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Commercial Loans | 12 Months Ended
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Dec. 31, 2014
Commercial Loans | Note 6. Residential Loans We acquire residential loans from third-party originators. During the years ended December 31, 2014 and 2013, we purchased $8.81 billion and $7.01 billion (principal balance), respectively, of residential loans, for which we elected the fair value option. The following table summarizes the classifications and carrying values of the residential loans owned at Redwood and at consolidated Sequoia entities at December 31, 2014 and 2013.
December 31, 2014 (In Thousands) |  | Redwood |  |  | Sequoia |  |  | Total |
Held-for-sale |  |  |  |  |  |  |  |  |  |  |  |
Fair value - Conforming |  | $ | 244,714 |  |  | $ | — |  |  | $ | 244,714 |
Fair value - Jumbo |  |  | 1,096,317 |  |  |  | — |  |  |  | 1,096,317 |
Lower of cost or fair value |  |  | 1,488 |  |  |  | — |  |  |  | 1,488 |
Held-for-investment |  |  |  |  |  |  |  |  |  |  |  |
Fair value - Jumbo |  |  | 581,668 |  |  |  | — |  |  |  | 581,668 |
At amortized cost |  |  | — |  |  |  | 1,474,386 |  |  |  | 1,474,386 |
Total Residential Loans |  | $ | 1,924,187 |  |  | $ | 1,474,386 |  |  | $ | 3,398,573 |
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 December 31, 2014, we owned mortgage servicing rights associated with $1.70 billion of consolidated residential loans purchased from 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 licensed sub-servicers that perform servicing functions for these loans. Residential Loan Characteristics The following table presents the geographic concentration of residential loans recorded on our consolidated balance sheets at December 31, 2014 and 2013.
|  | December 31, 2014 |  |  | December 31, 2013 |
Geographic Concentration (by Principal) |  | Held-for-Sale |  |  | Held-for- Investment |  |  | Held-for- Investment at FVO |  |  | Held-for-Sale |  |  | Held-for- Investment |  |  | Held-for- Investment at FVO |
California |  |  | 39 | % |  |  | 20 | % |  |  | 24 | % |  |  | 44 | % |  |  | 20 | % |  |  | — |
Texas |  |  | 9 | % |  |  | 5 | % |  |  | 14 | % |  |  | 7 | % |  |  | 5 | % |  |  | — |
Massachusetts |  |  | 6 | % |  |  | 2 | % |  |  | 5 | % |  |  | 4 | % |  |  | — |  |  |  | — |
Virginia |  |  | 5 | % |  |  | 3 | % |  |  | 7 | % |  |  | 6 | % |  |  | — |  |  |  | — |
Washington |  |  | 5 | % |  |  | 2 | % |  |  | 4 | % |  |  | 6 | % |  |  | — |  |  |  | — |
Florida |  |  | 4 | % |  |  | 13 | % |  |  | 6 | % |  |  | — |  |  |  | 13 | % |  |  | — |
New York |  |  | 2 | % |  |  | 8 | % |  |  | 3 | % |  |  | 3 | % |  |  | 9 | % |  |  | — |
Georgia |  |  | 2 | % |  |  | 5 | % |  |  | — |  |  |  | 1 | % |  |  | 5 | % |  |  | — |
Colorado |  |  | — |  |  |  | — |  |  |  | 8 | % |  |  |  |  |  |  |  |  |  |  |  |
Other states (none greater than 5%) |  |  | 28 | % |  |  | 42 | % |  |  | 29 | % |  |  | 29 | % |  |  | 48 | % |  |  | — |
Total |  |  | 100 | % |  |  | 100 | % |  |  | 100 | % |  |  | 100 | % |  |  | 100 | % |  |  | — |
The following table displays the loan product type and accompanying loan characteristics of residential loans recorded on our consolidated balance sheets at December 31, 2014 and 2013.
