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Commitments and Contingencies | 9 Months Ended
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Sep. 30, 2021
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies Lease Commitments At September 30, 2021, we were obligated under seven non-cancelable operating leases with expiration dates through 2031 for $18 million of cumulative lease payments. Our operating lease expense was $3 million for both nine-month periods ended September 30, 2021 and 2020. The following table presents our future lease commitments at September 30, 2021. Table 16.1 – Future Lease Commitments by Year
(In Thousands) |  | September 30, 2021
2021 (3 months) |  | $ | 928 |
2022 |  | 3,714 |
2023 |  | 3,235 |
2024 |  | 2,411 |
2025 |  | 1,983 |
2026 and thereafter |  | 6,128 |
Total Lease Commitments |  | 18,399 |
Less: Imputed interest |  | (2,628) |
Operating Lease Liabilities |  | $ | 15,771 |
During the nine months ended September 30, 2021, we did not enter into any new office leases. During the nine months ended September 30, 2021, we increased our operating lease right-of-use assets and liabilities by $1 million as the result of an amendment to one of our existing leases. At September 30, 2021, our operating lease liabilities were $16 million, which were a component of Accrued expenses and other liabilities, and our operating lease right-of-use assets were $14 million, which were a component of Other assets. We determined that none of our leases contained an implicit interest rate and used a discount rate equal to our incremental borrowing rate on a collateralized basis to determine the present value of our total lease payments. As such, we determined the applicable discount rate for each of our leases using a swap rate plus an applicable spread for borrowing arrangements secured by our real estate loans and securities for a length of time equal to the remaining lease term on the date of adoption. At September 30, 2021, the weighted-average remaining lease term and weighted-average discount rate for our leases was 7 years and 4.9%, respectively. Commitment to Fund Bridge Loans As of September 30, 2021, we had commitments to fund up to $426 million of additional advances on existing bridge loans. These commitments are generally subject to loan agreements with covenants regarding the financial performance of the borrower and other terms regarding advances that must be met before we fund the commitment. At September 30, 2021, we carried a $1 million contingent liability related to these commitments to fund construction advances. During the three and nine months ended September 30, 2021, we recorded a net market valuation loss of $0.3 million and a net market valuation gain of $1 million, respectively, related to this liability through Mortgage banking activities, net on our consolidated statements of income (loss). During the three and nine months ended September 30, 2020, we recorded a net market valuation gain of $1 million and a net market valuation loss of $1 million, respectively, related to this liability through Mortgage banking activities, net on our consolidated statements of income (loss). Commitment to Fund Partnerships In 2018, we invested in two partnerships created to acquire and manage certain mortgage servicing related assets (see Note 10 for additional detail). In connection with this investment, we are required to fund future net servicer advances related to the underlying mortgage loans. The actual amount of net servicer advances we may fund in the future is subject to significant uncertainty and will be based on the credit and prepayment performance of the underlying loans. Commitment to Acquire HEIs In the third quarter of 2021, we amended an existing flow purchase agreement with Point Digital to acquire HEIs that Point Digital originates with homeowners. Each HEI provides the owner of such HEI the right to purchase a percentage ownership interest in an associated residential property, and the homeowner's obligations under the HEI are secured by a lien (primarily second liens) on the property created by a deed of trust or a mortgage. Our investments in HEIs allow us to share in both home price appreciation and depreciation of the associated property. At September 30, 2021, we had an outstanding commitment to fund up to $125 million under this agreement. Loss Contingencies — Risk-Sharing During 2015 and 2016, we sold conforming loans to the Agencies with an original unpaid principal balance of $3.19 billion, subject to our risk-sharing arrangements with the Agencies. At September 30, 2021, the maximum potential amount of future payments we could be required to make under these arrangements was $44 million and this amount was partially collateralized by assets we transferred to pledged accounts and is presented as pledged collateral in Other assets on our consolidated balance sheets. We have no recourse to any third