worth and leverage. In particular, during the first and second quarters of 2020, we amended financial covenants that require us to maintain a minimum dollar amount of stockholders’ equity or tangible net worth, financial covenants that require us to maintain recourse indebtedness below a specified ratio, and financial covenants that require us to maintain a minimum dollar amount of liquidity in certain borrowing agreements on a permanent basis, and we repaid and suspended certain other borrowing facilities; however, we cannot be certain that we will be able to maintain compliance with such amended covenants. Such covenants, if breached, can result in our being required to immediately repay all outstanding amounts borrowed under these facilities and these facilities being unavailable to use for future financing needs, as well as triggering cross-defaults under other debt agreements, and other risks described under the caption “Our use of financial leverage exposes us to increased risks, including liquidity risks from margin calls and potential breaches of the financial covenants under our borrowing facilities, which could result in our being required to immediately repay all outstanding amounts borrowed under these facilities and these facilities being unavailable to use for future financing needs, as well as triggering cross-defaults under other debt agreements” in Part II, Item 1A of our Q1 2020 10-Q.

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OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

In the normal course of business, we enter into transactions that may require future cash payments. As required by GAAP, some of these obligations are recorded on the balance sheet, while others are off-balance sheet or recorded on the balance sheet in amounts different from the full contract or notional amount of the transaction.

For additional information on our contractual obligations, see the Off-Balance Sheet Arrangements and Contractual Obligations section in the MD&A included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.

For additional information on our commitments and contingencies as of September 30, 2020, see Note 16 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. A discussion of critical accounting policies is included in Note 3 — Summary of Significant Accounting Policies included in Part I, Item 1 of this Quarterly Report on Form 10-Q and in Part I, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019. Management discusses the ongoing development and selection of these critical accounting policies with the audit committee of the board of directors.

We expect quarter-to-quarter GAAP earnings volatility from our business activities. This volatility can occur for a variety of reasons, including the timing and amount of purchases, sales, calls, and repayment of consolidated assets, changes in the fair values of consolidated assets and liabilities, increases or decreases in earnings from mortgage banking activities, and certain non-recurring events. In addition, the amount or timing of our reported earnings may be impacted by technical accounting issues and estimates. Our critical accounting policies and the possible effects of changes in estimates on our consolidated financial statements are included in the "Critical Accounting Policies and Estimates" section of Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.

In addition to the regular volatility we may experience on a quarterly basis, the ongoing impact of the pandemic on the United States economy, homeowners, renters of housing, the housing market, the mortgage finance markets and the broader financial markets, has caused additional volatility impacting many of our estimates. It is difficult to fully assess the impact of the pandemic at this time, including because of the uncertainty around the severity and duration of the pandemic domestically and internationally, as well as the uncertainty around the efficacy of Federal, State and local governments’ efforts to contain the spread of the pandemic and respond to its direct and indirect impacts on many aspects of Americans’ lives and economic activity. Continued volatility resulting from the pandemic could impact our critical estimates and lead to significant period-to-period earnings volatility.

Market Risks

We seek to manage risks inherent in our business — including but not limited to credit risk, interest rate risk, prepayment risk, liquidity risk, and fair value risk — in a prudent manner designed to enhance our earnings and dividends and preserve our capital. In general, we seek to assume risks that can be quantified from historical experience, to actively manage such risks, and to maintain capital levels consistent with these risks. Information concerning the risks we are managing, how these risks are changing over time, and potential GAAP earnings and taxable income volatility we may experience as a result of these risks is discussed in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Other Risks

In addition to the market and other risks described above, our business and results of operations are subject to a variety of types of risks and uncertainties, including, among other things, those described under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

NEW ACCOUNTING STANDARDS

A discussion of new accounting standards and the possible effects of these standards on our consolidated financial statements is included in Note 3 — Summary of Significant Accounting Policies included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Information concerning market risk is incorporated herein by reference to Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as supplemented by the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Market Risks” within Item 2 above. Other than the developments described thereunder, including changes in the fair values of our assets, there have been no other material changes in our quantitative or qualitative exposure to market risk since December 31, 2019.

Item 4. Controls and Procedures

We have adopted and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed on our reports under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and that the information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) of the Exchange Act, we have carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level.

There have been no changes in our internal control over financial reporting during the third quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There is no significant update regarding the litigation matters described in Part I, Item 3 in Redwood’s Annual Report on Form 10-K for the year ended December 31, 2019 under the heading “Legal Proceedings.” At September 30, 2020, the aggregate amount of loss contingency reserves established in respect of the FHLB-Seattle and Schwab litigation matters described in our Annual Report on Form 10-K for the year ended December 31, 2019 was $2 million.

In addition to those matters, as previously disclosed, in connection with the impact of the effects of the pandemic on the non-Agency mortgage finance market and on our business and operations, a number of the counterparties that have regularly sold residential mortgage loans to us believe that we breached perceived obligations to them, and requested or demanded that we purchase loans from them and/or compensate them for perceived damages resulting from our decisions earlier in 2020 not to purchase certain loans from them (“Residential Loan Seller Demands”).

We believe that these Residential Loan Seller Demands are without merit or subject to defenses and we intend to defend vigorously any such allegations and any related demand or claim to which we are or become a party. Despite our beliefs about the legal merits of these allegations, because our ordinary course of business is to seek to continue to regularly engage in mutually beneficial transactions with these counterparties, in some cases we have been willing to engage in discussions with these counterparties with the intention of reaching resolution, including through structuring arrangements that incentivize both the counterparty and us to continue to engage in residential loan purchase and sale transactions in the future.

With respect to certain of the Residential Loan Seller Demands, these resolution discussions have been successful in resolving, or establishing a framework that we believe will be the basis for successfully resolving, the demands of these counterparties, including through forward-looking joint business undertakings and structured arrangements that incentivize both the counterparty and us to continue to engage in residential loan purchase and sale transactions in the future. With respect to these counterparties, we have incurred or expect to incur certain costs in connection with finalizing these arrangements (including costs that are contingent on the successful completion of future residential loan purchase and sale transactions with these counterparties that we expect to generate future revenue for the Company) and have recorded any such actual costs incurred through September 30, 2020, as well as an accrual for the estimated costs associated with counterparties where a resolution or go-forward framework has been agreed to or has been discussed but not finalized. In accordance with GAAP, the accrual for estimated costs is based on the opinion of management, that it is probable that these resolutions and forward-looking joint business undertakings and structured arrangements will result in an expense and the amount of expense can be reasonably estimated. At September 30, 2020, the aggregate amount of our accrual for estimated costs associated with Residential Loan Seller Demands was $6.5 million, a portion of which would be contingent on the successful completion of future residential loan purchase and sale transactions with these counterparties, with the expectation of generating future revenue for the Company. In addition, as previously disclosed, one such counterparty filed a breach of contract lawsuit against us in May 2020 alleging that it had suffered in excess of $2 million of losses as a result of our alleged failure to purchase residential mortgage loans from it; and in October 2020 we and the plaintiff agreed to settle the lawsuit on mutually satisfactory terms.

With respect to Residential Loan Seller Demands that have not been resolved or accrued for, our beliefs about the legal merits of these allegations and our discussions with these counterparties have resulted in us determining that a significant loss from these matters is not probable. With respect to these remaining Residential Loan Seller Demands, based on the foregoing, we have concluded that we can estimate an aggregate range of reasonably possible losses with respect to these Residential Loan Seller Demands of between zero and $1.5 million.

Future developments (including receipt of additional information and documents relating to these matters, new or additional resolution or settlement communications relating to these matters, resolutions of similar claims against other industry participants in similar circumstances, or receipt of additional Residential Loan Seller Demands) could result in our concluding in the future to establish additional accruals or reserves or modify our aggregate range of reasonably possible losses with respect to these Residential Loan Seller Demand matters. Our actual losses, and any accruals or reserves we may establish in the future relating to these matters, may be materially higher than the accruals, reserves and the aggregate range of reasonably possible losses we have estimated above, respectively, including in the event that any of these matters proceed to trial and result in a judgment against us. We cannot be certain that any of these matters that are not already formally resolved will be resolved through a resolution or settlement and we cannot be certain that the resolution of these matters, whether through litigation, settlement, or otherwise, will not have a material adverse effect on our financial condition or results of operations in any future period.

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In accordance with GAAP, we review the need for any loss contingency reserves and establish reserves when, in the opinion of management, it is probable that a matter would result in a liability and the amount of loss, if any, can be reasonably estimated. Additionally, we record receivables for insurance recoveries relating to litigation-related losses and expenses if and when such amounts are covered by insurance and recovery of such losses or expenses are due. We review our litigation matters each quarter to assess these loss contingency reserves and make adjustments in these reserves, upwards or downwards, as appropriate, in accordance with GAAP based on our review.

In the ordinary course of any litigation matter, including certain of the above-referenced matters, we have engaged and may continue to engage in formal or informal settlement communications with the plaintiffs or co-defendants. Settlement communications we have engaged in relating to certain of the above-referenced litigation matters are one of the factors that have resulted in our determination to establish the loss contingency reserves described above. We cannot be certain that any of these matters will be resolved through a settlement prior to litigation and we cannot be certain that the resolution of these matters, whether through trial or settlement, will not have a material adverse effect on our financial condition or results of operations in any future period.

Future developments (including resolution of substantive pre-trial motions relating to these matters, receipt of additional information and documents relating to these matters (such as through pre-trial discovery), new or additional settlement communications with plaintiffs relating to these matters, or resolutions of similar claims against other defendants in these matters) could result in our concluding in the future to establish additional loss contingency reserves or to disclose an estimate of reasonably possible losses in excess of our established reserves with respect to these matters. Our actual losses with respect to the above referenced litigation matters may be materially higher than the aggregate amount of loss contingency reserves we have established in respect of these litigation matters, including in the event that any of these matters proceeds to trial and the plaintiff prevails. Other factors that could result in our concluding to establish additional loss contingency reserves or estimate additional reasonably possible losses, or could result in our actual losses with respect to the above-referenced litigation matters being materially higher than the aggregate amount of loss contingency reserves we have established in respect of these litigation matters include that: there are significant factual and legal issues to be resolved; information obtained or rulings made during the lawsuits could affect the methodology for calculation of the available remedies; and we may have additional obligations pursuant to indemnity agreements, representations and warranties, and other contractual provisions with other parties relating to these litigation matters that could increase our potential losses.

Item 1A. Risk Factors

Our risk factors are discussed under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended September 30, 2020, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.

In February 2018, our Board of Directors approved an authorization for the repurchase of our common stock, increasing the total amount authorized for repurchases of common stock to $100 million, and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt. This authorization increased the previous share repurchase authorization approved in February 2016 and has no expiration date. This repurchase authorization does not obligate us to acquire any specific number of shares or securities. Under this authorization, shares or securities may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. During the three months ended September 30, 2020, we repurchased 3,047,335 shares of our common stock pursuant to this authorization for $22 million. At September 30, 2020, $78 million of this current authorization remained available for the repurchase of shares of our common stock and we also continued to be authorized to repurchase outstanding debt securities.

The following table contains information on the shares of our common stock that we purchased or otherwise acquired during the three months ended September 30, 2020.

	Total Number of Shares Purchased or Acquired	Average Price per Share Paid		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or approximate dollar value) of Shares that May Yet be Purchased under the Plans or Programs
(In Thousands, except per Share Data)
July 1, 2020 - July 31, 2020	—	$	—	—	$	—
August 1, 2020 - August 31, 2020	1,980	$	7.07	1,980	$	85,998
September 1, 2020 - September 30, 2020	1,067	$	7.15	1,067	$	78,369
Total	3,047	$	7.10	3,047	$	78,369

Item 3. Defaults Upon Senior Securities

None.

Item 4. Not Applicable

Item 5. Other Information

On November 6, 2020, Redwood amended and restated its employment agreements with each of Christopher J. Abate (Redwood’s CEO), Dashiell I. Robinson (Redwood’s President), and Andrew P. Stone (Redwood’s Executive Vice President, General Counsel, and Secretary). These agreements were amended and restated to, among other things, update or clarify certain defined terms and vesting-related provisions and to reflect previously disclosed compensation terms applicable to these officers. The three amended and restated employment agreements are filed as Exhibits 10.1, 10.2, and 10.3 to this Quarterly Report on Form 10-Q (collectively, the “Amended Employment Agreements”) and the description of the Amended Employment Agreements set forth in this Part II, Item 5 is qualified in its entirety by reference to the full text of the Amended Employment Agreements.

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Item 6. Exhibits

Exhibit Number	Exhibit
3.1	Articles of Amendment and Restatement of the Registrant, effective July 6, 1994 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 3.1, filed on August 6, 2008)
3.1.1	Articles Supplementary of the Registrant, effective August 10, 1994 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 3.1.1, filed on August 6, 2008)
3.1.2	Articles Supplementary of the Registrant, effective August 11, 1995 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 3.1.2, filed on August 6, 2008)
3.1.3	Articles Supplementary of the Registrant, effective August 9, 1996 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 3.1.3, filed on August 6, 2008)
3.1.4	Certificate of Amendment of the Registrant, effective June 30, 1998 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 3.1.4, filed on August 6, 2008)
3.1.5	Articles Supplementary of the Registrant, effective April 7, 2003 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 3.1.5, filed on August 6, 2008)
3.1.6	Articles of Amendment of the Registrant, effective June 12, 2008 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 3.1.6, filed on August 6, 2008)
3.1.7	Articles of Amendment of the Registrant, effective May 19, 2009 (incorporated by reference to the Registrant’s Current Report on Form 8-K, Exhibit 3.1, filed on May 21, 2009)
3.1.8	Articles of Amendment of the Registrant, effective May 24, 2011 (incorporated by reference to the Registrant’s Current Report on Form 8-K, Exhibit 3.1, filed on May 20, 2011)
3.1.9	Articles of Amendment of the Registrant, effective May 18, 2012 (incorporated by reference to the Registrant’s Current Report on Form 8-K, Exhibit 3.1, filed on May 21, 2012)
3.1.10	Articles of Amendment of the Registrant, effective May 16, 2013 (incorporated by reference to the Registrant’s Current Report on Form 8-K, Exhibit 3.1, filed on May 21, 2013)
3.1.11	Articles of Amendment of the Registrant, effective May 16, 2019 (incorporated by reference to the Registrant's Current Report on Form 8-K, Exhibit 3.1, filed on May 17, 2019)
3.1.12	Articles of Amendment of the Registrant, effective June 15, 2020 (incorporated by reference to the Registrant’s Current Report on Form 8-K, Exhibit 3.1, filed on June 15, 2020)
3.2.1	Amended and Restated Bylaws of the Registrant, as adopted on March 5, 2008 (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q, Exhibit 3.2.1, filed on August 8, 2018)
3.2.2	First Amendment to Amended and Restated Bylaws of the Registrant, as adopted on May 17, 2012 (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q, Exhibit 3.2.2, filed on August 8, 2018)
3.2.3	Second Amendment to Amended and Restated Bylaws of the Registrant, as adopted on May 22, 2018 (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q, Exhibit 3.2.3, filed on August 8, 2018)
10.1*	Fifth Amended and Restated Employment Agreement, dated as of November 6, 2020, by and between Christopher J. Abate and the Registrant (filed herewith)
10.2*	Third Amended and Restated Employment Agreement, dated as of November 6, 2020, by and between Dashiell I. Robinson and the Registrant (filed herewith)
10.3*	Fifth Amended and Restated Employment Agreement, dated as of November 6, 2020, by and between Andrew P. Stone and the Registrant (filed herewith)
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2020, is filed in inline XBRL-formatted interactive data files: (i) Consolidated Balance Sheets at September 30, 2020 and December 31, 2019; (ii) Consolidated Statements of Income (Loss) for the three and nine months ended September 30, 2020 and 2019; (iii) Statements of Consolidated Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019; (iv) Consolidated Statements of Changes in Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019; and (vi) Notes to Consolidated Financial Statements.

108

Exhibit Number	Exhibit
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

______________________

* Indicates exhibits that include management contracts or compensatory plan arrangements.

109

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		REDWOOD TRUST, INC.
Date:	November 6, 2020	By:	/s/ Christopher J. Abate
			Christopher J. Abate
			Chief Executive Officer
			(Principal Executive Officer)
Date:	November 6, 2020	By:	/s/ Collin L. Cochrane
			Collin L. Cochrane
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

110

EX-10.1

Exhibit 10.1

FIFTH AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Fifth Amended and Restated Employment Agreement (“Agreement”), effective as of November 6, 2020 (the “Effective Date”), is entered into by and between Christopher J. Abate (the “Executive”) and Redwood Trust, Inc., a Maryland corporation (the “Company”), and amends and restates in its entirety that certain Fourth Amended and Restated Employment Agreement by and between the Executive and the Company effective August 6, 2019 (as subsequently amended, the “Prior Agreement”).

The Company desires to establish its right to the continued services of the Executive, in the capacity, on the terms and conditions, and subject to the rights of termination hereinafter set forth, and the Executive is willing to accept such continued employment in such capacity, on such terms and conditions, and subject to such rights of termination.

In consideration of the mutual agreements hereinafter set forth, the Executive and the Company have agreed and do hereby agree as follows:

1. Employment and Responsibilities. During the Term, the Executive shall serve as Chief Executive Officer of the Company, reporting to the Board of Directors of the Company (the “Board”). The Executive does hereby accept and agree to such employment. The Executive’s duties shall be such executive and managerial duties as the Board shall from time to time prescribe and as provided in the By-Laws of the Company.  The Executive does hereby accept and agree to such continued employment. The Board of Directors may, from time to time, in its sole discretion, modify, reassign and/or augment the Executive’s responsibilities, and any such modification, reassignment and/or augmentation shall be deemed a waiver by the Executive of his rights under Section 6(e)(i) hereof only with his express written consent. Any such modification, reassignment or augmentation of responsibilities shall be in writing. The Executive shall devote such time, energy and skill to the performance of his duties for the Company and for the benefit of the Company as may be necessary or required for the effective conduct and operation of the Company’s business. Furthermore, the Executive shall act only in good faith and exercise due diligence and care in the performance of his duties to the Company under this Agreement.

2. Term of Agreement. The term of this Agreement (the “Term”) shall commence on the Effective Date and shall continue through December 31, 2020; provided, however, that (i) on January 1, 2021 and each succeeding January 1, the Term shall automatically be extended for one additional year unless, not later than three months prior to any such January 1, either party shall have given written notice to the other that it does not wish to extend the Term and (ii) such one year extensions of the Term shall not occur on and after the January 1 of the year in which the Executive will attain age sixty-five (65) but instead the Term shall be extended only until the date of the Executive’s sixty-fifth (65th) birthday.

3. Compensation.

(a)    Base Salary. The Company shall pay the Executive, and the Executive agrees to accept from the Company, in payment for his services to the Company a base salary (the “Base Salary”) at the rate of $800,000 per year (effective on January 1, 2021), paid in accordance with the customary payroll practices of the Company subject to annual review and increase by the Board in its sole discretion (or by the Board’s separately designated Compensation Committee in its sole discretion). For the avoidance of doubt, references to the Board in this Section 3 shall include the Board’s separately designated Compensation Committee.

(b)    Performance Bonus - Board of Directors’ Discretion. The Executive shall be eligible to receive an annual bonus. The Board in its discretion will determine whether such annual bonus will be paid, the amount of such bonus and its form of payment. The Executive’s target annual bonus amount is 185% of his Base Salary (the “Target Bonus”). If the Board determines in its discretion that the Executive’s performance meets or exceeds the criteria established by the Board for the award of a Target Bonus, the Board may award the Executive the Target Bonus or a higher amount. Likewise, if the Executive’s performance does not meet said criteria, the Board may award a lesser amount, or no bonus may be awarded. Unless otherwise provided in this Agreement, the Executive’s eligibility to receive any bonus under this Section 3(b) shall be expressly conditioned on, among other things, the Executive remaining employed with the Company up through any designated distribution date set by the Board.

(c)    Equity Incentive Awards. Executive shall be eligible to receive grants of equity-based long-term incentive awards, which may include options to purchase Company stock, performance or restricted stock units and Company restricted stock contributions to Company’s deferred compensation plan, or other equity-based awards. Such awards shall be determined in the discretion of the Board. In the event of a “Change of Control” (as defined in Exhibit D attached hereto) in which the surviving or acquiring corporation does not assume the Executive’s outstanding equity-related awards (including options and equity-based awards granted both before and after the Effective Date) or substitute similar equity-related awards, such equity-related awards shall immediately vest and become exercisable if the Executive’s service with the Company has not terminated before the effective date of the Change of Control; provided, however, that the foregoing provision shall only apply if the Company is not the surviving corporation or if shares of the Company’s common stock are converted into or exchanged for other securities or cash.

(d) Annual Review. The Executive’s performance shall be reviewed at least annually. The performance evaluations shall consider and assess the Executive’s performance of his duties and responsibilities, the timely accomplishment of existing performance objectives, his level of efficiency and overall effectiveness and/or other factors or criteria that the Company, in its sole discretion, may deem relevant. The frequency of performance evaluations may vary depending upon, among other things, length of service, past performance, changes in job duties or performance levels. The Board shall, at least annually, review the Executive’s entire compensation package to determine whether it continues to meet the Company’s compensation objectives. Such annual review will include a determination of (i) whether to increase the Base Salary in accordance with Section 3(a); (ii) the incentive performance bonus to be awarded in

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accordance with Section 3(b); and (iii) the amount and type of any equity awards granted in accordance with Section 3(c). Positive performance evaluations do not guarantee salary increases or incentive bonuses. Salary increases and incentive bonus awards are solely within the discretion of the Board and may depend upon many factors other than the Executive’s performance.

4. Fringe Benefits. The Executive shall be entitled to participate in any benefit programs adopted from time to time by the Company for the benefit of its senior executive employees, and the Executive shall be entitled to receive such other fringe benefits as may be granted to him from time to time by the Board.

(a) Benefit Plans. The Executive shall be entitled to participate in any benefit plans relating to equity-based compensation awards, pension, thrift, profit sharing, life insurance, medical coverage, education, deferred compensation, or other retirement or employee benefits available to other senior executive employees of the Company, subject to any restrictions (including waiting periods) specified in such plans and/or related individual agreements. The Company shall make commercially reasonable efforts to obtain medical and disability insurance, and such other forms of insurance as the Board shall from time to time determine, for its senior executive employees.

(b) Paid Time Off. The Executive shall be entitled to paid time off (“PTO”) each calendar year pursuant to the Company’s policies applicable to similarly situated employees of the Company, as in effect from time to time and consistent with the Executive’s satisfactory performance of the duties set forth in Section 1.

5. Business Expenses. The Company shall reimburse the Executive for any and all necessary, customary and usual expenses, properly receipted in accordance with Company policies, incurred by Executive on behalf of the Company.

6. Termination of Executive’s Employment.

(a) Death. If the Executive dies while employed by the Company, his employment shall immediately terminate. The Company’s obligation to pay the Executive’s Base Salary shall cease as of the date of the Executive’s death, and any unpaid Base Salary shall be paid to the Executive’s estate. In addition, within fifteen (15) days of the Executive’s death, the Company shall pay to the Executive’s estate an incentive performance bonus based on Executive’s Target Bonus then in effect, prorated for the number of days of employment completed by the Executive during the year of his death. Executive’s beneficiaries or his estate shall receive benefits in accordance with the Company’s retirement, insurance and other applicable programs and plans then in effect. All stock options or other equity-related awards with time-based vesting, including deferred or restricted stock units, shall vest in full and, in the case of stock options, shall be exercisable for such period as set forth in the applicable award agreement by which such awards are evidenced. All stock options or other equity-related awards with performance-based vesting, including performance stock units, shall remain outstanding and shall continue to be eligible to vest and become payable based on the number of target shares and

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the performance goals set forth in the applicable award agreement by which such awards are evidenced, with any stock options remaining exercisable for such period as set forth in the applicable award agreement. In addition, in the event the Company grants to the Executive a cash-settled equity award or a long-term incentive compensation award payable in cash, this Section 6(a) shall apply, mutatis mutandis, to any such award(s).

(b) Disability. If, as a result of the Executive’s incapacity due to physical or mental illness (“Disability”), Executive shall have been absent from the full-time performance of his duties with the Company for six (6) consecutive months, and, within thirty (30) days after written notice is provided to him by the Company, he shall not have returned to the full-time performance of his duties, the Executive’s employment under this Agreement may be terminated by the Company for Disability. During any period prior to such termination during which the Executive is absent from the full-time performance of his duties with the Company due to Disability, the Company shall continue to pay the Executive his Base Salary at the rate in effect at the commencement of such period of Disability. Subsequent to such termination, the Executive’s benefits shall be determined under the Company’s retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. In addition, within fifteen (15) days of such termination, the Company shall pay to the Executive an incentive performance bonus based on Executive’s Target Bonus then in effect, prorated for the number of days of employment completed by the Executive during the year in which his employment terminated. The Executive, the Executive’s beneficiaries or his estate shall receive benefits in accordance with the Company’s retirement, insurance and other applicable programs and plans then in effect. All stock options or other equity-related awards with time-based vesting, including deferred or restricted stock units, shall vest in full and, in the case of stock options, shall be exercisable for such period as set forth in the applicable award agreement by which such awards are evidenced. All stock options or other equity-related awards with performance-based vesting, including performance stock units, shall remain outstanding and shall continue to be eligible to vest and become payable based on the number of target shares and the performance goals set forth in the applicable award agreement by which such awards are evidenced, with any stock options remaining exercisable for such period as set forth in the applicable award agreement. In addition, in the event the Company grants to the Executive a cash-settled equity award or a long-term incentive compensation award payable in cash, this Section 6(b) shall apply, mutatis mutandis, to any such award(s).

(c) Termination By The Company For Cause. The Company may terminate the Executive’s employment under this Agreement for Cause, at any time prior to expiration of the Term of the Agreement; provided, however, that prior to any termination of employment for Cause pursuant to subsection (i), (ii), or (iii) below, the Company must first provide written notice describing the reason for such termination of employment (and, with respect to subsections (ii) and (iii) below, such notice may be provided on the same date as the termination date). For purposes of this Agreement, “Cause” shall mean (i) the Executive’s material failure to substantially perform the reasonable and lawful duties of his position for the Company, which failure shall continue for thirty (30) days after written notice thereof by the Company to the Executive; (ii) acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of the Executive in respect of the performance of his duties hereunder, his

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fiduciary obligations or otherwise relating to the business of the Company; (iii) the habitual or repeated neglect of his duties by Executive; (iv) the Executive’s conviction of a felony; (v) theft or embezzlement, or attempted theft or embezzlement, of money or tangible or intangible assets or property of the Company or its employees, customers, clients, or others having business relations with the Company; (vi) any act of moral turpitude by Executive injurious to the interest, property, operations, business or reputation of the Company; or (vii) unauthorized use or disclosure of trade secrets or confidential or proprietary information pertaining to Company business.

In the event of a termination under this Section 6(c), the Company will pay only the portion of Base Salary or previously awarded bonus unpaid as of the termination date. Fringe benefits which have accrued and/or vested on the termination date will continue in effect according to their terms.

(d) Termination By The Company Without Cause. The Company may terminate Executive’s employment hereunder at any time without Cause upon 30 days written notice to Executive or pay in lieu thereof. In the event of a termination under this Section 6(d), the Executive shall be entitled to the benefits set forth in Section 7.

(e) Termination By The Executive For Good Reason. The Executive shall have the right to terminate the Officer’s employment under this Agreement for Good Reason, at any time prior to expiration of the Term of the Agreement. For purposes of this Agreement, “Good Reason” shall mean the occurrence, without the Executive’s express written consent, of any one or more of the following events:

(i) A material reduction in Executive’s responsibilities, title, duties or authority, including, without limitation, (A) Executive ceasing to serve as the chief executive officer of a publicly-traded company or (B) on or after a Change of Control, if as a result of such Change of Control, the Company becomes a subsidiary of another entity and Executive is not appointed (or after appointment, ceases) to be the chief executive officer of the top-tier parent entity of the Company (or its successor);

(ii) A material reduction in the Executive’s Base Salary or a material reduction by the Company in the value of the Executive’s total compensation package (salary, bonus opportunity, equity incentive award opportunity and benefits) if such a reduction is not made in proportion to an across-the-board reduction for all senior executives of the Company;

(iii) The relocation of the Executive’s principal Company office to a location more than twenty-five (25) miles from its location as of the Effective Date (which location is the Company’s headquarters in Mill Valley, California), except for required travel on the Company’s business to the extent necessary to fulfill the Executive’s obligations under Section 1;

(iv) A failure at any time to renew this Agreement for successive one-year periods pursuant to Section 2;

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(v) The complete liquidation of the Company; or

(vi) In the event of a merger, consolidation, transfer, or closing of a sale of all or substantially all the assets of the Company with or to any other individual or entity, the failure of the Company’s successor to affirmatively adopt this Agreement or to otherwise comply with its obligations pursuant to Section 13 below.

Notwithstanding the foregoing, the Executive will not be deemed to have resigned for Good Reason for purposes of subclause (i) unless (1) the Executive provides the Company with written notice setting forth in reasonable detail the facts and circumstances claimed by the Executive to constitute Good Reason within ninety (90) days after the date of the occurrence of any event that the Executive knows or should reasonably have known to constitute Good Reason, (2) the Company fails to cure such acts or omissions within thirty (30) days following its receipt of such notice, and (3) the effective date of the Executive’s termination for Good Reason occurs no later than thirty (30) days after the expiration of the Company’s cure period. In the event of a termination under this Section 6(e), the Executive shall be entitled to the benefits set forth in Section 7.

(f) Termination By The Executive Without Good Reason. The Executive may at any time during the Term terminate his employment hereunder for any reason or no reason by giving the Company notice in writing not less than sixty (60) days in advance of such termination. The Executive shall have no further obligations to the Company after the effective date of termination, as set forth in the notice. In the event of a termination by the Executive under this Section 6(f), the Company will pay only the portion of Base Salary or previously awarded bonus unpaid as of the termination date. Fringe benefits which have accrued and/or vested on the termination date will continue in effect according to their terms.

7. Compensation Upon Termination By the Company without Cause or By The Executive for Good Reason.

(a) If the Executive’s employment shall be terminated by the Company without Cause or by the Executive for Good Reason, the Executive shall be entitled to the following benefits:

(i) Payment of Unpaid Base Salary. The Company shall immediately pay the Executive any portion of the Executive’s Base Salary through the date of termination or previously awarded bonus not paid prior to the termination date.

(ii) Severance Payment.

(A) In the event such termination is not a CIC Termination (as defined below), then the Company shall provide the Executive (x) an amount equal to one and one-half (1.5) times the sum of (i) Executive’s Annual Base Salary as in effect immediately prior to his termination and (ii) Executive’s Target Bonus in effect immediately prior to his termination and (y) an amount equal to the Executive’s Target Bonus in effect immediately prior

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to his termination, pro-rated for the number of days of employment completed by the Executive during the year in which his employment is terminated.

(B) In the event such termination of employment occurs within three months prior to, on, or within 24 months following a Change of Control (a “CIC Termination”), then instead of providing the payments in Section 7(a)(ii)(A), the Company shall provide the Executive an amount equal to the sum of (x) the Executive’s Target Bonus in effect immediately prior to his termination, prorated for the number of days of employment completed by the Executive during the year in which his employment terminated; (y) two (2) times the Executive’s Annual Base Salary as in effect immediately prior to his termination; and (z) two (2) times the Executive’s Target Bonus in effect immediately prior to his termination. Notwithstanding the foregoing, the maximum aggregate amount that the Company shall pay to the Executive pursuant to this Section 7(a)(ii)(B) is $6,500,000.

(iii) Equity Awards. All stock options or other equity-related awards with time-based vesting, including deferred or restricted stock units, shall vest in full and, in the case of stock options, shall be exercisable for such period as set forth in the applicable award agreement by which such awards are evidenced. If the Executive’s employment shall be terminated by the Company without Cause, all stock options or other equity-related awards with performance-based vesting, including performance stock units, shall remain outstanding and shall continue to be eligible to vest and become payable or exercisable based on (x) the performance goals set forth in the applicable award agreement by which such awards are evidenced and (y) a reduced number of target shares adjusted on a pro-rata basis to reflect the number of days of employment completed during the applicable vesting period in which termination occurs, with any stock options remaining exercisable for such period as set forth in the applicable award agreement. If the Executive’s employment shall be terminated by the Executive for Good Reason, all stock options or other equity-related awards with performance-based vesting, including performance stock units, shall remain outstanding and shall continue to be eligible to vest and become payable based on the number of target shares and the performance goals set forth in the applicable award agreement by which such awards are evidenced, with any stock options remaining exercisable for such period as set forth in the applicable award agreement. In addition, in the event the Company grants to the Executive a cash-settled equity award or a long-term incentive compensation award payable in cash, this Section 7(a)(iii) shall apply, mutatis mutandis, to any such award(s).

(iv) Continuation of Fringe Benefits. For a period of up to eighteen (18) months (or, in the event of a CIC Termination, twenty-four (24) months) following the date of Executive’s termination of employment with Company, subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder, the Company shall continue to provide the Executive and the Executive’s eligible dependents with coverage under its group health plans at the same levels and the same cost to the Executive as would have applied if the Executive’s employment had not been terminated based on the Employee’s elections in effect on the date of termination (the “Continued Coverage”), provided that (1) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation

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coverage to be, exempt from the application of Section 409A of the Code under Treasury Regulation Section 1.409A-1(a)(5), or (2) the Company is otherwise unable to continue to cover the Executive under its group health plans without penalty under applicable law (including without limitation, Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act), the Company may in its sole discretion provide that (i) the Executive shall pay to the Company, on an after-tax basis, a monthly amount equal to the full premium cost of the Continued Coverage for such month and (ii) within 30 days of such premium payment, the Company shall reimburse the Executive in cash (less required withholding) an amount equal to the sum of (A) the excess of (x) the full premium cost of the Continued Coverage for such month over (y) any premium amount that would have been payable by the Executive if the Executive had been actively employed by the Company for such month and (B) an additional tax “gross up” payment to cover all estimated applicable local, state and federal income and payroll taxes imposed on the Executive with respect to the Continued Coverage. For the eighteen (18) month (or, in the event of a CIC Termination, twenty-four (24) month) period following the termination of the Executive’s employment, the Company shall also continue to provide the Executive with all life insurance, disability insurance and other fringe benefits set forth in Section 4 as if the Executive’s employment under the Agreement had not been terminated; provided, however, that such life insurance, disability insurance and other fringe benefits shall cease as of the date the Executive receives such coverage from a subsequent employer.

(v) Payment/Benefit Limitation.  If any payment or benefit due under this Agreement, together with all other payments and benefits that the Executive receives or is entitled to receive from the Company or any of its subsidiaries, affiliates or related entities, would (if paid or provided) constitute an “excess parachute payment” for purposes of Section 280G of the Code, the amounts otherwise payable and benefits otherwise due under this Agreement will either (i) be delivered in full, or (ii) be limited to the minimum extent necessary to ensure that no portion thereof will fail to be tax-deductible to the Company by reason of Section 280G of the Code (and therefore, no portion thereof will be subject to the excise tax imposed under Section 4999 of the Code), whichever of the foregoing amounts, taking into account applicable federal, state and local income and employment taxes and the excise tax imposed under Section 4999 of the Code, results in the receipt by the Executive, on an after-tax basis, of the greatest amount of payments and benefits, notwithstanding that all or some portion of such payments and/or benefits may be subject to the excise tax imposed under Section 4999 of the Code.  Unless otherwise specified in writing by the Executive, in the event that the payments and/or benefits are to be reduced pursuant to this Section 7(a)(v), such payments and benefits shall be reduced such that the reduction of cash compensation to be provided to the Executive as a result of this Section 7 is minimized.  In applying this principle, the reduction shall be made in a manner consistent with the requirements of Section 409A of the Code and where two economically equivalent amounts are subject to reduction but payable at different times, such amounts shall be reduced on a pro rata basis but not below zero.  All determinations required to be made under this Section 7(a)(v) shall be made by the Company's independent public accounting firm (or such other nationally recognized public accounting firm as may be selected by the Company and to which selection the Executive consents (such consent not to be unreasonably withheld)) which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the

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Executive that there has been a payment or benefit subject to this Section 7(a)(v), or such earlier time as is requested by the Company.

(b) No Mitigation Required; No Other Entitlement To Benefits Under Agreement. The Executive shall not be required in any way to mitigate the amount of any payment provided for in this Section 7, including, without limitation, by seeking other employment, nor shall the amount of any payment provided for in this Section 7 be reduced by any compensation earned by the Executive as the result of employment with another employer after the termination date of employment, or otherwise. Except as set forth in this Section 7, following a termination governed by this Section 7, the Executive shall not be entitled to any other compensation or benefits set forth in this Agreement, except as may be separately negotiated by the parties and approved the Board in writing in conjunction with the termination of Executive’s employment under this Section 7.

(c) Release Agreement. As a condition of receiving any of the payments, vesting and benefits set forth in this Section 7 (other than the payment provided for in sub-section 7(a)(i)), the Executive shall be required to execute a mutual release agreement in the form attached hereto as Exhibit A or Exhibit B, as appropriate, and such release agreement must have become effective in accordance with its terms within 60 days following the termination date. The Company, in its sole discretion, may modify the term of the required release agreement to comply with applicable law and may incorporate the required release agreement into a termination agreement or other agreement with the Executive.

(d) Timing of Severance Payments. Notwithstanding any other provision of this Agreement, all severance payments provided under this Agreement in connection with the termination of the employment of the Executive shall be payable in an amount equal to 75% of such payments on the date that is six months after the termination date, and the remaining 25% shall be payable in six equal monthly installments beginning on the date that is seven months after the termination date and continuing on the same date of each of the five months thereafter.

(e) Timing of Bonus Payments. Notwithstanding any other provision of this Agreement, all bonus payments provided under this Agreement in connection with the termination of the employment of the Executive shall be payable on the date that is six months after the termination date.

8. Disputes Relating To Executive’s Termination of Employment For Good Reason. If the Executive resigns his employment with the Company alleging in good faith as the basis for such resignation “Good Reason” as defined in Section 6(e), and if the Company then disputes the Executive’s right to the payment of benefits under Section 7, the Company shall continue to pay the Executive the full compensation (including, without limitation, his Base Salary) in effect at the date the Executive provided written notice of such resignation, and the Company shall continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was then a participant, until the earlier of the expiration of the Term or the date the dispute is finally resolved, either by mutual written agreement of the parties or by application of the provisions of Section 11. For the purposes of this Section 8, the Company shall bear the burden of proving that the grounds for the Executive’s resignation do not fall within the scope of

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Section 6(e), and there shall be a rebuttable presumption that the Executive alleged such grounds in good faith.

9. Restrictive Covenant Provisions.

(a) Noncompetition. The Executive agrees that during the Term prior to any termination of his employment hereunder, he will not, directly or indirectly, without the prior written consent of a majority of the non-employee members of the Board, manage, operate, join, control, participate in, or be connected as a stockholder (other than as a holder of shares publicly traded on a stock exchange or the NASDAQ National Market System), partner, or other equity holder with, or as an officer, director or employee of, any real estate or mortgage investment organization whose business strategy is competitive with that of the Company, as determined by a majority of the non-employee members of the Board. It is further expressly agreed that the Company will or would suffer irreparable injury if the Executive were to compete with the Company or any subsidiary or affiliate of the Company in violation of this Agreement and that the Company would by reason of such competition be entitled to injunctive relief in a court of appropriate jurisdiction, and the Executive further consents and stipulates to the entry of such injunctive relief in such a court prohibiting the Executive from competing with the Company or any subsidiary or affiliate of the Company, in the areas of business set forth above, in violation of this Agreement.

(b) Duty To Avoid Conflict Of Interest. During his employment by the Company, Executive agrees not to engage or participate in, directly or indirectly, any activities in conflict with the best interests of the Company. The Company shall be the final decision-maker with regard to any conflict of interest issue.

(c) Right To Company Materials. The Executive agrees that all styles, designs, lists, materials, books, files, reports, correspondence, records, and other documents (“Company Materials”) used, prepared, or made available to the Executive shall be and shall remain the property of the Company. Upon the termination of employment or the expiration of this Agreement, the Executive shall immediately return to the Company all Company Materials, and the Executive shall not make or retain any copies thereof.

(d) Nonsolicitation. The Executive promises and agrees that he will not directly or indirectly solicit any of the Company’s employees to work for any competing real estate or mortgage investment organization as determined under Section 9(a) for a period of one (1) year following the occurrence of any event entitling the Executive to payments and benefits, provided the Company makes all such payments when due according to the provisions herein.

(e) Confidential And Proprietary Information.

(1) It is hereby acknowledged that Executive has and shall gain knowledge of trade secrets and confidential information owned by or related to the Company and/or its affiliates including but not limited to the following: (i) the names, lists, buying habits and practices of customers, clients or vendors, (ii) marketing and related information, (iii) relationships with the persons or entities with whom or with which the Company has contracted, (iv) their products, designs, software, developments, improvements and methods of operation, (v) financial condition, profit performance and financial requirements, (vi) the compensation

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paid to employees, (vii) business plans and the information contained therein, and (viii) all other confidential information of, about or concerning the Company, the manner of operation of the Company and other confidential data of any kind, nature or description relating to the Company (collectively, the “Confidential Information”). Confidential Information does not include information which (A) is or becomes generally available to the public other than as a result of a disclosure by Executive; or (B) becomes available to Executive on a non-confidential basis after the termination or expiration of Executive’s obligations under this Agreement from a source other than the Company, provided that such source is not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any other party with respect to such information; or (C) is independently developed after the termination or expiration of Executive’s obligations under this agreement without reference to the Confidential Information, provided such independent development can reasonably be proven by Executive by written records.

(2) The parties hereby acknowledge that the Confidential Information constitutes important, unique, material and confidential trade secrets which affect the successful activities of the Company, and constitute a substantial part of the assets and goodwill of the Company. In view of the foregoing, Executive agrees that he will not at any time whether during or after the term of this Agreement, except as required in the course of Executive’s employment by Company and at its direction and for its sole benefit, in any fashion, form or manner, directly or indirectly (i) use or divulge, disclose, communicate or provide or permit access to any person, firm, partnership, corporation or other entity, any Confidential Information of any kind, nature or description, or (ii) remove from Company’s premises any notes or records relating thereto, or copies or facsimiles thereof (whether made by electronic, electrical, magnetic, optical, laser, acoustic or other means).

(3) Promptly upon the request of Company, and immediately upon the termination of Executive’s employment, Executive shall not transfer to any third person and shall deliver to Company all Confidential Information, and other property belonging to the Company, including all copies thereof, in the possession or under the control of the Executive.

(4) Executive represents that the performance of all the terms of this Agreement will not conflict with, and will not breach, any other invention assignment agreement, confidentiality agreement, employment agreement or non-competition agreement to which Executive is or has been a party. To the extent that Executive has confidential information or materials of any former employer, Executive acknowledges that the Company has directed Executive to not disclose such confidential information or materials to the Company or any of its employees, and that the Company prohibits Executive from using said confidential information or materials in any work that Executive may perform for the Company. Executive agrees that Executive will not bring with Executive to the Company, and will not use or disclose any confidential, proprietary information, or trade secrets acquired by Executive prior to his employment with the Company. Executive will not disclose to the Company or any of its employees, or induce the Company or any of its employees to use, any confidential or proprietary information or material belonging to any previous employers or others, nor will Executive bring to the Company or use in connection with Executive’s work for the Company

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copies of any software, computer files, or any other copyrighted or trademarked materials except those owned by or licensed to the Company. Executive represents that he is not a party to any other agreement that will interfere with his full compliance with this Agreement. Executive further agrees not to enter into any agreement, whether written or oral, in conflict with the provisions of this Agreement.

(5) Notwithstanding the generality of the foregoing, nothing in this Agreement is intended to prohibit the Executive from filing a charge with, reporting possible violations to, or participating or cooperating with the Securities and Exchange Commission or any other federal, state or local regulatory body or law enforcement agency, including in relation to any whistleblower, anti-discrimination, or anti-retaliation provisions of federal, state or local law or regulation. Pursuant to 18 U.S.C. Section 1833(b), the Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (x) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (y) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

(f) Inventions. Any and all inventions, discoveries or improvements that Executive has conceived or made or may conceive or make during the period of employment relating to or in any way pertaining to or connected with the systems, products, computer programs, software, apparatus or methods employed, manufactured or constructed by the Company or to systems, products, apparatus or methods with respect to which the Company engages in, requests or anticipates research or development, shall be promptly and fully disclosed and described by Executive to the Company and shall be the sole and exclusive property of the Company, and Executive shall assign, and hereby does assign to the Company Executive’s entire right, title and interest in and to all such inventions, discoveries or improvements as well as any modifications or improvements thereto that may be made.

The obligations outlined in this Section 9(f) do not apply to any invention that qualifies fully under California Labor Code Section 2870 (a copy of which is attached hereto as Exhibit C) or to any rights Executive may have acquired in connection with an invention, discovery or improvement that was developed entirely on Executive’s own time for which no equipment, supplies, facilities or trade secret information of the Company was used and (a) that does not relate directly or indirectly to the business of the Company or to the Company’s actual or demonstrable anticipated research or development, or (b) that does not result from any work performed by Executive for the Company.

(g) Maryland Law. The Executive agrees, in accordance with Maryland law, to first offer to the Company corporate opportunities learned of solely as a result of his service as an officer of the Company.

(h) Breach. It is expressly agreed that each breach of this Section 9 is a distinct and material breach of this Agreement and that solely a monetary remedy would be inadequate, impracticable and extremely difficult to prove, and that each such breach would cause the

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Company irreparable harm. It is further agreed that, in addition to any and all remedies available at law or equity (including money damages), either party shall be entitled to temporary and permanent injunctive relief to enforce the provisions of this Section, without the necessity of proving actual damages. It is further agreed that either party shall be entitled to seek such equitable relief in any forum, including a court of law, notwithstanding the provisions of Section 11. Either party may pursue any of the remedies described herein concurrently or consecutively in any order as to any such breach or violation, and the pursuit of one of such remedies at any time will not be deemed an election of remedies or waiver of the right to pursue any of the other such remedies. Any breach of this Section 9 shall immediately terminate any obligations by the Company to provide Executive with severance and continued benefits pursuant to Section 6 or 7 of this Agreement.

(i) Unenforceability. Should any portion of this Section 9 be deemed unenforceable because of its scope, duration or effect, and only in such event, then the parties expressly consent and agree to such limitation on scope, duration or effect as may be finally adjudicated as enforceable, to give this Section 9 its maximum permissible scope, duration and effect.

10. Notices. All notices and other communications under this Agreement shall be in writing and shall be given by fax or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a fax to the respective persons named below:

If to the Company:Redwood Trust, Inc.

Attn: General Counsel

One Belvedere Place, Suite 300

Mill Valley, CA 94941

Phone: (415) 389-7373

Fax: (415) 381-1773

If to the Executive:Christopher J. Abate

c/o Redwood Trust, Inc.

One Belvedere Place, Suite 300

Mill Valley, CA 94941

Phone: (415) 389-7373

Fax: (415) 381-1773

Either party may change such party’s address for notices by notice duly given pursuant hereto.

11. Resolution of Disputes. To ensure the rapid and economical resolution of disputes that may arise in connection with the Executive’s employment with the Company, the Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to the enforcement, breach, performance, or interpretation of this

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Agreement, the Executive’s employment, or the termination of the Executive’s employment (“Arbitrable Claims”) shall be submitted to confidential mediation in San Francisco, California conducted by a mutually agreeable mediator from Judicial Arbitration and Mediation Services (“JAMS”) or its successor under the JAMS Rules of Practice and Procedure then in effect, which can be found at www.jamsadr.com/adr-rules-procedures. The cost of JAMS’ mediation fees shall be paid by the Company. In the event that mediation is unsuccessful in resolving the Arbitrable Claims, the Arbitrable Claims shall be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in San Francisco, California conducted by JAMS or its successor, under the then applicable rules of JAMS.

The Executive acknowledges that by agreeing to this arbitration procedure, both the Executive and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding.

The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. The arbitrator shall be authorized to award any or all remedies that the Executive or the Company would be entitled to seek in a court of law, including, without limitation, the award of attorneys’ fees based on a determination of the extent to which each party has prevailed as to the material issues raised in determination of the dispute. The Company shall pay all JAMS’ arbitration fees in excess of those which would be required if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either the Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such mediation or arbitration.

12. [Reserved]

13. Assignment; Successors. This Agreement is personal in its nature, and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder; provided, however, that, in the event of the merger, consolidation, transfer, or sale of all or substantially all of the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder.

14. Governing Law. This Agreement and the legal relations thus created between the parties hereto shall be governed by and construed under and in accordance with the laws of the State of California.

15. Entire Agreement; Headings. This Agreement embodies the entire agreement of the parties with respect to the subject matter hereof and supersedes in their entirety all other or prior agreements, whether oral or written, with respect thereto, including but not limited to the Prior Agreement, but excluding the plans, programs and equity award agreements under which compensation and benefits are provided pursuant to Sections 3 and 4 hereof to the extent such

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plans and programs and equity award agreements are not inconsistent with this Agreement. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

16. Waiver; Modification. Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. This Agreement shall not be modified in any respect except by a writing executed by each party hereto.

17. Severability. In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, only the portions of this Agreement that violate such statute or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement.

18. Indemnification. The Company shall indemnify and hold Executive harmless to the maximum extent permitted by Section 2-418 of the Maryland General Corporations Law or its successor statute, or if greater, by the Company’s Bylaws, by any applicable resolution of the Board or by the terms providing the most extensive indemnification contained in any written agreement between the Company and any director or officer of the Company. The Company shall make Executive a named beneficiary under all director and officer liability policies maintained by the Company from time to time for the benefit of its directors and officers, entitled to all benefits provided thereunder to persons serving in a comparable role as an officer of the Company.

19.    Section 409A.Any payments under this Agreement subject to Section 409A of the Code that are subject to execution of a waiver and release which may be executed and/or revoked in a calendar year following the calendar year in which the payment event (such as a termination of employment) occurs shall commence payment only in the calendar year in which the consideration period or, if applicable, release revocation period ends, as necessary to comply with Section 409A of the Code. Notwithstanding anything to the contrary in this Agreement, no compensation or benefits shall be paid to the Executive during the six (6)-month period following the Executive’s “separation from service” from the Company (within the meaning of Section 409A of the Code, a “Separation from Service”) if the Company determines that paying such amounts at the time or times indicated in this Agreement would be a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code. If the payment of any such amounts is delayed as a result of the previous sentence, then on the first day of the seventh month following the date of Separation from Service (or such earlier date upon which such amount can be paid under Section 409A without resulting in a prohibited distribution, including as a result of the Executive’s death), the Company shall pay the Executive a lump-sum amount equal to the cumulative amount that would have otherwise been payable to the Executive during such period.Any right to a

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series of installment payments pursuant to this Agreement is to be treated as a right to a series of separate payments. To the extent permitted under Section 409A of the Code, any separate payment or benefit under this Agreement or otherwise shall not be deemed “nonqualified deferred compensation” subject to Section 409A of the Code to the extent provided in the exceptions in Treasury Regulation Section 1.409A-1(b)(4), Section 1.409A-1(b)(9) or any other applicable exception or provision of Section 409A. All payments of nonqualified deferred compensation subject to Section 409A to be made upon a termination of employment under this Agreement may only be made upon the Executive’s “separation from service” from the Company.

20. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

21. Successor Sections. References herein to sections or rules of the Code shall be deemed to include any successor sections or rules.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Executive has hereunto signed this Agreement, as of the Effective Date.

REDWOOD TRUST, INC.
By:	/s/ Andrew P. Stone
	Andrew P. Stone
	Executive Vice President & General Counsel
EXECUTIVE
	/s/ Christopher J. Abate
	Christopher J. Abate

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INDIVIDUAL TERMINATION

EXHIBIT A

RELEASE AGREEMENT

Except as otherwise set forth in this Release Agreement or in Sections 7 and 18 of the Employment Agreement between Christopher J. Abate and Redwood Trust, Inc., Christopher J. Abate (“Executive”) hereby generally and completely releases the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date Executive signs this Release Agreement. The Company, its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns, hereby releases Executive and his heirs, executors, successors and assigns, from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date the Company signs this Release Agreement. This general mutual release includes, but is not limited to: (A) all claims arising out of or in any way related to Executive’s employment with the Company or the termination of that employment; (B) all claims related to Executive’s compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (C) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (D) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; (E) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the federal Employee Retirement Income Security Act of 1974 (as amended), and the California Fair Employment and Housing Act (as amended); and (F) all claims and rights with respect to Executive’s right to communicate directly with, cooperate with, or provide information to, any federal, state or local government regulator; provided, however, that nothing in this paragraph shall be construed in any way to release the

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Company from its obligation to indemnify Executive pursuant to agreement, the Company’s bylaws or binding resolutions, or applicable law.

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Executive acknowledges that he is knowingly and voluntarily waiving and releasing any rights he may have under the ADEA, and that the consideration given under his Employment Agreement with the Company for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which he was already entitled. Executive further acknowledges

that he has been advised by this writing, as required by the ADEA, that: (A) this waiver and release does not apply to any rights or claims that may arise after the date Executive signs this Release Agreement; (B) Executive should consult with an attorney prior to signing this Release Agreement (although Executive may choose voluntarily not do so); (C) Executive has twenty-one (21) days to consider this Release Agreement (although Executive may choose voluntarily to sign this Release Agreement earlier); (D) Executive has seven (7) days following the date that he signs this Release Agreement to revoke the Release Agreement by providing written notice to an officer of the Company; and (E) this Release Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after Executive signs this Release Agreement. Both Executive and the Company acknowledge that each has read and understands Section 1542 of the California Civil Code which reads as follows:

A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.

Both Executive and the Company hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to each party’s release of any claims hereunder.

Notwithstanding anything herein, the Executive acknowledges and agrees that, pursuant to 18 USC Section 1833(b), the Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

A-2

Mutual Nondisparagement. 

(a) Nondisparagement by Executive. At all times following the cessation of the Executive's employment with the Company, the Executive agrees not to make negative comments or statements about, or otherwise criticize or disparage, in any format or through any medium, the Company or any entity controlled by, controlling or under common control with the Company ("Affiliates") or any of the officers, directors, managers, employees, services, operations, investments or products of the Company or any of its Affiliates. For purposes of the foregoing sentence, disparagement shall include, but not be limited to, negative comments or statements intended or reasonably likely to be harmful or disruptive to a person’s or entity’s respective business, business reputation, business operations, or personal reputation.  

(b) Nondisparagement by Designated Company Representatives. At all times following the cessation of the Executive's employment with the Company, the Company agrees not to publish, and agrees to cause the Designated Company Representatives not to make, negative comments or statements about, or otherwise criticize or disparage, in any format or through any medium, the Executive. For purposes of the foregoing sentence, disparagement shall include, but not be limited to, negative comments or statements intended or reasonably likely to be harmful or disruptive to a person’s business reputation or personal reputation. For purposes of this sub-section (b), the “Designated Company Representatives” are (i) all executive officers of the Company while serving in such capacity and (ii) all members of the Board of Directors while serving in such capacity.

(c) The foregoing sub-sections (a) and (b) shall not be violated by truthful comments or statements (i) made in response to legal process, in required governmental testimony or filings, in judicial, administrative or arbitral proceedings (including, without limitation, depositions in connection with such proceedings), in compliance with law, administrative rule, or regulation, or made pursuant to a court or administrative order, or in connection with reporting possible violations of federal law or regulation to any governmental agency or entity, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation, (ii) made by members of the Board of Directors in the course of meetings or discussions of the Board of Directors (or any committee thereof) or in communications between members of the Board of Directors and the Executive, and not disclosed to the public, (iii) made by a member of the Board of Directors in the good faith belief that the statements are required for the proper discharge of his or her fiduciary duties, or (iv) made by the Board of Directors in connection with a termination of the Executive for Cause.

[Signature Page Follows]

A-3

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Executive has hereunto signed this Agreement, as of the date set forth below.

EXECUTIVE
Name:
	Christopher J. Abate
Date:
COMPANY
Name:
Date:

A-4

GROUP TERMINATION

EXHIBIT B

RELEASE AGREEMENT

Except as otherwise set forth in this Release Agreement or in Sections 7 and 18 of the Employment Agreement between Christopher J. Abate and Redwood Trust, Inc., Christopher J. Abate (“Executive”) hereby generally and completely releases the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date Executive signs this Release Agreement. The Company, its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns, hereby releases Executive and his heirs, executors, successors and assigns, from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date the Company signs this Release Agreement. This general mutual release includes, but is not limited to: (A) all claims arising out of or in any way related to Executive’s employment with the Company or the termination of that employment; (B) all claims related to Executive’s compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (C) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (D) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; (E) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the federal Employee Retirement Income Security Act of 1974 (as amended), and the California Fair Employment and Housing Act (as amended); and (F) all claims and rights with respect to Executive’s right to communicate directly with, cooperate with, or provide information to, any federal, state or local government regulator; provided, however, that nothing in this paragraph shall be construed in any way to release the

B-1

Company from its obligation to indemnify Executive pursuant to agreement, the Company’s bylaws or binding resolutions, or applicable law.

B-1

Executive acknowledges that he is knowingly and voluntarily waiving and releasing any rights he may have under the ADEA, and that the consideration given under his Employment Agreement with the Company for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which he was already entitled. Executive further acknowledges

that he has been advised by this writing, as required by the ADEA, that: (A) this waiver and release does not apply to any rights or claims that may arise after the date Executive signs this Release Agreement; (B) Executive should consult with an attorney prior to signing this Release Agreement (although Executive may choose voluntarily not do so); (C) Executive has forty-five (45) days to consider this Release Agreement (although he may choose voluntarily to sign this Release Agreement earlier); (D) Executive has seven (7) days following the date that he signs this Release Agreement to revoke the Release Agreement by providing written notice to an officer of the Company; (E) this Release Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after Executive signs this Release Agreement; and (F) Executive has received with this Release Agreement a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated.

Both the Executive and the Company acknowledge that each has read and understands Section 1542 of the California Civil Code which reads as follows:

A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.

Both the Executive and the Company hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to each party’s release of any claims hereunder.

Notwithstanding anything herein, the Executive acknowledges and agrees that, pursuant to 18 USC Section 1833(b), the Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

B-2

Mutual Nondisparagement. 

(a) Nondisparagement by Executive. At all times following the cessation of the Executive's employment with the Company, the Executive agrees not to make negative comments or statements about, or otherwise criticize or disparage, in any format or through any medium, the Company or any entity controlled by, controlling or under common control with the Company ("Affiliates") or any of the officers, directors, managers, employees, services, operations, investments or products of the Company or any of its Affiliates. For purposes of the foregoing sentence, disparagement shall include, but not be limited to, negative comments or statements intended or reasonably likely to be harmful or disruptive to a person’s or entity’s respective business, business reputation, business operations, or personal reputation.  

(b) Nondisparagement by Designated Company Representatives. At all times following the cessation of the Executive's employment with the Company, the Company agrees not to publish, and agrees to cause the Designated Company Representatives not to make, negative comments or statements about, or otherwise criticize or disparage, in any format or through any medium, the Executive. For purposes of the foregoing sentence, disparagement shall include, but not be limited to, negative comments or statements intended or reasonably likely to be harmful or disruptive to a person’s business reputation or personal reputation. For purposes of this sub-section (b), the “Designated Company Representatives” are (i) all executive officers of the Company while serving in such capacity and (ii) all members of the Board of Directors while serving in such capacity.

(c) The foregoing sub-sections (a) and (b) shall not be violated by truthful comments or statements (i) made in response to legal process, in required governmental testimony or filings, in judicial, administrative or arbitral proceedings (including, without limitation, depositions in connection with such proceedings), in compliance with law, administrative rule, or regulation, or made pursuant to a court or administrative order, or in connection with reporting possible violations of federal law or regulation to any governmental agency or entity, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation, (ii) made by members of the Board of Directors in the course of meetings or discussions of the Board of Directors (or any committee thereof) or in communications between members of the Board of Directors and the Executive, and not disclosed to the public, (iii) made by a member of the Board of Directors in the good faith belief that the statements are required for the proper discharge of his or her fiduciary duties, or (iv) made by the Board of Directors in connection with a termination of the Executive for Cause.

[Signature Page Follows]

B-3

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Executive has hereunto signed this Agreement, as of the date set forth below.

EXECUTIVE
Name:
	Christopher J. Abate
Date:
COMPANY
Name:
Date:

B-4

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EXHIBIT C

Section 2870 of California Labor Code

Section 2870 of California Labor Code: Application of provision providing that employee shall assign or offer to assign rights in invention to employer.

a.Any provision and employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities or trade secret information except for those inventions that either:

1.Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or

2.Result from any work performed by the employee for the employer.

b.    To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

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EXHIBIT D

DEFINITION OF “CHANGE OF CONTROL”

With respect to (i) equity-based or equity-related awards granted prior to the Effective Date and (ii) long-term incentive and/or retention compensation awards that are payable in cash granted prior to the Effective Date, the following definition of Change of Control shall apply:

“’Change of Control’ refers to the occurrence of any of the following:

(1) any one person, or more than one person acting as a group (within the meaning of Section 409A of the Code), acquires ownership of stock of the Company that, together with other stock held by such person or group constitutes more than 50 percent of the total fair market value or total voting power of all stock of the Company; or

(2) any one person, or more than one person acting as a group (within the meaning of Section 409A of the Code), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 30 percent or more of the total voting power of the stock of the Company; or

(3) during any 12-month period, a majority of the members of the Company’s board of directors is replaced by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors prior to such appointment or election; or

(4) any one person, or more than one person acting as a group (within the meaning of Section 409A of the Code), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisition; provided, that that no change of control shall be deemed to occur when the assets are transferred to:

(x) a shareholder of the Company in exchange for or with respect to its stock,

(y) a person, or more than one person acting as a group (within the meaning of Section 409A of the Code), that owns, directly or indirectly, 50 percent or more of the total value or voting power of all of the outstanding stock of the Company, or

(z) an entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a person that owns directly or indirectly 50 percent or more of the total value or voting power of all of the outstanding stock

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of the Company, in each case with such persons status determined immediately after the transfer of assets.”

With respect to (i) equity-based or equity-related awards granted on or following the Effective Date and (ii) long-term incentive and/or retention compensation awards that are payable in cash granted on or following the Effective Date, the following definition of Change of Control shall apply:

    “’Change of Control’ refers to the occurrence of any of the following:

i.A transaction or series of transactions (other than an offering of common stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 30% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

ii.During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c) of this definition) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

iii.The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

1.which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of

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the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

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2.after which no person or group beneficially owns voting securities representing 30% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 30% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.”

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EX-10.2

Exhibit 10.2

THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Third Amended and Restated Employment Agreement (“Agreement”), effective as of November 6, 2020 (the “Effective Date”), is entered into by and between Dashiell I. Robinson (the “Executive”) and Redwood Trust, Inc., a Maryland corporation (the “Company”), and amends and restates in its entirety that certain Second Amended and Restated Employment Agreement by and between the Executive and the Company effective August 6, 2019 (as subsequently amended, the “Prior Agreement”).

The Company desires to establish its right to the continued services of the Executive, in the capacity, on the terms and conditions, and subject to the rights of termination hereinafter set forth, and the Executive is willing to accept such continued employment in such capacity, on such terms and conditions, and subject to such rights of termination.

In consideration of the mutual agreements hereinafter set forth, the Executive and the Company have agreed and do hereby agree as follows:

1.     Employment and Responsibilities. During the Term, the Executive shall serve as President of the Company, reporting to the Chief Executive Officer of the Company, with responsibilities, duties and authority customary for such position, including, without limitation, business and strategic development and implementation, as well as direct management and oversight of, without limitation, the following officers of Company: head of portfolio strategy and risk; head of residential mortgage business division; and head of business purpose lending division. The Executive does hereby accept and agree to such continued employment. The Chief Executive Officer may, from time to time, in his sole discretion, modify, reassign and/or augment the Executive’s responsibilities, subject to approval by the Board of Directors of the Company (the “Board”), and any such modification, reassignment and/or augmentation shall be deemed a waiver by the Executive of his rights under Section 6(e)(i) hereof only with his express written consent. Any such modification, reassignment or augmentation of responsibilities shall be in writing. The Executive shall devote such time, energy and skill to the performance of his duties for the Company and for the benefit of the Company as may be necessary or required for the effective conduct and operation of the Company’s business. Furthermore, the Executive shall act only in good faith and exercise due diligence and care in the performance of his duties to the Company under this Agreement.

2.    Term of Agreement. The term of this Agreement (the “Term”) shall commence on the Effective Date and shall continue through December 31, 2020; provided, however, that (i) on January 1, 2021 and each succeeding January 1, the Term shall automatically be extended for one additional year unless, not later than three months prior to any such January 1, either party shall have given written notice to the other that it does not wish to extend the Term and (ii) such one year extensions of the Term shall not occur on and after the January 1 of the year in which the Executive will attain age sixty-five (65) but instead the Term shall be extended only until the date of the Executive’s sixty-fifth (65th) birthday.

3.    Compensation.

(a)    Base Salary. The Company shall pay the Executive, and the Executive agrees to accept from the Company, in payment for his services to the Company a base salary (the “Base Salary”) at the rate of $700,000 per year, paid in accordance with the customary payroll practices of the Company subject to annual review and increase by the Board in its sole discretion (or by the Board’s separately designated Compensation Committee in its sole discretion). For the avoidance of doubt, references to the Board in this Section 3 shall include the Board’s separately designated Compensation Committee.

(b)    Performance Bonus - Board of Directors’ Discretion. The Executive shall be eligible to receive an annual bonus. The Board in its discretion will determine whether such annual bonus will be paid, the amount of such bonus and its form of payment. The Executive’s target annual bonus amount is 175% of his Base Salary (the “Target Bonus”). If the Board determines in its discretion that the Executive’s performance meets or exceeds the criteria established by the Board for the award of a Target Bonus, the Board may award the Executive the Target Bonus or a higher amount. Likewise, if the Executive’s performance does not meet said criteria, the Board may award a lesser amount, or no bonus may be awarded. Unless otherwise provided in this Agreement, the Executive’s eligibility to receive any bonus under this Section 3(b) shall be expressly conditioned on, among other things, the Executive remaining employed with the Company up through any designated distribution date set by the Board.

(c)    Equity Incentive Awards. Executive shall be eligible to receive grants of equity-based long-term incentive awards, which may include options to purchase Company stock, performance or restricted stock units and Company restricted stock contributions to Company’s deferred compensation plan, or other equity-based awards. Such awards shall be determined in the discretion of the Board. In the event of a “Change of Control” (as defined in Exhibit D attached hereto) in which the surviving or acquiring corporation does not assume the Executive’s outstanding equity-related awards (including options and equity-based awards granted both before and after the Effective Date) or substitute similar equity-related awards, such equity-related awards shall immediately vest and become exercisable if the Executive’s service with the Company has not terminated before the effective date of the Change of Control; provided, however, that the foregoing provision shall only apply if the Company is not the surviving corporation or if shares of the Company’s common stock are converted into or exchanged for other securities or cash.

(d)     Annual Review. The Executive’s performance shall be reviewed at least annually. The performance evaluations shall consider and assess the Executive’s performance of his duties and responsibilities, the timely accomplishment of existing performance objectives, his level of efficiency and overall effectiveness and/or other factors or criteria that the Company, in its sole discretion, may deem relevant. The frequency of performance evaluations may vary depending upon, among other things, length of service, past performance, changes in job duties or performance levels. The Board shall, at least annually, review the Executive’s entire compensation package to determine whether it continues to meet the Company’s compensation objectives. Such annual review will include a determination of (i) whether to increase the Base

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Salary in accordance with Section 3(a); (ii) the incentive performance bonus to be awarded in accordance with Section 3(b); and (iii) the amount and type of any equity awards granted in accordance with Section 3(c). Positive performance evaluations do not guarantee salary increases or incentive bonuses. Salary increases and incentive bonus awards are solely within the discretion of the Board and may depend upon many factors other than the Executive’s performance.

4.    Fringe Benefits. The Executive shall be entitled to participate in any benefit programs adopted from time to time by the Company for the benefit of its senior executive employees, and the Executive shall be entitled to receive such other fringe benefits as may be granted to him from time to time by the Board.

(a)    Benefit Plans. The Executive shall be entitled to participate in any benefit plans relating to equity-based compensation awards, pension, thrift, profit sharing, life insurance, medical coverage, education, deferred compensation, or other retirement or employee benefits available to other senior executive employees of the Company, subject to any restrictions (including waiting periods) specified in such plans and/or related individual agreements. The Company shall make commercially reasonable efforts to obtain medical and disability insurance, and such other forms of insurance as the Board shall from time to time determine, for its senior executive employees.

(b)    Paid Time Off. The Executive shall be entitled to paid time off (“PTO”) each calendar year pursuant to the Company’s policies applicable to similarly situated employees of the Company, as in effect from time to time and consistent with the Executive’s satisfactory performance of the duties set forth in Section 1.

5.    Business Expenses. The Company shall reimburse the Executive for any and all necessary, customary and usual expenses, properly receipted in accordance with Company policies, incurred by Executive on behalf of the Company.

6.    Termination of Executive’s Employment.

(a)    Death. If the Executive dies while employed by the Company, his employment shall immediately terminate. The Company’s obligation to pay the Executive’s Base Salary shall cease as of the date of the Executive’s death, and any unpaid Base Salary shall be paid to the Executive’s estate. In addition, within fifteen (15) days of the Executive’s death, the Company shall pay to the Executive’s estate an incentive performance bonus based on Executive’s Target Bonus then in effect, prorated for the number of days of employment completed by the Executive during the year of his death. Executive’s beneficiaries or his estate shall receive benefits in accordance with the Company’s retirement, insurance and other applicable programs and plans then in effect. All stock options or other equity-related awards with time-based vesting, including deferred or restricted stock units, shall vest in full and, in the case of stock options, shall be exercisable for such period as set forth in the applicable award agreement by which such awards are evidenced. All stock options or other equity-related awards with performance-based vesting, including performance stock units, shall remain outstanding and

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shall continue to be eligible to vest and become payable based on the number of target shares and the performance goals set forth in the applicable award agreement by which such awards are evidenced, with any stock options remaining exercisable for such period as set forth in the applicable award agreement. In addition, in the event the Company grants to the Executive a cash-settled equity award or a long-term incentive compensation award payable in cash, this Section 6(a) shall apply, mutatis mutandis, to any such award(s).

(b)    Disability. If, as a result of the Executive’s incapacity due to physical or mental illness (“Disability”), Executive shall have been absent from the full-time performance of his duties with the Company for six (6) consecutive months, and, within thirty (30) days after written notice is provided to him by the Company, he shall not have returned to the full-time performance of his duties, the Executive’s employment under this Agreement may be terminated by the Company for Disability. During any period prior to such termination during which the Executive is absent from the full-time performance of his duties with the Company due to Disability, the Company shall continue to pay the Executive his Base Salary at the rate in effect at the commencement of such period of Disability. Subsequent to such termination, the Executive’s benefits shall be determined under the Company’s retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. In addition, within fifteen (15) days of such termination, the Company shall pay to the Executive an incentive performance bonus based on Executive’s Target Bonus then in effect, prorated for the number of days of employment completed by the Executive during the year in which his employment terminated. The Executive, the Executive’s beneficiaries or his estate shall receive benefits in accordance with the Company’s retirement, insurance and other applicable programs and plans then in effect. All stock options or other equity-related awards with time-based vesting, including deferred or restricted stock units, shall vest in full and, in the case of stock options, shall be exercisable for such period as set forth in the applicable award agreement by which such awards are evidenced. All stock options or other equity-related awards with performance-based vesting, including performance stock units, shall remain outstanding and shall continue to be eligible to vest and become payable based on the number of target shares and the performance goals set forth in the applicable award agreement by which such awards are evidenced, with any stock options remaining exercisable for such period as set forth in the applicable award agreement. In addition, in the event the Company grants to the Executive a cash-settled equity award or a long-term incentive compensation award payable in cash, this Section 6(b) shall apply, mutatis mutandis, to any such award(s).

(c)    Termination By The Company For Cause. The Company may terminate the Executive’s employment under this Agreement for Cause, at any time prior to expiration of the Term of the Agreement; provided, however, that prior to any termination of employment for Cause pursuant to subsection (i), (ii), or (iii) below, the Company must first provide written notice describing the reason for such termination of employment (and, with respect to subsections (ii) and (iii) below, such notice may be provided on the same date as the termination date). For purposes of this Agreement, “Cause” shall mean (i) the Executive’s material failure to substantially perform the reasonable and lawful duties of his position for the Company, which failure shall continue for thirty (30) days after written notice thereof by the Company to the Executive; (ii) acts or omissions constituting gross negligence, recklessness or willful

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misconduct on the part of the Executive in respect of the performance of his duties hereunder, his fiduciary obligations or otherwise relating to the business of the Company; (iii) the habitual or repeated neglect of his duties by Executive; (iv) the Executive’s conviction of a felony; (v) theft or embezzlement, or attempted theft or embezzlement, of money or tangible or intangible assets or property of the Company or its employees, customers, clients, or others having business relations with the Company; (vi) any act of moral turpitude by Executive injurious to the interest, property, operations, business or reputation of the Company; or (vii) unauthorized use or disclosure of trade secrets or confidential or proprietary information pertaining to Company business.

In the event of a termination under this Section 6(c), the Company will pay only the portion of Base Salary or previously awarded bonus unpaid as of the termination date. Fringe benefits which have accrued and/or vested on the termination date will continue in effect according to their terms.

(d)    Termination By The Company Without Cause. The Company may terminate Executive’s employment hereunder at any time without Cause upon 30 days written notice to Executive or pay in lieu thereof. In the event of a termination under this Section 6(d), the Executive shall be entitled to the benefits set forth in Section 7.

(e)    Termination By The Executive For Good Reason. The Executive shall have the right to terminate the Officer’s employment under this Agreement for Good Reason, at any time prior to expiration of the Term of the Agreement. For purposes of this Agreement, “Good Reason” shall mean the occurrence, without the Executive’s express written consent, of any one or more of the following events:

(i)    A material reduction in Executive’s responsibilities, title, duties or authority, including, without limitation, (A) Executive ceasing to serve as the president of a publicly-traded company (or in a comparable senior officer role of a publicly-traded company reporting directly to the chief executive officer with responsibilities, authority, duties and compensation opportunity comparable to Executive’s role as President of the Company (a “Comparable Role”) determined as of the Effective Date) or (B) on or after a Change of Control, if as a result of such Change of Control, the Company becomes a subsidiary of another entity and Executive is not appointed (or after appointment, ceases) to be the president (or serve in a Comparable Role determined as of the time immediately prior to the Change of Control) of the top-tier parent entity of the Company (or its successor);

(ii)    A material reduction in the Executive’s Base Salary or a material reduction by the Company in the value of the Executive’s total compensation package (salary, bonus opportunity, equity incentive award opportunity and benefits) if such a reduction is not made in proportion to an across-the-board reduction for all senior executives of the Company;

(iii)    The relocation of the Executive’s principal Company office to a location more than twenty-five (25) miles from its location as of the Effective Date (which

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location is the Company’s headquarters in Mill Valley, California), except for required travel on the Company’s business to the extent necessary to fulfill the Executive’s obligations under Section 1;

(iv)    A failure at any time to renew this Agreement for successive one-year periods pursuant to Section 2;

(v)    The complete liquidation of the Company; or

(vi)    In the event of a merger, consolidation, transfer, or closing of a sale of all or substantially all the assets of the Company with or to any other individual or entity, the failure of the Company’s successor to affirmatively adopt this Agreement or to otherwise comply with its obligations pursuant to Section 13 below.

