Other Investments

9 Months Ended

Sep. 30, 2022

Investments, All Other Investments [Abstract]

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

Table 11.1 – Components of Other Investments


(In Thousands)	September 30, 2022		December 31, 2021
Servicer advance investments	$	274,934	$	350,923
Strategic investments	71,607		35,702
Excess MSRs	40,452		44,231
Mortgage servicing rights	24,796		12,438

Other	973		5,935
Total Other Investments	$	412,762	$	449,229

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 a portfolio of legacy residential mortgage-backed securitizations serviced by the co-investor. Refer to Note 10 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information regarding the transactions. At both September 30, 2022 and December 31, 2021, we had cumulatively funded $148 million of total capital to the SA Buyers. See Note 17 for additional detail on these commitments.

At September 30, 2022, our servicer advance investments had a carrying value of $275 million and were associated with a portfolio of residential mortgage loans with an unpaid principal balance of $11.68 billion. The outstanding servicer advance receivables associated with this investment were $245 million at September 30, 2022, which were financed with short-term non-recourse securitization debt. See Note 14 for additional detail on this debt. The servicer advance receivables were comprised of the following types of advances at September 30, 2022 and December 31, 2021.

Table 11.2 – Components of Servicer Advance Receivables


(In Thousands)	September 30, 2022		December 31, 2021
Principal and interest advances	$	89,816	$	94,148
Escrow advances (taxes and insurance advances)	117,971		172,847
Corporate advances	37,394		43,958
Total Servicer Advance Receivables	$	245,181	$	310,953

We account for our servicer advance investments at fair value and during the three and nine months ended September 30, 2022, we recorded $5 million and $15 million of interest income, respectively, through Other interest income, and recorded a net market valuation loss of $4 million and loss of $10 million, respectively, through Investment fair value changes, net in our consolidated statements of income (loss).

Strategic Investments

Strategic investments represent investments we made in companies either through our RWT Horizons venture investment platform or separately at a corporate level. At September 30, 2022, we had made a total of 27 investments in companies through RWT Horizons with a total carrying value of $24 million, as well as six corporate-level investments. During the three and nine months ended September 30, 2022, we recognized a net mark-to-market valuation gain of $1 million and $11 million, respectively, on our strategic investments, which was recorded in Investment fair value changes, net on our consolidated statements of income (loss). During the three and nine months ended September 30, 2022, we recorded losses of $0.3 million and $0.4 million, respectively, in Other income, net 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 portfolio of legacy residential mortgage-backed securitizations. Additionally, we own excess MSRs associated with specified pools of multifamily loans. We account for our excess MSRs at fair value and during the three and nine months ended September 30, 2022, we recognized $4 million and $12 million of interest income, respectively, through Other interest income, and recorded net market valuation losses of $0.4 million and $4 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 sold to third parties. During the three and nine months ended September 30, 2022, we retained zero and $5 million, respectively, of MSRs from sales of residential loans to third parties. We hold our MSR investments at our taxable REIT subsidiaries.

At September 30, 2022 and December 31, 2021, our MSRs had a fair value of $25 million and $12 million, respectively, and were associated with loans with an aggregate principal balance of $2.22 billion and $2.12 billion, respectively. During the three and nine months ended September 30, 2022, including net market valuation gains and losses on our MSRs, we recorded net income of $3 million and $13 million, respectively, through Other income on our consolidated statements of income (loss) related to our MSRs.