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Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 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.
Determination of Fair Value
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. At June 30, 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.
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 June 30, 2024, the carrying value of these investments was $3 million. See Note 12 for further discussion on 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 June 30, 2024 and December 31, 2023, as well as the fair value hierarchy of the valuation inputs used to measure fair value.
Table 6.1 – Assets and Liabilities Measured at Fair Value on a Recurring Basis
June 30, 2024Fair ValueFair Value Measurements Using
(In Thousands)Level 1Level 2Level 3
Assets
Residential consumer loans$9,210,156 $— $— $9,210,156 
Residential investor loans4,879,650 — — 4,879,650 
Consolidated Agency multifamily loans421,794 — — 421,794 
Real estate securities264,401 — — 264,401 
HEI574,119 — — 574,119 
Servicer advance investments227,363 — — 227,363 
MSRs28,653 — — 28,653 
Excess MSRs34,754 — — 34,754 
Other investments3,065 — — 3,065 
Derivative assets48,517 2,235 40,298 5,984 
Liabilities
HEI securitization non-controlling interest$72,260 $— $— $72,260 
Derivative liabilities5,954 3,640 — 2,314 
ABS issued10,975,688 — — 10,975,688 
December 31, 2023Fair ValueFair 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 six months ended June 30, 2024.
Table 6.2 – 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 
Acquisitions2,907,602 16,325 — 63,618 47,442 606 — — 185 
Originations— 755,826 — — — — — 
Sales(205,016)(467,797)— — — — — — — 
Principal paydowns(441,219)(634,224)(1,022)(476)(175)(27,182)(8,959)— (128)
Gains (losses) in net income, net(100,547)2,305 (2,469)16,058 429 50,259 10,977 (2,613)3,691 
Unrealized gains in OCI, net— — — — 9,708 — — — — 
Other settlements, net (1)
(1,301)(13,082)— — — — — — (100)
Ending balance -
  June 30, 2024		$9,210,156 $4,879,650 $421,794 $119,624 $144,777 $574,119 $227,363 $34,754 $31,718 
Liabilities
Derivatives (2)
HEI Securitization Non-Controlling InterestABS
Issued
(In Thousands)
Beginning balance - December 31, 2023$8,104 $59,752 $9,151,263 
Acquisitions— — 2,600,015 
Sales— — (1,341)
Principal paydowns— — (648,108)
Gains (losses) in net income, net1,137 12,508 (126,141)
Other settlements, net (1)
(5,571)— — 
Ending balance - June 30, 2024$3,670 $72,260 $10,975,688 
(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 mortgage servicing rights ("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 June 30, 2024 and 2023. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the three and six months ended June 30, 2024 and 2023 are not included in this presentation.
Table 6.3 – Portion of Net Fair Value Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at June 30, 2024 and June 30, 2023 Included in Net Income
Included in Net Income (loss)
Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)2024202320242023
Assets
Residential consumer loans at Redwood$3,179 $(680)$3,103 $(466)
Residential investor loans(11,316)(23,033)(13,622)(17,877)
Net investments in consolidated Sequoia entities (1)
2,690 170 9,600 2,519 
Net investments in consolidated Freddie Mac SLST entities (1)
(5,176)(16,760)(1,810)(8,001)
Net investments in consolidated Freddie Mac K-Series entities (1)
452 385 695 748 
Net investments in consolidated CAFL Term entities (1)
7,491 10,707 17,741 1,897 
Net investment in consolidated HEI securitization entities (1)
4,176 1,251 7,065 2,445 
Trading securities1,582 1,829 16,087 3,073 
Available-for-sale securities514 (71)1,143 (99)
HEI at Redwood5,151 7,676 11,109 11,053 
Servicer advance investments11,611 3,665 10,977 2,313 
MSRs1,633 1,692 4,311 1,278 
Excess MSRs(1,368)1,070 (2,614)842 
Loan purchase commitments5,978 3,442 5,985 3,442 
Liabilities
Loan purchase commitments$(2,314)$(1,396)$(2,314)$(1,396)
(1)    Represents the portion of net fair value gains or losses included in our consolidated statements of income related to securitized loans, securitized Home Equity Investments ("HEI"), and the associated ABS issued at our consolidated securitization entities held at June 30, 2024 and June 30, 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 the net market valuation gains and losses recorded in each line item of our consolidated statements of income for the three and six months ended June 30, 2024 and 2023.
