Business Purpose Loans

6 Months Ended

Jun. 30, 2023

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 and Freddie Mac SLST entities at June 30, 2023 and December 31, 2022.

Table 6.1 – Classifications and Carrying Values of Residential Loans


June 30, 2023			Legacy				Freddie Mac
(In Thousands)	Redwood		Sequoia		Sequoia		SLST		Total
Held-for-sale at fair value	$	196,737	$	—	$	—	$	—	$	196,737
Held-for-investment at fair value	—		163,222		3,703,754		1,392,186		5,259,162
Total Residential Loans	$	196,737	$	163,222	$	3,703,754	$	1,392,186	$	5,455,899


December 31, 2022			Legacy				Freddie Mac
(In Thousands)	Redwood		Sequoia		Sequoia		SLST		Total
Held-for-sale at fair value	$	780,781	$	—	$	—	$	—	$	780,781
Held-for-investment at fair value	—		184,932		3,190,417		1,457,058		4,832,407
Total Residential Loans	$	780,781	$	184,932	$	3,190,417	$	1,457,058	$	5,613,188

At June 30, 2023, we owned mortgage servicing rights associated with $191 million (principal balance) of residential loans owned at Redwood that were 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

The following table summarizes the characteristics of residential loans held-for-sale at June 30, 2023 and December 31, 2022.

Table 6.2 – Characteristics of Residential Loans Held-for-Sale


(Dollars in Thousands)	June 30, 2023			December 31, 2022
Number of loans	185			994
Unpaid principal balance	$	197,272		$	822,063
Fair value of loans	$	196,737		$	780,781
Market value of loans pledged as collateral under short-term borrowing agreements	$	192,910		$	775,545
Weighted average coupon	6.68		%	5.12		%

Delinquency information
Number of loans with 90+ day delinquencies	1			1
Unpaid principal balance of loans with 90+ day delinquencies	$	205		$	208
Fair value of loans with 90+ day delinquencies	$	167		$	170
Number of loans in foreclosure	—			—

The following table provides the activity of residential loans held-for-sale during the three and six months ended June 30, 2023 and 2022.

Table 6.3 – Activity of Residential Loans Held-for-Sale


	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2023		2022		2023		2022
Principal balance of loans acquired (1)	$	181,972	$	1,145,450	$	235,018	$	3,260,641
Principal balance of loans sold	8,925		1,238,327		182,078		3,065,691
Principal balance of loans transferred to HFI	—		—		657,295		687,192
Net market valuation gains (losses) recorded (2)	(1,085)		(32,527)		6,093		(63,978)

(1)For the six months ended June 30, 2022, includes $102 million, of loans acquired through calls of three seasoned Sequoia securitizations.

(2)Net market valuation gains (losses) on residential loans held-for-sale are recorded primarily through Mortgage banking activities, net on our consolidated statements of income.

Residential Loans Held-for-Investment at Fair Value

We invest in residential subordinate securities issued by Legacy Sequoia, Sequoia and Freddie Mac SLST securitization trusts and consolidate the underlying residential loans owned by these entities for financial reporting purposes in accordance with GAAP. The following tables summarize the characteristics of the residential loans owned at consolidated Sequoia and Freddie Mac SLST entities at June 30, 2023 and December 31, 2022.

Table 6.4 – Characteristics of Residential Loans Held-for-Investment


June 30, 2023	Legacy						Freddie Mac
(Dollars in Thousands)	Sequoia			Sequoia			SLST
Number of loans	1,157			5,232			10,604
Unpaid principal balance	$	175,961		$	4,374,517		$	1,671,451
Fair value of loans (2)	$	163,222		$	3,703,754		$	1,392,186
Weighted average coupon	6.11		%	3.54		%	4.50		%

Delinquency information
Number of loans with 90+ day delinquencies (1)	20			7			877
Unpaid principal balance of loans with 90+ day delinquencies	$	4,354		$	5,214		$	150,437
Fair value of loans with 90+ day delinquencies	N/A			N/A			N/A
Number of loans in foreclosure	7			3			326
Unpaid principal balance of loans in foreclosure	$	1,072		$	2,308		$	57,362


December 31, 2022	Legacy						Freddie Mac
(Dollars in Thousands)	Sequoia			Sequoia			SLST
Number of loans	1,304			4,624			10,882
Unpaid principal balance	$	204,404		$	3,847,091		$	1,719,236
Fair value of loans (2)	$	184,932		$	3,190,417		$	1,457,058
Weighted average coupon	4.51		%	3.25		%	4.50		%

Delinquency information
Number of loans with 90+ day delinquencies (1)	30			10			1,211
Unpaid principal balance of loans with 90+ day delinquencies	$	6,824		$	7,799		$	209,397
Fair value of loans with 90+ day delinquencies	N/A			N/A			N/A
Number of loans in foreclosure	11			5			427
Unpaid principal balance of loans in foreclosure	$	1,166		$	4,654		$	72,440

(1)For loans held at consolidated entities, the number of loans 90-or-more days delinquent includes loans in foreclosure.

