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Other Investments | 12 Months Ended
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Dec. 31, 2021
Investments, All Other Investments [Abstract] |
Other Investments | Other Investments Other investments at December 31, 2021 and 2020 are summarized in the following table. Table 10.1 – Components of Other Investments
(In Thousands) |  | December 31, 2021 |  | December 31, 2020
Servicer advance investments |  | $ | 350,923 |  |  | $ | 231,489 |
HEIs |  | 192,740 |  |  | 42,440 |
Strategic investments |  | 35,702 |  |  | 4,449 |
Excess MSRs |  | 44,231 |  |  | 34,418 |
Mortgage servicing rights |  | 12,438 |  |  | 8,815 |
Other |  | 5,935 |  |  | 26,564 |
Total Other Investments |  | $ | 641,969 |  |  | $ | 348,175 |
Servicer advance investments We and a third-party co-investor, through two partnerships (“SA Buyers”) consolidated by us, purchased the outstanding servicer advances and excess MSRs related to portfolios of legacy residential mortgage-backed securitizations serviced by the co-investor (See Note 4 for additional information regarding the transaction). During the year ended December 31, 2021, we funded additional purchases of outstanding servicer advances and excess MSRs under the same partnership structure. At December 31, 2021, we had funded $148 million of total capital to the SA Buyers (see Note 16 for additional detail). Our servicer advance investments (owned by the consolidated SA Buyers) are comprised of outstanding servicer advance receivables, the requirement to purchase all future servicer advances made with respect to specified pools of residential mortgage loans, and a portion of the mortgage servicing fees from the underlying loan pools. A portion of the remaining mortgage servicing fees from the underlying loan pools are paid directly to the third-party servicer for the performance of servicing duties and a portion is paid to excess MSRs that we own as a separate investment. Servicer advances are non-interest bearing and are a customary feature of residential mortgage securitization transactions. Servicer advances are generally reimbursable cash payments made by a servicer when the borrower fails to make scheduled payments due on a residential mortgage loan or to support the value of the collateral property. Servicer advances typically fall into three categories: •Principal and Interest Advances: cash payments made by the servicer to cover scheduled principal and interest payments on a residential mortgage loan that have not been paid on a timely basis by the borrower. •Escrow Advances (Taxes and Insurance Advances): Cash payments made by the servicer to third parties on behalf of the borrower for real estate taxes and insurance premiums on the property that have not been paid on a timely basis by the borrower. •Corporate Advances: Cash payments made by the servicer to third parties for the reimbursable costs and expenses incurred in connection with the foreclosure, preservation and sale of the mortgaged property, including attorneys’ and other professional fees. Servicer advances are generally permitted to be repaid from amounts received with respect to the related residential mortgage loan, including payments from the borrower or amounts received from the liquidation of the property securing the loan. Residential mortgage servicing agreements generally require a servicer to make advances in respect of serviced residential mortgage loans unless the servicer determines in good faith that the advance would not be ultimately recoverable from the proceeds of the related residential mortgage loan or the mortgaged property. At December 31, 2021, our servicer advance investments had a carrying value of $351 million and were associated with specified pools of residential mortgage loans with an unpaid principal balance of $13.63 billion. The outstanding servicer advance receivables associated with this investment were $311 million at December 31, 2021, which were financed with short-term non-recourse securitization debt (see Note 13 for additional detail on this debt). The servicer advance receivables were comprised of the following types of advances at December 31, 2021 and 2020: Table 10.2 – Components of Servicer Advance Receivables
(In Thousands) |  | December 31, 2021 |  | December 31, 2020
Principal and interest advances |  | $ | 94,148 |  |  | $ | 110,923 |
Escrow advances (taxes and insurance advances) |  | 172,847 |  |  | 79,279 |
Corporate advances |  | 43,958 |  |  | 27,454 |
Total Servicer Advance Receivables |  | $ | 310,953 |  |  | $ | 217,656 |
We account for our servicer advance investments at fair value and during the years ended December 31, 2021, 2020, and 2019, we recorded $12 million, $11 million and $11 million, respectively, of Other interest income associated with these investments, and recorded a net market valuation loss of $1 million, a net market valuation loss of $9 million and a net market valuation gain of $3 million, respectively, through Investment fair value changes, net in our consolidated statements of income (loss). HEIs In 2019, we began purchasing home equity investment contracts from Point Digital under a flow purchase agreement. During the third quarter of 2021, we amended this agreement and committed to purchase additional HEIs. At December 31, 2021, we had acquired $78 million of HEIs cumulatively under this agreement. See Note 16 for additional detail on this commitment. As of December 31, 2021, we owned $33 million of HEIs at Redwood and consolidated $160 million of HEIs through the Point HEI securitization entity. We account for these investments under the fair value option and during the years ended December 31, 2021 and 2020, we recorded a net market valuation gain of $13 million and a net market valuation loss of $2 million, respectively, related to HEIs owned at Redwood through Investment fair value changes, net on our consolidated statements of income (loss). During the third quarter of 2021, in conjunction with co-sponsoring a securitization of HEIs, we purchased $122 million of additional HEIs from other contributors to the securitization, then transferred $172 million of HEIs to the Point HEI securitization entity which issued $146 million of ABS (See Note 4 for further discussion on the Point securitization entity and Note 14 for further discussion on ABS issued). We retained subordinate certificates from the entity valued at $10 million as of December 31, 2021, representing our economic interest in the entity. The other contributors to the securitization own subordinate certificates in the entity that were valued at $17 million at December 31, 2021 and are carried on our balance sheet as non-controlling interests within the Accrued expenses and other liabilities line item of our consolidated balance sheets. We consolidate the Point HEI securitization entity in accordance with GAAP and have elected to account for it under the CFE election. During the year ended December 31, 2021, we recorded net market valuation gains of $0.2 million (including $1.4 million of interest expense) related to our net investment in the Point HEI entity through Investment fair value changes, net on our consolidated statements of income (loss). Strategic Investments Strategic investments represent investments we have made in companies through our RWT Horizons venture investment strategy and separately at a corporate level. At December 31, 2021, we had made 15 investments in companies through RWT Horizons with a total carrying value of $21 million, and one corporate investment in Churchill Finance. See Note 3 for additional detail on how we account for our strategic investments. During the year ended December 31, 2021, we recorded $0.8 million of Other income from our strategic investments. Excess MSRs In association with our servicer advance investments described above, we (through our consolidated SA Buyers) invested in excess MSRs associated with the same specified pools of legacy residential mortgage loans. Additionally, we own excess MSRs associated with specified pools of multifamily loans. We account for our excess MSRs at fair value and during the years ended December 31, 2021, 2020, and 2019 we recognized $13 million, $12 million and $8 million of Other interest income, respectively, and recorded net market valuation losses of $8 million, $8 million, and $3 million respectively, through Investment fair value changes, net on our consolidated statements of income (loss). Mortgage Servicing Rights We invest in mortgage servicing rights associated with residential mortgage loans and contract with licensed sub-servicers to perform all servicing functions for these loans. The majority of our investments in MSRs were made through the retention of servicing rights associated with the residential jumbo mortgage loans that we acquired and subsequently transferred to third parties. At December 31, 2021 and 2020, our MSRs had a fair value of $12 million and $9 million, respectively, and were associated with loans with an aggregate principal balance of $2.12 billion and $2.59 billion, respectively. During the years ended December 31, 2021, 2020, and 2019, including net market valuation gains and losses on our MSRs and related risk management derivatives, we recorded a net gain of $2 million, a net loss of $10 million, and a net gain of $4 million respectively, through Other income on our consolidated statements of income (loss).

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