December 31, 2014 (In Thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loan Balance |  | Number of Loans |  |  | Interest Rate (1) |  | Maturity Date |  |  | Total Principal |  |  | 30-89 Days DQ |  |  | 90+ Days DQ |
Held-for-Investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ARM loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$0 to $250 |  |  | 3,400 |  |  | 0.25% to 5.5% |  |  | 12/2012 - 11/2035 |  |  | $ | 400,779 |  |  | $ | 14,604 |  |  | $ | 16,332 |
$251 to $500 |  |  | 1,041 |  |  | 0% to 5.63% |  |  | 12/2013 - 05/2036 |  |  |  | 360,848 |  |  |  | 14,536 |  |  |  | 13,955 |
$501 to $750 |  |  | 328 |  |  | 0.5% to 4.66% |  |  | 08/2013 - 09/2035 |  |  |  | 198,661 |  |  |  | 7,218 |  |  |  | 12,862 |
$751 to $1,000 |  |  | 162 |  |  | 0.25% to 2.38% |  |  | 02/2019 - 07/2035 |  |  |  | 143,687 |  |  |  | 2,396 |  |  |  | 9,262 |
over $1,000 |  |  | 132 |  |  | 0% to 2.63% |  |  | 01/2022 - 05/2036 |  |  |  | 207,539 |  |  |  | 2,494 |  |  |  | 16,106 |
|  |  | 5,063 |  |  |  |  |  |  |  |  |  | 1,311,514 |  |  |  | 41,248 |  |  |  | 68,517 |
Hybrid ARM loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$0 to $250 |  |  | 3 |  |  | 2.63% to 2.63% |  |  | 09/2033 - 03/2034 |  |  |  | 364 |  |  |  | — |  |  |  | — |
$251 to $500 |  |  | 26 |  |  | 2.5% to 5.15% |  |  | 07/2033 - 12/2039 |  |  |  | 10,056 |  |  |  | — |  |  |  | 319 |
$501 to $750 |  |  | 23 |  |  | 2.5% to 4.65% |  |  | 07/2033 - 09/2040 |  |  |  | 14,711 |  |  |  | — |  |  |  | — |
$751 to $1,000 |  |  | 11 |  |  | 2.5% to 4.8% |  |  | 07/2033 - 12/2040 |  |  |  | 9,393 |  |  |  | — |  |  |  | — |
over $1,000 |  |  | 7 |  |  | 2.5% to 4.95% |  |  | 09/2033 - 11/2040 |  |  |  | 11,786 |  |  |  | — |  |  |  | — |
|  |  | 70 |  |  |  |  |  |  |  |  |  | 46,310 |  |  |  | — |  |  |  | 319 |
Fixed loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$0 to $250 |  |  | 7 |  |  | 3.70% to 4.9% |  |  | 04/2039 - 02/2041 |  |  |  | 1,040 |  |  |  | — |  |  |  | — |
$251 to $500 |  |  | 42 |  |  | 3.45% to 5.13% |  |  | 02/2039 - 07/2041 |  |  |  | 17,574 |  |  |  | — |  |  |  | — |
$501 to $750 |  |  | 71 |  |  | 3.65% to 5.25% |  |  | 02/2039 - 08/2041 |  |  |  | 42,609 |  |  |  | — |  |  |  | — |
$751 to $1,000 |  |  | 38 |  |  | 4.2% to 5.25% |  |  | 08/2040 - 08/2041 |  |  |  | 32,966 |  |  |  | — |  |  |  | 726 |
over $1,000 |  |  | 24 |  |  | 4.3% to 5.38% |  |  | 09/2040 - 06/2041 |  |  |  | 31,200 |  |  |  | — |  |  |  | — |
|  |  | 182 |  |  |  |  |  |  |  |  |  | 125,389 |  |  |  | — |  |  |  | 726 |
Total Held-for-Investment |  |  | 5,315 |  |  |  |  |  |  |  |  | $ | 1,483,213 |  |  | $ | 41,248 |  |  | $ | 69,562 |
Held-for-Investment at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hybrid ARM loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$251 to $500 |  |  | 29 |  |  | 2.38% to 3.75% |  |  | 01/2044 - 10/2044 |  |  | $ | 12,487 |  |  | $ | — |  |  | $ | — |
$501 to $750 |  |  | 80 |  |  | 2.38% to 4.25% |  |  | 02/2044 - 11/2044 |  |  |  | 49,085 |  |  |  | 619 |  |  |  | — |
$751 to $1,000 |  |  | 51 |  |  | 2.38% to 3.75% |  |  | 05/2043 - 11/2044 |  |  |  | 43,835 |  |  |  | — |  |  |  | — |
over $1,000 |  |  | 14 |  |  | 2.38% to 3.25% |  |  | 03/2044 - 11/2044 |  |  |  | 17,720 |  |  |  | — |  |  |  | — |
|  |  | 174 |  |  |  |  |  |  |  |  |  | 123,127 |  |  |  | 619 |  |  |  | — |
Fixed loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$0 to $250 |  |  | 1 |  |  | 4.13% to 4.13% |  |  | 07/2044 - 07/2044 |  |  |  | 75 |  |  |  | — |  |  |  | — |
$251 to $500 |  |  | 158 |  |  | 3.13% to 4.75% |  |  | 01/2029 - 12/2044 |  |  |  | 72,931 |  |  |  | 894 |  |  |  | — |
$501 to $750 |  |  | 272 |  |  | 3.13% to 5% |  |  | 04/2029 - 12/2044 |  |  |  | 165,574 |  |  |  | 624 |  |  |  | — |
