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Fair Value of Financial Instruments (Tables)
 12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Carrying Values and Estimated 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 December 31, 2020 and December 31, 2019.

Table 5.1 – Carrying Values and Fair Values of Assets and Liabilities
December 31, 2020December 31, 2019
Carrying
Value		Fair
Value		Carrying
Value		Fair
Value
(In Thousands)
Assets
Residential loans, held-for-sale at fair value$176,604 $176,604 $536,280 $536,280 
Residential loans, held-for-investment4,072,410 4,072,410 7,178,465 7,178,465 
Business purpose loans, held-for-sale245,394 245,394 331,565 331,565 
Business purpose loans, held-for-investment3,890,959 3,890,959 3,175,178 3,175,178 
Multifamily loans492,221 492,221 4,408,524 4,408,524 
Real estate securities344,125 344,125 1,099,874 1,099,874 
Servicer advance investments (1)
231,489 231,489 169,204 169,204 
MSRs (1)
8,815 8,815 42,224 42,224 
Excess MSRs (1)
34,418 34,418 31,814 31,814 
Shared home appreciation options (1)
42,440 42,440 45,085 45,085 
Cash and cash equivalents461,260 461,260 196,966 196,966 
Restricted cash83,190 83,190 93,867 93,867 
Derivative assets53,238 53,238 35,701 35,701 
REO (2)
8,413 9,229 9,462 10,389 
Margin receivable (2)
4,758 4,758 209,776 209,776 
FHLBC stock (2)
5,000 5,000 43,393 43,393 
Pledged collateral (2)
1,177 1,177 32,945 32,945 
Liabilities
Short-term debt $522,609 $522,609 $2,329,145 $2,329,145 
Margin payable (3)
— — 1,700 1,700 
Guarantee obligation (3)
10,039 7,843 14,009 13,754 
Contingent consideration (3)
— — 28,484 28,484 
Derivative liabilities16,072 16,072 163,424 163,424 
ABS issued net
Fair value6,900,362 6,900,362 10,515,475 10,515,475 
Amortized cost200,299 204,892 — — 
FHLBC long-term borrowings1,000 1,000 1,999,999 1,999,999 
Other long-term debt, net774,726 783,570 183,520 184,666 
Convertible notes, net511,085 499,865 631,125 661,985 
Trust preferred securities and subordinated notes, net 138,674 80,910 138,628 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 December 31, 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
December 31, 2020Carrying ValueFair Value Measurements Using
(In Thousands)Level 1Level 2Level 3
Assets
Residential loans$4,249,014 $— $— $4,249,014 
Business purpose loans4,136,353 — — 4,136,353 
Multifamily loans492,221 — — 492,221 
Real estate securities344,125 — — 344,125 
Servicer advance investments231,489 — — 231,489 
MSRs8,815 — — 8,815 
Excess MSRs34,418 — — 34,418 
Shared home appreciation options42,440 — — 42,440 
Derivative assets53,238 18,260 19,951 15,027 
Pledged collateral1,177 1,177 — — 
FHLBC stock5,000 — 5,000 — 
Liabilities
Derivative liabilities$16,072 $15,495 $— $577 
ABS issued6,900,362 — — 6,900,362 
December 31, 2019Carrying
Value		Fair Value Measurements Using
(In Thousands)Level 1Level 2Level 3
Assets
Residential loans$7,714,745 $— $— $7,714,745 
Business purpose loans3,506,743 — — 3,506,743 
Multifamily loans4,408,524 — — 4,408,524 
Real estate securities1,099,874 — — 1,099,874 
Servicer advance investments169,204 — — 169,204 
MSRs42,224 — — 42,224 
Excess MSRs31,814 — — 31,814 
Shared home appreciation options45,085 — — 45,085 
Derivative assets35,701 6,531 19,020 10,150 
Pledged collateral32,945 32,945 — — 
FHLBC stock43,393 — 43,393 — 
Liabilities
Contingent consideration$28,484 $— $— $28,484 
Derivative liabilities163,424 13,368 148,766 1,290 
ABS issued10,515,475 — — 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 years ended December 31, 2020 and December 31, 2019.
Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets
Residential LoansBusiness
Purpose
Loans		Multifamily
Loans		Trading SecuritiesAFS
Securities		Servicer Advance InvestmentsMSRsExcess MSRsShared 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 
Acquisitions4,483,473 — — 108,249 57,652 179,419 — 10,906 3,517 
Originations— 1,431,251 — — — — — — — 
Sales(6,262,958)(135,800)— (603,529)(55,192)— — — — 
Principal paydowns(1,552,171)(753,026)(7,703)(8,687)(17,924)(107,527)— — (4,278)
Deconsolidations— — (3,849,779)— — — — — — 
Gains (losses) in net income (loss), net(132,307)99,590 (58,821)(230,906)10,792 (9,607)(33,409)(8,302)(1,884)
Unrealized losses in OCI, net— — — — (16,204)— — — — 
Other settlements, net (1)
(1,768)(12,405)— — — — — — — 
Ending balance - December 31, 2020$4,249,014 $4,136,353 $492,221 $125,667 $218,458 $231,489 $8,815 $34,418 $42,440 
Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis (continued)
Liabilities
Derivatives (2)
Contingent ConsiderationABS
Issued
(In Thousands)
Beginning balance - December 31, 2019$8,860 $28,484 $10,515,475 
Acquisitions— — 1,478,589 
Principal paydowns— (13,353)(1,487,958)
Deconsolidations— — (3,706,789)
Gains (losses) in net income (loss), net56,972 (446)101,045 
Other settlements, net (1)
(51,382)(14,685)— 
Ending balance - December 31, 2020$14,450 $— $6,900,362 
 Assets
(In Thousands)Residential
Loans		Business Purpose LoansMultifamily LoansTrading
Securities		AFS
Securities		Servicer Advance InvestmentsMSRsExcess MSRsShared
Home Appreciation Options
Beginning balance - December 31, 2018$7,254,631 $141,258 $2,144,598 $1,118,612 $333,882 $300,468 $60,281 $27,312 $— 
Acquisitions7,092,866 2,639,615 2,162,386 332,593 26,538 69,610 868 7,762 44,243 
Originations— 1,015,436 — — — — — — — 
Sales(5,141,886)(76,909)— (597,122)(110,070)— — — — 
Principal paydowns(1,609,220)(213,655)(28,543)(44,600)(39,702)(203,876)— — — 
Gains (losses) in net income, net119,132 7,423 130,083 56,008 24,580 3,002 (18,925)(3,260)842 
Unrealized gains in OCI, net— — — — 4,106 — — — — 
Other settlements, net (1)
(778)(6,425)— (4,951)— — — — — 
Ending 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 
 Liabilities
(In Thousands)
Derivatives (2)
Contingent ConsiderationABS
Issued
Beginning balance - December 31, 2018$2,181 $— $5,410,073 
Acquisitions— 25,267 6,098,462 
Principal paydowns— — (1,112,437)
Gains (losses) in net income, net62,220 3,217 119,377 
Other settlements, net (1)
(55,541)— — 
Ending balance - December 31, 2019$8,860 $28,484 $10,515,475 
(1)     Other settlements, net for residential and business purpose 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. Other settlements, net for trading securities relates to the consolidation of Freddie Mac K-Series securitization entities.
(2)     For the purpose of this presentation, derivative assets and liabilities, which consist of loan purchase commitments, forward sale 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 that were attributable to Level 3 assets and liabilities recorded at fair value on a recurring basis and held at December 31, 2020, 2019, and 2018. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the years ended December 31, 2020, 2019, and 2018 are not included in this presentation.
