Other Investments

12 Months Ended

Dec. 31, 2022

Investments, All Other Investments [Abstract]

Other investments at December 31, 2022 and 2021 are summarized in the following table.

Table 11.1 – Components of Other Investments


(In Thousands)	December 31, 2022		December 31, 2021
Servicer advance investments	$	269,259	$	350,923
Strategic investments	56,518		35,702
Excess MSRs	39,035		44,231
Mortgage servicing rights	25,421		12,438
Other	705		5,935
Total Other Investments	$	390,938	$	449,229

Servicer advance investments

We and a third-party co-investor, through two partnerships (“SA Buyers”) consolidated by us, purchased the outstanding servicer advances and excess MSRs related to portfolios of legacy residential mortgage-backed securitizations serviced by the co-investor. See Note 4 for additional information regarding the transaction and Note 17 for additional information regarding our funding obligations for this investment.

Our servicer advance investments (owned by the consolidated SA Buyers) are comprised of outstanding servicer advance receivables, the requirement to purchase all future servicer advances made with respect to specified pools of residential mortgage loans, and a portion of the mortgage servicing fees from the underlying loan pools. A portion of the remaining mortgage servicing fees from the underlying loan pools are paid directly to the third-party servicer for the performance of servicing duties and a portion is paid to excess MSRs that we own as a separate investment.

Servicer advances are non-interest bearing and are a customary feature of residential mortgage securitization transactions. Servicer advances are generally reimbursable cash payments made by a servicer when the borrower fails to make scheduled payments due on a residential mortgage loan or to support the value of the collateral property. Servicer advances typically fall into three categories:

•Principal and Interest Advances: cash payments made by the servicer to cover scheduled principal and interest payments on a residential mortgage loan that have not been paid on a timely basis by the borrower.

•Escrow Advances (Taxes and Insurance Advances): Cash payments made by the servicer to third parties on behalf of the borrower for real estate taxes and insurance premiums on the property that have not been paid on a timely basis by the borrower.

•Corporate Advances: Cash payments made by the servicer to third parties for the reimbursable costs and expenses incurred in connection with the foreclosure, preservation and sale of the mortgaged property, including attorneys’ and other professional fees.

Servicer advances are generally permitted to be repaid from amounts received with respect to the related residential mortgage loan, including payments from the borrower or amounts received from the liquidation of the property securing the loan. Residential mortgage servicing agreements generally require a servicer to make advances in respect of serviced residential mortgage loans unless the servicer determines in good faith that the advance would not be ultimately recoverable from the proceeds of the related residential mortgage loan or the mortgaged property.

At December 31, 2022, our servicer advance investments had a carrying value of $269 million and were associated with specified pools of residential mortgage loans with an unpaid principal balance of $11.34 billion. The outstanding servicer advance receivables associated with this investment were $240 million at December 31, 2022, which were financed with short-term non-recourse securitization debt (see Note 14 for additional detail on this debt). The servicer advance receivables were comprised of the following types of advances at December 31, 2022 and 2021:

Table 11.2 – Components of Servicer Advance Receivables


(In Thousands)	December 31, 2022		December 31, 2021
Principal and interest advances	$	81,447	$	94,148
Escrow advances (taxes and insurance advances)	123,541		172,847
Corporate advances	35,377		43,958
Total Servicer Advance Receivables	$	240,365	$	310,953

We account for our servicer advance investments at fair value and during the years ended December 31, 2022, 2021, and 2020, we recorded $20 million, $12 million and $11 million, respectively, of Other interest income associated with these investments, and recorded net market valuation losses of $11 million, $1 million, and $9 million, respectively, through Investment fair value changes, net in our consolidated statements of income (loss).

Strategic Investments

Strategic investments represent investments we made in companies through our RWT Horizons venture investment strategy and separately at a corporate level. At December 31, 2022, we had made a total of 29 investments in companies through RWT Horizons with a total carrying value of $25 million, as well as five corporate-level investments. See Note 3 for additional detail on how we account for our strategic investments. During the years ended December 31, 2022 and 2021, we recognized net mark-to-market valuation gains of $13 million and zero, respectively, on our strategic investments, which were recorded in Investment fair value changes, net on our consolidated statements of income (loss). During the years ended December 31, 2022 and 2021, we recorded losses of $0.9 million and gains of $0.8 million, respectively, in Other income, net on our Consolidated statements of income (loss), from our strategic investments.

Excess MSRs

In association with our servicer advance investments described above, we (through our consolidated SA Buyers) invested in excess MSRs associated with the same portfolio of legacy residential mortgage-backed securitizations. Additionally, we own excess MSRs associated with specified pools of multifamily loans. We account for our excess MSRs at fair value and during the years ended December 31, 2022, 2021, and 2020 we recognized $16 million, $13 million and $12 million of Other interest income, respectively, and recorded net market valuation losses of $5 million, $8 million, and $8 million, respectively, through Investment fair value changes, net on our consolidated statements of income (loss).

Mortgage Servicing Rights

We invest in mortgage servicing rights associated with residential mortgage loans and contract with licensed sub-servicers to perform all servicing functions for these loans. The majority of our investments in MSRs were made through the retention of servicing rights associated with the residential jumbo mortgage loans that we acquired and subsequently sold to third parties. During the year ended December 31, 2022, we retained $5 million of MSRs from sales of residential loans to third parties. We hold our MSR investments at our taxable REIT subsidiaries.

At December 31, 2022 and 2021, our MSRs had a fair value of $25 million and $12 million, respectively, and were associated with loans with an aggregate principal balance of $2.19 billion and $2.12 billion, respectively. During the years ended December 31, 2022, 2021, and 2020, including net market valuation gains and losses on our MSRs and related risk management derivatives, we recorded a net gain of $15 million, a net gain of $2 million, and a net loss of $10 million, respectively, through Other income on our consolidated statements of income (loss) related to our MSRs.