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Fair Value of Financial Instruments | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | Fair Value of Financial Instruments For financial reporting purposes, we follow a fair value hierarchy established under GAAP that is used to determine the fair value of financial instruments. This hierarchy prioritizes relevant market inputs in order to determine an “exit price” at the measurement date, or the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale. Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Level 2 inputs are observable inputs other than quoted prices for an asset or liability that are obtained through corroboration with observable market data. Level 3 inputs are unobservable inputs (e.g., our own data or assumptions) that are used when there is little, if any, relevant market activity for the asset or liability required to be measured at fair value. In certain cases, inputs used to measure fair value fall into different levels of the fair value hierarchy. In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured. The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at September 30, 2021 and December 31, 2020. Table 5.1 – Carrying Values and Fair Values of Assets and Liabilities
|  | September 30, 2021 |  | December 31, 2020
|  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
(In Thousands) |  |  |  |
Assets |  |  |  |  |  |  |  |
Residential loans, held-for-sale at fair value |  | $ | 1,495,044 |  |  | $ | 1,495,044 |  |  | $ | 176,604 |  |  | $ | 176,604 |
Residential loans, held-for-investment |  | 4,721,389 |  |  | 4,721,389 |  |  | 4,072,410 |  |  | 4,072,410 |
Business purpose loans, held-for-sale |  | 466,346 |  |  | 466,346 |  |  | 245,394 |  |  | 245,394 |
Business purpose loans, held-for-investment |  | 4,227,209 |  |  | 4,227,209 |  |  | 3,890,959 |  |  | 3,890,959 |
Multifamily loans |  | 482,791 |  |  | 482,791 |  |  | 492,221 |  |  | 492,221 |
Real estate securities |  | 353,286 |  |  | 353,286 |  |  | 344,125 |  |  | 344,125 |
Servicer advance investments (1) |  | 170,062 |  |  | 170,062 |  |  | 231,489 |  |  | 231,489 |
MSRs (1) |  | 12,389 |  |  | 12,389 |  |  | 8,815 |  |  | 8,815 |
Excess MSRs (1) |  | 29,185 |  |  | 29,185 |  |  | 34,418 |  |  | 34,418 |
HEIs (1) |  | 167,856 |  |  | 167,856 |  |  | 42,440 |  |  | 42,440 |
Other investments (2) |  | 17,574 |  |  | 17,574 |  |  | 18,847 |  |  | 18,847 |
Cash and cash equivalents |  | 556,989 |  |  | 556,989 |  |  | 461,260 |  |  | 461,260 |
Restricted cash |  | 88,717 |  |  | 88,717 |  |  | 83,190 |  |  | 83,190 |
Derivative assets |  | 51,103 |  |  | 51,103 |  |  | 53,238 |  |  | 53,238 |
REO (3) |  | 18,863 |  |  | 21,657 |  |  | 8,413 |  |  | 9,229 |
Margin receivable (3) |  | 16,503 |  |  | 16,503 |  |  | 4,758 |  |  | 4,758 |
FHLBC stock (3) |  | 10 |  |  | 10 |  |  | 5,000 |  |  | 5,000 |
Pledged collateral (3) |  | — |  |  | — |  |  | 1,177 |  |  | 1,177 |
Liabilities |  |  |  |  |  |  |  |
Short-term debt |  | $ | 1,750,941 |  |  | $ | 1,750,941 |  |  | $ | 522,609 |  |  | $ | 522,609 |
Margin payable (4) |  | 48,298 |  |  | 48,298 |  |  | — |  |  | — |
Guarantee obligation (4) |  | 7,902 |  |  | 5,263 |  |  | 10,039 |  |  | 7,843 |
Point HEI non-controlling interest |  | 16,722 |  |  | 16,722 |  |  | — |  |  | — |
Derivative liabilities |  | 10,972 |  |  | 10,972 |  |  | 16,072 |  |  | 16,072 |
ABS issued, net |  |  |  |  |  |  |  |
Fair value |  | 7,756,101 |  |  | 7,756,101 |  |  | 6,900,362 |  |  | 6,900,362 |
Amortized cost |  | 427,724 |  |  | 428,059 |  |  | 200,299 |  |  | 204,892 |
Other long-term debt, net (5) |  | 847,889 |  |  | 848,929 |  |  | 774,726 |  |  | 783,570 |
Convertible notes, net (5) |  | 512,979 |  |  | 539,067 |  |  | 511,085 |  |  | 499,865 |
Trust preferred securities and subordinated notes, net (5) |  | 138,709 |  |  | 94,163 |  |  | 138,674 |  |  | 80,910 |
