XML 25 R14.htm IDEA: XBRL DOCUMENT v3.24.1.u1
Fair Value of Financial Instruments
 3 Months Ended
Mar. 31, 2024
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments Fair Value of Financial Instruments
For financial reporting purposes, we follow a fair value hierarchy established under GAAP that is used to determine the fair value of financial instruments. This hierarchy prioritizes relevant market inputs in order to determine an “exit price” at the measurement date, or the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale. Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Level 2 inputs are observable inputs other than quoted prices for an asset or liability that are obtained through corroboration with observable market data. Level 3 inputs are unobservable inputs (e.g., our own data or assumptions) that are used when there is little, if any, relevant market activity for the asset or liability required to be measured at fair value.
In certain cases, inputs used to measure fair value fall into different levels of the fair value hierarchy. In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured.
The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at March 31, 2024 and December 31, 2023.

Table 5.1 – Carrying Values and Fair Values of Assets and Liabilities
March 31, 2024December 31, 2023
Carrying
Value		Fair
Value		Carrying
Value		Fair
Value
(In Thousands)
Assets
Residential consumer loans, held-for-sale, at fair value$511,706 $511,706 $911,192 $911,192 
Residential consumer loans, held-for-investment, at fair value7,104,886 7,104,886 6,139,445 6,139,445 
Residential investor loans, held-for-sale, at fair value280,551 280,551 180,249 180,250 
Residential investor loans, held-for-investment, at fair value4,901,443 4,901,443 5,040,048 5,040,048 
Consolidated Agency multifamily loans, at fair value422,788 422,788 425,285 425,285 
Real estate securities, at fair value212,307 212,307 127,797 127,797 
HEI (1)
560,745 560,745 550,436 550,436 
Servicer advance investments (2)
216,033 216,033 225,345 225,345 
MSRs (2)
27,417 27,417 24,877 24,877 
Excess MSRs (2)
36,122 36,122 37,367 37,367 
Other investments (2)
3,224 3,224 3,193 3,193 
Cash and cash equivalents275,394 275,394 293,104 293,104 
Restricted cash64,993 64,993 75,684 75,684 
Derivative assets3,155 3,155 14,212 14,212 
Margin receivable (3)
19,409 19,409 33,414 33,414 
Liabilities
Short-term debt (4)
$1,135,653 $1,132,812 $1,415,664 $1,414,644 
Margin payable (5)
— — 350 350 
Guarantee obligations (5)
5,650 3,516 5,781 3,772 
HEI securitization non-controlling interest64,878 64,878 59,752 59,752 
Derivative liabilities5,849 5,849 33,828 33,828 
ABS issued, net
at fair value9,979,891 9,979,891 9,151,263 9,151,263 
at amortized cost648,298 643,417 660,617 637,816 
Other long-term debt, net (6)
1,152,475 1,151,248 1,180,918 1,177,287 
Convertible notes, net (6)
474,049 465,835 503,728 488,341 
Trust preferred securities and subordinated notes, net (6)
138,825 96,255 138,813 92,070 
Senior Notes (6)
57,581 61,200 — — 
(1)Includes HEI held at Redwood and HEI held at consolidated HEI securitization entities. See further discussion in Note 10.
(2)These investments are included in Other investments on our consolidated balance sheets.
(3)These assets are included in Other assets on our consolidated balance sheets.
(4)Short-term debt excludes short-term convertible notes, which are included under "Convertible notes, net."
(5)These liabilities are included in Accrued expenses and other liabilities on our consolidated balance sheets.
(6)These liabilities are primarily included in Long-term debt, net on our consolidated balance sheets. Convertible notes, net also includes convertible notes classified as Short-term debt. See Note 14 for more information on Short-term debt.
During the three months ended March 31, 2024 and 2023, we elected the fair value option for $48 million and $2 million of securities, respectively, $1.00 billion and $53 million (principal balance) of residential consumer loans, respectively, and $327 million and $442 million (principal balance) of residential investor loans, respectively. Additionally, during the three months ended March 31, 2024 and 2023, we elected the fair value option for $0.3 million and $17 million of HEI, respectively. For the three months ended March 31, 2024 and 2023, we elected the fair value option for $0.2 million and zero, respectively, of Other investments.     
