Home Equity Investments (HEI)

3 Months Ended

Mar. 31, 2023

Equity Method Investments and Joint Ventures [Abstract]

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 recording a security instrument (e.g., deed of trust) with respect to the property. Our investments in HEI allow us to share in both home price appreciation and depreciation of the associated property.

The following table presents our home equity investments at March 31, 2023 and December 31, 2022.

Table 10.1 – Home Equity Investments


(In Thousands)	March 31, 2023		December 31, 2022
HEI at Redwood	$	287,466	$	270,835
HEI held at consolidated HEI securitization entity	129,317		132,627
Total Home Equity Investments	$	416,783	$	403,462

At March 31, 2023, we had flow purchase agreements with HEI originators with $8 million of cumulative purchase commitments outstanding. See Note 17 for additional information on these commitments.

We consolidate the HEI securitization entity in accordance with GAAP and have elected to account for it under the CFE election. As such, market valuation changes for the securitized HEI are based on the estimated fair value of the associated ABS issued by the entity, including the securities we own.

The following table details our HEI activity during the three months ended March 31, 2023 and 2022.

Table 10.2 – Activity of HEI


	Three Months Ended March 31, 2023				Three Months Ended March 31, 2022
(In Thousands)	HEI at Redwood		Securitized HEI		HEI at Redwood		Securitized HEI
Fair value of HEI purchased	$	16,559	$	—	$	40,141	$	—

Net market valuation gains recorded (1)	3,840		1,068		1,192		5,731

(1)We account for HEI at Redwood under the fair value option and record net market valuation changes through Investment fair value changes, net on our Consolidated statements of income. We account for Securitized HEI under the CFE election and net market valuation gains (losses) for these investments are recorded through Investment fair value changes, net on our Consolidated statements of income.

The following tables summarizes the characteristics of our HEI at March 31, 2023 and December 31, 2022.

Table 10.3 – HEI Characteristics


	March 31, 2023				December 31, 2022
(Dollars in Thousands)	HEI at Redwood		Securitized HEI		HEI at Redwood		Securitized HEI
Number of HEI contracts	2,695		984		2,599		1,007
Average initial amount of contract	$	101	$	94	$	101	$	94