Residential Loans

We acquire residential loans from third-party originators and may sell or securitize these loans or hold them for investment. The following table summarizes the classifications and carrying values of the residential loans owned at Redwood and at consolidated Sequoia and Freddie Mac SLST entities at December 31, 2018 and December 31, 2017.

Table 6.1 – Classifications and Carrying Values of Residential Loans



December 31, 2018			Legacy		Sequoia		Freddie Mac
(In Thousands)	Redwood		Sequoia		Choice		SLST		Total
Held-for-sale
At fair value	$	1,048,690	$	—	$	—	$	—	$	1,048,690
At lower of cost or fair value	111		—		—		—		111
Total held-for-sale	1,048,801		—		—		—		1,048,801
Held-for-investment at fair value	2,383,932		519,958		2,079,382		1,222,669		6,205,941
Total Residential Loans	$	3,432,733	$	519,958	$	2,079,382	$	1,222,669	$	7,254,742



December 31, 2017			Legacy		Sequoia		Freddie Mac
(In Thousands)	Redwood		Sequoia		Choice		SLST		Total
Held-for-sale
At fair value	$	1,427,052	$	—	$	—	$	—	$	1,427,052
At lower of cost or fair value	893		—		—		—		893
Total held-for-sale	1,427,945		—		—		—		1,427,945
Held-for-investment at fair value	2,434,386		632,817		620,062		—		3,687,265
Total Residential Loans	$	3,862,331	$	632,817	$	620,062	$	—	$	5,115,210

At December 31, 2018, we owned mortgage servicing rights associated with $2.62 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 sheets. We contract with licensed sub-servicers that perform servicing functions for these loans.

Residential Loans Held-for-Sale

At Fair Value

At December 31, 2018, we owned 1,484 loans held-for-sale at fair value with an aggregate unpaid principal balance of $1.03 billion and a fair value of $1.05 billion, compared to 2,009 loans with an aggregate unpaid principal balance of $1.41 billion and a fair value of $1.43 billion at December 31, 2017. At December 31, 2018, one of these loans with a fair value of $0.6 million was greater than 90 days delinquent and none of these loans were in foreclosure. At December 31, 2017, one of these loans with a fair value of $0.5 million was greater than 90 days delinquent and none of these loans were in foreclosure.

During the years ended December 31, 2018 and 2017, we purchased $7.07 billion and $5.64 billion (principal balance) of loans, respectively, for which we elected the fair value option, and we sold $7.11 billion and $4.21 billion (principal balance) of loans, respectively, for which we recorded net market valuation gains of $23 million and $31 million, respectively, through Mortgage banking activities, net on our consolidated statements of income. At December 31, 2018, loans held-for-sale with a market value of $935 million were pledged as collateral under short-term borrowing agreements.

At Lower of Cost or Fair Value

At December 31, 2018 and December 31, 2017, we held two and four residential loans, respectively, at the lower of cost or fair value with $0.1 million and $1 million in outstanding principal balance, respectively, and carrying values of $0.1 million and $1 million, respectively. At December 31, 2018, none of these loans were greater than 90 days delinquent or in foreclosure. At December 31, 2017, one of these loans with an unpaid principal balance of $0.3 million was greater than 90 days delinquent and none of these loans were in foreclosure.

Residential Loans Held-for-Investment at Fair Value

At Redwood

At December 31, 2018, we owned 3,296 held-for-investment loans at Redwood with an aggregate unpaid principal balance of $2.39 billion and a fair value of $2.38 billion, compared to 3,292 loans with an aggregate unpaid principal balance of $2.41 billion and a fair value of $2.43 billion at December 31, 2017. At December 31, 2018, two of these loans with a total fair value of $1 million were greater than 90 days delinquent and none of these loans were in foreclosure. At December 31, 2017, none of these loans were greater than 90 days delinquent or in foreclosure.

During the years ended December 31, 2018 and 2017, we transferred loans with a fair value of $286 million and $600 million, respectively, from held-for-sale to held-for-investment. During the years ended December 31, 2018 and 2017, we transferred loans with a fair value of $16 million and $99 million, respectively, from held-for-investment to held-for-sale.

During the years ended December 31, 2018 and 2017, we recorded net market valuation losses of $30 million and $5 million, respectively, on residential loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income. At December 31, 2018, loans with a fair value of $2.38 billion were pledged as collateral under a borrowing agreement with the FHLBC.

