GAAP requires us to consider whether securitizations we sponsor and other transfers of financial assets should be treated as sales or financings, as well as whether any VIEs that we hold variable interests in – for example, certain legal entities often used in securitization and other structured finance transactions – should be included in our consolidated financial statements. The GAAP principles we apply require us to reassess our requirement to consolidate VIEs each quarter and therefore our determination may change based upon new facts and circumstances pertaining to each VIE. This could result in a material impact to our consolidated financial statements during subsequent reporting periods.

At December 31, 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 December 31, 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. At December 31, 2021, the estimated fair value of our investment in the Servicing Investment entities was $103 million.

During 2021, we consolidated a Point HEI 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 December 31, 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 HEI 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.

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.

During 2020, we sold subordinate securities (and transferred directing certificate holder status as a result of these sales) issued by four of these Freddie Mac K-Series securitization trusts and determined that we should derecognize the associated assets and liabilities of each of these entities for financial reporting purposes. We deconsolidated $3.86 billion of multifamily loans and other assets and $3.72 billion of multifamily ABS issued and other liabilities, for which we realized market valuation losses of $72 million, which were recorded through Investment fair value changes, net on our consolidated statements of income (loss).

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 accounted for under the CFE election effectively represents the fair value of the beneficial interests we own in the entity.

In addition to our consolidated VIEs for which we made the CFE election, we consolidate certain 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.


December 31, 2021	Legacy Sequoia		Sequoia		CAFL(1)		Freddie Mac SLST(1)		Freddie Mac K-Series		Servicing Investment		Point HEI		Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment	$	230,455	$	3,628,465	$	—	$	1,888,230	$	—	$	—	$	—	$	5,747,150
Business purpose loans, held-for-investment	—		—		3,766,316		—		—		—		—		3,766,316
Multifamily loans, held-for-investment	—		—		—		—		473,514		—		—		473,514

Other investments	—		—		—		—		—		384,754		159,553		544,307
Cash and cash equivalents	—		—		—		—		—		6,481		—		6,481
Restricted cash	148		5		15,221		—		—		25,420		5,292		46,086
Accrued interest receivable	210		10,885		15,737		5,792		1,315		1,462		—		35,401
Other assets	61		—		32,510		2,028		—		7,177		50		41,826
Total Assets	$	230,874	$	3,639,355	$	3,829,784	$	1,896,050	$	474,829	$	425,294	$	164,895	$	10,661,081
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	294,447	$	—	$	294,447
Accrued interest payable	99		8,452		11,030		4,055		1,190		192		—		25,018
Accrued expenses and other liabilities	—		5		1,171		—		—		28,115		17,034		46,325
Asset-backed securities issued	227,881		3,383,048		3,474,898		1,588,463		441,857		—		137,410		9,253,557
Total Liabilities	$	227,980	$	3,391,505	$	3,487,099	$	1,592,518	$	443,047	$	322,754	$	154,444	$	9,619,347

Value of our investments in VIEs(1)	2,634		245,417		339,419		301,795		31,657		102,540		10,451		1,033,913
Number of VIEs	20		16		16		3		1		3		1		60


December 31, 2020	Legacy Sequoia		Sequoia Choice		CAFL		Freddie Mac SLST(1)		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		1,993,919		463,966		—		7,100,661
Total Liabilities	$	282,467	$	1,352,104	$	3,023,371	$	1,998,765	$	465,143	$	226,863	$	7,348,713

Value of our investments in VIEs(1)	4,559		220,020		238,680		229,788		28,415		67,766		789,228
Number of VIEs	20		10		14		2		1		3		50

(1)Value of our investments in VIEs, as presented in this table, represent the fair value of our economic interests in the VIEs only for consolidated VIEs we account for under the CFE election. CAFL includes SFR loan securitizations we account for under the CFE election and a bridge loan securitization for which we did not make the CFE election. As of December 31, 2021 and 2020, the fair value of our interests in the CAFL SFR securitizations were $302 million and $239 million, respectively, and our net carrying value in the CAFL Bridge securitization was $38 million and zero, respectively. Freddie Mac SLST includes securitizations we account for under the CFE election and also includes ABS issued in relation to a resecuritization of the securities we own in the consolidated Freddie Mac SLST VIEs, that we account for at amortized historical cost. As of December 31, 2021 and 2020, the fair value of our interests in the Freddie Mac SLST securitizations accounted for under the CFE election were $445 million and $428 million, respectively, and the carrying value of the ABS issued and carried at amortized historical cost was $143 million and $200 million respectively.


