At September 30, 2021, we consolidated Legacy Sequoia, Sequoia, CAFL, Freddie Mac SLST, Freddie Mac K-Series, and Point HEI 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 certain securitizations, we are exposed to financial risks associated with our role as a sponsor, servicing administrator, collateral administrator, or depositor of these entities or as a result of our having sold assets directly or indirectly to these entities.

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 September 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 non-controlling 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.

During the third quarter of 2021, we consolidated a Point securitization entity formed to invest in Point HEIs that we determined was a VIE and for which we determined we were the primary beneficiary. At September 30, 2021, we owned a portion of the subordinate certificates issued by the entity and had certain decision making rights for the entity. See Note 10 for a further description of this entity and the investments it holds and Note 12 for additional information on non-controlling interests in the entity. We consolidate the Point 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.

For certain of our consolidated VIEs, we have elected to account for the assets and liabilities of these entities as collateralized financing entities ("CFE"). A CFE is a variable interest entity that holds financial assets and issues beneficial interests in those assets, and these beneficial interests have contractual recourse only to the related assets of the CFE. Accounting guidance for CFEs allows companies to elect to measure both the financial assets and financial liabilities of a CFE using the more observable of the fair value of the financial assets or fair value of the financial liabilities. The net equity in an entity effectively represents the fair value of the beneficial interests we own in the entity. The following table presents a summary of the assets and liabilities of these VIEs.


September 30, 2021	Legacy Sequoia		Sequoia		CAFL SFR		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Point HEI		Total Consolidated CFE VIEs
(Dollars in Thousands)
Residential loans, held-for-investment	$	242,234	$	2,479,750	$	—	$	1,999,405	$	—	$	—	$	—	$	4,721,389
Business purpose loans, held-for-investment	—		—		3,402,410		—		—		—		—		3,402,410
Multifamily loans, held-for-investment	—		—		—		—		482,791		—		—		482,791

Other investments	—		—		—		—		—		187,880		167,442		355,322
Cash and cash equivalents	—		—		—		—		—		12,977		—		12,977
Restricted cash	148		—		—		—		—		19,872		5,033		25,053
Accrued interest receivable	232		7,869		13,451		6,068		1,321		1,068		—		30,009
Other assets	275		—		13,172		1,958		—		6,283		50		21,738
Total Assets	$	242,889	$	2,487,619	$	3,429,033	$	2,007,431	$	484,112	$	228,080	$	172,525	$	9,051,689
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	151,910	$	—	$	151,910
Accrued interest payable	108		5,918		10,691		4,279		1,195		97		—		22,288
Accrued expenses and other liabilities	—		—		224		—		—		15,835		16,740		32,799
Asset-backed securities issued	239,447		2,243,299		3,126,405		1,550,111		451,402		—		145,437		7,756,101
Total Liabilities	$	239,555	$	2,249,217	$	3,137,320	$	1,554,390	$	452,597	$	167,842	$	162,177	$	7,963,098

Fair value of our investments	$	3,062	$	236,451	$	287,813	$	451,252	$	31,389	$	60,238	$	10,348	$	1,080,553
Number of VIEs	20		13		15		3		1		3		1		56


December 31, 2020	Legacy Sequoia		Sequoia		CAFL SFR		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Point HEI		Total Consolidated CFE 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

Fair value of our investments	$	4,559	$	220,020	$	241,808	$	430,087	$	28,415	$	67,766	$	—	$	992,655
Number of VIEs	20		10		14		2		1		3		—		50


	Three Months Ended September 30, 2021
	Legacy Sequoia		Sequoia		CAFL SFR		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Point HEI		Total Consolidated CFE VIEs
(Dollars in Thousands)
Interest income	$	1,042	$	18,867	$	48,723	$	18,707	$	4,846	$	3,905	$	—	$	96,090
Interest expense	(641)		(15,368)		(37,415)		(13,303)		(4,460)		(1,018)		—		(72,205)
Net interest income	401		3,499		11,308		5,404		386		2,887		—		23,885
Non-interest income

Investment fair value changes, net	(247)		3,314		2,943		13,849		554		(2,080)		47		18,380
Other income	—		—		10		—		—		—		—		10

Total non-interest income, net	(247)		3,314		2,953		13,849		554		(2,080)		47		18,390
General and administrative expenses	—		—		—		—		—		(60)		—		(60)
Other expenses	—		—		—		—		—		(149)		—		(149)

Income from Consolidated VIEs	$	154	$	6,813	$	14,261	$	19,253	$	940	$	598	$	47	$	42,066


	Nine Months Ended September 30, 2021
	Legacy Sequoia		Sequoia		CAFL SFR		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Point HEI		Total Consolidated CFE VIEs
(Dollars in Thousands)
Interest income	$	3,559	$	48,842	$	152,445	$	58,372	$	14,492	$	12,168	$	—	$	289,878
Interest expense	(2,271)		(38,848)		(118,469)		(41,698)		(13,294)		(3,414)		—		(217,994)
Net interest income	1,288		9,994		33,976		16,674		1,198		8,754		—		71,884
Non-interest income

Investment fair value changes, net	(1,162)		13,118		6,354		54,282		11,330		(5,646)		47		78,323
Other income	—		—		10		—		—		—		—		10

Total non-interest income, net	(1,162)		13,118		6,364		54,282		11,330		(5,646)		47		78,333
General and administrative expenses	—		—		—		—		—		(150)		—		(150)
Other expenses	—		—		—		—		—		(591)		—		(591)

Income from Consolidated VIEs	$	126	$	23,112	$	40,340	$	70,956	$	12,528	$	2,367	$	47	$	149,476


