XML 47 R37.htm IDEA: XBRL DOCUMENT

Principles of Consolidation (Tables)

3 Months Ended

Mar. 31, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The following table presents a summary of the assets and liabilities of our consolidated VIEs.

Table 4.1 – Assets and Liabilities of Consolidated VIEs


March 31, 2023	Legacy Sequoia		Sequoia		CAFL(1)		Freddie Mac SLST(1)		Freddie Mac K-Series		Servicing Investment		HEI		Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment	$	170,000	$	3,831,538	$	—	$	1,464,345	$	—	$	—	$	—	$	5,465,883
Business purpose loans, held-for-investment	—		—		3,376,654		—		—		—		—		3,376,654
Consolidated Agency multifamily loans	—		—		—		—		426,599		—		—		426,599

Home equity investments	—		—		—		—		—		—		129,317		129,317
Other investments	—		—		—		—		—		292,636		—		292,636
Cash and cash equivalents	—		—		—		—		—		20,087		—		20,087
Restricted cash	61		70		51,428		—		—		—		4,716		56,275
Accrued interest receivable	324		15,096		18,009		5,069		1,288		160		—		39,946
Other assets	18		—		19,199		2,642		—		7,650		50		29,559
Total Assets	$	170,403	$	3,846,704	$	3,465,290	$	1,472,056	$	427,887	$	320,533	$	134,083	$	9,836,956
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	197,883	$	—	$	197,883
Accrued interest payable	316		11,259		10,816		3,510		1,162		492		—		27,555
Accrued expenses and other liabilities	(106)		78		4,222		—		—		29,737		23,097		57,028
Asset-backed securities issued	168,832		3,570,597		3,072,176		1,143,522		394,469		—		97,523		8,447,119
Total Liabilities	$	169,042	$	3,581,934	$	3,087,214	$	1,147,032	$	395,631	$	228,112	$	120,620	$	8,729,585

Value of our investments in VIEs(1)	$	1,186	$	260,933	$	376,042	$	323,465	$	32,130	$	92,421	$	13,463	$	1,099,640
Number of VIEs	20		19		19		2		1		3		1		65


December 31, 2022	Legacy Sequoia		Sequoia		CAFL(1)		Freddie Mac SLST(1)		Freddie Mac K-Series		Servicing Investment		HEI		Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment	$	184,932	$	3,190,417	$	—	$	1,457,058	$	—	$	—	$	—	$	4,832,407
Business purpose loans, held-for-investment	—		—		3,461,367		—		—		—		—		3,461,367
Consolidated Agency multifamily loans	—		—		—		—		424,551		—		—		424,551
Home equity investments	—		—		—		—		—		—		132,627		132,627
Other investments	—		—		—		—		—		301,213		—		301,213
Cash and cash equivalents	—		—		710		—		—		12,765		—		13,475
Restricted cash	69		73		26,296		—		—		—		3,424		29,862
Accrued interest receivable	284		11,227		18,102		5,144		1,293		342		—		36,392
Other assets	637		—		14,265		2,898		—		7,547		50		25,397
Total Assets	$	185,922	$	3,201,717	$	3,520,740	$	1,465,100	$	425,844	$	321,867	$	136,101	$	9,257,291
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	206,510	$	—	$	206,510
Accrued interest payable	282		8,880		10,918		3,561		1,167		492		—		25,300
Accrued expenses and other liabilities	—		81		4,559		—		—		24,745		22,329		51,714
Asset-backed securities issued	184,191		2,971,109		3,115,807		1,222,150		392,785		—		100,710		7,986,752
Total Liabilities	$	184,473	$	2,980,070	$	3,131,284	$	1,225,711	$	393,952	$	231,747	$	123,039	$	8,270,276

Value of our investments in VIEs(1)	$	1,285	$	219,299	$	385,927	$	237,807	$	31,767	$	90,120	$	13,062	$	979,267
Number of VIEs	20		17		19		3		1		3		1		64

(1)Value of our investments in VIEs, as presented in this table, represents the fair value of our economic interests in the consolidated VIEs that we account for under the CFE election. CAFL includes BPL term loan securitizations we account for under the CFE election and two BPL bridge loan securitizations for which we did not make the CFE election. As of March 31, 2023 and December 31, 2022, the fair value of our interests in the CAFL Term securitizations were $295 million and $304 million, respectively, and the remaining values were associated with our interests in the CAFL Bridge securitizations, for which the ABS issued is carried at amortized historical cost. At December 31, 2022, Freddie Mac SLST includes securitizations we account for under the CFE election and also includes ABS issued in relation to a re-securitization of the securities we own in the consolidated Freddie Mac SLST VIEs, that we account for at amortized historical cost. During the three months ended March 31, 2023, we called the Freddie Mac SLST re-securitization and paid off the associated outstanding ABS issued. As of March 31, 2023 and December 31, 2022, the fair value of our interests in the Freddie Mac SLST securitizations accounted for under the CFE election was $323 million and $323 million, respectively, with the difference reflected in the December 31, 2022 table above due to ABS issued and carried at amortized historical cost.

The following tables present income (loss) from these VIEs for the three months ended March 31, 2023 and 2022.