The following table presents the assets and liabilities that are reported at fair value on our consolidated balance sheets on a recurring basis at March 31, 2024 and December 31, 2023, as well as the fair value hierarchy of the valuation inputs used to measure fair value.
Table 5.2 – Assets and Liabilities Measured at Fair Value on a Recurring Basis
March 31, 2024Carrying
Value		Fair Value Measurements Using
(In Thousands)Level 1Level 2Level 3
Assets
Residential consumer loans$7,616,592 $— $— $7,616,592 
Residential investor loans5,181,994 — — 5,181,994 
Consolidated Agency multifamily loans422,788 — — 422,788 
Real estate securities212,307 — — 212,307 
HEI560,745 — — 560,745 
Servicer advance investments216,033 — — 216,033 
MSRs27,417 — — 27,417 
Excess MSRs36,122 — — 36,122 
Other investments3,224 — — 3,224 
Derivative assets3,155 1,840 — 1,315 
Liabilities
HEI securitization non-controlling interest$64,878 $— $— $64,878 
Derivative liabilities5,849 2,427 — 3,422 
ABS issued9,979,891 — — 9,979,891 
December 31, 2023Carrying
Value		Fair Value Measurements Using
(In Thousands)Level 1Level 2Level 3
Assets
Residential consumer loans$7,050,637 $— $— $7,050,637 
Residential investor loans5,220,297 — — 5,220,297 
Consolidated Agency multifamily loans425,285 — — 425,285 
Real estate securities127,797 — — 127,797 
HEI550,436 — — 550,436 
Servicer advance investments225,345 — — 225,345 
MSRs24,877 — — 24,877 
Excess MSRs37,367 — — 37,367 
Other investments3,193 — — 3,193 
Derivative assets14,212 952 1,742 11,518 
Liabilities
HEI securitization non-controlling interest$59,752 $— $— $59,752 
Derivative liabilities33,828 30,414 — 3,414 
ABS issued9,151,263 — — 9,151,263 
The following table presents additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended March 31, 2024.
Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets
Residential Consumer LoansResidential Investor
Loans		Consolidated Agency Multifamily LoansTrading SecuritiesAFS
Securities		HEIServicer Advance InvestmentsExcess MSRsMSRs and Other Investments
(In Thousands)
Beginning balance -
   December 31, 2023		$7,050,637 $5,220,297 $425,285 $40,424 $87,373 $550,436 $225,345 $37,367 $28,070 
Acquisitions1,005,659 15,677 — 47,526 14,056 307 — — 176 
Originations— 311,119 — — — — — 
Sales(199,338)(59,377)— — — — — — — 
Principal paydowns(185,131)(310,047)(2,150)(205)(90)(11,565)(8,678)— (69)
Gains (losses) in net income, net(54,192)5,070 (347)14,475 92 21,567 (634)(1,245)2,464 
Unrealized gains in OCI, net— — — — 8,656 — — — — 
Other settlements, net (1)
(1,043)(745)— — — — — — — 
Ending balance -
  March 31, 2024		$7,616,592 $5,181,994 $422,788 $102,220 $110,087 $560,745 $216,033 $36,122 $30,641 
Liabilities
Derivatives (2)
HEI Securitization Non-Controlling InterestABS
Issued
(In Thousands)
Beginning balance - December 31, 2023$8,104 $59,752 $9,151,263 
Acquisitions— — 1,190,500 
Principal paydowns— — (294,043)
Gains (losses) in net income, net(6,744)5,126 (67,829)
Other settlements, net (1)
(3,467)— — 
Ending balance - March 31, 2024$(2,107)$64,878 $9,979,891 
(1)     Other settlements, net: for residential consumer and residential investor loans, represents the transfer of loans to REO; for derivatives, represents the transfer of the fair value of loan purchase and interest rate lock commitments at the time loans are acquired to the basis of residential consumer and residential investor loans; and for MSRs and other investments, primarily represents an investment that was exchanged into a new instrument that is no longer measured at fair value on a recurring basis.
(2)     For the purpose of this presentation, derivative assets and liabilities, which consist of loan purchase commitments, are presented on a net basis.
