XML 112 R14.htm IDEA: XBRL DOCUMENT
v2.4.0.8

Loans | 9 Months Ended
--- | ---
Sep. 30, 2014
Loans | Note 6. Residential Loans We acquire residential loans from third-party originators. The following table summarizes the classifications and carrying value of the residential loans owned at Redwood and at consolidated Sequoia Entities at September 30, 2014 and December 31, 2013.
September 30, 2014 (In Thousands) |  | Redwood |  |  | Sequoia |  |  | Total |
Held-for-sale |  |  |  |  |  |  |  |  |  |  |  |
Fair value - Conforming |  | $ | 399,145 |  |  | $ | - |  |  | $ | 399,145 |
Fair value - Jumbo |  |  | 1,101,782 |  |  |  | - |  |  |  | 1,101,782 |
Lower of cost or fair value |  |  | 1,502 |  |  |  | - |  |  |  | 1,502 |
Held-for-investment |  |  |  |  |  |  |  |  |  |  |  |
Fair value - Jumbo |  |  | 238,651 |  |  |  | - |  |  |  | 238,651 |
At amortized cost |  |  | - |  |  |  | 1,546,507 |  |  |  | 1,546,507 |
Total Residential Loans |  | $ | 1,741,080 |  |  | $ | 1,546,507 |  |  | $ | 3,287,587 |
December 31, 2013 (In Thousands) |  | Redwood |  |  | Sequoia |  |  | Total |
Held-for-sale |  |  |  |  |  |  |  |  |  |  |  |
Fair value - Conforming |  | $ | 11,502 |  |  | $ | - |  |  | $ | 11,502 |
Fair value - Jumbo |  |  | 391,100 |  |  |  | - |  |  |  | 391,100 |
Lower of cost or fair value |  |  | 1,665 |  |  |  | - |  |  |  | 1,665 |
Held-for-investment, at amortized cost |  |  | - |  |  |  | 1,762,167 |  |  |  | 1,762,167 |
Total Residential Loans |  | $ | 404,267 |  |  | $ | 1,762,167 |  |  | $ | 2,166,434 |
As of September 30, 2014, we owned mortgage servicing rights associated with $1.61 billion of consolidated residential loans purchased form third-party originators. The value of these MSRs is included in the carrying value of the associated loans on our balance sheet. We contract with a licensed sub-servicer that performs servicing functions for these loans. Residential Loans Held-for-Sale Residential Loans at Fair Value At September 30, 2014, we held 2,862 residential loans at fair value, with an aggregate outstanding principal balance of $1.46 billion and an aggregate fair value of $1.50 billion. During the three and nine months ended September 30, 2014, we purchased $3.31 billion and $6.12 billion (principal balance) of residential loans, respectively, for which we elected the fair value option. During the three and nine months ended September 30, 2014, we recorded $13 million and $35 million of positive valuation adjustments, respectively, on fair value residential loans through mortgage banking activities, net, a component of our consolidated income statement. At December 31, 2013, we held 537 residential loans at fair value, with an aggregate outstanding principal balance of $399 million and an aggregate fair value of $403 million. Residential Loans at Lower of Cost or Fair Value At September 30, 2014, we held nine residential loans at lower of cost or fair value with $2 million in outstanding principal balance and a carrying value of $2 million. At December 31, 2013, we held 10 residential loans at lower of cost or fair value with $2 million in outstanding principal balance and a carrying value of $2 million. During the three and nine months ended September 30, 2014, we recorded valuation adjustments for residential loans held-for-sale of positive $43 thousand and $54 thousand, respectively. Residential Loans Held-for-Investment Residential Loans at Fair Value During the three months ended September 30, 2014, we transferred loans with a principal balance of $235 million and a fair value of $241 million from held-for-sale at fair value to held-for-investment at fair value. As of September 30, 2014, these loans were pledged as collateral under the FHLBC borrowing agreement and our current intention is to hold these loans for investment. Residential Loans at Amortized Cost The following table details the carrying value for residential loans held-for-investment at amortized cost at September 30, 2014 and December 31, 2013. These loans are owned at Sequoia securitization entities that we consolidate for financial reporting purposes.