Notwithstanding the foregoing, the Executive will not be deemed to have resigned for Good Reason for purposes of subclause (i) unless (1) the Executive provides the Company with written notice setting forth in reasonable detail the facts and circumstances claimed by the Executive to constitute Good Reason within ninety (90) days after the date of the occurrence of any event that the Executive knows or should reasonably have known to constitute Good Reason, (2) the Company fails to cure such acts or omissions within thirty (30) days following its receipt of such notice, and (3) the effective date of the Executive’s termination for Good Reason occurs no later than thirty (30) days after the expiration of the Company’s cure period. In the event of a termination under this Section 6(e), the Executive shall be entitled to the benefits set forth in Section 7.

(f)    Termination By The Executive Without Good Reason. The Executive may at any time during the Term terminate his employment hereunder for any reason or no reason by giving the Company notice in writing not less than sixty (60) days in advance of such termination. The Executive shall have no further obligations to the Company after the effective date of termination, as set forth in the notice. In the event of a termination by the Executive under this Section 6(f), the Company will pay only the portion of Base Salary or previously awarded bonus unpaid as of the termination date. Fringe benefits which have accrued and/or vested on the termination date will continue in effect according to their terms.

7.    Compensation Upon Termination By the Company without Cause or By The Executive for Good Reason.

(a)    If the Executive’s employment shall be terminated by the Company without Cause or by the Executive for Good Reason, the Executive shall be entitled to the following benefits:

(i)    Payment of Unpaid Base Salary. The Company shall immediately pay the Executive any portion of the Executive’s Base Salary through the date of termination or previously awarded bonus not paid prior to the termination date.

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(ii)    Severance Payment.

(A)    In the event such termination is not a CIC Termination (as defined below), then the Company shall provide the Executive (x) an amount equal to one (1) times the sum of (i) Executive’s Annual Base Salary as in effect immediately prior to his termination and (ii) Executive’s Target Bonus in effect immediately prior to his termination and (y) an amount equal to the Executive’s Target Bonus in effect immediately prior to his termination, pro-rated for the number of days of employment completed by the Executive during the year in which his employment is terminated.

(B)    In the event such termination of employment occurs within three months prior to, on, or within 24 months following a Change of Control (a “CIC Termination”), then instead of providing the payments in Section 7(a)(ii)(A), the Company shall provide the Executive an amount equal to the sum of (x) the Executive’s Target Bonus in effect immediately prior to his termination, prorated for the number of days of employment completed by the Executive during the year in which his employment terminated; (y) one-and-one-half (1.5) times the Executive’s Annual Base Salary as in effect immediately prior to his termination; and (z) one-and-one-half (1.5) times the Executive’s Target Bonus in effect immediately prior to his termination. Notwithstanding the foregoing, the maximum aggregate amount that the Company shall pay to the Executive pursuant to this Section 7(a)(ii)(B) is $4,000,000.

(iii)    Equity Awards. All stock options or other equity-related awards with time-based vesting, including deferred or restricted stock units, shall vest in full and, in the case of stock options, shall be exercisable for such period as set forth in the applicable award agreement by which such awards are evidenced. If the Executive’s employment shall be terminated by the Company without Cause, all stock options or other equity-related awards with performance-based vesting, including performance stock units, shall remain outstanding and shall continue to be eligible to vest and become payable or exercisable based on (x) the performance goals set forth in the applicable award agreement by which such awards are evidenced and (y) a reduced number of target shares adjusted on a pro-rata basis to reflect the number of days of employment completed during the applicable vesting period in which termination occurs, with any stock options remaining exercisable for such period as set forth in the applicable award agreement. If the Executive’s employment shall be terminated by the Executive for Good Reason, all stock options or other equity-related awards with performance-based vesting, including performance stock units, shall remain outstanding and shall continue to be eligible to vest and become payable based on the number of target shares and the performance goals set forth in the applicable award agreement by which such awards are evidenced, with any stock options remaining exercisable for such period as set forth in the applicable award agreement. In addition, in the event the Company grants to the Executive a cash-settled equity award or a long-term incentive compensation award payable in cash, this Section 7(a)(iii) shall apply, mutatis mutandis, to any such award(s).

(iv)    Continuation of Fringe Benefits. For a period of up to twelve (12) months (or, in the event of a CIC Termination, eighteen (18) months) following the date of Executive’s termination of employment with Company, subject to the Executive’s valid election

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to continue healthcare coverage under Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder, the Company shall continue to provide the Executive and the Executive’s eligible dependents with coverage under its group health plans at the same levels and the same cost to the Executive as would have applied if the Executive’s employment had not been terminated based on the Employee’s elections in effect on the date of termination (the “Continued Coverage”), provided that (1) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A of the Code under Treasury Regulation Section 1.409A-1(a)(5), or (2) the Company is otherwise unable to continue to cover the Executive under its group health plans without penalty under applicable law (including without limitation, Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act), the Company may in its sole discretion provide that (i) the Executive shall pay to the Company, on an after-tax basis, a monthly amount equal to the full premium cost of the Continued Coverage for such month and (ii) within 30 days of such premium payment, the Company shall reimburse the Executive in cash (less required withholding) an amount equal to the sum of (A) the excess of (x) the full premium cost of the Continued Coverage for such month over (y) any premium amount that would have been payable by the Executive if the Executive had been actively employed by the Company for such month and (B) an additional tax “gross up” payment to cover all estimated applicable local, state and federal income and payroll taxes imposed on the Executive with respect to the Continued Coverage. For the twelve (12) month (or, in the event of a CIC Termination, eighteen (18) month) period following the termination of the Executive’s employment, the Company shall also continue to provide the Executive with all life insurance, disability insurance and other fringe benefits set forth in Section 4 as if the Executive’s employment under the Agreement had not been terminated; provided, however, that such life insurance, disability insurance and other fringe benefits shall cease as of the date the Executive receives such coverage from a subsequent employer.

(v)    Payment/Benefit Limitation.  If any payment or benefit due under this Agreement, together with all other payments and benefits that the Executive receives or is entitled to receive from the Company or any of its subsidiaries, affiliates or related entities, would (if paid or provided) constitute an “excess parachute payment” for purposes of Section 280G of the Code, the amounts otherwise payable and benefits otherwise due under this Agreement will either (i) be delivered in full, or (ii) be limited to the minimum extent necessary to ensure that no portion thereof will fail to be tax-deductible to the Company by reason of Section 280G of the Code (and therefore, no portion thereof will be subject to the excise tax imposed under Section 4999 of the Code), whichever of the foregoing amounts, taking into account applicable federal, state and local income and employment taxes and the excise tax imposed under Section 4999 of the Code, results in the receipt by the Executive, on an after-tax basis, of the greatest amount of payments and benefits, notwithstanding that all or some portion of such payments and/or benefits may be subject to the excise tax imposed under Section 4999 of the Code.  Unless otherwise specified in writing by the Executive, in the event that the payments and/or benefits are to be reduced pursuant to this Section 7(a)(v), such payments and benefits shall be reduced such that the reduction of cash compensation to be provided to the Executive as a result of this Section 7 is minimized.  In applying this principle, the reduction shall be made in a manner consistent with the requirements of Section 409A of the Code and where two

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economically equivalent amounts are subject to reduction but payable at different times, such amounts shall be reduced on a pro rata basis but not below zero.  All determinations required to be made under this Section 7(a)(v) shall be made by the Company's independent public accounting firm (or such other nationally recognized public accounting firm as may be selected by the Company and to which selection the Executive consents (such consent not to be unreasonably withheld)) which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a payment or benefit subject to this Section 7(a)(v), or such earlier time as is requested by the Company.

(b)    No Mitigation Required; No Other Entitlement To Benefits Under Agreement. The Executive shall not be required in any way to mitigate the amount of any payment provided for in this Section 7, including, without limitation, by seeking other employment, nor shall the amount of any payment provided for in this Section 7 be reduced by any compensation earned by the Executive as the result of employment with another employer after the termination date of employment, or otherwise. Except as set forth in this Section 7, following a termination governed by this Section 7, the Executive shall not be entitled to any other compensation or benefits set forth in this Agreement, except as may be separately negotiated by the parties and approved the Board in writing in conjunction with the termination of Executive’s employment under this Section 7.

(c)    Release Agreement. As a condition of receiving any of the payments, vesting and benefits set forth in this Section 7 (other than the payment provided for in sub-section 7(a)(i)), the Executive shall be required to execute a mutual release agreement in the form attached hereto as Exhibit A or Exhibit B, as appropriate, and such release agreement must have become effective in accordance with its terms within 60 days following the termination date. The Company, in its sole discretion, may modify the term of the required release agreement to comply with applicable law and may incorporate the required release agreement into a termination agreement or other agreement with the Executive.

(d)    Timing of Severance Payments. Notwithstanding any other provision of this Agreement, all severance payments provided under this Agreement in connection with the termination of the employment of the Executive shall be payable in an amount equal to 75% of such payments on the date that is six months after the termination date, and the remaining 25% shall be payable in six equal monthly installments beginning on the date that is seven months after the termination date and continuing on the same date of each of the five months thereafter.

(e)    Timing of Bonus Payments. Notwithstanding any other provision of this Agreement, all bonus payments provided under this Agreement in connection with the termination of the employment of the Executive shall be payable on the date that is six months after the termination date.

8.    Disputes Relating To Executive’s Termination of Employment For Good Reason. If the Executive resigns his employment with the Company alleging in good faith as the basis for such resignation “Good Reason” as defined in Section 6(e), and if the Company then

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disputes the Executive’s right to the payment of benefits under Section 7, the Company shall continue to pay the Executive the full compensation (including, without limitation, his Base Salary) in effect at the date the Executive provided written notice of such resignation, and the Company shall continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was then a participant, until the earlier of the expiration of the Term or the date the dispute is finally resolved, either by mutual written agreement of the parties or by application of the provisions of Section 11. For the purposes of this Section 8, the Company shall bear the burden of proving that the grounds for the Executive’s resignation do not fall within the scope of Section 6(e), and there shall be a rebuttable presumption that the Executive alleged such grounds in good faith.

9.    Restrictive Covenant Provisions.

(a)    Noncompetition. The Executive agrees that during the Term prior to any termination of his employment hereunder, he will not, directly or indirectly, without the prior written consent of a majority of the non-employee members of the Board, manage, operate, join, control, participate in, or be connected as a stockholder (other than as a holder of shares publicly traded on a stock exchange or the NASDAQ National Market System), partner, or other equity holder with, or as an officer, director or employee of, any real estate or mortgage investment organization whose business strategy is competitive with that of the Company, as determined by a majority of the non-employee members of the Board. It is further expressly agreed that the Company will or would suffer irreparable injury if the Executive were to compete with the Company or any subsidiary or affiliate of the Company in violation of this Agreement and that the Company would by reason of such competition be entitled to injunctive relief in a court of appropriate jurisdiction, and the Executive further consents and stipulates to the entry of such injunctive relief in such a court prohibiting the Executive from competing with the Company or any subsidiary or affiliate of the Company, in the areas of business set forth above, in violation of this Agreement.

(b)    Duty To Avoid Conflict Of Interest. During his employment by the Company, Executive agrees not to engage or participate in, directly or indirectly, any activities in conflict with the best interests of the Company. The Company shall be the final decision-maker with regard to any conflict of interest issue.

(c)    Right To Company Materials. The Executive agrees that all styles, designs, lists, materials, books, files, reports, correspondence, records, and other documents (“Company Materials”) used, prepared, or made available to the Executive shall be and shall remain the property of the Company. Upon the termination of employment or the expiration of this Agreement, the Executive shall immediately return to the Company all Company Materials, and the Executive shall not make or retain any copies thereof.

(d)    Nonsolicitation. The Executive promises and agrees that he will not directly or indirectly solicit any of the Company’s employees to work for any competing real estate or mortgage investment organization as determined under Section 9(a) for a period of one (1) year

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following the occurrence of any event entitling the Executive to payments and benefits, provided the Company makes all such payments when due according to the provisions herein.

(e)    Confidential And Proprietary Information.

(1)    It is hereby acknowledged that Executive has and shall gain knowledge of trade secrets and confidential information owned by or related to the Company and/or its affiliates including but not limited to the following: (i) the names, lists, buying habits and practices of customers, clients or vendors, (ii) marketing and related information, (iii) relationships with the persons or entities with whom or with which the Company has contracted, (iv) their products, designs, software, developments, improvements and methods of operation, (v) financial condition, profit performance and financial requirements, (vi) the compensation paid to employees, (vii) business plans and the information contained therein, and (viii) all other confidential information of, about or concerning the Company, the manner of operation of the Company and other confidential data of any kind, nature or description relating to the Company (collectively, the “Confidential Information”). Confidential Information does not include information which (A) is or becomes generally available to the public other than as a result of a disclosure by Executive; or (B) becomes available to Executive on a non-confidential basis after the termination or expiration of Executive’s obligations under this Agreement from a source other than the Company, provided that such source is not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any other party with respect to such information; or (C) is independently developed after the termination or expiration of Executive’s obligations under this agreement without reference to the Confidential Information, provided such independent development can reasonably be proven by Executive by written records.

(2)    The parties hereby acknowledge that the Confidential Information constitutes important, unique, material and confidential trade secrets which affect the successful activities of the Company, and constitute a substantial part of the assets and goodwill of the Company. In view of the foregoing, Executive agrees that he will not at any time whether during or after the term of this Agreement, except as required in the course of Executive’s employment by Company and at its direction and for its sole benefit, in any fashion, form or manner, directly or indirectly (i) use or divulge, disclose, communicate or provide or permit access to any person, firm, partnership, corporation or other entity, any Confidential Information of any kind, nature or description, or (ii) remove from Company’s premises any notes or records relating thereto, or copies or facsimiles thereof (whether made by electronic, electrical, magnetic, optical, laser, acoustic or other means).

(3)    Promptly upon the request of Company, and immediately upon the termination of Executive’s employment, Executive shall not transfer to any third person and shall deliver to Company all Confidential Information, and other property belonging to the Company, including all copies thereof, in the possession or under the control of the Executive.

(4)    Executive represents that the performance of all the terms of this Agreement will not conflict with, and will not breach, any other invention assignment agreement,

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confidentiality agreement, employment agreement or non-competition agreement to which Executive is or has been a party. To the extent that Executive has confidential information or materials of any former employer, Executive acknowledges that the Company has directed Executive to not disclose such confidential information or materials to the Company or any of its employees, and that the Company prohibits Executive from using said confidential information or materials in any work that Executive may perform for the Company. Executive agrees that Executive will not bring with Executive to the Company, and will not use or disclose any confidential, proprietary information, or trade secrets acquired by Executive prior to his employment with the Company. Executive will not disclose to the Company or any of its employees, or induce the Company or any of its employees to use, any confidential or proprietary information or material belonging to any previous employers or others, nor will Executive bring to the Company or use in connection with Executive’s work for the Company copies of any software, computer files, or any other copyrighted or trademarked materials except those owned by or licensed to the Company. Executive represents that he is not a party to any other agreement that will interfere with his full compliance with this Agreement. Executive further agrees not to enter into any agreement, whether written or oral, in conflict with the provisions of this Agreement.

(5)   Notwithstanding the generality of the foregoing, nothing in this Agreement is intended to prohibit the Executive from filing a charge with, reporting possible violations to, or participating or cooperating with the Securities and Exchange Commission or any other federal, state or local regulatory body or law enforcement agency, including in relation to any whistleblower, anti-discrimination, or anti-retaliation provisions of federal, state or local law or regulation. Pursuant to 18 U.S.C. Section 1833(b), the Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (x) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (y) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. 

(f)    Inventions. Any and all inventions, discoveries or improvements that Executive has conceived or made or may conceive or make during the period of employment relating to or in any way pertaining to or connected with the systems, products, computer programs, software, apparatus or methods employed, manufactured or constructed by the Company or to systems, products, apparatus or methods with respect to which the Company engages in, requests or anticipates research or development, shall be promptly and fully disclosed and described by Executive to the Company and shall be the sole and exclusive property of the Company, and Executive shall assign, and hereby does assign to the Company Executive’s entire right, title and interest in and to all such inventions, discoveries or improvements as well as any modifications or improvements thereto that may be made.

The obligations outlined in this Section 9(f) do not apply to any invention that qualifies fully under California Labor Code Section 2870 (a copy of which is attached hereto as Exhibit C) or to any rights Executive may have acquired in connection with an invention, discovery or improvement that was developed entirely on Executive’s own time for which no equipment,

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supplies, facilities or trade secret information of the Company was used and (a) that does not relate directly or indirectly to the business of the Company or to the Company’s actual or demonstrable anticipated research or development, or (b) that does not result from any work performed by Executive for the Company.

(g)    Maryland Law. The Executive agrees, in accordance with Maryland law, to first offer to the Company corporate opportunities learned of solely as a result of his service as an officer of the Company.

(h)    Breach. It is expressly agreed that each breach of this Section 9 is a distinct and material breach of this Agreement and that solely a monetary remedy would be inadequate, impracticable and extremely difficult to prove, and that each such breach would cause the Company irreparable harm. It is further agreed that, in addition to any and all remedies available at law or equity (including money damages), either party shall be entitled to temporary and permanent injunctive relief to enforce the provisions of this Section, without the necessity of proving actual damages. It is further agreed that either party shall be entitled to seek such equitable relief in any forum, including a court of law, notwithstanding the provisions of Section 11. Either party may pursue any of the remedies described herein concurrently or consecutively in any order as to any such breach or violation, and the pursuit of one of such remedies at any time will not be deemed an election of remedies or waiver of the right to pursue any of the other such remedies. Any breach of this Section 9 shall immediately terminate any obligations by the Company to provide Executive with severance and continued benefits pursuant to Section 6 or 7 of this Agreement.

(i)    Unenforceability. Should any portion of this Section 9 be deemed unenforceable because of its scope, duration or effect, and only in such event, then the parties expressly consent and agree to such limitation on scope, duration or effect as may be finally adjudicated as enforceable, to give this Section 9 its maximum permissible scope, duration and effect.

10.    Notices. All notices and other communications under this Agreement shall be in writing and shall be given by fax or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a fax to the respective persons named below:

If to the Company:	Redwood Trust, Inc.
	Attn: Chief Executive Officer
	One Belvedere Place, Suite 300
	Mill Valley, CA 94941
	Phone: (415) 389-7373
	Fax: (415) 381-1773

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If to the Executive:	Dashiell I. Robinson
	c/o Redwood Trust, Inc.
	One Belvedere Place, Suite 300
	Mill Valley, CA 94941
	Phone: (415) 389-7373
	Fax: (415) 381-1773

Either party may change such party’s address for notices by notice duly given pursuant hereto.

11.    Resolution of Disputes. To ensure the rapid and economical resolution of disputes that may arise in connection with the Executive’s employment with the Company, the Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, the Executive’s employment, or the termination of the Executive’s employment (“Arbitrable Claims”) shall be submitted to confidential mediation in San Francisco, California conducted by a mutually agreeable mediator from Judicial Arbitration and Mediation Services (“JAMS”) or its successor under the JAMS Rules of Practice and Procedure then in effect, which can be found at www.jamsadr.com/adr-rules-procedures. The cost of JAMS’ mediation fees shall be paid by the Company. In the event that mediation is unsuccessful in resolving the Arbitrable Claims, the Arbitrable Claims shall be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in San Francisco, California conducted by JAMS or its successor, under the then applicable rules of JAMS. 

The Executive acknowledges that by agreeing to this arbitration procedure, both the Executive and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding.

The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. The arbitrator shall be authorized to award any or all remedies that the Executive or the Company would be entitled to seek in a court of law, including, without limitation, the award of attorneys’ fees based on a determination of the extent to which each party has prevailed as to the material issues raised in determination of the dispute. The Company shall pay all JAMS’ arbitration fees in excess of those which would be required if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either the Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such mediation or arbitration.

12.    [Reserved]

13.    Assignment; Successors. This Agreement is personal in its nature, and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any

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rights or obligations hereunder; provided, however, that, in the event of the merger, consolidation, transfer, or sale of all or substantially all of the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder.

14.    Governing Law. This Agreement and the legal relations thus created between the parties hereto shall be governed by and construed under and in accordance with the laws of the State of California.

15.    Entire Agreement; Headings. This Agreement embodies the entire agreement of the parties with respect to the subject matter hereof and supersedes in their entirety all other or prior agreements, whether oral or written, with respect thereto, including but not limited to the Prior Agreement, but excluding the plans, programs and equity award agreements under which compensation and benefits are provided pursuant to Sections 3 and 4 hereof to the extent such plans and programs and equity award agreements are not inconsistent with this Agreement. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

16.    Waiver; Modification. Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. This Agreement shall not be modified in any respect except by a writing executed by each party hereto.

17.    Severability. In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, only the portions of this Agreement that violate such statute or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement.

18.    Indemnification. The Company shall indemnify and hold Executive harmless to the maximum extent permitted by Section 2-418 of the Maryland General Corporations Law or its successor statute, or if greater, by the Company’s Bylaws, by any applicable resolution of the Board or by the terms providing the most extensive indemnification contained in any written agreement between the Company and any director or officer of the Company. The Company shall make Executive a named beneficiary under all director and officer liability policies maintained by the Company from time to time for the benefit of its directors and officers, entitled to all benefits provided thereunder to persons serving in a comparable role as an officer of the Company.

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19.    Section 409A.Any payments under this Agreement subject to Section 409A of the Code that are subject to execution of a waiver and release which may be executed and/or revoked in a calendar year following the calendar year in which the payment event (such as a termination of employment) occurs shall commence payment only in the calendar year in which the consideration period or, if applicable, release revocation period ends, as necessary to comply with Section 409A of the Code. Notwithstanding anything to the contrary in this Agreement, no compensation or benefits shall be paid to the Executive during the six (6)-month period following the Executive’s “separation from service” from the Company (within the meaning of Section 409A of the Code, a “Separation from Service”) if the Company determines that paying such amounts at the time or times indicated in this Agreement would be a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code. If the payment of any such amounts is delayed as a result of the previous sentence, then on the first day of the seventh month following the date of Separation from Service (or such earlier date upon which such amount can be paid under Section 409A without resulting in a prohibited distribution, including as a result of the Executive’s death), the Company shall pay the Executive a lump-sum amount equal to the cumulative amount that would have otherwise been payable to the Executive during such period.Any right to a series of installment payments pursuant to this Agreement is to be treated as a right to a series of separate payments. To the extent permitted under Section 409A of the Code, any separate payment or benefit under this Agreement or otherwise shall not be deemed “nonqualified deferred compensation” subject to Section 409A of the Code to the extent provided in the exceptions in Treasury Regulation Section 1.409A-1(b)(4), Section 1.409A-1(b)(9) or any other applicable exception or provision of Section 409A. All payments of nonqualified deferred compensation subject to Section 409A to be made upon a termination of employment under this Agreement may only be made upon the Executive’s “separation from service” from the Company.

20.    Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

21.    Successor Sections. References herein to sections or rules of the Code shall be deemed to include any successor sections or rules.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Executive has hereunto signed this Agreement, as of the Effective Date.

REDWOOD TRUST, INC.
By:	/s/ Christopher J. Abate
	Christopher J. Abate
	Chief Executive Officer
EXECUTIVE
	/s/ Dashiell I. Robinson
	Dashiell I. Robinson

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INDIVIDUAL TERMINATION

EXHIBIT A

RELEASE AGREEMENT

Except as otherwise set forth in this Release Agreement or in Sections 7 and 18 of the Employment Agreement between Dashiell I. Robinsonand Redwood Trust, Inc., Dashiell I. Robinson (“Executive”) hereby generally and completely releases the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date Executive signs this Release Agreement. The Company, its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns, hereby releases Executive and his heirs, executors, successors and assigns, from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date the Company signs this Release Agreement. This general mutual release includes, but is not limited to: (A) all claims arising out of or in any way related to Executive’s employment with the Company or the termination of that employment; (B) all claims related to Executive’s compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (C) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (D) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; (E) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the federal Employee Retirement Income Security Act of 1974 (as amended), and the California Fair Employment and Housing Act (as amended); and (F) all claims and rights with respect to Executive’s right to communicate directly with, cooperate with, or provide information to, any federal, state or local government regulator; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify Executive pursuant to agreement, the Company’s bylaws or binding resolutions, or applicable law.

Executive acknowledges that he is knowingly and voluntarily waiving and releasing any rights he may have under the ADEA, and that the consideration given under his Employment Agreement with the Company for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which he was already entitled. Executive further acknowledges that he has been advised by this writing, as required by the ADEA, that: (A) this waiver and release does not apply to any rights or claims that may arise after the date Executive signs this Release Agreement; (B) Executive should consult with an attorney prior to signing this Release

A-1

Agreement (although Executive may choose voluntarily not do so); (C) Executive has twenty-one (21) days

A-1

to consider this Release Agreement (although Executive may choose voluntarily to sign this Release Agreement earlier); (D) Executive has seven (7) days following the date that he signs this Release Agreement to revoke the Release Agreement by providing written notice to an officer of the Company; and (E) this Release Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after Executive signs this Release Agreement. Both Executive and the Company acknowledge that each has read and understands Section 1542 of the California Civil Code which reads as follows:

A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.

Both Executive and the Company hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to each party’s release of any claims hereunder.

Notwithstanding anything herein, the Executive acknowledges and agrees that, pursuant to 18 USC Section 1833(b), the Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

Mutual Nondisparagement. 

(a) Nondisparagement by Executive. At all times following the cessation of the Executive's employment with the Company, the Executive agrees not to make negative comments or statements about, or otherwise criticize or disparage, in any format or through any medium, the Company or any entity controlled by, controlling or under common control with the Company ("Affiliates") or any of the officers, directors, managers, employees, services, operations, investments or products of the Company or any of its Affiliates. For purposes of the foregoing sentence, disparagement shall include, but not be limited to, negative comments or statements intended or reasonably likely to be harmful or disruptive to a person’s or entity’s respective business, business reputation, business operations, or personal reputation.  

(b) Nondisparagement by Designated Company Representatives. At all times following the cessation of the Executive's employment with the Company, the Company agrees not to publish, and agrees to cause the Designated Company Representatives not to make, negative comments or statements about, or otherwise criticize or disparage, in any format or through any medium, the Executive. For purposes of the foregoing sentence,

A-2

disparagement shall include, but not be limited to, negative comments or statements intended or reasonably likely to be harmful or disruptive to a person’s business reputation or personal reputation. For purposes of this sub-section (b), the “Designated Company Representatives” are (i) all executive officers of the Company while serving in such capacity and (ii) all members of the Board of Directors while serving in such capacity.

(c) The foregoing sub-sections (a) and (b) shall not be violated by truthful comments or statements (i) made in response to legal process, in required governmental testimony or filings, in judicial, administrative or arbitral proceedings (including, without limitation, depositions in connection with such proceedings), in compliance with law, administrative rule, or regulation, or made pursuant to a court or administrative order, or in connection with reporting possible violations of federal law or regulation to any governmental agency or entity, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation, (ii) made by members of the Board of Directors in the course of meetings or discussions of the Board of Directors (or any committee thereof) or in communications between members of the Board of Directors and the Executive, and not disclosed to the public, (iii) made by a member of the Board of Directors in the good faith belief that the statements are required for the proper discharge of his or her fiduciary duties, or (iv) made by the Board of Directors in connection with a termination of the Executive for Cause.

[Signature Page Follows]

A-3

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Executive has hereunto signed this Agreement, as of the date set forth below.

EXECUTIVE
Name:
	Dashiell I. Robinson
Date:
COMPANY
Name:
Date:

A-4

GROUP TERMINATION

EXHIBIT B

RELEASE AGREEMENT

Except as otherwise set forth in this Release Agreement or in Sections 7 and 18 of the Employment Agreement between Dashiell I. Robinson and Redwood Trust, Inc., Dashiell I. Robinson (“Executive”) hereby generally and completely releases the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date Executive signs this Release Agreement. The Company, its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns, hereby releases Executive and his heirs, executors, successors and assigns, from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date the Company signs this Release Agreement. This general mutual release includes, but is not limited to: (A) all claims arising out of or in any way related to Executive’s employment with the Company or the termination of that employment; (B) all claims related to Executive’s compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (C) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (D) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; (E) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the federal Employee Retirement Income Security Act of 1974 (as amended), and the California Fair Employment and Housing Act (as amended); and (F) all claims and rights with respect to Executive’s right to communicate directly with, cooperate with, or provide information to, any federal, state or local government regulator; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify Executive pursuant to agreement, the Company’s bylaws or binding resolutions, or applicable law.

Executive acknowledges that he is knowingly and voluntarily waiving and releasing any rights he may have under the ADEA, and that the consideration given under his Employment Agreement with the Company for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which he was already entitled. Executive further acknowledges that he has been advised by this writing, as required by the ADEA, that: (A) this waiver and release does not apply to any rights or claims that may arise after the date Executive signs this Release Agreement; (B) Executive should consult with an attorney prior to signing this Release Agreement (although Executive may choose voluntarily not do so); (C) Executive has forty-five

B-2

(45) days to consider this Release Agreement (although he may choose voluntarily to sign this Release Agreement earlier); (D) Executive has seven (7) days following the date that he signs this Release Agreement to revoke the Release Agreement by providing written notice to an officer of the Company; (E) this Release Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after Executive signs this Release Agreement; and (F) Executive has received with this Release Agreement a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated.

Both the Executive and the Company acknowledge that each has read and understands Section 1542 of the California Civil Code which reads as follows:

A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.

Both the Executive and the Company hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to each party’s release of any claims hereunder.

Notwithstanding anything herein, the Executive acknowledges and agrees that, pursuant to 18 USC Section 1833(b), the Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

Mutual Nondisparagement. 

(a) Nondisparagement by Executive. At all times following the cessation of the Executive's employment with the Company, the Executive agrees not to make negative comments or statements about, or otherwise criticize or disparage, in any format or through any medium, the Company or any entity controlled by, controlling or under common control with the Company ("Affiliates") or any of the officers, directors, managers, employees, services, operations, investments or products of the Company or any of its Affiliates. For purposes of the foregoing sentence, disparagement shall include, but not be limited to, negative comments or statements intended or reasonably likely to be harmful or disruptive to a person’s or entity’s respective business, business reputation, business operations, or personal reputation. 

B-2

(b) Nondisparagement by Designated Company Representatives. At all times following the cessation of the Executive's employment with the Company, the Company agrees not to publish, and agrees to cause the Designated Company Representatives not to make, negative comments or statements about, or otherwise criticize or disparage, in any format or through any medium, the Executive. For purposes of the foregoing sentence, disparagement shall include, but not be limited to, negative comments or statements intended or reasonably likely to be harmful or disruptive to a person’s business reputation or personal reputation. For purposes of this sub-section (b), the “Designated Company Representatives” are (i) all executive officers of the Company while serving in such capacity and (ii) all members of the Board of Directors while serving in such capacity.

(c) The foregoing sub-sections (a) and (b) shall not be violated by truthful comments or statements (i) made in response to legal process, in required governmental testimony or filings, in judicial, administrative or arbitral proceedings (including, without limitation, depositions in connection with such proceedings), in compliance with law, administrative rule, or regulation, or made pursuant to a court or administrative order, or in connection with reporting possible violations of federal law or regulation to any governmental agency or entity, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation, (ii) made by members of the Board of Directors in the course of meetings or discussions of the Board of Directors (or any committee thereof) or in communications between members of the Board of Directors and the Executive, and not disclosed to the public, (iii) made by a member of the Board of Directors in the good faith belief that the statements are required for the proper discharge of his or her fiduciary duties, or (iv) made by the Board of Directors in connection with a termination of the Executive for Cause.

[Signature Page Follows]

B-3

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Executive has hereunto signed this Agreement, as of the date set forth below.

EXECUTIVE
Name:
	Dashiell I. Robinson
Date:
COMPANY
Name:
Date:

B-4

EXHIBIT C

Section 2870 of California Labor Code

Section 2870 of California Labor Code: Application of provision providing that employee shall assign or offer to assign rights in invention to employer.

a.Any provision and employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities or trade secret information except for those inventions that either:

1.Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or

2.Result from any work performed by the employee for the employer.

b.    To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

C-1

EXHIBIT D

DEFINITION OF “CHANGE OF CONTROL”

With respect to (i) equity-based or equity-related awards granted prior to the Effective Date and (ii) long-term incentive and/or retention compensation awards that are payable in cash granted prior to the Effective Date, the following definition of Change of Control shall apply:

“’Change of Control’ refers to the occurrence of any of the following:

(1) any one person, or more than one person acting as a group (within the meaning of Section 409A of the Code), acquires ownership of stock of the Company that, together with other stock held by such person or group constitutes more than 50 percent of the total fair market value or total voting power of all stock of the Company; or

(2) any one person, or more than one person acting as a group (within the meaning of Section 409A of the Code), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 30 percent or more of the total voting power of the stock of the Company; or

(3) during any 12-month period, a majority of the members of the Company’s board of directors is replaced by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors prior to such appointment or election; or

(4) any one person, or more than one person acting as a group (within the meaning of Section 409A of the Code), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisition; provided, that that no change of control shall be deemed to occur when the assets are transferred to:

(x) a shareholder of the Company in exchange for or with respect to its stock,

(y) a person, or more than one person acting as a group (within the meaning of Section 409A of the Code), that owns, directly or indirectly, 50 percent or more of the total value or voting power of all of the outstanding stock of the Company, or

(z) an entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a person that owns directly or indirectly 50 percent or more of the total value or voting power of all of the outstanding stock

D-1

of the Company, in each case with such persons status determined immediately after the transfer of assets.”

With respect to (i) equity-based or equity-related awards granted on or following the Effective Date and (ii) long-term incentive and/or retention compensation awards that are payable in cash granted on or following the Effective Date, the following definition of Change of Control shall apply:

    “’Change of Control’ refers to the occurrence of any of the following:

i.A transaction or series of transactions (other than an offering of common stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 30% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

ii.During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c) of this definition) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

iii.The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

1.which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of

D-1

the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

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1.after which no person or group beneficially owns voting securities representing 30% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 30% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.”

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EX-10.3

Exhibit 10.3

FIFTH AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Fifth Amended and Restated Employment Agreement (“Agreement”), effective as of November 6, 2020 (the “Effective Date”), is entered into by and between Andrew P. Stone (the “Executive”) and Redwood Trust, Inc., a Maryland corporation (the “Company”), and amends and restates in its entirety that certain Fourth Amended and Restated Employment Agreement by and between the Executive and the Company effective August 6, 2019 (as subsequently amended, the “Prior Agreement”).

The Company desires to establish its right to the continued services of the Executive, in the capacity, on the terms and conditions, and subject to the rights of termination hereinafter set forth, and the Executive is willing to accept such continued employment in such capacity, on such terms and conditions, and subject to such rights of termination.

In consideration of the mutual agreements hereinafter set forth, the Executive and the Company have agreed and do hereby agree as follows:

1. Employment and Responsibilities. During the Term, the Executive shall serve as Executive Vice President and General Counsel of the Company, reporting to the Chief Executive Officer of the Company, with responsibilities, duties and authority customary for such position. The Executive does hereby accept and agree to such continued employment. The Chief Executive Officer may, from time to time, in his sole discretion, modify, reassign and/or augment the Executive’s responsibilities, subject to approval by the Board of Directors of the Company (the “Board”), and any such modification, reassignment and/or augmentation shall be deemed a waiver by the Executive of his rights under Section 6(e)(i) hereof only with his express written consent. Any such modification, reassignment or augmentation of responsibilities shall be in writing. The Executive shall devote such time, energy and skill to the performance of his duties for the Company and for the benefit of the Company as may be necessary or required for the effective conduct and operation of the Company’s business. Furthermore, the Executive shall act only in good faith and exercise due diligence and care in the performance of his duties to the Company under this Agreement.

2. Term of Agreement. The term of this Agreement (the “Term”) shall commence on the Effective Date and shall continue through December 31, 2020; provided, however, that (i) on January 1, 2021 and each succeeding January 1, the Term shall automatically be extended for one additional year unless, not later than three months prior to any such January 1, either party shall have given written notice to the other that it does not wish to extend the Term and (ii) such one year extensions of the Term shall not occur on and after the January 1 of the year in which the Executive will attain age sixty-five (65) but instead the Term shall be extended only until the date of the Executive’s sixty-fifth (65th) birthday.

3. Compensation.

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(a) Base Salary. The Company shall pay the Executive, and the Executive agrees to accept from the Company, in payment for his services to the Company a base salary (the “Base Salary”) at the rate of $420,000 per year, paid in accordance with the customary payroll practices of the Company subject to annual review and increase by the Board in its sole discretion (or by the Board’s separately designated Compensation Committee in its sole discretion). For the avoidance of doubt, references to the Board in this Section 3 shall include the Board’s separately designated Compensation Committee.

(b) Performance Bonus - Board of Directors’ Discretion. The Executive shall be eligible to receive an annual bonus. The Board in its discretion will determine whether such annual bonus will be paid, the amount of such bonus and its form of payment. The Executive’s target annual bonus amount is 125% of his Base Salary (the “Target Bonus”). If the Board determines in its discretion that the Executive’s performance meets or exceeds the criteria established by the Board for the award of a Target Bonus, the Board may award the Executive the Target Bonus or a higher amount. Likewise, if the Executive’s performance does not meet said criteria, the Board may award a lesser amount, or no bonus may be awarded. Unless otherwise provided in this Agreement, the Executive’s eligibility to receive any bonus under this Section 3(b) shall be expressly conditioned on, among other things, the Executive remaining employed with the Company up through any designated distribution date set by the Board.

(c) Equity Incentive Awards. Executive shall be eligible to receive grants of equity-based long-term incentive awards, which may include options to purchase Company stock, performance or restricted stock units and Company restricted stock contributions to Company’s deferred compensation plan, or other equity-based awards. Such awards shall be determined in the discretion of the Board. In the event of a “Change of Control” (as defined in Exhibit D attached hereto) in which the surviving or acquiring corporation does not assume the Executive’s outstanding equity-related awards (including options and equity-based awards granted both before and after the Effective Date) or substitute similar equity-related awards, such equity-related awards shall immediately vest and become exercisable if the Executive’s service with the Company has not terminated before the effective date of the Change of Control; provided, however, that the foregoing provision shall only apply if the Company is not the surviving corporation or if shares of the Company’s common stock are converted into or exchanged for other securities or cash.

(d) Annual Review. The Executive’s performance shall be reviewed at least annually. The performance evaluations shall consider and assess the Executive’s performance of his duties and responsibilities, the timely accomplishment of existing performance objectives, his level of efficiency and overall effectiveness and/or other factors or criteria that the Company, in its sole discretion, may deem relevant. The frequency of performance evaluations may vary depending upon, among other things, length of service, past performance, changes in job duties or performance levels. The Board shall, at least annually, review the Executive’s entire compensation package to determine whether it continues to meet the Company’s compensation objectives. Such annual review will include a determination of (i) whether to increase the Base Salary in accordance with Section 3(a); (ii) the incentive performance bonus to be awarded in accordance with Section 3(b); and (iii) the amount and type of any equity awards granted in accordance with Section 3(c). Positive performance evaluations do not guarantee salary increases

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or incentive bonuses. Salary increases and incentive bonus awards are solely within the discretion of the Board and may depend upon many factors other than the Executive’s performance.

4. Fringe Benefits. The Executive shall be entitled to participate in any benefit programs adopted from time to time by the Company for the benefit of its senior executive employees, and the Executive shall be entitled to receive such other fringe benefits as may be granted to him from time to time by the Board.

(a) Benefit Plans. The Executive shall be entitled to participate in any benefit plans relating to equity-based compensation awards, pension, thrift, profit sharing, life insurance, medical coverage, education, deferred compensation, or other retirement or employee benefits available to other senior executive employees of the Company, subject to any restrictions (including waiting periods) specified in such plans and/or related individual agreements. The Company shall make commercially reasonable efforts to obtain medical and disability insurance, and such other forms of insurance as the Board shall from time to time determine, for its senior executive employees.

(b) Paid Time Off. The Executive shall be entitled to paid time off (“PTO”) each calendar year pursuant to the Company’s policies applicable to similarly situated employees of the Company, as in effect from time to time and consistent with the Executive’s satisfactory performance of the duties set forth in Section 1.

5. Business Expenses. The Company shall reimburse the Executive for any and all necessary, customary and usual expenses, properly receipted in accordance with Company policies, incurred by Executive on behalf of the Company.

6. Termination of Executive’s Employment.

(a) Death. If the Executive dies while employed by the Company, his employment shall immediately terminate. The Company’s obligation to pay the Executive’s Base Salary shall cease as of the date of the Executive’s death, and any unpaid Base Salary shall be paid to the Executive’s estate. In addition, within fifteen (15) days of the Executive’s death, the Company shall pay to the Executive’s estate an incentive performance bonus based on Executive’s Target Bonus then in effect, prorated for the number of days of employment completed by the Executive during the year of his death. Executive’s beneficiaries or his estate shall receive benefits in accordance with the Company’s retirement, insurance and other applicable programs and plans then in effect. All stock options or other equity-related awards with time-based vesting, including deferred or restricted stock units, shall vest in full and, in the case of stock options, shall be exercisable for such period as set forth in the applicable award agreement by which such awards are evidenced. All stock options or other equity-related awards with performance-based vesting, including performance stock units, shall remain outstanding and shall continue to be eligible to vest and become payable based on the number of target shares and the performance goals set forth in the applicable award agreement by which such awards are evidenced, with any stock options remaining exercisable for such period as set forth in the applicable award agreement. In addition, in the event the Company grants to the Executive a

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cash-settled equity award or a long-term incentive compensation award payable in cash, this Section 6(a) shall apply, mutatis mutandis, to any such award(s).

(b) Disability. If, as a result of the Executive’s incapacity due to physical or mental illness (“Disability”), Executive shall have been absent from the full-time performance of his duties with the Company for six (6) consecutive months, and, within thirty (30) days after written notice is provided to him by the Company, he shall not have returned to the full-time performance of his duties, the Executive’s employment under this Agreement may be terminated by the Company for Disability. During any period prior to such termination during which the Executive is absent from the full-time performance of his duties with the Company due to Disability, the Company shall continue to pay the Executive his Base Salary at the rate in effect at the commencement of such period of Disability. Subsequent to such termination, the Executive’s benefits shall be determined under the Company’s retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. In addition, within fifteen (15) days of such termination, the Company shall pay to the Executive an incentive performance bonus based on Executive’s Target Bonus then in effect, prorated for the number of days of employment completed by the Executive during the year in which his employment terminated. The Executive, the Executive’s beneficiaries or his estate shall receive benefits in accordance with the Company’s retirement, insurance and other applicable programs and plans then in effect. All stock options or other equity-related awards with time-based vesting, including deferred or restricted stock units, shall vest in full and, in the case of stock options, shall be exercisable for such period as set forth in the applicable award agreement by which such awards are evidenced. All stock options or other equity-related awards with performance-based vesting, including performance stock units, shall remain outstanding and shall continue to be eligible to vest and become payable based on the number of target shares and the performance goals set forth in the applicable award agreement by which such awards are evidenced, with any stock options remaining exercisable for such period as set forth in the applicable award agreement. In addition, in the event the Company grants to the Executive a cash-settled equity award or a long-term incentive compensation award payable in cash, this Section 6(b) shall apply, mutatis mutandis, to any such award(s).

(c) Termination By The Company For Cause. The Company may terminate the Executive’s employment under this Agreement for Cause, at any time prior to expiration of the Term of the Agreement; provided, however, that prior to any termination of employment for Cause pursuant to subsection (i), (ii), or (iii) below, the Company must first provide written notice describing the reason for such termination of employment (and, with respect to subsections (ii) and (iii) below, such notice may be provided on the same date as the termination date). For purposes of this Agreement, “Cause” shall mean (i) the Executive’s material failure to substantially perform the reasonable and lawful duties of his position for the Company, which failure shall continue for thirty (30) days after written notice thereof by the Company to the Executive; (ii) acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of the Executive in respect of the performance of his duties hereunder, his fiduciary obligations or otherwise relating to the business of the Company; (iii) the habitual or repeated neglect of his duties by Executive; (iv) the Executive’s conviction of a felony; (v) theft or embezzlement, or attempted theft or embezzlement, of money or tangible or intangible assets or property of the Company or its employees, customers, clients, or others having business

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relations with the Company; (vi) any act of moral turpitude by Executive injurious to the interest, property, operations, business or reputation of the Company; or (vii) unauthorized use or disclosure of trade secrets or confidential or proprietary information pertaining to Company business.

In the event of a termination under this Section 6(c), the Company will pay only the portion of Base Salary or previously awarded bonus unpaid as of the termination date. Fringe benefits which have accrued and/or vested on the termination date will continue in effect according to their terms.

(d) Termination By The Company Without Cause. The Company may terminate Executive’s employment hereunder at any time without Cause upon 30 days written notice to Executive or pay in lieu thereof. In the event of a termination under this Section 6(d), the Executive shall be entitled to the benefits set forth in Section 7.

(e) Termination By The Executive For Good Reason. The Executive shall have the right to terminate the Officer’s employment under this Agreement for Good Reason, at any time prior to expiration of the Term of the Agreement. For purposes of this Agreement, “Good Reason” shall mean the occurrence, without the Executive’s express written consent, of any one or more of the following events:

(i) A material reduction in Executive’s responsibilities, title, duties or authority, including, without limitation, (A) Executive ceasing to serve as the chief legal officer of a publicly-traded company or (B) on or after a Change of Control, if as a result of such Change of Control, the Company becomes a subsidiary of another entity and Executive is not appointed (or after appointment, ceases) to be the chief legal officer of the top-tier parent entity of the Company (or its successor);

(ii) A material reduction in the Executive’s Base Salary or a material reduction by the Company in the value of the Executive’s total compensation package (salary, bonus opportunity, equity incentive award opportunity and benefits) if such a reduction is not made in proportion to an across-the-board reduction for all senior executives of the Company;

(iii) The relocation of the Executive’s principal Company office to a location more than twenty-five (25) miles from its location as of the Effective Date (which location is the Company’s headquarters in Mill Valley, California), except for required travel on the Company’s business to the extent necessary to fulfill the Executive’s obligations under Section 1;

(iv) A failure at any time to renew this Agreement for successive one-year periods pursuant to Section 2;

(v) The complete liquidation of the Company; or

(vi) In the event of a merger, consolidation, transfer, or closing of a sale of all or substantially all the assets of the Company with or to any other individual or entity, the

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failure of the Company’s successor to affirmatively adopt this Agreement or to otherwise comply with its obligations pursuant to Section 13 below.

Notwithstanding the foregoing, the Executive will not be deemed to have resigned for Good Reason for purposes of subclause (i) unless (1) the Executive provides the Company with written notice setting forth in reasonable detail the facts and circumstances claimed by the Executive to constitute Good Reason within ninety (90) days after the date of the occurrence of any event that the Executive knows or should reasonably have known to constitute Good Reason, (2) the Company fails to cure such acts or omissions within thirty (30) days following its receipt of such notice, and (3) the effective date of the Executive’s termination for Good Reason occurs no later than thirty (30) days after the expiration of the Company’s cure period. In the event of a termination under this Section 6(e), the Executive shall be entitled to the benefits set forth in Section 7.

(f) Termination By The Executive Without Good Reason. The Executive may at any time during the Term terminate his employment hereunder for any reason or no reason by giving the Company notice in writing not less than sixty (60) days in advance of such termination. The Executive shall have no further obligations to the Company after the effective date of termination, as set forth in the notice. In the event of a termination by the Executive under this Section 6(f), the Company will pay only the portion of Base Salary or previously awarded bonus unpaid as of the termination date. Fringe benefits which have accrued and/or vested on the termination date will continue in effect according to their terms.

7. Compensation Upon Termination By the Company without Cause or By The Executive for Good Reason.

(a) If the Executive’s employment shall be terminated by the Company without Cause or by the Executive for Good Reason, the Executive shall be entitled to the following benefits:

(i) Payment of Unpaid Base Salary. The Company shall immediately pay the Executive any portion of the Executive’s Base Salary through the date of termination or previously awarded bonus not paid prior to the termination date.

(ii) Severance Payment.

(A) In the event such termination is not a CIC Termination (as defined below), then the Company shall provide the Executive the greater of the amounts set forth in clauses (1) and (2) immediately below:

(1) An amount equal to the sum of (x) an amount equal to three-quarters (0.75) times the sum of (i) Executive’s Annual Base Salary as in effect immediately prior to his termination and (ii) Executive’s Target Bonus in effect immediately prior to his termination and (y) an amount equal to the Executive’s Target Bonus in effect immediately prior to his termination pro-rated for the number of days of employment completed by the Executive during the year in which his employment is terminated.

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(2) An amount equal to the sum of (x) an amount equal to two (2) times the Executive’s Annual Base Salary as in effect immediately prior to his termination and (y) an amount equal to the Executive’s Annual Base Salary in effect immediately prior to his termination pro-rated for the number of days of employment completed by the Executive during the year in which his employment is terminated.

(B) In the event such termination of employment occurs within three months prior to, on, or within 24 months following a Change of Control (a “CIC Termination”), then instead of providing the payments in Section 7(a)(ii)(A), the Company shall provide the Executive an amount equal to the sum of (x) the Executive’s Target Bonus in effect immediately prior to his termination, prorated for the number of days of employment completed by the Executive during the year in which his employment terminated; (y) one (1) times the Executive’s Annual Base Salary as in effect immediately prior to his termination; and (z) one (1) times the Executive’s Target Bonus in effect immediately prior to his termination. Notwithstanding the foregoing, the maximum aggregate amount that the Company shall pay to the Executive pursuant to this Section 7(a)(ii)(B) is $1,750,000.

(iii) Equity Awards. All stock options or other equity-related awards with time-based vesting, including deferred or restricted stock units, shall vest in full and, in the case of stock options, shall be exercisable for such period as set forth in the applicable award agreement by which such awards are evidenced. If the Executive’s employment shall be terminated by the Company without Cause, all stock options or other equity-related awards with performance-based vesting, including performance stock units, shall remain outstanding and shall continue to be eligible to vest and become payable or exercisable based on (x) the performance goals set forth in the applicable award agreement by which such awards are evidenced and (y) a reduced number of target shares adjusted on a pro-rata basis to reflect the number of days of employment completed during the applicable vesting period in which termination occurs, with any stock options remaining exercisable for such period as set forth in the applicable award agreement. If the Executive’s employment shall be terminated by the Executive for Good Reason, all stock options or other equity-related awards with performance-based vesting, including performance stock units, shall remain outstanding and shall continue to be eligible to vest and become payable based on the number of target shares and the performance goals set forth in the applicable award agreement by which such awards are evidenced, with any stock options remaining exercisable for such period as set forth in the applicable award agreement. In addition, in the event the Company grants to the Executive a cash-settled equity award or a long-term incentive compensation award payable in cash, this Section 7(a)(iii) shall apply, mutatis mutandis, to any such award(s).

(iv) Continuation of Fringe Benefits. For a period of up to nine (9) months (or, in the event of a CIC Termination, twelve (12) months) following the date of Executive’s termination of employment with Company, subject to the Executive’s valid election to continue healthcare coverage under Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder, the Company shall continue to provide the Executive and the Executive’s eligible dependents with coverage under its group health plans at

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the same levels and the same cost to the Executive as would have applied if the Executive’s employment had not been terminated based on the Employee’s elections in effect on the date of termination (the “Continued Coverage”), provided that (1) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A of the Code under Treasury Regulation Section 1.409A-1(a)(5), or (2) the Company is otherwise unable to continue to cover the Executive under its group health plans without penalty under applicable law (including without limitation, Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act), the Company may in its sole discretion provide that (i) the Executive shall pay to the Company, on an after-tax basis, a monthly amount equal to the full premium cost of the Continued Coverage for such month and (ii) within 30 days of such premium payment, the Company shall reimburse the Executive in cash (less required withholding) an amount equal to the sum of (A) the excess of (x) the full premium cost of the Continued Coverage for such month over (y) any premium amount that would have been payable by the Executive if the Executive had been actively employed by the Company for such month and (B) an additional tax “gross up” payment to cover all estimated applicable local, state and federal income and payroll taxes imposed on the Executive with respect to the Continued Coverage. For the nine (9) month (or, in the event of a CIC Termination, twelve (12) month) period following the termination of the Executive’s employment, the Company shall also continue to provide the Executive with all life insurance, disability insurance and other fringe benefits set forth in Section 4 as if the Executive’s employment under the Agreement had not been terminated; provided, however, that such life insurance, disability insurance and other fringe benefits shall cease as of the date the Executive receives such coverage from a subsequent employer.

(v) Payment/Benefit Limitation.  If any payment or benefit due under this Agreement, together with all other payments and benefits that the Executive receives or is entitled to receive from the Company or any of its subsidiaries, affiliates or related entities, would (if paid or provided) constitute an “excess parachute payment” for purposes of Section 280G of the Code, the amounts otherwise payable and benefits otherwise due under this Agreement will either (i) be delivered in full, or (ii) be limited to the minimum extent necessary to ensure that no portion thereof will fail to be tax-deductible to the Company by reason of Section 280G of the Code (and therefore, no portion thereof will be subject to the excise tax imposed under Section 4999 of the Code), whichever of the foregoing amounts, taking into account applicable federal, state and local income and employment taxes and the excise tax imposed under Section 4999 of the Code, results in the receipt by the Executive, on an after-tax basis, of the greatest amount of payments and benefits, notwithstanding that all or some portion of such payments and/or benefits may be subject to the excise tax imposed under Section 4999 of the Code.  Unless otherwise specified in writing by the Executive, in the event that the payments and/or benefits are to be reduced pursuant to this Section 7(a)(v), such payments and benefits shall be reduced such that the reduction of cash compensation to be provided to the Executive as a result of this Section 7 is minimized.  In applying this principle, the reduction shall be made in a manner consistent with the requirements of Section 409A of the Code and where two economically equivalent amounts are subject to reduction but payable at different times, such amounts shall be reduced on a pro rata basis but not below zero.  All determinations required to be made under this Section 7(a)(v) shall be made by the Company's independent public

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accounting firm (or such other nationally recognized public accounting firm as may be selected by the Company and to which selection the Executive consents (such consent not to be unreasonably withheld)) which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a payment or benefit subject to this Section 7(a)(v), or such earlier time as is requested by the Company.

(b) No Mitigation Required; No Other Entitlement To Benefits Under Agreement. The Executive shall not be required in any way to mitigate the amount of any payment provided for in this Section 7, including, without limitation, by seeking other employment, nor shall the amount of any payment provided for in this Section 7 be reduced by any compensation earned by the Executive as the result of employment with another employer after the termination date of employment, or otherwise. Except as set forth in this Section 7, following a termination governed by this Section 7, the Executive shall not be entitled to any other compensation or benefits set forth in this Agreement, except as may be separately negotiated by the parties and approved the Board in writing in conjunction with the termination of Executive’s employment under this Section 7.

(c) Release Agreement. As a condition of receiving any of the payments, vesting and benefits set forth in this Section 7 (other than the payment provided for in sub-section 7(a)(i)), the Executive shall be required to execute a mutual release agreement in the form attached hereto as Exhibit A or Exhibit B, as appropriate, and such release agreement must have become effective in accordance with its terms within 60 days following the termination date. The Company, in its sole discretion, may modify the term of the required release agreement to comply with applicable law and may incorporate the required release agreement into a termination agreement or other agreement with the Executive.

(d) Timing of Severance Payments. Notwithstanding any other provision of this Agreement, all severance payments provided under this Agreement in connection with the termination of the employment of the Executive shall be payable in an amount equal to 75% of such payments on the date that is six months after the termination date, and the remaining 25% shall be payable in six equal monthly installments beginning on the date that is seven months after the termination date and continuing on the same date of each of the five months thereafter.

(e) Timing of Bonus Payments. Notwithstanding any other provision of this Agreement, all bonus payments provided under this Agreement in connection with the termination of the employment of the Executive shall be payable on the date that is six months after the termination date.

8. Disputes Relating To Executive’s Termination of Employment For Good Reason. If the Executive resigns his employment with the Company alleging in good faith as the basis for such resignation “Good Reason” as defined in Section 6(e), and if the Company then disputes the Executive’s right to the payment of benefits under Section 7, the Company shall continue to pay the Executive the full compensation (including, without limitation, his Base Salary) in effect at the date the Executive provided written notice of such resignation, and the Company shall continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was then a participant, until the earlier of the expiration of the Term or the date the

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dispute is finally resolved, either by mutual written agreement of the parties or by application of the provisions of Section 11. For the purposes of this Section 8, the Company shall bear the burden of proving that the grounds for the Executive’s resignation do not fall within the scope of Section 6(e), and there shall be a rebuttable presumption that the Executive alleged such grounds in good faith.

9. Restrictive Covenant Provisions.

(a) Noncompetition. The Executive agrees that during the Term prior to any termination of his employment hereunder, he will not, directly or indirectly, without the prior written consent of a majority of the non-employee members of the Board, manage, operate, join, control, participate in, or be connected as a stockholder (other than as a holder of shares publicly traded on a stock exchange or the NASDAQ National Market System), partner, or other equity holder with, or as an officer, director or employee of, any real estate or mortgage investment organization whose business strategy is competitive with that of the Company, as determined by a majority of the non-employee members of the Board. It is further expressly agreed that the Company will or would suffer irreparable injury if the Executive were to compete with the Company or any subsidiary or affiliate of the Company in violation of this Agreement and that the Company would by reason of such competition be entitled to injunctive relief in a court of appropriate jurisdiction, and the Executive further consents and stipulates to the entry of such injunctive relief in such a court prohibiting the Executive from competing with the Company or any subsidiary or affiliate of the Company, in the areas of business set forth above, in violation of this Agreement.

(b) Duty To Avoid Conflict Of Interest. During his employment by the Company, Executive agrees not to engage or participate in, directly or indirectly, any activities in conflict with the best interests of the Company. The Company shall be the final decision-maker with regard to any conflict of interest issue.

(c) Right To Company Materials. The Executive agrees that all styles, designs, lists, materials, books, files, reports, correspondence, records, and other documents (“Company Materials”) used, prepared, or made available to the Executive shall be and shall remain the property of the Company. Upon the termination of employment or the expiration of this Agreement, the Executive shall immediately return to the Company all Company Materials, and the Executive shall not make or retain any copies thereof.

(d) Nonsolicitation. The Executive promises and agrees that he will not directly or indirectly solicit any of the Company’s employees to work for any competing real estate or mortgage investment organization as determined under Section 9(a) for a period of one (1) year following the occurrence of any event entitling the Executive to payments and benefits, provided the Company makes all such payments when due according to the provisions herein.

(e) Confidential And Proprietary Information.

(1) It is hereby acknowledged that Executive has and shall gain knowledge of trade secrets and confidential information owned by or related to the Company and/or its affiliates including but not limited to the following: (i) the names, lists, buying habits and

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practices of customers, clients or vendors, (ii) marketing and related information, (iii) relationships with the persons or entities with whom or with which the Company has contracted, (iv) their products, designs, software, developments, improvements and methods of operation, (v) financial condition, profit performance and financial requirements, (vi) the compensation paid to employees, (vii) business plans and the information contained therein, and (viii) all other confidential information of, about or concerning the Company, the manner of operation of the Company and other confidential data of any kind, nature or description relating to the Company (collectively, the “Confidential Information”). Confidential Information does not include information which (A) is or becomes generally available to the public other than as a result of a disclosure by Executive; or (B) becomes available to Executive on a non-confidential basis after the termination or expiration of Executive’s obligations under this Agreement from a source other than the Company, provided that such source is not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any other party with respect to such information; or (C) is independently developed after the termination or expiration of Executive’s obligations under this agreement without reference to the Confidential Information, provided such independent development can reasonably be proven by Executive by written records.

(2) The parties hereby acknowledge that the Confidential Information constitutes important, unique, material and confidential trade secrets which affect the successful activities of the Company, and constitute a substantial part of the assets and goodwill of the Company. In view of the foregoing, Executive agrees that he will not at any time whether during or after the term of this Agreement, except as required in the course of Executive’s employment by Company and at its direction and for its sole benefit, in any fashion, form or manner, directly or indirectly (i) use or divulge, disclose, communicate or provide or permit access to any person, firm, partnership, corporation or other entity, any Confidential Information of any kind, nature or description, or (ii) remove from Company’s premises any notes or records relating thereto, or copies or facsimiles thereof (whether made by electronic, electrical, magnetic, optical, laser, acoustic or other means).

(3) Promptly upon the request of Company, and immediately upon the termination of Executive’s employment, Executive shall not transfer to any third person and shall deliver to Company all Confidential Information, and other property belonging to the Company, including all copies thereof, in the possession or under the control of the Executive.

(4) Executive represents that the performance of all the terms of this Agreement will not conflict with, and will not breach, any other invention assignment agreement, confidentiality agreement, employment agreement or non-competition agreement to which Executive is or has been a party. To the extent that Executive has confidential information or materials of any former employer, Executive acknowledges that the Company has directed Executive to not disclose such confidential information or materials to the Company or any of its employees, and that the Company prohibits Executive from using said confidential information or materials in any work that Executive may perform for the Company. Executive agrees that Executive will not bring with Executive to the Company, and will not use or disclose any confidential, proprietary information, or trade secrets acquired by Executive prior to his

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employment with the Company. Executive will not disclose to the Company or any of its employees, or induce the Company or any of its employees to use, any confidential or proprietary information or material belonging to any previous employers or others, nor will Executive bring to the Company or use in connection with Executive’s work for the Company copies of any software, computer files, or any other copyrighted or trademarked materials except those owned by or licensed to the Company. Executive represents that he is not a party to any other agreement that will interfere with his full compliance with this Agreement. Executive further agrees not to enter into any agreement, whether written or oral, in conflict with the provisions of this Agreement.

(5) Notwithstanding the generality of the foregoing, nothing in this Agreement is intended to prohibit the Executive from filing a charge with, reporting possible violations to, or participating or cooperating with the Securities and Exchange Commission or any other federal, state or local regulatory body or law enforcement agency, including in relation to any whistleblower, anti-discrimination, or anti-retaliation provisions of federal, state or local law or regulation. Pursuant to 18 U.S.C. Section 1833(b), the Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (x) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (y) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

(f) Inventions. Any and all inventions, discoveries or improvements that Executive has conceived or made or may conceive or make during the period of employment relating to or in any way pertaining to or connected with the systems, products, computer programs, software, apparatus or methods employed, manufactured or constructed by the Company or to systems, products, apparatus or methods with respect to which the Company engages in, requests or anticipates research or development, shall be promptly and fully disclosed and described by Executive to the Company and shall be the sole and exclusive property of the Company, and Executive shall assign, and hereby does assign to the Company Executive’s entire right, title and interest in and to all such inventions, discoveries or improvements as well as any modifications or improvements thereto that may be made.

The obligations outlined in this Section 9(f) do not apply to any invention that qualifies fully under California Labor Code Section 2870 (a copy of which is attached hereto as Exhibit C) or to any rights Executive may have acquired in connection with an invention, discovery or improvement that was developed entirely on Executive’s own time for which no equipment, supplies, facilities or trade secret information of the Company was used and (a) that does not relate directly or indirectly to the business of the Company or to the Company’s actual or demonstrable anticipated research or development, or (b) that does not result from any work performed by Executive for the Company.

(g) Maryland Law. The Executive agrees, in accordance with Maryland law, to first offer to the Company corporate opportunities learned of solely as a result of his service as an officer of the Company.

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(h) Breach. It is expressly agreed that each breach of this Section 9 is a distinct and material breach of this Agreement and that solely a monetary remedy would be inadequate, impracticable and extremely difficult to prove, and that each such breach would cause the Company irreparable harm. It is further agreed that, in addition to any and all remedies available at law or equity (including money damages), either party shall be entitled to temporary and permanent injunctive relief to enforce the provisions of this Section, without the necessity of proving actual damages. It is further agreed that either party shall be entitled to seek such equitable relief in any forum, including a court of law, notwithstanding the provisions of Section 11. Either party may pursue any of the remedies described herein concurrently or consecutively in any order as to any such breach or violation, and the pursuit of one of such remedies at any time will not be deemed an election of remedies or waiver of the right to pursue any of the other such remedies. Any breach of this Section 9 shall immediately terminate any obligations by the Company to provide Executive with severance and continued benefits pursuant to Section 6 or 7 of this Agreement.

(i) Unenforceability. Should any portion of this Section 9 be deemed unenforceable because of its scope, duration or effect, and only in such event, then the parties expressly consent and agree to such limitation on scope, duration or effect as may be finally adjudicated as enforceable, to give this Section 9 its maximum permissible scope, duration and effect.

10. Notices. All notices and other communications under this Agreement shall be in writing and shall be given by fax or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a fax to the respective persons named below:

If to the Company:Redwood Trust, Inc.

Attn: Chief Executive Officer

One Belvedere Place, Suite 300

Mill Valley, CA 94941

Phone: (415) 389-7373

Fax: (415) 381-1773

If to the Executive:Andrew P. Stone

c/o Redwood Trust, Inc.

One Belvedere Place, Suite 300

Mill Valley, CA 94941

Phone: (415) 389-7373

Fax: (415) 381-1773

Either party may change such party’s address for notices by notice duly given pursuant hereto.

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11. Resolution of Disputes. To ensure the rapid and economical resolution of disputes that may arise in connection with the Executive’s employment with the Company, the Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, the Executive’s employment, or the termination of the Executive’s employment (“Arbitrable Claims”) shall be submitted to confidential mediation in San Francisco, California conducted by a mutually agreeable mediator from Judicial Arbitration and Mediation Services (“JAMS”) or its successor under the JAMS Rules of Practice and Procedure then in effect, which can be found at www.jamsadr.com/adr-rules-procedures. The cost of JAMS’ mediation fees shall be paid by the Company. In the event that mediation is unsuccessful in resolving the Arbitrable Claims, the Arbitrable Claims shall be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in San Francisco, California conducted by JAMS or its successor, under the then applicable rules of JAMS.

The Executive acknowledges that by agreeing to this arbitration procedure, both the Executive and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding.

The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. The arbitrator shall be authorized to award any or all remedies that the Executive or the Company would be entitled to seek in a court of law, including, without limitation, the award of attorneys’ fees based on a determination of the extent to which each party has prevailed as to the material issues raised in determination of the dispute. The Company shall pay all JAMS’ arbitration fees in excess of those which would be required if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either the Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such mediation or arbitration.

12. [Reserved]

13. Assignment; Successors. This Agreement is personal in its nature, and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder; provided, however, that, in the event of the merger, consolidation, transfer, or sale of all or substantially all of the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder.

14. Governing Law. This Agreement and the legal relations thus created between the parties hereto shall be governed by and construed under and in accordance with the laws of the State of California.

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15. Entire Agreement; Headings. This Agreement embodies the entire agreement of the parties with respect to the subject matter hereof and supersedes in their entirety all other or prior agreements, whether oral or written, with respect thereto, including but not limited to the Prior Agreement, but excluding the plans, programs and equity award agreements under which compensation and benefits are provided pursuant to Sections 3 and 4 hereof to the extent such plans and programs and equity award agreements are not inconsistent with this Agreement. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

16. Waiver; Modification. Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. This Agreement shall not be modified in any respect except by a writing executed by each party hereto.

17. Severability. In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, only the portions of this Agreement that violate such statute or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement.

18. Indemnification. The Company shall indemnify and hold Executive harmless to the maximum extent permitted by Section 2-418 of the Maryland General Corporations Law or its successor statute, or if greater, by the Company’s Bylaws, by any applicable resolution of the Board or by the terms providing the most extensive indemnification contained in any written agreement between the Company and any director or officer of the Company. The Company shall make Executive a named beneficiary under all director and officer liability policies maintained by the Company from time to time for the benefit of its directors and officers, entitled to all benefits provided thereunder to persons serving in a comparable role as an officer of the Company.

19.    Section 409A.Any payments under this Agreement subject to Section 409A of the Code that are subject to execution of a waiver and release which may be executed and/or revoked in a calendar year following the calendar year in which the payment event (such as a termination of employment) occurs shall commence payment only in the calendar year in which the consideration period or, if applicable, release revocation period ends, as necessary to comply with Section 409A of the Code. Notwithstanding anything to the contrary in this Agreement, no compensation or benefits shall be paid to the Executive during the six (6)-month period following the Executive’s “separation from service” from the Company (within the meaning of Section 409A of the Code, a “Separation from Service”) if the Company determines that paying such amounts at the time or times indicated in this Agreement would be a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code. If the payment of any such amounts is delayed as a

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result of the previous sentence, then on the first day of the seventh month following the date of Separation from Service (or such earlier date upon which such amount can be paid under Section 409A without resulting in a prohibited distribution, including as a result of the Executive’s death), the Company shall pay the Executive a lump-sum amount equal to the cumulative amount that would have otherwise been payable to the Executive during such period.Any right to a series of installment payments pursuant to this Agreement is to be treated as a right to a series of separate payments. To the extent permitted under Section 409A of the Code, any separate payment or benefit under this Agreement or otherwise shall not be deemed “nonqualified deferred compensation” subject to Section 409A of the Code to the extent provided in the exceptions in Treasury Regulation Section 1.409A-1(b)(4), Section 1.409A-1(b)(9) or any other applicable exception or provision of Section 409A. All payments of nonqualified deferred compensation subject to Section 409A to be made upon a termination of employment under this Agreement may only be made upon the Executive’s “separation from service” from the Company.

20.    Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

21. Successor Sections. References herein to sections or rules of the Code shall be deemed to include any successor sections or rules.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Executive has hereunto signed this Agreement, as of the Effective Date.

REDWOOD TRUST, INC.
By:	/s/ Christopher J. Abate
	Christopher J. Abate
	Chief Executive Officer
EXECUTIVE
	/s/ Andrew P. Stone
	Andrew P. Stone

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INDIVIDUAL TERMINATION

EXHIBIT A

RELEASE AGREEMENT

Except as otherwise set forth in this Release Agreement or in Sections 7 and 18 of the Employment Agreement between Andrew P. Stone and Redwood Trust, Inc., Andrew P. Stone (“Executive”) hereby generally and completely releases the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date Executive signs this Release Agreement. The Company, its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns, hereby releases Executive and his heirs, executors, successors and assigns, from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date the Company signs this Release Agreement. This general mutual release includes, but is not limited to: (A) all claims arising out of or in any way related to Executive’s employment with the Company or the termination of that employment; (B) all claims related to Executive’s compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (C) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (D) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; (E) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the federal Employee Retirement Income Security Act of 1974 (as amended), and the California Fair Employment and Housing Act (as amended); and (F) all claims and rights with respect to Executive’s right to communicate directly with, cooperate with, or provide information to, any federal, state or local government regulator;

A-1

provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify Executive pursuant to agreement, the Company’s bylaws or binding resolutions, or applicable law.

A-2

Executive acknowledges that he is knowingly and voluntarily waiving and releasing any rights he may have under the ADEA, and that the consideration given under his Employment

Agreement with the Company for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which he was already entitled. Executive further acknowledges

that he has been advised by this writing, as required by the ADEA, that: (A) this waiver and release does not apply to any rights or claims that may arise after the date Executive signs this Release Agreement; (B) Executive should consult with an attorney prior to signing this Release Agreement (although Executive may choose voluntarily not do so); (C) Executive has twenty-one (21) days to consider this Release Agreement (although Executive may choose voluntarily to sign this Release Agreement earlier); (D) Executive has seven (7) days following the date that he signs this Release Agreement to revoke the Release Agreement by providing written notice to an officer of the Company; and (E) this Release Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after Executive signs this Release Agreement. Both Executive and the Company acknowledge that each has read and understands Section 1542 of the California Civil Code which reads as follows:

A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.

Both Executive and the Company hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to each party’s release of any claims hereunder.

Notwithstanding anything herein, the Executive acknowledges and agrees that, pursuant to 18 USC Section 1833(b), the Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

A-3

Mutual Nondisparagement. 

(a) Nondisparagement by Executive. At all times following the cessation of the Executive's employment with the Company, the Executive agrees not to make negative comments or statements about, or otherwise criticize or disparage, in any format or through any medium, the Company or any entity controlled by, controlling or under common control with the Company ("Affiliates") or any of the officers, directors, managers, employees, services, operations, investments or products of the Company or any of its Affiliates. For purposes of the foregoing

sentence, disparagement shall include, but not be limited to, negative comments or statements intended or reasonably likely to be harmful or disruptive to a person’s or entity’s respective business, business reputation, business operations, or personal reputation.  

(b) Nondisparagement by Designated Company Representatives. At all times following the cessation of the Executive's employment with the Company, the Company agrees not to publish, and agrees to cause the Designated Company Representatives not to make, negative comments or statements about, or otherwise criticize or disparage, in any format or through any medium, the Executive. For purposes of the foregoing sentence, disparagement shall include, but not be limited to, negative comments or statements intended or reasonably likely to be harmful or disruptive to a person’s business reputation or personal reputation. For purposes of this sub-section (b), the “Designated Company Representatives” are (i) all executive officers of the Company while serving in such capacity and (ii) all members of the Board of Directors while serving in such capacity.

(c) The foregoing sub-sections (a) and (b) shall not be violated by truthful comments or statements (i) made in response to legal process, in required governmental testimony or filings, in judicial, administrative or arbitral proceedings (including, without limitation, depositions in connection with such proceedings), in compliance with law, administrative rule, or regulation, or made pursuant to a court or administrative order, or in connection with reporting possible violations of federal law or regulation to any governmental agency or entity, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation, (ii) made by members of the Board of Directors in the course of meetings or discussions of the Board of Directors (or any committee thereof) or in communications between members of the Board of Directors and the Executive, and not disclosed to the public, (iii) made by a member of the Board of Directors in the good faith belief that the statements are required for the proper discharge of his or her fiduciary duties, or (iv) made by the Board of Directors in connection with a termination of the Executive for Cause.

[Signature Page Follows]

A-4

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Executive has hereunto signed this Agreement, as of the date set forth below.

EXECUTIVE
Name:
	Andrew P. Stone
Date:
COMPANY
Name:
Date:

A-5

GROUP TERMINATION

EXHIBIT B

RELEASE AGREEMENT

Except as otherwise set forth in this Release Agreement or in Sections 7 and 18 of the Employment Agreement between Andrew P. Stone and Redwood Trust, Inc., Andrew P. Stone (“Executive”) hereby generally and completely releases the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date Executive signs this Release Agreement. The Company, its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns, hereby releases Executive and his heirs, executors, successors and assigns, from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date the Company signs this Release Agreement. This general mutual release includes, but is not limited to: (A) all claims arising out of or in any way related to Executive’s employment with the Company or the termination of that employment; (B) all claims related to Executive’s compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (C) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (D) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; (E) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the federal Employee Retirement Income Security Act of 1974 (as amended), and the California Fair Employment and Housing Act (as amended); and (F) all claims and rights with respect to Executive’s right to communicate directly

B-1

with, cooperate with, or provide information to, any federal, state or local government regulator; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify Executive pursuant to agreement, the Company’s bylaws or binding resolutions, or applicable law.

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Executive acknowledges that he is knowingly and voluntarily waiving and releasing any rights he may have under the ADEA, and that the consideration given under his Employment

Agreement with the Company for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which he was already entitled. Executive further acknowledges

that he has been advised by this writing, as required by the ADEA, that: (A) this waiver and release does not apply to any rights or claims that may arise after the date Executive signs this Release Agreement; (B) Executive should consult with an attorney prior to signing this Release Agreement (although Executive may choose voluntarily not do so); (C) Executive has forty-five (45) days to consider this Release Agreement (although he may choose voluntarily to sign this Release Agreement earlier); (D) Executive has seven (7) days following the date that he signs this Release Agreement to revoke the Release Agreement by providing written notice to an officer of the Company; (E) this Release Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after Executive signs this Release Agreement; and (F) Executive has received with this Release Agreement a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated.

Both the Executive and the Company acknowledge that each has read and understands Section 1542 of the California Civil Code which reads as follows:

A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.

Both the Executive and the Company hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to each party’s release of any claims hereunder.

Notwithstanding anything herein, the Executive acknowledges and agrees that, pursuant to 18 USC Section 1833(b), the Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

B-3

Mutual Nondisparagement. 