The following table presents the portion of fair value gains or losses included in our consolidated statements of income that were attributable to Level 3 assets and liabilities recorded at fair value on a recurring basis and held at March 31, 2024 and 2023. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the three months ended March 31, 2024 and 2023 are not included in this presentation.
Table 5.4 – Portion of Net Fair Value Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at March 31, 2024 and March 31, 2023 Included in Net Income
Included in Net Income (loss)
Three Months Ended March 31,
(In Thousands)20242023
Assets
Residential consumer loans at Redwood$(1,497)$156 
Residential investor loans(1,397)12,239 
Net investments in consolidated Sequoia entities (1)
6,910 2,349 
Net investments in consolidated Freddie Mac SLST entities (1)
3,367 8,759 
Net investments in consolidated Freddie Mac K-Series entities (1)
243 363 
Net investments in consolidated CAFL entities (1)
10,251 (8,810)
Net investment in consolidated HEI securitization entities (1)
2,888 1,194 
Trading securities14,506 1,793 
Available-for-sale securities629 (28)
HEI at Redwood6,075 3,433 
Servicer advance investments(634)(1,352)
MSRs2,723 (424)
Excess MSRs(1,245)(229)
Other investments— (94)
Loan purchase commitments1,315 353 
Liabilities
Loan purchase commitments$(3,420)$(6)
(1)    Represents the portion of net fair value gains or losses included in our consolidated statements of income related to securitized loans, securitized HEI, and the associated ABS issued at our consolidated securitization entities held at March 31, 2024 and March 31, 2023, which, netted together, represent the change in value of our investments at the consolidated VIEs under the CFE election, excluding REO.
The following table presents information on assets recorded at fair value on a non-recurring basis at March 31, 2024. This table does not include the carrying value and gains or losses associated with the asset types below that were not recorded at fair value on our consolidated balance sheets at March 31, 2024.
Table 5.5 – Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis at March 31, 2024
Gain (Loss) for
March 31, 2024Carrying
Value		Fair Value Measurements UsingThree Months Ended
(In Thousands)Level 1Level 2Level 3March 31, 2024
Assets
Strategic Investments (1)
$1,600 $— $— $1,600 $650 
REO66,978 — — 66,978 (3,000)
(1)    Strategic investments represent investments we made in companies either through our RWT Horizons venture investment platform or separately at a corporate level. See Note 11 for further detail regarding Strategic Investments
The following table presents the net market valuation gains and losses recorded in each line item of our consolidated statements of income for the three months ended March 31, 2024 and 2023.
Table 5.6 – Market Valuation Gains and Losses, Net
Three Months Ended March 31,
(In Thousands)20242023
Mortgage Banking Activities, Net
Residential consumer loans held-for-sale$2,497 $6,994 
Residential consumer loan purchase commitments(6,351)(239)
Residential investor term loans held-for-sale(296)12,700 
Residential investor bridge loans946 1,119 
Trading securities (1)
8,511 — 
Risk management derivatives, net5,598 (8,467)
Total mortgage banking activities, net (2)
$10,905 $12,107 
Investment Fair Value Changes, Net
Residential consumer loans held-for-investment, at Redwood (called Sequoia loans)$— $183 
Residential investor term loans held-for-sale(1,000)— 
Residential investor bridge loans held-for-investment(3,218)1,376 
Trading securities4,181 1,961 
Servicer advance investments(634)(1,352)
Excess MSRs(1,245)(228)
Net investments in Legacy Sequoia entities (3)
(218)(94)
Net investments in Sequoia entities (3)
7,128 2,442 
Net investments in Freddie Mac SLST entities (3)
3,730 8,934 
Net investment in Freddie Mac K-Series entity (3)
243 363 
Net investments in CAFL entities (3)
10,251 (8,810)
Other investments(2,391)(435)
Risk management derivatives, net4,381 (8,704)
Credit recoveries (losses) on AFS securities629 (28)
Total investment fair value changes, net$21,837 $(4,392)
HEI income, Net
HEI at Redwood$6,143 $3,840 
Net investments in HEI securitization entities (3)
2,888 425 
Total HEI income, net$9,031 $4,265 
Other Income
MSRs$2,464 $(590)
Other(217)(120)
Total other income (4)
$2,247 $(710)
Total Market Valuation Gains (Losses), Net$44,020 $11,270 
Footnotes to Table 5.6
(1)Represents fair value changes on trading securities that are being used along with risk management derivatives to manage the market risks associated with our residential consumer mortgage banking operations.