	Three Months Ended September 30, 2020
	Legacy Sequoia		Sequoia		CAFL SFR		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Point HEI		Total Consolidated CFE VIEs
(Dollars in Thousands)
Interest income	$	1,795	$	20,919	$	36,181	$	21,696	$	4,918	$	4,403	$	—	$	89,912
Interest expense	(1,059)		(17,828)		(26,383)		(15,473)		(4,426)		(1,587)		—		(66,756)
Net interest income	736		3,091		9,798		6,223		492		2,816		—		23,156
Non-interest income

Investment fair value changes, net	(81)		7,851		9,692		82,214		2,166		(422)		—		101,420


Total non-interest income, net	(81)		7,851		9,692		82,214		2,166		(422)		—		101,420
General and administrative expenses	—		—		—		—		—		(41)		—		(41)
Other expenses	—		—		—		—		—		(471)		—		(471)

Income from Consolidated VIEs	$	655	$	10,942	$	19,490	$	88,437	$	2,658	$	1,882	$	—	$	124,064


	Nine Months Ended September 30, 2020
	Legacy Sequoia		Sequoia		CAFL SFR		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Point HEI		Total Consolidated CFE VIEs
(Dollars in Thousands)
Interest income	$	7,674	$	68,566	$	99,169	$	64,869	$	49,960	$	13,026	$	—	$	303,264
Interest expense	(5,099)		(58,455)		(72,768)		(47,495)		(47,154)		(4,961)		—		(235,932)
Net interest income	2,575		10,111		26,401		17,374		2,806		8,065		—		67,332
Non-interest income

Investment fair value changes, net	(702)		(22,065)		(41,841)		(33,081)		(82,744)		(9,015)		—		(189,448)


Total non-interest income, net	(702)		(22,065)		(41,841)		(33,081)		(82,744)		(9,015)		—		(189,448)
General and administrative expenses	—		—		—		—		—		(784)		—		(784)
Other expenses	—		—		—		—		—		346		—		346

Income (Loss) from Consolidated VIEs	$	1,873	$	(11,954)	$	(15,440)	$	(15,707)	$	(79,938)	$	(1,388)	$	—	$	(122,554)

In addition to our consolidated VIEs for which we made the CFE election, we consolidate additional VIEs for which we did not make the CFE election, and elected to account for the ABS issued by these entities at amortized cost. These include our CAFL Bridge securitization, Freddie Mac SLST re-securitization, and Servicing Investment entities.

We consolidate the assets and liabilities of certain Sequoia, CAFL and Point HEI 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, CAFL and Point HEI 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 including rights to direct loss mitigation activities; 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, CAFL and Point HEI 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 September 30, 2021, we did not call any of our consolidated CAFL entities. During the nine months ended September 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 50 Sequoia securitization entities sponsored by us that are still outstanding as of September 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 September 30, 2021, we called two of our unconsolidated Sequoia entities, and purchased $66 million (unpaid principal balance) of loans from the securitization trusts. In association with these calls, we realized a $6 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 nine months ended September 30, 2021, we called six of our unconsolidated Sequoia entities, and purchased $167 million (unpaid principal balance) of loans from the securitization trusts. In association with these calls, we realized a $15 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 September 30, 2021, we held $151 million of loans for sale at fair value that were acquired following the calls.


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


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2021		2020		2021		2020
Proceeds from new transfers	$	—	$	—	$	1,266,063	$	1,610,761
MSR fees received	1,095		2,280		4,038		7,445
Funding of compensating interest, net	54		4		(116)		(293)
Cash flows received on retained securities	16,724		5,873		42,117		19,242

Three Months Ended September 30, 2021

Three Months Ended September 30, 2020

At Date of Securitization

Senior IO Securities

Subordinate Securities

Senior IO Securities

Subordinate Securities

Prepayment rates

N/A

Discount rates

N/A

Credit loss assumptions

N/A


	Nine Months Ended September 30, 2021			Nine Months Ended September 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)	September 30, 2021		December 31, 2020
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading	$	18,380	$	20,982
Subordinate securities, classified as AFS	128,874		136,475
Mortgage servicing rights	6,068		8,413
Maximum loss exposure (1)	$	153,322	$	165,870
Assets transferred:
Principal balance of loans outstanding	$	5,542,244	$	7,728,432
Principal balance of loans 30+ days delinquent	32,422		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.


September 30, 2021	MSRs		Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at September 30, 2021	$	6,068	$	18,380		$	128,874
Expected life (in years) (2)	2		4			8
Prepayment speed assumption (annual CPR) (2)	36 %		25		%	32 %
Decrease in fair value from:
10% adverse change	$	502	$	1,173		$	57
25% adverse change	1,173		2,789			141
Discount rate assumption (2)	12 %		18		%	3.8 %
Decrease in fair value from:
100 basis point increase	$	134	$	417		$	9,353
200 basis point increase	261		812			17,829
Credit loss assumption (2)	N/A		0.34		%	0.34		%
Decrease in fair value from:
10% higher losses	N/A		$	—		$	2,190
25% higher losses	N/A		—			5,473


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 September 30, 2021 and December 31, 2020, grouped by asset type.


(In Thousands)	September 30, 2021		December 31, 2020
Mortgage-Backed Securities
Senior	$	4,114	$	11,131
Mezzanine	—		2,014
Subordinate	201,918		173,523
Total Mortgage-Backed Securities	206,032		186,668
Excess MSR	11,368		14,133
Total Investments in Third-Party Sponsored VIEs	$	217,400	$	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.