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, 2016 and December 31, 2015.

Table 6.1 – Classifications and Carrying Values of the Residential Loans



March 31, 2016
(In Thousands)	Redwood		Sequoia		Total
Held-for-sale
Fair value - conforming	$	1,387	$	—	$	1,387
Fair value - jumbo	438,287		—		438,287
Lower of cost or fair value - jumbo	1,402		—		1,402
Total held-for-sale	441,076		—		441,076
Held-for-investment
Fair value - jumbo	2,343,953		930,027		3,273,980
Total Residential Loans	$	2,785,029	$	930,027	$	3,715,056



December 31, 2015
(In Thousands)	Redwood		Sequoia		Total
Held-for-sale
Fair value - conforming	$	129,819	$	—	$	129,819
Fair value - jumbo	984,486		—		984,486
Lower of cost or fair value - jumbo	1,433		—		1,433
Total held-for-sale	1,115,738		—		1,115,738
Held-for-investment
Fair value - jumbo	1,791,195		1,021,870		2,813,065
Total Residential Loans	$	2,906,933	$	1,021,870	$	3,928,803

At March 31, 2016, we owned mortgage servicing rights associated with $1.88 billion (principal balance) 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 consolidated balance sheet. We contract with licensed sub-servicers that perform servicing functions for these loans.

Residential Loans Held-for-Sale

At Fair Value

At March 31, 2016, we owned 588 loans held-for-sale at fair value with an aggregate unpaid principal balance of $429 million and a fair value of $440 million, compared to 1,763 loans with an aggregate unpaid principal balance of $1.09 billion and a fair value of $1.11 billion at December 31, 2015. At March 31, 2016, none of these loans were greater than 90 days delinquent or in foreclosure. At December 31, 2015, two of these loans were greater than 90 days delinquent and one of these loans was in foreclosure.

During the three months ended March 31, 2016 and 2015, we purchased $1.19 billion and $2.40 billion (principal balance) of loans, respectively, for which we elected the fair value option, and we sold $1.24 billion and $2.20 billion (principal balance) of loans, respectively, for which we recorded net market valuation gains of $5 million and $2 million, respectively, through Mortgage banking activities, net, a component of our consolidated statements of income. At March 31, 2016, loans held-for-sale with a market value of $414 million were pledged as collateral under short-term borrowing agreements.

At Lower of Cost or Fair Value

At March 31, 2016 and December 31, 2015, 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 for both periods. At both March 31, 2016 and December 31, 2015, two of these loans were greater than 90 days delinquent and one of these loans was in foreclosure.

Residential Loans Held-for-Investment at Fair Value

At Redwood

At March 31, 2016, we owned 3,096 held-for-investment loans at Redwood with an aggregate unpaid principal balance of $2.28 billion and a fair value of $2.34 billion, compared to 2,398 loans with an aggregate unpaid principal balance of $1.76 billion and a fair value of $1.79 billion at December 31, 2015. At both March 31, 2016 and December 31, 2015, none of these loans were greater than 90 days delinquent or in foreclosure.

During the three months ended March 31, 2016 and 2015, we transferred loans with a fair value of $660 million and $448 million, respectively, from held-for-sale to held-for-investment. During the three months ended March 31, 2016, we transferred loans with a fair value of $54 million from held-for-investments to held-for-sale. We did not transfer loans from held-for-investment to held-for-sale during the three months ended March 31, 2015.

During the three months ended March 31, 2016 and 2015, we recorded net market valuation gains of $23 million and $2 million, respectively, on residential loans held-for-investment at fair value through Investment fair value changes, net, a component of our consolidated statements of income. At March 31, 2016, $2.34 billion of these loans were pledged as collateral under a borrowing agreement with the FHLBC.

The outstanding loans held-for-investment at Redwood at March 31, 2016 were prime-quality, first lien loans, of which 93% were originated between 2013 and 2016, and 7% were originated in 2012 and prior years. The weighted average FICO score of borrowers backing these loans was 772 (at origination) and the weighted average loan-to-value ("LTV") ratio of these loans was 66% (at origination). At March 31, 2016, these loans were comprised of 99% fixed-rate loans with a weighted average coupon of 4.16%, and the remainder were hybrid or ARM loans with a weighted average coupon of 4.00%.

At Consolidated Sequoia Entities

At March 31, 2016, we owned 4,221 held-for-investment loans at consolidated Sequoia entities, with an aggregate unpaid principal balance of $1.06 billion and a fair value of $930 million, as compared to 4,545 loans at December 31, 2015, with an aggregate unpaid principal balance of $1.12 billion and a fair value of $1.02 billion. At origination, the weighted average FICO score of borrowers backing these loans was 729, the weighted average LTV ratio of these loans was 66%, and the loans were nearly all first lien and prime-quality. At March 31, 2016 and December 31, 2015, the unpaid principal balance of loans at consolidated Sequoia entities delinquent greater than 90 days was $51 million and $59 million, respectively, and the unpaid principal balance of loans in foreclosure was $26 million and $32 million, respectively. During the three months ended March 31, 2016 and 2015, we recorded net market valuation losses of $36 million and net market valuation gains of $3 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income.