The outstanding loans held-for-investment at Redwood at December 31, 2018 were prime-quality, first-lien loans, of which 96% were originated between 2013 and 2018, and 4% were originated in 2012 and prior years. The weighted average Fair Isaac Corporation ("FICO") score of borrowers backing these loans was 768 (at origination) and the weighted average loan-to-value ("LTV") ratio of these loans was 66% (at origination). At December 31, 2018, these loans were comprised of 87% fixed-rate loans with a weighted average coupon of 4.12%, and the remainder were hybrid or ARM loans with a weighted average coupon of 4.23%.

At Consolidated Legacy Sequoia Entities

At December 31, 2018, we consolidated 2,641 held-for-investment loans at consolidated Legacy Sequoia entities, with an aggregate unpaid principal balance of $545 million and a fair value of $520 million, as compared to 3,178 loans at December 31, 2017, with an aggregate unpaid principal balance of $698 million and a fair value of $633 million. At origination, the weighted average FICO score of borrowers backing these loans was 728, the weighted average LTV ratio of these loans was 66%, and the loans were nearly all first lien and prime-quality.

At December 31, 2018 and December 31, 2017, the unpaid principal balance of loans at consolidated Sequoia entities delinquent greater than 90 days was $14 million and $25 million, respectively, of which the unpaid principal balance of loans in foreclosure was $5 million and $10 million, respectively. During the years ended December 31, 2018 and 2017, we recorded net market valuation gains of $37 million and $23 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income. Pursuant to the collateralized financing entity guidelines, the market valuation changes of these loans are based on the estimated fair value of the associated ABS issued. The net impact to our income statement associated with our retained economic investment in the Legacy Sequoia securitization entities is presented in Note 5.

At Consolidated Sequoia Choice Entities

At December 31, 2018, we consolidated 2,800 held-for-investment loans at consolidated Sequoia Choice entities, with an aggregate unpaid balance of $2.04 billion and a fair value of $2.08 billion, as compared to 806 loans at December 31, 2017, with an aggregate unpaid principal balance of $605 million and a fair value of $620 million. At origination, the weighted average FICO score of borrowers backing these loans was 744, the weighted average LTV ratio of these loans was 75%, and the loans were all first lien and prime-quality. At December 31, 2018, three of these loans with an unpaid principal balance of $2 million were greater than 90 days delinquent and none of these loans were in foreclosure. At December 31, 2017, none of these loans were greater than 90 days delinquent or in foreclosure.

During the years ended December 31, 2018 and 2017, we transferred loans with a fair value of $1.78 billion and $646 million, respectively, from held-for-sale to held-for-investment associated with Choice securitizations. During the years ended December 31, 2018 and 2017, we recorded net market valuation losses of $13 million and $5 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income. Pursuant to the collateralized financing entity guidelines, the market valuation changes of these loans are based on the estimated fair value of the ABS issued associated with Choice securitizations. The net impact to our income statement associated with our retained economic investment in the Sequoia Choice securitization entities is presented in Note 5.

At Consolidated Freddie Mac SLST Entity

During the fourth quarter of 2018, we invested in subordinate securities issued by a Freddie Mac SLST securitization trust and were required to consolidate the underlying seasoned re-performing and non-performing residential loans owned at this entity for financial reporting purposes in accordance with GAAP. At securitization, which occurred during the fourth quarter of 2018, each of these mortgage loans is a fully amortizing, fixed- or step-rate, first-lien loan that has been modified. At December 31, 2018, we consolidated 7,900 held-for-investment loans at the consolidated Freddie Mac SLST entity, with an aggregate unpaid balance of $1.31 billion and a fair value of $1.22 billion. We did not own or consolidate any residential loans held at the Freddie Mac SLST entity at December 31, 2017. At securitization, which occurred during the fourth quarter of 2018, the weighted average FICO score of borrowers backing these loans was 598 and the weighted average LTV ratio of these loans was 68%. At December 31, 2018, 306 of these loans with an unpaid principal balance of $51 million were greater than 90 days delinquent and none of these loans were in foreclosure.

During the year ended December 31, 2018, we recorded a net market valuation gain of $21 million on these loans through Investment fair value changes, net on our consolidated statements of income. Pursuant to the collateralized financing entity guidelines, the market valuation changes of these loans are based on the estimated fair value of the ABS issued associated with the Freddie Mac SLST securitization. The net impact to our income statement associated with our economic investment in the Freddie Mac SLST securitization entity is presented in Note 5.

