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Business Purpose Residential Loans | 9 Months Ended
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Sep. 30, 2019
Receivables [Abstract] |
Business Purpose Residential Loans | 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 entities at September 30, 2019 and December 31, 2018. Table 6.1 – Classifications and Carrying Values of Residential Loans
September 30, 2019 |  |  |  | Legacy |  | Sequoia |  | Freddie Mac |  |
(In Thousands) |  | Redwood |  | Sequoia |  | Choice |  | SLST |  | Total
Held-for-sale |  |  |  |  |  |  |  |  |  |
At fair value |  | $ | 925,780 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 925,780 |
At lower of cost or fair value |  | 107 |  |  | — |  |  | — |  |  | — |  |  | 107 |
Total held-for-sale |  | 925,887 |  |  | — |  |  | — |  |  | — |  |  | 925,887 |
Held-for-investment at fair value |  | 2,267,218 |  |  | 429,159 |  |  | 2,618,316 |  |  | 2,441,223 |  |  | 7,755,916 |
Total Residential Loans |  | $ | 3,193,105 |  |  | $ | 429,159 |  |  | $ | 2,618,316 |  |  | $ | 2,441,223 |  |  | $ | 8,681,803 |
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 |
At September 30, 2019, we owned mortgage servicing rights associated with $2.51 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 September 30, 2019, we owned 1,206 loans held-for-sale at fair value with an aggregate unpaid principal balance of $904 million and a fair value of $926 million, compared to 1,484 loans with an aggregate unpaid principal balance of $1.03 billion and a fair value of $1.05 billion at December 31, 2018. At both September 30, 2019 and December 31, 2018, one of these loans with a fair value of $0.6 million and an unpaid principal balance of $0.7 million was greater than 90 days delinquent and none of these loans were in foreclosure. During the three and nine months ended September 30, 2019, we purchased $1.45 billion and $3.94 billion (principal balance) of loans, respectively, for which we elected the fair value option, and we sold $1.53 billion and $3.92 billion (principal balance) of loans, respectively, for which we recorded a net market valuation loss of $7 million and a net market valuation gain of $0.3 million, respectively, through Mortgage banking activities, net on our consolidated statements of income. At September 30, 2019, loans held-for-sale with a market value of $253 million were pledged as collateral under short-term borrowing agreements. During the three and nine months ended September 30, 2018, we purchased $1.79 billion and $5.52 billion (principal balance) of loans, respectively, for which we elected the fair value option, and we sold $1.90 billion and $5.83 billion (principal balance) of loans, respectively, for which we recorded net market valuation gain s of $6 million and $16 million, respectively, through Mortgage banking activities, net on our consolidated statements of income. At Lower of Cost or Fair Value At both September 30, 2019 and December 31, 2018, we held two residential loans at the lower of cost or fair value with $0.1 million in outstanding principal balance and carrying values of $0.1 million. At both September 30, 2019 and December 31, 2018, none of these loans were greater than 90 days delinquent or in foreclosure. Residential Loans Held-for-Investment at Fair Value At Redwood At September 30, 2019, we owned 3,118 held-for-investment loans at Redwood with an aggregate unpaid principal balance of $2.20 billion and a fair value of $2.27 billion, compared to 3,296 loans with an aggregate unpaid principal balance of $2.39 billion and a fair value of $2.38 billion at December 31, 2018. At September 30, 2019, one of these loans with an aggregate fair value of $0.5 million and an unpaid principal balance of $0.6 million was greater than 90 days delinquent and in foreclosure. At December 31, 2018, two of these loans with an aggregate fair value and unpaid principal balance of $1 million were greater than 90 days delinquent and none of these loans were in foreclosure. During the three and nine months ended September 30, 2019, we purchased zero and $39 million (principal balance) of loans, respectively, for which we elected the fair value option, and did no t sell any loans. During the three and nine months ended September 30, 2019, we transferred loans with a fair value of zero and $69 million, respectively, from held-for-sale to held-for-investment. During the three and nine months ended September 30, 2019, we transferred loans with a fair value of zero and $23 million, respectively, from held-for-investment to held-for-sale. During the three and nine months ended September 30, 2019, we recorded net market valuation gain s of $8 million and $71 million, respectively, on residential loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income. At September 30, 2019, loans with a fair value of $2.27 billion were pledged as collateral under a borrowing agreement with the FHLBC. During the three and nine months ended September 30, 2018, we transferred loans with a fair value of $116 million and $204 