(2)Mortgage banking activities, net presented above does not include fee income from loan originations or acquisitions, provisions for repurchases, or other expenses that are components of Mortgage banking activities, net presented on our consolidated statements of income, as these amounts do not represent market valuation changes.
(3)Includes changes in fair value of the residential consumer loans held-for-investment, securitized HEI, REO and the ABS issued at the entities, which, netted together, represent the change in value of our investments at the consolidated VIEs accounted for under the CFE election.
(4)Other income presented above does not include net MSR fee income or provisions for repurchases of MSRs, as these amounts do not represent market valuation adjustments.
At March 31, 2024, our valuation policy and processes had not changed from those described in our Annual Report on Form 10-K for the year ended December 31, 2023.
The following table provides quantitative information about the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value.
Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments
March 31, 2024Fair
Value		Input Values
(Dollars in Thousands, except Input Values)Unobservable InputRange
Weighted
Average(1)
Assets
Residential consumer loans:
Jumbo loans$506,500 
Senior credit spread to TBA price(2)
$1.13 -$2.25 $1.23 
Subordinate credit spread(2)
215-700bps305bps
Senior credit support(2)
7 -7 %7 %
IO discount rate(2)
24 -24 %24 %
Prepayment rate (annual CPR)(2)
15 -15 %15 %
Jumbo loans committed to sell5,205 Whole loan committed sales price$103 -$103 $103 
Loans held by Legacy Sequoia (3)
131,859 Liability priceN/AN/A
Loans held by Sequoia (3)
5,640,341 Liability priceN/AN/A
Loans held by Freddie Mac SLST (3)
1,332,686 Liability priceN/AN/A
Residential investor loans:
Residential investor term loans253,774 
Senior credit spread(2)
120 -120 bps120 bps
Subordinate credit spread(2)
180 -780 bps383 bps
Senior credit support(2)
34 -34 %34 %
Prepayment rate (annual CPR)(2)
— -3 %3 %
Dollar price of non-performing loans$59 -$100 $60 
Residential investor term loans held by CAFL (3)
2,853,052 Liability priceN/AN/A
Residential investor bridge loans held by CAFL (3)
762,158 Liability priceN/AN/A
Residential investor bridge loans1,313,010 Whole loan discount rate9 -13 %10 %
Whole loan spread485 -485 bps485 bps
Dollar price of non-performing loans$41-$100 $84 
Multifamily loans held by Freddie Mac K-Series (3)
422,788 Liability priceN/AN/A
Trading and AFS securities212,307 Discount rate6 -27 %13 %
Prepayment rate (annual CPR)2 -65 %10 %
Default rate— -9 %0.2 %
Loss severity— -50 %22 %
HEI246,561 Discount rate10 -10 %10 %
Prepayment rate (annual CPR)1 -20 %14 %
Home price appreciation (depreciation)3 -3 %3 %
HEI held by HEI securitization entities(3)
314,184 Liability priceN/AN/A
Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments (continued)
March 31, 2024Fair
Value		Input Values
(Dollars in Thousands, except Input Values)Unobservable InputRange
Weighted
Average (1)
Assets (continued)
Servicer advance investments$216,033 Discount rate2 -4 %3 %
Prepayment rate (annual CPR)11 -30 %14 %
Expected remaining life (4)
5-5yrs5yrs
Mortgage servicing income3 -18 bps10 bps
MSRs27,417 Discount rate12 -73 %12 %
Prepayment rate (annual CPR)2 -14 %4 %
Per loan annual cost to service$93 -$93 $93 
Excess MSRs36,122 Discount rate12 -19 %18 %
Prepayment rate (annual CPR)10 -100 %17 %
Excess mortgage servicing amount8 -20 bps11 bps
Liabilities
Residential consumer loan purchase commitments, net2,107 
Senior credit spread to TBA price(2)
$1.13 -$2.25 $1.23 
Subordinate credit spread(2)
215-700bps305bps
Senior credit support(2)
7 -7 %7 %
IO discount rate(2)
20 -20 %20 %
Prepayment rate (annual CPR)(2)
15 -15 %15 %
Pull-through rate18 -100 %69 %
Committed sales price$102 -$103 $103 
ABS issued (3):
At consolidated Sequoia entities5,554,012 Discount rate4 -40 %8 %
Prepayment rate (annual CPR)4 -23 %8 %
Default rate— -18 %1 %
Loss severity25 -50 %30 %
At consolidated CAFL Term entities2,519,547 Discount rate5 -12 %7 %