(In Thousands) |  | September 30, 2014 |  |  | December 31, 2013 |
Principal balance |  | $ | 1,554,876 |  |  | $ | 1,770,803 |
Unamortized premium, net |  |  | 13,540 |  |  |  | 16,791 |
Recorded investment |  |  | 1,568,416 |  |  |  | 1,787,594 |
Allowance for loan losses |  |  | (21,909) |  |  |  | (25,427) |
Carrying Value |  | $ | 1,546,507 |  |  | $ | 1,762,167 |
Of the $1.55 billion of principal balance and $14 million of unamortized premium on loans held-for-investment at September 30, 2014, $629 million of principal balance and $8 million of unamortized premium relate to residential loans acquired prior to July 1, 2004. During the nine months ended September 30, 2014, 14% of these residential loans prepaid and we amortized 23% of the premium based upon the accounting elections we apply. For residential loans acquired after July 1, 2004, the principal balance was $929 million and the unamortized premium was $5 million. During the nine months ended September 30, 2014, 11% of these loans prepaid and we amortized 13% of the premium. Of the $1.77 billion of principal balance and $17 million of unamortized premium on loans held-for-investment at December 31, 2013, $731 million of principal balance and $11 million of unamortized premium relate to residential loans acquired prior to July 1, 2004. For residential loans acquired after July 1, 2004, the principal balance was $1 billion and the unamortized premium was $6 million. Credit Characteristics of Residential Loans Held-for-Investment As a percentage of our recorded investment, 99% of residential loans held-for-investment at September 30, 2014, were first lien, predominately prime-quality loans at the time of origination. The remaining 1% of loans were second lien, home equity lines of credit. The weighted average original LTV ratio for our residential loans held-for-investment outstanding at September 30, 2014, was 66%. The weighted average FICO score for the borrowers of these loans was 733 at the time the loans were originated. We consider the year of origination of our residential loans held-for-investment to be a general indicator of credit performance as loans originated in specific years have often possessed similar product and credit characteristics. The following table displays our recorded investment in residential loans held-for-investment at September 30, 2014 and December 31, 2013, organized by year of origination.
(In Thousands) |  | September 30, 2014 |  |  | December 31, 2013 |
2003 & Earlier |  | $ | 758,768 |  |  | $ | 881,364 |
2004 |  |  | 459,050 |  |  |  | 513,458 |
2005 |  |  | 59,946 |  |  |  | 62,675 |
2006 |  |  | 138,263 |  |  |  | 149,776 |
2007 |  |  | - |  |  |  | - |
2008 |  |  | - |  |  |  | - |
2009 |  |  | 19,273 |  |  |  | 25,860 |
2010 |  |  | 80,209 |  |  |  | 92,728 |
2011 |  |  | 52,907 |  |  |  | 61,733 |
Total Recorded Investment |  | $ | 1,568,416 |  |  | $ | 1,787,594 |
Allowance for Loan Losses on Residential Loans For residential loans held-for-investment, we establish and maintain an allowance for loan losses. The allowance includes a component for pools of residential loans owned at Sequoia securitization entities that we collectively evaluated for impairment, and a component for loans individually evaluated for impairment that includes modified residential loans at Sequoia entities that have been determined to be troubled debt restructurings. Activity in the Allowance for Loan Losses on Residential Loans The following table summarizes the activity in the allowance for loan losses for the three and nine months ended September 30, 2014 and 2013.
