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Principles of Consolidation (Tables)

3 Months Ended

Mar. 31, 2022

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, 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	$	222,213	$	3,872,316	$	—	$	1,775,538	$	—	$	—	$	—	$	5,870,067
Business purpose loans, held-for-investment	—		—		3,330,910		—		—		—		—		3,330,910
Multifamily loans, held-for-investment	—		—		—		—		451,804		—		—		451,804

Other investments	—		—		—		—		—		336,282		153,247		489,529
Cash and cash equivalents	—		—		—		—		—		9,684		—		9,684
Restricted cash	148		4		8,260		—		—		24,170		5,086		37,668
Accrued interest receivable	194		11,945		14,763		5,584		1,362		1,029		—		34,877
Other assets	—		—		16,229		2,421		—		7,563		50		26,263
Total Assets	$	222,555	$	3,884,265	$	3,370,162	$	1,783,543	$	453,166	$	378,728	$	158,383	$	10,250,802
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	253,393	$	—	$	253,393
Accrued interest payable	106		9,598		10,342		3,888		1,232		183		—		25,349
Accrued expenses and other liabilities	—		4		1,386		—		—		26,406		23,252		51,048
Asset-backed securities issued	220,301		3,627,920		3,012,841		1,470,043		419,883		—		121,378		8,872,366
Total Liabilities	$	220,407	$	3,637,522	$	3,024,569	$	1,473,931	$	421,115	$	279,982	$	144,630	$	9,202,156

Value of our investments in VIEs(1)	$	1,912	$	244,396	$	342,343	$	307,916	$	31,921	$	98,746	$	13,753	$	1,040,987
Number of VIEs	20		17		16		3		1		3		1		61


December 31, 2021	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	$	230,455	$	3,628,465	$	—	$	1,888,230	$	—	$	—	$	—	$	5,747,150
Business purpose loans, held-for-investment	—		—		3,766,316		—		—		—		—		3,766,316
Multifamily loans, held-for-investment	—		—		—		—		473,514		—		—		473,514

Other investments	—		—		—		—		—		384,754		159,553		544,307
Cash and cash equivalents	—		—		—		—		—		6,481		—		6,481
Restricted cash	148		5		15,221		—		—		25,420		5,292		46,086
Accrued interest receivable	210		10,885		15,737		5,792		1,315		1,462		—		35,401
Other assets	61		—		32,510		2,028		—		7,177		50		41,826
Total Assets	$	230,874	$	3,639,355	$	3,829,784	$	1,896,050	$	474,829	$	425,294	$	164,895	$	10,661,081
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	294,447	$	—	$	294,447
Accrued interest payable	99		8,452		11,030		4,055		1,190		192		—		25,018
Accrued expenses and other liabilities	—		5		1,171		—		—		28,115		17,034		46,325
Asset-backed securities issued	227,881		3,383,048		3,474,898		1,588,463		441,857		—		137,410		9,253,557
Total Liabilities	$	227,980	$	3,391,505	$	3,487,099	$	1,592,518	$	443,047	$	322,754	$	154,444	$	9,619,347

Value of our investments in VIEs(1)	$	2,634	$	245,417	$	339,419	$	301,795	$	31,657	$	102,540	$	10,451	$	1,033,913
Number of VIEs	20		16		16		3		1		3		1		60

(1)Value of our investments in VIEs, as presented in this table, represent the fair value of our economic interests in the VIEs only for consolidated VIEs we account for under the CFE election. CAFL includes SFR loan securitizations we account for under the CFE election and a bridge loan securitization for which we did not make the CFE election. As of March 31, 2022 and December 31, 2021, the fair value of our interests in the CAFL SFR securitizations were $306 million and $302 million, respectively, and our net carrying value in the CAFL Bridge securitization was $37 million and $38 million, respectively. Freddie Mac SLST includes securitizations we account for under the CFE election and also includes ABS issued in relation to a resecuritization of the securities we own in the consolidated Freddie Mac SLST VIEs, that we account for at amortized historical cost. As of March 31, 2022 and December 31, 2021, the fair value of our interests in the Freddie Mac SLST securitizations accounted for under the CFE election were $437 million and $445 million, respectively, and the carrying value of the ABS issued and carried at amortized historical cost was $129 million and $143 million, respectively.

The following table presents income (loss) from these VIEs for the three months ended March 31, 2022 and 2021.

