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Residential Loans | 6 Months Ended
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Jun. 30, 2020
Receivables [Abstract] |
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 and Freddie Mac SLST entities at June 30, 2020 and December 31, 2019. Table 6.1 – Classifications and Carrying Values of Residential Loans
June 30, 2020 |  |  |  | Legacy |  | Sequoia |  | Freddie Mac |  |
(In Thousands) |  | Redwood |  | Sequoia |  | Choice |  | SLST |  | Total
Held-for-sale at fair value |  | $ | 20,200 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 20,200 |
Held-for-investment at fair value |  | — |  |  | 304,632 |  |  | 2,064,388 |  |  | 2,145,111 |  |  | 4,514,131 |
Total Residential Loans |  | $ | 20,200 |  |  | $ | 304,632 |  |  | $ | 2,064,388 |  |  | $ | 2,145,111 |  |  | $ | 4,534,331 |
December 31, 2019 |  |  |  | Legacy |  | Sequoia |  | Freddie Mac |  |
(In Thousands) |  | Redwood |  | Sequoia |  | Choice |  | SLST |  | Total
Held-for-sale at fair value |  | $ | 536,385 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 536,385 |
Held-for-investment at fair value |  | 2,111,897 |  |  | 407,890 |  |  | 2,291,463 |  |  | 2,367,215 |  |  | 7,178,465 |
Total Residential Loans |  | $ | 2,648,282 |  |  | $ | 407,890 |  |  | $ | 2,291,463 |  |  | $ | 2,367,215 |  |  | $ | 7,714,850 |
At June 30, 2020, we owned mortgage servicing rights associated with $20 million (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 June 30, 2020, we owned 29 loans held-for-sale at fair value with an aggregate unpaid principal balance of $21 million and a fair value of $20 million, compared to 669 loans with an aggregate unpaid principal balance of $525 million and a fair value of $536 million at December 31, 2019. At June 30, 2020, three of these loans with an aggregate fair value of $2 million and unpaid principal balance of $3 million were greater than 90 days delinquent and one of these loans with a fair value of $0.4 million and an unpaid principal balance of $1 million was in foreclosure. At December 31, 2019, one of these loans with a fair value and unpaid principal balance of $1 million was greater than 90 days delinquent and none of these loans were in foreclosure. During the three and six months ended June 30, 2020, we purchased $58 million and $2.69 billion (principal balance) of loans, respectively, for which we elected the fair value option, and we sold $2.28 billion and $4.94 billion (principal balance) of loans, respectively, for which we recorded net market valuation losses of $2 million and $15 million, respectively, through Mortgage banking activities, net on our consolidated statements of income (loss). At June 30, 2020, loans held-for-sale with a market value of $15 million were pledged as collateral under short-term borrowing agreements. During the three and six months ended June 30, 2019, we purchased $1.53 billion and $2.49 billion (principal balance) of loans, respectively, for which we elected the fair value option, and we sold $1.23 billion and $2.39 billion (principal balance) of loans, respectively, for which we recorded net market valuation gains of $3 million and $7 million, respectively, through Mortgage banking activities, net on our consolidated statements of income (loss). Residential Loans Held-for-Investment at Fair Value At Redwood At June 30, 2020, we did not own any held-for-investment loans at Redwood. At December 31, 2019, we owned 2,940 held-for-investment loans at Redwood with an aggregate unpaid principal balance of $2.05 billion and a fair value of $2.11 billion. At December 31, 2019, two of these loans with an aggregate fair value of $1 million and an unpaid principal balance of $2 million were greater than 90 days delinquent and none of these loans were in foreclosure. During the three and six months ended June 30, 2020, we transferred loans with a fair value of zero and $13 million, respectively, from held-for-sale to held-for-investment. During the three and six months ended June 30, 2020, we transferred loans with a fair value of zero and $1.87 billion, respectively, from held-for-investment to held-for-sale. During the three and six months ended June 30, 2020, we recorded net market valuation losses of zero and $94 million, respectively, on residential loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income (loss). During the three and six months ended June 30, 2019, we purchased zero and $39 million (principal balance) of loans, respectively, for which we elected the fair value option, and did not sell any loans. During the three and six months ended June 30, 2019, we transferred loans with a fair value of $30 million and $69 million, respectively, from held-for-sale to held-for-investment. During the three and six months ended June 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 six months ended June 30, 2019, we recorded net market valuation gains of $36 million and $64 million, respectively, on residential loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income (loss). At Consolidated Legacy Sequoia Entities At June 30, 2020, we consolidated 2,063 held-for-investment loans at consolidated Legacy Sequoia