Real Estate Securities (Tables)

6 Months Ended

Jun. 30, 2011

Fair Values of Real Estate Securities by Collateral Type and Entity

We invest in third-party residential, commercial, and CDO securities. The following table presents the fair values of our real estate securities by collateral type and entity at June 30, 2011 and December 31, 2010.


June 30, 2011 (In Thousands)	Redwood		The Fund		Acacia		Total Securities
Residential	$	753,806	$	—	$	213,755	$	967,561
Commercial		5,865		—		42,274		48,139
CDO		1,403		—		20,498		21,901
Total Real Estate Securities	$	761,074	$	—	$	276,527	$	1,037,601


December 31, 2010 (In Thousands)	Redwood		The Fund		Acacia		Total Securities
Residential	$	814,683	$	19,011	$	248,494	$	1,082,188
Commercial		7,496		—		43,828		51,324
CDO		1,038		4,245		16,041		21,324
Total Real Estate Securities	$	823,217	$	23,256	$	308,363	$	1,154,836

Securities by Accounting Classification, Collateral Type, and Ownership Entity

The following table presents our securities by accounting classification, collateral type, and ownership entity at June 30, 2011 and December 31, 2010.


June 30, 2011 (In Thousands)	Trading						AFS
June 30, 2011 (In Thousands)	Redwood		Acacia		Total		Redwood		The Fund		Total
Senior Securities
Residential prime	$	—	$	3,645	$	3,645	$	285,946	$	—	$	285,946
Residential non-prime		18,686		104,110		122,796		288,718		—		288,718
Commercial		—		11,405		11,405		—		—		—
Total Senior Securities		18,686		119,160		137,846		574,664		—		574,664
Re-REMIC Securities		—		—		—		77,575		—		77,575
Subordinate Securities
Residential prime		302		40,236		40,538		71,543		—		71,543
Residential non-prime		160		65,764		65,924		10,876		—		10,876
Commercial		—		30,869		30,869		5,865		—		5,865
CDO		1,303		20,498		21,801		100		—		100
Total Subordinate Securities		1,765		157,367		159,132		88,384		—		88,384
Total Real Estate Securities	$	20,451	$	276,527	$	296,978	$	740,623	$	—	$	740,623


December 31, 2010 (In Thousands)	Trading						AFS
December 31, 2010 (In Thousands)	Redwood		Acacia		Total		Redwood		The Fund		Total
Senior Securities
Residential prime	$	—	$	4,412	$	4,412	$	315,891	$	—	$	315,891
Residential non-prime		19,742		117,623		137,365		326,365		12,915		339,280
Commercial		—		11,000		11,000		—		—		—
Total Senior Securities		19,742		133,035		152,777		642,256		12,915		655,171
Re-REMIC Securities		—		—		—		85,077		—		85,077
Subordinate Securities
Residential prime		386		49,620		50,006		53,846		—		53,846
Residential non-prime		188		76,839		77,027		13,188		6,096		19,284
Commercial		—		32,828		32,828		7,496		—		7,496
CDO		1,038		16,041		17,079		—		4,245		4,245
Total Subordinate Securities		1,612		175,328		176,940		74,530		10,341		84,871
Total Real Estate Securities	$	21,354	$	308,363	$	329,717	$	801,863	$	23,256	$	825,119

Components of Carrying Value (Which Equals Fair Value) of AFS Securities

The following table presents the components of carrying value (which equals fair value) of AFS securities at June 30, 2011 and December 31, 2010.


June 30, 2011 (In Thousands)	Residential			Commercial			CDO			Total
Current face	$	1,111,215		$	58,128		$	11,863		$	1,181,206
Credit reserve		(240,899	)		(48,987	)		(10,780	)		(300,666	)
Net unamortized discount		(243,662	)		(4,362	)		(1,083	)		(249,107	)
Amortized cost		626,654			4,779			—			631,433
Gross unrealized gains		121,524			1,928			100			123,552
Gross unrealized losses		(13,520	)		(842	)		—			(14,362	)
Carrying Value	$	734,658		$	5,865		$	100		$	740,623


December 31, 2010 (In Thousands)	Residential			Commercial			CDO			Total
Current face	$	1,257,601		$	89,103		$	89,476		$	1,436,180
Credit reserve		(297,849	)		(76,979	)		(88,394	)		(463,222	)
Net unamortized (discount) premium		(291,093	)		(5,591	)		11,485			(285,199	)
Amortized cost		668,659			6,533			12,567			687,759
Gross unrealized gains		153,125			1,604			—			154,729
Gross unrealized losses		(8,406	)		(641	)		(8,322	)		(17,369	)
Carrying Value	$	813,378		$	7,496		$	4,245		$	825,119

Changes of Unamortized Discount and Designated Credit Reserves on AFS Securities

The following table presents the changes for the three and six months ended June 30, 2011, of the unamortized discount and designated credit reserves on AFS securities.