(1)These investments are included in Other investments on our consolidated balance sheets. (2)Comprised of financial instruments included in Other investments on our consolidated balance sheets. (3)These assets are included in Other assets on our consolidated balance sheets. (4)These liabilities are included in Accrued expenses and other liabilities on our consolidated balance sheets. (5)These liabilities are included in Long-term debt, net on our consolidated balance sheets. During the three and nine months ended September 30, 2021, we elected the fair value option for $11 million and $37 million of securities, respectively, $3.17 billion and $9.75 billion of residential loans (principal balance), respectively, $637 million and $1.55 billion of business purpose loans (principal balance), respectively, $5 million and $9 million of MSRs, respectively, and $11 million and $15 million of other financial instruments, respectively. Additionally, during the three months ended September 30, 2021, we elected the fair value option for $122 million of HEIs. We anticipate electing the fair value option for all future purchases of residential and business purpose loans that we intend to sell to third parties or transfer to securitizations, for business purpose bridge loans, HEIs, MSRs retained from sales of residential loans, and for certain securities we purchase, including IO securities and fixed-rate securities rated investment grade or higher. The following table presents the assets and liabilities that are reported at fair value on our consolidated balance sheets on a recurring basis at September 30, 2021 and December 31, 2020, as well as the fair value hierarchy of the valuation inputs used to measure fair value. Table 5.2 – Assets and Liabilities Measured at Fair Value on a Recurring Basis
September 30, 2021 |  | Carrying Value |  | Fair Value Measurements Using
(In Thousands) |  |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |
Residential loans |  | $ | 6,216,433 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,216,433 |
Business purpose loans |  | 4,693,555 |  |  | — |  |  | — |  |  | 4,693,555 |
Multifamily loans |  | 482,791 |  |  | — |  |  | — |  |  | 482,791 |
Real estate securities |  | 353,286 |  |  | — |  |  | — |  |  | 353,286 |
Servicer advance investments |  | 170,062 |  |  | — |  |  | — |  |  | 170,062 |
MSRs |  | 12,389 |  |  | — |  |  | — |  |  | 12,389 |
Excess MSRs |  | 29,185 |  |  | — |  |  | — |  |  | 29,185 |
HEIs |  | 167,856 |  |  | — |  |  | — |  |  | 167,856 |
Other investments |  | 17,574 |  |  | — |  |  | — |  |  | 17,574 |
Derivative assets |  | 51,103 |  |  | 8,213 |  |  | 33,628 |  |  | 9,262 |
Liabilities |  |  |  |  |  |  |  |
Non-controlling interest in consolidated Point HEI entity |  | $ | 16,722 |  |  | $ | — |  |  | $ | — |  |  | $ | 16,722 |
Derivative liabilities |  | 10,972 |  |  | 8,348 |  |  | 74 |  |  | 2,550 |
ABS issued |  | 7,756,101 |  |  | — |  |  | — |  |  | 7,756,101 |
December 31, 2020 |  | Carrying Value |  | Fair Value Measurements Using
(In Thousands) |  |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |
Residential loans |  | $ | 4,249,014 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,249,014 |
Business purpose loans |  | 4,136,353 |  |  | — |  |  | — |  |  | 4,136,353 |
Multifamily loans |  | 492,221 |  |  | — |  |  | — |  |  | 492,221 |
Real estate securities |  | 344,125 |  |  | — |  |  | — |  |  | 344,125 |
Servicer advance investments |  | 231,489 |  |  | — |  |  | — |  |  | 231,489 |
MSRs |  | 8,815 |  |  | — |  |  | — |  |  | 8,815 |
Excess MSRs |  | 34,418 |  |  | — |  |  | — |  |  | 34,418 |
HEIs |  | 42,440 |  |  | — |  |  | — |  |  | 42,440 |
Other investments |  | 18,847 |  |  | — |  |  | — |  |  | 18,847 |
Derivative assets |  | 53,238 |  |  | 18,260 |  |  | 19,951 |  |  | 15,027 |
Pledged collateral |  | 1,177 |  |  | 1,177 |  |  | — |  |  | — |
FHLBC stock |  | 5,000 |  |  | — |  |  | 5,000 |  |  | — |
Liabilities |  |  |  |  |  |  |  |