Residential Loan Characteristics

The following table presents the geographic concentration of residential loans recorded on our consolidated balance sheets at December 31, 2018 and December 31, 2017.

Table 6.2 – Geographic Concentration of Residential Loans



	December 31, 2018
Geographic Concentration (by Principal)	Held-for-Sale		Held-for- Investment at Legacy Sequoia		Held-for- Investment at Sequoia Choice		Held-for-Investment at Freddie Mac SLST		Held-for- Investment at FVO
California	40	%	19	%	39	%	12	%	47	%
Washington	10	%	1	%	7	%	2	%	5	%
Texas	6	%	6	%	8	%	3	%	8	%
Florida	4	%	13	%	4	%	10	%	5	%
New Jersey	2	%	4	%	1	%	7	%	1	%
New York	3	%	10	%	5	%	10	%	3	%
Other states (none greater than 5%)	35	%	47	%	36	%	56	%	31	%
Total	100	%	100	%	100	%	100	%	100	%



	December 31, 2017
Geographic Concentration (by Principal)	Held-for-Sale		Held-for- Investment at Legacy Sequoia		Held-for- Investment at Sequoia Choice		Held-for-Investment at Freddie Mac SLST		Held-for- Investment at FVO
California	35	%	18	%	39	%	—	%	45	%
Washington	9	%	2	%	7	%	—	%	5	%
Texas	7	%	5	%	10	%	—	%	9	%
Florida	4	%	13	%	4	%	—	%	5	%
Georgia	2	%	5	%	3	%	—	%	1	%
New York	2	%	9	%	3	%	—	%	4	%
Other states (none greater than 5%)	41	%	48	%	34	%	—	%	31	%
Total	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, 2018 and December 31, 2017.

Table 6.3 – Product Types and Characteristics of Residential Loans



December 31, 2018
(In Thousands)
Loan Balance					Number of Loans	Interest Rate⁽¹⁾				Maturity Date			Total Principal		30-89 Days DQ		90+ Days DQ
Held-for-Investment at Redwood:
Hybrid ARM loans
	$	—	to	$250	12	2.88	%	to	4.88%	2043-09	-	2046-01	$	2,190	$	59	$	—
	$	251	to	$500	59	2.63	%	to	5.75%	2043-08	-	2048-08	23,986		—		—
	$	501	to	$750	116	2.88	%	to	5.75%	2043-03	-	2048-08	73,360		692		—
	$	751	to	$1,000	129	2.88	%	to	6.38%	2043-09	-	2048-09	111,879		—		—
			over	$1,000	69	3.00	%	to	5.50%	2040-10	-	2048-10	92,151		1,112		—
					385								303,566		1,863		—
Fixed loans
	$	—	to	$250	36	3.30	%	to	5.08%	2028-11	-	2047-12	6,737		—		—
	$	251	to	$500	679	2.75	%	to	5.75%	2027-09	-	2048-11	292,730		—		—
	$	501	to	$750	1,213	2.75	%	to	6.75%	2027-10	-	2048-11	746,503		1,320		1,224
	$	751	to	$1,000	599	2.75	%	to	6.13%	2027-07	-	2048-11	517,075		903		—
			over	$1,000	384	2.80	%	to	5.88%	2031-04	-	2048-11	518,719		2,000		—
					2,911								2,081,764		4,223		1,224
Total HFI at Redwood:					3,296								$	2,385,330	$	6,086	$	1,224

Held-for-Investment at Legacy Sequoia:
ARM loans:
	$	—	to	$250	1,988	1.25	%	to	5.50%	2019-02	-	2035-11	$	206,490	$	7,179	$	3,952
	$	251	to	$500	424	1.25	%	to	5.63%	2023-05	-	2036-05	148,154		5,989		4,368
	$	501	to	$750	110	1.63	%	to	4.50%	2022-01	-	2035-02	67,471		1,309		1,880
	$	751	to	$1,000	61	1.63	%	to	4.38%	2027-11	-	2036-03	51,918		791		2,561
			over	$1,000	37	1.63	%	to	4.38%	2027-12	-	2036-05	61,710		1,023		1,194
					2,620								535,743		16,291		13,955
Hybrid ARM loans:
	$	—	to	$250	4	4.63	%	to	5.00%	2033-08	-	2034-06	769		—		—
	$	251	to	$500	10	2.63	%	to	4.88%	2033-07	-	2034-06	3,675		—		—
	$	501	to	$750	6	4.38	%	to	5.00%	2033-08	-	2034-11	3,667		—		—
			over	$1,000	1	4.88	%	to	4.88%	2033-09	-	2033-09	1,355		—		—
					21								9,466		—		—
Total HFI at Legacy Sequoia:					2,641								$	545,209	$	16,291	$	13,955

