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Principles of Consolidation (Tables)

12 Months Ended

Dec. 31, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The following table presents a summary of the assets and liabilities of our consolidated VIEs.

Table 4.1 – Assets and Liabilities of Consolidated VIEs


December 31, 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	$	139,739	$	4,640,464	$	—	$	1,359,242	$	—	$	—	$	—	$	6,139,445
Business purpose loans, held-for-investment	—		—		3,734,321		—		—		—		—		3,734,321
Consolidated Agency multifamily loans	—		—		—		—		425,285		—		—		425,285
Home equity investments	—		—		—		—		—		—		305,717		305,717
Other investments	—		—		—		—		—		257,489		—		257,489
Cash and cash equivalents	—		—		—		—		—		9,482		—		9,482
Restricted cash	68		95		33,921		—		—		—		10,821		44,905
Accrued interest receivable	332		19,697		20,806		4,821		1,320		822		—		47,798
Other assets	—		—		14,886		3,158		—		6,337		62		24,443
Total Assets	$	140,139	$	4,660,256	$	3,803,934	$	1,367,221	$	426,605	$	274,130	$	316,600	$	10,988,885
Short-term debt	$	—	$	—	$	—	$	—	$	—	$	153,653	$	—	$	153,653
Accrued interest payable	303		15,990		11,537		4,496		1,190		416		—		33,932
Accrued expenses and other liabilities	—		—		2,734		—		—		34,357		59,752		96,843
Asset-backed securities issued	138,530		4,430,130		3,362,978		1,265,777		391,977		—		222,488		9,811,880
Total Liabilities	$	138,833	$	4,446,120	$	3,377,249	$	1,270,273	$	393,167	$	188,426	$	282,240	$	10,096,308

Value of our investments in VIEs(1)	1,209		210,429		424,136		96,623		33,308		85,704		34,361		885,770
Number of VIEs	20		22		21		3		1		3		2		72

Table 4.1 – Assets and Liabilities of Consolidated VIEs (Continued)


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, generally represents the fair value of the economic interests we own in VIEs (i.e., the securities or other interests we legally own in the consolidated securitizations or other VIEs). While most of our VIEs are accounted for under the CFE election (whereby the net equity in the VIE generally represents the fair value of our retained interests and associated accrued interest receivable), certain entities, including two CAFL Bridge securitizations (included within the CAFL column), our SLST re-securitization (included within the Freddie Mac SLST column), and our Servicing Investment VIEs are not accounted for under the CFE election and their associated ABS issued are accounted for at amortized historical cost. As of December 31, 2023 and December 31, 2022, the fair value of our interests in the CAFL Term loan securitizations accounted for under the CFE election were $323 million and $304 million, respectively, and the fair value of our interest in the CAFL Bridge loan securitizations accounted for under the CFE election was $22 million and zero, respectively, with the difference from the tables above generally representing ABS issued and carried at amortized historical cost and accrued interest on our economic interests. As of December 31, 2023 and December 31, 2022, the fair value of our interests in the Freddie Mac SLST securitizations accounted for under the CFE election were $274 million and $323 million, respectively, with the difference from the tables above representing ABS issued and carried at amortized historical cost.

The following tables present income (loss) from these VIEs for the years ended December 31, 2023, 2022 and 2021.

Table 4.2 – Income (Loss) from Consolidated VIEs


	Year Ended December 31, 2023
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		HEI		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	10,326	$	161,720	$	217,497	$	60,750	$	18,645	$	31,460	$	—	$	500,398
Interest expense	(9,980)		(144,325)		(156,925)		(43,652)		(17,110)		(14,323)		—		(386,315)
Net interest income	346		17,395		60,572		17,098		1,535		17,137		—		114,083
Non-interest income
Investment fair value changes, net	(160)		218		2,071		(13,446)		1,541		12,053		—		2,277
HEI income, net	—		—		—		—		—		—		4,368		4,368
Other income	—		—		1,078		—		—		—		—		1,078
Total non-interest income, net	(160)		218		3,149		(13,446)		1,541		12,053		4,368		7,723
General and administrative expenses	—		—		—		—		—		(210)		—		(210)
Other expenses	—		—		—		—		—		(5,796)		—		(5,796)
Income (Loss) from Consolidated VIEs	$	186	$	17,613	$	63,721	$	3,652	$	3,076	$	23,184	$	4,368	$	115,800