Derivative liabilities |  | $ | 16,072 |  |  | $ | 15,495 |  |  | $ | — |  |  | $ | 577 |
ABS issued |  | 6,900,362 |  |  | — |  |  | — |  |  | 6,900,362 |
The following table presents additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2021. Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
|  | Assets
|  | Residential Loans |  | Business Purpose Loans |  | Multifamily Loans |  | Trading Securities |  | AFS Securities |  | Servicer Advance Investments |  | Excess MSRs |  | HEIs |  | Other
(In Thousands) |  |  |  |  |  |  |  |  |
Beginning balance - December 31, 2020 |  | $ | 4,249,014 |  |  | $ | 4,136,353 |  |  | $ | 492,221 |  |  | $ | 125,667 |  |  | $ | 218,458 |  |  | $ | 231,489 |  |  | $ | 34,418 |  |  | $ | 42,440 |  |  | $ | 27,662 |
Acquisitions |  | 9,926,335 |  |  | 38,176 |  |  | — |  |  | 37,117 |  |  | 1,600 |  |  | — |  |  | — |  |  | 122,373 |  |  | 14,615 |
Originations |  | — |  |  | 1,515,262 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Sales |  | (6,958,669) |  |  | (9,484) |  |  | — |  |  | (32,704) |  |  | (4,785) |  |  | — |  |  | — |  |  | — |  |  | — |
Principal paydowns |  | (1,051,390) |  |  | (942,096) |  |  | (5,685) |  |  | (1,783) |  |  | (45,120) |  |  | (58,248) |  |  | — |  |  | (10,220) |  |  | (9,224) |
Gains (losses) in net income (loss), net |  | 53,549 |  |  | (25,658) |  |  | (3,745) |  |  | 24,713 |  |  | 26,998 |  |  | (3,179) |  |  | (5,233) |  |  | 13,263 |  |  | (2,974) |
Unrealized losses in OCI, net |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,125 |  |  | — |  |  | — |  |  | — |  |  | — |
Other settlements, net (1) |  | (2,406) |  |  | (18,998) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (116) |
Ending balance - September 30, 2021 |  | $ | 6,216,433 |  |  | $ | 4,693,555 |  |  | $ | 482,791 |  |  | $ | 153,010 |  |  | $ | 200,276 |  |  | $ | 170,062 |  |  | $ | 29,185 |  |  | $ | 167,856 |  |  | $ | 29,963 |
|  |  |  |  | Liabilities
|  |  |  |  |  |  |  |  |  |  |  |  |  | Derivatives (2) |  | Point HEI Non-Controlling Interest |  | ABS Issued
(In Thousands) |  |  |  |  |  |  |  |  |
Beginning balance - December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 14,450 |  |  | $ | — |  |  | $ | 6,900,362 |
Acquisitions |  |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | 16,639 |  |  | 2,552,785 |
Principal paydowns |  |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | — |  |  | (1,500,357) |
Gains (losses) in net income (loss), net |  |  |  |  |  |  |  |  |  |  |  |  |  | 17,806 |  |  | 83 |  |  | (196,689) |
Other settlements, net (1) |  |  |  |  |  |  |  |  |  |  |  |  |  | (25,544) |  |  | — |  |  | — |
Ending balance - September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 6,712 |  |  | $ | 16,722 |  |  | $ | 7,756,101 |
(1) Other settlements, net for residential and business purpose loans represents the transfer of loans to REO, and for derivatives, the settlement of forward sale commitments and the transfer of the fair value of loan purchase or interest rate lock commitments at the time loans are acquired to the basis of residential and single-family rental loans. (2) For the purpose of this presentation, derivative assets and liabilities, which consist of loan purchase commitments and interest rate lock commitments, are presented on a net basis. The following table presents the portion of gains or losses included in our consolidated statements of income (loss) that were attributable to Level 3 assets and liabilities recorded at fair value on a recurring basis and held at September 30, 2021 and 2020. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the three and nine months ended September 30, 2021 and 2020 are not included in this presentation. Table 5.4 – Portion of Net Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at September 30, 2021 and 2020 Included in Net Income
|  | Included in Net Income
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In Thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Assets |  |  |  |  |  |  |  |