million, respectively, from held-for-sale to held-for-investment. During both the three and nine months ended September 30, 2018, we transferred loans with a fair value of $16 million from held-for-investment to held-for-sale. During the three and nine months ended September 30, 2018, we recorded net market valuation loss es of $17 million and $71 million, respectively, on residential loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income. The outstanding loans held-for-investment at Redwood at September 30, 2019 were prime-quality, first lien loans, of which 96% were originated between 2013 and 2019, 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 September 30, 2019, these loans were comprised of 88% fixed-rate loans with a weighted average coupon of 4.15%, and the remainder were hybrid or ARM loans with a weighted average coupon of 4.19%. At Consolidated Legacy Sequoia Entities At September 30, 2019, we consolidated 2,277 held-for-investment loans at consolidated Legacy Sequoia entities, with an aggregate unpaid principal balance of $446 million and a fair value of $429 million, as compared to 2,641 loans at December 31, 2018, with an aggregate unpaid principal balance of $545 million and a fair value of $520 million. At origination, the weighted average FICO score of borrowers backing these loans was 727, the weighted average LTV ratio of these loans was 66%, and the loans were nearly all first lien and prime-quality. At September 30, 2019 and December 31, 2018, the aggregate unpaid principal balance of loans at consolidated Legacy Sequoia entities delinquent greater than 90 days was $13 million and $14 million, respectively, of which the aggregate unpaid principal balance of loans in foreclosure was $3 million and $5 million, respectively. During the three and nine months ended September 30, 2019, we recorded a net market valuation loss of $0.1 million and a net market valuation gain of $5 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income. During the three and nine months ended September 30, 2018, we recorded net market valuation gain s of $4 million and $37 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 September 30, 2019, we consolidated 3,543 held-for-investment loans at the consolidated Sequoia Choice entities, with an aggregate unpaid principal balance of $2.55 billion and a fair value of $2.62 billion, as compared to 2,800 loans at December 31, 2018 with an aggregate unpaid principal balance of $2.04 billion and a fair value of $2.08 billion. At origination, the weighted average FICO score of borrowers backing these loans was 745, the weighted average LTV ratio of these loans was 75%, and the loans were all first lien and prime-quality. At September 30, 2019, six of these loans with an aggregate unpaid principal balance of $4 million were greater than 90 days delinquent and one of these loans with an unpaid principal balance of $1 million was in foreclosure. At December 31, 2018, three of these loans with an aggregate unpaid principal balance of $2 million were greater than 90 days delinquent and none of these loans were in foreclosure. During the three and nine months ended September 30, 2019, we transferred loans with a fair value of $727 million and $1.08 billion, respectively, from held-for-sale to held-for-investment associated with Choice securitizations. During the three and nine months ended September 30, 2019, we recorded a net market valuation loss of $11 million and a net market valuation gain of $5 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income. During the three and nine months ended September 30, 2018, we recorded net market valuation loss es of $13 million and $25 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 Entities Beginning in the fourth quarter of 2018, we invested in subordinate securities issued by certain Freddie Mac SLST securitization trusts and were required to consolidate the underlying seasoned re-performing and non-performing residential loans owned at these entities for financial reporting purposes in accordance with GAAP. At securitization, each of these mortgage loans was a fully amortizing, fixed- or step-rate, first-lien loan that had been modified. At September 30, 2019, we consolidated 14,706 held-for-investment loans at the consolidated Freddie Mac SLST entities, with an aggregate unpaid principal balance of $2.47 billion and a fair value of $2.44 billion, compared to 7,900 loans at December 31, 2018 with an aggregate unpaid principal balance of $1.31 billion and a fair value of $1.22 billion. At securitization, the weighted average FICO score of borrowers backing these loans was 599 and the weighted average LTV ratio of these loans was 68%. At September 30, 2019, 288 of these loans with an aggregate unpaid principal balance of $75 million were greater than 90 days delinquent, and 150 of these loans with an aggregate unpaid principal balance of $24 million were in foreclosure. At December 31, 2018, 306 of these loans with an aggregate unpaid principal balance of $51 million were greater than 90 days delinquent