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Principles of Consolidation (Tables)

12 Months Ended

Dec. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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


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

The following tables present income (loss) from these VIEs for the years ended December 31, 2020 and 2019.

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


	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

Securitization Activity Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents information related to securitization transactions that occurred during the years ended December 31, 2020 and 2019.

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


	Years Ended December 31,
(In Thousands)	2020		2019
Principal balance of loans transferred	$	2,223,462	$	1,872,910
Trading securities retained, at fair value	49,089		8,882
AFS securities retained, at fair value	4,187		4,847

The following table summarizes the cash flows during the years ended December 31, 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


	Years Ended December 31,
(In Thousands)	2020		2019
Proceeds from new transfers	$	2,276,521	$	1,912,334
MSR fees received	9,749		11,857
Funding of compensating interest, net	(405)		(368)
Cash flows received on retained securities	24,172		27,045

MSR Assumptions Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents the key weighted average assumptions used to value securities retained at the date of securitization for securitizations completed during 2020 and 2019.

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


	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	%

Unconsolidated Variable Interest Entity's Sponsored by Redwood Summary

The following table presents additional information at December 31, 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)	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.

Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents key economic assumptions for assets retained from unconsolidated VIEs and the sensitivity of their fair values to immediate adverse changes in those assumptions at December 31, 2020 and December 31, 2019.

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


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

(1)Senior securities included $17 million and $49 million of interest-only securities at December 31, 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.

Loan Transfers Accounted for as Secured Borrowings

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.

Table 4.8 – Third-Party Sponsored VIE Summary


(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

- Definition

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

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