Principles of Consolidation (Tables)

6 Months Ended

Jun. 30, 2013

Securitization Activity Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents information related to securitization transactions that occurred during the three and six months ended June 30, 2013 and 2012.

Securitization Activity Related to Unconsolidated VIEs Sponsored by Redwood


	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2013		2012		2013		2012
Principal balance of loans transferred	$	1,802,058	$	293,590	$	4,042,710	$	1,036,856
Trading securities retained, at fair value		40,642		5,610		91,850		26,786
AFS securities retained, at fair value		92,367		17,267		207,095		56,717
Gains on sale		-		4,243		-		11,609
MSRs recognized		16,148		1,029		28,614		2,608

The following table summarizes the cash flows between us and the unconsolidated VIEs sponsored by us for the three and six months ended June 30, 2013 and 2012.

Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood


	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2013		2012		2013		2012
Cash proceeds	$	1,705,504	$	277,269	$	3,859,354	$	972,073
MSR fees received		2,099		137		3,075		154
Funding of compensating interest		(145)		(13)		(263)		(16)
Cash flows received on retained securities		9,883		2,071		14,950		3,099

MSR Assumptions Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents the key weighted-average assumptions to measure MSRs at the date of securitization.

MSR Assumptions Related to Unconsolidated VIEs Sponsored by Redwood


	Issued During
	Three Months Ended June 30,				Six Months Ended June 30,
At Date of Securitization	2013		2012		2013		2012
Prepayment speeds		5 - 12 %		5 - 21 %		5 - 14 %		5 - 19 %
Discount rates		12 %		10 %		12 %		9 %

Unconsolidated Variable Interest Entity's Sponsored by Redwood Summary

The following table presents additional information at June 30, 2013 and December 31, 2012, related to unconsolidated securitizations sponsored by us during 2012 and the six months ended June 30, 2013.

Unconsolidated VIEs Sponsored by Redwood


(In Thousands)	June 30, 2013		December 31, 2012
On-balance sheet assets, at fair value:
Interest-only securities, classified as trading	$	123,591	$	10,409
Subordinate securities, classified as AFS		318,789		113,681
Maximum loss exposure ⁽¹⁾		442,380		124,090
Principal balance of loans outstanding		5,383,219		1,736,331

(1)

Maximum loss exposure from our involvement with unconsolidated VIEs pertains to the carrying value of our securities 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 June 30, 2013 and December 31, 2012.

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


June 30, 2013 (Dollars in Thousands)	MSRs		Senior Interest-only Securities		Subordinate Securities
Fair value at June 30, 2013	$	43,098	$	123,591	$	318,789
Expected weighted-average life (in years)		8		6		13

Prepayment speed assumption (annual CPR)		8 %		13 %		14 %
Decrease in fair value from:
10% adverse change	$	1,367	$	4,275	$	844
25% adverse change		3,284		34,398		1,974

Discount rate assumption		12 %		5 %		6 %
Decrease in fair value from:
100 basis point increase	$	1,822	$	5,931	$	28,365
200 basis point increase		3,309		11,357		52,835

Credit loss assumption		N/A		0.22 %		0.22 %
Decrease in fair value from:
10% higher losses		N/A	$	39	$	1,128
25% higher losses		N/A		98		2,816


December 31, 2012 (Dollars in Thousands)	MSRs		Senior Interest-only Securities		Subordinate Securities
Fair value at December 31, 2012	$	5,315	$	10,409	$	113,681
Expected weighted-average life (in years)		3		3		10

Prepayment speed assumption (annual CPR)		33 %		29 %		24 %
Decrease in fair value from:
10% adverse change	$	351	$	724	$	858
25% adverse change		812		1,674		1,909

Discount rate assumption		12 %		17 %		6 %
Decrease in fair value from:
100 basis point increase	$	121	$	20	$	901
200 basis point increase		235		40		1,791

Credit loss assumption		N/A		0.48 %		0.47 %
Decrease in fair value from:
10% higher losses		N/A	$	5	$	578
25% higher losses		N/A		12		1,446

Variable Interest Entity, Primary Beneficiary

Schedule of Variable Interest Entities

The following table presents a summary of the assets and liabilities of these VIEs. Intercompany balances have been eliminated for purposes of this presentation.

Assets and Liabilities of Consolidated VIEs at June 30, 2013


June 30, 2013 (Dollars in Thousands)	Sequoia Entities		Residential Resecuritization		Commercial Securitization		Total
Residential loans, held-for-investment	$	1,998,178	$	-	$	-	$	1,998,178
Commercial loans, held-for-investment		-		-		270,449		270,449
Real estate securities, at fair value		-		294,771		-		294,771
Restricted cash		148		2		138		288
Accrued interest receivable		3,461		751		1,939		6,151
Other assets		3,965		-		-		3,965

Total Assets	$	2,005,752	$	295,524	$	272,526	$	2,573,802

Accrued interest payable	$	1,509	$	33	$	748	$	2,290
Asset-backed securities issued		1,920,614		134,156		159,526		2,214,296

Total Liabilities	$	1,922,123	$	134,189	$	160,274	$	2,216,586

Number of VIEs		24		1		1		26

Variable Interest Entity, Not Primary Beneficiary

Schedule of Variable Interest Entities

The following table presents a summary of our interests in third-party VIEs at June 30, 2013, grouped by collateral type and ownership interest.

Third-Party VIE Summary


June 30, 2013 (Dollars in Thousands)	Fair Value
Residential real estate securities at Redwood
Senior	$	481,190
Re-REMIC		154,167
Subordinate		384,176

Total Investments in Third-Party Real Estate Securities	$	1,019,533

- 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