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Principles of Consolidation (Tables)

6 Months Ended

Jun. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of Consolidated VIEs

The following table presents a summary of the assets and liabilities of our consolidated VIEs.     

Table 4.1 – Assets and Liabilities of Consolidated VIEs

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.

The following table presents income (loss) from these VIEs for the three and six months ended June 30, 2022 and 2021.

Table 4.2 – Income (Loss) from Consolidated VIEs

						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

Securitization Activity Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents information related to securitization transactions that occurred during the three and six months ended June 30, 2022 and 2021.

Table 4.3 – Securitization Activity Related to Unconsolidated VIEs Sponsored by Redwood

						Three Months Ended June 30,												Six Months Ended June 30,
(In Thousands)						2022						2021						2022						2021
Principal balance of loans transferred						$	—					$	355,924					$	—					$	1,231,803
Trading securities retained, at fair value						—						1,225						—						7,774
AFS securities retained, at fair value						—						522						—						1,600

Cash Flows Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table summarizes the cash flows during the three and six months ended June 30, 2022 and 2021 between us and the unconsolidated VIEs sponsored by us and accounted for as sales since 2012.

Table 4.4 – Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood

						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

Assumptions Related to Assets Retained from Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents the key weighted-average assumptions used to value securities retained at the date of securitization for securitizations completed during the three and six months ended June 30, 2022 and 2021.

Table 4.5 – Assumptions Related to Assets Retained from Unconsolidated VIEs Sponsored by Redwood

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

N/A

8 %

8 %

Discount rates

N/A

N/A

15 %

7 %

Credit loss assumptions

N/A

N/A

0.25 %

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

N/A

11

%

11 %

Discount rates

N/A

N/A

15 %

6 %

Credit loss assumptions

N/A

N/A

0.23 %

0.23 %

Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents additional information at June 30, 2022 and December 31, 2021, related to unconsolidated VIEs sponsored by Redwood and accounted for as sales since 2012.

Table 4.6 – Unconsolidated VIEs Sponsored by Redwood

(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.

Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents key economic assumptions for assets retained from unconsolidated VIEs and the sensitivity of their fair values to immediate adverse changes in those assumptions at June 30, 2022 and December 31, 2021.

Table 4.7 – Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated VIEs Sponsored by Redwood

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

(1)Senior securities included $27 million and $18 million of interest-only securities at June 30, 2022 and December 31, 2021, respectively.

(2)Expected life, prepayment speed assumption, discount rate assumption, and credit loss assumption presented in the tables above represent weighted averages.

Schedule of Third-Party Sponsored VIE Summary

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.

Table 4.8 – Third-Party Sponsored VIE Summary

(In Thousands)						June 30, 2022						December 31, 2021
Mortgage-Backed Securities
Senior						$	4,205					$	3,572
Subordinate						167,512						228,083
Total Mortgage-Backed Securities						171,717						231,655
Excess MSR						8,633						10,400
Total Investments in Third-Party Sponsored VIEs						$	180,350					$	242,055

X

- Definition

Cash Flows between a transferor and a transferee attributable to transferred assets related to either a securitization 0r asset-backed financing arrangement in which the transferor has continuing involvement with the transferred financial assets underlying the transaction (including, but not limited to, servicing, recourse, and restrictions on transferor's interests in the transferred financial assets).

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- Definition

Tabular disclosure of the significant judgments and assumptions made in determining whether a variable interest (as defined) held by the entity requires the variable interest entity (VIE) (as defined) to be consolidated and (or) disclose information about its involvement with the VIE, individually or in aggregate (as applicable); the nature of restrictions, if any, on the consolidated VIE's assets and on the settlement of its liabilities reported by an entity in its statement of financial position, including the carrying amounts of such assets and liabilities; the nature of, and changes in, the risks associated with involvement in the VIE; how involvement with the VIE affects the entity's financial position, financial performance, and cash flows; the lack of recourse if creditors (or beneficial interest holders) of the consolidated VIE have no recourse to the general credit of the primary beneficiary (if applicable); the terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests, if any, that could require the entity to provide financial support to the VIE, including events or circumstances that could expose the entity to a loss; the methodology used by the entity for determining whether or not it is the primary beneficiary of the variable interest entity; the significant factors considered and judgments made in determining that the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are shared (as defined); the carrying amounts and classification of assets and liabilities of the VIE included in the statement of financial position; the entity's maximum exposure to loss, if any, as a result of its involvement with the VIE, including how the maximum exposure is determined and significant sources of the entity's exposure to the VIE; a comparison of the carrying amounts of the assets and liabilities and the entity's maximum exposure to loss; information about any liquidity arrangements, guarantees, and (or) other commitments by third parties that may affect the fair value or risk of the entity's variable interest in the VIE; whether or not the entity has provided financial support or other support (explicitly or implicitly) to the VIE that it was not previously contractually required to provide or whether the entity intends to provide that support, including the type and amount of the support and the primary reasons for providing the support; and supplemental information the entity determines necessary to provide.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-SubTopic 10
-Section 50
-Paragraph 5A
-URI https://asc.fasb.org/extlink&oid=123419778&loc=SL6759159-111685

Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-SubTopic 10
-Section 50
-Paragraph 6
-URI https://asc.fasb.org/extlink&oid=123419778&loc=d3e5747-111685

Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-SubTopic 10
-Section 50
-Paragraph 9
-URI https://asc.fasb.org/extlink&oid=123419778&loc=SL6228884-111685

Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-SubTopic 10
-Section 50
-Paragraph 3
-URI https://asc.fasb.org/extlink&oid=123419778&loc=d3e5710-111685

Reference 5: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-SubTopic 10
-Section 50
-Paragraph 4
-URI https://asc.fasb.org/extlink&oid=123419778&loc=d3e5728-111685

+ Details

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