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Home Equity Investments (HEI) | 12 Months Ended
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Dec. 31, 2023
Equity Method Investments and Joint Ventures [Abstract] |
Home Equity Investments (HEI) | Home Equity Investments (HEI) From time to time, we may purchase home equity investment contracts from third party originators under flow purchase agreements. Additionally, in the third quarter of 2023, we began to originate HEI. 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 expose us to both home price appreciation and depreciation of the associated property. The following table presents our home equity investments at December 31, 2023 and December 31, 2022. Table 10.1 – Home Equity Investments
(In Thousands) |  | December 31, 2023 |  | December 31, 2022
HEI at Redwood |  | $ | 244,719 |  |  | $ | 270,835 |
HEI held at consolidated HEI securitization entities |  | 305,717 |  |  | 132,627 |
Total Home Equity Investments |  | $ | 550,436 |  |  | $ | 403,462 |
We consolidate HEI securitization entities in accordance with GAAP and have elected to account for them 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 interests we own, and are reported in HEI income, net on our Consolidated statements of income (loss). The following table provides the activity of HEI during the years ended December 31, 2023 and 2022. Table 10.2 – Activity of HEI
|  | Year Ended December 31, 2023 |  | Year Ended December 31, 2022
(In Thousands) |  | HEI at Redwood |  | Securitized HEI |  | HEI at Redwood |  | Securitized HEI
Fair value of HEI purchased and originated (1) |  | $ | 136,445 |  |  | $ | — |  |  | $ | 248,218 |  |  | $ | — |
Fair value of HEI transferred (1) |  | (173,207) |  |  | 173,207 |  |  | — |  |  | — |
(1) Amount purchased and originated in 2023 includes $111 million contributed by third-parties into the securitization we co-sponsored in the fourth quarter of 2023, in exchange for cash and subordinate beneficial interests in the securitization (which we present as other liabilities on our consolidated balance sheets). These are included in purchases, as they passed through our depositor and we consolidate the HEI securitization. Fair value of HEI transferred in 2023 includes this third-party HEI and HEI contributed directly by Redwood into the securitization. The following table provides the components of HEI income, net for the years ended December 31, 2023, 2022 and 2021. Table 10.3 – Components of HEI Income, net
|  | Years Ended December 31,
(In Thousands) |  | 2023 |  | 2022 |  | 2021
Net market valuation gains (losses) recorded on HEI at Redwood |  | $ | 30,750 |  |  | $ | (201) |  |  | $ | 13,207 |
Net market valuation gains (losses) recorded on Securitized HEI |  | 23,177 |  |  | 5,875 |  |  | 567 |
Net market valuation gains (losses) recorded on ABS Issued from HEI securitizations(1) |  | (11,020) |  |  | 2,334 |  |  | 47 |
Net market valuation gains (losses) recorded on non-controlling interests in HEI securitizations |  | (7,790) |  |  | (5,294) |  |  | (396) |
Total HEI income, net |  | $ | 35,117 |  |  | $ | 2,714 |  |  | $ | 13,425 |
(1)Amount includes interest expense associated with ABS issued, which totaled $6 million, $5 million and $1 million for 2023, 2022 and 2021, respectively. The following tables summarize the characteristics of HEI at December 31, 2023 and 2022. Table 10.4 – HEI Characteristics
|  | December 31, 2023 |  | December 31, 2022
(Dollars in Thousands) |  | HEI at Redwood |  | Securitized HEI |  | HEI at Redwood |  | Securitized HEI
Number of HEI contracts |  | 2,034 |  |  | 2,434 |  |  | 2,599 |  |  | 1,007 |
Average initial amount of contract |  | $ | 105 |  |  | $ | 96 |  |  | $ | 101 |  |  | $ | 94 |
The following tables present the geographic concentration of HEI recorded on our consolidated balance sheets at December 31, 2023 and 2022. Table 10.5 – Geographic Concentration of HEI
|  | December 31, 2023
Geographic Concentration (by Investment Amount) |  | HEI at Redwood |  | Securitized HEI
California |  | 48 | % |  | 47 | %
Florida |  | 12 | % |  | 7 | %
Washington |  | 6 | % |  | 7 | %
Colorado |  | 6 | % |  | 4 | %
Arizona |  | 5 | % |  | 6 | %
New York |  | 4 | % |  | 7 | %
Other states (none greater than 5%) |  | 19 | % |  | 22 | %
Total |  | 100 | % |  | 100 | %
|  | December 31, 2022
Geographic Concentration (by Investment Amount) |  | HEI at Redwood |  | Securitized HEI
California |  | 44 | % |  | 59 | %
Florida |  | 14 | % |  | 4 | %
Arizona |  | 7 | % |  | — | %
Washington |  | 6 | % |  | 6 | %
Colorado |  | 5 | % |  | 4 | %
New York |  | 4 | % |  | 11 | %
Other states (none greater than 5%) |  | 20 | % |  | 16 | %
Total |  | 100 | % |  | 100 | %

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