$751 to $1,000 |  |  | 136 |  |  | 3.13% to 4.88% |  |  | 01/2029 - 12/2044 |  |  |  | 116,892 |  |  |  | — |  |  |  | — |
over $1,000 |  |  | 63 |  |  | 3.25% to 5% |  |  | 01/2024 - 12/2044 |  |  |  | 87,773 |  |  |  | — |  |  |  | — |
|  |  | 630 |  |  |  |  |  |  |  |  |  | 443,245 |  |  |  | 1,518 |  |  |  | — |
Total Held-for-Investment |  |  | 804 |  |  |  |  |  |  |  |  | $ | 566,372 |  |  | $ | 2,137 |  |  | $ | — |
Held-for-Sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ARM loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$66 to $359 |  |  | 8 |  |  | 1.88% to 2.25% |  |  | 11/2032 - 10/2033 |  |  | $ | 1,286 |  |  | $ | 170 |  |  | $ | 471 |
Hybrid ARM loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$252 to $1,985 |  |  | 109 |  |  | 2.63% - 4% |  |  | 06/2037 - 01/2045 |  |  |  | 84,271 |  |  |  | — |  |  |  | — |
Fixed loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$75 to $2,496 |  |  | 2,165 |  |  | 2.88% - 5% |  |  | 12/2024 - 01/2045 |  |  |  | 1,219,936 |  |  |  | 1,178 |  |  |  | — |
Total Held-for-Sale |  |  | 2,282 |  |  |  |  |  |  |  |  | $ | 1,305,493 |  |  | $ | 1,348 |  |  | $ | 471 |
December 31, 2013 (In Thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loan Balance |  | Number of Loans |  |  | Interest Rate(1) |  | Maturity Date |  |  | Total Principal |  |  | 30-89 Days DQ |  |  | 90+ Days DQ |
Held-for-Investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ARM loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$0 to $250 |  |  | 3,917 |  |  | 0.25% to 6.45% |  |  | 12/2012 - 11/2035 |  |  | $ | 449,458 |  |  | $ | 16,038 |  |  | $ | 16,856 |
$251 to $500 |  |  | 1,231 |  |  | -0.13% to 5.63% |  |  | 07/2013 - 05/2036 |  |  |  | 428,503 |  |  |  | 14,111 |  |  |  | 15,775 |
$501 to $750 |  |  | 395 |  |  | 0.50% to 4.66% |  |  | 08/2013 - 09/2035 |  |  |  | 240,407 |  |  |  | 8,951 |  |  |  | 14,527 |
$751 to $1,000 |  |  | 191 |  |  | 0.25% to 2.25% |  |  | 09/2022 - 07/2035 |  |  |  | 170,454 |  |  |  | 3,108 |  |  |  | 7,886 |
over $1,000 |  |  | 169 |  |  | -0.13% to 2.38% |  |  | 02/2019 - 05/2036 |  |  |  | 269,153 |  |  |  | 5,309 |  |  |  | 23,340 |
|  |  | 5,903 |  |  |  |  |  |  |  |  |  | 1,557,975 |  |  |  | 47,517 |  |  |  | 78,384 |
Hybrid ARM loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$0 to $250 |  |  | 2 |  |  | 2.63% to 4.25% |  |  | 10/2033 - 07/2039 |  |  |  | 428 |  |  |  | — |  |  |  | — |
$251 to $500 |  |  | 34 |  |  | 2.63% to 5.15% |  |  | 07/2033 - 07/2040 |  |  |  | 13,491 |  |  |  | 335 |  |  |  | 350 |
$501 to $750 |  |  | 26 |  |  | 2.63% to 4.75% |  |  | 07/2033 - 09/2040 |  |  |  | 16,376 |  |  |  | 597 |  |  |  | — |
$751 to $1,000 |  |  | 20 |  |  | 2.63% to 4.88% |  |  | 07/2033 - 12/2040 |  |  |  | 16,592 |  |  |  | — |  |  |  | — |
over $1,000 |  |  | 10 |  |  | 2.63% to 4.95% |  |  | 09/2033 - 11/2040 |  |  |  | 15,662 |  |  |  | — |  |  |  | — |
|  |  | 92 |  |  |  |  |  |  |  |  |  | 62,549 |  |  |  | 932 |  |  |  | 350 |
Fixed loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$0 to $250 |  |  | 9 |  |  | 3.70% to 4.90% |  |  | 04/2039 - 02/2041 |  |  |  | 1,529 |  |  |  | — |  |  |  | — |
$251 to $500 |  |  | 40 |  |  | 3.45% to 5.63% |  |  | 02/2039 - 07/2041 |  |  |  | 16,929 |  |  |  | — |  |  |  | — |
$501 to $750 |  |  | 86 |  |  | 3.65% to 5.25% |  |  | 02/2039 - 08/2041 |  |  |  | 52,642 |  |  |  | — |  |  |  | — |
$751 to $1,000 |  |  | 47 |  |  | 4.20% to 5.25% |  |  | 08/2040 - 08/2041 |  |  |  | 41,225 |  |  |  | — |  |  |  | — |
over $1,000 |  |  | 29 |  |  | 4.00% to 5.38% |  |  | 09/2040 - 06/2041 |  |  |  | 37,954 |  |  |  | — |  |  |  | — |
