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.


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


	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.

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.


	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


	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


	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	%


(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.


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

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.


(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.