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Principles of Consolidation | 9 Months Ended
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Sep. 30, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Principles of Consolidation | Principles of Consolidation In the normal course of business, we enter into certain types of transactions with entities that are considered to be VIEs. The Company's primary involvement with VIEs has been related to its securitization transactions in which it transfers assets to securitization vehicles. We primarily securitize our acquired and originated loans, which provides a source of funding and has enabled us to transfer a certain portion of economic risk on loans or related debt securities to third parties. The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE. See Note 2 for further information on our accounting policies regarding our Principles of consolidation. The GAAP principles we apply require us to reassess our requirement to consolidate VIEs each quarter and therefore our determination may change based upon new facts and circumstances pertaining to each VIE. This could result in a material impact to our consolidated financial statements during subsequent reporting periods. Analysis of Consolidated VIEs For certain of our consolidated VIEs, we have elected to account for the assets and liabilities of these entities pursuant to the measurement alternative available to CFEs. A CFE is a variable interest entity that holds financial assets and issues beneficial interests in those assets, and these beneficial interests have contractual recourse only to the related assets of the CFE. Accounting guidance for CFEs allows companies to elect to measure both the financial assets and financial liabilities of a CFE using the more observable of the fair value of the financial assets or fair value of the financial liabilities. The net equity in an entity accounted for under the CFE election effectively represents the fair value of the beneficial interests we own in the entity. In addition to our consolidated VIEs for which we made the CFE election, we consolidate certain VIEs for which we did not make the CFE election and elected to account for the ABS issued by these entities at fair value or amortized cost. These include two CAFL bridge loan securitizations and a Freddie Mac SLST re-securitization for which the ABS are accounted at amortized cost and a Sequoia re-securitization completed during the third quarter of 2024 for which the ABS are accounted at fair value. See Note 16 for additional information regarding the Sequoia re-securitization. The following table presents a summary of the assets and liabilities of our consolidated VIEs. Table 15.1 – Assets and Liabilities of Consolidated VIEs
September 30, 2024 |  |  |  | Sequoia(2) |  | CAFL(1) |  | Freddie Mac SLST(1) |  | Freddie Mac K-Series |  | Servicing Investment |  | HEI |  | Total Consolidated VIEs
(Dollars in Thousands) |  |  |  |  |  |  |  |
Residential consumer loans, held-for-investment |  |  |  | $ | 8,476,004 |  |  | $ | — |  |  | $ | 1,318,806 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 9,794,810 |
Residential investor loans, held-for-investment |  |  |  | — |  |  | 3,269,215 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,269,215 |
Consolidated Agency multifamily loans |  |  |  | — |  |  | — |  |  | — |  |  | 425,648 |  |  | — |  |  | — |  |  | 425,648 |
Real estate securities |  |  |  | 83,229 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 83,229 |
Home equity investments |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 334,559 |  |  | 334,559 |
Other investments |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 241,885 |  |  | — |  |  | 241,885 |
Cash and cash equivalents |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 24,632 |  |  | — |  |  | 24,632 |
Restricted cash |  |  |  | 145 |  |  | 16,838 |  |  | — |  |  | — |  |  | 14,011 |  |  | 6,247 |  |  | 37,241 |
Accrued interest receivable |  |  |  | 39,461 |  |  | 18,328 |  |  | 4,584 |  |  | 1,251 |  |  | 775 |  |  | — |  |  | 64,399 |
Other assets |  |  |  | — |  |  | 25,440 |  |  | 2,843 |  |  | — |  |  | 8,357 |  |  | 414 |  |  | 37,054 |
Total Assets |  |  |  | $ | 8,598,839 |  |  | $ | 3,329,821 |  |  | $ | 1,326,233 |  |  | $ | 426,899 |  |  | $ | 289,660 |  |  | $ | 341,220 |  |  | $ | 14,312,672 |
Short-term debt |  |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 155,986 |  |  | $ | — |  |  | $ | 155,986 |
Accrued interest payable |  |  |  | 35,096 |  |  | 9,455 |  |  | 4,161 |  |  | 1,125 |  |  | 356 |  |  | — |  |  | 50,193 |
Accrued expenses and other liabilities |  |  |  | 1,263 |  |  | 7,683 |  |  | — |  |  | — |  |  | 38,994 |  |  | 80,863 |  |  | 128,803 |
Asset-backed securities issued |  |  |  | 8,336,670 |  |  | 2,870,257 |  |  | 1,207,186 |  |  | 391,193 |  |  | — |  |  | 214,209 |  |  | 13,019,515 |
Total Liabilities |  |  |  | $ | 8,373,029 |  |  | $ | 2,887,395 |  |  | $ | 1,211,347 |  |  | $ | 392,318 |  |  | $ | 195,336 |  |  | $ | 295,072 |  |  | $ | 13,354,497 |
Value of our investments in VIEs(1) |  |  |  | $ | 222,631 |  |  | $ | 440,160 |  |  | $ | 114,463 |  |  | $ | 34,455 |  |  | $ | 94,324 |  |  | $ | 46,148 |  |  | $ | 952,181 |