|  |  | 211 |  |  |  |  |  |  |  |  |  | 150,279 |  |  |  | — |  |  |  | — |
Total Held-for-Investment |  |  | 6,206 |  |  |  |  |  |  |  |  | $ | 1,770,803 |  |  | $ | 48,449 |  |  | $ | 78,734 |
Held-for-Sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ARM loans |  |  | 9 |  |  | 1.88% to 2.50% |  |  | 11/2032 - 10/2033 |  |  | $ | 1,490 |  |  | $ | 166 |  |  | $ | 352 |
Hybrid ARM loans |  |  | 114 |  |  | 2.38% to 4.63% |  |  | 06/2037 - 01/2044 |  |  |  | 91,976 |  |  |  | — |  |  |  | — |
Fixed loans |  |  | 424 |  |  | 3.13% to 5.63% |  |  | 06/2037 - 01/2044 |  |  |  | 307,407 |  |  |  | — |  |  |  | — |
Total Held-for-Sale |  |  | 547 |  |  |  |  |  |  |  |  | $ | 400,873 |  |  | $ | 166 |  |  | $ | 352 |
(1) | Rate is net of servicing fee for consolidated loans for which we do not own the MSR. For borrowers whose current rate is less than the applicable servicing fee, the rate shown in the table above is zero.
Residential Loans Held-for-Sale Residential Loans at Fair Value At December 31, 2014 and 2013, there were 2,273 and 537 residential loans at fair value, respectively, with an aggregate outstanding principal balance of $1.30 billion and $399 million, respectively, and an aggregate fair value of $1.34 billion and $403 million, respectively. During the years ended December 31, 2014 and 2013, we recorded positive $51 million and negative $10 million of valuation adjustments, respectively, on residential loans for which we elected the fair value option through mortgage banking activities, a component of our consolidated statements of income. Residential Loans at Lower of Cost or Fair Value At December 31, 2014, there were 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, there were 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 years ended December 31, 2014 and 2013, we recorded valuation adjustments for residential loans held-for-sale of positive $56 thousand and positive $38 thousand, respectively. Residential Loans Held-for-Investment Residential Loans at Fair Value During the year ended December 31, 2014, we transferred loans with a principal balance of $574 million from held-for-sale at fair value to held-for-investment at fair value. As of December 31, 2014, $564 million of held-for-investment loans at fair value 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 December 31, 2014 and 2013. These loans are owned at Sequoia securitization entities that we consolidate for financial reporting purposes.
(In Thousands) |  | December 31, 2014 |  |  | December 31, 2013 |
Principal balance |  | $ | 1,483,213 |  |  | $ | 1,770,803 |
Unamortized premium, net |  |  | 12,511 |  |  |  | 16,791 |
Recorded investment |  |  | 1,495,724 |  |  |  | 1,787,594 |
Allowance for loan losses |  |  | (21,338 | ) |  |  | (25,427 | )
Carrying Value |  | $ | 1,474,386 |  |  | $ | 1,762,167 |
Of the $1.48 billion of principal balance and $13 million of unamortized premium on loans held-for-investment at December 31, 2014, $598 million of principal balance and $8 million of unamortized premium relate to residential loans acquired prior to July 1, 2004. During 2014, 18% of these residential loans prepaid and we amortized 30% of the premium based upon the accounting elections we apply. For residential loans acquired after July 1, 2004, the principal balance was $889 million and the unamortized premium was $5 million. During 2014, 15% of these loans prepaid and we amortized 18% 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 $1.04 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 December 31, 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 December 31, 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 December 31, 2014 and 2013, organized by year of origination.
