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Principles of Consolidation (Tables)

3 Months Ended

Mar. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule 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 Accounted for as Collateralized Financing Entities

March 31, 2021						Legacy Sequoia						Sequoia Choice						CAFL						Freddie Mac SLST						Freddie Mac K-Series						Servicing Investment						Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment						$	274,861					$	1,276,112					$	—					$	2,154,351					$	—					$	—					$	3,705,324
Business purpose loans, held-for-investment						—						—						3,212,526						—						—						—						3,212,526
Multifamily loans, held-for-investment						—						—						—						—						489,545						—						489,545
Other investments						—						—						—						—						—						225,723						225,723
Cash and cash equivalents						—						—						—						—						—						10,698						10,698
Restricted cash						148						—						—						—						—						29,518						29,666
Accrued interest receivable						277						5,904						13,528						6,560						1,338						2,191						29,798
Other assets						597						—						12,341						1,860						—						6,125						20,923
Total Assets						$	275,883					$	1,282,016					$	3,238,395					$	2,162,771					$	490,883					$	274,255					$	7,724,203
Short-term debt						$	—					$	—					$	—					$	—					$	—					$	192,072					$	192,072
Accrued interest payable						129						3,658						10,412						4,669						1,208						114						20,190
Accrued expenses and other liabilities						—						28						—						—						—						17,181						17,209
Asset-backed securities issued						271,915						1,054,005						2,963,752						1,725,235						460,565						—						6,475,472
Total Liabilities						$	272,044					$	1,057,691					$	2,974,164					$	1,729,904					$	461,773					$	209,367					$	6,704,943
Number of VIEs						20						10						14						2						1						3						50

December 31, 2020						Legacy Sequoia						Sequoia Choice						CAFL						Freddie Mac SLST						Freddie Mac K-Series						Servicing Investment						Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment						$	285,935					$	1,565,322					$	—					$	2,221,153					$	—					$	—					$	4,072,410
Business purpose loans, held-for-investment						—						—						3,249,194						—						—						—						3,249,194
Multifamily loans, held-for-investment						—						—						—						—						492,221						—						492,221
Other investments						—						—						—						—						—						251,773						251,773
Cash and cash equivalents						—						—						—						—						—						11,579						11,579
Restricted cash						148						—						—						—						—						23,220						23,368
Accrued interest receivable						305						6,802						13,055						6,754						1,337						2,334						30,587
Other assets						638						—						2,930						646						—						5,723						9,937
Total Assets						$	287,026					$	1,572,124					$	3,265,179					$	2,228,553					$	493,558					$	294,629					$	8,141,069
Short-term debt						$	—					$	—					$	—					$	—					$	—					$	208,375					$	208,375
Accrued interest payable						141						4,697						10,278						4,846						1,177						135						21,274
Accrued expenses and other liabilities						—						50						—						—						—						18,353						18,403
Asset-backed securities issued						282,326						1,347,357						3,013,093						1,793,620						463,966						—						6,900,362
Total Liabilities						$	282,467					$	1,352,104					$	3,023,371					$	1,798,466					$	465,143					$	226,863					$	7,148,414
Number of VIEs						20						10						14						2						1						3						50

The following table presents income (loss) from these VIEs for the three months ended March 31, 2021 and 2020.

Table 4.2 – Income (Loss) from Consolidated VIEs Accounted for as Collateralized Financing Entities

						Three Months Ended March 31, 2021
						Legacy Sequoia						Sequoia Choice						Freddie Mac SLST						Freddie Mac K-Series						CAFL						Servicing Investment						Total Consolidated VIEs
(Dollars in Thousands)
Interest income						$	1,348					$	15,483					$	20,159					$	4,786					$	48,873					$	4,222					$	94,871
Interest expense						(875)						(12,106)						(14,468)						(4,356)						(39,011)						(1,286)						(72,102)
Net interest income						473						3,377						5,691						430						9,862						2,936						22,769
Non-interest income
Investment fair value changes, net						(699)						4,898						4,117						8,921						(286)						(1,246)						15,705
Total non-interest income, net						(699)						4,898						4,117						8,921						(286)						(1,246)						15,705
General and administrative expenses						—						—						—						—						—						(38)						(38)
Other expenses						—						—						—						—						—						(330)						(330)
Income from Consolidated VIEs						$	(226)					$	8,275					$	9,808					$	9,351					$	9,576					$	1,322					$	38,106

						Three Months Ended March 31, 2020
						Legacy Sequoia						Sequoia Choice						Freddie Mac SLST						Freddie Mac K-Series						CAFL						Servicing Investment						Total Consolidated VIEs
(Dollars in Thousands)
Interest income						$	3,194					$	25,083					$	21,986					$	40,172					$	30,010					$	4,083					$	124,528
Interest expense						(2,522)						(21,510)						(16,176)						(38,348)						(21,939)						(1,577)						(102,072)
Net interest income						672						3,573						5,810						1,824						8,071						2,506						22,456
Non-interest income
Investment fair value changes, net						(391)						(69,668)						(142,161)						(86,509)						(67,846)						(11,884)						(378,459)
Total non-interest income, net						(391)						(69,668)						(142,161)						(86,509)						(67,846)						(11,884)						(378,459)
General and administrative expenses						—						—						—						—						—						(31)						(31)
Other expenses						—						—						—						—						—						1,882						1,882
Income from Consolidated VIEs						$	281					$	(66,095)					$	(136,351)					$	(84,685)					$	(59,775)					$	(7,527)					$	(354,152)

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 months ended March 31, 2021 and 2020.