Number of VIEs |  |  |  | 52 |  |  | 21 |  |  | 3 |  |  | 1 |  |  | 3 |  |  | 2 |  |  | 82 |
December 31, 2023 |  |  |  | Sequoia |  | CAFL(1) |  | Freddie Mac SLST(1) |  | Freddie Mac K-Series |  | Servicing Investment |  | HEI |  | Total Consolidated VIEs
(Dollars in Thousands) |  |  |  |  |  |  |  |
Residential consumer loans, held-for-investment |  |  |  | $ | 4,780,203 |  |  | $ | — |  |  | $ | 1,359,242 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 6,139,445 |
Residential investor 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 |  |  |  | 163 |  |  | 33,921 |  |  | — |  |  | — |  |  | — |  |  | 10,821 |  |  | 44,905 |
Accrued interest receivable |  |  |  | 20,029 |  |  | 20,806 |  |  | 4,821 |  |  | 1,320 |  |  | 822 |  |  | — |  |  | 47,798 |
Other assets |  |  |  | — |  |  | 14,886 |  |  | 3,158 |  |  | — |  |  | 6,337 |  |  | 62 |  |  | 24,443 |
Total Assets |  |  |  | $ | 4,800,395 |  |  | $ | 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 |  |  |  | 16,293 |  |  | 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 |  |  |  | 4,568,660 |  |  | 3,362,978 |  |  | 1,265,777 |  |  | 391,977 |  |  | — |  |  | 222,488 |  |  | 9,811,880 |
Total Liabilities |  |  |  | $ | 4,584,953 |  |  | $ | 3,377,249 |  |  | $ | 1,270,273 |  |  | $ | 393,167 |  |  | $ | 188,426 |  |  | $ | 282,240 |  |  | $ | 10,096,308 |
Value of our investments in VIEs(1) |  |  |  | $ | 211,638 |  |  | $ | 424,136 |  |  | $ | 96,623 |  |  | $ | 33,308 |  |  | $ | 85,704 |  |  | $ | 34,361 |  |  | $ | 885,770 |
Number of VIEs |  |  |  | 42 |  |  | 21 |  |  | 3 |  |  | 1 |  |  | 3 |  |  | 2 |  |  | 72 |
(1)The 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 loan 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. At September 30, 2024 and December 31, 2023, the fair value of our interests in the CAFL term loan securitizations accounted for under the CFE election were $339 million and $323 million, respectively, and the fair value of our interest in the CAFL bridge loan securitizations accounted for under the CFE election was $26 million and $22 million, 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. At September 30, 2024 and December 31, 2023, the fair value of our interests in the Freddie Mac SLST securitizations accounted for under the CFE election were $268 million and $274 million, respectively, with the difference from the tables above representing ABS issued and carried at amortized historical cost. (2)Additionally, the ABS from a Sequoia re-securitization completed during the third quarter of 2024 are not accounted for under the CFE election and are accounted for at fair value (included within the Sequoia column at September 30, 2024). At September 30, 2024, the fair value of our interests in consolidated Sequoia securitizations accounted for under the CFE election was $332 million, with the difference in value of our investments in these VIEs reflected in the September 30, 2024 table above representing $194 million of ABS issued at fair value. Unconsolidated VIEs with Continuing Involvement We have transferred residential consumer loans to certain Sequoia securitization entities sponsored by us that are still outstanding as of September 30, 2024, and accounted for these transfers as sales for financial reporting purposes, in accordance with GAAP. We also determined we were not the primary beneficiary of these VIEs as we lacked the power to direct the activities that will have the most significant economic impact on the entities. For certain of these transfers to securitization entities, for the transferred loans where we held the servicing rights prior to the transfer and continued to hold the servicing rights following the transfer, we recorded mortgage servicing rights ("MSRs") on our consolidated balance sheets and classified those MSRs as Level 3 assets. We also retained senior and subordinate securities in these securitizations that we classified as Level 3 assets. Our continuing involvement in these securitizations is limited to customary servicing obligations associated with retaining servicing rights (which we retain a third-party sub-servicers to perform) and the receipt of interest income associated with the securities we retained. The following table presents additional information at September 30, 2024 and December 31, 2023, related to unconsolidated VIEs sponsored by Redwood and accounted for as sales since 2012. Table 15.2 – Unconsolidated VIEs Sponsored by Redwood
(In Thousands) |  | September 30, 2024 |  | December 31, 2023
On-balance sheet assets, at fair value: |  |  |  |
Interest-only, senior and subordinate securities, classified as trading |  | $ | 33,743 |  |  | $ | 31,690 |
Subordinate securities, classified as AFS |  | 95,234 |  |  | 78,942 |
Mortgage servicing rights |  | 11,401 |  |  | 10,885 |
Maximum loss exposure (1) |  | $ | 140,378 |  |  | $ | 121,517 |
(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.

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- Definition The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 810 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/810/tableOfContent + Details
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