Changes in Unamortized Discount and Designated Credit Reserves on AFS Securities


Three Months Ended June 30, 2011 (In Thousands)	Residential						Commercial						CDO
Three Months Ended June 30, 2011 (In Thousands)	Credit Reserve			Unamortized Discount, Net			Credit Reserve			Unamortized Discount, Net			Credit Reserve			Unamortized Premium, Net
Beginning balance – March 31, 2011	$	280,478		$	259,469		$	64,717		$	4,784		$	29,505		$	520
Amortization of net (discount) premium		—			(10,497	)		—			(33	)		—			18
Realized credit losses		(34,091	)		—			(16,655	)		—			—			—
Acquisitions		28			9,112			—			—			—			—
Sales, calls, other		(11,543	)		(9,324	)		—			—			(18,751	)		571
Impairments		929			—			536			—			—			—
Transfers to (release of) credit reserves		5,098			(5,098	)		389			(389	)		26			(26	)
Ending Balance – June 30, 2011	$	240,899		$	243,662		$	48,987		$	4,362		$	10,780		$	1,083


Six Months Ended June 30, 2011 (In Thousands)	Residential						Commercial						CDO
Six Months Ended June 30, 2011 (In Thousands)	Credit Reserve			Unamortized Discount, Net			Credit Reserve			Unamortized Discount, Net			Credit Reserve			Unamortized Discount, Net
Beginning balance – December 31, 2010	$	297,849		$	291,093		$	76,979		$	5,591		$	88,394		$	(11,485	)
Amortization of net discount		—			(22,464	)		—			(69	)		—			(85	)
Realized credit losses		(56,265	)		—			(25,952	)		—			(3,005	)		—
Acquisitions		1,176			11,601			—			—			—			—
Sales, calls, other		(20,188	)		(20,877	)		(2,653	)		(1,439	)		(74,662	)		12,146
Impairments		2,636			—			892			—			560			—
Transfers to (release of) credit reserves		15,691			(15,691	)		(279	)		279			(507	)		507
Ending Balance – June 30, 2011	$	240,899		$	243,662		$	48,987		$	4,362		$	10,780		$	1,083

Components of Carrying Value of AFS Securities in Unrealized Loss Position

The following table presents the components comprising the carrying value of AFS securities that were in an unrealized loss position at June 30, 2011 and December, 31 2010.


June 30, 2011 (In Thousands)	Less Than 12 Consecutive Months							12 Consecutive Months or Longer
June 30, 2011 (In Thousands)	Total Amortized Cost		Gross Unrealized Losses			Total Fair Value		Total Amortized Cost		Gross Unrealized Losses			Total Fair Value
Residential	$	133,317	$	(4,100	)	$	129,217	$	61,687	$	(9,420	)	$	52,267
Commercial		267		(79	)		188		2,226		(763	)		1,463
CDO		—		—			—		—		—			—
Total Securities	$	133,584	$	(4,179	)	$	129,405	$	63,913	$	(10,183	)	$	53,730


December 31, 2010 (In Thousands)	Less Than 12 Consecutive Months							12 Consecutive Months or Longer
December 31, 2010 (In Thousands)	Total Amortized Cost		Gross Unrealized Losses			Total Fair Value		Total Amortized Cost		Gross Unrealized Losses			Total Fair Value
Residential	$	104,154	$	(1,628	)	$	102,526	$	26,374	$	(6,778	)	$	19,596
Commercial		2,134		(257	)		1,877		1,728		(384	)		1,344
CDO		—		—			—		12,567		(8,322	)		4,245
Total Securities	$	106,288	$	(1,885	)	$	104,403	$	40,669	$	(15,484	)	$	25,185

Summary of Significant Valuation Assumptions for AFS Securities

The table below summarizes the significant valuation assumptions we used for our AFS securities at June 30, 2011.

Significant Valuation Assumptions

Range for Securities

June 30, 2011

Prime

Non-prime

Commercial

Prepayment rates

4 – 15%

1 – 8%

N/A

Loss severity

14 – 57%

22 – 57%

33 – 50%

Projected losses

0 – 26%

1 – 39%

2 – 7%

Activity of Credit Component of Other-than-Temporary Impairments

The following table details the activity related to the credit component of OTTI (i.e., OTTI in either current earnings or retained earnings) for AFS securities that also had a non-credit component and were still held at June 30, 2011 and 2010.

Activity of Credit Component of Other-than-Temporary Impairments


	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2011			2010			2011			2010
Balance at beginning of period	$	100,948		$	143,116		$	121,016		$	146,454
Additions
Initial credit impairments		449			213			463			303
Subsequent credit impairments		754			3,143			935			4,439
Reductions
Securities sold, or intent to sell		—			(5,113	)		(12,317	)		(5,113	)
Securities matured, called, or fully written down		(12,132	)		(9,329	)		(20,078	)		(14,053	)
Balance at End of Period	$	90,019		$	132,030		$	90,019		$	132,030

Gross Realized Gains and Losses on Sales of AFS Securities

The following table presents the gross realized gains on sales and calls of AFS securities for the three and six months ended June 30, 2011 and 2010.


	Three Months Ended June 30,						Six Months Ended June 30,
(In Thousands)	2011			2010			2011			2010
Gross realized gains – sales	$	5,351		$	17,670		$	12,665		$	56,524
Gross realized gains – calls		401			—			533			—
Gross realized losses – sales		(165	)		(1,859	)		(3,523	)		(3,335	)
Gross realized losses – calls		—			—			(223	)		—
Total Realized Gains on Sales and Calls of AFS Securities, net	$	5,587		$	15,811		$	9,452		$	53,189

- Definition

Tabular disclosure of the amount of other than temporary impairment (OTTI) related to credit losses recognized in earnings including: (a) the beginning balance of the amount related to credit losses on debt securities held by the investor at the beginning of the period for which a portion of an OTTI was recognized in other comprehensive income; (b) additions for the amount related to the credit loss for which an OTTI was not previously recognized; (c) reductions for securities sold during the period (realized); (d) reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the investor intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis; (e) additional increases to the amount related to the credit loss for which an OTTI was previously recognized when the investor does not intend to sell the security and it is not more likely than not that the investor will be required to sell the security before recovery of its amortized cost basis; (f) reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security; and (g) the ending balance of the amount related to credit losses on debt securities held by the entity at the end of the period for which a portion of an OTTI was recognized in other comprehensive income.

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