Table 6.4 – Market Valuation Gains and Losses, Net
Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)2024202320242023
Mortgage Banking Activities, Net
Residential consumer loans held-for-sale$6,535 $(1,085)$9,032 $5,909 
Residential consumer loan purchase commitments7,770 2,420 1,419 2,181 
Residential investor term loans held-for-sale5,957 (1,132)5,661 11,534 
Residential investor term loan interest rate lock commitments111 — 111 — 
Residential investor bridge loans1,108 2,297 2,054 3,450 
Trading securities (1)
2,611 1,923 11,122 1,923 
Risk management derivatives, net(12,386)5,426 (6,788)(3,041)
Total mortgage banking activities, net (2)
$11,706 $9,849 $22,611 $21,956 
Investment Fair Value Changes, Net
Residential consumer loans held-for-investment, at Redwood (called Sequoia loans)$— $— $— $183 
Residential investor term loans held-for-sale(337)(13,625)(1,337)(13,625)
Residential investor bridge loans held-for-investment(13,992)(8,149)(17,210)(6,773)
Trading securities621 4,572 4,802 6,533 
Servicer advance investments11,611 3,665 10,977 2,313 
Excess MSRs(1,368)1,070 (2,613)842 
Net investments in Sequoia entities (3)
2,690 918 9,600 3,266 
Net investments in Freddie Mac SLST entities (3)
(5,137)(16,563)(1,407)(7,629)
Net investment in Freddie Mac K-Series entity (3)
452 385 695 748 
Net investments in CAFL entities (3)
7,491 10,707 17,742 1,897 
Other investments(3,991)(3,359)(6,382)(3,794)
Risk management derivatives, net2,544 7,679 6,925 (1,025)
Credit recoveries (losses) on AFS securities514 (71)1,143 (99)
Other— (746)— (746)
Total investment fair value changes, net$1,098 $(13,517)$22,935 $(17,909)
HEI income, Net
HEI at Redwood$11,663 $8,468 $17,806 $12,308 
Net investments in HEI securitization entities (3)
4,176 453 7,064 878 
Total HEI income, net$15,839 $8,921 $24,870 $13,186 
Other Income
MSRs$1,227 $1,411 $3,691 $821 
Other(31)(340)(248)(460)
Total other income (4)
$1,196 $1,071 $3,443 $361 
Total Market Valuation Gains, Net$29,839 $6,324 $73,859 $17,594 
Footnotes to Table 6.4
(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.
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 6.5 – Fair Value Methodology for Level 3 Financial Instruments
June 30, 2024Fair
Value		Input Values
(Dollars in Thousands, except Input Values)Unobservable InputRange
Weighted
Average(1)
Assets
Residential consumer loans:
Jumbo loans$961,022
Senior credit spread to TBA price(2)
$1.13 -$2.00 $1.21 
Subordinate credit spread(2)
200 -650 bps276 bps
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 sell1,526Whole loan committed sales price$100 -$103 $101 
Loans held by Sequoia (3)
6,950,586Liability priceN/AN/A
Loans held by Freddie Mac SLST (3)
1,297,022Liability priceN/AN/A
Residential investor loans:
Residential investor term loans217,761
Senior credit spread(2)
130 -130 bps130 bps
Subordinate credit spread(2)
165 -1,062 bps334 bps
Senior credit support(2)
34 -34 %34 %
Prepayment rate (annual CPR)(2)
— -3 %3 %
Dollar price of non-performing loans$54 -$54 $54 
Residential investor term loans held by CAFL (3)
2,737,467Liability priceN/AN/A
Residential investor bridge loans held by CAFL (3)
234,311Liability priceN/AN/A
Residential investor bridge loans1,690,111Whole loan discount rate9 -11 %9 %
Whole loan spread485 -485 bps485 bps
Dollar price of non-performing loans$41 -$100 $90 
Multifamily loans held by Freddie Mac K-Series (3)
421,794Liability priceN/AN/A
Trading and AFS securities264,401Discount rate6 -28 %10 %
Prepayment rate (annual CPR)— -65 %8 %
Default rate— -16 %0.1 %
Loss severity— -50 %18 %
Home Equity Investments (HEI)253,303Discount rate10 -10 %10 %
Prepayment rate (annual CPR)1 -20 %14 %
Home price appreciation (depreciation)4 -4 %4 %
HEI held by HEI securitization entities(3)
320,816Liability priceN/AN/A
Servicer advance investments227,363Discount rate3 -6 %4 %
Prepayment rate (annual CPR)11 -30 %14 %
Expected remaining life (4)
5-5yrs5yrs
Mortgage servicing income3 -18 bps10 bps
MSRs28,653Discount rate10 -46 %10 %
