Business Purpose Residential Loans |
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Business Purpose Residential Loans | Residential Loans We acquire residential loans from third-party originators and may sell or securitize these loans or hold them for investment. The following table summarizes the classifications and carrying values of the residential loans owned at Redwood and at consolidated Sequoia entities at March 31, 2019 and December 31, 2018. Table 6.1 – Classifications and Carrying Values of Residential Loans
At March 31, 2019, we owned mortgage servicing rights associated with $2.46 billion (principal balance) of consolidated residential loans purchased from third-party originators. The value of these MSRs is included in the carrying value of the associated loans on our consolidated balance sheets. We contract with licensed sub-servicers that perform servicing functions for these loans. Residential Loans Held-for-Sale At Fair Value At March 31, 2019, we owned 1,109 loans held-for-sale at fair value with an aggregate unpaid principal balance of $802 million and a fair value of $819 million, compared to 1,484 loans with an aggregate unpaid principal balance of $1.03 billion and a fair value of $1.05 billion at December 31, 2018. At both March 31, 2019 and December 31, 2018, one of these loans with a fair value of $0.6 million was greater than 90 days delinquent and none of these loans were in foreclosure. During the three months ended March 31, 2019 and 2018, we purchased $0.96 billion and $1.80 billion (principal balance) of loans, respectively, for which we elected the fair value option, and we sold $1.16 billion and $2.01 billion (principal balance) of loans, respectively, for which we recorded net market valuation gains of $4 million and $5 million, respectively, through Mortgage banking activities, net on our consolidated statements of income. At March 31, 2019, loans held-for-sale with a market value of $579 million were pledged as collateral under short-term borrowing agreements. At Lower of Cost or Fair Value At both March 31, 2019 and December 31, 2018, we held two residential loans at the lower of cost or fair value with $0.1 million in outstanding principal balance and carrying values of $0.1 million. At both March 31, 2019 and December 31, 2018, none of these loans were greater than 90 days delinquent or in foreclosure. Residential Loans Held-for-Investment at Fair Value At Redwood At March 31, 2019, we owned 3,314 held-for-investment loans at Redwood with an aggregate unpaid principal balance of $2.38 billion and a fair value of $2.40 billion, compared to 3,296 loans with an aggregate unpaid principal balance of $2.39 billion and a fair value of $2.38 billion at December 31, 2018. At March 31, 2019, two of these loans with an aggregate fair value of $1 million were greater than 90 days delinquent and one of these loans with a fair value of $0.4 million was in foreclosure. At December 31, 2018, two of these loans with an aggregate fair value of $1 million were greater than 90 days delinquent and none of these loans were in foreclosure. During the three months ended March 31, 2019, we purchased $39 million (principal balance) of loans, for which we elected the fair value option, and did not sell any loans. During the three months ended March 31, 2019 and 2018, we transferred loans with a fair value of $39 million and $56 million, respectively, from held-for-sale to held-for-investment. During the three months ended March 31, 2019, we transferred loans with a fair value of $23 million from held-for-investment to held-for-sale. During the three months ended March 31, 2018, we did not transfer any loans from held-for-investment to held-for-sale. During the three months ended March 31, 2019 and 2018, we recorded a net market valuation gain of $28 million and a net market valuation loss of $39 million, respectively, on residential loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income. At March 31, 2019, loans with a fair value of $2.41 billion were pledged as collateral under a borrowing agreement with the FHLBC. The outstanding loans held-for-investment at Redwood at March 31, 2019 were prime-quality, first lien loans, of which 96% were originated between 2013 and 2019, and 4% were originated in 2012 and prior years. The weighted average Fair Isaac Corporation ("FICO") score of borrowers backing these loans was 768 (at origination) and the weighted average loan-to-value ("LTV") ratio of these loans was 66% (at origination). At March 31, 2019, these loans were comprised of 88% fixed-rate loans with a weighted average coupon of 4.15%, and the remainder were hybrid or ARM loans with a weighted average coupon of 4.21%. At Consolidated Legacy Sequoia Entities At March 31, 2019, we consolidated 2,504 held-for-investment loans at consolidated Legacy Sequoia entities, with an aggregate unpaid principal balance of $508 million and a fair value of $489 million, as compared to 2,641 loans at December 31, 2018, with an aggregate unpaid principal balance of $545 million and a fair value of $520 million. At origination, the weighted average FICO score of borrowers backing these loans was 727, the weighted average LTV ratio of these loans was 66%, and the loans were nearly all first lien and prime-quality. At March 31, 2019 and December 31, 2018, the aggregate unpaid principal balance of loans at consolidated Legacy Sequoia entities delinquent greater than 90 days was $13 million and $14 million, respectively, of which the aggregate unpaid principal balance of loans in foreclosure was $6 million and $5 million, respectively. During the three months ended March 31, 2019 and 2018, we recorded net market valuation gains of $5 million and $29 