Table 4.2 – Income (Loss) from Consolidated VIEs


	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


	Three Months Ended March 31, 2021
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		HEI		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	1,348	$	15,483	$	48,873	$	20,159	$	4,786	$	4,222	$	—	$	94,871
Interest expense	(875)		(12,106)		(39,011)		(17,371)		(4,356)		(1,286)		—		(75,005)
Net interest income	473		3,377		9,862		2,788		430		2,936		—		19,866
Non-interest income

Investment fair value changes, net	(699)		4,898		(286)		4,117		8,921		(1,246)		—		15,705


Total non-interest income, net	(699)		4,898		(286)		4,117		8,921		(1,246)		—		15,705
General and administrative expenses	—		—		—		—		—		(38)		—		(38)
Other expenses	—		—		—		—		—		(330)		—		(330)

Income (loss) from Consolidated VIEs	$	(226)	$	8,275	$	9,576	$	6,905	$	9,351	$	1,322	$	—	$	35,203

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 months ended March 31, 2022 and 2021.

Table 4.3 – Securitization Activity Related to Unconsolidated VIEs Sponsored by Redwood


	Three Months Ended March 31,
(In Thousands)	2022		2021
Principal balance of loans transferred	$	—	$	875,879
Trading securities retained, at fair value	—		6,549
AFS securities retained, at fair value	—		1,078

The following table summarizes the cash flows during the three months ended March 31, 2022 and 2021 between us and the unconsolidated VIEs sponsored by us and accounted for as sales since 2012.

Table 4.4 – Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood


	Three Months Ended March 31,
(In Thousands)	2022		2021
Proceeds from new transfers	$	—	$	904,390
MSR fees received	864		1,607
Funding of compensating interest, net	(16)		(100)
Cash flows received on retained securities	14,126		8,629

The following table presents the key weighted-average assumptions used to value securities retained at the date of securitization for securitizations completed during the three months ended March 31, 2022 and 2021.

Table 4.5 – Assumptions Related to Assets Retained from Unconsolidated VIEs Sponsored by Redwood

Three Months Ended March 31, 2022

Three Months Ended March 31, 2021

At Date of Securitization

Senior IO Securities

Subordinate Securities

Senior IO Securities

Subordinate Securities

Prepayment rates

N/A

12 %

Discount rates

N/A

15 %

6 %

Credit loss assumptions

N/A

0.22 %

Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents additional information at March 31, 2022 and December 31, 2021, related to unconsolidated VIEs sponsored by Redwood and accounted for as sales since 2012.

Table 4.6 – Unconsolidated VIEs Sponsored by Redwood


(In Thousands)	March 31, 2022		December 31, 2021
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading	$	24,246	$	18,214
Subordinate securities, classified as AFS	108,768		127,542
Mortgage servicing rights	9,127		6,450
Maximum loss exposure (1)	$	142,141	$	152,206
Assets transferred:
Principal balance of loans outstanding	$	4,491,763	$	4,959,234
Principal balance of loans 30+ days delinquent	27,286		30,594

(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, 2022 and December 31, 2021.

Table 4.7 – Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated VIEs Sponsored by Redwood


March 31, 2022	MSRs			Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at March 31, 2022	$	9,127		$	24,246		$	108,768
Expected life (in years) (2)	5			6			11
Prepayment speed assumption (annual CPR) (2)	16		%	14		%	22		%
Decrease in fair value from:
10% adverse change	$	396		$	986		$	1,228
25% adverse change	912			2,318			3,068
Discount rate assumption (2)	12 %			16		%	6		%
Decrease in fair value from:
100 basis point increase	$	282		$	656		$	9,022
200 basis point increase	547			1,273			17,064
Credit loss assumption (2)	N/A			0.03		%	0.03		%
Decrease in fair value from:
10% higher losses	N/A			$	—		$	45
25% higher losses	N/A			—			113


December 31, 2021	MSRs			Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at December 31, 2021	$	6,450		$	18,214		$	127,542
Expected life (in years) (2)	3			4			5
Prepayment speed assumption (annual CPR) (2)	29		%	23		%	32 %
Decrease in fair value from:
10% adverse change	$	447		$	1,130		$	531
25% adverse change	1,020			2,596			1,440
Discount rate assumption (2)	12 %			16		%	5		%
Decrease in fair value from:
100 basis point increase	$	152		$	426		$	4,801
200 basis point increase	297			829			9,139
Credit loss assumption (2)	N/A			0.35		%	0.35		%
Decrease in fair value from:
10% higher losses	N/A			$	—		$	1,528
25% higher losses	N/A			—			3,819

(1)Senior securities included $24 million and $18 million of interest-only securities at March 31, 2022 and December 31, 2021, 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, 2022 and December 31, 2021, grouped by asset type.

Table 4.8 – Third-Party Sponsored VIE Summary


(In Thousands)	March 31, 2022		December 31, 2021
Mortgage-Backed Securities
Senior	$	9,960	$	3,572

Subordinate	215,908		228,083
Total Mortgage-Backed Securities	225,868		231,655
Excess MSR	9,579		10,400
Total Investments in Third-Party Sponsored VIEs	$	235,447	$	242,055

- 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