	Year Ended December 31, 2021
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Point HEI		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	4,709	$	74,025	$	207,202	$	76,287	$	19,266	$	18,803	$	—	$	400,292
Interest expense	(3,040)		(59,949)		(160,618)		(64,635)		(17,686)		(4,867)		—		(310,795)
Net interest income	1,669		14,076		46,584		11,652		1,580		13,936		—		89,497
Non-interest income

Investment fair value changes, net	(1,558)		14,176		8,521		62,374		11,599		(5,209)		218		90,121
Other income	—		—		72		—		—		—		—		72

Total non-interest income, net	(1,558)		14,176		8,593		62,374		11,599		(5,209)		218		90,193
General and administrative expenses	—		—		—		—		—		(283)		—		(283)
Other expenses	—		—		—		—		—		(1,689)		—		(1,689)

Income (Loss) from Consolidated VIEs	$	111	$	28,252	$	55,177	$	74,026	$	13,179	$	6,755	$	218	$	177,718


	Year Ended December 31, 2020
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	9,061	$	87,093	$	136,950	$	85,609	$	54,813	$	17,665	$	391,191
Interest expense	(5,945)		(73,643)		(105,732)		(66,859)		(51,521)		(6,441)		(310,141)
Net interest income	3,116		13,450		31,218		18,750		3,292		11,224		81,050
Non-interest income

Investment fair value changes, net	(1,512)		(13,244)		(39,574)		(21,160)		(81,039)		(11,327)		(167,856)


Total non-interest income, net	(1,512)		(13,244)		(39,574)		(21,160)		(81,039)		(11,327)		(167,856)
General and administrative expenses	—		—		—		—		—		(867)		(867)
Other expenses	—		—		—		—		—		193		193

Income from Consolidated VIEs	$	1,604	$	206	$	(8,356)	$	(2,410)	$	(77,747)	$	(777)	$	(87,480)

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.

Since 2012, we have transferred residential loans to 49 Sequoia securitization entities sponsored by us that are still outstanding as of December 31, 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 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 year ended December 31, 2021, we called seven of our unconsolidated Sequoia entities, and purchased $200 million (unpaid principal balance) of loans from the securitization trusts. In association with these calls, we realized $16 million of gains on the securities we owned from these called securitizations, which was recognized through Realized gains, net on our consolidated statements of income (loss). At December 31, 2021, we held $172 million of loans for sale at fair value that were acquired following the calls.


	Year Ended December 31, 2021				Year Ended December 31, 2020
At Date of Securitization		Senior IO Securities		Subordinate Securities		Senior IO Securities		Subordinate Securities
Prepayment rates		11	%	11 %		29	%	14	%
Discount rates		15 %		6 %		14	%	7	%
Credit loss assumptions		0.23 %		0.23 %		0.27	%	0.24	%


(In Thousands)	December 31, 2021		December 31, 2020
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading	$	18,214	$	20,982
Subordinate securities, classified as AFS	127,542		136,475
Mortgage servicing rights	6,450		8,413
Maximum loss exposure (1)	$	152,206	$	165,870
Assets transferred:
Principal balance of loans outstanding	$	4,959,234	$	7,728,432
Principal balance of loans 30+ days delinquent	30,594		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.


December 31, 2021	MSRs			Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at December 31, 2021	$	6,450		$	18,214		$	127,542
Expected life (in years) (2)	3			4			5
Prepayment speed assumption (annual CPR) (2)	29		%	23		%	32 %
Decrease in fair value from:
10% adverse change	$	447		$	1,130		$	531
25% adverse change	1,020			2,596			1,440
Discount rate assumption (2)	12 %			16		%	5		%
Decrease in fair value from:
100 basis point increase	$	152		$	426		$	4,801
200 basis point increase	297			829			9,139
Credit loss assumption (2)	N/A			0.35		%	0.35		%
Decrease in fair value from:
10% higher losses	N/A			$	—		$	1,528
25% higher losses	N/A			—			3,819


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


(In Thousands)	December 31, 2021		December 31, 2020
Mortgage-Backed Securities
Senior	$	3,572	$	11,131
Mezzanine	—		2,014
Subordinate	228,083		173,523
Total Mortgage-Backed Securities	231,655		186,668
Excess MSR	10,400		14,133
Total Investments in Third-Party Sponsored VIEs	$	242,055	$	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.