Held-for-Investment at Sequoia Choice:
Fixed loans:
	$	—	to	$250	29	2.75	%	to	5.63%	2038-03	-	2048-09	$	5,484	$	—	$	—
	$	251	to	$500	336	3.13	%	to	6.13%	2037-12	-	2048-09	149,917		1,419		925
	$	501	to	$750	1,363	3.13	%	to	6.38%	2037-02	-	2048-09	841,692		3,633		—
	$	751	to	$1,000	761	3.25	%	to	6.50%	2035-04	-	2048-09	659,845		3,549		980
			over	$1,000	311	3.13	%	to	5.88%	2038-01	-	2048-09	384,072		2,188		—
Total HFI at Sequoia Choice:					2,800								$	2,041,010	$	10,789	$	1,905

Table 6.3 – Product Types and Characteristics of Residential Loans (continued)



December 31, 2018
(In Thousands)
Loan Balance					Number of Loans	Interest Rate⁽¹⁾				Maturity Date			Total Principal		30-89 Days DQ		90+ Days DQ
Held-for-Investment at Freddie Mac SLST:
Fixed loans:
	$	—	to	$250	6,404	2.00	%	to	10.50%	2018-12	-	2058-10	$	830,118	$	130,608	$	30,686
	$	251	to	$500	1,469	2.00	%	to	7.38%	2033-08	-	2058-11	466,222		66,706		19,319
	$	501	to	$750	27	2.00	%	to	5.88%	2050-02	-	2057-12	14,634		1,631		523
Total HFI at Freddie Mac SLST:					7,900								$	1,310,974	$	198,945	$	50,528

Held-for-Sale:
ARM loans
	$	—	to	$250	2	4.00	%	to	4.13%	2032-11	-	2032-11	$	150	$	—	$	—
Hybrid ARM loans
	$	251	to	$500	8	3.88	%	to	5.38%	2048-05	-	2048-12	3,795		—		—
	$	501	to	$750	50	3.63	%	to	7.38%	2048-01	-	2049-01	31,759		—		—
	$	751	to	$1,000	27	3.88	%	to	5.25%	2048-02	-	2049-01	23,478		—		—
			over	$1,000	23	3.50	%	to	5.50%	2047-04	-	2048-12	28,112		—		—
					108								87,144		—		—
Fixed loans
	$	—	to	$250	6	4.38	%	to	5.75%	2048-08	-	2048-11	1,180		—		—
	$	251	to	$500	188	3.13	%	to	6.38%	2029-04	-	2049-01	88,204		—		—
	$	501	to	$750	788	3.75	%	to	7.00%	2033-11	-	2049-01	475,935		559		747
	$	751	to	$1,000	295	3.25	%	to	6.63%	2033-12	-	2049-01	255,429		—		—
			over	$1,000	99	3.75	%	to	6.13%	2032-10	-	2049-01	126,392		—		—
					1,376								947,140		559		747
Total Held-for-Sale					1,486								$	1,034,434	$	559	$	747

Table 6.3 – Product Types and Characteristics of Residential Loans (continued)



December 31, 2017
(In Thousands)
Loan Balance					Number of Loans	Interest Rate⁽¹⁾					Maturity Date			Total Principal		30-89 Days DQ		90+ Days DQ
Held-for-Investment at Redwood:
Hybrid ARM loans
	$	—	to	$250	7	3.50	%	to	3.88%		2043-08	-	2044-01	$	1,589	$	438	$	—
	$	251	to	$500	43	2.63	%	to	4.88%		2043-07	-	2047-10	16,703		566		—
	$	501	to	$750	87	2.88	%	to	5.13%		2040-09	-	2047-11	55,709		1,226		—
	$	751	to	$1,000	82	2.88	%	to	6.00%		2043-12	-	2047-11	71,819		984		—
			over	$1,000	40	3.00	%	to	5.00%		2040-10	-	2047-11	57,641		—		—
					259									203,461		3,214		—
Fixed loans
	$	—	to	$250	34	3.13	%	to	5.08%		2022-10	-	2046-02	6,758		—		—
	$	251	to	$500	681	2.80	%	to	6.13%		2028-02	-	2047-12	296,950		1,380		—
	$	501	to	$750	1,261	2.75	%	to	6.75%		2027-09	-	2047-12	777,103		3,818		—
	$	751	to	$1,000	649	2.75	%	to	5.00%		2027-07	-	2047-12	559,426		2,566		—
			over	$1,000	408	2.80	%	to	5.00%		2030-11	-	2048-01	564,295		—		—
					3,033									2,204,532		7,764		—
Total HFI at Redwood:					3,292									$	2,407,993	$	10,978	$	—