(In Thousands) |  | December 31, 2014 |  |  | December 31, 2013 |
2003 & Earlier |  | $ | 717,783 |  |  | $ | 881,364 |
2004 |  |  | 437,221 |  |  |  | 513,458 |
2005 |  |  | 58,931 |  |  |  | 62,675 |
2006 |  |  | 135,872 |  |  |  | 149,776 |
2007 |  |  | — |  |  |  | — |
2008 |  |  | — |  |  |  | — |
2009 |  |  | 17,943 |  |  |  | 25,860 |
2010 |  |  | 76,944 |  |  |  | 92,728 |
2011 |  |  | 51,030 |  |  |  | 61,733 |
Total Recorded Investment |  | $ | 1,495,724 |  |  | $ | 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 restructured 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 years ended December 31, 2014, 2013, and 2012.
|  | Years Ended December 31, |
(In Thousands) |  | 2014 |  |  | 2013 |  |  | 2012 |
Balance at beginning of period |  | $ | 25,427 |  |  | $ | 28,504 |  |  | $ | 66,881 |
Charge-offs, net |  |  | (4,966 | ) |  |  | (4,525 | ) |  |  | (11,903 | )
Provision for loan losses |  |  | 877 |  |  |  | 1,448 |  |  |  | 171 |
Deconsolidation adjustment |  |  | — |  |  |  | — |  |  |  | (26,645 | )
Balance at End of Period |  | $ | 21,338 |  |  | $ | 25,427 |  |  | $ | 28,504 |
During the year ended December 31, 2014 there were $5 million of charge-offs of residential loans that reduced our allowance for loan losses. These charge-offs arose from $21 million of defaulted loan principal. During the years ended December 31, 2013 and 2012, there were $5 million and $12 million of charge-offs of residential loans, respectively, that arose from $14 million and $33 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 December 31, 2014 and 2013.
(In Thousands) |  | December 31, 2014 |  |  | December 31, 2013 |
Principal balance |  | $ | 1,466,819 |  |  | $ | 1,762,165 |
Recorded investment |  |  | 1,479,667 |  |  |  | 1,779,161 |
Related allowance |  |  | 19,840 |  |  |  | 24,762 |
The following table summarizes the recorded investment and past due status of residential loans collectively evaluated for impairment at December 31, 2014 and 2013.
(In Thousands) |  | 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | 90+ Days Past Due |  |  | Current |  |  | Total Loans |
December 31, 2014 |  | $ | 28,484 |  |  | $ | 8,464 |  |  | $ | 69,223 |  |  | $ | 1,373,496 |  |  | $ | 1,479,667 |
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. For the years ended December 31, 2014, 2013, and 2012, 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 years ended December 31, 2014, 2013, and 2012.
|  | Years Ended December 31, |
(Dollars in Thousands) |  | 2014 |  |  | 2013 |  |  | 2012 |
TDRs |  |  |  |  |  |  |  |  |  |  |  |
Number of modifications |  |  | 28 |  |  |  | 12 |  |  |  | 15 |
Pre-modification outstanding recorded investment |  | $ | 8,652 |  |  | $ | 2,939 |  |  | $ | 6,603 |
Post-modification outstanding recorded investment |  |  | 8,639 |  |  |  | 2,838 |  |  |  | 6,540 |
Loan modification effect on net interest income after provision and other MVA |  |  | (2,214 | ) |  |  | (863 | ) |  |  | (1,448 | )
TDRs that Subsequently Defaulted |  |  |  |  |  |  |  |  |  |  |  |
Number of modifications |  |  | 7 |  |  |  | 6 |  |  |  | 10 |
Recorded investment |  | $ | 3,427 |  |  | $ | 1,462 |  |  | $ | 5,078 |
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 individually evaluated for impairment for the years ended December 31, 2014, 2013, and 2012, was $13 million, $7 million, and $14 million, respectively. For the years ended December 31, 2014, 2013 and 2012, we recorded interest income of $129 thousand, $123 thousand and $297 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 December 31, 2014 and 2013.
(In Thousands) |  | December 31, 2014 |  |  | December 31, 2013 |
Principal balance |  | $ | 16,394 |  |  | $ | 8,638 |
Recorded investment |  |  | 16,057 |  |  |  | 8,433 |
Related allowance |  |  | 1,498 |  |  |  | 665 |
The following table summarizes the recorded investment and past due status of residential loans individually evaluated for impairment at December 31, 2014 and 2013.