Table 4.2 – Income (Loss) from Consolidated VIEs


	Three Months Ended March 31, 2023
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		HEI		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	2,543	$	34,644	$	54,437	$	15,493	$	4,618	$	7,814	$	—	$	119,549
Interest expense	(2,504)		(30,055)		(39,542)		(11,218)		(4,241)		(3,848)		—		(91,408)
Net interest income	39		4,589		14,895		4,275		377		3,966		—		28,141
Non-interest income

Investment fair value changes, net	(94)		2,442		(9,682)		8,934		363		(1,047)		425		1,341
Other income	—		—		172		—		—		—		—		172

Total non-interest income, net	(94)		2,442		(9,510)		8,934		363		(1,047)		425		1,513
General and administrative expenses	—		—		—		—		—		10		—		10
Other expenses	—		—		—		—		—		(577)		—		(577)

Income (loss) from Consolidated VIEs	$	(55)	$	7,031	$	5,385	$	13,209	$	740	$	2,352	$	425	$	29,087


	Three Months Ended March 31, 2022
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		HEI		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	1,012	$	32,098	$	77,334	$	17,200	$	4,753	$	7,919	$	—	$	140,316
Interest expense	(701)		(28,171)		(58,480)		(14,085)		(4,371)		(1,662)		—		(107,470)
Net interest income	311		3,927		18,854		3,115		382		6,257		—		32,846
Non-interest income

Investment fair value changes, net	(714)		(3,822)		2,664		3,036		264		(3,468)		3,411		1,371


Other income	—		—		90		—		—		—		—		90
Total non-interest income, net	(714)		(3,822)		2,754		3,036		264		(3,468)		3,411		1,461
General and administrative expenses	—		—		—		—		—		(31)		—		(31)
Other expenses	—		—		—		—		—		(551)		—		(551)

Income (loss) from Consolidated VIEs	$	(403)	$	105	$	21,608	$	6,151	$	646	$	2,207	$	3,411	$	33,725

The following table summarizes the cash flows during the three months ended March 31, 2023 and 2022 between us and the unconsolidated VIEs sponsored by us and accounted for as sales since 2012.

Table 4.3 – Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood


	Three Months Ended March 31,
(In Thousands)	2023		2022

MSR fees received	$	684	$	864
Funding of compensating interest, net	(1)		(16)
Cash flows received on retained securities	2,963		14,126

Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents additional information at March 31, 2023 and December 31, 2022, related to unconsolidated VIEs sponsored by Redwood and accounted for as sales since 2012.

Table 4.4 – Unconsolidated VIEs Sponsored by Redwood


(In Thousands)	March 31, 2023		December 31, 2022
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading	$	31,208	$	28,722
Subordinate securities, classified as AFS	77,714		74,367
Mortgage servicing rights	11,160		11,589
Maximum loss exposure (1)	$	120,082	$	114,678
Assets transferred:
Principal balance of loans outstanding	$	3,991,357	$	4,052,922
Principal balance of loans 30+ days delinquent	21,906		27,739

(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 March 31, 2023 and December 31, 2022.

Table 4.5 – Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated VIEs Sponsored by Redwood


March 31, 2023	MSRs			Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at March 31, 2023	$	11,160		$	31,208		$	77,714
Expected life (in years) (2)	7			7			15
Prepayment speed assumption (annual CPR) (2)	8		%	8		%	8		%
Decrease in fair value from:
10% adverse change	$	350		$	1,190		$	425
25% adverse change	801			2,908			999
Discount rate assumption (2)	11		%	12		%	8		%
Decrease in fair value from:
100 basis point increase	$	412		$	1,120		$	7,553
200 basis point increase	798			2,162			14,065
Credit loss assumption (2)	N/A			0.03		%	0.03		%
Decrease in fair value from:
10% higher losses	N/A			N/A			$	34
25% higher losses	N/A			N/A			83


December 31, 2022	MSRs			Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at December 31, 2022	$	11,589		$	28,722		$	74,367
Expected life (in years) (2)	7			7			16
Prepayment speed assumption (annual CPR) (2)	8		%	10		%	8		%
Decrease in fair value from:
10% adverse change	$	311		$	970		$	386
25% adverse change	779			2,344			907
Discount rate assumption (2)	11		%	12		%	9		%
Decrease in fair value from:
100 basis point increase	$	430		$	980		$	7,198
200 basis point increase	832			1,894			13,394
Credit loss assumption (2)	N/A			0.03		%	0.03		%
Decrease in fair value from:
10% higher losses	N/A			N/A			$	31
25% higher losses	N/A			N/A			76

(1)Senior securities included $31 million and $29 million of interest-only securities at March 31, 2023 and December 31, 2022, respectively.

(2)Expected life, prepayment speed assumption, discount rate assumption, and credit loss assumption presented in the tables above represent weighted averages.

Schedule of Third-Party Sponsored VIE Summary

The following table presents a summary of our interests in third-party VIEs at March 31, 2023 and December 31, 2022, grouped by asset type.

Table 4.6 – Third-Party Sponsored VIE Summary


(In Thousands)	March 31, 2023		December 31, 2022
Mortgage-Backed Securities
Senior	$	89	$	145

Subordinate	134,335		137,241
Total Mortgage-Backed Securities	134,424		137,386
Excess MSR	6,548		7,082
Total Investments in Third-Party Sponsored VIEs	$	140,972	$	144,468

- 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.

+ References + Details