Prepayment rate (annual CPR)2 -16 %5 %
Per loan annual cost to service$93 -$93 $93 
Table 6.5 – Fair Value Methodology for Level 3 Financial Instruments (continued)
June 30, 2024Fair
Value		Input Values
(Dollars in Thousands, except Input Values)Unobservable InputRange
Weighted
Average (1)
Assets (continued)
Excess MSRs$34,754 Discount rate12 -19 %18 %
Prepayment rate (annual CPR)10 -100 %17 %
Excess mortgage servicing amount8 -20 bps11 bps
Residential consumer loan purchase commitments, net3,670 Senior Credit Spread to TBA price$1.13 -$2.00  1.21
Subordinate Credit Spread to Swap rate200 -650 bps276 bps
Senior Credit Support7 -7 %7 %
IO Discount Rate20 -20 %20 %
Prepayment rate (Annual CPR)15 -15 %15 %
Pull-through rate18 -100 %74 %
Committed Sales Price$101 -$103 $103 
Liabilities
ABS issued (3):
At consolidated Sequoia entities6,686,531 Discount rate4 -28 %8 %
Prepayment rate (annual CPR)2 -44 %9 %
Default rate— -11 %1 %
Loss severity25 -50 %29 %
At consolidated CAFL Term entities2,409,559 Discount rate5 -12 %7 %
Prepayment rate (annual CPR)— -3 %0.1 %
Default rate3 -13 %6 %
Loss severity25 -25 %25 %
At consolidated Freddie Mac SLST entities1,041,807 Discount rate5 -10 %6 %
Prepayment rate (annual CPR)6 -6 %6 %
Default rate14 -16 %15 %
Loss severity25 -25 %25 %
At consolidated Freddie Mac K-Series entities (3)
387,791 Discount rate5 -10 %6 %
At consolidated HEI entities (5)
218,203 Discount rate8 -12 %9 %
Prepayment rate (annual CPR)15 -15 %15 %
Home price appreciation (depreciation)4 -4 %4 %
At consolidated CAFL Bridge entities231,797 Discount rate7 -14 %8 %
Prepayment rate (annual CPR)40 -40 %40 %
Default rate— -5 %3 %
Loss severity25 -25 %25 %
(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 June 30, 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 $264 million, $337 million, $25 million, $258 million, $34 million, and $41 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.
The following table summarizes the estimated fair values presents of assets and liabilities that are not measured at fair value at June 30, 2024 and December 31, 2023.

Table 6.6 – Carrying Values and Estimated Fair Values of Assets and Liabilities
June 30, 2024December 31, 2023
Carrying
Value		Estimated Fair
Value		Carrying
Value		Estimated Fair
Value
(In Thousands)
Guarantee obligations (1)
$4,649 $3,385 $5,781 $3,772 
ABS issued, net
at fair value$10,975,688 $10,975,688 $9,151,263 $9,151,263 
at amortized cost579,862 584,155 660,617 637,816 
Total ABS issued, net$11,555,550 $11,559,843 $9,811,880 $9,789,079 
Debt obligation facilities and other financing$2,670,129 $2,669,070 $2,596,582 $2,591,931 
Convertible notes, net466,110 469,876 503,728 488,341 
Trust preferred securities and subordinated notes, net138,836 93,465 138,813 92,070 
Senior Notes139,551 144,460 — — 
Total debt obligations, net$3,414,626 $3,376,871 $3,239,123 $3,172,342 
(1)These liabilities are included in Accrued expenses and other liabilities on our consolidated balance sheets.
During the three and six months ended June 30, 2024, we elected the fair value option for $16 million and $64 million of securities, respectively, $1.87 billion and $2.87 billion (principal balance) of residential consumer loans, respectively, and $452 million and $779 million (principal balance) of residential investor loans, respectively. Additionally, during the three and six months ended June 30, 2024, we elected the fair value option for $0.3 million and $0.6 million of HEI, respectively. For the three and six months ended June 30, 2024, we elected the fair value option for $9 thousand and $0.2 million, respectively, of Other investments.     
Nonrecurring Fair Values
We measure the fair value of certain assets and liabilities on a nonrecurring basis when events or changes in circumstances indicate that the carrying value may be impaired. Adjustments to fair value generally result from the write-down of asset value due to impairment. Refer to Note 14 for further information on our Real estate owned ("REO").