Residential Loans

We acquire residential loans from third-party originators. The following table summarizes the classifications and carrying values of the residential loans owned at Redwood and at consolidated Sequoia entities at March 31, 2015 and December 31, 2014.



March 31, 2015
(In Thousands)	Redwood		Sequoia ⁽¹⁾		Total
Held-for-sale
Fair value - conforming	$	200,869	$	—	$	200,869
Fair value - jumbo	892,544		—		892,544
Lower of cost or fair value	1,472		—		1,472
Held-for-investment
Fair value - Jumbo	1,000,444		1,304,426		2,304,870
Total Residential Loans	$	2,095,329	$	1,304,426	$	3,399,755



December 31, 2014
(In Thousands)	Redwood		Sequoia ⁽¹⁾		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


(1)	Upon adoption of ASU 2014-13 on January 1, 2015, loans held-for-investment at consolidated Sequoia entities began to be recorded at fair value. See Note 3 for further discussion.

At March 31, 2015, we owned mortgage servicing rights associated with $1.91 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 a licensed sub-servicer that performs servicing functions for these loans.

Residential Loans Held-for-Sale

Residential Loans at Fair Value

At March 31, 2015, we owned 1,903 held-for-sale loans with an unpaid principal balance of $1.07 billion, compared to 2,273 loans with an unpaid principal balance of $1.30 billion at December 31, 2014. At March 31, 2015 and December 31, 2014, none of these loans were greater than 90 days delinquent and none of the loans were in foreclosure.

During the three months ended March 31, 2015 and 2014, we purchased $2.40 billion and 1.07 billion (principal balance) of loans, respectively, for which we elected the fair value option and recorded $2 million and $7 million of positive valuation adjustments, respectively, on residential loans held-for-sale at fair value through mortgage banking activities, a component of our consolidated income statement. During the three months ended March 31, 2015 and 2014, we sold $2.20 billion and $707 million (principal balance) of loans held-for-sale, respectively.

Residential Loans at Lower of Cost or Fair Value

At March 31, 2015 and December 31, 2014, we held nine residential loans at the lower of cost or fair value with $2 million in outstanding principal balance and a carrying value of $1 million.

Residential Loans Held-for-Investment at Fair Value

Residential Loans at Redwood

During the three months ended March 31, 2015, we transferred loans with a principal balance of $436 million and a fair value of $448 million from held-for-sale to held-for-investment bringing the total amount of loans held-for-investment at fair value to $1.00 billion at March 31, 2015. At March 31, 2015, $994 million of these loans were pledged as collateral under a borrowing agreement with the FHLBC.

At March 31, 2015, we owned 1,314 held-for-investment loans at Redwood with an unpaid principal balance of $972 million, compared to 803 loans with an unpaid principal balance of $566 million at December 31, 2014. At March 31, 2015 and December 31, 2014, none of these loans were greater than 90 days delinquent and none of the loans were in foreclosure.

The outstanding loans held-for-investment at Redwood at March 31, 2015 were originated in 2014 and 2015 and the weighted average FICO score of borrowers backing these loans was 773 (at origination) and the weighted average loan-to-value ("LTV") ratio of these loans was 68% (at origination). At March 31, 2015, these loans were comprised of fixed-rate loans with a weighted average coupon of 3.92%, and hybrid loans with a weighted average coupon of 3.06%.

Residential Loans at Consolidated Sequoia Entities

On January 1, 2015, we eliminated $13 million of unamortized premium, net and $21 million of allowance for loan losses, related to loans at our consolidated Sequoia entities as part of our initial adoption of ASU 2014-13 and recorded a valuation adjustment on these loans to reduce the loan carrying values to their estimated fair values. See Note 3 for further discussion.

The following table details the carrying value for residential loans held-for-investment at consolidated Sequoia entities at March 31, 2015 and December 31, 2014.



(In Thousands)	March 31, 2015			December 31, 2014
Principal balance	$	1,415,017		$	1,483,213
Unamortized premium, net	—			12,511
Allowance for loan losses	—			(21,338		)
Valuation adjustment	(110,591		)	—
Carrying value	$	1,304,426		$	1,474,386

At March 31, 2015, we owned 5,177 held-for-investment loans at consolidated Sequoia entities, as compared to 5,315 loans at December 31, 2014. The weighted average FICO score of borrowers backing these loans was 733 (at origination) and the weighted average LTV ratio of these loans was 66% (at origination). At March 31, 2015 and December 31, 2014, the unpaid principal balance of loans at consolidated Sequoia entities delinquent greater than 90 days was $68 million and $73 million, respectively, and the unpaid principal balance of loans in foreclosure was $34 million and $39 million, respectively. During the three months ended March 31, 2015, we recorded positive $3 million of valuation adjustments on these loans through other market valuation adjustments on our consolidated statements of income.