entities, with an aggregate unpaid principal balance of $382 million and a fair value of $305 million, as compared to 2,198 loans at December 31, 2019, with an aggregate unpaid principal balance of $425 million and a fair value of $408 million. At origination, the weighted average FICO score of borrowers backing these loans was 727, the weighted average LTV ratio of these loans was 65%, and the loans were nearly all first lien and prime-quality. At June 30, 2020 and December 31, 2019, the aggregate unpaid principal balance of loans at consolidated Legacy Sequoia entities delinquent greater than 90 days was $12 million and $10 million, respectively, of which the aggregate unpaid principal balance of loans in foreclosure was $3 million and $4 million, respectively. During the three and six months ended June 30, 2020, we recorded a net market valuation gain of $8 million and a net market valuation loss of $61 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income (loss). During the three and six months ended June 30, 2019, we recorded net market valuation gains of $1 million and $5 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income (loss). 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 June 30, 2020, we consolidated 2,861 held-for-investment loans at the consolidated Sequoia Choice entities, with an aggregate unpaid principal balance of $2.03 billion and a fair value of $2.06 billion, as compared to 3,156 loans at December 31, 2019 with an aggregate unpaid principal balance of $2.24 billion and a fair value of $2.29 billion. At origination, the weighted average FICO score of borrowers backing these loans was 743, the weighted average LTV ratio of these loans was 74%, and the loans were all first lien and prime-quality. At June 30, 2020, 22 of these loans with an aggregate unpaid principal balance of $16 million were greater than 90 days delinquent and five of these loans with an aggregate unpaid principal balance of $3 million was in foreclosure. At December 31, 2019, nine of these loans with an aggregate unpaid principal balance of $7 million were greater than 90 days delinquent and three of these loans with an aggregate unpaid principal balance of $2 million were in foreclosure. During both the three and six months ended June 30, 2020, we transferred $271 million of loans from held-for-sale to held-for-investment associated with Choice securitizations. During the three and six months ended June 30, 2019, we transferred loans with a fair value of zero and $350 million, respectively, from held-for-sale to held-for-investment associated with Choice securitizations. During the three and six months ended June 30, 2020, we recorded a net market valuation gain of $94 million and a net market valuation loss of $17 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income (loss). 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 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 June 30, 2020, we consolidated 14,143 held-for-investment loans at the consolidated Freddie Mac SLST entities, with an aggregate unpaid principal balance of $2.35 billion and a fair value of $2.15 billion, as compared to 14,502 loans at December 31, 2019 with an aggregate unpaid principal balance of $2.43 billion and a fair value of $2.37 billion. At securitization, the weighted average FICO score of borrowers backing these loans was 600 and the weighted average LTV ratio of these loans was 73%. At June 30, 2020, 1,409 of these loans with an aggregate unpaid principal balance of $258 million were greater than 90 days delinquent, of which 236 of these loans with an aggregate unpaid principal balance of $38 million were in foreclosure. At December 31, 2019, 587 of these loans with an aggregate unpaid principal balance of $135 million were greater than 90 days delinquent and 208 of these loans with an aggregate unpaid principal balance of $33 million were in foreclosure. During the three and six months ended June 30, 2020, we recorded a net market valuation gain of $49 million and a net market valuation loss of $144 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income (loss). During the three and six months ended June 30, 2019, we recorded net market valuation gains of $31 million and $55 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income (loss). 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 acquisitions of 5 Arches and CoreVest in 2019. Business Purpose Residential Loan Originations During the three months ended June 30, 2020, we funded $234 million of business purpose residential loans, of which $2 million of residential bridge loans and no single-family rental loans were sold to third parties. 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) for future securitizations. Prior to the transfer of residential bridge loans to our investment portfolio, we recorded a net market valuation loss of $3 million on these loans through Mortgage banking activities, net on our consolidated statements of income (loss) for the three months ended June 30, 2020. Market valuation adjustments on our single-family rental loans are also recorded in Mortgage banking activities, net on our consolidated statements of income (loss) prior to their sale or transfer to our investment portfolio. Additionally, during the three and six months ended June 30, 2020, we recorded loan origination fee income associated with business purpose residential loans of $2 million and $11 million, respectively, through Mortgage banking activities, net on our consolidated statements of income (loss). The following table summarizes the classifications and carrying values of the business purpose residential loans owned at Redwood at June 30, 2020 and December 31, 2019. Table 7.1 – Classifications and Carrying Values of Business Purpose Residential Loans