Prepayment rate (annual CPR)— -3 %0.1 %
Default rate3 -13 %7 %
Loss severity25 -35 %25 %
At consolidated Freddie Mac SLST entities1,064,788 Discount rate5 -9 %6 %
Prepayment rate (annual CPR)6 -6 %6 %
Default rate14 -16 %15 %
Loss severity25 -25 %25 %
At consolidated Freddie Mac K-Series entities (3)
389,238 Discount rate5 -10 %6 %
At consolidated HEI entities (5)
220,325 Discount rate8 -12 %9 %
Prepayment rate (annual CPR)15 -15 %15 %
Home price appreciation (depreciation)3 -3 %3 %
At consolidated CAFL Bridge entities231,982 Discount rate7 -15 %8 %
Prepayment rate (annual CPR)40 -40 %40 %
Default rate— 5 %3 %
Loss severity25 -25 %25 %
Footnotes to Table 5.7
(1)The weighted average input values for all loan types are based on unpaid principal balance. The weighted average input values for all other assets and liabilities are based on relative fair value.
(2)Values represent pricing inputs used in securitization pricing model. Credit spreads represent spreads to applicable swap rates unless specified otherwise.
(3)The fair value of the loans and HEI held by consolidated entities is based on the fair value of the ABS issued by these entities and the securities and other investments we own in those entities, which we determined were more readily observable in accordance with accounting guidance for collateralized financing entities. At March 31, 2024, the fair value of securities we owned at the consolidated Sequoia, CAFL Term, CAFL Bridge (under CFE), Freddie Mac SLST, Freddie Mac K-Series, and HEI securitization entities was $218 million, $333 million, $21 million, $271 million, $34 million, and $37 million, respectively. CAFL Bridge only includes the one securitization entity for which we made the CFE election.
(4)Represents the estimated average duration of outstanding servicer advances at a given point in time (not taking into account new advances made with respect to the pool).
(5)Fair value presented in this line item for ABS issued at consolidated HEI entities does not include non-controlling interests in our HEI entities, which we account for separately as liabilities in our Consolidated Balance Sheets and carry at fair value. However, given the HEI non-controlling interests are priced using the same model and inputs, the unobservable inputs and input values provided in this section include those for the HEI non-controlling interests.
Determination of Fair Value
We generally use both market comparable information and discounted cash flow modeling techniques to determine the fair value of our Level 3 assets and liabilities. Use of these techniques requires determination of relevant inputs and assumptions, some of which represent significant unobservable inputs as indicated in the preceding table. Accordingly, a significant increase or decrease in any of these inputs in isolation — such as anticipated credit losses, prepayment rates, interest rates, or other valuation assumptions — would likely result in a significantly lower or higher fair value measurement.
Included in Note 5 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2023 is a more detailed description of our financial instruments measured at fair value and their significant inputs, as well as the general classification of such instruments pursuant to the Level 1, Level 2, and Level 3 valuation hierarchy.
Certain of our Other investments (inclusive of strategic investments in early-stage companies) are Level 3 financial instruments that we account for under the fair value option. These investments generally take the form of equity or debt with conversion features and do not have readily determinable fair values. We initially record these investments at cost and adjust their fair value based on observable price changes, such as follow-on capital raises by these companies or secondary sales of these, or similar, equity or debt instruments, and will also evaluate impacts to valuation from changing market conditions and underlying business performance. As of March 31, 2024, the carrying value of these investments was $3 million.