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 June 30, 2022, we consolidated Legacy Sequoia, Sequoia, CAFL, Freddie Mac SLST, Freddie Mac K-Series, and 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 June 30, 2022, 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 2021, we consolidated a HEI securitization entity formed to invest in HEIs that we determined was a VIE and for which we determined we were the primary beneficiary. At June 30, 2022 and 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 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.

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 securitizations, Freddie Mac SLST re-securitization, and Servicing Investment entities.


June 30, 2022	Legacy Sequoia		Sequoia		CAFL(1)		Freddie Mac SLST(1)		Freddie Mac K-Series		Servicing Investment		HEI		Total Consolidated VIEs
(Dollars in Thousands)
Residential loans, held-for-investment	$	208,788	$	3,525,459	$	—	$	1,631,285	$	—	$	—	$	—	$	5,365,532
Business purpose loans, held-for-investment	—		—		3,588,428		—		—		—		—		3,588,428
Consolidated Agency multifamily loans	—		—		—		—		443,114		—		—		443,114

Other investments	—		—		—		—		—		305,379		146,215		451,594
Cash and cash equivalents	—		—		—		—		—		14,399		—		14,399
Restricted cash	143		10		8,688		—		—		26,236		4,120		39,197
Accrued interest receivable	215		11,317		14,955		5,378		1,304		403		—		33,572
Other assets	410		—		5,320		2,299		—		7,605		50		15,684
Total Assets	$	209,556	$	3,536,786	$	3,617,391	$	1,638,962	$	444,418	$	354,022	$	150,385	$	9,951,520
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	231,846	$	—	$	231,846
Accrued interest payable	171		9,232		10,610		3,720		1,178		223		—		25,134
Accrued expenses and other liabilities	—		10		6,996		—		—		25,466		25,422		57,894
Asset-backed securities issued	207,647		3,288,682		3,207,867		1,358,459		411,380		—		110,111		8,584,146
Total Liabilities	$	207,818	$	3,297,924	$	3,225,473	$	1,362,179	$	412,558	$	257,535	$	135,533	$	8,899,020

Value of our investments in VIEs(1)	$	1,552	$	236,777	$	388,849	$	275,127	$	31,732	$	96,487	$	14,852	$	1,045,376
Number of VIEs	20		17		18		3		1		3		1		63


December 31, 2021	Legacy Sequoia		Sequoia		CAFL(1)		Freddie Mac SLST(1)		Freddie Mac K-Series		Servicing Investment		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
Consolidated Agency multifamily loans	—		—		—		—		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

(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 two bridge loan securitizations for which we did not make the CFE election. As of June 30, 2022 and December 31, 2021, the fair value of our interests in the CAFL SFR securitizations were $307 million and $302 million, respectively, and the remaining values were associated with our interests in the CAFL Bridge securitizations, for which the ABS issued is carried at amortized historical cost. 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 June 30, 2022 and December 31, 2021, the fair value of our interests in the Freddie Mac SLST securitizations accounted for under the CFE election were $390 million and $445 million, respectively, with the difference from the tables above representing ABS issued and carried at amortized historical cost.


	Three Months Ended June 30, 2022
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		HEI		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	1,108	$	31,923	$	56,608	$	16,553	$	4,732	$	7,568	$	—	$	118,492
Interest expense	(967)		(28,329)		(41,923)		(13,372)		(4,351)		(1,842)		—		(90,784)
Net interest income	141		3,594		14,685		3,181		381		5,726		—		27,708
Non-interest income

Investment fair value changes, net	(336)		(5,886)		(22,109)		(35,940)		(190)		(4,505)		1,201		(67,765)
Other income	—		—		255		—		—		—		—		255

Total non-interest income, net	(336)		(5,886)		(21,854)		(35,940)		(190)		(4,505)		1,201		(67,510)
General and administrative expenses	—		—		—		—		—		(44)		—		(44)
Other expenses	—		—		—		—		—		(235)		—		(235)

Income (loss) from Consolidated VIEs	$	(195)	$	(2,292)	$	(7,169)	$	(32,759)	$	191	$	942	$	1,201	$	(40,081)


	Six Months Ended June 30, 2022
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		HEI		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	2,120	$	64,021	$	133,942	$	33,753	$	9,485	$	15,487	$	—	$	258,808
Interest expense	(1,668)		(56,500)		(100,403)		(27,457)		(8,722)		(3,504)		—		(198,254)
Net interest income	452		7,521		33,539		6,296		763		11,983		—		60,554
Non-interest income

Investment fair value changes, net	(1,050)		(9,708)		(19,445)		(32,904)		74		(7,973)		4,612		(66,394)
Other income	—		—		345		—		—		—		—		345

Total non-interest income, net	(1,050)		(9,708)		(19,100)		(32,904)		74		(7,973)		4,612		(66,049)
General and administrative expenses	—		—		—		—		—		(75)		—		(75)
Other expenses	—		—		—		—		—		(786)		—		(786)