Held-for-Investment at Legacy Sequoia:
ARM loans:
	$	—	to	$250	2,324	1.25	%	to	5.16%		2019-02	-	2035-11	$	253,438	$	7,436	$	7,284
	$	251	to	$500	541	1.00	%	to	5.63%		2021-03	-	2036-05	189,360		9,082		9,178
	$	501	to	$750	151	1.63	%	to	4.00%		2024-05	-	2035-09	91,244		1,995		2,589
	$	751	to	$1,000	76	1.38	%	to	3.38%		2022-01	-	2035-07	65,276		1,790		1,725
			over	$1,000	53	1.00	%	to	4.63%		2027-03	-	2036-05	83,393		—		4,040
					3,145									682,711		20,303		24,816
Hybrid ARM loans:
	$	—	to	$250	4	3.25	%	to	3.75%		2033-08	-	2034-06	530		—		—
	$	251	to	$500	17	2.63	%	to	3.75%		2033-07	-	2034-12	6,170		—		—
	$	501	to	$750	11	3.38	%	to	3.75%		2033-07	-	2034-11	7,091		—		641
			over	$1,000	1	3.75	%	to	3.75%		2033-09	-	2033-09	1,420		—		—
					33									15,211		—		641
Total HFI at Legacy Sequoia:					3,178									$	697,922	$	20,303	$	25,457

Held-for-Investment at Sequoia Choice:
Fixed loans:
	$	—	to	$250	4	2.75	%	to	4.75	%	2043-05	-	2047-07	$	641	$	—	$	—
	$	251	to	$500	85	3.13	%	to	5.75	%	2042-11	-	2047-10	38,900		486		—
	$	501	to	$750	388	3.13	%	to	6.25	%	2037-02	-	2047-11	240,538		672		—
	$	751	to	$1,000	239	3.25	%	to	6.50	%	2043-05	-	2047-10	210,235		—		—
			over	$1,000	90	3.13	%	to	5.88	%	2045-01	-	2047-10	114,433		—		—
Total HFI at Sequoia Choice:					806									$	604,747	$	1,158	$	—

Table 6.3 – Product Types and Characteristics of Residential Loans (continued)



December 31, 2017
(In Thousands)
Loan Balance					Number of Loans	Interest Rate⁽¹⁾				Maturity Date			Total Principal		30-89 Days DQ		90+ Days DQ
Held-for-Sale:
ARM loans
	$	—	to	$250	2	2.88	%	to	3.00%	2032-11	-	2032-11	$	158	$	—	$	—
	$	251	to	$500	1	1.50	%	to	1.50%	2033-10	-	2033-10	286		—		—
					3								444		—		—
Hybrid ARM loans
	$	251	to	$500	8	3.25	%	to	3.88%	2047-07	-	2047-12	3,708		—		—
	$	501	to	$750	44	3.00	%	to	3.88%	2037-06	-	2048-01	28,165		—		—
	$	751	to	$1,000	19	2.88	%	to	4.00%	2044-11	-	2047-12	16,675		—		—
			over	$1,000	22	3.25	%	to	4.00%	2044-08	-	2047-12	30,336		—		—
					93								78,884		—		—
Fixed loans
	$	—	to	$250	1	4.40	%	to	4.40%	2045-07	-	2045-07	132		—		—
	$	251	to	$500	330	3.25	%	to	5.63%	2030-11	-	2048-01	153,021		495		459
	$	501	to	$750	1,005	2.88	%	to	6.00%	2029-08	-	2048-01	613,647		540		—
	$	751	to	$1,000	423	3.00	%	to	6.25%	2029-05	-	2048-01	370,379		878		—
			over	$1,000	158	3.25	%	to	5.75%	2030-11	-	2048-01	192,672		—		—
					1,917								1,329,851		1,913		459
Total Held-for-Sale					2,013								$	1,409,179	$	1,913	$	459


(1)	Rate is net of servicing fee for consolidated loans for which we do not own the MSR.