At June 30, 2021, we consolidated Legacy Sequoia, Sequoia, CAFL, Freddie Mac SLST, and Freddie Mac K-Series securitization entities that we determined were VIEs and for which we determined we were the primary beneficiary. Each of these entities is independent of Redwood and of each other and the assets and liabilities of these entities are not owned by and are not legal obligations of ours. Our exposure to these entities is primarily through the financial interests we have retained, although for the consolidated Legacy Sequoia, Sequoia and CAFL entities we are exposed to certain financial risks associated with our role as a sponsor, servicing administrator, or depositor of these entities or as a result of our having sold assets directly or indirectly to these entities. At June 30, 2021, the estimated fair value of our investments in the consolidated Legacy Sequoia, Sequoia, CAFL, Freddie Mac SLST, and Freddie Mac K-Series entities was $4 million, $234 million, $272 million, $452 million, and $31 million, respectively.

We also consolidate two Servicing Investment entities formed to invest in servicing-related assets that we determined were VIEs and for which we determined we were the primary beneficiary. At June 30, 2021, we held an 80% ownership interest in, and were responsible for the management of, each entity. See Note 10 for a further description of these entities and the investments they hold and Note 12 for additional information on the minority partner’s interest. Additionally, we consolidated an entity that was formed to finance servicer advances that we determined was a VIE and for which we, through our control of one of the aforementioned partnerships, were the primary beneficiary. The servicer advance financing consists of non-recourse short-term securitization debt, secured by servicer advances. We consolidate the securitization entity, but the securitization entity is independent of Redwood and the assets and liabilities are not owned by and are not legal obligations of Redwood. See Note 13 for additional information on the servicer advance financing. At June 30, 2021, the estimated fair value of our investment in the Servicing Investment entities was $62 million.


June 30, 2021	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment	$	260,875	$	2,222,553	$	—	$	2,098,624	$	—	$	—	$	4,582,052
Business purpose loans, held-for-investment	—		—		3,263,878		—		—		—		3,263,878
Multifamily loans, held-for-investment	—		—		—		—		485,157		—		485,157

Other investments	—		—		—		—		—		202,369		202,369
Cash and cash equivalents	—		—		—		—		—		12,459		12,459
Restricted cash	148		—		—		—		—		19,028		19,176
Accrued interest receivable	258		7,559		13,102		6,325		1,326		1,606		30,176
Other assets	659		—		12,596		1,636		—		6,277		21,168
Total Assets	$	261,940	$	2,230,112	$	3,289,576	$	2,106,585	$	486,483	$	241,739	$	8,616,435
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	163,629	$	163,629
Accrued interest payable	124		5,521		10,183		4,490		1,200		94		21,612
Accrued expenses and other liabilities	—		—		—		—		—		16,360		16,360
Asset-backed securities issued	258,211		1,990,548		3,007,596		1,650,087		454,324		—		7,360,766
Total Liabilities	$	258,335	$	1,996,069	$	3,017,779	$	1,654,577	$	455,524	$	180,083	$	7,562,367

Number of VIEs	20		12		14		3		1		3		53


December 31, 2020	Legacy Sequoia		Sequoia		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


	Three Months Ended June 30, 2021
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	1,169	$	14,492	$	54,849	$	19,506	$	4,860	$	4,041	$	98,917
Interest expense	(755)		(11,374)		(43,201)		(13,927)		(4,478)		(1,110)		(74,845)
Net interest income	414		3,118		11,648		5,579		382		2,931		24,072
Non-interest income

Investment fair value changes, net	(216)		4,906		3,697		36,316		1,855		(2,320)		44,238


Total non-interest income, net	(216)		4,906		3,697		36,316		1,855		(2,320)		44,238
General and administrative expenses	—		—		—		—		—		(52)		(52)
Other expenses	—		—		—		—		—		(112)		(112)

Income from Consolidated VIEs	$	198	$	8,024	$	15,345	$	41,895	$	2,237	$	447	$	68,146


	Six Months Ended June 30, 2021
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	2,517	$	29,975	$	103,722	$	39,665	$	9,646	$	8,263	$	193,788
Interest expense	(1,630)		(23,480)		(81,054)		(28,395)		(8,834)		(2,396)		(145,789)
Net interest income	887		6,495		22,668		11,270		812		5,867		47,999
Non-interest income

Investment fair value changes, net	(915)		9,804		3,411		40,433		10,776		(3,566)		59,943


Total non-interest income, net	(915)		9,804		3,411		40,433		10,776		(3,566)		59,943
General and administrative expenses	—		—		—		—		—		(90)		(90)
Other expenses	—		—		—		—		—		(442)		(442)