(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities. The net impact to our income statement associated with our economic investment in these securitization entities is presented in Table 4.2.

For loans held at our consolidated Legacy Sequoia, Sequoia, and Freddie Mac SLST entities, market value changes are based on the estimated fair value of the associated ABS issued, including securities we own, pursuant to collateralized financing entity guidelines, and are recorded in Investment fair value changes, net on our consolidated statements of income. The following table provides the activity of residential loans held-for-investment at consolidated entities during the three and six months ended June 30, 2023 and 2022.

Table 6.5 – Activity of Residential Loans Held-for-Investment at Consolidated Entities

Three Months Ended June 30, 2023

Three Months Ended June 30, 2022

Legacy

Freddie Mac

Legacy

Freddie Mac

(In Thousands)

Sequoia

SLST

Sequoia

SLST

Fair value of loans transferred from HFS to HFI (1)

N/A

—

N/A

—

N/A

Net market valuation gains (losses) recorded

6,718

(53,765)

(44,147)

779

(211,486)

(76,735)

Six Months Ended June 30, 2023

Six Months Ended June 30, 2022

Legacy

Freddie Mac

Legacy

Freddie Mac

(In Thousands)

Sequoia

SLST

Sequoia

SLST

Fair value of loans transferred from HFS to HFI (1)

N/A

657,295

N/A

684,491

N/A

Net market valuation gains (losses) recorded

6,256

8,102

(11,710)

7,104

(482,217)

(120,503)

(1)Represents the transfer of loans from held-for-sale to held-for-investment associated with Sequoia securitizations.

REO

See Note 13 for detail on residential loan REO activity during 2023.

Business Purpose Loans

We originate and invest in business purpose loans, including term loans and bridge loans. The following table summarizes the classifications and carrying values of the business purpose loans owned at Redwood and at consolidated CAFL entities at June 30, 2023 and December 31, 2022.

Table 7.1 – Classifications and Carrying Values of Business Purpose Loans


June 30, 2023	BPL Term				BPL Bridge
(In Thousands)	Redwood		CAFL		Redwood		CAFL		Total
Held-for-sale at fair value	$	269,886	—		$	12,950	$	—	$	282,836
Held-for-investment at fair value	—		2,783,731		1,663,802		496,354		4,943,887
Total Business Purpose Loans	$	269,886	$	2,783,731	$	1,676,752	$	496,354	$	5,226,723


December 31, 2022	BPL Term				BPL Bridge
(In Thousands)	Redwood		CAFL		Redwood		CAFL		Total
Held-for-sale at fair value	$	358,791	$	—	$	5,282	$	—	$	364,073
Held-for-investment at fair value	—		2,944,984		1,507,146		516,383		4,968,513
Total Business Purpose Loans	$	358,791	$	2,944,984	$	1,512,428	$	516,383	$	5,332,586

All of the outstanding BPL term loans at June 30, 2023 were first-lien, fixed-rate loans with original maturities of five, seven, or ten years.

The outstanding BPL bridge loans held-for-investment at June 30, 2023 were first-lien, interest-only loans with original maturities of six to 36 months and were comprised of 33% one-month LIBOR-indexed adjustable-rate loans, 60% one-month SOFR-indexed adjustable-rate loans, and 7% fixed-rate loans (in each case based on unpaid principal balance). As described above within Note 3, LIBOR-indexed BPL bridge loans we hold have fallback provisions for benchmark rate replacement in connection with the cessation of LIBOR in 2023.

At June 30, 2023, we had $755 million in commitments to fund BPL bridge loans. See Note 17 for additional information on these commitments.

The following table provides the activity of business purpose loans at Redwood during the three and six months ended June 30, 2023 and 2022.