Income (loss) from Consolidated VIEs	$	(598)	$	(2,187)	$	14,439	$	(26,608)	$	837	$	3,149	$	4,612	$	(6,356)


	Three Months Ended June 30, 2021
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		HEI		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	1,169	$	14,492	$	54,849	$	19,506	$	4,860	$	4,041	$	—	$	98,917
Interest expense	(755)		(11,374)		(43,201)		(16,611)		(4,478)		(1,110)		—		(77,529)
Net interest income	414		3,118		11,648		2,895		382		2,931		—		21,388
Non-interest income

Investment fair value changes, net	(216)		4,906		3,697		36,316		1,855		(2,320)		—		44,238


Total non-interest income, net	(216)		4,906		3,697		36,316		1,855		(2,320)		—		44,238
General and administrative expenses	—		—		—		—		—		(52)		—		(52)
Other expenses	—		—		—		—		—		(112)		—		(112)

Income (loss) from Consolidated VIEs	$	198	$	8,024	$	15,345	$	39,211	$	2,237	$	447	$	—	$	65,462


	Six Months Ended June 30, 2021
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		HEI		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	2,517	$	29,975	$	103,722	$	39,665	$	9,646	$	8,263	$	—	$	193,788
Interest expense	(1,630)		(23,480)		(81,054)		(33,982)		(8,834)		(2,396)		—		(151,376)
Net interest income	887		6,495		22,668		5,683		812		5,867		—		42,412
Non-interest income

Investment fair value changes, net	(915)		9,804		3,411		40,433		10,776		(3,566)		—		59,943


Total non-interest income, net	(915)		9,804		3,411		40,433		10,776		(3,566)		—		59,943
General and administrative expenses	—		—		—		—		—		(90)		—		(90)
Other expenses	—		—		—		—		—		(442)		—		(442)

Income (loss) from Consolidated VIEs	$	(28)	$	16,299	$	26,079	$	46,116	$	11,588	$	1,769	$	—	$	101,823

We consolidate the assets and liabilities of certain Sequoia, CAFL and 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 HEI securitization 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 HEI securitization 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 46 Sequoia securitization entities sponsored by us that are still outstanding as of June 30, 2022, 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 June 30, 2022, we did not call any of our unconsolidated Sequoia entities. During the six months ended June 30, 2022, we called three of our unconsolidated Sequoia entities, and purchased $102 million (unpaid principal balance) of loans from the securitization trusts. In association with these calls, we realized a $0.3 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 June 30, 2022, we held $222 million of loans for sale at fair value that were acquired following the calls.


	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2022		2021		2022		2021
Proceeds from new transfers	$	—	$	361,673	$	—	$	1,266,063
MSR fees received	764		1,336		1,628		2,943
Funding of compensating interest, net	(14)		(70)		(30)		(170)
Cash flows received on retained securities	3,158		16,764		17,284		25,393

Three Months Ended June 30, 2022

Three Months Ended June 30, 2021

At Date of Securitization

Senior IO Securities

Subordinate Securities

Senior IO Securities

Subordinate Securities

Prepayment rates

N/A

8 %

Discount rates

N/A

15 %

7 %

Credit loss assumptions

N/A

0.25 %

Six Months Ended June 30, 2022

Six Months Ended June 30, 2021

At Date of Securitization

Senior IO Securities

Subordinate Securities

Senior IO Securities

Subordinate Securities

Prepayment rates

N/A

11 %

Discount rates

N/A

15 %

6 %

Credit loss assumptions

N/A

0.23 %


(In Thousands)	June 30, 2022		December 31, 2021
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading	$	27,293	$	18,214
Subordinate securities, classified as AFS	85,269		127,542
Mortgage servicing rights	11,092		6,450
Maximum loss exposure (1)	$	123,654	$	152,206
Assets transferred:
Principal balance of loans outstanding	$	4,281,806	$	4,959,234
Principal balance of loans 30+ days delinquent	27,683		30,594

(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.


June 30, 2022	MSRs			Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at June 30, 2022	$	11,092		$	27,293		$	85,269
Expected life (in years) (2)	6			6			15
Prepayment speed assumption (annual CPR) (2)	10		%	11		%	10		%
Decrease in fair value from:
10% adverse change	$	1,402		$	1,002		$	568
25% adverse change	3,405			2,406			1,323
Discount rate assumption (2)	11		%	12		%	8		%
Decrease in fair value from:
100 basis point increase	$	1,649		$	910		$	8,522
200 basis point increase	3,180			1,759			15,860
Credit loss assumption (2)	N/A			0.03		%	0.03		%
Decrease in fair value from:
10% higher losses	N/A			N/A			$	42
25% higher losses	N/A			N/A			103


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

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 June 30, 2022 and December 31, 2021, grouped by asset type.

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.