and none of these loans were in foreclosure. During the three and nine months ended September 30, 2019, we recorded net market valuation gain s of $40 million and $95 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 the Freddie Mac SLST securitizations. The net impact to our income statement associated with our economic investment in the Freddie Mac SLST securitization entities is presented in Note 5.Business Purpose Residential Loans We originate business purpose residential loans, including single-family rental loans and residential bridge loans. This origination activity commenced in connection with our acquisition of 5 Arches in March 2019. Business Purpose Residential Loan Originations During the three months ended September 30, 2019, we funded $127 million of business purpose residential loans, of which $3 million of residential bridge loans were sold to a third party. During the period from March 1, 2019 to September 30, 2019, we funded $297 million of business purpose residential loans, of which $47 million of residential bridge loans were sold to a third party. The remaining business purpose residential loans were transferred to our investment portfolio (residential bridge loans), or retained in our mortgage banking business (single-family rental loans). Prior to the transfer of residential bridge loans to our investment portfolio, we recorded net market valuation gains of $1 million and $2 million on these loans through Mortgage banking activities, net on our consolidated statements of income for the three months ended September 30, 2019 and for the period from March 1, 2019 to September 30, 2019, respectively. Market valuation adjustments on our single-family rental loans are also recorded in Mortgage banking activities, net on our consolidated statements of income. Additionally, during the three months ended September 30, 2019 and during the period from March 1, 2019 to September 30, 2019, we recorded loan origination fee income associated with business purpose loans of $3 million and $6 million, respectively, through Mortgage banking activities, net on our consolidated statements of income. The following table summarizes the classifications and carrying values of the business purpose residential loans owned at Redwood at September 30, 2019 and December 31, 2018. Table 7.1 – Classifications and Carrying Values of Business Purpose Residential Loans
September 30, 2019 |  | Single-Family |  | Residential |  |
(In Thousands) |  | Rental |  | Bridge |  | Total
Held-for-sale at fair value |  | $ | 110,434 |  |  | $ | — |  |  | $ | 110,434 |
Held-for-investment at fair value |  | 18,711 |  |  | 206,890 |  |  | 225,601 |
Total Business Purpose Residential Loans |  | $ | 129,145 |  |  | $ | 206,890 |  |  | $ | 336,035 |
December 31, 2018 |  | Single-Family |  | Residential |  |
(In Thousands) |  | Rental |  | Bridge |  | Total
Held-for-sale at fair value |  | $ | 28,460 |  |  | $ | — |  |  | $ | 28,460 |
Held-for-investment at fair value |  | — |  |  | 112,798 |  |  | 112,798 |
Total Business Purpose Residential Loans |  | $ | 28,460 |  |  | $ | 112,798 |  |  | $ | 141,258 |
Single-Family Rental Loans Held-for-Sale at Fair Value At September 30, 2019, we owned 77 single-family rental loans held-for-sale with an aggregate unpaid principal balance of $106 million and a fair value of $110 million, compared to 11 loans at December 31, 2018 with an aggregate unpaid principal balance of $28 million and a fair value of $28 million. At both September 30, 2019 and December 31, 2018, none of these loans were greater than 90 days delinquent or in foreclosure. During the three months ended September 30, 2019 and for the period from March 1, 2019 to September 30, 2019, we originated $36 million and $78 million of single-family rental loans, respectively. During both the three months ended September 30, 2019 and for the period from March 1, 2019 to September 30, 2019, $19 million of single-family rental loans were transferred to our investment portfolio and financed with FHLB borrowings, and the remaining loans were retained in our mortgage banking business. We did no t sell any loans during either of these periods. During the first two months of 2019, prior to our acquisition of 5 Arches on March 1, 2019, we purchased $19 million of single-family rental loans from 5 Arches. During the three and nine months ended September 30, 2019, we recorded net market valuation gain s of $1 million and $3 million, respectively, on single-family rental loans held-for-sale at fair value through Mortgage banking activities, net on our consolidated statements of income. At September 30, 2019, loans held-for-sale with a market value of $78 million were pledged as collateral under short-term borrowing agreements. The outstanding single-family rental loans held-for-sale at September 30, 2019 were first lien, fixed-rate loans with original maturities of five, seven, or ten years. At September 30, 2019, the weighted average coupon of our single-family rental loans was 5.35% and the weighted average remaining loan term was