Real Estate Loans

6 Months Ended

Jun. 30, 2011

Real Estate Loans

Note 6. Real Estate Loans

We invest in residential real estate loans that we acquire from third-party originators and commercial loans that we originate or acquire from third-party originators. These loans are financed through the Sequoia and Acacia entities that we sponsor or with equity and long-term debt. We do not currently service any residential loans. Commercial loans originated by our subsidiary, Redwood Commercial Mortgage Corporation, in 2010 and 2011 and held-for-investment are currently serviced by us.

The following table summarizes the classifications and carrying value of the residential and commercial real estate loans recorded on our consolidated balance sheets at June 30, 2011 and December 31, 2010.

June 30, 2011 (In Thousands)	Redwood		Sequoia		Acacia		Total Loans
Residential real estate loans
Held-for-sale	$	1,836	$	—	$	—	$	1,836
Held-for-investment		203,465		3,654,932		—		3,858,397
Total residential real estate loans		205,301		3,654,932		—		3,860,233
Commercial real estate loans
Fair value		—		—		12,698		12,698
Held-for-investment		71,168		—		—		71,168
Total commercial real estate loans		71,168		—		12,698		83,866
Total Real Estate Loans	$	276,469	$	3,654,932	$	12,698	$	3,944,099

December 31, 2010 (In Thousands)	Redwood		Sequoia		Acacia		Total Loans
Residential real estate loans
Held-for-sale	$	1,855	$	—	$	—	$	1,855
Held-for-investment		253,081		3,542,159		—		3,795,240
Total residential real estate loans		254,936		3,542,159		—		3,797,095
Commercial real estate loans
Fair value		—		—		19,850		19,850
Held-for-investment		30,536		—		—		30,536
Total commercial real estate loans		30,536		—		19,850		50,386
Total Real Estate Loans	$	285,472	$	3,542,159	$	19,850	$	3,847,481

Residential Real Estate Loans Held-for-Sale

Residential real estate loans held-for-sale are owned at Redwood and financed with equity and long-term debt. At both June 30, 2011 and December 31, 2010, there were eleven residential loans held-for-sale with $3 million in outstanding principal value and a lower of cost or fair value of $2 million.

Residential Real Estate Loans Held-for-Investment

During the six months ended June 30, 2011, we purchased $254 million of residential loans in connection with our Sequoia securitization program.

The following table provides additional information on residential real estate loans held-for-investment at June 30, 2011 and December 31, 2010.

(In Thousands)	June 30, 2011			December 31, 2010
Principal value	$	3,882,603		$	3,815,273
Unamortized premium, net		38,100			42,399
Recorded investment		3,920,703			3,857,672
Allowance for loan losses		(62,306	)		(62,432	)
Carrying Value	$	3,858,397		$	3,795,240

Of the $3.9 billion of principal value and $38 million of unamortized premium on loans held-for-investment at June 30, 2011, $1.6 billion of principal value and $25 million of unamortized premium relate to residential loans acquired prior to July 1, 2004. During the first six months of 2011, 4% of these residential loans prepaid and we amortized 9% of the premium based upon the accounting elections we apply. For residential loans acquired after July 1, 2004, the principal value was $2.3 billion and the unamortized premium was $13 million. During the first six months of 2011, 5% of these loans prepaid and we amortized 7% of the premium.

Of the $3.8 billion of principal value and $42 million of unamortized premium on loans held-for-investment at December 31, 2010, $1.7 billion of principal value and $28 million of unamortized premium relate to residential loans acquired prior to July 1, 2004. For residential loans acquired after July 1, 2004, the principal value was $2.1 billion and the unamortized premium was $15 million.

Commercial Real Estate Loans at Fair Value

Commercial real estate loans at fair value are owned at the consolidated Acacia securitization entities. At June 30, 2011, there were three commercial real estate loans at fair value with an aggregate outstanding principal value of $14 million and an aggregate fair value of $13 million. At December 31, 2010, there were four commercial real estate loans at fair value with an aggregate outstanding principal value of $23 million and an aggregate fair value of $20 million.

Commercial Real Estate Loans Held-for-Investment

During the three months ended June 30, 2011, we originated or acquired three commercial real estate loans with an outstanding principal balance of $29 million. At June 30, 2011, there were nine commercial real estate loans held-for-investment (one of which was purchased prior to 2010) with an outstanding principal value of $72 million and a carrying value of $71 million. At December 31, 2010, there were four commercial real estate loans held-for-investment with an outstanding principal value and carrying value of $31 million.