Other Investments

12 Months Ended

Dec. 31, 2023

Investments, All Other Investments [Abstract]

Other investments at December 31, 2023 and 2022 are summarized in the following table.

Table 11.1 – Components of Other Investments


(In Thousands)	December 31, 2023		December 31, 2022
Servicer advance investments	$	225,345	$	269,259
Strategic investments	56,107		56,518
Excess MSRs	37,367		39,035
Mortgage servicing rights	24,877		25,421
Other	234		705
Total Other Investments	$	343,930	$	390,938

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 portfolios of legacy residential mortgage-backed securitizations serviced by the co-investor. See Note 4 for additional information regarding these transactions and Note 17 for additional information regarding our funding obligations for these investments.

Our servicer advance investments (owned by the consolidated SA Buyers) are comprised of outstanding servicer advance receivables, the requirement to purchase all future servicer advances made with respect to specified pools of residential mortgage loans, and a portion of the mortgage servicing fees from the underlying loan pools. A portion of the remaining mortgage servicing fees from the underlying loan pools are paid directly to the third-party servicer for the performance of servicing duties and a portion is paid to excess MSRs that we own as a separate investment.

Servicer advances are non-interest bearing and are a customary feature of residential mortgage securitization transactions. Servicer advances are generally reimbursable cash payments made by a servicer when the borrower fails to make scheduled payments due on a residential mortgage loan or to support the value of the collateral property. Servicer advances typically fall into three categories:

•Principal and Interest Advances: cash payments made by the servicer to cover scheduled principal and interest payments on a residential mortgage loan that have not been paid on a timely basis by the borrower.

•Escrow Advances (Taxes and Insurance Advances): Cash payments made by the servicer to third parties on behalf of the borrower for real estate taxes and insurance premiums on the property that have not been paid on a timely basis by the borrower.

•Corporate Advances: Cash payments made by the servicer to third parties for the reimbursable costs and expenses incurred in connection with the foreclosure, preservation and sale of the mortgaged property, including attorneys’ and other professional fees.

Servicer advances are generally permitted to be repaid from amounts received with respect to the related residential mortgage loan, including payments from the borrower or amounts received from the liquidation of the property securing the loan. Residential mortgage servicing agreements generally require a servicer to make advances in respect of serviced residential mortgage loans unless the servicer determines in good faith that the advance would not be ultimately recoverable from the proceeds of the related residential mortgage loan or the mortgaged property.

At December 31, 2023, our servicer advance investments had a carrying value of $225 million and were associated with specified pools of residential mortgage loans with an unpaid principal balance of $10.18 billion. The outstanding servicer advance receivables associated with this investment were $185 million at December 31, 2023, 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 December 31, 2023 and 2022:

Table 11.2 – Components of Servicer Advance Receivables


(In Thousands)	December 31, 2023		December 31, 2022
Principal and interest advances	$	60,216	$	81,447
Escrow advances (taxes and insurance advances)	91,792		123,541
Corporate advances	32,579		35,377
Total Servicer Advance Receivables	$	184,587	$	240,365

We account for our servicer advance investments at fair value and during the years ended December 31, 2023, 2022, and 2021, we recorded $21 million, $20 million and $12 million, respectively, of Other interest income associated with these investments, and recorded net market valuation gains of $12 million, losses of $11 million, and losses of $1 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 through our RWT Horizons venture investment strategy and separately at a corporate level. At December 31, 2023, we had made a total of 34 investments in companies through RWT Horizons with a total carrying value of $21 million, as well as seven corporate-level investments. At December 31, 2023, our strategic investments included $3 million of investments accounted for under the fair value option, $29 million of investments accounted for under the measurement alternative of the fair value option and $24 million of investments accounted for under the equity method. See Note 3 for additional detail on how we account for our strategic investments. During the years ended December 31, 2023, 2022 and 2021, we recognized net mark-to-market valuation losses of $3 million, mark-to-market valuation gains of $13 million, and zero, respectively, on our strategic investments, which were recorded in Investment fair value changes, net on our consolidated statements of income (loss). During the years ended December 31, 2023, 2022, and 2021, we recorded losses of $3 million, losses of $1 million, and gains of $1 million, respectively, in Other income, net on our consolidated statements of income (loss), from our strategic investments.

In the second quarter of 2023, we established a joint venture with a global investment manager to invest in BPL bridge loans originated by our CoreVest subsidiary. We account for our investment in the joint venture under the equity method of accounting as we have a 20% non-controlling interest, but are deemed to be able to exert significant influence over the affairs of the joint venture. We adjust the carrying value of our equity method investment for our share of earnings or losses, dividends or return of capital on a quarterly basis. At December 31, 2023, the carrying value of our investment in the joint venture was $4 million. During the year ended December 31, 2023, we sold $79 million of BPL bridge loans to the joint venture, recorded equity method income of $0.2 million from the joint venture and recorded $0.1 million of loan administration fees for services provided to the joint venture which were recorded Other Income, net on our consolidated statements of income (loss).

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 years ended December 31, 2023, 2022, and 2021 we recognized $14 million, $16 million and $13 million of Other interest income, respectively, and recorded net market valuation losses of $2 million, $5 million, and $8 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 year ended December 31, 2023, we retained zero MSRs from sales of residential loans to third parties. We hold our MSR investments at our taxable REIT subsidiaries.

At both December 31, 2023 and 2022, our MSRs had a fair value of $25 million, and were associated with loans with an aggregate principal balance of $2.03 billion and $2.19 billion, respectively. During the years ended December 31, 2023, 2022, and 2021, including net market valuation gains and losses on our MSRs and related risk management derivatives, we recorded a net gain of $7 million, a net gain of $15 million, and a net gain of $2 million, respectively, through Other income on our consolidated statements of income (loss) related to our MSRs.