(a) Nondisparagement by Executive. At all times following the cessation of the Executive's employment with the Company, the Executive agrees not to make negative comments or

statements about, or otherwise criticize or disparage, in any format or through any medium, the Company or any entity controlled by, controlling or under common control with the Company ("Affiliates") or any of the officers, directors, managers, employees, services, operations, investments or products of the Company or any of its Affiliates. For purposes of the foregoing sentence, disparagement shall include, but not be limited to, negative comments or statements intended or reasonably likely to be harmful or disruptive to a person’s or entity’s respective business, business reputation, business operations, or personal reputation.  

(b) Nondisparagement by Designated Company Representatives. At all times following the cessation of the Executive's employment with the Company, the Company agrees not to publish, and agrees to cause the Designated Company Representatives not to make, negative comments or statements about, or otherwise criticize or disparage, in any format or through any medium, the Executive. For purposes of the foregoing sentence, disparagement shall include, but not be limited to, negative comments or statements intended or reasonably likely to be harmful or disruptive to a person’s business reputation or personal reputation. For purposes of this sub-section (b), the “Designated Company Representatives” are (i) all executive officers of the Company while serving in such capacity and (ii) all members of the Board of Directors while serving in such capacity.

(c) The foregoing sub-sections (a) and (b) shall not be violated by truthful comments or statements (i) made in response to legal process, in required governmental testimony or filings, in judicial, administrative or arbitral proceedings (including, without limitation, depositions in connection with such proceedings), in compliance with law, administrative rule, or regulation, or made pursuant to a court or administrative order, or in connection with reporting possible violations of federal law or regulation to any governmental agency or entity, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation, (ii) made by members of the Board of Directors in the course of meetings or discussions of the Board of Directors (or any committee thereof) or in communications between members of the Board of Directors and the Executive, and not disclosed to the public, (iii) made by a member of the Board of Directors in the good faith belief that the statements are required for the proper discharge of his or her fiduciary duties, or (iv) made by the Board of Directors in connection with a termination of the Executive for Cause.

[Signature Page Follows]

B-4

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Executive has hereunto signed this Agreement, as of the date set forth below.

EXECUTIVE
Name:
	Andrew P. Stone
Date:
COMPANY
Name:
Date:

B-5

EXHIBIT C

Section 2870 of California Labor Code

Section 2870 of California Labor Code: Application of provision providing that employee shall assign or offer to assign rights in invention to employer.

a.Any provision and employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities or trade secret information except for those inventions that either:

1.Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or

2.Result from any work performed by the employee for the employer.

b.    To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

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EXHIBIT D

DEFINITION OF “CHANGE OF CONTROL”

With respect to (i) equity-based or equity-related awards granted prior to the Effective Date and (ii) long-term incentive and/or retention compensation awards that are payable in cash granted prior to the Effective Date, the following definition of Change of Control shall apply:

“’Change of Control’ refers to the occurrence of any of the following:

(1) any one person, or more than one person acting as a group (within the meaning of Section 409A of the Code), acquires ownership of stock of the Company that, together with other stock held by such person or group constitutes more than 50 percent of the total fair market value or total voting power of all stock of the Company; or

(2) any one person, or more than one person acting as a group (within the meaning of Section 409A of the Code), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 30 percent or more of the total voting power of the stock of the Company; or

(3) during any 12-month period, a majority of the members of the Company’s board of directors is replaced by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors prior to such appointment or election; or

(4) any one person, or more than one person acting as a group (within the meaning of Section 409A of the Code), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisition; provided, that that no change of control shall be deemed to occur when the assets are transferred to:

(x) a shareholder of the Company in exchange for or with respect to its stock,

(y) a person, or more than one person acting as a group (within the meaning of Section 409A of the Code), that owns, directly or indirectly, 50 percent or more of the total value or voting power of all of the outstanding stock of the Company, or

(z) an entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a person that owns directly or indirectly 50 percent or more of the total value or voting power of all of the outstanding stock

D-1

of the Company, in each case with such persons status determined immediately after the transfer of assets.”

With respect to (i) equity-based or equity-related awards granted on or following the Effective Date and (ii) long-term incentive and/or retention compensation awards that are payable in cash granted on or following the Effective Date, the following definition of Change of Control shall apply:

    “’Change of Control’ refers to the occurrence of any of the following:

i.A transaction or series of transactions (other than an offering of common stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 30% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

ii.During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c) of this definition) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

iii.The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:

1.which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of

D-2

the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

D-3

2.after which no person or group beneficially owns voting securities representing 30% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 30% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.”

D-4

EX-31.1

EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher J. Abate, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Redwood Trust, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over the financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2020	/s/ Christopher J. Abate
	Christopher J. Abate
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Collin L. Cochrane, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Redwood Trust, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over the financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2020	/s/ Collin L. Cochrane
	Collin L. Cochrane
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION

Pursuant to 18 U.S.C. §1350, the undersigned officer of Redwood Trust, Inc. (the “Registrant”) hereby certifies that the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2020 (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: November 6, 2020	/s/ Christopher J. Abate
	Christopher J. Abate
	Chief Executive Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Quarterly Report or as a separate disclosure document.

EX-32.2

EXHIBIT 32.2

CERTIFICATION

Pursuant to 18 U.S.C. §1350, the undersigned officer of Redwood Trust, Inc. (the “Registrant”) hereby certifies that the Registrant’s Quarterly Report on Form 10-Q for the three months ended September 30, 2020 (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: November 6, 2020	/s/ Collin L. Cochrane
	Collin L. Cochrane
	Chief Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Quarterly Report or as a separate disclosure document.

XML

Cover Page - shares	9 Months Ended
	Sep. 30, 2020	Nov. 02, 2020
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	1-13759
Entity Registrant Name	REDWOOD TRUST, INC.
Entity Incorporation, State or Country Code	MD
Entity Tax Identification Number	68-0329422
Entity Address Address Line	One Belvedere Place, Suite 300
Entity Address City Or Town	Mill Valley,
Entity Address, State or Province	CA
Entity Address Postal Zip Code	94941
City Area Code	415
Local Phone Number	389-7373
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity small business	false
Emerging growth company	false
Entity Shell Company	false
Title of 12(b) Security	Common stock, par value $0.01 per share
Trading Symbol	RWT
Security Exchange Name	NYSE
Entity Common Stock, Shares Outstanding		111,928,020
Amendment Flag	false
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Entity Central Index Key	0000930236
Current Fiscal Year End Date	--12-31

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands		Sep. 30, 2020	Dec. 31, 2019
ASSETS
Real estate securities, at fair value	[1]	$ 351,335	$ 1,099,874
Other investments	[1]	384,628	358,130
Cash and cash equivalents	[1]	450,684	196,966
Restricted cash	[1]	73,594	93,867
Goodwill and intangible assets	[1]	60,737	161,464
Derivative assets	[1]	14,709	35,701
Other assets	[1]	124,273	419,321
Total Assets	[1]	10,402,412	17,995,440
Liabilities
Short-term debt, net	[1]	482,761	2,329,145
Derivative liabilities	[1]	1,612	163,424
Accrued expenses and other liabilities	[1]	155,989	206,893
Asset-backed securities issued (includes $6,969,376 and $10,515,475 at fair value), net	[1]	7,172,398	10,515,475
Long-term debt, net	[1]	1,536,188	2,953,272
Total liabilities	[1]	9,348,948	16,168,209
Commitments and Contingencies	[1]
Equity
Common stock, par value $0.01 per share, 395,000,000 and 270,000,000 shares authorized; 111,904,322 and 114,353,036 issued and outstanding	[1]	1,119	1,144
Additional paid-in capital	[1]	2,261,911	2,269,617
Accumulated other comprehensive (loss) income	[1]	(20,560)	41,513
Cumulative earnings	[1]	942,982	1,579,124
Cumulative distributions to stockholders	[1]	(2,131,988)	(2,064,167)
Total equity	[1]	1,053,464	1,827,231
Total Liabilities and Equity	[1]	10,402,412	17,995,440
Residential loans, held-for-sale, at fair value
ASSETS
Loans, at fair value	[1]	105,128	536,385
Residential loans, held-for-investment, at fair value
ASSETS
Loans, at fair value	[1]	4,389,808	7,178,465
Business purpose residential loans, held-for-sale, at fair value
ASSETS
Loans, at fair value	[1]	285,549	331,565
Business purpose residential loans, held-for-investment, at fair value
ASSETS
Loans, at fair value	[1]	3,670,552	3,175,178
Multifamily loans
ASSETS
Loans, at fair value	[1]	491,415	4,408,524
Variable Interest Entity, Primary Beneficiary
ASSETS
Other investments		278,487	184,802
Cash and cash equivalents		10,425	9,015
Restricted cash		20,795	21,936
Other assets		5,829	2,700
Total Assets		8,197,095	11,931,869
Liabilities
Short-term debt, net		228,998	152,554
Accrued expenses and other liabilities		18,176	14,983
Asset-backed securities issued (includes $6,969,376 and $10,515,475 at fair value), net		6,969,376	10,515,475
Total liabilities		7,238,047	10,717,072
Variable Interest Entity, Primary Beneficiary | Business purpose residential loans, held-for-investment, at fair value
ASSETS
Loans, at fair value		$ 2,969,692	$ 2,192,552

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

XML

CONSOLIDATED BALANCE SHEETS (PARENTHETICAL) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
ABS issued, net, Fair value	$ 6,969,376	$ 10,515,475
Common stock, par value (usd per share)	$ 0.01	$ 0.01
Common stock, shares authorized (shares)	395,000,000	270,000,000
Common stock, issued (shares)	111,904,322	114,353,036
Common stock, outstanding (shares)	111,904,322	114,353,036

XML

CONSOLIDATED STATEMENTS OF INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Interest Income
Residential loans	$ 44,921	$ 77,070	$ 179,331	$ 230,308
Business purpose residential loans	55,637	5,446	161,710	12,231
Multifamily loans	4,918	36,829	49,960	94,134
Real estate securities	10,135	23,047	38,471	72,514
Other interest income	6,371	7,725	20,537	20,513
Total interest income	121,982	150,117	450,009	429,700
Interest Expense
Short-term debt	(5,145)	(24,239)	(45,119)	(70,732)
Asset-backed securities issued	(66,514)	(71,065)	(232,316)	(196,473)
Long-term debt	(28,752)	(21,300)	(72,313)	(64,895)
Total interest expense	(100,411)	(116,604)	(349,748)	(332,100)
Net Interest Income	21,571	33,513	100,261	97,600
Non-interest Income (Loss)
Mortgage banking activities, net	59,395	9,515	24,511	40,984
Investment fair value changes, net	107,047	11,444	(611,557)	34,741
Other income, net	(114)	4,356	3,979	13,840
Realized gains, net	602	4,714	30,419	18,227
Total non-interest income (loss), net	166,930	30,029	(552,648)	107,792
General and administrative expenses	(27,630)	(24,899)	(84,832)	(70,722)
Loan acquisition costs	(2,158)	(1,916)	(7,716)	(5,507)
Other expenses	(7,788)	(2,531)	(104,286)	(6,021)
Net Income (Loss) before (Provision for) Benefit from Income Taxes	150,925	34,196	(649,221)	123,142
(Provision for) benefit from income taxes	(9,113)	114	13,079	(3,102)
Net Income (Loss)	$ 141,812	$ 34,310	$ (636,142)	$ 120,040
Basic (loss) earnings per common share (in dollars per share)	$ 1.21	$ 0.33	$ (5.60)	$ 1.20
Diluted (loss) earnings per common share (in dollars per share)	$ 1.02	$ 0.31	$ (5.60)	$ 1.09
Basic weighted average shares outstanding (in shares)	113,403,102	101,872,126	113,952,308	97,214,064
Diluted weighted average shares outstanding (in shares)	141,969,977	136,522,709	113,952,308	131,202,689

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Statement of Comprehensive Income [Abstract]
Net Income (Loss)	$ 141,812	$ 34,310	$ (636,142)	$ 120,040
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities	8,236	4,484	(19,890)	19,764
Reclassification of unrealized gain on available-for-sale securities to net income	(445)	(3,492)	(11,525)	(15,807)
Net unrealized loss on interest rate agreements	0	(11,791)	(32,806)	(27,130)
Reclassification of unrealized loss on interest rate agreements to net income	1,040	0	2,148	0
Total other comprehensive income (loss)	8,831	(10,799)	(62,073)	(23,173)
Total Comprehensive Income (Loss)	$ 150,643	$ 23,511	$ (698,215)	$ 96,867

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Cumulative Earnings	Cumulative Distributions to Stockholders
Beginning balance (in shares) at Dec. 31, 2018		84,884,344
Balance at beginning of period at Dec. 31, 2018	$ 1,348,794	$ 849	$ 1,811,422	$ 61,297	$ 1,409,941	$ (1,934,715)
Increase (Decrease) in Stockholders' Equity
Net Income (Loss)	120,040				120,040
Other comprehensive income (loss)	(23,173)			(23,173)
Issuance of common stock (in shares)		26,666,191
Issuance of common stock	418,591	$ 267	418,324
Direct stock purchase and dividend reinvestment plan (in shares)		399,838
Direct stock purchase and dividend reinvestment plan	6,307	$ 4	6,303
Employee stock purchase and incentive plans (in shares)		151,358
Employee stock purchase and incentive plans	(1,766)	$ 1	(1,767)
Non-cash equity award compensation	10,552		10,552
Common dividends declared	(94,286)					(94,286)
Ending balance (in shares) at Sep. 30, 2019		112,101,731
Balance at End of Period at Sep. 30, 2019	1,785,059	$ 1,121	2,244,834	38,124	1,529,981	(2,029,001)
Beginning balance (in shares) at Jun. 30, 2019		97,715,021
Balance at beginning of period at Jun. 30, 2019	1,564,032	$ 977	2,013,044	48,923	1,495,671	(1,994,583)
Increase (Decrease) in Stockholders' Equity
Net Income (Loss)	34,310				34,310
Other comprehensive income (loss)	(10,799)			(10,799)
Issuance of common stock (in shares)		14,375,000
Issuance of common stock	228,483	$ 144	228,339
Employee stock purchase and incentive plans (in shares)		11,710
Employee stock purchase and incentive plans	154		154
Non-cash equity award compensation	3,297		3,297
Common dividends declared	(34,418)					(34,418)
Ending balance (in shares) at Sep. 30, 2019		112,101,731
Balance at End of Period at Sep. 30, 2019	1,785,059	$ 1,121	2,244,834	38,124	1,529,981	(2,029,001)
Beginning balance (in shares) at Dec. 31, 2019		114,353,036
Balance at beginning of period at Dec. 31, 2019	1,827,231	$ 1,144	2,269,617	41,513	1,579,124	(2,064,167)
Increase (Decrease) in Stockholders' Equity
Net Income (Loss)	(636,142)				(636,142)
Other comprehensive income (loss)	(62,073)			(62,073)
Issuance of common stock (in shares)		350,088
Issuance of common stock	5,547	$ 3	5,544
Direct stock purchase and dividend reinvestment plan (in shares)		0
Employee stock purchase and incentive plans (in shares)		248,533
Employee stock purchase and incentive plans	(2,765)	$ 2	(2,767)
Non-cash equity award compensation	11,146		11,146
Share repurchases (in shares)		(3,047,335)
Share repurchases	(21,659)	$ (30)	(21,629)
Common dividends declared	(67,821)					(67,821)
Ending balance (in shares) at Sep. 30, 2020		111,904,322
Balance at End of Period at Sep. 30, 2020	1,053,464	$ 1,119	2,261,911	(20,560)	942,982	(2,131,988)
Beginning balance (in shares) at Jun. 30, 2020		114,940,197
Balance at beginning of period at Jun. 30, 2020	936,576	$ 1,149	2,279,625	(29,391)	801,170	(2,115,977)
Increase (Decrease) in Stockholders' Equity
Net Income (Loss)	141,812				141,812
Other comprehensive income (loss)	8,831			8,831
Employee stock purchase and incentive plans (in shares)		11,460
Employee stock purchase and incentive plans	9	$ 0	9
Non-cash equity award compensation	3,906		3,906
Share repurchases (in shares)		(3,047,335)
Share repurchases	(21,659)	$ (30)	(21,629)
Common dividends declared	(16,011)					(16,011)
Ending balance (in shares) at Sep. 30, 2020		111,904,322
Balance at End of Period at Sep. 30, 2020	$ 1,053,464	$ 1,119	$ 2,261,911	$ (20,560)	$ 942,982	$ (2,131,988)

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Statement of Stockholders' Equity [Abstract]
Common dividends declared (in dollars per share)	$ 0.14	$ 0.30	$ 0.585	$ 0.90

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands		9 Months Ended
		Sep. 30, 2020	Sep. 30, 2019
Cash Flows From Operating Activities:
Net Income (Loss)		$ (636,142)	$ 120,040
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Amortization of premiums, discounts, and securities issuance costs, net		6,213	(3,486)
Depreciation and amortization of non-financial assets		13,166	5,673
Originations of held-for-sale loans		(654,820)	(124,392)
Purchases of held-for-sale loans		(2,893,246)	(4,002,509)
Proceeds from sales of held-for-sale loans		3,224,526	2,971,811
Principal payments on held-for-sale loans		53,677	77,100
Net settlements of derivatives		(187,130)	(32,902)
Non-cash equity award compensation expense		11,146	10,552
Goodwill impairment expense		88,675	0
Market valuation adjustments		606,764	(62,720)
Realized gains, net		(30,419)	(18,227)
Net change in:
Accrued interest receivable and other assets		304,147	(141,197)
Accrued interest payable and accrued expenses and other liabilities		(82,489)	(1,049)
Net cash used in operating activities		(175,932)	(1,201,306)
Cash Flows From Investing Activities:
Originations of loan investments		(327,494)	(171,915)
Purchases of loan investment		0	(49,489)
Proceeds from sales of loan investments		1,574,160	9,422
Principal payments on loan investments		1,652,418	1,091,652
Purchases of real estate securities		(106,422)	(309,839)
Sales of multifamily securities held in consolidated securitization trusts		142,990	0
Proceeds from sales of real estate securities		634,709	487,469
Principal payments on real estate securities		19,446	62,711
Purchases of servicer advance investments		(179,419)	(69,610)
Principal repayments from servicer advance investments		83,124	150,512
Acquisition of 5 Arches, net of cash acquired		0	(3,714)
Net investment in participation in loan warehouse facility		0	38,209
Net investment in multifamily loan fund		40,898	(33,090)
Other investing activities, net		(19,865)	(24,989)
Net cash provided by investing activities		3,514,545	915,516
Cash Flows From Financing Activities:
Proceeds from borrowings on short-term debt		3,981,572	4,009,083
Repayments on short-term debt		(5,828,972)	(4,435,823)
Proceeds from issuance of asset-backed securities		1,343,845	1,020,136
Repayments on asset-backed securities issued		(1,037,546)	(720,651)
Proceeds from issuance of long-term debt		1,251,850	387,053
Deferred long-term debt issuance costs paid		(9,526)	(7,023)
Repayments on long-term debt		(2,640,007)	0
Net settlements of derivatives		(84,336)	0
Net proceeds from issuance of common stock		5,791	426,970
Net payments on repurchase of common stock		(21,659)	0
Taxes paid on equity award distributions		(3,009)	0
Dividends paid		(67,821)	(94,286)
Other financing activities, net		4,650	1,400
Net cash (used in) provided by financing activities		(3,105,168)	586,859
Net increase in cash, cash equivalents and restricted cash		233,445	301,069
Cash, cash equivalents and restricted cash at beginning of period	[1]	290,833	205,077
Cash, cash equivalents, and restricted cash at end of period	[1]	524,278	506,146
Cash paid during the period for:
Interest		364,875	319,036
Taxes		218	6,977
Supplemental Noncash Information:
Real estate securities retained from loan securitizations		46,560	7,759
Retention of mortgage servicing rights from loan securitizations and sales		0	868
Consolidation of residential loans held in securitization trusts		0	1,190,995
Consolidation of residential ABS		0	997,783
Consolidation of multifamily loans held in securitization trusts		(3,849,779)	1,481,554
Consolidation of multifamily ABS		(3,706,789)	1,408,002
Transfers from loans held-for-sale to loans held-for-investment		770,754	1,361,015
Transfers from residential loans to real estate owned		12,547	5,280
Right-of-use asset obtained in exchange for operating lease liability		5,362	13,016
Reduction in operating lease liability due to lease modification		1,466	0
Residential loans
Cash Flows From Investing Activities:
Purchases of multifamily securities held in consolidated securitization trusts		0	(193,212)
Multifamily loans
Cash Flows From Investing Activities:
Purchases of multifamily securities held in consolidated securitization trusts		$ 0	$ (68,601)

[1] Cash, cash equivalents, and restricted cash at September 30, 2020 includes cash and cash equivalents of $451 million and restricted cash of $74 million, and at December 31, 2019 includes cash and cash equivalents of $197 million and restricted cash of $94 million.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (PARENTHETICAL) - USD ($) $ in Thousands		Sep. 30, 2020	Dec. 31, 2019
Statement of Cash Flows [Abstract]
Cash and cash equivalents	[1]	$ 450,684	$ 196,966
Restricted cash	[1]	$ 73,594	$ 93,867

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

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Organization

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

Organization

Redwood Trust, Inc., together with its subsidiaries, is a specialty finance company focused on making credit-sensitive investments in single-family residential and multifamily mortgages and related assets and engaging in mortgage banking activities. Our goal is to provide attractive returns to shareholders through a stable and growing stream of earnings and dividends, as well as through capital appreciation. We operate our business in three segments: Residential Lending, Business Purpose Lending, and Third-Party Investments.

Our primary sources of income are net interest income from our investments and non-interest income from our mortgage banking activities. Net interest income consists of the interest income we earn on investments less the interest expense we incur on borrowed funds and other liabilities. Income from mortgage banking activities is generated through the origination and acquisition of loans, and their subsequent sale, securitization, or transfer to our investment portfolios.

Redwood Trust, Inc. has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), beginning with its taxable year ended December 31, 1994. We generally refer, collectively, to Redwood Trust, Inc. and those of its subsidiaries that are not subject to subsidiary-level corporate income tax as “the REIT” or “our REIT.” We generally refer to subsidiaries of Redwood Trust, Inc. that are subject to subsidiary-level corporate income tax as “our taxable REIT subsidiaries” or “TRS.”

Redwood was incorporated in the State of Maryland on April 11, 1994, and commenced operations on August 19, 1994. On March 1, 2019, Redwood completed the acquisition of 5 Arches, LLC ("5 Arches"), at which time 5 Arches became a wholly-owned subsidiary of Redwood. On October 15, 2019, Redwood acquired CoreVest American Finance Lender, LLC and certain affiliated entities ("CoreVest"), at which time CoreVest became wholly owned by Redwood. References herein to “Redwood,” the “company,” “we,” “us,” and “our” include Redwood Trust, Inc. and its consolidated subsidiaries, unless the context otherwise requires.

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Basis of Presentation

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The consolidated financial statements presented herein are at September 30, 2020 and December 31, 2019, and for the three and nine months ended September 30, 2020 and 2019. These interim unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in our annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") — as prescribed by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) — have been condensed or omitted in these interim financial statements according to these SEC rules and regulations. Management believes that the disclosures included in these interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the company's Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, all normal and recurring adjustments to present fairly the financial condition of the company at September 30, 2020 and results of operations for all periods presented have been made. The results of operations for the three and nine months ended September 30, 2020 should not be construed as indicative of the results to be expected for the full year.

Principles of Consolidation

In accordance with GAAP, we determine whether we must consolidate transferred financial assets and variable interest entities (“VIEs”) for financial reporting purposes. We currently consolidate the assets and liabilities of certain Sequoia securitization entities issued prior to 2012 where we maintain an ongoing involvement ("Legacy Sequoia"), as well as entities formed in connection with the securitization of Redwood Choice expanded-prime loans ("Sequoia Choice"). We also consolidate the assets and liabilities of certain Freddie Mac K-Series and Freddie Mac Seasoned Loans Structured Transaction ("SLST") securitizations we invested in. Finally, we consolidated the assets and liabilities of certain CoreVest American Finance Lender ("CAFL") securitizations beginning in the fourth quarter of 2019, in connection with our acquisition of CoreVest. Each securitization entity is independent of Redwood and of each other and the assets and liabilities are not owned by and are not legal obligations of Redwood Trust, Inc. Our exposure to these entities is primarily through the financial interests we have purchased or retained, although for the consolidated Sequoia and CAFL entities we are exposed to certain financial risks associated with our role as a sponsor, servicing administrator, or depositor of these entities or as a result of our having sold assets directly or indirectly to these entities.

For financial reporting purposes, the underlying loans owned at the consolidated Sequoia and Freddie Mac SLST entities are shown under Residential loans held-for-investment at fair value, the underlying loans at the consolidated Freddie Mac K-Series are shown under Multifamily loans held-for-investment at fair value, and the underlying single-family rental loans at the consolidated CAFL entities are shown under Business purpose residential loans held-for-investment at fair value on our consolidated balance sheets. The asset-backed securities (“ABS”) issued to third parties by these entities are shown under ABS issued. In our consolidated statements of income (loss), we recorded interest income on the loans owned at these entities and interest expense on the ABS issued by these entities as well as other income and expenses associated with these entities' activities. See Note 14 for further discussion on ABS issued.

During the first quarter of 2020, we sold subordinate securities issued by four of these Freddie Mac K-Series securitization trusts and determined that we should derecognize the associated assets and liabilities of each of these entities for financial reporting purposes. We deconsolidated $3.86 billion of multifamily loans and other assets and $3.72 billion of multifamily ABS issued and other liabilities, for which we realized market valuation losses of $72 million, which were recorded through Investment fair value changes, net on our consolidated statements of income (loss) for the three months ended March 31, 2020.

We also consolidate two partnerships ("Servicing Investment" entities) through which we have invested in servicing-related assets. We maintain an 80% ownership interest in each entity and have determined that we are the primary beneficiary of these partnerships.

Beginning in the first quarter of 2019, we consolidated 5 Arches, LLC ("5 Arches"), an originator of business purpose residential loans, pursuant to the exercise of our purchase option and the acquisition of the remaining equity in the company. In the fourth quarter of 2019, we acquired and consolidated CoreVest, an originator and portfolio manager of business purpose residential loans.

See Note 4 for further discussion on principles of consolidation.

Use of Estimates

The preparation of financial statements requires us to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amounts and timing of credit losses, prepayment rates, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the consolidated financial statements and the reported amounts of certain revenues and expenses during the reported periods. It is likely that changes in these estimates (e.g., valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. Our estimates are inherently subjective in nature and actual results could differ from our estimates and the differences could be material.

Acquisitions

In May 2018, Redwood acquired a 20% minority interest in 5 Arches, an originator of business purpose residential loans. On March 1, 2019, we completed the acquisition of the remaining 80% interest in 5 Arches. On October 15, 2019, we acquired CoreVest, an originator and portfolio manager of business purpose residential loans. Refer to our Annual Report on Form 10-K for the year ended December 31, 2019 for additional information regarding these acquisitions, including purchase price allocations.

In connection with the acquisitions of 5 Arches and CoreVest, we identified and recorded finite-lived intangible assets totaling $25 million and $57 million, respectively. The amortization period for each of these assets and the activity for the nine months ended September 30, 2020 is summarized in the table below.

Table 2.1 – Intangible Assets – Activity

	Carrying Value at December 31, 2019		Additions		Amortization Expense		Carrying Value at September 30, 2020		Weighted Average Amortization Period (in years)
(Dollars in Thousands)
Borrower network	$	43,952	$	—	$	(4,854)	$	39,098	7
Broker network	15,083		—		(2,715)		12,368		5
Non-compete agreements	8,236		—		(2,375)		5,861		3
Tradenames	3,472		—		(1,000)		2,472		3
Developed technology	1,613		—		(675)		938		2
Loan administration fees on existing loan assets	433		—		(433)		—		1
Total	$	72,789	$	—	$	(12,052)	$	60,737	6

All of our intangible assets are amortized on a straight-line basis. Estimated future amortization expense is summarized in the table below.

Table 2.2 – Intangible Asset Amortization Expense by Year

(In Thousands)	September 30, 2020
2020 (3 months)	$	3,873
2021	15,304
2022	12,800
2023	10,091
2024	7,073
2025 and thereafter	11,596
Total Future Intangible Asset Amortization	$	60,737

We recorded total goodwill of $89 million in 2019 as a result of the total consideration exceeding the fair value of the net assets acquired from 5 Arches and CoreVest. The goodwill was attributed to the expected business synergies and expansion into business purpose loan markets, as well as access to the knowledgeable and experienced workforces continuing to provide services to the business. We expect $75 million of this goodwill to be deductible for tax purposes. For reporting purposes, we included the intangible assets and goodwill from these acquisitions within the Business Purpose Lending segment.

During the first quarter of 2020, as a result of the deterioration in economic conditions caused by the spread of the COVID-19 pandemic (the "pandemic"), and its impact on our business, including a significant decline in the market price of our common stock, we determined that it was more likely than not that the fair value of our Business Purpose Lending reporting unit was lower than its carrying amount, including goodwill. Based on this analysis, we determined that an interim goodwill impairment test should be performed as of March 31, 2020 and prepared updated cash flow projections for the reporting unit, resulting in a reduction in the long-term forecasts of profitability for our Business Purpose Lending reporting unit as compared to the prior year forecasts. Using these projections, we concluded that the fair value of our Business Purpose Lending reporting unit was less than its carrying value, including goodwill. As a result of this evaluation, we recorded a non-cash $89 million goodwill impairment expense through Other expenses on our consolidated statements of income (loss) during the three months ended March 31, 2020. In conjunction with our assessment of goodwill, we also assessed our intangible assets for impairment at March 31, 2020 and determined they were not impaired. On a quarterly basis, we evaluate our finite-lived intangible assets for impairment indicators and additionally evaluate the useful lives of our intangible assets to determine if revisions to the remaining periods of amortization are warranted.

The liability resulting from the contingent consideration arrangement with 5 Arches was recorded at its acquisition-date fair value of $25 million as part of total consideration for the acquisition of 5 Arches. These contingent earn-out payments were classified as a contingent consideration liability and carried at fair value prior to March 31, 2020. During the three months ended March 31, 2020, we made a cash payment of $11 million and granted $3 million of Redwood common stock in connection with the first anniversary of the purchase date. Additionally, as a result of an amendment to the agreement, we reclassified the contingent liability to a deferred liability, as the remaining payments became payable on a set timetable without any remaining contingencies. At September 30, 2020, the carrying value of this deferred liability was $14 million and was recorded as a component of Accrued expenses and other liabilities on our consolidated balance sheets. During the three and nine months ended September 30, 2020, we recorded $0.1 million and $0.6 million of contingent consideration expense, respectively, through Other expenses on our consolidated statements of income (loss). See Note 16 for additional information on our contingent consideration liability.

The following unaudited pro forma financial information presents Net interest income, Non-interest income, and Net income of Redwood, 5 Arches, and CoreVest combined, for the three and nine months ended September 30, 2019, as if the acquisitions occurred as of January 1, 2018. These pro forma amounts have been adjusted to include the amortization of intangible assets and acquisition-related compensation expense for both periods, and to exclude the income statement impacts related to our equity method investment in 5 Arches. The unaudited pro forma financial information is not intended to represent or be indicative of the consolidated financial results of operations that would have been reported if the acquisitions had been completed as of January 1, 2018 and should not be taken as indicative of our future consolidated results of operations.

Table 2.3 – Unaudited Pro Forma Financial Information

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
(In Thousands)
Supplementary pro forma information:
Net interest income	$	45,702	$	133,446
Non-interest income	38,177		116,649
Net income	46,609		140,790

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Significant Accounting Policies

Included in Note 3 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2019 is a summary of our significant accounting policies. Provided below is a summary of additional accounting policies that are significant to the company’s consolidated financial position and results of operations for the three and nine months ended September 30, 2020.

Available-for-Sale Securities

Upon adoption of ASU 2016-13, "Financial Instruments - Credit Losses" in the first quarter of 2020, we modified our policy for recording impairments on available-for-sale securities. This new guidance requires that credit impairments on our available-for-sale securities be recorded in earnings using an allowance for credit losses, with the allowance limited to the amount by which the security's fair value is less than its amortized cost basis. The allowance for credit losses is calculated using a discounted cash flow approach and is measured as the difference between the beneficial interest’s amortized cost and the estimate of cash flows expected to be collected, discounted at the effective interest rate used to accrete the beneficial interest. Any allowance for credit losses in excess of the unrealized losses on the beneficial interests are accounted for as a prospective reduction of the effective interest rate. No allowance is recorded for beneficial interests in an unrealized gain position. Favorable changes in the discounted cash flows will result in a reduction in the allowance for credit losses, if any. Any reduction in allowance for credit losses is recorded in earnings. If the allowance for credit losses has been reduced to zero, the remaining favorable changes are reflected as a prospective increase to the effective interest rate. If we intend to sell or it is more likely than not that we will be required to sell the security before it recovers in value, the entire impairment amount will be recognized in earnings with a corresponding adjustment to the security's amortized cost basis.

Goodwill

Pursuant to our adoption of ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" in the first quarter of 2020, we modified our goodwill impairment testing policy. We first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If, based on that assessment, we believe it is more likely than not that the fair value of the reporting unit is less than its carrying value, we measure the fair value of reporting unit and record a goodwill impairment charge for the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill. Any such impairment charges would be recorded through Other expenses on our consolidated statements of income (loss).

Recent Accounting Pronouncements

Newly Adopted Accounting Standards Updates ("ASUs")

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." This new guidance amends previous guidance by removing and modifying certain existing fair value disclosure requirements, while adding other new disclosure requirements. This new guidance is effective for fiscal years beginning after December 15, 2019. We adopted this new guidance, as required, in the first quarter of 2020, which did not have a material impact on our consolidated financial statements but impacted certain of our fair value footnote disclosures.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. This new guidance is effective for fiscal years beginning after December 15, 2019. We adopted this new guidance, as required, in the first quarter of 2020, which did not have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses." This new guidance provides a new impairment model that is based on expected losses rather than incurred losses to determine the allowance for credit losses. This new guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years beginning after December 15, 2018. In November 2018, the FASB issued ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses," which clarifies the scope of the amendments in ASU 2016-13. In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," which is intended to clarify this guidance. In May 2019, the FASB issued ASU 2019-05, "Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief," which provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost. In November 2019, the FASB issued ASU 2019-11, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses," which is intended to clarify Codification guidance. In February 2020, the FASB issued ASU 2020-02, "Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) (SEC Update)," and in March 2020, the FASB issued ASU 2020-03, "Codification Improvements to Financial Instruments." These updates amend certain sections of the guidance. We currently have only a small balance of loans receivable that are not carried at fair value and would be subject to this new guidance for allowance for credit losses. Separately, we accounted for our available-for-sale securities under the other-than-temporary impairment ("OTTI") model for debt securities prior to the issuance of this new guidance. This new guidance requires that credit impairments on our available-for-sale securities be recorded in earnings using an allowance for credit losses, with the allowance limited to the amount by which the security's fair value is less than its amortized cost basis. Subsequent reversals in credit loss estimates are recognized in income. We adopted this guidance, as required, in the first quarter of 2020, which did not have a material impact on our consolidated financial statements.

Other Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40)." This new guidance simplifies the accounting for convertible debt by reducing the number of accounting models to separately present certain conversion features in equity. This new guidance is effective for fiscal years beginning after December 31, 2021. Early adoption is permitted. We plan to adopt this new guidance by the required date and do not anticipate that this update will have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This new guidance is effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact the adoption of this standard would have on our consolidated financial statements. Through September 30, 2020, we have not elected to apply the optional expedients and exceptions to any of our existing contracts, hedging relationships, or other transactions.

In January 2020, the FASB issued ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)." This new guidance clarifies the interaction of the accounting for equity securities, equity method investments, and certain forward contracts and purchased options. This new guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. We plan to adopt this new guidance by the required date and do not anticipate that this update will have a material impact on the consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This new guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by clarifying and amending existing guidance. This new guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. We plan to adopt this new guidance by the required date and do not anticipate that this update will have a material impact on our consolidated financial statements.

Balance Sheet Netting

Certain of our derivatives and short-term debt are subject to master netting arrangements or similar agreements. Under GAAP, in certain circumstances we may elect to present certain financial assets, liabilities and related collateral subject to master netting arrangements in a net position on our consolidated balance sheets. However, we do not report any of these financial assets or liabilities on a net basis, and instead present them on a gross basis on our consolidated balance sheets.

The table below presents financial assets and liabilities that are subject to master netting arrangements or similar agreements categorized by financial instrument, together with corresponding financial instruments and corresponding collateral received or pledged at September 30, 2020 and December 31, 2019.

Table 3.1 – Offsetting of Financial Assets, Liabilities, and Collateral

	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in Consolidated Balance Sheet		Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		Gross Amounts Not Offset in Consolidated Balance Sheet (1)				Net Amount
September 30, 2020 (In Thousands)							Financial Instruments		Cash Collateral (Received) Pledged
Assets (2)
Interest rate agreements	$	3,471	$	—	$	3,471	$	(15)	$	(1,240)	$	2,216
TBAs	402		—		402		—		(263)		139
Futures	63		—		63		—		—		63
Total Assets	$	3,936	$	—	$	3,936	$	(15)	$	(1,503)	$	2,418
Liabilities (2)
Interest rate agreements	$	(15)	$	—	$	(15)	$	15	$	—	$	—
TBAs	(263)		$	—	(263)		—		263		—
Loan warehouse debt	(81,898)		$	—	(81,898)		81,898		—		—
Security repurchase agreements	(75,054)		—		(75,054)		75,054		—		—
Total Liabilities	$	(157,230)	$	—	$	(157,230)	$	156,967	$	263	$	—

	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in Consolidated Balance Sheet		Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		Gross Amounts Not Offset in Consolidated Balance Sheet (1)				Net Amount
December 31, 2019 (In Thousands)							Financial Instruments		Cash Collateral (Received) Pledged
Assets (2)
Interest rate agreements	$	19,020	$	—	$	19,020	$	(14,178)	$	(915)	$	3,927
TBAs	5,755		—		5,755		(5,755)		—		—
Futures	137		—		137		—		—		137
Total Assets	$	24,912	$	—	$	24,912	$	(19,933)	$	(915)	$	4,064
Liabilities (2)
Interest rate agreements	$	(148,765)	$	—	$	(148,765)	$	14,178	$	134,587	$	—
TBAs	(13,359)		—		(13,359)		5,755		6,673		(931)
Loan warehouse debt	(432,126)		—		(432,126)		432,126		—		—
Security repurchase agreements	(1,096,578)		—		(1,096,578)		1,096,578		—		—
Total Liabilities	$	(1,690,828)	$	—	$	(1,690,828)	$	1,548,637	$	141,260	$	(931)

(1)Amounts presented in these columns are limited in total to the net amount of assets or liabilities presented in the prior column by instrument. In certain cases, there is excess cash collateral or financial assets we have pledged to a counterparty (which may, in certain circumstances, be a clearinghouse) that exceed the financial liabilities subject to a master netting arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to us that exceeds our corresponding financial assets. In each case, any of these excess amounts are excluded from the table although they are separately reported in our consolidated balance sheets as assets or liabilities, respectively.

(2)Interest rate agreements and TBAs are components of derivatives instruments on our consolidated balance sheets. Loan warehouse debt, which is secured by certain residential and business purpose residential loans, and security repurchase agreements are components of Short-term debt and Long-term debt on our consolidated balance sheets.

For each category of financial instrument set forth in the table above, the assets and liabilities resulting from individual transactions within that category between us and a counterparty are subject to a master netting arrangement or similar agreement with that counterparty that provides for individual transactions to be aggregated and treated as a single transaction. For certain categories of these instruments, some of our transactions are cleared and settled through one or more clearinghouses that are substituted as our counterparty. References herein to master netting arrangements or similar agreements include the arrangements and agreements governing the clearing and settlement of these transactions through the clearinghouses. In the event of the termination and close-out of any of those transactions, the corresponding master netting agreement or similar agreement provides for settlement on a net basis. Any such settlement would include the proceeds of the liquidation of any corresponding collateral, subject to certain limitations on termination, settlement, and liquidation of collateral that may apply in the event of the bankruptcy or insolvency of a party. Such limitations should not inhibit the eventual practical realization of the principal benefits of those transactions or the corresponding master netting arrangement or similar agreement and any corresponding collateral.

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Principles of Consolidation

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Principles of Consolidation

Principles of ConsolidationGAAP requires us to consider whether securitizations we sponsor and other transfers of financial assets should be treated as sales or financings, as well as whether any VIEs that we hold variable interests in – for example, certain legal entities often used in securitization and other structured finance transactions – should be included in our consolidated financial statements. The GAAP principles we apply require us to reassess our requirement to consolidate VIEs each quarter and therefore our determination may change based upon new facts and circumstances pertaining to each VIE. This could result in a material impact to our consolidated financial statements during subsequent reporting periods.

Analysis of Consolidated VIEs

At September 30, 2020, we consolidated Legacy Sequoia, Sequoia Choice, Freddie Mac SLST, Freddie Mac K-Series and CAFL securitization entities that we determined were VIEs and for which we determined we were the primary beneficiary. Each of these entities is independent of Redwood and of each other and the assets and liabilities of these entities are not owned by and are not legal obligations of ours. Our exposure to these entities is primarily through the financial interests we have retained, although for the consolidated Sequoia and CAFL entities we are exposed to certain financial risks associated with our role as a sponsor, servicing administrator, or depositor of these entities or as a result of our having sold assets directly or indirectly to these entities. At September 30, 2020, the estimated fair value of our investments in the consolidated Legacy Sequoia, Sequoia Choice, Freddie Mac SLST, Freddie Mac K-Series and CAFL entities was $5 million, $211 million, $418 million, $27 million, and $232 million, respectively.

During the first quarter of 2020, we sold subordinate securities issued by four of these Freddie Mac K-Series securitization trusts and determined that we should derecognize the associated assets and liabilities of each of these entities for financial reporting purposes. We deconsolidated $3.86 billion of multifamily loans and other assets and $3.72 billion of multifamily ABS issued and other liabilities, for which we realized market valuation losses of $72 million, which were recorded through Investment fair value changes, net on our consolidated statements of income (loss) for the three months ended March 31, 2020.

Beginning in 2018, we consolidated two Servicing Investment entities formed to invest in servicing-related assets that we determined were VIEs and for which we determined we were the primary beneficiary. At September 30, 2020, we held an 80% ownership interest in, and were responsible for the management of, each entity. See Note 10 for a further description of these entities and the investments they hold and Note 12 for additional information on the minority partner’s interest. Additionally, beginning in 2018, we consolidated an entity that was formed to finance servicer advances that we determined was a VIE and for which we, through our control of one of the aforementioned partnerships, were the primary beneficiary. The servicer advance financing consists of non-recourse short-term securitization debt, secured by servicer advances. We consolidate the securitization entity, but the securitization entity is independent of Redwood and the assets and liabilities are not owned by and are not legal obligations of Redwood. See Note 13 for additional information on the servicer advance financing. At September 30, 2020, the estimated fair value of our investment in the Servicing Investment entities was $65 million.

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

Table 4.1 – Assets and Liabilities of Consolidated VIEs Accounted for as Collateralized Financing Entities

September 30, 2020	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment	$	296,765	$	1,836,361	$	2,256,682	$	—	$	—	$	—	$	4,389,808
Business purpose residential loans, held-for-investment	—		—		—		—		2,969,692		—		2,969,692
Multifamily loans, held-for-investment	—		—		—		491,415		—		—		491,415
Other investments	—		—		—		—		—		278,487		278,487
Cash and cash equivalents	—		—		—		—		—		10,425		10,425
Restricted cash	146		—		—		—		—		20,649		20,795
Accrued interest receivable	402		7,292		6,928		1,342		12,071		2,609		30,644
Other assets	784		—		887		—		4,158		—		5,829
Total Assets	$	298,097	$	1,843,653	$	2,264,497	$	492,757	$	2,985,921	$	312,170	$	8,197,095
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	228,998	$	228,998
Accrued interest payable	180		5,652		5,009		1,182		9,337		137		21,497
Accrued expenses and other liabilities	—		47		—		—		—		18,129		18,176
Asset-backed securities issued	292,484		1,626,564		1,841,313		464,865		2,744,150		—		6,969,376
Total Liabilities	$	292,664	$	1,632,263	$	1,846,322	$	466,047	$	2,753,487	$	247,264	$	7,238,047
Number of VIEs	20		10		2		1		13		3		49

December 31, 2019	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment	$	407,890	$	2,291,463	$	2,367,215	$	—	$	—	$	—	$	5,066,568
Business purpose residential loans, held-for-investment	—		—		—		—		2,192,552		—		2,192,552
Multifamily loans, held-for-investment	—		—		—		4,408,524		—		—		4,408,524
Other investments	—		—		—		—		—		184,802		184,802
Cash and cash equivalents	—		—		—		—		—		9,015		9,015
Restricted cash	143		27		—		—		—		21,766		21,936
Accrued interest receivable	655		9,824		7,313		13,539		9,572		4,869		45,772
Other assets	460		—		445		—		1,795		—		2,700
Total Assets	$	409,148	$	2,301,314	$	2,374,973	$	4,422,063	$	2,203,919	$	220,452	$	11,931,869
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	152,554	$	152,554
Accrued interest payable	395		7,732		5,374		12,887		7,485		187		34,060
Accrued expenses and other liabilities	—		27		—		—		—		14,956		14,983
Asset-backed securities issued	402,465		2,037,198		1,918,322		4,156,239		2,001,251		—		10,515,475
Total Liabilities	$	402,860	$	2,044,957	$	1,923,696	$	4,169,126	$	2,008,736	$	167,697	$	10,717,072
Number of VIEs	20		9		2		5		10		3		49

The following table presents income (loss) from these VIEs for the three and nine months ended September 30, 2020 and 2019.

Table 4.2 – Income (Loss) from Consolidated VIEs Accounted for as Collateralized Financing Entities

	Three Months Ended September 30, 2020
	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	1,795	$	20,919	$	21,696	$	4,918	$	36,181	$	4,403	$	89,912
Interest expense	(1,058)		(17,828)		(15,473)		(4,426)		(27,499)		(1,587)		(67,871)
Net interest income	737		3,091		6,223		492		8,682		2,816		22,041
Non-interest income
Investment fair value changes, net	(81)		7,851		82,214		2,166		9,692		(422)		101,420
Total non-interest income, net	(81)		7,851		82,214		2,166		9,692		(422)		101,420
General and administrative expenses	—		—		—		—		—		(41)		(41)
Other expenses	—		—		—		—		—		(471)		(471)
Income from Consolidated VIEs	$	656	$	10,942	$	88,437	$	2,658	$	18,374	$	1,882	$	122,949

	Nine Months Ended September 30, 2020
	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	7,675	$	68,566	$	64,869	$	49,960	$	99,169	$	13,026	$	303,265
Interest expense	(5,098)		(58,455)		(47,495)		(47,154)		(75,600)		(4,961)		(238,763)
Net interest income	2,577		10,111		17,374		2,806		23,569		8,065		64,502
Non-interest income
Investment fair value changes, net	(702)		(22,065)		(33,081)		(82,744)		(41,841)		(9,015)		(189,448)
Total non-interest income, net	(702)		(22,065)		(33,081)		(82,744)		(41,841)		(9,015)		(189,448)
General and administrative expenses	—		—		—		—		—		(784)		(784)
Other expenses	—		—		—		—		—		346		346
Income (Loss) from Consolidated VIEs	$	1,875	$	(11,954)	$	(15,707)	$	(79,938)	$	(18,272)	$	(1,388)	$	(125,384)

	Three Months Ended September 30, 2019
	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	4,295	$	27,555	$	11,830	$	36,829	$	—	$	3,922	$	84,431
Interest expense	(3,452)		(23,576)		(8,709)		(35,328)		—		(2,891)		(73,956)
Net interest income	843		3,979		3,121		1,501		—		1,031		10,475
Non-interest income
Investment fair value changes, net	(407)		2,722		17,300		7,445		—		963		28,023
Total non-interest income, net	(407)		2,722		17,300		7,445		—		963		28,023
General and administrative expenses	—		—		—		—		—		(16)		(16)
Other expenses	—		—		—		—		—		(395)		(395)
Income from Consolidated VIEs	$	436	$	6,701	$	20,421	$	8,946	$	—	$	1,583	$	38,087

	Nine Months Ended September 30, 2019
	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	13,924	$	80,045	$	35,221	$	94,134	$	—	$	10,847	$	234,171
Interest expense	(11,548)		(68,823)		(26,013)		(90,089)		—		(9,905)		(206,378)
Net interest income	2,376		11,222		9,208		4,045		—		942		27,793
Non-interest income
Investment fair value changes, net	(904)		8,866		31,702		13,810		—		3,462		56,936
Total non-interest income, net	(904)		8,866		31,702		13,810		—		3,462		56,936
General and administrative expenses	—		—		—		—		—		(87)		(87)
Other expenses	—		—		—		—		—		(864)		(864)
Income from Consolidated VIEs	$	1,472	$	20,088	$	40,910	$	17,855	$	—	$	3,453	$	83,778

We consolidate the assets and liabilities of certain Sequoia and CAFL securitization entities, as we did not meet the GAAP sale criteria at the time we transferred financial assets to these entities. Our involvement in consolidated Sequoia and CAFL entities continues in the following ways: (i) we continue to hold subordinate investments in each entity, and for certain entities, more senior investments; (ii) we maintain certain discretionary rights associated with our sponsorship of, or our subordinate investments in, each entity; and (iii) we continue to hold a right to call the assets of certain entities (once they have been paid down below a specified threshold) at a price equal to, or in excess of, the current outstanding principal amount of the entity’s asset-backed securities issued. These factors have resulted in our continuing to consolidate the assets and liabilities of these Sequoia and CAFL entities in accordance with GAAP.

We consolidate the assets and liabilities of certain Freddie Mac K-Series and SLST securitization trusts resulting from our investment in subordinate securities issued by these trusts, and in the case of certain CAFL securitizations, resulting from securities acquired through our acquisition of CoreVest. Additionally, we consolidate the assets and liabilities of Servicing Investment entities from our investment in servicer advance investments and excess MSRs. In each case, we maintain certain discretionary rights associated with the ownership of these investments that we determined reflected a controlling financial interest, as we have both the power to direct the activities that most significantly impact the economic performance of the VIEs and the right to receive benefits of and the obligation to absorb losses from the VIEs that could potentially be significant to the VIEs.

During the third quarter of 2020, we re-securitized subordinate securities we owned in our consolidated Freddie Mac SLST securitization trusts, through the transfer of these financial assets to a re-securitization trust that we sponsored. We retain a subordinate investment in the re-securitization trust and maintain certain discretionary rights associated with the ownership of this investment that we determined reflected a controlling financial interest in the entity, as we have both the power to direct the activities that most significantly impact the performance of the VIE and the right to receive benefits of and the obligation to absorb losses from the VIE that could potentially be significant to the VIE. At securitization, we issued $210 million of ABS and have elected to account for the ABS issued at amortized cost.

Analysis of Unconsolidated VIEs with Continuing Involvement

Since 2012, we have transferred residential loans to 51 Sequoia securitization entities sponsored by us that are still outstanding as of September 30, 2020, and accounted for these transfers as sales for financial reporting purposes, in accordance with ASC 860. We also determined we were not the primary beneficiary of these VIEs as we lacked the power to direct the activities that will have the most significant economic impact on the entities. For certain of these transfers to securitization entities, for the transferred loans where we held the servicing rights prior to the transfer and continued to hold the servicing rights following the transfer, we recorded mortgage servicing rights ("MSRs") on our consolidated balance sheets, and classified those MSRs as Level 3 assets. We also retained senior and subordinate securities in these securitizations that we classified as Level 3 assets. Our continuing involvement in these securitizations is limited to customary servicing obligations associated with retaining servicing rights (which we retain a third-party sub-servicer to perform) and the receipt of interest income associated with the securities we retained.

The following table presents information related to securitization transactions that occurred during the three and nine months ended September 30, 2020 and 2019.

Table 4.3 – Securitization Activity Related to Unconsolidated VIEs Sponsored by Redwood

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Principal balance of loans transferred	$	—	$	366,999	$	1,573,703	$	1,116,092
Trading securities retained, at fair value	—		1,228		43,362		4,736
AFS securities retained, at fair value	—		1,069		3,198		3,023

The following table summarizes the cash flows during the three and nine months ended September 30, 2020 and 2019 between us and the unconsolidated VIEs sponsored by us and accounted for as sales since 2012.

Table 4.4 – Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Proceeds from new transfers	$	—	$	376,126	$	1,610,761	$	1,138,778
MSR fees received	2,280		2,919		7,445		9,084
Funding of compensating interest, net	4		(76)		(293)		(213)
Cash flows received on retained securities	5,873		6,603		19,242		20,892

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, 2020 and 2019.

Table 4.5 – Assumptions Related to Assets Retained from Unconsolidated VIEs Sponsored by Redwood

	Three Months Ended September 30, 2020		Three Months Ended September 30, 2019
At Date of Securitization	Senior IO Securities	Subordinate Securities	Senior IO Securities		Subordinate Securities
Prepayment rates	N/A	N/A	37	%	15	%
Discount rates	N/A	N/A	14	%	7	%
Credit loss assumptions	N/A	N/A	0.20	%	0.20	%

	Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
At Date of Securitization	Senior IO Securities		Subordinate Securities		Senior IO Securities		Subordinate Securities
Prepayment rates	41	%	13	%	25	%	15	%
Discount rates	16	%	6	%	14	%	7	%
Credit loss assumptions	0.21	%	0.22	%	0.20	%	0.20	%

The following table presents additional information at September 30, 2020 and December 31, 2019, related to unconsolidated VIEs sponsored by Redwood and accounted for as sales since 2012.

Table 4.6 – Unconsolidated VIEs Sponsored by Redwood

(In Thousands)	September 30, 2020		December 31, 2019
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading	$	19,878	$	88,425
Subordinate securities, classified as AFS	124,132		140,649
Mortgage servicing rights	14,240		40,254
Maximum loss exposure (1)	$	158,250	$	269,328
Assets transferred:
Principal balance of loans outstanding	$	8,571,916	$	10,299,442
Principal balance of loans 30+ days delinquent	200,910		41,809

(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.

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, 2020 and December 31, 2019.

Table 4.7 – Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated VIEs Sponsored by Redwood

September 30, 2020	MSRs			Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at September 30, 2020	$	14,240		$	16,226		$	127,783
Expected life (in years) (2)	3			3			10
Prepayment speed assumption (annual CPR) (2)	26		%	30		%	27		%
Decrease in fair value from:
10% adverse change	$	1,105		$	1,622		$	1,075
25% adverse change	2,678			3,675			3,735
Discount rate assumption (2)	12		%	17		%	6		%
Decrease in fair value from:
100 basis point increase	$	383		$	327		$	10,219
200 basis point increase	746			638			19,348
Credit loss assumption (2)	N/A			0.38		%	0.38		%
Decrease in fair value from:
10% higher losses	N/A			$	—		$	2,274
25% higher losses	N/A			—			5,500

December 31, 2019	MSRs			Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at December 31, 2019	$	40,254		$	48,765		$	180,309
Expected life (in years) (2)	6			6			14
Prepayment speed assumption (annual CPR) (2)	11		%	14		%	16		%
Decrease in fair value from:
10% adverse change	$	1,643		$	1,908		$	205
25% adverse change	3,913			5,086			1,434
Discount rate assumption (2)	11		%	12		%	5		%
Decrease in fair value from:
100 basis point increase	$	1,447		$	1,079		$	18,127
200 basis point increase	2,795			2,482			33,630
Credit loss assumption (2)	N/A			0.21		%	0.21		%
Decrease in fair value from:
10% higher losses	N/A			$	—		$	1,804
25% higher losses	N/A			—			4,520

(1)Senior securities included $16 million and $49 million of interest-only securities at September 30, 2020 and December 31, 2019, respectively.

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

Analysis of Unconsolidated Third-Party VIEs

Third-party VIEs are securitization entities in which we maintain an economic interest, but do not sponsor. Our economic interest may include several securities and other investments from the same third-party VIE, and in those cases, the analysis is performed in consideration of all of our interests. The following table presents a summary of our interests in third-party VIEs at September 30, 2020 and December 31, 2019, grouped by asset type.

Table 4.8 – Third-Party Sponsored VIE Summary

(In Thousands)	September 30, 2020		December 31, 2019
Mortgage-Backed Securities
Senior	$	11,865	$	127,094
Mezzanine	2,016		508,195
Subordinate	193,445		235,510
Total Mortgage-Backed Securities	207,326		870,799
Excess MSR	15,205		16,216
Total Investments in Third-Party Sponsored VIEs	$	222,531	$	887,015

We determined that we are not the primary beneficiary of these third-party VIEs, as we do not have the required power to direct the activities that most significantly impact the economic performance of these entities. Specifically, we do not service or manage these entities or otherwise solely hold decision making powers that are significant. As a result of this assessment, we do not consolidate any of the underlying assets and liabilities of these third-party VIEs – we only account for our specific interests in them.

Our assessments of whether we are required to consolidate a VIE may change in subsequent reporting periods based upon changing facts and circumstances pertaining to each VIE. Any related accounting changes could result in a material impact to our financial statements.

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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

For financial reporting purposes, we follow a fair value hierarchy established under GAAP that is used to determine the fair value of financial instruments. This hierarchy prioritizes relevant market inputs in order to determine an “exit price” at the measurement date, or the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale. Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Level 2 inputs are observable inputs other than quoted prices for an asset or liability that are obtained through corroboration with observable market data. Level 3 inputs are unobservable inputs (e.g., our own data or assumptions) that are used when there is little, if any, relevant market activity for the asset or liability required to be measured at fair value.

In certain cases, inputs used to measure fair value fall into different levels of the fair value hierarchy. In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured.

The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at September 30, 2020 and December 31, 2019.

Table 5.1 – Carrying Values and Fair Values of Assets and Liabilities

	September 30, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
(In Thousands)
Assets
Residential loans, held-for-sale at fair value	$	105,091	$	105,091	$	536,385	$	536,509
Residential loans, held-for-investment	4,389,808		4,389,808		7,178,465		7,178,465
Business purpose residential loans, held-for-sale	285,549		285,549		331,565		331,565
Business purpose residential loans, held-for-investment	3,670,552		3,670,552		3,175,178		3,175,178
Multifamily loans	491,415		491,415		4,408,524		4,408,524
Real estate securities	351,335		351,335		1,099,874		1,099,874
Servicer advance investments (1)	258,621		258,621		169,204		169,204
MSRs (1)	14,878		14,878		42,224		42,224
Excess MSRs (1)	35,070		35,070		31,814		31,814
Shared home appreciation options (1)	41,758		41,758		45,085		45,085
Cash and cash equivalents	450,684		450,684		196,966		196,966
Restricted cash	73,594		73,594		93,867		93,867
Derivative assets	14,709		14,709		35,701		35,701
REO (2)	8,535		9,654		9,462		10,389
Margin receivable (2)	3,809		3,809		209,776		209,776
FHLBC stock (2)	5,000		5,000		43,393		43,393
Guarantee asset (2)	579		579		1,686		1,686
Pledged collateral (2)	8,172		8,172		32,945		32,945
Liabilities
Short-term debt	$	482,761	$	482,761	$	2,329,145	$	2,329,145
Margin payable (3)	—		—		1,700		1,700
Guarantee obligation (3)	11,264		10,185		14,009		13,754
Contingent consideration (3)	—		—		28,484		28,484
Derivative liabilities	1,612		1,612		163,424		163,424
ABS issued, net
Fair value	6,969,376		6,969,376		10,515,475		10,515,475
Amortized cost	203,022		207,812		—		—
FHLBC long-term borrowings	1,000		1,000		1,999,999		1,999,999
Other long-term debt, net	886,054		885,172		183,520		184,666
Convertible notes, net	510,472		476,071		631,125		661,985
Trust preferred securities and subordinated notes, net	138,663		73,238		138,628		99,045

(1)These investments are included in Other investments on our consolidated balance sheets.

(2)These assets are included in Other assets on our consolidated balance sheets.

(3)These liabilities are included in Accrued expenses and other liabilities on our consolidated balance sheets.

During the three and nine months ended September 30, 2020, we elected the fair value option for $18 million and $96 million of securities, respectively, $172 million and $2.86 billion of residential loans (principal balance), respectively, $260 million and $956 million of business purpose residential loans (principal balance), respectively, zero and $179 million of servicer advance investments, respectively, zero and $11 million of excess MSRs, respectively, and zero and $4 million of shared home appreciation options, respectively. We anticipate electing the fair value option for all future purchases of residential and business purpose residential loans that we intend to sell to third parties or transfer to securitizations, as well as for certain securities we purchase, including IO securities and fixed-rate securities rated investment grade or higher.

The following table presents the assets and liabilities that are reported at fair value on our consolidated balance sheets on a recurring basis at September 30, 2020 and December 31, 2019, as well as the fair value hierarchy of the valuation inputs used to measure fair value.

Table 5.2 – Assets and Liabilities Measured at Fair Value on a Recurring Basis

September 30, 2020	Carrying Value		Fair Value Measurements Using
(In Thousands)			Level 1		Level 2		Level 3
Assets
Residential loans	$	4,494,899	$	—	$	—	$	4,494,899
Business purpose residential loans	3,956,101		—		—		3,956,101
Multifamily loans	491,415		—		—		491,415
Real estate securities	351,335		—		—		351,335
Servicer advance investments	258,621		—		—		258,621
MSRs	14,878		—		—		14,878
Excess MSRs	35,070		—		—		35,070
Shared home appreciation options	41,758		—		—		41,758
Derivative assets	14,709		464		3,472		10,773
Pledged collateral	8,172		8,172		—		—
FHLBC stock	5,000		—		5,000		—
Guarantee asset	579		—		—		579
Liabilities
Derivative liabilities	$	1,612	$	263	$	15	$	1,334
ABS issued	6,969,376		—		—		6,969,376

December 31, 2019	Carrying Value		Fair Value Measurements Using
(In Thousands)			Level 1		Level 2		Level 3
Assets
Residential loans	$	7,714,745	$	—	$	—	$	7,714,745
Business purpose residential loans	3,506,743		—		—		3,506,743
Multifamily loans	4,408,524		—		—		4,408,524
Real estate securities	1,099,874		—		—		1,099,874
Servicer advance investments	169,204		—		—		169,204
MSRs	42,224		—		—		42,224
Excess MSRs	31,814		—		—		31,814
Shared home appreciation options	45,085		—		—		45,085
Derivative assets	35,701		6,531		19,020		10,150
Pledged collateral	32,945		32,945		—		—
FHLBC stock	43,393		—		43,393		—
Guarantee asset	1,686		—		—		1,686
Liabilities
Contingent consideration	$	28,484	$	—	$	—	$	28,484
Derivative liabilities	163,424		13,368		148,766		1,290
ABS issued	10,515,475		—		—		10,515,475

The following table presents additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2020.

Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis

	Assets
	Residential Loans		Business Purpose Residential Loans		Multifamily Loans		Trading Securities		AFS Securities		Servicer Advance Investments		MSRs		Excess MSRs		Shared Home Appreciation Options
(In Thousands)
Beginning balance - December 31, 2019	$	7,714,745	$	3,506,743	$	4,408,524	$	860,540	$	239,334	$	169,204	$	42,224	$	31,814	$	45,085
Acquisitions	2,927,697		—		—		96,318		56,664		179,419		—		10,906		3,517
Originations	—		982,315		—		—		—		—		—		—		—
Sales	(4,783,682)		(53,434)		—		(579,466)		(55,193)		—		—		—		—
Principal paydowns	(1,210,117)		(489,243)		(5,830)		(8,502)		(10,345)		(83,124)		—		—		(2,558)
Deconsolidations	—		—		(3,849,779)		—		—		—		—		—		—
Gains (losses) in net income (loss), net	(152,145)		16,246		(61,500)		(224,728)		(23,287)		(6,878)		(27,346)		(7,650)		(4,286)
Other settlements, net (1)	(1,599)		(6,526)		—		—		—		—		—		—		—
Ending balance - September 30, 2020	$	4,494,899	$	3,956,101	$	491,415	$	144,162	$	207,173	$	258,621	$	14,878	$	35,070	$	41,758

Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis (continued)

	Assets				Liabilities
	Guarantee Asset		Derivatives (2)		Contingent Consideration		ABS Issued
(In Thousands)
Beginning balance - December 31, 2019	$	1,686	$	8,860	$	28,484	$	10,515,475
Acquisitions	—		—		—		1,137,656
Principal paydowns	—		—		(13,353)		(1,035,359)
Deconsolidations	—		—		—		(3,706,789)
Gains (losses) in net income (loss), net	(1,107)		34,620		(446)		58,393
Other settlements, net (1)	—		(34,041)		(14,685)		—
Ending balance - September 30, 2020	$	579	$	9,439	$	—	$	6,969,376

(1)    Other settlements, net for residential and business purpose residential loans represents the transfer of loans to REO, and for derivatives, the settlement of forward sale commitments and the transfer of the fair value of loan purchase or interest rate lock commitments at the time loans are acquired to the basis of residential and single-family rental loans. Other settlements, net for contingent consideration reflects the reclassification from a contingent liability to a deferred liability during the period due to an amendment in the underlying agreement. See Note 16 for further discussion.

(2)    For the purpose of this presentation, derivative assets and liabilities, which consist of loan purchase commitments and interest rate lock commitments, are presented on a net basis.

The following table presents the portion of gains or losses included in our consolidated statements of income (loss) that were attributable to Level 3 assets and liabilities recorded at fair value on a recurring basis and held at September 30, 2020 and 2019. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the three and nine months ended September 30, 2020 and 2019 are not included in this presentation.

Table 5.4 – Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at September 30, 2020 and 2019 Included in Net Income

	Included in Net Income
	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Assets
Residential loans at Redwood	$	(107)	$	17,771	$	(865)	$	82,408
Business purpose residential loans	21,155		584		17,901		4,069
Net investments in consolidated Sequoia entities (1)	7,700		1,860		(22,802)		7,051
Net investments in consolidated Freddie Mac SLST entities (1)	82,209		17,300		(33,087)		31,702
Net investments in consolidated Freddie Mac K-Series entities (1)	2,165		7,445		(11,014)		13,810
Net investments in consolidated CAFL entities (1)	9,673		—		(41,048)		—
Trading securities	(3,549)		11,206		(80,358)		33,196
Servicer advance investments	25		1,585		(6,172)		3,025
MSRs	(2,376)		(5,892)		(16,798)		(16,971)
Excess MSRs	(1,127)		(1,634)		(7,650)		(2,137)
Shared home appreciation options	2,384		29		(4,286)		29
Loan purchase and interest rate lock commitments	10,791		4,678		10,773		4,757
Other assets - Guarantee asset	(191)		(216)		(1,107)		(834)
Liabilities
Loan purchase commitments	$	420	$	(1,668)	$	(1,334)	$	(1,669)

(1)    Represents the portion of net gains or losses included in our consolidated statements of income (loss) related to loans and the associated ABS issued at our consolidated securitization entities held at September 30, 2020 and 2019, which netted together represent the change in value of our investments at the consolidated VIEs.

The following table presents information on assets recorded at fair value on a non-recurring basis at September 30, 2020. This table does not include the carrying value and gains or losses associated with the asset types below that were not recorded at fair value on our consolidated balance sheets at September 30, 2020.

Table 5.5 – Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis at September 30, 2020

									Gain (Loss) for
September 30, 2020	Carrying Value		Fair Value Measurements Using						Three Months Ended		Nine Months Ended
(In Thousands)			Level 1		Level 2		Level 3		September 30, 2020		September 30, 2020
Assets
REO	$	3,523	$	—	$	—	$	3,523	$	(805)	$	(840)

The following table presents the net market valuation gains and losses recorded in each line item of our consolidated statements of income for the three and nine months ended September 30, 2020 and 2019.

Table 5.6 – Market Valuation Gains and Losses, Net

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Mortgage Banking Activities, Net
Residential loans held-for-sale, at fair value	$	(478)	$	(6,623)	$	(15,972)	$	289
Residential loan purchase and forward sale commitments	13,067		12,943		35,123		41,142
Single-family rental loans held-for-sale, at fair value	43,191		1,283		55,868		4,200
Single-family rental loan purchase and interest rate lock commitments	—		564		341		1,273
Residential bridge loans	938		1,010		(4,256)		2,108
Risk management derivatives, net	(99)		(2,972)		(52,931)		(15,387)
Total mortgage banking activities, net (1)	$	56,619	$	6,205	$	18,173	$	33,625
Investment Fair Value Changes, Net
Residential loans held-for-investment, at Redwood	$	218	$	7,667	$	(93,314)	$	71,323
Single-family rental loans held-for-investment	—		22		(20,806)		22
Residential bridge loans held-for-investment	6,812		(742)		(10,016)		(1,363)
Trading securities	(3,600)		15,275		(224,679)		55,577
Servicer advance investments	26		1,585		(6,172)		3,025
Excess MSRs	(1,127)		(1,635)		(7,650)		(2,137)
Net investments in Legacy Sequoia entities (2)	(81)		(407)		(702)		(904)
Net investments in Sequoia Choice entities (2)	7,851		2,722		(22,065)		8,866
Net investments in Freddie Mac SLST entities (2)	82,214		17,300		(33,081)		31,702
Net investments in Freddie Mac K-Series entities (2)	2,166		7,445		(82,744)		13,810
Net investments in CAFL entities (2)	9,673		—		(41,048)		—
Other investments	2,451		(355)		(9,111)		(632)
Risk management derivatives, net	—		(37,433)		(59,142)		(144,548)
Credit recoveries (losses) on AFS securities	444		—		(1,027)		—
Total investment fair value changes, net	$	107,047	$	11,444	$	(611,557)	$	34,741
Other Income
MSRs	$	(4,783)	$	(7,489)	$	(27,346)	$	(21,243)
Risk management derivatives, net	—		4,389		13,966		13,157
Gain on re-measurement of 5 Arches investment	—		—		—		2,440
Total other income (3)	$	(4,783)	$	(3,100)	$	(13,380)	$	(5,646)
Total Market Valuation Gains (Losses), Net	$	158,883	$	14,549	$	(606,764)	$	62,720

(1)Mortgage banking activities, net presented above does not include fee income from loan originations or acquisitions, provisions for repurchases expense, and other expenses that are components of Mortgage banking activities, net presented on our consolidated statements of income (loss), as these amounts do not represent market valuation changes.

(2)Includes changes in fair value of the residential loans held-for-investment, REO and the ABS issued at the entities, which netted together represent the change in value of our investments at the consolidated VIEs.

(3)Other income presented above does not include net MSR fee income or provisions for repurchases for MSRs, as these amounts do not represent market valuation adjustments.

At September 30, 2020, our valuation policy and processes had not changed from those described in our Annual Report on Form 10-K for the year ended December 31, 2019. The following table provides quantitative information about the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value.

Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments

September 30, 2020	Fair Value			Input Values
(Dollars in Thousands, except Input Values)			Unobservable Input	Range						Weighted Average(1)
Assets
Residential loans, at fair value:
Jumbo fixed-rate loans	$	6,312	Prepayment rate (annual CPR)	20		-	20		%	20		%
			Whole loan spread to swap rate	350		-	350		bps	350		bps
Jumbo loans committed to sell	98,779		Whole loan committed sales price	$	101.61	-	$	103.40		$	103.23
Loans held by Legacy Sequoia (2)	296,765		Liability price				N/A			N/A
Loans held by Sequoia Choice (2)	1,836,361		Liability price				N/A			N/A
Loans held by Freddie Mac SLST (2)	2,256,682		Liability price				N/A			N/A
Business purpose residential loans:
Single-family rental loans	285,549		Senior credit spread	130		-	130		bps	130		bps
			Subordinate credit spread	200		-	1,600		bps	551		bps
			Senior credit support	30		-	32		%	31		%
			IO discount rate	8		-	9		%	9		%
			Prepayment rate (annual CPR)	—		-	3		%	3		%
			Non-securitizable loan dollar price	$	101	-	$	101		$	101
Single-family rental loans held by CAFL	2,969,692		Liability price				N/A			N/A
Residential bridge loans	700,860		Discount rate	6		-	12		%	8		%
			Non-performing loan dollar price	$	3	-	$	100		$	89
Multifamily loans held by Freddie Mac K-Series (2)	491,415		Liability price				N/A			N/A
Trading and AFS securities	351,335		Discount rate	3		-	34		%	9		%
			Prepayment rate (annual CPR)	7		-	65		%	24		%
			Default rate	—		-	26		%	1		%
			Loss severity	—		-	50		%	19		%
			CRT dollar price	$	49	-	$	103		$	84
Servicer advance investments	258,621		Discount rate	3		-	4		%	4		%
			Prepayment rate (annual CPR)	8		-	14		%	13		%
			Expected remaining life (3)	1		-	2		years	2		years
			Mortgage servicing income	6		-	16		bps	8		bps
MSRs	14,878		Discount rate	12		-	12		%	12		%
			Prepayment rate (annual CPR)	8		-	97		%	26		%
			Per loan annual cost to service	$	95	-	$	95		$	95
Excess MSRs	35,070		Discount rate	15		-	21		%	18		%
			Prepayment rate (annual CPR)	10		-	13		%	11		%
			Excess mortgage servicing income	9		-	17		bps	12		bps

Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments (continued)

September 30, 2020	Fair Value			Input Values
(Dollars in Thousands, except Input Values)			Unobservable Input	Range						Weighted Average (1)
Assets (continued)
Shared home appreciation options	$	41,758	Discount rate	16		-	16		%	16		%
			Prepayment rate (annual CPR)	8		-	26		%	19		%
			Home price appreciation	2		-	3		%	3		%
Guarantee asset	579		Discount rate	12		-	12		%	12		%
			Prepayment rate (annual CPR)	42		-	42		%	42		%
REO	3,523		Loss severity	3		-	63		%	23		%
Residential loan purchase commitments, net	10,282		Committed sales price	$	100.89	-	$	103.40		$	102.59
			Pull-through rate	13		-	100		%	58		%
			Whole loan spread to TBA price	$	2.00	-	$	2.00		$	2.00
			Whole loan spread to swap rate - fixed rate	350		-	350		bps	350		bps
			Prepayment rate (annual CPR)	15		-	15		%	15		%
			MSR multiple	0.8		-	4.1		x	3.4		x
Liabilities
ABS issued (2):
At consolidated Sequoia entities	1,919,048		Discount rate	2		-	30		%	3		%
			Prepayment rate (annual CPR)	5		-	53		%	27		%
			Default rate	—		-	40		%	2		%
			Loss severity	—		-	50		%	31		%
At consolidated Freddie Mac SLST entities	1,841,313		Dollar price	$	1	-	$	108		$	99
At consolidated Freddie Mac K-Series entities (4)	464,865		Discount rate	1		-	18		%	2		%
At consolidated CAFL entities (4)	2,744,150		Discount rate	0.2		-	40		%	3		%
			Prepayment rate (annual CPR)	—		-	3		%	—		%
			Default rate	—		-	18		%	11		%
			Loss severity	30		-	30		%	30		%

(1)The weighted average input values for all loan types are based on the unpaid principal balance. The weighted average input values for all other assets and liabilities are based on relative fair value.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities. At September 30, 2020, the fair value of securities we owned at the consolidated Sequoia, Freddie Mac SLST, Freddie Mac K-Series, and CAFL entities was $215 million, $416 million, $27 million, and $229 million, respectively.

(3)Represents the estimated average duration of outstanding servicer advances at a given point in time (not taking into account new advances made with respect to the pool).

(4)As a market convention, certain securities are priced to a no-loss yield and therefore do not include default and loss severity assumptions.

Determination of Fair Value

We generally use both market comparable information and discounted cash flow modeling techniques to determine the fair value of our Level 3 assets and liabilities. Use of these techniques requires determination of relevant input and assumptions, some of which represent significant unobservable inputs as indicated in the preceding table. Accordingly, a significant increase or decrease in any of these inputs - such as anticipated credit losses, prepayment rates, interest rates, or other valuation assumptions - in isolation would likely result in a significantly lower or higher fair value measurement.