Table 7.2 – Activity of Business Purpose Loans at Redwood


	Three Months Ended June 30, 2023				Three Months Ended June 30, 2022
(In Thousands)	BPL Term at Redwood		BPL Bridge at Redwood		BPL Term at Redwood		BPL Bridge at Redwood
Principal balance of loans originated	$	128,622	$	269,713	$	323,245	$	542,241
Principal balance of loans acquired	—		8,149		38,457		19,023
Principal balance of loans sold to third parties	180,404		19,260		—		—
Fair value of loans transferred (1)(2)	—		(140,186)		(295,037)		(306,313)

Mortgage banking activities income (loss) recorded (3)	(1,132)		2,291		(40,034)		(1,136)
Investment fair value changes recorded (2)(4)	(13,625)		(8,778)		—		(5,309)


	Six Months Ended June 30, 2023				Six Months Ended June 30, 2022
(In Thousands)	BPL Term at Redwood		BPL Bridge at Redwood		BPL Term at Redwood		BPL Bridge at Redwood
Principal balance of loans originated	$	302,700	$	524,865	$	765,972	$	954,179
Principal balance of loans acquired	—		17,234		100,349		22,006
Principal balance of loans sold to third parties	398,106		31,807		331,502		—
Fair value of loans transferred (1)(2)	—		(220,978)		(295,037)		(388,604)

Mortgage banking activities income (loss) recorded (3)	11,534		3,453		(64,502)		1,240
Investment fair value changes recorded (2)(4)	(13,625)		(7,266)		—		(6,068)

(1)For BPL term at Redwood, represents the transfer of loans from held-for-sale to held-for-investment associated with CAFL term securitizations. For BPL bridge at Redwood, represents the transfer of BPL bridge loans from "Bridge at Redwood" to "Bridge at CAFL" resulting from their securitization.

(2)During the three months ended June 30, 2023, we substituted a pool of held-for-sale term loans at Redwood for a non-performing held-for-investment term loan at a consolidated CAFL securitization, each with unpaid principal balances of approximately $28 million. The negative investment fair value changes recorded for BPL Term at Redwood during the three and six months ended June 30, 2023 were attributable to this substitution, with an equal and offsetting positive fair value change recorded for BPL Term at CAFL (related to the retained bond we own in the associated consolidated CAFL securitization).

(3)Represents loan origination fee income and net market valuation changes from the time a loan is originated to when it is sold or transferred to our investment portfolio and, for bridge loans, when transferred into a securitization. See Table 20.1 for additional detail on Mortgage banking activities income (loss).

(4)For BPL Bridge at Redwood, represents net market valuation changes for loans classified as held-for-investment and associated interest-only strip liabilities.

Business Purpose Loans Held-for-Investment at CAFL

We invest in securities issued by CAFL securitizations sponsored by CoreVest and consolidate the underlying BPL term loans and bridge loans owned by these entities. For loans held at our consolidated CAFL Term entities, market value changes are based on the estimated fair value of the associated ABS issued, including securities we own, pursuant to collateralized financing entity guidelines, and are recorded through Investment fair value changes, net on our consolidated statements of income. The net impact to our income statement associated with our economic investments in these securitization entities is presented in Table 4.2. We did not elect to account for the CAFL Bridge securitizations under the CFE guidelines.

REO

See Note 13 for detail on business purpose loan REO activity during 2023.

The following table provides the activity of business purpose loans held-for-investment at CAFL during the three and six months ended June 30, 2023 and 2022.

Table 7.3 – Activity of Business Purpose Loans Held-for-Investment at CAFL


	Three Months Ended June 30, 2023				Three Months Ended June 30, 2022
(In Thousands)	BPL Term at CAFL		BPL Bridge at CAFL		BPL Term at CAFL		BPL Bridge at CAFL
Net market valuation gains (losses) recorded	$	(37,780)	$	1,192	$	(118,299)	$	(281)
Transfers	—		140,186		295,037		306,313


	Six Months Ended June 30, 2023				Six Months Ended June 30, 2022
(In Thousands)	BPL Term at CAFL		BPL Bridge at CAFL		BPL Term at CAFL		BPL Bridge at CAFL
Net market valuation gains (losses) recorded	$	(601)	$	600	$	(310,202)	$	(1,856)
Transfers	—		220,978		295,037		388,604

Business Purpose Loan Characteristics

The following tables summarize the characteristics of the business purpose loans owned at Redwood and at consolidated CAFL entities at June 30, 2023 and December 31, 2022.

