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Principles of Consolidation (Tables)

9 Months Ended

Sep. 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

September 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						$	198,161					$	3,237,170					$	—					$	1,482,964					$	—					$	—					$	—					$	4,918,295
Business purpose loans, held-for-investment						—						—						3,531,229						—						—						—						—						3,531,229
Consolidated Agency multifamily loans						—						—						—						—						427,458						—						—						427,458
Home equity investments																																										139,728						139,728
Other investments						—						—						—						—						—						307,723						—						307,723
Cash and cash equivalents						—						—						—						—						—						15,923						—						15,923
Restricted cash						92						78						15,889						—						—						18,569						3,540						38,168
Accrued interest receivable						226						11,295						17,497						5,247						1,299						720						—						36,284
Other assets						407						—						24,084						2,544						—						7,270						50						34,355
Total Assets						$	198,886					$	3,248,543					$	3,588,699					$	1,490,755					$	428,757					$	350,205					$	143,318					$	9,449,163
Short-term debt						$	—					$	—					$	—					$	—					$	—					$	233,104					$	—					$	233,104
Accrued interest payable						224						9,003						11,202						3,630						1,173						348						—						25,580
Accrued expenses and other liabilities						(58)						80						1,903						—						—						24,223						24,354						50,502
Asset-backed securities issued						197,354						3,013,249						3,179,487						1,249,041						395,411						—						104,751						8,139,293
Total Liabilities						$	197,520					$	3,022,332					$	3,192,592					$	1,252,671					$	396,584					$	257,675					$	129,105					$	8,448,479
Value of our investments in VIEs(1)						$	1,214					$	223,920					$	393,015					$	236,467					$	32,047					$	92,530					$	14,213					$	993,406
Number of VIEs						20						17						19						3						1						3						1						64

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 September 30, 2022 and December 31, 2021, the fair value of our interests in the CAFL SFR securitizations were $314 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 September 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 $335 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 nine months ended September 30, 2022 and 2021.

Table 4.2 – Income (Loss) from Consolidated VIEs

						Three Months Ended September 30, 2022
						Legacy Sequoia						Sequoia						CAFL						Freddie Mac SLST						Freddie Mac K-Series						Servicing Investment						HEI						Total Consolidated VIEs
(Dollars in Thousands)
Interest income						$	1,475					$	31,587					$	61,439					$	16,098					$	4,762					$	7,800					$	—					$	123,161
Interest expense						(1,486)						(27,541)						(44,804)						(12,829)						(4,377)						(2,606)						—						(93,643)
Net interest income						(11)						4,046						16,635						3,269						385						5,194						—						29,518
Non-interest income
Investment fair value changes, net						(328)						(10,936)						(4,527)						(41,892)						316						(3,286)						(584)						(61,237)
Other income						—						—						286						—						—						—						—						286
Total non-interest income, net						(328)						(10,936)						(4,241)						(41,892)						316						(3,286)						(584)						(60,951)
General and administrative expenses						—						—						—						—						—						(55)						—						(55)
Other expenses						—						—						—						—						—						(372)						—						(372)
Income (loss) from Consolidated VIEs						$	(339)					$	(6,890)					$	12,394					$	(38,623)					$	701					$	1,481					$	(584)					$	(31,860)

						Nine Months Ended September 30, 2022
						Legacy Sequoia						Sequoia						CAFL						Freddie Mac SLST						Freddie Mac K-Series						Servicing Investment						HEI						Total Consolidated VIEs
(Dollars in Thousands)
Interest income						$	3,595					$	95,608					$	195,381					$	49,851					$	14,247					$	23,287					$	—					$	381,969
Interest expense						(3,154)						(84,041)						(145,207)						(40,286)						(13,099)						(6,110)						—						(291,897)
Net interest income						441						11,567						50,174						9,565						1,148						17,177						—						90,072
Non-interest income
Investment fair value changes, net						(1,378)						(20,644)						(23,972)						(74,796)						390						(11,259)						4,028						(127,631)
Other income						—						—						631						—						—						—						—						631
Total non-interest income, net						(1,378)						(20,644)						(23,341)						(74,796)						390						(11,259)						4,028						(127,000)
General and administrative expenses						—						—						—						—						—						(130)						—						(130)
Other expenses						—						—						—						—						—						(1,158)						—						(1,158)
Income (loss) from Consolidated VIEs						$	(937)					$	(9,077)					$	26,833					$	(65,231)					$	1,538					$	4,630					$	4,028					$	(38,216)