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income. Pursuant to the collateralized financing entity guidelines, the market valuation changes of these loans are based on the estimated fair value of the associated ABS issued. The net impact to our income statement associated with our retained economic investment in the Legacy Sequoia securitization entities is presented in Note 5. At Consolidated Sequoia Choice Entities At March 31, 2019, we consolidated 3,143 held-for-investment loans at the consolidated Sequoia Choice entities, with an aggregate unpaid balance of $2.28 billion and a fair value of $2.33 billion, as compared to 2,800 loans at December 31, 2018 with an aggregate unpaid principal balance of $2.04 billion and a fair value of $2.08 billion. At origination, the weighted average FICO score of borrowers backing these loans was 745, the weighted average LTV ratio of these loans was 75%, and the loans were all first lien and prime-quality. At March 31, 2019, two of these loans with an aggregate unpaid principal balance of $1 million were greater than 90 days delinquent and none of these loans were in foreclosure. At December 31, 2018, three of these loans with an aggregate unpaid principal balance of $2 million were greater than 90 days delinquent and none of these loans were in foreclosure. During the three months ended March 31, 2019 and 2018, we transferred loans with a fair value of $350 million and $452 million, respectively, from held-for-sale to held-for-investment associated with Choice securitizations. During the three months ended March 31, 2019 and 2018, we recorded a net market valuation gain of $10 million and a net market valuation loss of $8 million, respectively, on these loans through Investment fair value changes, net on our consolidated statements of income. Pursuant to the collateralized financing entity guidelines, the market valuation changes of these loans are based on the estimated fair value of the ABS issued associated with Choice securitizations. The net impact to our income statement associated with our retained economic investment in the Sequoia Choice securitization entities is presented in Note 5. At Consolidated Freddie Mac SLST Entity During the fourth quarter of 2018, we invested in subordinate securities issued by a Freddie Mac SLST securitization trust and were required to consolidate the underlying seasoned re-performing and non-performing residential loans owned at this entity for financial reporting purposes in accordance with GAAP. At securitization, which occurred during the fourth quarter of 2018, each of these mortgage loans was a fully amortizing, fixed- or step-rate, first-lien loan that had been modified. At March 31, 2019, we consolidated 7,844 held-for-investment loans at the consolidated Freddie Mac SLST entity, with an aggregate unpaid balance of $1.29 billion and a fair value of $1.23 billion, compared to 7,900 loans at December 31, 2018 with an aggregate unpaid principal balance of $1.31 billion and a fair value of $1.22 billion. At securitization, the weighted average FICO score of borrowers backing these loans was 597 and the weighted average LTV ratio of these loans was 69%. At March 31, 2019, 520 of these loans with an unpaid principal balance of $84 million were greater than 90 days delinquent and none of these loans were in foreclosure. At December 31, 2018, 306 of these loans with an aggregate unpaid principal balance of $51 million were greater than 90 days delinquent and none of these loans were in foreclosure. During the three months ended March 31, 2019, we recorded a net market valuation gain of $24 million on these loans through Investment fair value changes, net on our consolidated statements of income. Pursuant to the collateralized financing entity guidelines, the market valuation changes of these loans are based on the estimated fair value of the ABS issued associated with the Freddie Mac SLST securitization. The net impact to our income statement associated with our economic investment in the Freddie Mac SLST securitization entity is presented in Note 5. Business Purpose Residential Loans As a result of our acquisition of 5 Arches on March 1, 2019, we now originate business purpose residential loans, including single-family rental loans and residential bridge loans. Business Purpose Residential Loan Originations During the period from March 1, 2019 to March 31, 2019, we originated $36 million of business purpose residential loans, of which $21 million were sold to a third party. The remaining business purpose residential loans were transferred to our investment portfolio (residential bridge loans), or retained in our mortgage banking business (single-family rental loans). Prior to the transfer of residential bridge loans to our investment portfolio, we recorded net market valuation gains of $0.1 million on these loans through Mortgage banking activities, net on our consolidated statements of income. Market valuation adjustments on our single-family rental loans are also recorded in Mortgage banking activities, net on our consolidated statements of income. Additionally, during the three months ended March 31, 2019, we recorded loan origination fee income of $0.5 million through Mortgage banking activities, net on our consolidated statements of income. The following table summarizes the classifications and carrying values of the business purpose residential loans owned at Redwood at March 31, 2019 and December 31, 2018. Table 7.1 – Classifications and Carrying Values of Business Purpose Residential Loans