Table 7.4 – Characteristics of Business Purpose Loans


June 30, 2023	BPL Term at Redwood			BPL Term at CAFL(1)			BPL Bridge at Redwood			BPL Bridge at CAFL
(Dollars in Thousands)
Number of loans	60			1,072			1,341			1,683
Unpaid principal balance	$	283,650		$	3,101,083		$	1,687,258		$	491,909
Fair value of loans	$	269,886		$	2,783,731		$	1,676,752		$	496,354
Weighted average coupon	6.96		%	5.20		%	10.74		%	10.93		%
Weighted average remaining loan term (years)	7			5			1			1
Market value of loans pledged as collateral under short-term debt facilities	$	196,538		N/A			$	587,094		N/A
Market value of loans pledged as collateral under long-term debt facilities	$	20,564		N/A			$	971,338		N/A
Delinquency information
Number of loans with 90+ day delinquencies (2)	2			45			53			53
Unpaid principal balance of loans with 90+ day delinquencies	$	28,494		$	99,198		$	93,045		$	12,196
Fair value of loans with 90+ day delinquencies (3)	$	16,822		N/A			$	81,378		$	10,489
Number of loans in foreclosure	2			7			52			50
Unpaid principal balance of loans in foreclosure	$	28,494		$	8,183		$	55,238		$	10,016
Fair value of loans in foreclosure (3)	$	16,822		N/A			$	48,306		$	9,431


December 31, 2022	BPL Term at Redwood			BPL Term at CAFL(1)			BPL Bridge at Redwood			BPL Bridge at CAFL
(Dollars in Thousands)
Number of loans	91			1,131			1,601			1,875
Unpaid principal balance	$	389,846		$	3,263,421		$	1,518,427		$	514,666
Fair value of loans	$	358,791		$	2,944,984		$	1,512,428		$	516,383
Weighted average coupon	5.98		%	5.22		%	9.61		%	9.67		%
Weighted average remaining loan term (years)	10			6			2			1
Market value of loans pledged as collateral under short-term debt facilities	$	291,406		N/A			$	579,666		N/A
Market value of loans pledged as collateral under long-term debt facilities	$	66,567		N/A			$	897,782		N/A
Delinquency information
Number of loans with 90+ day delinquencies (2)	1			16			49			48
Unpaid principal balance of loans with 90+ day delinquencies	$	536		$	37,072		$	34,264		$	7,328
Fair value of loans with 90+ day delinquencies (3)	$	536		N/A			$	29,663		$	7,438
Number of loans in foreclosure	1			9			48			48
Unpaid principal balance of loans in foreclosure	$	536		$	13,686		$	34,039		$	7,328
Fair value of loans in foreclosure (3)	$	536		N/A			$	29,438		$	7,438

Footnotes to Table 7.4

(1)The fair value of the loans held by consolidated CAFL entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for CFEs. The net impact to our income statement associated with our economic investment in these securitization entities is presented in Table 4.2. Based on this methodology, we value the loans in each consolidated securitization on a pool basis and do not calculate separate fair values for loans that are 90+ days delinquent or in foreclosure.

(2)The number of loans 90-or-more days delinquent includes all loans in foreclosure.

(3)May include loans that are less than 90 days delinquent.

Consolidated Agency Multifamily Loans

We invest in multifamily subordinate securities issued by a Freddie Mac K-Series securitization trust and consolidate the underlying multifamily loans owned by this entity for financial reporting purposes in accordance with GAAP. The following table summarizes the characteristics of the multifamily loans consolidated at Redwood at June 30, 2023 and December 31, 2022.

Table 8.1 – Characteristics of Consolidated Agency Multifamily Loans


(Dollars in Thousands)	June 30, 2023			December 31, 2022
Number of loans	28			28
Unpaid principal balance	$	443,049		$	447,193
Fair value of loans	$	420,096		$	424,551
Weighted average coupon	4.25		%	4.25		%
Weighted average remaining loan term (years)	2			3

Delinquency information
Number of loans with 90+ day delinquencies	—			—


Number of loans in foreclosure	—			—

The outstanding Consolidated Agency multifamily loans held-for-investment at the consolidated Freddie Mac K-Series entity at June 30, 2023 were first-lien, fixed-rate loans that were originated in 2015. The following table provides the activity of multifamily loans held-for-investment during the three and six months ended June 30, 2023 and 2022.

Table 8.2 – Activity of Consolidated Agency Multifamily Loans Held-for-Investment


	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2023		2022		2023		2022
Net market valuation gains (losses) recorded (1)	$	(4,471)	$	(6,748)	$	(311)	$	(26,429)

(1)Net market valuation gains (losses) on multifamily loans held-for-investment are recorded through Investment fair value changes, net on our consolidated statements of income. For loans held at our consolidated Freddie Mac K-Series entity, market value changes are based on the estimated fair value of the associated ABS issued, including securities we own, pursuant to collateralized financing entity guidelines. The net impact to our income statement associated with our economic investment in these securitization entities is presented in Table 4.2.