						Three Months Ended September 30, 2021
						Legacy Sequoia						Sequoia						CAFL						Freddie Mac SLST						Freddie Mac K-Series						Servicing Investment						HEI						Total Consolidated VIEs
(Dollars in Thousands)
Interest income						$	1,042					$	18,867					$	48,937					$	18,707					$	4,846					$	3,905					$	—					$	96,304
Interest expense						(641)						(15,368)						(37,489)						(15,774)						(4,460)						(1,018)						—						(74,750)
Net interest income						401						3,499						11,448						2,933						386						2,887						—						21,554
Non-interest income
Investment fair value changes, net						(247)						3,314						2,943						13,849						554						(2,080)						47						18,380
Other income						—						—						10						—						—						—						—						10
Total non-interest income, net						(247)						3,314						2,953						13,849						554						(2,080)						47						18,390
General and administrative expenses						—						—						—						—						—						(60)						—						(60)
Other expenses						—						—						—						—						—						(149)						—						(149)
Income (loss) from Consolidated VIEs						$	154					$	6,813					$	14,401					$	16,782					$	940					$	598					$	47					$	39,735

						Nine Months Ended September 30, 2021
						Legacy Sequoia						Sequoia						CAFL						Freddie Mac SLST						Freddie Mac K-Series						Servicing Investment						HEI						Total Consolidated VIEs
(Dollars in Thousands)
Interest income						$	3,559					$	48,842					$	152,659					$	58,372					$	14,492					$	12,168					$	—					$	290,092
Interest expense						(2,271)						(38,848)						(118,543)						(49,756)						(13,294)						(3,414)						—						(226,126)
Net interest income						1,288						9,994						34,116						8,616						1,198						8,754						—						63,966
Non-interest income
Investment fair value changes, net						(1,162)						13,118						6,354						54,282						11,330						(5,646)						47						78,323
Other income						—						—						10						—						—						—						—						10
Total non-interest income, net						(1,162)						13,118						6,364						54,282						11,330						(5,646)						47						78,333
General and administrative expenses						—						—						—						—						—						(150)						—						(150)
Other expenses						—						—						—						—						—						(591)						—						(591)
Income (loss) from Consolidated VIEs						$	126					$	23,112					$	40,480					$	62,898					$	12,528					$	2,367					$	47					$	141,558

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 nine months ended September 30, 2022 and 2021.

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

						Three Months Ended September 30,												Nine Months Ended September 30,
(In Thousands)						2022						2021						2022						2021
Principal balance of loans transferred						$	—					$	—					$	—					$	1,231,803
Trading securities retained, at fair value						—						—						—						7,774
AFS securities retained, at fair value						—						—						—						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 nine months ended September 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 September 30,												Nine Months Ended September 30,
(In Thousands)						2022						2021						2022						2021
Proceeds from new transfers						$	—					$	—					$	—					$	1,266,063
MSR fees received						737						1,095						2,365						4,038
Funding of compensating interest, net						(11)						54						(41)						(116)
Cash flows received on retained securities						3,096						16,724						20,380						42,117

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 nine months ended September 30, 2022 and 2021.

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

Three Months Ended September 30, 2022

Three Months Ended September 30, 2021

At Date of Securitization

Senior IO Securities

Subordinate Securities

Senior IO Securities

Subordinate Securities

Prepayment rates

N/A

N/A

N/A

N/A

Discount rates

N/A

N/A

N/A

N/A

Credit loss assumptions

N/A

N/A

N/A

N/A

Nine Months Ended September 30, 2022

Nine Months Ended September 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 September 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)						September 30, 2022						December 31, 2021
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading						$	28,511					$	18,214
Subordinate securities, classified as AFS						78,065						127,542
Mortgage servicing rights						11,915						6,450
Maximum loss exposure (1)						$	118,491					$	152,206
Assets transferred:
Principal balance of loans outstanding						$	4,146,817					$	4,959,234
Principal balance of loans 30+ days delinquent						21,803						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 September 30, 2022 and December 31, 2021.

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

September 30, 2022						MSRs						Senior Securities (1)						Subordinate Securities
(Dollars in Thousands)
Fair value at September 30, 2022						$	11,915					$	28,511					$	78,065
Expected life (in years) (2)						7						7						16
Prepayment speed assumption (annual CPR) (2)						8		%				11		%				8		%
Decrease in fair value from:
10% adverse change						$	334					$	942					$	570
25% adverse change						810						2,291						1,132
Discount rate assumption (2)						11		%				12		%				8		%
Decrease in fair value from:
100 basis point increase						$	441					$	1,001					$	7,714
200 basis point increase						852						1,889						14,345
Credit loss assumption (2)						N/A						0.04		%				0.04		%
Decrease in fair value from:
10% higher losses						N/A						N/A						$	190
25% higher losses						N/A						N/A						254

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						N/A						$	1,528
25% higher losses						N/A						N/A						3,819

(1)Senior securities included $29 million and $18 million of interest-only securities at September 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 September 30, 2022 and December 31, 2021, grouped by asset type.

Table 4.8 – Third-Party Sponsored VIE Summary

(In Thousands)						September 30, 2022						December 31, 2021
Mortgage-Backed Securities
Senior						$	348					$	3,572
Subordinate						152,288						228,083
Total Mortgage-Backed Securities						152,636						231,655
Excess MSR						7,662						10,400
Total Investments in Third-Party Sponsored VIEs						$	160,298					$	242,055

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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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