Included in Note 5 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2019 is a more detailed description of our financial instruments measured at fair value and their significant inputs, as well as the general classification of such instruments pursuant to the Level 1, Level 2, and Level 3 valuation hierarchy.

XML

Residential Loans

9 Months Ended

Sep. 30, 2020

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 and Freddie Mac SLST entities at September 30, 2020 and December 31, 2019.

Table 6.1 – Classifications and Carrying Values of Residential Loans

September 30, 2020			Legacy		Sequoia		Freddie Mac
(In Thousands)	Redwood		Sequoia		Choice		SLST		Total
Held-for-sale at fair value	$	105,128	$	—	$	—	$	—	$	105,128
Held-for-investment at fair value	—		296,765		1,836,361		2,256,682		4,389,808
Total Residential Loans	$	105,128	$	296,765	$	1,836,361	$	2,256,682	$	4,494,936

December 31, 2019			Legacy		Sequoia		Freddie Mac
(In Thousands)	Redwood		Sequoia		Choice		SLST		Total
Held-for-sale at fair value	$	536,385	$	—	$	—	$	—	$	536,385
Held-for-investment at fair value	2,111,897		407,890		2,291,463		2,367,215		7,178,465
Total Residential Loans	$	2,648,282	$	407,890	$	2,291,463	$	2,367,215	$	7,714,850

At September 30, 2020, we owned mortgage servicing rights associated with $103 million (principal balance) of residential loans owned at Redwood that were 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

The following table summarizes the characteristics of residential loans held-for-sale at September 30, 2020 and December 31, 2019.

Table 6.2 – Characteristics of Residential Loans Held-for-Sale

(Dollars in Thousands)	September 30, 2020		December 31, 2019
Number of loans	118		669
Unpaid principal balance	$	102,921	$	524,928
Fair value of loans	$	105,128	$	536,280
Number of loans with 90+ day delinquencies	2		1
Unpaid principal balance of loans with 90+ day delinquencies	$	2,356	$	747
Fair value of loans with 90+ day delinquencies	$	1,767	$	616
Number of loans in foreclosure	—		—
Market value of loans pledged as collateral under short-term borrowing agreements	$	95,023	$	201,949

The following table provides the activity of residential loans held-for-sale during the three and nine months ended September 30, 2020 and 2019.

Table 6.3 – Quarterly Activity of Residential Loans Held-for-Sale

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Principal balance of loans acquired	$	172,162	$	1,446,750	$	2,859,813	$	3,936,111
Principal balance of loans sold	87,868		1,534,315		5,024,663		3,921,280
Net market valuation gains (losses) recorded (1)	(478)		(6,623)		(15,972)		286

(1)Net market valuation gains (losses) on residential loans held-for-sale are recorded through Mortgage banking activities, net on our consolidated statements of income (loss).

Residential Loans Held-for-Investment at Fair Value

The following tables summarize the characteristics of the residential loans owned at Redwood and at consolidated Sequoia and Freddie Mac SLST entities at September 30, 2020 and December 31, 2019.

Table 6.4 – Characteristics of Residential Loans Held-for-Investment

September 30, 2020			Legacy		Sequoia		Freddie Mac
(Dollars in Thousands)	Redwood		Sequoia		Choice		SLST
Number of loans	—		1,976		2,546		13,893
Unpaid principal balance	$	—	$	352,392	$	1,811,967	$	2,304,047
Fair value of loans	$	—	$	296,765	$	1,836,361	$	2,256,683
Number of loans with 90+ day delinquencies (1)	—		49		132		1,772
Unpaid principal balance of loans with 90+ day delinquencies	$	—	$	16,076	$	102,693	$	339,537
Fair value of loans with 90+ day delinquencies (2)	$	—	N/A		N/A		N/A
Number of loans in foreclosure	—		21		3		175
Unpaid principal balance of loans in foreclosure	$	—	$	4,820	$	1,814	$	28,380

December 31, 2019			Legacy		Sequoia		Freddie Mac
(Dollars in Thousands)	Redwood		Sequoia		Choice		SLST
Number of loans	2,940		2,198		3,156		14,502
Unpaid principal balance	$	2,052,778	$	424,829	$	2,240,679	$	2,428,035
Fair value of loans	$	2,111,897	$	407,890	$	2,291,463	$	2,367,215
Number of loans with 90+ day delinquencies (1)	2		39		9		587
Unpaid principal balance of loans with 90+ day delinquencies	$	1,585	$	9,803	$	6,755	$	134,680
Fair value of loans with 90+ day delinquencies (2)	$	1,424	N/A		N/A		N/A
Number of loans in foreclosure	—		16		3		208
Unpaid principal balance of loans in foreclosure	$	—	$	3,673	$	2,290	$	33,042

(1)For loans held at consolidated entities, the number of loans greater than 90 days delinquent includes loans in foreclosure.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities.

The following table provides the activity of residential loans held-for-investment at Redwood during the three and nine months ended September 30, 2020 and 2019.

Table 6.5 – Quarterly Activity of Residential Loans Held-for-Investment at Redwood

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Principal balance of loans acquired	$	—	$	—	$	—	$	39,194
Principal balance of loans sold	—		—		—		—
Fair value of loans transferred from HFS to HFI	—		—		13,258		68,703
Fair value of loans transferred from HFI to HFS	—		—		1,870,986		22,814
Net market valuation gains (losses) recorded (1)	218		7,667		(93,314)		71,323

(1)Net market valuation gains (losses) on residential loans held-for-investment at Redwood are recorded through Investment fair value changes, net on our consolidated statements of income (loss).

The following table provides the activity of residential loans held-for-investment at consolidated entities during the three and nine months ended September 30, 2020 and 2019.

Table 6.6 – Quarterly Activity of Residential Loans Held-for-Investment at Consolidated Entities

	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
	Legacy		Sequoia		Freddie Mac		Legacy		Sequoia		Freddie Mac
(In Thousands)	Sequoia		Choice		SLST		Sequoia		Choice		SLST
Fair value of loans transferred from HFS to HFI (1)	N/A		$	—	N/A		N/A		$	270,506	N/A
Net market valuation gains (losses) recorded (2)	$	21,938	$	(5,175)	$	159,687	$	(38,996)	$	(21,727)	$	15,254

	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Legacy		Sequoia		Freddie Mac		Legacy		Sequoia		Freddie Mac
(In Thousands)	Sequoia		Choice		SLST		Sequoia		Choice		SLST
Fair value of loans transferred from HFS to HFI (1)	N/A		$	727,088	N/A		N/A		$	1,076,671	N/A
Net market valuation gains (losses) recorded (2)	$	(103)	$	(11,029)	$	39,783	$	5,271	$	4,841	$	94,788

(1)Represents the transfer of loans from held-for-sale to held-for-investment associated with Sequoia Choice securitizations.

(2)For loans held at our consolidated Legacy Sequoia, Sequoia Choice, and Freddie Mac SLST entities, market value changes are based on the estimated fair value of the associated ABS issued, pursuant to collateralized financing entity guidelines. The net impact to our income statement associated with our economic investments in these securitization entities is presented in Note 5.

Business Purpose Residential LoansWe originate business purpose residential loans, including single-family rental loans and residential bridge loans. This origination activity commenced in connection with our acquisitions of 5 Arches and CoreVest in 2019.

Business Purpose Residential Loan Originations

During the three months ended September 30, 2020, we funded $261 million of business purpose residential loans and sold $2 million of residential bridge loans and $2 million of single-family rental loans to third parties. The remaining business purpose residential loans were transferred to our investment portfolio (residential bridge loans), or retained in our mortgage banking business (single-family rental loans) for future securitizations. Prior to the transfer of residential bridge loans to our investment portfolio, we recorded a net market valuation gain of less than $0.1 million on these loans through Mortgage banking activities, net on our consolidated statements of income (loss) for the three months ended September 30, 2020. Market valuation adjustments on our single-family rental loans are also recorded in Mortgage banking activities, net on our consolidated statements of income (loss) prior to their sale or securitization. Additionally, during the three and nine months ended September 30, 2020, we recorded loan origination fee income associated with business purpose residential loans of $3 million and $13 million, respectively, through Mortgage banking activities, net on our consolidated statements of income (loss).

The following table summarizes the classifications and carrying values of the business purpose residential loans owned at Redwood at September 30, 2020 and December 31, 2019.

Table 7.1 – Classifications and Carrying Values of Business Purpose Residential Loans

September 30, 2020	Single-Family Rental				Residential
(In Thousands)	Redwood		CAFL		Bridge		Total
Held-for-sale at fair value	$	285,549	—		$	—	$	285,549
Held-for-investment at fair value	—		2,969,692		700,860		3,670,552
Total Business Purpose Residential Loans	$	285,549	$	2,969,692	$	700,860	$	3,956,101

December 31, 2019	Single-Family Rental				Residential
(In Thousands)	Redwood		CAFL		Bridge		Total
Held-for-sale at fair value	$	331,565	$	—	$	—	$	331,565
Held-for-investment at fair value	237,620		2,192,552		745,006		3,175,178
Total Business Purpose Residential Loans	$	569,185	$	2,192,552	$	745,006	$	3,506,743

The following tables summarize the characteristics of the business purpose residential loans owned at Redwood at September 30, 2020 and December 31, 2019.

Table 7.2 – Characteristics of Business Purpose Residential Loans

September 30, 2020	Single-Family Rental at Redwood			Single-Family Rental at CAFL			Residential Bridge
(Dollars in Thousands)
Number of loans	140			1,027			2,262
Unpaid principal balance	$	272,492		$	2,815,045		$	708,555
Fair value of loans	$	285,549		$	2,969,692		$	700,860
Weighted average coupon	5.26		%	5.50		%	8.02		%
Weighted average remaining loan term (years)	7			6			1
Number of loans with 90+ day delinquencies (1)	6			26			24
Unpaid principal balance of loans with 90+ day delinquencies	$	3,018		$	70,949		$	38,437
Fair value of loans with 90+ day delinquencies (2)	$	2,954		N/A			$	33,464
Number of loans in foreclosure	—			9			24
Unpaid principal balance of loans in foreclosure	$	—		$	14,032		$	39,755
Fair value of loans in foreclosure (2)	$	—		N/A			$	34,489

December 31, 2019	Single-Family Rental at Redwood			Single-Family Rental at CAFL			Residential Bridge
(Dollars in Thousands)
Number of loans	308			783			2,653
Unpaid principal balance	$	552,848		$	2,078,214		$	742,528
Fair value of loans	$	569,185		$	2,192,552		$	745,006
Weighted average coupon	4.96		%	5.70		%	8.11		%
Weighted average remaining loan term (years)	9			7			2
Number of loans with 90+ day delinquencies (1)	2			18			31
Unpaid principal balance of loans with 90+ day delinquencies	$	1,688		$	29,039		$	14,186
Fair value of loans with 90+ day delinquencies (2)	$	1,818		N/A			$	12,111
Number of loans in foreclosure	1			5			15
Unpaid principal balance of loans in foreclosure	$	130		$	9,169		$	8,987
Fair value of loans in foreclosure (2)	$	130		N/A			$	6,917

(1)The number of loans greater than 90 days delinquent includes loans in foreclosure.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities.

Single-Family Rental Loans

During the three and nine months ended September 30, 2020, we originated $196 million and $632 million of single-family rental loans, respectively. During the nine months ended September 30, 2020, we transferred $925 million of single-family rental loans from held-for-sale to held-for-investment associated with three CAFL securitizations and sold $34 million to third parties. Additionally, at March 31, 2020, we transferred all held-for-investment single-family rental loans to held-for-sale. During the three and nine months ended September 30, 2020, we recorded net market valuation gains of $43 million and $34 million, respectively, on single-family rental loans. The $43 million of net market valuation gains recorded during the three months ended September 30, 2020 were recorded through Mortgage banking activities, net on our consolidated statements of income (loss). Of the $34 million of net market valuation gains recorded during the nine months ended September 30, 2020, $55 million of net market valuation gains were recorded through Mortgage banking activities, net and $21 million of net market valuation losses were recorded through Investment fair value changes, net on our consolidated statements of income (loss). During the three and nine months ended September 30, 2019, we recorded net market valuation gains of $1 million and $3 million, respectively, on single-family rental loans through Mortgage banking activities, net on our consolidated statements of income (loss).

Single-Family Rental Loans Held-for-Investment at CAFL

    In conjunction with our acquisition of CoreVest in the fourth quarter of 2019, we consolidated the single-family rental loans owned at certain CAFL securitization entities. The outstanding single-family rental loans held-for-investment at CAFL at September 30, 2020 were first-lien, fixed-rate loans with original maturities of five, seven, or ten years.

During the three and nine months ended September 30, 2020, we recorded a net market valuation gain of $88 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 (loss). 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 CAFL securitizations. The net impact to our income statement associated with our retained economic investment in the CAFL securitization entities is presented in Note 5.

Residential Bridge Loans Held-for-Investment

The outstanding residential bridge loans held-for-investment at September 30, 2020 were first lien, fixed-rate, interest-only loans with original maturities of six to 24 months. During the nine months ended September 30, 2020, we transferred four loans with a fair value of $5 million to REO, which is included in Other assets on our consolidated balance sheets.

During the three and nine months ended September 30, 2020, $64 million and $324 million of newly originated residential bridge loans, respectively, were transferred to our investment portfolio. During the three and nine months ended September 30, 2020, we recorded a net market valuation gain of $7 million and a net market valuation loss of $10 million, respectively, on residential bridge loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income (loss). During both the three and nine months ended September 30, 2019, we recorded net market valuation losses of $1 million on residential bridge loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income (loss).

At September 30, 2020, we had a $225 million commitment to fund residential bridge loans. See Note 16 for additional information on this commitment.

Multifamily Loans

Since 2018, we have invested in multifamily subordinate securities issued by Freddie Mac K-Series securitization trusts and were required to consolidate the underlying multifamily loans owned at these entities for financial reporting purposes in accordance with GAAP. During the first quarter of 2020, we sold subordinate securities issued by four such Freddie Mac K-Series securitization trusts and deconsolidated $3.85 billion of multifamily loans. See Note 2 for further discussion.

The following table summarizes the characteristics of the multifamily loans consolidated at Redwood at September 30, 2020 and December 31, 2019.

Table 8.1 – Characteristics of Multifamily Loans

(Dollars in Thousands)	September 30, 2020			December 31, 2019
Number of loans	28			279
Unpaid principal balance	$	464,680		$	4,195,000
Fair value of loans	$	491,415		$	4,408,524
Weighted average coupon	4.25		%	4.13		%
Weighted average remaining loan term (years)	5			6
Number of loans with 90+ day delinquencies	—			—
Number of loans in foreclosure	—			—

The outstanding multifamily loans held-for-investment at the Freddie Mac K-Series entities at September 30, 2020 were first-lien, fixed-rate loans that were originated in 2015 and had original loan terms of ten years. The following table provides the activity of multifamily loans held-for-investment during the three and nine months ended September 30, 2020 and 2019.

Table 8.2 – Quarterly Activity of Multifamily Loans Held-for-Investment

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Net market valuation gains (losses) recorded (1)	$	2,340	$	47,353	$	(61,500)	$	178,374

(1)Net market valuation gains (losses) on multifamily loans held-for-investment are recorded through Investment fair value changes, net on our consolidated statements of income (loss). For loans held at our consolidated Freddie Mac K-Series entities, market value changes are based on the estimated fair value of the associated ABS issued, pursuant to collateralized financing entity guidelines. The net impact to our income statement associated with our economic investment in these securitization entities is presented in Note 5.

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Business Purpose Residential Loans

9 Months Ended

Sep. 30, 2020

Receivables [Abstract]

Business Purpose 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 and Freddie Mac SLST entities at September 30, 2020 and December 31, 2019.

Table 6.1 – Classifications and Carrying Values of Residential Loans

September 30, 2020			Legacy		Sequoia		Freddie Mac
(In Thousands)	Redwood		Sequoia		Choice		SLST		Total
Held-for-sale at fair value	$	105,128	$	—	$	—	$	—	$	105,128
Held-for-investment at fair value	—		296,765		1,836,361		2,256,682		4,389,808
Total Residential Loans	$	105,128	$	296,765	$	1,836,361	$	2,256,682	$	4,494,936

December 31, 2019			Legacy		Sequoia		Freddie Mac
(In Thousands)	Redwood		Sequoia		Choice		SLST		Total
Held-for-sale at fair value	$	536,385	$	—	$	—	$	—	$	536,385
Held-for-investment at fair value	2,111,897		407,890		2,291,463		2,367,215		7,178,465
Total Residential Loans	$	2,648,282	$	407,890	$	2,291,463	$	2,367,215	$	7,714,850

At September 30, 2020, we owned mortgage servicing rights associated with $103 million (principal balance) of residential loans owned at Redwood that were 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

The following table summarizes the characteristics of residential loans held-for-sale at September 30, 2020 and December 31, 2019.

Table 6.2 – Characteristics of Residential Loans Held-for-Sale

(Dollars in Thousands)	September 30, 2020		December 31, 2019
Number of loans	118		669
Unpaid principal balance	$	102,921	$	524,928
Fair value of loans	$	105,128	$	536,280
Number of loans with 90+ day delinquencies	2		1
Unpaid principal balance of loans with 90+ day delinquencies	$	2,356	$	747
Fair value of loans with 90+ day delinquencies	$	1,767	$	616
Number of loans in foreclosure	—		—
Market value of loans pledged as collateral under short-term borrowing agreements	$	95,023	$	201,949

The following table provides the activity of residential loans held-for-sale during the three and nine months ended September 30, 2020 and 2019.

Table 6.3 – Quarterly Activity of Residential Loans Held-for-Sale

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Principal balance of loans acquired	$	172,162	$	1,446,750	$	2,859,813	$	3,936,111
Principal balance of loans sold	87,868		1,534,315		5,024,663		3,921,280
Net market valuation gains (losses) recorded (1)	(478)		(6,623)		(15,972)		286

(1)Net market valuation gains (losses) on residential loans held-for-sale are recorded through Mortgage banking activities, net on our consolidated statements of income (loss).

Residential Loans Held-for-Investment at Fair Value

The following tables summarize the characteristics of the residential loans owned at Redwood and at consolidated Sequoia and Freddie Mac SLST entities at September 30, 2020 and December 31, 2019.

Table 6.4 – Characteristics of Residential Loans Held-for-Investment

September 30, 2020			Legacy		Sequoia		Freddie Mac
(Dollars in Thousands)	Redwood		Sequoia		Choice		SLST
Number of loans	—		1,976		2,546		13,893
Unpaid principal balance	$	—	$	352,392	$	1,811,967	$	2,304,047
Fair value of loans	$	—	$	296,765	$	1,836,361	$	2,256,683
Number of loans with 90+ day delinquencies (1)	—		49		132		1,772
Unpaid principal balance of loans with 90+ day delinquencies	$	—	$	16,076	$	102,693	$	339,537
Fair value of loans with 90+ day delinquencies (2)	$	—	N/A		N/A		N/A
Number of loans in foreclosure	—		21		3		175
Unpaid principal balance of loans in foreclosure	$	—	$	4,820	$	1,814	$	28,380

December 31, 2019			Legacy		Sequoia		Freddie Mac
(Dollars in Thousands)	Redwood		Sequoia		Choice		SLST
Number of loans	2,940		2,198		3,156		14,502
Unpaid principal balance	$	2,052,778	$	424,829	$	2,240,679	$	2,428,035
Fair value of loans	$	2,111,897	$	407,890	$	2,291,463	$	2,367,215
Number of loans with 90+ day delinquencies (1)	2		39		9		587
Unpaid principal balance of loans with 90+ day delinquencies	$	1,585	$	9,803	$	6,755	$	134,680
Fair value of loans with 90+ day delinquencies (2)	$	1,424	N/A		N/A		N/A
Number of loans in foreclosure	—		16		3		208
Unpaid principal balance of loans in foreclosure	$	—	$	3,673	$	2,290	$	33,042

(1)For loans held at consolidated entities, the number of loans greater than 90 days delinquent includes loans in foreclosure.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities.

The following table provides the activity of residential loans held-for-investment at Redwood during the three and nine months ended September 30, 2020 and 2019.

Table 6.5 – Quarterly Activity of Residential Loans Held-for-Investment at Redwood

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Principal balance of loans acquired	$	—	$	—	$	—	$	39,194
Principal balance of loans sold	—		—		—		—
Fair value of loans transferred from HFS to HFI	—		—		13,258		68,703
Fair value of loans transferred from HFI to HFS	—		—		1,870,986		22,814
Net market valuation gains (losses) recorded (1)	218		7,667		(93,314)		71,323

(1)Net market valuation gains (losses) on residential loans held-for-investment at Redwood are recorded through Investment fair value changes, net on our consolidated statements of income (loss).

The following table provides the activity of residential loans held-for-investment at consolidated entities during the three and nine months ended September 30, 2020 and 2019.

Table 6.6 – Quarterly Activity of Residential Loans Held-for-Investment at Consolidated Entities

	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
	Legacy		Sequoia		Freddie Mac		Legacy		Sequoia		Freddie Mac
(In Thousands)	Sequoia		Choice		SLST		Sequoia		Choice		SLST
Fair value of loans transferred from HFS to HFI (1)	N/A		$	—	N/A		N/A		$	270,506	N/A
Net market valuation gains (losses) recorded (2)	$	21,938	$	(5,175)	$	159,687	$	(38,996)	$	(21,727)	$	15,254

	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Legacy		Sequoia		Freddie Mac		Legacy		Sequoia		Freddie Mac
(In Thousands)	Sequoia		Choice		SLST		Sequoia		Choice		SLST
Fair value of loans transferred from HFS to HFI (1)	N/A		$	727,088	N/A		N/A		$	1,076,671	N/A
Net market valuation gains (losses) recorded (2)	$	(103)	$	(11,029)	$	39,783	$	5,271	$	4,841	$	94,788

(1)Represents the transfer of loans from held-for-sale to held-for-investment associated with Sequoia Choice securitizations.

(2)For loans held at our consolidated Legacy Sequoia, Sequoia Choice, and Freddie Mac SLST entities, market value changes are based on the estimated fair value of the associated ABS issued, pursuant to collateralized financing entity guidelines. The net impact to our income statement associated with our economic investments in these securitization entities is presented in Note 5.

Business Purpose Residential LoansWe originate business purpose residential loans, including single-family rental loans and residential bridge loans. This origination activity commenced in connection with our acquisitions of 5 Arches and CoreVest in 2019.

Business Purpose Residential Loan Originations

During the three months ended September 30, 2020, we funded $261 million of business purpose residential loans and sold $2 million of residential bridge loans and $2 million of single-family rental loans to third parties. The remaining business purpose residential loans were transferred to our investment portfolio (residential bridge loans), or retained in our mortgage banking business (single-family rental loans) for future securitizations. Prior to the transfer of residential bridge loans to our investment portfolio, we recorded a net market valuation gain of less than $0.1 million on these loans through Mortgage banking activities, net on our consolidated statements of income (loss) for the three months ended September 30, 2020. Market valuation adjustments on our single-family rental loans are also recorded in Mortgage banking activities, net on our consolidated statements of income (loss) prior to their sale or securitization. Additionally, during the three and nine months ended September 30, 2020, we recorded loan origination fee income associated with business purpose residential loans of $3 million and $13 million, respectively, through Mortgage banking activities, net on our consolidated statements of income (loss).

The following table summarizes the classifications and carrying values of the business purpose residential loans owned at Redwood at September 30, 2020 and December 31, 2019.

Table 7.1 – Classifications and Carrying Values of Business Purpose Residential Loans

September 30, 2020	Single-Family Rental				Residential
(In Thousands)	Redwood		CAFL		Bridge		Total
Held-for-sale at fair value	$	285,549	—		$	—	$	285,549
Held-for-investment at fair value	—		2,969,692		700,860		3,670,552
Total Business Purpose Residential Loans	$	285,549	$	2,969,692	$	700,860	$	3,956,101

December 31, 2019	Single-Family Rental				Residential
(In Thousands)	Redwood		CAFL		Bridge		Total
Held-for-sale at fair value	$	331,565	$	—	$	—	$	331,565
Held-for-investment at fair value	237,620		2,192,552		745,006		3,175,178
Total Business Purpose Residential Loans	$	569,185	$	2,192,552	$	745,006	$	3,506,743

The following tables summarize the characteristics of the business purpose residential loans owned at Redwood at September 30, 2020 and December 31, 2019.

Table 7.2 – Characteristics of Business Purpose Residential Loans

September 30, 2020	Single-Family Rental at Redwood			Single-Family Rental at CAFL			Residential Bridge
(Dollars in Thousands)
Number of loans	140			1,027			2,262
Unpaid principal balance	$	272,492		$	2,815,045		$	708,555
Fair value of loans	$	285,549		$	2,969,692		$	700,860
Weighted average coupon	5.26		%	5.50		%	8.02		%
Weighted average remaining loan term (years)	7			6			1
Number of loans with 90+ day delinquencies (1)	6			26			24
Unpaid principal balance of loans with 90+ day delinquencies	$	3,018		$	70,949		$	38,437
Fair value of loans with 90+ day delinquencies (2)	$	2,954		N/A			$	33,464
Number of loans in foreclosure	—			9			24
Unpaid principal balance of loans in foreclosure	$	—		$	14,032		$	39,755
Fair value of loans in foreclosure (2)	$	—		N/A			$	34,489

December 31, 2019	Single-Family Rental at Redwood			Single-Family Rental at CAFL			Residential Bridge
(Dollars in Thousands)
Number of loans	308			783			2,653
Unpaid principal balance	$	552,848		$	2,078,214		$	742,528
Fair value of loans	$	569,185		$	2,192,552		$	745,006
Weighted average coupon	4.96		%	5.70		%	8.11		%
Weighted average remaining loan term (years)	9			7			2
Number of loans with 90+ day delinquencies (1)	2			18			31
Unpaid principal balance of loans with 90+ day delinquencies	$	1,688		$	29,039		$	14,186
Fair value of loans with 90+ day delinquencies (2)	$	1,818		N/A			$	12,111
Number of loans in foreclosure	1			5			15
Unpaid principal balance of loans in foreclosure	$	130		$	9,169		$	8,987
Fair value of loans in foreclosure (2)	$	130		N/A			$	6,917

(1)The number of loans greater than 90 days delinquent includes loans in foreclosure.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities.

Single-Family Rental Loans

During the three and nine months ended September 30, 2020, we originated $196 million and $632 million of single-family rental loans, respectively. During the nine months ended September 30, 2020, we transferred $925 million of single-family rental loans from held-for-sale to held-for-investment associated with three CAFL securitizations and sold $34 million to third parties. Additionally, at March 31, 2020, we transferred all held-for-investment single-family rental loans to held-for-sale. During the three and nine months ended September 30, 2020, we recorded net market valuation gains of $43 million and $34 million, respectively, on single-family rental loans. The $43 million of net market valuation gains recorded during the three months ended September 30, 2020 were recorded through Mortgage banking activities, net on our consolidated statements of income (loss). Of the $34 million of net market valuation gains recorded during the nine months ended September 30, 2020, $55 million of net market valuation gains were recorded through Mortgage banking activities, net and $21 million of net market valuation losses were recorded through Investment fair value changes, net on our consolidated statements of income (loss). During the three and nine months ended September 30, 2019, we recorded net market valuation gains of $1 million and $3 million, respectively, on single-family rental loans through Mortgage banking activities, net on our consolidated statements of income (loss).

Single-Family Rental Loans Held-for-Investment at CAFL

    In conjunction with our acquisition of CoreVest in the fourth quarter of 2019, we consolidated the single-family rental loans owned at certain CAFL securitization entities. The outstanding single-family rental loans held-for-investment at CAFL at September 30, 2020 were first-lien, fixed-rate loans with original maturities of five, seven, or ten years.

During the three and nine months ended September 30, 2020, we recorded a net market valuation gain of $88 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 (loss). 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 CAFL securitizations. The net impact to our income statement associated with our retained economic investment in the CAFL securitization entities is presented in Note 5.

Residential Bridge Loans Held-for-Investment

The outstanding residential bridge loans held-for-investment at September 30, 2020 were first lien, fixed-rate, interest-only loans with original maturities of six to 24 months. During the nine months ended September 30, 2020, we transferred four loans with a fair value of $5 million to REO, which is included in Other assets on our consolidated balance sheets.

During the three and nine months ended September 30, 2020, $64 million and $324 million of newly originated residential bridge loans, respectively, were transferred to our investment portfolio. During the three and nine months ended September 30, 2020, we recorded a net market valuation gain of $7 million and a net market valuation loss of $10 million, respectively, on residential bridge loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income (loss). During both the three and nine months ended September 30, 2019, we recorded net market valuation losses of $1 million on residential bridge loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income (loss).

At September 30, 2020, we had a $225 million commitment to fund residential bridge loans. See Note 16 for additional information on this commitment.

Multifamily Loans

Since 2018, we have invested in multifamily subordinate securities issued by Freddie Mac K-Series securitization trusts and were required to consolidate the underlying multifamily loans owned at these entities for financial reporting purposes in accordance with GAAP. During the first quarter of 2020, we sold subordinate securities issued by four such Freddie Mac K-Series securitization trusts and deconsolidated $3.85 billion of multifamily loans. See Note 2 for further discussion.

The following table summarizes the characteristics of the multifamily loans consolidated at Redwood at September 30, 2020 and December 31, 2019.

Table 8.1 – Characteristics of Multifamily Loans

(Dollars in Thousands)	September 30, 2020			December 31, 2019
Number of loans	28			279
Unpaid principal balance	$	464,680		$	4,195,000
Fair value of loans	$	491,415		$	4,408,524
Weighted average coupon	4.25		%	4.13		%
Weighted average remaining loan term (years)	5			6
Number of loans with 90+ day delinquencies	—			—
Number of loans in foreclosure	—			—

The outstanding multifamily loans held-for-investment at the Freddie Mac K-Series entities at September 30, 2020 were first-lien, fixed-rate loans that were originated in 2015 and had original loan terms of ten years. The following table provides the activity of multifamily loans held-for-investment during the three and nine months ended September 30, 2020 and 2019.

Table 8.2 – Quarterly Activity of Multifamily Loans Held-for-Investment

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Net market valuation gains (losses) recorded (1)	$	2,340	$	47,353	$	(61,500)	$	178,374

(1)Net market valuation gains (losses) on multifamily loans held-for-investment are recorded through Investment fair value changes, net on our consolidated statements of income (loss). For loans held at our consolidated Freddie Mac K-Series entities, market value changes are based on the estimated fair value of the associated ABS issued, pursuant to collateralized financing entity guidelines. The net impact to our income statement associated with our economic investment in these securitization entities is presented in Note 5.

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Multifamily Loans

9 Months Ended

Sep. 30, 2020

Receivables [Abstract]

Multifamily 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 and Freddie Mac SLST entities at September 30, 2020 and December 31, 2019.

Table 6.1 – Classifications and Carrying Values of Residential Loans

September 30, 2020			Legacy		Sequoia		Freddie Mac
(In Thousands)	Redwood		Sequoia		Choice		SLST		Total
Held-for-sale at fair value	$	105,128	$	—	$	—	$	—	$	105,128
Held-for-investment at fair value	—		296,765		1,836,361		2,256,682		4,389,808
Total Residential Loans	$	105,128	$	296,765	$	1,836,361	$	2,256,682	$	4,494,936

December 31, 2019			Legacy		Sequoia		Freddie Mac
(In Thousands)	Redwood		Sequoia		Choice		SLST		Total
Held-for-sale at fair value	$	536,385	$	—	$	—	$	—	$	536,385
Held-for-investment at fair value	2,111,897		407,890		2,291,463		2,367,215		7,178,465
Total Residential Loans	$	2,648,282	$	407,890	$	2,291,463	$	2,367,215	$	7,714,850

At September 30, 2020, we owned mortgage servicing rights associated with $103 million (principal balance) of residential loans owned at Redwood that were 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

The following table summarizes the characteristics of residential loans held-for-sale at September 30, 2020 and December 31, 2019.

Table 6.2 – Characteristics of Residential Loans Held-for-Sale

(Dollars in Thousands)	September 30, 2020		December 31, 2019
Number of loans	118		669
Unpaid principal balance	$	102,921	$	524,928
Fair value of loans	$	105,128	$	536,280
Number of loans with 90+ day delinquencies	2		1
Unpaid principal balance of loans with 90+ day delinquencies	$	2,356	$	747
Fair value of loans with 90+ day delinquencies	$	1,767	$	616
Number of loans in foreclosure	—		—
Market value of loans pledged as collateral under short-term borrowing agreements	$	95,023	$	201,949

The following table provides the activity of residential loans held-for-sale during the three and nine months ended September 30, 2020 and 2019.

Table 6.3 – Quarterly Activity of Residential Loans Held-for-Sale

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Principal balance of loans acquired	$	172,162	$	1,446,750	$	2,859,813	$	3,936,111
Principal balance of loans sold	87,868		1,534,315		5,024,663		3,921,280
Net market valuation gains (losses) recorded (1)	(478)		(6,623)		(15,972)		286

(1)Net market valuation gains (losses) on residential loans held-for-sale are recorded through Mortgage banking activities, net on our consolidated statements of income (loss).

Residential Loans Held-for-Investment at Fair Value

The following tables summarize the characteristics of the residential loans owned at Redwood and at consolidated Sequoia and Freddie Mac SLST entities at September 30, 2020 and December 31, 2019.

Table 6.4 – Characteristics of Residential Loans Held-for-Investment

September 30, 2020			Legacy		Sequoia		Freddie Mac
(Dollars in Thousands)	Redwood		Sequoia		Choice		SLST
Number of loans	—		1,976		2,546		13,893
Unpaid principal balance	$	—	$	352,392	$	1,811,967	$	2,304,047
Fair value of loans	$	—	$	296,765	$	1,836,361	$	2,256,683
Number of loans with 90+ day delinquencies (1)	—		49		132		1,772
Unpaid principal balance of loans with 90+ day delinquencies	$	—	$	16,076	$	102,693	$	339,537
Fair value of loans with 90+ day delinquencies (2)	$	—	N/A		N/A		N/A
Number of loans in foreclosure	—		21		3		175
Unpaid principal balance of loans in foreclosure	$	—	$	4,820	$	1,814	$	28,380

December 31, 2019			Legacy		Sequoia		Freddie Mac
(Dollars in Thousands)	Redwood		Sequoia		Choice		SLST
Number of loans	2,940		2,198		3,156		14,502
Unpaid principal balance	$	2,052,778	$	424,829	$	2,240,679	$	2,428,035
Fair value of loans	$	2,111,897	$	407,890	$	2,291,463	$	2,367,215
Number of loans with 90+ day delinquencies (1)	2		39		9		587
Unpaid principal balance of loans with 90+ day delinquencies	$	1,585	$	9,803	$	6,755	$	134,680
Fair value of loans with 90+ day delinquencies (2)	$	1,424	N/A		N/A		N/A
Number of loans in foreclosure	—		16		3		208
Unpaid principal balance of loans in foreclosure	$	—	$	3,673	$	2,290	$	33,042

(1)For loans held at consolidated entities, the number of loans greater than 90 days delinquent includes loans in foreclosure.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities.

The following table provides the activity of residential loans held-for-investment at Redwood during the three and nine months ended September 30, 2020 and 2019.

Table 6.5 – Quarterly Activity of Residential Loans Held-for-Investment at Redwood

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Principal balance of loans acquired	$	—	$	—	$	—	$	39,194
Principal balance of loans sold	—		—		—		—
Fair value of loans transferred from HFS to HFI	—		—		13,258		68,703
Fair value of loans transferred from HFI to HFS	—		—		1,870,986		22,814
Net market valuation gains (losses) recorded (1)	218		7,667		(93,314)		71,323

(1)Net market valuation gains (losses) on residential loans held-for-investment at Redwood are recorded through Investment fair value changes, net on our consolidated statements of income (loss).

The following table provides the activity of residential loans held-for-investment at consolidated entities during the three and nine months ended September 30, 2020 and 2019.

Table 6.6 – Quarterly Activity of Residential Loans Held-for-Investment at Consolidated Entities

	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
	Legacy		Sequoia		Freddie Mac		Legacy		Sequoia		Freddie Mac
(In Thousands)	Sequoia		Choice		SLST		Sequoia		Choice		SLST
Fair value of loans transferred from HFS to HFI (1)	N/A		$	—	N/A		N/A		$	270,506	N/A
Net market valuation gains (losses) recorded (2)	$	21,938	$	(5,175)	$	159,687	$	(38,996)	$	(21,727)	$	15,254

	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Legacy		Sequoia		Freddie Mac		Legacy		Sequoia		Freddie Mac
(In Thousands)	Sequoia		Choice		SLST		Sequoia		Choice		SLST
Fair value of loans transferred from HFS to HFI (1)	N/A		$	727,088	N/A		N/A		$	1,076,671	N/A
Net market valuation gains (losses) recorded (2)	$	(103)	$	(11,029)	$	39,783	$	5,271	$	4,841	$	94,788

(1)Represents the transfer of loans from held-for-sale to held-for-investment associated with Sequoia Choice securitizations.

(2)For loans held at our consolidated Legacy Sequoia, Sequoia Choice, and Freddie Mac SLST entities, market value changes are based on the estimated fair value of the associated ABS issued, pursuant to collateralized financing entity guidelines. The net impact to our income statement associated with our economic investments in these securitization entities is presented in Note 5.

Business Purpose Residential LoansWe originate business purpose residential loans, including single-family rental loans and residential bridge loans. This origination activity commenced in connection with our acquisitions of 5 Arches and CoreVest in 2019.

Business Purpose Residential Loan Originations

During the three months ended September 30, 2020, we funded $261 million of business purpose residential loans and sold $2 million of residential bridge loans and $2 million of single-family rental loans to third parties. The remaining business purpose residential loans were transferred to our investment portfolio (residential bridge loans), or retained in our mortgage banking business (single-family rental loans) for future securitizations. Prior to the transfer of residential bridge loans to our investment portfolio, we recorded a net market valuation gain of less than $0.1 million on these loans through Mortgage banking activities, net on our consolidated statements of income (loss) for the three months ended September 30, 2020. Market valuation adjustments on our single-family rental loans are also recorded in Mortgage banking activities, net on our consolidated statements of income (loss) prior to their sale or securitization. Additionally, during the three and nine months ended September 30, 2020, we recorded loan origination fee income associated with business purpose residential loans of $3 million and $13 million, respectively, through Mortgage banking activities, net on our consolidated statements of income (loss).

The following table summarizes the classifications and carrying values of the business purpose residential loans owned at Redwood at September 30, 2020 and December 31, 2019.

Table 7.1 – Classifications and Carrying Values of Business Purpose Residential Loans

September 30, 2020	Single-Family Rental				Residential
(In Thousands)	Redwood		CAFL		Bridge		Total
Held-for-sale at fair value	$	285,549	—		$	—	$	285,549
Held-for-investment at fair value	—		2,969,692		700,860		3,670,552
Total Business Purpose Residential Loans	$	285,549	$	2,969,692	$	700,860	$	3,956,101

December 31, 2019	Single-Family Rental				Residential
(In Thousands)	Redwood		CAFL		Bridge		Total
Held-for-sale at fair value	$	331,565	$	—	$	—	$	331,565
Held-for-investment at fair value	237,620		2,192,552		745,006		3,175,178
Total Business Purpose Residential Loans	$	569,185	$	2,192,552	$	745,006	$	3,506,743

The following tables summarize the characteristics of the business purpose residential loans owned at Redwood at September 30, 2020 and December 31, 2019.

Table 7.2 – Characteristics of Business Purpose Residential Loans

September 30, 2020	Single-Family Rental at Redwood			Single-Family Rental at CAFL			Residential Bridge
(Dollars in Thousands)
Number of loans	140			1,027			2,262
Unpaid principal balance	$	272,492		$	2,815,045		$	708,555
Fair value of loans	$	285,549		$	2,969,692		$	700,860
Weighted average coupon	5.26		%	5.50		%	8.02		%
Weighted average remaining loan term (years)	7			6			1
Number of loans with 90+ day delinquencies (1)	6			26			24
Unpaid principal balance of loans with 90+ day delinquencies	$	3,018		$	70,949		$	38,437
Fair value of loans with 90+ day delinquencies (2)	$	2,954		N/A			$	33,464
Number of loans in foreclosure	—			9			24
Unpaid principal balance of loans in foreclosure	$	—		$	14,032		$	39,755
Fair value of loans in foreclosure (2)	$	—		N/A			$	34,489

December 31, 2019	Single-Family Rental at Redwood			Single-Family Rental at CAFL			Residential Bridge
(Dollars in Thousands)
Number of loans	308			783			2,653
Unpaid principal balance	$	552,848		$	2,078,214		$	742,528
Fair value of loans	$	569,185		$	2,192,552		$	745,006
Weighted average coupon	4.96		%	5.70		%	8.11		%
Weighted average remaining loan term (years)	9			7			2
Number of loans with 90+ day delinquencies (1)	2			18			31
Unpaid principal balance of loans with 90+ day delinquencies	$	1,688		$	29,039		$	14,186
Fair value of loans with 90+ day delinquencies (2)	$	1,818		N/A			$	12,111
Number of loans in foreclosure	1			5			15
Unpaid principal balance of loans in foreclosure	$	130		$	9,169		$	8,987
Fair value of loans in foreclosure (2)	$	130		N/A			$	6,917

(1)The number of loans greater than 90 days delinquent includes loans in foreclosure.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities.

Single-Family Rental Loans

During the three and nine months ended September 30, 2020, we originated $196 million and $632 million of single-family rental loans, respectively. During the nine months ended September 30, 2020, we transferred $925 million of single-family rental loans from held-for-sale to held-for-investment associated with three CAFL securitizations and sold $34 million to third parties. Additionally, at March 31, 2020, we transferred all held-for-investment single-family rental loans to held-for-sale. During the three and nine months ended September 30, 2020, we recorded net market valuation gains of $43 million and $34 million, respectively, on single-family rental loans. The $43 million of net market valuation gains recorded during the three months ended September 30, 2020 were recorded through Mortgage banking activities, net on our consolidated statements of income (loss). Of the $34 million of net market valuation gains recorded during the nine months ended September 30, 2020, $55 million of net market valuation gains were recorded through Mortgage banking activities, net and $21 million of net market valuation losses were recorded through Investment fair value changes, net on our consolidated statements of income (loss). During the three and nine months ended September 30, 2019, we recorded net market valuation gains of $1 million and $3 million, respectively, on single-family rental loans through Mortgage banking activities, net on our consolidated statements of income (loss).

Single-Family Rental Loans Held-for-Investment at CAFL

    In conjunction with our acquisition of CoreVest in the fourth quarter of 2019, we consolidated the single-family rental loans owned at certain CAFL securitization entities. The outstanding single-family rental loans held-for-investment at CAFL at September 30, 2020 were first-lien, fixed-rate loans with original maturities of five, seven, or ten years.

During the three and nine months ended September 30, 2020, we recorded a net market valuation gain of $88 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 (loss). 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 CAFL securitizations. The net impact to our income statement associated with our retained economic investment in the CAFL securitization entities is presented in Note 5.

Residential Bridge Loans Held-for-Investment

The outstanding residential bridge loans held-for-investment at September 30, 2020 were first lien, fixed-rate, interest-only loans with original maturities of six to 24 months. During the nine months ended September 30, 2020, we transferred four loans with a fair value of $5 million to REO, which is included in Other assets on our consolidated balance sheets.

During the three and nine months ended September 30, 2020, $64 million and $324 million of newly originated residential bridge loans, respectively, were transferred to our investment portfolio. During the three and nine months ended September 30, 2020, we recorded a net market valuation gain of $7 million and a net market valuation loss of $10 million, respectively, on residential bridge loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income (loss). During both the three and nine months ended September 30, 2019, we recorded net market valuation losses of $1 million on residential bridge loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income (loss).

At September 30, 2020, we had a $225 million commitment to fund residential bridge loans. See Note 16 for additional information on this commitment.

Multifamily Loans

Since 2018, we have invested in multifamily subordinate securities issued by Freddie Mac K-Series securitization trusts and were required to consolidate the underlying multifamily loans owned at these entities for financial reporting purposes in accordance with GAAP. During the first quarter of 2020, we sold subordinate securities issued by four such Freddie Mac K-Series securitization trusts and deconsolidated $3.85 billion of multifamily loans. See Note 2 for further discussion.

The following table summarizes the characteristics of the multifamily loans consolidated at Redwood at September 30, 2020 and December 31, 2019.

Table 8.1 – Characteristics of Multifamily Loans

(Dollars in Thousands)	September 30, 2020			December 31, 2019
Number of loans	28			279
Unpaid principal balance	$	464,680		$	4,195,000
Fair value of loans	$	491,415		$	4,408,524
Weighted average coupon	4.25		%	4.13		%
Weighted average remaining loan term (years)	5			6
Number of loans with 90+ day delinquencies	—			—
Number of loans in foreclosure	—			—

The outstanding multifamily loans held-for-investment at the Freddie Mac K-Series entities at September 30, 2020 were first-lien, fixed-rate loans that were originated in 2015 and had original loan terms of ten years. The following table provides the activity of multifamily loans held-for-investment during the three and nine months ended September 30, 2020 and 2019.

Table 8.2 – Quarterly Activity of Multifamily Loans Held-for-Investment

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Net market valuation gains (losses) recorded (1)	$	2,340	$	47,353	$	(61,500)	$	178,374

(1)Net market valuation gains (losses) on multifamily loans held-for-investment are recorded through Investment fair value changes, net on our consolidated statements of income (loss). For loans held at our consolidated Freddie Mac K-Series entities, market value changes are based on the estimated fair value of the associated ABS issued, pursuant to collateralized financing entity guidelines. The net impact to our income statement associated with our economic investment in these securitization entities is presented in Note 5.

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Real Estate Securities

9 Months Ended

Sep. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Real Estate Securities

Real Estate Securities

We invest in real estate securities that we acquire from third parties or create and retain from our Sequoia securitizations. The following table presents the fair values of our real estate securities by type at September 30, 2020 and December 31, 2019.

Table 9.1 – Fair Values of Real Estate Securities by Type

(In Thousands)	September 30, 2020		December 31, 2019
Trading	$	144,162	$	860,540
Available-for-sale	207,173		239,334
Total Real Estate Securities	$	351,335	$	1,099,874

Our real estate securities include mortgage-backed securities, which are presented in accordance with their general position within a securitization structure based on their rights to cash flows. Senior securities are those interests in a securitization that generally have the first right to cash flows and are last in line to absorb losses. Mezzanine securities are interests that are generally subordinate to senior securities in their rights to receive cash flows, and have subordinate securities below them that are first to absorb losses. Many of our mezzanine classified securities were initially rated AA through BBB- and issued in 2012 or later. Subordinate securities are all interests below mezzanine. Excluding our re-performing loan securities, nearly all of our residential securities are supported by collateral that was designated as prime at the time of issuance.

Trading Securities

The following table presents the fair value of trading securities by position and collateral type at September 30, 2020 and December 31, 2019.

Table 9.2 – Trading Securities by Position

(In Thousands)	September 30, 2020		December 31, 2019
Senior	$	28,091	$	150,067
Mezzanine	3,651		538,489
Subordinate	112,420		171,984
Total Trading Securities	$	144,162	$	860,540

We elected the fair value option for certain securities and classify them as trading securities. Our trading securities include both residential and multifamily mortgage-backed securities, and our residential securities also include securities backed by re-performing loans ("RPL"). At September 30, 2020 and December 31, 2019, our senior trading securities included $28 million and $64 million of interest-only securities, respectively, for which there is no principal balance, and the unpaid principal balance of our remaining senior trading securities was zero and $84 million, respectively. Our interest-only securities included $12 million and $36 million of certificated mortgage servicing rights at September 30, 2020 and December 31, 2019, respectively, which are securities we retained from certain of our Sequoia securitizations that represent certificated servicing strips. At September 30, 2020 and December 31, 2019, our trading securities included $60 million and $161 million of RPL securities, respectively.

At September 30, 2020 and December 31, 2019, our mezzanine trading securities had an unpaid principal balance of $4 million and $537 million, respectively. At September 30, 2020 and December 31, 2019, the fair value of our mezzanine securities was $4 million and $538 million, respectively, and included $4 million and $39 million of Sequoia securities, respectively, zero and $395 million of multifamily securities, respectively, and zero and $104 million of other third-party residential securities, respectively, including zero and $30 million of RPL securities, respectively.

At September 30, 2020 and December 31, 2019, our subordinate trading securities had an unpaid principal balance of $266 million and $302 million, respectively. At September 30, 2020 and December 31, 2019, the fair value of our subordinate securities was $112 million and $172 million, respectively, and included $50 million and $90 million, respectively, of Agency residential mortgage credit risk transfer (or "CRT") securities, and $55 million and $82 million, respectively, of other third-party residential securities, including $51 million and $76 million of RPL securities, respectively.

During the three and nine months ended September 30, 2020, we acquired $11 million and $78 million (principal balance), respectively, of securities for which we elected the fair value option and classified as trading, and sold $16 million and $721 million, respectively, of such securities. During the three and nine months ended September 30, 2019, we acquired $66 million and $335 million (principal balance), respectively, of securities for which we elected the fair value option and classified as trading, and sold $236 million and $397 million, respectively, of such securities.

During the three and nine months ended September 30, 2020, we recorded net market valuation losses of $4 million and $225 million, respectively, on trading securities, included in Investment fair value changes, net on our consolidated statements of income (loss). During the three and nine months ended September 30, 2019, we recorded net market valuation gains of $15 million and $56 million, respectively, on trading securities, included in Investment fair value changes, net on our consolidated statements of income (loss).

AFS Securities

The following table presents the fair value of our available-for-sale securities by position and collateral type at September 30, 2020 and December 31, 2019.

Table 9.3 – Available-for-Sale Securities by Position

(In Thousands)	September 30, 2020		December 31, 2019
Senior	$	—	$	25,792
Mezzanine	2,016		13,687
Subordinate	205,157		199,855
Total AFS Securities	$	207,173	$	239,334

At September 30, 2020 and December 31, 2019, our available-for-sale securities were comprised of $160 million and $230 million of residential mortgage-backed securities, respectively, and $48 million and $9 million of multifamily mortgage-backed securities, respectively. At September 30, 2020 and December 31, 2019, our residential available-for-sale securities were comprised of $124 million and $141 million of residential mortgage-backed securities we retained from our Sequoia securitizations, respectively, and $35 million and $90 million of other third-party residential securities, respectively.

During the three and nine months ended September 30, 2020, we purchased $25 million and $57 million of AFS securities, respectively, and sold zero and $55 million of AFS securities, respectively, which resulted in net realized gains of zero and $5 million, respectively. During the three and nine months ended September 30, 2019, we purchased $12 million and $21 million of AFS securities, respectively, and sold $15 million and $82 million of AFS securities, respectively, which resulted in net realized gains of $4 million and $13 million, respectively.

We often purchase AFS securities at a discount to their outstanding principal balances. To the extent we purchase an AFS security that has a likelihood of incurring a loss, we do not amortize into income the portion of the purchase discount that we do not expect to collect due to the inherent credit risk of the security. We may also expense a portion of our investment in the security to the extent we believe that principal losses will exceed the purchase discount. We designate any amount of unpaid principal balance that we do not expect to receive and thus do not expect to earn or recover as a credit reserve on the security. Any remaining net unamortized discounts or premiums on the security are amortized into income over time using the effective yield method.

At September 30, 2020, we had $45 million of AFS securities with contractual maturities less than five years, $3 million with contractual maturities greater than five years but less than ten years, and the remainder of our AFS securities had contractual maturities greater than ten years.

The following table presents the components of carrying value (which equals fair value) of AFS securities at September 30, 2020 and December 31, 2019.

Table 9.4 – Carrying Value of AFS Securities

September 30, 2020
(In Thousands)	Senior		Mezzanine		Subordinate		Total
Principal balance	$	—	$	2,000	$	287,659	$	289,659
Credit reserve	—		—		(43,186)		(43,186)
Unamortized discount, net	—		—		(99,221)		(99,221)
Amortized cost	—		2,000		145,252		147,252
Gross unrealized gains	—		16		63,439		63,455
Gross unrealized losses	—		—		(2,507)		(2,507)
Allowance for credit losses	—		—		(1,027)		(1,027)
Carrying Value	$	—	$	2,016	$	205,157	$	207,173

December 31, 2019
(In Thousands)	Senior		Mezzanine		Subordinate		Total
Principal balance	$	26,331	$	13,512	$	264,234	$	304,077
Credit reserve	(533)		—		(32,407)		(32,940)
Unamortized discount, net	(10,427)		(527)		(113,301)		(124,255)
Amortized cost	15,371		12,985		118,526		146,882
Gross unrealized gains	10,450		702		81,329		92,481
Gross unrealized losses	(29)		—		—		(29)
Carrying Value	$	25,792	$	13,687	$	199,855	$	239,334

The following table presents the changes for the three and nine months ended September 30, 2020, in unamortized discount and designated credit reserves on AFS securities.

Table 9.5 – Changes in Unamortized Discount and Designated Credit Reserves on AFS Securities

	Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
	Credit Reserve		Unamortized Discount, Net		Credit Reserve		Unamortized Discount, Net
(In Thousands)
Beginning balance	$	37,785	$	104,260	$	32,940	$	124,255
Amortization of net discount	—		(1,766)		—		(4,607)
Realized credit losses	(194)		—		(897)		—
Acquisitions	1,303		1,019		6,487		1,796
Sales, calls, other	—		—		(726)		(16,841)
(Release of) transfers to credit reserves, net	4,292		(4,292)		5,382		(5,382)
Ending Balance	$	43,186	$	99,221	$	43,186	$	99,221

AFS Securities with Unrealized Losses

The following table presents the components comprising the total carrying value of AFS securities that were in a gross unrealized loss position at September 30, 2020 and December 31, 2019.

Table 9.6 – Components of Fair Value of AFS Securities by Holding Periods

	Less Than 12 Consecutive Months						12 Consecutive Months or Longer
	Amortized Cost		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Losses		Fair Value
(In Thousands)
September 30, 2020	$	32,890	$	(2,507)	$	30,330	$	—	$	—	$	—
December 31, 2019	—		—		—		5,830		(29)		5,801

At September 30, 2020, after giving effect to purchases, sales, and extinguishment due to credit losses, our consolidated balance sheet included 96 AFS securities, of which seven were in an unrealized loss position and zero were in a continuous unrealized loss position for 12 consecutive months or longer. At December 31, 2019, our consolidated balance sheet included 107 AFS securities, of which one was in an unrealized loss position and one was in a continuous unrealized loss position for 12 consecutive months or longer.

Evaluating AFS Securities for Credit Losses

Gross unrealized losses on our AFS securities were $3 million at September 30, 2020. Pursuant to our adoption of ASU 2016-13, "Financial Instruments - Credit Losses" in the first quarter of 2020, we evaluate all securities in an unrealized loss position to determine if the impairment is credit-related (resulting in an allowance for credit losses recorded in earnings) or non-credit-related (resulting in an unrealized loss through other comprehensive income). At September 30, 2020, we did not intend to sell any of our AFS securities that were in an unrealized loss position, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost basis, which may be at their maturity. We review our AFS securities that are in an unrealized loss position to identify those securities with losses based on an assessment of changes in expected cash flows for such securities, which considers recent security performance and expected future performance of the underlying collateral.

At September 30, 2020, our allowance for credit losses related to our AFS securities was $1 million. AFS securities for which an allowance is recognized have experienced, or are expected to experience, credit-related adverse cash flow changes. In determining our estimate of cash flows for AFS securities we may consider factors such as structural credit enhancement, past and expected future performance of underlying mortgage loans, including timing of expected future cash flows, which are informed by prepayment rates, default rates, loss severities, delinquency rates, percentage of non-performing loans, FICO scores at loan origination, year of origination, loan-to-value ratios, and geographic concentrations, as well as general market assessments. Changes in our evaluation of these factors impacted the cash flows expected to be collected at the assessment date and were used to determine if there were credit-related adverse cash flows and if so, the amount of credit related losses. Significant judgment is used in both our analysis of the expected cash flows for our AFS securities and any determination of security credit losses.

The table below summarizes the weighted average of the significant credit quality indicators we used for the credit loss allowance on our AFS securities at September 30, 2020.

Table 9.7 – Significant Credit Quality Indicators

September 30, 2020	Subordinate Securities
Default rate	0.5%
Loss severity	20%

The following table details the activity related to the allowance for credit losses for AFS securities held at September 30, 2020.

Table 9.8 – Rollforward of Allowance for Credit Losses

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2020		September 30, 2020
Beginning balance allowance for credit losses	$	1,471	$	—
Transition impact from adoption of new standard	—		—
Additions to allowance for credit losses on securities for which credit losses were not previously recorded	339		1,864
Additional increases or decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period	(783)		(837)
Allowance on purchased financial assets with credit deterioration	—		—
Reduction to allowance for securities sold during the period	—		—
Reduction to allowance for securities we intend to sell or more likely than not will be required to sell	—		—
Write-offs charged against allowance	—		—
Recoveries of amounts previously written off	—		—
Ending balance of allowance for credit losses	$	1,027	$	1,027

Gains and losses from the sale of AFS securities are recorded as Realized gains, net, in our consolidated statements of income (loss). The following table presents the gross realized gains and losses on sales and calls of AFS securities for the three and nine months ended September 30, 2020 and 2019.

Table 9.9 – Gross Realized Gains and Losses on AFS Securities

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Gross realized gains - sales	$	—	$	3,656	$	8,779	$	13,143
Gross realized gains - calls	—		1,058		—		5,084
Gross realized losses - sales	—		—		(4,144)		—
Total Realized Gains on Sales and Calls of AFS Securities, net	$	—	$	4,714	$	4,635	$	18,227

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Other Investments

9 Months Ended

Sep. 30, 2020

Investments, All Other Investments [Abstract]

Other Investments

Other Investments

Other investments at September 30, 2020 and December 31, 2019 are summarized in the following table.

Table 10.1 – Components of Other Investments

(In Thousands)	September 30, 2020		December 31, 2019
Servicer advance investments	$	258,621	$	169,204
Shared home appreciation options	41,758		45,085
Excess MSRs	35,070		31,814
Mortgage servicing rights	14,878		42,224
Investment in multifamily loan fund	(323)		39,802
Other	34,624		30,001
Total Other Investments	$	384,628	$	358,130

Servicer advance investments

In 2018, we and a third-party co-investor, through two partnerships (“SA Buyers”) consolidated by us, purchased the outstanding servicer advances and excess MSRs related to a portfolio of legacy residential mortgage-backed securitizations serviced by the co-investor (Refer to our Annual Report on Form 10-K for the year ended December 31, 2019 for additional information regarding the transaction). During the nine months ended September 30, 2020, we funded additional purchases of outstanding servicer advances and excess MSRs under the same partnership structure. At September 30, 2020, we had funded $94 million of total capital to the SA Buyers (see Note 16 for additional detail).

At September 30, 2020, our servicer advance investments had a carrying value of $259 million and were associated with a portfolio of residential mortgage loans with an unpaid principal balance of $9.71 billion. The outstanding servicer advance receivables associated with this investment were $242 million at September 30, 2020, which were financed with short-term non-recourse securitization debt (see Note 13 for additional detail on this debt). The servicer advance receivables were comprised of the following types of advances at September 30, 2020 and December 31, 2019.

Table 10.2 – Components of Servicer Advance Receivables

(In Thousands)	September 30, 2020		December 31, 2019
Principal and interest advances	$	88,370	$	15,081
Escrow advances (taxes and insurance advances)	115,352		96,732
Corporate advances	38,337		39,769
Total Servicer Advance Receivables	$	242,059	$	151,582

We account for our servicer advance investments at fair value and during the three and nine months ended September 30, 2020, we recorded $3 million and $8 million, respectively, of interest income associated with these investments, and recorded net market valuation gain of less than $0.1 million and a net market valuation loss of $6 million, respectively, through Investment fair value changes, net in our consolidated statements of income (loss). During the three and nine months ended September 30, 2019, we recorded $3 million and $9 million, respectively, of interest income associated with these investments for each of these periods, and recorded net market valuation gains of $2 million and $3 million, respectively, through Investment fair value changes, net in our consolidated statements of income (loss).

Mortgage Servicing Rights

We invest in mortgage servicing rights associated with residential mortgage loans and contract with licensed sub-servicers to perform all servicing functions for these loans. The majority of our investments in MSRs were made through the retention of servicing rights associated with the residential jumbo mortgage loans that we acquired and subsequently transferred to third parties. We hold our MSR investments at our taxable REIT subsidiaries.

At September 30, 2020 and December 31, 2019, our MSRs had a fair value of $15 million and $42 million, respectively, and were associated with loans with an aggregate principal balance of $3.14 billion and $4.35 billion, respectively. During the three and nine months ended September 30, 2020, including net market valuation gains and losses on our MSRs and related risk management derivatives, we recorded net losses of $2 million and $6 million, respectively, through Other income on our consolidated statements of income (loss). During the three and nine months ended September 30, 2019, we recognized $0.4 million and $2 million of income, net, respectively, through Other income on our consolidated statements of income (loss).

Excess MSRs

In association with our servicer advance investments described above, we (through our consolidated SA Buyers) invested in excess MSRs associated with the same portfolio of legacy residential mortgage-backed securitizations. Additionally, we own excess MSRs associated with specified pools of multifamily loans. We account for our excess MSRs at fair value and during the three and nine months ended September 30, 2020, we recognized $3 million and $9 million of interest income, respectively, through Other interest income, and recorded net market valuation losses of $1 million and $8 million, respectively, through Investment fair value changes, net on our consolidated statements of income (loss). During the three and nine months ended September 30, 2019, we recognized $2 million and $6 million of interest income, respectively, through Other interest income, and recorded net market valuation losses of $2 million for both periods through Investment fair value changes, net on our consolidated statements of income (loss).

Investment in Multifamily Loan Fund

In January 2019, we invested in a limited partnership created to acquire floating rate, light-renovation multifamily loans from Freddie Mac. At September 30, 2020, the carrying amount of our investment in the partnership was zero and we had no remaining funding obligations to the partnership. During the three and nine months ended September 30, 2020, we acquired $28 million and $56 million of securities, respectively, from the partnership's securitization transactions. During the three and nine months ended September 30, 2020, we recorded income of $0.3 million and $0.6 million, respectively, associated with this investment in Other income on our consolidated statements of income (loss). During the three and nine months ended September 30, 2019, we recorded $1 million and $0.5 million of income, respectively, associated with this investment in Other income on our consolidated statements of income (loss).

Shared Home Appreciation Options

In the third quarter of 2019, we entered into a flow purchase agreement to acquire shared home appreciation options. At September 30, 2020, we had acquired $47 million of shared home appreciation options under this flow purchase agreement and had an outstanding commitment to fund up to an additional $3 million under this agreement. We account for these investments under the fair value option and during the three and nine months ended September 30, 2020, we recorded a net market valuation gain of $2 million and a net market valuation loss of $4 million, respectively, related to these assets through Investment fair value changes, net on our consolidated statements of income (loss).

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Derivative Financial Instruments

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

The following table presents the fair value and notional amount of our derivative financial instruments at September 30, 2020 and December 31, 2019.

Table 11.1 – Fair Value and Notional Amount of Derivative Financial Instruments

	September 30, 2020				December 31, 2019
	Fair Value		Notional Amount		Fair Value		Notional Amount
(In Thousands)
Assets - Risk Management Derivatives
Interest rate swaps	$	78	$	25,000	$	17,095	$	1,399,000
TBAs	402		140,000		5,755		2,445,000
Interest rate futures	63		40,000		777		213,700
Swaptions	3,393		285,000		1,925		1,065,000
Assets - Other Derivatives
Loan purchase and interest rate lock commitments	10,773		1,724,207		10,149		1,537,162
Total Assets	$	14,709	$	2,214,207	$	35,701	$	6,659,862
Liabilities - Cash Flow Hedges
Interest rate swaps	$	—	$	—	$	(51,530)	$	139,500
Liabilities - Risk Management Derivatives
Interest rate swaps	(15)		25,000		(97,235)		2,314,300
TBAs	(263)		105,000		(13,359)		4,160,000
Interest rate futures	—		—		(10)		12,300
Liabilities - Other Derivatives
Loan purchase commitments	(1,334)		231,651		(1,290)		303,394
Total Liabilities	$	(1,612)	$	361,651	$	(163,424)	$	6,929,494
Total Derivative Financial Instruments, Net	$	13,097	$	2,575,858	$	(127,723)	$	13,589,356

Risk Management Derivatives

To manage, to varying degrees, risks associated with certain assets and liabilities on our consolidated balance sheets, we may enter into derivative contracts. At September 30, 2020, we were party to swaps and swaptions with an aggregate notional amount of $335 million, TBA agreements sold with an aggregate notional amount of $245 million, and interest rate futures contracts with an aggregate notional amount of $40 million. At December 31, 2019, we were party to swaps and swaptions with an aggregate notional amount of $4.78 billion, TBA agreements sold with an aggregate notional amount of $6.61 billion, and interest rate futures contracts with an aggregate notional amount of $226 million.

During the three and nine months ended September 30, 2020, risk management derivatives had net market valuation losses of zero and $98 million, respectively. During the three and nine months ended September 30, 2019, risk management derivatives had net market valuation losses of $36 million and $147 million, respectively. These market valuation gains and losses are recorded in Mortgage banking activities, net, Investment fair value changes, net, and Other income on our consolidated statements of income (loss). During the three months ended March 31, 2020, we settled substantially all of our outstanding derivative contracts as we determined that they were no longer effectively managing the risks associated with certain assets and liabilities.

Loan Purchase and Interest Rate Lock Commitments

LPCs and IRLCs that qualify as derivatives are recorded at their estimated fair values. For the three and nine months ended September 30, 2020, LPCs and IRLCs had net market valuation gains of $14 million and $35 million, respectively, that were recorded in Mortgage banking activities, net on our consolidated statements of income (loss). For the three and nine months ended September 30, 2019, LPCs and IRLCs had net market valuation gains of $14 million and $42 million, respectively, that were recorded in Mortgage banking activities, net on our consolidated statements of income (loss).

Derivatives Designated as Cash Flow Hedges

To manage the variability in interest expense related to portions of our long-term debt and certain adjustable-rate securitization entity liabilities that are included in our consolidated balance sheets for financial reporting purposes, we designated certain interest rate swaps as cash flow hedges.

During the first quarter of 2020, we terminated and settled all of our outstanding derivatives that had been designated as cash flow hedges for our long-term debt, with a payment of $84 million. For interest rate agreements previously designated as cash flow hedges, our total unrealized loss reported in Accumulated other comprehensive income was $82 million and $51 million at September 30, 2020 and December 31, 2019, respectively. We will amortize this loss into interest expense over the remaining term of the trust preferred securities and subordinated notes. As of September 30, 2020, we expect to amortize $4 million of realized losses related to terminated cash flow hedges into interest expense over the next twelve months.

For the three and nine months ended September 30, 2020, changes in the values of designated cash flow hedges were zero and negative $33 million, respectively, and were recorded in Accumulated other comprehensive income, a component of equity. For the three and nine months ended September 30, 2019, changes in the values of designated cash flow hedges were negative $12 million and negative $27 million, respectively, and were recorded in Accumulated other comprehensive income, a component of equity.

The following table illustrates the impact on interest expense of our interest rate agreements accounted for as cash flow hedges for the three and nine months ended September 30, 2020 and 2019.

Table 11.2 – Impact on Interest Expense of Interest Rate Agreements Accounted for as Cash Flow Hedges

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Net interest expense on cash flows hedges	$	—	$	(727)	$	(860)	$	(2,004)
Realized net losses reclassified from other comprehensive income	(1,040)		—		(2,148)		—
Total Interest Expense	$	(1,040)	$	(727)	$	(3,008)	$	(2,004)

Derivative Counterparty Credit Risk

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2019, we consider counterparty risk as part of our fair value assessments of all derivative financial instruments at each quarter-end. At September 30, 2020, we assessed this risk as remote and did not record a specific valuation adjustment.

At September 30, 2020, we were in compliance with our derivative counterparty ISDA agreements.

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Other Assets and Liabilities

9 Months Ended

Sep. 30, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Assets and Liabilities

Other Assets and Liabilities

Other assets at September 30, 2020 and December 31, 2019 are summarized in the following table.

Table 12.1 – Components of Other Assets

(In Thousands)	September 30, 2020		December 31, 2019
Accrued interest receivable	$	39,330	$	71,058
Investment receivable	25,767		23,330
Right-of-use asset	13,487		11,866
REO	8,535		9,462
Pledged collateral	8,172		32,945
Income tax receivables	8,148		36
FHLBC stock	5,000		43,393
Fixed assets and leasehold improvements (1)	4,408		4,901
Margin receivable	3,809		209,776
Other	7,617		12,554
Total Other Assets	$	124,273	$	419,321

(1)Fixed assets and leasehold improvements had a basis of $12 million and accumulated depreciation of $8 million at September 30, 2020.

Accrued expenses and other liabilities at September 30, 2020 and December 31, 2019 are summarized in the following table.

Table 12.2 – Components of Accrued Expenses and Other Liabilities

(In Thousands)	September 30, 2020		December 31, 2019
Accrued interest payable	$	34,225	$	60,655
Payable to minority partner	17,492		13,189
Accrued compensation	17,127		33,888
Lease liability	15,123		13,443
Deferred consideration	14,442		—
Guarantee obligations	11,264		14,009
Current accounts payable	8,717		5,468
Residential loan and MSR repurchase reserve	8,565		4,268
Residential bridge loan holdbacks	6,350		10,682
Deferred tax liabilities	5,152		5,152
Accrued operating expenses	3,922		4,358
Contingent consideration	—		28,484
Other	13,610		13,297
Total Accrued Expenses and Other Liabilities	$	155,989	$	206,893

Refer to our Annual Report on Form 10-K for the year ended December 31, 2019 for additional descriptions of our other assets and liabilities.

Margin Receivable and Payable

Margin receivable and payable resulted from margin calls between us and our counterparties under derivatives, master repurchase agreements, and warehouse facilities, whereby we or the counterparty posted collateral. Through September 30, 2020, we had met all margin calls due.

REO

The carrying value of REO at September 30, 2020 was $9 million, which included $3 million of REO from our residential bridge loan portfolio, $1 million from our consolidated Legacy Sequoia entities, $1 million from our consolidated Freddie Mac SLST entities, and $4 million from consolidated CAFL entities. At September 30, 2020, there were two residential bridge loan REO assets, three REO assets at our Legacy Sequoia entities, nine REO assets at our Freddie Mac SLST entities, and three REO assets at our CAFL entities recorded on our consolidated balance sheets. During the nine months ended September 30, 2020, transfers into REO included a $5 million residential bridge loan, $1 million from Legacy Sequoia entities, $1 million from Freddie Mac SLST entities, and $6 million from CAFL entities. During the nine months ended September 30, 2020, there were REO liquidations of $13 million, resulting in $0.3 million of unrealized losses which were recorded in Investment fair value changes, net, on our consolidated statements of income (loss). At December 31, 2019, there were four residential bridge loan REO assets, four REO assets at our Legacy Sequoia entities, three REO assets at our Freddie Mac SLST entities, and two REO assets at our CAFL entities recorded on our consolidated balance sheets.

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Short-Term Debt

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Short-Term Debt

Short-Term Debt

We enter into repurchase agreements, bank warehouse agreements, and other forms of collateralized (and generally uncommitted) short-term borrowings with several banks and investment banking firms. At September 30, 2020, we had outstanding agreements with several counterparties and we were in compliance with all of the related covenants.

The table below summarizes our short-term debt, including the facilities that are available to us, the outstanding balances, the weighted average interest rate, and the maturity information at September 30, 2020 and December 31, 2019.

Table 13.1 – Short-Term Debt

	September 30, 2020
(Dollars in Thousands)	Number of Facilities	Outstanding Balance		Limit		Weighted Average Interest Rate		Maturity	Weighted Average Days Until Maturity
Facilities
Residential loan warehouse (1)	4	$	81,898	$	600,000	2.90	%	10/2020-8/2021	203
Business purpose residential loan warehouse (2)	2	96,811		500,000		3.28	%	6/2021-5/2022	437
Real estate securities repo (1)	3	75,054		—		2.87	%	10/2020-12/2020	38
Total Short-Term Debt Facilities	9	253,763
Servicer advance financing	1	228,998		400,000		1.96	%	11/2020	61
Total Short-Term Debt		$	482,761

	December 31, 2019
(Dollars in Thousands)	Number of Facilities	Outstanding Balance		Limit		Weighted Average Interest Rate		Maturity	Weighted Average Days Until Maturity
Facilities
Residential loan warehouse (1)	4	$	185,894	$	1,425,000	3.23	%	1/2020-10/2020	69
Business purpose residential loan warehouse (2)	8	814,118		1,475,000		4.11	%	12/2020-5/2022	489
Real estate securities repo (1)	10	1,176,579		—		2.94	%	1/2020-3/2020	23
Total Short-Term Debt Facilities	22	2,176,591
Servicer advance financing	1	152,554		400,000		3.56	%	11/2020	335
Total Short-Term Debt		$	2,329,145

(1)Borrowings under our facilities are generally charged interest based on a specified margin over the one-month LIBOR interest rate. At September 30, 2020 and December 31, 2019, all of these borrowings were under uncommitted facilities and were due within 364 days (or less) of the borrowing date.

(2)Due to the revolving nature of the borrowings under these facilities, we have classified these facilities as short-term debt at September 30, 2020. Borrowings under these facilities will be repaid as the underlying loans mature or are sold to third parties or transferred to securitizations.

The following table below presents the value of loans, securities, and other assets pledged as collateral under our short-term debt facilities at September 30, 2020 and December 31, 2019.

Table 13.2 – Collateral for Short-Term Debt Facilities

(In Thousands)	September 30, 2020		December 31, 2019
Collateral Type
Held-for-sale residential loans	$	95,023	$	201,949
Business purpose residential loans	110,505		988,179
Real estate securities
On balance sheet	24,670		618,881
Sequoia Choice securitizations (1)	63,088		111,341
Freddie Mac SLST securitizations (1)	—		381,640
Freddie Mac K-Series securitizations (1)	26,550		252,284
CAFL securitizations (1)	—		127,840
Total real estate securities owned	114,308		1,491,986
Other assets	—		16,252
Total Collateral for Short-Term Debt Facilities	$	319,836	$	2,698,366

(1)Represents securities we have retained from consolidated securitization entities. For GAAP purposes, we consolidate the loans and non-recourse ABS debt issued from these securitizations.

For the three and nine months ended September 30, 2020, the average balances of our short-term debt facilities were $313 million and $1.42 billion, respectively. At September 30, 2020 and December 31, 2019, accrued interest payable on our short-term debt facilities was $1 million and $6 million, respectively.

Servicer advance financing consists of non-recourse short-term securitization debt used to finance servicer advance investments. We consolidate the securitization entity that issued the debt, but the entity is independent of Redwood and the assets and liabilities are not owned by and are not legal obligations of Redwood. At September 30, 2020, the fair value of servicer advances, cash and restricted cash collateralizing the securitization financing was $270 million. At September 30, 2020, the accrued interest payable balance on this financing was $0.1 million and the unamortized capitalized commitment costs were $0.2 million.

We also maintain a $10 million committed line of credit with a financial institution that is secured by certain mortgage-backed securities with a fair market value of $3 million at September 30, 2020. At both September 30, 2020 and December 31, 2019, we had no outstanding borrowings on this facility.

Remaining Maturities of Short-Term Debt

The following table presents the remaining maturities of our secured short-term debt by the type of collateral securing the debt as well as our convertible notes at September 30, 2020.