	Year Ended December 31, 2022
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		HEI		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	5,672	$	126,120	$	248,220	$	65,821	$	18,938	$	31,185	$	—	$	495,956
Interest expense	(5,206)		(111,060)		(184,069)		(52,901)		(17,407)		(9,570)		—		(380,213)
Net interest income	466		15,060		64,151		12,920		1,531		21,615		—		115,743
Non-interest income
Investment fair value changes, net	(1,302)		(23,818)		(34,749)		(76,777)		110		(12,953)		—		(149,489)
HEI income, net	—		—		—		—		—		—		2,915		2,915
Other income	—		—		1,014		—		—		—		—		1,014
Total non-interest income, net	(1,302)		(23,818)		(33,735)		(76,777)		110		(12,953)		2,915		(145,560)
General and administrative expenses	—		—		—		—		—		(189)		—		(189)
Other expenses	—		—		—		—		—		(1,695)		—		(1,695)
Income from Consolidated VIEs	$	(836)	$	(8,758)	$	30,416	$	(63,857)	$	1,641	$	6,778	$	2,915	$	(31,701)


	Year Ended December 31, 2021
	Legacy Sequoia		Sequoia		CAFL		Freddie Mac SLST		Freddie Mac K-Series		Servicing Investment		HEI		Total Consolidated VIEs
(Dollars in Thousands)
Interest income	$	4,709	$	74,025	$	207,202	$	76,287	$	19,266	$	18,803	$	—	$	400,292
Interest expense	(3,040)		(59,949)		(160,618)		(64,635)		(17,686)		(4,867)		—		(310,795)
Net interest income	1,669		14,076		46,584		11,652		1,580		13,936		—		89,497
Non-interest income
Investment fair value changes, net	(1,558)		14,176		8,521		62,374		11,599		(5,209)		—		89,903
HEI income, net	—		—		—		—		—		—		218		218
Other income	—		—		72		—		—		—		—		72
Total non-interest income, net	(1,558)		14,176		8,593		62,374		11,599		(5,209)		218		90,193
General and administrative expenses	—		—		—		—		—		(283)		—		(283)
Other expenses	—		—		—		—		—		(1,689)		—		(1,689)
Income from Consolidated VIEs	$	111	$	28,252	$	55,177	$	74,026	$	13,179	$	6,755	$	218	$	177,718

Schedule of Cash Flows Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table summarizes the cash flows during the years ended December 31, 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


	Years Ended December 31,
(In Thousands)	2023		2022
Proceeds from new transfers	$	—	$	—
MSR fees received	2,653		3,069
Funding of compensating interest, net	(9)		(45)
Cash flows received on retained securities	10,923		22,866

Schedule of Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents additional information at December 31, 2023 and 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)	December 31, 2023		December 31, 2022
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading	$	31,690	$	28,722
Subordinate securities, classified as AFS	78,942		74,367
Mortgage servicing rights	10,885		11,589
Maximum loss exposure (1)	$	121,517	$	114,678
Assets transferred:
Principal balance of loans outstanding	$	3,758,914	$	4,052,922
Principal balance of loans 30+ days delinquent	22,367		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 December 31, 2023 and 2022.

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


December 31, 2023	MSRs			Senior Securities (1)			Subordinate Securities
(Dollars in Thousands)
Fair value at December 31, 2023	$	10,885		$	31,690		$	78,942
Expected life (in years) (2)	8			9			13
Prepayment speed assumption (annual CPR) (2)	6		%	5		%	6		%
Decrease in fair value from:
10% adverse change	$	207		$	532		$	200
25% adverse change	513			1,335			477
Discount rate assumption (2)	13		%	13		%	9		%
Decrease in fair value from:
100 basis point increase	$	405		$	1,322		$	6,855
200 basis point increase	827			2,506			12,883
Credit loss assumption (2)	N/A			0.03		%	0.03		%
Decrease in fair value from:
10% higher losses	N/A			N/A			$	36
25% higher losses	N/A			N/A			96


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 are comprised entirely of interest-only securities at December 31, 2023 and 2022.

(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 Variable Interest Entity Summary

The following table presents a summary of our interests in third-party VIEs at December 31, 2023 and 2022, grouped by asset type.

Table 4.6 – Third-Party Sponsored VIE Summary


(In Thousands)	December 31, 2023		December 31, 2022
Mortgage-Backed Securities
Senior	$	4,419	$	145
Subordinate	12,746		137,241
Total Mortgage-Backed Securities	17,165		137,386
Excess MSR	5,224		7,082
Total Investments in Third-Party Sponsored VIEs	$	22,389	$	144,468

- 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 + Details