(In Thousands) |  | 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | 90+ Days Past Due |  |  | Current |  |  | Total Loans |
December 31, 2014 |  | $ | 2,419 |  |  | $ | 2,295 |  |  | $ | 1,015 |  |  | $ | 10,328 |  |  | $ | 16,057 |
December 31, 2013 |  |  | 1,560 |  |  |  | — |  |  |  | 567 |  |  |  | 6,306 |  |  |  | 8,433 |
Commercial Loans |
Commercial Loans | Note 7. Commercial Loans We invest in commercial loans that we originate as well as loans that we acquire from third-party originators. The following table summarizes the classifications and carrying value of commercial loans at December 31, 2014 and 2013.
(In Thousands) |  | December 31, 2014 |  |  | December 31, 2013 |
Held-for-sale, at fair value |  | $ | 166,234 |  |  | $ | 89,111 |
Held-for-investment |  |  |  |  |  |  |  |
At fair value |  |  | 71,262 |  |  |  | — |
At amortized cost |  |  | 329,431 |  |  |  | 343,344 |
Total Commercial Loans |  | $ | 566,927 |  |  | $ | 432,455 |
Of the held-for-investment commercial loans shown above at December 31, 2014 and 2013, $195 million and $258 million, respectively, were financed through the Commercial Securitization entity, as discussed in Note 4. Commercial Loan Characteristics The following table displays the geographic concentration of commercial loans recorded on our consolidated balance sheets at December 31, 2014 and 2013.
|  | December 31, 2014 |  |  | December 31, 2013 |
Geographic Concentration (by Principal) |  | Held-for-Sale |  |  | Held-for- Investment |  |  | Held-for-Sale |  |  | Held-for- Investment |
Washington, District of Columbia |  |  | 25 | % |  |  | — |  |  |  | — |  |  |  | — |
Michigan |  |  | 18 | % |  |  | 8 | % |  |  | — |  |  |  | 8 | %
Colorado |  |  | 17 | % |  |  | — |  |  |  | — |  |  |  | — |
Connecticut |  |  | 10 | % |  |  | — |  |  |  | — |  |  |  | — |
Texas |  |  | 9 | % |  |  | — |  |  |  | — |  |  |  | 7 | %
Maryland |  |  | 7 | % |  |  | — |  |  |  | — |  |  |  | — |
California |  |  | 6 | % |  |  | 19 | % |  |  | — |  |  |  | 21 | %
Florida |  |  | — |  |  |  | 17 | % |  |  | — |  |  |  | 10 | %
New York |  |  | — |  |  |  | 18 | % |  |  | 39 | % |  |  | 19 | %
North Carolina |  |  | — |  |  |  | 6 | % |  |  | 28 | % |  |  | — |
New Jersey |  |  | — |  |  |  | — |  |  |  | 13 | % |  |  | — |
Ohio |  |  | — |  |  |  | — |  |  |  | 8 | % |  |  | — |
Indiana |  |  | — |  |  |  | — |  |  |  | 6 | % |  |  | — |
Illinois |  |  | — |  |  |  | — |  |  |  | 6 | % |  |  | 6 | %
Other states (none greater than 5%) |  |  | 8 | % |  |  | 32 | % |  |  | — |  |  |  | 29 | %
Total |  |  | 100 | % |  |  | 100 | % |  |  | 100 | % |  |  | 100 | %
The following table displays the loan product type and accompanying loan characteristics of commercial loans recorded on our consolidated balance sheets at December 31, 2014 and 2013.