Table 13.3 – Short-Term Debt by Collateral Type and Remaining Maturities

	September 30, 2020
(In Thousands)	Within 30 days		31 to 90 days		Over 90 days		Total
Collateral Type
Held-for-sale residential loans	$	1,217	$	—	$	80,681	$	81,898
Business purpose residential loans	—		—		96,811		96,811
Real estate securities	37,217		37,837		—		75,054
Total Secured Short-Term Debt	38,434		37,837		177,492		253,763
Servicer advance financing	—		228,998		—		228,998
Total Short-Term Debt	$	38,434	$	266,835	$	177,492	$	482,761

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Asset-Backed Securities Issued

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Asset-Backed Securities Issued

Asset-Backed Securities Issued

The carrying values of ABS issued by our consolidated securitization entities at September 30, 2020 and December 31, 2019, along with other selected information, are summarized in the following table.

Table 14.1 – Asset-Backed Securities Issued

September 30, 2020	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST (1)		Freddie Mac K-Series			CAFL		Total
(Dollars in Thousands)
Certificates with principal balance	$	347,985	$	1,571,714	$	1,925,144	$	418,212		$	2,528,974	$	6,792,029
Interest-only certificates	1,268		6,805		24,053		13,122			137,064		182,312
Market valuation adjustments	(56,769)		48,045		95,138		33,531			78,112		198,057
ABS Issued, Net	$	292,484	$	1,626,564	$	2,044,335	$	464,865		$	2,744,150	$	7,172,398
Range of weighted average interest rates, by series	0.35% to 1.96%		2.23% to 5.02%		3.50% to 4.75%		3.39		%	3.18% to 5.53%
Stated maturities	2024 - 2036		2047 - 2050		2028 - 2059		2025			2022 - 2048
Number of series	20		10		3		1			13

December 31, 2019	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST			Freddie Mac K-Series		CAFL		Total
(Dollars in Thousands)
Certificates with principal balance	$	420,056	$	1,979,719	$	1,842,682		$	3,844,789	$	1,875,007	$	9,962,253
Interest-only certificates	1,282		16,514		30,291			217,891		90,134		356,112
Market valuation adjustments	(18,873)		40,965		45,349			93,559		36,110		197,110
ABS Issued, Net	$	402,465	$	2,037,198	$	1,918,322		$	4,156,239	$	2,001,251	$	10,515,475
Range of weighted average interest rates, by series	1.94% to 3.26%		4.40% to 5.05%		3.50		%	3.35% to 4.35%		3.25% to 5.36%
Stated maturities	2024 - 2036		2047 - 2049		2028 - 2029			2025 - 2049		2022 - 2048
Number of series	20		9		2			5		10

(1)Includes $208 million (principal balance) of ABS issued by a re-securitization trust sponsored by Redwood and accounted for at amortized cost.

During the third quarter of 2020, we transferred all of the subordinate securities we owned from two consolidated re-performing loan securitization VIEs sponsored by Freddie Mac SLST to a re-securitization trust, which we determined was a VIE and for which we determined we are the primary beneficiary. At issuance, we sold $210 million (principal balance) of ABS issued to third parties and retained 100% of the remaining beneficial ownership interest in the trust through ownership of a subordinate security issued by the trust. The ABS was issued at a discount and we have elected to account for the ABS issued at amortized cost. At September 30, 2020, the carrying value of the ABS issued was $203 million and the debt discount was $5 million. The stated coupon of the ABS issued was 4.75% at issuance and the final stated maturity occurs in July 2059. The ABS issued is subject to optional redemption and interest rate step-ups prior to the stated maturity according to the terms of the respective governing agreements.

The actual maturity of each class of ABS issued is primarily determined by the rate of principal prepayments on the assets of the issuing entity. Each series is also subject to redemption prior to the stated maturity according to the terms of the respective governing documents of each ABS issuing entity. As a result, the actual maturity of ABS issued may occur earlier than its stated maturity. At September 30, 2020, the majority of the ABS issued and outstanding had contractual maturities beyond five years. See Note 4 for detail on the carrying value components of the collateral for ABS issued and outstanding. The following table summarizes the accrued interest payable on ABS issued at September 30, 2020 and December 31, 2019. Interest due on consolidated ABS issued is payable monthly.

Table 14.2 – Accrued Interest Payable on Asset-Backed Securities Issued

(In Thousands)	September 30, 2020		December 31, 2019
Legacy Sequoia	$	180	$	395
Sequoia Choice	5,652		7,732
Freddie Mac SLST (1)	5,831		5,374
Freddie Mac K-Series	1,182		12,887
CAFL	9,180		7,298
Total Accrued Interest Payable on ABS Issued	$	22,025	$	33,686

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Long-Term Debt

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Long-Term Debt

Long-Term DebtRefer to our Annual Report on Form 10-K for the year ended December 31, 2019 for a full description of our long-term debt.

FHLBC Borrowings

At September 30, 2020, $1 million of advances were outstanding under our FHLBC borrowing agreement, with a weighted average interest rate of 0.35%. These borrowings mature in 2026. At December 31, 2019, $2.00 billion of advances were outstanding under this agreement, which were classified as long-term debt, with a weighted average interest rate of 1.88% and a weighted average maturity of six years. During the three and nine months ended September 30, 2020, we repaid zero and $2.00 billion, respectively, of our FHLBC borrowings. At September 30, 2020, total advances under this agreement were secured by $1 million of restricted cash. We do not expect to increase borrowings under our FHLBC borrowing agreement above the existing $1 million of advances outstanding. This agreement also requires our subsidiary to purchase and hold stock in the FHLBC in an amount equal to a specified percentage of outstanding advances. At September 30, 2020, our subsidiary held $5 million of FHLBC stock that is included in Other assets in our consolidated balance sheets.

Recourse Subordinate Securities Financing Facilities

In 2019, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable (e.g., not subject to margin calls based on the market value of the underlying collateral) recourse debt financing of certain Sequoia securities as well as securities retained from our consolidated Sequoia Choice securitizations. The financing is fully and unconditionally guaranteed by Redwood, with an interest rate of approximately 4.21% through September 2022. The financing facility may be terminated, at our option, in September 2022, and has a final maturity in September 2024, provided that the interest rate on amounts outstanding under the facility increases between October 2022 and September 2024. At September 30, 2020, we had borrowings under this facility totaling $180 million and $1 million of unamortized deferred issuance costs, for a net carrying value of $179 million. At September 30, 2020, the fair value of real estate securities pledged as collateral under this long-term debt facility was $232 million and included Sequoia securities and securities retained from our Sequoia Choice securitizations.

In the first quarter of 2020, a subsidiary of Redwood entered into a second repurchase agreement with similar terms to provide non-marginable recourse debt financing of certain securities retained from our consolidated CAFL securitizations. The financing is fully and unconditionally guaranteed by Redwood, with an interest rate of approximately 4.21% through February 2023. The financing facility may be terminated, at our option, in February 2023, and has a final maturity in February 2025, provided that the interest rate on amounts outstanding under the facility increases between March 2023 and February 2025. At September 30, 2020, we had borrowings under this facility totaling $103 million and $1 million of unamortized deferred issuance costs, for a net carrying value of $102 million. At September 30, 2020, the fair value of real estate securities pledged as collateral under this long-term debt facility was $112 million and included securities retained from our consolidated CAFL securitizations.

Non-Recourse Business Purpose Loan Financing Facilities

In the third quarter of 2020, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable, non-recourse financing primarily for business purpose bridge loans. Borrowings under this facility accrue interest at a per annum rate equal to one-month LIBOR plus 3.85% (with a 0.50% LIBOR floor), through July 2022. We do not have the ability to increase borrowings under this borrowing facility above the existing amounts outstanding. At September 30, 2020, we had borrowings under this facility totaling $158 million and $1 million of unamortized deferred issuance costs, for a net carrying value of $157 million. At September 30, 2020, $216 million of bridge loans were pledged as collateral under this facility.

In the second quarter of 2020, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable, non-recourse financing primarily for business purpose bridge loans. Borrowings under this facility accrue interest at a per annum rate equal to one-month LIBOR plus 7.50% (with a 1.50% LIBOR floor), through June 2022 (facility is fully callable in June 2021). This facility has an aggregate maximum borrowing capacity of $530 million, which consists of a term facility of $355 million and a revolving facility of $175 million. The revolving period ends in June 2021, and amounts borrowed under the term and revolving facilities are due in full in June 2022. At September 30, 2020, we had borrowings under this facility totaling $302 million and $4 million of unamortized deferred issuance costs, for a net carrying value of $298 million. At September 30, 2020, $369 million of bridge loans and $25 million of other BPL investments were pledged as collateral under this facility.

Recourse Business Purpose Loan Financing Facilities

In the third quarter of 2020, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable financing for business purpose bridge loans and single-family rental loans. Borrowings under this facility accrue interest at a per annum rate equal to three-month LIBOR plus 3.00% through September 2023 and are recourse to Redwood. This facility has an aggregate maximum borrowing capacity of $250 million. At September 30, 2020, we had no borrowings outstanding under this facility.

In the second quarter of 2020, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable financing for business purpose bridge loans and single-family rental loans. Borrowings under this facility accrue interest at a per annum rate equal to three-month LIBOR plus 3.50% to 4.00% (with a 1.00% LIBOR floor) through May 2022 and are recourse to Redwood. This facility has an aggregate maximum borrowing capacity of $350 million. At September 30, 2020, we had borrowings under this facility totaling $150 million and $1 million of unamortized deferred issuance costs, for a net carrying value of $150 million. At September 30, 2020, $18 million of bridge loans and $194 million of single-family rental loans were pledged as collateral under this facility.

Recourse Revolving Debt Facility

In the first quarter of 2020, a subsidiary of Redwood entered into a secured revolving debt facility agreement collateralized by MSRs and certificated mortgage servicing rights. Borrowings under this facility accrue interest at a per annum rate equal to one-month LIBOR plus 2.75% through January 2021, with an increase in rate between February 2021 and the maturity of the facility in January 2022. This facility has an aggregate maximum borrowing capacity of $50 million. We had no borrowings outstanding under this facility at September 30, 2020. At September 30, 2020, $33 million of MSRs and certificated servicing rights were pledged as collateral under this facility.

Convertible Notes

At September 30, 2020, we had $172 million principal amount outstanding of 5.75% exchangeable senior notes due 2025. During the second quarter of 2020, we repurchased $29 million par value of these notes at a discount and recorded a gain on extinguishment of $6 million in Realized gains, net on our consolidated statements of income (loss). At September 30, 2020, the accrued interest payable balance on this debt was $5 million and the unamortized deferred issuance costs were $4 million.

At September 30, 2020, we had $150 million principal amount outstanding of 5.625% convertible senior notes due 2024. During the second quarter of 2020, we repurchased $50 million par value of these notes at a discount and recorded a gain on extinguishment of $9 million in Realized gains, net on our consolidated statements of income (loss). At September 30, 2020, the accrued interest payable on this debt was $2 million, the unamortized deferred issuance costs were $2 million, and the debt discount was $1 million.

At September 30, 2020, we had $199 million principal amount outstanding of 4.75% convertible senior notes due 2023. During the second quarter of 2020, we repurchased $46 million par value of these notes at a discount and recorded a gain on extinguishment of $10 million in Realized gains, net on our consolidated statements of income (loss). At September 30, 2020, the accrued interest payable balance on this debt was $1 million and the unamortized deferred issuance costs were $3 million.

Trust Preferred Securities and Subordinated Notes

At September 30, 2020, we had trust preferred securities and subordinated notes outstanding of $100 million and $40 million, respectively. At both September 30, 2020 and December 31, 2019, the accrued interest payable balance on our trust preferred securities and subordinated notes was $1 million.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Lease Commitments

At September 30, 2020, we were obligated under seven non-cancelable operating leases with expiration dates through 2031 for $18 million of cumulative lease payments. Our operating lease expense was $3 million and $2 million for the nine months ended September 30, 2020 and 2019, respectively.

The following table presents our future lease commitments at September 30, 2020.

Table 16.1 – Future Lease Commitments by Year

(In Thousands)	September 30, 2020
2020 (3 months)	$	930
2021	2,949
2022	2,427
2023	1,913
2024	1,917
2025	8,039
Total Lease Commitments	18,175
Less: Imputed interest	(3,052)
Lease Liability	$	15,123

During the nine months ended September 30, 2020, we entered into three office leases and determined that each of these leases qualified as operating leases. At September 30, 2020, our lease liability was $15 million, which was a component of Accrued expenses and other liabilities, and our right-of-use asset was $13 million, which was a component of Other assets.

We determined that none of our leases contained an implicit interest rate and used a discount rate equal to our incremental borrowing rate on a collateralized basis to determine the present value of our total lease payments. As such, we determined the applicable discount rate for each of our leases using a swap rate plus an applicable spread for borrowing arrangements secured by our real estate loans and securities for a length of time equal to the remaining lease term on the date of adoption. At September 30, 2020, the weighted-average remaining lease term and weighted-average discount rate for our leases was 7 years and 5.0%, respectively.

Commitment to Fund Residential Bridge Loans

As of September 30, 2020, we had commitments to fund up to $225 million of additional advances on existing residential bridge loans. These commitments are generally subject to loan agreements with covenants regarding the financial performance of the customer and other terms regarding advances that must be met before we fund the commitment. At September 30, 2020, we recorded a $1 million derivative liability related to these commitments to fund construction advances (see Note 7 for additional detail). We may also advance funds related to loans sold under a separate loan sale agreement that are generally repaid immediately by the loan purchaser and do not generally expose us to loss. The outstanding commitments related to these loans that we may temporarily fund totaled approximately $15 million at September 30, 2020.

Commitment to Fund Partnerships

In the fourth quarter of 2018, we invested in two partnerships created to acquire and manage certain mortgage servicing related assets (see Note 10 for additional detail). In connection with this investment, we are required to fund future net servicer advances related to the underlying mortgage loans. The actual amount of net servicer advances we may fund in the future is subject to significant uncertainty and will be based on the credit and prepayment performance of the underlying loans.

5 Arches Contingent Consideration

As part of the consideration for our acquisition of 5 Arches, we were committed to make earn-out payments up to $29 million, payable in a mix of cash and Redwood common stock. These contingent earn-out payments were classified as a contingent consideration liability and carried at fair value prior to March 31, 2020. During the first quarter of 2020, we made a cash payment of $11 million and granted $3 million of Redwood common stock in connection with the first anniversary of the purchase date. Additionally, as a result of an amendment to the agreement, we reclassified the contingent liability to a deferred liability, as the remaining payments became payable on a set timetable without any remaining contingencies. At September 30, 2020, the balance of this liability was $14 million, which will be paid in a mix of cash and common stock in March 2021.

Commitment to Fund Shared Home Appreciation Options

In the third quarter of 2019, we entered into a flow purchase agreement to acquire shared home appreciation options. The counterparty purchases an option to buy a fractional interest in a homeowner's ownership interest in residential property, and subsequently the counterparty sells the option contract to us. Pursuant to the terms of the option contract, we share in both home price appreciation and depreciation. At September 30, 2020, we had acquired $47 million of shared home appreciation options under this agreement, which are included in Other investments on our consolidated balance sheets. At September 30, 2020, we had an outstanding commitment to fund up to an additional $3 million under this agreement.

Loss Contingencies — Risk-Sharing

During 2015 and 2016, we sold conforming loans to the Agencies with an original unpaid principal balance of $3.19 billion, subject to our risk-sharing arrangements with the Agencies. At September 30, 2020, the maximum potential amount of future payments we could be required to make under these arrangements was $44 million and this amount was fully collateralized by assets we transferred to pledged accounts and is presented as pledged collateral in Other assets on our consolidated balance sheets. We have no recourse to any third parties that would allow us to recover any amounts related to our obligations under the arrangements. At September 30, 2020, we had not incurred any losses under these arrangements. For the three and nine months ended September 30, 2020, other income related to these arrangements was $1 million and $3 million, respectively, and net market valuation losses related to these investments were $0.3 million and $0.9 million, respectively. For the three and nine months ended September 30, 2019, other income related to these arrangements was $1 million and $2 million, respectively, and net market valuation losses related to these investments were $0.1 million and $0.2 million, respectively.

All of the loans in the reference pools subject to these risk-sharing arrangements were originated in 2014 and 2015, and at September 30, 2020, the loans had an unpaid principal balance of $1.12 billion and a weighted average FICO score of 758 (at origination) and LTV ratio of 75% (at origination). At September 30, 2020, $42 million of the loans were 90 days or more delinquent, and none of these loans were in foreclosure. At September 30, 2020, the carrying value of our guarantee obligation was $11 million and included $5 million designated as a non-amortizing credit reserve, which we believe is sufficient to cover current expected losses under these obligations.

Our consolidated balance sheets include assets of special purpose entities ("SPEs") associated with these risk-sharing arrangements (i.e., the "pledged collateral" referred to above) that can only be used to settle obligations of these SPEs for which the creditors of these SPEs (the Agencies) do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of such SPEs totaled $47 million and $48 million, respectively, and liabilities of such SPEs totaled $11 million and $14 million, respectively.

Loss Contingencies — Residential Repurchase Reserve

We maintain a repurchase reserve for potential obligations arising from representation and warranty violations related to residential loans we have sold to securitization trusts or third parties and for conforming residential loans associated with MSRs that we have purchased from third parties. We do not originate residential loans and we believe the initial risk of loss due to loan repurchases (i.e., due to a breach of representations and warranties) would generally be a contingency to the companies from whom we acquired the loans. However, in some cases, for example, where loans were acquired from companies that have since become insolvent, repurchase claims may result in our being liable for a repurchase obligation. Additionally, for certain loans we sold during the second quarter of 2020 that were previously held for investment, we have a direct obligation to repurchase these loans in the event of any early payment defaults (or EPDs) by the underlying mortgage borrowers within certain specified periods following the sales.

At September 30, 2020 and December 31, 2019, our repurchase reserve associated with our residential loans and MSRs was $9 million and $4 million, respectively, and was recorded in Accrued expenses and other liabilities on our consolidated balance sheets.

We received eight and ten repurchase requests during the nine months ended September 30, 2020 and 2019, respectively, and did not repurchase any loans during either of these periods. During the nine months ended September 30, 2020 and 2019, we recorded repurchase provisions of $4 million and reversals of repurchase provisions of $0.2 million, respectively, that were recorded in Mortgage banking activities, net; Investment fair value changes, net; and Other income on our consolidated statements of income (loss).

Loss Contingencies — Litigation, Claims and Demands

There is no significant update regarding the litigation matters described in Note 16 within the financial statements included in Redwood’s Annual Report on Form 10-K for the year ended December 31, 2019 under the heading “Loss Contingencies - Litigation.” At September 30, 2020, the aggregate amount of loss contingency reserves established in respect of the FHLB-Seattle and Schwab litigation matters described in our Annual Report on Form 10-K for the year ended December 31, 2019 was $2 million.

In addition to those matters, as previously disclosed, in connection with the impact of the effects of the pandemic on the non-Agency mortgage finance market and on our business and operations, a number of the counterparties that have regularly sold residential mortgage loans to us believe that we breached perceived obligations to them, and requested or demanded that we purchase loans from them and/or compensate them for perceived damages resulting from our decisions earlier in 2020 not to purchase certain loans from them (“Residential Loan Seller Demands”).

We believe that these Residential Loan Seller Demands are without merit or subject to defenses and we intend to defend vigorously any such allegations and any related demand or claim to which we are or become a party. Despite our beliefs about the legal merits of these allegations, because our ordinary course of business is to seek to continue to regularly engage in mutually beneficial transactions with these counterparties, in some cases we have been willing to engage in discussions with these counterparties with the intention of reaching resolution, including through structuring arrangements that incentivize both the counterparty and us to continue to engage in residential loan purchase and sale transactions in the future.

With respect to certain of the Residential Loan Seller Demands, these resolution discussions have been successful in resolving, or establishing a framework that we believe will be the basis for successfully resolving, the demands of these counterparties, including through forward-looking joint business undertakings and structured arrangements that incentivize both the counterparty and us to continue to engage in residential loan purchase and sale transactions in the future. With respect to these counterparties, we have incurred or expect to incur certain costs in connection with finalizing these arrangements (including costs that are contingent on the successful completion of future residential loan purchase and sale transactions with these counterparties that we expect to generate future revenue for the Company) and have recorded any such actual costs incurred through September 30, 2020, as well as an accrual for the estimated costs associated with counterparties where a resolution or go-forward framework has been agreed to or has been discussed but not finalized, a portion of which was recorded through Other expense and a portion of which was recorded through Mortgage banking activities, net on our consolidated income statement. In accordance with GAAP, the accrual for estimated costs is based on the opinion of management, that it is probable that these resolutions and forward-looking joint business undertakings and structured arrangements will result in an expense and the amount of expense can be reasonably estimated. In addition, as previously disclosed, one such counterparty filed a breach of contract lawsuit against us in May 2020 alleging that it had suffered in excess of $2 million of losses as a result of our alleged failure to purchase residential mortgage loans from it; and in October 2020 we and the plaintiff agreed to settle the lawsuit on mutually satisfactory terms.

During the three and nine months ended September 30, 2020, we recorded $4 million and $9 million of expenses, respectively, in association with Residential Loan Seller Demands. At September 30, 2020, the aggregate amount of our accrual for estimated costs associated with Residential Loan Seller Demands was $6.5 million, a portion of which would be contingent on the successful completion of future residential loan purchase and sale transactions with certain counterparties, with the expectation of generating future revenue for the Company.

With respect to Residential Loan Seller Demands that have not been resolved or been accrued for, our beliefs about the legal merits of these allegations and our discussions with these counterparties have resulted in us determining that a significant loss from these matters is not probable. With respect to these remaining Residential Loan Seller Demands, based on the foregoing, we have concluded that we can estimate an aggregate range of reasonably possible losses with respect to these Residential Loan Seller Demands of between zero and $1.5 million.

Future developments (including receipt of additional information and documents relating to these matters, new or additional resolution or settlement communications relating to these matters, resolutions of similar claims against other industry participants in similar circumstances, or receipt of additional Residential Loan Seller Demands) could result in our concluding in the future to establish additional accruals or reserves or modify our aggregate range of reasonably possible losses with respect to these Residential Loan Seller Demand matters. Our actual losses, and any accruals or reserves we may establish in the future relating to these matters, may be materially higher than the accruals, reserves and the aggregate range of reasonably possible losses we have estimated above, respectively, including in the event that any of these matters proceed to trial and result in a judgment against us. We cannot be certain that any of these matters that are not already formally resolved will be resolved through a resolution or settlement and we cannot be certain that the resolution of these matters, whether through litigation, settlement, or otherwise, will not have a material adverse effect on our financial condition or results of operations in any future period.

In accordance with GAAP, we review the need for any loss contingency reserves and establish reserves when, in the opinion of management, it is probable that a matter would result in a liability and the amount of loss, if any, can be reasonably estimated. Additionally, we record receivables for insurance recoveries relating to litigation-related losses and expenses if and when such amounts are covered by insurance and recovery of such losses or expenses are due. We review our litigation matters each quarter to assess these loss contingency reserves and make adjustments in these reserves, upwards or downwards, as appropriate, in accordance with GAAP based on our review.

In the ordinary course of any litigation matter, including certain of the above-referenced matters, we have engaged and may continue to engage in formal or informal settlement communications with the plaintiffs or co-defendants. Settlement communications we have engaged in relating to certain of the above-referenced litigation matters are one of the factors that have resulted in our determination to establish the loss contingency reserves described above. We cannot be certain that any of these matters will be resolved through a settlement prior to litigation and we cannot be certain that the resolution of these matters, whether through trial or settlement, will not have a material adverse effect on our financial condition or results of operations in any future period.

Future developments (including resolution of substantive pre-trial motions relating to these matters, receipt of additional information and documents relating to these matters (such as through pre-trial discovery), new or additional settlement communications with plaintiffs relating to these matters, or resolutions of similar claims against other defendants in these matters) could result in our concluding in the future to establish additional loss contingency reserves or to disclose an estimate of reasonably possible losses in excess of our established reserves with respect to these matters. Our actual losses with respect to the above referenced litigation matters may be materially higher than the aggregate amount of loss contingency reserves we have established in respect of these litigation matters, including in the event that any of these matters proceeds to trial and the plaintiff prevails. Other factors that could result in our concluding to establish additional loss contingency reserves or estimate additional reasonably possible losses, or could result in our actual losses with respect to the above-referenced litigation matters being materially higher than the aggregate amount of loss contingency reserves we have established in respect of these litigation matters include that: there are significant factual and legal issues to be resolved; information obtained or rulings made during the lawsuits could affect the methodology for calculation of the available remedies; and we may have additional obligations pursuant to indemnity agreements, representations and warranties, and other contractual provisions with other parties relating to these litigation matters that could increase our potential losses.

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Equity

9 Months Ended

Sep. 30, 2020

Equity [Abstract]

Equity

Equity

The following table provides a summary of changes to accumulated other comprehensive income by component for the three and nine months ended September 30, 2020 and 2019. During the three and nine months ended September 30, 2020, we recognized net unrealized gains (losses) on our Level 3 AFS securities which we owned as of September 30, 2020 of $8 million and negative $16 million, respectively.

Table 17.1 – Changes in Accumulated Other Comprehensive Income by Component

	Three Months Ended September 30, 2020				Three Months Ended September 30, 2019
(In Thousands)	Available-for-Sale Securities		Interest Rate Agreements Accounted for as Cash Flow Hedges		Available-for-Sale Securities		Interest Rate Agreements Accounted for as Cash Flow Hedges
Balance at beginning of period	$	53,246	$	(82,637)	$	98,307	$	(49,384)
Other comprehensive income (loss) before reclassifications	8,236		—		4,484		(11,791)
Amounts reclassified from other accumulated comprehensive income	(445)		1,040		(3,492)		—
Net current-period other comprehensive income (loss)	7,791		1,040		992		(11,791)
Balance at End of Period	$	61,037	$	(81,597)	$	99,299	$	(61,175)

	Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
(In Thousands)	Available-for-Sale Securities		Interest Rate Agreements Accounted for as Cash Flow Hedges		Available-for-Sale Securities		Interest Rate Agreements Accounted for as Cash Flow Hedges
Balance at beginning of period	$	92,452	$	(50,939)	$	95,342	$	(34,045)
Other comprehensive income (loss) before reclassifications	(19,890)		(32,806)		19,764		(27,130)
Amounts reclassified from other accumulated comprehensive income	(11,525)		2,148		(15,807)		—
Net current-period other comprehensive income (loss)	(31,415)		(30,658)		3,957		(27,130)
Balance at End of Period	$	61,037	$	(81,597)	$	99,299	$	(61,175)

The following table provides a summary of reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2020 and 2019.

Table 17.2 – Reclassifications Out of Accumulated Other Comprehensive Income

		Amount Reclassified From Accumulated Other Comprehensive Income
	Affected Line Item in the	Three Months Ended September 30,
(In Thousands)	Income Statement	2020		2019
Net Realized (Gain) Loss on AFS Securities
Credit loss recovery on AFS securities	Investment fair value changes, net	$	(444)	$	—
Gain on sale of AFS securities	Realized gains, net	—		(3,492)
		$	(444)	$	(3,492)
Net Realized Loss on Interest Rate Agreements Designated as Cash Flow Hedges
Amortization of deferred loss	Interest expense	$	1,040	$	—
		$	1,040	$	—

		Amount Reclassified From Accumulated Other Comprehensive Income
	Affected Line Item in the	Nine Months Ended September 30,
(In Thousands)	Income Statement	2020		2019
Net Realized (Gain) Loss on AFS Securities
Credit loss expense on AFS securities	Investment fair value changes, net	$	1,027	$	—
Gain on sale of AFS securities	Realized gains, net	(12,552)		(15,807)
		$	(11,525)	$	(15,807)
Net Realized Loss on Interest Rate Agreements Designated as Cash Flow Hedges
Amortization of deferred loss	Interest expense	$	2,148	$	—
		$	2,148	$	—

Issuance of Common Stock

In 2018, we established a program to sell up to an aggregate of $150 million of common stock from time to time in at-the-market ("ATM") offerings. In March 2020, we increased the maximum aggregate amount of common stock offered under the ATM program to $175 million. During the nine months ended September 30, 2020, we issued 129,500 common shares for net proceeds of approximately $2 million through ATM offerings. At September 30, 2020, approximately $110 million remained outstanding for future offerings under this program.

Direct Stock Purchase and Dividend Reinvestment Plan

During the nine months ended September 30, 2020, we did not issue any shares of common stock through our Direct Stock Purchase and Dividend Reinvestment Plan. During the nine months ended September 30, 2019, we issued 399,838 shares of common stock through our Direct Stock Purchase and Dividend Reinvestment Plan, resulting in net proceeds of approximately $6 million.

Earnings (Loss) per Common Share

The following table provides the basic and diluted earnings (loss) per common share computations for the three and nine months ended September 30, 2020 and 2019.

Table 17.3 – Basic and Diluted Earnings (Loss) per Common Share

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands, except Share Data)	2020		2019		2020		2019
Basic Earnings (Loss) per Common Share:
Net income (loss) attributable to Redwood	$	141,812	$	34,310	$	(636,142)	$	120,040
Less: Dividends and undistributed earnings allocated to participating securities	(4,067)		(856)		(1,427)		(3,260)
Net income (loss) allocated to common shareholders	$	137,745	$	33,454	$	(637,569)	$	116,780
Basic weighted average common shares outstanding	113,403,102		101,872,126		113,952,308		97,214,064
Basic Earnings (Loss) per Common Share	$	1.21	$	0.33	$	(5.60)	$	1.20
Diluted Earnings (Loss) per Common Share:
Net income (loss) attributable to Redwood	$	141,812	$	34,310	$	(636,142)	$	120,040
Less: Dividends and undistributed earnings allocated to participating securities	(3,512)		(1,036)		(1,427)		(3,625)
Adjust for interest expense and gain on extinguishment of convertible notes for the period, net of tax	6,990		8,887		—		26,271
Net income (loss) allocated to common shareholders	$	145,290	$	42,161	$	(637,569)	$	142,686
Weighted average common shares outstanding	113,403,102		101,872,126		113,952,308		97,214,064
Net effect of dilutive equity awards	—		362,743		—		261,155
Net effect of assumed convertible notes conversion to common shares	28,566,875		34,287,840		—		33,727,470
Diluted weighted average common shares outstanding	141,969,977		136,522,709		113,952,308		131,202,689
Diluted Earnings (Loss) per Common Share	$	1.02	$	0.31	$	(5.60)	$	1.09

We included participating securities, which are certain equity awards that have non-forfeitable dividend participation rights, in the calculations of basic and diluted earnings per common share as we determined that the two-class method was more dilutive than the alternative treasury stock method for these shares. Dividends and undistributed earnings allocated to participating securities under the basic and diluted earnings per share calculations require specific shares to be included that may differ in certain circumstances.

During the three months ended September 30, 2020 and the three and nine months ended September 30, 2019, certain of our convertible notes were determined to be dilutive and were included in the calculation of diluted EPS under the "if-converted" method. Under this method, the periodic interest expense and any realized gains or losses on extinguishment of debt (net of applicable taxes) for dilutive notes is added back to the numerator and the weighted average number of shares that the notes are entitled to (if converted, regardless of whether they are in or out of the money) are included in the denominator.

For the nine months ended September 30, 2020, 32,225,825 of common shares related to the assumed conversion of our convertible notes were antidilutive and were excluded in the calculation of diluted earnings per share. For the three and nine months ended September 30, 2020, the number of outstanding equity awards that were antidilutive totaled 13,560 and 15,457, respectively. For the three and nine months ended September 30, 2019, the number of outstanding equity awards that were antidilutive totaled 11,710 and 9,361, respectively.

Stock Repurchases

In February 2018, our Board of Directors approved an authorization for the repurchase of our common stock, increasing the total amount authorized for repurchases of common stock to $100 million, and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt. This authorization increased the previous share repurchase authorization approved in February 2016 and has no expiration date. This repurchase authorization does not obligate us to acquire any specific number of shares or securities. Under this authorization, shares or securities may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. During the three months ended September 30, 2020, we repurchased 3,047,335 shares of our common stock pursuant to this authorization for $22 million. At September 30, 2020, $78 million of the current authorization remained available for the repurchase of shares of our common stock and we also continued to be authorized to repurchase outstanding debt securities.

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Equity Compensation Plans

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Equity Compensation Plans

Equity Compensation Plans

At September 30, 2020 and December 31, 2019, 8,629,455 and 3,637,480 shares of common stock, respectively, were available for grant under our Incentive Plan. During the second quarter of 2020, Redwood shareholders approved for grant an additional 5 million shares of common stock under our Incentive Plan. The unamortized compensation cost of awards issued under the Incentive Plan and purchases under the Employee Stock Purchase Plan totaled $20 million at September 30, 2020, as shown in the following table.

Table 18.1 – Activities of Equity Compensation Costs by Award Type

	Nine Months Ended September 30, 2020
(In Thousands)	Restricted Stock Awards		Restricted Stock Units		Deferred Stock Units		Performance Stock Units		Employee Stock Purchase Plan		Total
Unrecognized compensation cost at beginning of period	$	1,990	$	3,534	$	17,858	$	8,946	$	—	$	32,328
Equity grants	108		3,581		6,780		—		160		10,629
Performance-based valuation adjustment	—		—		—		(7,352)		—		(7,352)
Equity grant forfeitures	(529)		(2,161)		(4,733)		(648)		—		(8,071)
Equity compensation expense	(807)		(1,067)		(6,268)		326		(80)		(7,896)
Unrecognized Compensation Cost at End of Period	$	762	$	3,887	$	13,637	$	1,272	$	80	$	19,638

At September 30, 2020, the weighted average amortization period remaining for all of our equity awards was one year.

Restricted Stock Awards ("RSAs")

At September 30, 2020 and December 31, 2019, there were 80,550 and 216,470 shares, respectively, of RSAs outstanding. Restrictions on these shares lapse through 2022. During the nine months ended September 30, 2020, there were no RSAs granted, restrictions on 101,063 RSAs lapsed and those shares were distributed, and 34,857 RSAs were forfeited.

Restricted Stock Units ("RSUs")

At September 30, 2020 and December 31, 2019, there were 294,986 and 275,173 shares, respectively, of RSUs outstanding. Restrictions on these shares lapse through 2024. During the nine months ended September 30, 2020, there were 205,482 RSUs granted, 55,514 RSUs distributed, and 130,155 RSUs forfeited.

Deferred Stock Units (“DSUs”)

At September 30, 2020 and December 31, 2019, there were 2,420,737 and 2,630,805 DSUs, respectively, outstanding of which 1,406,190 and 1,286,063, respectively, had vested. During the nine months ended September 30, 2020, there were 494,719 DSUs granted, 413,533 DSUs distributed, and 291,253 DSUs forfeited. Unvested DSUs at September 30, 2020 vest through 2024.

Performance Stock Units (“PSUs”)

At September 30, 2020 and December 31, 2019, the target number of PSUs that were unvested was 739,895 and 839,070, respectively. During the nine months ended September 30, 2020, 99,175 PSUs were forfeited. Vesting for all PSUs will generally occur at the end of three years from their grant date based on various Total Shareholder Return ("TSR") performance calculations, as discussed in our Annual Report on Form 10-K for the year ended December 31, 2019. During the first quarter of 2020, for PSUs granted in 2018 and 2019, we adjusted our vesting estimate to assume that none of these awards will meet the minimum performance thresholds for vesting. This adjustment resulted in a reversal of $1 million of stock-based compensation expense recorded in the first quarter of 2020.

Employee Stock Purchase Plan ("ESPP")

The ESPP allows a maximum of 600,000 shares of common stock to be purchased in aggregate for all employees. As of September 30, 2020 and December 31, 2019, 477,142 and 430,772 shares had been purchased, respectively, and there remained a negligible amount of uninvested employee contributions in the ESPP at September 30, 2020

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Mortgage Banking Activities, Net

9 Months Ended

Sep. 30, 2020

Mortgage Banking [Abstract]

Mortgage Banking Activities, Net

Mortgage Banking Activities, Net

The following table presents the components of Mortgage banking activities, net, recorded in our consolidated statements of income (loss) for the three and nine months ended September 30, 2020 and 2019.

Table 19.1 – Mortgage Banking Activities

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Residential Mortgage Banking Activities, Net
Changes in fair value of:
Residential loans, at fair value (1)	$	12,589	$	6,320	$	19,151	$	41,431
Risk management derivatives (2)	(10)		(1,710)		(31,304)		(11,608)
Other income (expense), net (3)	(715)		407		(7,069)		1,380
Total residential mortgage banking activities, net	11,864		5,017		(19,222)		31,203
Business Purpose Mortgage Banking Activities, Net:
Changes in fair value of:
Single-family rental loans, at fair value (1)	43,191		1,847		56,209		5,473
Risk management derivatives (2)	(89)		(1,262)		(21,627)		(3,779)
Residential bridge loans, at fair value	938		1,010		(4,256)		2,108
Other income, net (4)	3,491		2,903		13,407		5,979
Total business purpose mortgage banking activities, net	47,531		4,498		43,733		9,781
Mortgage Banking Activities, Net	$	59,395	$	9,515	$	24,511	$	40,984

(1)For residential loans, includes changes in fair value for associated loan purchase and forward sale commitments. For single-family rental loans, includes changes in fair value for associated interest rate lock commitments.

(2)Represents market valuation changes of derivatives that were used to manage risks associated with our accumulation of loans.

(3)Amounts in this line item include other fee income from loan acquisitions, provisions for repurchases expense, and expense related to resolving residential loan seller demands, presented net.

(4)Amounts in this line item include other fee income from loan originations.

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Other Income

9 Months Ended

Sep. 30, 2020

Other Income and Expenses [Abstract]

Other Income

Other Income

The following table presents the components of Other income recorded in our consolidated statements of income (loss) for the three and nine months ended September 30, 2020 and 2019.

Table 20.1 – Other Income

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
MSR (loss) income, net	$	(2,362)	$	431	$	(5,595)	$	2,342
Risk share income	1,200		905		3,146		2,351
FHLBC capital stock dividend	116		541		1,201		1,623
Equity investment income	341		560		615		732
5 Arches loan administration fee income	688		1,344		2,206		3,298
Gain on re-measurement of investment in 5 Arches	—		—		—		2,441
Other	(97)		575		2,406		1,053
Other (Loss) Income	$	(114)	$	4,356	$	3,979	$	13,840

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General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses

9 Months Ended

Sep. 30, 2020

Other Income and Expenses [Abstract]

General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses

General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses

Components of our general and administrative, and other expenses for the three and nine months ended September 30, 2020 and 2019 are presented in the following table.

Table 21.1 – Components of General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
General and Administrative Expenses
Fixed compensation expense	$	10,103	$	9,391	$	36,605	$	26,740
Variable compensation expense	5,882		3,489		9,171		11,356
Equity compensation expense	2,639		3,155		7,896		10,132
Acquisition-related equity compensation expense (1)	1,212		—		3,636		—
Systems and consulting	2,145		3,230		7,752		7,594
Office costs	1,859		1,517		5,854		4,406
Accounting and legal	1,601		1,767		6,605		3,852
Corporate costs	831		482		2,128		1,701
Other operating expenses	1,358		1,868		5,185		4,941
Total General and Administrative Expenses	27,630		24,899		84,832		70,722
Loan Acquisition Costs
Commissions	879		659		3,027		1,432
Underwriting costs	771		1,074		3,289		3,184
Transfer and holding costs	508		183		1,400		891
Total Loan Acquisition Costs	2,158		1,916		7,716		5,507
Other Expenses
Goodwill impairment expense	—		—		88,675		—
Amortization of purchase-related intangible assets	3,873		1,897		12,052		4,608
Contingent consideration expense (2)	135		236		581		547
Other	3,780		398		2,978		866
Total Other Expenses	7,788		2,531		104,286		6,021
Total General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses	$	37,576	$	29,346	$	196,834	$	82,250

(1)Acquisition-related equity compensation expense relates to 588,260 shares of restricted stock that were issued to members of CoreVest management as a component of the consideration paid to them for our purchase of their interests in CoreVest. The grant date fair value of these restricted stock awards was $10 million, which will be recognized as compensation expense over the two-year vesting period on a straight-line basis in accordance with GAAP.

(2)Contingent consideration expense relates to the acquisition of 5 Arches during 2019. Refer to Note 2 for additional detail.

Variable Compensation Expense

During the three months ended September 30, 2020, $8 million of cash-based retention awards were granted to certain executive and non-executive employees that will vest and be paid over the next three years, subject to continued employment through the vesting periods from 2021 through 2023. Additionally, during the three months ended September 30, 2020, Long-Term Relative TSR Performance Vesting Cash Awards ("Cash Performance Awards") with an aggregate granted award value of $2 million, were granted to certain executive and non-executive employees that will vest between 0% to 400% of granted award value based on a relative total stockholder return measure, and are contingent on continued employment over a three-year service period.

The value of the cash-based retention awards is being amortized into expense on a straight-line basis over each award's respective vesting period. The Cash Performance Awards are amortized on a straight-line basis over three years, however, are remeasured at fair value each quarter-end and the cumulative straight-line expense is trued-up in respect to their updated value. For both the three and nine months ended September 30, 2020, variable compensation expense included $3 million in aggregate, related to the cash-based retention awards and the Cash Performance awards.

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Taxes

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Taxes

Taxes

For the nine months ended September 30, 2020 and 2019, we recognized a benefit for income taxes of $13 million and a provision from income taxes of $3 million, respectively. The following is a reconciliation of the statutory federal and state tax rates to our effective tax rate at September 30, 2020 and 2019.

Table 22.1 – Reconciliation of Statutory Tax Rate to Effective Tax Rate

	September 30, 2020		September 30, 2019
Federal statutory rate	21.0	%	21.0	%
State statutory rate, net of Federal tax effect	8.6	%	8.6	%
Differences in taxable (loss) income from GAAP income	(23.6)	%	(2.5)	%
Change in valuation allowance	(4.0)	%	(2.5)	%
Dividends paid deduction (1)	—	%	(22.1)	%
Effective Tax Rate	2.0	%	2.5	%

(1)The dividends paid deduction in the effective tax rate reconciliation is generally representative of the amount of distributions to shareholders that reduce REIT taxable income. For the nine months ended September 30, 2020, the dividends paid deduction is 0% due to our REIT incurring a taxable loss during the period; therefore, there was no REIT taxable income available to apply against the dividends paid.

We assessed our tax positions for all open tax years (i.e., Federal, 2017 to 2020, and State, 2016 to 2020) at September 30, 2020 and December 31, 2019, and concluded that we had no uncertain tax positions that resulted in material unrecognized tax benefits.

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Segment Information

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Segment Information

Segment Information

Redwood operates in three segments: Residential Lending, Business Purpose Lending, and Third-Party Investments. Beginning in the second quarter of 2020, we combined what was previously our Multifamily Investments segment and Third-Party Residential Investments segment into a new segment called Third-Party Investments. Prior periods have been conformed to the current presentation. Following is a full description of our current segments.

Residential Lending – consists of a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer into our investment portfolio, as well as the investments we retain from these activities. We typically acquire prime, jumbo mortgages and the related mortgage servicing rights on a flow basis from our network of loan sellers and distribute those loans through our Sequoia private-label securitization program or to institutions that acquire pools of whole loans. Our investments in this segment primarily consist of residential mortgage-backed securities ("RMBS") retained from our Sequoia securitizations (some of which we consolidate for GAAP purposes) and MSRs retained from jumbo whole loans we sold or securitized. This segment also includes various derivative financial instruments that we utilize to manage certain risks associated with our inventory of residential loans held-for-sale and long-term investments we hold within this segment. This segment’s main source of revenue is net interest income from its long-term investments and its inventory of loans held-for-sale, as well as income from mortgage banking activities, which includes valuation increases (or gains) on loans we acquire and subsequently sell, securitize, or transfer into our investment portfolio, and the hedges used to manage risks associated with these activities. Additionally, this segment may realize gains and losses upon the sale of securities. Funding expenses, direct operating expenses, and tax expenses associated with these activities are also included in this segment.

Business Purpose Lending – consists of a platform that originates and acquires business purpose residential loans for subsequent securitization or transfer into our investment portfolio, as well as the investments we retain from these activities. We typically originate single-family rental and residential bridge loans and distribute certain single-family rental loans through our CoreVest American Finance Lender ("CAFL") private-label securitization program and retain others for investment along with our residential bridge loans. Single-family rental loans are business purpose residential mortgage loans to investors in single-family (1-4 unit) rental properties. Residential bridge loans are business purpose residential mortgage loans to investors rehabilitating and subsequently reselling or renting residential properties. Our investments in this segment primarily consist of securities retained from our CAFL securitizations (which we consolidate for GAAP purposes), and residential bridge loans. This segment also includes various derivative financial instruments that we utilize to manage certain risks associated with our inventory of single-family rental loans held-for-sale and our investments. This segment’s main source of revenue is net interest income from its investments and loans held-for-sale, as well as income from mortgage banking activities, which includes valuation increases (or gains) on loans we originate or acquire and subsequently sell, securitize or transfer into our investment portfolio, and the hedges used to manage risks associated with these activities. Additionally, this segment may realize gains and losses upon the sale of securities. Funding expenses, direct operating expenses, and tax expenses associated with these activities are also included in this segment.

Third-Party Investments – consists of investments in RMBS issued by third parties, investments in Freddie Mac K-Series multifamily loan securitizations and SLST reperforming loan securitizations (which we consolidate for GAAP purposes), our servicer advance investments, and other residential and multifamily credit investments not generated through our Residential or Business Purpose Lending segments. This segment’s main sources of revenue are interest income from securities and loans held-for-investment. Additionally, this segment may realize gains and losses upon the sale of securities. Funding expenses, hedging expenses, direct operating expenses, and tax provisions associated with these activities are also included in this segment.

Segment contribution represents the measure of profit that management uses to assess the performance of our business segments and make resource allocation and operating decisions. Certain corporate expenses not directly assigned or allocated to one of our three segments, as well as activity from certain consolidated Sequoia entities, are included in the Corporate/Other column as reconciling items to our consolidated financial statements. These unallocated corporate expenses primarily include indirect general and administrative expenses and other expense.

The following tables present financial information by segment for the three and nine months ended September 30, 2020 and 2019.

Table 23.1 – Business Segment Financial Information

	Three Months Ended September 30, 2020
(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
Interest income	$	26,672	$	55,930	$	37,576	$	1,804	$	121,982
Interest expense	(22,541)		(46,027)		(27,534)		(4,309)		(100,411)
Net interest income	4,131		9,903		10,042		(2,505)		21,571
Non-interest income
Mortgage banking activities, net	11,864		47,531		—		—		59,395
Investment fair value changes, net	2,443		16,892		87,890		(178)		107,047
Other income, net	(2,011)		623		340		934		(114)
Realized gains, net	—		—		602		—		602
Total non-interest income, net	12,296		65,046		88,832		756		166,930
General and administrative expenses	(4,602)		(9,321)		(709)		(12,998)		(27,630)
Loan acquisition costs	(304)		(1,660)		(194)		—		(2,158)
Other expenses	(3,309)		(3,874)		(470)		(135)		(7,788)
(Provision for) benefit from income taxes	(826)		(8,544)		257		—		(9,113)
Segment Contribution	$	7,386	$	51,550	$	97,758	$	(14,882)
Net Income									$	141,812
Non-cash amortization (expense) income, net	$	1,785	$	(6,719)	$	117	$	(1,516)	$	(6,333)

	Nine Months Ended September 30, 2020
(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
Interest income	$	123,956	$	162,732	$	155,583	$	7,738	$	450,009
Interest expense	(94,112)		(119,854)		(123,160)		(12,622)		(349,748)
Net interest income	29,844		42,878		32,423		(4,884)		100,261
Non-interest income
Mortgage banking activities, net	(19,222)		43,733		—		—		24,511
Investment fair value changes, net	(159,107)		(84,837)		(366,696)		(917)		(611,557)
Other income, net	(2,278)		3,493		1,072		1,692		3,979
Realized gains, net	2,001		—		3,236		25,182		30,419
Total non-interest income, net	(178,606)		(37,611)		(362,388)		25,957		(552,648)
General and administrative expenses	(12,901)		(29,977)		(4,230)		(37,724)		(84,832)
Loan acquisition costs	(1,512)		(5,630)		(567)		(7)		(7,716)
Other expenses	(3,309)		(100,743)		347		(581)		(104,286)
Benefit from income taxes	7,827		477		4,775		—		13,079
Segment Contribution	$	(158,657)	$	(130,606)	$	(329,640)	$	(17,239)
Net Loss									$	(636,142)
Non-cash amortization (expense) income, net	$	602	$	(18,050)	$	1,105	$	(3,035)	$	(19,378)
Other significant non-cash expense: goodwill impairment	$	—	$	(88,675)	$	—	$	—	$	(88,675)

	Three Months Ended September 30, 2019
(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
Interest income	$	69,586	$	5,527	$	70,709	$	4,295	$	150,117
Interest expense	(48,798)		(2,813)		(61,541)		(3,452)		(116,604)
Net interest income	20,788		2,714		9,168		843		33,513
Non-interest income
Mortgage banking activities, net	5,016		4,499		—		—		9,515
Investment fair value changes, net	(11,088)		(1,073)		24,057		(452)		11,444
Other income, net	1,878		1,918		560		—		4,356
Realized gains, net	—		—		4,714		—		4,714
Total non-interest income, net	(4,194)		5,344		29,331		(452)		30,029
General and administrative expenses	(5,581)		(6,028)		(676)		(12,614)		(24,899)
Loan acquisition costs	(867)		(756)		(180)		(113)		(1,916)
Other expenses	—		(1,900)		(395)		(236)		(2,531)
Benefit from (provision for) income taxes	228		(8)		(106)		—		114
Segment Contribution	$	10,374	$	(634)	$	37,142	$	(12,572)
Net Income									$	34,310
Non-cash amortization income (expense), net	$	2,537	$	(2,107)	$	—	$	(1,148)	$	(718)

	Nine Months Ended September 30, 2019
(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
Interest income	$	204,036	$	12,595	$	199,145	$	13,924	$	429,700
Interest expense	(145,795)		(6,590)		(168,167)		(11,548)		(332,100)
Net interest income	58,241		6,005		30,978		2,376		97,600
Non-interest income
Mortgage banking activities, net	31,202		9,782		—		—		40,984
Investment fair value changes, net	(20,910)		(1,833)		58,492		(1,008)		34,741
Other income, net	6,317		4,213		600		2,710		13,840
Realized gains, net	7,728		—		10,499		—		18,227
Total non-interest income, net	24,337		12,162		69,591		1,702		107,792
General and administrative expenses	(17,591)		(13,452)		(2,239)		(37,440)		(70,722)
Loan acquisition costs	(2,859)		(2,017)		(503)		(128)		(5,507)
Other expenses	—		(4,432)		(864)		(725)		(6,021)
(Provision for) benefit from income taxes	(1,757)		25		(1,370)		—		(3,102)
Segment Contribution	$	60,371	$	(1,709)	$	95,593	$	(34,215)
Net Income									$	120,040
Non-cash amortization income (expense), net	$	6,780	$	(4,907)	$	(824)	$	(1,939)	$	(890)

The following table presents the components of Corporate/Other for the three and nine months ended September 30, 2020 and 2019.

Table 23.2 – Components of Corporate/Other

	Three Months Ended September 30,
	2020						2019
(In Thousands)	Legacy Consolidated VIEs (1)		Other		Total		Legacy Consolidated VIEs (1)		Other		Total
Interest income	$	1,795	$	9	$	1,804	$	4,295	$	—	$	4,295
Interest expense	(1,058)		(3,251)		(4,309)		(3,452)		—		(3,452)
Net interest income	737		(3,242)		(2,505)		843		—		843
Non-interest income
Investment fair value changes, net	(81)		(97)		(178)		(407)		(45)		(452)
Other income	—		934		934		—		—		—
Total non-interest income, net	(81)		837		756		(407)		(45)		(452)
General and administrative expenses	—		(12,998)		(12,998)		—		(12,614)		(12,614)
Loan acquisition costs	—		—		—		—		(113)		(113)
Other expenses	—		(135)		(135)		—		(236)		(236)
Total	$	656	$	(15,538)	$	(14,882)	$	436	$	(13,008)	$	(12,572)

	Nine Months Ended September 30,
	2020						2019
(In Thousands)	Legacy Consolidated VIEs (1)		Other		Total		Legacy Consolidated VIEs (1)		Other		Total
Interest income	$	7,675	$	63	$	7,738	$	13,924	$	—	$	13,924
Interest expense	(5,098)		(7,524)		(12,622)		(11,548)		—		(11,548)
Net interest income	2,577		(7,461)		(4,884)		2,376		—		2,376
Non-interest income
Investment fair value changes, net	(702)		(215)		(917)		(904)		(104)		(1,008)
Other income	—		1,692		1,692		—		2,710		2,710
Realized gains, net	—		25,182		25,182		—		—		—
Total non-interest income, net	(702)		26,659		25,957		(904)		2,606		1,702
General and administrative expenses	—		(37,724)		(37,724)		—		(37,440)		(37,440)
Loan acquisition costs	—		(7)		(7)		—		(128)		(128)
Other expenses	—		(581)		(581)		—		(725)		(725)
Total	$	1,875	$	(19,114)	$	(17,239)	$	1,472	$	(35,687)	$	(34,215)

(1)     Legacy consolidated VIEs represent Legacy Sequoia entities that are consolidated for GAAP financial reporting purposes. See Note 4 for further discussion on VIEs.

The following table presents supplemental information by segment at September 30, 2020 and December 31, 2019.

Table 23.3 – Supplemental Segment Information

(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
September 30, 2020
Residential loans	$	1,941,489	$	—	$	2,256,682	$	296,765	$	4,494,936
Business purpose residential loans	—		3,956,101		—		—		3,956,101
Multifamily loans	—		—		491,415		—		491,415
Real estate securities	146,608		—		204,727		—		351,335
Other investments	14,878		25,713		344,037		—		384,628
Goodwill and intangible assets	—		60,737		—		—		60,737
Total assets	2,148,643		4,134,913		3,315,039		803,817		10,402,412
December 31, 2019
Residential loans	$	4,939,745	$	—	$	2,367,215	$	407,890	$	7,714,850
Business purpose residential loans	—		3,506,743		—		—		3,506,743
Multifamily loans	—		—		4,408,524		—		4,408,524
Real estate securities	229,074		—		870,800		—		1,099,874
Other investments	42,224		21,002		294,904		—		358,130
Goodwill and intangible assets	—		161,464		—		—		161,464
Total assets	5,410,540		3,786,641		8,028,946		769,313		17,995,440

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation

Basis of PresentationThe consolidated financial statements presented herein are at September 30, 2020 and December 31, 2019, and for the three and nine months ended September 30, 2020 and 2019. These interim unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in our annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") — as prescribed by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) — have been condensed or omitted in these interim financial statements according to these SEC rules and regulations. Management believes that the disclosures included in these interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the company's Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, all normal and recurring adjustments to present fairly the financial condition of the company at September 30, 2020 and results of operations for all periods presented have been made. The results of operations for the three and nine months ended September 30, 2020 should not be construed as indicative of the results to be expected for the full year.

Principles of Consolidation

Principles of Consolidation

In accordance with GAAP, we determine whether we must consolidate transferred financial assets and variable interest entities (“VIEs”) for financial reporting purposes. We currently consolidate the assets and liabilities of certain Sequoia securitization entities issued prior to 2012 where we maintain an ongoing involvement ("Legacy Sequoia"), as well as entities formed in connection with the securitization of Redwood Choice expanded-prime loans ("Sequoia Choice"). We also consolidate the assets and liabilities of certain Freddie Mac K-Series and Freddie Mac Seasoned Loans Structured Transaction ("SLST") securitizations we invested in. Finally, we consolidated the assets and liabilities of certain CoreVest American Finance Lender ("CAFL") securitizations beginning in the fourth quarter of 2019, in connection with our acquisition of CoreVest. Each securitization entity is independent of Redwood and of each other and the assets and liabilities are not owned by and are not legal obligations of Redwood Trust, Inc. Our exposure to these entities is primarily through the financial interests we have purchased or retained, although for the consolidated Sequoia and CAFL entities we are exposed to certain financial risks associated with our role as a sponsor, servicing administrator, or depositor of these entities or as a result of our having sold assets directly or indirectly to these entities.

For financial reporting purposes, the underlying loans owned at the consolidated Sequoia and Freddie Mac SLST entities are shown under Residential loans held-for-investment at fair value, the underlying loans at the consolidated Freddie Mac K-Series are shown under Multifamily loans held-for-investment at fair value, and the underlying single-family rental loans at the consolidated CAFL entities are shown under Business purpose residential loans held-for-investment at fair value on our consolidated balance sheets. The asset-backed securities (“ABS”) issued to third parties by these entities are shown under ABS issued. In our consolidated statements of income (loss), we recorded interest income on the loans owned at these entities and interest expense on the ABS issued by these entities as well as other income and expenses associated with these entities' activities.

Use of Estimates

Use of Estimates

The preparation of financial statements requires us to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amounts and timing of credit losses, prepayment rates, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the consolidated financial statements and the reported amounts of certain revenues and expenses during the reported periods. It is likely that changes in these estimates (e.g., valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. Our estimates are inherently subjective in nature and actual results could differ from our estimates and the differences could be material.

Available-for-Sale Securities

Available-for-Sale Securities

Upon adoption of ASU 2016-13, "Financial Instruments - Credit Losses" in the first quarter of 2020, we modified our policy for recording impairments on available-for-sale securities. This new guidance requires that credit impairments on our available-for-sale securities be recorded in earnings using an allowance for credit losses, with the allowance limited to the amount by which the security's fair value is less than its amortized cost basis. The allowance for credit losses is calculated using a discounted cash flow approach and is measured as the difference between the beneficial interest’s amortized cost and the estimate of cash flows expected to be collected, discounted at the effective interest rate used to accrete the beneficial interest. Any allowance for credit losses in excess of the unrealized losses on the beneficial interests are accounted for as a prospective reduction of the effective interest rate. No allowance is recorded for beneficial interests in an unrealized gain position. Favorable changes in the discounted cash flows will result in a reduction in the allowance for credit losses, if any. Any reduction in allowance for credit losses is recorded in earnings. If the allowance for credit losses has been reduced to zero, the remaining favorable changes are reflected as a prospective increase to the effective interest rate. If we intend to sell or it is more likely than not that we will be required to sell the security before it recovers in value, the entire impairment amount will be recognized in earnings with a corresponding adjustment to the security's amortized cost basis.

Goodwill

Goodwill

Pursuant to our adoption of ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" in the first quarter of 2020, we modified our goodwill impairment testing policy. We first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If, based on that assessment, we believe it is more likely than not that the fair value of the reporting unit is less than its carrying value, we measure the fair value of reporting unit and record a goodwill impairment charge for the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill. Any such impairment charges would be recorded through Other expenses on our consolidated statements of income (loss).

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Newly Adopted Accounting Standards Updates ("ASUs")

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." This new guidance amends previous guidance by removing and modifying certain existing fair value disclosure requirements, while adding other new disclosure requirements. This new guidance is effective for fiscal years beginning after December 15, 2019. We adopted this new guidance, as required, in the first quarter of 2020, which did not have a material impact on our consolidated financial statements but impacted certain of our fair value footnote disclosures.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. This new guidance is effective for fiscal years beginning after December 15, 2019. We adopted this new guidance, as required, in the first quarter of 2020, which did not have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses." This new guidance provides a new impairment model that is based on expected losses rather than incurred losses to determine the allowance for credit losses. This new guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years beginning after December 15, 2018. In November 2018, the FASB issued ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses," which clarifies the scope of the amendments in ASU 2016-13. In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," which is intended to clarify this guidance. In May 2019, the FASB issued ASU 2019-05, "Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief," which provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost. In November 2019, the FASB issued ASU 2019-11, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses," which is intended to clarify Codification guidance. In February 2020, the FASB issued ASU 2020-02, "Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) (SEC Update)," and in March 2020, the FASB issued ASU 2020-03, "Codification Improvements to Financial Instruments." These updates amend certain sections of the guidance. We currently have only a small balance of loans receivable that are not carried at fair value and would be subject to this new guidance for allowance for credit losses. Separately, we accounted for our available-for-sale securities under the other-than-temporary impairment ("OTTI") model for debt securities prior to the issuance of this new guidance. This new guidance requires that credit impairments on our available-for-sale securities be recorded in earnings using an allowance for credit losses, with the allowance limited to the amount by which the security's fair value is less than its amortized cost basis. Subsequent reversals in credit loss estimates are recognized in income. We adopted this guidance, as required, in the first quarter of 2020, which did not have a material impact on our consolidated financial statements.

Other Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40)." This new guidance simplifies the accounting for convertible debt by reducing the number of accounting models to separately present certain conversion features in equity. This new guidance is effective for fiscal years beginning after December 31, 2021. Early adoption is permitted. We plan to adopt this new guidance by the required date and do not anticipate that this update will have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This new guidance is effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact the adoption of this standard would have on our consolidated financial statements. Through September 30, 2020, we have not elected to apply the optional expedients and exceptions to any of our existing contracts, hedging relationships, or other transactions.

In January 2020, the FASB issued ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)." This new guidance clarifies the interaction of the accounting for equity securities, equity method investments, and certain forward contracts and purchased options. This new guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. We plan to adopt this new guidance by the required date and do not anticipate that this update will have a material impact on the consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This new guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by clarifying and amending existing guidance. This new guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. We plan to adopt this new guidance by the required date and do not anticipate that this update will have a material impact on our consolidated financial statements.

Balance Sheet Netting

Balance Sheet Netting Certain of our derivatives and short-term debt are subject to master netting arrangements or similar agreements. Under GAAP, in certain circumstances we may elect to present certain financial assets, liabilities and related collateral subject to master netting arrangements in a net position on our consolidated balance sheets. However, we do not report any of these financial assets or liabilities on a net basis, and instead present them on a gross basis on our consolidated balance sheets.For each category of financial instrument set forth in the table above, the assets and liabilities resulting from individual transactions within that category between us and a counterparty are subject to a master netting arrangement or similar agreement with that counterparty that provides for individual transactions to be aggregated and treated as a single transaction. For certain categories of these instruments, some of our transactions are cleared and settled through one or more clearinghouses that are substituted as our counterparty. References herein to master netting arrangements or similar agreements include the arrangements and agreements governing the clearing and settlement of these transactions through the clearinghouses. In the event of the termination and close-out of any of those transactions, the corresponding master netting agreement or similar agreement provides for settlement on a net basis. Any such settlement would include the proceeds of the liquidation of any corresponding collateral, subject to certain limitations on termination, settlement, and liquidation of collateral that may apply in the event of the bankruptcy or insolvency of a party. Such limitations should not inhibit the eventual practical realization of the principal benefits of those transactions or the corresponding master netting arrangement or similar agreement and any corresponding collateral.

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Basis of Presentation (Tables)

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of Finite-Lived Intangible Assets

The amortization period for each of these assets and the activity for the nine months ended September 30, 2020 is summarized in the table below.

Table 2.1 – Intangible Assets – Activity

	Carrying Value at December 31, 2019		Additions		Amortization Expense		Carrying Value at September 30, 2020		Weighted Average Amortization Period (in years)
(Dollars in Thousands)
Borrower network	$	43,952	$	—	$	(4,854)	$	39,098	7
Broker network	15,083		—		(2,715)		12,368		5
Non-compete agreements	8,236		—		(2,375)		5,861		3
Tradenames	3,472		—		(1,000)		2,472		3
Developed technology	1,613		—		(675)		938		2
Loan administration fees on existing loan assets	433		—		(433)		—		1
Total	$	72,789	$	—	$	(12,052)	$	60,737	6

Finite-lived Intangible Assets Amortization Expense

All of our intangible assets are amortized on a straight-line basis. Estimated future amortization expense is summarized in the table below.

Table 2.2 – Intangible Asset Amortization Expense by Year

(In Thousands)	September 30, 2020
2020 (3 months)	$	3,873
2021	15,304
2022	12,800
2023	10,091
2024	7,073
2025 and thereafter	11,596
Total Future Intangible Asset Amortization	$	60,737

Pro Forma Information

The following unaudited pro forma financial information presents Net interest income, Non-interest income, and Net income of Redwood, 5 Arches, and CoreVest combined, for the three and nine months ended September 30, 2019, as if the acquisitions occurred as of January 1, 2018. These pro forma amounts have been adjusted to include the amortization of intangible assets and acquisition-related compensation expense for both periods, and to exclude the income statement impacts related to our equity method investment in 5 Arches. The unaudited pro forma financial information is not intended to represent or be indicative of the consolidated financial results of operations that would have been reported if the acquisitions had been completed as of January 1, 2018 and should not be taken as indicative of our future consolidated results of operations.

Table 2.3 – Unaudited Pro Forma Financial Information

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
(In Thousands)
Supplementary pro forma information:
Net interest income	$	45,702	$	133,446
Non-interest income	38,177		116,649
Net income	46,609		140,790

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Offsetting of Financial Assets, Liabilities, and Collateral

The table below presents financial assets and liabilities that are subject to master netting arrangements or similar agreements categorized by financial instrument, together with corresponding financial instruments and corresponding collateral received or pledged at September 30, 2020 and December 31, 2019.

Table 3.1 – Offsetting of Financial Assets, Liabilities, and Collateral

	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in Consolidated Balance Sheet		Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		Gross Amounts Not Offset in Consolidated Balance Sheet (1)				Net Amount
September 30, 2020 (In Thousands)							Financial Instruments		Cash Collateral (Received) Pledged
Assets (2)
Interest rate agreements	$	3,471	$	—	$	3,471	$	(15)	$	(1,240)	$	2,216
TBAs	402		—		402		—		(263)		139
Futures	63		—		63		—		—		63
Total Assets	$	3,936	$	—	$	3,936	$	(15)	$	(1,503)	$	2,418
Liabilities (2)
Interest rate agreements	$	(15)	$	—	$	(15)	$	15	$	—	$	—
TBAs	(263)		$	—	(263)		—		263		—
Loan warehouse debt	(81,898)		$	—	(81,898)		81,898		—		—
Security repurchase agreements	(75,054)		—		(75,054)		75,054		—		—
Total Liabilities	$	(157,230)	$	—	$	(157,230)	$	156,967	$	263	$	—

	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in Consolidated Balance Sheet		Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		Gross Amounts Not Offset in Consolidated Balance Sheet (1)				Net Amount
December 31, 2019 (In Thousands)							Financial Instruments		Cash Collateral (Received) Pledged
Assets (2)
Interest rate agreements	$	19,020	$	—	$	19,020	$	(14,178)	$	(915)	$	3,927
TBAs	5,755		—		5,755		(5,755)		—		—
Futures	137		—		137		—		—		137
Total Assets	$	24,912	$	—	$	24,912	$	(19,933)	$	(915)	$	4,064
Liabilities (2)
Interest rate agreements	$	(148,765)	$	—	$	(148,765)	$	14,178	$	134,587	$	—
TBAs	(13,359)		—		(13,359)		5,755		6,673		(931)
Loan warehouse debt	(432,126)		—		(432,126)		432,126		—		—
Security repurchase agreements	(1,096,578)		—		(1,096,578)		1,096,578		—		—
Total Liabilities	$	(1,690,828)	$	—	$	(1,690,828)	$	1,548,637	$	141,260	$	(931)

(1)Amounts presented in these columns are limited in total to the net amount of assets or liabilities presented in the prior column by instrument. In certain cases, there is excess cash collateral or financial assets we have pledged to a counterparty (which may, in certain circumstances, be a clearinghouse) that exceed the financial liabilities subject to a master netting arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to us that exceeds our corresponding financial assets. In each case, any of these excess amounts are excluded from the table although they are separately reported in our consolidated balance sheets as assets or liabilities, respectively.

(2)Interest rate agreements and TBAs are components of derivatives instruments on our consolidated balance sheets. Loan warehouse debt, which is secured by certain residential and business purpose residential loans, and security repurchase agreements are components of Short-term debt and Long-term debt on our consolidated balance sheets.

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Principles of Consolidation (Tables)

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule 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 Accounted for as Collateralized Financing Entities

September 30, 2020	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment	$	296,765	$	1,836,361	$	2,256,682	$	—	$	—	$	—	$	4,389,808
Business purpose residential loans, held-for-investment	—		—		—		—		2,969,692		—		2,969,692
Multifamily loans, held-for-investment	—		—		—		491,415		—		—		491,415
Other investments	—		—		—		—		—		278,487		278,487
Cash and cash equivalents	—		—		—		—		—		10,425		10,425
Restricted cash	146		—		—		—		—		20,649		20,795
Accrued interest receivable	402		7,292		6,928		1,342		12,071		2,609		30,644
Other assets	784		—		887		—		4,158		—		5,829
Total Assets	$	298,097	$	1,843,653	$	2,264,497	$	492,757	$	2,985,921	$	312,170	$	8,197,095
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	228,998	$	228,998
Accrued interest payable	180		5,652		5,009		1,182		9,337		137		21,497
Accrued expenses and other liabilities	—		47		—		—		—		18,129		18,176
Asset-backed securities issued	292,484		1,626,564		1,841,313		464,865		2,744,150		—		6,969,376
Total Liabilities	$	292,664	$	1,632,263	$	1,846,322	$	466,047	$	2,753,487	$	247,264	$	7,238,047
Number of VIEs	20		10		2		1		13		3		49

December 31, 2019	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment	$	407,890	$	2,291,463	$	2,367,215	$	—	$	—	$	—	$	5,066,568
Business purpose residential loans, held-for-investment	—		—		—		—		2,192,552		—		2,192,552
Multifamily loans, held-for-investment	—		—		—		4,408,524		—		—		4,408,524
Other investments	—		—		—		—		—		184,802		184,802
Cash and cash equivalents	—		—		—		—		—		9,015		9,015
Restricted cash	143		27		—		—		—		21,766		21,936
Accrued interest receivable	655		9,824		7,313		13,539		9,572		4,869		45,772
Other assets	460		—		445		—		1,795		—		2,700
Total Assets	$	409,148	$	2,301,314	$	2,374,973	$	4,422,063	$	2,203,919	$	220,452	$	11,931,869
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	152,554	$	152,554
Accrued interest payable	395		7,732		5,374		12,887		7,485		187		34,060
Accrued expenses and other liabilities	—		27		—		—		—		14,956		14,983
Asset-backed securities issued	402,465		2,037,198		1,918,322		4,156,239		2,001,251		—		10,515,475
Total Liabilities	$	402,860	$	2,044,957	$	1,923,696	$	4,169,126	$	2,008,736	$	167,697	$	10,717,072
Number of VIEs	20		9		2		5		10		3		49

The following table presents income (loss) from these VIEs for the three and nine months ended September 30, 2020 and 2019.

Table 4.2 – Income (Loss) from Consolidated VIEs Accounted for as Collateralized Financing Entities

	Three Months Ended September 30, 2020
	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	1,795	$	20,919	$	21,696	$	4,918	$	36,181	$	4,403	$	89,912
Interest expense	(1,058)		(17,828)		(15,473)		(4,426)		(27,499)		(1,587)		(67,871)
Net interest income	737		3,091		6,223		492		8,682		2,816		22,041
Non-interest income
Investment fair value changes, net	(81)		7,851		82,214		2,166		9,692		(422)		101,420
Total non-interest income, net	(81)		7,851		82,214		2,166		9,692		(422)		101,420
General and administrative expenses	—		—		—		—		—		(41)		(41)
Other expenses	—		—		—		—		—		(471)		(471)
Income from Consolidated VIEs	$	656	$	10,942	$	88,437	$	2,658	$	18,374	$	1,882	$	122,949

	Nine Months Ended September 30, 2020
	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	7,675	$	68,566	$	64,869	$	49,960	$	99,169	$	13,026	$	303,265
Interest expense	(5,098)		(58,455)		(47,495)		(47,154)		(75,600)		(4,961)		(238,763)
Net interest income	2,577		10,111		17,374		2,806		23,569		8,065		64,502
Non-interest income
Investment fair value changes, net	(702)		(22,065)		(33,081)		(82,744)		(41,841)		(9,015)		(189,448)
Total non-interest income, net	(702)		(22,065)		(33,081)		(82,744)		(41,841)		(9,015)		(189,448)
General and administrative expenses	—		—		—		—		—		(784)		(784)
Other expenses	—		—		—		—		—		346		346
Income (Loss) from Consolidated VIEs	$	1,875	$	(11,954)	$	(15,707)	$	(79,938)	$	(18,272)	$	(1,388)	$	(125,384)

	Three Months Ended September 30, 2019
	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	4,295	$	27,555	$	11,830	$	36,829	$	—	$	3,922	$	84,431
Interest expense	(3,452)		(23,576)		(8,709)		(35,328)		—		(2,891)		(73,956)
Net interest income	843		3,979		3,121		1,501		—		1,031		10,475
Non-interest income
Investment fair value changes, net	(407)		2,722		17,300		7,445		—		963		28,023
Total non-interest income, net	(407)		2,722		17,300		7,445		—		963		28,023
General and administrative expenses	—		—		—		—		—		(16)		(16)
Other expenses	—		—		—		—		—		(395)		(395)
Income from Consolidated VIEs	$	436	$	6,701	$	20,421	$	8,946	$	—	$	1,583	$	38,087

	Nine Months Ended September 30, 2019
	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	13,924	$	80,045	$	35,221	$	94,134	$	—	$	10,847	$	234,171
Interest expense	(11,548)		(68,823)		(26,013)		(90,089)		—		(9,905)		(206,378)
Net interest income	2,376		11,222		9,208		4,045		—		942		27,793
Non-interest income
Investment fair value changes, net	(904)		8,866		31,702		13,810		—		3,462		56,936
Total non-interest income, net	(904)		8,866		31,702		13,810		—		3,462		56,936
General and administrative expenses	—		—		—		—		—		(87)		(87)
Other expenses	—		—		—		—		—		(864)		(864)
Income from Consolidated VIEs	$	1,472	$	20,088	$	40,910	$	17,855	$	—	$	3,453	$	83,778

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, 2020 and 2019.

Table 4.3 – Securitization Activity Related to Unconsolidated VIEs Sponsored by Redwood

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Principal balance of loans transferred	$	—	$	366,999	$	1,573,703	$	1,116,092
Trading securities retained, at fair value	—		1,228		43,362		4,736
AFS securities retained, at fair value	—		1,069		3,198		3,023

Cash Flows Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table summarizes the cash flows during the three and nine months ended September 30, 2020 and 2019 between us and the unconsolidated VIEs sponsored by us and accounted for as sales since 2012.

Table 4.4 – Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Proceeds from new transfers	$	—	$	376,126	$	1,610,761	$	1,138,778
MSR fees received	2,280		2,919		7,445		9,084
Funding of compensating interest, net	4		(76)		(293)		(213)
Cash flows received on retained securities	5,873		6,603		19,242		20,892

Assumptions Related to Assets Retained from 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 the three and nine months ended September 30, 2020 and 2019.

Table 4.5 – Assumptions Related to Assets Retained from Unconsolidated VIEs Sponsored by Redwood

	Three Months Ended September 30, 2020		Three Months Ended September 30, 2019
At Date of Securitization	Senior IO Securities	Subordinate Securities	Senior IO Securities		Subordinate Securities
Prepayment rates	N/A	N/A	37	%	15	%
Discount rates	N/A	N/A	14	%	7	%
Credit loss assumptions	N/A	N/A	0.20	%	0.20	%

	Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
At Date of Securitization	Senior IO Securities		Subordinate Securities		Senior IO Securities		Subordinate Securities
Prepayment rates	41	%	13	%	25	%	15	%
Discount rates	16	%	6	%	14	%	7	%
Credit loss assumptions	0.21	%	0.22	%	0.20	%	0.20	%

Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents additional information at September 30, 2020 and December 31, 2019, related to unconsolidated VIEs sponsored by Redwood and accounted for as sales since 2012.

