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Principles of Consolidation (Tables)

9 Months Ended

Sep. 30, 2023

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, 2023						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						$	150,152					$	3,774,090					$	—					$	1,312,149					$	—					$	—					$	—					$	5,236,391
Business purpose loans, held-for-investment						—						—						3,494,669						—						—						—						—						3,494,669
Consolidated Agency multifamily loans						—						—						—						—						420,554						—						—						420,554
Home equity investments						—						—						—						—						—						—						129,150						129,150
Other investments						—						—						—						—						—						252,650						—						252,650
Cash and cash equivalents						—						—						—						—						—						15,198						—						15,198
Restricted cash						67						76						24,127						—						—						—						4,015						28,285
Accrued interest receivable						333						15,263						19,267						4,900						1,275						2,232						—						43,270
Other assets						—						—						8,062						2,865						—						7,973						50						18,950
Total Assets						$	150,552					$	3,789,429					$	3,546,125					$	1,319,914					$	421,829					$	278,053					$	133,215					$	9,639,117
Short-term debt						$	—					$	—					$	—					$	—					$	—					$	154,128					$	—					$	154,128
Accrued interest payable						310						12,695						11,181						3,398						1,150						385						—						29,119
Accrued expenses and other liabilities						(106)						80						2,736						—						—						32,062						25,627						60,399
Asset-backed securities issued						149,202						3,568,505						3,134,929						1,058,991						387,650						—						92,773						8,392,050
Total Liabilities						$	149,406					$	3,581,280					$	3,148,846					$	1,062,389					$	388,800					$	186,575					$	118,400					$	8,635,696
Value of our investments in VIEs(1)						$	950					$	205,581					$	394,184					$	256,023					$	32,904					$	91,478					$	14,815					$	995,935
Number of VIEs						20						20						20						2						1						3						1						67

December 31, 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						$	184,932					$	3,190,417					$	—					$	1,457,058					$	—					$	—					$	—					$	4,832,407
Business purpose loans, held-for-investment						—						—						3,461,367						—						—						—						—						3,461,367
Consolidated Agency multifamily loans						—						—						—						—						424,551						—						—						424,551
Home equity investments						—						—						—						—						—						—						132,627						132,627
Other investments						—						—						—						—						—						301,213						—						301,213
Cash and cash equivalents						—						—						710						—						—						12,765						—						13,475
Restricted cash						69						73						26,296						—						—						—						3,424						29,862
Accrued interest receivable						284						11,227						18,102						5,144						1,293						342						—						36,392
Other assets						637						—						14,265						2,898						—						7,547						50						25,397
Total Assets						$	185,922					$	3,201,717					$	3,520,740					$	1,465,100					$	425,844					$	321,867					$	136,101					$	9,257,291
Short-term debt						$	—					$	—					$	—					$	—					$	—					$	206,510					$	—					$	206,510
Accrued interest payable						282						8,880						10,918						3,561						1,167						492						—						25,300
Accrued expenses and other liabilities						—						81						4,559						—						—						24,745						22,329						51,714
Asset-backed securities issued						184,191						2,971,109						3,115,807						1,222,150						392,785						—						100,710						7,986,752
Total Liabilities						$	184,473					$	2,980,070					$	3,131,284					$	1,225,711					$	393,952					$	231,747					$	123,039					$	8,270,276
Value of our investments in VIEs(1)						$	1,285					$	219,299					$	385,927					$	237,807					$	31,767					$	90,120					$	13,062					$	979,267
Number of VIEs						20						17						19						3						1						3						1						64

(1)Value of our investments in VIEs, as presented in this table, represents the fair value of our economic interests in the consolidated VIEs that we account for under the CFE election. CAFL includes BPL term loan securitizations we account for under the CFE election and two BPL bridge loan securitizations for which we did not make the CFE election. As of September 30, 2023 and December 31, 2022, the fair value of our interests in the CAFL Term securitizations were $316 million and $304 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. At December 31, 2022, Freddie Mac SLST includes securitizations we account for under the CFE election and also includes ABS issued in relation to a re-securitization of the securities we own in the consolidated Freddie Mac SLST VIEs, that we account for at amortized historical cost. In January 2023, we called the Freddie Mac SLST re-securitization and paid off the associated outstanding ABS issued. As of September 30, 2023 and December 31, 2022, the fair value of our interests in the Freddie Mac SLST securitizations accounted for under the CFE election was $256 million and $323 million, respectively, with the difference reflected in the December 31, 2022 table above due to ABS issued and carried at amortized historical cost.

The following tables present income (loss) from these VIEs for the three and nine months ended September 30, 2023 and 2022.

Table 4.2 – Income (Loss) from Consolidated VIEs

						Three Months Ended September 30, 2023
						Legacy Sequoia						Sequoia						CAFL						Freddie Mac SLST						Freddie Mac K-Series						Servicing Investment						HEI						Total Consolidated VIEs
(Dollars in Thousands)
Interest income						$	2,596					$	40,180					$	52,940					$	15,065					$	4,677					$	8,069					$	—					$	123,527
Interest expense						(2,487)						(35,810)						(38,273)						(10,523)						(4,290)						(3,410)						—						(94,793)
Net interest income						109						4,370						14,667						4,542						387						4,659						—						28,734
Non-interest income
Investment fair value changes, net						(215)						(4,966)						(6,562)						(32,388)						390						3,059						968						(39,714)
Other income						—						—						377						—						—						—						—						377
Total non-interest income, net						(215)						(4,966)						(6,185)						(32,388)						390						3,059						968						(39,337)
General and administrative expenses						—						—						—						—						—						(89)						—						(89)
Other expenses						—						—						—						—						—						(1,526)						—						(1,526)
Income (loss) from Consolidated VIEs						$	(106)					$	(596)					$	8,482					$	(27,846)					$	777					$	6,103					$	968					$	(12,218)

