Principles of Consolidation (Tables)

12 Months Ended

Dec. 31, 2015

Variable Interest Entity [Line Items]

Securitization Activity Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents information related to securitization transactions that occurred during the years ended December 31, 2015 and 2014.

Table 4.2 – Securitization Activity Related to Unconsolidated VIEs Sponsored by Redwood



	Years Ended December 31,
(In Thousands)	2015		2014
Principal balance of loans transferred	$	1,375,532	$	1,324,419
Trading securities retained, at fair value	252,222		77,160
AFS securities retained, at fair value	7,852		78,218
MSRs recognized	8,202		8,518

The following table summarizes the cash flows during the years ended December 31, 2015 and 2014 between us and the unconsolidated VIEs sponsored by us.

Table 4.3 – Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood



	Years Ended December 31,
(In Thousands)	2015			2014
Proceeds from new transfers	$	1,139,052		$	1,201,411
MSR fees received	14,874			13,812
Funding of compensating interest	(363		)	(227		)
Cash flows received on retained securities	43,460			56,870

MSR Assumptions Related to Unconsolidated Variable Interest Entity's Sponsored by Redwood

The following table presents the key weighted average assumptions used to measure MSRs and securities retained at the date of securitization.

Table 4.4 – Assumptions Related to Assets Retained from Unconsolidated VIEs Sponsored by Redwood




				Year Ended December 31, 2015															Year Ended December 31, 2014
At Date of Securitization	MSRs					Senior Securities					Subordinate Securities					MSRs					Senior Securities					Subordinate Securities
Prepayment rate	5	%	-	15	%	8	%	-	10	%	8	%	-	10	%	5	%	-	16	%	8	%	-	10	%	8	%	-	10	%
Discount rates				11	%				3	%				6	%				11	%				3	%				5	%
Credit loss assumptions				N/A		0.10	%	-	0.25	%	0.10	%	-	0.25	%				N/A					0.25	%				0.25	%

Unconsolidated Variable Interest Entity's Sponsored by Redwood Summary

The following table presents additional information at December 31, 2015 and December 31, 2014, related to unconsolidated securitizations accounted for as sales since 2012.

Table 4.5 – Unconsolidated VIEs Sponsored by Redwood



(In Thousands)	December 31, 2015		December 31, 2014
On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as trading	$	258,697	$	93,802
Senior and subordinate securities, classified as AFS	272,715		460,990
Mortgage servicing rights	56,984		56,801
Maximum loss exposure ⁽¹⁾	$	588,396	$	611,593
Assets transferred:
Principal balance of loans outstanding	$	7,318,167	$	7,276,825
Principal balance of delinquent loans 30+ days delinquent	18,300		17,022

(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.

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, 2015 and December 31, 2014.

Table 4.6 – Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated VIEs Sponsored by Redwood



December 31, 2015	MSRs			Senior Securities ⁽¹⁾			Subordinate Securities
(Dollars in Thousands)	MSRs			Senior Securities ⁽¹⁾			Subordinate Securities
Fair Value at December 31, 2015	$	56,984		$	248,570		$	282,842
Expected life (in years)⁽²⁾	7			5			12
Prepayment speed assumption (annual CPR)⁽²⁾	11		%	10		%	12		%
Decrease in fair value from:
10% adverse change	$	2,868		$	2,042		$	901
25% adverse change	6,119			4,810			2,278
Discount rate assumption⁽²⁾	11		%	5		%	6		%
Decrease in fair value from:
100 basis point increase	$	2,711		$	10,029		$	21,981
200 basis point increase	4,745			19,365			41,156
Credit loss assumption ⁽²⁾	N/A			0.25		%	0.25		%
Decrease in fair value from:
10% higher losses	N/A			$	35		$	1,244
25% higher losses	N/A			86			3,129



December 31, 2014	MSRs			Senior Securities ⁽¹⁾			Subordinate Securities
(Dollars in Thousands)	MSRs			Senior Securities ⁽¹⁾			Subordinate Securities
Fair Value at December 31, 2014	$	56,801		$	93,802		$	460,990
Expected life (in years)⁽²⁾	7			6			10
Prepayment speed assumption (annual CPR)⁽²⁾	14		%	9		%	10		%
Decrease in fair value from:
10% adverse change	$	2,419		$	3,999		$	684
25% adverse change	5,639			9,475			2,355
Discount rate assumption⁽²⁾	11		%	8		%	5		%
Decrease in fair value from:
100 basis point increase	$	2,104		$	4,214		$	34,149
200 basis point increase	4,102			8,091			64,474
Credit loss assumption ⁽²⁾	N/A			0.25		%	0.25		%
Decrease in fair value from:
10% higher losses	N/A			$	126		$	3,169
25% higher losses	N/A			299			7,841


(1)	Senior securities include $31 million and $88 million of interest only securities at December 31, 2015 and December 31, 2014, respectively.


(2)	Expected life, prepayment speed assumption, discount rate assumption, and credit loss assumption presented in the tables above represent weighted averages.

Loan Transfers Accounted for as Secured Borrowings

The following table presents a summary of our interests in third-party VIEs at December 31, 2015, grouped by security type.

Table 4.7 – Third-Party Sponsored VIE Summary



(Dollars in Thousands)	December 31, 2015
Residential Mortgage Backed Securities
Senior	$	285,033
Re-REMIC	165,064
Subordinate	251,748
Total Investments in Third-Party Sponsored VIEs	$	701,845

Variable Interest Entity, Primary Beneficiary

Variable Interest Entity [Line Items]

Schedule of Variable Interest Entities

The following table presents a summary of the assets and liabilities of these VIEs. Intercompany balances have been eliminated for purposes of this presentation.

Table 4.1 – Assets and Liabilities of Consolidated VIEs



December 31, 2015	Sequoia Entities		Residential Resecuritization		Commercial Securitization		Total
(Dollars in Thousands)	Sequoia Entities		Residential Resecuritization		Commercial Securitization		Total
Residential loans, held-for-investment	$	1,021,870	$	—	$	—	$	1,021,870
Commercial loans, held-for-investment	—		—		166,016		166,016
Real estate securities	—		—		—		—
Restricted cash	228		—		137		365
Accrued interest receivable	1,131		—		1,297		2,428
Other assets	4,895		—		—		4,895
Total Assets	$	1,028,124	$	—	$	167,450	$	1,195,574
Accrued interest payable	$	555	$	—	$	249	$	804
Accrued expenses and other liabilities	100		—		—		100
Asset-backed securities issued	996,820		—		53,137		1,049,957
Total Liabilities	$	997,475	$	—	$	53,386	$	1,050,861

Number of VIEs	21		—		1		22

December 31, 2014	Sequoia Entities		Residential Resecuritization		Commercial Securitization		Total
(Dollars in Thousands)	Sequoia Entities		Residential Resecuritization		Commercial Securitization		Total
Residential loans, held-for-investment	$	1,474,386	$	—	$	—	$	1,474,386
Commercial loans, held-for-investment	—		—		194,991		194,991
Real estate securities, at fair value	—		221,676		—		221,676
Restricted cash	147		43		137		327
Accrued interest receivable	2,359		477		1,511		4,347
Other assets	4,411		—		70		4,481
Total Assets	$	1,481,303	$	222,196	$	196,709	$	1,900,208
Accrued interest payable	$	976	$	5	$	390	$	1,371
Asset-backed securities issued	1,416,762		45,044		83,313		1,545,119
Total Liabilities	$	1,417,738	$	45,049	$	83,703	$	1,546,490
Number of VIEs	24		1		1		26

- 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.

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