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
(In Thousands) |  | 2014 |  |  | 2013 |  |  | 2014 |  |  | 2013 |
Balance at beginning of period |  | $ | 23,972 |  |  | $ | 23,150 |  |  | $ | 25,427 |  |  | $ | 28,504 |
Charge-offs, net |  |  | (1,355) |  |  |  | (818) |  |  |  | (2,833) |  |  |  | (3,363) |
(Reversal of provision) provision for loan losses |  |  | (708) |  |  |  | 883 |  |  |  | (685) |  |  |  | (1,926) |
Balance at End of Period |  | $ | 21,909 |  |  | $ | 23,215 |  |  | $ | 21,909 |  |  | $ | 23,215 |
During each of the three months ended September 30, 2014 and 2013, there were $1 million of charge-offs of residential loans that reduced our allowance for loan losses. These charge-offs were from $6 million and $3 million of defaulted loan principal, respectively. During each of the nine months ended September 30, 2014 and 2013, there were $3 million of charge-offs of residential loans that reduced our allowance for loan losses. These charge-offs arose from $14 million and $10 million of defaulted loan principal, respectively. Residential Loans Collectively Evaluated for Impairment We establish the collective component of the allowance for residential loan losses based primarily on the characteristics of the loan pools underlying the securitization entities that own the loans, including loan product types, credit characteristics, and origination years. The collective analysis is further divided into two segments. The first segment reflects our estimate of losses on delinquent loans within each loan pool. These loss estimates are determined by applying the loss factors described in Note 3 to the delinquent loans, including our expectations of the timing of defaults and the loss severities we expect once defaults occur. The second segment relates to our estimate of losses incurred on nondelinquent loans within each loan pool. This estimate is based on losses we expect to realize over a 23 month loss confirmation period, which is based on our historical loss experience as well as consideration of the loss factors described in Note 3. The following table summarizes the balances for loans collectively evaluated for impairment at September 30, 2014 and December 31, 2013.
(In Thousands) |  | September 30, 2014 |  |  | December 31, 2013 |
Principal balance |  | $ | 1,539,330 |  |  | $ | 1,762,165 |
Recorded investment |  |  | 1,553,147 |  |  |  | 1,779,161 |
Related allowance |  |  | 20,580 |  |  |  | 24,762 |
The following table summarizes the recorded investment and past due status of residential loans collectively evaluated for impairment at September 30, 2014 and December 31, 2013.
(In Thousands) |  | 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | 90+ Days Past Due |  |  | Current |  |  | Total Loans |
September 30, 2014 |  | $ | 25,885 |  |  | $ | 10,046 |  |  | $ | 73,355 |  |  | $ | 1,443,861 |  |  | $ | 1,553,147 |
December 31, 2013 |  |  | 34,187 |  |  |  | 13,248 |  |  |  | 79,010 |  |  |  | 1,652,716 |  |  |  | 1,779,161 |
Residential Loans Individually Evaluated for Impairment As part of the loss mitigation efforts undertaken by servicers of residential loans owned at Sequoia securitization entities, a number of loan modifications have been completed to help make mortgage loans more affordable for qualifying borrowers and potentially reduce a future impairment. For the nine months ended September 30, 2014 and 2013, all of the loan modifications determined to be TDRs were either: (i) conversions of a floating rate mortgage loan into a fixed rate mortgage loan; (ii) reductions in the contractual interest rates of a mortgage loan paired with capitalization of accrued interest; or (iii) principal forgiveness paired with interest rate reductions. The following table presents the details of the loan modifications determined to be TDRs for the three and nine months ended September 30, 2014 and 2013.
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
(Dollars in Thousands) |  | 2014 |  |  | 2013 |  |  | 2014 |  |  | 2013 |
TDRs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Number of modifications |  |  | 8 |  |  |  | 5 |  |  |  | 22 |  |  |  | 12 |
Pre-modification outstanding recorded investment |  | $ | 2,041 |  |  | $ | 1,144 |  |  | $ | 7,008 |  |  | $ | 2,939 |
Post-modification outstanding recorded investment |  |  | 2,081 |  |  |  | 898 |  |  |  | 7,245 |  |  |  | 2,838 |
Loan modification effect on net interest income after provision and other MVA |  |  | (494) |  |  |  | (555) |  |  |  | (1,714) |  |  |  | (863) |
TDRs that Subsequently Defaulted |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Number of modifications |  |  | 3 |  |  |  | 1 |  |  |  | 9 |  |  |  | 4 |
Recorded investment |  | $ | 672 |  |  | $ | 201 |  |  | $ | 3,165 |  |  | $ | 788 |
If we determine that a restructured loan is a TDR, we remove it from the general loan pools used for determining the allowance for residential loan losses and assess it for impairment on an individual basis. This assessment is based primarily on whether an adverse change in the expected future cash flows resulted from the restructuring. The average recorded investment of loans for the three months ended September 30, 2014 and 2013 was $15 million and $8 million, respectively. The average recorded investment of loans individually evaluated for impairment for the nine months ended September 30, 2014 and 2013 was $12 million and $7 million, respectively. For the three months ended September 30, 2014 and 2013, we recorded interest income of $32 thousand and $81 thousand, respectively, on individually impaired loans. For the nine months ended September 30, 2014 and 2013, we recorded interest income of $99 thousand and $102 thousand, respectively, on individually impaired loans. The following table summarizes the balances for loans individually evaluated for impairment, all of which had an allowance, at September 30, 2014 and December 31, 2013.
