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Principles of Consolidation (Tables)

6 Months Ended

Jun. 30, 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

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

The following table presents income (loss) from these VIEs for the three and six months ended June 30, 2021 and 2020.

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

						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)

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, 2021 and 2020.

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

						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

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, 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 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

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 and six months ended June 30, 2021 and 2020.

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

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 %

8 %

N/A

N/A

Discount rates

15 %

7 %

N/A

N/A

Credit loss assumptions

0.25 %

0.25 %

N/A

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		%

Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents additional information at June 30, 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)						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.

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, 2021 and December 31, 2020.

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

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

(1)Senior securities included $21 million and $17 million of interest-only securities at June 30, 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 June 30, 2021 and December 31, 2020, grouped by asset type.

Table 4.8 – Third-Party Sponsored VIE Summary

(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

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- Definition

Cash Flows between a transferor and a transferee attributable to transferred assets related to either a securitization 0r asset-backed financing arrangement in which the transferor has continuing involvement with the transferred financial assets underlying the transaction (including, but not limited to, servicing, recourse, and restrictions on transferor's interests in the transferred financial assets).

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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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