Table 5.4 – Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at December 31, 2020, 2019, and 2018 Included in Net Income
Included in Net Income
Years Ended December 31,
(In Thousands)202020192018
Assets
Residential loans at Redwood$1,138 $67,470 $(17,757)
Business purpose loans9,420 14,603 445 
Net investments in consolidated Sequoia entities (1)
(14,646)4,529 (1,046)
Net investments in consolidated Freddie Mac SLST entities (1)
(21,220)27,225 21,295 
Net investments in consolidated Freddie Mac K-Series entities (1)
(9,309)21,430 931 
Net investments in consolidated CAFL entities (1)
(37,062)(14,681)— 
Trading securities(83,327)18,865 (12,256)
Available-for-sale securities(388)— (89)
Servicer advance investments(8,902)3,001 (702)
MSRs(17,545)(11,957)1,942 
Excess MSRs(8,302)(3,260)1,824 
Shared home appreciation options(1,884)842 — 
Loan purchase and interest rate lock commitments15,027 10,190 2,913 
Liabilities
Loan purchase commitments$(577)$(1,290)$(732)
Contingent consideration— (3,217)— 
(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 December 31, 2020, 2019, and 2018, 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 December 31, 2020 and December 31, 2019. 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 December 31, 2020 and December 31, 2019.
Table 5.5 – Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Gain (Loss) for
Year Ended
December 31, 2020Carrying
Value		Fair Value Measurements Using
(In Thousands)Level 1Level 2Level 3December 31, 2020
Assets
REO$1,117 $— $— $1,117 $(157)
Gain (Loss) for
Year Ended
December 31, 2019Carrying
Value		Fair Value Measurements Using
(In Thousands)Level 1Level 2Level 3December 31, 2019
Assets
REO$4,051 $— $— $4,051 $(1,363)
Market Valuation Adjustments The following table presents the net market valuation gains and losses recorded in each line item of our consolidated statements of income for the years ended December 31, 2020, 2019, and 2018.
Table 5.6 – Market Valuation Gains and Losses, Net
Years Ended December 31,
(In Thousands)202020192018
Mortgage Banking Activities, Net
Residential loans held-for-sale, at fair value$(15,477)$3,267 $23,144 
Residential loan purchase and forward sale commitments56,761 60,260 (1,336)
Single-family rental loans held-for-sale, at fair value82,169 15,043 375 
Single-family rental loan purchase and interest rate lock commitments341 1,961 78 
Bridge loans(4,998)4,518 — 
Trading securities (1)
(4,535)— — 
Risk management derivatives, net(47,779)(15,723)34,739 
Total mortgage banking activities, net (2)
$66,482 $69,326 $57,000 
Investment Fair Value Changes, Net
Residential loans held-for-investment at Redwood$(93,314)$58,891 $(29,573)
Single-family rental loans held-for-investment(20,806)272 — 
Bridge loans held-for-investment(10,629)(2,139)(29)
Trading securities(226,196)56,046 (8,055)
Servicer advance investments(8,901)3,001 (701)
Excess MSRs(8,302)(3,260)1,823 
Net investments in Legacy Sequoia entities (3)
(1,513)(1,545)(1,016)
Net investments in Sequoia Choice entities (3)
(13,244)6,947 443 
Net investments in Freddie Mac SLST entities (3)
(21,160)27,206 1,271 
Net investments in Freddie Mac K-Series entities (3)
(81,039)21,430 931 
Net investments in CAFL entities (3)
(36,754)(3,636)— 
Other investments(7,050)(544)(434)
Risk management derivatives, net(59,142)(127,169)9,740 
Change in allowance for credit losses on AFS securities(388)— (89)
Total investment fair value changes, net$(588,438)$35,500 $(25,689)
Other Income
MSRs$(33,409)$(18,856)$(2,508)
Risk management derivatives, net13,966 8,595 (4,734)
Gain on re-measurement of 5 Arches investment— 2,441 — 
Total other income (4)
$(19,443)$(7,820)$(7,242)
Total Market Valuation (Losses) Gains, Net$(541,399)$97,006 $24,069 
(1)Represents fair value changes on trading securities that are being used along with risk management derivatives to manage the mark-to-market risks associated with our residential mortgage banking operations.
(2)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.
(3)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.