Residential loans at Redwood |  | $ | 6,553 |  |  | $ | (107) |  |  | $ | 9,371 |  |  | $ | (865) |
Business purpose loans |  | 18,810 |  |  | 21,155 |  |  | 19,829 |  |  | 17,901 |
Net investments in consolidated Sequoia entities (1) |  | 2,885 |  |  | 7,700 |  |  | 11,779 |  |  | (22,802) |
Net investments in consolidated Freddie Mac SLST entities (1) |  | 13,781 |  |  | 82,209 |  |  | 54,006 |  |  | (33,087) |
Net investments in consolidated Freddie Mac K-Series entity (1) |  | 555 |  |  | 2,165 |  |  | 11,330 |  |  | (11,014) |
Net investments in consolidated CAFL SFR entities (1) |  | 2,943 |  |  | 9,673 |  |  | 5,500 |  |  | (41,048) |
Net investment in consolidated Point HEI entity (1) |  | 47 |  |  | — |  |  | 129 |  |  | — |
Trading securities |  | 1,547 |  |  | (3,549) |  |  | 3,824 |  |  | (80,358) |
Servicer advance investments |  | (2,079) |  |  | 25 |  |  | (3,179) |  |  | (6,172) |
MSRs |  | (235) |  |  | (2,376) |  |  | (49) |  |  | (16,798) |
Excess MSRs |  | (803) |  |  | (1,127) |  |  | (5,233) |  |  | (7,650) |
HEIs at Redwood |  | (41) |  |  | 2,384 |  |  | 21 |  |  | (4,286) |
Loan purchase and interest rate lock commitments |  | 9,021 |  |  | 10,791 |  |  | 9,261 |  |  | 10,773 |
Liabilities |  |  |  |  |  |  |  |
Non-controlling interest in consolidated Point HEI entity |  | $ | (83) |  |  | $ | — |  |  | $ | (83) |  |  | $ | — |
Loan purchase commitments |  | (2,570) |  |  | 420 |  |  | (2,550) |  |  | (1,334) |
(1) Represents the portion of net gains or losses included in our consolidated statements of income (loss) related to loans, securitized HEIs, and the associated ABS issued at our consolidated securitization entities held at September 30, 2021 and 2020, which netted together represent the change in value of our investments at the consolidated VIEs, excluding REO. The following table presents information on assets recorded at fair value on a non-recurring basis at September 30, 2021. This table does not include the carrying value and gains or losses associated with the asset types below that were not recorded at fair value on our consolidated balance sheets at September 30, 2021. Table 5.5 – Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis at September 30, 2021
|  |  |  |  |  |  |  |  |  | Gain (Loss) for
September 30, 2021 |  | Carrying Value |  | Fair Value Measurements Using |  | Three Months Ended |  | Nine Months Ended
(In Thousands) |  |  | Level 1 |  | Level 2 |  | Level 3 |  | September 30, 2021 |  | September 30, 2021
Assets |  |  |  |  |  |  |  |  |  |  |  |
REO |  | $ | 622 |  |  | $ | — |  |  | $ | — |  |  | $ | 622 |  |  | $ | (1) |  |  | $ | (4) |
The following table presents the net market valuation gains and losses recorded in each line item of our consolidated statements of income for the three and nine months ended September 30, 2021 and 2020. Table 5.6 – Market Valuation Gains and Losses, Net
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In Thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Mortgage Banking Activities, Net |  |  |  |  |  |  |  |
Residential loans held-for-sale, at fair value |  | $ | 9,045 |  |  | $ | (478) |  |  | $ | 57,145 |  |  | $ | (15,972) |
Residential loan purchase commitments |  | 18,817 |  |  | 13,067 |  |  | 18,351 |  |  | 35,123 |
Single-family rental loans held-for-sale, at fair value |  | 19,205 |  |  | 43,191 |  |  | 54,675 |  |  | 55,868 |
Single-family rental loan interest rate lock commitments |  | (744) |  |  | — |  |  | — |  |  | 341 |
Bridge loans |  | 3,433 |  |  | 938 |  |  | 6,702 |  |  | (4,256) |
Trading securities (1) |  | 32 |  |  | — |  |  | (342) |  |  | — |
Risk management derivatives, net |  | 3,539 |  |  | (99) |  |  | 38,117 |  |  | (52,931) |
Total mortgage banking activities, net (2) |  | $ | 53,327 |  |  | $ | 56,619 |  |  | $ | 174,648 |  |  | $ | 18,173 |
Investment Fair Value Changes, Net |  |  |  |  |  |  |  |