Single-Family Rental Loans Held-for-Sale at Fair Value At March 31, 2019, we owned 26 single-family rental loans with an aggregate unpaid principal balance of $54 million and a fair value of $57 million, compared to 11 loans at December 31, 2018 with an aggregate unpaid principal balance of $28 million and a fair value of $28 million. At both March 31, 2019 and December 31, 2018, none of these loans were greater than 90 days delinquent or in foreclosure. Prior to our acquisition of 5 Arches, for the period from January 1, 2019 to February 28, 2019, we purchased $19 million (principal balance) of loans from 5 Arches, for which we elected the fair value option, and we did not sell any loans. During the three months ended March 31, 2019, we recorded a net market valuation gain of $1 million on single-family rental loans held-for-sale at fair value through Mortgage banking activities, net on our consolidated statements of income. At March 31, 2019, loans held-for-sale with a market value of $49 million were pledged as collateral under short-term borrowing agreements. Additionally, single-family rental loans with a fair value of $5 million and other assets of $7 million at 5 Arches served as collateral under the business purpose loan working capital line at March 31, 2019. The outstanding single-family rental loans held-for-sale at March 31, 2019 were first lien, fixed-rate loans with maturities of five, seven, or ten years. At March 31, 2019, the weighted average coupon of our single-family rental loans was 5.72% and the weighted average loan term was seven years. At origination, the weighted average LTV ratio of these loans was 65% and the weighted average debt service coverage ratio ("DSCR") was 1.28 times. Residential Bridge Loans Held-for-Investment at Fair Value At March 31, 2019, we owned 158 residential bridge loans held-for-investment with an aggregate unpaid principal balance of $103 million and a fair value of $104 million, compared to 157 loans at December 31, 2018 with an aggregate unpaid principal balance of $112 million and a fair value of $113 million. As part of our credit risk management practices, our residential bridge loans are subject to individual risk assessment using an internal borrower and collateral quality evaluation framework. At March 31, 2019, seven loans with an aggregate fair value of $9 million were greater than 90 days delinquent, and four of these loans with an aggregate fair value of $8 million were in foreclosure. At December 31, 2018, seven loans with an aggregate fair value of $12 million were greater than 90 days delinquent and four of these loans with an aggregate fair value of $11 million were in foreclosure. During the three months ended March 31, 2019, we transferred one loan with a fair value of $5 million to REO, which is included in Other assets on our consolidated balance sheets. We recognized a loss of $0.3 million related to this loan for the three months ended March 31, 2019, which was included in Investment fair value changes, net on our consolidated statements of income. Prior to our acquisition of 5 Arches, for the period from January 1, 2019 to February 28, 2019, we purchased $10 million (principal balance) of residential bridge loans from 5 Arches, and we did not sell any loans. During the three months ended March 31, 2019, we recorded a net market valuation loss of $0.3 million on residential bridge loans held-for-investment at fair value through Investment fair value changes, net on our consolidated statements of income. At March 31, 2019, loans with a market value of $93 million were pledged as collateral under short-term borrowing agreements. The outstanding residential bridge loans held-for-investment at March 31, 2019 were first lien, fixed-rate, interest-only loans with a weighted average coupon of 9.13% and original maturities of 6 to 24 months. At origination, the weighted average FICO score of borrowers backing these loans was 677, the weighted average LTV ratio of these loans was 75%, and the estimated rehabilitated LTV ratio was 60%. As of March 31, 2019, we had a $4 million commitment to fund residential bridge loans. See Note 16 for additional information on this commitment. Multifamily Loans During the second half of 2018, we invested in multifamily subordinate securities issued by three Freddie Mac K-Series securitization trusts and were required to consolidate the underlying multifamily loans owned at these entities for financial reporting purposes in accordance with GAAP. At March 31, 2019, we consolidated 162 held-for-investment multifamily loans, with an aggregate unpaid principal balance of $2.12 billion and a fair value of $2.18 billion, compared to 162 loans at December 31, 2018 with an aggregate unpaid principal balance of $2.13 billion and a fair value of $2.14 billion. The outstanding multifamily loans held-for-investment at the Freddie Mac K-Series entities at March 31, 2019 were first lien, fixed-rate loans that were originated in 2015 and 2016 and had original loan terms of seven to ten years and an original weighted average LTV ratio of 69%. At March 31, 2019, the weighted average coupon of these multifamily loans was 4.16% and the weighted average remaining loan term was seven years. At both March 31, 2019 and December 31, 2018, none of these loans were greater than 90 days delinquent or in foreclosure. During the three months ended March 31, 2019, we recorded a net market valuation gain of $34 million on these loans through Investment fair value changes, net on our consolidated statements of income. Pursuant to the collateralized financing entity guidelines, the market valuation changes of these loans are based on the estimated fair value of the ABS issued associated with the securitizations. The net impact to our income statement associated with our economic investment in the securities of the Freddie Mac K-Series securitization entities is presented in Note 5. |