Home Equity Investments (HEI)

3 Months Ended

Mar. 31, 2024

Equity Method Investments and Joint Ventures [Abstract]

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 directly. 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.

As discussed in Note 3, we co-sponsored two HEI securitization transactions. We consolidate these 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 interest we own, and are reported in HEI income, net on our Consolidated statements of income.

The following table presents our HEI at March 31, 2024 and December 31, 2023.

Table 10.1 – Home Equity Investments


(In Thousands)	March 31, 2024		December 31, 2023
HEI at Redwood	$	246,561	$	244,719
HEI held at consolidated HEI securitization entities	314,184		305,717
Total Home Equity Investments	$	560,745	$	550,436

The following table details our HEI activity during the three months ended March 31, 2024 and 2023.

Table 10.2 – Activity of HEI


	Three Months Ended March 31, 2024				Three Months Ended March 31, 2023
(In Thousands)	HEI at Redwood		Securitized HEI		HEI at Redwood		Securitized HEI
Fair value of HEI purchased and originated	$	307	$	—	$	40,141	$	—
Fair value of HEI transferred	—		—		—		—

The following table provides the components of HEI income, net for the three months ended March 31, 2024 and 2023 and reflect net market valuation gains (losses) recorded on HEI at Redwood and on securitized HEI, net of the third party and non-controlling interests in the HEI securitizations that are not owned by Redwood.

Table 10.3 – Components of HEI Income, net



	Three Months Ended March 31, 2024		Three Months Ended March 31, 2023
(In Thousands)
Net market valuation gains (losses) recorded on HEI at Redwood	$	6,143	$	3,840
Net market valuation gains (losses) recorded on Securitized HEI	15,424		1,068
Net market valuation gains (losses) recorded on ABS Issued from HEI securitizations(1)	(7,409)		126
Net market valuation gains (losses) recorded on non-controlling interests in HEI securitizations	(5,127)		(769)
Total HEI income, net	$	9,031	$	4,265

(1)Amount includes interest expense associated with ABS issued, which totaled $3 million and $1 million for the three months ended March 31, 2024 and 2023, respectively.

The following tables summarizes the characteristics of our HEI at March 31, 2024 and December 31, 2023.

Table 10.4 – HEI Characteristics


	March 31, 2024				December 31, 2023
(Dollars in Thousands)	HEI at Redwood		Securitized HEI		HEI at Redwood		Securitized HEI
Number of HEI contracts	1,992		2,370		2,034		2,434
Average initial amount of contract	$	105	$	95	$	105	$	96