(In Thousands) |  | September 30, 2014 |  |  | December 31, 2013 |
Principal balance |  | $ | 15,546 |  |  | $ | 8,638 |
Recorded investment |  |  | 15,269 |  |  |  | 8,433 |
Related allowance |  |  | 1,329 |  |  |  | 665 |
The following table summarizes the recorded investment and past due status of residential loans individually evaluated for impairment at September 30, 2014 and December 31, 2013.
(In Thousands) |  | 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | 90+ Days Past Due |  |  | Current |  |  | Total Loans |
September 30, 2014 |  | $ | 1,842 |  |  | $ | 1,538 |  |  | $ | 544 |  |  | $ | 11,345 |  |  | $ | 15,269 |
December 31, 2013 |  |  | 1,560 |  |  |  | - |  |  |  | 567 |  |  |  | 6,306 |  |  |  | 8,433 |
Commercial Loans |
Loans | Note 7. Commercial Loans We invest in commercial loans that we originate and service as well as loans that we acquire from third-party originators. The following table summarizes the classifications and carrying value of commercial loans at September 30, 2014 and December 31, 2013.
(In Thousands) |  | September 30, 2014 |  |  | December 31, 2013 |
Held-for-sale, at fair value |  | $ | 104,709 |  |  | $ | 89,111 |
Held-for-investment |  |  |  |  |  |  |  |
At fair value |  |  | 70,712 |  |  |  | - |
At amortized cost |  |  | 322,576 |  |  |  | 343,344 |
Total Commercial Loans |  | $ | 497,997 |  |  | $ | 432,455 |
Of the held-for-investment commercial loans at amortized cost shown above at September 30, 2014 and December 31, 2013, $205 million and $258 million, respectively, were financed through the Commercial Securitization entity, as discussed in Note 4. Commercial Loans Held-for-Sale Commercial loans held-for-sale include loans we originate and intend to sell to third parties. At September 30, 2014, we held seven commercial loans at fair value, with an aggregate outstanding principal balance of $103 million and an aggregate fair value of $105 million. During the three and nine months ended September 30, 2014, we originated and funded senior commercial loans for $340 million and $578 million, respectively, and recorded $4 million and $14 million, respectively, of positive valuation adjustments on commercial loans held-for-sale through mortgage banking activities, net, a component of our consolidated income statement. At December 31, 2013, we held seven senior commercial loans at fair value, with an aggregate outstanding principal balance of $88 million and an aggregate fair value of $89 million. Commercial Loans Held-for-Investment Commercial Loans Held-for-Investment, at Fair Value Commercial loans held-for-investment at fair value include certain loans we hold for investment for which we have elected the fair value option. At September 30, 2014, we held three of these commercial loans, with an aggregate outstanding principal balance of $68 million and an aggregate fair value of $71 million. During the three months ended September 30, 2014, we did not originate any commercial loans held-for-investment at fair value and recorded $420 thousand of negative valuation adjustments on our existing portfolio. During the nine months ended September 30, 2014, we originated and funded commercial loans for $31 million and recorded $2 million of positive valuation adjustments on commercial loans held-for-investment at fair value through mortgage banking activities, net, a component of our consolidated income statement. We did not have any commercial loans held-for-investment at fair value at December 31, 2013. Commercial Loans Held-for-Investment, at Amortized Cost Commercial loans held-for-investment at amortized cost include loans we originate and preferred equity investments we make or, in either case, acquire from third parties. Through September 30, 2014, these loans have typically been mezzanine loans that are secured by a borrower’s ownership interest in a single purpose entity that owns commercial property, rather than a lien on the commercial property. The preferred equity investments are typically preferred equity interests in a single purpose entity that owns commercial property and are included within, and referred to herein, as commercial loans held-for-investment due to the fact that their risks and payment characteristics are nearly equivalent to commercial mezzanine loans. The following table provides additional information for our commercial loans held-for-investment at amortized cost at September 30, 2014 and December 31, 2013.
