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Real Estate Securities (Tables)

9 Months Ended

Sep. 30, 2014

Fair Values of Real Estate Securities

The following table presents the fair values of our real estate securities by type at September 30, 2014 and December 31, 2013.

(In Thousands)		September 30, 2014				December 31, 2013
Trading		$	108,750			$	124,555
Available-for-sale			1,286,235				1,558,306
Total Real Estate Securities		$	1,394,985			$	1,682,861

Trading Securities by Collateral Type

The following table presents trading securities by collateral type at September 30, 2014 and December 31, 2013.

(In Thousands)		September 30, 2014				December 31, 2013
Senior Securities
Prime		$	100,612			$	110,505
Non-prime			7,758				9,070
Total Senior Securities			108,370				119,575
Subordinate Securities
Prime			380				4,980
Total Subordinate Securities			380				4,980
Total Trading Securities		$	108,750			$	124,555

Available for Sale Securities by Collateral Type

The following table presents the fair value of our available-for-sale securities held at Redwood by collateral type at September 30, 2014 and December 31, 2013.

(In Thousands)		September 30, 2014				December 31, 2013
Senior Securities
Prime		$	358,813			$	662,306
Non-prime			186,223				193,386
Total Senior Securities			545,036				855,692
Re-REMIC Securities			176,117				176,376
Subordinate Securities
Prime			564,932				526,095
Non-prime			150				143
Total Subordinate Securities			565,082				526,238
Total AFS Securities		$	1,286,235			$	1,558,306

Components of Carrying Value (Which Equals Fair Value) of Residential Available for Sale Securities

The following table presents the components of carrying value (which equals fair value) of residential AFS securities at September 30, 2014 and December 31, 2013.

Carrying Value of Residential AFS Securities

September 30, 2014		Senior
(In Thousands)		Prime				Non-prime				Re-REMIC				Subordinate				Total
Principal balance		$	362,902			$	202,812			$	206,212			$	694,308			$	1,466,234
Credit reserve			(4,082)				(9,894)				(16,553)				(43,346)				(73,875)
Unamortized discount, net			(41,314)				(33,676)				(80,986)				(143,129)				(299,105)
Amortized cost			317,506				159,242				108,673				507,833				1,093,254
Gross unrealized gains			42,113				27,004				67,444				59,427				195,988
Gross unrealized losses			(805)				(24)				-				(2,178)				(3,007)
Carrying Value		$	358,814			$	186,222			$	176,117			$	565,082			$	1,286,235

December 31, 2013		Senior
(In Thousands)		Prime				Non-prime				Re-REMIC				Subordinate				Total
Principal balance		$	670,051			$	218,603			$	214,046			$	706,292			$	1,808,992
Credit reserve			(10,144)				(13,840)				(30,429)				(62,457)				(116,870)
Unamortized discount, net			(44,133)				(36,882)				(80,188)				(137,266)				(298,469)
Amortized cost			615,774				167,881				103,429				506,569				1,393,653
Gross unrealized gains			47,980				25,654				72,947				41,205				187,786
Gross unrealized losses			(1,448)				(149)				-				(21,536)				(23,133)
Carrying Value		$	662,306			$	193,386			$	176,376			$	526,238			$	1,558,306

Changes of Unamortized Discount and Designated Credit Reserves on Residential Available for Sale Securities

The following table presents the changes for the three and nine months ended September 30, 2014, in unamortized discount and designated credit reserves on residential AFS securities.

Changes in Unamortized Discount and Designated Credit Reserves on Residential AFS Securities

		Three Months Ended September 30, 2014
		Credit				Unamortized
(In Thousands)		Reserve				Discount, Net
Beginning balance		$	83,276			$	304,293
Amortization of net discount			-				(10,890)
Realized credit losses			(1,692)				-
Acquisitions			1,589				4,404
Sales, calls, other			(1,013)				(7,175)
Impairments			188				-
Transfers to (release of) credit reserves, net			(8,473)				8,473
Ending Balance		$	73,875			$	299,105

		Nine Months Ended September 30, 2014
		Credit				Unamortized
(In Thousands)		Reserve				Discount, Net
Beginning balance		$	116,870			$	298,469
Amortization of net discount			-				(32,774)
Realized credit losses			(9,002)				-
Acquisitions			1,846				7,241
Sales, calls, other			(2,425)				(7,810)
Impairments			565				-
Transfers to (release of) credit reserves, net			(33,979)				33,979
Ending Balance		$	73,875			$	299,105

Components of Carrying Value of Available for Sale Securities in Unrealized Loss Position

The following table presents the components comprising the total carrying value of residential AFS securities that were in a gross unrealized loss position at September 30, 2014 and December 31, 2013.

		Less Than 12 Consecutive Months												12 Consecutive Months or Longer
		Amortized				Unrealized				Fair				Amortized				Unrealized				Fair
(In Thousands)		Cost				Losses				Value				Cost				Losses				Value
September 30, 2014		$	104,118			$	(1,097)			$	103,021			$	75,582			$	(1,910)			$	73,672
December 31, 2013			607,030				(21,195)				585,835				19,828				(1,938)				17,890

Summary of Significant Valuation Assumptions for Available for Sale Securities

The table below summarizes the significant valuation assumptions we used for our OTTI AFS securities at September 30, 2014.

Significant Valuation Assumptions

		Range for Securities
September 30, 2014		Prime Securities				Non-prime
Prepayment rates			15 - 20	%			10 - 10  %
Loss severity			20 - 52	%			35 - 35  %
Projected default rate			1 - 22	%			15 - 15  %

Activity of Credit Component of Other-than-Temporary Impairments

The following table details the activity related to the credit loss component of OTTI (i.e., OTTI recognized through earnings) for AFS securities held at September 30, 2014 and 2013, for which a portion of an OTTI was recognized in other comprehensive income.

Activity of the Credit Component of Other-than-Temporary Impairments

		Three Months Ended September 30,								Nine Months Ended September 30,
(In Thousands)		2014				2013				2014				2013
Balance at beginning of period		$	34,256			$	42,674			$	37,149			$	50,852
Additions
Initial credit impairments			-				-				261				-
Subsequent credit impairments			-				-				70				-
Reductions
Securities sold, or expected to sell			(18)				(3,288)				(922)				(5,479)
Securities with no outstanding principal at period end			-				(764)				(2,320)				(6,751)
Balance at End of Period		$	34,238			$	38,622			$	34,238			$	38,622

Gross Realized Gains and Losses on Sales and Calls of Available for Sale Securities

The following table presents the gross realized gains and losses on sales and calls of AFS securities 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
Gross realized gains - sales		$	10,227			$	10,532			$	11,219			$	22,762
Gross realized gains - calls			462				-				1,449				333
Gross realized losses - sales			(2,713)				(214)				(2,713)				(214)
Gross realized losses - calls			-				-				-				-
Total Realized Gains on Sales and Calls of AFS Securities, net		$	7,976			$	10,318			$	9,955			$	22,881

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