Other Assets and Liabilities

6 Months Ended

Jun. 30, 2019

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other assets at June 30, 2019 and December 31, 2018, are summarized in the following table.

Table 12.1 – Components of Other Assets



(In Thousands)	June 30, 2019		December 31, 2018
Margin receivable	$	211,199	$	100,773
FHLBC stock	43,393		43,393
Pledged collateral	42,913		42,433
Right-of-use asset	11,573		—
REO	6,305		3,943
Fixed assets and leasehold improvements ⁽¹⁾	5,093		5,106
Investment receivable	1,697		6,959
Other	11,950		15,218
Total Other Assets	$	334,123	$	217,825


(1)	Fixed assets and leasehold improvements had a basis of $11 million and accumulated depreciation of $6 million at June 30, 2019.

Accrued expenses and other liabilities at June 30, 2019 and December 31, 2018 are summarized in the following table.

Table 12.2 – Components of Accrued Expenses and Other Liabilities



(In Thousands)	June 30, 2019		December 31, 2018
Contingent consideration	$	24,932	$	—
Payable to minority partner	16,937		14,331
Guarantee obligations	15,744		16,711
Accrued compensation	13,671		19,769
Lease liability	13,082		—
Deferred tax liabilities	11,986		9,022
Residential bridge loan holdbacks	6,016		—
Residential loan and MSR repurchase reserve	3,769		4,189
Accrued operating expenses	3,149		3,122
Legal reserve	2,000		2,000
Accrued income taxes payable	764		423
Margin payable	—		835
Other	5,378		8,317
Total Accrued Expenses and Other Liabilities	$	117,428	$	78,719

Margin Receivable and Payable

Margin receivable and payable resulted from margin calls between us and our counterparties under derivatives, master repurchase agreements, and warehouse facilities, whereby we or the counterparty posted collateral.

FHLBC Stock

In accordance with our FHLB-member subsidiary's borrowing agreement with the FHLBC, our subsidiary is required to purchase and hold stock in the FHLBC. See Note 3 and Note 15 for additional information on this borrowing agreement.

Pledged Collateral and Guarantee Obligations

The pledged collateral and guarantee obligations presented in the tables above are related to our risk-sharing arrangements with Fannie Mae and Freddie Mac. In accordance with these arrangements, we are required to pledge collateral to secure our guarantee obligations. See Note 3 and Note 16 for additional information on our risk-sharing arrangements.

Contingent Consideration

The contingent consideration presented in the table above is related to our acquisition of 5 Arches in the first quarter of 2019. See Note 16 for additional information on our contingent consideration liabilities.

Lease Liability and Right-of-Use Asset

The lease liability and right-of-use asset presented in the tables above resulted from our adoption of ASU 2016-02, "Leases," in the first quarter of 2019. The lease liability is equal to the present value of our remaining lease payments discounted at our incremental borrowing rate and the right-of-use asset is equal to the lease liability adjusted for our deferred rent liability. These balances are reduced as lease payments are made. See Note 16 for additional information on leases.

Residential Bridge Loan Holdbacks

Residential bridge loan holdbacks represent loan amounts payable to residential bridge loan borrowers subject to the completion of various phases of property rehabilitation.

Investment Receivable

At June 30, 2019, investment receivable primarily consisted of unsettled trade receivables related to real estate securities sales. In accordance with our policy to record purchases and sales of securities on the trade date, if the trade and settlement of a purchase or sale crosses over a quarterly reporting period, we will record an investment receivable for sales and an unsettled trades liability for purchases.

REO

The carrying value of REO at June 30, 2019 was $6 million, which included $1 million of REO from our Legacy Sequoia entities and $5 million from our residential bridge loan portfolio. During the six months ended June 30, 2019, transfers into REO included $0.1 million from Legacy Sequoia entities and a $5 million residential bridge loan. During the six months ended June 30, 2019, there were Legacy Sequoia REO liquidations of $3 million, resulting in $0.5 million of unrealized gains which were recorded in Investment fair value changes, net, on our consolidated statements of income. At June 30, 2019, there were seven REO properties at our Legacy Sequoia entities and one residential bridge loan REO property recorded on our consolidated balance sheets. At December 31, 2018, there were 13 REO properties recorded, all of which were owned at consolidated Legacy Sequoia entities.

Legal and Repurchase Reserves

See Note 16 for additional information on the legal and residential repurchase reserves.

Payable to Minority Partner

In 2018, Redwood and a third-party co-investor, through two partnership entities consolidated by Redwood, purchased servicer advances and excess MSRs related to a portfolio of residential mortgage loans serviced by the co-investor (see Note 4 and Note 10 for additional information on the partnership entities and associated investments). We account for the co-investor’s interests in the entities as liabilities and at June 30, 2019, the carrying value of their interests was $17 million, representing their current economic interest in the entities. Earnings from the partnership entities are allocated to the co-investors on a proportional basis and during the three and six months ended June 30, 2019, we allocated $0.2 million and $0.5 million of gains to the co-investors, respectively, which were recorded in Other income, net on our consolidated statements of income.