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Principles of Consolidation (Tables)

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Assets and Liabilities of Consolidated VIEs

The following table presents a summary of the assets and liabilities of these VIEs.

Table 4.1 – Assets and Liabilities of Consolidated VIEs

June 30, 2019		Legacy Sequoia				Sequoia Choice				Freddie Mac SLST				Freddie Mac K-Series				Servicing Investment				Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment		$	457,750			$	2,147,356			$	1,235,089			$	—			$	—			$	3,840,195
Multifamily loans, held-for-investment		—				—				—				3,749,657				—				3,749,657
Other investments		—				—				—				—				274,617				274,617
Cash and cash equivalents		—				—				—				—				19,393				19,393
Restricted cash		144				14				—				—				23,650				23,808
Accrued interest receivable		771				8,946				3,786				11,317				3,747				28,567
REO		1,448				—				—				—				—				1,448
Total Assets		$	460,113			$	2,156,316			$	1,238,875			$	3,760,974			$	321,407			$	7,937,685
Short-term debt		$	—			$	—			$	—			$	—			$	236,231			$	236,231
Accrued interest payable		519				7,322				2,774				10,822				321				21,758
Accrued expenses and other liabilities		—				14				—				—				17,954				17,968
Asset-backed securities issued		448,862				1,929,444				991,766				3,543,057				—				6,913,129
Total Liabilities		$	449,381			$	1,936,780			$	994,540			$	3,553,879			$	254,506			$	7,189,086
Number of VIEs		20				7				1				4				3				35

December 31, 2018		Legacy Sequoia				Sequoia Choice				Freddie Mac SLST				Freddie Mac K-Series				Servicing Investment				Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment		$	519,958			$	2,079,382			$	1,222,669			$	—			$	—			$	3,822,009
Multifamily loans, held-for-investment		—				—				—				2,144,598				—				2,144,598
Other investments		—				—				—				—				312,688				312,688
Restricted cash		146				1,022				—				—				25,363				26,531
Accrued interest receivable		822				8,988				3,926				6,595				1,091				21,422
REO		3,943				—				—				—				—				3,943
Total Assets		$	524,869			$	2,089,392			$	1,226,595			$	2,151,193			$	339,142			$	6,331,191
Short-term debt		$	—			$	—			$	—			$	—			$	262,740			$	262,740
Accrued interest payable		571				7,180				2,907				6,239				483				17,380
Accrued expenses and other liabilities		—				1,022				—				—				18,592				19,614
Asset-backed securities issued		512,240				1,885,010				993,748				2,019,075				—				5,410,073
Total Liabilities		$	512,811			$	1,893,212			$	996,655			$	2,025,314			$	281,815			$	5,709,807
Number of VIEs		20				6				1				3				3				33

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

The following table presents information related to securitization transactions that occurred during the three and six months ended June 30, 2019 and 2018.

Table 4.2 – Securitization Activity Related to Unconsolidated VIEs Sponsored by Redwood

		Three Months Ended June 30,								Six Months Ended June 30,
(In Thousands)		2019				2018				2019				2018
Principal balance of loans transferred		$	400,836			$	1,127,665			$	749,093			$	2,408,133
Trading securities retained, at fair value		1,792				33,757				3,508				46,248
AFS securities retained, at fair value		1,069				2,047				1,954				5,952

Cash Flows Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table summarizes the cash flows during the three and six months ended June 30, 2019 and 2018 between us and the unconsolidated VIEs sponsored by us and accounted for as sales since 2012.

Table 4.3 – Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood

		Three Months Ended June 30,								Six Months Ended June 30,
(In Thousands)		2019				2018				2019				2018
Proceeds from new transfers		$	410,281			$	1,104,094			$	762,652			$	2,393,781
MSR fees received		3,105				3,397				6,165				6,811
Funding of compensating interest, net		(47		)		(31		)		(137		)		(56		)
Cash flows received on retained securities		6,743				7,410				14,289				14,453

Assumptions Related to Assets Retained from Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents the key weighted-average assumptions used to measure MSRs and securities retained at the date of securitization for securitizations completed during the three and six months ended June 30, 2019 and 2018.

