Principles of Consolidation (Tables)

12 Months Ended

Dec. 31, 2014

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

The following table presents information related to the Sequoia securitization transactions that occurred during the years ended December 31, 2014 and 2013.

Securitization Activity Related to Unconsolidated VIEs Sponsored by Redwood


	Years Ended December 31,
(In Thousands)	2014		2013
Principal balance of loans transferred	$	1,324,419	$	5,578,298
Trading securities retained, at fair value		77,160		105,320
AFS securities retained, at fair value		78,218		301,072
MSRs recognized		8,518		42,921

The following table summarizes the cash flows between us and unconsolidated Sequoia securitizations sponsored by us since 2012.

Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood


	Years Ended December 31,
(In Thousands)	2014			2013
Cash proceeds	$	1,201,411		$	4,670,082
MSR fees received		13,812			9,128
Funding of compensating interest		(227	)		(475	)
Cash flows received on retained securities		56,870			43,032

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

The following table presents the key weighted-average assumptions used to estimate the fair value of MSRs at the date of securitization.

MSR Assumptions Related to Unconsolidated VIEs Sponsored by Redwood


	Issued During Years Ended December 31,
At Date of Securitization	2014			2013
Prepayment speeds		5 - 16	%		5 - 14	%
Discount rates		11	%		12	%

Unconsolidated Variable Interest Entity's Sponsored by Redwood Summary

The following table presents additional information at December 31, 2014 and 2013, related to unconsolidated Sequoia securitizations sponsored by us since 2012.

Unconsolidated VIEs Sponsored by Redwood at December 31, 2014 and 2013


	December 31,
(In Thousands)	2014		2013
On-balance sheet assets, at fair value:
Interest-only and senior securities, classified as trading	$	93,802	$	110,505
Senior and subordinate securities, classified as AFS		460,990		405,415
Maximum loss exposure ⁽¹⁾		554,792		515,920
Assets transferred:
Principal balance of loans outstanding		7,276,825		6,627,874
Principal balance of delinquent loans 30+ days delinquent		17,022		14,587

(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 December 31, 2014 and 2013.

Key Assumptions and Sensitivity Analysis for Unconsolidated VIEs Sponsored by Redwood


December 31, 2014 (Dollars in Thousands)	MSRs			Senior Securities			Subordinate Securities
December 31, 2014 (Dollars in Thousands)	MSRs			Senior Securities			Subordinate Securities
Fair value at December 31, 2014	$	56,801		$	93,802		$	460,990
Expected life (in years) ⁽¹⁾		7			6			10
Prepayment speed assumption (annual CPR) ⁽¹⁾		14	%		9	%		10	%
Decrease in fair value from:
10% adverse change	$	2,419		$	3,999		$	684
25% adverse change		5,639			9,475			2,355
Discount rate assumption ⁽¹⁾		11	%		8	%		5	%
Decrease in fair value from:
100 basis point increase	$	2,104		$	4,214		$	34,149
200 basis point increase		4,102			8,091			64,474
Credit loss assumption ⁽¹⁾		N/A			0.25	%		0.25	%
Decrease in fair value from:
10% higher losses		N/A		$	126		$	3,169
25% higher losses		N/A			299			7,841

December 31, 2013 (Dollars in Thousands)	MSRs			Senior Securities			Subordinate Securities
December 31, 2013 (Dollars in Thousands)	MSRs			Senior Securities			Subordinate Securities
Fair value at December 31, 2013	$	60,318		$	110,505		$	405,415
Expected life (in years) ⁽¹⁾		8			7			11
Prepayment speed assumption (annual CPR) ⁽¹⁾		8	%		10	%		11	%
Decrease in fair value from:
10% adverse change	$	1,649		$	5,773		$	1,658
25% adverse change		4,218			13,555			4,354
Discount rate assumption ⁽¹⁾		11	%		5	%		6	%
Decrease in fair value from:
100 basis point increase	$	2,468		$	5,632		$	30,644
200 basis point increase		4,828			10,757			57,836
Credit loss assumption ⁽¹⁾		N/A			0.23	%		0.23	%
Decrease in fair value from:
10% higher losses		N/A		$	70		$	1,369
25% higher losses		N/A			175			3,420

(1)	Expected life, prepayment speed assumption, discount rate assumption, and credit loss assumption presented in the tables above represent weighted averages.

Loan Transfers Accounted for as Secured Borrowings

The following table presents a summary of our interests in third-party VIEs at December 31, 2014, grouped by collateral type.

Third-Party Sponsored VIE Summary


(Dollars in Thousands)	December 31, 2014
Residential real estate securities at Redwood
Senior	$	495,508
Re-REMIC		168,347
Subordinate		160,583

Total Investments in Third-Party Real Estate Securities	$	824,438

Variable Interest Entity, Not Primary Beneficiary

Schedule of Variable Interest Entities

The following table presents commercial loan transfers accounted for as secured borrowings for the year ended December 31, 2014.

Loan Transfers Accounted for as Secured Borrowings


	December 31,
(In Thousands)	2014		2013
Principal balance	$	63,375	$	—
Cash proceeds		65,048		—

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


December 31, 2014 (Dollars in Thousands)	Sequoia Entities		Residential Resecuritization		Commercial Securitization		Total
December 31, 2014 (Dollars in Thousands)	Sequoia Entities		Residential Resecuritization		Commercial Securitization		Total
Residential loans, held-for-investment	$	1,474,386	$	—	$	—	$	1,474,386
Commercial loans, held-for-investment		—		—		194,991		194,991
Real estate securities, at fair value		—		221,676		—		221,676
Restricted cash		147		43		137		327
Accrued interest receivable		2,359		477		1,511		4,347
Other assets		4,411		—		70		4,481

Total Assets	$	1,481,303	$	222,196	$	196,709	$	1,900,208

Accrued interest payable	$	976	$	5	$	390	$	1,371
Asset-backed securities issued		1,416,762		45,044		83,313		1,545,119

Total Liabilities	$	1,417,738	$	45,049	$	83,703	$	1,546,490

Number of VIEs		24		1		1		26


December 31, 2013 (Dollars in Thousands)	Sequoia Entities		Residential Resecuritization		Commercial Securitization		Total
December 31, 2013 (Dollars in Thousands)	Sequoia Entities		Residential Resecuritization		Commercial Securitization		Total
Residential loans, held-for-investment	$	1,762,167	$	—	$	—	$	1,762,167
Commercial loans, held-for-investment		—		—		257,741		257,741
Real estate securities, at fair value		—		263,204		—		263,204
Restricted cash		152		—		137		289
Accrued interest receivable		2,714		627		1,975		5,316
Other assets		3,661		—		7,198		10,859

Total Assets	$	1,768,694	$	263,831	$	267,051	$	2,299,576

Accrued interest payable	$	1,218	$	11	$	720	$	1,949
Asset-backed securities issued		1,694,335		94,934		153,693		1,942,962

Total Liabilities	$	1,695,553	$	94,945	$	154,413	$	1,944,911

Number of VIEs		24		1		1		26

- 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.

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