0000930236us-gaap:LineOfCreditMemberrwt:SingleFamilyRentalLoanWarehouseFacilitiesMember2022-03-31false2022Q3000093023612/31P6M0.0956823http://fasb.org/us-gaap/2022#AccountsPayableAndAccruedLiabilitiesCurrentAndNoncurrenthttp://fasb.org/us-gaap/2022#OtherAssets

UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31,September 30, 2022

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______________ to _______________.
Commission File Number 1-13759
REDWOOD TRUST, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland68-0329422
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
One Belvedere Place, Suite 300
Mill Valley,California94941
(Address of Principal Executive Offices)(Zip Code)
(415) 389-7373
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per shareRWTNew York Stock Exchange
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock, $0.01 par value per share120,295,309113,349,651 shares outstanding as of May 3,November 2, 2022



REDWOOD TRUST, INC.
2022 FORM 10-Q REPORT
TABLE OF CONTENTS
 
Page
PART I
FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
i


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, except Share Data)
(Unaudited)
(In Thousands, except Share Data)
(Unaudited)
March 31, 2022December 31, 2021(In Thousands, except Share Data)
(Unaudited)
September 30, 2022December 31, 2021
ASSETS (1)
ASSETS (1)
ASSETS (1)
Residential loans, held-for-sale, at fair valueResidential loans, held-for-sale, at fair value$1,347,069 $1,845,282 Residential loans, held-for-sale, at fair value$834,262 $1,845,282 
Residential loans, held-for-investment, at fair valueResidential loans, held-for-investment, at fair value5,870,068 5,747,150 Residential loans, held-for-investment, at fair value4,918,294 5,747,150 
Business purpose loans, held-for-sale, at fair valueBusiness purpose loans, held-for-sale, at fair value505,889 358,309 Business purpose loans, held-for-sale, at fair value337,238 358,309 
Business purpose loans, held-for-investment, at fair valueBusiness purpose loans, held-for-investment, at fair value4,248,889 4,432,680 Business purpose loans, held-for-investment, at fair value4,919,980 4,432,680 
Multifamily loans, held-for-investment, at fair value451,804 473,514 
Consolidated Agency multifamily loans, at fair valueConsolidated Agency multifamily loans, at fair value427,458 473,514 
Real estate securities, at fair valueReal estate securities, at fair value358,882 377,411 Real estate securities, at fair value259,212 377,411 
Home equity investmentsHome equity investments340,437 192,740 
Other investmentsOther investments635,581 641,969 Other investments412,762 449,229 
Cash and cash equivalentsCash and cash equivalents409,272 450,485 Cash and cash equivalents297,092 450,485 
Restricted cashRestricted cash73,549 80,999 Restricted cash71,996 80,999 
GoodwillGoodwill23,373 — 
Intangible assetsIntangible assets38,027 41,561 Intangible assets44,130 41,561 
Derivative assetsDerivative assets112,060 26,467 Derivative assets65,213 26,467 
Other assetsOther assets202,202 231,117 Other assets194,500 231,117 
Total AssetsTotal Assets$14,253,292 $14,706,944 Total Assets$13,145,947 $14,706,944 
LIABILITIES AND EQUITY (1)
LIABILITIES AND EQUITY (1)
LIABILITIES AND EQUITY (1)
LiabilitiesLiabilitiesLiabilities
Short-term debt, netShort-term debt, net$1,647,246 $2,177,362 Short-term debt, net$2,110,279 $2,177,362 
Derivative liabilitiesDerivative liabilities80,260 3,317 Derivative liabilities6,782 3,317 
Accrued expenses and other liabilitiesAccrued expenses and other liabilities244,450 245,788 Accrued expenses and other liabilities201,125 245,788 
Asset-backed securities issued (includes $8,475,868 and $8,843,147 at fair value), net8,872,366 9,253,557 
Asset-backed securities issued (includes $7,564,312 and $8,843,147 at fair value), netAsset-backed securities issued (includes $7,564,312 and $8,843,147 at fair value), net8,139,293 9,253,557 
Long-term debt, netLong-term debt, net1,963,704 1,640,833 Long-term debt, net1,534,226 1,640,833 
Total liabilitiesTotal liabilities12,808,026 13,320,857 Total liabilities11,991,705 13,320,857 
Commitments and Contingencies (see Note 16)
00
Commitments and Contingencies (see Note 17)
Commitments and Contingencies (see Note 17)
EquityEquityEquity
Common stock, par value $0.01 per share, 395,000,000 shares authorized; 120,289,243 and 114,892,309 issued and outstanding
1,203 1,149 
Common stock, par value $0.01 per share, 395,000,000 shares authorized; 113,343,014 and 114,892,309 issued and outstandingCommon stock, par value $0.01 per share, 395,000,000 shares authorized; 113,343,014 and 114,892,309 issued and outstanding1,133 1,149 
Additional paid-in capitalAdditional paid-in capital2,391,344 2,316,799 Additional paid-in capital2,345,152 2,316,799 
Accumulated other comprehensive lossAccumulated other comprehensive loss(26,474)(8,927)Accumulated other comprehensive loss(64,935)(8,927)
Cumulative earningsCumulative earnings1,347,805 1,316,890 Cumulative earnings1,197,428 1,316,890 
Cumulative distributions to stockholdersCumulative distributions to stockholders(2,268,612)(2,239,824)Cumulative distributions to stockholders(2,324,536)(2,239,824)
Total equityTotal equity1,445,266 1,386,087 Total equity1,154,242 1,386,087 
Total Liabilities and EquityTotal Liabilities and Equity$14,253,292 $14,706,944 Total Liabilities and Equity$13,145,947 $14,706,944 
——————
(1)Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At March 31,September 30, 2022 and December 31, 2021, assets of consolidated VIEs totaled $10,250,802$9,449,163 and $10,661,081, respectively. At March 31,September 30, 2022 and December 31, 2021, liabilities of consolidated VIEs totaled $9,202,156$8,448,479 and $9,619,347, respectively. See Note 4 for further discussion.


The accompanying notes are an integral part of these consolidated financial statements.
2


REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In Thousands, except Share Data)(In Thousands, except Share Data)Three Months Ended March 31,(In Thousands, except Share Data)Three Months Ended September 30,Nine Months Ended September 30,
(Unaudited)(Unaudited)20222021(Unaudited)2022202120222021
Interest IncomeInterest IncomeInterest Income
Residential loansResidential loans$65,203 $43,655 Residential loans$61,002 $53,993 $191,252 $146,081 
Business purpose loansBusiness purpose loans94,299 64,188 Business purpose loans95,197 67,129 270,430 201,640 
Multifamily loans4,753 4,786 
Consolidated Agency multifamily loansConsolidated Agency multifamily loans4,762 4,846 14,247 14,492 
Real estate securitiesReal estate securities15,955 9,663 Real estate securities6,989 14,242 30,772 33,184 
Other interest incomeOther interest income9,190 6,013 Other interest income9,712 5,512 27,816 17,325 
Total interest incomeTotal interest income189,400 128,305 Total interest income177,662 145,722 534,517 412,722 
Interest ExpenseInterest ExpenseInterest Expense
Short-term debtShort-term debt(11,488)(7,773)Short-term debt(23,944)(11,826)(49,093)(30,794)
Asset-backed securities issuedAsset-backed securities issued(105,695)(72,561)Asset-backed securities issued(90,910)(73,732)(285,464)(222,712)
Long-term debtLong-term debt(19,115)(22,218)Long-term debt(27,873)(18,196)(71,435)(60,865)
Total interest expenseTotal interest expense(136,298)(102,552)Total interest expense(142,727)(103,754)(405,992)(314,371)
Net Interest IncomeNet Interest Income53,102 25,753 Net Interest Income34,935 41,968 128,525 98,351 
Non-interest Income
Non-interest (Loss) IncomeNon-interest (Loss) Income
Mortgage banking activities, netMortgage banking activities, net16,315 82,607 Mortgage banking activities, net16,535 63,163 2,833 200,189 
Investment fair value changes, netInvestment fair value changes, net(6,120)45,087 Investment fair value changes, net(57,697)26,077 (151,789)120,644 
Other income, netOther income, net5,983 3,843 Other income, net4,027 2,388 17,016 8,357 
Realized gains, netRealized gains, net2,581 2,716 Realized gains, net— 6,703 2,581 17,803 
Total non-interest income, net18,759 134,253 
Total non-interest (loss) income, netTotal non-interest (loss) income, net(37,135)98,331 (129,359)346,993 
General and administrative expensesGeneral and administrative expenses(34,854)(43,551)General and administrative expenses(40,107)(47,692)(106,927)(131,837)
Loan acquisition costsLoan acquisition costs(4,465)(3,559)Loan acquisition costs(2,426)(4,621)(10,371)(11,928)
Other expensesOther expenses(4,085)(4,096)Other expenses(4,261)(4,023)(11,814)(12,104)
Net Income before Benefit from (Provision for) Income Taxes28,457 108,800 
Benefit from (provision for) income taxes2,458 (11,543)
Net Income$30,915 $97,257 
Net (Loss) Income before Benefit from (Provision for) Income TaxesNet (Loss) Income before Benefit from (Provision for) Income Taxes(48,994)83,963 (129,946)289,475 
(Provision for) benefit from income taxes(Provision for) benefit from income taxes(1,417)4,323 10,484 (13,907)
Net (Loss) IncomeNet (Loss) Income$(50,411)$88,286 $(119,462)$275,568 
Basic earnings per common share$0.25 $0.84 
Diluted earnings per common share$0.24 $0.72 
Basic (loss) earnings per common shareBasic (loss) earnings per common share$(0.44)$0.75 $(1.04)$2.36 
Diluted (loss) earnings per common shareDiluted (loss) earnings per common share$(0.44)$0.65 $(1.04)$2.03 
Basic weighted average shares outstandingBasic weighted average shares outstanding119,884,172 112,276,842 Basic weighted average shares outstanding116,087,890 112,995,847 118,530,172 112,754,691 
Diluted weighted average shares outstandingDiluted weighted average shares outstanding140,506,157 141,039,285 Diluted weighted average shares outstanding116,087,890 141,855,471 118,530,172 141,575,385 

The accompanying notes are an integral part of these consolidated financial statements.


3


REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)(In Thousands)Three Months Ended March 31,(In Thousands)Three Months Ended September 30,Nine Months Ended September 30,
(Unaudited)(Unaudited)20222021(Unaudited)2022202120222021
Net Income$30,915 $97,257 
Net (Loss) IncomeNet (Loss) Income$(50,411)$88,286 $(119,462)$275,568 
Other comprehensive (loss) income:Other comprehensive (loss) income:Other comprehensive (loss) income:
Net unrealized (loss) gain on available-for-sale securitiesNet unrealized (loss) gain on available-for-sale securities(17,873)10,986 Net unrealized (loss) gain on available-for-sale securities(8,731)(2,658)(60,013)19,552 
Reclassification of unrealized (gain) on available-for-sale securities to net income(692)(2,795)
Reclassification of unrealized loss (gain) on available-for-sale securities to net (loss) incomeReclassification of unrealized loss (gain) on available-for-sale securities to net (loss) income544 (6,200)918 (16,495)
Reclassification of unrealized loss on interest rate agreements to net income1,018 1,018 
Reclassification of unrealized loss on interest rate agreements to net (loss) incomeReclassification of unrealized loss on interest rate agreements to net (loss) income1,040 1,041 3,087 3,087 
Total other comprehensive (loss) incomeTotal other comprehensive (loss) income(17,547)9,209 Total other comprehensive (loss) income(7,147)(7,817)(56,008)6,144 
Total Comprehensive Income$13,368 $106,466 
Total Comprehensive (Loss) IncomeTotal Comprehensive (Loss) Income$(57,558)$80,469 $(175,470)$281,712 


The accompanying notes are an integral part of these consolidated financial statements.


4


REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


For the Three Months Ended March 31,September 30, 2022
(In Thousands, except Share Data)(In Thousands, except Share Data)Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Cumulative
 Earnings
Cumulative
Distributions
to Stockholders
Total(In Thousands, except Share Data)Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
(Loss)
Cumulative
 Earnings
Cumulative
Distributions
to Stockholders
Total
(Unaudited)(Unaudited)SharesAmount(Unaudited)SharesAmount
December 31, 2021114,892,309 $1,149 $2,316,799 $(8,927)$1,316,890 $(2,239,824)$1,386,087 
Net income— — — — 30,915 — 30,915 
June 30, 2022June 30, 2022116,753,174 $1,168 $2,363,709 $(57,788)$1,247,839 $(2,296,837)$1,258,091 
Net (loss)Net (loss)— — — — (50,411)— (50,411)
Other comprehensive (loss)Other comprehensive (loss)— — — (17,547)— — (17,547)Other comprehensive (loss)— — — (7,147)— — (7,147)
Issuance of common stock5,232,869 52 67,423 — — — 67,475 
Employee stock purchase and incentive plansEmployee stock purchase and incentive plans164,065 (1,048)— — — (1,046)Employee stock purchase and incentive plans38,698 — 34 — — — 34 
Non-cash equity award compensationNon-cash equity award compensation— — 8,170 — — — 8,170 Non-cash equity award compensation— — 5,068 — — — 5,068 
Share repurchasesShare repurchases(3,448,858)(35)(23,659)— — — (23,694)
Common dividends declared ($0.23 per share)Common dividends declared ($0.23 per share)— — — — — (28,788)(28,788)Common dividends declared ($0.23 per share)— — — — — (27,699)(27,699)
March 31, 2022120,289,243 $1,203 $2,391,344 $(26,474)$1,347,805 $(2,268,612)$1,445,266 
September 30, 2022September 30, 2022113,343,014 $1,133 $2,345,152 $(64,935)$1,197,428 $(2,324,536)$1,154,242 

For the Nine Months Ended September 30, 2022
(In Thousands, except Share Data)Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
(Loss)
Cumulative
 Earnings
Cumulative
Distributions
to Stockholders
Total
(Unaudited)SharesAmount
December 31, 2021114,892,309 $1,149 $2,316,799 $(8,927)$1,316,890 $(2,239,824)$1,386,087 
Net (loss)— — — — (119,462)— (119,462)
Other comprehensive (loss)— — — (56,008)— — (56,008)
Issuance of common stock5,232,869 52 67,424 — — — 67,476 
Employee stock purchase and incentive plans346,727 (1,151)— — — (1,148)
Non-cash equity award compensation— — 18,505 — — — 18,505 
Share repurchases(7,128,891)(71)(56,425)— — — (56,496)
Common dividends declared ($0.69 per share)— — — — — (84,712)(84,712)
September 30, 2022113,343,014 $1,133 $2,345,152 $(64,935)$1,197,428 $(2,324,536)$1,154,242 

The accompanying notes are an integral part of these consolidated financial statements.
5


REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)

For the Three Months Ended March 31,September 30, 2021
(In Thousands, except Share Data)(In Thousands, except Share Data)Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Cumulative
 Earnings
Cumulative
Distributions
to Stockholders
Total(In Thousands, except Share Data)Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Cumulative
 Earnings
Cumulative
Distributions
to Stockholders
Total
(Unaudited)(Unaudited)SharesAmount(Unaudited)SharesAmount
December 31, 2020112,090,006 $1,121 $2,264,874 $(4,221)$997,277 $(2,148,152)$1,110,899 
June 30, 2021June 30, 2021113,052,780 $1,131 $2,287,412 $9,740 $1,184,559 $(2,187,700)$1,295,142 
Net incomeNet income— — — — 97,257 — 97,257 Net income— — — — 88,286 — 88,286 
Other comprehensive incomeOther comprehensive income— — — 9,209 — — 9,209 Other comprehensive income— — — (7,817)— — (7,817)
Issuance of common stockIssuance of common stock806,068 13,366 — — — 13,374 Issuance of common stock1,585,709 16 19,810 — — — 19,826 
Direct stock purchase and dividend reinvestment planDirect stock purchase and dividend reinvestment plan— — 153 — — — 153 
Employee stock purchase and incentive plansEmployee stock purchase and incentive plans102,658 (811)— — — (810)Employee stock purchase and incentive plans23,273 — — — — — — 
Non-cash equity award compensationNon-cash equity award compensation— — 4,218 — — — 4,218 Non-cash equity award compensation— — 4,897 — — — 4,897 
Common dividends declared ($0.16 per share)— — — — — (18,572)(18,572)
March 31, 2021112,998,732 $1,130 $2,281,647 $4,988 $1,094,534 $(2,166,724)$1,215,575 
Common dividends declared ($0.21 per share)Common dividends declared ($0.21 per share)— — — — — (24,664)(24,664)
September 30, 2021September 30, 2021114,661,762 $1,147 $2,312,272 $1,923 $1,272,845 $(2,212,364)$1,375,823 

For the Nine Months Ended September 30, 2021
(In Thousands, except Share Data)Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Cumulative
 Earnings
Cumulative
Distributions
to Stockholders
Total
(Unaudited)SharesAmount
December 31, 2020112,090,006 $1,121 $2,264,874 $(4,221)$997,277 $(2,148,152)$1,110,899 
Net income— — — — 275,568 — 275,568 
Other comprehensive income— — — 6,144 — — 6,144 
Issuance of common stock2,391,777 24 33,176 — — — 33,200 
Employee stock purchase and incentive plans179,979 (536)— — — (534)
Non-cash equity award compensation— — 14,758 — — — 14,758 
Common dividends declared ($0.55 per share)— — — — — (64,212)(64,212)
September 30, 2021114,661,762 $1,147 $2,312,272 $1,923 $1,272,845 $(2,212,364)$1,375,823 


The accompanying notes are an integral part of these consolidated financial statements.

56


REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
(In Thousands)
(Unaudited)
Three Months Ended March 31,(In Thousands)
(Unaudited)
Nine Months Ended September 30,
2022202120222021
Cash Flows From Operating Activities:Cash Flows From Operating Activities:Cash Flows From Operating Activities:
Net income$30,915 $97,257 
Adjustments to reconcile net income to net cash used in operating activities:
Net (loss) incomeNet (loss) income$(119,462)$275,568 
Adjustments to reconcile net (loss) income to net cash used in operating activities:Adjustments to reconcile net (loss) income to net cash used in operating activities:
Amortization of premiums, discounts, and securities issuance costs, netAmortization of premiums, discounts, and securities issuance costs, net(5,451)2,216 Amortization of premiums, discounts, and securities issuance costs, net2,041 300 
Depreciation and amortization of non-financial assetsDepreciation and amortization of non-financial assets3,969 4,172 Depreciation and amortization of non-financial assets12,115 12,674 
Originations of held-for-sale loansOriginations of held-for-sale loans(443,289)(254,975)Originations of held-for-sale loans(913,477)(960,419)
Purchases of held-for-sale loansPurchases of held-for-sale loans(2,197,570)(3,150,432)Purchases of held-for-sale loans(3,734,972)(9,902,028)
Proceeds from sales of held-for-sale loansProceeds from sales of held-for-sale loans2,176,422 2,345,164 Proceeds from sales of held-for-sale loans4,110,949 6,948,264 
Principal payments on held-for-sale loansPrincipal payments on held-for-sale loans46,511 4,477 Principal payments on held-for-sale loans160,985 49,619 
Net settlements of derivativesNet settlements of derivatives67,200 24,849 Net settlements of derivatives158,868 27,412 
Non-cash equity award compensation expenseNon-cash equity award compensation expense8,170 4,218 Non-cash equity award compensation expense18,505 14,758 
Market valuation adjustmentsMarket valuation adjustments1,859 (119,783)Market valuation adjustments183,487 (292,056)
Realized gains, netRealized gains, net(2,581)(2,716)Realized gains, net(2,581)(17,803)
Net change in:Net change in:Net change in:
Accrued interest receivable and other assetsAccrued interest receivable and other assets31,070 2,565 Accrued interest receivable and other assets56,156 (9,680)
Accrued interest payable and accrued expenses and other liabilitiesAccrued interest payable and accrued expenses and other liabilities(8,901)76,824 Accrued interest payable and accrued expenses and other liabilities(62,046)73,120 
Net cash used in operating activitiesNet cash used in operating activities(291,676)(966,164)Net cash used in operating activities(129,432)(3,780,271)
Cash Flows From Investing Activities:Cash Flows From Investing Activities:Cash Flows From Investing Activities:
Originations of loan investmentsOriginations of loan investments(411,938)(133,229)Originations of loan investments(1,377,714)(557,327)
Purchases of loan investmentsPurchases of loan investments(2,983)— Purchases of loan investments(22,006)(35,713)
Proceeds from sales of loan investmentsProceeds from sales of loan investments— 8,877 Proceeds from sales of loan investments— 9,484 
Principal payments on loan investmentsPrincipal payments on loan investments660,990 649,749 Principal payments on loan investments1,666,514 1,950,151 
Purchases of real estate securitiesPurchases of real estate securities(15,006)(15,880)Purchases of real estate securities(15,006)(29,342)
Sales of securities held in consolidated securitization trustsSales of securities held in consolidated securitization trusts— 8,197 Sales of securities held in consolidated securitization trusts— 8,197 
Proceeds from sales of real estate securitiesProceeds from sales of real estate securities— 25,747 Proceeds from sales of real estate securities27,471 37,500 
Principal payments on real estate securitiesPrincipal payments on real estate securities23,050 11,746 Principal payments on real estate securities26,584 46,904 
Principal repayments from servicer advance investments45,005 24,804 
Principal repayments from servicer advance investments, netPrincipal repayments from servicer advance investments, net65,772 58,248 
Acquisition of Riverbend, net of cash acquiredAcquisition of Riverbend, net of cash acquired(40,636)— 
Purchases of HEIsPurchases of HEIs(40,141)— Purchases of HEIs(176,439)(109,174)
Principal payments on HEIsPrincipal payments on HEIs12,671 — Principal payments on HEIs35,187 — 
Other investing activities, netOther investing activities, net(1,151)2,601 Other investing activities, net(20,768)(15,915)
Net cash provided by investing activitiesNet cash provided by investing activities270,497 582,612 Net cash provided by investing activities168,959 1,363,013 
Cash Flows From Financing Activities:Cash Flows From Financing Activities:Cash Flows From Financing Activities:
Proceeds from borrowings on short-term debtProceeds from borrowings on short-term debt2,153,516 2,724,508 Proceeds from borrowings on short-term debt4,149,726 9,847,178 
Repayments on short-term debtRepayments on short-term debt(2,684,078)(1,993,506)Repayments on short-term debt(5,192,165)(8,443,664)
Proceeds from issuance of asset-backed securitiesProceeds from issuance of asset-backed securities680,749 147,086 Proceeds from issuance of asset-backed securities1,420,289 2,822,785 
Repayments on asset-backed securities issuedRepayments on asset-backed securities issued(535,568)(507,037)Repayments on asset-backed securities issued(1,288,294)(1,549,766)
Proceeds from borrowings on long-term debtProceeds from borrowings on long-term debt630,865 164,456 Proceeds from borrowings on long-term debt1,678,805 948,674 
Deferred long-term debt issuance costs paidDeferred long-term debt issuance costs paid(532)— Deferred long-term debt issuance costs paid(17,925)— 
Repayments on long-term debtRepayments on long-term debt(308,578)(154,074)Repayments on long-term debt(873,820)(1,055,475)
Payments on repurchase of common stockPayments on repurchase of common stock(56,496)— 
Taxes paid on equity award distributionsTaxes paid on equity award distributions(1,571)(957)
Net proceeds from issuance of common stockNet proceeds from issuance of common stock67,632 115 Net proceeds from issuance of common stock67,899 20,248 
Taxes paid on equity award distributions(1,202)(925)
Dividends paidDividends paid(28,788)(18,572)Dividends paid(84,712)(64,212)
Other financing activities, netOther financing activities, net(1,500)(1,155)Other financing activities, net(3,659)(6,297)
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(27,484)360,896 Net cash (used in) provided by financing activities(201,923)2,518,514 
Net decrease in cash, cash equivalents and restricted cash(48,663)(22,656)
Net (decrease) increase in cash, cash equivalents and restricted cashNet (decrease) increase in cash, cash equivalents and restricted cash(162,396)101,256 
Cash, cash equivalents and restricted cash at beginning of period (1)
Cash, cash equivalents and restricted cash at beginning of period (1)
531,484 544,450 
Cash, cash equivalents and restricted cash at beginning of period (1)
531,484 544,450 
Cash, cash equivalents and restricted cash at end of period (1)
Cash, cash equivalents and restricted cash at end of period (1)
$482,821 $521,794 
Cash, cash equivalents and restricted cash at end of period (1)
$369,088 $645,706 
67



REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In Thousands)
(Unaudited)
Three Months Ended March 31,
20222021
Supplemental Cash Flow Information:
Cash paid during the period for:
 Interest$131,419 $99,180 
 Taxes (received) paid(41)
Supplemental Noncash Information:
Real estate securities retained from loan securitizations$— $7,627 
Retention of mortgage servicing rights from loan securitizations and sales4,543 — 
Transfers from loans held-for-sale to loans held-for-investment1,098,459 301,298 
Transfers from residential loans to real estate owned1,319 14,684 
Issuance of common stock for 5 Arches acquisition— 13,375 

(In Thousands)
(Unaudited)
Nine Months Ended September 30,
20222021
Supplemental Cash Flow Information:
Cash paid during the period for:
 Interest$378,691 $298,507 
 Taxes paid3,894 28,092 
Supplemental Noncash Information:
Real estate securities retained from loan securitizations$— $9,375 
Retention of mortgage servicing rights from loan securitizations and sales4,543 7,065 
Transfers from loans held-for-sale to loans held-for-investment2,643,027 3,005,041 
Transfers from loans held-for-investment to loans held-for-sale— 44,922 
Transfers from residential loans to real estate owned4,033 21,655 
Transfers from long-term debt to short-term debt908,627 93,150 
Right-of-use asset obtained in exchange for operating lease liability— 1,135 
Issuance of common stock for 5 Arches acquisition— 13,375 
(1)    Cash, cash equivalents, and restricted cash includes cash and cash equivalents of $409$297 million and restricted cash of $74$72 million at March 31,September 30, 2022, and includes cash and cash equivalents of $450 million and restricted cash of $81 million at December 31, 2021.

The accompanying notes are an integral part of these consolidated financial statements.
78


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)



Note 1. Organization
Redwood Trust, Inc., together with its subsidiaries, is a specialty finance company focused on several distinct areas of housing credit, with a mission to help make quality housing, whether rented or owned, accessible to all American households. Our operating platforms occupy a unique position in the housing finance value chain, providing liquidity to growing segments of the U.S. housing market not well served by government programs. We deliver customized housing credit investments to a diverse mix of investors through our best-in-class securitization platforms, whole-loan distribution activities and our publicly-traded securities. Our aggregation, origination and investment activities have evolved to incorporate a diverse mix of residential, business purpose and multifamily assets. Our goal is to provide attractive returns to shareholders through a stable and growing stream of earnings and dividends, capital appreciation, and a commitment to technological innovation that facilitates risk-minded scale. We operate our business in 3three segments: Residential Mortgage Banking, Business Purpose Mortgage Banking, and Investment Portfolio.
Our primary sources of income are net interest income from our investments and non-interest income from our mortgage banking activities. Net interest income primarily consists of the interest income we earn on investments less the interest expense we incur on borrowed funds and other liabilities. Income from mortgage banking activities is generated through the origination and acquisition of loans, and their subsequent sale, securitization, or transfer to our investment portfolios.
Redwood Trust, Inc. has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), beginning with its taxable year ended December 31, 1994. We generally refer, collectively, to Redwood Trust, Inc. and those of its subsidiaries that are generally not subject to subsidiary-level corporate income tax as “the REIT” or “our REIT.” We generally refer to subsidiaries of Redwood Trust, Inc. that are subject to subsidiary-level corporate income tax as “our taxable REIT subsidiaries” or “TRS.”
Redwood Trust, Inc. was incorporated in the State of Maryland on April 11, 1994, and commenced operations on August 19, 1994. References herein to “Redwood,” the “company,” “we,” “us,” and “our” include Redwood Trust, Inc. and its consolidated subsidiaries, unless the context otherwise requires.

9


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 2. Basis of Presentation
The consolidated financial statements presented herein are at March 31,September 30, 2022 and December 31, 2021, and for the three and nine months ended March 31,September 30, 2022 and 2021. These interim unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in our annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") — as prescribed by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) — have been condensed or omitted in these interim financial statements according to these SEC rules and regulations. Management believes that the disclosures included in these interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the company's Annual Report on Form 10-K for the year ended December 31, 2021. In the opinion of management, all normal and recurring adjustments have been made to present fairly the financial condition of the Company at March 31,September 30, 2022 and results of operations for all periods presented. The results of operations for the three and nine months ended March 31,September 30, 2022 should not be construed as indicative of the results to be expected for the full year.

8


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Note 2. Basis of Presentation - (continued)
Principles of Consolidation
In accordance with GAAP, we determine whether we must consolidate transferred financial assets and variable interest entities (“VIEs”) for financial reporting purposes. We currently consolidate the assets and liabilities of certain Sequoia securitization entities issued prior to 2012 ("Legacy Sequoia"), certain entities formed during and after 2012 in connection with the securitization of Redwood Select prime loans and Redwood Choice expanded-prime loans ("Sequoia"), entities formed in connection with the securitization of CoreVest single-family rental and bridge loans ("CAFL") and an entity formed in connection with the securitization of home equity investment contracts ("HEIs"). We also consolidate the assets and liabilities of certain Freddie Mac K-Series and Freddie Mac Seasoned Loans Structured Transaction ("SLST") securitizations in which we have invested. Each securitization entity is independent of Redwood and of each other and the assets and liabilities are not owned by and are not legal obligations of Redwood Trust, Inc. Our exposure to these entities is primarily through the financial interests we have purchased or retained, although for certain entities we are exposed to financial risks associated with our role as a sponsor or co-sponsor, servicing administrator, collateral administrator or depositor of these entities or as a result of our having sold assets directly or indirectly to these entities.
For financial reporting purposes, the underlying loans owned at the consolidated Legacy Sequoia, Sequoia and Freddie Mac SLST entities are shown under Residential loans held-for-investment, at fair value, the underlying loans at the consolidated Freddie Mac K-Series entity are shown under MultifamilyConsolidated Agency multifamily loans, held-for-investment, at fair value, the underlying single-family rental and bridge loans at the consolidated CAFL entities are shown under Business purpose loans held-for-investment, at fair value, and the underlying HEIs at the consolidated HEI securitization entity are shown under OtherHome equity investments, at fair value on our consolidated balance sheets. The asset-backed securities (“ABS”) issued to third parties by these entities are shown under ABS issued. In our consolidated statements of income, we record interest income on the loans owned at these entities and interest expense on the ABS issued by these entities as well as fair value changes, other income and expenses associated with these entities' activities. See Note 1415 for further discussion on ABS issued.
We also consolidate 2two partnerships ("Servicing Investment" entities) through which we have invested in servicing-related assets. We maintain an 80% ownership interest in each entity and have determined that we are the primary beneficiary of these partnerships.
See Note 4 for further discussion on principles of consolidation.
Use of Estimates
The preparation of financial statements requires us to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amounts and timing of credit losses, prepayment rates, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the consolidated financial statements and the reported amounts of certain revenues and expenses during the reported periods. It is likely that changes in these estimates (e.g., valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. Our estimates are inherently subjective in nature and actual results could differ from our estimates and the differences could be material.
10


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 2. Basis of Presentation - (continued)
Acquisitions
Riverbend Funding, LLC
On July 1, 2022, we acquired Riverbend Funding LLC ("Riverbend"), a private mortgage lender for residential transitional and commercial real estate investors. Aggregate consideration for this acquisition included an initial cash payment of approximately $44 million (with a remaining estimated provisional purchase consideration payable subject to reconciliation and final settlement), and a potential earnout component to be paid contingent on Riverbend generating specified revenues over a threshold amount during the two-year period ending July 1, 2024, up to a maximum potential amount payable of $25.3 million. Based on the terms of the merger agreement, we determined that the earnout component should be accounted for as contingent purchase consideration, which was valued at zero at the acquisition.
We accounted for the acquisition of Riverbend under the acquisition method of accounting pursuant to ASC 805. We performed the purchase price allocation and recorded underlying assets acquired and liabilities assumed based on their estimated fair values using the information available as of each acquisition date, with the excess of the purchase price allocated to intangible assets and goodwill. Through September 30, 2022, there were no significant changes to our purchase price allocations, which are summarized in the following table.
Table 2.1 - Purchase Price Allocation
(In Thousands)Riverbend
Acquisition DateJuly 1, 2022
Purchase price:
Cash$44,126 
Provisional consideration payable477 
Contingent consideration, at fair value— 
Total consideration$44,603 
Allocated to:
Business purpose loans, at fair value$59,748 
Other investments2,443 
Cash and cash equivalents3,490 
Other assets13,306 
Goodwill23,373 
Intangible assets13,300 
Total assets acquired115,660 
Short-term debt, net67,423 
Accrued expenses and other liabilities3,634 
Total liabilities assumed71,057 
Total net assets acquired$44,603 
We recognized $1 million of acquisition costs related to our acquisition of Riverbend during the nine months ended September 30, 2022. These costs primarily related to accounting, consulting, and legal expenses and are included in our General and administrative expenses on our consolidated statements of income (loss).
5 Arches and CoreVest
Refer to Note 2 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, for additional information regarding the acquisitions of 5 Arches, LLC ("5 Arches") and CoreVest American Finance Lender, LLC and certain affiliated entities ("CoreVest"), including purchase price allocations.
911


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)
Note 2. Basis of Presentation - (continued)
Intangible Assets and Goodwill
In connection with the acquisitionsacquisition of Riverbend on July 1, 2022, and 5 Arches and CoreVest in 2019, we identified and recorded finite-lived intangible assets totaling $13 million, $25 million and $57 million, respectively. The table below presents the amortization period and carrying value of our intangible assets, net of accumulated amortization at March 31,September 30, 2022.
Table 2.12.2 – Intangible Assets – Activity
Intangible Assets at AcquisitionAccumulated Amortization at March 31, 2022Carrying Value at March 31, 2022Weighted Average Amortization Period (in years)Intangible Assets at AcquisitionAccumulated Amortization at September 30, 2022Carrying Value at September 30, 2022Weighted Average Amortization Period (in years)
(Dollars in Thousands)(Dollars in Thousands)(Dollars in Thousands)
Borrower networkBorrower network$45,300 $(15,909)$29,391 7Borrower network$56,300 $(19,537)$36,763 7
Broker networkBroker network18,100 (11,162)6,938 5Broker network18,100 (12,972)5,128 5
Non-compete agreementsNon-compete agreements9,500 (8,308)1,192 3Non-compete agreements11,400 (9,567)1,833 3
TradenamesTradenames4,000 (3,494)506 3Tradenames4,400 (3,994)406 3
Developed technologyDeveloped technology1,800 (1,800)— 2Developed technology1,800 (1,800)— 2
Loan administration fees on existing loan assetsLoan administration fees on existing loan assets2,600 (2,600)— 1Loan administration fees on existing loan assets2,600 (2,600)— 1
TotalTotal$81,300 $(43,273)$38,027 6Total$94,600 $(50,470)$44,130 6
All of our intangible assets are amortized on a straight-line basis. For each of the three and nine months ended March 31,September 30, 2022, we recorded intangible asset amortization expense of $4 million and $11 million, respectively. For the three and nine months ended September 30, 2021, we recorded intangible asset amortization expense of $4 million.million and $12 million, respectively. Estimated future amortization expense is summarized in the table below.
Table 2.22.3 – Intangible Asset Amortization Expense by Year
(In Thousands)(In Thousands)March 31, 2022(In Thousands)September 30, 2022
2022 (9 months)$9,266 
2022 (3 months)2022 (3 months)$3,238 
2023202310,091 202312,430 
202420247,075 20249,413 
202520256,471 20258,426 
202620265,124 20266,695 
2027 and thereafter2027 and thereafter3,928 
Total Future Intangible Asset AmortizationTotal Future Intangible Asset Amortization$38,027 Total Future Intangible Asset Amortization$44,130 

On a quarterly basis, we evaluate our finite-lived intangible assets for impairment indicators and additionally evaluate the useful lives of our intangible assets to determine if revisions to the remaining periods of amortization are warranted. We reviewed our finite-lived intangible assets and determined that the estimated lives were appropriate and that there were no indicators of impairment at March 31,September 30, 2022.

We recorded total goodwill of $23 million during the three months ended September 30, 2022 as a result of the total consideration exceeding the fair value of the net assets acquired from Riverbend. The goodwill was attributed to the expected business synergies and expansion into new business purpose loan markets, as well as access to the knowledgeable and experienced workforce continuing to provide complementary sourcing of assets for the business. We expect $23 million of this goodwill to be deductible for tax purposes. For reporting purposes, we included the intangible assets and goodwill from these acquisitions within our Business Purpose Mortgage Banking segment.





12


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 2. Basis of Presentation - (continued)

Table 2.4 – Goodwill - Activity

(In Thousands)Riverbend
Beginning Balance$— 
Goodwill recognized from acquisition23,373 
Impairment— 
Ending Balance$23,373 

The potential liability resulting from the contingent consideration arrangement with Riverbend was recorded at its acquisition-date fair value of zeroas part of the total consideration for the acquisition of Riverbend. At September 30, 2022, the estimated fair value of this contingent liability was zero on our consolidated balance sheets. Our contingent consideration liability is recorded at fair value and periodic changes in the estimated fair value are recorded through Other expenses on our consolidated statements of income (loss). During the period ended September 30, 2022, we did not record any contingent consideration income or expense related to our acquisition of Riverbend. See Note 17 for additional information on our contingent consideration liability.

The following unaudited pro forma financial information presents Net interest income, Non-interest income, and Net income of Redwood, as if the acquisition of Riverbend occurred as of January 1, 2021. These pro forma amounts have been adjusted to include the amortization of intangible assets for all periods. The unaudited pro forma financial information is not intended to represent or be indicative of the consolidated financial results of operations that would have been reported if the acquisition had been completed as of January 1, 2021 and should not be taken as indicative of our future consolidated results of operations.

During the period from July 1, 2022 to September 30, 2022, Riverbend had net interest income of $1 million, non-interest income of $0.5 million, and a net loss of $1 million, which included intangible asset amortization expense of 0.6 million.