Income (Loss) from Consolidated VIEs	$	(28)	$	16,299	$	26,079	$	51,703	$	11,588	$	1,769	$	107,410


	Three Months Ended June 30, 2020
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	2,685	$	22,564	$	32,978	$	21,187	$	4,870	$	4,540	$	88,824
Interest expense	(1,518)		(19,117)		(24,446)		(15,846)		(4,380)		(1,797)		(67,104)
Net interest income	1,167		3,447		8,532		5,341		490		2,743		21,720
Non-interest income

Investment fair value changes, net	(230)		39,752		16,313		26,866		1,599		3,291		87,591


Total non-interest income, net	(230)		39,752		16,313		26,866		1,599		3,291		87,591
General and administrative expenses	—		—		—		—		—		(712)		(712)
Other expenses	—		—		—		—		—		(1,065)		(1,065)

Income from Consolidated VIEs	$	937	$	43,199	$	24,845	$	32,207	$	2,089	$	4,257	$	107,534


	Six Months Ended June 30, 2020
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	5,879	$	47,647	$	62,988	$	43,173	$	45,042	$	8,623	$	213,352
Interest expense	(4,040)		(40,627)		(46,385)		(32,022)		(42,728)		(3,374)		(169,176)
Net interest income	1,839		7,020		16,603		11,151		2,314		5,249		44,176
Non-interest income

Investment fair value changes, net	(621)		(29,916)		(51,533)		(115,295)		(84,910)		(8,593)		(290,868)


Total non-interest income, net	(621)		(29,916)		(51,533)		(115,295)		(84,910)		(8,593)		(290,868)
General and administrative expenses	—		—		—		—		—		(743)		(743)
Other expenses	—		—		—		—		—		817		817

Income (Loss) from Consolidated VIEs	$	1,218	$	(22,896)	$	(34,930)	$	(104,144)	$	(82,596)	$	(3,270)	$	(246,618)

We consolidate the assets and liabilities of certain Sequoia and CAFL securitization entities, as we did not meet the GAAP sale criteria at the time we transferred financial assets to these entities. Our involvement in consolidated Sequoia and CAFL entities continues in the following ways: (i) we continue to hold subordinate investments in each entity, and for certain entities, more senior investments; (ii) we maintain certain discretionary rights associated with our sponsorship of, or our subordinate investments in, each entity; and (iii) we continue to hold a right to call the assets of certain entities (once they have been paid down below a specified threshold) at a price equal to, or in excess of, the current outstanding principal amount of the entity’s asset-backed securities issued. These factors have resulted in our continuing to consolidate the assets and liabilities of these Sequoia and CAFL entities in accordance with GAAP.

We consolidate the assets and liabilities of certain Freddie Mac K-Series and SLST securitization trusts resulting from our investment in subordinate securities issued by these trusts, and in the case of certain CAFL securitizations, resulting from securities acquired through our acquisition of CoreVest. Additionally, we consolidate the assets and liabilities of Servicing Investment entities from our investment in servicer advance investments and excess MSRs. In each case, we maintain certain discretionary rights associated with the ownership of these investments that we determined reflected a controlling financial interest, as we have both the power to direct the activities that most significantly impact the economic performance of the VIEs and the right to receive benefits of and the obligation to absorb losses from the VIEs that could potentially be significant to the VIEs.

During the three months ended June 30, 2021, we called one of our consolidated CAFL entities and repaid the associated ABS issued. In association with this call, we transferred $45 million (unpaid principal balance) of loans from held-for-investment to held-for-sale.

During 2020, we re-securitized subordinate securities we owned in our consolidated Freddie Mac SLST securitization trusts, through the transfer of these financial assets to a re-securitization trust that we sponsored. We retain a subordinate investment in the re-securitization trust and maintain certain discretionary rights associated with the ownership of this investment that we determined reflected a controlling financial interest in the entity, as we have both the power to direct the activities that most significantly impact the performance of the VIE and the right to receive benefits of and the obligation to absorb losses from the VIE that could potentially be significant to the VIE.

Since 2012, we have transferred residential loans to 52 Sequoia securitization entities sponsored by us that are still outstanding as of June 30, 2021, and accounted for these transfers as sales for financial reporting purposes, in accordance with ASC 860. We also determined we were not the primary beneficiary of these VIEs as we lacked the power to direct the activities that will have the most significant economic impact on the entities. For certain of these transfers to securitization entities, for the transferred loans where we held the servicing rights prior to the transfer and continued to hold the servicing rights following the transfer, we recorded mortgage servicing rights ("MSRs") on our consolidated balance sheets, and classified those MSRs as Level 3 assets. We also retained senior and subordinate securities in these securitizations that we classified as Level 3 assets. Our continuing involvement in these securitizations is limited to customary servicing obligations associated with retaining servicing rights (which we retain a third-party sub-servicer to perform) and the receipt of interest income associated with the securities we retained.