six years. At origination, the weighted average LTV ratio of these loans was 68% and the weighted average debt service coverage ratio ("DSCR") was 1.36 times. Single-Family Rental Loans Held-for-Investment at Fair Value At September 30, 2019, we owned one single-family rental loan held-for-investment with an aggregate unpaid principal balance of $17 million and a fair value of $19 million. At September 30, 2019, this loan was no t greater than 90 days delinquent or in foreclosure. During the three months ended September 30, 2019, we transferred one loan with a fair value of $19 million from held-for-sale to held-for-investment. During both the three and nine months ended September 30, 2019, we recorded net market valuation gain s of less than $0.1 million on single-family rental loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income. Residential Bridge Loans Held-for-Investment at Fair Value At September 30, 2019, we owned 392 residential bridge loans held-for-investment with an aggregate unpaid principal balance of $205 million and a fair value of $207 million, compared to 157 loans at December 31, 2018 with an aggregate unpaid principal balance of $112 million and a fair value of $113 million. As part of our credit risk management practices, our residential bridge loans are subject to individual risk assessment using an internal borrower and collateral quality evaluation framework. At September 30, 2019, nine loans with an aggregate fair value and unpaid principal balance of $6 million were greater than 90 days delinquent, and eight of these loans with an aggregate fair value and unpaid principal balance of $5 million were in foreclosure. At December 31, 2018, seven loans with an aggregate fair value of $12 million were greater than 90 days delinquent and four of these loans with an aggregate fair value of $11 million were in foreclosure. During the nine months ended September 30, 2019, we transferred one loan with a fair value of $5 million to REO, which is included in Other assets on our consolidated balance sheets. During the three months ended September 30, 2019 and for the period from March 1, 2019 to September 30, 2019, $88 million and $174 million of newly originated residential bridge loans, respectively, were transferred to our investment portfolio. During the first two months of 2019, prior to our acquisition of 5 Arches on March 1, 2019, we purchased $10 million of residential bridge loans from 5 Arches. During both the three and nine months ended September 30, 2019, we recorded net market valuation loss es of $1 million on residential bridge loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income. At September 30, 2019, loans with a market value of $176 million were pledged as collateral under short-term borrowing agreements. The outstanding residential bridge loans held-for-investment at September 30, 2019 were first lien, fixed-rate, interest-only loans with a weighted average coupon of 8.90% and original maturities of six to 24 months. At origination, the weighted average FICO score of borrowers backing these loans was 693 and the weighted average LTV ratio of these loans was 70%. At September 30, 2019, we had a $67 million commitment to fund residential bridge loans. See Note 16 for additional information on this commitment. Multifamily Loans Beginning in the second half of 2018, we invested in multifamily subordinate securities issued by certain Freddie Mac K-Series securitization trusts and were required to consolidate the underlying multifamily loans owned at these entities for financial reporting purposes in accordance with GAAP. At September 30, 2019, we consolidated 250 held-for-investment multifamily loans, with an aggregate unpaid principal balance of $3.54 billion and a fair value of $3.79 billion, compared to 162 loans at December 31, 2018 with an aggregate unpaid principal balance of $2.13 billion and a fair value of $2.14 billion. The outstanding multifamily loans held-for-investment at the Freddie Mac K-Series entities at September 30, 2019 were first lien, fixed-rate loans that were originated between 2015 and 2017 and had original loan terms of seven to ten years and an original weighted average LTV ratio of 69%. At September 30, 2019, the weighted average coupon of these multifamily loans was 4.19% and the weighted average remaining loan term was six years. At both September 30, 2019 and December 31, 2018, none of these loans were greater than 90 days delinquent or in foreclosure. During the three and nine months ended September 30, 2019, we recorded net market valuation gain s of $47 million and $178 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 the securitizations. The net impact to our income statement associated with our economic investment in the securities of the Freddie Mac K-Series securitization entities is presented in Note 5.

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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -URI http://asc.fasb.org/subtopic&trid=2196772 + Details
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