Residential loans at Redwood |  | $ | 816 |  |  | $ | 218 |  |  | $ | 2,423 |  |  | $ | (93,314) |
Single-family rental loans held-for-investment |  | — |  |  | — |  |  | — |  |  | (20,806) |
Bridge loans held-for-investment |  | 900 |  |  | 6,812 |  |  | 4,142 |  |  | (10,016) |
Trading securities |  | 1,546 |  |  | (3,600) |  |  | 25,067 |  |  | (224,679) |
Servicer advance investments |  | (2,079) |  |  | 26 |  |  | (3,179) |  |  | (6,172) |
Excess MSRs |  | (803) |  |  | (1,127) |  |  | (5,233) |  |  | (7,650) |
Net investments in Legacy Sequoia entities (3) |  | (247) |  |  | (81) |  |  | (1,162) |  |  | (702) |
Net investments in Sequoia entities (3) |  | 3,314 |  |  | 7,851 |  |  | 13,118 |  |  | (22,065) |
Net investments in Freddie Mac SLST entities (3) |  | 13,849 |  |  | 82,214 |  |  | 54,282 |  |  | (33,081) |
Net investment in Freddie Mac K-Series entity (3) |  | 554 |  |  | 2,166 |  |  | 11,330 |  |  | (82,744) |
Net investments in CAFL entities (3) |  | 2,943 |  |  | 9,673 |  |  | 6,354 |  |  | (41,048) |
Net investment in Point HEI entity (3) |  | 47 |  |  | — |  |  | 47 |  |  | — |
HEIs at Redwood |  | 5,622 |  |  | 2,384 |  |  | 13,017 |  |  | (4,286) |
Other investments |  | (385) |  |  | 67 |  |  | 50 |  |  | (4,825) |
Risk management derivatives, net |  | — |  |  | — |  |  | — |  |  | (59,142) |
Credit recoveries (losses) on AFS securities |  | — |  |  | 444 |  |  | 388 |  |  | (1,027) |
Total investment fair value changes, net |  | $ | 26,077 |  |  | $ | 107,047 |  |  | $ | 120,644 |  |  | $ | (611,557) |
Other Income |  |  |  |  |  |  |  |
MSRs |  | $ | (989) |  |  | $ | (4,783) |  |  | $ | (3,236) |  |  | $ | (27,346) |
Risk management derivatives, net |  | — |  |  | — |  |  | — |  |  | 13,966 |
Total other income (4) |  | $ | (989) |  |  | $ | (4,783) |  |  | $ | (3,236) |  |  | $ | (13,380) |
Total Market Valuation Gains (Losses), Net |  | $ | 78,415 |  |  | $ | 158,883 |  |  | $ | 292,056 |  |  | $ | (606,764) |
(1)Represents fair value changes on trading securities that are being used along with risk management derivatives to manage the mark-to-market risks associated with our residential mortgage banking operations. (2)Mortgage banking activities, net presented above does not include fee income from loan originations or acquisitions, provisions for repurchases expense, and other expenses that are components of Mortgage banking activities, net presented on our consolidated statements of income (loss), as these amounts do not represent market valuation changes. (3)Includes changes in fair value of the residential loans held-for-investment, securitized Point HEIs, REO and the ABS issued at the entities, which netted together represent the change in value of our investments at the consolidated VIEs. (4)Other income presented above does not include net MSR fee income or provisions for repurchases for MSRs, as these amounts do not represent market valuation adjustments. At September 30, 2021, our valuation policy and processes had not changed from those described in our Annual Report on Form 10-K for the year ended December 31, 2020. The following table provides quantitative information about the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value. Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments
September 30, 2021 |  | Fair Value |  |  |  | Input Values
(Dollars in Thousands, except Input Values) |  |  | Unobservable Input |  | Range |  |  | Weighted Average(1)
Assets |  |  |  |  |  |  |  |  |  |  |  |
Residential loans, at fair value: |  |  |  |  |  |  |  |  |  |  |  |
Jumbo fixed-rate loans |  | $ | 624,477 |  |  | Prepayment rate (annual CPR) |  | 20 |  | - | 20 |  | % |  | 20 |  | %
|  |  |  | Whole loan spread to TBA price |  | $ | 3.00 |  | - | $ | 3.00 |  |  |  | $ | 3.00 |  |
|  |  |  | Whole loan spread to swap rate |  | 202 |  | - | 202 |  | bps |  | 202 |  | bps
Jumbo loans committed to sell |  | 870,568 |  |  | Whole loan committed sales price |  | $ | 101.90 |  | - | $ | 103.32 |  |  |  | $ | 102.46 |  |