December 31, 2014 (In Thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loan Balance |  | Number of Loans |  |  | Interest Rate |  | Maturity Date |  | Total Principal |  |  | 30-89 Days DQ |  |  | 90+ Days DQ |
Held-for-Investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed-rate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$0 to $5,000 |  |  | 37 |  |  | 9.50% to 12.50% |  | 8/2016 - 12/2024 |  | $ | 102,994 |  |  | $ | — |  |  | $ | — |
$5,001 to $10,000 |  |  | 14 |  |  | 4.43% to 11.00% |  | 4/2015 - 1/2025 |  |  | 109,551 |  |  |  | — |  |  |  | — |
$10,001 to $15,000 |  |  | 2 |  |  | 9.50% to 9.50% |  | 1/2018 - 6/2021 |  |  | 24,874 |  |  |  | — |  |  |  | — |
$15,001 to $20,000 |  |  | 2 |  |  | 10.0% to 11.00% |  | 6/2016 - 6/2022 |  |  | 37,700 |  |  |  | — |  |  |  | — |
$25,001 to $30,000 |  |  | 1 |  |  | 10.00% |  | 10/2016 |  |  | 25,629 |  |  |  | — |  |  |  | — |
|  |  | 56 |  |  |  |  |  |  |  | 300,748 |  |  |  | — |  |  |  | — |
ARM loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$5,001 to $10,000 |  |  | 2 |  |  | 10.80% to 12.00% |  | 2/2015 - 10/2016 |  |  | 15,478 |  |  |  | — |  |  |  | — |
$10,001 to $15,000 |  |  | 2 |  |  | 9.16% to 11.20% |  | 11/2014 - 8/2016 |  |  | 25,524 |  |  |  | — |  |  |  | — |
|  |  | 4 |  |  |  |  |  |  |  | 41,002 |  |  |  | — |  |  |  | — |
Total Held-for-Investment |  |  | 60 |  |  |  |  |  |  | $ | 341,750 |  |  | $ | — |  |  | $ | — |
Held-for-Investment, at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed-rate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$0 to $5,000 |  |  | 3 |  |  | 10.00% to 10.00% |  | 12/2023 to 4/2024 |  | $ | 4,555 |  |  | $ | — |  |  | $ | — |
$10,001 to $15,000 |  |  | 1 |  |  | 4.95% to 4.95% |  | 1/2024 |  |  | 11,399 |  |  |  | — |  |  |  | — |
$20,001 to $25,000 |  |  | 1 |  |  | 4.83% to 4.83% |  | 12/2023 |  |  | 22,102 |  |  |  | — |  |  |  | — |
$25,001 to $30,000 |  |  | 1 |  |  | 4.79% |  | 4/2024 |  |  | 29,500 |  |  |  | — |  |  |  | — |
|  |  | 6 |  |  |  |  |  |  | $ | 67,556 |  |  | $ | — |  |  | $ | — |
Held-for-Sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed-rate loans: |  |  | 13 |  |  | 4.19% to 4.79% |  | 12/2024 to 1/2045 |  | $ | 162,790 |  |  | $ | — |  |  | $ | — |
December 31, 2013 (In Thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loan Balance |  | Number of Loans |  |  | Interest Rate |  | Maturity Date |  |  | Total Principal |  |  | 30-89 Days DQ |  |  | 90+ Days DQ |
Held-for-Investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed-rate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$0 to $5,000 |  |  | 24 |  |  | 9.75% to 12.50% |  |  | 8/2016 - 1/2024 |  |  | $ | 70,597 |  |  | $ | — |  |  | $ | — |
$5,001 to $10,000 |  |  | 15 |  |  | 4.43% to 12.25% |  |  | 4/2015 - 6/2023 |  |  |  | 112,887 |  |  |  | — |  |  |  | — |
$10,001 to $15,000 |  |  | 3 |  |  | 9.50% to 10.00% |  |  | 6/2015 - 6/2021 |  |  |  | 35,463 |  |  |  | — |  |  |  | — |
$15,001 to $20,000 |  |  | 2 |  |  | 10.50% to 11.00% |  |  | 6/2016 - 6/2022 |  |  |  | 37,700 |  |  |  | — |  |  |  | — |
$20,001 to $25,000 |  |  | 1 |  |  | 9.50% |  |  | 12/2014 |  |  |  | 21,500 |  |  |  | — |  |  |  | — |
$25,001 to $30,000 |  |  | 1 |  |  | 10.00% |  |  | 10/2016 |  |  |  | 25,839 |  |  |  | — |  |  |  | — |
|  |  | 46 |  |  |  |  |  |  |  |  |  | 303,986 |  |  |  | — |  |  |  | — |
ARM loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$5,001 to $10,000 |  |  | 2 |  |  | 10.80% to 12.00% |  |  | 2/2015 - 10/2016 |  |  |  | 15,497 |  |  |  | — |  |  |  | — |
$10,001 to $15,000 |  |  | 1 |  |  | 11.20% |  |  | 11/2014 |  |  |  | 14,598 |  |  |  | — |  |  |  | — |
$15,001 to $20,000 |  |  | 1 |  |  | 11.99% |  |  | 8/2014 |  |  |  | 19,250 |  |  |  | — |  |  |  | — |
|  |  | 4 |  |  |  |  |  |  |  |  |  | 49,345 |  |  |  | — |  |  |  | — |
Total Held-for-Investment |  |  | 50 |  |  |  |  |  |  |  |  | $ | 353,331 |  |  | $ | — |  |  | $ | — |
Held-for-Sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed-rate loans: |  |  | 7 |  |  | 4.79% to 5.52% |  |  | 12/2023 - 1/2024 |  |  | $ | 87,650 |  |  | $ | — |  |  | $ | — |