(4)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
December 31, 2020Fair
Value		Input Values
(Dollars in Thousands, except Input Values)Unobservable InputRange
Weighted
Average (1)
Assets
Residential loans, at fair value:
Jumbo fixed-rate loans$19,464 Prepayment rate (annual CPR)20 -20 %20 %
Whole loan spread to swap rate305 -305 bps305 bps
Jumbo loans committed to sell157,140 Whole loan committed sales price$102.54 -$103.22 $102.83 
Loans held by Legacy Sequoia (2)
285,935 Liability priceN/AN/A
Loans held by Sequoia Choice (2)
1,565,322 Liability priceN/AN/A
Loans held by Freddie Mac
SLST (2)
2,221,153 Liability priceN/AN/A
Business purpose loans:
Single-family rental loans245,394 Senior credit spread120 -190 bps131 bps
Subordinate credit spread160 -1,650 bps389 bps
Senior credit support25 -34 %32 %
IO discount rate9 -9 %9 %
Prepayment rate (annual CPR)3 -3 %3 %
Non-securitizable loan dollar price$86 -$105 $99 
Single-family rental loans held by CAFL3,249,194 Liability priceN/AN/A
Bridge loans641,765 Discount rate6 -15 %9 %
Multifamily loans held by Freddie Mac K-Series (2)
492,221 Liability priceN/AN/A
Trading and AFS securities344,125 Discount rate3 -25 %9  %
Prepayment rate (annual CPR)9 -56 %28  %
Default rate— -25 %3  %
Loss severity— -50 %21  %
CRT dollar price$84 -$104 $95 
Servicer advance investments231,489 Discount rate3 -4 %3 %
Prepayment rate (annual CPR)8 -14 %14 %
Expected remaining life (3)
4-4yrs4yrs
Mortgage servicing income— -16 bps7 bps
MSRs8,815 Discount rate12 -12 %12  %
Prepayment rate (annual CPR)10 -100 %38  %
Per loan annual cost to service$97 -$97 $97 
Excess MSRs34,418 Discount rate15 -19 %17 %
Prepayment rate (annual CPR)14 -27 %19 %
Excess mortgage servicing amount9 -16 bps12 bps
Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments (continued)
December 31, 2020Fair
Value		Input Values
(Dollars in Thousands, except Input Values)Unobservable InputRangeWeighted
Average
Assets (continued)
Shared home appreciation options$42,440 Discount rate15 -15 %15 %
Prepayment rate (annual CPR)10 -24 %18 %
Home price appreciation3 -3 %3 %
REO1,117 Loss severity1 -46 %21 %
Residential loan purchase commitments, net14,450 Committed sales price$100.94 -$103.22 $102.25 
Pull-through rate17 -100 %65 %
Whole loan spread to TBA price $2.50 -$2.50 $2.50 
Whole loan spread to swap rate - fixed rate305 -305 bps305 bps
Prepayment rate (annual CPR)20 -20 %20 %
MSR multiple— -3.9 x3.0 x
Liabilities
ABS issued (2)
At consolidated Sequoia entities1,629,683 Discount rate2 -26 %3  %
Prepayment rate (annual CPR)8 -55 %31  %
Default rate— -41 %3  %
Loss severity30 -50 %31  %
At consolidated Freddie Mac SLST entities1,793,620 Discount rate1 -7 %2  %
Prepayment rate (annual CPR)6 -7 %6  %
Default rate9 -15 %11  %
Loss severity35 -35 %35  %
At consolidated Freddie Mac K-Series entities (4)
463,966 Discount rate1 -17 %2 %
At consolidated CAFL entities (4)
3,013,093 Discount rate1 -40 %3 %
Prepayment rate (annual CPR)3 -3 %3 %
Default rate— -18 %10 %
Loss severity30 -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 December 31, 2020, the fair value of securities we owned at the consolidated Sequoia, Freddie Mac SLST, Freddie Mac K-Series, and CAFL entities was $222 million, $428 million, $28 million, and $239 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.