Table 2.5 – Unaudited Pro Forma Financial Information

Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)2022202120222021
Supplementary pro forma information:
Net interest income$34,935 $43,174 $132,475 $100,570 
Non-interest (loss) income(37,135)102,436 (121,614)355,456 
Net (loss) income(50,411)89,923 (117,090)278,134 
13


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)


Note 3. Summary of Significant Accounting Policies

Significant Accounting Policies
Included in Note 3 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2021 is a summary of our significant accounting policies.
Recent Accounting Pronouncements
Newly Adopted Accounting Standards Updates ("ASUs")
In August 2020, the FASB issued ASU 2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40)." This new guidance simplifies the accounting for convertible debt by reducing the number of accounting models to separately present certain conversion features in equity. This new guidance was effective for fiscal years beginning after December 31, 2021. We adopted this guidance in the first quarter of 2022, which did not have a material impact on our consolidated financial statements.
10


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 3. Summary of Significant Accounting Policies - (continued)
Other Recent Accounting Pronouncements
OnIn June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 was issued to (1) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments in this update are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. We are evaluating the accounting and disclosure requirements of ASU 2022-03 and we plan to adopt this new guidance by the required date. We do not anticipate that this update will have a material impact on our financial statements.
In March 28,2022, the FASB issued ASU 2022-02, "Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures." ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the current expected credit loss ("CECL") model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross writeoffs for financing receivables and net investment in leases by year of origination in the vintage disclosures. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. We plan to adopt this new guidance by the required date and do not anticipate that this update will have a material impact on our consolidated financial statements.
In March 2022, the FASB issued ASU 2022-01, "Derivatives and Hedging (Topic 815), Fair Value Hedging - Portfolio Layer Method," which will expand companies' abilities to hedge the benchmark interest rate risk of portfolios of financial assets (or beneficial interests) in a fair value hedge. The ASU expands the use of the portfolio layer method (previously referred to as the last-of-layer method) to allow multiple hedges of a single closed portfolio of assets using spot starting, forward starting, and amortizing-notional swaps. The ASU also permits both prepayable and non-prepayable financial assets to be included in the closed portfolio of assets hedged in a portfolio layer hedge. The ASU further requires that basis adjustments not be allocated to individual assets for active portfolio layer method hedges, but rather be maintained on the closed portfolio of assets as a whole. This guidance is effective for public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. We plan to adopt this new guidance by the required date and do not anticipate that this update will have a material impact on our consolidated financial statements.
On March 31,
14


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022 the FASB issued ASU 2022-02, "Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures." ASU 2022-02 addresses areas identified by the FASB as part
(Unaudited)

Note 3. Summary of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the current expected credit loss ("CECL") model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross writeoffs for financing receivables and net investment in leases by year of origination in the vintage disclosures. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. We plan to adopt this new guidance by the required date and do not anticipate that this update will have a material impact on our consolidated financial statements.Significant Accounting Policies - (continued)
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope." This new guidance clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. This new guidance is effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact the adoption of this standard would have on our consolidated financial statements. Through March 31,September 30, 2022, we have not elected to apply the optional expedients and exceptions to any of our existing contracts, hedging relationships, or other transactions.
We have an established cross-functional group that has evaluated our exposure to LIBOR, reviewed relevant contracts and has monitored regulatory updates to assess the potential impact to our business, processes and technology from the ultimate full cessation of LIBOR in 2023, and has established a LIBOR transition plan to facilitate an orderly transition to alternative reference rates. We continue to remain on track with our LIBOR transition plan, which requires different solutions depending on the underlying asset or liability with LIBOR exposure. At March 31,September 30, 2022, our primary LIBOR exposure included the following: $966$689 million of repo or warehouse debt, $381$37 million of interest rate swaps, $858$757 million of bridge loans, and $140 million of trust preferred securities and subordinated notes debt. Since December 31, 2021, certain of our contracts, such as interest rate swaps, have experienced an orderly market transition and we have transitioned a substantial portion of our derivative positions off of LIBOR-benchmarks. Other contracts, such as warehouse debt agreements, require bilateral amendments, many of which we have amended or are currently in the process of amending.
We anticipate most of these facilities will be amended in 2022, with sufficient time remaining to resolve the remainder.remainder, which also have fallback provisions for benchmark replacement. In early 2022, we began benchmarking all newly originated bridge loans to the Secured Overnight Financing Rate (“SOFR”), and our existing portfolio of bridge loans are short-dated and we expect the vast majority to mature before the LIBOR cessation date in 2023. Additionally, as thea result of recent legislation that was passed in the state of New York, our trust preferred securities and subordinated notes are expected to convert to SOFR upon the cessation of LIBOR.

11


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 3. Summary of Significant Accounting Policies - (continued)
Balance Sheet Netting
Certain of our derivatives and short-term debt are subject to master netting arrangements or similar agreements. Under GAAP, in certain circumstances we may elect to present certain financial assets, liabilities and related collateral subject to master netting arrangements in a net position on our consolidated balance sheets. However, we do not report any of these financial assets or liabilities on a net basis, and instead present them on a gross basis on our consolidated balance sheets.
The following table below presents financial assets and liabilities that are subject to master netting arrangements or similar agreements categorized by financial instrument, together with corresponding financial instruments and corresponding collateral received or pledged at March 31,September 30, 2022 and December 31, 2021.
Table 3.1 – Offsetting of Financial Assets, Liabilities, and Collateral
Gross Amounts of Recognized Assets (Liabilities)Gross Amounts Offset in Consolidated Balance SheetNet Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet
Gross Amounts Not Offset in Consolidated
Balance Sheet
(1)
Net Amount
March 31, 2022 (In Thousands)Financial InstrumentsCash Collateral (Received) Pledged
Assets (2)
Interest rate agreements$11,412 $— $11,412 $(650)$— $10,762 
TBAs95,631 — 95,631 (52,993)(41,706)932 
Futures2,907 — 2,907 (236)(151)2,520 
Total Assets$109,950 $— $109,950 $(53,879)$(41,857)$14,214 
Liabilities (2)
Interest rate agreements$(650)$— $(650)$650 $— $— 
TBAs(64,883)— (64,883)52,993 9,628 (2,262)
Futures(236)— (236)236 — — 
Loan warehouse debt(426,055)— (426,055)426,055 — — 
Total Liabilities$(491,824)$— $(491,824)$479,934 $9,628 $(2,262)

1215


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 3. Summary of Significant Accounting Policies - (continued)

Table 3.1 – Offsetting of Financial Assets, Liabilities, and Collateral
Gross Amounts of Recognized Assets (Liabilities)Gross Amounts Offset in Consolidated Balance SheetNet Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet
Gross Amounts Not Offset in Consolidated
Balance Sheet
(1)
Net Amount
September 30, 2022 (In Thousands)Financial InstrumentsCash Collateral (Received) Pledged
Assets (2)
Interest rate agreements$24,626 $— $24,626 $(23)$(7,638)$16,965 
TBAs13,568 — 13,568 (529)(12,077)962 
Futures26,275 — 26,275 (2)(10,675)15,598 
Total Assets$64,469 $— $64,469 $(554)$(30,390)$33,525 
Liabilities (2)
Interest rate agreements$(23)$— $(23)$23 $— $— 
TBAs(6,545)— (6,545)529 1,280 (4,736)
Futures(2)— (2)— — 
Loan warehouse debt(224,370)— (224,370)224,370 — — 
Total Liabilities$(230,940)$— $(230,940)$224,924 $1,280 $(4,736)
Gross Amounts of Recognized Assets (Liabilities)Gross Amounts Offset in Consolidated Balance SheetNet Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet
Gross Amounts Not Offset in Consolidated
Balance Sheet
(1)
Net Amount
December 31, 2021 (In Thousands)Financial InstrumentsCash Collateral (Received) Pledged
Assets (2)
Interest rate agreements$18,929 $— $18,929 $(1,251)$(16,046)$1,632 
TBAs2,880 — 2,880 (633)(704)1,543 
Futures25 — 25 (25)— — 
Total Assets$21,834 $— $21,834 $(1,909)$(16,750)$3,175 
Liabilities (2)
Interest rate agreements$(1,251)$— $(1,251)$1,251 $— $— 
TBAs$(658)$— $(658)$633 $15 $(10)
Futures(905)— (905)25 880 — 
Loan warehouse debt(572,720)— (572,720)572,720 — — 
Total Liabilities$(575,534)$— $(575,534)$574,629 $895 $(10)
(1)Amounts presented in these columns are limited in total to the net amount of assets or liabilities presented in the prior column by instrument. In certain cases, there iswe have pledged excess cash collateral or financial assets we have pledged to a counterparty (which, may, in certain circumstances, may be a clearinghouse) that exceed the financial liabilities subject to a master netting arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to us that exceeds our corresponding financial assets. In each case, any of these excess amounts are excluded from the table althoughtable; they are separately reported in our consolidated balance sheets as assets or liabilities, respectively.
(2)Interest rate agreements and TBAs are components of derivativesderivative instruments on our consolidated balance sheets. Loan warehouse debt, which is secured by certain residential and business purpose loans, and security repurchase agreements are componentsis a component of Short-term debt and Long-term debt on our consolidated balance sheets.
16


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 3. Summary of Significant Accounting Policies - (continued)
For each category of financial instrument set forth in the table above, the assets and liabilities resulting from individual transactions within that category between us and a counterparty are subject to a master netting arrangement or similar agreement with that counterparty that provides for individual transactions to be aggregated and treated as a single transaction. For certain categories of these instruments, our transactions generally are cleared and settled through one or more clearinghouses that are substituted as our counterparty. References herein to master netting arrangements or similar agreements include the arrangements and agreements governing the clearing and settlement of these transactions through the clearinghouses. In the event of the termination and close-out of any of those transactions, the corresponding master netting agreement or similar agreement provides for settlement on a net basis. Any such settlement would include the proceeds of the liquidation of any corresponding collateral, subject to certain limitations on termination, settlement, and liquidation of collateral that may apply in the event of the bankruptcy or insolvency of a party. Such limitations should not inhibit the eventual practical realization of the principal benefits of those transactions or the corresponding master netting arrangement or similar agreement and any corresponding collateral.
13


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)


Note 4. Principles of Consolidation
GAAP requires us to consider whether securitizations we sponsor and other transfers of financial assets should be treated as sales or financings, as well as whether any VIEs that we hold variable interests in – for example, certain legal entities often used in securitization and other structured finance transactions – should be included in our consolidated financial statements. 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
At March 31,September 30, 2022, we consolidated Legacy Sequoia, Sequoia, CAFL, Freddie Mac SLST, Freddie Mac K-Series, and HEI securitization entities that we determined were VIEs and for which we determined we were the primary beneficiary. Each of these entities is independent of Redwood and of each other and the assets and liabilities of these entities are not owned by and are not legal obligations of ours. Our exposure to these entities is primarily through the financial interests we have retained, although for certain securitizations, we are exposed to financial risks associated with our role as a sponsor, servicing administrator, collateral administrator, or depositor of these entities or as a result of our having sold assets directly or indirectly to these entities.
We also consolidate 2two Servicing Investment entities formed to invest in servicing-related assets that we determined were VIEs and for which we determined we were the primary beneficiary. At March 31,September 30, 2022, we held an 80% ownership interest in, and were responsible for the management of, each entity. See Note 1011 for a further description of these entities and the investments they hold and Note 1213 for additional information on the minority partner’s non-controlling interest. Additionally, we consolidated an entity that was formed to finance servicer advances that we determined was a VIE and for which we, through our control of one of the aforementioned partnerships, were the primary beneficiary. The servicer advance financing consists of non-recourse short-term securitization debt, secured by servicer advances. We consolidate the securitization entity, but the securitization entity is independent of Redwood and the assets and liabilities are not owned by and are not legal obligations of Redwood. See Note 1314 for additional information on the servicer advance financing. At March 31, 2022, the estimated fair value of our investment in the Servicing Investment entities was $99 million.
During 2021, we consolidated a HEI securitization entity formed to invest in HEIs that we determined was a VIE and for which we determined we were the primary beneficiary. At MarchSeptember 30, 2022 and December 31, 2022,2021, we owned a portion of the subordinate certificates issued by the entity and had certain decision making rights for the entity. See Note 10 for a further description of this entity and the investments it holds and Note 1213 for additional information on non-controlling interests in the entity. We consolidate the HEI securitization entity, but the securitization entity is independent of Redwood and the assets and liabilities are not owned by and are not legal obligations of Redwood.
For certain of our consolidated VIEs, we have elected to account for the assets and liabilities of these entities as collateralized financing entities ("CFE"). 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.
17


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)
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 amortized cost. These include our CAFL Bridge securitization,securitizations, Freddie Mac SLST re-securitization, and Servicing Investment entities.





14


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)
The following table presents a summary of the assets and liabilities of our consolidated VIEs.     
Table 4.1 – Assets and Liabilities of Consolidated VIEs
March 31, 2022Legacy
Sequoia
Sequoia
CAFL(1)
Freddie Mac SLST(1)
Freddie Mac
K-Series
Servicing InvestmentHEITotal
Consolidated
VIEs
September 30, 2022September 30, 2022Legacy
Sequoia
Sequoia
CAFL(1)
Freddie Mac SLST(1)
Freddie Mac
K-Series
Servicing InvestmentHEITotal
Consolidated
VIEs
(Dollars in Thousands)(Dollars in Thousands)Legacy
Sequoia
Sequoia
CAFL(1)
Freddie Mac SLST(1)
Freddie Mac
K-Series
Servicing InvestmentHEITotal
Consolidated
VIEs
(Dollars in Thousands)
Residential loans, held-for-investmentResidential loans, held-for-investmentResidential loans, held-for-investment$198,161 $3,237,170 $— $1,482,964 $— $— $— $4,918,295 
Business purpose loans, held-for-investmentBusiness purpose loans, held-for-investment— — 3,330,910 — — — — 3,330,910 Business purpose loans, held-for-investment— — 3,531,229 — — — — 3,531,229 
Multifamily loans, held-for-investment— — — — 451,804 — — 451,804 
Consolidated Agency multifamily loansConsolidated Agency multifamily loans— — — — 427,458 — — 427,458 
Home equity investmentsHome equity investments139,728 139,728 
Other investmentsOther investments— — — — — 336,282 153,247 489,529 Other investments— — — — — 307,723 — 307,723 
Cash and cash equivalentsCash and cash equivalents— — — — — 9,684 — 9,684 Cash and cash equivalents— — — — — 15,923 — 15,923 
Restricted cashRestricted cash148 8,260 — — 24,170 5,086 37,668 Restricted cash92 78 15,889 — — 18,569 3,540 38,168 
Accrued interest receivableAccrued interest receivable194 11,945 14,763 5,584 1,362 1,029 — 34,877 Accrued interest receivable226 11,295 17,497 5,247 1,299 720 — 36,284 
Other assetsOther assets— — 16,229 2,421 — 7,563 50 26,263 Other assets407 — 24,084 2,544 — 7,270 50 34,355 
Total AssetsTotal Assets$222,555 $3,884,265 $3,370,162 $1,783,543 $453,166 $378,728 $158,383 $10,250,802 Total Assets$198,886 $3,248,543 $3,588,699 $1,490,755 $428,757 $350,205 $143,318 $9,449,163 
Short-term debtShort-term debt$— $— $— $— $— $253,393 $— $253,393 Short-term debt$— $— $— $— $— $233,104 $— $233,104 
Accrued interest payableAccrued interest payable106 9,598 10,342 3,888 1,232 183 — 25,349 Accrued interest payable224 9,003 11,202 3,630 1,173 348 — 25,580 
Accrued expenses and other liabilitiesAccrued expenses and other liabilities— 1,386 — — 26,406 23,252 51,048 Accrued expenses and other liabilities(58)80 1,903 — — 24,223 24,354 50,502 
Asset-backed securities issuedAsset-backed securities issued220,301 3,627,920 3,012,841 1,470,043 419,883 — 121,378 8,872,366 Asset-backed securities issued197,354 3,013,249 3,179,487 1,249,041 395,411 — 104,751 8,139,293 
Total LiabilitiesTotal Liabilities$220,407 $3,637,522 $3,024,569 $1,473,931 $421,115 $279,982 $144,630 $9,202,156 Total Liabilities$197,520 $3,022,332 $3,192,592 $1,252,671 $396,584 $257,675 $129,105 $8,448,479 
Value of our investments in VIEs(1)
Value of our investments in VIEs(1)
$1,912 $244,396 $342,343 $307,916 $31,921 $98,746 $13,753 $1,040,987 
Value of our investments in VIEs(1)
$1,214 $223,920 $393,015 $236,467 $32,047 $92,530 $14,213 $993,406 
Number of VIEsNumber of VIEs20 17 16 61 Number of VIEs20 17 19 64 

1518


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)
December 31, 2021December 31, 2021Legacy
Sequoia
Sequoia
CAFL(1)
Freddie Mac SLST(1)
Freddie Mac
K-Series
Servicing InvestmentHEITotal
Consolidated
VIEs
December 31, 2021Legacy
Sequoia
Sequoia
CAFL(1)
Freddie Mac SLST(1)
Freddie Mac
K-Series
Servicing InvestmentHEITotal
Consolidated
VIEs
(Dollars in Thousands)(Dollars in Thousands)(Dollars in Thousands)
Residential loans, held-for-investmentResidential loans, held-for-investment$230,455 $3,628,465 $— $1,888,230 $— $— $— $5,747,150 Residential loans, held-for-investment$230,455 $3,628,465 $— $1,888,230 $— $— $— $5,747,150 
Business purpose loans, held-for-investmentBusiness purpose loans, held-for-investment— — 3,766,316 — — — — 3,766,316 Business purpose loans, held-for-investment— — 3,766,316 — — — — 3,766,316 
Multifamily loans, held-for-investment— — — — 473,514 — — 473,514 
Consolidated Agency multifamily loansConsolidated Agency multifamily loans— — — — 473,514 — — 473,514 
Other investmentsOther investments— — — — — 384,754 159,553 544,307 Other investments— — — — — 384,754 159,553 544,307 
Cash and cash equivalentsCash and cash equivalents— — — — — 6,481 — 6,481 Cash and cash equivalents— — — — — 6,481 — 6,481 
Restricted cashRestricted cash148 15,221 — — 25,420 5,292 46,086 Restricted cash148 15,221 — — 25,420 5,292 46,086 
Accrued interest receivableAccrued interest receivable210 10,885 15,737 5,792 1,315 1,462 — 35,401 Accrued interest receivable210 10,885 15,737 5,792 1,315 1,462 — 35,401 
Other assetsOther assets61 — 32,510 2,028 — 7,177 50 41,826 Other assets61 — 32,510 2,028 — 7,177 50 41,826 
Total AssetsTotal Assets$230,874 $3,639,355 $3,829,784 $1,896,050 $474,829 $425,294 $164,895 $10,661,081 Total Assets$230,874 $3,639,355 $3,829,784 $1,896,050 $474,829 $425,294 $164,895 $10,661,081 
Short-term debtShort-term debt$— $— $— $— $— $294,447 $— $294,447 Short-term debt$— $— $— $— $— $294,447 $— $294,447 
Accrued interest payableAccrued interest payable99 8,452 11,030 4,055 1,190 192 — 25,018 Accrued interest payable99 8,452 11,030 4,055 1,190 192 — 25,018 
Accrued expenses and other liabilitiesAccrued expenses and other liabilities— 1,171 — — 28,115 17,034 46,325 Accrued expenses and other liabilities— 1,171 — — 28,115 17,034 46,325 
Asset-backed securities issuedAsset-backed securities issued227,881 3,383,048 3,474,898 1,588,463 441,857 — 137,410 9,253,557 Asset-backed securities issued227,881 3,383,048 3,474,898 1,588,463 441,857 — 137,410 9,253,557 
Total LiabilitiesTotal Liabilities$227,980 $3,391,505 $3,487,099 $1,592,518 $443,047 $322,754 $154,444 $9,619,347 Total Liabilities$227,980 $3,391,505 $3,487,099 $1,592,518 $443,047 $322,754 $154,444 $9,619,347 
Value of our investments in VIEs(1)
Value of our investments in VIEs(1)
$2,634 $245,417 $339,419 $301,795 $31,657 $102,540 $10,451 $1,033,913 
Value of our investments in VIEs(1)
$2,634 $245,417 $339,419 $301,795 $31,657 $102,540 $10,451 $1,033,913 
Number of VIEsNumber of VIEs20 16 16 60 Number of VIEs20 16 16 60 
(1)Value of our investments in VIEs, as presented in this table, represent the fair value of our economic interests in the VIEs only for consolidated VIEs we account for under the CFE election. CAFL includes SFR loan securitizations we account for under the CFE election and atwo bridge loan securitizationsecuritizations for which we did not make the CFE election. As of March 31,September 30, 2022 and December 31, 2021, the fair value of our interests in the CAFL SFR securitizations were $306$314 million and $302 million, respectively, and the remaining values were associated with our net carrying valueinterests in the CAFL Bridge securitization was $37 million and $38 million, respectively.securitizations, for which the ABS issued is carried at amortized historical cost. Freddie Mac SLST includes securitizations we account for under the CFE election and also includes ABS issued in relation to a resecuritization of the securities we own in the consolidated Freddie Mac SLST VIEs, that we account for at amortized historical cost. As of March 31,September 30, 2022 and December 31, 2021, the fair value of our interests in the Freddie Mac SLST securitizations accounted for under the CFE election were $437$335 million and $445 million, respectively, andwith the carrying value ofdifference from the tables above representing ABS issued and carried at amortized historical cost was $129 million and $143 million, respectively.cost.




















1619


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)

The following table presents income (loss) from these VIEs for the three and nine months ended March 31,September 30, 2022 and 2021.
Table 4.2 – Income (Loss) from Consolidated VIEs
Three Months Ended March 31, 2022Three Months Ended September 30, 2022
Legacy
Sequoia
SequoiaCAFLFreddie Mac SLSTFreddie Mac
K-Series
Servicing InvestmentHEITotal
Consolidated
VIEs
Legacy
Sequoia
SequoiaCAFLFreddie Mac SLSTFreddie Mac
K-Series
Servicing InvestmentHEITotal
Consolidated
VIEs
(Dollars in Thousands)(Dollars in Thousands)(Dollars in Thousands)
Interest incomeInterest income$1,012 $32,098 $77,334 $17,200 $4,753 $7,919 $— $140,316 Interest income$1,475 $31,587 $61,439 $16,098 $4,762 $7,800 $— $123,161 
Interest expenseInterest expense(701)(28,171)(58,480)(14,085)(4,371)(1,662)— (107,470)Interest expense(1,486)(27,541)(44,804)(12,829)(4,377)(2,606)— (93,643)
Net interest incomeNet interest income311 3,927 18,854 3,115 382 6,257 — 32,846 Net interest income(11)4,046 16,635 3,269 385 5,194 — 29,518 
Non-interest incomeNon-interest incomeNon-interest income
Investment fair value changes, netInvestment fair value changes, net(714)(3,822)2,664 3,036 264 (3,468)3,411 1,371 Investment fair value changes, net(328)(10,936)(4,527)(41,892)316 (3,286)(584)(61,237)
Other incomeOther income— — 90 — — — — 90 Other income— — 286 — — — — 286 
Total non-interest income, netTotal non-interest income, net(714)(3,822)2,754 3,036 264 (3,468)3,411 1,461 Total non-interest income, net(328)(10,936)(4,241)(41,892)316 (3,286)(584)(60,951)
General and administrative expensesGeneral and administrative expenses— — — — — (31)— (31)General and administrative expenses— — — — — (55)— (55)
Other expensesOther expenses— — — — — (551)— (551)Other expenses— — — — — (372)— (372)
Income (loss) from Consolidated VIEsIncome (loss) from Consolidated VIEs$(403)$105 $21,608 $6,151 $646 $2,207 $3,411 $33,725 Income (loss) from Consolidated VIEs$(339)$(6,890)$12,394 $(38,623)$701 $1,481 $(584)$(31,860)

Three Months Ended March 31, 2021
Legacy
Sequoia
SequoiaCAFLFreddie Mac SLSTFreddie Mac
K-Series
Servicing InvestmentHEITotal
Consolidated
VIEs
(Dollars in Thousands)
Interest income$1,348 $15,483 $48,873 $20,159 $4,786 $4,222 $— $94,871 
Interest expense(875)(12,106)(39,011)(17,371)(4,356)(1,286)— (75,005)
Net interest income473 3,377 9,862 2,788 430 2,936 — 19,866 
Non-interest income
Investment fair value changes, net(699)4,898 (286)4,117 8,921 (1,246)— 15,705 
Total non-interest income, net(699)4,898 (286)4,117 8,921 (1,246)— 15,705 
General and administrative expenses— — — — — (38)— (38)
Other expenses— — — — — (330)— (330)
Income (loss) from Consolidated VIEs$(226)$8,275 $9,576 $6,905 $9,351 $1,322 $— $35,203 

Nine Months Ended September 30, 2022
Legacy
Sequoia
SequoiaCAFLFreddie Mac SLSTFreddie Mac
K-Series
Servicing InvestmentHEITotal
Consolidated
VIEs
(Dollars in Thousands)
Interest income$3,595 $95,608 $195,381 $49,851 $14,247 $23,287 $— $381,969 
Interest expense(3,154)(84,041)(145,207)(40,286)(13,099)(6,110)— (291,897)
Net interest income441 11,567 50,174 9,565 1,148 17,177 — 90,072 
Non-interest income
Investment fair value changes, net(1,378)(20,644)(23,972)(74,796)390 (11,259)4,028 (127,631)
Other income— — 631 — — — — 631 
Total non-interest income, net(1,378)(20,644)(23,341)(74,796)390 (11,259)4,028 (127,000)
General and administrative expenses— — — — — (130)— (130)
Other expenses— — — — — (1,158)— (1,158)
Income (loss) from Consolidated VIEs$(937)$(9,077)$26,833 $(65,231)$1,538 $4,630 $4,028 $(38,216)

1720


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)
Three Months Ended September 30, 2021
Legacy
Sequoia
SequoiaCAFLFreddie Mac SLSTFreddie Mac
K-Series
Servicing InvestmentHEITotal
Consolidated
VIEs
(Dollars in Thousands)
Interest income$1,042 $18,867 $48,937 $18,707 $4,846 $3,905 $— $96,304 
Interest expense(641)(15,368)(37,489)(15,774)(4,460)(1,018)— (74,750)
Net interest income401 3,499 11,448 2,933 386 2,887 — 21,554 
Non-interest income
Investment fair value changes, net(247)3,314 2,943 13,849 554 (2,080)47 18,380 
Other income— — 10 — — — — 10 
Total non-interest income, net(247)3,314 2,953 13,849 554 (2,080)47 18,390 
General and administrative expenses— — — — — (60)— (60)
Other expenses— — — — — (149)— (149)
Income (loss) from Consolidated VIEs$154 $6,813 $14,401 $16,782 $940 $598 $47 $39,735 
Nine Months Ended September 30, 2021
Legacy
Sequoia
SequoiaCAFLFreddie Mac SLSTFreddie Mac
K-Series
Servicing InvestmentHEITotal
Consolidated
VIEs
(Dollars in Thousands)
Interest income$3,559 $48,842 $152,659 $58,372 $14,492 $12,168 $— $290,092 
Interest expense(2,271)(38,848)(118,543)(49,756)(13,294)(3,414)— (226,126)
Net interest income1,288 9,994 34,116 8,616 1,198 8,754 — 63,966 
Non-interest income
Investment fair value changes, net(1,162)13,118 6,354 54,282 11,330 (5,646)47 78,323 
Other income— — 10 — — — — 10 
Total non-interest income, net(1,162)13,118 6,364 54,282 11,330 (5,646)47 78,333 
General and administrative expenses— — — — — (150)— (150)
Other expenses— — — — — (591)— (591)
Income (loss) from Consolidated VIEs$126 $23,112 $40,480 $62,898 $12,528 $2,367 $47 $141,558 
We consolidate the assets and liabilities of certain Sequoia, CAFL and HEI securitization entities, as we did not meet the GAAP sale criteria at the time we transferred financial assets to these entities. Our involvement in consolidated Sequoia, CAFL and HEI securitization entities continues in the following ways: (i) we continue to hold subordinate investments in each entity, and for certain entities, more senior investments; (ii) we maintain certain discretionary rights associated with our sponsorship of, or our subordinate investments in, each entity, including rights to direct loss mitigation activities; and (iii) we continue to hold a right to call the assets of certain entities (once they have been paid down below a specified threshold) at a price equal to, or in excess of, the current outstanding principal amount of the entity’s asset-backed securities issued. These factors have resulted in our continuing to consolidate the assets and liabilities of these Sequoia, CAFL and HEI securitization entities in accordance with GAAP.

We consolidate the assets and liabilities of certain Freddie Mac K-Series and SLST securitization trusts resulting from our investment in subordinate securities issued by these trusts, and in the case of certain CAFL securitizations, resulting from securities acquired through our acquisition of CoreVest. Additionally, we consolidate the assets and liabilities of Servicing Investment entities from our investment in servicer advance investments and excess MSRs. In each case, we maintain certain discretionary rights associated with the ownership of these investments that we determined reflected a controlling financial interest, as we have both the power to direct the activities that most significantly impact the economic performance of the VIEs and the right to receive benefits of and the obligation to absorb losses from the VIEs that could potentially be significant to the VIEs.
21


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)
Analysis of Unconsolidated VIEs with Continuing Involvement
Since 2012, we have transferred residential loans to 46 Sequoia securitization entities sponsored by us that are still outstanding as of March 31,September 30, 2022, and accounted for these transfers as sales for financial reporting purposes, in accordance with ASC 860. 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-servicer to perform) and the receipt of interest income associated with the securities we retained.
During the three months ended March 31,September 30, 2022, we did not call any of our unconsolidated Sequoia entities. During the nine months ended September 30, 2022, we called 3three of our unconsolidated Sequoia entities, and purchased $102 million (unpaid principal balance) of loans from the securitization trusts. In association with these calls, we realized a $0.3 million gain on the securities we owned from these called securitizations, which was recognized through Realized gains, net on our consolidated statements of income.income (loss). At March 31,September 30, 2022, we held $246$158 million of loans for sale at fair value that were acquired following the calls.


18


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)
The following table presents information related to securitization transactions that occurred during the three and nine months ended March 31,September 30, 2022 and 2021.
Table 4.3 – Securitization Activity Related to Unconsolidated VIEs Sponsored by Redwood
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)(In Thousands)20222021(In Thousands)2022202120222021
Principal balance of loans transferredPrincipal balance of loans transferred$— $875,879 Principal balance of loans transferred$— $— $— $1,231,803 
Trading securities retained, at fair valueTrading securities retained, at fair value— 6,549 Trading securities retained, at fair value— — — 7,774 
AFS securities retained, at fair valueAFS securities retained, at fair value— 1,078 AFS securities retained, at fair value— — — 1,600 
The following table summarizes the cash flows during the three and nine months ended March 31,September 30, 2022 and 2021 between us and the unconsolidated VIEs sponsored by us and accounted for as sales since 2012.
Table 4.4 – Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)(In Thousands)20222021(In Thousands)2022202120222021
Proceeds from new transfersProceeds from new transfers$— $904,390 Proceeds from new transfers$— $— $— $1,266,063 
MSR fees receivedMSR fees received864 1,607 MSR fees received737 1,095 2,365 4,038 
Funding of compensating interest, netFunding of compensating interest, net(16)(100)Funding of compensating interest, net(11)54 (41)(116)
Cash flows received on retained securitiesCash flows received on retained securities14,126 8,629 Cash flows received on retained securities3,096 16,724 20,380 42,117 

22


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)
The following table presents the key weighted-average assumptions used to value securities retained at the date of securitization for securitizations completed during the three and nine months ended March 31,September 30, 2022 and 2021.
Table 4.5 – Assumptions Related to Assets Retained from Unconsolidated VIEs Sponsored by Redwood
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
At Date of SecuritizationSenior IO SecuritiesSubordinate SecuritiesSenior IO SecuritiesSubordinate Securities
Prepayment rates N/A N/A12 %12 %
Discount rates N/A N/A15 %6 %
Credit loss assumptions N/A N/A0.22 %0.22 %
Three Months Ended September 30, 2022Three Months Ended September 30, 2021
At Date of SecuritizationSenior IO SecuritiesSubordinate SecuritiesSenior IO SecuritiesSubordinate Securities
Prepayment ratesN/AN/AN/AN/A
Discount ratesN/AN/AN/AN/A
Credit loss assumptionsN/AN/AN/AN/A
Nine Months Ended September 30, 2022Nine Months Ended September 30, 2021
At Date of SecuritizationSenior IO SecuritiesSubordinate SecuritiesSenior IO SecuritiesSubordinate Securities
Prepayment ratesN/AN/A11 11 %
Discount ratesN/AN/A15 %6 %
Credit loss assumptionsN/AN/A0.23 %0.23 %



19


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)
The following table presents additional information at March 31,September 30, 2022 and December 31, 2021, related to unconsolidated VIEs sponsored by Redwood and accounted for as sales since 2012.
Table 4.6 – Unconsolidated VIEs Sponsored by Redwood
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
On-balance sheet assets, at fair value:On-balance sheet assets, at fair value:On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as tradingInterest-only, senior and subordinate securities, classified as trading$24,246 $18,214 Interest-only, senior and subordinate securities, classified as trading$28,511 $18,214 
Subordinate securities, classified as AFSSubordinate securities, classified as AFS108,768 127,542 Subordinate securities, classified as AFS78,065 127,542 
Mortgage servicing rightsMortgage servicing rights9,127 6,450 Mortgage servicing rights11,915 6,450 
Maximum loss exposure (1)
Maximum loss exposure (1)
$142,141 $152,206 
Maximum loss exposure (1)
$118,491 $152,206 
Assets transferred:Assets transferred:Assets transferred:
Principal balance of loans outstandingPrincipal balance of loans outstanding$4,491,763 $4,959,234 Principal balance of loans outstanding$4,146,817 $4,959,234 
Principal balance of loans 30+ days delinquentPrincipal balance of loans 30+ days delinquent27,286 30,594 Principal balance of loans 30+ days delinquent21,803 30,594 
(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.

23


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)
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 March 31,September 30, 2022 and December 31, 2021.
Table 4.7 – Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated VIEs Sponsored by Redwood
March 31, 2022MSRs
Senior
Securities (1)
Subordinate Securities
September 30, 2022September 30, 2022MSRs
Senior
Securities (1)
Subordinate Securities
(Dollars in Thousands)(Dollars in Thousands)MSRs
Senior
Securities (1)
Subordinate Securities(Dollars in Thousands)
Fair value at March 31, 2022
Fair value at September 30, 2022Fair value at September 30, 2022$11,915 $28,511 $78,065 
Expected life (in years) (2)
Expected life (in years) (2)
5611
Expected life (in years) (2)
7716
Prepayment speed assumption (annual CPR) (2)
Prepayment speed assumption (annual CPR) (2)
16 %14 %22 %
Prepayment speed assumption (annual CPR) (2)
%11 %%
Decrease in fair value from:Decrease in fair value from:Decrease in fair value from:
10% adverse change10% adverse change$396 $986 $1,228 10% adverse change$334 $942 $570 
25% adverse change25% adverse change912 2,318 3,068 25% adverse change810 2,291 1,132 
Discount rate assumption (2)
Discount rate assumption (2)
12 %16 %%
Discount rate assumption (2)
11 %12 %%
Decrease in fair value from:Decrease in fair value from:Decrease in fair value from:
100 basis point increase100 basis point increase$282 $656 $9,022 100 basis point increase$441 $1,001 $7,714 
200 basis point increase200 basis point increase547 1,273 17,064 200 basis point increase852 1,889 14,345 
Credit loss assumption (2)
Credit loss assumption (2)
N/A0.03 %0.03 %
Credit loss assumption (2)
N/A0.04 %0.04 %
Decrease in fair value from:Decrease in fair value from:Decrease in fair value from:
10% higher losses10% higher lossesN/A$— $45 10% higher lossesN/AN/A$190 
25% higher losses25% higher lossesN/A— 113 25% higher lossesN/AN/A254 
20


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)
December 31, 2021December 31, 2021MSRs
Senior
Securities (1)
Subordinate SecuritiesDecember 31, 2021MSRs
Senior
Securities (1)
Subordinate Securities
(Dollars in Thousands)(Dollars in Thousands)(Dollars in Thousands)
Fair value at December 31, 2021Fair value at December 31, 2021$6,450 $18,214 $127,542 Fair value at December 31, 2021$6,450 $18,214 $127,542 
Expected life (in years) (2)
Expected life (in years) (2)
345
Expected life (in years) (2)
345
Prepayment speed assumption (annual CPR) (2)
Prepayment speed assumption (annual CPR) (2)
29 %23 %32 %
Prepayment speed assumption (annual CPR) (2)
29 %23 %32 %
Decrease in fair value from:Decrease in fair value from:Decrease in fair value from:
10% adverse change10% adverse change$447 $1,130 $531 10% adverse change$447 $1,130 $531 
25% adverse change25% adverse change1,020 2,596 1,440 25% adverse change1,020 2,596 1,440 
Discount rate assumption (2)
Discount rate assumption (2)
12 %16 %%
Discount rate assumption (2)
12 %16 %%
Decrease in fair value from:Decrease in fair value from:Decrease in fair value from:
100 basis point increase100 basis point increase$152 $426 $4,801 100 basis point increase$152 $426 $4,801 
200 basis point increase200 basis point increase297 829 9,139 200 basis point increase297 829 9,139 
Credit loss assumption (2)
Credit loss assumption (2)
N/A0.35 %0.35 %
Credit loss assumption (2)
N/A0.35 %0.35 %
Decrease in fair value from:Decrease in fair value from:Decrease in fair value from:
10% higher losses10% higher lossesN/A$— $1,528 10% higher lossesN/AN/A$1,528 
25% higher losses25% higher lossesN/A— 3,819 25% higher lossesN/AN/A3,819 

(1)Senior securities included $24$29 million and $18 million of interest-only securities at March 31,September 30, 2022 and December 31, 2021, respectively.
(2)Expected life, prepayment speed assumption, discount rate assumption, and credit loss assumption presented in the tables above represent weighted averages.

24


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)
Analysis of Unconsolidated Third-Party VIEs
Third-party VIEs are securitization entities in which we maintain an economic interest, but do not sponsor. Our economic interest may include several securities and other investments from the same third-party VIE, and in those cases, the analysis is performed in consideration of all of our interests. The following table presents a summary of our interests in third-party VIEs at March 31,September 30, 2022 and December 31, 2021, grouped by asset type.
Table 4.8 – Third-Party Sponsored VIE Summary
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
Mortgage-Backed SecuritiesMortgage-Backed SecuritiesMortgage-Backed Securities
SeniorSenior$9,960 $3,572 Senior$348 $3,572 
SubordinateSubordinate215,908 228,083 Subordinate152,288 228,083 
Total Mortgage-Backed SecuritiesTotal Mortgage-Backed Securities225,868 231,655 Total Mortgage-Backed Securities152,636 231,655 
Excess MSRExcess MSR9,579 10,400 Excess MSR7,662 10,400 
Total Investments in Third-Party Sponsored VIEsTotal Investments in Third-Party Sponsored VIEs$235,447 $242,055 Total Investments in Third-Party Sponsored VIEs$160,298 $242,055 
We determined that we are not the primary beneficiary of these third-party VIEs, as we do not have the required power to direct the activities that most significantly impact the economic performance of these entities. Specifically, we do not service or manage these entities or otherwise solely hold decision making powers that are significant. As a result of this assessment, we do not consolidate any of the underlying assets and liabilities of these third-party VIEs – we only account for our specific interests in them.
Our assessments of whether we are required to consolidate a VIE may change in subsequent reporting periods based upon changing facts and circumstances pertaining to each VIE. Any related accounting changes could result in a material impact to our financial statements.

21


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)


Note 5. Fair Value of Financial Instruments
For financial reporting purposes, we follow a fair value hierarchy established under GAAP that is used to determine the fair value of financial instruments. This hierarchy prioritizes relevant market inputs in order to determine an “exit price” at the measurement date, or the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale. Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Level 2 inputs are observable inputs other than quoted prices for an asset or liability that are obtained through corroboration with observable market data. Level 3 inputs are unobservable inputs (e.g., our own data or assumptions) that are used when there is little, if any, relevant market activity for the asset or liability required to be measured at fair value.
In certain cases, inputs used to measure fair value fall into different levels of the fair value hierarchy. In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured.


2225


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at March 31,September 30, 2022 and December 31, 2021.