Table 4.6 – Unconsolidated VIEs Sponsored by Redwood

(In Thousands)	September 30, 2020		December 31, 2019
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading	$	19,878	$	88,425
Subordinate securities, classified as AFS	124,132		140,649
Mortgage servicing rights	14,240		40,254
Maximum loss exposure (1)	$	158,250	$	269,328
Assets transferred:
Principal balance of loans outstanding	$	8,571,916	$	10,299,442
Principal balance of loans 30+ days delinquent	200,910		41,809

(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, 2020 and December 31, 2019.

Table 4.7 – Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated VIEs Sponsored by Redwood

September 30, 2020	MSRs			Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at September 30, 2020	$	14,240		$	16,226		$	127,783
Expected life (in years) (2)	3			3			10
Prepayment speed assumption (annual CPR) (2)	26		%	30		%	27		%
Decrease in fair value from:
10% adverse change	$	1,105		$	1,622		$	1,075
25% adverse change	2,678			3,675			3,735
Discount rate assumption (2)	12		%	17		%	6		%
Decrease in fair value from:
100 basis point increase	$	383		$	327		$	10,219
200 basis point increase	746			638			19,348
Credit loss assumption (2)	N/A			0.38		%	0.38		%
Decrease in fair value from:
10% higher losses	N/A			$	—		$	2,274
25% higher losses	N/A			—			5,500

December 31, 2019	MSRs			Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at December 31, 2019	$	40,254		$	48,765		$	180,309
Expected life (in years) (2)	6			6			14
Prepayment speed assumption (annual CPR) (2)	11		%	14		%	16		%
Decrease in fair value from:
10% adverse change	$	1,643		$	1,908		$	205
25% adverse change	3,913			5,086			1,434
Discount rate assumption (2)	11		%	12		%	5		%
Decrease in fair value from:
100 basis point increase	$	1,447		$	1,079		$	18,127
200 basis point increase	2,795			2,482			33,630
Credit loss assumption (2)	N/A			0.21		%	0.21		%
Decrease in fair value from:
10% higher losses	N/A			$	—		$	1,804
25% higher losses	N/A			—			4,520

(1)Senior securities included $16 million and $49 million of interest-only securities at September 30, 2020 and December 31, 2019, 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, 2020 and December 31, 2019, grouped by asset type.

Table 4.8 – Third-Party Sponsored VIE Summary

(In Thousands)	September 30, 2020		December 31, 2019
Mortgage-Backed Securities
Senior	$	11,865	$	127,094
Mezzanine	2,016		508,195
Subordinate	193,445		235,510
Total Mortgage-Backed Securities	207,326		870,799
Excess MSR	15,205		16,216
Total Investments in Third-Party Sponsored VIEs	$	222,531	$	887,015

XML

Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Carrying Values and Fair Values of Assets and Liabilities

The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at September 30, 2020 and December 31, 2019.

Table 5.1 – Carrying Values and Fair Values of Assets and Liabilities

	September 30, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
(In Thousands)
Assets
Residential loans, held-for-sale at fair value	$	105,091	$	105,091	$	536,385	$	536,509
Residential loans, held-for-investment	4,389,808		4,389,808		7,178,465		7,178,465
Business purpose residential loans, held-for-sale	285,549		285,549		331,565		331,565
Business purpose residential loans, held-for-investment	3,670,552		3,670,552		3,175,178		3,175,178
Multifamily loans	491,415		491,415		4,408,524		4,408,524
Real estate securities	351,335		351,335		1,099,874		1,099,874
Servicer advance investments (1)	258,621		258,621		169,204		169,204
MSRs (1)	14,878		14,878		42,224		42,224
Excess MSRs (1)	35,070		35,070		31,814		31,814
Shared home appreciation options (1)	41,758		41,758		45,085		45,085
Cash and cash equivalents	450,684		450,684		196,966		196,966
Restricted cash	73,594		73,594		93,867		93,867
Derivative assets	14,709		14,709		35,701		35,701
REO (2)	8,535		9,654		9,462		10,389
Margin receivable (2)	3,809		3,809		209,776		209,776
FHLBC stock (2)	5,000		5,000		43,393		43,393
Guarantee asset (2)	579		579		1,686		1,686
Pledged collateral (2)	8,172		8,172		32,945		32,945
Liabilities
Short-term debt	$	482,761	$	482,761	$	2,329,145	$	2,329,145
Margin payable (3)	—		—		1,700		1,700
Guarantee obligation (3)	11,264		10,185		14,009		13,754
Contingent consideration (3)	—		—		28,484		28,484
Derivative liabilities	1,612		1,612		163,424		163,424
ABS issued, net
Fair value	6,969,376		6,969,376		10,515,475		10,515,475
Amortized cost	203,022		207,812		—		—
FHLBC long-term borrowings	1,000		1,000		1,999,999		1,999,999
Other long-term debt, net	886,054		885,172		183,520		184,666
Convertible notes, net	510,472		476,071		631,125		661,985
Trust preferred securities and subordinated notes, net	138,663		73,238		138,628		99,045

(1)These investments are included in Other investments on our consolidated balance sheets.

(2)These assets are included in Other assets on our consolidated balance sheets.

(3)These liabilities are included in Accrued expenses and other liabilities on our consolidated balance sheets.

Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table presents the assets and liabilities that are reported at fair value on our consolidated balance sheets on a recurring basis at September 30, 2020 and December 31, 2019, as well as the fair value hierarchy of the valuation inputs used to measure fair value.

Table 5.2 – Assets and Liabilities Measured at Fair Value on a Recurring Basis

September 30, 2020	Carrying Value		Fair Value Measurements Using
(In Thousands)			Level 1		Level 2		Level 3
Assets
Residential loans	$	4,494,899	$	—	$	—	$	4,494,899
Business purpose residential loans	3,956,101		—		—		3,956,101
Multifamily loans	491,415		—		—		491,415
Real estate securities	351,335		—		—		351,335
Servicer advance investments	258,621		—		—		258,621
MSRs	14,878		—		—		14,878
Excess MSRs	35,070		—		—		35,070
Shared home appreciation options	41,758		—		—		41,758
Derivative assets	14,709		464		3,472		10,773
Pledged collateral	8,172		8,172		—		—
FHLBC stock	5,000		—		5,000		—
Guarantee asset	579		—		—		579
Liabilities
Derivative liabilities	$	1,612	$	263	$	15	$	1,334
ABS issued	6,969,376		—		—		6,969,376

December 31, 2019	Carrying Value		Fair Value Measurements Using
(In Thousands)			Level 1		Level 2		Level 3
Assets
Residential loans	$	7,714,745	$	—	$	—	$	7,714,745
Business purpose residential loans	3,506,743		—		—		3,506,743
Multifamily loans	4,408,524		—		—		4,408,524
Real estate securities	1,099,874		—		—		1,099,874
Servicer advance investments	169,204		—		—		169,204
MSRs	42,224		—		—		42,224
Excess MSRs	31,814		—		—		31,814
Shared home appreciation options	45,085		—		—		45,085
Derivative assets	35,701		6,531		19,020		10,150
Pledged collateral	32,945		32,945		—		—
FHLBC stock	43,393		—		43,393		—
Guarantee asset	1,686		—		—		1,686
Liabilities
Contingent consideration	$	28,484	$	—	$	—	$	28,484
Derivative liabilities	163,424		13,368		148,766		1,290
ABS issued	10,515,475		—		—		10,515,475

Changes in Level 3 Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table presents additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2020.

Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis

	Assets
	Residential Loans		Business Purpose Residential Loans		Multifamily Loans		Trading Securities		AFS Securities		Servicer Advance Investments		MSRs		Excess MSRs		Shared Home Appreciation Options
(In Thousands)
Beginning balance - December 31, 2019	$	7,714,745	$	3,506,743	$	4,408,524	$	860,540	$	239,334	$	169,204	$	42,224	$	31,814	$	45,085
Acquisitions	2,927,697		—		—		96,318		56,664		179,419		—		10,906		3,517
Originations	—		982,315		—		—		—		—		—		—		—
Sales	(4,783,682)		(53,434)		—		(579,466)		(55,193)		—		—		—		—
Principal paydowns	(1,210,117)		(489,243)		(5,830)		(8,502)		(10,345)		(83,124)		—		—		(2,558)
Deconsolidations	—		—		(3,849,779)		—		—		—		—		—		—
Gains (losses) in net income (loss), net	(152,145)		16,246		(61,500)		(224,728)		(23,287)		(6,878)		(27,346)		(7,650)		(4,286)
Other settlements, net (1)	(1,599)		(6,526)		—		—		—		—		—		—		—
Ending balance - September 30, 2020	$	4,494,899	$	3,956,101	$	491,415	$	144,162	$	207,173	$	258,621	$	14,878	$	35,070	$	41,758

Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis (continued)

	Assets				Liabilities
	Guarantee Asset		Derivatives (2)		Contingent Consideration		ABS Issued
(In Thousands)
Beginning balance - December 31, 2019	$	1,686	$	8,860	$	28,484	$	10,515,475
Acquisitions	—		—		—		1,137,656
Principal paydowns	—		—		(13,353)		(1,035,359)
Deconsolidations	—		—		—		(3,706,789)
Gains (losses) in net income (loss), net	(1,107)		34,620		(446)		58,393
Other settlements, net (1)	—		(34,041)		(14,685)		—
Ending balance - September 30, 2020	$	579	$	9,439	$	—	$	6,969,376

(1)    Other settlements, net for residential and business purpose residential loans represents the transfer of loans to REO, and for derivatives, the settlement of forward sale commitments and the transfer of the fair value of loan purchase or interest rate lock commitments at the time loans are acquired to the basis of residential and single-family rental loans. Other settlements, net for contingent consideration reflects the reclassification from a contingent liability to a deferred liability during the period due to an amendment in the underlying agreement. See Note 16 for further discussion.

(2)    For the purpose of this presentation, derivative assets and liabilities, which consist of loan purchase commitments and interest rate lock commitments, are presented on a net basis.

Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held and Included in Net Income

The following table presents the portion of gains or losses included in our consolidated statements of income (loss) that were attributable to Level 3 assets and liabilities recorded at fair value on a recurring basis and held at September 30, 2020 and 2019. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the three and nine months ended September 30, 2020 and 2019 are not included in this presentation.

Table 5.4 – Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at September 30, 2020 and 2019 Included in Net Income

	Included in Net Income
	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Assets
Residential loans at Redwood	$	(107)	$	17,771	$	(865)	$	82,408
Business purpose residential loans	21,155		584		17,901		4,069
Net investments in consolidated Sequoia entities (1)	7,700		1,860		(22,802)		7,051
Net investments in consolidated Freddie Mac SLST entities (1)	82,209		17,300		(33,087)		31,702
Net investments in consolidated Freddie Mac K-Series entities (1)	2,165		7,445		(11,014)		13,810
Net investments in consolidated CAFL entities (1)	9,673		—		(41,048)		—
Trading securities	(3,549)		11,206		(80,358)		33,196
Servicer advance investments	25		1,585		(6,172)		3,025
MSRs	(2,376)		(5,892)		(16,798)		(16,971)
Excess MSRs	(1,127)		(1,634)		(7,650)		(2,137)
Shared home appreciation options	2,384		29		(4,286)		29
Loan purchase and interest rate lock commitments	10,791		4,678		10,773		4,757
Other assets - Guarantee asset	(191)		(216)		(1,107)		(834)
Liabilities
Loan purchase commitments	$	420	$	(1,668)	$	(1,334)	$	(1,669)

(1)    Represents the portion of net gains or losses included in our consolidated statements of income (loss) related to loans and the associated ABS issued at our consolidated securitization entities held at September 30, 2020 and 2019, which netted together represent the change in value of our investments at the consolidated VIEs.

Assets and Liabilities Measured at Fair Value on Non-Recurring Basis

The following table presents information on assets recorded at fair value on a non-recurring basis at September 30, 2020. This table does not include the carrying value and gains or losses associated with the asset types below that were not recorded at fair value on our consolidated balance sheets at September 30, 2020.

Table 5.5 – Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis at September 30, 2020

									Gain (Loss) for
September 30, 2020	Carrying Value		Fair Value Measurements Using						Three Months Ended		Nine Months Ended
(In Thousands)			Level 1		Level 2		Level 3		September 30, 2020		September 30, 2020
Assets
REO	$	3,523	$	—	$	—	$	3,523	$	(805)	$	(840)

Market Valuation Gains and Losses, Net

The following table presents the net market valuation gains and losses recorded in each line item of our consolidated statements of income for the three and nine months ended September 30, 2020 and 2019.

Table 5.6 – Market Valuation Gains and Losses, Net

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Mortgage Banking Activities, Net
Residential loans held-for-sale, at fair value	$	(478)	$	(6,623)	$	(15,972)	$	289
Residential loan purchase and forward sale commitments	13,067		12,943		35,123		41,142
Single-family rental loans held-for-sale, at fair value	43,191		1,283		55,868		4,200
Single-family rental loan purchase and interest rate lock commitments	—		564		341		1,273
Residential bridge loans	938		1,010		(4,256)		2,108
Risk management derivatives, net	(99)		(2,972)		(52,931)		(15,387)
Total mortgage banking activities, net (1)	$	56,619	$	6,205	$	18,173	$	33,625
Investment Fair Value Changes, Net
Residential loans held-for-investment, at Redwood	$	218	$	7,667	$	(93,314)	$	71,323
Single-family rental loans held-for-investment	—		22		(20,806)		22
Residential bridge loans held-for-investment	6,812		(742)		(10,016)		(1,363)
Trading securities	(3,600)		15,275		(224,679)		55,577
Servicer advance investments	26		1,585		(6,172)		3,025
Excess MSRs	(1,127)		(1,635)		(7,650)		(2,137)
Net investments in Legacy Sequoia entities (2)	(81)		(407)		(702)		(904)
Net investments in Sequoia Choice entities (2)	7,851		2,722		(22,065)		8,866
Net investments in Freddie Mac SLST entities (2)	82,214		17,300		(33,081)		31,702
Net investments in Freddie Mac K-Series entities (2)	2,166		7,445		(82,744)		13,810
Net investments in CAFL entities (2)	9,673		—		(41,048)		—
Other investments	2,451		(355)		(9,111)		(632)
Risk management derivatives, net	—		(37,433)		(59,142)		(144,548)
Credit recoveries (losses) on AFS securities	444		—		(1,027)		—
Total investment fair value changes, net	$	107,047	$	11,444	$	(611,557)	$	34,741
Other Income
MSRs	$	(4,783)	$	(7,489)	$	(27,346)	$	(21,243)
Risk management derivatives, net	—		4,389		13,966		13,157
Gain on re-measurement of 5 Arches investment	—		—		—		2,440
Total other income (3)	$	(4,783)	$	(3,100)	$	(13,380)	$	(5,646)
Total Market Valuation Gains (Losses), Net	$	158,883	$	14,549	$	(606,764)	$	62,720

(1)Mortgage banking activities, net presented above does not include fee income from loan originations or acquisitions, provisions for repurchases expense, and other expenses that are components of Mortgage banking activities, net presented on our consolidated statements of income (loss), as these amounts do not represent market valuation changes.

(2)Includes changes in fair value of the residential loans held-for-investment, REO and the ABS issued at the entities, which netted together represent the change in value of our investments at the consolidated VIEs.

(3)Other income presented above does not include net MSR fee income or provisions for repurchases for MSRs, as these amounts do not represent market valuation adjustments.

Quantitative Information about Significant Unobservable Inputs Used in Valuation of Level 3 Assets and Liabilities Measured at Fair Value

The following table provides quantitative information about the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value.

Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments

September 30, 2020	Fair Value			Input Values
(Dollars in Thousands, except Input Values)			Unobservable Input	Range						Weighted Average(1)
Assets
Residential loans, at fair value:
Jumbo fixed-rate loans	$	6,312	Prepayment rate (annual CPR)	20		-	20		%	20		%
			Whole loan spread to swap rate	350		-	350		bps	350		bps
Jumbo loans committed to sell	98,779		Whole loan committed sales price	$	101.61	-	$	103.40		$	103.23
Loans held by Legacy Sequoia (2)	296,765		Liability price				N/A			N/A
Loans held by Sequoia Choice (2)	1,836,361		Liability price				N/A			N/A
Loans held by Freddie Mac SLST (2)	2,256,682		Liability price				N/A			N/A
Business purpose residential loans:
Single-family rental loans	285,549		Senior credit spread	130		-	130		bps	130		bps
			Subordinate credit spread	200		-	1,600		bps	551		bps
			Senior credit support	30		-	32		%	31		%
			IO discount rate	8		-	9		%	9		%
			Prepayment rate (annual CPR)	—		-	3		%	3		%
			Non-securitizable loan dollar price	$	101	-	$	101		$	101
Single-family rental loans held by CAFL	2,969,692		Liability price				N/A			N/A
Residential bridge loans	700,860		Discount rate	6		-	12		%	8		%
			Non-performing loan dollar price	$	3	-	$	100		$	89
Multifamily loans held by Freddie Mac K-Series (2)	491,415		Liability price				N/A			N/A
Trading and AFS securities	351,335		Discount rate	3		-	34		%	9		%
			Prepayment rate (annual CPR)	7		-	65		%	24		%
			Default rate	—		-	26		%	1		%
			Loss severity	—		-	50		%	19		%
			CRT dollar price	$	49	-	$	103		$	84
Servicer advance investments	258,621		Discount rate	3		-	4		%	4		%
			Prepayment rate (annual CPR)	8		-	14		%	13		%
			Expected remaining life (3)	1		-	2		years	2		years
			Mortgage servicing income	6		-	16		bps	8		bps
MSRs	14,878		Discount rate	12		-	12		%	12		%
			Prepayment rate (annual CPR)	8		-	97		%	26		%
			Per loan annual cost to service	$	95	-	$	95		$	95
Excess MSRs	35,070		Discount rate	15		-	21		%	18		%
			Prepayment rate (annual CPR)	10		-	13		%	11		%
			Excess mortgage servicing income	9		-	17		bps	12		bps

Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments (continued)

September 30, 2020	Fair Value			Input Values
(Dollars in Thousands, except Input Values)			Unobservable Input	Range						Weighted Average (1)
Assets (continued)
Shared home appreciation options	$	41,758	Discount rate	16		-	16		%	16		%
			Prepayment rate (annual CPR)	8		-	26		%	19		%
			Home price appreciation	2		-	3		%	3		%
Guarantee asset	579		Discount rate	12		-	12		%	12		%
			Prepayment rate (annual CPR)	42		-	42		%	42		%
REO	3,523		Loss severity	3		-	63		%	23		%
Residential loan purchase commitments, net	10,282		Committed sales price	$	100.89	-	$	103.40		$	102.59
			Pull-through rate	13		-	100		%	58		%
			Whole loan spread to TBA price	$	2.00	-	$	2.00		$	2.00
			Whole loan spread to swap rate - fixed rate	350		-	350		bps	350		bps
			Prepayment rate (annual CPR)	15		-	15		%	15		%
			MSR multiple	0.8		-	4.1		x	3.4		x
Liabilities
ABS issued (2):
At consolidated Sequoia entities	1,919,048		Discount rate	2		-	30		%	3		%
			Prepayment rate (annual CPR)	5		-	53		%	27		%
			Default rate	—		-	40		%	2		%
			Loss severity	—		-	50		%	31		%
At consolidated Freddie Mac SLST entities	1,841,313		Dollar price	$	1	-	$	108		$	99
At consolidated Freddie Mac K-Series entities (4)	464,865		Discount rate	1		-	18		%	2		%
At consolidated CAFL entities (4)	2,744,150		Discount rate	0.2		-	40		%	3		%
			Prepayment rate (annual CPR)	—		-	3		%	—		%
			Default rate	—		-	18		%	11		%
			Loss severity	30		-	30		%	30		%

(1)The weighted average input values for all loan types are based on the unpaid principal balance. The weighted average input values for all other assets and liabilities are based on relative fair value.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities. At September 30, 2020, the fair value of securities we owned at the consolidated Sequoia, Freddie Mac SLST, Freddie Mac K-Series, and CAFL entities was $215 million, $416 million, $27 million, and $229 million, respectively.

(3)Represents the estimated average duration of outstanding servicer advances at a given point in time (not taking into account new advances made with respect to the pool).

(4)As a market convention, certain securities are priced to a no-loss yield and therefore do not include default and loss severity assumptions.

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Residential Loans (Tables)

9 Months Ended

Sep. 30, 2020

Receivables [Abstract]

Classifications and Carrying Value of Loans

The following table summarizes the classifications and carrying values of the residential loans owned at Redwood and at consolidated Sequoia and Freddie Mac SLST entities at September 30, 2020 and December 31, 2019.

Table 6.1 – Classifications and Carrying Values of Residential Loans

September 30, 2020			Legacy		Sequoia		Freddie Mac
(In Thousands)	Redwood		Sequoia		Choice		SLST		Total
Held-for-sale at fair value	$	105,128	$	—	$	—	$	—	$	105,128
Held-for-investment at fair value	—		296,765		1,836,361		2,256,682		4,389,808
Total Residential Loans	$	105,128	$	296,765	$	1,836,361	$	2,256,682	$	4,494,936

December 31, 2019			Legacy		Sequoia		Freddie Mac
(In Thousands)	Redwood		Sequoia		Choice		SLST		Total
Held-for-sale at fair value	$	536,385	$	—	$	—	$	—	$	536,385
Held-for-investment at fair value	2,111,897		407,890		2,291,463		2,367,215		7,178,465
Total Residential Loans	$	2,648,282	$	407,890	$	2,291,463	$	2,367,215	$	7,714,850

The following table summarizes the classifications and carrying values of the business purpose residential loans owned at Redwood at September 30, 2020 and December 31, 2019.

Table 7.1 – Classifications and Carrying Values of Business Purpose Residential Loans

September 30, 2020	Single-Family Rental				Residential
(In Thousands)	Redwood		CAFL		Bridge		Total
Held-for-sale at fair value	$	285,549	—		$	—	$	285,549
Held-for-investment at fair value	—		2,969,692		700,860		3,670,552
Total Business Purpose Residential Loans	$	285,549	$	2,969,692	$	700,860	$	3,956,101

December 31, 2019	Single-Family Rental				Residential
(In Thousands)	Redwood		CAFL		Bridge		Total
Held-for-sale at fair value	$	331,565	$	—	$	—	$	331,565
Held-for-investment at fair value	237,620		2,192,552		745,006		3,175,178
Total Business Purpose Residential Loans	$	569,185	$	2,192,552	$	745,006	$	3,506,743

The following tables summarize the characteristics of the business purpose residential loans owned at Redwood at September 30, 2020 and December 31, 2019.

Table 7.2 – Characteristics of Business Purpose Residential Loans

September 30, 2020	Single-Family Rental at Redwood			Single-Family Rental at CAFL			Residential Bridge
(Dollars in Thousands)
Number of loans	140			1,027			2,262
Unpaid principal balance	$	272,492		$	2,815,045		$	708,555
Fair value of loans	$	285,549		$	2,969,692		$	700,860
Weighted average coupon	5.26		%	5.50		%	8.02		%
Weighted average remaining loan term (years)	7			6			1
Number of loans with 90+ day delinquencies (1)	6			26			24
Unpaid principal balance of loans with 90+ day delinquencies	$	3,018		$	70,949		$	38,437
Fair value of loans with 90+ day delinquencies (2)	$	2,954		N/A			$	33,464
Number of loans in foreclosure	—			9			24
Unpaid principal balance of loans in foreclosure	$	—		$	14,032		$	39,755
Fair value of loans in foreclosure (2)	$	—		N/A			$	34,489

December 31, 2019	Single-Family Rental at Redwood			Single-Family Rental at CAFL			Residential Bridge
(Dollars in Thousands)
Number of loans	308			783			2,653
Unpaid principal balance	$	552,848		$	2,078,214		$	742,528
Fair value of loans	$	569,185		$	2,192,552		$	745,006
Weighted average coupon	4.96		%	5.70		%	8.11		%
Weighted average remaining loan term (years)	9			7			2
Number of loans with 90+ day delinquencies (1)	2			18			31
Unpaid principal balance of loans with 90+ day delinquencies	$	1,688		$	29,039		$	14,186
Fair value of loans with 90+ day delinquencies (2)	$	1,818		N/A			$	12,111
Number of loans in foreclosure	1			5			15
Unpaid principal balance of loans in foreclosure	$	130		$	9,169		$	8,987
Fair value of loans in foreclosure (2)	$	130		N/A			$	6,917

(1)The number of loans greater than 90 days delinquent includes loans in foreclosure.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities.

Characteristics of Residential Loans Held-For-Sale

The following table summarizes the characteristics of residential loans held-for-sale at September 30, 2020 and December 31, 2019.

Table 6.2 – Characteristics of Residential Loans Held-for-Sale

(Dollars in Thousands)	September 30, 2020		December 31, 2019
Number of loans	118		669
Unpaid principal balance	$	102,921	$	524,928
Fair value of loans	$	105,128	$	536,280
Number of loans with 90+ day delinquencies	2		1
Unpaid principal balance of loans with 90+ day delinquencies	$	2,356	$	747
Fair value of loans with 90+ day delinquencies	$	1,767	$	616
Number of loans in foreclosure	—		—
Market value of loans pledged as collateral under short-term borrowing agreements	$	95,023	$	201,949

Quarterly Activity of Residential Loans Held-for-Sale

The following table provides the activity of residential loans held-for-sale during the three and nine months ended September 30, 2020 and 2019.

Table 6.3 – Quarterly Activity of Residential Loans Held-for-Sale

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Principal balance of loans acquired	$	172,162	$	1,446,750	$	2,859,813	$	3,936,111
Principal balance of loans sold	87,868		1,534,315		5,024,663		3,921,280
Net market valuation gains (losses) recorded (1)	(478)		(6,623)		(15,972)		286

(1)Net market valuation gains (losses) on residential loans held-for-sale are recorded through Mortgage banking activities, net on our consolidated statements of income (loss).

Characteristics of Residential Loans Held-for-Investment

The following tables summarize the characteristics of the residential loans owned at Redwood and at consolidated Sequoia and Freddie Mac SLST entities at September 30, 2020 and December 31, 2019.

Table 6.4 – Characteristics of Residential Loans Held-for-Investment

September 30, 2020			Legacy		Sequoia		Freddie Mac
(Dollars in Thousands)	Redwood		Sequoia		Choice		SLST
Number of loans	—		1,976		2,546		13,893
Unpaid principal balance	$	—	$	352,392	$	1,811,967	$	2,304,047
Fair value of loans	$	—	$	296,765	$	1,836,361	$	2,256,683
Number of loans with 90+ day delinquencies (1)	—		49		132		1,772
Unpaid principal balance of loans with 90+ day delinquencies	$	—	$	16,076	$	102,693	$	339,537
Fair value of loans with 90+ day delinquencies (2)	$	—	N/A		N/A		N/A
Number of loans in foreclosure	—		21		3		175
Unpaid principal balance of loans in foreclosure	$	—	$	4,820	$	1,814	$	28,380

December 31, 2019			Legacy		Sequoia		Freddie Mac
(Dollars in Thousands)	Redwood		Sequoia		Choice		SLST
Number of loans	2,940		2,198		3,156		14,502
Unpaid principal balance	$	2,052,778	$	424,829	$	2,240,679	$	2,428,035
Fair value of loans	$	2,111,897	$	407,890	$	2,291,463	$	2,367,215
Number of loans with 90+ day delinquencies (1)	2		39		9		587
Unpaid principal balance of loans with 90+ day delinquencies	$	1,585	$	9,803	$	6,755	$	134,680
Fair value of loans with 90+ day delinquencies (2)	$	1,424	N/A		N/A		N/A
Number of loans in foreclosure	—		16		3		208
Unpaid principal balance of loans in foreclosure	$	—	$	3,673	$	2,290	$	33,042

(1)For loans held at consolidated entities, the number of loans greater than 90 days delinquent includes loans in foreclosure.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities.

Quarterly Activity of Residential Loans Held-for-Investment

The following table provides the activity of residential loans held-for-investment at Redwood during the three and nine months ended September 30, 2020 and 2019.

Table 6.5 – Quarterly Activity of Residential Loans Held-for-Investment at Redwood

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Principal balance of loans acquired	$	—	$	—	$	—	$	39,194
Principal balance of loans sold	—		—		—		—
Fair value of loans transferred from HFS to HFI	—		—		13,258		68,703
Fair value of loans transferred from HFI to HFS	—		—		1,870,986		22,814
Net market valuation gains (losses) recorded (1)	218		7,667		(93,314)		71,323

(1)Net market valuation gains (losses) on residential loans held-for-investment at Redwood are recorded through Investment fair value changes, net on our consolidated statements of income (loss).

The following table provides the activity of residential loans held-for-investment at consolidated entities during the three and nine months ended September 30, 2020 and 2019.

Table 6.6 – Quarterly Activity of Residential Loans Held-for-Investment at Consolidated Entities

	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
	Legacy		Sequoia		Freddie Mac		Legacy		Sequoia		Freddie Mac
(In Thousands)	Sequoia		Choice		SLST		Sequoia		Choice		SLST
Fair value of loans transferred from HFS to HFI (1)	N/A		$	—	N/A		N/A		$	270,506	N/A
Net market valuation gains (losses) recorded (2)	$	21,938	$	(5,175)	$	159,687	$	(38,996)	$	(21,727)	$	15,254

	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Legacy		Sequoia		Freddie Mac		Legacy		Sequoia		Freddie Mac
(In Thousands)	Sequoia		Choice		SLST		Sequoia		Choice		SLST
Fair value of loans transferred from HFS to HFI (1)	N/A		$	727,088	N/A		N/A		$	1,076,671	N/A
Net market valuation gains (losses) recorded (2)	$	(103)	$	(11,029)	$	39,783	$	5,271	$	4,841	$	94,788

(1)Represents the transfer of loans from held-for-sale to held-for-investment associated with Sequoia Choice securitizations.

(2)For loans held at our consolidated Legacy Sequoia, Sequoia Choice, and Freddie Mac SLST entities, market value changes are based on the estimated fair value of the associated ABS issued, pursuant to collateralized financing entity guidelines. The net impact to our income statement associated with our economic investments in these securitization entities is presented in Note 5.

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Business Purpose Residential Loans (Tables)

9 Months Ended

Sep. 30, 2020

Receivables [Abstract]

Classifications and Carrying Value of Loans

The following table summarizes the classifications and carrying values of the residential loans owned at Redwood and at consolidated Sequoia and Freddie Mac SLST entities at September 30, 2020 and December 31, 2019.

Table 6.1 – Classifications and Carrying Values of Residential Loans

September 30, 2020			Legacy		Sequoia		Freddie Mac
(In Thousands)	Redwood		Sequoia		Choice		SLST		Total
Held-for-sale at fair value	$	105,128	$	—	$	—	$	—	$	105,128
Held-for-investment at fair value	—		296,765		1,836,361		2,256,682		4,389,808
Total Residential Loans	$	105,128	$	296,765	$	1,836,361	$	2,256,682	$	4,494,936

December 31, 2019			Legacy		Sequoia		Freddie Mac
(In Thousands)	Redwood		Sequoia		Choice		SLST		Total
Held-for-sale at fair value	$	536,385	$	—	$	—	$	—	$	536,385
Held-for-investment at fair value	2,111,897		407,890		2,291,463		2,367,215		7,178,465
Total Residential Loans	$	2,648,282	$	407,890	$	2,291,463	$	2,367,215	$	7,714,850

The following table summarizes the classifications and carrying values of the business purpose residential loans owned at Redwood at September 30, 2020 and December 31, 2019.

Table 7.1 – Classifications and Carrying Values of Business Purpose Residential Loans

September 30, 2020	Single-Family Rental				Residential
(In Thousands)	Redwood		CAFL		Bridge		Total
Held-for-sale at fair value	$	285,549	—		$	—	$	285,549
Held-for-investment at fair value	—		2,969,692		700,860		3,670,552
Total Business Purpose Residential Loans	$	285,549	$	2,969,692	$	700,860	$	3,956,101

December 31, 2019	Single-Family Rental				Residential
(In Thousands)	Redwood		CAFL		Bridge		Total
Held-for-sale at fair value	$	331,565	$	—	$	—	$	331,565
Held-for-investment at fair value	237,620		2,192,552		745,006		3,175,178
Total Business Purpose Residential Loans	$	569,185	$	2,192,552	$	745,006	$	3,506,743

The following tables summarize the characteristics of the business purpose residential loans owned at Redwood at September 30, 2020 and December 31, 2019.

Table 7.2 – Characteristics of Business Purpose Residential Loans

September 30, 2020	Single-Family Rental at Redwood			Single-Family Rental at CAFL			Residential Bridge
(Dollars in Thousands)
Number of loans	140			1,027			2,262
Unpaid principal balance	$	272,492		$	2,815,045		$	708,555
Fair value of loans	$	285,549		$	2,969,692		$	700,860
Weighted average coupon	5.26		%	5.50		%	8.02		%
Weighted average remaining loan term (years)	7			6			1
Number of loans with 90+ day delinquencies (1)	6			26			24
Unpaid principal balance of loans with 90+ day delinquencies	$	3,018		$	70,949		$	38,437
Fair value of loans with 90+ day delinquencies (2)	$	2,954		N/A			$	33,464
Number of loans in foreclosure	—			9			24
Unpaid principal balance of loans in foreclosure	$	—		$	14,032		$	39,755
Fair value of loans in foreclosure (2)	$	—		N/A			$	34,489

December 31, 2019	Single-Family Rental at Redwood			Single-Family Rental at CAFL			Residential Bridge
(Dollars in Thousands)
Number of loans	308			783			2,653
Unpaid principal balance	$	552,848		$	2,078,214		$	742,528
Fair value of loans	$	569,185		$	2,192,552		$	745,006
Weighted average coupon	4.96		%	5.70		%	8.11		%
Weighted average remaining loan term (years)	9			7			2
Number of loans with 90+ day delinquencies (1)	2			18			31
Unpaid principal balance of loans with 90+ day delinquencies	$	1,688		$	29,039		$	14,186
Fair value of loans with 90+ day delinquencies (2)	$	1,818		N/A			$	12,111
Number of loans in foreclosure	1			5			15
Unpaid principal balance of loans in foreclosure	$	130		$	9,169		$	8,987
Fair value of loans in foreclosure (2)	$	130		N/A			$	6,917

(1)The number of loans greater than 90 days delinquent includes loans in foreclosure.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities.

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Multifamily Loans (Tables)

9 Months Ended

Sep. 30, 2020

Receivables [Abstract]

Schedule of Multifamily Loans

The following table summarizes the characteristics of the multifamily loans consolidated at Redwood at September 30, 2020 and December 31, 2019.

Table 8.1 – Characteristics of Multifamily Loans

(Dollars in Thousands)	September 30, 2020			December 31, 2019
Number of loans	28			279
Unpaid principal balance	$	464,680		$	4,195,000
Fair value of loans	$	491,415		$	4,408,524
Weighted average coupon	4.25		%	4.13		%
Weighted average remaining loan term (years)	5			6
Number of loans with 90+ day delinquencies	—			—
Number of loans in foreclosure	—			—

The outstanding multifamily loans held-for-investment at the Freddie Mac K-Series entities at September 30, 2020 were first-lien, fixed-rate loans that were originated in 2015 and had original loan terms of ten years. The following table provides the activity of multifamily loans held-for-investment during the three and nine months ended September 30, 2020 and 2019.

Table 8.2 – Quarterly Activity of Multifamily Loans Held-for-Investment

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Net market valuation gains (losses) recorded (1)	$	2,340	$	47,353	$	(61,500)	$	178,374

(1)Net market valuation gains (losses) on multifamily loans held-for-investment are recorded through Investment fair value changes, net on our consolidated statements of income (loss). For loans held at our consolidated Freddie Mac K-Series entities, market value changes are based on the estimated fair value of the associated ABS issued, pursuant to collateralized financing entity guidelines. The net impact to our income statement associated with our economic investment in these securitization entities is presented in Note 5

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Real Estate Securities (Tables)

9 Months Ended

Sep. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Fair Values of Real Estate Securities by Type

The following table presents the fair values of our real estate securities by type at September 30, 2020 and December 31, 2019.

Table 9.1 – Fair Values of Real Estate Securities by Type

(In Thousands)	September 30, 2020		December 31, 2019
Trading	$	144,162	$	860,540
Available-for-sale	207,173		239,334
Total Real Estate Securities	$	351,335	$	1,099,874

Trading Securities by Collateral Type

The following table presents the fair value of trading securities by position and collateral type at September 30, 2020 and December 31, 2019.

Table 9.2 – Trading Securities by Position

(In Thousands)	September 30, 2020		December 31, 2019
Senior	$	28,091	$	150,067
Mezzanine	3,651		538,489
Subordinate	112,420		171,984
Total Trading Securities	$	144,162	$	860,540

Available-for-Sale Securities by Collateral Type

The following table presents the fair value of our available-for-sale securities by position and collateral type at September 30, 2020 and December 31, 2019.

Table 9.3 – Available-for-Sale Securities by Position

(In Thousands)	September 30, 2020		December 31, 2019
Senior	$	—	$	25,792
Mezzanine	2,016		13,687
Subordinate	205,157		199,855
Total AFS Securities	$	207,173	$	239,334

Carrying Value of Residential Available for Sale Securities

The following table presents the components of carrying value (which equals fair value) of AFS securities at September 30, 2020 and December 31, 2019.

Table 9.4 – Carrying Value of AFS Securities

September 30, 2020
(In Thousands)	Senior		Mezzanine		Subordinate		Total
Principal balance	$	—	$	2,000	$	287,659	$	289,659
Credit reserve	—		—		(43,186)		(43,186)
Unamortized discount, net	—		—		(99,221)		(99,221)
Amortized cost	—		2,000		145,252		147,252
Gross unrealized gains	—		16		63,439		63,455
Gross unrealized losses	—		—		(2,507)		(2,507)
Allowance for credit losses	—		—		(1,027)		(1,027)
Carrying Value	$	—	$	2,016	$	205,157	$	207,173

December 31, 2019
(In Thousands)	Senior		Mezzanine		Subordinate		Total
Principal balance	$	26,331	$	13,512	$	264,234	$	304,077
Credit reserve	(533)		—		(32,407)		(32,940)
Unamortized discount, net	(10,427)		(527)		(113,301)		(124,255)
Amortized cost	15,371		12,985		118,526		146,882
Gross unrealized gains	10,450		702		81,329		92,481
Gross unrealized losses	(29)		—		—		(29)
Carrying Value	$	25,792	$	13,687	$	199,855	$	239,334

Changes of Unamortized Discount and Designated Credit Reserves on Residential Available for Sale Securities

The following table presents the changes for the three and nine months ended September 30, 2020, in unamortized discount and designated credit reserves on AFS securities.

Table 9.5 – Changes in Unamortized Discount and Designated Credit Reserves on AFS Securities

	Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
	Credit Reserve		Unamortized Discount, Net		Credit Reserve		Unamortized Discount, Net
(In Thousands)
Beginning balance	$	37,785	$	104,260	$	32,940	$	124,255
Amortization of net discount	—		(1,766)		—		(4,607)
Realized credit losses	(194)		—		(897)		—
Acquisitions	1,303		1,019		6,487		1,796
Sales, calls, other	—		—		(726)		(16,841)
(Release of) transfers to credit reserves, net	4,292		(4,292)		5,382		(5,382)
Ending Balance	$	43,186	$	99,221	$	43,186	$	99,221

Components of Fair Value of Available for Sale Securities by Holding Periods

The following table presents the components comprising the total carrying value of AFS securities that were in a gross unrealized loss position at September 30, 2020 and December 31, 2019.

Table 9.6 – Components of Fair Value of AFS Securities by Holding Periods

	Less Than 12 Consecutive Months						12 Consecutive Months or Longer
	Amortized Cost		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Losses		Fair Value
(In Thousands)
September 30, 2020	$	32,890	$	(2,507)	$	30,330	$	—	$	—	$	—
December 31, 2019	—		—		—		5,830		(29)		5,801

Summary of Significant Valuation Assumptions for Available for Sale Securities Credit Loss

The table below summarizes the weighted average of the significant credit quality indicators we used for the credit loss allowance on our AFS securities at September 30, 2020.

Table 9.7 – Significant Credit Quality Indicators

September 30, 2020	Subordinate Securities
Default rate	0.5%
Loss severity	20%

Activity of Allowance for Credit Losses for Available-for-sale Securities

The following table details the activity related to the allowance for credit losses for AFS securities held at September 30, 2020.

Table 9.8 – Rollforward of Allowance for Credit Losses

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2020		September 30, 2020
Beginning balance allowance for credit losses	$	1,471	$	—
Transition impact from adoption of new standard	—		—
Additions to allowance for credit losses on securities for which credit losses were not previously recorded	339		1,864
Additional increases or decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period	(783)		(837)
Allowance on purchased financial assets with credit deterioration	—		—
Reduction to allowance for securities sold during the period	—		—
Reduction to allowance for securities we intend to sell or more likely than not will be required to sell	—		—
Write-offs charged against allowance	—		—
Recoveries of amounts previously written off	—		—
Ending balance of allowance for credit losses	$	1,027	$	1,027

Gross Realized Gains and Losses on Available for Sale Securities

The following table presents the gross realized gains and losses on sales and calls of AFS securities for the three and nine months ended September 30, 2020 and 2019.

Table 9.9 – Gross Realized Gains and Losses on AFS Securities

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Gross realized gains - sales	$	—	$	3,656	$	8,779	$	13,143
Gross realized gains - calls	—		1,058		—		5,084
Gross realized losses - sales	—		—		(4,144)		—
Total Realized Gains on Sales and Calls of AFS Securities, net	$	—	$	4,714	$	4,635	$	18,227

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Other Investments (Tables)

9 Months Ended

Sep. 30, 2020

Investments, All Other Investments [Abstract]

Summary of Other Investments

Other investments at September 30, 2020 and December 31, 2019 are summarized in the following table.

Table 10.1 – Components of Other Investments

(In Thousands)	September 30, 2020		December 31, 2019
Servicer advance investments	$	258,621	$	169,204
Shared home appreciation options	41,758		45,085
Excess MSRs	35,070		31,814
Mortgage servicing rights	14,878		42,224
Investment in multifamily loan fund	(323)		39,802
Other	34,624		30,001
Total Other Investments	$	384,628	$	358,130

Components of Servicer Advance Investments

The servicer advance receivables were comprised of the following types of advances at September 30, 2020 and December 31, 2019.

Table 10.2 – Components of Servicer Advance Receivables

(In Thousands)	September 30, 2020		December 31, 2019
Principal and interest advances	$	88,370	$	15,081
Escrow advances (taxes and insurance advances)	115,352		96,732
Corporate advances	38,337		39,769
Total Servicer Advance Receivables	$	242,059	$	151,582

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Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Fair Value and Notional Amount of Derivative Financial Instruments

The following table presents the fair value and notional amount of our derivative financial instruments at September 30, 2020 and December 31, 2019.

Table 11.1 – Fair Value and Notional Amount of Derivative Financial Instruments

	September 30, 2020				December 31, 2019
	Fair Value		Notional Amount		Fair Value		Notional Amount
(In Thousands)
Assets - Risk Management Derivatives
Interest rate swaps	$	78	$	25,000	$	17,095	$	1,399,000
TBAs	402		140,000		5,755		2,445,000
Interest rate futures	63		40,000		777		213,700
Swaptions	3,393		285,000		1,925		1,065,000
Assets - Other Derivatives
Loan purchase and interest rate lock commitments	10,773		1,724,207		10,149		1,537,162
Total Assets	$	14,709	$	2,214,207	$	35,701	$	6,659,862
Liabilities - Cash Flow Hedges
Interest rate swaps	$	—	$	—	$	(51,530)	$	139,500
Liabilities - Risk Management Derivatives
Interest rate swaps	(15)		25,000		(97,235)		2,314,300
TBAs	(263)		105,000		(13,359)		4,160,000
Interest rate futures	—		—		(10)		12,300
Liabilities - Other Derivatives
Loan purchase commitments	(1,334)		231,651		(1,290)		303,394
Total Liabilities	$	(1,612)	$	361,651	$	(163,424)	$	6,929,494
Total Derivative Financial Instruments, Net	$	13,097	$	2,575,858	$	(127,723)	$	13,589,356

Impact on Interest Expense of Interest Rate Agreements Accounted for as Cash Flow Hedges

The following table illustrates the impact on interest expense of our interest rate agreements accounted for as cash flow hedges for the three and nine months ended September 30, 2020 and 2019.

Table 11.2 – Impact on Interest Expense of Interest Rate Agreements Accounted for as Cash Flow Hedges

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Net interest expense on cash flows hedges	$	—	$	(727)	$	(860)	$	(2,004)
Realized net losses reclassified from other comprehensive income	(1,040)		—		(2,148)		—
Total Interest Expense	$	(1,040)	$	(727)	$	(3,008)	$	(2,004)

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Other Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Components of Other Assets

Other assets at September 30, 2020 and December 31, 2019 are summarized in the following table.

Table 12.1 – Components of Other Assets

(In Thousands)	September 30, 2020		December 31, 2019
Accrued interest receivable	$	39,330	$	71,058
Investment receivable	25,767		23,330
Right-of-use asset	13,487		11,866
REO	8,535		9,462
Pledged collateral	8,172		32,945
Income tax receivables	8,148		36
FHLBC stock	5,000		43,393
Fixed assets and leasehold improvements (1)	4,408		4,901
Margin receivable	3,809		209,776
Other	7,617		12,554
Total Other Assets	$	124,273	$	419,321

(1)Fixed assets and leasehold improvements had a basis of $12 million and accumulated depreciation of $8 million at September 30, 2020.

Components of Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities at September 30, 2020 and December 31, 2019 are summarized in the following table.

Table 12.2 – Components of Accrued Expenses and Other Liabilities

(In Thousands)	September 30, 2020		December 31, 2019
Accrued interest payable	$	34,225	$	60,655
Payable to minority partner	17,492		13,189
Accrued compensation	17,127		33,888
Lease liability	15,123		13,443
Deferred consideration	14,442		—
Guarantee obligations	11,264		14,009
Current accounts payable	8,717		5,468
Residential loan and MSR repurchase reserve	8,565		4,268
Residential bridge loan holdbacks	6,350		10,682
Deferred tax liabilities	5,152		5,152
Accrued operating expenses	3,922		4,358
Contingent consideration	—		28,484
Other	13,610		13,297
Total Accrued Expenses and Other Liabilities	$	155,989	$	206,893

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Short-Term Debt (Tables)

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Short-Term Debt Facilities

The table below summarizes our short-term debt, including the facilities that are available to us, the outstanding balances, the weighted average interest rate, and the maturity information at September 30, 2020 and December 31, 2019.

Table 13.1 – Short-Term Debt

	September 30, 2020
(Dollars in Thousands)	Number of Facilities	Outstanding Balance		Limit		Weighted Average Interest Rate		Maturity	Weighted Average Days Until Maturity
Facilities
Residential loan warehouse (1)	4	$	81,898	$	600,000	2.90	%	10/2020-8/2021	203
Business purpose residential loan warehouse (2)	2	96,811		500,000		3.28	%	6/2021-5/2022	437
Real estate securities repo (1)	3	75,054		—		2.87	%	10/2020-12/2020	38
Total Short-Term Debt Facilities	9	253,763
Servicer advance financing	1	228,998		400,000		1.96	%	11/2020	61
Total Short-Term Debt		$	482,761

	December 31, 2019
(Dollars in Thousands)	Number of Facilities	Outstanding Balance		Limit		Weighted Average Interest Rate		Maturity	Weighted Average Days Until Maturity
Facilities
Residential loan warehouse (1)	4	$	185,894	$	1,425,000	3.23	%	1/2020-10/2020	69
Business purpose residential loan warehouse (2)	8	814,118		1,475,000		4.11	%	12/2020-5/2022	489
Real estate securities repo (1)	10	1,176,579		—		2.94	%	1/2020-3/2020	23
Total Short-Term Debt Facilities	22	2,176,591
Servicer advance financing	1	152,554		400,000		3.56	%	11/2020	335
Total Short-Term Debt		$	2,329,145

(1)Borrowings under our facilities are generally charged interest based on a specified margin over the one-month LIBOR interest rate. At September 30, 2020 and December 31, 2019, all of these borrowings were under uncommitted facilities and were due within 364 days (or less) of the borrowing date.

(2)Due to the revolving nature of the borrowings under these facilities, we have classified these facilities as short-term debt at September 30, 2020. Borrowings under these facilities will be repaid as the underlying loans mature or are sold to third parties or transferred to securitizations.

Collateral for Short-Term Debt Facilities

The following table below presents the value of loans, securities, and other assets pledged as collateral under our short-term debt facilities at September 30, 2020 and December 31, 2019.

Table 13.2 – Collateral for Short-Term Debt Facilities

(In Thousands)	September 30, 2020		December 31, 2019
Collateral Type
Held-for-sale residential loans	$	95,023	$	201,949
Business purpose residential loans	110,505		988,179
Real estate securities
On balance sheet	24,670		618,881
Sequoia Choice securitizations (1)	63,088		111,341
Freddie Mac SLST securitizations (1)	—		381,640
Freddie Mac K-Series securitizations (1)	26,550		252,284
CAFL securitizations (1)	—		127,840
Total real estate securities owned	114,308		1,491,986
Other assets	—		16,252
Total Collateral for Short-Term Debt Facilities	$	319,836	$	2,698,366

(1)Represents securities we have retained from consolidated securitization entities. For GAAP purposes, we consolidate the loans and non-recourse ABS debt issued from these securitizations.

Short-Term Debt by Collateral Type and Remaining Maturities

The following table presents the remaining maturities of our secured short-term debt by the type of collateral securing the debt as well as our convertible notes at September 30, 2020.

Table 13.3 – Short-Term Debt by Collateral Type and Remaining Maturities

	September 30, 2020
(In Thousands)	Within 30 days		31 to 90 days		Over 90 days		Total
Collateral Type
Held-for-sale residential loans	$	1,217	$	—	$	80,681	$	81,898
Business purpose residential loans	—		—		96,811		96,811
Real estate securities	37,217		37,837		—		75,054
Total Secured Short-Term Debt	38,434		37,837		177,492		253,763
Servicer advance financing	—		228,998		—		228,998
Total Short-Term Debt	$	38,434	$	266,835	$	177,492	$	482,761

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Asset-Backed Securities Issued (Tables)

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Asset-Backed Securities Issued

The carrying values of ABS issued by our consolidated securitization entities at September 30, 2020 and December 31, 2019, along with other selected information, are summarized in the following table.

Table 14.1 – Asset-Backed Securities Issued

September 30, 2020	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST (1)		Freddie Mac K-Series			CAFL		Total
(Dollars in Thousands)
Certificates with principal balance	$	347,985	$	1,571,714	$	1,925,144	$	418,212		$	2,528,974	$	6,792,029
Interest-only certificates	1,268		6,805		24,053		13,122			137,064		182,312
Market valuation adjustments	(56,769)		48,045		95,138		33,531			78,112		198,057
ABS Issued, Net	$	292,484	$	1,626,564	$	2,044,335	$	464,865		$	2,744,150	$	7,172,398
Range of weighted average interest rates, by series	0.35% to 1.96%		2.23% to 5.02%		3.50% to 4.75%		3.39		%	3.18% to 5.53%
Stated maturities	2024 - 2036		2047 - 2050		2028 - 2059		2025			2022 - 2048
Number of series	20		10		3		1			13

December 31, 2019	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST			Freddie Mac K-Series		CAFL		Total
(Dollars in Thousands)
Certificates with principal balance	$	420,056	$	1,979,719	$	1,842,682		$	3,844,789	$	1,875,007	$	9,962,253
Interest-only certificates	1,282		16,514		30,291			217,891		90,134		356,112
Market valuation adjustments	(18,873)		40,965		45,349			93,559		36,110		197,110
ABS Issued, Net	$	402,465	$	2,037,198	$	1,918,322		$	4,156,239	$	2,001,251	$	10,515,475
Range of weighted average interest rates, by series	1.94% to 3.26%		4.40% to 5.05%		3.50		%	3.35% to 4.35%		3.25% to 5.36%
Stated maturities	2024 - 2036		2047 - 2049		2028 - 2029			2025 - 2049		2022 - 2048
Number of series	20		9		2			5		10

(1)Includes $208 million (principal balance) of ABS issued by a re-securitization trust sponsored by Redwood and accounted for at amortized cost.

Accrued Interest Payable on Asset-Backed Securities Issued

The following table summarizes the accrued interest payable on ABS issued at September 30, 2020 and December 31, 2019. Interest due on consolidated ABS issued is payable monthly.

Table 14.2 – Accrued Interest Payable on Asset-Backed Securities Issued

(In Thousands)	September 30, 2020		December 31, 2019
Legacy Sequoia	$	180	$	395
Sequoia Choice	5,652		7,732
Freddie Mac SLST (1)	5,831		5,374
Freddie Mac K-Series	1,182		12,887
CAFL	9,180		7,298
Total Accrued Interest Payable on ABS Issued	$	22,025	$	33,686

(1)Includes accrued interest payable on ABS issued by a re-securitization trust sponsored by Redwood.

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Future Lease Commitments by Year

The following table presents our future lease commitments at September 30, 2020.

Table 16.1 – Future Lease Commitments by Year

(In Thousands)	September 30, 2020
2020 (3 months)	$	930
2021	2,949
2022	2,427
2023	1,913
2024	1,917
2025	8,039
Total Lease Commitments	18,175
Less: Imputed interest	(3,052)
Lease Liability	$	15,123

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Equity (Tables)

9 Months Ended

Sep. 30, 2020

Equity [Abstract]

Changes to Accumulated Other Comprehensive Income by Component

The following table provides a summary of changes to accumulated other comprehensive income by component for the three and nine months ended September 30, 2020 and 2019. During the three and nine months ended September 30, 2020, we recognized net unrealized gains (losses) on our Level 3 AFS securities which we owned as of September 30, 2020 of $8 million and negative $16 million, respectively.

Table 17.1 – Changes in Accumulated Other Comprehensive Income by Component

	Three Months Ended September 30, 2020				Three Months Ended September 30, 2019
(In Thousands)	Available-for-Sale Securities		Interest Rate Agreements Accounted for as Cash Flow Hedges		Available-for-Sale Securities		Interest Rate Agreements Accounted for as Cash Flow Hedges
Balance at beginning of period	$	53,246	$	(82,637)	$	98,307	$	(49,384)
Other comprehensive income (loss) before reclassifications	8,236		—		4,484		(11,791)
Amounts reclassified from other accumulated comprehensive income	(445)		1,040		(3,492)		—
Net current-period other comprehensive income (loss)	7,791		1,040		992		(11,791)
Balance at End of Period	$	61,037	$	(81,597)	$	99,299	$	(61,175)

	Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
(In Thousands)	Available-for-Sale Securities		Interest Rate Agreements Accounted for as Cash Flow Hedges		Available-for-Sale Securities		Interest Rate Agreements Accounted for as Cash Flow Hedges
Balance at beginning of period	$	92,452	$	(50,939)	$	95,342	$	(34,045)
Other comprehensive income (loss) before reclassifications	(19,890)		(32,806)		19,764		(27,130)
Amounts reclassified from other accumulated comprehensive income	(11,525)		2,148		(15,807)		—
Net current-period other comprehensive income (loss)	(31,415)		(30,658)		3,957		(27,130)
Balance at End of Period	$	61,037	$	(81,597)	$	99,299	$	(61,175)

Reclassifications out of Accumulated Other Comprehensive Income

The following table provides a summary of reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2020 and 2019.

Table 17.2 – Reclassifications Out of Accumulated Other Comprehensive Income

		Amount Reclassified From Accumulated Other Comprehensive Income
	Affected Line Item in the	Three Months Ended September 30,
(In Thousands)	Income Statement	2020		2019
Net Realized (Gain) Loss on AFS Securities
Credit loss recovery on AFS securities	Investment fair value changes, net	$	(444)	$	—
Gain on sale of AFS securities	Realized gains, net	—		(3,492)
		$	(444)	$	(3,492)
Net Realized Loss on Interest Rate Agreements Designated as Cash Flow Hedges
Amortization of deferred loss	Interest expense	$	1,040	$	—
		$	1,040	$	—

		Amount Reclassified From Accumulated Other Comprehensive Income
	Affected Line Item in the	Nine Months Ended September 30,
(In Thousands)	Income Statement	2020		2019
Net Realized (Gain) Loss on AFS Securities
Credit loss expense on AFS securities	Investment fair value changes, net	$	1,027	$	—
Gain on sale of AFS securities	Realized gains, net	(12,552)		(15,807)
		$	(11,525)	$	(15,807)
Net Realized Loss on Interest Rate Agreements Designated as Cash Flow Hedges
Amortization of deferred loss	Interest expense	$	2,148	$	—
		$	2,148	$	—

Basic and Diluted Earnings Per Common Share

The following table provides the basic and diluted earnings (loss) per common share computations for the three and nine months ended September 30, 2020 and 2019.

Table 17.3 – Basic and Diluted Earnings (Loss) per Common Share

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands, except Share Data)	2020		2019		2020		2019
Basic Earnings (Loss) per Common Share:
Net income (loss) attributable to Redwood	$	141,812	$	34,310	$	(636,142)	$	120,040
Less: Dividends and undistributed earnings allocated to participating securities	(4,067)		(856)		(1,427)		(3,260)
Net income (loss) allocated to common shareholders	$	137,745	$	33,454	$	(637,569)	$	116,780
Basic weighted average common shares outstanding	113,403,102		101,872,126		113,952,308		97,214,064
Basic Earnings (Loss) per Common Share	$	1.21	$	0.33	$	(5.60)	$	1.20
Diluted Earnings (Loss) per Common Share:
Net income (loss) attributable to Redwood	$	141,812	$	34,310	$	(636,142)	$	120,040
Less: Dividends and undistributed earnings allocated to participating securities	(3,512)		(1,036)		(1,427)		(3,625)
Adjust for interest expense and gain on extinguishment of convertible notes for the period, net of tax	6,990		8,887		—		26,271
Net income (loss) allocated to common shareholders	$	145,290	$	42,161	$	(637,569)	$	142,686
Weighted average common shares outstanding	113,403,102		101,872,126		113,952,308		97,214,064
Net effect of dilutive equity awards	—		362,743		—		261,155
Net effect of assumed convertible notes conversion to common shares	28,566,875		34,287,840		—		33,727,470
Diluted weighted average common shares outstanding	141,969,977		136,522,709		113,952,308		131,202,689
Diluted Earnings (Loss) per Common Share	$	1.02	$	0.31	$	(5.60)	$	1.09

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Equity Compensation Plans (Tables)

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Equity Compensation Costs by Award Type

The unamortized compensation cost of awards issued under the Incentive Plan and purchases under the Employee Stock Purchase Plan totaled $20 million at September 30, 2020, as shown in the following table.

Table 18.1 – Activities of Equity Compensation Costs by Award Type

	Nine Months Ended September 30, 2020
(In Thousands)	Restricted Stock Awards		Restricted Stock Units		Deferred Stock Units		Performance Stock Units		Employee Stock Purchase Plan		Total
Unrecognized compensation cost at beginning of period	$	1,990	$	3,534	$	17,858	$	8,946	$	—	$	32,328
Equity grants	108		3,581		6,780		—		160		10,629
Performance-based valuation adjustment	—		—		—		(7,352)		—		(7,352)
Equity grant forfeitures	(529)		(2,161)		(4,733)		(648)		—		(8,071)
Equity compensation expense	(807)		(1,067)		(6,268)		326		(80)		(7,896)
Unrecognized Compensation Cost at End of Period	$	762	$	3,887	$	13,637	$	1,272	$	80	$	19,638

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Mortgage Banking Activities, Net (Tables)

9 Months Ended

Sep. 30, 2020

Mortgage Banking [Abstract]

Mortgage Banking Activities

The following table presents the components of Mortgage banking activities, net, recorded in our consolidated statements of income (loss) for the three and nine months ended September 30, 2020 and 2019.

Table 19.1 – Mortgage Banking Activities

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Residential Mortgage Banking Activities, Net
Changes in fair value of:
Residential loans, at fair value (1)	$	12,589	$	6,320	$	19,151	$	41,431
Risk management derivatives (2)	(10)		(1,710)		(31,304)		(11,608)
Other income (expense), net (3)	(715)		407		(7,069)		1,380
Total residential mortgage banking activities, net	11,864		5,017		(19,222)		31,203
Business Purpose Mortgage Banking Activities, Net:
Changes in fair value of:
Single-family rental loans, at fair value (1)	43,191		1,847		56,209		5,473
Risk management derivatives (2)	(89)		(1,262)		(21,627)		(3,779)
Residential bridge loans, at fair value	938		1,010		(4,256)		2,108
Other income, net (4)	3,491		2,903		13,407		5,979
Total business purpose mortgage banking activities, net	47,531		4,498		43,733		9,781
Mortgage Banking Activities, Net	$	59,395	$	9,515	$	24,511	$	40,984

(1)For residential loans, includes changes in fair value for associated loan purchase and forward sale commitments. For single-family rental loans, includes changes in fair value for associated interest rate lock commitments.

(2)Represents market valuation changes of derivatives that were used to manage risks associated with our accumulation of loans.

(3)Amounts in this line item include other fee income from loan acquisitions, provisions for repurchases expense, and expense related to resolving residential loan seller demands, presented net.

(4)Amounts in this line item include other fee income from loan originations.

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Other Income (Tables)

9 Months Ended

Sep. 30, 2020

Other Income and Expenses [Abstract]

Schedule of other income

The following table presents the components of Other income recorded in our consolidated statements of income (loss) for the three and nine months ended September 30, 2020 and 2019.

Table 20.1 – Other Income

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
MSR (loss) income, net	$	(2,362)	$	431	$	(5,595)	$	2,342
Risk share income	1,200		905		3,146		2,351
FHLBC capital stock dividend	116		541		1,201		1,623
Equity investment income	341		560		615		732
5 Arches loan administration fee income	688		1,344		2,206		3,298
Gain on re-measurement of investment in 5 Arches	—		—		—		2,441
Other	(97)		575		2,406		1,053
Other (Loss) Income	$	(114)	$	4,356	$	3,979	$	13,840

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General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses (Tables)

9 Months Ended

Sep. 30, 2020

Other Income and Expenses [Abstract]

Components of General and Administrative Expenses and Other Expenses

Components of our general and administrative, and other expenses for the three and nine months ended September 30, 2020 and 2019 are presented in the following table.

Table 21.1 – Components of General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
General and Administrative Expenses
Fixed compensation expense	$	10,103	$	9,391	$	36,605	$	26,740
Variable compensation expense	5,882		3,489		9,171		11,356
Equity compensation expense	2,639		3,155		7,896		10,132
Acquisition-related equity compensation expense (1)	1,212		—		3,636		—
Systems and consulting	2,145		3,230		7,752		7,594
Office costs	1,859		1,517		5,854		4,406
Accounting and legal	1,601		1,767		6,605		3,852
Corporate costs	831		482		2,128		1,701
Other operating expenses	1,358		1,868		5,185		4,941
Total General and Administrative Expenses	27,630		24,899		84,832		70,722
Loan Acquisition Costs
Commissions	879		659		3,027		1,432
Underwriting costs	771		1,074		3,289		3,184
Transfer and holding costs	508		183		1,400		891
Total Loan Acquisition Costs	2,158		1,916		7,716		5,507
Other Expenses
Goodwill impairment expense	—		—		88,675		—
Amortization of purchase-related intangible assets	3,873		1,897		12,052		4,608
Contingent consideration expense (2)	135		236		581		547
Other	3,780		398		2,978		866
Total Other Expenses	7,788		2,531		104,286		6,021
Total General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses	$	37,576	$	29,346	$	196,834	$	82,250

(1)Acquisition-related equity compensation expense relates to 588,260 shares of restricted stock that were issued to members of CoreVest management as a component of the consideration paid to them for our purchase of their interests in CoreVest. The grant date fair value of these restricted stock awards was $10 million, which will be recognized as compensation expense over the two-year vesting period on a straight-line basis in accordance with GAAP.

(2)Contingent consideration expense relates to the acquisition of 5 Arches during 2019. Refer to Note 2 for additional detail.

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Taxes (Tables)

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Reconciliation of Statutory Tax Rate to Effective Tax Rate

The following is a reconciliation of the statutory federal and state tax rates to our effective tax rate at September 30, 2020 and 2019.

Table 22.1 – Reconciliation of Statutory Tax Rate to Effective Tax Rate

	September 30, 2020		September 30, 2019
Federal statutory rate	21.0	%	21.0	%
State statutory rate, net of Federal tax effect	8.6	%	8.6	%
Differences in taxable (loss) income from GAAP income	(23.6)	%	(2.5)	%
Change in valuation allowance	(4.0)	%	(2.5)	%
Dividends paid deduction (1)	—	%	(22.1)	%
Effective Tax Rate	2.0	%	2.5	%

(1)The dividends paid deduction in the effective tax rate reconciliation is generally representative of the amount of distributions to shareholders that reduce REIT taxable income. For the nine months ended September 30, 2020, the dividends paid deduction is 0% due to our REIT incurring a taxable loss during the period; therefore, there was no REIT taxable income available to apply against the dividends paid.

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Business Segment Financial Information

The following tables present financial information by segment for the three and nine months ended September 30, 2020 and 2019.

Table 23.1 – Business Segment Financial Information

	Three Months Ended September 30, 2020
(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
Interest income	$	26,672	$	55,930	$	37,576	$	1,804	$	121,982
Interest expense	(22,541)		(46,027)		(27,534)		(4,309)		(100,411)
Net interest income	4,131		9,903		10,042		(2,505)		21,571
Non-interest income
Mortgage banking activities, net	11,864		47,531		—		—		59,395
Investment fair value changes, net	2,443		16,892		87,890		(178)		107,047
Other income, net	(2,011)		623		340		934		(114)
Realized gains, net	—		—		602		—		602
Total non-interest income, net	12,296		65,046		88,832		756		166,930
General and administrative expenses	(4,602)		(9,321)		(709)		(12,998)		(27,630)
Loan acquisition costs	(304)		(1,660)		(194)		—		(2,158)
Other expenses	(3,309)		(3,874)		(470)		(135)		(7,788)
(Provision for) benefit from income taxes	(826)		(8,544)		257		—		(9,113)
Segment Contribution	$	7,386	$	51,550	$	97,758	$	(14,882)
Net Income									$	141,812
Non-cash amortization (expense) income, net	$	1,785	$	(6,719)	$	117	$	(1,516)	$	(6,333)

	Nine Months Ended September 30, 2020
(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
Interest income	$	123,956	$	162,732	$	155,583	$	7,738	$	450,009
Interest expense	(94,112)		(119,854)		(123,160)		(12,622)		(349,748)
Net interest income	29,844		42,878		32,423		(4,884)		100,261
Non-interest income
Mortgage banking activities, net	(19,222)		43,733		—		—		24,511
Investment fair value changes, net	(159,107)		(84,837)		(366,696)		(917)		(611,557)
Other income, net	(2,278)		3,493		1,072		1,692		3,979
Realized gains, net	2,001		—		3,236		25,182		30,419
Total non-interest income, net	(178,606)		(37,611)		(362,388)		25,957		(552,648)
General and administrative expenses	(12,901)		(29,977)		(4,230)		(37,724)		(84,832)
Loan acquisition costs	(1,512)		(5,630)		(567)		(7)		(7,716)
Other expenses	(3,309)		(100,743)		347		(581)		(104,286)
Benefit from income taxes	7,827		477		4,775		—		13,079
Segment Contribution	$	(158,657)	$	(130,606)	$	(329,640)	$	(17,239)
Net Loss									$	(636,142)
Non-cash amortization (expense) income, net	$	602	$	(18,050)	$	1,105	$	(3,035)	$	(19,378)
Other significant non-cash expense: goodwill impairment	$	—	$	(88,675)	$	—	$	—	$	(88,675)

	Three Months Ended September 30, 2019
(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
Interest income	$	69,586	$	5,527	$	70,709	$	4,295	$	150,117
Interest expense	(48,798)		(2,813)		(61,541)		(3,452)		(116,604)
Net interest income	20,788		2,714		9,168		843		33,513
Non-interest income
Mortgage banking activities, net	5,016		4,499		—		—		9,515
Investment fair value changes, net	(11,088)		(1,073)		24,057		(452)		11,444
Other income, net	1,878		1,918		560		—		4,356
Realized gains, net	—		—		4,714		—		4,714
Total non-interest income, net	(4,194)		5,344		29,331		(452)		30,029
General and administrative expenses	(5,581)		(6,028)		(676)		(12,614)		(24,899)
Loan acquisition costs	(867)		(756)		(180)		(113)		(1,916)
Other expenses	—		(1,900)		(395)		(236)		(2,531)
Benefit from (provision for) income taxes	228		(8)		(106)		—		114
Segment Contribution	$	10,374	$	(634)	$	37,142	$	(12,572)
Net Income									$	34,310
Non-cash amortization income (expense), net	$	2,537	$	(2,107)	$	—	$	(1,148)	$	(718)

	Nine Months Ended September 30, 2019
(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
Interest income	$	204,036	$	12,595	$	199,145	$	13,924	$	429,700
Interest expense	(145,795)		(6,590)		(168,167)		(11,548)		(332,100)
Net interest income	58,241		6,005		30,978		2,376		97,600
Non-interest income
Mortgage banking activities, net	31,202		9,782		—		—		40,984
Investment fair value changes, net	(20,910)		(1,833)		58,492		(1,008)		34,741
Other income, net	6,317		4,213		600		2,710		13,840
Realized gains, net	7,728		—		10,499		—		18,227
Total non-interest income, net	24,337		12,162		69,591		1,702		107,792
General and administrative expenses	(17,591)		(13,452)		(2,239)		(37,440)		(70,722)
Loan acquisition costs	(2,859)		(2,017)		(503)		(128)		(5,507)
Other expenses	—		(4,432)		(864)		(725)		(6,021)
(Provision for) benefit from income taxes	(1,757)		25		(1,370)		—		(3,102)
Segment Contribution	$	60,371	$	(1,709)	$	95,593	$	(34,215)
Net Income									$	120,040
Non-cash amortization income (expense), net	$	6,780	$	(4,907)	$	(824)	$	(1,939)	$	(890)

Components of Corporate and Other

The following table presents the components of Corporate/Other for the three and nine months ended September 30, 2020 and 2019.

Table 23.2 – Components of Corporate/Other

	Three Months Ended September 30,
	2020						2019
(In Thousands)	Legacy Consolidated VIEs (1)		Other		Total		Legacy Consolidated VIEs (1)		Other		Total
Interest income	$	1,795	$	9	$	1,804	$	4,295	$	—	$	4,295
Interest expense	(1,058)		(3,251)		(4,309)		(3,452)		—		(3,452)
Net interest income	737		(3,242)		(2,505)		843		—		843
Non-interest income
Investment fair value changes, net	(81)		(97)		(178)		(407)		(45)		(452)
Other income	—		934		934		—		—		—
Total non-interest income, net	(81)		837		756		(407)		(45)		(452)
General and administrative expenses	—		(12,998)		(12,998)		—		(12,614)		(12,614)
Loan acquisition costs	—		—		—		—		(113)		(113)
Other expenses	—		(135)		(135)		—		(236)		(236)
Total	$	656	$	(15,538)	$	(14,882)	$	436	$	(13,008)	$	(12,572)

	Nine Months Ended September 30,
	2020						2019
(In Thousands)	Legacy Consolidated VIEs (1)		Other		Total		Legacy Consolidated VIEs (1)		Other		Total
Interest income	$	7,675	$	63	$	7,738	$	13,924	$	—	$	13,924
Interest expense	(5,098)		(7,524)		(12,622)		(11,548)		—		(11,548)
Net interest income	2,577		(7,461)		(4,884)		2,376		—		2,376
Non-interest income
Investment fair value changes, net	(702)		(215)		(917)		(904)		(104)		(1,008)
Other income	—		1,692		1,692		—		2,710		2,710
Realized gains, net	—		25,182		25,182		—		—		—
Total non-interest income, net	(702)		26,659		25,957		(904)		2,606		1,702
General and administrative expenses	—		(37,724)		(37,724)		—		(37,440)		(37,440)
Loan acquisition costs	—		(7)		(7)		—		(128)		(128)
Other expenses	—		(581)		(581)		—		(725)		(725)
Total	$	1,875	$	(19,114)	$	(17,239)	$	1,472	$	(35,687)	$	(34,215)

(1)     Legacy consolidated VIEs represent Legacy Sequoia entities that are consolidated for GAAP financial reporting purposes. See Note 4 for further discussion on VIEs.

Supplemental Information by Segment

The following table presents supplemental information by segment at September 30, 2020 and December 31, 2019.