June 30, 2020 |  | Single-Family Rental |  |  |  | Residential |  |
(In Thousands) |  | Redwood |  | CAFL |  | Bridge |  | Total
Held-for-sale at fair value |  | $ | 379,795 |  |  | — |  |  | $ | — |  |  | $ | 379,795 |
Held-for-investment at fair value |  | — |  |  | 2,615,038 |  |  | 787,367 |  |  | 3,402,405 |
Total Business Purpose Residential Loans |  | $ | 379,795 |  |  | $ | 2,615,038 |  |  | $ | 787,367 |  |  | $ | 3,782,200 |
December 31, 2019 |  | Single-Family Rental |  |  |  | Residential |  |
(In Thousands) |  | Redwood |  | CAFL |  | Bridge |  | Total
Held-for-sale at fair value |  | $ | 331,565 |  |  | $ | — |  |  | $ | — |  |  | $ | 331,565 |
Held-for-investment at fair value |  | 237,620 |  |  | 2,192,552 |  |  | 745,006 |  |  | 3,175,178 |
Total Business Purpose Residential Loans |  | $ | 569,185 |  |  | $ | 2,192,552 |  |  | $ | 745,006 |  |  | $ | 3,506,743 |
Single-Family Rental Loans At June 30, 2020, we owned 199 single-family rental loans with an aggregate unpaid principal balance and fair value of $380 million, as compared to 308 loans at December 31, 2019 with an aggregate unpaid principal balance of $553 million and a fair value of $569 million. At June 30, 2020, three of these loans with an aggregate unpaid principal balance and fair value of $3 million were in foreclosure, of which two of these loans with an aggregate unpaid principal balance and fair value of $2 million were greater than 90 days delinquent. At December 31, 2019, two of these loans with an aggregate unpaid principal balance and fair value of $2 million were greater than 90 days delinquent, of which one of these loans with an unpaid principal balance of $0.1 million was in foreclosure. During the three and six months ended June 30, 2020, we originated $176 million and $436 million of single-family rental loans, respectively. During the six months ended June 30, 2020, we transferred $599 million of single-family rental loans from held-for-sale to held-for-investment associated with two CAFL securitizations and sold $26 million to third parties. Additionally, at March 31, 2020, we transferred all held-for-investment single-family rental loans to held-for-sale. During the three and six months ended June 30, 2020, we recorded a net market valuation gain of $3 million and a net market valuation loss of $9 million, respectively, on single-family rental loans. Of the $3 million of net market valuation gains recorded during the three months ended June 30, 2020, $1 million of net market valuation gains were recorded through Mortgage banking activities, net and $2 million of net market valuation gains were recorded through Investment fair value changes, net on our consolidated statements of income (loss). Of the $9 million of net market valuation losses recorded during the six months ended June 30, 2020, $12 million of net market valuation gains were recorded through Mortgage banking activities, net and $21 million of net market valuation losses were recorded through Investment fair value changes, net on our consolidated statements of income (loss). During the three and six months ended June 30, 2019, we recorded net market valuation gains of $1 million and $2 million, respectively, on single-family rental loans through Mortgage banking activities, net on our consolidated statements of income (loss). The outstanding single-family rental loans held-for-sale at June 30, 2020 were first lien, fixed-rate loans with original maturities of five, seven, or ten years. At June 30, 2020, the weighted average coupon of our single-family rental loans was 4.82% and the weighted average remaining loan term was eight years. At origination, the weighted average LTV ratio of these loans was 67% and the weighted average debt service coverage ratio ("DSCR") was 1.35 times. Single-Family Rental Loans Held-for-Investment at CAFL In conjunction with our acquisition of CoreVest in the fourth quarter of 2019, we consolidated the single-family rental loans owned at certain CAFL securitization entities. At June 30, 2020, we consolidated 967 held-for-investment single-family rental loans at the consolidated CAFL entities, with an aggregate unpaid principal balance of $2.58 billion and a fair value of $2.62 billion, as compared to 783 loans at December 31, 2019 with an aggregate unpaid principal balance of $2.08 billion and a fair value of $2.19 billion. The outstanding single-family rental loans held-for-investment at CAFL at June 30, 2020 were first-lien, fixed-rate loans with original maturities of five, seven, or ten years. At June 30, 2020, the weighted