Home Equity Investments (HEI)

9 Months Ended

Sep. 30, 2022

Equity Method Investments and Joint Ventures [Abstract]

Home equity investments at September 30, 2022 and December 31, 2021 are summarized in the following table.

Table 10.1 – Home Equity Investments


(In Thousands)	September 30, 2022		December 31, 2021
HEIs at Redwood	$	200,709	$	33,187
HEIs held at consolidated HEI securitization entity	139,728		159,553
Total Home Equity Investments	$	340,437	$	192,740

We purchase home equity investment contracts from third party originators under flow purchase agreements. Each HEI provides the owner of such HEI the right to purchase a percentage ownership interest in an associated residential property, and the homeowner's obligations under the HEI are secured by a lien (primarily second liens) on the property created by a deed of trust or a mortgage. Our investments in HEIs allow us to share in both home price appreciation and depreciation of the associated property.

At September 30, 2022, we had flow purchase agreements with HEI originators with $149 million of cumulative purchase commitments outstanding. See Note 17 for additional information on these commitments.

As of September 30, 2022, we owned $201 million of HEIs at Redwood and consolidated $140 million of HEIs through the HEI securitization entity. We account for these investments under the fair value option and during the three and nine months ended September 30, 2022, we recorded net market valuation losses of $5 million and losses of $2 million, respectively, related to HEIs owned at Redwood through Investment fair value changes, net on our consolidated statements of income (loss).

We consolidate the HEI securitization in accordance with GAAP and have elected to account for it under the CFE election. During the three and nine months ended September 30, 2022, we recorded net market valuation losses of $1 million and gains of $4 million (including $1 million and $3 million of interest expense), respectively, related to our net investment in the HEI securitization entity through Investment fair value changes, net on our consolidated statements of income (loss).