Table 23.3 – Supplemental Segment Information

(In Thousands)	Residential Lending		Business Purpose Lending		Third-Party Investments		Corporate/ Other		Total
September 30, 2020
Residential loans	$	1,941,489	$	—	$	2,256,682	$	296,765	$	4,494,936
Business purpose residential loans	—		3,956,101		—		—		3,956,101
Multifamily loans	—		—		491,415		—		491,415
Real estate securities	146,608		—		204,727		—		351,335
Other investments	14,878		25,713		344,037		—		384,628
Goodwill and intangible assets	—		60,737		—		—		60,737
Total assets	2,148,643		4,134,913		3,315,039		803,817		10,402,412
December 31, 2019
Residential loans	$	4,939,745	$	—	$	2,367,215	$	407,890	$	7,714,850
Business purpose residential loans	—		3,506,743		—		—		3,506,743
Multifamily loans	—		—		4,408,524		—		4,408,524
Real estate securities	229,074		—		870,800		—		1,099,874
Other investments	42,224		21,002		294,904		—		358,130
Goodwill and intangible assets	—		161,464		—		—		161,464
Total assets	5,410,540		3,786,641		8,028,946		769,313		17,995,440

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Organization (Details)	9 Months Ended
	Sep. 30, 2020 segment
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of operating segments	3

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Basis of Presentation - Narrative (Details)		1 Months Ended	3 Months Ended			9 Months Ended		12 Months Ended
	Oct. 15, 2019 USD ($)	Mar. 31, 2019	Sep. 30, 2020 USD ($)	Mar. 31, 2020 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2018 partnership	Dec. 31, 2019 USD ($)	Mar. 01, 2019 USD ($)	May 31, 2018
Variable Interest Entity [Line Items]
Consolidation of multifamily loans held in securitization trusts						$ (3,849,779,000)	$ 1,481,554,000
Consolidation of multifamily ABS						$ (3,706,789,000)	1,408,002,000
Deconsolidation, realized market valuation gain (loss)				$ (72,000,000)
Number of partnerships consolidated | partnership								2
VIE, ownership interest rate						80.00%
Goodwill impairment expense			$ 0	89,000,000	$ 0	$ 88,675,000	0
Intangible assets impairment expense				0
Contingent consideration			0			0			$ 28,484,000
Acquisition related costs			135,000		$ 236,000	581,000	$ 547,000
Multifamily loans
Variable Interest Entity [Line Items]
Consolidation of multifamily loans held in securitization trusts				3,860,000,000
Consolidation of multifamily ABS				3,720,000,000
5 Arches
Variable Interest Entity [Line Items]
Minority interest, percentage											20.00%
Percent acquired		80.00%
Intangible assets										$ 25,000,000
Contingent consideration			$ 14,000,000			$ 14,000,000				$ 25,000,000
Cash payment for contingent consideration liability				11,000,000
Restricted stock awards				$ 3,000,000
CoreVest
Variable Interest Entity [Line Items]
Intangible assets	$ 57,000,000
Restricted stock awards	$ 10,000,000
5 Arches LLC and CoreVest
Variable Interest Entity [Line Items]
Goodwill									89,000,000
Goodwill deductible for tax purposes									$ 75,000,000

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Basis of Presentation - Intangible Assets – Activity (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2020 USD ($)
Finite-lived Intangible Assets [Roll Forward]
Carrying Value at September 30, 2020	$ 60,737
5 Arches LLC and CoreVest
Finite-lived Intangible Assets [Roll Forward]
Carrying Value at December 31, 2019	72,789
Additions	0
Amortization Expense	(12,052)
Carrying Value at September 30, 2020	$ 60,737
Weighted Average Amortization Period (in years)	6 years
5 Arches LLC and CoreVest | Borrower network
Finite-lived Intangible Assets [Roll Forward]
Carrying Value at December 31, 2019	$ 43,952
Additions	0
Amortization Expense	(4,854)
Carrying Value at September 30, 2020	$ 39,098
Weighted Average Amortization Period (in years)	7 years
5 Arches LLC and CoreVest | Broker network
Finite-lived Intangible Assets [Roll Forward]
Carrying Value at December 31, 2019	$ 15,083
Additions	0
Amortization Expense	(2,715)
Carrying Value at September 30, 2020	$ 12,368
Weighted Average Amortization Period (in years)	5 years
5 Arches LLC and CoreVest | Non-compete agreements
Finite-lived Intangible Assets [Roll Forward]
Carrying Value at December 31, 2019	$ 8,236
Additions	0
Amortization Expense	(2,375)
Carrying Value at September 30, 2020	$ 5,861
Weighted Average Amortization Period (in years)	3 years
5 Arches LLC and CoreVest | Tradenames
Finite-lived Intangible Assets [Roll Forward]
Carrying Value at December 31, 2019	$ 3,472
Additions	0
Amortization Expense	(1,000)
Carrying Value at September 30, 2020	$ 2,472
Weighted Average Amortization Period (in years)	3 years
5 Arches LLC and CoreVest | Developed technology
Finite-lived Intangible Assets [Roll Forward]
Carrying Value at December 31, 2019	$ 1,613
Additions	0
Amortization Expense	(675)
Carrying Value at September 30, 2020	$ 938
Weighted Average Amortization Period (in years)	2 years
5 Arches LLC and CoreVest | Loan administration fees on existing loan assets
Finite-lived Intangible Assets [Roll Forward]
Carrying Value at December 31, 2019	$ 433
Additions	0
Amortization Expense	(433)
Carrying Value at September 30, 2020	$ 0
Weighted Average Amortization Period (in years)	1 year

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Basis of Presentation - Intangible Asset Amortization Expense by Year (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]
2020 (3 months)	$ 3,873
2021	15,304
2022	12,800
2023	10,091
2024	7,073
2025 and thereafter	11,596
Total Future Intangible Asset Amortization	$ 60,737

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Basis of Presentation - Pro Forma Information (Details) - 5 Arches LLC and CoreVest - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
Business Acquisition [Line Items]
Net interest income	$ 45,702	$ 133,446
Non-interest income	38,177	116,649
Net income	$ 46,609	$ 140,790

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Summary of Significant Accounting Policies - Offsetting of Financial Assets, Liabilities, and Collateral (Details) - USD ($) $ in Thousands		Sep. 30, 2020	Dec. 31, 2019
Total Liabilities
Gross Amounts of Recognized Assets (Liabilities)		$ (157,230)	$ (1,690,828)
Gross Amounts Offset in Consolidated Balance Sheet		0	0
Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		(157,230)	(1,690,828)
Gross Amounts Not Offset in Consolidated Balance Sheet, Financial Instruments		156,967	1,548,637
Gross Amounts Not Offset in Consolidated Balance Sheet, Cash Collateral (Received) Pledged		263	141,260
Net Amount		0	(931)
Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet	[1]	(1,612)	(163,424)
Assets
Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet	[1]	14,709	35,701
Interest rate agreements
Total Liabilities
Gross Amounts of Recognized Assets (Liabilities)		(15)	(148,765)
Gross Amounts Offset in Consolidated Balance Sheet		0	0
Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		(15)	(148,765)
Gross Amounts Not Offset in Consolidated Balance Sheet, Financial Instruments		15	14,178
Gross Amounts Not Offset in Consolidated Balance Sheet, Cash Collateral (Received) Pledged		0	134,587
Net Amount		0	0
Assets
Gross Amounts of Recognized Assets (Liabilities)		3,471	19,020
Gross Amounts Offset in Consolidated Balance Sheet		0	0
Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		3,471	19,020
Gross Amounts Not Offset in Consolidated Balance Sheet, Financial Instruments		(15)	(14,178)
Gross Amounts Not Offset in Consolidated Balance Sheet, Cash Collateral (Received) Pledged		(1,240)	(915)
Net Amount		2,216	3,927
TBAs
Total Liabilities
Gross Amounts of Recognized Assets (Liabilities)		(263)	(13,359)
Gross Amounts Offset in Consolidated Balance Sheet		0	0
Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		(263)	(13,359)
Gross Amounts Not Offset in Consolidated Balance Sheet, Financial Instruments		0	5,755
Gross Amounts Not Offset in Consolidated Balance Sheet, Cash Collateral (Received) Pledged		263	6,673
Net Amount		0	(931)
Assets
Gross Amounts of Recognized Assets (Liabilities)		402	5,755
Gross Amounts Offset in Consolidated Balance Sheet		0	0
Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		402	5,755
Gross Amounts Not Offset in Consolidated Balance Sheet, Financial Instruments		0	(5,755)
Gross Amounts Not Offset in Consolidated Balance Sheet, Cash Collateral (Received) Pledged		(263)	0
Net Amount		139	0
Futures
Assets
Gross Amounts of Recognized Assets (Liabilities)		63	137
Gross Amounts Offset in Consolidated Balance Sheet		0	0
Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		63	137
Gross Amounts Not Offset in Consolidated Balance Sheet, Financial Instruments		0	0
Gross Amounts Not Offset in Consolidated Balance Sheet, Cash Collateral (Received) Pledged		0	0
Net Amount		63	137
Interest Rate Agreement, TBAs, and Futures
Assets
Gross Amounts of Recognized Assets (Liabilities)		3,936	24,912
Gross Amounts Offset in Consolidated Balance Sheet			0
Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		3,936	24,912
Gross Amounts Not Offset in Consolidated Balance Sheet, Financial Instruments		(15)	(19,933)
Gross Amounts Not Offset in Consolidated Balance Sheet, Cash Collateral (Received) Pledged		(1,503)	(915)
Net Amount		2,418	4,064
Loan warehouse debt
Loan warehouse debt and Security repurchase agreement
Gross Amounts of Recognized Assets (Liabilities)		(81,898)	(432,126)
Gross Amounts Offset in Consolidated Balance Sheet		0	0
Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		(81,898)	(432,126)
Gross Amounts Not Offset in Consolidated Balance Sheet, Financial Instruments		81,898	432,126
Gross Amounts Not Offset in Consolidated Balance Sheet, Cash Collateral (Received) Pledged		0	0
Net Amount			0
Security repurchase agreements
Loan warehouse debt and Security repurchase agreement
Gross Amounts of Recognized Assets (Liabilities)		(75,054)	(1,096,578)
Gross Amounts Offset in Consolidated Balance Sheet		0	0
Net Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet		(75,054)	(1,096,578)
Gross Amounts Not Offset in Consolidated Balance Sheet, Financial Instruments		75,054	1,096,578
Gross Amounts Not Offset in Consolidated Balance Sheet, Cash Collateral (Received) Pledged		0	0
Net Amount		$ 0	$ 0

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

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Principles of Consolidation - Additional Information (Details) $ in Thousands	3 Months Ended	9 Months Ended		12 Months Ended
	Mar. 31, 2020 USD ($)	Sep. 30, 2020 USD ($) entity	Sep. 30, 2019 USD ($)	Dec. 31, 2018 partnership	Dec. 31, 2019 USD ($)
Variable Interest Entity [Line Items]
Consolidation of multifamily loans held in securitization trusts		$ (3,849,779)	$ 1,481,554
Consolidation of multifamily ABS		$ (3,706,789)	$ 1,408,002
Deconsolidation, realized market valuation gain (loss)	$ (72,000)
Number of partnerships consolidated | partnership				2
VIE, ownership interest rate		80.00%
MSRs		$ 242,059			$ 151,582
Variable Interest Entity, Not Primary Beneficiary
Variable Interest Entity [Line Items]
Number of securitization entities to which asset transferred (in entities) | entity		51
Legacy Sequoia | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Estimated fair value of investments		$ 5,000
Sequoia Choice | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Estimated fair value of investments		211,000
Freddie Mac SLST | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Estimated fair value of investments		418,000
ABS issued, net, Amortized cost		210,000
Freddie Mac K-Series | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Estimated fair value of investments		27,000
CoreVest | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Estimated fair value of investments		232,000
Servicing Investment | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
MSRs		$ 65,000

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Principles of Consolidation - Assets and Liabilities of Consolidated Variable Interest Entities Accounted for as Collateralized Financing Entities (Details) $ in Thousands		Sep. 30, 2020 USD ($) investment	Dec. 31, 2019 USD ($) investment
Variable Interest Entity [Line Items]
Other investments	[1]	$ 384,628	$ 358,130
Cash and cash equivalents	[1]	450,684	196,966
Restricted cash	[1]	73,594	93,867
Accrued interest receivable		39,330	71,058
Other assets	[1]	124,273	419,321
Total Assets	[1]	10,402,412	17,995,440
Short-term debt	[1]	482,761	2,329,145
Accrued interest payable		34,225	60,655
Accrued expenses and other liabilities	[1]	155,989	206,893
Asset-backed securities issued	[1]	7,172,398	10,515,475
Total liabilities	[1]	$ 9,348,948	$ 16,168,209
Number of VIEs | investment		49	49
Business purpose residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value	[1]	$ 3,670,552	$ 3,175,178
Legacy Sequoia
Variable Interest Entity [Line Items]
Number of VIEs | investment		20	20
Sequoia Choice
Variable Interest Entity [Line Items]
Number of VIEs | investment		10	9
Freddie Mac SLST
Variable Interest Entity [Line Items]
Number of VIEs | investment		2	2
Freddie Mac K-Series
Variable Interest Entity [Line Items]
Number of VIEs | investment		1	5
CAFL
Variable Interest Entity [Line Items]
Number of VIEs | investment		13	10
Servicing Investment
Variable Interest Entity [Line Items]
Number of VIEs | investment		3	3
Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Other investments		$ 278,487	$ 184,802
Cash and cash equivalents		10,425	9,015
Restricted cash		20,795	21,936
Accrued interest receivable		30,644	45,772
Other assets		5,829	2,700
Total Assets		8,197,095	11,931,869
Short-term debt		228,998	152,554
Accrued interest payable		21,497	34,060
Accrued expenses and other liabilities		18,176	14,983
Asset-backed securities issued		6,969,376	10,515,475
Total liabilities		7,238,047	10,717,072
Variable Interest Entity, Primary Beneficiary | Residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		4,389,808	5,066,568
Variable Interest Entity, Primary Beneficiary | Business purpose residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		2,969,692	2,192,552
Variable Interest Entity, Primary Beneficiary | Multifamily loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		491,415	4,408,524
Variable Interest Entity, Primary Beneficiary | Legacy Sequoia
Variable Interest Entity [Line Items]
Other investments		0	0
Cash and cash equivalents		0	0
Restricted cash		146	143
Accrued interest receivable		402	655
Other assets		784	460
Total Assets		298,097	409,148
Short-term debt		0	0
Accrued interest payable		180	395
Accrued expenses and other liabilities		0	0
Asset-backed securities issued		292,484	402,465
Total liabilities		292,664	402,860
Variable Interest Entity, Primary Beneficiary | Legacy Sequoia | Residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		296,765	407,890
Variable Interest Entity, Primary Beneficiary | Legacy Sequoia | Business purpose residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		0	0
Variable Interest Entity, Primary Beneficiary | Legacy Sequoia | Multifamily loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		0	0
Variable Interest Entity, Primary Beneficiary | Sequoia Choice
Variable Interest Entity [Line Items]
Other investments		0	0
Cash and cash equivalents		0	0
Restricted cash		0	27
Accrued interest receivable		7,292	9,824
Other assets		0	0
Total Assets		1,843,653	2,301,314
Short-term debt		0	0
Accrued interest payable		5,652	7,732
Accrued expenses and other liabilities		47	27
Asset-backed securities issued		1,626,564	2,037,198
Total liabilities		1,632,263	2,044,957
Variable Interest Entity, Primary Beneficiary | Sequoia Choice | Residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		1,836,361	2,291,463
Variable Interest Entity, Primary Beneficiary | Sequoia Choice | Business purpose residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		0	0
Variable Interest Entity, Primary Beneficiary | Sequoia Choice | Multifamily loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		0	0
Variable Interest Entity, Primary Beneficiary | Freddie Mac SLST
Variable Interest Entity [Line Items]
Other investments		0	0
Cash and cash equivalents		0	0
Restricted cash		0	0
Accrued interest receivable		6,928	7,313
Other assets		887	445
Total Assets		2,264,497	2,374,973
Short-term debt		0	0
Accrued interest payable		5,009	5,374
Accrued expenses and other liabilities		0	0
Asset-backed securities issued		1,841,313	1,918,322
Total liabilities		1,846,322	1,923,696
Variable Interest Entity, Primary Beneficiary | Freddie Mac SLST | Residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		2,256,682	2,367,215
Variable Interest Entity, Primary Beneficiary | Freddie Mac SLST | Business purpose residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		0	0
Variable Interest Entity, Primary Beneficiary | Freddie Mac SLST | Multifamily loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		0	0
Variable Interest Entity, Primary Beneficiary | Freddie Mac K-Series
Variable Interest Entity [Line Items]
Other investments		0	0
Cash and cash equivalents		0	0
Restricted cash		0	0
Accrued interest receivable		1,342	13,539
Other assets		0	0
Total Assets		492,757	4,422,063
Short-term debt		0	0
Accrued interest payable		1,182	12,887
Accrued expenses and other liabilities		0	0
Asset-backed securities issued		464,865	4,156,239
Total liabilities		466,047	4,169,126
Variable Interest Entity, Primary Beneficiary | Freddie Mac K-Series | Residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		0	0
Variable Interest Entity, Primary Beneficiary | Freddie Mac K-Series | Business purpose residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		0	0
Variable Interest Entity, Primary Beneficiary | Freddie Mac K-Series | Multifamily loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		491,415	4,408,524
Variable Interest Entity, Primary Beneficiary | CAFL
Variable Interest Entity [Line Items]
Other investments		0	0
Cash and cash equivalents		0	0
Restricted cash		0	0
Accrued interest receivable		12,071	9,572
Other assets		4,158	1,795
Total Assets		2,985,921	2,203,919
Short-term debt		0	0
Accrued interest payable		9,337	7,485
Accrued expenses and other liabilities		0	0
Asset-backed securities issued		2,744,150	2,001,251
Total liabilities		2,753,487	2,008,736
Variable Interest Entity, Primary Beneficiary | CAFL | Residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		0	0
Variable Interest Entity, Primary Beneficiary | CAFL | Business purpose residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		2,969,692	2,192,552
Variable Interest Entity, Primary Beneficiary | CAFL | Multifamily loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		0	0
Variable Interest Entity, Primary Beneficiary | Servicing Investment
Variable Interest Entity [Line Items]
Other investments		278,487	184,802
Cash and cash equivalents		10,425	9,015
Restricted cash		20,649	21,766
Accrued interest receivable		2,609	4,869
Other assets		0	0
Total Assets		312,170	220,452
Short-term debt		228,998	152,554
Accrued interest payable		137	187
Accrued expenses and other liabilities		18,129	14,956
Asset-backed securities issued		0	0
Total liabilities		247,264	167,697
Variable Interest Entity, Primary Beneficiary | Servicing Investment | Residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		0	0
Variable Interest Entity, Primary Beneficiary | Servicing Investment | Business purpose residential loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		0	0
Variable Interest Entity, Primary Beneficiary | Servicing Investment | Multifamily loans, held-for-investment
Variable Interest Entity [Line Items]
Loans, at fair value		$ 0	$ 0

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

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Principles of Consolidation - Income (Loss) from Consolidated VIEs Accounted for as Collateralized Financing Entities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Variable Interest Entity [Line Items]
Interest income	$ 121,982	$ 150,117	$ 450,009	$ 429,700
Interest expense	(100,411)	(116,604)	(349,748)	(332,100)
Net Interest Income	21,571	33,513	100,261	97,600
Investment fair value changes, net	107,047	11,444	(611,557)	34,741
Total non-interest income (loss), net	166,930	30,029	(552,648)	107,792
General and administrative expenses	(27,630)	(24,899)	(84,832)	(70,722)
Net Income (Loss)	141,812	34,310	(636,142)	120,040
Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Interest income	89,912	84,431	303,265	234,171
Interest expense	(67,871)	(73,956)	(238,763)	(206,378)
Net Interest Income	22,041	10,475	64,502	27,793
Investment fair value changes, net	101,420	28,023	(189,448)	56,936
Total non-interest income (loss), net	101,420	28,023	(189,448)	56,936
General and administrative expenses	(41)	(16)	(784)	(87)
Other expenses	(471)	(395)	346	(864)
Net Income (Loss)	122,949	38,087	(125,384)	83,778
Legacy Sequoia | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Interest income	1,795	4,295	7,675	13,924
Interest expense	(1,058)	(3,452)	(5,098)	(11,548)
Net Interest Income	737	843	2,577	2,376
Investment fair value changes, net	(81)	(407)	(702)	(904)
Total non-interest income (loss), net	(81)	(407)	(702)	(904)
General and administrative expenses	0	0	0	0
Other expenses	0	0	0	0
Net Income (Loss)	656	436	1,875	1,472
Sequoia Choice | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Interest income	20,919	27,555	68,566	80,045
Interest expense	(17,828)	(23,576)	(58,455)	(68,823)
Net Interest Income	3,091	3,979	10,111	11,222
Investment fair value changes, net	7,851	2,722	(22,065)	8,866
Total non-interest income (loss), net	7,851	2,722	(22,065)	8,866
General and administrative expenses	0	0	0	0
Other expenses	0	0	0	0
Net Income (Loss)	10,942	6,701	(11,954)	20,088
Freddie Mac SLST | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Interest income	21,696	11,830	64,869	35,221
Interest expense	(15,473)	(8,709)	(47,495)	(26,013)
Net Interest Income	6,223	3,121	17,374	9,208
Investment fair value changes, net	82,214	17,300	(33,081)	31,702
Total non-interest income (loss), net	82,214	17,300	(33,081)	31,702
General and administrative expenses	0	0	0	0
Other expenses	0	0	0	0
Net Income (Loss)	88,437	20,421	(15,707)	40,910
Freddie Mac K-Series | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Interest income	4,918	36,829	49,960	94,134
Interest expense	(4,426)	(35,328)	(47,154)	(90,089)
Net Interest Income	492	1,501	2,806	4,045
Investment fair value changes, net	2,166	7,445	(82,744)	13,810
Total non-interest income (loss), net	2,166	7,445	(82,744)	13,810
General and administrative expenses	0	0	0	0
Other expenses	0	0	0	0
Net Income (Loss)	2,658	8,946	(79,938)	17,855
CAFL | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Interest income	36,181	0	99,169	0
Interest expense	(27,499)	0	(75,600)	0
Net Interest Income	8,682	0	23,569	0
Investment fair value changes, net	9,692	0	(41,841)	0
Total non-interest income (loss), net	9,692	0	(41,841)	0
General and administrative expenses	0	0	0	0
Other expenses	0	0	0	0
Net Income (Loss)	18,374	0	(18,272)	0
Servicing Investment | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Interest income	4,403	3,922	13,026	10,847
Interest expense	(1,587)	(2,891)	(4,961)	(9,905)
Net Interest Income	2,816	1,031	8,065	942
Investment fair value changes, net	(422)	963	(9,015)	3,462
Total non-interest income (loss), net	(422)	963	(9,015)	3,462
General and administrative expenses	(41)	(16)	(784)	(87)
Other expenses	(471)	(395)	346	(864)
Net Income (Loss)	$ 1,882	$ 1,583	$ (1,388)	$ 3,453

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Principles of Consolidation - Securitization Activity Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood (Details) - Variable Interest Entity, Not Primary Beneficiary - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Variable Interest Entity [Line Items]
Principal balance of loans transferred	$ 0	$ 366,999	$ 1,573,703	$ 1,116,092
Trading securities retained, at fair value
Variable Interest Entity [Line Items]
Securities retained, at fair value	0	1,228	43,362	4,736
AFS securities retained, at fair value
Variable Interest Entity [Line Items]
Securities retained, at fair value	$ 0	$ 1,069	$ 3,198	$ 3,023

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Principles of Consolidation - Cash Flows Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood (Details) - Variable Interest Entity, Not Primary Beneficiary - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Variable Interest Entity [Line Items]
Proceeds from new transfers	$ 0	$ 376,126	$ 1,610,761	$ 1,138,778
MSR fees received	2,280	2,919	7,445	9,084
Funding of compensating interest, net	4	(76)	(293)	(213)
Cash flows received on retained securities	$ 5,873	$ 6,603	$ 19,242	$ 20,892

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Principles of Consolidation - Assumptions Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood (Details) - Variable Interest Entity, Not Primary Beneficiary	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Senior IO Securities
Fair Value Assumption, Date of Securitization or Asset-backed Financing Arrangement, Transferor's Continuing Involvement, Servicing Assets or Liabilities [Line Items]
Prepayment rates	37.00%	41.00%	25.00%
Discount rates	14.00%	16.00%	14.00%
Credit loss assumptions	0.20%	0.21%	0.20%
Subordinate Securities
Fair Value Assumption, Date of Securitization or Asset-backed Financing Arrangement, Transferor's Continuing Involvement, Servicing Assets or Liabilities [Line Items]
Prepayment rates	15.00%	13.00%	15.00%
Discount rates	7.00%	6.00%	7.00%
Credit loss assumptions	0.20%	0.22%	0.20%

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Principles of Consolidation - Summary of Unconsolidated Variable Interest Entity's Sponsored by Redwood (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
On-balance sheet assets, at fair value:
Available-for-sale securities	$ 207,173	$ 239,334
Servicing asset, fair value	242,059	151,582
Mortgage servicing rights
On-balance sheet assets, at fair value:
Servicing asset, fair value	14,878	42,224
Variable Interest Entity, Not Primary Beneficiary
On-balance sheet assets, at fair value:
Maximum loss exposure	158,250	269,328
Assets transferred:
Principal balance of loans outstanding	8,571,916	10,299,442
Principal balance of loans 30+ days delinquent	200,910	41,809
Variable Interest Entity, Not Primary Beneficiary | Interest-only, senior and subordinate securities, classified as trading
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading	19,878	88,425
Variable Interest Entity, Not Primary Beneficiary | Subordinate securities, classified as AFS
On-balance sheet assets, at fair value:
Available-for-sale securities	124,132	140,649
Variable Interest Entity, Not Primary Beneficiary | Mortgage servicing rights
On-balance sheet assets, at fair value:
Servicing asset, fair value	$ 14,240	$ 40,254

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Principles of Consolidation - Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated Variable Interest Entity's Sponsored by Redwood (Details) - Variable Interest Entity, Not Primary Beneficiary - USD ($) $ in Thousands			3 Months Ended	9 Months Ended
	Sep. 30, 2020	Dec. 31, 2019	Mar. 31, 2020	Sep. 30, 2020
MSRs
Sensitivity Analysis of Fair Value of Interests Continued to be Held by Transferor, Servicing Assets or Liabilities, Impact of Adverse Change in Assumption [Line Items]
Fair value	$ 14,240	$ 40,254		$ 14,240
Expected life (in years)	3 years	6 years
Prepayment speed assumption (annual CPR)	26.00%	11.00%
Decrease in fair value from:
10% adverse change	$ 1,105	$ 1,643		1,105
25% adverse change	$ 2,678	$ 3,913		2,678
Discount rate assumption	12.00%	11.00%
Decrease in fair value from:
100 basis point increase	$ 383	$ 1,447		383
200 basis point increase	746	2,795		746
Senior Securities
Sensitivity Analysis of Fair Value of Interests Continued to be Held by Transferor, Servicing Assets or Liabilities, Impact of Adverse Change in Assumption [Line Items]
Fair value	$ 16,226	$ 48,765		16,226
Expected life (in years)	3 years	6 years
Prepayment speed assumption (annual CPR)	30.00%	14.00%
Decrease in fair value from:
10% adverse change	$ 1,622	$ 1,908		1,622
25% adverse change	$ 3,675	$ 5,086		3,675
Discount rate assumption	17.00%	12.00%
Decrease in fair value from:
100 basis point increase	$ 327	$ 1,079		327
200 basis point increase	$ 638	$ 2,482		638
Credit loss assumption	0.38%	0.21%
Decrease in fair value from:
10% higher losses	$ 0	$ 0		0
25% higher losses	0	0		0
Subordinate Securities
Sensitivity Analysis of Fair Value of Interests Continued to be Held by Transferor, Servicing Assets or Liabilities, Impact of Adverse Change in Assumption [Line Items]
Fair value	$ 127,783	$ 180,309		127,783
Expected life (in years)	10 years	14 years
Prepayment speed assumption (annual CPR)	27.00%	16.00%
Decrease in fair value from:
10% adverse change	$ 1,075	$ 205		1,075
25% adverse change	$ 3,735	$ 1,434		3,735
Discount rate assumption	6.00%	5.00%
Decrease in fair value from:
100 basis point increase	$ 10,219	$ 18,127		10,219
200 basis point increase	$ 19,348	$ 33,630		19,348
Credit loss assumption	0.38%	0.21%
Decrease in fair value from:
10% higher losses	$ 2,274	$ 1,804		2,274
25% higher losses	$ 5,500	$ 4,520		$ 5,500
Minimum | MSRs
Decrease in fair value from:
Impact of adverse change in prepayment speed			10.00%	10.00%
Impact of increase in discount rate assumption			1.00%	1.00%
Impact of adverse change in expected credit losses			10.00%	10.00%
Minimum | Senior Securities
Decrease in fair value from:
Impact of adverse change in prepayment speed			10.00%	10.00%
Impact of increase in discount rate assumption			1.00%	1.00%
Impact of adverse change in expected credit losses			10.00%	10.00%
Minimum | Subordinate Securities
Decrease in fair value from:
Impact of adverse change in prepayment speed			10.00%	10.00%
Impact of increase in discount rate assumption			1.00%	1.00%
Impact of adverse change in expected credit losses			10.00%	10.00%
Maximum | MSRs
Decrease in fair value from:
Impact of adverse change in prepayment speed			25.00%	25.00%
Impact of increase in discount rate assumption			2.00%	2.00%
Impact of adverse change in expected credit losses			25.00%	25.00%
Maximum | Senior Securities
Decrease in fair value from:
Impact of adverse change in prepayment speed			25.00%	25.00%
Impact of increase in discount rate assumption			2.00%	2.00%
Impact of adverse change in expected credit losses			25.00%	25.00%
Maximum | Subordinate Securities
Decrease in fair value from:
Impact of adverse change in prepayment speed			25.00%	25.00%
Impact of increase in discount rate assumption			2.00%	2.00%
Impact of adverse change in expected credit losses			25.00%	25.00%

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Principles of Consolidation - Summary of Redwood's Interest in Third-Party Variable Interest Entity's (Details) - USD ($) $ in Thousands		Sep. 30, 2020	Dec. 31, 2019
Variable Interest Entity [Line Items]
Real estate securities	[1]	$ 351,335	$ 1,099,874
Variable Interest Entity, Not Primary Beneficiary | Other assets
Variable Interest Entity [Line Items]
Real estate securities		222,531	887,015
Variable Interest Entity, Not Primary Beneficiary | Other assets | Senior
Variable Interest Entity [Line Items]
Real estate securities		11,865	127,094
Variable Interest Entity, Not Primary Beneficiary | Other assets | Mezzanine
Variable Interest Entity [Line Items]
Real estate securities		2,016	508,195
Variable Interest Entity, Not Primary Beneficiary | Other assets | Subordinate
Variable Interest Entity [Line Items]
Real estate securities		193,445	235,510
Variable Interest Entity, Not Primary Beneficiary | Other assets | Total Mortgage-Backed Securities
Variable Interest Entity [Line Items]
Real estate securities		207,326	870,799
Variable Interest Entity, Not Primary Beneficiary | Other assets | Excess MSR
Variable Interest Entity [Line Items]
Real estate securities		$ 15,205	$ 16,216

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

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Fair Value of Financial Instruments - Carrying Values and Estimated Fair Values of Assets and Liabilities (Details) - USD ($) $ in Thousands		Sep. 30, 2020	Dec. 31, 2019
Assets
Real estate securities		$ 144,162	$ 860,540
MSRs		242,059	151,582
Derivative assets	[1]	14,709	35,701
Pledged collateral		8,172	32,945
Liabilities
Contingent consideration		0	28,484
Derivative liabilities	[1]	1,612	163,424
ABS issued, net, Fair value		6,969,376	10,515,475
Residential Loans
Assets
MSRs		258,621	169,204
Carrying Value
Assets
Real estate securities		351,335	1,099,874
Cash and cash equivalents		450,684	196,966
Restricted cash		73,594	93,867
Derivative assets		14,709	35,701
Margin receivable		3,809	209,776
FHLBC stock		5,000	43,393
Guarantee asset		579	1,686
Pledged collateral		8,172	32,945
Liabilities
Margin payable		0	1,700
Guarantee obligation		11,264	14,009
Contingent consideration		0	28,484
Derivative liabilities		1,612	163,424
ABS issued, net, Fair value		6,969,376	10,515,475
ABS issued, net, Amortized cost		203,022	0
FHLBC long-term borrowings		1,000	1,999,999
Other long-term debt, net		886,054	183,520
Convertible notes, net		510,472	631,125
Trust preferred securities and subordinated notes, net		138,663	138,628
Carrying Value | Servicer advance investments
Assets
MSRs		258,621	169,204
Carrying Value | MSRs
Assets
MSRs		14,878	42,224
Carrying Value | Excess MSRs
Assets
REO		35,070	31,814
Carrying Value | REO
Assets
REO		8,535	9,462
Carrying Value | Short-term debt
Liabilities
Short-term debt		482,761	2,329,145
Carrying Value | Residential Loans | Residential loans, at fair value
Assets
Loans, held-for-sale		105,091	536,385
Carrying Value | Residential Loans | Residential loans, held-for-investment
Assets
Loans receivable, fair value		4,389,808	7,178,465
Carrying Value | Residential Loans | Business purpose residential loans, held-for-sale
Assets
Loans, held-for-sale		285,549	331,565
Carrying Value | Residential Loans | Business purpose residential loans, held-for-investment
Assets
Loans receivable, fair value		3,670,552	3,175,178
Carrying Value | Residential Loans | Multifamily loans
Assets
Loans receivable, fair value		491,415	4,408,524
Fair Value
Assets
Real estate securities		351,335	1,099,874
Cash and cash equivalents		450,684	196,966
Restricted cash		73,594	93,867
Derivative assets		14,709	35,701
Margin receivable		3,809	209,776
FHLBC stock		5,000	43,393
Guarantee asset		579	1,686
Pledged collateral		8,172	32,945
Liabilities
Margin payable		0	1,700
Guarantee obligation		10,185	13,754
Contingent consideration		0	28,484
Derivative liabilities		1,612	163,424
ABS issued, net, Fair value		6,969,376	10,515,475
ABS issued, net, Amortized cost		207,812	0
FHLBC long-term borrowings		1,000	1,999,999
Other long-term debt, net		885,172	184,666
Convertible notes, net		476,071	661,985
Trust preferred securities and subordinated notes, net		73,238	99,045
Fair Value | Servicer advance investments
Assets
MSRs		258,621	169,204
Fair Value | MSRs
Assets
MSRs		14,878	42,224
Fair Value | Excess MSRs
Assets
REO		35,070	31,814
Fair Value | REO
Assets
REO		9,654	10,389
Fair Value | Short-term debt
Liabilities
Short-term debt		482,761	2,329,145
Fair Value | Residential Loans | Residential loans, at fair value
Assets
Loans, held-for-sale		105,091	536,509
Fair Value | Residential Loans | Residential loans, held-for-investment
Assets
Loans receivable, fair value		4,389,808	7,178,465
Fair Value | Residential Loans | Business purpose residential loans, held-for-sale
Assets
Loans, held-for-sale		285,549	331,565
Fair Value | Residential Loans | Business purpose residential loans, held-for-investment
Assets
Loans receivable, fair value		3,670,552	3,175,178
Fair Value | Residential Loans | Multifamily loans
Assets
Loans receivable, fair value		491,415	4,408,524
Shared home appreciation options
Assets
Shared home appreciation options			45,085
Shared home appreciation options | Carrying Value
Assets
Shared home appreciation options		41,758	45,085
Shared home appreciation options | Fair Value
Assets
Shared home appreciation options		$ 41,758	$ 45,085

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

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Fair Value of Financial Instruments - Additional Information (Details) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2020
Securities
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value option elected aggregate carrying amount, asset	$ 18,000,000	$ 96,000,000
Residential loans
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value option elected aggregate carrying amount, asset	172,000,000	2,860,000,000
Business purpose residential loans
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value option elected aggregate carrying amount, asset	260,000,000	956,000,000
Servicer advance investments
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value option elected aggregate carrying amount, asset	0	179,000,000
Excess MSR
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value option elected aggregate carrying amount, asset	0	11,000,000
Shared home appreciation options
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value option elected aggregate carrying amount, asset	$ 0	$ 4,000,000

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Fair Value of Financial Instruments - Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - USD ($) $ in Thousands		Sep. 30, 2020	Dec. 31, 2019
Assets
Real estate securities		$ 144,162	$ 860,540
MSRs		242,059	151,582
Derivative assets	[1]	14,709	35,701
Pledged collateral		8,172	32,945
Liabilities
Contingent consideration		0	28,484
Derivative liabilities	[1]	1,612	163,424
ABS issued		6,969,376	10,515,475
Fair Value, Measurements, Recurring
Assets
Business purpose residential loans		3,956,101	3,506,743
Multifamily loans		491,415	4,408,524
Real estate securities		351,335	1,099,874
Servicer advance investments		258,621	169,204
MSRs		14,878	42,224
Excess MSRs		35,070	31,814
Shared home appreciation options		41,758	45,085
Derivative assets		14,709	35,701
Pledged collateral		8,172	32,945
FHLBC stock		5,000	43,393
Guarantee asset		579	1,686
Liabilities
Contingent consideration			28,484
Derivative liabilities		1,612	163,424
ABS issued		6,969,376	10,515,475
Fair Value, Measurements, Recurring | Residential Loans
Assets
Residential loans		4,494,899	7,714,745
Fair Value, Measurements, Recurring | Level 1
Assets
Business purpose residential loans		0	0
Multifamily loans		0	0
Real estate securities		0	0
Servicer advance investments		0	0
MSRs		0	0
Excess MSRs		0	0
Shared home appreciation options		0	0
Derivative assets		464	6,531
Pledged collateral		8,172	32,945
FHLBC stock		0	0
Guarantee asset		0	0
Liabilities
Contingent consideration			0
Derivative liabilities		263	13,368
ABS issued		0	0
Fair Value, Measurements, Recurring | Level 1 | Residential Loans
Assets
Residential loans		0	0
Fair Value, Measurements, Recurring | Level 2
Assets
Business purpose residential loans		0	0
Multifamily loans		0	0
Real estate securities		0	0
Servicer advance investments		0	0
MSRs		0	0
Excess MSRs		0	0
Shared home appreciation options		0	0
Derivative assets		3,472	19,020
Pledged collateral		0	0
FHLBC stock		5,000	43,393
Guarantee asset		0	0
Liabilities
Contingent consideration			0
Derivative liabilities		15	148,766
ABS issued		0	0
Fair Value, Measurements, Recurring | Level 2 | Residential Loans
Assets
Residential loans		0	0
Fair Value, Measurements, Recurring | Level 3
Assets
Business purpose residential loans		3,956,101	3,506,743
Multifamily loans		491,415	4,408,524
Real estate securities		351,335	1,099,874
Servicer advance investments		258,621	169,204
MSRs		14,878	42,224
Excess MSRs		35,070	31,814
Shared home appreciation options		41,758	45,085
Derivative assets		10,773	10,150
Pledged collateral		0	0
FHLBC stock		0	0
Guarantee asset		579	1,686
Liabilities
Contingent consideration			28,484
Derivative liabilities		1,334	1,290
ABS issued		6,969,376	10,515,475
Fair Value, Measurements, Recurring | Level 3 | Residential Loans
Assets
Residential loans		$ 4,494,899	$ 7,714,745

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

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Fair Value of Financial Instruments - Changes in Level 3 Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2020 USD ($)
Contingent Consideration
Liabilities
Beginning balance - December 31, 2019	$ 28,484
Acquisitions	0
Principal paydowns	(13,353)
Deconsolidations	0
Gains (losses) in net income (loss), net	(446)
Other settlements, net	(14,685)
Ending balance - September 30, 2020	0
ABS Issued
Liabilities
Beginning balance - December 31, 2019	10,515,475
Acquisitions	1,137,656
Principal paydowns	(1,035,359)
Deconsolidations	(3,706,789)
Gains (losses) in net income (loss), net	58,393
Other settlements, net	0
Ending balance - September 30, 2020	6,969,376
Residential Loans
Assets
Beginning balance - December 31, 2019	7,714,745
Acquisitions	2,927,697
Originations	0
Sales	(4,783,682)
Principal paydowns	(1,210,117)
Deconsolidations	0
Gains (losses) in net income (loss), net	(152,145)
Other settlements, net	(1,599)
Ending balance - September 30, 2020	4,494,899
Business purpose residential loans
Assets
Beginning balance - December 31, 2019	3,506,743
Acquisitions	0
Originations	982,315
Sales	(53,434)
Principal paydowns	(489,243)
Deconsolidations	0
Gains (losses) in net income (loss), net	16,246
Other settlements, net	(6,526)
Ending balance - September 30, 2020	3,956,101
Multifamily loans
Assets
Beginning balance - December 31, 2019	4,408,524
Acquisitions	0
Originations	0
Sales	0
Principal paydowns	(5,830)
Deconsolidations	(3,849,779)
Gains (losses) in net income (loss), net	(61,500)
Other settlements, net	0
Ending balance - September 30, 2020	491,415
Trading securities
Assets
Beginning balance - December 31, 2019	860,540
Acquisitions	96,318
Originations	0
Sales	(579,466)
Principal paydowns	(8,502)
Deconsolidations	0
Gains (losses) in net income (loss), net	(224,728)
Other settlements, net	0
Ending balance - September 30, 2020	144,162
AFS Securities
Assets
Beginning balance - December 31, 2019	239,334
Acquisitions	56,664
Originations	0
Sales	(55,193)
Principal paydowns	(10,345)
Deconsolidations	0
Gains (losses) in net income (loss), net	(23,287)
Other settlements, net	0
Ending balance - September 30, 2020	207,173
Servicer Advance Investments
Assets
Beginning balance - December 31, 2019	169,204
Acquisitions	179,419
Originations	0
Sales	0
Principal paydowns	(83,124)
Deconsolidations	0
Gains (losses) in net income (loss), net	(6,878)
Other settlements, net	0
Ending balance - September 30, 2020	258,621
MSRs
Assets
Beginning balance - December 31, 2019	42,224
Acquisitions	0
Originations	0
Sales	0
Principal paydowns	0
Deconsolidations	0
Gains (losses) in net income (loss), net	(27,346)
Other settlements, net	0
Ending balance - September 30, 2020	14,878
Excess MSRs
Assets
Beginning balance - December 31, 2019	31,814
Acquisitions	10,906
Originations	0
Sales	0
Principal paydowns	0
Deconsolidations	0
Gains (losses) in net income (loss), net	(7,650)
Other settlements, net	0
Ending balance - September 30, 2020	35,070
Shared Home Appreciation Options
Assets
Beginning balance - December 31, 2019	45,085
Acquisitions	3,517
Originations	0
Sales	0
Principal paydowns	(2,558)
Deconsolidations	0
Gains (losses) in net income (loss), net	(4,286)
Other settlements, net	0
Ending balance - September 30, 2020	41,758
Shared Home Appreciation Options
Assets
Beginning balance - December 31, 2019	1,686
Acquisitions	0
Principal paydowns	0
Deconsolidations	0
Gains (losses) in net income (loss), net	(1,107)
Other settlements, net	0
Ending balance - September 30, 2020	579
Derivatives
Assets
Beginning balance - December 31, 2019	8,860
Acquisitions	0
Principal paydowns	0
Deconsolidations	0
Gains (losses) in net income (loss), net	34,620
Other settlements, net	(34,041)
Ending balance - September 30, 2020	$ 9,439

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Fair Value of Financial Instruments - Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held Included in Net Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Loan purchase and interest rate lock commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) attributable to level 3 liabilities still held included in net income	$ 420	$ (1,668)	$ (1,334)	$ (1,669)
Held-for-investment at fair value | Residential loans at Redwood
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) attributable to level 3 assets still held included in net income	(107)	17,771	(865)	82,408
Held-for-investment at fair value | Sequoia Choice
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) attributable to level 3 assets still held included in net income	7,700	1,860	(22,802)	7,051
Held-for-investment at fair value | Freddie Mac SLST
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) attributable to level 3 assets still held included in net income	82,209	17,300	(33,087)	31,702
Business purpose residential loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) attributable to level 3 assets still held included in net income	21,155	584	17,901	4,069
Multifamily loans | Freddie Mac K-Series
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) attributable to level 3 assets still held included in net income	2,165	7,445	(11,014)	13,810
Single family rental loans | CAFL
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) attributable to level 3 assets still held included in net income	9,673	0	(41,048)	0
Trading securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) attributable to level 3 assets still held included in net income	(3,549)	11,206	(80,358)	33,196
Servicer advance investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) attributable to level 3 assets still held included in net income	25	1,585	(6,172)	3,025
MSRs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) attributable to level 3 assets still held included in net income	(2,376)	(5,892)	(16,798)	(16,971)
Excess MSRs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) attributable to level 3 assets still held included in net income	(1,127)	(1,634)	(7,650)	(2,137)
Shared home appreciation options
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) attributable to level 3 assets still held included in net income	2,384	29	(4,286)	29
Loan purchase and interest rate lock commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) attributable to level 3 assets still held included in net income	10,791	4,678	10,773	4,757
Other assets - Guarantee asset
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) attributable to level 3 assets still held included in net income	$ (191)	$ (216)	$ (1,107)	$ (834)

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Fair Value of Financial Instruments - Assets and Liabilities Measured at Fair Value on Non-Recurring Basis (Details) - Fair Value, Measurements, Nonrecurring - REO $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2020 USD ($)	Sep. 30, 2020 USD ($)
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
REO	$ 3,523	$ 3,523
Gain (Loss) on assets measured at fair value on a non-recurring basis	(805)	(840)
Level 1
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
REO	0	0
Level 2
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
REO	0	0
Level 3
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
REO	$ 3,523	$ 3,523

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Fair Value of Financial Instruments - Market Valuation Adjustments, Net (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other Income	$ (2,362)	$ 431	$ (5,595)	$ 2,342
Gain on re-measurement of 5 Arches investment	0	0	0	2,441
Total Market Valuation Gains (Losses), Net	158,883	14,549	(606,764)	62,720
Mortgage Banking Activities, Net
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	56,619	6,205	18,173	33,625
Mortgage Banking Activities, Net | Residential loans, at fair value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	(478)	(6,623)	(15,972)	289
Mortgage Banking Activities, Net | Residential loan purchase and forward sale commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	13,067	12,943	35,123	41,142
Mortgage Banking Activities, Net | Single-family rental loans held-for-sale, at fair value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	43,191	1,283	55,868	4,200
Mortgage Banking Activities, Net | Single-family rental loan purchase and interest rate lock commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	0	564	341	1,273
Mortgage Banking Activities, Net | Residential bridge loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	938	1,010	(4,256)	2,108
Mortgage Banking Activities, Net | Risk management derivatives, net
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	(99)	(2,972)	(52,931)	(15,387)
Investment Fair Value Changes, Net
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	107,047	11,444	(611,557)	34,741
Investment Fair Value Changes, Net | Risk management derivatives, net
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	0	(37,433)	(59,142)	(144,548)
Investment Fair Value Changes, Net | Residential loans held-for-investment, at Redwood
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	218	7,667	(93,314)	71,323
Investment Fair Value Changes, Net | Single-family rental loans held-for-investment
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	0	22	(20,806)	22
Investment Fair Value Changes, Net | Residential bridge loans held-for-investment
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	6,812	(742)	(10,016)	(1,363)
Investment Fair Value Changes, Net | Trading securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	(3,600)	15,275	(224,679)	55,577
Investment Fair Value Changes, Net | Servicer advance investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	26	1,585	(6,172)	3,025
Investment Fair Value Changes, Net | Excess MSRs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	(1,127)	(1,635)	(7,650)	(2,137)
Investment Fair Value Changes, Net | Legacy Sequoia
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	(81)	(407)	(702)	(904)
Investment Fair Value Changes, Net | Sequoia Choice
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	7,851	2,722	(22,065)	8,866
Investment Fair Value Changes, Net | Freddie Mac SLST
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	82,214	17,300	(33,081)	31,702
Investment Fair Value Changes, Net | Freddie Mac K-Series
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	2,166	7,445	(82,744)	13,810
Investment Fair Value Changes, Net | CAFL
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	9,673	0	(41,048)	0
Investment Fair Value Changes, Net | Other investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	2,451	(355)	(9,111)	(632)
Investment Fair Value Changes, Net | Credit recoveries (losses) on AFS securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Changes in fair value of assets	444	0	(1,027)	0
Other Income
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other Income	(4,783)	(3,100)	(13,380)	(5,646)
Gain on re-measurement of 5 Arches investment	0	0	0	2,440
Other Income | Risk management derivatives, net
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other Income	0	4,389	13,966	13,157
Other Income | MSRs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other Income	$ (4,783)	$ (7,489)	$ (27,346)	$ (21,243)

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Fair Value of Financial Instruments - Quantitative Information about Significant Unobservable Inputs Used in Valuation of Level 3 Assets and Liabilities Measured at Fair Value (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2020 USD ($) $ / loan	Dec. 31, 2019 USD ($)	Sep. 30, 2019
Assets
ABS issued, net, Fair value | $	$ 6,969,376	$ 10,515,475
ABS Issued
Liabilities
ABS issued | $	$ 1,919,048
ABS Issued | Prepayment rate (annual CPR) | Minimum
Liabilities
ABS issued, measurement input	0.05
ABS Issued | Prepayment rate (annual CPR) | Maximum
Liabilities
ABS issued, measurement input	0.53
ABS Issued | Prepayment rate (annual CPR) | Weighted Average
Liabilities
ABS issued, measurement input	0.27
ABS Issued | Discount rate | Minimum
Liabilities
ABS issued, measurement input	0.02
ABS Issued | Discount rate | Maximum
Liabilities
ABS issued, measurement input	0.30
ABS Issued | Discount rate | Weighted Average
Liabilities
ABS issued, measurement input	0.03
ABS Issued | Default rate | Minimum
Liabilities
ABS issued, measurement input	0
ABS Issued | Default rate | Maximum
Liabilities
ABS issued, measurement input	0.40
ABS Issued | Default rate | Weighted Average
Liabilities
ABS issued, measurement input	0.02
ABS Issued | Loss severity | Minimum
Liabilities
ABS issued, measurement input	0
ABS Issued | Loss severity | Maximum
Liabilities
ABS issued, measurement input	0.50
ABS Issued | Loss severity | Weighted Average
Liabilities
ABS issued, measurement input	0.31
Freddie Mac SLST
Liabilities
ABS issued | $	$ 1,841,313
Freddie Mac K-Series
Liabilities
ABS issued | $	$ 464,865
Freddie Mac K-Series | Discount rate | Minimum
Liabilities
ABS issued, measurement input	0.01
Freddie Mac K-Series | Discount rate | Maximum
Liabilities
ABS issued, measurement input	0.18
Freddie Mac K-Series | Discount rate | Weighted Average
Liabilities
ABS issued, measurement input	0.02
Freddie Mac K-Series | Dollar price | Minimum
Liabilities
ABS issued, measurement input	1
Freddie Mac K-Series | Dollar price | Maximum
Liabilities
ABS issued, measurement input	108
Freddie Mac K-Series | Dollar price | Weighted Average
Liabilities
ABS issued, measurement input	99
CAFL
Liabilities
ABS issued | $	$ 2,744,150
CAFL | Prepayment rate (annual CPR) | Minimum
Liabilities
ABS issued, measurement input	0
CAFL | Prepayment rate (annual CPR) | Maximum
Liabilities
ABS issued, measurement input	0.03
CAFL | Prepayment rate (annual CPR) | Weighted Average
Liabilities
ABS issued, measurement input	0
CAFL | Discount rate | Minimum
Liabilities
ABS issued, measurement input	0.002
CAFL | Discount rate | Maximum
Liabilities
ABS issued, measurement input	0.40
CAFL | Discount rate | Weighted Average
Liabilities
ABS issued, measurement input	0.03
CAFL | Default rate | Minimum
Liabilities
ABS issued, measurement input	0
CAFL | Default rate | Maximum
Liabilities
ABS issued, measurement input	0.18
CAFL | Default rate | Weighted Average
Liabilities
ABS issued, measurement input	0.11
CAFL | Loss severity | Minimum
Liabilities
ABS issued, measurement input	0.30
CAFL | Loss severity | Maximum
Liabilities
ABS issued, measurement input	0.30
CAFL | Loss severity | Weighted Average
Liabilities
ABS issued, measurement input	0.30
Jumbo fixed-rate loans
Assets
ABS issued, net, Fair value | $	$ 6,312
Jumbo fixed-rate loans | Prepayment rate (annual CPR) | Minimum
Assets
Loans held-for-sale, measurement input	0.20
Jumbo fixed-rate loans | Prepayment rate (annual CPR) | Maximum
Assets
Loans held-for-sale, measurement input	0.20
Jumbo fixed-rate loans | Prepayment rate (annual CPR) | Weighted Average
Assets
Loans held-for-sale, measurement input	0.20
Jumbo fixed-rate loans | Whole loan spread to swap rate | Minimum
Assets
Loans held-for-sale, measurement input	0.0350
Jumbo fixed-rate loans | Whole loan spread to swap rate | Maximum
Assets
Loans held-for-sale, measurement input	0.0350
Jumbo fixed-rate loans | Whole loan spread to swap rate | Weighted Average
Assets
Loans held-for-sale, measurement input	0.0350
Jumbo loans committed to sell
Assets
Loans receivable, fair value | $	$ 98,779
Jumbo loans committed to sell | Whole loan committed sales price | Minimum
Assets
Loans held-for-sale, measurement input	101.61
Jumbo loans committed to sell | Whole loan committed sales price | Maximum
Assets
Loans held-for-sale, measurement input	103.40
Jumbo loans committed to sell | Whole loan committed sales price | Weighted Average
Assets
Loans held-for-sale, measurement input	103.23
Legacy Sequoia
Assets
Loans receivable, fair value | $	$ 296,765
Sequoia Choice
Assets
Loans receivable, fair value | $	1,836,361
Liabilities
Fair value of securities owned | $	215,000
Freddie Mac SLST
Assets
Loans receivable, fair value | $	2,256,682
Liabilities
Fair value of securities owned | $	416,000
Single-family rental loans
Assets
Loans receivable, fair value | $	$ 285,549
Single-family rental loans | Prepayment rate (annual CPR) | Minimum
Assets
Loans receivable, measurement input	0
Single-family rental loans | Prepayment rate (annual CPR) | Maximum
Assets
Loans receivable, measurement input	0.03
Single-family rental loans | Prepayment rate (annual CPR) | Weighted Average
Assets
Loans receivable, measurement input	0.03
Single-family rental loans | Senior credit spread | Minimum
Assets
Loans receivable, measurement input	0.0130
Single-family rental loans | Senior credit spread | Maximum
Assets
Loans receivable, measurement input	0.0130
Single-family rental loans | Senior credit spread | Weighted Average
Assets
Loans receivable, measurement input	0.0130
Single-family rental loans | Subordinate credit spread | Minimum
Assets
Loans receivable, measurement input	0.0200
Single-family rental loans | Subordinate credit spread | Maximum
Assets
Loans receivable, measurement input	0.1600
Single-family rental loans | Subordinate credit spread | Weighted Average
Assets
Loans receivable, measurement input	0.0551
Single-family rental loans | Senior credit support | Minimum
Assets
Loans receivable, measurement input	0.30
Single-family rental loans | Senior credit support | Maximum
Assets
Loans receivable, measurement input	0.32
Single-family rental loans | Senior credit support | Weighted Average
Assets
Loans receivable, measurement input	0.31
Single-family rental loans | IO discount rate | Minimum
Assets
Loans receivable, measurement input	0.08
Single-family rental loans | IO discount rate | Maximum
Assets
Loans receivable, measurement input	0.09
Single-family rental loans | IO discount rate | Weighted Average
Assets
Loans receivable, measurement input	0.09
Single-family rental loans | Non-securitizable loan dollar price | Minimum
Assets
Loans receivable, measurement input	101
Single-family rental loans | Non-securitizable loan dollar price | Maximum
Assets
Loans receivable, measurement input	101
Single-family rental loans | Non-securitizable loan dollar price | Weighted Average
Assets
Loans receivable, measurement input	101
CAFL
Assets
Loans receivable, fair value | $	$ 2,969,692
Liabilities
Fair value of securities owned | $	229,000
Residential bridge loans
Assets
Loans receivable, fair value | $	$ 700,860
Residential bridge loans | Discount rate | Minimum
Assets
Loans held-for-investment, measurement input	0.06
Residential bridge loans | Discount rate | Maximum
Assets
Loans held-for-investment, measurement input	0.12
Residential bridge loans | Discount rate | Weighted Average
Assets
Loans held-for-investment, measurement input	0.08
Residential bridge loans | Non-performing loan dollar price | Minimum
Assets
Loans held-for-investment, measurement input	3
Residential bridge loans | Non-performing loan dollar price | Maximum
Assets
Loans held-for-investment, measurement input	100
Residential bridge loans | Non-performing loan dollar price | Weighted Average
Assets
Loans held-for-investment, measurement input	89
Freddie Mac K-Series
Assets
Loans receivable, fair value | $	$ 491,415
Liabilities
Fair value of securities owned | $	27,000
Trading and AFS securities
Assets
Trading and AFS securities | $	$ 351,335
Trading and AFS securities | Prepayment rate (annual CPR) | Minimum
Assets
Trading and AFS securities	0.07
Trading and AFS securities | Prepayment rate (annual CPR) | Maximum
Assets
Trading and AFS securities	0.65
Trading and AFS securities | Prepayment rate (annual CPR) | Weighted Average
Assets
Trading and AFS securities	0.24
Trading and AFS securities | Discount rate | Minimum
Assets
Trading and AFS securities	0.03
Trading and AFS securities | Discount rate | Maximum
Assets
Trading and AFS securities	0.34
Trading and AFS securities | Discount rate | Weighted Average
Assets
Trading and AFS securities	0.09
Trading and AFS securities | Default rate | Minimum
Assets
Trading and AFS securities	0
Trading and AFS securities | Default rate | Maximum
Assets
Trading and AFS securities	0.26
Trading and AFS securities | Default rate | Weighted Average
Assets
Trading and AFS securities	0.01
Trading and AFS securities | Loss severity | Minimum
Assets
Trading and AFS securities	0
Trading and AFS securities | Loss severity | Maximum
Assets
Trading and AFS securities	0.50
Trading and AFS securities | Loss severity | Weighted Average
Assets
Trading and AFS securities	0.19
Trading and AFS securities | Measurement Input, CRT Dollar Price | Minimum
Assets
Trading and AFS securities	49
Trading and AFS securities | Measurement Input, CRT Dollar Price | Maximum
Assets
Trading and AFS securities	103
Trading and AFS securities | Measurement Input, CRT Dollar Price | Weighted Average
Assets
Trading and AFS securities	84
Servicer advance investments
Assets
Servicing asset | $	$ 258,621
Servicer advance investments | Minimum
Assets
Expected remaining life	1 year
Servicer advance investments | Maximum
Assets
Expected remaining life	2 years
Servicer advance investments | Weighted Average
Assets
Expected remaining life	2 years
Servicer advance investments | Prepayment rate (annual CPR) | Minimum
Assets
Servicing asset, measurement input	0.08
Servicer advance investments | Prepayment rate (annual CPR) | Maximum
Assets
Servicing asset, measurement input	0.14
Servicer advance investments | Prepayment rate (annual CPR) | Weighted Average
Assets
Servicing asset, measurement input	0.13
Servicer advance investments | Discount rate | Minimum
Assets
Servicing asset, measurement input	0.03
Servicer advance investments | Discount rate | Maximum
Assets
Servicing asset, measurement input	0.04
Servicer advance investments | Discount rate | Weighted Average
Assets
Servicing asset, measurement input	0.04
Loan purchase and interest rate lock commitments
Liabilities
Loan purchase commitments, net | $	$ 10,282
Loan purchase and interest rate lock commitments | Prepayment rate (annual CPR) | Minimum
Assets
Loans receivable, measurement input	0.15
Loan purchase and interest rate lock commitments | Prepayment rate (annual CPR) | Maximum
Assets
Loans receivable, measurement input	0.15
Loan purchase and interest rate lock commitments | Prepayment rate (annual CPR) | Weighted Average
Assets
Loans receivable, measurement input	0.15
Loan purchase and interest rate lock commitments | Whole loan spread to swap rate | Minimum
Assets
Loans receivable, measurement input	0.0350
Loan purchase and interest rate lock commitments | Whole loan spread to swap rate | Maximum
Assets
Loans receivable, measurement input	0.0350
Loan purchase and interest rate lock commitments | Whole loan spread to swap rate | Weighted Average
Assets
Loans receivable, measurement input	0.0350
Loan purchase and interest rate lock commitments | Mortgage servicing income | Minimum
Assets
Servicing asset, measurement input	0.0006
Loan purchase and interest rate lock commitments | Mortgage servicing income | Maximum
Assets
Servicing asset, measurement input	0.0016
Loan purchase and interest rate lock commitments | Mortgage servicing income | Weighted Average
Assets
Servicing asset, measurement input	0.0008
Loan purchase and interest rate lock commitments | Committed sales price | Minimum
Liabilities
Loan purchase commitments, measurement input	100.89
Loan purchase and interest rate lock commitments | Committed sales price | Maximum
Liabilities
Loan purchase commitments, measurement input	103.40
Loan purchase and interest rate lock commitments | Committed sales price | Weighted Average
Liabilities
Loan purchase commitments, measurement input	102.59
Loan purchase and interest rate lock commitments | Pull-through rate | Minimum
Liabilities
Loan purchase commitments, measurement input	0.13
Loan purchase and interest rate lock commitments | Pull-through rate | Maximum
Liabilities
Loan purchase commitments, measurement input	1
Loan purchase and interest rate lock commitments | Pull-through rate | Weighted Average
Liabilities
Loan purchase commitments, measurement input	0.58
Loan purchase and interest rate lock commitments | MSR Multiple | Minimum
Assets
Loans receivable, measurement input	0.8
Loan purchase and interest rate lock commitments | MSR Multiple | Maximum
Assets
Loans receivable, measurement input	4.1
Loan purchase and interest rate lock commitments | MSR Multiple | Weighted Average
Assets
Loans receivable, measurement input	3.4
Loan purchase and interest rate lock commitments | Whole Loan Spread to TBA Price | Minimum
Assets
Loans receivable, measurement input	2.00
Loan purchase and interest rate lock commitments | Whole Loan Spread to TBA Price | Maximum
Assets
Loans receivable, measurement input	2.00
Loan purchase and interest rate lock commitments | Whole Loan Spread to TBA Price | Weighted Average
Assets
Loans receivable, measurement input	2.00
MSRs
Assets
Servicing asset | $	$ 14,878
MSRs | Prepayment rate (annual CPR) | Minimum
Assets
Servicing asset, measurement input	0.08
MSRs | Prepayment rate (annual CPR) | Maximum
Assets
Servicing asset, measurement input	0.97
MSRs | Prepayment rate (annual CPR) | Weighted Average
Assets
Servicing asset, measurement input	0.26
MSRs | Discount rate | Minimum
Assets
Servicing asset, measurement input	0.12
MSRs | Discount rate | Maximum
Assets
Servicing asset, measurement input	0.12
MSRs | Discount rate | Weighted Average
Assets
Servicing asset, measurement input	0.12
MSRs | Per loan annual cost to service | Minimum
Assets
Servicing asset, measurement input	95
MSRs | Per loan annual cost to service | Maximum
Assets
Servicing asset, measurement input	95
MSRs | Per loan annual cost to service | Weighted Average
Assets
Servicing asset, measurement input	95
Excess MSRs
Assets
Servicing asset | $	$ 35,070
Excess MSRs | Prepayment rate (annual CPR) | Minimum
Assets
Servicing asset, measurement input	0.10
Excess MSRs | Prepayment rate (annual CPR) | Maximum
Assets
Servicing asset, measurement input	0.13
Excess MSRs | Prepayment rate (annual CPR) | Weighted Average
Assets
Servicing asset, measurement input	0.11
Excess MSRs | Discount rate | Minimum
Assets
Servicing asset, measurement input	0.15
Excess MSRs | Discount rate | Maximum
Assets
Servicing asset, measurement input	0.21
Excess MSRs | Discount rate | Weighted Average
Assets
Servicing asset, measurement input	0.18
Excess MSRs | Excess mortgage servicing income | Minimum
Assets
Servicing asset, measurement input	0.0009
Excess MSRs | Excess mortgage servicing income | Maximum
Assets
Servicing asset, measurement input	0.0017
Excess MSRs | Excess mortgage servicing income | Weighted Average
Assets
Servicing asset, measurement input	0.0012
Shared home appreciation options
Assets
Shared home appreciation options | $	$ 41,758
Shared home appreciation options | Prepayment rate (annual CPR) | Minimum
Assets
Shared home appreciation options			0.08
Shared home appreciation options | Prepayment rate (annual CPR) | Maximum
Assets
Shared home appreciation options			0.26
Shared home appreciation options | Prepayment rate (annual CPR) | Weighted Average
Assets
Shared home appreciation options			0.19
Shared home appreciation options | Discount rate | Minimum
Assets
Shared home appreciation options	0.16
Shared home appreciation options | Discount rate | Maximum
Assets
Shared home appreciation options	0.16
Shared home appreciation options | Discount rate | Weighted Average
Assets
Shared home appreciation options	0.16
Shared home appreciation options | Home price appreciation | Minimum
Assets
Shared home appreciation options			0.02
Shared home appreciation options | Home price appreciation | Maximum
Assets
Shared home appreciation options			0.03
Shared home appreciation options | Home price appreciation | Weighted Average
Assets
Shared home appreciation options			0.03
Guarantee asset
Assets
Guarantee asset | $	$ 579
Guarantee asset | Prepayment rate (annual CPR) | Minimum
Assets
Guarantee asset	0.42
Guarantee asset | Prepayment rate (annual CPR) | Maximum
Assets
Guarantee asset	0.42
Guarantee asset | Prepayment rate (annual CPR) | Weighted Average
Assets
Guarantee asset	0.42
Guarantee asset | Discount rate | Minimum
Assets
Guarantee asset	0.12
Guarantee asset | Discount rate | Maximum
Assets
Guarantee asset	0.12
Guarantee asset | Discount rate | Weighted Average
Assets
Guarantee asset	0.12
REO
Assets
REO | $	$ 3,523
REO | Loss severity | Minimum
Assets
REO, measurement input	0.03
REO | Loss severity | Maximum
Assets
REO, measurement input	0.63
REO | Loss severity | Weighted Average
Assets
REO, measurement input	0.23

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Residential Loans - Summary of Classifications and Carrying Value of Residential Loans (Details) - USD ($) $ in Thousands		Sep. 30, 2020	Dec. 31, 2019
Held-for-sale at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value	[1]	$ 105,128	$ 536,385
Legacy Sequoia | Held-for-investment at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		296,765	407,890
Sequoia Choice | Held-for-investment at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		1,836,361	2,291,463
Freddie Mac SLST | Held-for-investment at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		2,256,683	2,367,215
Redwood | Held-for-investment at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		0	2,111,897
Residential Loans
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		4,494,936	7,714,850
Residential Loans | Held-for-sale at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		105,128	536,385
Residential Loans | Held-for-investment at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		4,389,808	7,178,465
Residential Loans | Legacy Sequoia
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		296,765	407,890
Residential Loans | Legacy Sequoia | Held-for-sale at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		0	0
Residential Loans | Legacy Sequoia | Held-for-investment at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		296,765	407,890
Residential Loans | Sequoia Choice
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		1,836,361	2,291,463
Residential Loans | Sequoia Choice | Held-for-sale at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		0	0
Residential Loans | Sequoia Choice | Held-for-investment at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		1,836,361	2,291,463
Residential Loans | Freddie Mac SLST
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		2,256,682	2,367,215
Residential Loans | Freddie Mac SLST | Held-for-sale at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		0	0
Residential Loans | Freddie Mac SLST | Held-for-investment at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		2,256,682	2,367,215
Residential Loans | Redwood
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		105,128	2,648,282
Residential Loans | Redwood | Held-for-sale at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		105,128	536,385
Residential Loans | Redwood | Held-for-investment at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value		$ 0	$ 2,111,897

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

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Residential Loans - Additional Information (Details) $ in Millions	Sep. 30, 2020 USD ($)
MSRs
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Mortgage servicing rights, at amortized cost	$ 103

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Residential Loans - Characteristics of Residential Loans Held-for-Sale (Details) - Residential Loans $ in Thousands	Sep. 30, 2020 USD ($) loan	Dec. 31, 2019 USD ($) loan
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | loan	118	669
Unpaid principal balance	$ 102,921	$ 524,928
Loans, at fair value	$ 105,128	$ 536,280
Number of loans in foreclosure | loan	0	0
Loan pledged as collateral	$ 95,023	$ 201,949
Financing Receivables, Equal to Greater than 90 Days Past Due
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans past due | loan	2	1
Balance of loans 90 days or more delinquent	$ 2,356	$ 747
Fair value of loans with 90+ day delinquencies	$ 1,767	$ 616

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Residential Loans - Quarterly Activity of Residential Loans Held-for-Sale (Details) - Residential Loans - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Principal balance of loans acquired	$ 172,162	$ 1,446,750	$ 2,859,813	$ 3,936,111
Principal balance of loans sold	87,868	1,534,315	5,024,663	3,921,280
Net market valuation gains (losses) recorded	$ (478)	$ (6,623)	$ (15,972)	$ 286

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Residential Loans - Characteristics of Loans Held-for-Investment (Details) - Held-for-investment at fair value $ in Thousands	Sep. 30, 2020 USD ($) loan	Dec. 31, 2019 USD ($) loan
Legacy Sequoia
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | loan	1,976	2,198
Unpaid principal balance	$ 352,392	$ 424,829
Loans, at fair value	$ 296,765	$ 407,890
Number of loans in foreclosure | loan	21	16
Fair value of loans, in foreclosure	$ 4,820	$ 3,673
Legacy Sequoia | Financing Receivables, Equal to Greater than 90 Days Past Due
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans past due | loan	49	39
Fair value of loans with 90+ day delinquencies	$ 16,076	$ 9,803
Sequoia Choice
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | loan	2,546	3,156
Unpaid principal balance	$ 1,811,967	$ 2,240,679
Loans, at fair value	$ 1,836,361	$ 2,291,463
Number of loans in foreclosure | loan	3	3
Fair value of loans, in foreclosure	$ 1,814	$ 2,290
Sequoia Choice | Financing Receivables, Equal to Greater than 90 Days Past Due
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans past due | loan	132	9
Fair value of loans with 90+ day delinquencies	$ 102,693	$ 6,755
Freddie Mac SLST
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | loan	13,893	14,502
Unpaid principal balance	$ 2,304,047	$ 2,428,035
Loans, at fair value	$ 2,256,683	$ 2,367,215
Number of loans in foreclosure | loan	175	208
Fair value of loans, in foreclosure	$ 28,380	$ 33,042
Freddie Mac SLST | Financing Receivables, Equal to Greater than 90 Days Past Due
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans past due | loan	1,772	587
Fair value of loans with 90+ day delinquencies	$ 339,537	$ 134,680
Redwood
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | loan	0	2,940
Unpaid principal balance	$ 0	$ 2,052,778
Loans, at fair value	$ 0	$ 2,111,897
Number of loans in foreclosure | loan	0	0
Fair value of loans, in foreclosure	$ 0	$ 0
Redwood | Financing Receivables, Equal to Greater than 90 Days Past Due
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Unpaid principal balance	$ 0	$ 1,424
Number of loans past due | loan	0	2
Fair value of loans with 90+ day delinquencies	$ 0	$ 1,585

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Residential Loans - Quarterly Activity of Residential Loans Held-for-Investment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Transfers from loans held-for-sale to loans held-for-investment			$ 770,754	$ 1,361,015
Held-for-investment at fair value | Sequoia Choice
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Net market valuation gain (loss)	$ (5,175)	$ (11,029)	(21,727)	4,841
Held-for-investment at fair value | Freddie Mac SLST
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Net market valuation gain (loss)	159,687	39,783	15,254	94,788
Held-for-investment at fair value | Legacy Sequoia
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Net market valuation gain (loss)	21,938	(103)	(38,996)	5,271
Held-for-investment at fair value | Sequoia Choice
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Transfers from loans held-for-sale to loans held-for-investment	0	727,088	270,506	1,076,671
Held-for-investment at fair value | Redwood
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Principal balance of loans acquired	0	0	0	39,194
Principal balance of loans sold	0	0	0	0
Transfers from loans held-for-sale to loans held-for-investment	0	0	13,258	68,703
Transfers from loans held-for-investment to loans held-for-sale	0	0	1,870,986	22,814
Net market valuation gains (losses) recorded	$ 218	$ 7,667	$ (93,314)	$ 71,323

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Business Purpose Residential Loans (Details)			3 Months Ended		9 Months Ended
	Sep. 30, 2020 USD ($) loan	Dec. 31, 2019 USD ($) loan	Sep. 30, 2020 USD ($) loan	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($) loan	Sep. 30, 2019 USD ($)
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Proceeds from sales of held-for-sale loans					$ 3,224,526,000	$ 2,971,811,000
Purchases of held-for-sale loans					$ 2,893,246,000	4,002,509,000
Number of loans transferred | loan					4
Transfer to REO					$ 12,547,000	5,280,000
Commitment To Fund Residential Bridge Loan
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Commitment to fund loan	$ 225,000,000		$ 225,000,000		225,000,000
Single-Family Rental, Held-for-sale at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Proceeds from loan originations to third parties			2,000,000
Loans, at fair value	$ 285,549,000	$ 569,185,000	285,549,000		285,549,000
Number of loans | loan	140	308
Loan principal	$ 272,492,000	$ 552,848,000	$ 272,492,000		$ 272,492,000
Weighted average coupon rate	5.26%	4.96%	5.26%		5.26%
Contract maturities	7 years	9 years
Fair value of loans with 90+ day delinquencies	$ 0	$ 130,000	$ 0		$ 0
Number of loans in foreclosure | loan	0	1	0		0
Fair value of loans, in foreclosure	$ 0	$ 130,000	$ 0		$ 0
Purchases of held-for-sale loans			196,000,000		632,000,000
Gain (loss) on investments			43,000,000	$ 1,000,000	34,000,000	3,000,000
Residential Bridge, Held-for-sale at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value	0	0	0		0
Residential Bridge, Held-for-investment at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value	$ 700,860,000	$ 745,006,000	700,860,000		700,860,000
Number of loans | loan	2,262	2,653
Loan principal	$ 708,555,000	$ 742,528,000	$ 708,555,000		$ 708,555,000
Weighted average coupon rate	8.02%	8.11%	8.02%		8.02%
Contract maturities	1 year	2 years
Fair value of loans with 90+ day delinquencies	$ 39,755,000	$ 8,987,000	$ 39,755,000		$ 39,755,000
Number of loans in foreclosure | loan	24	15	24		24
Fair value of loans, in foreclosure	$ 34,489,000	$ 6,917,000	$ 34,489,000		$ 34,489,000
Purchases of held-for-sale loans			64,000,000		324,000,000
Gain (loss) on investments			7,000,000	(1,000,000)	(10,000,000)	(1,000,000)
Transfer to REO					$ 5,000,000
Residential Bridge, Held-for-investment at fair value | Minimum
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Residential bridge loans held-for-investment, original maturities (in months)					6 months
Residential Bridge, Held-for-investment at fair value | Maximum
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Residential bridge loans held-for-investment, original maturities (in months)					24 months
Residential bridge loans
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Proceeds from loan originations to third parties			2,000,000
Loans, at fair value	700,860,000	745,006,000	700,860,000		$ 700,860,000
Held-for-sale at fair value, Total
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value	285,549,000	331,565,000	285,549,000		285,549,000
Held-for-investment at fair value, Total
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value	3,670,552,000	3,175,178,000	3,670,552,000		3,670,552,000
Business purpose residential loans
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Proceeds from loan originations			261,000,000
Fee income			3,000,000		13,000,000
Loans, at fair value	$ 3,956,101,000	$ 3,506,743,000	3,956,101,000		3,956,101,000
Business Purpose Mortgage Banking Activities
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Market valuations gains (losses), net			938,000	$ 1,010,000	(4,256,000)	$ 2,108,000
Business Purpose Mortgage Banking Activities | Single-Family Rental, Held-for-sale at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Gain (loss) on investments					55,000,000
Business Purpose Mortgage Banking Activities | Business purpose residential loans
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Market valuations gains (losses), net			$ 100,000
Business Purpose Investment Fair Value Change | Single-Family Rental, Held-for-sale at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Gain (loss) on investments					$ 21,000,000
Financing Receivables, Equal to Greater than 90 Days Past Due | Single-Family Rental, Held-for-sale at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans past due | loan	6	2	6		6
Fair value of loans with 90+ day delinquencies	$ 3,018,000	$ 1,688,000	$ 3,018,000		$ 3,018,000
Balance of loans 90 days or more delinquent	$ 2,954,000	$ 1,818,000	$ 2,954,000		$ 2,954,000
Financing Receivables, Equal to Greater than 90 Days Past Due | Residential Bridge, Held-for-investment at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans past due | loan	24	31	24		24
Fair value of loans with 90+ day delinquencies	$ 38,437,000	$ 14,186,000	$ 38,437,000		$ 38,437,000
Balance of loans 90 days or more delinquent	33,464,000	12,111,000	33,464,000		33,464,000
Redwood | Single-Family Rental, Held-for-sale at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value	285,549,000	331,565,000	285,549,000		285,549,000
Redwood | Single-family rental loans held-for-investment
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value	0	237,620,000	0		0
Redwood | Single family rental loans
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value	285,549,000	569,185,000	285,549,000		285,549,000
CoreVest | Single-Family Rental, Held-for-sale at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value	0	0	0		0
CoreVest | Single-family rental loans held-for-investment
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value	2,969,692,000	2,192,552,000	2,969,692,000		2,969,692,000
CoreVest | Single family rental loans
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value	$ 2,969,692,000	2,192,552,000	$ 2,969,692,000		2,969,692,000
CAFL | Single-Family Rental, Held-for-sale at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Proceeds from sales of held-for-sale loans					34,000,000
Purchases of held-for-sale loans					$ 925,000,000
Number of securitization entities to which asset transferred (in entities) | loan	3		3		3
CAFL | Single-family rental loans held-for-investment
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loans, at fair value	$ 2,969,692,000	$ 2,192,552,000	$ 2,969,692,000		$ 2,969,692,000
Number of loans | loan	1,027	783
Loan principal	$ 2,815,045,000	$ 2,078,214,000	$ 2,815,045,000		$ 2,815,045,000
Weighted average coupon rate	5.50%	5.70%	5.50%		5.50%
Contract maturities	6 years	7 years
Fair value of loans with 90+ day delinquencies	$ 14,032,000	$ 9,169,000	$ 14,032,000		$ 14,032,000
Number of loans in foreclosure | loan	9	5	9		9
Gain (loss) on investments			$ 88,000,000		$ (14,000,000)
Loans maturity one					5 years
Loans maturity two					7 years
Loans maturity three					10 years
CAFL | Financing Receivables, Equal to Greater than 90 Days Past Due | Single-family rental loans held-for-investment
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans past due | loan	26	18	26		26
Fair value of loans with 90+ day delinquencies	$ 70,949,000	$ 29,039,000	$ 70,949,000		$ 70,949,000