Table 4.3 – Securitization Activity Related to Unconsolidated VIEs Sponsored by Redwood

						Three Months Ended March 31,
(In Thousands)						2021						2020
Principal balance of loans transferred						$	875,879					$	1,573,703
Trading securities retained, at fair value						6,549						43,362
AFS securities retained, at fair value						1,078						3,198

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

The following table summarizes the cash flows during the three months ended March 31, 2021 and 2020 between us and the unconsolidated VIEs sponsored by us and accounted for as sales since 2012.

Table 4.4 – Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood

						Three Months Ended March 31,
(In Thousands)						2021						2020
Proceeds from new transfers						$	904,390					$	1,610,761
MSR fees received						1,607						2,690
Funding of compensating interest, net						(100)						(92)
Cash flows received on retained securities						8,629						6,581

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 value securities retained at the date of securitization for securitizations completed during the three months ended March 31, 2021 and 2020.

Table 4.5 – Assumptions Related to Assets Retained from Unconsolidated VIEs Sponsored by Redwood

												Three Months Ended March 31, 2021																		Three Months Ended March 31, 2020
At Date of Securitization												Senior IO Securities						Subordinate Securities												Senior IO Securities						Subordinate Securities
Prepayment rates												12 %						12 %												41		%				13		%
Discount rates												15 %						6 %												16		%				6		%
Credit loss assumptions												0.22 %						0.22 %												0.21		%				0.22		%

Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents additional information at March 31, 2021 and December 31, 2020, related to unconsolidated VIEs sponsored by Redwood and accounted for as sales since 2012.

Table 4.6 – Unconsolidated VIEs Sponsored by Redwood

(In Thousands)						March 31, 2021						December 31, 2020
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading						$	21,692					$	20,982
Subordinate securities, classified as AFS						141,632						136,475
Mortgage servicing rights						7,648						8,413
Maximum loss exposure (1)						$	170,972					$	165,870
Assets transferred:
Principal balance of loans outstanding						$	7,188,320					$	7,728,432
Principal balance of loans 30+ days delinquent						88,671						138,029

(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 March 31, 2021 and December 31, 2020.

Table 4.7 – Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated VIEs Sponsored by Redwood

March 31, 2021						MSRs						Senior Securities (1)						Subordinate Securities
(Dollars in Thousands)
Fair value at March 31, 2021						$	7,648					$	21,692					$	141,632
Expected life (in years) (2)						2						4						8
Prepayment speed assumption (annual CPR) (2)						38 %						27 %						33 %
Decrease in fair value from:
10% adverse change						$	786					$	1,541					$	288
25% adverse change						1,752						3,508						759
Discount rate assumption (2)						12 %						19 %						4		%
Decrease in fair value from:
100 basis point increase						$	176					$	477					$	9,937
200 basis point increase						346						930						18,961
Credit loss assumption (2)						N/A						0.40		%				0.40		%
Decrease in fair value from:
10% higher losses						N/A						$	—					$	2,519
25% higher losses						N/A						—						6,187

December 31, 2020						MSRs						Senior Securities (1)						Subordinate Securities
(Dollars in Thousands)
Fair value at December 31, 2020						$	8,413					$	17,333					$	140,124
Expected life (in years) (2)						2						3						8
Prepayment speed assumption (annual CPR) (2)						37		%				31		%				33		%
Decrease in fair value from:
10% adverse change						$	906					$	1,557					$	452
25% adverse change						2,058						3,754						2,298
Discount rate assumption (2)						12		%				21		%				5		%
Decrease in fair value from:
100 basis point increase						$	196					$	337					$	9,769
200 basis point increase						380						659						18,650
Credit loss assumption (2)						N/A						0.41		%				0.41		%
Decrease in fair value from:
10% higher losses						N/A						$	—					$	2,409
25% higher losses						N/A						—						5,915

(1)Senior securities included $22 million and $17 million of interest-only securities at March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020, grouped by asset type.

Table 4.8 – Third-Party Sponsored VIE Summary

(In Thousands)						March 31, 2021						December 31, 2020
Mortgage-Backed Securities
Senior						$	9,888					$	11,131
Mezzanine						—						2,014
Subordinate						191,108						173,523
Total Mortgage-Backed Securities						200,996						186,668
Excess MSR						13,267						14,133
Total Investments in Third-Party Sponsored VIEs						$	214,263					$	200,801

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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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