Table 5.1 – Carrying Values and Fair Values of Assets and Liabilities
March 31, 2022December 31, 2021September 30, 2022December 31, 2021
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
(In Thousands)(In Thousands)(In Thousands)
AssetsAssetsAssets
Residential loans, held-for-sale at fair value$1,347,036 $1,347,036 $1,845,248 $1,845,248 
Residential loans, held-for-investment5,870,068 5,870,068 5,747,150 5,747,150 
Business purpose loans, held-for-sale505,889 505,889 358,309 358,309 
Business purpose loans, held-for-investment4,248,889 4,248,889 4,432,680 4,432,680 
Multifamily loans451,804 451,804 473,514 473,514 
Real estate securities358,882 358,882 377,411 377,411 
Residential loans, held-for-sale, at fair valueResidential loans, held-for-sale, at fair value$834,262 $834,262 $1,845,248 $1,845,248 
Residential loans, held-for-investment, at fair valueResidential loans, held-for-investment, at fair value4,918,294 4,918,294 5,747,150 5,747,150 
Business purpose loans, held-for-sale, at fair valueBusiness purpose loans, held-for-sale, at fair value337,238 337,238 358,309 358,309 
Business purpose loans, held-for-investment, at fair valueBusiness purpose loans, held-for-investment, at fair value4,919,980 4,919,980 4,432,680 4,432,680 
Consolidated Agency multifamily loans, at fair valueConsolidated Agency multifamily loans, at fair value427,458 427,458 473,514 473,514 
Real estate securities, at fair valueReal estate securities, at fair value259,212 259,212 377,411 377,411 
Servicer advance investments (1)
Servicer advance investments (1)
302,837 302,837 350,923 350,923 
Servicer advance investments (1)
274,934 274,934 350,923 350,923 
MSRs (1)
MSRs (1)
19,739 19,739 12,438 12,438 
MSRs (1)
24,796 24,796 12,438 12,438 
Excess MSRs (1)
Excess MSRs (1)
43,023 43,023 44,231 44,231 
Excess MSRs (1)
40,452 40,452 44,231 44,231 
HEIs (1)
HEIs (1)
227,133 227,133 192,740 192,740 
HEIs (1)
340,437 340,437 192,740 192,740 
Other investments (1)
Other investments (1)
11,824 11,824 12,663 12,663 
Other investments (1)
11,174 11,174 12,663 12,663 
Cash and cash equivalentsCash and cash equivalents409,272 409,272 450,485 450,485 Cash and cash equivalents297,092 297,092 450,485 450,485 
Restricted cashRestricted cash73,549 73,549 80,999 80,999 Restricted cash71,996 71,996 80,999 80,999 
Derivative assetsDerivative assets112,060 112,060 26,467 26,467 Derivative assets65,213 65,213 26,467 26,467 
REO (2)
REO (2)
27,179 30,787 36,126 39,272 
REO (2)
3,683 4,105 36,126 39,272 
Margin receivable (2)
Margin receivable (2)
17,165 17,165 7,269 7,269 
Margin receivable (2)
6,683 6,683 7,269 7,269 
LiabilitiesLiabilitiesLiabilities
Short-term debt$1,647,246 $1,647,246 $2,177,362 $2,177,362 
Margin payable (3)
41,966 41,966 24,368 24,368 
Guarantee obligation (3)
7,046 6,579 7,459 7,133 
Short-term debt (3)
Short-term debt (3)
$1,912,694 $1,912,694 $2,177,362 $2,177,362 
Margin payable (4)
Margin payable (4)
30,389 30,389 24,368 24,368 
Guarantee obligations (4)
Guarantee obligations (4)
6,532 5,237 7,459 7,133 
HEI securitization non-controlling interestHEI securitization non-controlling interest23,253 23,253 17,035 17,035 HEI securitization non-controlling interest24,355 24,355 17,035 17,035 
Derivative liabilitiesDerivative liabilities80,260 80,260 3,317 3,317 Derivative liabilities6,782 6,782 3,317 3,317 
ABS issued net
Fair value8,475,868 8,475,868 8,843,147 8,843,147 
Amortized cost396,498 379,930 410,410 410,471 
Other long-term debt, net (4)
1,310,683 1,307,867 988,483 989,570 
Convertible notes, net (4)
514,289 518,738 513,629 537,300 
Trust preferred securities and subordinated notes, net (4)
138,732 104,625 138,721 97,650 
ABS issued, netABS issued, net
At fair valueAt fair value7,564,312 7,564,312 8,843,147 8,843,147 
At amortized costAt amortized cost574,981 541,773 410,410 410,471 
Other long-term debt, net (5)
Other long-term debt, net (5)
868,851 858,810 988,483 989,570 
Convertible notes, net (5)
Convertible notes, net (5)
724,205 651,888 513,629 537,300 
Trust preferred securities and subordinated notes, net (5)
Trust preferred securities and subordinated notes, net (5)
138,755 76,725 138,721 97,650 
(1)These investments are included in Other investments on our consolidated balance sheets.
(2)These assets are included in Other assets on our consolidated balance sheets.
(3)Short-term debt excludes short-term convertible notes, which are included below under "Convertible notes, net."
(4)These liabilities are included in Accrued expenses and other liabilities on our consolidated balance sheets.
(4)(5)TheThese liabilities are primarily included in Long-TermLong-term debt, net ofon our consolidated balance sheets. Convertible notes, net also includes convertible notes classified as Short-term debt. See Note 14 for more information on Short-term debt.
During the three and nine months ended March 31,September 30, 2022, and 2021, we elected the fair value option for $5 millionzero and $22$5 million of securities, respectively, $2.12$0.34 billion and $3.10$3.60 billion of residential loans (principal balance), respectively, $920and $630 million and $386 million$2.47 billion of business purpose loans (principal balance), respectively. Additionally, during the three and nine months ended March 31,September 30, 2022, we elected the fair value option for $40$80 million and $176 million of HEIs, respectively, and $6zero and $8 million of Other Investments.Investments, respectively. We anticipate electing the fair value option for all future purchases of residential and business purpose loans that we intend to sell to third parties or transfer to securitizations, as well as for certain securities we purchase, including IO securities, fixed-rate securities rated investment grade or higher and HEIs.
2326


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
The following table presents the assets and liabilities that are reported at fair value on our consolidated balance sheets on a recurring basis at March 31,September 30, 2022 and December 31, 2021, as well as the fair value hierarchy of the valuation inputs used to measure fair value.
Table 5.2 – Assets and Liabilities Measured at Fair Value on a Recurring Basis
March 31, 2022Carrying
Value
Fair Value Measurements Using
September 30, 2022September 30, 2022Carrying
Value
Fair Value Measurements Using
(In Thousands)(In Thousands)Carrying
Value
Level 1Level 2Level 3(In Thousands)Level 1Level 2Level 3
AssetsAssetsAssets
Residential loansResidential loans$7,217,104 $— $— $7,217,104 Residential loans$5,752,524 $— $— $5,752,524 
Business purpose loansBusiness purpose loans4,754,778 — — 4,754,778 Business purpose loans5,257,218 — — 5,257,218 
Multifamily loans451,804 — — 451,804 
Consolidated Agency multifamily loansConsolidated Agency multifamily loans427,458 — — 427,458 
Real estate securitiesReal estate securities358,882 — — 358,882 Real estate securities259,212 — — 259,212 
Servicer advance investmentsServicer advance investments302,837 — — 302,837 Servicer advance investments274,934 — — 274,934 
MSRsMSRs19,739 — — 19,739 MSRs24,796 — — 24,796 
Excess MSRsExcess MSRs43,023 — — 43,023 Excess MSRs40,452 — — 40,452 
HEIsHEIs227,133 — — 227,133 HEIs340,437 — — 340,437 
Other investmentsOther investments11,824 — — 11,824 Other investments11,174 — — 11,174 
Derivative assetsDerivative assets112,060 98,538 11,412 2,110 Derivative assets65,213 39,843 24,626 744 
LiabilitiesLiabilitiesLiabilities
HEI securitization non-controlling interestHEI securitization non-controlling interest$23,253 $— $— $23,253 HEI securitization non-controlling interest$24,355 $— $— $24,355 
Derivative liabilitiesDerivative liabilities80,260 65,119 650 14,491 Derivative liabilities6,782 6,547 23 212 
ABS issuedABS issued8,475,868 — — 8,475,868 ABS issued7,564,312 — — 7,564,312 
December 31, 2021December 31, 2021Carrying
Value
Fair Value Measurements UsingDecember 31, 2021Carrying
Value
Fair Value Measurements Using
(In Thousands)(In Thousands)Level 1Level 2Level 3(In Thousands)Level 1Level 2Level 3
AssetsAssetsAssets
Residential loansResidential loans$7,592,398 $— $— $7,592,398 Residential loans$7,592,398 $— $— $7,592,398 
Business purpose loansBusiness purpose loans4,790,989 — — 4,790,989 Business purpose loans4,790,989 — — 4,790,989 
Multifamily loans473,514 — — 473,514 
Consolidated Agency multifamily loansConsolidated Agency multifamily loans473,514 — — 473,514 
Real estate securitiesReal estate securities377,411 — — 377,411 Real estate securities377,411 — — 377,411 
Servicer advance investmentsServicer advance investments350,923 — — 350,923 Servicer advance investments350,923 — — 350,923 
MSRsMSRs12,438 — — 12,438 MSRs12,438 — — 12,438 
Excess MSRsExcess MSRs44,231 — — 44,231 Excess MSRs44,231 — — 44,231 
HEIsHEIs192,740 — — 192,740 HEIs192,740 — — 192,740 
Other investmentsOther investments17,574 — — 17,574 Other investments17,574 — — 17,574 
Derivative assetsDerivative assets26,467 2,906 18,928 4,633 Derivative assets26,467 2,906 18,928 4,633 
FHLBC stockFHLBC stock10 — 10 — 
LiabilitiesLiabilitiesLiabilities
HEI securitization non-controlling interestHEI securitization non-controlling interest$17,035 $— $— $17,035 HEI securitization non-controlling interest$17,035 $— $— $17,035 
Derivative liabilitiesDerivative liabilities3,317 1,563 1,251 503 Derivative liabilities3,317 1,563 1,251 503 
ABS issuedABS issued8,843,147 — — 8,843,147 ABS issued8,843,147 — — 8,843,147 
2427


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
The following table presents additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the threenine months ended March 31,September 30, 2022.
Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
AssetsAssets
Residential LoansBusiness Purpose
Loans
Multifamily LoansTrading SecuritiesAFS
Securities
Servicer Advance InvestmentsExcess MSRsHEIsMSRs and Other InvestmentsResidential LoansBusiness Purpose
Loans
Consolidated Agency Multifamily LoansTrading SecuritiesAFS
Securities
Servicer Advance InvestmentsExcess MSRsHEIsMSRs and Other Investments
(In Thousands)(In Thousands)(In Thousands)
Beginning balance -
December 31, 2021
Beginning balance -
December 31, 2021
$7,592,398 $4,790,989 $473,514 $170,619 $206,792 $350,923 $44,231 $192,740 $25,101 Beginning balance -
December 31, 2021
$7,592,398 $4,790,989 $473,514 $170,619 $206,792 $350,923 $44,231 $192,740 $25,101 
AcquisitionsAcquisitions2,110,494 64,875 — 5,006 10,000 — — 40,141 5,793 Acquisitions3,585,882 181,814 — 5,006 10,000 — — 176,439 8,293 
OriginationsOriginations— 855,227 — — — — — — — Originations— 2,291,192 — — — — — — — 
SalesSales(1,849,874)(331,750)— — — — — — (1,762)Sales(3,702,359)(414,998)— (27,471)— — — — (3,044)
Principal paydownsPrincipal paydowns(297,480)(407,991)(2,029)(485)(22,564)(45,005)— (12,671)(30)Principal paydowns(734,577)(1,086,983)(5,936)(1,202)(25,381)(65,772)— (35,187)(137)
Gains (losses) in net income, net(337,595)(216,300)(19,681)(1,456)10,383 (3,081)(1,208)6,923 3,020 
Gains (losses) in net income (loss), netGains (losses) in net income (loss), net(985,958)(503,832)(40,120)(30,019)12,560 (10,217)(3,779)6,445 9,336 
Unrealized losses in OCI, netUnrealized losses in OCI, net— — — — (19,413)— — — — Unrealized losses in OCI, net— — — — (61,692)— — — — 
Other settlements, net (1)
Other settlements, net (1)
(839)(272)— — — — — — (559)
Other settlements, net (1)
(2,862)(964)— — — — — — (3,579)
Ending balance -
March 31, 2022
$7,217,104 $4,754,778 $451,804 $173,684 $185,198 $302,837 $43,023 $227,133 $31,563 
Ending balance -
September 30, 2022
Ending balance -
September 30, 2022
$5,752,524 $5,257,218 $427,458 $116,933 $142,279 $274,934 $40,452 $340,437 $35,970 
LiabilitiesLiabilities
Derivatives (2)
HEI Securitization Non-Controlling InterestABS
Issued
Derivatives (2)
HEI Securitization Non-Controlling InterestABS
Issued
(In Thousands)(In Thousands)
Derivatives (2)
HEI Securitization Non-Controlling InterestABS
Issued
(In Thousands)
Derivatives (2)
HEI Securitization Non-Controlling InterestABS
Issued
Beginning balance - December 31, 2021Beginning balance - December 31, 2021$4,130 $17,035 $8,843,147 Beginning balance - December 31, 2021$4,130 $17,035 $8,843,147 
AcquisitionsAcquisitions— — 680,749 Acquisitions— — 1,205,289 
Principal paydownsPrincipal paydowns— — (520,949)Principal paydowns— — (1,242,859)
Gains (losses) in net income, net(42,379)6,218 (527,079)
Gains (losses) in net income (loss), netGains (losses) in net income (loss), net(53,962)7,320 (1,241,265)
Other settlements, net (1)
Other settlements, net (1)
25,868 — — 
Other settlements, net (1)
50,364 — — 
Ending balance - March 31, 2022$(12,381)$23,253 $8,475,868 
Ending balance - September 30, 2022Ending balance - September 30, 2022$532 $24,355 $7,564,312 
(1)     Other settlements, net, for residential and business purpose loans, represents the transfer of loans to REO, and for derivatives, represents the transfer of the fair value of loan purchase orand interest rate lock commitments at the time loans are acquired to the basis of residential and single-family rental loans.business purpose loans, and for MSRs and other investments, primarily represents an investment that was exchanged into a new instrument that is no longer measured at fair value on a recurring basis.
(2)     For the purpose of this presentation, derivative assets and liabilities, which consist of loan purchase commitments forward sale commitments, and interest rate lock commitments, are presented on a net basis.

2528


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
The following table presents the portion of fair value gains or losses included in our consolidated statements of income that were attributable to Level 3 assets and liabilities recorded at fair value on a recurring basis and held at March 31,September 30, 2022 and 2021. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the three and nine months ended March 31,September 30, 2022 and 2021 are not included in this presentation.
Table 5.4 – Portion of Net Fair Value Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at March 31,September 30, 2022 and 2021 Included in Net Income (Loss)
Included in Net IncomeIncluded in Net Income (Loss)
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)(In Thousands)20222021(In Thousands)2022202120222021
AssetsAssetsAssets
Residential loans at RedwoodResidential loans at Redwood$(35,397)$(9,978)Residential loans at Redwood$(28,762)$6,553 $(42,952)$9,371 
Business purpose loansBusiness purpose loans(14,647)5,104 Business purpose loans(10,967)18,810 (39,019)19,829 
Net investments in consolidated Sequoia entities (1)
Net investments in consolidated Sequoia entities (1)
(4,981)4,201 
Net investments in consolidated Sequoia entities (1)
(11,264)2,885 (22,467)11,779 
Net investments in consolidated Freddie Mac SLST entities (1)
Net investments in consolidated Freddie Mac SLST entities (1)
2,940 4,088 
Net investments in consolidated Freddie Mac SLST entities (1)
(41,969)13,781 (75,043)54,006 
Net investments in consolidated Freddie Mac K-Series entities (1)
Net investments in consolidated Freddie Mac K-Series entities (1)
264 8,921 
Net investments in consolidated Freddie Mac K-Series entities (1)
316 555 390 11,330 
Net investments in consolidated CAFL SFR entities (1)
Net investments in consolidated CAFL SFR entities (1)
4,048 370 
Net investments in consolidated CAFL SFR entities (1)
(6,585)2,943 (24,365)5,500 
Net investment in consolidated HEI securitization entity (1)
Net investment in consolidated HEI securitization entity (1)
9,628 — 
Net investment in consolidated HEI securitization entity (1)
(1,652)47 11,348 129 
Trading securitiesTrading securities(1,401)490 Trading securities(12,668)1,547 (34,104)3,824 
Servicer advance investmentsServicer advance investments(3,081)(160)Servicer advance investments(3,905)(2,079)(10,218)(3,179)
MSRsMSRs3,526 756 MSRs1,653 (235)9,118 (49)
Excess MSRsExcess MSRs(1,208)(1,952)Excess MSRs(351)(803)(3,779)(5,233)
HEIs at RedwoodHEIs at Redwood1,185 5,315 HEIs at Redwood(4,903)(41)(2,272)21 
Loan purchase and interest rate lock commitmentsLoan purchase and interest rate lock commitments2,050 1,053 Loan purchase and interest rate lock commitments723 9,021 744 9,261 
LiabilitiesLiabilitiesLiabilities
HEI securitization non-controlling interestHEI securitization non-controlling interest$(6,218)$— HEI securitization non-controlling interest$1,068 $(83)$(7,320)$(83)
Loan purchase commitmentsLoan purchase commitments(14,442)(35,661)Loan purchase commitments(212)(2,570)(212)(2,550)
(1)    Represents the portion of net fair value gains or losses included in our consolidated statements of income (loss) related to securitized loans, securitized HEIs, and the associated ABS issued at our consolidated securitization entities held at March 31,September 30, 2022 and 2021, which, netted together, represent the change in value of our investments at the consolidated VIEs accounted for under CFE election, excluding REO.

26


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
The following table presents information on assets recorded at fair value on a non-recurring basis at March 31,September 30, 2022. This table does not include the carrying value and gains or losses associated with the asset types below that were not recorded at fair value on our consolidated balance sheets at March 31,September 30, 2022.
Table 5.5 – Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis at March 31,September 30, 2022
Gain (Loss) for
March 31, 2022Carrying
Value
Fair Value Measurements UsingThree Months EndedThree Months Ended
(In Thousands)Level 1Level 2Level 3March 31, 2022March 31, 2022
Assets
REO$646 $— $— $646 $— $— 








































Gain (Loss) for
September 30, 2022Carrying
Value
Fair Value Measurements UsingThree Months EndedNine Months Ended
(In Thousands)Level 1Level 2Level 3September 30, 2022September 30, 2022
Assets
Strategic investments17,350 — — 17,350 (25)10,000 
2729


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
The following table presents the net market valuation gains and losses recorded in each line item of our consolidated statements of income for the three and nine months ended March 31,September 30, 2022 and 2021.
Table 5.6 – Market Valuation Gains and Losses, Net
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)(In Thousands)20222021(In Thousands)2022202120222021
Mortgage Banking Activities, NetMortgage Banking Activities, NetMortgage Banking Activities, Net
Residential loans held-for-sale, at fair valueResidential loans held-for-sale, at fair value$(27,199)$23,112 Residential loans held-for-sale, at fair value$(20,060)$9,045 $(71,776)$57,145 
Residential loan purchase commitmentsResidential loan purchase commitments(41,623)(52,385)Residential loan purchase commitments(2,716)18,817 (53,236)18,351 
Single-family rental loans held-for-sale, at fair valueSingle-family rental loans held-for-sale, at fair value(24,468)10,248 Single-family rental loans held-for-sale, at fair value(19,325)19,205 (83,827)54,675 
Single-family rental loan interest rate lock commitmentsSingle-family rental loan interest rate lock commitments(725)— Single-family rental loan interest rate lock commitments19 (744)(666)— 
Bridge loansBridge loans2,135 1,044 Bridge loans(9)3,433 2,242 6,702 
Trading securities (1)
Trading securities (1)
2,786 721 
Trading securities (1)
148 32 4,249 (342)
Risk management derivatives, netRisk management derivatives, net90,387 92,822 Risk management derivatives, net48,363 3,539 164,137 38,117 
Total mortgage banking activities, net (2)
Total mortgage banking activities, net (2)
$1,293 $75,562 
Total mortgage banking activities, net (2)
$6,420 $53,327 $(38,877)$174,648 
Investment Fair Value Changes, NetInvestment Fair Value Changes, NetInvestment Fair Value Changes, Net
Residential loans held-for-sale, at fair value (called Sequoia loans)Residential loans held-for-sale, at fair value (called Sequoia loans)$(4,252)$317 Residential loans held-for-sale, at fair value (called Sequoia loans)$(6,614)$816 $(18,876)$2,423 
Bridge loans held-for-investmentBridge loans held-for-investment(2,143)3,304 Bridge loans held-for-investment2,482 900 (9,220)4,142 
Trading securitiesTrading securities(4,242)20,628 Trading securities(12,668)1,546 (34,268)25,067 
Servicer advance investmentsServicer advance investments(3,081)(160)Servicer advance investments(3,905)(2,079)(10,217)(3,179)
Excess MSRsExcess MSRs(1,208)(1,953)Excess MSRs(351)(803)(3,779)(5,233)
Net investments in Legacy Sequoia entities (3)
Net investments in Legacy Sequoia entities (3)
(714)(699)
Net investments in Legacy Sequoia entities (3)
(328)(247)(1,378)(1,162)
Net investments in Sequoia entities (3)
Net investments in Sequoia entities (3)
(3,822)4,898 
Net investments in Sequoia entities (3)
(10,936)3,314 (20,644)13,118 
Net investments in Freddie Mac SLST entities (3)
Net investments in Freddie Mac SLST entities (3)
3,036 4,117 
Net investments in Freddie Mac SLST entities (3)
(41,892)13,849 (74,796)54,282 
Net investment in Freddie Mac K-Series entity (3)
Net investment in Freddie Mac K-Series entity (3)
264 8,921 
Net investment in Freddie Mac K-Series entity (3)
316 554 390 11,330 
Net investments in CAFL SFR entities (3)
Net investments in CAFL SFR entities (3)
4,048 (286)
Net investments in CAFL SFR entities (3)
(6,585)2,943 (24,365)6,354 
Net investment in HEI securitization entity (3)
Net investment in HEI securitization entity (3)
3,411 — 
Net investment in HEI securitization entity (3)
(584)47 4,028 47 
HEIs at RedwoodHEIs at Redwood1,192 5,315 HEIs at Redwood(4,774)5,622 (1,986)13,017 
Other investmentsOther investments123 310 Other investments1,445 (385)12,028 50 
Risk management derivatives, netRisk management derivatives, net1,973 — Risk management derivatives, net27,241 — 33,609 — 
Credit (losses) recoveries on AFS securitiesCredit (losses) recoveries on AFS securities(705)375 Credit (losses) recoveries on AFS securities(544)— (2,315)388 
Total investment fair value changes, netTotal investment fair value changes, net$(6,120)$45,087 Total investment fair value changes, net$(57,697)$26,077 $(151,789)$120,644 
Other IncomeOther IncomeOther Income
MSRsMSRs$2,968 $(866)MSRs$1,236 $(989)$8,031 $(3,236)
OtherOther(852)— (852)— 
Total other income (4)
Total other income (4)
$2,968 $(866)
Total other income (4)
$384 $(989)$7,179 $(3,236)
Total Market Valuation Gains (Losses), NetTotal Market Valuation Gains (Losses), Net$(1,859)$119,783 Total Market Valuation Gains (Losses), Net$(50,893)$78,415 $(183,487)$292,056 
(1)Represents fair value changes on trading securities that are being used along with risk management derivatives to manage the mark-to-marketmarket risks associated with our residential mortgage banking operations.
(2)Mortgage banking activities, net presented above does not include fee income from loan originations or acquisitions, provisions for repurchases, expense, and other expenses that are components of Mortgage banking activities, net presented on our consolidated statements of income, as these amounts do not represent market valuation changes.
(3)Includes changes in fair value of the residential loans held-for-investment, securitized HEIs, REO and the ABS issued at the entities, which, netted together, represent the change in value of our investments at the consolidated VIEs accounted for under the CFE election.
(4)Other income presented above does not include net MSR fee income or provisions for repurchases forof MSRs, as these amounts do not represent market valuation adjustments.
2830


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
At March 31,September 30, 2022, our valuation policy and processes had not changed from those described in our Annual Report on Form 10-K for the year ended December 31, 2021.




























29


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
The following table provides quantitative information about the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value.
Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments
March 31, 2022Fair
Value
Input Values
September 30, 2022September 30, 2022Fair
Value
Input Values
(Dollars in Thousands, except Input Values)(Dollars in Thousands, except Input Values)Fair
Value
Unobservable InputRange
Weighted
Average(1)
(Dollars in Thousands, except Input Values)Unobservable InputRange
Weighted
Average(1)
AssetsAssetsAssets
Residential loans, at fair value:Residential loans, at fair value:Residential loans, at fair value:
Jumbo fixed-rate loansJumbo fixed-rate loans$772,917 Prepayment rate (annual CPR)20 -20 %20 %Jumbo fixed-rate loans$718,347 Whole loan spread to swap rate201 -400 bps202 bps
Whole loan spread to TBA price$2.94 -$2.94 $2.94 
Whole loan spread to swap rate225 -225 bps225 bps
Called loan dollar price$100 $100 $100 Called loan dollar price$92 -$92 $92 
Jumbo loans committed to sellJumbo loans committed to sell574,119 Whole loan committed sales price$95.92 -$102.19 $98.23 Jumbo loans committed to sell115,883 Whole loan committed sales price$96 -$102 $98 
Loans held by Legacy Sequoia (2)
Loans held by Legacy Sequoia (2)
222,213 Liability priceN/AN/A
Loans held by Legacy Sequoia (2)
198,160 Liability priceN/AN/A
Loans held by Sequoia (2)
Loans held by Sequoia (2)
3,872,316 Liability priceN/AN/A
Loans held by Sequoia (2)
3,237,170 Liability priceN/AN/A
Loans held by Freddie Mac SLST (2)
Loans held by Freddie Mac SLST (2)
1,775,539 Liability priceN/AN/A
Loans held by Freddie Mac SLST (2)
1,482,964 Liability priceN/AN/A
Business purpose loans:Business purpose loans:Business purpose loans:
Single-family rental loansSingle-family rental loans505,889 Senior credit spread140 -175 bps155 bpsSingle-family rental loans281,105 Senior credit spread210 -210 bps210 bps
Subordinate credit spread180 -1,434 bps377 bpsSubordinate credit spread275 -1,025 bps458 bps
Senior credit support36 -37 %36 %Senior credit support36 -36 %36 %
IO discount rate-14 %%IO discount rate-%%
Prepayment rate (annual CPR)-25 %%Prepayment rate (annual CPR)-%%
Non-securitizable loan dollar price$78 -$100 $98 Whole loan dollar price$84 -$99 $86 
Single-family rental loans held by CAFL (2)
Single-family rental loans held by CAFL (2)
3,038,939 Liability priceN/AN/A
Single-family rental loans held by CAFL (2)
3,018,994 Liability priceN/AN/A
Bridge loansBridge loans1,209,950 Whole loan discount rate-15 %%Bridge loans1,957,119 Whole loan discount rate-15 %%
Senior credit spread180 -180 bps180 bpsSenior credit spread285 -285 bps285 bps
Subordinate credit spread225 -790 bps498 bpsSubordinate credit spread345 -1,200 %680 %
Senior credit support47 -47 %47 %Senior credit support43 -43 %43 %
Residual certificate discount rate11 -11 %11 %Prepayment rate (annual CPR)— -— %— %
Multifamily loans held by Freddie Mac K-Series (2)
Multifamily loans held by Freddie Mac K-Series (2)
451,804 Liability priceN/AN/A
Multifamily loans held by Freddie Mac K-Series (2)
427,458 Liability priceN/AN/A
Trading and AFS securitiesTrading and AFS securities358,882 Discount rate— -18 % %Trading and AFS securities259,212 Discount rate-18 %10 %
Prepayment rate (annual CPR)-55 %20  %Prepayment rate (annual CPR)-65 %12 %
Default rate— -27 % %Default rate— -12 %0.4 %
Loss severity— -50 %25  %Loss severity— -50 %25 %
CRT dollar price$88 -$106 $95 CRT dollar price$73 -$93 $85 
Servicer advance investmentsServicer advance investments302,837 Discount rate-%%Servicer advance investments274,934 Discount rate-%%
Prepayment rate (annual CPR)14 -30 %17 %Prepayment rate (annual CPR)14 -30 %14 %
Expected remaining life (3)
5-5yrs5yrs
Expected remaining life (3)
5-5yrs5yrs
Mortgage servicing income— -17 bpsbpsMortgage servicing income— -18 bpsbps
MSRsMSRs19,739 Discount rate12 -12 %12  %MSRs24,796 Discount rate11 -69 %11 %
Prepayment rate (annual CPR)10 -29 %16  %Prepayment rate (annual CPR)-28 %%
Per loan annual cost to service$94 -$94 $94 Per loan annual cost to service$93 -$93 $93 
Excess MSRs43,023 Discount rate13 -19 %18 %
Prepayment rate (annual CPR)18 -31 %21 %
Excess mortgage servicing income10 -17 bps11 bps
3031


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments (continued)
March 31, 2022Fair
Value
Input Values
(Dollars in Thousands, except Input Values)Unobservable InputRange
Weighted
Average (1)
Assets (continued)
HEI73,886 Discount rate10 -10 %10 %
Prepayment rate (annual CPR)-24 %17 %
Home price appreciation-%%
HEIs held by HEI securitization entity153,247 Liability priceN/AN/AN/A
REO646 Loss severity-24 %12 %
Liabilities
Residential loan purchase commitments, net12,322 Prepayment rate (annual CPR)20 -20 %20 %
Whole loan spread to TBA price$2.94 -$2.94 $2.94 
Whole loan spread to swap rate225 -225 bps225 bps
Pull-through rate20 -100 %73 %
Committed sales price$95.92 -$102.29 $98.18 
Single-family rental interest rate lock commitments59 Senior credit spread140 -140 bps140 bps
Subordinate credit spread180 -1,434 bps331 bps
Senior credit support37 -37 %37 %
IO discount rate-%%
Prepayment rate (annual CPR)-%%
Pull-through rate100 100 %100 %
ABS issued (2):
At consolidated Sequoia entities3,848,221 Discount rate— -18 % %
Prepayment rate (annual CPR)-45 %25  %
Default rate— -11 % %
Loss severity25 -50 %32  %
At consolidated CAFL SFR entities (4)
2,745,104 Discount rate-12 %%
Prepayment rate (annual CPR)-%%
Default rate-20 %%
Loss severity30 -30 %30 %
At consolidated Freddie Mac SLST entities1,341,282 Discount rate-% %
Prepayment rate (annual CPR)-% %
Default rate-10 % %
Loss severity35 -35 %35  %
At consolidated Freddie Mac K-Series entities (4)
419,883 Discount rate-%%
At consolidated HEI securitization entity (4)
121,378 Discount rate-12 %%
Prepayment rate (annual CPR)20 -20 %20 %
Default rate10 -10 %10 %
Loss severity30 -30 %30 %
Home price appreciation-%%

31


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
Footnotes to Table 5.7
September 30, 2022Fair
Value
Input Values
(Dollars in Thousands, except Input Values)Unobservable InputRange
Weighted
Average (1)
Assets (continued)
Excess MSRs40,452 Discount rate13 -19 %18 %
Prepayment rate (annual CPR)10 -100 %18 %
Excess mortgage servicing income-19 bps11 bps
HEIs200,709 Discount rate10 -10 %10 %
Prepayment rate (annual CPR)-23 %16 %
Home price appreciation(7)-%%
HEIs held by HEI securitization entity139,728 Liability priceN/AN/AN/A
Residential loan purchase commitments, net531 Whole loan spread to swap rate201 -201 bps201 bps
Pull-through rate26 -100 %78 %
Committed sales price$99 -$102 $100 
Liabilities
ABS issued (2):
At consolidated Sequoia entities3,210,603 Discount rate-18 %%
Prepayment rate (annual CPR)-24 %13 %
Default rate— -33 %%
Loss severity25 -50 %32 %
At consolidated CAFL SFR entities (4)
2,703,223 Discount rate0.3 -16 %%
Prepayment rate (annual CPR)— -%0.2 %
Default rate-21 %%
Loss severity30 -40 %30 %
At consolidated Freddie Mac SLST entities1,150,323 Discount rate-%%
Prepayment rate (annual CPR)-%%
Default rate13 -14 %14 %
Loss severity35 -35 %35 %
At consolidated Freddie Mac K-Series entities (4)
395,411 Discount rate-%%
At consolidated HEI securitization entity (4)
104,751 Discount rate-15 %10 %
Prepayment rate (annual CPR)20 -20 %20 %
Home price appreciation(7)-%%
(1)The weighted average input values for all loan types are based on the unpaid principal balance. The weighted average input values for all other assets and liabilities are based on relative fair value.
(2)The fair value of the loans and HEIs held by consolidated entities wasis based on the fair value of the ABS issued by these entities and the securities and other investments we own in those entities, which we determined were more readily observable in accordance with accounting guidance for collateralized financing entities. At March 31,September 30, 2022, the fair value of securities we owned at the consolidated Sequoia, CAFL SFR, Freddie Mac SLST, Freddie Mac K-Series, and HEI securitization entities was $246$224 million, $306$314 million, $437$335 million, $32 million, and $14 million, respectively.
(3)Represents the estimated average duration of outstanding servicer advances at a given point in time (not taking into account new advances made with respect to the pool).
(4)As a market convention, certain securities are priced to a no-loss yield and therefore do not include default and loss severity assumptions.
32


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
Determination of Fair Value
We generally use both market comparable information and discounted cash flow modeling techniques to determine the fair value of our Level 3 assets and liabilities. Use of these techniques requires determination of relevant inputs and assumptions, some of which represent significant unobservable inputs as indicated in the preceding table. Accordingly, a significant increase or decrease in any of these inputs -in isolation — such as anticipated credit losses, prepayment rates, interest rates, or other valuation assumptions - in isolation would likely result in a significantly lower or higher fair value measurement.
Included in Note 5 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2021 is a more detailed description of our financial instruments measured at fair value and their significant inputs, as well as the general classification of such instruments pursuant to the Level 1, Level 2, and Level 3 valuation hierarchy.
Certain of our Other investments (inclusive of strategic investments in early-stage start-up companies) are Level 3 financial instruments that we account for under the fair value option. These investments generally take the form of equity or debt with conversion features and do not have readily determinable fair values. We initially record these investments at cost and adjust their fair value based on observable price changes, such as follow-on capital raises or secondary sales, and will also evaluate impacts to valuation from changing market conditions and underlying business performance. As of September 30, 2022, the carrying value of these investments was $10 million.


Note 6. 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 March 31,September 30, 2022 and December 31, 2021.
Table 6.1 – Classifications and Carrying Values of Residential Loans
March 31, 2022LegacyFreddie Mac
September 30, 2022September 30, 2022LegacyFreddie Mac
(In Thousands)(In Thousands)RedwoodSequoiaSequoiaSLSTTotal(In Thousands)RedwoodSequoiaSequoiaSLSTTotal
Held-for-sale at fair valueHeld-for-sale at fair value$1,347,069 $— $— $— $1,347,069 Held-for-sale at fair value$834,262 $— $— $— $834,262 
Held-for-investment at fair valueHeld-for-investment at fair value— 222,213 3,872,316 1,775,539 5,870,068 Held-for-investment at fair value— 198,160 3,237,170 1,482,964 4,918,294 
Total Residential LoansTotal Residential Loans$1,347,069 $222,213 $3,872,316 $1,775,539 $7,217,137 Total Residential Loans$834,262 $198,160 $3,237,170 $1,482,964 $5,752,556 
December 31, 2021LegacyFreddie Mac
(In Thousands)RedwoodSequoiaSequoiaSLSTTotal
Held-for-sale at fair value$1,845,282 $— $— $— $1,845,282 
Held-for-investment at fair value— 230,455 3,628,465 1,888,230 5,747,150 
Total Residential Loans$1,845,282 $230,455 $3,628,465 $1,888,230 $7,592,432 

32


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 6. Residential Loans - (continued)
At March 31,September 30, 2022, we owned mortgage servicing rights associated with $1.29 billion$853 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.

33


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 6. Residential Loans - (continued)
Residential Loans Held-for-Sale
The following table summarizes the characteristics of residential loans held-for-sale at March 31,September 30, 2022 and December 31, 2021.
Table 6.2 – Characteristics of Residential Loans Held-for-Sale
(Dollars in Thousands)(Dollars in Thousands)March 31, 2022December 31, 2021(Dollars in Thousands)September 30, 2022December 31, 2021
Number of loansNumber of loans1,611 2,196 Number of loans1,054 2,196 
Unpaid principal balanceUnpaid principal balance$1,369,366 $1,813,865 Unpaid principal balance$874,412 $1,813,865 
Fair value of loansFair value of loans$1,347,069 $1,845,282 Fair value of loans$834,262 $1,845,282 
Market value of loans pledged as collateral under short-term borrowing agreementsMarket value of loans pledged as collateral under short-term borrowing agreements$1,334,272 $1,838,797 Market value of loans pledged as collateral under short-term borrowing agreements$828,192 $1,838,797 
Weighted average couponWeighted average coupon3.63 %3.27 %Weighted average coupon4.99 %3.27 %
Delinquency informationDelinquency informationDelinquency information
Number of loans with 90+ day delinquenciesNumber of loans with 90+ day delinquenciesNumber of loans with 90+ day delinquencies
Unpaid principal balance of loans with 90+ day delinquenciesUnpaid principal balance of loans with 90+ day delinquencies$616 $2,923 Unpaid principal balance of loans with 90+ day delinquencies$209 $2,923 
Fair value of loans with 90+ day delinquenciesFair value of loans with 90+ day delinquencies$615 $2,304 Fair value of loans with 90+ day delinquencies$170 $2,304 
Number of loans in foreclosureNumber of loans in foreclosure— — Number of loans in foreclosure— — 
The following table provides the activity of residential loans held-for-sale during the three and nine months ended March 31,September 30, 2022 and 2021.
Table 6.3 – Activity of Residential Loans Held-for-Sale
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)(In Thousands)20222021(In Thousands)2022202120222021
Principal balance of loans acquired (1)
Principal balance of loans acquired (1)
$2,115,191 $3,096,048 
Principal balance of loans acquired (1)
$336,698 $3,167,186 $3,597,339 $9,747,867 
Principal balance of loans soldPrincipal balance of loans sold1,827,364 2,275,832 Principal balance of loans sold662,302 2,360,862 3,727,993 6,787,490 
Principal balance of loans transferred to HFIPrincipal balance of loans transferred to HFI687,192 — Principal balance of loans transferred to HFI— 448,878 687,192 1,623,000 
Net market valuation gains (losses) recorded (2)
Net market valuation gains (losses) recorded (2)
(31,451)23,429 
Net market valuation gains (losses) recorded (2)
(26,674)9,861 (90,652)59,568 
(1)IncludesFor the three and nine months ended September 30, 2022, includes zero and $102 million of loans acquired through calls of 3zero and three seasoned Sequoia securitizations.securitizations, respectively.
(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.income (loss).

3334


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 6. Residential Loans - (continued)
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 March 31,September 30, 2022 and December 31, 2021.
Table 6.4 – Characteristics of Residential Loans Held-for-Investment
March 31, 2022LegacyFreddie Mac
September 30, 2022September 30, 2022LegacyFreddie Mac
(Dollars in Thousands)(Dollars in Thousands)SequoiaSequoiaSLST(Dollars in Thousands)SequoiaSequoiaSLST
Number of loansNumber of loans1,524 4,870 11,654 Number of loans1,372 4,666 11,054 
Unpaid principal balanceUnpaid principal balance$248,814 $4,123,176 $1,865,735 Unpaid principal balance$218,298 $3,902,938 $1,753,301 
Fair value of loansFair value of loans$222,213 $3,872,316 $1,775,538 Fair value of loans$198,160 $3,237,170 $1,482,964 
Weighted average couponWeighted average coupon1.88 %3.28 %4.52 %Weighted average coupon3.23 %3.25 %4.50 %
Delinquency informationDelinquency informationDelinquency information
Number of loans with 90+ day delinquencies (1)
Number of loans with 90+ day delinquencies (1)
34 16 1,291 
Number of loans with 90+ day delinquencies (1)
33 13 1,295 
Unpaid principal balance of loans with 90+ day delinquenciesUnpaid principal balance of loans with 90+ day delinquencies$6,996 $12,879 $220,402 Unpaid principal balance of loans with 90+ day delinquencies$5,532 $11,404 $223,260 
Fair value of loans with 90+ day delinquencies (2)
Fair value of loans with 90+ day delinquencies (2)
N/AN/AN/A
Fair value of loans with 90+ day delinquencies (2)
N/AN/AN/A
Number of loans in foreclosureNumber of loans in foreclosure10 256 Number of loans in foreclosure16 332 
Unpaid principal balance of loans in foreclosureUnpaid principal balance of loans in foreclosure$902 $1,484 $43,467 Unpaid principal balance of loans in foreclosure$1,852 $5,928 $56,755 
December 31, 2021LegacyFreddie Mac
(Dollars in Thousands)SequoiaSequoiaSLST
Number of loans1,583 4,300 11,986 
Unpaid principal balance$264,057 $3,605,469 $1,932,241 
Fair value of loans$230,455 $3,628,465 $1,888,230 
Weighted average coupon1.87 %3.39 %4.51 %
Delinquency information
Number of loans with 90+ day delinquencies (1)
32 18 1,208 
Unpaid principal balance of loans with 90+ day delinquencies$7,482 $15,124 $212,961 
Fair value of loans with 90+ day delinquencies (2)
N/AN/AN/A
Number of loans in foreclosure10 241 
Unpaid principal balance of loans in foreclosure$2,188 $1,624 $43,637 
(1)For loans held at consolidated entities, the number of loans greater than 90 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.








3435


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 6. Residential Loans - (continued)
The following table provides the activity of residential loans held-for-investment at consolidated entities during the three months ended March 31, 2022 and 2021.
Table 6.5 – Activity of Residential Loans Held-for-Investment at Consolidated Entities
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
LegacyFreddie MacLegacyFreddie Mac
(In Thousands)SequoiaSequoiaSLSTSequoiaSequoiaSLST
Fair value of loans transferred from HFS to HFI (1)
N/A$684,491 N/AN/A$— N/A
Net market valuation gains (losses) recorded (2)
6,325 (270,731)(43,768)7,613 (2,578)(3,566)
(1)Represents the transfer of loans from held-for-sale to held-for-investment associated with Sequoia securitizations.
(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.guidelines, and are recorded in Investment fair value changes, net on our consolidated statements of income (loss). The net impact to our income statement associated with our economic investments in these securitization entities is presented in Table 4.24.2.
Table 6.5 – Activity of Residential Loans Held-for-Investment at Consolidated Entities
Three Months Ended September 30, 2022Three Months Ended September 30, 2021
LegacyFreddie MacLegacyFreddie Mac
(In Thousands)SequoiaSequoiaSLSTSequoiaSequoiaSLST
Fair value of loans transferred from HFS to HFI (1)
N/A$— N/AN/A$464,189 N/A
Net market valuation gains (losses) recorded5,182 (202,825)(104,040)(2,580)(11,663)(13,836)
Nine Months Ended September 30, 2022Nine Months Ended September 30, 2021
LegacyFreddie MacLegacyFreddie Mac
(In Thousands)SequoiaSequoiaSLSTSequoiaSequoiaSLST
Fair value of loans transferred from HFS to HFI (1)
N/A$684,491 N/AN/A$1,669,683 N/A
Net market valuation gains (losses) recorded12,286 (685,042)(224,543)9,896 (27,076)5,177 
(1).Represents the transfer of loans from held-for-sale to held-for-investment associated with Sequoia securitizations.
REO
See Note 1213 for detail on residential loans transferred to REO during 2022.

Note 7. Business Purpose Loans
We originate and invest in business purpose loans, including single-family rental ("SFR") 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 March 31,September 30, 2022 and December 31, 2021.
Table 7.1 – Classifications and Carrying Values of Business Purpose Loans
March 31, 2022Single-Family RentalBridge
September 30, 2022September 30, 2022Single-Family RentalBridge
(In Thousands)(In Thousands)RedwoodCAFLRedwoodCAFLTotal(In Thousands)RedwoodCAFLRedwoodCAFLTotal
Held-for-sale at fair valueHeld-for-sale at fair value$505,889 — $— $— $505,889 Held-for-sale at fair value$281,105 — $56,133 $— $337,238 
Held-for-investment at fair valueHeld-for-investment at fair value— 3,038,939 917,979 291,971 4,248,889 Held-for-investment at fair value— 3,018,994 1,388,750 512,236 4,919,980 
Total Business Purpose LoansTotal Business Purpose Loans$505,889 $3,038,939 $917,979 $291,971 $4,754,778 Total Business Purpose Loans$281,105 $3,018,994 $1,444,883 $512,236 $5,257,218 
December 31, 2021Single-Family RentalBridge
(In Thousands)RedwoodCAFLRedwoodCAFLTotal
Held-for-sale at fair value$358,309 $— $— $— $358,309 
Held-for-investment at fair value— 3,488,074 666,364 278,242 4,432,680 
Total Business Purpose Loans$358,309 $3,488,074 $666,364 $278,242 $4,790,989 

36


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 7. Business Purpose Loans - (continued)
Nearly all of the outstanding single-family rentalSFR loans at March 31,September 30, 2022 were first-lien, fixed-rate loans with original maturities of five, seven, or ten years, with 2% withhaving original maturities of 30 years.
The outstanding bridge loans held-for-investment at March 31,September 30, 2022 were first-lien, interest-only loans with original maturities of six to 36 months and were comprised of 71%39% one-month LIBOR-indexed adjustable-rate loans, 12%48% one-month SOFR-indexed adjustable-rate loans, and 17%13% fixed-rate loans.
At March 31,September 30, 2022, we had a $792 million commitmentcommitments to fund bridge loans.loans of $990 million. See Note 1617 for additional information on this commitment.these commitments.

35


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 7. Business Purpose Loans - (continued)
The following table provides the activity of business purpose loans at Redwood during the three and nine months ended March 31,September 30, 2022 and 2021.
Table 7.2 – Activity of Business Purpose Loans at Redwood
Three Months Ended 
 March 31, 2022
Three Months Ended 
 March 31, 2021
Three Months Ended 
 September 30, 2022
Three Months Ended 
 September 30, 2021
(In Thousands)(In Thousands)SFR at RedwoodBridge at RedwoodSFR at RedwoodBridge at Redwood(In Thousands)SFR at RedwoodBridge at RedwoodSFR at RedwoodBridge at Redwood
Principal balance of loans originatedPrincipal balance of loans originated$442,727 $411,938 $253,098 $133,229 Principal balance of loans originated$99,281 $470,425 $392,620 $208,938 
Principal balance of loans acquired(1)Principal balance of loans acquired(1)61,892 2,983 — — Principal balance of loans acquired(1)— 59,977 2,463 35,713 
Principal balance of loans sold to third partiesPrincipal balance of loans sold to third parties331,502 — — 8,877 Principal balance of loans sold to third parties37,202 48,279 — 253 
Fair value of loans transferred from HFS to HFI (1)
— — 169,404 — 
Fair value of loans transferred (2)
Fair value of loans transferred (2)
266,181 77,362 332,670 276,354 
Mortgage banking activities income (loss) recorded (2)(4)
Mortgage banking activities income (loss) recorded (2)(4)
(24,468)2,375 10,248 542 
Mortgage banking activities income (loss) recorded (2)(4)
(19,325)(110)19,205 3,691 
Investment fair value changes recorded (3)(5)
Investment fair value changes recorded (3)(5)
— (759)— 3,304 
Investment fair value changes recorded (3)(5)
— (679)— 900 

Nine Months Ended September 30, 2022Nine Months Ended September 30, 2021
(In Thousands)SFR at RedwoodBridge at RedwoodSFR at RedwoodBridge at Redwood
Principal balance of loans originated$865,253 $1,424,604 $957,935 $557,327 
Principal balance of loans acquired (1)
100,349 81,983 2,463 35,713 
Principal balance of loans sold to third parties368,704 48,279 — 9,484 
Fair value of loans transferred (2)
561,218 465,966 799,375 276,354 
Fair value of loans transferred from HFI to HFS (3)
— — 44,922 N/A
Mortgage banking activities income (loss) recorded (4)
(83,827)1,129 54,675 5,212 
Investment fair value changes recorded (5)
— (6,747)— 4,142 
(1)RepresentsBridge at Redwood for the three and nine months ended September 30, 2022, includes $60 million of loans acquired as part of the Riverbend acquisition.
(2)For SFR at Redwood, represents the transfer of loans from held-for-sale to held-for-investment associated with CAFL SFR securitizations andsecuritizations. For Bridge at Redwood, represents the transfer of bridge loans from "Bridge at Redwood" to "Bridge at CAFL" resulting from their securitization.
(2)(3)Represents the transfer of single-family rental loans from held-for-investment to held-for-sale associated with the call of a consolidated CAFL securitization during the second quarter of 2021.
(4)Represents net market valuation changes from the time a loan is originated to when it is sold or transferred to our investment portfolio. Additionally, for the three and nine months ended March 31,September 30, 2022, and 2021, we recorded loan origination fee income of $14$10 million and $6$36 million, respectively, through Mortgage banking activities, net on our consolidated statements of income.income (loss).
(3)(5)Represents net market valuation changes for loans classified as held-for-investment and associated interest-only strip liabilities.


37


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 7. Business Purpose Loans - (continued)
Business Purpose Loans Held-for-Investment at CAFL
    We invest in securities issued by CAFL securitizations sponsored by CoreVest and consolidate the underlying single-family rental loans and bridge loans owned by these entities. The following table provides the activity of business purpose loans held-for-investment at CAFL during the three months ended March 31, 2022 and 2021.
Table 7.3 – Activity of Business Purpose Loans Held-for-Investment at CAFL
Three Months Ended 
 March 31, 2022
Three Months Ended 
 March 31, 2021
(In Thousands)SFR at
CAFL
Bridge at CAFLSFR at
CAFL
Bridge at CAFL
Net market valuation gains (losses) recorded (1)
$(191,903)$(1,384)$(60,901)$— 

(1)For loans held at our consolidated CAFL 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.guidelines, and are recorded through Investment fair value changes, net on our consolidated statements of income (loss). The net impact to our income statement associated with our economic investments in these securitization entities is presented in Table 4.2. The following table provides the activity of business purpose loans held-for-investment at CAFL during the three and nine months ended September 30, 2022 and 2021.
Table 7.3 – Activity of Business Purpose Loans Held-for-Investment at CAFL
Three Months Ended 
 September 30, 2022
Three Months Ended 
 September 30, 2021
(In Thousands)SFR at
CAFL
Bridge at CAFLSFR at
CAFL
Bridge at CAFL
Net market valuation gains (losses) recorded$(108,980)$1,906 $(34,803)$— 
Nine Months Ended 
 September 30, 2022
Nine Months Ended 
 September 30, 2021
(In Thousands)SFR at
CAFL
Bridge at CAFLSFR at
CAFL
Bridge at CAFL
Net market valuation gains (losses) recorded$(419,182)$50 $(96,934)$— 
REO
See Note 1213 for detail on BPLbusiness purpose loans transferred to REO during 2022.

3638


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 7. Business Purpose Loans - (continued)
Business Purpose Loan Characteristics
The following tables summarize the characteristics of the business purpose loans owned at Redwood and at consolidated CAFL entities at March 31,September 30, 2022 and December 31, 2021.
Table 7.4 – Characteristics of Business Purpose Loans
March 31, 2022SFR at RedwoodSFR at
CAFL
 Bridge at RedwoodBridge at CAFL
(Dollars in Thousands)
Number of loans239 1,116 1,384 1,375 
Unpaid principal balance$518,230 $3,083,716 $921,208 $288,823 
Fair value of loans$505,889 $3,038,939 $917,979 $291,971 
Weighted average coupon4.76 %5.15 %6.38 %6.77 %
Weighted average remaining loan term (years)11611
Market value of loans pledged as collateral under short-term debt facilities$66,685 N/A$62,494 N/A
Market value of loans pledged as collateral under long-term debt facilities$376,502 N/A$815,580 N/A
Delinquency information
Number of loans with 90+ day delinquencies (1)
22 56 48 
Unpaid principal balance of loans with 90+ day delinquencies$5,212 $52,725 $32,830 $7,847 
Fair value of loans with 90+ day delinquencies (2)
$4,086 N/A$28,319 $7,847 
Number of loans in foreclosure (3)
37 
Unpaid principal balance of loans in foreclosure$5,301 $12,623 $42,152 $4,472 
Fair value of loans in foreclosure (2)
$4,153 N/A$37,641 $4,472 
December 31, 2021SFR at RedwoodSFR at
CAFL
Bridge at RedwoodBridge at CAFL
(Dollars in Thousands)
Number of loans245 1,173 1,134 1,640 
Unpaid principal balance$348,232 $3,340,949 $670,392 $274,617 
Fair value of loans$358,309 $3,488,074 $666,364 $278,242 
Weighted average coupon4.73 %5.17 %6.91 %7.05 %
Weighted average remaining loan term (years)12611
Market value of loans pledged as collateral under short-term debt facilities$75,873 N/A$91,814 N/A
Market value of loans pledged as collateral under long-term debt facilities$244,703 N/A$554,597 N/A
Delinquency information
Number of loans with 90+ day delinquencies (1)
18 31 — 
Unpaid principal balance of loans with 90+ day delinquencies$5,384 $41,998 $18,032 $— 
Fair value of loans with 90+ day delinquencies (2)
$4,238 N/A$14,218 $— 
Number of loans in foreclosure (3)
28 — 
Unpaid principal balance of loans in foreclosure$5,473 $12,648 $18,043 $— 
Fair value of loans in foreclosure (2)
$4,305 N/A$14,257 $— 
September 30, 2022SFR at Redwood
SFR at
CAFL(1)
 Bridge at RedwoodBridge at CAFL
(Dollars in Thousands)
Number of loans202 1,142 1,585 1,994 
Unpaid principal balance$317,556 $3,316,706 $1,452,180 $510,839 
Fair value of loans$281,105 $3,018,994 $1,444,883 $512,236 
Weighted average coupon5.14 %5.22 %8.06 %8.04 %
Weighted average remaining loan term (years)15621
Market value of loans pledged as collateral under short-term debt facilities$279,846 N/A$702,899 N/A
Market value of loans pledged as collateral under long-term debt facilities$— N/A$699,704 N/A
Delinquency information
Number of loans with 90+ day delinquencies (2)
15 51 47 
Unpaid principal balance of loans with 90+ day delinquencies$536 $31,296 $33,822 $7,063 
Fair value of loans with 90+ day delinquencies (2)
$528 N/A$31,140 $7,144 
Number of loans in foreclosure (3)
49 — 
Unpaid principal balance of loans in foreclosure$536 $10,335 $33,471 $— 
Fair value of loans in foreclosure (3)
$528 N/A$30,789 $— 
December 31, 2021SFR at Redwood
SFR at
CAFL(1)
Bridge at RedwoodBridge at CAFL
(Dollars in Thousands)
Number of loans245 1,173 1,134 1,640 
Unpaid principal balance$348,232 $3,340,949 $670,392 $274,617 
Fair value of loans$358,309 $3,488,074 $666,364 $278,242 
Weighted average coupon4.73 %5.17 %6.91 %7.05 %
Weighted average remaining loan term (years)12611
Market value of loans pledged as collateral under short-term debt facilities$75,873 N/A$91,814 N/A
Market value of loans pledged as collateral under long-term debt facilities$244,703 N/A$554,597 N/A
Delinquency information
Number of loans with 90+ day delinquencies (2)
18 31 — 
Unpaid principal balance of loans with 90+ day delinquencies$5,384 $41,998 $18,032 $— 
Fair value of loans with 90+ day delinquencies (2)
$4,238 N/A$14,218 $— 
Number of loans in foreclosure (3)
28 — 
Unpaid principal balance of loans in foreclosure$5,473 $12,648 $18,043 $— 
Fair value of loans in foreclosure (3)
$4,305 N/A$14,257 $— 



3739


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 7. Business Purpose Loans - (continued)
Footnotes to Table 7.4
(1)The number of loans greater than 90 days delinquent includes loans in foreclosure.
(2)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 collateralized financing entities.
(2)The number of loans 90-or-more days delinquent includes loans in foreclosure.
(3)May include loans that are less than 90 days delinquent.


Note 8. 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 theour consolidated Agency multifamily loans consolidated at Redwood at March 31,September 30, 2022 and December 31, 2021.
Table 8.1 – Characteristics of Consolidated Agency Multifamily Loans
(Dollars in Thousands)(Dollars in Thousands)March 31, 2022December 31, 2021(Dollars in Thousands)September 30, 2022December 31, 2021
Number of loansNumber of loans28 28 Number of loans28 28 
Unpaid principal balanceUnpaid principal balance$453,140 $455,168 Unpaid principal balance$449,232 $455,168 
Fair value of loansFair value of loans$451,804 $473,514 Fair value of loans$427,458 $473,514 
Weighted average couponWeighted average coupon4.25 %4.25 %Weighted average coupon4.25 %4.25 %
Weighted average remaining loan term (years)Weighted average remaining loan term (years)34Weighted average remaining loan term (years)34
Delinquency informationDelinquency informationDelinquency information
Number of loans with 90+ day delinquenciesNumber of loans with 90+ day delinquencies— — Number of loans with 90+ day delinquencies— — 
Number of loans in foreclosureNumber of loans in foreclosure— — Number of loans in foreclosure— — 
The outstanding consolidated Agency multifamily loans held-for-investment at the consolidated Freddie Mac K-Series entity at March 31,September 30, 2022 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 nine months ended March 31,September 30, 2022 and 2021.
Table 8.2 – Activity of Consolidated Agency Multifamily Loans Held-for-Investment
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)(In Thousands)20222021(In Thousands)2022202120222021
Net market valuation gains (losses) recorded (1)
Net market valuation gains (losses) recorded (1)
$(19,681)$(730)
Net market valuation gains (losses) recorded (1)
$(13,691)$(487)$(40,120)$(3,745)
(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.income (loss). 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.
3840


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 9. Real Estate Securities
We invest in real estate securities that we create and retain from our Sequoia securitizations or acquire from third parties. The following table presents the fair values of our real estate securities by type at March 31,September 30, 2022 and December 31, 2021.
Table 9.1 – Fair Values of Real Estate Securities by Type
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
TradingTrading$173,684 $170,619 Trading$116,933 $170,619 
Available-for-saleAvailable-for-sale185,198 206,792 Available-for-sale142,279 206,792 
Total Real Estate SecuritiesTotal Real Estate Securities$358,882 $377,411 Total Real Estate Securities$259,212 $377,411 
Our real estate securities include mortgage-backed securities, which are presented in accordance with their general position within a securitization structure based on their rights to cash flows. Senior securities are those interests in a securitization that generally have the first right to cash flows and are last in line to absorb losses. Mezzanine securities are interests that are generally subordinate to senior securities in their rights to receive cash flows, and have subordinate securities below them that are first to absorb losses. Subordinate securities are all interests below mezzanine. Exclusive of our re-performing loan securities, nearly all of our residential securities are supported by collateral that was designated as prime at the time of issuance.
Trading Securities
We elected the fair value option for certain securities and classify them as trading securities. Our trading securities include both residential and multifamily mortgage-backed securities, and our residential securities also include securities backed by re-performing loans ("RPL"). The following table presents the fair value of trading securities by position and collateral type at March 31,September 30, 2022 and December 31, 2021.
Table 9.2 – Fair Value of Trading Securities by Position
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
SeniorSeniorSenior
Interest-only securities (1)
Interest-only securities (1)
$34,206 $21,787 
Interest-only securities (1)
$28,860 $21,787 
Total SeniorTotal Senior34,206 21,787 Total Senior28,860 21,787 
SubordinateSubordinateSubordinate
RPL securitiesRPL securities63,164 65,140 RPL securities31,963 65,140 
Multifamily securitiesMultifamily securities9,008 10,549 Multifamily securities8,021 10,549 
Other third-party residential securitiesOther third-party residential securities67,306 73,143 Other third-party residential securities48,089 73,143 
Total SubordinateTotal Subordinate139,478 148,832 Total Subordinate88,073 148,832 
Total Trading SecuritiesTotal Trading Securities$173,684 $170,619 Total Trading Securities$116,933 $170,619 
(1)Includes $20$25 million and $15 million of Sequoia certificated mortgage servicing rights at March 31,September 30, 2022 and December 31, 2021, respectively.
The following table presents the unpaid principal balance of trading securities by position and collateral type at March 31,September 30, 2022 and December 31, 2021.
Table 9.3 – Unpaid Principal Balance of Trading Securities by Position
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
Senior (1)
Senior (1)
$— $— 
Senior (1)
$— $— 
SubordinateSubordinate234,732 235,306 Subordinate220,888 235,306 
Total Trading SecuritiesTotal Trading Securities$234,732 $235,306 Total Trading Securities$220,888 $235,306 
(1)Our senior trading securities include interest-only securities, for which there is no principal balance.
3941


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 9. Real Estate Securities - (continued)

The following table provides the activity of trading securities during the three and nine months ended March 31,September 30, 2022 and 2021.
Table 9.4 – Trading Securities Activity
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)(In Thousands)20222021(In Thousands)2022202120222021
Principal balance of securities acquired (1)
Principal balance of securities acquired (1)
$— $15,880 
Principal balance of securities acquired (1)
$— $10,750 $— $28,380 
Principal balance of securities sold (1)
Principal balance of securities sold (1)
— 34,743 
Principal balance of securities sold (1)
— 750 12,716 53,561 
Net market valuation gains (losses) recorded (2)
Net market valuation gains (losses) recorded (2)
(1,456)21,349 
Net market valuation gains (losses) recorded (2)
(12,521)1,578 (30,019)24,725 
(1)For the three and nine months ended March 31, 2022 andSeptember 30, 2021, excludes zero$1 million and $2$3 million of securities bought and sold during the same quarter, respectively.
(2)Net market valuation gains (losses) on trading securities are recorded through Investment fair value changes, net and Mortgage banking activities, net on our consolidated statements of income.income (loss).
AFS Securities
The following table presents the fair value of our available-for-sale ("AFS") securities by position and collateral type at March 31,September 30, 2022 and December 31, 2021.
Table 9.5 – Fair Value of Available-for-Sale Securities by Position
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
SubordinateSubordinateSubordinate
Sequoia securitiesSequoia securities$108,768 $127,542 Sequoia securities$78,065 $127,542 
Multifamily securitiesMultifamily securities15,316 22,166 Multifamily securities13,211 22,166 
Other third-party residential securitiesOther third-party residential securities61,114 57,084 Other third-party residential securities51,003 57,084 
Total SubordinateTotal Subordinate185,198 206,792 Total Subordinate142,279 206,792 
Total AFS SecuritiesTotal AFS Securities$185,198 $206,792 Total AFS Securities$142,279 $206,792 
The following table provides the activity of available-for-sale securities during the three and nine months ended March 31,September 30, 2022 and 2021.
Table 9.6 – Available-for-Sale Securities Activity
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)(In Thousands)20222021(In Thousands)2022202120222021
Fair value of securities acquiredFair value of securities acquired$10,000 $1,078 Fair value of securities acquired$— $— $10,000 $1,600 
Fair value of securities soldFair value of securities sold— 2,200 Fair value of securities sold— — — 4,785 
Principal balance of securities calledPrincipal balance of securities called14,486 3,444 Principal balance of securities called— 11,565 14,486 25,970 
Net unrealized (losses) gains on AFS securities (1)
Net unrealized (losses) gains on AFS securities (1)
(8,731)(2,658)(60,013)19,552 
(1)Net unrealized (losses) gains on AFS securities are recorded on our consolidated balance sheets through Accumulated other comprehensive loss.
We often purchase AFS securities at a discount to their outstanding principal balances. To the extent we purchase an AFS security that has a likelihood of incurring a loss, we do not amortize into income the portion of the purchase discount that we do not expect to collect due to the inherent credit risk of the security. We may also expense a portion of our investment in the security to the extent we believe that principal losses will exceed the purchase discount. We designate any amount of unpaid principal balance that we do not expect to receive and thus do not expect to earn or recover as a credit reserve on the security. Any remaining net unamortized discounts or premiums on the security are amortized into income over time using the effective yield method.
42


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 9. Real Estate Securities - (continued)

At March 31,September 30, 2022, we had $12$10 million of AFS securities with contractual maturities less than five years, $4$1 million with contractual maturities greater than five years but less than ten years, and the remainder of our AFS securities had contractual maturities greater than ten years.

40


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 9. Real Estate Securities - (continued)

The following table presents the components of carrying value (which equals fair value) of AFS securities at March 31,September 30, 2022 and December 31, 2021.
Table 9.7 – Carrying Value of AFS Securities
March 31,September 30, 2022
(In Thousands)Total
Principal balance$230,201227,715 
Credit reserve(29,901)(30,247)
Unamortized discount, net(63,206)(61,015)
Amortized cost137,094136,453 
Gross unrealized gains50,85419,017 
Gross unrealized losses(2,045)(10,876)
CECL allowance(705)(2,315)
Carrying Value$185,198142,279 
December 31, 2021
(In Thousands)Total
Principal balance$242,852 
Credit reserve(27,555)
Unamortized discount, net(76,023)
Amortized cost139,274 
Gross unrealized gains67,815 
Gross unrealized losses(297)
CECL allowance— 
Carrying Value$206,792 
The following table presents the changes for the three and nine months ended March 31,September 30, 2022, in unamortized discount and designated credit reserves on residential AFS securities.
Table 9.8 – Changes in Unamortized Discount and Designated Credit Reserves on AFS Securities
Three Months Ended 
 March 31, 2022
Credit
Reserve
Unamortized
Discount, Net
(In Thousands)
Beginning balance$27,555 $76,023 
Amortization of net discount— (8,470)
Realized credit losses(88)— 
Acquisitions— — 
Sales, calls, other(343)(1,570)
Transfers to (release of) credit reserves, net2,777 (2,777)
Ending Balance$29,901 $63,206 

Three Months Ended 
 September 30, 2022
Nine Months Ended 
 September 30, 2022
Credit
Reserve
Unamortized
Discount, Net
Credit
Reserve
Unamortized
Discount, Net
(In Thousands)
Beginning balance$30,619 $61,303 $27,555 $76,023 
Amortization of net discount— (830)— (10,647)
Realized credit recoveries (losses), net170 — 244 — 
Acquisitions— — — — 
Sales, calls, other— — (343)(1,570)
Transfers to (release of) credit reserves, net(542)542 2,791 (2,791)
Ending Balance$30,247 $61,015 $30,247 $61,015 

4143


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 9. Real Estate Securities - (continued)

AFS Securities with Unrealized Losses
The following table presents the components comprising the total carrying value (fair value) and unrealized losses of residential AFS securities that were in a gross unrealized loss position at March 31,September 30, 2022 and December 31, 2021.
Table 9.9 – Components of Fair Value of AFS Securities in Gross Unrealized Loss Position by Holding Periods
Less Than 12 Consecutive Months12 Consecutive Months or LongerLess Than 12 Consecutive Months12 Consecutive Months or Longer
Amortized
Cost
Unrealized
Losses
Fair
Value
Amortized
Cost
Unrealized
Losses
Fair
Value
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(In Thousands)(In Thousands)(In Thousands)
March 31, 2022$29,500 $(1,958)$27,542 $1,600 $(87)$1,513 
September 30, 2022September 30, 2022$65,585 $(10,685)$1,409 $(191)
December 31, 2021December 31, 20217,078 (251)6,827 1,600 (46)1,554 December 31, 20216,827 (251)1,554 (46)
At March 31,September 30, 2022, after giving effect to purchases, sales, and extinguishment due to credit losses, our consolidated balance sheet included 8281 AFS securities, of which 635 were in aan unrealized loss position and one was in a continuous unrealized loss position for 12 consecutive months or longer. At December 31, 2021, our consolidated balance sheet included 85 AFS securities, of which 4four were in an unrealized loss position and 1one was in a continuous unrealized loss position for 12 consecutive months or longer.

Evaluating AFS Securities for Credit Losses
Gross unrealized losses on our AFS securities were $2$11 million at March 31,September 30, 2022. We evaluate all securities in an unrealized loss position to determine if the impairment is credit-related (resulting in an allowance for credit losses recorded in earnings) or non-credit-related (resulting in an unrealized loss through other comprehensive income). At March 31,September 30, 2022, we did not intend to sell any of our AFS securities that were in an unrealized loss position, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost basis, which may be at their maturity. We review our AFS securities that are in an unrealized loss position to identify those securities with losses based on an assessment of changes in expected cashcash flows for such securities, which considers recent security performance and expected future performance of the underlying collateral.
At March 31,September 30, 2022, our current expected credit loss ("CECL") allowance related to our AFS securities was $0.7$2.3 million. AFS securities for which an allowance is recognized have experienced, or are expected to experience, credit-related adverse cash flow changes. In determining our estimate of cash flows for AFS securities we may consider factors such as structural credit enhancement, past and expected future performance of underlying mortgage loans, including timing of expected future cash flows, which are informed by prepayment rates, default rates, loss severities, delinquency rates, percentage of non-performing loans, FICO scores at loan origination, year of origination, loan-to-value ratios, and geographic concentrations, as well as general market assessments. Changes in our evaluation of these factors impacted the cash flows expected to be collected at the assessment date and were used to determine if there were credit-related adverse cash flows and if so, the amount of credit relatedcredit-related losses. Significant judgment is used in both our analysis of the expected cash flows for our AFS securities and any determination of security credit losses.
The table below summarizes the weighted average of the significant credit quality indicators we used for the credit loss allowance on our AFS securities at March 31,September 30, 2022.
Table 9.10 – Significant Credit Quality Indicators
March 31,September 30, 2022Subordinate Securities
Default rate0.7%0.8%
Loss severity20%

4244


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 9. Real Estate Securities - (continued)

The following table details the activity related to the allowance for credit losses for AFS securities for the three and nine months ended March 31,September 30, 2022.
Table 9.11 – Rollforward of Allowance for Credit Losses
Three Months Ended March 31, 2022
(In Thousands)
Beginning balance allowance for credit losses$— 
Additions to allowance for credit losses on securities for which credit losses were not previously recorded705 
Additional increases (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period— 
Allowance on purchased financial assets with credit deterioration— 
Reduction to allowance for securities sold during the period— 
Reduction to allowance for securities we intend to sell or more likely than not will be required to sell— 
Write-offs charged against allowance— 
Recoveries of amounts previously written off— 
Ending balance of allowance for credit losses$705 
Three Months Ended September 30, 2022Nine Months Ended September 30, 2022
(In Thousands)
Beginning balance allowance for credit losses$1,771 $— 
Additions to allowance for credit losses on securities for which credit losses were not previously recorded30 1,520 
Additional increases (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period514 795 
Allowance on purchased financial assets with credit deterioration— — 
Reduction to allowance for securities sold during the period— — 
Reduction to allowance for securities we intend to sell or more likely than not will be required to sell— — 
Write-offs charged against allowance— — 
Recoveries of amounts previously written off— — 
Ending balance of allowance for credit losses$2,315 $2,315 
Gains and losses from the sale of AFS securities are recorded as Realized gains, net, in our consolidated statements of income. The following table presents the gross realized gains and losses on sales and calls of AFS securities for the three and nine months ended March 31,September 30, 2022 and 2021.
Table 9.12 – Gross Realized Gains and Losses on AFS Securities
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)(In Thousands)20222021(In Thousands)2022202120222021
Gross realized gains - salesGross realized gains - sales$— $200 Gross realized gains - sales$— $— $— $1,507 
Gross realized gains - callsGross realized gains - calls1,914 2,408 Gross realized gains - calls— 6,389 1,914 15,484 
Gross realized losses - salesGross realized losses - sales— — Gross realized losses - sales— — — — 
Total Realized Gains on Sales and Calls of AFS Securities, netTotal Realized Gains on Sales and Calls of AFS Securities, net$1,914 $2,608 Total Realized Gains on Sales and Calls of AFS Securities, net$— $6,389 $1,914 $16,991 
During the threenine months ended March 31,September 30, 2022, we called 3three of our unconsolidated Sequoia entities and purchased $102 million (unpaid principal balance) of loans from the securitization trusts. In association with these calls, we realized a $0.3 million gain on the securities we owned from these securitizations. The remaining realized gains were from third-party securities we owned that were called during the first quarter ofnine months ended September 30, 2022.

43
45


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)


Note 10. Home Equity Investments (HEI)
Home equity investments at September 30, 2022 and December 31, 2021 are summarized in the following table.
Table 10.1 – Home Equity Investments
(In Thousands)September 30, 2022December 31, 2021
HEIs at Redwood$200,709 $33,187 
HEIs held at consolidated HEI securitization entity139,728 159,553 
Total Home Equity Investments$340,437 $192,740 
We purchase home equity investment contracts from third party originators under flow purchase agreements. 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 a deed of trust or a mortgage. Our investments in HEIs allow us to share in both home price appreciation and depreciation of the associated property.
At September 30, 2022, we had flow purchase agreements with HEI originators with $149 million of cumulative purchase commitments outstanding. See Note 17 for additional information on these commitments.
As of September 30, 2022, we owned $201 million of HEIs at Redwood and consolidated $140 million of HEIs through the HEI securitization entity. We account for these investments under the fair value option and during the three and nine months ended September 30, 2022, we recorded net market valuation losses of $5 million and losses of $2 million, respectively, related to HEIs owned at Redwood through Investment fair value changes, net on our consolidated statements of income (loss).
We consolidate the HEI securitization in accordance with GAAP and have elected to account for it under the CFE election. During the three and nine months ended September 30, 2022, we recorded net market valuation losses of $1 million and gains of $4 million (including $1 million and $3 million of interest expense), respectively, related to our net investment in the HEI securitization entity through Investment fair value changes, net on our consolidated statements of income (loss).

Note 10.11. Other Investments
Other investments at March 31,September 30, 2022 and December 31, 2021 are summarized in the following table.
Table 10.111.1 – Components of Other Investments
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
Servicer advance investmentsServicer advance investments$302,837 $350,923 Servicer advance investments$274,934 $350,923 
HEIs227,133 192,740 
Strategic investmentsStrategic investments71,607 35,702 
Excess MSRsExcess MSRs43,023 44,231 Excess MSRs40,452 44,231 
Strategic investments40,524 35,702 
Mortgage servicing rightsMortgage servicing rights19,739 12,438 Mortgage servicing rights24,796 12,438 
OtherOther2,325 5,935 Other973 5,935 
Total Other InvestmentsTotal Other Investments$635,581 $641,969 Total Other Investments$412,762 $449,229 
Servicer advance investments
We and a third-party co-investor, through 2two partnerships (“SA Buyers”) consolidated by us, purchased the outstanding servicer advances and excess MSRs related to a portfolio of legacy residential mortgage-backed securitizations serviced by the co-investor (Referco-investor. Refer to Note 10 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information regarding the transactions).transactions. At Marchboth September 30, 2022 and December 31, 2022,2021, we had cumulatively funded $148 million of total capital to the SA Buyers (seeBuyers. See Note 1617 for additional detail).detail on these commitments.
46


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 11. Other Investments - (continued)
At March 31,September 30, 2022, our servicer advance investments had a carrying value of $303$275 million and were associated with a portfolio of residential mortgage loans with an unpaid principal balance of $12.70$11.68 billion. The outstanding servicer advance receivables associated with this investment were $266$245 million at March 31,September 30, 2022, which were financed with short-term non-recourse securitization debt (seedebt. See Note 1314 for additional detail on this debt).debt. The servicer advance receivables were comprised of the following types of advances at March 31,September 30, 2022 and December 31, 2021.
Table 10.211.2 – Components of Servicer Advance Receivables
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
Principal and interest advancesPrincipal and interest advances$87,083 $94,148 Principal and interest advances$89,816 $94,148 
Escrow advances (taxes and insurance advances)Escrow advances (taxes and insurance advances)138,465 172,847 Escrow advances (taxes and insurance advances)117,971 172,847 
Corporate advancesCorporate advances40,401 43,958 Corporate advances37,394 43,958 
Total Servicer Advance ReceivablesTotal Servicer Advance Receivables$265,949 $310,953 Total Servicer Advance Receivables$245,181 $310,953 
We account for our servicer advance investments at fair value and during the three and nine months ended March 31,September 30, 2022, and 2021, we recorded $5 million and $3$15 million of interest income, respectively, through Other interest income, and recorded a net market valuation loss of $3$4 million and loss of $0.2$10 million, respectively, through Investment fair value changes, net in our consolidated statements of income.

44


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 10. Other Investments - (continued)
HEIs
In 2019, we began purchasing home equity investment contracts from a third party under a flow purchase agreement. 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 a deed of trust or a mortgage. Our investments in HEIs allow us to share in both home price appreciation and depreciation of the associated property.
During the third quarter of 2021, we amended our original flow purchase agreement with the third party and committed to purchase $125 million of HEIs from the date of the amended agreement, and during the first quarter of 2022, we exercised an option and committed to acquire an additional $125 million of HEIs. At March 31, 2022, we had acquired $117 million of HEIs cumulatively, including $70 million of our $250 million commitment, under the third-party flow purchase agreement.
As of March 31, 2022, we owned $74 million of HEIs at Redwood and consolidated $153 million of HEIs through the HEI securitization entity. We account for these investments under the fair value option and during the three months ended March 31, 2022 and 2021, we recorded a net market valuation gain of $1 million and a net market valuation gain of $5 million, respectively, related to HEIs owned at Redwood through Investment fair value changes, net on our consolidated statements of income.
We consolidate the HEI securitization in accordance with GAAP and have elected to account for it under the CFE election. During the three months ended March 31, 2022, we recorded net market valuation gains of $3 million (including $1 million of interest expense) related to our net investment in the HEI securitization entity through Investment fair value changes, net on our consolidated statements of income.income (loss).
Strategic Investments
Strategic investments represent investments we have made in companies either through our RWT Horizons venture investment platform or separately at a corporate level. At March 31,September 30, 2022, we had made a total of 2127 investments in companies through RWT Horizons with a total carrying value of $25$24 million, and 2as well as six corporate-level investments, including our strategic investment in Churchill Finance. investments. During the three and nine months ended March 31,September 30, 2022, we recognized a net mark-to-market valuation gain of $1 million and $11 million, respectively, on our strategic investments, which was recorded in Investment fair value changes, net on our consolidated statements of income (loss). During the three and nine months ended September 30, 2022, we recorded $0.1losses of $0.3 million ofand $0.4 million, respectively, in Other income, net from our strategic investments.
Excess MSRs
In association with our servicer advance investments described above, we (through our consolidated SA Buyers) invested in excess MSRs associated with the same portfolio of legacy residential mortgage-backed securitizations. Additionally, we own excess MSRs associated with specified pools of multifamily loans. We account for our excess MSRs at fair value and during the three and nine months ended March 31,September 30, 2022, and 2021, we recognized $4 million and $3$12 million of interest income, respectively, through Other interest income, and recorded net market valuation losses of $1$0.4 million and $2$4 million, respectively, through Investment fair value changes, net on our consolidated statements of income.income (loss).
Mortgage Servicing Rights
We invest in mortgage servicing rights associated with residential mortgage loans and contract with licensed sub-servicers to perform all servicing functions for these loans. The majority of our investments in MSRs were made through the retention of servicing rights associated with the residential jumbo mortgage loans that we acquired and subsequently sold to third parties. During the three and nine months ended March 31,September 30, 2022, we retained zero and $5 million, respectively, of MSRs from sales of residential loans to third parties. We hold our MSR investments at our taxable REIT subsidiaries.
At March 31,September 30, 2022 and December 31, 2021, our MSRs had a fair value of $20$25 million and $12 million, respectively, and were associated with loans with an aggregate principal balance of $2.36$2.22 billion and $2.12 billion, respectively. During the three and nine months ended March 31,September 30, 2022, and 2021, including net market valuation gains and losses on our MSRs, we recorded net income of $4.3$3 million and $1$13 million, respectively, through Other income on our consolidated statements of income (loss) related to our MSRs.
4547


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)
Note 11.12. Derivative Financial Instruments
The following table presents the fair value and notional amount of our derivative financial instruments at March 31,September 30, 2022 and December 31, 2021.
Table 11.112.1 – Fair Value and Notional Amount of Derivative Financial Instruments
March 31, 2022December 31, 2021September 30, 2022December 31, 2021
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
(In Thousands)(In Thousands)(In Thousands)
Assets - Risk Management DerivativesAssets - Risk Management DerivativesAssets - Risk Management Derivatives
Interest rate swapsInterest rate swaps$11,412 $460,000 $611 $161,500 Interest rate swaps$24,626 $459,000 $611 $161,500 
TBAsTBAs95,631 4,400,000 2,880 2,440,000 TBAs13,568 565,000 2,880 2,440,000 
Interest rate futuresInterest rate futures2,907 197,800 25 9,000 Interest rate futures26,275 681,500 25 9,000 
SwaptionsSwaptions— — 18,318 1,660,000 Swaptions— — 18,318 1,660,000 
Assets - Other DerivativesAssets - Other DerivativesAssets - Other Derivatives
Loan purchase and interest rate lock commitmentsLoan purchase and interest rate lock commitments2,110 187,895 4,633 971,631 Loan purchase and interest rate lock commitments744 87,157 4,633 971,631 
Total AssetsTotal Assets$112,060 $5,245,695 $26,467 $5,242,131 Total Assets$65,213 $1,792,657 $26,467 $5,242,131 
Liabilities - Risk Management DerivativesLiabilities - Risk Management DerivativesLiabilities - Risk Management Derivatives
Interest rate swapsInterest rate swaps$(650)$66,000 $(1,251)$283,100 Interest rate swaps$(23)$10,000 $(1,251)$283,100 
TBAsTBAs(64,883)3,535,000 (658)870,000 TBAs(6,545)255,000 (658)870,000 
Interest rate futuresInterest rate futures(236)83,000 (905)62,500 Interest rate futures(2)300 (905)62,500 
Liabilities - Other DerivativesLiabilities - Other DerivativesLiabilities - Other Derivatives
Loan purchase and interest rate lock commitmentsLoan purchase and interest rate lock commitments(14,491)912,748 (503)404,190 Loan purchase and interest rate lock commitments(212)58,544 (503)404,190 
Total LiabilitiesTotal Liabilities$(80,260)$4,596,748 $(3,317)$1,619,790 Total Liabilities$(6,782)$323,844 $(3,317)$1,619,790 
Total Derivative Financial Instruments, NetTotal Derivative Financial Instruments, Net$31,800 $9,842,443 $23,150 $6,861,921 Total Derivative Financial Instruments, Net$58,431 $2,116,501 $23,150 $6,861,921 
Risk Management Derivatives
To manage, to varying degrees, risks associated with certain assets and liabilities on our consolidated balance sheets, we may enter into derivative contracts. At March 31,September 30, 2022, we were party to swaps and swaptions with an aggregate notional amount of $526$469 million, TBA agreements with an aggregate notional amount of $7.94 billion,$820 million, and interest rate futures contracts with an aggregate notional amount of $281$682 million. At December 31, 2021, we were party to swaps and swaptions with an aggregate notional amount of $2.10 billion, futures with an aggregate notional amount of $72 million and TBA agreements with an aggregate notional amount of $3.31 billion.
For the three and nine months ended March 31,September 30, 2022, risk management derivatives had net market valuation gains of $76 million and gains of $198 million, respectively. For the three and nine months ended September 30, 2021, risk management derivatives had a net market valuation gaingains of $92$4 million and a net market valuation gaingains of $93$38 million, respectively. Market valuation gains and losses are recorded in Mortgage banking activities, net, Investment fair value changes, net and Other income on our consolidated statements of income.income (loss).
4648


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)
Note 11.12. Derivative Financial Instruments - (continued)
Loan Purchase and Interest Rate Lock Commitments
LPCsLoan purchase commitments ("LPCs") and IRLCsinterest rate lock commitments ("IRLCs") that qualify as derivatives are recorded at their estimated fair values. For the three and nine months ended March 31,September 30, 2022, and 2021, LPCs and IRLCs had a net market valuation losslosses of $42$3 million and losslosses of $52$54 million, respectively, that were recorded in Mortgage banking activities, net on our consolidated statements of income.income (loss). For both the three and nine months ended September 30, 2021, LPCs and IRLCs had net market valuation gains of $18 million, that were recorded in Mortgage banking activities, net on our consolidated statements of income (loss).
Derivatives Designated as Cash Flow Hedges
For interest rate agreements previously designated as cash flow hedges, our total unrealized loss reported in Accumulated other comprehensive income was $75$73 million and $76 million at March 31,September 30, 2022 and December 31, 2021, respectively. We are amortizing this loss into interest expense over the remaining term of the debt they were originally hedging. As of March 31,September 30, 2022, we expect to amortize $4 million of realized losses related to terminated cash flow hedges into interest expense over the next twelve months.
The following table illustrates the impact on interest expense of our interest rate agreements accounted for as cash flow hedges for the three and nine months ended March 31,September 30, 2022 and 2021.
Table 11.212.2 – Impact on Interest Expense of Interest Rate Agreements Accounted for as Cash Flow Hedges
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)(In Thousands)20222021(In Thousands)2022202120222021
Net interest expense on cash flows hedgesNet interest expense on cash flows hedges$— $— Net interest expense on cash flows hedges$— $— $— $— 
Realized net losses reclassified from other comprehensive incomeRealized net losses reclassified from other comprehensive income(1,018)(1,018)Realized net losses reclassified from other comprehensive income(1,040)(1,041)(3,086)(3,086)
Total Interest ExpenseTotal Interest Expense$(1,018)$(1,018)Total Interest Expense$(1,040)$(1,041)$(3,086)$(3,086)
Derivative Counterparty Credit Risk
As discussed in our Annual Report on Form 10-K for the year ended December 31, 2021, we consider counterparty risk as part of our fair value assessments of all derivative financial instruments at each quarter-end. At March 31,September 30, 2022, we assessed this risk as remote and did not record an associated specific valuation adjustment.
At March 31,September 30, 2022, we were in compliance with our derivative counterparty ISDA agreements.
49


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 12.13. Other Assets and Liabilities
Other assets at March 31,September 30, 2022 and December 31, 2021 are summarized in the following table.
Table 12.113.1 – Components of Other Assets
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
Accrued interest receivableAccrued interest receivable$54,944 $47,515 
Investment receivableInvestment receivable$49,313 $82,781 Investment receivable50,149 82,781 
Accrued interest receivable48,717 47,515 
REO27,179 36,126 
Deferred tax assetDeferred tax asset20,867 20,867 Deferred tax asset20,867 20,867 
Operating lease right-of-use assetsOperating lease right-of-use assets17,917 18,772 Operating lease right-of-use assets17,126 18,772 
Income tax receivablesIncome tax receivables13,959 22 
Fixed assets and leasehold improvements (1)
Fixed assets and leasehold improvements (1)
12,411 9,019 
Margin receivableMargin receivable17,165 7,269 Margin receivable6,683 7,269 
Fixed assets and leasehold improvements (1)
10,105 9,019 
REOREO3,683 36,126 
OtherOther10,939 8,768 Other14,678 8,746 
Total Other AssetsTotal Other Assets$202,202 $231,117 Total Other Assets$194,500 $231,117 
(1)Fixed assets and leasehold improvements had a basis of $18$22 million and accumulated depreciation of $8$9 million at March 31,September 30, 2022.


47


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Note 12. Other Assets and Liabilities - (continued)
Accrued expenses and other liabilities at March 31,September 30, 2022 and December 31, 2021 are summarized in the following table.
Table 12.213.2 – Components of Accrued Expenses and Other Liabilities
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
Payable to non-controlling interestsPayable to non-controlling interests$47,939 $42,670 Payable to non-controlling interests$47,487 $42,670 
Accrued interest payableAccrued interest payable46,938 39,297 
Margin payableMargin payable41,966 24,368 Margin payable30,389 24,368 
Accrued interest payable38,647 39,297 
Accrued compensationAccrued compensation23,488 74,636 
Operating lease liabilitiesOperating lease liabilities19,533 20,960 
Guarantee obligationsGuarantee obligations6,532 7,459 
Residential loan and MSR repurchase reserveResidential loan and MSR repurchase reserve5,754 9,306 
Accrued operating expensesAccrued operating expenses30,581 4,377 Accrued operating expenses4,956 4,377 
Current accounts payableCurrent accounts payable21,734 8,273 Current accounts payable4,722 8,273 
Operating lease liabilities20,218 20,960 
Accrued compensation16,990 74,636 
Residential loan and MSR repurchase reserve9,529 9,306 
Guarantee obligations7,046 7,459 
Bridge loan holdbacksBridge loan holdbacks2,536 3,109 Bridge loan holdbacks3,930 3,109 
OtherOther7,264 11,333 Other7,396 11,333 
Total Accrued Expenses and Other LiabilitiesTotal Accrued Expenses and Other Liabilities$244,450 $245,788 Total Accrued Expenses and Other Liabilities$201,125 $245,788 
Refer to Note 12 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional descriptions of our other assets and liabilities.
Margin Receivable and Payable
Margin receivable and payable resulted from margin calls between us and our counterparties under derivatives, master repurchase agreements, and warehouse facilities, whereby we or the counterparty posted collateral. Through March 31,September 30, 2022, we had met all margin calls due.
50


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 13. Other Assets and Liabilities - (continued)
REO
The following table summarizes the activity and carrying values of REO assets held at Redwood and at consolidated Legacy Sequoia, Freddie Mac SLST, and CAFL SFR entities during the threenine months ended March 31,September 30, 2022.
Table 12.313.3 – REO Activity
Three Months Ended March 31, 2022Nine Months Ended September 30, 2022
(In Thousands)(In Thousands) BridgeLegacy SequoiaFreddie Mac SLSTSFR at CAFLTotal(In Thousands) BridgeLegacy SequoiaFreddie Mac SLSTSFR at CAFLTotal
Balance at beginning of period Balance at beginning of period $13,068 $61 $2,028 $20,969 $36,126 Balance at beginning of period $13,067 $61 $2,028 $20,970 $36,126 
Transfers to REOTransfers to REO272 — 1,047 — 1,319 Transfers to REO963 407 2,664 — 4,034 
Liquidations (1)
Liquidations (1)
(382)(504)(750)(9,250)(10,886)
Liquidations (1)
(14,271)(505)(2,395)(20,970)(38,141)
Changes in fair value, netChanges in fair value, net82 443 95 — 620 Changes in fair value, net974 443 247 — 1,664 
Balance at End of PeriodBalance at End of Period$13,040 $— $2,420 $11,719 $27,179 Balance at End of Period$733 $406 $2,544 $— $3,683 
(1)For the threenine months ended March 31,September 30, 2022, REO liquidations resulted in $0.6$2 million of realized gains, which were recorded in Investment fair value changes, net on our consolidated statements of income.income (loss).

48


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Note 12. Other Assets and Liabilities - (continued)
The following table provides the detail of REO assets at Redwood and at consolidated Legacy Sequoia, Freddie Mac SLST, and CAFL SFR entities at March 31, 2022 and December 31, 2021.
Table 12.4 – REO Assets
Number of REO assetsBridgeLegacy SequoiaFreddie Mac SLSTSFR at CAFLTotal
At March 31, 2022— 25 31 
At December 31, 202124 34 
Note 13.14. Short-Term Debt
We enter into repurchase agreements ("repo"), loan warehouse agreements, and other forms of collateralized (and generallypartially uncommitted) short-term borrowings with several banks and major investment banking firms. At March 31,September 30, 2022, we had outstanding agreements with several counterparties and we were in compliance with all of the related covenants.
The table below summarizes our short-term debt, including the facilities that are available to us, the outstanding balances, the weighted average interest rate, and the maturity information at March 31,September 30, 2022 and December 31, 2021.
Table 13.114.1 – Short-Term Debt
September 30, 2022
(Dollars in Thousands)Number of FacilitiesOutstanding BalanceLimit
Weighted Average Interest Rate (1)
Maturity (2)
Weighted Average Days Until Maturity
Facilities
Residential loan warehouse$748,962 $2,850,000 4.83 %12/2022 - 9/2023150
Business purpose loan warehouse775,491 1,750,000 5.67 %3/2023 - 9/2023289
Real estate securities repo
124,435 — 3.50 %10/2022 - 12/202232
Total Short-Term Debt Facilities20 1,648,888 
Servicer advance financing233,104 290,000 4.94 %11/2023397
Promissory notesN/A30,702 N/A6.58 %N/AN/A
Convertible notes, netN/A197,585 N/A4.75 %8/2023319
Total Short-Term Debt$2,110,279 
March 31, 2022
(Dollars in Thousands)Number of FacilitiesOutstanding BalanceLimit
Weighted Average Interest Rate (1)
MaturityWeighted Average Days Until Maturity
Facilities
Residential loan warehouse$1,223,247 $2,750,000 2.13 %8/2022-3/2023288
Business purpose loan warehouse95,161 350,000 3.45 %3/2023349
Real estate securities repo
75,445 — 1.25 %4/2022-6/202233
Total Short-Term Debt Facilities12 1,393,853 
Servicer advance financing253,393 350,000 2.25 %11/2022216
Total Short-Term Debt$1,647,246 
51


December 31, 2021
(Dollars in Thousands)Number of FacilitiesOutstanding BalanceLimit
Weighted Average Interest Rate (1)
MaturityWeighted Average Days Until Maturity
Facilities
Residential loan warehouse$1,669,344 $2,900,000 1.87 %1/2022-12/2022153
Business purpose loan warehouse138,746 350,000 3.34 %3/2022-7/2022105
Real estate securities repo
74,825 — 1.13 %1/2022-3/202233
Total Short-Term Debt Facilities13 1,882,915 
Servicer advance financing294,447 350,000 1.90 %11/2022306
Total Short-Term Debt$2,177,362 
REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 14. Short-Term Debt - (continued)
December 31, 2021
(Dollars in Thousands)Number of FacilitiesOutstanding BalanceLimit
Weighted Average Interest Rate (1)
MaturityWeighted Average Days Until Maturity
Facilities
Residential loan warehouse$1,669,344 $2,900,000 1.87 %1/2022-12/2022153
Business purpose loan warehouse138,746 350,000 3.34 %3/2022-7/2022105
Real estate securities repo
74,825 — 1.13 %1/2022-3/202233
Total Short-Term Debt Facilities13 1,882,915 
Servicer advance financing294,447 350,000 1.90 %11/2022306
Convertible notes, netN/A— 
Total Short-Term Debt$2,177,362 
(1)Borrowings under our facilities generally are uncommitted and charged interest based on a specified margin over 1-month SOFR or 1- or 3-month LIBOR.
49


(2)
REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,Promissory notes payable on demand to lender with 90-day notice. Assumed maturity date at September 30, 2022
(Unaudited)
Note 13. Short-Term Debt - (continued)
is December 30, 2022 for this presentation.
The following table below presents the value of loans, securities, and other assets pledged as collateral under our short-term debt at March 31,September 30, 2022 and December 31, 2021.
Table 13.214.2 – Collateral for Short-Term Debt
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
Collateral TypeCollateral TypeCollateral Type
Held-for-sale residential loansHeld-for-sale residential loans$1,334,272 $1,838,797 Held-for-sale residential loans$828,192 $1,838,797 
Business purpose loansBusiness purpose loans129,179 167,687 Business purpose loans982,745 167,687 
Real estate securitiesReal estate securitiesReal estate securities
On balance sheetOn balance sheet5,539 5,823 On balance sheet60,457 5,823 
Sequoia securitizations (1)
Sequoia securitizations (1)
59,862 61,525 
Sequoia securitizations (1)
77,470 61,525 
Freddie Mac K-Series securitization (1)
Freddie Mac K-Series securitization (1)
31,921 31,657 
Freddie Mac K-Series securitization (1)
32,047 31,657 
Total real estate securities owned
Total real estate securities owned
97,322 99,005 
Total real estate securities owned
169,974 99,005 
Restricted cash and other assetsRestricted cash and other assets1,962 1,962 Restricted cash and other assets4,116 1,962 
Total Collateral for Short-Term Debt FacilitiesTotal Collateral for Short-Term Debt Facilities1,562,735 2,107,451 Total Collateral for Short-Term Debt Facilities1,985,027 2,107,451 
CashCash9,615 6,480 Cash15,891 6,480 
Restricted cashRestricted cash24,170 25,420 Restricted cash18,569 25,420 
Servicer advancesServicer advances302,837 310,953 Servicer advances274,934 310,953 
Total Collateral for Servicer Advance FinancingTotal Collateral for Servicer Advance Financing336,622 342,853 Total Collateral for Servicer Advance Financing309,394 342,853 
Total Collateral for Short-Term DebtTotal Collateral for Short-Term Debt$1,899,357 $2,450,304 Total Collateral for Short-Term Debt$2,294,421 $2,450,304 
(1)Represents securities we have retained from consolidated securitization entities. For GAAP purposes, we consolidate the loans and non-recourse ABS debt issued from these securitizations.
For the three and nine months ended March 31,September 30, 2022, the average balance of our short-term debt facilities was $1.73 billion.$1.64 billion and $1.65 billion, respectively. At March 31,September 30, 2022 and December 31, 2021, accrued interest payable on our short-term debt facilities was $2$5 million and $2 million, respectively.
52


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 14. Short-Term Debt - (continued)
Servicer advance financing consists of non-recourse short-term securitization debt used to finance servicer advance investments. We consolidate the securitization entity that issued the debt, but the entity is independent of Redwood and the assets and liabilities are not owned by and are not legal obligations of Redwood. At March 31,September 30, 2022, the accrued interest payable balance on this financing was $0.2$0.3 million and the unamortized capitalized commitment costs were $0.7$0.1 million.
In connection with our acquisition of Riverbend, we assumed $43 million of promissory notes which are payable on demand with a 90-day notice from the lender or which may be repaid by us with a 90-day notice. These unsecured, non-marginable, recourse notes were issued in three separate series with fixed interest rates between 6% and 8%. During the three months ended September 30, 2022, we repaid $12 million of principal of these notes.
We also maintain a $10 million committed line of credit with a financial institution that is secured by certain mortgage-backed securities with a fair market value of $1 million at March 31,September 30, 2022. At both March 31,September 30, 2022 and December 31, 2021, we had no outstanding borrowings on this facility.

During the three and nine months ended September 30, 2022, business purpose loan warehouse facilities with a borrowing limits of $450 million and $900 million, respectively, were reclassified to short-term debt from long-term debt as the maturity of these facilities became less than one year.
50


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,During the three months ended September 30, 2022,
(Unaudited)
Note 13. Short-Term Debt - (continued)
$199 million principal amount of 4.75% convertible debt and $1 million of unamortized deferred issuance costs were reclassified from long-term debt to short-term debt as the maturity of the notes was less than one year as of August 2022.
Remaining Maturities of Short-Term Debt
The following table presents the remaining maturities of our secured short-term debt by the type of collateral securing the debt at March 31,September 30, 2022.
Table 13.314.3 – Short-Term Debt by Collateral Type and Remaining Maturities
March 31, 2022September 30, 2022
(In Thousands)(In Thousands)Within 30 days31 to 90 daysOver 90 daysTotal(In Thousands)Within 30 days31 to 90 daysOver 90 daysTotal
Collateral TypeCollateral TypeCollateral Type
Held-for-sale residential loansHeld-for-sale residential loans$— $— $1,223,247 $1,223,247 Held-for-sale residential loans$— $262,804 $486,158 $748,962 
Business purpose loansBusiness purpose loans— — 95,161 95,161 Business purpose loans— — 775,491 775,491 
Real estate securitiesReal estate securities43,675 31,770 — 75,445 Real estate securities72,233 52,202 — 124,435 
Total Secured Short-Term DebtTotal Secured Short-Term Debt43,675 31,770 1,318,408 1,393,853 Total Secured Short-Term Debt72,233 315,006 1,261,649 1,648,888 
Servicer advance financingServicer advance financing— — 253,393 253,393 Servicer advance financing— — 233,104 233,104 
Promissory notesPromissory notes— 30,702 — 30,702 
Convertible notes, netConvertible notes, net— — 197,585 197,585 
Total Short-Term DebtTotal Short-Term Debt$43,675 $31,770 $1,571,801 $1,647,246 Total Short-Term Debt$72,233 $345,708 $1,692,338 $2,110,279 
53


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)


Note 14.15. Asset-Backed Securities Issued
ABS issued represents securities issued by non-recourse securitization entities we consolidate under GAAP. The majority of our ABS issued is carried at fair value under the CFE election (see Note 4 for additional detail) with the remainder carried at amortized cost. The carrying values of ABS issued by our consolidated securitization entities at March 31,September 30, 2022 and December 31, 2021, along with other selected information, are summarized in the following table.
Table 14.115.1 – Asset-Backed Securities Issued
March 31, 2022Legacy
Sequoia
Sequoia
CAFL (1)
Freddie Mac SLST (2)
Freddie Mac
K-Series
HEITotal
September 30, 2022September 30, 2022Legacy
Sequoia
Sequoia
CAFL (1)
Freddie Mac SLST (2)
Freddie Mac
K-Series
HEITotal
(Dollars in Thousands)(Dollars in Thousands)Legacy
Sequoia
Sequoia
CAFL (1)
Freddie Mac SLST (2)
Freddie Mac
K-Series
HEITotal(Dollars in Thousands)
Certificates with principal balanceCertificates with principal balanceCertificates with principal balance$213,786 $3,650,411 $3,375,688 $1,344,521 $412,764 $112,380 $9,109,550 
Interest-only certificatesInterest-only certificates321 48,561 170,661 16,494 9,491 — 245,528 Interest-only certificates170 62,311 134,348 13,930 8,075 — 218,834 
Market valuation adjustmentsMarket valuation adjustments(23,899)(288,847)(156,196)(9,956)(6,280)(6,526)(491,704)Market valuation adjustments(16,602)(699,473)(330,549)(109,410)(25,428)(7,629)(1,189,091)
ABS Issued, NetABS Issued, Net$220,301 $3,627,920 $3,012,841 $1,470,043 $419,883 $121,378 $8,872,366 ABS Issued, Net$197,354 $3,013,249 $3,179,487 $1,249,041 $395,411 $104,751 $8,139,293 
Range of weighted average interest rates, by series(3)
Range of weighted average interest rates, by series(3)
0.57% to 2.05%2.46% to 5.03%2.64% to 5.44%3.50% to 4.75%3.55 %3.27 %
Range of weighted average interest rates, by series(3)
2.52% to 3.90%2.56% to 4.99%2.34% to 5.93%3.50% to 4.75%3.41 %3.76 %
Stated maturities(3)
Stated maturities(3)
2024 - 20362047-20522027-20312028-205920252052
Stated maturities(3)
2024 - 20362047-20522027-20322028-205920252052
Number of seriesNumber of series20 17 16 Number of series20 17 19 

51


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 14. Asset-Backed Securities Issued - (continued)
December 31, 2021Legacy
Sequoia
Sequoia
CAFL(1)
Freddie Mac SLST (2)
Freddie Mac K-SeriesHEITotal
(Dollars in Thousands)
Certificates with principal balance$259,505 $3,353,073 $3,264,766 $1,535,638 $418,700 $138,792 $8,970,474 
Interest-only certificates619 32,749 193,725 11,714 10,184 — 248,991 
Market valuation adjustments(32,243)(2,774)16,407 41,111 12,973 (1,382)34,092 
ABS Issued, Net$227,881 $3,383,048 $3,474,898 $1,588,463 $441,857 $137,410 $9,253,557 
Range of weighted average interest rates, by series(3)
0.23% to 1.44%2.40% to 5.03%2.64% to 5.24%3.50% to 4.75%3.41 %3.31 %
Stated maturities(3)
2024 - 20362047-20522027-20312028-205920252052 
Number of series20 16 16 
(1)Includes $485 million and $270 million (principal balance) of ABS issued by atwo CAFL bridge securitization trusttrusts sponsored by Redwood and accounted for at amortized cost at March 31,September 30, 2022 and December 31, 2021.2021, respectively.
(2)Includes $131$100 million and $145 million (principal balance) of ABS issued by a re-securitization trust sponsored by Redwood and accounted for at amortized cost at March 31,September 30, 2022 and December 31, 2021, respectively.
(3)Certain ABS issued by CAFL, Freddie Mac SLST, and HEI securitization entities are subject to early redemption and interest rate step-ups as described below.

54


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 15. Asset-Backed Securities Issued - (continued)
During the second quarter of 2022, we consolidated the assets and liabilities of a securitization entity formed in connection with the securitization of CoreVest bridge loans (presented within CAFL in Table 15.1 above), which we determined was a VIE and for which we determined we are the primary beneficiary. At issuance, we sold $215 million (principal balance) of ABS issued to third parties and retained the remaining beneficial ownership interest in the trust. The ABS were issued at a discount and we have elected to account for the ABS issued at amortized cost. At September 30, 2022, the principal balance of the ABS issued was $215 million, and the unamortized debt discount and deferred issuance costs were $7 million in total, for a net carrying value of $208 million. The weighted average stated coupon of the ABS issued was 4.32% at issuance. The ABS issued by the CAFL bridge entity are subject to an optional redemption in May 2024, and beginning in June 2025, the interest rate on the ABS issued increases by 2% through final maturity in May 2029. The ABS issued by this securitization were collateralized by $229 million of bridge loans and $19 million of restricted cash and other assets at September 30, 2022. The securitization is structured with $250 million of total funding capacity and a feature to allow reinvestment of loan payoffs for the first 24 months of the transaction (through May 2024), unless an amortization event occurs prior to the expiration of the 24-month reinvestment period. Amortization trigger events include, among other events, delinquency rates or default rates exceeding specified thresholds for three consecutive periods, or the effective advance rate exceeding a specified threshold.
During the third quarter of 2021, we consolidated the assets and liabilities of a securitization entity formed in connection with the securitization of CoreVest bridge loans (presented within CAFL in table 14.115.1 above), which we determined was a VIE and for which we determined we are the primary beneficiary. At issuance, we sold $270 million (principal balance) of ABS issued to third parties and retained the remaining beneficial ownership interest in the trust. The ABS were issued at a discount and we have elected to account for the ABS issued at amortized cost. At March 31,September 30, 2022, the principal balance of the ABS issued was $270 million, and the unamortized debt discount and deferred issuance costs were $2 million, for a net carrying value of $268 million. The weighted average stated coupon of the ABS issued was 2.34% at issuance. The ABS issued by the CAFL bridge entity are subject to an optional redemption in March 2024, and beginning in March 2025 the interest rate on the ABS issued increases by 2% through final maturity in March 2029. The ABS issued by this securitization were backedcollateralized by assets including $292$283 million of bridge loans $8and $24 million of restricted cash and $6 million of other assets at March 31,September 30, 2022. The securitization is structured with $300 million of total funding capacity and a feature to allow reinvestment of loan payoffs for the first 30 months of the transaction (through March 2024), unless an amortization event occurs prior to the expiration of the 30-month reinvestment period. Amortization trigger events include, among other events, delinquency rates or default rates exceeding specified thresholds for three consecutive periods, or the effective advance rate exceeding a specified threshold.
During the third quarter of 2021, we consolidated the assets and liabilities of the HEI securitization entity formed in connection with the securitization of HEIs, which we determined was a VIE and for which we determined we are the primary beneficiary. At issuance, we sold $146 million (principal balance) of ABS issued to third parties and retained a portion of the remaining beneficial ownership interest in the trust. We elected to account for the entity under the CFE election and account for the ABS issued at fair value, with the entire change in fair value of the ABS issued (including accrued interest) recorded through Investment fair value changes, net on our consolidated statements of income. The ABS issued by the HEI securitization entity are subject to an optional redemption in September 2023, and beginning in September 2024 the interest rate on the ABS issued increases by 2% through final maturity in 2052.
During the third quarter of 2020, we transferred all of the subordinate securities we owned from two consolidated re-performing loan securitization VIEs sponsored by Freddie Mac SLST to a re-securitization trust, which we determined was a VIE and for which we determined we are the primary beneficiary. At issuance, we sold $210 million (principal balance) of ABS issued to third parties and retained 100% of the remaining beneficial ownership interest in the trust through ownership of a subordinate security issued by the trust. The ABS was issued at a discount and we have elected to account for the ABS issued at amortized cost. At March 31,September 30, 2022, the principal balance of the ABS issued was $131$100 million, and the debt discount and deferred issuance costs were $2totaled $1 million, for a net carrying value of $129$99 million. The stated coupon of the ABS issued was 4.75% at issuance and the final stated maturity occurs in July 2059. The ABS issued are subject to an optional redemption in July 2022 and in July 2023 the ABS interest rate steps up to 7.75%.

5255


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 14.15. Asset-Backed Securities Issued - (continued)

The actual maturity of each class of ABS issued is primarily determined by the rate of principal prepayments on the assets of the issuing entity. Each series is also subject to redemption prior to the stated maturity according to the terms of the respective governing documents of each ABS issuing entity. As a result, the actual maturity of ABS issued may occur earlier than the stated maturity. At March 31,September 30, 2022, the majority of the ABS issued and outstanding had contractual maturities beyond five years. See Note 4 for detail on the carrying value components of the collateral for ABS issued and outstanding. The following table summarizes the accrued interest payable on ABS issued at March 31,September 30, 2022 and December 31, 2021. Interest due on consolidated ABS issued is payable monthly.
Table 14.215.2 – Accrued Interest Payable on Asset-Backed Securities Issued
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
Legacy SequoiaLegacy Sequoia$107 $99 Legacy Sequoia$223 $99 
SequoiaSequoia9,598 8,452 Sequoia9,003 8,452 
CAFLCAFL10,342 11,030 CAFL11,202 11,030 
Freddie Mac SLST (1)
Freddie Mac SLST (1)
4,405 4,630 
Freddie Mac SLST (1)
4,026 4,630 
Freddie Mac K-SeriesFreddie Mac K-Series1,232 1,190 Freddie Mac K-Series1,173 1,190 
Total Accrued Interest Payable on ABS IssuedTotal Accrued Interest Payable on ABS Issued$25,684 $25,401 Total Accrued Interest Payable on ABS Issued$25,627 $25,401 
(1)Includes accrued interest payable on ABS issued by a re-securitization trust sponsored by Redwood.

5356


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)
Note 15.16. Long-Term Debt
The tables below summarize our long-term debt, including the facilities that are available to us, the outstanding balances, the weighted average interest rate, and the maturity information at March 31,September 30, 2022 and December 31, 2021.
Table 15.116.1 – Long-Term Debt
March 31, 2022September 30, 2022
(Dollars in Thousands)(Dollars in Thousands)BorrowingsUnamortized Deferred Issuance Costs / DiscountNet Carrying ValueLimit
Weighted Average Interest Rate (1)
Final Maturity(Dollars in Thousands)BorrowingsUnamortized Deferred Issuance Costs / DiscountNet Carrying ValueLimit
Weighted Average Interest Rate (1)
Final Maturity
FacilitiesFacilitiesFacilities
Recourse Subordinate Securities FinancingRecourse Subordinate Securities FinancingRecourse Subordinate Securities Financing
Facility AFacility A$133,034 $(208)$132,826 N/A4.21 %9/2024Facility A$131,316 $— $131,316 N/A4.21 %9/2024
CAFLCAFLCAFL
Facility BFacility B102,351 (278)102,073 N/A4.21 %2/2025Facility B102,006 (126)101,880 N/A4.21 %2/2025
Facility CFacility C71,792 (189)71,603 N/A4.75 %6/2026
Non-Recourse BPL FinancingNon-Recourse BPL Financing
Facility DFacility D565,028 (976)564,052 $750,000 L + 2.51%N/A
Recourse BPL FinancingRecourse BPL Financing
Facility GFacility G81,995 (313)81,682 N/A4.75 %6/2026Facility G— — — 500,000 SOFR + 2.25% - 2.50%9/2024
Non-Recourse BPL Financing
Facility H430,026 (755)429,271 $600,000 L + 2.50%N/A
Recourse BPL Financing
Facility F301,200 (205)300,995 450,000 SOFR + 2.25%9/2023
Facility I263,836 — 263,836 450,000 SOFR + 3.24%6/2023
Total Long-Term Debt FacilitiesTotal Long-Term Debt Facilities1,312,442 (1,759)1,310,683 Total Long-Term Debt Facilities870,142 (1,291)868,851 
Convertible notesConvertible notesConvertible notes
4.75% convertible senior notes198,629 (1,571)197,058 N/A4.75 %8/2023
5.625% convertible senior notes5.625% convertible senior notes150,200 (1,879)148,321 N/A5.625 %7/20245.625% convertible senior notes150,200 (1,484)148,716 N/A5.625 %7/2024
5.75% exchangeable senior notes5.75% exchangeable senior notes172,092 (3,182)168,910 N/A5.75 %10/20255.75% exchangeable senior notes172,092 (2,769)169,323 N/A5.75 %10/2025
7.75% convertible senior notes7.75% convertible senior notes215,000 (6,419)208,581 N/A7.75 %6/2027
Trust preferred securities and subordinated notesTrust preferred securities and subordinated notes139,500 (768)138,732 N/AL + 2.25%7/2037Trust preferred securities and subordinated notes139,500 (745)138,755 N/AL + 2.25%7/2037
Total Long-Term DebtTotal Long-Term Debt$1,972,863 $(9,159)$1,963,704 Total Long-Term Debt$1,546,934 $(12,708)$1,534,226 
5457


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)
Note 15.16. Long-Term Debt - (continued)

December 31, 2021December 31, 2021
(Dollars in Thousands)(Dollars in Thousands)BorrowingsUnamortized Deferred Issuance Costs / DiscountNet Carrying ValueLimit
Weighted Average Interest Rate (1)
Final Maturity(Dollars in Thousands)BorrowingsUnamortized Deferred Issuance Costs / DiscountNet Carrying ValueLimit
Weighted Average Interest Rate (1)
Final Maturity
FacilitiesFacilitiesFacilities
Recourse Subordinate Securities FinancingRecourse Subordinate Securities FinancingRecourse Subordinate Securities Financing
Facility AFacility A$144,385 $(313)$144,072 N/A4.21 %9/2024Facility A$144,385 $(313)$144,072 N/A4.21 %9/2024
CAFLCAFLCAFL
Facility BFacility B102,351 (353)101,998 N/A4.21 %2/2025Facility B102,351 (353)101,998 N/A4.21 %2/2025
Facility G91,707 (376)91,331 N/A4.75 %6/2026
Facility CFacility C91,707 (376)91,331 N/A4.75 %6/2026
Non-Recourse BPL FinancingNon-Recourse BPL FinancingNon-Recourse BPL Financing
Facility H307,215 (507)306,708 $400,000 L + 2.75%N/A
Facility DFacility D307,215 (507)306,708 $400,000 L + 2.75%N/A
Recourse BPL FinancingRecourse BPL FinancingRecourse BPL Financing
Facility EFacility E234,349 (123)234,226 450,000 L + 2.21%9/2023
Facility FFacility F234,349 (123)234,226 450,000 L + 2.21%9/2023Facility F110,148 — 110,148 450,000 L + 3.35%6/2023
Facility I110,148 — 110,148 450,000 L + 3.35%6/2023
Total Long-Term Debt FacilitiesTotal Long-Term Debt Facilities990,155 (1,672)988,483 Total Long-Term Debt Facilities990,155 (1,672)988,483 
Convertible notesConvertible notesConvertible notes
4.75% convertible senior notes4.75% convertible senior notes198,629 (1,836)196,793 N/A4.75 %8/20234.75% convertible senior notes198,629 (1,836)196,793 N/A4.75 %8/2023
5.625% convertible senior notes5.625% convertible senior notes150,200 (2,072)148,128 N/A5.625 %7/20245.625% convertible senior notes150,200 (2,072)148,128 N/A5.625 %7/2024
5.75% exchangeable senior notes5.75% exchangeable senior notes172,092 (3,384)168,708 N/A5.75 %10/20255.75% exchangeable senior notes172,092 (3,384)168,708 N/A5.75 %10/2025
Trust preferred securities and subordinated notesTrust preferred securities and subordinated notes139,500 (779)138,721 N/AL + 2.25%7/2037Trust preferred securities and subordinated notes139,500 (779)138,721 N/AL + 2.25%7/2037
Total Long-Term DebtTotal Long-Term Debt$1,650,576 $(9,743)$1,640,833 Total Long-Term Debt$1,650,576 $(9,743)$1,640,833 
(1)Variable rate borrowings are based on 1- or 3-month LIBOR ("L" in the table above) or 1-month SOFR plus an applicable spread.

Refer to Note 15 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, for a full description of our long-term debt.
Non-Recourse BPL Financing Facility
During the three months ended March 31, 2022, we amended facility HD (see Table 15.116.1 above) to increase the borrowing limit from $400 million to $600 million. During the three months ended September 30, 2022, we amended facility D to increase the borrowing limit from $600 million to $750 million.
Recourse BPL Financing Facilities
During the three months ended September 30, 2022, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable financing for business purpose bridge loan and single-family rental loans (Facility G in Table 16.1 above). At September 30, 2022, there were no borrowings under this facility. During the three months ended September 30, 2022, Facility E was reclassified to short-term debt as the maturity of this facility was less than one year.
During the three months ended June 30, 2022, Facility F was reclassified to short-term debt as the maturity of this facility was less than one year. During the three months ended March 31, 2022, we amended the interest rate for Facilities FE and IF (see Table 15.116.1 above) to be indexed to a spread over one-month SOFR compared to a LIBOR-indexed spread at December 31, 2021.





spread.

5558


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)
Note 15.16. Long-Term Debt - (continued)


Convertible Notes
In June 2022, we issued $215 million principal amount of 7.75% convertible senior notes due 2027. These notes require semi-annual interest payments at a fixed annual coupon rate of 7.75% until maturity or conversion, which will be no later than June 15, 2027. After deducting the underwriting discount and offering costs, we received $208 million of net proceeds. Including amortization of deferred debt issuance costs, the effective interest expense yield on these notes was approximately 8.50% per annum. We may elect to settle conversions either entirely in cash or in a combination of cash and shares of common stock. Upon conversion, the conversion value will be paid in cash up to at least the principal amount of the notes being converted. The initial conversion rate of the notes is 95.6823 common shares per $1,000 principal amount of notes (equivalent to a conversion price of $10.45 per common share).
During the three months ended September 30, 2022, $199 million principal amount of 4.75% convertible debt and $1 million of unamortized deferred issuance costs were reclassified from long-term debt to short-term debt as the maturity of the notes was less than one year as of August 2022.
The following table below presents the value of loans, securities, and other assets pledged as collateral under our long-term debt at March 31,September 30, 2022 and December 31, 2021.
Table 15.216.2 – Collateral for Long-Term Debt
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
Collateral TypeCollateral TypeCollateral Type
Bridge loansBridge loans$815,580 $554,597 Bridge loans$699,704 $554,597 
Single-family rental loansSingle-family rental loans376,502 244,703 Single-family rental loans— 244,703 
Real estate securitiesReal estate securitiesReal estate securities
Sequoia securitizations (1)
Sequoia securitizations (1)
226,974 247,227 
Sequoia securitizations (1)
184,363 247,227 
CAFL securitizations (1)
CAFL securitizations (1)
264,774 260,405 
CAFL securitizations (1)
240,683 260,405 
Total Collateral for Long-Term DebtTotal Collateral for Long-Term Debt$1,683,830 $1,306,932 Total Collateral for Long-Term Debt$1,124,750 $1,306,932 
(1)Represents securities we have retained from consolidated securitization entities. For GAAP purposes, we consolidate the loans and non-recourse ABS debt issued from these securitizations.
The following table summarizes the accrued interest payable on long-term debt at March 31,September 30, 2022 and December 31, 2021.
Table 15.316.3 – Accrued Interest Payable on Long-Term Debt
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
Long-term debt facilitiesLong-term debt facilities$1,589 $815 Long-term debt facilities$2,685 $815 
Convertible notesConvertible notesConvertible notes
4.75% convertible senior notes4.75% convertible senior notes1,206 3,564 4.75% convertible senior notes— 3,564 
5.625% convertible senior notes5.625% convertible senior notes1,784 3,896 5.625% convertible senior notes1,784 3,896 
5.75% exchangeable senior notes5.75% exchangeable senior notes4,948 2,474 5.75% exchangeable senior notes4,947 2,474 
7.75% convertible senior notes7.75% convertible senior notes5,184 — 
Trust preferred securities and subordinated notesTrust preferred securities and subordinated notes607 581 Trust preferred securities and subordinated notes1,228 581 
Total Accrued Interest Payable on Long-Term DebtTotal Accrued Interest Payable on Long-Term Debt$10,134 $11,330 Total Accrued Interest Payable on Long-Term Debt$15,828 $11,330 

5659


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)
Note 16.17. Commitments and Contingencies
Lease Commitments
At March 31,September 30, 2022, we were obligated under 7ten non-cancelable operating leases with expiration dates through 2031 for $23$22 million of cumulative lease payments. OurFor the nine-month periods ended September 30, 2022 and 2021 our operating lease expense was $1$4 million each for the three-month periods ended March 31, 2022 and 2021.$3 million, respectively.
The following table presents our future lease commitments at March 31,September 30, 2022.
Table 16.117.1 – Future Lease Commitments by Year
(In Thousands)(In Thousands)March 31, 2022(In Thousands)September 30, 2022
2022 (9 months)$3,228 
2022 (3 months)2022 (3 months)$1,216 
202320234,428 20234,956 
202420244,338 20244,601 
202520253,475 20253,580 
202620263,420 20263,420 
2027 and thereafter2027 and thereafter4,553 2027 and thereafter4,553 
Total Lease CommitmentsTotal Lease Commitments23,442 Total Lease Commitments22,326 
Less: Imputed interestLess: Imputed interest(3,224)Less: Imputed interest(2,793)
Operating Lease LiabilitiesOperating Lease Liabilities$20,218 Operating Lease Liabilities$19,533 
During the threenine months ended March 31,September 30, 2022, we did not enter into any new office leases. During the three months ended September 30, 2022, we assumed three operating office leases as a result of our acquisition of Riverbend on July 1, 2022. At March 31,September 30, 2022, our operating lease liabilities were $20 million, which were a component of Accrued expenses and other liabilities, and our operating lease right-of-use assets were $18$17 million, which were a component of Other assets.
We determined that none of our leases contained an implicit interest rate and used a discount rate equal to our incremental borrowing rate on a collateralized basis to determine the present value of our total lease payments. As such, we determined the applicable discount rate for each of our leases using a swap rate plus an applicable spread for borrowing arrangements secured by our real estate loans and securities for a length of time equal to the remaining lease term on the date of adoption. At March 31,September 30, 2022, the weighted-average remaining lease term and weighted-average discount rate for our leases was 65 years and 5.1%5.2%, respectively.
Commitment to Fund Bridge Loans
As of March 31,September 30, 2022, we had commitments to fund up to $792$990 million of additional advances on existing bridge loans. These commitments are generally subject to loan agreements with covenants regarding the financial performance of the borrower and other terms regarding advances that must be met before we fund the commitment. At March 31,September 30, 2022, we carried a $1$3 million contingent liability related to these commitments to fund construction advances. During the three and nine months ended March 31,September 30, 2022, we recorded a net market valuation gain of $1 million and a net market valuation loss of $2 million, respectively, related to this liability through Mortgage banking activities, net and Investment fair value changes, net on our consolidated statements of income (loss). During the three and nine months ended September 30, 2021, we recorded a net market valuation loss of $0.2$0.3 million and a net market valuation gain of $1 million, respectively, related to this liability through Mortgage banking activities, net on our consolidated statements of income. During the three months ended March 31, 2021, we recorded a net market valuation gain of $1 million related to this liability through Mortgage banking activities, net on our consolidated statements of income.income (loss).
Commitment to Fund Partnerships
In 2018, we invested in 2two partnerships created to acquire and manage certain mortgage servicing related assets (seeassets. See Note 1011 for additional detail).detail on these investments. In connection with this investment, we are required to fund future net servicer advances related to the underlying mortgage loans. The actual amount of net servicer advances we may fund in the future is subject to significant uncertainty and will be based on the credit and prepayment performance of the underlying loans.

5760


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)
Note 16.17. Commitments and Contingencies - (continued)
Commitment to Acquire HEIs
In the third quarter of 2021,At September 30, 2022, we amended an existinghad outstanding flow purchase agreementagreements with amultiple third party and committedparties, with an aggregate commitment to acquire $125purchase $350 million of HEIs, from the date of the amended agreement. In the first quarter of 2022, we exercised an option and committed to acquire an additional $125$149 million of which commitments remained outstanding. These purchase agreements specify monthly minimum and maximum amounts of HEIs fromsubject to such purchase commitments. We may terminate the third-party HEI originator. purchase agreement and associated purchase commitment relating to $85 million of remaining commitments upon 90 days prior notice. We account for these investments under the fair value option. SeAt March 31, 2022, we had acquired $70 million HEIs of our $250 million commitment under this flow purchase agreement. Seee Note 10 for additional detail on these investments.
Commitments to Fund Strategic Investments
In the first quarter of 2022, we entered into a $25 million commitment to an investment fund with the mission of providing quality workforce housing opportunities in several California urban communities, including the San Francisco Bay Area urban communities.Area. At March 31,September 30, 2022, we had funded $0.3$15 million of this commitment. This investment is included in Other Investmentsinvestments on our Consolidated Balance Sheets.consolidated balance sheets.
In 2021, we entered into commitmentsa commitment to fund a $5 million to each of 2 different RWT Horizons investments.investment. At March 31,September 30, 2022, we had funded $4$1 million of these commitments. These investments arethis commitment. This investment is included in Other Investmentsinvestments on our Consolidated Balance Sheets.consolidated balance sheets.
Riverbend Contingent Consideration
As part of the consideration for our acquisition of Riverbend, we may make earnout payments payable in cash, based on generating specified revenues over a threshold amount during the two-year period ending July 1, 2024, up to a maximum potential amount payable of $25.3 million. These contingent earnout payments are classified as a contingent consideration liability on our consolidated balance sheets and carried at fair value. At September 30, 2022, our estimated fair value of this contingent liability was zero.
Loss Contingencies — Risk-Sharing
During 2015 and 2016, we sold conforming loans to the Agencies with an original unpaid principal balance of $3.19 billion, subject to our risk-sharing arrangements with the Agencies. At March 31,September 30, 2022, the maximum potential amount of future payments we could be required to make under these arrangements was $44 million and this amount was partially collateralized by assets we transferred to pledged accounts and is presented as pledged collateral in Other assets on our consolidated balance sheets. We have no recourse to any third parties that would allow us to recover any amounts related to our obligations under the arrangements. At March 31,September 30, 2022, we had incurred less than $0.1 million$100 thousand of cumulative losses under these arrangements. For the three and nine months ended March 31,September 30, 2022, and 2021, other income related to these arrangements was $0.5$0.3 million and $1 million, respectively, and net market valuation changes related to these investments were less than $0.1 million of gains and $0.1 million of losses, respectively.
All of the loans in the reference pools subject to these risk-sharing arrangements were originated in 2014 and 2015, and at March 31,September 30, 2022, the loans had an unpaid principal balance of $504$454 million, and a weighted average FICO score of 756 (at origination), and LTV ratio of 74% (at origination). At March 31,September 30, 2022, $14$10 million of the loans were 90 days or more days delinquent, of which twofour of these loans with an unpaid principal balance of $0.2$1 million were in foreclosure. At March 31,September 30, 2022, the carrying value of our guarantee obligation was $7 million and included $5 million designated as a non-amortizing credit reserve, which we believe is sufficient to cover current expected losses under these obligations.
Our consolidated balance sheets include assets of special purpose entities ("SPEs") associated with these risk-sharing arrangements (i.e., the "pledged collateral" referred to above) that can only be used to settle obligations of these SPEs for which the creditors of these SPEs (the Agencies) do not have recourse to us. At both March 31,September 30, 2022 and December 31, 2021, assets of such SPEs totaled $34$30 million, and liabilities of such SPEs totaled $7 million.

61


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 17. Commitments and Contingencies - (continued)
Loss Contingencies — Residential Repurchase Reserve
We maintain a repurchase reserve for potential obligations arising from representation and warranty violations related to residential loans we have sold to securitization trusts or third parties and for conforming residential loans associated with MSRs that we have purchased from third parties. We do not originate residential loans and we believe the initial risk of loss due to loan repurchases (i.e., due to a breach of representations and warranties) would generally be a contingency to the companies from whom we acquired the loans. However, in some cases, for example, where loans were acquired from companies that have since become insolvent, repurchase claims may result in our being liable for a repurchase obligation. Additionally, for certain loans we sold during the second quarter of 2020 that were previously held for investment, we have a direct obligation to repurchase these loans in the event of any early payment defaults (or "EPDs") by the underlying mortgage borrowers within certain specified periods following the sales.
At March 31,September 30, 2022 and December 31, 2021, our repurchase reserve associated with our residential loans and MSRs was $10$6 million and $9 million, respectively, and was recorded in Accrued expenses and other liabilities on our consolidated balance sheets. During both the threenine months ended March 31,September 30, 2022 and 2021, we received zeroseven and eight repurchase requests, respectively, and repurchased zero loans.
58


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Note 16. Commitmentsone and Contingencies - (continued)
one loan(s), respectively. During the three and nine months ended March 31,September 30, 2022, and 2021, we recorded a repurchase provisionsprovision expense of $0.2$0.1 million and $0.1a reversal of repurchase provision expense of $4 million, respectively, thatwhich were recorded in Mortgage banking activities, net Investment fair value changes,on our consolidated statements of income (loss). During the three and nine months ended September 30, 2021, we recorded repurchase provision expense of $0.3 million and $0.6 million, respectively, which were recorded in Mortgage banking activities, net, and Other income on our consolidated statements of income.income (loss).
Loss Contingencies — Litigation, Claims and Demands
There is no significant update regarding the litigation matters described in Note 16 within the financial statements included in Redwood’s Annual Report on Form 10-K for the year ended December 31, 2021 under the heading “Loss Contingencies - Litigation, Claims and Demands”Demands.” At March 31,September 30, 2022, the aggregate amount of loss contingency reserves established in respect of the FHLB-Seattle and Schwab litigation matters described in our Annual Report on Form 10-K for the year ended December 31, 2021 was $2 million.
62


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 17.18. Equity
The following table provides a summary of changes to accumulated other comprehensive income (loss) by component for the three and nine months ended March 31,September 30, 2022 and 2021.
Table 17.118.1 – Changes in Accumulated Other Comprehensive Income (Loss) by Component
Three Months Ended March 31, 2022Three Months Ended March 31, 2021Three Months Ended September 30, 2022Three Months Ended September 30, 2021
(In Thousands)(In Thousands)Available-for-Sale SecuritiesInterest Rate Agreements Accounted for as Cash Flow HedgesAvailable-for-Sale SecuritiesInterest Rate Agreements Accounted for as Cash Flow Hedges(In Thousands)Available-for-Sale SecuritiesInterest Rate Agreements Accounted for as Cash Flow HedgesAvailable-for-Sale SecuritiesInterest Rate Agreements Accounted for as Cash Flow Hedges
Balance at beginning of periodBalance at beginning of period$67,503 $(76,430)$76,336 $(80,557)Balance at beginning of period$16,595 $(74,383)$88,251 $(78,511)
Other comprehensive (loss) income
before reclassifications
Other comprehensive (loss) income
before reclassifications
(17,873)— 10,986 — Other comprehensive (loss) income
before reclassifications
(8,731)— (2,658)— 
Amounts reclassified from other
accumulated comprehensive (income) loss
Amounts reclassified from other
accumulated comprehensive (income) loss
(692)1,018 (2,795)1,018 Amounts reclassified from other
accumulated comprehensive (income) loss
544 1,040 (6,200)1,041 
Net current-period other comprehensive (loss) incomeNet current-period other comprehensive (loss) income(18,565)1,018 8,191 1,018 Net current-period other comprehensive (loss) income(8,187)1,040 (8,858)1,041 
Balance at End of PeriodBalance at End of Period$48,938 $(75,412)$84,527 $(79,539)Balance at End of Period$8,408 $(73,343)$79,393 $(77,470)

Nine Months Ended September 30, 2022Nine Months Ended September 30, 2021
(In Thousands)Available-for-Sale SecuritiesInterest Rate Agreements Accounted for as Cash Flow HedgesAvailable-for-Sale SecuritiesInterest Rate Agreements Accounted for as Cash Flow Hedges
Balance at beginning of period$67,503 $(76,430)$76,336 $(80,557)
Other comprehensive (loss) income
before reclassifications
(60,013)— 19,552 — 
Amounts reclassified from other
accumulated comprehensive (income) loss
918 3,087 (16,495)3,087 
Net current-period other comprehensive (loss) income(59,095)3,087 3,057 3,087 
Balance at End of Period$8,408 $(73,343)$79,393 $(77,470)

5963


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)
Note 17.18. Equity - (continued)
The following table provides a summary of reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended March 31,September 30, 2022 and 2021.
Table 17.218.2 – Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
Amount Reclassified From
Accumulated Other Comprehensive (Loss)
Amount Reclassified From
Accumulated Other Comprehensive (Loss)
Affected Line Item in theThree Months Ended March 31,Affected Line Item in theThree Months Ended September 30,
(In Thousands)(In Thousands)Income Statement20222021(In Thousands)Income Statement20222021
Net Realized (Gain) Loss on AFS SecuritiesNet Realized (Gain) Loss on AFS SecuritiesNet Realized (Gain) Loss on AFS Securities
Increase (decrease) in allowance for credit losses on AFS securitiesIncrease (decrease) in allowance for credit losses on AFS securitiesInvestment fair value changes, net$705 $(374)Increase (decrease) in allowance for credit losses on AFS securitiesInvestment fair value changes, net$544 $— 
Gain on sale of AFS securitiesGain on sale of AFS securitiesRealized gains, net(1,397)(2,421)Gain on sale of AFS securitiesRealized gains, net— (6,200)
$(692)$(2,795)$544 $(6,200)
Net Realized Loss on Interest Rate
Agreements Designated as Cash Flow Hedges
Net Realized Loss on Interest Rate
Agreements Designated as Cash Flow Hedges
Net Realized Loss on Interest Rate
Agreements Designated as Cash Flow Hedges
Amortization of deferred lossAmortization of deferred lossInterest expense$1,018 $1,018 Amortization of deferred lossInterest expense$1,040 $1,041 
$1,018 $1,018 $1,040 $1,041 
Amount Reclassified From
Accumulated Other Comprehensive (Loss)
Affected Line Item in theNine Months Ended September 30,
(In Thousands)Income Statement20222021
Net Realized (Gain) Loss on AFS Securities
Increase (decrease) in allowance for credit losses on AFS securitiesInvestment fair value changes, net$2,315 $(388)
Gain on sale of AFS securitiesRealized gains, net(1,397)(16,107)
$918 $(16,495)
Net Realized Loss on Interest Rate
  Agreements Designated as Cash Flow Hedges
Amortization of deferred lossInterest expense$3,087 $3,087 
$3,087 $3,087 
Issuance of Common Stock
We have an established program to sell common stock from time to time in at-the-market ("ATM") offerings. During the threenine months ended March 31,September 30, 2022, we issued 5,232,8695.2 million common shares for net proceeds of $67 million under this program. During the three months ended March 31, 2022, we increased the capacity of this program to $175 million, all of which remained outstanding for future offerings under this program as of March 31,September 30, 2022.
Direct Stock Purchase and Dividend Reinvestment Plan
During the threenine months ended March 31,September 30, 2022, we did not issue any shares of common stock through our Direct Stock Purchase and Dividend Reinvestment Plan. At March 31,September 30, 2022, approximately 6 million shares remained outstanding for future offerings under this plan.

6064


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)
Note 17.18. Equity - (continued)
Earnings per Common Share
The following table provides the basic and diluted (loss) earnings per common share computations for the three and nine months ended March 31,September 30, 2022 and 2021.
Table 17.318.3 – Basic and Diluted Earnings per Common Share
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands, except Share Data)(In Thousands, except Share Data)20222021(In Thousands, except Share Data)2022202120222021
Basic Earnings per Common Share:Basic Earnings per Common Share:Basic Earnings per Common Share:
Net income attributable to Redwood$30,915 $97,257 
Net (loss) income attributable to RedwoodNet (loss) income attributable to Redwood$(50,411)$88,286 $(119,462)$275,568 
Less: Dividends and undistributed earnings allocated to participating securitiesLess: Dividends and undistributed earnings allocated to participating securities(1,209)(3,294)Less: Dividends and undistributed earnings allocated to participating securities(1,158)(2,984)(3,445)(8,979)
Net income allocated to common shareholders$29,706 $93,963 
Net (loss) income allocated to common shareholdersNet (loss) income allocated to common shareholders$(51,569)$85,302 $(122,907)$266,589 
Basic weighted average common shares outstandingBasic weighted average common shares outstanding119,884,172 112,276,842 Basic weighted average common shares outstanding116,087,890 112,995,847 118,530,172 112,754,691 
Basic Earnings per Common Share$0.25 $0.84 
Basic (Loss) Earnings per Common ShareBasic (Loss) Earnings per Common Share$(0.44)$0.75 $(1.04)$2.36 
Diluted Earnings per Common Share:Diluted Earnings per Common Share:Diluted Earnings per Common Share:
Net income attributable to Redwood$30,915 $97,257 
Net (loss) income attributable to RedwoodNet (loss) income attributable to Redwood$(50,411)$88,286 $(119,462)$275,568 
Less: Dividends and undistributed earnings allocated to participating securitiesLess: Dividends and undistributed earnings allocated to participating securities(1,348)(2,951)Less: Dividends and undistributed earnings allocated to participating securities(1,158)(2,747)(3,445)(8,151)
Add back: Interest expense on convertible notes for the period, net of taxAdd back: Interest expense on convertible notes for the period, net of tax4,582 7,007 Add back: Interest expense on convertible notes for the period, net of tax— 6,870 — 20,585 
Net income allocated to common shareholders$34,149 $101,313 
Net (loss) income allocated to common shareholdersNet (loss) income allocated to common shareholders$(51,569)$92,409 $(122,907)$288,002 
Weighted average common shares outstandingWeighted average common shares outstanding119,884,172 112,276,842 Weighted average common shares outstanding116,087,890 112,995,847 118,530,172 112,754,691 
Net effect of dilutive equity awardsNet effect of dilutive equity awards290,831 195,568 Net effect of dilutive equity awards— 292,749 — 253,819 
Net effect of assumed convertible notes conversion to common sharesNet effect of assumed convertible notes conversion to common shares20,331,154 28,566,875 Net effect of assumed convertible notes conversion to common shares— 28,566,875 — 28,566,875 
Diluted weighted average common shares outstandingDiluted weighted average common shares outstanding140,506,157 141,039,285 Diluted weighted average common shares outstanding116,087,890 141,855,471 118,530,172 141,575,385 
Diluted Earnings per Common Share$0.24 $0.72 
Diluted (Loss) Earnings per Common ShareDiluted (Loss) Earnings per Common Share$(0.44)$0.65 $(1.04)$2.03 
We included participating securities, which are certain equity awards that have non-forfeitable dividend participation rights, in the calculations of basic and diluted earnings per common share as we determined that the two-class method was more dilutive than the alternative treasury stock method for these shares. Dividends and undistributed earnings allocated to participating securities under the basic and diluted earnings per share calculations require specific shares to be included that may differ in certain circumstances.
During the three and nine months ended March 31, 2022 andSeptember 30, 2021, certain of our convertible notes were determined to be dilutive and were included in the calculation of diluted EPS under the "if-converted" method. Under this method, the periodic interest expense (net of applicable taxes) for dilutive notes is added back to the numerator and the weighted average number of shares that the notes are entitled to (if converted, regardless of whether they are in or out of the money) are included in the denominator.
For the three and nine months ended March 31, 2021, 8,235,721September 30, 2022, 49,137,808 and 37,307,705 of common shares, respectively, related to the assumed conversion of our convertible notes were antidilutive and were excluded in the calculation of diluted earnings per share. For the three and nine months ended March 31,September 30, 2022, the number of outstanding equity awards that were antidilutive totaled 249,178 and 268,737, respectively. For the three and nine months ended September 30, 2021, the number of outstanding equity awards that were antidilutive totaled 17,15422,102 and 15,460,18,736, respectively.

6165


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)
Note 17.18. Equity - (continued)
Stock Repurchases
OurIn July 2022, our Board of Directors previously approved an authorization for the repurchase of up to $100$125 million of our common stock, and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt. This authorization replaced our previous $100 million stock repurchase authorization. This authorization has no expiration date and does not obligate us to acquire any specific number of shares or securities. During the three months ended March 31,September 30, 2022, we did not repurchase any shares.repurchased 3.4 million shares of our common stock for a total cost of $24 million. At March 31,September 30, 2022, $78$101 million of the current authorization remained available for the repurchase of shares of our common stock and we also continued to be authorized to repurchase outstanding debt securities. During the nine months ended September 30, 2022, we repurchased 7.1 million shares of our common stock for a total cost of $56 million under our current and previously-approved Board of Director authorizations.

Note 18.19. Equity Compensation Plans
At March 31,September 30, 2022 and December 31, 2021, 5,708,4205,258,817 and 5,958,390 shares of common stock, respectively, were available for grant under our Incentive Plan. The unamortized compensation cost of awards issued under the Incentive Plan, which are settled by delivery of shares of common stock and purchases under the Employee Stock Purchase Plan, totaled $44$35 million at March 31,September 30, 2022, as shown in the following table.
Table 18.119.1 – Activities of Equity Compensation Costs by Award Type
Three Months Ended March 31, 2022Nine Months Ended September 30, 2022
(In Thousands)(In Thousands)Restricted Stock AwardsRestricted Stock UnitsDeferred Stock UnitsPerformance Stock UnitsEmployee Stock Purchase PlanTotal(In Thousands)Restricted Stock AwardsRestricted Stock UnitsDeferred Stock UnitsPerformance Stock UnitsEmployee Stock Purchase PlanTotal
Unrecognized compensation cost at beginning of periodUnrecognized compensation cost at beginning of period$84 $3,589 $26,473 $12,237 $— $42,383 Unrecognized compensation cost at beginning of period$84 $3,589 $26,473 $12,237 $— $42,383 
Equity grantsEquity grants— 2,484 3,850 — 323 6,657 Equity grants— 2,513 7,960 — 323 10,796 
Performance-based valuation adjustmentPerformance-based valuation adjustment— — — — — — Performance-based valuation adjustment— — — (3,205)— (3,205)
Equity grant forfeituresEquity grant forfeitures(5)(242)— — — (247)Equity grant forfeitures(5)(448)(101)— — (554)
Equity compensation expenseEquity compensation expense(66)(471)(2,949)(1,258)(81)(4,825)Equity compensation expense(79)(1,567)(10,412)(2,524)(242)(14,824)
Unrecognized Compensation Cost at End of PeriodUnrecognized Compensation Cost at End of Period$13 $5,360 $27,374 $10,979 $242 $43,968 Unrecognized Compensation Cost at End of Period$— $4,087 $23,920 $6,508 $81 $34,596 
At March 31,September 30, 2022, the weighted average amortization period remaining for all of our equity awards was less than two years.
Restricted Stock Awards ("RSAs")
At March 31,September 30, 2022 and December 31, 2021, there were 1,551 and 28,141 shares of RSAs outstanding, respectively. Restrictions on these shares lapse during 2022. During the threenine months ended March 31,September 30, 2022, there were no RSAs granted, restrictions on 26,24926 RSAs lapsed and those shares were distributed, and 341 RSAs were forfeited.
Restricted Stock Units ("RSUs")
At March 31,September 30, 2022 and December 31, 2021, there were 498,223476,893 and 431,072 RSUs outstanding, respectively. During the threenine months ended March 31,September 30, 2022, there were 206,179208,717 RSUs granted, 117,725123,869 RSUs distributed, and 21,30339,027 RSUs forfeited. Unvested RSUs at March 31,September 30, 2022 vest through 2026.
Deferred Stock Units (“DSUs”)
At March 31,September 30, 2022 and December 31, 2021, there were 4,526,4204,911,777 and 4,022,088 DSUs outstanding, respectively, of which 1,965,9902,217,327 and 1,469,903, respectively, had vested. During the threenine months ended March 31,September 30, 2022, there were 645,8701,214,533 DSUs granted, 141,538316,546 DSUs distributed, and zero8,298 DSUs forfeited. Unvested DSUs at March 31,September 30, 2022 vest through 2026.
6266


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)
Note 18.19. Equity Compensation Plans - (continued)
Performance Stock Units (“PSUs”)
At March 31,September 30, 2022 and December 31, 2021, the target number of PSUs that were unvested was 1,267,849 and 1,473,883, respectively. Vesting for PSUs generally occurs three years from their respective grant dates based on various total shareholder return performance calculations, as discussed in Note 18 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. During the nine months ended September 30, 2022, for PSUs granted in 2020 and 2021, we decreased the book value total shareholder return estimate for the 2022 performance period, reducing the future equity compensation expense related to these awards by $3 million.
For 206,034 target PSU awards that were granted in December 2018, the performance vesting period ended on January 1, 2022. These 2018 PSU awards failed to reach a threshold level under their performance-based vesting criteria and resulted in the vesting of no shares of our common stock underlying these PSUs.
Employee Stock Purchase Plan ("ESPP")
The ESPP allows a maximum of 850,000 shares of common stock to be purchased in aggregate for all employees. As of March 31,September 30, 2022 and December 31, 2021, 586,762505,496 and 569,728 shares had been purchased, respectively, and there remained a negligible amount of uninvested employee contributions in the ESPP at March 31,September 30, 2022.
Note 19.20. Mortgage Banking Activities, Net
The following table presents the components of Mortgage banking activities, net, recorded in our consolidated statements of income for the three and nine months ended March 31,September 30, 2022 and 2021.
Table 19.120.1 – Mortgage Banking Activities
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)(In Thousands)20222021(In Thousands)2022202120222021
Residential Mortgage Banking Activities, NetResidential Mortgage Banking Activities, NetResidential Mortgage Banking Activities, Net
Changes in fair value of:Changes in fair value of:Changes in fair value of:
Residential loans, at fair value (1)
Residential loans, at fair value (1)
$(68,822)$(29,273)
Residential loans, at fair value (1)
$(22,776)$27,862 $(125,012)$75,496 
Trading securities (2)
Trading securities (2)
2,786 721 
Trading securities (2)
148 32 4,249 (342)
Risk management derivatives (3)
Risk management derivatives (3)
73,354 88,964 
Risk management derivatives (3)
24,319 3,963 107,573 37,187 
Other income (expense), net (4)
Other income (expense), net (4)
617 1,023 
Other income (expense), net (4)
467 1,089 5,496 3,305 
Total residential mortgage banking activities, netTotal residential mortgage banking activities, net7,935 61,435 Total residential mortgage banking activities, net2,158 32,946 (7,694)115,646 
Business Purpose Mortgage Banking Activities, Net:Business Purpose Mortgage Banking Activities, Net:Business Purpose Mortgage Banking Activities, Net:
Changes in fair value of:Changes in fair value of:Changes in fair value of:
Single-family rental loans, at fair value (1)
Single-family rental loans, at fair value (1)
(25,193)10,248 
Single-family rental loans, at fair value (1)
(19,306)18,461 (84,493)54,675 
Risk management derivatives (3)
Risk management derivatives (3)
17,033 3,858 
Risk management derivatives (3)
24,044 (424)56,564 930 
Bridge loans, at fair valueBridge loans, at fair value2,135 1,044 Bridge loans, at fair value(9)3,433 2,242 6,702 
Other income, net (5)
Other income, net (5)
14,405 6,022 
Other income, net (5)
9,648 8,747 36,214 22,236 
Total business purpose mortgage banking activities, netTotal business purpose mortgage banking activities, net8,380 21,172 Total business purpose mortgage banking activities, net14,377 30,217 10,527 84,543 
Mortgage Banking Activities, NetMortgage Banking Activities, Net$16,315 $82,607 Mortgage Banking Activities, Net$16,535 $63,163 $2,833 $200,189 
(1)For residential loans, includes changes in fair value for associated loan purchase and forward sale commitments. For single-family rental loans, includes changes in fair value for associated interest rate lock commitments.
(2)Represents fair value changes on trading securities that are being used as hedges to manage the mark-to-market risks associated with our residential mortgage banking operations.
(3)Represents market valuation changes of derivatives that were used to manage risks associated with our mortgage banking operations.
(4)Amounts in this line item include other fee income from loan acquisitions and provisions for repurchase expense,repurchases, presented net.
(5)Amounts in this line item include other fee income from loan originations.
6367


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 20.21. Other Income, Net
The following table presents the components of Other income recorded in our consolidated statements of income for the three and nine months ended March 31,September 30, 2022 and 2021.
Table 20.121.1 – Other Income, Net
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)(In Thousands)20222021(In Thousands)2022202120222021
MSR income, net (1)
MSR income, net (1)
$4,303 $697 
MSR income, net (1)
$2,890 $295 $12,569 $949 
Bridge loan feesBridge loan fees1,489 1,131 3,952 2,735 
Risk share incomeRisk share income460 882 Risk share income279 575 1,062 2,318 
Bridge loan fees990 693 
OtherOther230 1,571 Other(631)387 (567)2,355 
Other Income, NetOther Income, Net$5,983 $3,843 Other Income, Net$4,027 $2,388 $17,016 $8,357 
(1)Includes servicing fees and fair value changes for MSRs, net.
6468


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 21.22. General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses
Components of our general and administrative expenses, loan acquisition costs, and other expenses for the three and nine months ended March 31,September 30, 2022 and 2021 are presented in the following table.
Table 21.122.1 – Components of General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)(In Thousands)20222021(In Thousands)2022202120222021
General and Administrative ExpensesGeneral and Administrative ExpensesGeneral and Administrative Expenses
Fixed compensation expense(1)Fixed compensation expense(1)$14,628 $11,805 Fixed compensation expense(1)$18,626 $11,285 $45,364 $34,359 
Annual variable compensation expenseAnnual variable compensation expense3,357 18,669 Annual variable compensation expense3,521 19,844 8,689 51,021 
Long-term incentive award expense (1)(2)
Long-term incentive award expense (1)(2)
5,660 4,169 
Long-term incentive award expense (1)(2)
4,998 4,915 16,190 14,766 
Acquisition-related equity compensation expense (2)(3)
Acquisition-related equity compensation expense (2)(3)
— 1,212 
Acquisition-related equity compensation expense (2)(3)
— 1,189 — 3,613 
Systems and consultingSystems and consulting3,184 2,977 Systems and consulting3,909 2,975 10,796 9,224 
Office costsOffice costs2,025 1,808 Office costs2,381 2,197 6,489 6,029 
Accounting and legalAccounting and legal1,675 714 Accounting and legal1,775 1,197 5,026 3,132 
Corporate costsCorporate costs864 691 Corporate costs928 964 2,792 2,528 
OtherOther3,461 1,506 Other3,969 3,126 11,581 7,165 
Total General and Administrative ExpensesTotal General and Administrative Expenses34,854 43,551 Total General and Administrative Expenses40,107 47,692 106,927 131,837 
Loan Acquisition CostsLoan Acquisition CostsLoan Acquisition Costs
CommissionsCommissions2,614 1,263 Commissions1,549 1,906 6,279 4,830 
Underwriting costsUnderwriting costs1,372 1,685 Underwriting costs545 2,351 3,013 5,872 
Transfer and holding costsTransfer and holding costs479 611 Transfer and holding costs332 364 1,079 1,226 
Total Loan Acquisition CostsTotal Loan Acquisition Costs4,465 3,559 Total Loan Acquisition Costs2,426 4,621 10,371 11,928 
Other ExpensesOther ExpensesOther Expenses
Amortization of purchase-related intangible assetsAmortization of purchase-related intangible assets3,534 3,873 Amortization of purchase-related intangible assets3,891 3,873 10,731 11,619 
OtherOther551 223 Other370 150 1,083 485 
Total Other ExpensesTotal Other Expenses4,085 4,096 Total Other Expenses4,261 4,023 11,814 12,104 
Total General and Administrative Expenses, Loan Acquisition Costs, and Other ExpensesTotal General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses$43,404 $51,206 Total General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses$46,794 $56,336 $129,112 $155,869 
(1)Includes $3 million of severance and transition-related expenses for the three and nine months ended September 30, 2022.
(2)For the three months ended March 31,September 30, 2022 and 2021, long-term incentive award expense includesincluded $5 million and $3 million respectively,of expense for awards settleable in shares of our common stock, and $0.1 million and $1 million of expense for awards settleable in cash, respectively. For the nine months ended September 30, 2022 and 2021, long-term incentive award expense included $15 million and $10 million of expense for awards settleable in shares of our common stock, and $1 million and $1$4 million respectively, of expense for awards settleable in cash.cash, respectively.
(2)(3)Acquisition-related equity compensation expense relates to 588,260 shares of restricted stock that were issued to members of CoreVest management as a component of the consideration paid to them for our purchase of their interests in CoreVest in 2019. The grant date fair value of these restricted stock awards was $10 million, which was recognized as compensation expense over the two-year vesting period on a straight-line basis in accordance with GAAP.
Long Term Cash-Based Awards
During the three months ended March 31, 2022, $2 million of long-term cash-based retention awards were granted to certain executive and non-executive employees that will vest and be paid over a three-year period, subject to continued employment through the vesting periods from 2022 through 2025. The value of long-term cash-based awards is being amortized into expense on a straight-line basis over each award's respective vesting period.
6569


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)
Note 22. General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses - (continued)
Long-Term Cash-Based Awards and Cash Settled Deferred Stock Units
During the nine months ended September 30, 2022, $2 million of long-term cash-based retention awards were granted to employees that will vest and be paid over a three-year period, subject to continued employment through the vesting periods from 2022 through 2025. At both September 30, 2022 and December 31, 2021, the unamortized compensation cost of long-term cash-based awards was $4 million.
During the nine months ended September 30, 2022, there were no cash-settled deferred stock units granted to employees. Cash-settled deferred stock units that were granted in 2020 and 2021 vest over four years through 2025. At September 30, 2022 and December 31, 2021, the unamortized compensation cost of cash-settled deferred stock units was $2 million and $7 million, respectively. The unamortized compensation cost is adjusted for changes in the value of our common stock at the end of each reporting period.
Refer to Note 21 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, for additional information regarding long-term cash-based awards and cash-settled deferred stock units.

Note 22.23. Taxes
We believe that we have met all requirements for qualification as a REIT for federal income tax purposes. To qualify as a REIT, the Company must distribute at least 90% of its annual REIT taxable income and meet certain other requirements that relate to, among others,other things, the assets it holds, the income it generates, and the composition of its stockholders.
For the threenine months ended March 31,September 30, 2022 and 2021, we recognized a benefit from income taxes of $2$10 million and a provision for income taxes of $12$14 million, respectively. The following is a reconciliation of the statutory federal and state tax rates to our effective tax rate at March 31,September 30, 2022 and 2021.
Table 22.123.1 – Reconciliation of Statutory Tax Rate to Effective Tax Rate
March 31, 2022March 31, 2021September 30, 2022September 30, 2021
Federal statutory rateFederal statutory rate21.0 %21.0 %Federal statutory rate21.0 %21.0 %
State statutory rate, net of Federal tax effectState statutory rate, net of Federal tax effect8.6 %8.6 %State statutory rate, net of Federal tax effect8.6 %8.6 %
Differences in taxable (loss) income from GAAP incomeDifferences in taxable (loss) income from GAAP income(20.4)%(12.5)%Differences in taxable (loss) income from GAAP income(29.6)%(13.1)%
Change in valuation allowanceChange in valuation allowance2.1 %(3.7)%Change in valuation allowance(2.4)%(6.8)%
Dividends paid deductionDividends paid deduction(19.9)%(2.8)%Dividends paid deduction10.5 %(4.9)%
Effective Tax RateEffective Tax Rate(8.6)%10.6 %Effective Tax Rate8.1 %4.8 %
We assessed our tax positions for all open tax years (i.e., Federal, 2018 to 2022, and State, 2017 to 2022) at March 31,September 30, 2022 and December 31, 2021, and concluded that we had no uncertain tax positions that resulted in material unrecognized tax benefits.

Note 23.24. Segment Information
Redwood operates in 3three segments: Residential Mortgage Banking, Business Purpose Mortgage Banking and Investment Portfolio. The accounting policies of the reportable segments are the same as those described in Note 3 — Summary of Significant Accounting Policies. For a full description of our segments, see Part I, Item 1—Business in our Annual Report on Form 10-K for the year ended December 31, 2021.
Segment contribution represents the measure of profit that management uses to assess the performance of our business segments and make resource allocation and operating decisions. Certain corporate expenses not directly assigned or allocated to one of our 3three segments, as well as activity from certain consolidated Sequoia entities, are included in the Corporate/Other column as reconciling items to our consolidated financial statements. These unallocated corporate expenses primarily include interest expense from our convertible notes and trust preferred securities, indirect general and administrative expenses and other expense.

6670


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 23.24. Segment Information - (continued)
The following tables present financial information by segment for the three and nine months ended March 31,September 30, 2022 and 2021.
Table 23.124.1 – Business Segment Financial Information
Three Months Ended September 30, 2022
(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment PortfolioCorporate/
Other
Total
Interest income$9,882 $9,082 $156,882 $1,816 $177,662 
Interest expense(8,083)(5,971)(111,876)(16,797)(142,727)
Net interest income1,799 3,111 45,006 (14,981)34,935 
Non-interest (loss) income
Mortgage banking activities, net2,158 14,377 — — 16,535 
Investment fair value changes, net— — (61,780)4,083 (57,697)
Other income, net— 399 3,906 (278)4,027 
Realized gains, net— — — — — 
Total non-interest income (loss), net2,158 14,776 (57,874)3,805 (37,135)
General and administrative expenses(5,735)(18,535)(3,502)(12,335)(40,107)
Loan acquisition costs(550)(1,876)— — (2,426)
Other expenses— (3,891)(370)— (4,261)
Benefit from (provision for) income taxes1,688 2,559 (5,664)— (1,417)
Segment Contribution$(640)$(3,856)$(22,404)$(23,511)
Net (Loss)$(50,411)
Non-cash amortization (expense) income, net$(185)$(3,609)$(3,658)$(2,843)$(10,295)

Three Months Ended March 31, 2022
(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment PortfolioCorporate/
Other
Total
Interest income$12,967 $4,841 $170,572 $1,020 $189,400 
Interest expense(6,936)(2,568)(116,581)(10,213)(136,298)
Net interest income6,031 2,273 53,991 (9,193)53,102 
Non-interest income
Mortgage banking activities, net7,935 8,380 — — 16,315 
Investment fair value changes, net— — (5,406)(714)(6,120)
Other income, net— 575 5,282 126 5,983 
Realized gains, net— — 2,581 — 2,581 
Total non-interest income, net7,935 8,955 2,457 (588)18,759 
General and administrative expenses(6,101)(10,472)(3,133)(15,148)(34,854)
Loan acquisition costs(1,417)(3,048)— — (4,465)
Other expenses— (3,534)(551)— (4,085)
Benefit from (provision for) income taxes1,007 3,281 (1,830)— 2,458 
Segment Contribution$7,455 $(2,545)$50,934 $(24,929)
Net Income$30,915 
Non-cash amortization (expense) income, net$104 $(3,890)$7,300 $(2,033)$1,481 

Nine Months Ended September 30, 2022
(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment PortfolioCorporate/
Other
Total
Interest income$36,048 $22,509 $471,932 $4,028 $534,517 
Interest expense(23,316)(12,797)(331,047)(38,832)(405,992)
Net interest income12,732 9,712 140,885 (34,804)128,525 
Non-interest (loss) income
Mortgage banking activities, net(7,694)10,527 — — 2,833 
Investment fair value changes, net— — (165,297)13,508 (151,789)
Other income, net— 2,028 15,423 (435)17,016 
Realized gains, net— — 2,581 — 2,581 
Total non-interest (loss) income, net(7,694)12,555 (147,293)13,073 (129,359)
General and administrative expenses(17,918)(40,076)(9,676)(39,257)(106,927)
Loan acquisition costs(2,848)(7,523)— — (10,371)
Other expenses74 (10,731)(1,157)— (11,814)
Benefit from (provision for) income taxes8,283 9,009 (6,808)— 10,484 
Segment Contribution$(7,371)$(27,054)$(24,049)$(60,988)
Net (Loss)$(119,462)
Non-cash amortization (expense) income, net$(699)$(11,563)$4,385 $(6,428)$(14,305)
6771


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 23.24. Segment Information - (continued)
Three Months Ended March 31, 2021Three Months Ended September 30, 2021
(In Thousands)(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment PortfolioCorporate/
Other
Total(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment PortfolioCorporate/
Other
Total
Interest incomeInterest income$7,579 $2,855 $116,509 $1,362 $128,305 Interest income$14,712 $3,967 $125,994 $1,049 $145,722 
Interest expenseInterest expense(4,747)(1,599)(85,945)(10,261)(102,552)Interest expense(7,537)(2,013)(84,049)(10,155)(103,754)
Net interest incomeNet interest income2,832 1,256 30,564 (8,899)25,753 Net interest income7,175 1,954 41,945 (9,106)41,968 
Non-interest incomeNon-interest incomeNon-interest income
Mortgage banking activities, netMortgage banking activities, net61,435 21,172 — — 82,607 Mortgage banking activities, net32,946 30,217 — — 63,163 
Investment fair value changes, netInvestment fair value changes, net— — 45,761 (674)45,087 Investment fair value changes, net— — 26,324 (247)26,077 
Other income, netOther income, net— 122 3,574 147 3,843 Other income, net— 216 1,842 330 2,388 
Realized gains, netRealized gains, net— — 2,716 — 2,716 Realized gains, net— — 6,703 — 6,703 
Total non-interest income (loss), net61,435 21,294 52,051 (527)134,253 
Total non-interest income, netTotal non-interest income, net32,946 30,433 34,869 83 98,331 
General and administrative expensesGeneral and administrative expenses(12,689)(10,194)(3,164)(17,504)(43,551)General and administrative expenses(7,891)(12,017)(4,483)(23,301)(47,692)
Loan acquisition costsLoan acquisition costs(1,404)(1,492)(659)(4)(3,559)Loan acquisition costs(2,395)(2,175)(51)— (4,621)
Other expensesOther expenses(6)(3,777)(330)17 (4,096)Other expenses— (3,873)(150)— (4,023)
Provision for income taxes(9,486)(1,321)(736)— (11,543)
(Provision for) benefit from income taxes(Provision for) benefit from income taxes(10,429)(3,485)(1,045)19,282 4,323 
Segment ContributionSegment Contribution$40,682 $5,766 $77,726 $(26,917)Segment Contribution$19,406 $10,837 $71,085 $(13,042)
Net IncomeNet Income$97,257 Net Income$88,286 
Non-cash amortization income (expense), net$(3)$(4,098)$(234)$(1,895)$(6,230)
Non-cash amortization (expense) income, netNon-cash amortization (expense) income, net$(33)$(4,224)$5,682 $(1,995)$(570)

Nine Months Ended September 30, 2021
(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment PortfolioCorporate/
Other
Total
Interest income$35,536 $9,849 $363,751 $3,586 $412,722 
Interest expense(19,903)(5,134)(258,685)(30,649)(314,371)
Net interest income15,633 4,715 105,066 (27,063)98,351 
Non-interest income
Mortgage banking activities, net115,646 84,543 — — 200,189 
Investment fair value changes, net— — 121,812 (1,168)120,644 
Other income, net— 494 7,121��742 8,357 
Realized gains, net— — 17,803 — 17,803 
Total non-interest income (loss), net115,646 85,037 146,736 (426)346,993 
General and administrative expenses(27,478)(34,567)(10,804)(58,988)(131,837)
Loan acquisition costs(5,686)(5,528)(710)(4)(11,928)
Other expenses(6)(11,523)(592)17 (12,104)
Provision for income taxes(23,640)(6,988)(2,561)19,282 (13,907)
Segment Contribution$74,469 $31,146 $237,135 $(67,182)
Net Income$275,568 
Non-cash amortization income (expense), net$8,867 $(16,154)$317 $(5,845)$(12,815)
6872


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 23.24. Segment Information - (continued)
The following table presents the components of Corporate/Other for the three and nine months ended March 31,September 30, 2022 and 2021.

Table 23.224.2 – Components of Corporate/Other
Three Months Ended March 31,Three Months Ended September 30,
2022202120222021
(In Thousands)(In Thousands)
Legacy Consolidated VIEs (1)
OtherTotal
Legacy Consolidated VIEs (1)
Other Total(In Thousands)
Legacy Consolidated VIEs (1)
OtherTotal
Legacy Consolidated VIEs (1)
Other Total
Interest incomeInterest income$1,012 $$1,020 $1,348 $14 $1,362 Interest income$1,473 $343 $1,816 $1,042 $$1,049 
Interest expenseInterest expense(701)(9,512)(10,213)(875)(9,386)(10,261)Interest expense(1,486)(15,311)(16,797)(641)(9,514)(10,155)
Net interest incomeNet interest income311 (9,504)(9,193)473 (9,372)(8,899)Net interest income(13)(14,968)(14,981)401 (9,507)(9,106)
Non-interest incomeNon-interest incomeNon-interest income
Investment fair value changes, netInvestment fair value changes, net(714)— (714)(699)25 (674)Investment fair value changes, net(329)4,412 4,083 (247)— (247)
Other incomeOther income— 126 126 — 147 147 Other income— (278)(278)— 330 330 
Total non-interest income, netTotal non-interest income, net(714)126 (588)(699)172 (527)Total non-interest income, net(329)4,134 3,805 (247)330 83 
General and administrative expensesGeneral and administrative expenses— (15,148)(15,148)— (17,504)(17,504)General and administrative expenses— (12,335)(12,335)— (23,301)(23,301)
Loan acquisition costsLoan acquisition costs— — — — (4)(4)Loan acquisition costs— — — — — — 
Other expensesOther expenses— — — — 17 17 Other expenses— — — — — — 
Provision for income taxesProvision for income taxes— — — — 19,282 19,282 
TotalTotal$(403)$(24,526)$(24,929)$(226)$(26,691)$(26,917)Total$(342)$(23,169)$(23,511)$154 $(13,196)$(13,042)
Nine Months Ended September 30,
20222021
(In Thousands)
Legacy Consolidated VIEs(1)
OtherTotal
Legacy Consolidated VIEs(1)
Other Total
Interest income$3,593 $435 $4,028 $3,559 $27 $3,586 
Interest expense(3,154)(35,678)(38,832)(2,271)(28,378)(30,649)
Net interest income439 (35,243)(34,804)1,288 (28,351)(27,063)
Non-interest income
Investment fair value changes, net(1,379)14,887 13,508 (1,162)(6)(1,168)
Other income— (435)(435)— 742 742 
Total non-interest income, net(1,379)14,452 13,073 (1,162)736 (426)
General and administrative expenses— (39,257)(39,257)— (58,988)(58,988)
Loan acquisition costs— — — — (4)(4)
Other expenses— — — — 17 17 
Provision for income taxes— — — — 19,282 19,282 
Total$(940)$(60,048)$(60,988)$126 $(67,308)$(67,182)

(1)     Legacy consolidated VIEs represent Legacy Sequoia entities that are consolidated for GAAP financial reporting purposes. See Note 4 for further discussion on VIEs.    

6973


REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2022
(Unaudited)

Note 23.24. Segment Information - (continued)
The following table presents supplemental information by segment at March 31,September 30, 2022 and December 31, 2021.
Table 23.324.3 – Supplemental Segment Information
(In Thousands)Residential Mortgage BankingBusiness Purpose Lending Mortgage BankingInvestment Portfolio Corporate/
Other
Total
March 31, 2022
Residential loans$1,101,006 $— $5,893,918 $222,213 $7,217,137 
Business purpose loans— 496,280 4,258,498 — 4,754,778 
Multifamily loans— — 451,804 — 451,804 
Real estate securities7,714 — 351,168 — 358,882 
Other investments— — 595,056 40,525 635,581 
Intangible assets— 38,027 — — 38,027 
Total assets1,234,502 607,991 11,546,776 864,023 14,253,292 
December 31, 2021
Residential loans$1,673,235 $— $5,688,742 $230,455 $7,592,432 
Business purpose loans— 347,860 4,443,129 — 4,790,989 
Multifamily loans— — 473,514 — 473,514 
Real estate securities4,927 — 372,484 — 377,411 
Other investments— — 606,267 35,702 641,969 
Intangible assets— 41,561 — — 41,561 
Total assets1,716,285 464,967 11,770,486 755,206 14,706,944 

Note 24. Subsequent Events

In April 2022, we entered into a definitive agreement to acquire Riverbend Funding, LLC and its subsidiaries in an all-cash transaction. The acquisition is expected to close in the second quarter of 2022, subject to customary closing conditions.
(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment Portfolio Corporate/
Other
Total
September 30, 2022
Residential loans$676,458 $— $4,877,938 $198,160 $5,752,556 
Business purpose loans— 337,238 4,919,980 — 5,257,218 
Consolidated Agency multifamily loans— — 427,458 — 427,458 
Real estate securities— — 259,212 — 259,212 
Home equity investments— — 340,437 — 340,437 
Other investments— — 341,155 71,607 412,762 
Goodwill— 23,373 — — 23,373 
Intangible assets— 44,130 — — 44,130 
Total assets738,301 473,748 11,301,836 632,062 13,145,947 
December 31, 2021
Residential loans$1,673,235 $— $5,688,742 $230,455 $7,592,432 
Business purpose loans— 347,860 4,443,129 — 4,790,989 
Consolidated Agency multifamily loans— — 473,514 — 473,514 
Real estate securities4,927 — 372,484 — 377,411 
Home equity investments— — 192,740 — 192,740 
Other investments— — 413,527 35,702 449,229 
Intangible assets— 41,561 — — 41,561 
Total assets1,716,285 464,967 11,770,486 755,206 14,706,944 
7074


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in five main sections:
    Overview
    Results of Operations
Consolidated Results of Operations
Results of Operations by Segment
Income Taxes
    Liquidity and Capital Resources
    Critical Accounting Estimates
    Market and Other RisksRisks
Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and in Part II, Item 8, Financial Statements and Supplementary Data in our most recent Annual Report on Form 10-K, as well as the sections entitled “Risk Factors” in Part I, Item 1A of our most recent Annual Report on Form 10-K and Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as other cautionary statements and risks described elsewhere in this report and our most recent Annual Report on Form 10-K. The discussion in this MD&A contains forward-looking statements that involve substantial risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, such as those discussed in the Cautionary Statement below.
References herein to “Redwood,” the “company,” “we,” “us,” and “our” include Redwood Trust, Inc. and its consolidated subsidiaries, unless the context otherwise requires. Financial information concerning our business is set forth in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”MD&A and our consolidated financial statements and notes thereto, which are included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Our website can be found at www.redwoodtrust.com. We make available, free of charge through the investor informationrelations section of our website, access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”). We also make available, free of charge, access to our charters for our Audit Committee, Compensation Committee, and Governance and Nominating Committee, our Corporate Governance Standards, and our Code of Ethics governing our directors, officers, and employees. Within the time period required by the SEC and the New York Stock Exchange, we will post on our website any amendment to the Code of Ethics and any waiver applicable to any executive officer or director of Redwood. In addition, our website includes information concerning purchases and sales of our equity securities by our executive officers and directors, and may include disclosure relating to certain non-GAAP financial measures (as defined in the SEC’s Regulation G) that we may make public orally, telephonically, by webcast, by broadcast, or by similar means from time to time. The information on our website is not part of this Quarterly Report on Form 10-Q.
Our Investor Relations Department can be contacted at One Belvedere Place, Suite 300, Mill Valley, CA 94941, Attn: Investor Relations, telephone (866) 269-4976.

7175


Our Business
Redwood Trust, Inc., together with its subsidiaries, is a specialty finance company focused on several distinct areas of housing credit, with a mission to help make quality housing, whether rented or owned, accessible to all American households. Our operating platforms occupy a unique position in the housing finance value chain, providing liquidity to growing segments of the U.S. housing market not well served by government programs. We deliver customized housing credit investments to a diverse mix of investors through our best-in-class securitization platforms, whole-loan distribution activities and our publicly-traded securities. Our aggregation, origination and investment activities have evolved to incorporate a diverse mix of residential, business purpose and multifamily assets. Our goal is to provide attractive returns to shareholders through a stable and growing stream of earnings and dividends, capital appreciation, and a commitment to technological innovation that facilitates risk-minded scale. We operate our business in three segments: Residential Mortgage Banking, Business Purpose Mortgage Banking, and Investment Portfolio. For a full description of our segments, see Part 1, Item 1—Business in our Annual Report on Form 10-K for the year ended December 31, 2021.
Cautionary Statement
This Quarterly Report on Form 10-Q and the documents incorporated by reference herein contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “believe,” “intend,” “seek,” “plan” and similar expressions or their negative forms, or by references to strategy, plans, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020,2021, under the caption “Risk Factors.” Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports we file with the SEC, including reports on Forms 10-Q and 8-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Statements regarding the following subjects, among others, are forward-looking by their nature: (i) statements we make regarding Redwood's business strategy and strategic focus, including statements relating to our overall market position, strategy and long-term prospects (including trends driving the flow of capital in the housing finance market, our strategic initiatives designed to capitalize on those trends, our ability to attract capital to finance those initiatives, our approach to raising capital, and our ability to pay dividends in the future); (ii) statements related to our financial outlook and expectations for 2022 and future years, including statements regarding the economic impact of inflation, supply chain disruptions, and war in Europe; (iii) statements regarding our expectations with respect to the closing of our acquisition of Riverbend and Riverbend’s integration into, and effect upon, the Redwood and CoreVest businesses; (iv) statements related to our opportunities for growth, including opportunities to grow and increase our market share for our residential and business purpose lending mortgage banking platforms; (v) statements related to our investment portfolio, including that there remains potential upside in our portfolio through market discount;discount, and that at September 30, 2022, our securities portfolio had approximately $458 million of net discount to par (approximately $4.05 per share), which we have the potential to recover over time; (vi) statements related to RWT Horizons and our strategic investment initiatives, including that we expect to recognize a pre-tax gain on an earlier investment of approximately $10 million in the second quarter of 2022;initiatives; (vii) statements relating to our estimate of our available capital (including that we estimate our available capital at March 31,September 30, 2022 was approximately $140$160 million); (viii) statements relating to acquiring residential mortgage loans in the future that we have identified for purchase or plan to purchase, including the amount of such loans that we identified for purchase during the firstthird quarter of 2022 and at March 31,September 30, 2022, and expected fallout and the corresponding volume of residential mortgage loans expected to be available for purchase;purchase, and residential mortgage loans subject to forward sale commitments; (ix) statements we make regarding future dividends, including with respect to our regular quarterly dividends in 2022; and (x) statements regarding our expectations and estimates relating to the characterization for income tax purposes of our dividend distributions, our expectations and estimates relating to tax accounting, tax liabilities and tax savings, and GAAP tax provisions, and our estimates of REIT taxable income and TRS taxable income.
Many of the factors that could affect our actual results are summarized below. One of the most significant factors, however, is the ongoing impact of the pandemic on the United States economy, homeowners, renters of housing, the housing market, the mortgage finance markets and the broader financial markets. It is difficult to fully assess the impact of the pandemic at this time, including because of the uncertainty around the severity and duration of the pandemic domestically and internationally, as well as the uncertainty around the efficacy of Federal, State and local governments’ efforts to contain the spread of COVID-19 and respond to its direct and indirect impacts on many aspects of Americans’ lives and economic activity. Moreover, each of the factors summarized below is likely to also be impacted directly or indirectly by the ongoing impact of the pandemic and investors are cautioned to interpret substantially all of the risks identified in the Company’s previously published “Risk Factors” as being heightened as a result of the ongoing impact of the pandemic.

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Important factors, among others, that may affect our actual results include:
the impact of the COVID-19 pandemic;
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general economic trends and the performance of the housing, real estate, mortgage finance, and broader financial markets;
federal and state legislative and regulatory developments and the actions of governmental authorities and entities;
changing benchmark interest rates, and the Federal Reserve’s actions and statements regarding monetary policy;
our ability to compete successfully;
our ability to adapt our business model and strategies to changing circumstances;
strategic business and capital deployment decisions we make;
our use of financial leverage;
our exposure to a breach of our cybersecurity or data security;
our exposure to credit risk and the timing of credit losses within our portfolio;
the concentration of the credit risks we are exposed to, including due to the structure of assets we hold, the geographical concentration of real estate underlying assets we own, and our exposure to environmental and climate-related risks;
the efficacy and expense of our efforts to manage or hedge credit risk, interest rate risk, and other financial and operational risks;
changes in credit ratings on assets we own and changes in the rating agencies’ credit rating methodologies;
changes in mortgage prepayment rates;
changes in interest rates;
our ability to redeploy our available capital into new investments;
interest rate volatility, changes in credit spreads, and changes in liquidity in the market for real estate securities and loans;
our ability to finance the acquisition of real estate-related assets with short-term debt;
changes in the values of assets we own;
the ability of counterparties to satisfy their obligations to us;
our exposure to the discontinuation of LIBOR;
our exposure to liquidity risk, risks associated with the use of leverage, and market risks;
changes in the demand from investors for residential and business purpose mortgages and investments, and our ability to distribute residential and business purpose mortgages through our whole-loan distribution channel;
our involvement in securitization transactions, the profitability of those transactions, and the risks we are exposed to in engaging in securitization transactions;
exposure to claims and litigation, including litigation arising from our involvement in loan origination and securitization transactions;
whether we have sufficient liquid assets to meet short-term needs;
our ability to successfully retain or attract key personnel;
changes in our investment, financing, and hedging strategies and new risks we may be exposed to if we expand our business activities;
our exposure to a disruption of our technology infrastructure and systems;
the impact on our reputation that could result from our actions or omissions or from those of others;
our failure to maintain appropriate internal controls over financial reporting and disclosure controls and procedures;
the termination of our captive insurance subsidiary’s membership in the Federal Home Loan Bank and the implications for our income generating abilities;
the impact of changes to U.S. federal income tax laws on the U.S. housing market, mortgage finance markets, and our business;
our failure to comply with applicable laws and regulation, including our ability to obtain or maintain the governmental licenses;
our ability to maintain our status as a REIT for tax purposes;
limitations imposed on our business due to our REIT status and our status as exempt from registration under the Investment Company Act of 1940;
our common stock may experience price declines, volatility, and poor liquidity, and we may reduce our dividends in a variety of circumstances;
decisions about raising, managing, and distributing capital;
our exposure to broad market fluctuations; and
other factors not presently identified.
This Quarterly Report on Form 10-Q may contain statistics and other data that in some cases have been obtained from or compiled from information made available by servicers and other third-party service providers.
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OVERVIEW
Business Update
Our first quarter GAAP earnings were $0.24 per diluted share and our GAAP book value was $12.01declined to $10.18 per share at March 31,September 30, 2022, down only 0.4%a 5.6% decline from book value at year-end 2021. After paying a first quarter dividend of $0.23$10.78 per share at June 30, 2022, driving a GAAP loss of $(0.44) per share for the third quarter. As was the case in the second quarter, mark-to-market adjustments were the primary driver of our GAAP loss for the quarter and contributed $(0.50) per share of unrealized fair value changes in the third quarter.
During the third quarter, we focused on maintaining liquidity and maximizing our balance sheet flexibility. We ended the quarter with over $400$297 million of unrestricted cash on hand, unencumbered assets of $491 million, and $140approximately $3.8 billion of excess capacity on our warehouse lines. We were successful during the quarter in adding $900 million of available capital.new financing capacity across multiple borrowing facilities (with both new and existing domestic depository institutions) to further support our operating platforms. Our overall recourse leverage ratio(1) was 2.6x, which included only 0.8x secured recourse leverage within our Investment Portfolio(2). This does not take into accountallowed us to remain opportunistic across our operating segments, a posture we expect to carry through year-end.
For the ongoingthird quarter, we deployed $235 million of capital, which included repurchases of our common stock, the acquisition of Riverbend Funding, LLC (“Riverbend”), and further investments in organically created business-purpose loans (“BPL”) and third-party investments. We closed the Riverbend acquisition on July 1, 2022, and have progressed with key integration workstreams that we expect to be largely completed by year-end. At current levels, we believe there is an attractive opportunity to invest in our own common shares and, as such, we expect opportunistic share repurchases to be an on-going option for capital deployment in the near term.
Within our Investment Portfolio, at September 30, 2022, we had $3.6 billion of economic investments; 77% of which were organically created and 23% of which were purchased from third-parties. We estimate there was $458 million (or $4.05 per share) of net discount to par value at September 30, 2022 that we believe represents potential upside in Redwood’s book value.
Our investment portfolio sits in a strong fundamental credit position given consistent cash flowflows, underlying seasoning and robust home price appreciation. Delinquencies in our portfolio remain low, at approximately 2% across our organically-created Residential and BPL investments combined at September 30, 2022. We believe the seasoning of our portfolio assets is a positive factor in light of near-term downward pressure on home prices expected as a result of the Federal Reserve's monetary policy actions. Our portfolio overall has benefited from significant appreciation in home prices and rents the last several years, providing a tailwind to fundamental performance even in a more stressed housing market. This inherent downside protection may support the potential recoverability of the unrealized losses we tendhave taken over the last few quarters.
While markets need to generate internally throughstabilize for our operating businesses a dynamic that has facilitated muchto return to their optimal levels of our recent growth. The resiliencyoperations, both of our mortgage banking businesses, coupled with another quarter of very strong fundamental credit performance across our investment portfolio, has resulted in balanced financialplatforms delivered substantially better quarter-on-quarter results in an otherwise challenging environment for the broader residential mortgage sector.
2022 appearsas compared to be a year of transition for many market participants, with expectations for persistently higher inflation and supply chain disruptions negatively impacting market sentiment. Benchmark interest rates began rising in the fourth quarter of 2021, the Federal Reserve in March announced it would raise its federal funds rate for the first time since 2019, and many market observers currently expect a total of nine rate hikes throughout the year. Additionally, the Fed has signaled it will begin reducing its holdings of Agency mortgage-backed securities (“MBS”). For context, the Fed had acquired approximately $2.7 trillion of Agency MBS over the past two years. Credit markets have remained volatile as investors assess how the Fed will manage the economy.
Challenging market conditions like these offer opportunities for us to further differentiate our business, particularly as we position Redwood for growth. Our business purpose lending platform, CoreVest, has the capacity to create shorter-duration, floating-rate loans whose interest rates reset as benchmark rates rise, including the bridge products we offer that are generally 12 to 18 months in duration and provide financing to housing investors who rehabilitate single or multifamily units for sale or rent. This segment of the housing industry continues to grow, as the supply of refurbished housing across the U.S. is near all-time lows. Our total business purpose lending (“BPL”) fundings for the first quarter grew 25% versus the fourth quarter of 2021 on record bridge originations, supported by strong volumes in multifamily transitional lending. One competitive advantage of our bridge lending program is the broad array of lending products we offer to borrowers, from small loans for investors improving one single-family home, to large and more customized loan products for sponsors focused on build-for-rent or multifamily development.
We recently announced a definitive agreement to acquire Riverbend Funding, LLC and its subsidiaries (“Riverbend”), a specialty lender headquartered in Oregon focused on single- and multifamily bridge lending. Riverbend, which we expect to operationally integrate within CoreVest, brings a complementary product and geographic scope that we believe will positively contribute to our overall BPL platform. Riverbend’s borrower network should also provide an opportunity to further market and distribute CoreVest’s existing loan products. Riverbend’s executives are well known to our leadership team through both current and previous business ventures, and both groups are excited about the business and cultural fit. We expect to consummate the acquisition in the second quarter of 2022, pending satisfactionnotwithstanding continued market dislocation. Across our Residential and Business Purpose Mortgage Banking businesses, we distributed almost $1 billion of customary closing conditions.
Within the residential mortgage market, the effects from the Fed’s tightening monetary policy caused mortgage rates to rise approximately 1.50%loans during the first quarter,quarter. Despite capital markets in the consumer residential sector remaining largely distressed, we sold $612 million of residential loans to various whole loans buyers at accretive levels and in lightwithin our historical target range for gain on sale margins. Our BPL team also completed an innovative $274 million private SFR securitization at the end of the expectationthird quarter, in addition to selling $85 million of continued tightening, industry-wide reductions in origination capacity appear inevitable. Moreover, loans in production since last November were locked to consumers at interest rates well below today’s market levels, negatively impacting the economics for issuers of both Agency MBS and non-Agency securitizations.loans. Our ability to distribute loans through both securitization and whole loan sales in challenging markets is a testament to the strength of our platforms, the quality of our products and the depth of our whole loan networks.
We expect conditions in the consumer residential sector to remain challenging for a number of quarters as industry volumes continue to be affected by rapidly increasing mortgage rates, which, along with record home price appreciation in recent years, has pushed housing affordability to new lows. The spread between mortgage rates and the 10-year Treasury recently reached an all-time high, even as the 10-year Treasury yield itself has risen over 250 basis points since the beginning of the year. The institution that has been the largest buyer of mortgage-backed securities, the Federal Reserve, has exited the market, and money center banks and overseas investors have also pulled back significantly. This dynamic, in the near term, has resulted in significant market risk for those aggregating loans for future securitizations, including us.
As a result of these market conditions, we have remained conservatively positioned in Residential Mortgage Banking, reducing our quarterly jumbo loan locks(3) in the third quarter to $461 million and focusing on moving risk expediently, operating efficiently and preserving flexibility. This includes ongoing rationalization of our cost structure and disciplined pipeline of residentialmanagement, including through maintaining lower overall loan inventory more quickly than competitors thereby offers protection from continued interest rate volatility.
balances and nimble distribution strategies with whole loan buyers. In light of these conditions, we intentionally reduced our capital allocation to our Residential Mortgage Banking business by almost 60% since the beginning of 2022. We see attractive uses for this operating environment, we’re pleased withfreed-up capital, including investment opportunities in residential credit made possible by the performance of our residential business. We accelerated the schedule for issuing our first securitization of 2022 to early January, in advance of many other market participants. To our knowledge, this transaction achieved the most favorable economic execution of any private label securitization of its type to date this year. As the quarter progressed, we continued to manage our loan pipeline and inventory with competitive pricing, faster loan processing times, and a deep whole loan distribution network.
Utilizing this approach, we were able to continue locking residential loans competitively while other participants more drastically reduced their purchase activity, resulting in our residential lock volume declining only 7% from the fourth quarter of 2021, compared to industry-wide projections of a 25% total decline for the period. We accomplished this while preserving our gross margins at levels near our long-term historical range.downturn.
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Gain on sale marginsTurning to Business Purpose Mortgage Banking, while we have seen some resiliency in demand for shorter duration bridge loan products that we originate, we expect volumes to moderate from record levels earlier this year as higher interest rates and macroeconomic uncertainty cause housing investors to be more cautious. In the third quarter, we saw this trend play out as 83% of our origination volume was in our bridge product and 17% was in our SFR product. As affordability remains challenged, we believe that strong occupancy rates, low vacancies, and high consumer mortgage rates should continue to support strong and consistent cash flows for our mortgage banking businesses, particularly for the consumer residential and single-family rental (“SFR”) loan pipelines, remain impacted by the interest rate environment and credit spread widening that affected markets in the first quarter. However, in conjunction with an expected recovery in margins as industry origination capacity corrects and fixed costs are reduced, weproducts. We have announced new loan products aimed at meeting the evolving needs of investors and consumers in today’s rising rate environment. Ourlong promoted our BPL mortgage banking platform recently originated a term loan backed by a short-term rental portfolio, a structure we expect will position CoreVest well to meet the needs of a growing cohort of investors in the short-term rental space. Our residential mortgage banking platform recently revamped our expanded credit loan purchase programs – including the addition of a loan purchase program focused on self-employed borrowers – as part of a continuing evolution of our loan purchase product offerings to address the changing needs of homeowners. We also remain well-positioned to acquire high-balance conforming mortgages and loans on second homes that we expect to be offered and sold to private market participants in light of revised GSE loan purchase pricing guidelines that took effect in April. We see these new loan purchase productsfranchise as a key driverlife-cycle lender and our ability to increasing our shareprovide both short- and long-term financing options makes us an attractive lender for borrowers.

































Footnotes to Business Update


(1)    Recourse leverage ratio is defined as recourse debt at Redwood divided by tangible stockholders' equity. Recourse debt excludes $8.9 billion of this market in the future.consolidated securitization debt (ABS issued and servicer advance financing) and other debt that is non-recourse to Redwood, and tangible stockholders' equity excludes $68 million of goodwill and intangible assets.
Our portfolio diversification, low(2)    Secured recourse leverage and proactive risk management reduced the impact of the volatility on Redwood’s book value during the first quarter. Many assets in our investment portfolio continue to be held at a significant discount to par value and overallfor our investment portfolio is primarily backed by assets with lower interest rate sensitivity, including, among other assets, bridge loans, call-protected SFR loans, and seasoned reperforming residential loans. Our book value tends to be correlated more closely to underlying credit performance, and we observed the impact of this in the first quarterdefined as overall delinquencies remained stable. Our outlook on housing credit remains strong given rising home equity, low unemployment and historically low housing inventory. Volatility may provide attractive investment opportunities, and we will continue to acquire assets forsecured recourse debt financing our investment portfolio where we see strong return potential.
RWT Horizons, our internal ventureassets divided by capital investment strategy, had a positive quarter, with two smaller investments completing follow-on raises at significantly higher valuations during the first quarter. In April, one of our earlier portfolio companies completed a new funding round that is expectedallocated to result in a pre-tax gain on our investment of approximately $10 million inportfolio.
(3)    Lock volume does not account for potential fallout from pipeline that typically occurs through the second quarter of 2022. We expect to recognize this valuation adjustment in accordance with GAAP in our second quarter earnings.
We completed five new Horizons investments in the first quarter, all with a direct nexus to our operating businesses, including a focus on improving core business processes and/or the consumer experience. Since inception, we have completed 21 investments through Horizons across 18 companies, with over $25 million of capital committed. We also saw two of our Horizons portfolio companies collaborate with one another in the first quarter with the shared goal of enhancing loan-backed digital assets, which should ultimately increase transparency and reduce friction costs over the duration of a residential loan. Connecting companies through our ecosystem to transform our markets has been a central tenet of our vision for Horizons.
As we proceed into the second quarter, anxiety remains prevalent across all aspects of the financial markets, as the ground war in eastern Europe and high inflation continue to drive benchmark rates higher and credit spreads wider. The expected duration of outstanding residential mortgage loans continues to extend as rates rise and refinance options become less economical, while at the same time the estimated home purchasing power of consumers declines due to higher financing costs and persistently low home inventories that have kept real estate prices high across the country. We believe much of the associated volatility has already been reflected in market pricing levels. For example, in some cases both Agency and non-Agency MBS have been sold in third party transactions at pricing levels worse than what we observed at the height of the Covid-19 pandemic. As we look for attractive opportunities to deploy capital, we are mindful that accessing quality housing remains an ongoing challenge for many American households.

lending process.
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FirstThird Quarter Overview
The following table presents key financial metrics for the three and nine months ended March 31,September 30, 2022.
Table 1 – Key Financial Results and Metrics
Three Months Ended
(In Thousands, except per Share Data)March 31, 2022
Net income per diluted common share$0.24
Annualized GAAP return on equity8.6%
Dividends per share$0.23
Book value per share$12.01
Economic return on book value (1)
1.5%
Three Months EndedNine Months Ended
(In Thousands, except per Share Data)September 30, 2022September 30, 2022
Net (loss) income per diluted common share$(0.44)$(1.04)
Annualized GAAP return on equity(16.4)%(11.8)%
Dividends per share$0.23 $0.69 
Book value per share$10.18$10.18
Economic return on book value (1)
(3.4)%(9.9)%
(1)Economic return on book value is based on the periodic change in GAAP book value per common share plus dividends declared per common share during the period.
Operational Business Highlights
Investment Portfolio
Deployed $128$167 million of capital into new organic and third-party investments
Called $102 million of seasoned residential jumbo loan collateral
Credit performance remained strong with stable delinquencies and continued home price appreciationdeclining LTVs
Investment Portfolio secured recourse leverage of 0.8x as of September 30, 2022
Business Purpose Mortgage Banking
Funded $920$570 million in business purpose loans, up 25% from the fourth quarter of 2021
First quarter fundings included $415 million of bridge loans (up 13% from the fourth quarter)83% Bridge and $505 million of SFR loans (up 38% from the fourth quarter)17% Single-Family Rental ("SFR")
Launched new short-term rental product and closed inaugural short-term rental portfolio loanSecuritized $274 million of loans in a private securitization backed by SFR loans
Sold $332Closed the previously announced acquisition of Riverbend Funding, LLC and its subsidiaries ("Riverbend"), a best-in-class private mortgage lender to investors in transitional residential and multifamily real estate, for an initial cash purchase price of approximately $44 million of SFR loanspaid at closing (and subject to large institutional investors and transferred $81 million of bridge loans to our existing revolving securitizationcertain adjustments including potential earnout consideration)
Residential Mortgage Banking
Locked $2.6 billionDistributed $612 million of jumbo residential loans;loans through whole loan sales; at September 30, 2022, total net jumbo loan exposure was $712 million
Intentionally maintained light volume, locking $461 million of jumbo loans, down from $1.0 billion in second quarter 2022; loan purchase commitments were $2.0 billion (loan purchase commitments represent locked loans adjusted for estimated potential fallout)
First$256 million, down from $538 million in second quarter lock mix was 65% purchase money loans and 35% refinancings; included 91% Select loans and 9% Choice loans
Purchased $2.0 billion of jumbo loans; jumbo loan pipeline at March 31, 2022 included $1.1 billion of loans identified for purchase
Distributed $2.5 billion of jumbo loans, including $1.8 billion through whole loan sales and one securitization backed by $0.7 billion of loans
Financing Highlights
Successfully renewed $2.2 billionMaintained robust balance sheet with unrestricted cash of warehouse capacity, including four residential warehouse facilities$297 million and one business purpose lending warehouse facility; increased total business purpose lending warehouse capacity by $200unencumbered assets of $491 million at September 30, 2022
Maintained unrestrictedAdded $900 million of new financing capacity across multiple borrowing facilities (with both new and existing domestic depository institutions) in the third quarter to further support operating platforms
Successfully renewed warehouse lines with maturities in the third quarter at unchanged advance rates
Ended third quarter with $3.8 billion of unused financing capacity across Residential and Business Purpose Mortgage Banking segments
Total margin call activity in the third quarter resulted in a net return of cash to Redwood from financing and hedging counterparties
Repurchased 3.4 million shares of $409Redwood’s common stock at a cost of $24 million, and available capitalresulting in $0.12 per share of $140 million at March 31, 2022book value accretion in the third quarter
RWT Horizons Highlights
RWT Horizons completed fiveCompleted three new investments in the firstthird quarter of 2022
Since inception, RWT Horizons has completed 2127 technology venture investments in 1824 companies with an aggregate of over $25$26 million of investment commitments
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RESULTS OF OPERATIONS
Within this Results of Operations section, we provide commentary that compares results year-over-year for 2022 and 2021. Most tables include a "change" column that shows the amount by which the results from 2022 are greater or less than the results from the respective period in 2021. Unless otherwise specified, references in this section to increases or decreases during the "three-month periods" refer to the change in results for the firstthird quarter of 2022, compared to the firstthird quarter of 2021, and increases or decreases during the "nine-month periods" refer to the change in results for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.
Consolidated Results of Operations
The following table presents the components of our net (loss) income for the three and nine months ended March 31,September 30, 2022 and 2021.
Table 2 – Net (Loss) Income
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands, except per Share Data)(In Thousands, except per Share Data)20222021Change(In Thousands, except per Share Data)20222021Change20222021Change
Net Interest IncomeNet Interest Income$53,102 $25,753 $27,349 Net Interest Income$34,935 $41,968 $(7,033)$128,525 $98,351 $30,174 
Non-interest IncomeNon-interest IncomeNon-interest Income
Mortgage banking activities, netMortgage banking activities, net16,315 82,607 (66,292)Mortgage banking activities, net16,535 63,163 (46,628)2,833 200,189 (197,356)
Investment fair value changes, netInvestment fair value changes, net(6,120)45,087 (51,207)Investment fair value changes, net(57,697)26,077 (83,774)(151,789)120,644 (272,433)
Other income, netOther income, net5,983 3,843 2,140 Other income, net4,027 2,388 1,639 17,016 8,357 8,659 
Realized gains, netRealized gains, net2,581 2,716 (135)Realized gains, net— 6,703 (6,703)2,581 17,803 (15,222)
Total non-interest income, net18,759 134,253 (115,494)
Total non-interest (loss) income, netTotal non-interest (loss) income, net(37,135)98,331 (135,466)(129,359)346,993 (476,352)
General and administrative expensesGeneral and administrative expenses(34,854)(43,551)8,697 General and administrative expenses(40,107)(47,692)7,585 (106,927)(131,837)24,910 
Loan acquisition costsLoan acquisition costs(4,465)(3,559)(906)Loan acquisition costs(2,426)(4,621)2,195 (10,371)(11,928)1,557 
Other expensesOther expenses(4,085)(4,096)11 Other expenses(4,261)(4,023)(238)(11,814)(12,104)290 
Net income before income taxes28,457 108,800 (80,343)
Benefit from (provision for) income taxes2,458 (11,543)14,001 
Net Income$30,915 $97,257 $(66,342)
Diluted earnings per common share$0.24 $0.72 $(0.48)
Net (loss) income before income taxesNet (loss) income before income taxes(48,994)83,963 (132,957)(129,946)289,475 (419,421)
(Provision for) benefit from income taxes(Provision for) benefit from income taxes(1,417)4,323 (5,740)10,484 (13,907)24,391 
Net (Loss) IncomeNet (Loss) Income$(50,411)$88,286 $(138,697)$(119,462)$275,568 $(395,030)
Diluted (loss) earnings per common shareDiluted (loss) earnings per common share$(0.44)$0.65 $(1.09)$(1.04)$2.03 $(3.07)
Net Interest Income
The increase in netNet interest income during the three-month periods was primarily attributable to the performance offrom our investment portfolio which accounted for $23increased by $3 million ofand $36 million during the increase,three and nine-month periods, respectively, and generally resulted from higher average asset balances in the first quarter of 2022, as we increased our investments in bridge loans and bondsin securities we retained from CoreVest SFR securitizations during the prior twelve months, as well as highermonths. We recognized elevated levels of discount accretion on our available-for-saleavailable-for-sale securities and yield maintenance income on our SFR securities and a lower cost of funds on borrowings for our investments. Higher average balances of residential and SFR loans held in inventory at our mortgage banking businesses during the first quarter of 2022. In association with a continued rise in interest rates throughout 2022, contributedprepayment speeds on many of our assets slowed, and resulted in a reduction in discount accretion and yield maintenance income on our SFR securities in the second and third quarters. Additionally, net interest income from Business Purpose Mortgage Banking operations increased by $1 million and $5 million, during the three and nine-month periods, respectively, as a result of higher average balances of SFR loan inventory during the respective periods.
These increases were offset by $6 million and $8 million decreases in net interest income during the three and nine-month periods, respectively, from higher corporate interest expense resulting from the issuance of new convertible debt in June 2022 and from our trust preferred securities, which are variable rate and were impacted by higher benchmark interest rates in 2022. Additionally, Residential Mortgage Banking operations experienced $5 million and $3 million decreases in net interest income during the three and nine-month periods, respectively, as a result of a lower average balance of loan inventory in the respective periods.
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Continued increases in benchmark interest rates and borrowing spreads could negatively impact our future net interest income in relation to $4 millionthe portion of our fixed-rate assets that are financed with floating-rate debt, as well as in relation to fixed-rate debt that matures in the increase.near-term that is refinanced with new debt at current market rates. Additionally, to the extent we add incremental leverage to our investment portfolio, net interest income could decrease while proceeds from those financings are redeployed into other assets or if additional capital is deployed into HEIs which do not earn interest income.
Additional detail on net interest income is provided in the “Net Interest Income” section that follows.
Mortgage Banking Activities, Net
The decrease in income from mortgage banking activities during the three-monththree and nine-month periods was attributable to a $54$31 million decreaseand $123 million decreases, respectively, from our residential mortgage bankingResidential Mortgage Banking operations and a $13$16 million decreaseand $74 million decreases, respectively, from our business purpose mortgage bankingBusiness Purpose Mortgage Banking operations.
The decreasedecreases from residential mortgage banking wasResidential Mortgage Banking operations were attributable to lower acquisition volumes as well as decreased margins during 2022, as a sharp increase in mortgage rates during 2022 contributed to an industry-wide decrease in residential mortgage origination activity. Additionally, given market volatility, we focused on risk management and were deliberate in moderating volume and transferring financial risk quickly during 2022. Margins and profitability for Residential Mortgage Banking during the first quarternine months of 2022 which were impacted by increased rate volatility and higher hedging costs as well as wider credit spreads for securitizations and whole loans. The decrease from business purposeloans, as well as increased rate volatility, which resulted in higher hedging costs. In the third quarter of 2022, margins recovered on improved distribution execution.
Despite increased volumes during the first nine months of 2022, Business Purpose Mortgage Banking income declined year-over-year, as continued market volatility and extreme credit spread widening in 2022 negatively impacted profitability. Spreads stabilized in the third quarter and volume remained fairly healthy, which contributed to $14 million of BPL mortgage banking was primarily attributable to spread widening impacting our SFR loans duringactivity income in the firstthird quarter of 2022.
A more detailed analysis of the changes in this line item is included in the “Results of Operations by Segment” section that follows.

