Home Equity Investments (HEI)

12 Months Ended

Dec. 31, 2022

Equity Method Investments and Joint Ventures [Abstract]

We purchase home equity investment contracts from third party originators under flow purchase agreements. Each HEI provides the owner of such HEI the right to purchase a percentage ownership interest in an associated residential property, and the homeowner's obligations under the HEI are secured by a lien (primarily second liens) on the property created by recording a security instrument (e.g., a deed of trust) with respect to the property. Our investments in HEIs allow us to share in both home price appreciation and depreciation of the associated property.

The following table presents our home equity investments at December 31, 2022 and December 31, 2021.

Table 10.1 – Home Equity Investments


(In Thousands)	December 31, 2022		December 31, 2021
HEIs at Redwood	$	270,835	$	33,187
HEIs held at consolidated HEI securitization entity	132,627		159,553
Total Home Equity Investments	$	403,462	$	192,740

At December 31, 2022, we had flow purchase agreements with HEI originators with $69 million of cumulative purchase commitments outstanding. As of December 31, 2022, we had the option to terminate certain HEI purchase commitments upon 90 days prior notice and reduce our HEI purchase commitments. See Note 17 for additional information on these commitments.

We consolidate the HEI securitization entity in accordance with GAAP and have elected to account for it under the CFE election. As such, market valuation changes for the securitized HEI are based on the estimated fair value of the associated ABS issued by the entity, including the securities we own.

The following table provides the activity of HEIs during the years ended December 31, 2022 and 2021.

Table 10.2 – Activity of HEI


	Twelve Months Ended December 31, 2022				Twelve Months Ended December 31, 2021
(In Thousands)	HEI at Redwood		Securitized HEI		HEI at Redwood		Securitized HEI
Fair value of HEI purchased	$	248,218	$	—	$	32,650	$	—
Fair value of HEI transferred (1)	—		—		(47,209)		47,209
Net market valuation gains (losses) recorded (2)	(202)		5,875		13,207		567

(1)Includes HEI transferred into our HEI securitization.

(2)We account for HEI at Redwood under the fair value option and record net market valuation changes through Investment fair value changes, net on our Consolidated statements of income (loss). We account for Securitized HEI under the CFE election and net market valuation gains (losses) for these investments are recorded through Investment fair value changes, net on our Consolidated statements of income (loss).

The following tables summarizes the characteristics of HEIs at December 31, 2022 and 2021.

Table 10.3 – HEI Characteristics


	December 31, 2022				December 31, 2021
(Dollars in Thousands)	HEI at Redwood		Securitized HEI		HEI at Redwood		Securitized HEI
Number of HEI contracts	2,599		1,007		333		1,318
Average initial amount of contract	$	101	$	94	$	95	$	91

The following tables present the geographic concentration of HEI recorded on our consolidated balance sheets at December 31, 2022 and 2021.

Table 10.4 – Geographic Concentration of HEI


	December 31, 2022
Geographic Concentration (by Principal)	HEI at Redwood		Securitized HEI
California	44	%	59	%
Florida	14	%	4	%
Arizona	7	%	—	%
Washington	6	%	6	%
Colorado	5	%	4	%
New York	4	%	11	%
Other states (none greater than 5%)	20	%	16	%
Total	100	%	100	%


	December 31, 2021
Geographic Concentration (by Principal)	HEI at Redwood		Securitized HEI
California	42	%	58	%
Florida	9	%	4	%
Arizona	10	%	—	%
Washington	12	%	6	%
Colorado	3	%	5	%
New York	5	%	10	%
Other states (none greater than 5%)	19	%	17	%
Total	100	%	100	%