(In Thousands) |  | September 30, 2014 |  |  | December 31, 2013 |
Principal balance |  | $ | 332,258 |  |  | $ | 353,331 |
Unamortized discount, net |  |  | (2,253) |  |  |  | (2,614) |
Recorded investment |  |  | 330,005 |  |  |  | 350,717 |
Allowance for loan losses |  |  | (7,429) |  |  |  | (7,373) |
Carrying Value |  | $ | 322,576 |  |  | $ | 343,344 |
At September 30, 2014, we held 55 commercial loans held-for-investment at amortized cost with an outstanding principal balance of $332 million and a carrying value of $323 million. During the three and nine months ended September 30, 2014, we originated or acquired $26 million and $34 million, respectively, of commercial loans held-for-investment at amortized cost. Of the $330 million of recorded investment in commercial loans held-for-investment at September 30, 2014, 10% was originated in 2014, 20% was originated in 2013, 37% was originated in 2012, 29% was originated in 2011, and 4% was originated in 2010. At December 31, 2013, we held 50 commercial loans held-for-investment at amortized cost with an outstanding principal balance of $353 million and a carrying value of $343 million. Of the $351 million of recorded investment in commercial loans held-for-investment at December 31, 2013, 19% was originated in 2013, 43% was originated in 2012, 34% was originated in 2011, and 4% was originated in 2010. Allowance for Loan Losses on Commercial Loans For commercial loans classified as held-for-investment, we establish and maintain an allowance for loan losses. The allowance includes a component for loans collectively evaluated for impairment and a component for loans individually evaluated for impairment. Our methodology for assessing the adequacy of the allowance for loan losses includes a formal review of each commercial loan in the portfolio and the assignment of an internal impairment status. Based on the assigned impairment status, a loan is categorized as “Pass,” “Watch List,” or “Workout.” The following table presents the principal balance of commercial loans held-for-investment by risk category.
(In Thousands) |  | September 30, 2014 |  |  | December 31, 2013 |
Pass |  | $ | 306,575 |  |  | $ | 309,792 |
Watch list |  |  | 25,683 |  |  |  | 43,539 |
Total Commercial Loans Held-for-Investment |  | $ | 332,258 |  |  | $ | 353,331 |
Activity in the Allowance for Loan Losses on Commercial Loans The following table summarizes the activity in the allowance for commercial loan losses for the three and nine months ended September 30, 2014 and 2013.
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
(In Thousands) |  | 2014 |  |  | 2013 |  |  | 2014 |  |  | 2013 |
Balance at beginning of period |  | $ | 8,317 |  |  | $ | 5,660 |  |  | $ | 7,373 |  |  | $ | 4,084 |
Charge-offs, net |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Reversal of provision (provision) for loan losses |  |  | (888) |  |  |  | 844 |  |  |  | 56 |  |  |  | 2,420 |
Balance at End of Period |  | $ | 7,429 |  |  | $ | 6,504 |  |  | $ | 7,429 |  |  | $ | 6,504 |
Commercial Loans Collectively Evaluated for Impairment At September 30, 2014 and December 31, 2013, all of our commercial loans collectively evaluated for impairment were current. The following table summarizes the balances for loans collectively evaluated for impairment at September 30, 2014 and December 31, 2013.
(In Thousands) |  | September 30, 2014 |  |  | December 31, 2013 |
Principal balance |  | $ | 332,258 |  |  | $ | 353,331 |
Recorded investment |  |  | 330,005 |  |  |  | 350,717 |
Related allowance |  |  | 7,429 |  |  |  | 7,373 |
Commercial Loans Individually Evaluated for Impairment We did not have any commercial loans individually evaluated for impairment at either September 30, 2014 or December 31, 2013.

X
- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.3,4) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 3, 4 -Article 5 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35738203&loc=d3e5074-111524 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=35738203&loc=d3e5066-111524 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 7 -Article 9 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(k)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph k -Article 4 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 11 -URI http://asc.fasb.org/extlink&oid=35738203&loc=d3e5162-111524 + Details
Name: | us-gaap_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration