At December 31, 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 December 31, 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, $220 million, $430 million, $28 million, and $242 million, respectively.

During the first quarter of 2020, we sold subordinate securities (and transferred directing certificate holder status as a result of these sales) 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).

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 December 31, 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 December 31, 2020, the estimated fair value of our investment in the Servicing Investment entities was $68 million.


December 31, 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	$	285,935	$	1,565,322	$	2,221,153	$	—	$	—	$	—	$	4,072,410
Business purpose loans, held-for-investment	—		—		—		—		3,249,194		—		3,249,194
Multifamily loans, held-for-investment	—		—		—		492,221		—		—		492,221

Other investments	—		—		—		—		—		251,773		251,773
Cash and cash equivalents	—		—		—		—		—		11,579		11,579
Restricted cash	148		—		—		—		—		23,220		23,368
Accrued interest receivable	305		6,802		6,754		1,337		13,055		2,334		30,587
Other assets	638		—		646		—		2,930		5,723		9,937
Total Assets	$	287,026	$	1,572,124	$	2,228,553	$	493,558	$	3,265,179	$	294,629	$	8,141,069
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	208,375	$	208,375
Accrued interest payable	141		4,697		4,846		1,177		10,278		135		21,274
Accrued expenses and other liabilities	—		50		—		—		—		18,353		18,403
Asset-backed securities issued	282,326		1,347,357		1,793,620		463,966		3,013,093		—		6,900,362
Total Liabilities	$	282,467	$	1,352,104	$	1,798,466	$	465,143	$	3,023,371	$	226,863	$	7,148,414

Number of VIEs	20		10		2		1		14		3		50


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 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


	Year Ended December 31, 2020
	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	9,061	$	87,093	$	85,609	$	54,813	$	136,950	$	17,665	$	391,191
Interest expense	(5,945)		(73,643)		(62,483)		(51,521)		(105,732)		(6,441)		(305,765)
Net interest income	3,116		13,450		23,126		3,292		31,218		11,224		85,426
Non-interest income

Investment fair value changes, net	(1,512)		(13,244)		(21,160)		(81,039)		(39,574)		(11,327)		(167,856)


Total non-interest income, net	(1,512)		(13,244)		(21,160)		(81,039)		(39,574)		(11,327)		(167,856)
General and administrative expenses	—		—		—		—		—		(867)		(867)
Other expenses	—		—		—		—		—		193		193

Income (Loss) from Consolidated VIEs	$	1,604	$	206	$	1,966	$	(77,747)	$	(8,356)	$	(777)	$	(83,104)


	Year Ended December 31, 2019
	Legacy Sequoia		Sequoia Choice		Freddie Mac SLST		Freddie Mac K-Series		CAFL		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	17,649	$	108,798	$	57,840	$	132,600	$	23,072	$	14,511	$	354,470
Interest expense	(14,418)		(93,354)		(42,574)		(126,948)		(17,173)		(11,952)		(306,419)
Net interest income	3,231		15,444		15,266		5,652		5,899		2,559		48,051
Non-interest income

Investment fair value changes, net	(1,545)		6,947		27,206		21,430		(3,636)		3,311		53,713


Total non-interest income, net	(1,545)		6,947		27,206		21,430		(3,636)		3,311		53,713
General and administrative expenses	—		—		—		—		—		(343)		(343)
Other expenses	—		—		—		—		—		(1,106)		(1,106)

Income from Consolidated VIEs	$	1,686	$	22,391	$	42,472	$	27,082	$	2,263	$	4,421	$	100,315

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 53 Sequoia securitization entities sponsored by us that are still outstanding as of December 31, 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 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.

During each of the years ended December 31, 2020 and 2019, we transferred residential loans to five Sequoia securitization entities sponsored by us, and accounted for these transfers as sales for financial reporting purposes. The following table presents information related to securitization transactions that occurred during the years ended December 31, 2020 and 2019.


	Year Ended December 31, 2020					Year Ended December 31, 2019
At Date of Securitization		Senior IO Securities		Subordinate Securities			Senior IO Securities		Subordinate Securities
Prepayment rates		29	%	14	%		25	%	15	%
Discount rates		14	%	7	%		14	%	7	%
Credit loss assumptions		0.27	%	0.24	%		0.20	%	0.20	%


(In Thousands)	December 31, 2020		December 31, 2019
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading	$	20,982	$	88,425
Subordinate securities, classified as AFS	136,475		140,649
Mortgage servicing rights	8,413		40,254
Maximum loss exposure (1)	$	165,870	$	269,328
Assets transferred:
Principal balance of loans outstanding	$	7,728,432	$	10,299,442
Principal balance of loans 30+ days delinquent	138,029		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.


December 31, 2020	MSRs			Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at December 31, 2020	$	8,413		$	17,333		$	140,124
Expected life (in years) (2)	2			3			8
Prepayment speed assumption (annual CPR) (2)	37		%	31		%	33		%
Decrease in fair value from:
10% adverse change	$	906		$	1,557		$	452
25% adverse change	2,058			3,754			2,298
Discount rate assumption (2)	12		%	21		%	5		%
Decrease in fair value from:
100 basis point increase	$	196		$	337		$	9,769
200 basis point increase	380			659			18,650
Credit loss assumption (2)	N/A			0.41		%	0.41		%
Decrease in fair value from:
10% higher losses	N/A			$	—		$	2,409
25% higher losses	N/A			—			5,915


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 December 31, 2020 and December 31, 2019, grouped by asset type.


(In Thousands)	December 31, 2020		December 31, 2019
Mortgage-Backed Securities
Senior	$	11,131	$	127,094
Mezzanine	2,014		508,195
Subordinate	173,523		235,510
Total Mortgage-Backed Securities	186,668		870,799
Excess MSR	14,133		16,216
Total Investments in Third-Party Sponsored VIEs	$	200,801	$	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.