parties that would allow us to recover any amounts related to our obligations under the arrangements. At September 30, 2021, we had incurred less than $0.1 million of losses under these arrangements. For the three and nine months ended September 30, 2021, other income related to these arrangements was $1 million and $2 million, respectively, and net market valuation losses related to these investments were less than $0.1 million and $0.1 million, respectively. For the three and nine months ended September 30, 2020, other income related to these arrangements was $1 million and $3 million, respectively, and net market valuation losses related to these investments were $0.3 million and $1 million, respectively. All of the loans in the reference pools subject to these risk-sharing arrangements were originated in 2014 and 2015, and at September 30, 2021, the loans had an unpaid principal balance of $618 million and a weighted average FICO score of 756 (at origination) and LTV ratio of 74% (at origination). At September 30, 2021, $21 million of the loans were 90 days or more delinquent, of which one of these loans with an unpaid principal balance of $0.2 million was in foreclosure. At September 30, 2021, the carrying value of our guarantee obligation was $8 million and included $5 million designated as a non-amortizing credit reserve, which we believe is sufficient to cover current expected losses under these obligations. Our consolidated balance sheets include assets of special purpose entities ("SPEs") associated with these risk-sharing arrangements (i.e., the "pledged collateral" referred to above) that can only be used to settle obligations of these SPEs for which the creditors of these SPEs (the Agencies) do not have recourse to us. At September 30, 2021 and December 31, 2020, assets of such SPEs totaled $34 million and $46 million, respectively, and liabilities of such SPEs totaled $8 million and $10 million, respectively. Loss Contingencies — Residential Repurchase Reserve We maintain a repurchase reserve for potential obligations arising from representation and warranty violations related to residential loans we have sold to securitization trusts or third parties and for conforming residential loans associated with MSRs that we have purchased from third parties. We do not originate residential loans and we believe the initial risk of loss due to loan repurchases (i.e., due to a breach of representations and warranties) would generally be a contingency to the companies from whom we acquired the loans. However, in some cases, for example, where loans were acquired from companies that have since become insolvent, repurchase claims may result in our being liable for a repurchase obligation. Additionally, for certain loans we sold during the second quarter of 2020 that were previously held for investment, we have a direct obligation to repurchase these loans in the event of any early payment defaults (or "EPDs") by the underlying mortgage borrowers within certain specified periods following the sales. At both September 30, 2021 and December 31, 2020, our repurchase reserve associated with our residential loans and MSRs was $9 million and was recorded in Accrued expenses and other liabilities on our consolidated balance sheets. During the nine months ended September 30, 2021 and 2020, we received three and eight repurchase requests, respectively, and repurchased one and zero loans, respectively. During the nine months ended September 30, 2021 and 2020, we recorded repurchase provisions of $0.6 million and $4 million, respectively, that were recorded in Mortgage banking activities, net; Investment fair value changes, net; and Other income on our consolidated statements of income (loss). Loss Contingencies — Litigation, Claims and Demands There is no significant update regarding the litigation matters described in Note 16 within the financial statements included in Redwood’s Annual Report on Form 10-K for the year ended December 31, 2020 under the heading “Loss Contingencies - Litigation.” At September 30, 2021, the aggregate amount of loss contingency reserves established in respect of the FHLB-Seattle and Schwab litigation matters described in our Annual Report on Form 10-K for the year ended December 31, 2020 was $2 million. At September 30, 2021, the aggregate amount of our accrual for estimated costs associated with the "Residential Loan Seller Demands" described in our Annual Report on Form 10-K for the year ended December 31, 2020 was $2 million, a portion of which is contingent on the successful completion of future residential loan purchase and sale transactions with certain counterparties. We believe we have either resolved or adequately accrued for any unresolved Residential Loan Seller Demands and that there are no other Residential Loan Seller Demands that are reasonably possible to result in a material loss.

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