Home Equity Investments (HEI)

12 Months Ended

Dec. 31, 2023

Equity Method Investments and Joint Ventures [Abstract]

From time to time, we may purchase home equity investment contracts from third party originators under flow purchase agreements. Additionally, in the third quarter of 2023, we began to originate HEI. Each HEI provides the owner of such HEI the right to purchase a percentage ownership interest in an associated residential property, and the homeowner's obligations under the HEI are secured by a lien (primarily second liens) on the property created by recording a security instrument (e.g., deed of trust) with respect to the property. Our investments in HEI expose us to both home price appreciation and depreciation of the associated property.

The following table presents our home equity investments at December 31, 2023 and December 31, 2022.

Table 10.1 – Home Equity Investments


(In Thousands)	December 31, 2023		December 31, 2022
HEI at Redwood	$	244,719	$	270,835
HEI held at consolidated HEI securitization entities	305,717		132,627
Total Home Equity Investments	$	550,436	$	403,462

We consolidate HEI securitization entities in accordance with GAAP and have elected to account for them under the CFE election. As such, market valuation changes for the securitized HEI are based on the estimated fair value of the associated ABS issued by the entity, including the interests we own, and are reported in HEI income, net on our Consolidated statements of income (loss).

The following table provides the activity of HEI during the years ended December 31, 2023 and 2022.

Table 10.2 – Activity of HEI


	Year Ended December 31, 2023				Year Ended December 31, 2022
(In Thousands)	HEI at Redwood		Securitized HEI		HEI at Redwood		Securitized HEI
Fair value of HEI purchased and originated (1)	$	136,445	$	—	$	248,218	$	—
Fair value of HEI transferred (1)	(173,207)		173,207		—		—

(1) Amount purchased and originated in 2023 includes $111 million contributed by third-parties into the securitization we co-sponsored in the fourth quarter of 2023, in exchange for cash and subordinate beneficial interests in the securitization (which we present as other liabilities on our consolidated balance sheets). These are included in purchases, as they passed through our depositor and we consolidate the HEI securitization. Fair value of HEI transferred in 2023 includes this third-party HEI and HEI contributed directly by Redwood into the securitization.

The following table provides the components of HEI income, net for the years ended December 31, 2023, 2022 and 2021.

Table 10.3 – Components of HEI Income, net


	Years Ended December 31,
(In Thousands)	2023		2022		2021
Net market valuation gains (losses) recorded on HEI at Redwood	$	30,750	$	(201)	$	13,207
Net market valuation gains (losses) recorded on Securitized HEI	23,177		5,875		567
Net market valuation gains (losses) recorded on ABS Issued from HEI securitizations(1)	(11,020)		2,334		47
Net market valuation gains (losses) recorded on non-controlling interests in HEI securitizations	(7,790)		(5,294)		(396)
Total HEI income, net	$	35,117	$	2,714	$	13,425

(1)Amount includes interest expense associated with ABS issued, which totaled $6 million, $5 million and $1 million for 2023, 2022 and 2021, respectively.

The following tables summarize the characteristics of HEI at December 31, 2023 and 2022.

Table 10.4 – HEI Characteristics


	December 31, 2023				December 31, 2022
(Dollars in Thousands)	HEI at Redwood		Securitized HEI		HEI at Redwood		Securitized HEI
Number of HEI contracts	2,034		2,434		2,599		1,007
Average initial amount of contract	$	105	$	96	$	101	$	94

The following tables present the geographic concentration of HEI recorded on our consolidated balance sheets at December 31, 2023 and 2022.

Table 10.5 – Geographic Concentration of HEI


	December 31, 2023
Geographic Concentration (by Investment Amount)	HEI at Redwood		Securitized HEI
California	48	%	47	%
Florida	12	%	7	%
Washington	6	%	7	%
Colorado	6	%	4	%
Arizona	5	%	6	%
New York	4	%	7	%
Other states (none greater than 5%)	19	%	22	%
Total	100	%	100	%


	December 31, 2022
Geographic Concentration (by Investment Amount)	HEI at Redwood		Securitized HEI
California	44	%	59	%
Florida	14	%	4	%
Arizona	7	%	—	%
Washington	6	%	6	%
Colorado	5	%	4	%
New York	4	%	11	%
Other states (none greater than 5%)	20	%	16	%
Total	100	%	100	%