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Multifamily Loans (Details) $ in Thousands			3 Months Ended			9 Months Ended
	Sep. 30, 2020 USD ($) loan	Dec. 31, 2019 USD ($) loan	Sep. 30, 2020 USD ($) loan	Mar. 31, 2020 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($) loan	Sep. 30, 2019 USD ($)
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Multifamily loans deconsolidated				$ 3,850,000
Multifamily loans, held-for-investment, at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Net market valuation gain (loss)					$ 47,353
Multifamily loans, held-for-investment, at fair value | Maximum
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Weighted average maturity (in years)						10 years
Redwood | Multifamily loans, held-for-investment, at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | loan	28	279
Loan principal	$ 464,680	$ 4,195,000	$ 464,680			$ 464,680
Loans, at fair value	$ 491,415	$ 4,408,524	$ 491,415			$ 491,415
Weighted average coupon rate	4.25%	4.13%	4.25%			4.25%
Contract maturities		6 years				5 years
Number of loans in foreclosure | loan	0	0	0			0
Redwood | Financing Receivables, Equal to Greater than 90 Days Past Due | Multifamily loans, held-for-investment, at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans past due | loan	0	0	0			0
Held-for-investment at fair value | Multifamily loans, held-for-investment, at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Net market valuation gain (loss)			$ 2,340			$ (61,500)	$ 178,374
Held-for-investment at fair value | Redwood
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | loan	0	2,940
Loan principal	$ 0	$ 2,052,778	0			0
Loans, at fair value	$ 0	$ 2,111,897	$ 0			$ 0
Number of loans in foreclosure | loan	0	0	0			0
Held-for-investment at fair value | Redwood | Financing Receivables, Equal to Greater than 90 Days Past Due
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Loan principal	$ 0	$ 1,424	$ 0			$ 0
Number of loans past due | loan	0	2	0			0

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Real Estate Securities - Fair Values of Real Estate Securities (Details) - USD ($) $ in Thousands		Sep. 30, 2020	Dec. 31, 2019
Investments, Debt and Equity Securities [Abstract]
Trading		$ 144,162	$ 860,540
Available-for-sale		207,173	239,334
Total Real Estate Securities	[1]	$ 351,335	$ 1,099,874

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

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Real Estate Securities - Trading Securities by Collateral Type (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Investment Holdings [Line Items]
Real estate securities	$ 144,162	$ 860,540
Senior IO Securities
Investment Holdings [Line Items]
Real estate securities	28,091	150,067
Subordinate Securities | Mezzanine
Investment Holdings [Line Items]
Real estate securities	3,651	538,489
Subordinate Securities | Subordinate
Investment Holdings [Line Items]
Real estate securities	$ 112,420	$ 171,984

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Real Estate Securities - Additional Information (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2020 USD ($) investment	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($) investment	Sep. 30, 2019 USD ($)	Jun. 30, 2020 USD ($)	Dec. 31, 2019 USD ($) investment
Investment Holdings [Line Items]
Real estate securities	$ 144,162,000		$ 144,162,000			$ 860,540,000
Trading securities acquired	11,000,000	$ 66,000,000	78,000,000	$ 335,000,000
Trading securities sold	16,000,000	236,000,000	721,000,000	397,000,000
Increase (decrease) in valuation of trading securities	(4,000,000)	15,000,000	(225,000,000)	56,000,000
Available-for-sale securities	207,173,000		207,173,000			$ 239,334,000
Available-for-sale securities purchased	25,000,000	12,000,000	57,000,000	21,000,000
Available-for-sale securities sold	0	15,000,000	55,000,000	82,000,000
Net realized gains on AFS securities	$ 0	$ 4,000,000	$ 5,000,000	$ 13,000,000
Number of AFS securities (in investments) | investment	96		96			107
Number of securities in unrealized loss position | investment	7		7			1
Number of securities in a continuous unrealized loss position for twelve consecutive months or longer (in investments) | investment	0		0			1
Gross unrealized losses	$ 2,507,000		$ 2,507,000			$ 29,000
CECL credit allowance	1,027,000		1,027,000		$ 1,471,000	0
Interest Only Senior Trading Securities
Investment Holdings [Line Items]
Debt securities, trading	28,000,000		28,000,000			64,000,000
Unpaid principal balance	0		0			84,000,000
Certificated Servicing Strips
Investment Holdings [Line Items]
Debt securities, trading	12,000,000		12,000,000			36,000,000
Re-preforming Loans Securities
Investment Holdings [Line Items]
Debt securities, trading	60,000,000		60,000,000			161,000,000
Third Party Multifamily Mortgage-backed Securities
Investment Holdings [Line Items]
Available-for-sale securities	48,000,000		48,000,000			9,000,000
Residential
Investment Holdings [Line Items]
Available-for-sale securities	160,000,000		160,000,000			230,000,000
AFS securities, contractual maturities	45,000,000		45,000,000
Marketable securities, due from five to ten years	3,000,000		3,000,000
CECL credit allowance	43,186,000		43,186,000		$ 37,785,000	32,940,000
Residential | Sequoia Choice
Investment Holdings [Line Items]
Available-for-sale securities	124,000,000		124,000,000			141,000,000
Residential | Other Third Party Securities
Investment Holdings [Line Items]
Available-for-sale securities	35,000,000		35,000,000			90,000,000
Mezzanine
Investment Holdings [Line Items]
Available-for-sale securities	2,016,000		2,016,000			13,687,000
Gross unrealized losses	0		0			0
CECL credit allowance	0		0
Mezzanine | Re-preforming Loans Securities
Investment Holdings [Line Items]
Real estate securities	0		0			30,000,000
Mezzanine | Trading securities
Investment Holdings [Line Items]
Unpaid principal balance	4,000,000		4,000,000			537,000,000
Mezzanine | Sequoia securities
Investment Holdings [Line Items]
Real estate securities	4,000,000		4,000,000			39,000,000
Mezzanine | Subordinate Securities
Investment Holdings [Line Items]
Real estate securities	3,651,000		3,651,000			538,489,000
Available-for-sale securities	2,016,000		2,016,000			13,687,000
Mezzanine | Third Party Multifamily Mortgage-backed Securities
Investment Holdings [Line Items]
Real estate securities	0		0			395,000,000
Mezzanine | Other Third Party Securities
Investment Holdings [Line Items]
Real estate securities	0		0			104,000,000
Subordinate Securities
Investment Holdings [Line Items]
Available-for-sale securities	205,157,000		205,157,000			199,855,000
Gross unrealized losses	2,507,000		2,507,000			0
CECL credit allowance	1,027,000		1,027,000
Subordinate Securities | Re-preforming Loans Securities
Investment Holdings [Line Items]
Real estate securities	51,000,000		51,000,000			76,000,000
Subordinate Securities | Other Third Party Securities
Investment Holdings [Line Items]
Real estate securities	55,000,000		55,000,000			82,000,000
Subordinate Securities | Credit Risk Transfer (CRT) Securities
Investment Holdings [Line Items]
Real estate securities	50,000,000		50,000,000			90,000,000
Residential Subordinate Securities | Trading securities
Investment Holdings [Line Items]
Unpaid principal balance	266,000,000		266,000,000			302,000,000
Subordinate | Subordinate Securities
Investment Holdings [Line Items]
Real estate securities	112,420,000		112,420,000			171,984,000
Available-for-sale securities	$ 205,157,000		$ 205,157,000			$ 199,855,000

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Real Estate Securities - Available for Sale Securities by Collateral Type (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Investment Holdings [Line Items]
Available-for-sale	$ 207,173	$ 239,334
Senior IO Securities
Investment Holdings [Line Items]
Available-for-sale	0	25,792
Mezzanine
Investment Holdings [Line Items]
Available-for-sale	2,016	13,687
Senior IO Securities
Investment Holdings [Line Items]
Available-for-sale	0	25,792
Subordinate Securities | Mezzanine
Investment Holdings [Line Items]
Available-for-sale	2,016	13,687
Subordinate Securities | Subordinate
Investment Holdings [Line Items]
Available-for-sale	$ 205,157	$ 199,855

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Real Estate Securities - Components of Carrying Value (Which Equals Fair Value) of Residential Available for Sale Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Jun. 30, 2020	Dec. 31, 2019
Debt Securities, Available-for-sale [Line Items]
Principal balance	$ 289,659		$ 304,077
Credit reserve	(43,186)		(32,940)
Unamortized discount, net	(99,221)		(124,255)
Amortized cost	147,252		146,882
Gross unrealized gains	63,455		92,481
Gross unrealized losses	(2,507)		(29)
Allowance for credit losses	(1,027)	$ (1,471)	0
Carrying Value	207,173		239,334
Senior
Debt Securities, Available-for-sale [Line Items]
Principal balance	0		26,331
Credit reserve	0		(533)
Unamortized discount, net	0		(10,427)
Amortized cost	0		15,371
Gross unrealized gains	0		10,450
Gross unrealized losses	0		(29)
Allowance for credit losses	0
Carrying Value	0		25,792
Mezzanine
Debt Securities, Available-for-sale [Line Items]
Principal balance	2,000		13,512
Credit reserve	0		0
Unamortized discount, net	0		(527)
Amortized cost	2,000		12,985
Gross unrealized gains	16		702
Gross unrealized losses	0		0
Allowance for credit losses	0
Carrying Value	2,016		13,687
Subordinate
Debt Securities, Available-for-sale [Line Items]
Principal balance	287,659		264,234
Credit reserve	(43,186)		(32,407)
Unamortized discount, net	(99,221)		(113,301)
Amortized cost	145,252		118,526
Gross unrealized gains	63,439		81,329
Gross unrealized losses	(2,507)		0
Allowance for credit losses	(1,027)
Carrying Value	$ 205,157		$ 199,855

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Real Estate Securities - Changes of Unamortized Discount and Designated Credit Reserves on Residential Available for Sale Securities (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2020
Credit Reserve
Beginning balance	$ 1,471	$ 0
Sales, calls, other	0	0
Ending Balance	1,027	1,027
Unamortized Discount, Net
Beginning balance		124,255
Ending Balance	99,221	99,221
Residential
Credit Reserve
Beginning balance	37,785	32,940
Amortization of net discount	0	0
Realized credit losses	(194)	(897)
Acquisitions	1,303	6,487
Sales, calls, other	0	(726)
(Release of) transfers to credit reserves, net	4,292	5,382
Ending Balance	43,186	43,186
Unamortized Discount, Net
Beginning balance	104,260	124,255
Amortization of net discount	(1,766)	(4,607)
Realized credit losses	0	0
Acquisitions	1,019	1,796
Sales, calls, other	0	(16,841)
(Release of) transfers to credit reserves, net	(4,292)	(5,382)
Ending Balance	$ 99,221	$ 99,221

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Real Estate Securities - Components of Carrying Value of Residential Available for Sale Securities in Unrealized Loss Position (Details) - Residential - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Debt Securities, Available-for-sale [Line Items]
Less Than 12 Consecutive Months, Amortized Cost	$ 32,890	$ 0
Less Than 12 Consecutive Months, Unrealized Losses	(2,507)	0
Less Than 12 Consecutive Months, Fair Value	30,330	0
12 Consecutive Months or Longer, Amortized Cost	0	5,830
12 Consecutive Months or Longer, Unrealized Losses	0	(29)
12 Consecutive Months or Longer, Fair Value	$ 0	$ 5,801

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Real Estate Securities - Summary of Significant Valuation Assumptions for Available for Sale Securities Credit Loss (Details) - Subordinate Securities	9 Months Ended
	Sep. 30, 2020
Debt Securities, Available-for-sale [Line Items]
Default rate	0.50%
Loss severity	20.00%

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Real Estate Securities - Activity of Allowance for Credit Losses for Available-for-sale Securities (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2020
Rollforward of Allowance for Credit Losses
Beginning balance	$ 1,471	$ 0
Additions to allowance for credit losses on securities for which credit losses were not previously recorded	339	1,864
Additional increases or decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period	(783)	(837)
Allowance on purchased financial assets with credit deterioration	0	0
Reduction to allowance for securities sold during the period	0	0
Reduction to allowance for securities we intend to sell or more likely than not will be required to sell	0	0
Write-offs charged against allowance	0	0
Recoveries of amounts previously written off	0	0
Ending Balance	1,027	1,027
Cumulative Effect, Period of Adoption, Adjustment
Rollforward of Allowance for Credit Losses
Beginning balance	$ 0	$ 0

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Real Estate Securities - Gross Realized Gains and Losses on Sales and Calls of Available for Sale Securities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Debt Securities, Available-for-sale [Line Items]
Gross realized gains	$ 0	$ 4,000	$ 5,000	$ 13,000
Total Realized Gains on Sales and Calls of AFS Securities, net	0	4,714	4,635	18,227
Sales
Debt Securities, Available-for-sale [Line Items]
Gross realized gains	0	3,656	8,779	13,143
Gross realized losses - sales	0	0	(4,144)	0
Calls
Debt Securities, Available-for-sale [Line Items]
Gross realized gains	$ 0	$ 1,058	$ 0	$ 5,084

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Other Investments - Summary of Other Investments (Details) - USD ($) $ in Thousands		Sep. 30, 2020	Dec. 31, 2019
Net Investment Income [Line Items]
Servicing asset, fair value		$ 242,059	$ 151,582
Other Investments	[1]	384,628	358,130
Residential Loans
Net Investment Income [Line Items]
Servicing asset, fair value		258,621	169,204
Excess MSRs
Net Investment Income [Line Items]
Servicing asset, fair value		35,070	31,814
Shared home appreciation options
Net Investment Income [Line Items]
Shared home appreciation options			45,085
Mortgage servicing rights
Net Investment Income [Line Items]
Servicing asset, fair value		14,878	42,224
Investment in multifamily loan fund
Net Investment Income [Line Items]
Shared home appreciation options		(323)	39,802
Other
Net Investment Income [Line Items]
Shared home appreciation options		$ 34,624	$ 30,001

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

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Other Investments - Additional Information (Details)		3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2020 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2018 partnership	Dec. 31, 2019 USD ($)
Net Investment Income [Line Items]
Number of partnerships consolidated | partnership						2
Commitment to fund partnership	$ 94,000,000
Servicing asset, fair value	242,059,000	$ 242,059,000		$ 242,059,000			$ 151,582,000
Equity investment income		341,000	$ 560,000	615,000	$ 732,000
Investment fair value changes, net		107,047,000	11,444,000	(611,557,000)	34,741,000
Interest income		121,982,000	150,117,000	450,009,000	429,700,000
Servicer advance financing
Net Investment Income [Line Items]
Collateral amounts	242,000,000	242,000,000		242,000,000
Equity investment income		3,000,000	3,000,000	8,000,000	9,000,000
Investment fair value changes, net		100,000	2,000,000	(6,000,000)	3,000,000
Residential Loans
Net Investment Income [Line Items]
Servicing asset, fair value	258,621,000	258,621,000		258,621,000			169,204,000
Servicing asset, unpaid principal balance on underlying loan	9,710,000,000	9,710,000,000		9,710,000,000
Excess MSRs
Net Investment Income [Line Items]
Servicing asset, fair value	35,070,000	35,070,000		35,070,000			31,814,000
Investment fair value changes, net		(1,000,000)	(2,000,000)	(8,000,000)
Interest income		3,000,000	2,000,000	9,000,000	6,000,000
Light-Renovation Multifamily Loans
Net Investment Income [Line Items]
Equity investment income		300,000	1,000,000	600,000	500,000
Carrying amount of investment in partnership	0	0		0
Commitment to fund partnership, funded amount	0	0		0
Securities acquired from first securitization transaction		28,000,000		56,000,000
MSRs
Net Investment Income [Line Items]
Servicing asset, fair value	14,878,000	14,878,000		14,878,000			42,224,000
Servicing asset	3,140,000,000	3,140,000,000		3,140,000,000			$ 4,350,000,000
MSR income (losses), net		(2,000,000)	$ 400,000	(6,000,000)	$ 2,000,000
Shared home appreciation options
Net Investment Income [Line Items]
Payments to acquire investments	47,000,000
Shared home appreciation options | Commitment To Fund Investment
Net Investment Income [Line Items]
Investment fair value changes, net		2,000,000		(4,000,000)
Commitment to fund loan	$ 3,000,000	$ 3,000,000		$ 3,000,000

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Other Investments - Servicing Advance Investments (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Schedule of Investments [Line Items]
Total Servicer Advance Receivables	$ 242,059	$ 151,582
Residential Loans
Schedule of Investments [Line Items]
Principal and interest advances	88,370	15,081
Escrow advances (taxes and insurance advances)	115,352	96,732
Corporate advances	$ 38,337	$ 39,769

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Derivative Financial Instruments - Aggregate Fair Value and Notional Amount of Derivative Financial Instruments (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Derivative [Line Items]
Fair Value	$ 13,097,000	$ (127,723,000)
Notional Amount	2,575,858,000	13,589,356,000
TBAs
Derivative [Line Items]
Notional Amount	245,000,000	6,610,000,000
Interest rate futures
Derivative [Line Items]
Notional Amount	40,000,000	226,000,000
Derivative Liabilities
Derivative [Line Items]
Fair Value	(1,612,000)	(163,424,000)
Notional Amount	361,651,000	6,929,494,000
Derivative Liabilities | Interest rate swaps
Derivative [Line Items]
Fair Value	(15,000)	(97,235,000)
Notional Amount	25,000,000	2,314,300,000
Derivative Liabilities | Interest rate swaps | Cash Flow Hedging
Derivative [Line Items]
Fair Value	0	(51,530,000)
Notional Amount	0	139,500,000
Derivative Liabilities | TBAs
Derivative [Line Items]
Fair Value	(263,000)	(13,359,000)
Notional Amount	105,000,000	4,160,000,000
Derivative Liabilities | Interest rate futures
Derivative [Line Items]
Fair Value	0	(10,000)
Notional Amount	0	12,300,000
Derivative Liabilities | Loan purchase and interest rate lock commitments
Derivative [Line Items]
Fair Value	(1,334,000)	(1,290,000)
Notional Amount	231,651,000	303,394,000
Derivative Assets
Derivative [Line Items]
Fair Value	14,709,000	35,701,000
Notional Amount	2,214,207,000	6,659,862,000
Derivative Assets | Interest rate swaps
Derivative [Line Items]
Fair Value	78,000	17,095,000
Notional Amount	25,000,000	1,399,000,000
Derivative Assets | TBAs
Derivative [Line Items]
Fair Value	402,000	5,755,000
Notional Amount	140,000,000	2,445,000,000
Derivative Assets | Interest rate futures
Derivative [Line Items]
Fair Value	63,000	777,000
Notional Amount	40,000,000	213,700,000
Derivative Assets | Swaptions
Derivative [Line Items]
Fair Value	3,393,000	1,925,000
Notional Amount	285,000,000	1,065,000,000
Derivative Assets | Loan purchase and interest rate lock commitments
Derivative [Line Items]
Fair Value	10,773,000	10,149,000
Notional Amount	$ 1,724,207,000	$ 1,537,162,000

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Derivative Financial Instruments - Additional Information (Details) - USD ($)	3 Months Ended			9 Months Ended
	Sep. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Jun. 30, 2020	Dec. 31, 2019	Jun. 30, 2019	Dec. 31, 2018
Derivative [Line Items]
Notional amount	$ 2,575,858,000			$ 2,575,858,000			$ 13,589,356,000
Accumulated other comprehensive income (loss)	1,053,464,000		$ 1,785,059,000	1,053,464,000	$ 1,785,059,000	$ 936,576,000	1,827,231,000	$ 1,564,032,000	$ 1,348,794,000
Interest Rate Agreements Accounted for as Cash Flow Hedges
Derivative [Line Items]
Accumulated other comprehensive income (loss)	(81,597,000)		(61,175,000)	(81,597,000)	(61,175,000)	$ (82,637,000)	(50,939,000)	$ (49,384,000)	$ (34,045,000)
Interest Expense
Derivative [Line Items]
Cash flow hedge gain (loss) to be reclassified over the next 12 months				(4,000,000)
Mortgage Banking Activities, Net
Derivative [Line Items]
Market valuations gains (losses), net	56,619,000		6,205,000	18,173,000	33,625,000
Loan purchase commitments and forward sales commitments | Mortgage Banking Activities, Net
Derivative [Line Items]
Market valuations gains (losses), net	14,000,000		14,000,000	35,000,000	42,000,000
Interest rate contract
Derivative [Line Items]
Notional amount	335,000,000			335,000,000			4,780,000,000
TBAs
Derivative [Line Items]
Notional amount	245,000,000			245,000,000			6,610,000,000
Interest rate futures
Derivative [Line Items]
Notional amount	40,000,000			40,000,000			$ 226,000,000
Unsecuritized Residential and Commercial Loans
Derivative [Line Items]
Derivative gain (loss)	0		(36,000,000)	(98,000,000)	(147,000,000)
Interest rate swaps | Cash Flow Hedging
Derivative [Line Items]
Derivative gain (loss)	$ 0		$ (12,000,000)	$ (33,000,000)	$ (27,000,000)
Derivative, cost of hedge		$ 84,000,000

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Derivative Financial Instruments - Impact on Interest Expense of Interest Rate Agreements Accounted for as Cash Flow Hedges (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Derivative [Line Items]
Total interest expense	$ (100,411)	$ (116,604)	$ (349,748)	$ (332,100)
Cash Flow Hedging | Interest rate contract
Derivative [Line Items]
Net interest expense on cash flows hedges	0	(727)	(860)	(2,004)
Realized net losses reclassified from other comprehensive income	(1,040)	0	(2,148)	0
Total interest expense	$ (1,040)	$ (727)	$ (3,008)	$ (2,004)

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Other Assets and Liabilities - Components of Other Assets (Details) - USD ($) $ in Thousands		Sep. 30, 2020	Dec. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Accrued interest receivable		$ 39,330	$ 71,058
Investment receivable		25,767	23,330
Right-of-use asset		13,487	11,866
REO		8,535	9,462
Pledged collateral		8,172	32,945
Income tax receivables		8,148	36
FHLBC stock		5,000	43,393
Fixed assets and leasehold improvements		4,408	4,901
Margin receivable		3,809	209,776
Other		7,617	12,554
Total Other Assets	[1]	124,273	$ 419,321
Fixed assets		12,000
Accumulated depreciation		$ 8,000

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

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Other Assets and Liabilities - Accrued Expenses and Other Liabilities (Details) - USD ($) $ in Thousands		Sep. 30, 2020	Dec. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Accrued interest payable		$ 34,225	$ 60,655
Payable to minority partner		17,492	13,189
Accrued compensation		17,127	33,888
Lease liability		15,123	13,443
Deferred consideration		14,442	0
Guarantee obligations		11,264	14,009
Current accounts payable		8,717	5,468
Residential loan and MSR repurchase reserve		8,565	4,268
Residential bridge loan holdbacks		6,350	10,682
Deferred tax liabilities		5,152	5,152
Accrued operating expenses		3,922	4,358
Contingent consideration		0	28,484
Other		13,610	13,297
Total Accrued Expenses and Other Liabilities	[1]	$ 155,989	$ 206,893

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

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Other Assets and Liabilities - Additional Information (Details) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2020 USD ($) property	Sep. 30, 2020 USD ($) property	Dec. 31, 2019 USD ($) property
Other Assets and Other Liabilities [Line Items]
Real estate owned (REO)	$ 8,535	$ 8,535	$ 9,462
REO liquidations	13,000
Unrealized gain (loss) resulting from market valuation adjustments on REO		(300)
Legacy Sequoia
Other Assets and Other Liabilities [Line Items]
Real estate owned (REO)	$ 1,000	$ 1,000
Number of REO properties recorded on balance sheet | property	3	3	4
Amount related to transfers into REO	$ 1,000
Freddie Mac SLST
Other Assets and Other Liabilities [Line Items]
Real estate owned (REO)	$ 1,000	$ 1,000
Number of REO properties recorded on balance sheet | property	9	9	3
Amount related to transfers into REO	$ 1,000
CAFL
Other Assets and Other Liabilities [Line Items]
Real estate owned (REO)	$ 4,000	$ 4,000
Number of REO properties recorded on balance sheet | property	3	3	2
Amount related to transfers into REO	$ 6,000
Bridge Loan | Debt Securities
Other Assets and Other Liabilities [Line Items]
Real estate owned (REO)	$ 3,000	$ 3,000
Number of REO properties recorded on balance sheet | property	2	2	4
Amount related to transfers into REO	$ 5,000

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Short-Term Debt - Outstanding Balances of Short-Term Debt by Type of Collateral Securing Debt (Details)		9 Months Ended	12 Months Ended
		Sep. 30, 2020 USD ($) facility	Dec. 31, 2019 USD ($) facility
Short-term Debt [Line Items]
Outstanding Balance	[1]	$ 482,761,000	$ 2,329,145,000
Facilities
Short-term Debt [Line Items]
Number of Facilities | facility		9	22
Outstanding Balance		$ 253,763,000	$ 2,176,591,000
Facilities | Residential loan warehouse
Short-term Debt [Line Items]
Number of Facilities | facility		4	4
Outstanding Balance		$ 81,898,000	$ 185,894,000
Limit		$ 600,000,000	$ 1,425,000,000
Weighted Average Interest Rate		2.90%	3.23%
Weighted Average Days Until Maturity		203 days	69 days
Facilities | Business purpose residential loan warehouse
Short-term Debt [Line Items]
Number of Facilities | facility		2	8
Outstanding Balance		$ 96,811,000	$ 814,118,000
Limit		$ 500,000,000	$ 1,475,000,000
Weighted Average Interest Rate		3.28%	4.11%
Weighted Average Days Until Maturity		437 days	489 days
Facilities | Real estate securities repo
Short-term Debt [Line Items]
Number of Facilities | facility		3	10
Outstanding Balance		$ 75,054,000	$ 1,176,579,000
Limit		$ 0	$ 0
Weighted Average Interest Rate		2.87%	2.94%
Weighted Average Days Until Maturity		38 days	23 days
Servicer advance financing
Short-term Debt [Line Items]
Number of Facilities | facility		1	1
Outstanding Balance		$ 228,998,000	$ 152,554,000
Limit		$ 400,000,000	$ 400,000,000
Weighted Average Interest Rate		1.96%	3.56%
Weighted Average Days Until Maturity		61 days	335 days

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

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Short-Term Debt - Collateral for Short-Term Debt Facilities (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Short-term Debt [Line Items]
Total real estate securities owned	$ 114,308	$ 1,491,986
Other assets	0	16,252
Total Collateral for Short-Term Debt Facilities	319,836	2,698,366
Held-for-sale residential loans
Short-term Debt [Line Items]
Loan pledged as collateral	95,023	201,949
Business purpose residential loans
Short-term Debt [Line Items]
Loan pledged as collateral	110,505	988,179
On balance sheet
Short-term Debt [Line Items]
Available-for-sale securities pledged as collateral	24,670	618,881
Sequoia Choice | Sequoia securities | Short Term Borrowing Agreement
Short-term Debt [Line Items]
Trading securities pledged as collateral	63,088	111,341
Freddie Mac SLST | Sequoia securities | Short Term Borrowing Agreement
Short-term Debt [Line Items]
Trading securities pledged as collateral	0	381,640
Freddie Mac K-Series | Sequoia securities | Short Term Borrowing Agreement
Short-term Debt [Line Items]
Trading securities pledged as collateral	26,550	252,284
CAFL | Sequoia securities | Short Term Borrowing Agreement
Short-term Debt [Line Items]
Trading securities pledged as collateral	$ 0	$ 127,840

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Short-Term Debt - Additional Information (Details) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2020	Dec. 31, 2019
Short-term Debt [Line Items]
Average balance of short-term debt	$ 313,000,000	$ 1,420,000,000
Accrued interest payable on short-term debt	1,000,000	1,000,000	$ 6,000,000
Committed line of credit	10,000,000	10,000,000
Fair value of mortgage backed securities securing loan (in excess)	3,000,000	3,000,000
Amount outstanding under credit facilities	0	0	$ 0
Residential Loans
Short-term Debt [Line Items]
Fair value of servicer advances, cash and restricted cash	270,000,000	270,000,000
Servicer advance financing
Short-term Debt [Line Items]
Accrued interest payable on short-term debt	100,000	100,000
Unamortized capitalized commitment costs	$ 200,000	$ 200,000

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Short-Term Debt - Remaining Maturities of Short Term Debt (Details) - USD ($) $ in Thousands		Sep. 30, 2020	Dec. 31, 2019
Short-term Debt [Line Items]
Short-term debt	[1]	$ 482,761	$ 2,329,145
Within 30 days
Short-term Debt [Line Items]
Short-term debt		38,434
31 to 90 days
Short-term Debt [Line Items]
Short-term debt		266,835
Over 90 days
Short-term Debt [Line Items]
Short-term debt		177,492
Facilities
Short-term Debt [Line Items]
Short-term debt		253,763	2,176,591
Facilities | Within 30 days
Short-term Debt [Line Items]
Short-term debt		38,434
Facilities | 31 to 90 days
Short-term Debt [Line Items]
Short-term debt		37,837
Facilities | Over 90 days
Short-term Debt [Line Items]
Short-term debt		177,492
Facilities | Held-for-sale residential loans
Short-term Debt [Line Items]
Short-term debt		81,898	185,894
Facilities | Held-for-sale residential loans | Within 30 days
Short-term Debt [Line Items]
Short-term debt		1,217
Facilities | Held-for-sale residential loans | 31 to 90 days
Short-term Debt [Line Items]
Short-term debt		0
Facilities | Held-for-sale residential loans | Over 90 days
Short-term Debt [Line Items]
Short-term debt		80,681
Facilities | Business purpose residential loans
Short-term Debt [Line Items]
Short-term debt		96,811
Facilities | Business purpose residential loans | Within 30 days
Short-term Debt [Line Items]
Short-term debt		0
Facilities | Business purpose residential loans | 31 to 90 days
Short-term Debt [Line Items]
Short-term debt		0
Facilities | Business purpose residential loans | Over 90 days
Short-term Debt [Line Items]
Short-term debt		96,811
Facilities | Real estate securities
Short-term Debt [Line Items]
Short-term debt		75,054
Facilities | Real estate securities | Within 30 days
Short-term Debt [Line Items]
Short-term debt		37,217
Facilities | Real estate securities | 31 to 90 days
Short-term Debt [Line Items]
Short-term debt		37,837
Facilities | Real estate securities | Over 90 days
Short-term Debt [Line Items]
Short-term debt		0
Servicer advance financing
Short-term Debt [Line Items]
Short-term debt		228,998	$ 152,554
Servicer advance financing | Within 30 days
Short-term Debt [Line Items]
Short-term debt		0
Servicer advance financing | 31 to 90 days
Short-term Debt [Line Items]
Short-term debt		228,998
Servicer advance financing | Over 90 days
Short-term Debt [Line Items]
Short-term debt		$ 0

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

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Asset-Backed Securities Issued - Components of Asset-Backed Securities Issued by Consolidated Securitization Entities Sponsored, Along With Other Selected Information (Details) - Asset-backed securities issued	Sep. 30, 2020 USD ($) series	Dec. 31, 2019 USD ($) series
Debt Instrument [Line Items]
Long-term debt	$ 7,172,398,000	$ 10,515,475,000
Revision of Prior Period, Accounting Standards Update, Adjustment
Debt Instrument [Line Items]
Long-term debt	198,057,000	197,110,000
Certificates with principal balance
Debt Instrument [Line Items]
Certificates	6,792,029,000	9,962,253,000
Interest-only certificates
Debt Instrument [Line Items]
Certificates	182,312,000	356,112,000
Legacy Sequoia
Debt Instrument [Line Items]
Long-term debt	$ 292,484,000	$ 402,465,000
Number of series | series	20	20
Legacy Sequoia | Revision of Prior Period, Accounting Standards Update, Adjustment
Debt Instrument [Line Items]
Long-term debt	$ (56,769,000)	$ (18,873,000)
Legacy Sequoia | Minimum
Debt Instrument [Line Items]
Range of weighted average interest rates, by series	0.35%	1.94%
Legacy Sequoia | Maximum
Debt Instrument [Line Items]
Range of weighted average interest rates, by series	1.96%	3.26%
Legacy Sequoia | Certificates with principal balance
Debt Instrument [Line Items]
Certificates	$ 347,985,000	$ 420,056,000
Legacy Sequoia | Interest-only certificates
Debt Instrument [Line Items]
Certificates	1,268,000	1,282,000
Sequoia Choice
Debt Instrument [Line Items]
Long-term debt	$ 1,626,564,000	$ 2,037,198,000
Number of series | series	10	9
Sequoia Choice | Revision of Prior Period, Accounting Standards Update, Adjustment
Debt Instrument [Line Items]
Long-term debt	$ 48,045,000	$ 40,965,000
Sequoia Choice | Minimum
Debt Instrument [Line Items]
Range of weighted average interest rates, by series	2.23%	4.40%
Sequoia Choice | Maximum
Debt Instrument [Line Items]
Range of weighted average interest rates, by series	5.02%	5.05%
Sequoia Choice | Certificates with principal balance
Debt Instrument [Line Items]
Certificates	$ 1,571,714,000	$ 1,979,719,000
Sequoia Choice | Interest-only certificates
Debt Instrument [Line Items]
Certificates	6,805,000	16,514,000
Freddie Mac SLST
Debt Instrument [Line Items]
Long-term debt	$ 2,044,335,000	$ 1,918,322,000
Range of weighted average interest rates, by series		3.50%
Number of series | series	3	2
Debt instrument, face amount	$ 208,000,000
Freddie Mac SLST | Revision of Prior Period, Accounting Standards Update, Adjustment
Debt Instrument [Line Items]
Long-term debt	$ 95,138,000	$ 45,349,000
Freddie Mac SLST | Minimum
Debt Instrument [Line Items]
Range of weighted average interest rates, by series	3.50%
Freddie Mac SLST | Maximum
Debt Instrument [Line Items]
Range of weighted average interest rates, by series	4.75%
Freddie Mac SLST | Certificates with principal balance
Debt Instrument [Line Items]
Certificates	$ 1,925,144,000	1,842,682,000
Freddie Mac SLST | Interest-only certificates
Debt Instrument [Line Items]
Certificates	24,053,000	30,291,000
Freddie Mac K-Series
Debt Instrument [Line Items]
Long-term debt	$ 464,865,000	$ 4,156,239,000
Range of weighted average interest rates, by series	3.39%
Number of series | series	1	5
Freddie Mac K-Series | Revision of Prior Period, Accounting Standards Update, Adjustment
Debt Instrument [Line Items]
Long-term debt	$ 33,531,000	$ 93,559,000
Freddie Mac K-Series | Minimum
Debt Instrument [Line Items]
Range of weighted average interest rates, by series		3.35%
Freddie Mac K-Series | Maximum
Debt Instrument [Line Items]
Range of weighted average interest rates, by series		4.35%
Freddie Mac K-Series | Certificates with principal balance
Debt Instrument [Line Items]
Certificates	418,212,000	$ 3,844,789,000
Freddie Mac K-Series | Interest-only certificates
Debt Instrument [Line Items]
Certificates	13,122,000	217,891,000
CAFL
Debt Instrument [Line Items]
Long-term debt	$ 2,744,150,000	$ 2,001,251,000
Number of series | series	13	10
CAFL | Revision of Prior Period, Accounting Standards Update, Adjustment
Debt Instrument [Line Items]
Long-term debt	$ 78,112,000	$ 36,110,000
CAFL | Minimum
Debt Instrument [Line Items]
Range of weighted average interest rates, by series	3.18%	3.25%
CAFL | Maximum
Debt Instrument [Line Items]
Range of weighted average interest rates, by series	5.53%	5.36%
CAFL | Certificates with principal balance
Debt Instrument [Line Items]
Certificates	$ 2,528,974,000	$ 1,875,007,000
CAFL | Interest-only certificates
Debt Instrument [Line Items]
Certificates	$ 137,064,000	$ 90,134,000

XML

Asset-Backed Securities Issued - Additional Information (Details) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2020	Sep. 30, 2019
Debt Instrument [Line Items]
Sale of ABS issued to third parties		$ 142,990,000	$ 0
VIE, ownership interest rate		80.00%
Asset-backed securities issued | Variable Interest Entity, Primary Beneficiary
Debt Instrument [Line Items]
VIE, ownership interest rate	100.00%
Debt instrument, face amount	$ 203,000,000	$ 203,000,000
Unamortized debt discount	$ 5,000,000	$ 5,000,000
Debt Instrument interest rate	4.75%	4.75%
Asset-backed securities issued | Contractual maturities of over five years
Debt Instrument [Line Items]
Contractual maturities of securities (in years)		5 years

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Asset-Backed Securities Issued - Accrued Interest Payable (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Amortization of debt issuance costs	$ 22,025	$ 33,686
Freddie Mac SLST
Debt Instrument [Line Items]
Amortization of debt issuance costs	5,831	5,374
Freddie Mac K-Series
Debt Instrument [Line Items]
Amortization of debt issuance costs	1,182	12,887
CAFL
Debt Instrument [Line Items]
Amortization of debt issuance costs	9,180	7,298
Asset-backed securities issued | Legacy Sequoia
Debt Instrument [Line Items]
Amortization of debt issuance costs	180	395
Asset-backed securities issued | Sequoia Choice
Debt Instrument [Line Items]
Amortization of debt issuance costs	$ 5,652	$ 7,732

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Long-Term Debt (Details) - USD ($)		3 Months Ended			9 Months Ended
	Dec. 31, 2019	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2020
Debt Instrument [Line Items]
Repayments for FHLBC borrowings		$ 0			$ 2,000,000,000.00
FHLBC stock	$ 43,393,000	5,000,000			5,000,000
Accrued interest payable	6,000,000	1,000,000			1,000,000
Notional amount	13,589,356,000	2,575,858,000			2,575,858,000
Accrued interest payable	60,655,000	34,225,000			34,225,000
Line of Credit | Non-Recourse Business Purpose Loan Financing Facility Two
Debt Instrument [Line Items]
Amount outstanding		158,000,000			158,000,000
Unamortized debt issuance costs		1,000,000			1,000,000
Debt instrument face amount		$ 157,000,000			157,000,000
Line of Credit | Non-Recourse Business Purpose Loan Financing Facility Two | LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate		3.85%
Reference rate floor		0.50%
Line of Credit | Non-Recourse Business Purpose Loan Financing Facility One
Debt Instrument [Line Items]
Amount outstanding		$ 302,000,000			302,000,000
Unamortized debt issuance costs		4,000,000			4,000,000
Debt instrument face amount		298,000,000			298,000,000
Maximum borrowing limit			$ 530,000,000
Line of Credit | Non-Recourse Business Purpose Loan Financing Facility One | Secured Debt
Debt Instrument [Line Items]
Maximum borrowing limit			355,000,000
Line of Credit | Non-Recourse Business Purpose Loan Financing Facility One | Revolving Credit Facility
Debt Instrument [Line Items]
Maximum borrowing limit			$ 175,000,000
Line of Credit | Non-Recourse Business Purpose Loan Financing Facility One | LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate			7.50%
Reference rate floor			1.50%
Line of Credit | Recourse Business Purpose Loan Financing Facility Through September 2023
Debt Instrument [Line Items]
Amount outstanding		0			0
Maximum borrowing limit		$ 250,000,000			250,000,000
Line of Credit | Recourse Business Purpose Loan Financing Facility Through September 2023 | LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate		3.00%
Line of Credit | Recourse Business Purpose Loan Financing Facility
Debt Instrument [Line Items]
Amount outstanding		$ 150,000,000			150,000,000
Unamortized debt issuance costs		1,000,000			1,000,000
Debt instrument face amount		150,000,000			150,000,000
Maximum borrowing limit			$ 350,000,000
Line of Credit | Recourse Business Purpose Loan Financing Facility | LIBOR
Debt Instrument [Line Items]
Reference rate floor			1.00%
Line of Credit | Recourse Business Purpose Loan Financing Facility | LIBOR | Minimum
Debt Instrument [Line Items]
Basis spread on variable rate			3.50%
Line of Credit | Recourse Business Purpose Loan Financing Facility | LIBOR | Maximum
Debt Instrument [Line Items]
Basis spread on variable rate			4.00%
Line of Credit | Recourse Revolving Debt Facility
Debt Instrument [Line Items]
Amount outstanding		0			0
Maximum borrowing limit				$ 50,000,000
Collateral amounts		33,000,000			33,000,000
Line of Credit | Recourse Revolving Debt Facility | LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate				2.75%
Bridge Loan | Non-Recourse Business Purpose Loan Financing Facility Two
Debt Instrument [Line Items]
Pledged assets real estate pledged as collateral, at fair value		216,000,000			216,000,000
Bridge Loan | Non-Recourse Business Purpose Loan Financing Facility One
Debt Instrument [Line Items]
Pledged assets real estate pledged as collateral, at fair value		369,000,000			369,000,000
Bridge Loan | Recourse Business Purpose Loan Financing Facility
Debt Instrument [Line Items]
Pledged assets real estate pledged as collateral, at fair value		18,000,000			18,000,000
Loans Payable | Non-Recourse Business Purpose Loan Financing Facility One
Debt Instrument [Line Items]
Pledged assets real estate pledged as collateral, at fair value		25,000,000			25,000,000
Loans Payable | Recourse Business Purpose Loan Financing Facility
Debt Instrument [Line Items]
Pledged assets real estate pledged as collateral, at fair value		$ 194,000,000			$ 194,000,000
Convertible Debt | Exchangeable Senior Notes Due 2025
Debt Instrument [Line Items]
Debt Instrument interest rate		5.75%			5.75%
Unamortized debt issuance costs		$ 4,000,000			$ 4,000,000
Convertible notes		172,000,000			172,000,000
Amount of debt repurchased		29,000,000			29,000,000
Gain (loss) on extinguishment of debt		6,000,000
Accrued interest payable		$ 5,000,000			$ 5,000,000
Convertible Debt | Senior Notes Due 2024
Debt Instrument [Line Items]
Debt Instrument interest rate		5.625%			5.625%
Unamortized debt issuance costs		$ 2,000,000			$ 2,000,000
Convertible notes		150,000,000			150,000,000
Amount of debt repurchased		50,000,000			50,000,000
Gain (loss) on extinguishment of debt		9,000,000
Accrued interest payable		2,000,000			2,000,000
Unamortized debt discount		$ 1,000,000			$ 1,000,000
Convertible Debt | Senior Notes Due 2023
Debt Instrument [Line Items]
Debt Instrument interest rate		4.75%			4.75%
Unamortized debt issuance costs		$ 3,000,000			$ 3,000,000
Convertible notes		199,000,000			199,000,000
Amount of debt repurchased		46,000,000			46,000,000
Gain (loss) on extinguishment of debt		10,000,000
Accrued interest payable		1,000,000			1,000,000
Trust Preferred Securities
Debt Instrument [Line Items]
Debt instrument face amount		100,000,000			100,000,000
Subordinated Notes
Debt Instrument [Line Items]
Debt instrument face amount		40,000,000			40,000,000
Trust Preferred Securities and Subordinated Notes
Debt Instrument [Line Items]
Accrued interest payable	1,000,000	1,000,000			1,000,000
FHLB Chicago | FHLB Member Subsidiary
Debt Instrument [Line Items]
Federal home loan bank advances outstanding	$ 2,000,000,000.00	$ 1,000,000			$ 1,000,000
Weighted average interest rate	1.88%	0.35%			0.35%
Weighted average maturity (in years)	6 years
FHLB Chicago | Redwood | Held-for-sale residential loans | Restricted cash
Debt Instrument [Line Items]
Loans pledged as collateral under borrowing agreement with FHLBC		$ 1,000,000			$ 1,000,000
Affiliated Entity | Recourse Subordinate Securities Financing Facilities | Non-Marginable Debt Repurchase Agreement One
Debt Instrument [Line Items]
Debt Instrument interest rate	4.21%
Amount outstanding		180,000,000			180,000,000
Unamortized debt issuance costs		1,000,000			1,000,000
Debt instrument face amount		179,000,000			179,000,000
Affiliated Entity | Recourse Subordinate Securities Financing Facilities | Non-Marginable Debt Repurchase Agreement Two
Debt Instrument [Line Items]
Debt Instrument interest rate			4.21%
Amount outstanding		103,000,000			103,000,000
Unamortized debt issuance costs		1,000,000			1,000,000
Debt instrument face amount		102,000,000			102,000,000
Affiliated Entity | Sequoia Choice | Recourse Subordinate Securities Financing Facilities | Non-Marginable Debt Repurchase Agreement One
Debt Instrument [Line Items]
Pledged assets real estate pledged as collateral, at fair value		232,000,000			232,000,000
Affiliated Entity | CAFL | Recourse Subordinate Securities Financing Facilities | Non-Marginable Debt Repurchase Agreement Two
Debt Instrument [Line Items]
Pledged assets real estate pledged as collateral, at fair value		$ 112,000,000			$ 112,000,000

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Commitments and Contingencies - Additional Information (Details)			1 Months Ended	3 Months Ended				9 Months Ended
		Sep. 30, 2020 USD ($) lease	May 31, 2020 USD ($)	Sep. 30, 2020 USD ($) lease	Mar. 31, 2020 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2018 partnership	Sep. 30, 2020 USD ($) lease repurchase_request loan	Sep. 30, 2019 USD ($) repurchase_request loan	Dec. 31, 2019 USD ($)	Mar. 01, 2019 USD ($)	May 31, 2018 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Loss Contingencies [Line Items]
Lessee, number of leases | lease		7		7				7
Present value of remaining lease payments		$ 18,175,000		$ 18,175,000				$ 18,175,000
Operating lease expense								$ 3,000,000	$ 2,000,000
Number of new office leases | lease								3
Lease liability		$ 15,123,000		$ 15,123,000				$ 15,123,000		$ 13,443,000
Operating lease liability, statement of financial position [Extensible List]		us-gaap:AccountsPayableAndAccruedLiabilitiesCurrentAndNoncurrent		us-gaap:AccountsPayableAndAccruedLiabilitiesCurrentAndNoncurrent				us-gaap:AccountsPayableAndAccruedLiabilitiesCurrentAndNoncurrent
Right-of-use asset		$ 13,487,000		$ 13,487,000				$ 13,487,000		11,866,000
Operating lease right-of-use asset, statement of financial position [Extensible List]		us-gaap:OtherAssets		us-gaap:OtherAssets				us-gaap:OtherAssets
Weighted average remaining lease term		7 years		7 years				7 years
Discount rate		5.00%		5.00%				5.00%
Derivative liabilities	[1]	$ 1,612,000		$ 1,612,000				$ 1,612,000		163,424,000
Number of partnerships, committed to fund | partnership							2
Contingent consideration		0		0				0		28,484,000
Other income related to risk sharing agreement				1,200,000		$ 905,000		3,146,000	$ 2,351,000
Guarantee obligations		11,264,000		11,264,000				11,264,000		14,009,000
Guarantee obligations, credit reserve		5,000,000		5,000,000				5,000,000
Special purpose entities assets		47,000,000		47,000,000				47,000,000		48,000,000
Special purpose entities liabilities		11,000,000		11,000,000				11,000,000		14,000,000
Residential repurchase reserve		8,565,000		8,565,000				$ 8,565,000		4,268,000
Number of residential repurchase requests (in repurchase requests) | repurchase_request								8	10
Number of loans repurchased | loan								0	0
Residential loans repurchase provision (reversal)								$ 4,000,000	$ (200,000)
Aggregate amount of loss contingency reserves		2,000,000		2,000,000				2,000,000
Damages sought			$ 2,000,000
Residential Loan Seller Demands
Loss Contingencies [Line Items]
Expenses from litigation recorded				4,000,000				9,000,000
Aggregate amount of accrual		6,500,000		6,500,000				6,500,000
Minimum | Residential Loan Seller Demands
Loss Contingencies [Line Items]
Reasonably possible losses estimated		0		0				0
Maximum | Residential Loan Seller Demands
Loss Contingencies [Line Items]
Reasonably possible losses estimated		1,500,000		1,500,000				1,500,000
Residential Loans
Loss Contingencies [Line Items]
Loan principal		102,921,000		102,921,000				102,921,000		524,928,000
Financing Receivables, Equal to Greater than 90 Days Past Due | Residential Loans
Loss Contingencies [Line Items]
Balance of loans 90 days or more delinquent		2,356,000		2,356,000				2,356,000		$ 747,000
Other income
Loss Contingencies [Line Items]
Other income related to risk sharing agreement				1,000,000		1,000,000		3,000,000	2,000,000
Mortgage banking and investment activities
Loss Contingencies [Line Items]
Market valuation losses related to these investments				(300,000)		$ (100,000)		(900,000)	$ (200,000)
Guarantee Obligations
Loss Contingencies [Line Items]
Original unpaid balance of loans subject to risk sharing agreements													$ 3,190,000,000	$ 3,190,000,000
Potential future payments on loans		44,000,000		44,000,000				44,000,000
Loan principal		$ 1,120,000,000		$ 1,120,000,000				$ 1,120,000,000
Weighted average original FICO score		758		758				758
Weighted average original loan-to-value (LTV)		75.00%		75.00%				75.00%
Guarantee Obligations | Residential Loans
Loss Contingencies [Line Items]
Fair value of loans, in foreclosure		$ 0		$ 0				$ 0
Guarantee Obligations | Financing Receivables, Equal to Greater than 90 Days Past Due
Loss Contingencies [Line Items]
Balance of loans 90 days or more delinquent		42,000,000		42,000,000				42,000,000
Commitment To Fund Residential Bridge Loan
Loss Contingencies [Line Items]
Commitments to fund temporary advances		225,000,000		225,000,000				225,000,000
Derivative liabilities		1,000,000		1,000,000				1,000,000
Commitment To Fund Temporary Advances On Residential Bridge Loans
Loss Contingencies [Line Items]
Commitments to fund temporary advances		15,000,000		15,000,000				15,000,000
5 Arches
Loss Contingencies [Line Items]
Contingent consideration maximum amount												$ 29,000,000
Cash payment for contingent consideration liability					$ 11,000,000
Restricted stock awards					$ 3,000,000
Contingent consideration		14,000,000		14,000,000				14,000,000			$ 25,000,000
Shared home appreciation options
Loss Contingencies [Line Items]
Payments to acquire investments		47,000,000
Shared home appreciation options | Commitment To Fund Investment
Loss Contingencies [Line Items]
Commitments to fund temporary advances		$ 3,000,000		$ 3,000,000				$ 3,000,000

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.

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Commitments and Contingencies - Future Lease Commitments (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]
2020 (3 months)	$ 930
2021	2,949
2022	2,427
2023	1,913
2024	1,917
2025	8,039
Total Lease Commitments	18,175
Less: Imputed interest	(3,052)
Lease liability	$ 15,123	$ 13,443

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Equity - Changes to Accumulated Other Comprehensive Income (Loss) by Component (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Net unrealized gains (losses) on our Level 3 AFS securities	$ 8,000		$ (16,000)
Balance at beginning of period	936,576	$ 1,564,032	1,827,231	$ 1,348,794
Total other comprehensive income (loss)	8,831	(10,799)	(62,073)	(23,173)
Balance at End of Period	1,053,464	1,785,059	1,053,464	1,785,059
Available-for-Sale Securities
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Balance at beginning of period	53,246	98,307	92,452	95,342
Other comprehensive income (loss) before reclassifications	8,236	4,484	(19,890)	19,764
Amounts reclassified from other accumulated comprehensive income	(445)	(3,492)	(11,525)	(15,807)
Total other comprehensive income (loss)	7,791	992	(31,415)	3,957
Balance at End of Period	61,037	99,299	61,037	99,299
Interest Rate Agreements Accounted for as Cash Flow Hedges
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Balance at beginning of period	(82,637)	(49,384)	(50,939)	(34,045)
Other comprehensive income (loss) before reclassifications	0	(11,791)	(32,806)	(27,130)
Amounts reclassified from other accumulated comprehensive income	1,040	0	2,148	0
Total other comprehensive income (loss)	1,040	(11,791)	(30,658)	(27,130)
Balance at End of Period	$ (81,597)	$ (61,175)	$ (81,597)	$ (61,175)

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Equity - Reclassifications out of Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Investment fair value changes, net	$ 107,047	$ 11,444	$ (611,557)	$ 34,741
Realized gains, net	(602)	(4,714)	(30,419)	(18,227)
Interest expense	100,411	116,604	349,748	332,100
Net income before provision for income taxes	150,925	34,196	(649,221)	123,142
Reclassification out of Accumulated Other Comprehensive Income | Available-for-Sale Securities
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Investment fair value changes, net	(444)	0	1,027	0
Realized gains, net	0	(3,492)	(12,552)	(15,807)
Net income before provision for income taxes	(444)	(3,492)	(11,525)	(15,807)
Reclassification out of Accumulated Other Comprehensive Income | Interest Rate Agreements Accounted for as Cash Flow Hedges
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Interest expense	1,040	0	2,148	0
Net income before provision for income taxes	$ 1,040	$ 0	$ 2,148	$ 0

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Equity - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Mar. 31, 2020	Dec. 31, 2018	Feb. 28, 2018
Stockholders Equity Note [Line Items]
Net proceeds from issuance of common stock			$ 5,791,000	$ 426,970,000
Direct stock purchase and dividend reinvestment plan				$ 6,307,000
Common stock repurchased, amount	$ 21,659,000		21,659,000
Share Repurchase Plan, February 2018
Stockholders Equity Note [Line Items]
Common stock authorized to repurchase by Board							$ 100,000,000
Common stock repurchased (in shares)	3,047,335
Common stock repurchased, amount	$ 22,000,000
Available authorization remaining for repurchase	$ 78,000,000		$ 78,000,000
Convertible Debt Securities
Stockholders Equity Note [Line Items]
Securities excluded in the calculation of diluted earnings per share (in shares)			32,225,825
Equity awards
Stockholders Equity Note [Line Items]
Securities excluded in the calculation of diluted earnings per share (in shares)	13,560	11,710	15,457	9,361
At The Market Offerings | Common Stock
Stockholders Equity Note [Line Items]
Stock issuance program, authorized amount					$ 175,000,000	$ 150,000,000
Issuance of common stock (in shares)			129,500
Net proceeds from issuance of common stock			$ 2,000,000
Remaining outstanding	$ 110,000,000		$ 110,000,000
Common Stock
Stockholders Equity Note [Line Items]
Issuance of common stock (in shares)		14,375,000	350,088	26,666,191
Direct stock purchase and dividend reinvestment plan (in shares)			0	399,838
Direct stock purchase and dividend reinvestment plan				$ 4,000
Common stock repurchased (in shares)	3,047,335		3,047,335
Common stock repurchased, amount	$ 30,000		$ 30,000

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Equity - Basic and Diluted Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Basic Earnings (Loss) per Common Share:
Net income (loss) attributable to Redwood	$ 141,812	$ 34,310	$ (636,142)	$ 120,040
Less: Dividends and undistributed earnings allocated to participating securities	(4,067)	(856)	(1,427)	(3,260)
Net income (loss) allocated to common shareholders	$ 137,745	$ 33,454	$ (637,569)	$ 116,780
Basic weighted average common shares outstanding (in shares)	113,403,102	101,872,126	113,952,308	97,214,064
Basic Earnings (Loss) per Common Share (in dollars per share)	$ 1.21	$ 0.33	$ (5.60)	$ 1.20
Diluted Earnings (Loss) per Common Share:
Net income (loss) attributable to Redwood	$ 141,812	$ 34,310	$ (636,142)	$ 120,040
Less: Dividends and undistributed earnings allocated to participating securities	(3,512)	(1,036)	(1,427)	(3,625)
Adjust for interest expense and gain on extinguishment of convertible notes for the period, net of tax	6,990	8,887	0	26,271
Net income (loss) allocated to common shareholders	$ 145,290	$ 42,161	$ (637,569)	$ 142,686
Weighted average common shares outstanding (in shares)	113,403,102	101,872,126	113,952,308	97,214,064
Net effect of dilutive equity awards (in shares)	0	362,743	0	261,155
Net effect of assumed convertible notes conversion to common shares (in shares)	28,566,875	34,287,840	0	33,727,470
Diluted weighted average common shares outstanding (in shares)	141,969,977	136,522,709	113,952,308	131,202,689
Diluted Earnings (Loss) per Common Share (in dollars per share)	$ 1.02	$ 0.31	$ (5.60)	$ 1.09

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Equity Compensation Plans - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended	12 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2020	Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average amortization period remaining for equity awards			1 year
Reversal of stock-based compensation expense previously recorded		$ 1
Shares of common stock to be purchased in aggregate for all employees (in shares)			600,000
Number of shares purchased by employees (in shares)			477,142	430,772
Restricted Stock Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested outstanding stock awards (in shares)			80,550	216,470
Number of stock awards granted (in shares)			0
Number of stock awards vested (in shares)			101,063
Number of stock awards forfeited (in shares)			34,857
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested outstanding stock awards (in shares)			294,986	275,173
Number of stock awards granted (in shares)			205,482
Number of stock awards vested (in shares)			55,514
Number of stock awards forfeited (in shares)			130,155
Deferred Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested outstanding stock awards (in shares)			2,420,737	2,630,805
Number of stock awards granted (in shares)			494,719
Number of stock awards vested (in shares)			1,406,190	1,286,063
Number of stock awards forfeited (in shares)			291,253
Stock units distributed (in shares)			413,533
Performance Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested outstanding stock awards (in shares)			739,895	839,070
Number of stock awards forfeited (in shares)			99,175
Share-based compensation, vesting period (in years)			3 years
Redwood Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock available for grant (in shares)			8,629,455	3,637,480
Additional common stock authorized (in shares)	5,000,000

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Equity Compensation Plans - Unrecognized Compensation Cost (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2020 USD ($)
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized [Roll Forward]
Unrecognized compensation cost at beginning of period	$ 32,328
Equity grants	10,629
Performance-based valuation adjustment	(7,352)
Equity grant forfeitures	(8,071)
Equity compensation expense	(7,896)
Unrecognized Compensation Cost at End of Period	19,638
Redwood Incentive Plan | Restricted Stock Awards
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized [Roll Forward]
Unrecognized compensation cost at beginning of period	1,990
Equity grants	108
Performance-based valuation adjustment	0
Equity grant forfeitures	(529)
Equity compensation expense	(807)
Unrecognized Compensation Cost at End of Period	762
Redwood Incentive Plan | Restricted Stock Units
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized [Roll Forward]
Unrecognized compensation cost at beginning of period	3,534
Equity grants	3,581
Performance-based valuation adjustment	0
Equity grant forfeitures	(2,161)
Equity compensation expense	(1,067)
Unrecognized Compensation Cost at End of Period	3,887
Redwood Incentive Plan | Deferred Stock Units
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized [Roll Forward]
Unrecognized compensation cost at beginning of period	17,858
Equity grants	6,780
Performance-based valuation adjustment	0
Equity grant forfeitures	(4,733)
Equity compensation expense	(6,268)
Unrecognized Compensation Cost at End of Period	13,637
Redwood Incentive Plan | Performance Stock Units
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized [Roll Forward]
Unrecognized compensation cost at beginning of period	8,946
Equity grants	0
Performance-based valuation adjustment	(7,352)
Equity grant forfeitures	(648)
Equity compensation expense	326
Unrecognized Compensation Cost at End of Period	1,272
Employee Stock Purchase Plan
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized [Roll Forward]
Unrecognized compensation cost at beginning of period	0
Equity grants	160
Performance-based valuation adjustment	0
Equity grant forfeitures	0
Equity compensation expense	(80)
Unrecognized Compensation Cost at End of Period	$ 80

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Mortgage Banking Activities, Net - Components of Mortgage Banking Activities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Other income, net	$ (114)	$ 4,356	$ 3,979	$ 13,840
Mortgage banking activities, net	59,395	9,515	24,511	40,984
Residential Mortgage Banking Activities, Net
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Other income, net	(715)	407	(7,069)	1,380
Mortgage banking activities, net	11,864	5,017	(19,222)	31,203
Residential Mortgage Banking Activities, Net | Residential loans, at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Changes in fair value of assets	12,589	6,320	19,151	41,431
Residential Mortgage Banking Activities, Net | Risk management derivatives
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Risk management derivatives	(10)	(1,710)	(31,304)	(11,608)
Business Purpose Mortgage Banking Activities, Net:
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Changes in fair value of assets	938	1,010	(4,256)	2,108
Other income, net	3,491	2,903	13,407	5,979
Mortgage banking activities, net	47,531	4,498	43,733	9,781
Business Purpose Mortgage Banking Activities, Net: | Risk management derivatives
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Risk management derivatives	(89)	(1,262)	(21,627)	(3,779)
Business Purpose Mortgage Banking Activities, Net: | Single-family rental loans, at fair value
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Changes in fair value of assets	$ 43,191	$ 1,847	$ 56,209	$ 5,473

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Other Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Other Income and Expenses [Abstract]
MSR (loss) income, net	$ (2,362)	$ 431	$ (5,595)	$ 2,342
Risk share income	1,200	905	3,146	2,351
FHLBC capital stock dividend	116	541	1,201	1,623
Equity investment income	341	560	615	732
5 Arches loan administration fee income	688	1,344	2,206	3,298
Gain on re-measurement of investment in 5 Arches	0	0	0	2,441
Other	(97)	575	2,406	1,053
Other income, net	$ (114)	$ 4,356	$ 3,979	$ 13,840

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General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses - Components of General and Administrative Expenses and Other Expenses (Details) - USD ($) $ in Thousands		3 Months Ended			9 Months Ended
	Oct. 15, 2019	Sep. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Business Acquisition [Line Items]
Fixed compensation expense		$ 10,103		$ 9,391	$ 36,605	$ 26,740
Variable compensation expense		5,882		3,489	9,171	11,356
Equity compensation expense		2,639		3,155	7,896	10,132
Acquisition-related equity compensation expense		1,212		0	3,636	0
Systems and consulting		2,145		3,230	7,752	7,594
Office costs		1,859		1,517	5,854	4,406
Accounting and legal		1,601		1,767	6,605	3,852
Corporate costs		831		482	2,128	1,701
Other operating expenses		1,358		1,868	5,185	4,941
Total General and Administrative Expenses		27,630		24,899	84,832	70,722
Commissions		879		659	3,027	1,432
Underwriting costs		771		1,074	3,289	3,184
Transfer and holding costs		508		183	1,400	891
Total Loan Acquisition Costs		2,158		1,916	7,716	5,507
Goodwill impairment expense		0	$ 89,000	0	88,675	0
Amortization of purchase-related intangible assets		3,873		1,897	12,052	4,608
Contingent consideration expense		135		236	581	547
Other		3,780		398	2,978	866
Total Other Expenses		7,788		2,531	104,286	6,021
Total General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses		37,576		$ 29,346	196,834	$ 82,250
Variable compensation expense		3,000			3,000
Cash Based Retention Award
Business Acquisition [Line Items]
Cash-based retention awards granted		$ 8,000			$ 8,000
Variable compensation expense, term		3 years
Long Term Relative TSR Performance Vesting Cash Awards
Business Acquisition [Line Items]
Variable compensation expense, service period		3 years
CoreVest
Business Acquisition [Line Items]
Restricted stock awards (in shares)	588,260
Restricted stock awards	$ 10,000
Contingent consideration performance term	2 years

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Taxes - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income Tax Disclosure [Abstract]
Provision from (benefit for) income taxes	$ 9,113	$ (114)	$ (13,079)	$ 3,102

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Taxes - Reconciliation of Statutory Tax Rate to Effective Tax Rate (Details)	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Income Tax Disclosure [Abstract]
Federal statutory rate	21.00%	21.00%
State statutory rate, net of Federal tax effect	8.60%	8.60%
Differences in taxable (loss) income from GAAP income	(23.60%)	(2.50%)
Change in valuation allowance	(4.00%)	(2.50%)
Dividends paid deduction	0.00%	(22.10%)
Effective Tax Rate	2.00%	2.50%

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Segment Information - Additional Information (Details)	9 Months Ended
	Sep. 30, 2020 segment
Segment Reporting [Abstract]
Number of operating segments	3

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Segment Information - Financial Information by Segment (Details) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Segment Reporting Information [Line Items]
Interest income	$ 121,982		$ 150,117	$ 450,009	$ 429,700
Interest expense	(100,411)		(116,604)	(349,748)	(332,100)
Net Interest Income	21,571		33,513	100,261	97,600
Non-interest Income (Loss)
Mortgage banking activities, net	59,395		9,515	24,511	40,984
Investment fair value changes, net	107,047		11,444	(611,557)	34,741
Other income, net	(114)		4,356	3,979	13,840
Realized gains, net	602		4,714	30,419	18,227
Total non-interest income (loss), net	166,930		30,029	(552,648)	107,792
General and administrative expenses	(27,630)		(24,899)	(84,832)	(70,722)
Loan acquisition costs	(2,158)		(1,916)	(7,716)	(5,507)
Other expenses	(7,788)		(2,531)	(104,286)	(6,021)
(Provision for) benefit from income taxes	(9,113)		114	13,079	(3,102)
Net Income (Loss)	141,812		34,310	(636,142)	120,040
Non-cash amortization (expense) income, net	(6,333)		(718)	(19,378)	(890)
Other significant non-cash expense: goodwill impairment	0	$ (89,000)	0	(88,675)	0
Operating Segments | Residential Lending
Segment Reporting Information [Line Items]
Interest income	26,672		69,586	123,956	204,036
Interest expense	(22,541)		(48,798)	(94,112)	(145,795)
Net Interest Income	4,131		20,788	29,844	58,241
Non-interest Income (Loss)
Mortgage banking activities, net	11,864		5,016	(19,222)	31,202
Investment fair value changes, net	2,443		(11,088)	(159,107)	(20,910)
Other income, net	(2,011)		1,878	(2,278)	6,317
Realized gains, net	0		0	2,001	7,728
Total non-interest income (loss), net	12,296		(4,194)	(178,606)	24,337
General and administrative expenses	(4,602)		(5,581)	(12,901)	(17,591)
Loan acquisition costs	(304)		(867)	(1,512)	(2,859)
Other expenses	(3,309)		0	(3,309)	0
(Provision for) benefit from income taxes	(826)		228	7,827	(1,757)
Net Income (Loss)	7,386		10,374	(158,657)	60,371
Non-cash amortization (expense) income, net	1,785		2,537	602	6,780
Other significant non-cash expense: goodwill impairment				0
Operating Segments | Business Purpose Lending
Segment Reporting Information [Line Items]
Interest income	55,930		5,527	162,732	12,595
Interest expense	(46,027)		(2,813)	(119,854)	(6,590)
Net Interest Income	9,903		2,714	42,878	6,005
Non-interest Income (Loss)
Mortgage banking activities, net	47,531		4,499	43,733	9,782
Investment fair value changes, net	16,892		(1,073)	(84,837)	(1,833)
Other income, net	623		1,918	3,493	4,213
Realized gains, net	0		0	0	0
Total non-interest income (loss), net	65,046		5,344	(37,611)	12,162
General and administrative expenses	(9,321)		(6,028)	(29,977)	(13,452)
Loan acquisition costs	(1,660)		(756)	(5,630)	(2,017)
Other expenses	(3,874)		(1,900)	(100,743)	(4,432)
(Provision for) benefit from income taxes	(8,544)		(8)	477	25
Net Income (Loss)	51,550		(634)	(130,606)	(1,709)
Non-cash amortization (expense) income, net	(6,719)		(2,107)	(18,050)	(4,907)
Other significant non-cash expense: goodwill impairment				(88,675)
Operating Segments | Third-Party Investments
Segment Reporting Information [Line Items]
Interest income	37,576		70,709	155,583	199,145
Interest expense	(27,534)		(61,541)	(123,160)	(168,167)
Net Interest Income	10,042		9,168	32,423	30,978
Non-interest Income (Loss)
Mortgage banking activities, net	0		0	0	0
Investment fair value changes, net	87,890		24,057	(366,696)	58,492
Other income, net	340		560	1,072	600
Realized gains, net	602		4,714	3,236	10,499
Total non-interest income (loss), net	88,832		29,331	(362,388)	69,591
General and administrative expenses	(709)		(676)	(4,230)	(2,239)
Loan acquisition costs	(194)		(180)	(567)	(503)
Other expenses	(470)		(395)	347	(864)
(Provision for) benefit from income taxes	257		(106)	4,775	(1,370)
Net Income (Loss)	97,758		37,142	(329,640)	95,593
Non-cash amortization (expense) income, net	117		0	1,105	(824)
Other significant non-cash expense: goodwill impairment				0
Corporate/ Other
Segment Reporting Information [Line Items]
Interest income	1,804		4,295	7,738	13,924
Interest expense	(4,309)		(3,452)	(12,622)	(11,548)
Net Interest Income	(2,505)		843	(4,884)	2,376
Non-interest Income (Loss)
Mortgage banking activities, net	0		0	0	0
Investment fair value changes, net	(178)		(452)	(917)	(1,008)
Other income, net	934		0	1,692	2,710
Realized gains, net	0		0	25,182	0
Total non-interest income (loss), net	756		(452)	25,957	1,702
General and administrative expenses	(12,998)		(12,614)	(37,724)	(37,440)
Loan acquisition costs	0		(113)	(7)	(128)
Other expenses	(135)		(236)	(581)	(725)
(Provision for) benefit from income taxes	0		0	0	0
Net Income (Loss)	(14,882)		(12,572)	(17,239)	(34,215)
Non-cash amortization (expense) income, net	$ (1,516)		$ (1,148)	(3,035)	$ (1,939)
Other significant non-cash expense: goodwill impairment				$ 0

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Segment Information - Components of Corporate/Other (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Segment Reporting Information [Line Items]
Interest income	$ 121,982	$ 150,117	$ 450,009	$ 429,700
Interest expense	(100,411)	(116,604)	(349,748)	(332,100)
Net Interest Income	21,571	33,513	100,261	97,600
Investment fair value changes, net	107,047	11,444	(611,557)	34,741
Other	(97)	575	2,406	1,053
Realized gains, net	602	4,714	30,419	18,227
Total non-interest income (loss), net	166,930	30,029	(552,648)	107,792
General and administrative expenses	(27,630)	(24,899)	(84,832)	(70,722)
Loan acquisition costs	(2,158)	(1,916)	(7,716)	(5,507)
Other expenses	(7,788)	(2,531)	(104,286)	(6,021)
Net Income (Loss)	141,812	34,310	(636,142)	120,040
Corporate/ Other
Segment Reporting Information [Line Items]
Interest income	1,804	4,295	7,738	13,924
Interest expense	(4,309)	(3,452)	(12,622)	(11,548)
Net Interest Income	(2,505)	843	(4,884)	2,376
Investment fair value changes, net	(178)	(452)	(917)	(1,008)
Other	934	0	1,692	2,710
Realized gains, net	0	0	25,182	0
Total non-interest income (loss), net	756	(452)	25,957	1,702
General and administrative expenses	(12,998)	(12,614)	(37,724)	(37,440)
Loan acquisition costs	0	(113)	(7)	(128)
Other expenses	(135)	(236)	(581)	(725)
Net Income (Loss)	(14,882)	(12,572)	(17,239)	(34,215)
Corporate/ Other | Legacy Consolidated VIEs
Segment Reporting Information [Line Items]
Interest income	1,795	4,295	7,675	13,924
Interest expense	(1,058)	(3,452)	(5,098)	(11,548)
Net Interest Income	737	843	2,577	2,376
Investment fair value changes, net	(81)	(407)	(702)	(904)
Other	0	0	0	0
Realized gains, net			0	0
Total non-interest income (loss), net	(81)	(407)	(702)	(904)
General and administrative expenses	0	0	0	0
Loan acquisition costs	0	0	0	0
Other expenses	0	0	0	0
Net Income (Loss)	656	436	1,875	1,472
Corporate/ Other | Other
Segment Reporting Information [Line Items]
Interest income	9	0	63	0
Interest expense	(3,251)	0	(7,524)	0
Net Interest Income	(3,242)	0	(7,461)	0
Investment fair value changes, net	(97)	(45)	(215)	(104)
Other	934	0	1,692	2,710
Realized gains, net			25,182	0
Total non-interest income (loss), net	837	(45)	26,659	2,606
General and administrative expenses	(12,998)	(12,614)	(37,724)	(37,440)
Loan acquisition costs	0	(113)	(7)	(128)
Other expenses	(135)	(236)	(581)	(725)
Net Income (Loss)	$ (15,538)	$ (13,008)	$ (19,114)	$ (35,687)

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Segment Information - Supplemental Information by Segment (Details) - USD ($) $ in Thousands		Sep. 30, 2020	Dec. 31, 2019
Segment Reporting Information [Line Items]
Real estate securities	[1]	$ 351,335	$ 1,099,874
Other investments	[1]	384,628	358,130
Goodwill and intangible assets	[1]	60,737	161,464
Total Assets	[1]	10,402,412	17,995,440
Residential loans
Segment Reporting Information [Line Items]
Loans, at fair value		4,494,936	7,714,850
Business purpose residential loans
Segment Reporting Information [Line Items]
Loans, at fair value		3,956,101	3,506,743
Multifamily loans
Segment Reporting Information [Line Items]
Loans, at fair value		491,415	4,408,524
Operating Segments | Residential Lending
Segment Reporting Information [Line Items]
Real estate securities		146,608	229,074
Other investments		14,878	42,224
Goodwill and intangible assets		0	0
Total Assets		2,148,643	5,410,540
Operating Segments | Residential Lending | Residential loans
Segment Reporting Information [Line Items]
Loans, at fair value		1,941,489	4,939,745
Operating Segments | Residential Lending | Business purpose residential loans
Segment Reporting Information [Line Items]
Loans, at fair value		0	0
Operating Segments | Residential Lending | Multifamily loans
Segment Reporting Information [Line Items]
Loans, at fair value		0	0
Operating Segments | Business Purpose Lending
Segment Reporting Information [Line Items]
Real estate securities		0	0
Other investments		25,713	21,002
Goodwill and intangible assets		60,737	161,464
Total Assets		4,134,913	3,786,641
Operating Segments | Business Purpose Lending | Residential loans
Segment Reporting Information [Line Items]
Loans, at fair value		0	0
Operating Segments | Business Purpose Lending | Business purpose residential loans
Segment Reporting Information [Line Items]
Loans, at fair value		3,956,101	3,506,743
Operating Segments | Business Purpose Lending | Multifamily loans
Segment Reporting Information [Line Items]
Loans, at fair value		0	0
Operating Segments | Third-Party Investments
Segment Reporting Information [Line Items]
Real estate securities		204,727	870,800
Other investments		344,037	294,904
Goodwill and intangible assets		0	0
Total Assets		3,315,039	8,028,946
Operating Segments | Third-Party Investments | Residential loans
Segment Reporting Information [Line Items]
Loans, at fair value		2,256,682	2,367,215
Operating Segments | Third-Party Investments | Business purpose residential loans
Segment Reporting Information [Line Items]
Loans, at fair value		0	0
Operating Segments | Third-Party Investments | Multifamily loans
Segment Reporting Information [Line Items]
Loans, at fair value		491,415	4,408,524
Corporate/ Other
Segment Reporting Information [Line Items]
Real estate securities		0	0
Other investments		0	0
Goodwill and intangible assets		0	0
Total Assets		803,817	769,313
Corporate/ Other | Residential loans
Segment Reporting Information [Line Items]
Loans, at fair value		296,765	407,890
Corporate/ Other | Business purpose residential loans
Segment Reporting Information [Line Items]
Loans, at fair value		0	0
Corporate/ Other | Multifamily loans
Segment Reporting Information [Line Items]
Loans, at fair value		$ 0	$ 0

[1] Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At September 30, 2020 and December 31, 2019, assets of consolidated VIEs totaled $8,197,095 and $11,931,869, respectively. At September 30, 2020 and December 31, 2019, liabilities of consolidated VIEs totaled $7,238,047 and $10,717,072, respectively. See Note 4 for further discussion.