Table 4.4 – Assumptions Related to Assets Retained from Unconsolidated VIEs Sponsored by Redwood

		Three Months Ended June 30, 2019						Three Months Ended June 30, 2018
At Date of Securitization		Senior IO Securities			Subordinate Securities			Senior IO Securities			Subordinate Securities
Prepayment rates		16	%		15	%		10	%		10	%
Discount rates		14	%		7	%		14	%		5	%
Credit loss assumptions		0.20	%		0.20	%		0.20	%		0.20	%

		Six Months Ended June 30, 2019						Six Months Ended June 30, 2018
At Date of Securitization		Senior IO Securities			Subordinate Securities			Senior IO Securities			Subordinate Securities
Prepayment rates		16	%		15	%		9	%		10	%
Discount rates		14	%		7	%		14	%		5	%
Credit loss assumptions		0.20	%		0.20	%		0.20	%		0.20	%

Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents additional information at June 30, 2019 and December 31, 2018, related to unconsolidated VIEs sponsored by Redwood and accounted for as sales since 2012.

Table 4.5 – Unconsolidated VIEs Sponsored by Redwood

(In Thousands)		June 30, 2019				December 31, 2018
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading		$	121,825			$	129,111
Subordinate securities, classified as AFS		136,310				162,314
Mortgage servicing rights		45,010				58,572
Maximum loss exposure (1)		$	303,145			$	349,997
Assets transferred:
Principal balance of loans outstanding		$	10,586,480			$	10,580,216
Principal balance of loans 30+ days delinquent		24,749				21,805

(1)

Maximum loss exposure from our involvement with unconsolidated VIEs pertains to the carrying value of our securities and MSRs 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 June 30, 2019 and December 31, 2018.

Table 4.6 – Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated VIEs Sponsored by Redwood

June 30, 2019		MSRs				Senior Securities (1)				Subordinate Securities
(Dollars in Thousands)
Fair value at June 30, 2019		$	45,010			$	49,014			$	209,121
Expected life (in years) (2)		6				6				14
Prepayment speed assumption (annual CPR) (2)		11		%		12		%		13		%
Decrease in fair value from:
10% adverse change		$	1,898			$	1,905			$	158
25% adverse change		4,513				4,857				1,124
Discount rate assumption (2)		11		%		13		%		5		%
Decrease in fair value from:
100 basis point increase		$	1,624			$	1,310			$	20,756
200 basis point increase		3,135				2,758				38,452
Credit loss assumption (2)		N/A				0.21		%		0.21		%
Decrease in fair value from:
10% higher losses		N/A				$	—			$	1,645
25% higher losses		N/A				—				4,112

December 31, 2018		MSRs				Senior Securities (1)				Subordinate Securities
(Dollars in Thousands)
Fair value at December 31, 2018		$	58,572			$	61,178			$	230,247
Expected life (in years) (2)		8				7				15
Prepayment speed assumption (annual CPR) (2)		7		%		10		%		9		%
Decrease in fair value from:
10% adverse change		$	1,668			$	2,151			$	201
25% adverse change		4,027				5,127				1,372
Discount rate assumption (2)		11		%		12		%		6		%
Decrease in fair value from:
100 basis point increase		$	2,323			$	2,190			$	21,982
200 basis point increase		4,493				4,226				40,641
Credit loss assumption (2)		N/A				0.20		%		0.20		%
Decrease in fair value from:
10% higher losses		N/A				$	—			$	1,387
25% higher losses		N/A				—				3,471

(1) Senior securities included $49 million and $61 million of interest-only securities at June 30, 2019 and December 31, 2018, respectively.

(2)

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

Schedule of Third-Party Sponsored VIE Summary

The following table presents a summary of our interests in third-party VIEs at June 30, 2019 and December 31, 2018, grouped by asset type.

Table 4.7 – Third-Party Sponsored VIE Summary

(In Thousands)		June 30, 2019				December 31, 2018
Mortgage-Backed Securities
Senior		$	166,184			$	185,107
Mezzanine		679,908				547,249
Subordinate		373,260				428,713
Total Mortgage-Backed Securities		1,219,352				1,161,069
Excess MSR		18,224				15,092
Total Investments in Third-Party Sponsored VIEs		$	1,237,576			$	1,176,161

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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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