Commercial Loans Held-for-Sale, at Fair Value Commercial loans held-for-sale include loans we originate and intend to sell to third parties. At December 31, 2014, there were 13 senior commercial mortgage loans at fair value, with an aggregate outstanding principal balance of $163 million and an aggregate fair value of $166 million. During the year ended December 31, 2014, we acquired $904 million (principal balance) of senior commercial loans for which we elected the fair value option and sold $791 million to third parties. During the year ended December 31, 2014, we recorded $21 million of positive valuation adjustments on senior commercial mortgage loans for which we elected the fair value option through mortgage banking activities on our consolidated statements of income. At December 31, 2013, there were seven senior commercial loans at fair value, with an aggregate outstanding principal balance of $88 million and an aggregate fair value of $89 million. During the year ended December 31, 2013, we acquired $659 million (principal balance) of senior commercial loans for which we elected the fair value option and sold $597 million to third parties. During the year ended December 31, 2013, we recorded $9 million of positive valuation adjustments on commercial loans for which we elected the fair value option through mortgage banking activities, a component of our consolidated statements of income. Prior to December 31, 2012 commercial loans included loans owned at consolidated Acacia securitization entities. We deconsolidated the Acacia entities in the fourth quarter of 2012. During the year ended December 31, 2012, we recorded less than $1 million of positive valuation adjustments on commercial loans through other market valuation adjustments, on our consolidated statements of income. Commercial Loans Held-for-Investment Commercial Loans Held-for-Investment, at Fair Value Commercial loans held-for-investment at fair value include loans we hold for investment for which we have elected the fair value option. At December 31, 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 year ended December 31, 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, 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. As of December 31, 2014, these loans primarily include 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 December 31, 2014 and 2013.
(In Thousands) |  | December 31, 2014 |  |  | December 31, 2013 |
Principal balance |  | $ | 341,750 |  |  | $ | 353,331 |
Unamortized discount, net |  |  | (4,862 | ) |  |  | (2,614 | )
Recorded investment |  |  | 336,888 |  |  |  | 350,717 |
Allowance for loan losses |  |  | (7,457 | ) |  |  | (7,373 | )
Carrying Value |  | $ | 329,431 |  |  | $ | 343,344 |
At December 31, 2014, there were 60 commercial loans held-for-investment with an outstanding principal balance of $342 million and a carrying value of $329 million. Of the $337 million of recorded investment in commercial loans held-for-investment at December 31, 2014, 17% was originated in 2014, 17% was originated in 2013, 36% was originated in 2012, 26% was originated in 2011 and 4% was originated in 2010. During the year ended December 31, 2014, we originated or acquired $59 million (principal balance) of commercial loans held-for-investment and received repayments of $71 million. In connection with certain loan prepayments, we received $1.5 million of yield maintenance fees during the year ended December 31, 2014. As of December 31, 2014, $195 million of commercial loans held-for-investment were financed through the Commercial Securitization as discussed in Note 4. At December 31, 2013, there were 50 commercial loans held-for-investment 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. During the year ended December 31, 2013, we originated or acquired $66 million of commercial loans held-for-investment and received prepayments of $24 million. In connection with the loan prepayments, we received $3 million of yield maintenance fees during the year ended December 31, 2013. Allowance for Loan Losses on Commercial Loans For commercial loans classified as held-for-investment at amortized cost, 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) |  | December 31, 2014 |  |  | December 31, 2013 |
Pass |  | $ | 316,122 |  |  | $ | 309,792 |
Watch list |  |  | 25,628 |  |  |  | 43,539 |
Total Commercial Loans Held-for-Investment |  | $ | 341,750 |  |  | $ | 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 years ended December 31, 2014, 2013, and 2012.
|  | Year Ended December 31, |
(In Thousands) |  | 2014 |  |  | 2013 |  |  | 2012 |
Balance at beginning of period |  | $ | 7,373 |  |  | $ | 4,084 |  |  | $ | 608 |
Charge-offs, net |  |  | — |  |  |  | — |  |  |  | — |
Provision for loan losses |  |  | 84 |  |  |  | 3,289 |  |  |  | 3,476 |
Balance at End of Period |  | $ | 7,457 |  |  | $ | 7,373 |  |  | $ | 4,084 |
Commercial Loans Collectively Evaluated for Impairment At December 31, 2014 and 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 December 31, 2014 and 2013.
(In Thousands) |  | December 31, 2014 |  |  | December 31, 2013 |
Principal balance |  | $ | 341,750 |  |  | $ | 353,331 |
Recorded investment |  |  | 336,888 |  |  |  | 350,717 |
Related allowance |  |  | 7,457 |  |  |  | 7,373 |
Commercial Loans Individually Evaluated for Impairment We did not have any loans individually evaluated for impairment for either of the years ended December 31, 2014 or 2013.

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