average coupon of our single-family rental loans was 5.52% and the weighted average remaining loan term was six years. At origination, the weighted average LTV ratio of these loans was 69% and the weighted average DSCR was 1.37 times. At June 30, 2020, 19 of these loans with an aggregate unpaid principal balance of $29 million were greater than 90 days delinquent and eight of these loans with an aggregate unpaid principal balance of $14 million were in foreclosure. At December 31, 2019, 18 of these loans with an aggregate unpaid principal balance of $29 million were greater than 90 days delinquent and five of these loans with an aggregate unpaid principal balance of $9 million were in foreclosure. During the three and six months ended June 30, 2020, we recorded a net market valuation gain of $169 million and a net market valuation loss of $103 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income (loss). 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 CAFL securitizations. The net impact to our income statement associated with our retained economic investment in the CAFL securitization entities is presented in Note 5. Residential Bridge Loans Held-for-Investment At June 30, 2020, we owned 2,847 residential bridge loans held-for-investment with an aggregate unpaid principal balance of $803 million and a fair value of $787 million, as compared to 2,653 loans at December 31, 2019 with an aggregate unpaid principal balance of $743 million and a fair value of $745 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 June 30, 2020, 13 loans with an aggregate fair value of $30 million and an unpaid principal balance of $35 million were greater than 90 days delinquent, of which nine of these loans with an aggregate fair value of $28 million and an unpaid principal balance of $32 million were in foreclosure. At December 31, 2019, 31 loans with an aggregate fair value of $12 million and an unpaid principal balance of $14 million were in foreclosure, of which 15 of these loans with an aggregate fair value of $7 million and an unpaid principal balance of $9 million were greater than 90 days delinquent. During the six months ended June 30, 2020, we transferred three loans with a fair value of $2 million to REO, which is included in Other assets on our consolidated balance sheets. During the three and six months ended June 30, 2020, $54 million and $260 million of newly originated residential bridge loans, respectively, were transferred to our investment portfolio. During the three and six months ended June 30, 2020, we recorded a net market valuation gain of $22 million and a net market valuation loss of $17 million, respectively, on residential bridge loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income (loss). During the three and six months ended June 30, 2019, we recorded net market valuation losses of $0.3 million and $0.6 million, respectively, on residential bridge loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income (loss). The outstanding residential bridge loans held-for-investment at June 30, 2020 were first lien, fixed-rate, interest-only loans with a weighted average coupon of 7.96% and original maturities of six to 24 months. At origination, the weighted average FICO score of borrowers backing these loans was 720 and the weighted average LTV ratio of these loans was 69%. At June 30, 2020, we had a $167 million commitment to fund residential bridge loans. See Note 16 for additional information on this commitment. Multifamily Loans Since 2018, we invested in multifamily subordinate securities issued by 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. During the first quarter of 2020, we sold subordinate securities issued by four such Freddie Mac K-Series securitization trusts and deconsolidated $3.85 billion of multifamily loans. See Note 2 for further discussion. At June 30, 2020, we consolidated 28 held-for-investment multifamily loans, with an aggregate unpaid principal balance of $465 million and a fair value of $489 million, as compared to 279 loans at December 31, 2019 with an aggregate unpaid principal balance of $4.20 billion and a fair value of $4.41 billion. The outstanding multifamily loans held-for-investment at the Freddie Mac K-Series entities at June 30, 2020 were first-lien, fixed-rate loans that were originated in 2015 and had original loan terms of ten years and an original weighted average LTV ratio of 67%. At June 30, 2020, the weighted average coupon of these multifamily loans was 4.25% and the weighted average remaining loan term was five years. At both June 30, 2020 and December 31, 2019, none of these loans were greater than 90 days delinquent or in foreclosure. During the three and six months ended June 30, 2020, we recorded a net market valuation gain of $19 million and a net market valuation loss of $64 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income (loss). During the three and six months ended June 30, 2019, we recorded net market valuation gains of $97 million and $131 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income (loss). 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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