Loans held by Legacy Sequoia (2) |  | 242,234 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Loans held by Sequoia (2) |  | 2,479,750 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Loans held by Freddie Mac SLST (2) |  | 1,999,405 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Business purpose loans: |  |  |  |  |  |  |  |  |  |  |  |
Single-family rental loans |  | 466,346 |  |  | Senior credit spread |  | 65 |  | - | 65 |  | bps |  | 65 |  | bps
|  |  |  | Subordinate credit spread |  | 110 |  | - | 1,523 |  | bps |  | 401 |  | bps
|  |  |  | Senior credit support |  | 35 |  | - | 35 |  | % |  | 35 |  | %
|  |  |  | IO discount rate |  | 9 |  | - | 9 |  | % |  | 9 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 3 |  | - | 3 |  | % |  | 3 |  | %
|  |  |  | Non-securitizable loan dollar price |  | $ | 76 |  | - | $ | 111 |  |  |  | $ | 101 |  |
Single-family rental loans held by CAFL (2) |  | 3,402,410 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Bridge loans |  | 824,799 |  |  | Discount rate |  | 4 |  | - | 15 |  | % |  | 6 |  | %
Multifamily loans held by Freddie Mac K-Series (2) |  | 482,791 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
Trading and AFS securities |  | 353,286 |  |  | Discount rate |  | 2 |  | - | 38 |  | % |  | 7 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 8 |  | - | 58 |  | % |  | 27 |  | %
|  |  |  | Default rate |  | — |  | - | 25 |  | % |  | 4 |  | %
|  |  |  | Loss severity |  | — |  | - | 50 |  | % |  | 24 |  | %
|  |  |  | CRT dollar price |  | $ | 96 |  | - | $ | 116 |  |  |  | $ | 104 |  |
Servicer advance investments |  | 170,062 |  |  | Discount rate |  | 2 |  | - | 3 |  | % |  | 2 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 20 |  | - | 30 |  | % |  | 21 |  | %
|  |  |  | Expected remaining life (3) |  | 5 | - | 5 | years |  | 5 | years
|  |  |  | Mortgage servicing income |  | 2 |  | - | 11 |  | bps |  | 9 |  | bps
MSRs |  | 12,389 |  |  | Discount rate |  | 12 |  | - | 15 |  | % |  | 13 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 6 |  | - | 80 |  | % |  | 28 |  | %
|  |  |  | Per loan annual cost to service |  | $ | 95 |  | - | $ | 95 |  |  |  | $ | 95 |  |
Excess MSRs |  | 29,185 |  |  | Discount rate |  | 13 |  | - | 16 |  | % |  | 15 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 21 |  | - | 30 |  | % |  | 25 |  | %
|  |  |  | Excess mortgage servicing income |  | 8 |  | - | 17 |  | bps |  | 11 |  | bps
Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments (continued)
September 30, 2021 |  | Fair Value |  |  |  | Input Values
(Dollars in Thousands, except Input Values) |  |  | Unobservable Input |  | Range |  |  | Weighted Average (1)
Assets (continued) |  |  |  |  |  |  |  |  |  |  |  |
HEIs at Redwood |  | $ | 414 |  |  | Dollar Price |  | $ | 92 |  | - | $ | 124 |  |  |  | $ | 105 |  |
HEIs held by Point HEI entity |  | 167,442 |  |  | Liability price |  |  |  | N/A |  |  | N/A |
REO |  | 622 |  |  | Loss severity |  | 11 |  | - | 40 |  | % |  | 22 |  | %
Residential loan purchase commitments, net |  | 6,712 |  |  | Committed sales price |  | $ | 102.11 |  | - | $ | 102.77 |  |  |  | $ | 102.54 |  |
|  |  |  | Pull-through rate |  | 4 |  | - | 100 |  | % |  | 71 |  | %
|  |  |  | Whole loan spread to TBA price |  | $ | 3.00 |  | - | $ | 3.00 |  |  |  | $ | 3.00 |  |
|  |  |  | Whole loan spread to swap rate |  | 185 |  | - | 202 |  | bps |  | 201 |  | bps
|  |  |  | Prepayment rate (annual CPR) |  | 20 |  | - | 20 |  | % |  | 20 |  | %
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
ABS issued (2): |  |  |  |  |  |  |  |  |  |  |  |
At consolidated Sequoia entities |  | 2,482,746 |  |  | Discount rate |  | 1 |  | - | 18 |  | % |  | 3 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 7 |  | - | 55 |  | % |  | 33 |  | %
|  |  |  | Default rate |  | — |  | - | 36 |  | % |  | 2 |  | %
|  |  |  | Loss severity |  | 25 |  | - | 50 |  | % |  | 32 |  | %