						Nine Months Ended September 30, 2023
						Legacy Sequoia						Sequoia						CAFL						Freddie Mac SLST						Freddie Mac K-Series						Servicing Investment						HEI						Total Consolidated VIEs
(Dollars in Thousands)
Interest income						$	7,879					$	112,302					$	161,960					$	45,831					$	13,993					$	23,794					$	—					$	365,759
Interest expense						(7,650)						(99,859)						(116,360)						(32,392)						(12,842)						(11,054)						—						(280,157)
Net interest income						229						12,443						45,600						13,439						1,151						12,740						—						85,602
Non-interest income
Investment fair value changes, net						(319)						(1,596)						(4,643)						(40,017)						1,138						7,265						1,846						(36,326)
Other income						—						—						761						—						—						—						—						761
Total non-interest income, net						(319)						(1,596)						(3,882)						(40,017)						1,138						7,265						1,846						(35,565)
General and administrative expenses						—						—						—						—						—						(82)						—						(82)
Other expenses						—						—						—						—						—						(4,007)						—						(4,007)
Income (loss) from Consolidated VIEs						$	(90)					$	10,847					$	41,718					$	(26,578)					$	2,289					$	15,916					$	1,846					$	45,948

						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)

Schedule of 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, 2023 and 2022 between us and the unconsolidated VIEs sponsored by us and accounted for as sales since 2012.

Table 4.3 – Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood

						Three Months Ended September 30,												Nine Months Ended September 30,
(In Thousands)						2023						2022						2023						2022
MSR fees received						$	664					$	737					$	2,020					$	2,365
Funding of compensating interest, net						(1)						(11)						(3)						(41)
Cash flows received on retained securities						3,254						3,096						8,938						20,380

Schedule of Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents additional information at September 30, 2023 and December 31, 2022, related to unconsolidated VIEs sponsored by Redwood and accounted for as sales since 2012.

Table 4.4 – Unconsolidated VIEs Sponsored by Redwood

(In Thousands)						September 30, 2023						December 31, 2022
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading						$	32,772					$	28,722
Subordinate securities, classified as AFS						73,160						74,367
Mortgage servicing rights						11,562						11,589
Maximum loss exposure (1)						$	117,494					$	114,678
Assets transferred:
Principal balance of loans outstanding						$	3,830,002					$	4,052,922
Principal balance of loans 30+ days delinquent						18,498						27,739

(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.

Schedule of 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, 2023 and December 31, 2022.

Table 4.5 – Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated VIEs Sponsored by Redwood

September 30, 2023						MSRs						Senior Securities (1)						Subordinate Securities
(Dollars in Thousands)
Fair value at September 30, 2023						$	11,562					$	32,772					$	73,160
Expected life (in years) (2)						8						10						15
Prepayment speed assumption (annual CPR) (2)						6		%				5		%				8		%
Decrease in fair value from:
10% adverse change						$	207					$	589					$	458
25% adverse change						513						1,400						1,086
Discount rate assumption (2)						13		%				14		%				9		%
Decrease in fair value from:
100 basis point increase						$	405					$	1,547					$	6,878
200 basis point increase						827						2,782						12,831
Credit loss assumption (2)						N/A						0.03		%				0.03		%
Decrease in fair value from:
10% higher losses						N/A						N/A						$	31
25% higher losses						N/A						N/A						80

December 31, 2022						MSRs						Senior Securities (1)						Subordinate Securities
(Dollars in Thousands)
Fair value at December 31, 2022						$	11,589					$	28,722					$	74,367
Expected life (in years) (2)						7						7						16
Prepayment speed assumption (annual CPR) (2)						8		%				10		%				8		%
Decrease in fair value from:
10% adverse change						$	311					$	970					$	386
25% adverse change						779						2,344						907
Discount rate assumption (2)						11		%				12		%				9		%
Decrease in fair value from:
100 basis point increase						$	430					$	980					$	7,198
200 basis point increase						832						1,894						13,394
Credit loss assumption (2)						N/A						0.03		%				0.03		%
Decrease in fair value from:
10% higher losses						N/A						N/A						$	31
25% higher losses						N/A						N/A						76

(1)Senior securities included $33 million and $29 million of interest-only securities at September 30, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, grouped by asset type.

Table 4.6 – Third-Party Sponsored VIE Summary

(In Thousands)						September 30, 2023						December 31, 2022
Mortgage-Backed Securities
Senior						$	8,397					$	145
Subordinate						15,116						137,241
Total Mortgage-Backed Securities						23,513						137,386
Excess MSR						5,590						7,082
Total Investments in Third-Party Sponsored VIEs						$	29,103					$	144,468

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- 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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Tabular disclosure of a transferor's continuing involvement with financial assets transferred to a transferee in a securitization, asset-backed financing arrangement, or similar transfer. Such disclosure would, at a minimum, contain information allowing for an assessment of the reasons for the transferor's continuing involvement, the risks related to the transferred financial assets to which the transferor continues to be exposed, and the extent of change to the transferor's risk profile due to the transfer (including, but not limited to, credit risk, interest rate risk, other).

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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.

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