During the three months ended June 30, 2021, we called three of our unconsolidated Sequoia entities, and purchased $83 million (unpaid principal balance) of loans from the securitization trusts. In association with these calls, we realized a $7 million gain on the securities we owned from these called securitizations, which was recognized through Realized gains, net on our consolidated statements of income (loss). During the six months ended June 30, 2021, we called four of our unconsolidated Sequoia entities, and purchased $101 million (unpaid principal balance) of loans from the securitization trusts. In association with these calls, we realized a $9 million gain on the securities we owned from these called securitizations, which was recognized through Realized gains, net on our consolidated statements of income (loss). At June 30, 2021, we held $97 million of loans for sale at fair value that were acquired following the calls.


	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2021		2020		2021		2020
Principal balance of loans transferred	$	355,924	$	—	$	1,231,803	$	1,573,703
Trading securities retained, at fair value	1,225		—		7,774		43,362
AFS securities retained, at fair value	522		—		1,600		3,198


	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2021		2020		2021		2020
Proceeds from new transfers	$	361,673	$	—	$	1,266,063	$	1,610,761
MSR fees received	1,336		2,475		2,943		5,165
Funding of compensating interest, net	(70)		(205)		(170)		(297)
Cash flows received on retained securities	16,764		6,788		25,393		13,369

Three Months Ended June 30, 2021

Three Months Ended June 30, 2020

At Date of Securitization

Senior IO Securities

Subordinate Securities

Senior IO Securities

Subordinate Securities

Prepayment rates

8 %

N/A

Discount rates

15 %

7 %

N/A

Credit loss assumptions

0.25 %

N/A


	Six Months Ended June 30, 2021			Six Months Ended June 30, 2020
At Date of Securitization	Senior IO Securities		Subordinate Securities	Senior IO Securities		Subordinate Securities
Prepayment rates	11	%	11 %	41	%	13	%
Discount rates	15 %		6 %	16	%	6	%
Credit loss assumptions	0.23 %		0.23 %	0.21	%	0.22	%


(In Thousands)	June 30, 2021		December 31, 2020
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading	$	20,527	$	20,982
Subordinate securities, classified as AFS	140,321		136,475
Mortgage servicing rights	6,496		8,413
Maximum loss exposure (1)	$	167,344	$	165,870
Assets transferred:
Principal balance of loans outstanding	$	6,326,188	$	7,728,432
Principal balance of loans 30+ days delinquent	58,362		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.


June 30, 2021	MSRs		Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at June 30, 2021	$	6,496	$	20,527		$	140,321
Expected life (in years) (2)	2		4			8
Prepayment speed assumption (annual CPR) (2)	38 %		25		%	33 %
Decrease in fair value from:
10% adverse change	$	613	$	1,374		$	238
25% adverse change	1,422		3,120			440
Discount rate assumption (2)	12 %		18		%	3.5		%
Decrease in fair value from:
100 basis point increase	$	139	$	462		$	10,058
200 basis point increase	271		900			19,174
Credit loss assumption (2)	N/A		0.39		%	0.39		%
Decrease in fair value from:
10% higher losses	N/A		$	—		$	2,671
25% higher losses	N/A		—			6,384


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

Third-party VIEs are securitization entities in which we maintain an economic interest, but do not sponsor. Our economic interest may include several securities and other investments from the same third-party VIE, and in those cases, the analysis is performed in consideration of all of our interests. The following table presents a summary of our interests in third-party VIEs at June 30, 2021 and December 31, 2020, grouped by asset type.


(In Thousands)	June 30, 2021		December 31, 2020
Mortgage-Backed Securities
Senior	$	4,740	$	11,131
Mezzanine	—		2,014
Subordinate	189,298		173,523
Total Mortgage-Backed Securities	194,038		186,668
Excess MSR	12,170		14,133
Total Investments in Third-Party Sponsored VIEs	$	206,208	$	200,801

We determined that we are not the primary beneficiary of these third-party VIEs, as we do not have the required power to direct the activities that most significantly impact the economic performance of these entities. Specifically, we do not service or manage these entities or otherwise solely hold decision making powers that are significant. As a result of this assessment, we do not consolidate any of the underlying assets and liabilities of these third-party VIEs – we only account for our specific interests in them.