At consolidated CAFL SFR entities (4) |  | 3,126,405 |  |  | Discount rate |  | 1 |  | - | 13 |  | % |  | 3 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 3 |  | - | 3 |  | % |  | 3 |  | %
|  |  |  | Default rate |  | 2 |  | - | 18 |  | % |  | 9 |  | %
|  |  |  | Loss severity |  | 30 |  | - | 30 |  | % |  | 30 |  | %
At consolidated Freddie Mac SLST entities |  | 1,550,111 |  |  | Discount rate |  | 2 |  | - | 7 |  | % |  | 3 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 6 |  | - | 8 |  | % |  | 6 |  | %
|  |  |  | Default rate |  | 9 |  | - | 10 |  | % |  | 9 |  | %
|  |  |  | Loss severity |  | 35 |  | - | 35 |  | % |  | 35 |  | %
At consolidated Freddie Mac K-Series entities (4) |  | 451,402 |  |  | Discount rate |  | 1 |  | - | 8 |  | % |  | 2 |  | %
At consolidated Point HEI entity (4) |  | 145,437 |  |  | Discount rate |  | 3 |  | - | 15 |  | % |  | 4 |  | %
|  |  |  | Prepayment rate (annual CPR) |  | 20 |  | - | 20 |  | % |  | 20 |  | %
|  |  |  | Default rate |  | 6 |  | - | 6 |  | % |  | 6 |  | %
|  |  |  | Loss severity |  | 25 |  | - | 25 |  | % |  | 25 |  | %
|  |  |  | Home price appreciation |  | 3 |  | - | 4 |  | % |  | 3 |  | %
(1)The weighted average input values for all loan types are based on the unpaid principal balance. The weighted average input values for all other assets and liabilities are based on relative fair value. (2)The fair value of the loans and HEIs held by consolidated entities was based on the fair value of the ABS issued by these entities and the securities and other investments we own in those entities, which we determined were more readily observable in accordance with accounting guidance for collateralized financing entities. At September 30, 2021, the fair value of securities we owned at the consolidated Sequoia, CAFL SFR, Freddie Mac SLST, Freddie Mac K-Series, and Point HEI entities was $240 million, $288 million, $451 million, $31 million, and $10 million, respectively. (3)Represents the estimated average duration of outstanding servicer advances at a given point in time (not taking into account new advances made with respect to the pool). (4)As a market convention, certain securities are priced to a no-loss yield and therefore do not include default and loss severity assumptions. Determination of Fair Value We generally use both market comparable information and discounted cash flow modeling techniques to determine the fair value of our Level 3 assets and liabilities. Use of these techniques requires determination of relevant inputs and assumptions, some of which represent significant unobservable inputs as indicated in the preceding table. Accordingly, a significant increase or decrease in any of these inputs - such as anticipated credit losses, prepayment rates, interest rates, or other valuation assumptions - in isolation would likely result in a significantly lower or higher fair value measurement. Included in Note 5 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2020 is a more detailed description of our financial instruments measured at fair value and their significant inputs, as well as the general classification of such instruments pursuant to the Level 1, Level 2, and Level 3 valuation hierarchy. In addition to the Level 3 financial instruments included in Table 5.7 above, certain of our Other investments (comprised of strategic investments in early-stage start-up companies) are Level 3 financial instruments that we account for under the fair value option. These investments generally take the form of equity or debt with conversion features and do not have readily determinable fair values. We generally value these assets based on our original investment price until there is an observable price change in an orderly transaction for the identical or similar investment of the same issuer.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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