77


Investment Fair Value Changes, Net
Investment fair value changes, net, is primarily comprised of the change in fair values of our portfolio investments accounted for under the fair value option.option and their associated interest rate hedges. During the three and nine months ended March 31,September 30, 2022, negative investment fair value changes reflected extreme levels of credit spread widening across somemany of our longer-duration, fixed-rate investments, (including re-performing loans, CRT securities, residential securities and called jumbo loans) partially offset by fair value increases in our HEIs, IO securities, MSRs, and certain SFR subordinate securities thatinterest rate hedges, which benefited from credit resolutions duringrising interest rates. While our home equity investments ("HEIs") experienced price increases in the first quarter. half of 2022 due to home price appreciation, in the third quarter of 2022, they saw declines in prices as the outlook for home price appreciation deteriorated. Negative fair value changes primarily reflected unrealized mark-to-market losses, while fundamental credit performance, including delinquencies and LTVs, remained stable across our portfolio.
During the three and nine months ended March 31,September 30, 2021, positive investment fair value changes reflected continuing improvementimprovements in credit performance and spread tightening across our investment portfolio.portfolio, particularly in our third-party re-performing loan ("RPL") and retained CAFL SFR securities.
Additional detail on our investment fair value changes during 2022 is included in the “Results of Operations by Segment” section that follows as well as Table 5.6 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Other Income
The increase in other income for the three-monththree and nine month periods primarily resulted from higher income on our MSR investments, which benefitedincreased by $3 million and $12 million, respectively. The increase in income from MSRs was primarily due to positive valuation changes resulting from a slowdown in prepayment speeds during the first quarter of 2022 as interest rates rose.
Additional detail on our other income is presented in Table 20.1 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Realized Gains, Net
During the three months ended March 31, 2022, we realized gains of $3 million, primarily resulting from calls associated with third-party available-for-sale ("AFS") securities. During the three months ended March 31, 2021, we realized gains of $3 million primarily resulting from the sale of $2 million of AFS securities and the call of a seasoned Sequoia securitization.
General and Administrative Expenses
General and administration expenses decreased for the three-month periods, primarily due to a $15 million decrease in variable compensation expense, commensurate with the decrease in GAAP earnings during the quarters. This decrease was partially offset by an increase of $3 million from higher fixed compensation expense and long-term incentive award expense, in both cases associated with an increased headcount in 2022 and higher per-employee costs.
Additional detail on our General and administrative expenses is presented in Table 21.1 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Loan Acquisition Costs
82


The increase in loan acquisition costs forRealized Gains, Net
During the three-month periods wasthree and nine months ended September 30, 2022, we realized gains of zero and $3 million, respectively, primarily due to higher loan origination volumes at our business purpose mortgage banking operationsresulting from calls associated with third-party available-for-sale ("AFS") securities during the first quarter of 2022. During the three and nine months ended September 30, 2021, we realized gains of $7 million and $18 million, respectively, primarily resulting from the call of two and six seasoned Sequoia securitizations, respectively.
General and Administrative Expenses
General and administration expenses decreased for the three and nine month periods, primarily due to $16 million and $42 million decreases in variable compensation expense, respectively, associated with the decreases in earnings during the respective periods. Additionally, fixed compensation expense in the second quarter of 2022 included a $2 million benefit from a payroll tax refund related to a prior year that was realized during the quarter. These decreases were offset by a $1 million increase in costs associated with the acquisition of Riverbend, including $1 million of direct transaction costs incurred over the second and third quarters of 2022, and $2 million of fixed compensation costs in the third quarter of 2022 from the addition of Riverbend employees. Additionally, in the third quarter of 2022, we incurred $4 million of employee severance and transition-related expenses.
Additional detail on our General and administrative expenses is presented in Table 22.1 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Loan Acquisition Costs
Loan acquisition costs for our mortgage banking operations decreased $2 million for both the three and nine month periods, as a result of lower loan origination volumes in 2022.
Provision for Income Taxes
Our provision for income taxes is almost entirely related to activity at our taxable REIT subsidiaries, which primarily includes our mortgage banking activities and MSR investments, as well as certain other investment and hedging activities. The switchLosses from our mortgage banking operations during the first nine months of 2022 contributed to a tax benefit during that period. For the third quarter of 2022, a small loss from our mortgage banking operations was more than offset by gains on hedges associated with certain of our investments, resulting in a tax provision year-over-year was primarilyfor the result of GAAP losses at our TRS duringquarter.
During the firstthird quarter of 2022 versus GAAP2021, we realized a $19 million benefit from the release of valuation allowance on a portion of our deferred tax assets contributing to a net tax benefit during that quarter. The tax provision for the nine months ended September 30, 2021 reflects positive income earned from our mortgage banking operations during that period, partially offset by the same period in 2021.benefit from the release of valuation allowance.
For additional detail on income taxes, see the “Taxable Income and Tax Provision” section that follows.
7883


Net Interest Income
The following table presents the components of net interest income for the three and nine months ended March 31,September 30, 2022 and 2021.
Table 3 – Net Interest Income
Three Months Ended March 31,Three Months Ended September 30,
2022202120222021
(Dollars in Thousands)(Dollars in Thousands)Interest Income/ (Expense)
 Average
   Balance (1)
YieldInterest Income/ (Expense)
 Average
   Balance (1)
Yield(Dollars in Thousands)Interest Income/ (Expense)
 Average
   Balance (1)
YieldInterest Income/ (Expense)
 Average
   Balance (1)
Yield
Interest IncomeInterest IncomeInterest Income
Residential loans, held-for-saleResidential loans, held-for-sale$14,893 $1,734,608 3.4 %$6,665 $933,910 2.9 %Residential loans, held-for-sale$11,844 $984,365 4.8 %$15,377 $1,936,882 3.2 %
Residential loans - HFI at Legacy Sequoia (2)
Residential loans - HFI at Legacy Sequoia (2)
1,012 222,318 1.8 %1,348 273,770 2.0 %
Residential loans - HFI at Legacy Sequoia (2)
1,473 199,264 3.0 %1,042 248,791 1.7 %
Residential loans - HFI at Sequoia (2)
Residential loans - HFI at Sequoia (2)
32,098 3,954,379 3.2 %15,483 1,373,438 4.5 %
Residential loans - HFI at Sequoia (2)
31,587 3,468,730 3.6 %18,867 2,104,357 3.6 %
Residential loans - HFI at Freddie Mac SLST (2)
Residential loans - HFI at Freddie Mac SLST (2)
17,200 1,829,910 3.8 %20,159 2,177,399 3.7 %
Residential loans - HFI at Freddie Mac SLST (2)
16,098 1,600,215 4.0 %18,707 2,043,813 3.7 %
Business purpose loans - HFSBusiness purpose loans - HFS5,039 470,781 4.3 %2,847 265,038 4.3 %Business purpose loans - HFS9,070 535,017 6.8 %4,090 314,641 5.2 %
Business purpose loans - HFIBusiness purpose loans - HFI16,468 1,059,735 6.2 %12,468 631,729 7.9 %Business purpose loans - HFI24,688 1,257,222 7.9 %14,102 704,752 8.0 %
Single-family rental loans - HFI at CAFL(2)Single-family rental loans - HFI at CAFL(2)72,792 3,278,809 8.9 %48,873 3,254,858 6.0 %Single-family rental loans - HFI at CAFL(2)50,959 2,960,614 6.9 %48,723 3,455,645 5.6 %
Multifamily loans - HFI at Freddie Mac K-Series4,753 467,606 4.1 %4,786 493,878 3.9 %
Bridge loans - HFI at CAFL (2)
Bridge loans - HFI at CAFL (2)
10,480 529,993 7.9 %214 12,015 7.1 %
Multifamily loans at Freddie Mac K-Series (2)
Multifamily loans at Freddie Mac K-Series (2)
4,762 439,966 4.3 %4,846 483,930 4.0 %
Trading securitiesTrading securities5,269 169,315 12.4 %5,896 132,515 17.8 %Trading securities3,924 131,626 11.9 %5,710 147,925 15.4 %
Available-for-sale securitiesAvailable-for-sale securities10,686 138,042 31.0 %3,767 137,283 11.0 %Available-for-sale securities3,065 136,203 9.0 %8,532 120,183 28.4 %
Other interest incomeOther interest income9,190 986,246 3.7 %6,013 775,483 3.1 %Other interest income9,712 898,111 4.3 %5,512 769,308 2.9 %
Total interest incomeTotal interest income189,400 14,311,749 5.3 %128,305 10,449,301 4.9 %Total interest income177,662 13,141,326 5.4 %145,722 12,342,242 4.7 %
Interest ExpenseInterest ExpenseInterest Expense
Short-term debt facilitiesShort-term debt facilities(9,826)1,727,030 (2.3)%(6,487)987,570 (2.6)%Short-term debt facilities(19,436)1,561,146 (5.0)%(10,808)1,982,726 (2.2)%
Short-term debt - servicer advance financingShort-term debt - servicer advance financing(1,662)267,267 (2.5)%(1,286)186,539 (2.8)%Short-term debt - servicer advance financing(2,606)225,002 (4.6)%(1,018)149,450 (2.7)%
Promissory notesPromissory notes(572)33,302 (6.9)%— — — %
Short-term debt - convertible notes, netShort-term debt - convertible notes, net(1,330)100,895 (5.3)%— — — %
ABS issued - Legacy Sequoia (2)
ABS issued - Legacy Sequoia (2)
(701)219,833 (1.3)%(875)270,202 (1.3)%
ABS issued - Legacy Sequoia (2)
(1,486)198,166 (3.0)%(641)245,910 (1.0)%
ABS issued - Sequoia (2)
ABS issued - Sequoia (2)
(28,171)3,708,168 (3.0)%(12,106)1,154,565 (4.2)%
ABS issued - Sequoia (2)
(27,541)3,233,716 (3.4)%(15,368)1,872,636 (3.3)%
ABS issued - Freddie Mac SLST (2)
ABS issued - Freddie Mac SLST (2)
(14,085)1,528,858 (3.7)%(17,371)1,949,873 (3.6)%
ABS issued - Freddie Mac SLST (2)
(12,829)1,325,930 (3.9)%(15,774)1,765,465 (3.6)%
ABS issued - Freddie Mac K-Series(4,371)435,853 (4.0)%(4,356)466,688 (3.7)%
ABS issued - CAFL(58,367)3,258,243 (7.2)%(37,853)3,003,606 (5.0)%
ABS issued - Freddie Mac K-Series (2)
ABS issued - Freddie Mac K-Series (2)
(4,377)408,164 (4.3)%(4,460)453,031 (3.9)%
ABS issued - CAFL (2)
ABS issued - CAFL (2)
(44,677)3,075,551 (5.8)%(37,489)3,118,792 (4.8)%
Long-term debt facilitiesLong-term debt facilities(9,608)1,138,933 (3.4)%(12,831)776,070 (6.6)%Long-term debt facilities(14,464)1,148,700 (5.0)%(8,715)881,669 (4.0)%
Long-term debt - corporateLong-term debt - corporate(9,507)652,793 (5.8)%(9,387)651,185 (5.8)%Long-term debt - corporate(13,409)761,712 (7.0)%(9,481)651,468 (5.8)%
Total interest expenseTotal interest expense(136,298)12,936,978 (4.2)%(102,552)9,446,298 (4.3)%Total interest expense(142,727)12,072,284 (4.7)%(103,754)11,121,147 (3.7)%
Net Interest IncomeNet Interest Income$53,102 $25,753 Net Interest Income$34,935 $41,968 

84


Nine Months Ended September 30,
20222021
(Dollars in Thousands)Interest Income/ (Expense)
 Average
   Balance (1)
YieldInterest Income/ (Expense)
 Average
   Balance (1)
Yield
Interest Income
Residential loans, held-for-sale$42,201 $1,406,219 4.0 %$35,308 $1,568,966 3.0 %
Residential loans - HFI at Legacy Sequoia (2)
3,592 211,707 2.3 %3,559 262,007 1.8 %
Residential loans - HFI at Sequoia (2)
95,608 3,732,108 3.4 %48,842 1,644,256 4.0 %
Residential loans - HFI at Freddie Mac SLST (2)
49,851 1,717,544 3.9 %58,372 2,110,555 3.7 %
Business purpose loans - HFS22,823 536,366 5.7 %10,105 277,486 4.9 %
Business purpose loans - HFI52,226 1,003,673 6.9 %38,877 668,413 7.8 %
Single-family rental loans - HFI at CAFL (2)
173,630 3,070,972 7.5 %152,444 3,349,828 6.1 %
Bridge loans - HFI at CAFL(2)
21,751 412,766 7.0 %214 4,049 7.0 %
Multifamily loans at Freddie Mac K-Series (2)
14,247 451,757 4.2 %14,492 488,804 4.0 %
Trading securities13,520 151,898 11.9 %17,133 140,241 16.3 %
Available-for-sale securities17,252 137,134 16.8 %16,051 128,564 16.6 %
Other interest income27,816 917,975 4.0 %17,325 790,499 2.9 %
Total interest income534,517 13,750,119 5.2 %412,722 11,433,668 4.8 %
Interest Expense
Short-term debt facilities(41,081)1,628,316 (3.4)%(27,380)1,609,295 (2.3)%
Short-term debt - servicer advance financing(6,110)241,582 (3.4)%(3,414)166,605 (2.7)%
Promissory notes(572)11,223 (6.8)%— — — %
Short-term debt - convertible notes, net(1,330)34,001 (5.2)%— — — %
ABS issued - Legacy Sequoia (2)
(3,154)209,931 (2.0)%(2,271)258,915 (1.2)%
ABS issued - Sequoia (2)
(84,041)3,491,194 (3.2)%(38,848)1,419,153 (3.6)%
ABS issued - Freddie Mac SLST (2)
(40,287)1,424,032 (3.8)%(49,756)1,859,559 (3.6)%
ABS issued - Freddie Mac K-Series (2)
(13,099)419,954 (4.2)%(13,294)459,648 (3.9)%
ABS issued - CAFL (2)
(144,883)3,105,387 (6.2)%(118,543)3,041,714 (5.2)%
Long-term debt facilities(37,664)1,231,057 (4.1)%(32,518)776,846 (5.6)%
Long-term debt - FHLBC— — — %(2)374 (0.7)%
Long-term debt - corporate(33,771)706,504 (6.4)%(28,345)650,828 (5.8)%
Total interest expense(405,992)12,503,181 (4.3)%(314,371)10,242,937 (4.1)%
Net Interest Income$128,525 $98,351 
(1)Average balances for residential loans held-for-sale, residential loans held-for-investment, business purpose loans, multifamily loans held-for-investment, and trading securities are calculated based upon carrying values, which represent estimated fair values. Average balances for available-for-sale securities and debt are calculated based upon amortized historical cost, except for certain ABS issued, which is based upon fair value.
(2)Interest income from residential loans held-for-investment ("HFI") at Legacy Sequoia and the interest expense from ABS issued - Legacy Sequoia represent activity from our consolidated Legacy Sequoia entities. Interest income from residential loans - HFI at Sequoia and the interest expense from ABS issued - Sequoia represent activity from our consolidated Sequoia entities. Interest income from residential loans - HFI at Freddie Mac SLST and the interest expense from ABS issued - Freddie Mac SLST represent activity from our consolidated Freddie Mac SLST entities.





Interest income from multifamily loans at Freddie Mac K-Series and the interest expense from ABS issued - Freddie Mac K-Series represent activity from our consolidated Freddie Mac K-Series entities. Interest income from single-family rental loans - HFI at CAFL, bridge loans - HFI at CAFL and the interest expense from ABS issued - CAFL represent activity from our consolidated CAFL entities.
7985


Results of Operations by Segment
We report on our business using three segments: Residential Mortgage Banking, Business Purpose Mortgage Banking, and Investment Portfolio. For additional information on our segments, refer to Note 2324 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
The following table presents the segment contribution from our three segments reconciled to our consolidated net (loss) income for the three and nine months ended March 31,September 30, 2022 and 2021.
Table 4 – Segment Results Summary
Three Months Ended March 31,Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)(In Thousands)20222021Change(In Thousands)20222021Change20222021Change
Segment Contribution from:Segment Contribution from:Segment Contribution from:
Residential Mortgage BankingResidential Mortgage Banking$7,455 $40,682 $(33,227)Residential Mortgage Banking$(640)$19,406 $(20,046)$(7,371)$74,469 $(81,840)
Business Purpose Mortgage BankingBusiness Purpose Mortgage Banking(2,545)5,766 (8,311)Business Purpose Mortgage Banking(3,856)10,837 (14,693)(27,054)31,146 (58,200)
Investment PortfolioInvestment Portfolio50,934 77,726 (26,792)Investment Portfolio(22,404)71,085 (93,489)(24,049)237,135 (261,184)
Corporate/OtherCorporate/Other(24,929)(26,917)1,988 Corporate/Other(23,511)(13,042)(10,469)(60,988)(67,182)6,194 
Net Income$30,915 $97,257 $(66,342)
Net (Loss) IncomeNet (Loss) Income$(50,411)$88,286 $(138,697)$(119,462)$275,568 $(395,030)
Following is an overview of the changes in net contribution from our segments. The sections that follow this overview provide further detail foron our three business segments and their results of operations for the three and nine months ended March 31,September 30, 2022.
Residential Mortgage Banking
The decrease in contribution from our residential mortgage banking operations was primarily attributable to lower mortgage banking activities income, which declined as a result of lower volumes and margins during the three months ended March 31, 2022, as compared to same period in the prior year. A sharp increase in mortgage rates during the first quarter of 2022 resulted in a decrease in mortgage origination activity industry-wide, which also negatively impacted our loan acquisition volumes. Additionally, our margins during the first quarter of 2022 were negatively impacted by increased rate volatility, which resulted in higher hedging costs, as well as wider spreads for both securitizations and whole loans.
Business Purpose Mortgage Banking
The decrease in contribution from our residential mortgage banking operations was primarily attributable to lower mortgage banking activities income in the first quarter of 2022, which declined as a result of lower margins from spread widening on our SFR loans. Higher loan origination volumes contributed to increased origination fees and higher net interest income earned on loan inventory during the first quarter of 2022, while also resulting in higher loan acquisition costs.
Investment Portfolio
The decrease in contribution from the investment portfolio was primarily attributable to $5 million of negative investment fair value changes during the first quarter of 2022, as compared to a $46 million of positive investment fair value changes in the first quarter of 2021, as discussed in the Consolidated Results of Operations section of this MD&A. This decrease was partially offset by higher net interest income in the first quarter of 2022, as compared to the first quarter of 2021, due primarily to higher average balances of assets in our investment portfolio, as well as higher discount accretion and yield maintenance income, as discussed in the Consolidated Results of Operations section of this MD&A.
Corporate/Other
The decreaseincrease in net expense from Corporate/Other for the three-month periods was primarily due to lowera $19 million benefit from taxes in the third quarter of 2021 resulting from the reversal of a deferred tax asset valuation allowance, as well as $6 million of higher interest expense in the third quarter of 2022 resulting from the issuance of new convertible debt in June 2022 and from our trust preferred securities, which are variable rate and were impacted by higher benchmark interest rates. These increases in expenses were offset by $11 million and $20 million decreases in the three- and nine-month periods, respectively, in compensation expense for corporate employees, (not directly assignedprimarily related to our segments)variable compensation, which decreased in association with lower earnings year-over-year.
The decrease in net expense from Corporate/Other for the first quarternine-month periods was primarily due to a $20 million decrease in compensation expense for corporate employees, primarily related to variable compensation, which decreased in association with lower earnings year-over-year, offset both by $8 million of higher interest expense in 2022 commensurate with earningsand the $19 million benefit from income taxes in that period relative to the same period in the prior year.2021 described previously.
8086


Residential Mortgage Banking Segment
Our Residential Mortgage Banking segment consists of a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale to whole loan buyers, securitization through our Sequoia private-label securitization program, or transfer into our investment portfolio. We typically acquire prime jumbo mortgages and the related mortgage servicing rights on a flow basis from our extensive network of loan sellers. This segment also includes various derivative financial instruments that we utilize to manage certain risks associated with our inventory of residential loans held-for-sale within this segment. This segment’s main source of mortgage banking income is net interest income from its inventory of loans held-for-sale, as well as income from mortgage banking activities, which includes valuation increases (or gains) on loans we acquire and subsequently sell, securitize, or transfer into our investment portfolio, and the hedges used to manage risks associated with these activities. Direct operating expenses and tax expenses associated with these activities are also included in this segment.
Net income from this segment is primarily comprised of net interest income earned on loans while they are held in inventory, mortgage banking activities income (including mark-to-market adjustments on loans from the time they are purchased to when they are sold or securitized, mark-to-market adjustments on new and outstanding loan purchase commitments and gains/losses from associated hedges), and all direct expenses associated with these activities. Subordinate securities that we retain from our Sequoia securitizations (many of which we consolidate for GAAP purposes) are transferred to and held in our Investment Portfolio segment.
The following table provides the activity of residential loans held in inventory for sale at our mortgage banking business during the three and nine months ended March 31,September 30, 2022.
Table 5 – Loan Inventory for Residential Mortgage Banking Operations — Activity
Three Months Ended
(In Thousands)March 31, 2022
Balance at beginning of period $1,673,236 
Acquisitions2,008,445 
Sales(1,849,874)
Transfers between segments (1)
(684,491)
Principal repayments(21,139)
Changes in fair value, net(25,171)
Balance at End of Period$1,101,006 
Three Months EndedNine Months Ended
(In Thousands)September 30, 2022September 30, 2022
Balance at beginning of period $990,924 $1,673,236 
Acquisitions337,922 3,483,833 
Sales(602,842)(3,653,601)
Transfers between segments (1)
— (684,491)
Principal repayments(29,486)(72,771)
Changes in fair value, net(20,060)(69,748)
Balance at End of Period$676,458 $676,458 
(1)Represents the fair value of the net transfers of loans from held-for-sale to held-for-investment within our Residential Lending investment portfolio, associated with securitizations we sponsored that we consolidate under GAAP.

During the three and nine months ended March 31,September 30, 2022, our residential mortgage loan conduit locked $2.63$461 million and $4.10 billion of loans, respectively ($1.96256 million and $2.75 billion adjusted for expected pipeline fallout - i.e,– i.e., loan purchase commitments), including $2.39$379 million and $3.59 billion of Select loans and $0.24 billion$82 million and $512 million of Choice loans, respectively, and purchased $2.01$338 million and $3.48 billion of loans. Approximately 65%loans, respectively. During the three months ended September 30, 2022, approximately 80% of loans locked in the first quarterloans were purchase-money loans and 35%20% were refinancings. During the three and nine months ended March 31,September 30, 2022, we distributed $1.83$612 million and $3.68 billion of loans (unpaid principal balance) through whole loan sales, andrespectively. During the nine months ended September 30, 2022, we completed one securitization backed by $687 million of loans (unpaid principal balance).
At March 31,September 30, 2022, we had $1.10 billiontotal net jumbo loan exposure of $712 million (down 5% from June 30, 2022), with an average gross mortgage rate of 5%. This balance included $703 million (principal value) of loans in inventory on our balance sheet, our loan pipeline included $1.09 billion$146 million of loans identified for purchase (locked loans, unadjusted for fallout), and we had entered into$137 million of forward sale agreements for $581loans. Given current market conditions, we reduced our capital allocation to Residential Mortgage Banking to $150 million at the end of loans.the third quarter of 2022, down from $200 million at the end of the second quarter of 2022. As we look ahead, we expect conditions in the consumer residential sector to remain challenging for a number of quarters as industry volumes continue to be affected by rapidly increasing mortgage rates, which, along with record home price appreciation in recent years, has pushed housing affordability to new lows.
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We utilize a combination of capital and our residential loan warehouse facilities to manage our inventory of residential loans held-for-sale. At March 31,September 30, 2022, we had residential warehouse facilities outstanding with sevennine different counterparties, with $2.75$2.85 billion of total capacity and $1.53$2.10 billion of available capacity. These included non-marginable facilities (i.e., not subject to margin calls based solely on the lender's determination, in its discretion, of the market value of the underlying collateral that is non-delinquent) facilities with $1.38 billion of total capacity and marginable facilities with $1.38$1.48 billion of total capacity.
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The following table presents key earnings and operating metrics for our Residential Mortgage Banking segment during the three and nine months ended March 31,September 30, 2022.
Table 6 – Residential Mortgage Banking Earnings Summary and Operating Metrics
Three Months Ended
(In Thousands)March 31, 2022
Mortgage banking income$13,966 
Operating expenses(7,518)
Benefit from income taxes1,007 
Segment Contribution$7,455 
Loan purchase commitments (loan locks, adjusted for expected fallout)$1,955,941 
Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)20222021Change20222021Change
Mortgage banking (loss) income$3,957 $40,121 $(36,164)$5,038 $131,279 $(126,241)
Operating expenses(6,285)(10,286)4,001 (20,692)(33,170)12,478 
Benefit from (provision for) income taxes1,688 (10,429)12,117 8,283 (23,640)31,923 
Segment Contribution$(640)$19,406 $(20,046)$(7,371)$74,469 $(81,840)
Loan purchase commitments (loan locks, adjusted for expected fallout)$256,044 $3,288,102 $(3,032,058)$2,749,910 $9,541,499 $(6,791,589)
Residential mortgage banking income presented in the table above is comprised of net interest income from residential loans held-for-sale in inventory and mortgage banking activities, net from this segment (see Note 1920 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further detail on the composition of mortgage banking activities, net). Operating expenses presented in the table above includes general and administrative expenses, loan acquisition costs and other expenses for this segment.
Our gross margin (mortgageThe decrease in contribution from our residential mortgage banking operations during the three- and nine-month periods was primarily attributable to lower mortgage banking activities income, earnedas discussed in the period divided by loan purchase commitments entered into duringpreceding Consolidated Results of Operations section of this MD&A. While margins improved in the period) for the three months ended March 31, 2022 was 71 basis points, near the low end of our historical range of 75 - 100 basis points. As discussed previously, our margins during the firstthird quarter of 2022, were negatively impacted by increaseda re-widening of credit spreads or further rate volatility and wider spreads for securitizations and whole loans during the quarter. Continued rate volatility or a further widening of spreads could continue to negatively impact our margins and profitability.
Operating expenses at our Residential The decreases in mortgage banking segment inincome were partially offset by lower general and administrative expenses, which declined during the first three months of 2022 declined compared to the same period in the prior year,three- and nine-month periods, primarily due to lower variable compensation costs, which are correlated with the business's overall profitability.expenses.
Activity at this segment is performed within our taxable REIT subsidiary and subject to federal and state income taxes. The benefit from income taxes for the firstthird quarter of 2022 was due to an overall GAAP loss incurred at our TRS during that period.

Business Purpose Mortgage Banking Segment
Our Business Purpose Mortgage Banking segment consists of a platform that originates and acquires business purpose loans (consisting of SFR loans and bridge loans) for subsequent securitization, sale to whole loan buyers, or transfer into our investment portfolio. We originate SFR and bridge loans and typically distribute most of our SFR loans through our CAFL private-label securitization program, or on occasion through whole loan sales, and will transfer our bridge loans to the Investment Portfolio where they will either be retained for investment or securitized. SFR loans are business purpose mortgage loans to investors in single-family (primarily 1-4 unit) rental properties. Bridge loans are business purpose mortgage loans to investors rehabilitating and subsequently reselling or renting residential and multifamily properties. We typically originate SFR loans and distribute most of our SFR loans through our CAFL private-label securitization program and, on occasion, will sell them as whole loans. We originate and acquire bridge loans and typically transfer these loans into our Investment Portfolio where they will be retained for investment; on occasion, we may sell them as whole loans. This segment also includes various derivative financial instruments that we utilize to manage certain risks associated with our inventory of single-family rentalSFR loans held-for-sale.

Net income from this segment is primarily comprised of net interest income earned on loans while they are held in inventory, mortgage banking activities income (including mark-to-market adjustments on loans from the time they are purchased to when they are sold, securitized or transferred into our investment portfolio, fee income earned on originations, and gains/losses from associated hedges), and all direct expenses associated with these activities. Subordinate securities that we retain from our CAFL securitizations (which we consolidate for GAAP purposes) and bridge loans we originate in this segment are transferred to and held in our Investment Portfolio segment.
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On July 1, 2022, we closed the previously announced acquisition of Riverbend, a private mortgage lender to investors in transitional residential and multifamily real estate. This acquisition adds capacity, product breadth and geographic footprint to our existing bridge loan origination platform.
The following table provides business purpose loan origination activity at Redwood during the three and nine months ended March 31,September 30, 2022.
Table 7 – Business Purpose Loans — Funding Activity
Three Months Ended March 31, 2022Three Months Ended September 30, 2022Nine Months Ended September 30, 2022
(In Thousands)(In Thousands)Single-Family Rental
Bridge (1)
Total(In Thousands)Single-Family Rental
Bridge (1)
TotalSingle-Family Rental
Bridge (1)
Total
Fair value at beginning of periodFair value at beginning of period$358,309 $— $358,309 Fair value at beginning of period$505,171 $— $505,171 $358,309 $— $358,309 
FundingsFundings505,181 414,921 920,102 Fundings99,736 470,425 570,161 966,648 1,446,610 2,413,258 
SalesSales(331,750)— (331,750)Sales(34,970)(48,279)(83,249)(366,720)(48,279)(414,999)
Transfers between segments (2)
Transfers between segments (2)
— (417,296)(417,296)
Transfers between segments (2)
(266,181)(423,425)(689,606)(561,218)(1,400,849)(1,962,067)
Principal repaymentsPrincipal repayments(1,383)— (1,383)Principal repayments(5,582)(2,220)(7,802)(37,166)(2,220)(39,386)
Riverbend loans acquired at acquisitionRiverbend loans acquired at acquisition— 59,748 59,748 — 59,748 59,748 
Changes in fair value, netChanges in fair value, net(24,468)2,375 (22,093)Changes in fair value, net(17,069)(116)(17,185)(78,748)1,123 (77,625)
Fair Value at End of PeriodFair Value at End of Period$505,889 $— $505,889 Fair Value at End of Period$281,105 $56,133 $337,238 $281,105 $56,133 $337,238 
(1)We originate bridge loans at our TRS and then transfer them to our REIT. Origination fees and any fair value changes on these loans prior to transfer are recognized within Mortgage banking activities, net on our consolidated statements of income.income (loss). Once the loans are transferred to our REIT, they are classified as held-for-investment, with subsequent fair value changes generally recorded through Investment fair value changes, net on our consolidated statements of income.income (loss). For bridge loans held at our REIT that are transferred into our CAFL bridge securitization,securitizations, we record any changes in fair value from the date of origination or purchase to the time of securitization as Mortgage banking activities, net on our consolidated statements of income. Once loans are transferred into thisa securitization, any changes in fair value are recorded through Investment fair value changes, net on our consolidated statements of income.income (loss). For the carrying value and activity of our bridge loans held-for-investment, see the Investment Portfolio section that follows.
(2)For single-family rental loans, amounts represent transfers of loans from held-for-sale at our Business Purpose Mortgage Banking segment to held-for-investment at our Investment Portfolio segment, associated with securitizations we sponsored that we consolidate under GAAP. Bridge loan amounts represent the transfer of loans originated or acquired by our Business purpose mortgage banking groupPurpose Mortgage Banking segment at our TRS and transferred to our Investment Portfolio segment at our REIT as described in the preceding footnote.
During the three months ended March 31, 2022, we funded $505 million of single-family rental loans and sold $332 million of such loans to third parties. Single-family rentalSFR loan fundings for the three and nine months ended March 31,September 30, 2022 included $443 million of loan originationszero and $62$100 million of loans acquired from third parties.parties, respectively. Bridge loan fundings for the three and nine months ended September 30, 2022 included zero and $22 million of loans acquired from third parties, respectively. During the three and nine months ended March 31,September 30, 2022, there were nowe acquired $60 million of bridge loans with our acquisition of Riverbend on July 1, 2022. During the nine months ended September 30, 2022, we completed two business purpose loan securitizations.securitizations backed by $588 million of SFR loans, including a private securitization of $274 million of loans in the third quarter with a large global institutional investor. During the nine months ended September 30, 2022, we completed one business purpose loan securitization backed by approximately $250 million of bridge loans that includes a 24-month revolving feature. At March 31,September 30, 2022, we had $506$281 million of single-family rentalSFR loans and $56 million of bridge loans in inventory on our balance sheet. Bridge loan fundings
During the third quarter of 2022, the decline in overall volume was predominantly in our SFR product, as borrowers continue in this higher rate environment to prefer short-term fully prepayable bridge loans, for which demand remains elevated (driven by multifamily product). Given current market conditions, we reduced our capital allocation to Business Purpose Mortgage Banking to $100 million at the three months ended March 31,end of the third quarter of 2022, included $412down from $150 million at the end of loanthe second quarter of 2022 (excluding capital associated with goodwill and intangibles). While the fourth quarter has historically been a very busy one for BPL originations – with sponsors often seeking to complete transactions by year-end – we would expect the recent slowdown in lending activity to continue in some capacity, as transaction flow ebbs and $3 million of loans acquired from third parties.borrowers not facing near-term maturities wait for more favorable conditions.
We utilize a combination of capital and loan warehouse facilities to manage our inventory of single-family rentalbusiness purpose loans that we hold for sale. At March 31,September 30, 2022, we had business purpose warehouse facilities outstanding with foursix different counterparties, with $1.85$3.00 billion of total capacity (used for both SFR and bridge loans) and $760 million$1.66 billion of available capacity (inclusive of capacity on non-recourse facilities). All of these facilities are non-marginable (i.e., not subject to margin calls based solely on the lender's determination, in its discretion, of the market value of the underlying collateral that is non-delinquent).

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The following table presents an earnings summary for our Business Purpose Mortgage Banking segment for the three and nine months ended March 31, 2022.September 30, 2022 and 2021.
Table 8 – Business Purpose Mortgage Banking Earnings Summary

Three Months Ended
(In Thousands)March 31, 2022
Mortgage banking income$11,228 
Operating expenses(17,054)
Benefit from income taxes3,281 
Segment Contribution$(2,545)
Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)20222021Change20222021Change
Mortgage banking income$17,887 $32,387 $(14,500)$22,267 $89,752 $(67,485)
Operating expenses(24,302)(18,065)(6,237)(58,330)(51,618)(6,712)
Benefit from income taxes2,559 (3,485)6,044 9,009 (6,988)15,997 
Segment Contribution$(3,856)$10,837 $(14,693)$(27,054)$31,146 $(58,200)
Business purpose mortgage bankingPurpose Mortgage Banking income presented in the table above is comprised of net interest income from single-family rental ("SFR")SFR loans held-for-sale in inventory, mortgage banking activities, net (see Note 1920 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further detail on the composition of mortgage banking activities), and other income, net for this segment. Operating expenses presented in the table above includes general and administrative expenses, loan acquisition costs and other expenses for this segment.
As discussed previously,The decrease in contribution from our business purpose mortgage banking activityoperations during the firstthree and nine month periods was attributable to lower mortgage banking income and higher operating expenses. While margins stabilized during the third quarter of 2022, mortgage banking income year-to-date was negatively impacted by the increased rate volatility andsevere credit spread widening on SFR loans duringin the quarter. This was partially offset by elevated fee income from higher origination activity.first half 2022 and remains challenged given current market conditions. Continued rate volatility or a further widening of spreads would continue to impact our margins and profitability at this business.
OperatingGeneral and administrative expenses increased during the three- and nine-month periods, as lower variable compensation expenses were offset by higher fixed compensation and other costs associated with an increased headcount during 2022, in particular from the addition of employees from the Riverbend acquisition. Additionally, in the third quarter, we incurred $4 million of employee severance and transition-related expenses at this segment remained relatively flat year-over-year in the first quarter, as an increase in fixed costs from higher headcount was mostly offset by lower variable compensation, which is tied to segment profitability.segment.
Activity at this segment is performed within our taxable REIT subsidiary and subject to federal and state income taxes. The benefit from income taxes forduring the first quarter ofthree- and nine-month periods in 2022 was due to an overall GAAP loss incurred at our TRS during that period.those periods.

Investment Portfolio Segment
Our Investment Portfolio segment consists of investments sourced through our residential and business purpose mortgage banking operations, including primarily securities retained from our residential and business purpose loan securitization activities (some of which we consolidate for GAAP purposes), business purpose residential and small-balance multifamily bridge loans, as well as third-party investments including RMBS issued by third parties (including Agency CRT securities), investments in Freddie Mac K-Series multifamily loan securitizations and reperformingre-performing loan securitizations (both of which we consolidate for GAAP purposes), servicer advance investments, HEIs, and other housing-related investments. This segment’s main sources of income are net interest income and other income from investments, changes in fair value of investments and associated hedges, and realized gains and losses upon the sale of securities. Direct operating expenses and tax provisions associated with these activities are also included in this segment.

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The following table presents details of our Investment Portfolio at March 31,September 30, 2022 and December 31, 2021 organized by investments organically created through our mortgage banking segments and those acquired from third-parties. Amounts presented in the table represent our retained economic investments in consolidated Sequoia, CAFL SFR, Freddie Mac SLST, Freddie Mac K-Series, Servicing Investment and HEI securitizations as noted.
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Table 9 – Investment Portfolio - Detail of Economic Interests
(In Thousands)(In Thousands)March 31, 2022December 31, 2021(In Thousands)September 30, 2022December 31, 2021
Organic Residential InvestmentsOrganic Residential InvestmentsOrganic Residential Investments
Residential loans at Redwood (1)
Residential loans at Redwood (1)
$246,063 $172,047 
Residential loans at Redwood (1)
$157,804 $172,047 
Residential securities at Redwood (2)
129,917 143,838 
Residential securities at RedwoodResidential securities at Redwood106,576 143,838 
Residential securities at consolidated Sequoia entities (3)(2)
Residential securities at consolidated Sequoia entities (3)(2)
244,396 245,417 
Residential securities at consolidated Sequoia entities (3)(2)
223,920 245,417 
Other investments19,739 12,438 
Other investments (3)
Other investments (3)
48,100 12,438 
Organic Business Purpose InvestmentsOrganic Business Purpose InvestmentsOrganic Business Purpose Investments
Bridge loansBridge loans1,209,950 944,606 Bridge loans1,900,986 944,606 
Single-family rental securities at consolidated CAFL SFR entities (4)
Single-family rental securities at consolidated CAFL SFR entities (4)
305,554 301,506 
Single-family rental securities at consolidated CAFL SFR entities (4)
314,431 301,506 
Other investmentsOther investments2,324 5,935 Other investments972 5,935 
Third-Party InvestmentsThird-Party InvestmentsThird-Party Investments
Residential securities at RedwoodResidential securities at Redwood191,584 195,930 Residential securities at Redwood131,055 195,930 
Residential securities at consolidated Freddie Mac SLST entities (5)
Residential securities at consolidated Freddie Mac SLST entities (5)
436,677 444,751 
Residential securities at consolidated Freddie Mac SLST entities (5)
335,185 444,751 
Multifamily securities at RedwoodMultifamily securities at Redwood24,324 32,715 Multifamily securities at Redwood21,232 32,715 
Multifamily securities at consolidated Freddie Mac K-Series entities (6)
Multifamily securities at consolidated Freddie Mac K-Series entities (6)
31,921 31,657 
Multifamily securities at consolidated Freddie Mac K-Series entities (6)
32,047 31,657 
Servicing investments (7)
Servicing investments (7)
98,746 102,540 
Servicing investments (7)
92,530 102,540 
HEIs (8)
HEIs (8)
87,369 43,638 
HEIs (8)
214,922 43,638 
Other investmentsOther investments9,578 10,400 Other investments7,664 10,400 
Total Segment InvestmentsTotal Segment Investments$3,038,142 $2,687,418 Total Segment Investments$3,587,424 $2,687,418 
(1)Balance comprised of loans called from Sequoia securitizations.
(2)Excludes $8 million of trading securities that are designated as hedges for our mortgage banking operations and are not considered part of our investment portfolio.
(3)Represents our retained economic investment in securities issued by consolidated Sequoia securitization VIEs. For GAAP purposes, we consolidated $3.87$3.24 billion of loans and $3.63$3.01 billion of ABS issued associated with these investments at March 31,September 30, 2022. We consolidated $3.63 billion of loans and $3.38 billion of ABS issued associated with these investments at December 31, 2021.
(3)Organic residential other investments at September 30, 2022 includes net risk share investments of $23 million, representing $30 million of restricted cash and other assets, net of other liabilities of $7 million.
(4)Represents our retained economic investment in securities issued by consolidated CAFL SFR securitization VIEs. For GAAP purposes, we consolidated $3.04$3.02 billion of loans and $2.75$2.70 billion of ABS issued associated with these investments at March 31,September 30, 2022. We consolidated $3.49 billion of loans and $3.21 billion of ABS issued associated with these investments at December 31, 2021.
(5)Represents our economic investment in securities issued by consolidated Freddie Mac SLST securitization entities. For GAAP purposes, we consolidated $1.78$1.48 billion of loans and $1.34$1.15 billion of ABS issued associated with these investments at March 31,September 30, 2022. We consolidated $1.89 billion of loans and $1.45 billion of ABS issued associated with these investments at December 31, 2021.
(6)Represents our economic investment in securities issued by consolidated Freddie Mac K-Series securitization entities. For GAAP purposes, we consolidated $452$427 million of loans and $420$395 million of ABS issued associated with these investments at March 31,September 30, 2022. We consolidated $474 million of loans and $442 million of ABS issued associated with these investments at December 31, 2021.
(7)Represents our economic investment in consolidated Servicing Investment variable interest entities. At March 31,September 30, 2022, for GAAP purposes, we consolidated $336$308 million of servicing investments and $253$233 million of non-recourse short-term securitization debt, as well as other assets and liabilities for these entities. At December 31, 2021, for GAAP purposes, we consolidated $385 million of servicing investments and $294 million of non-recourse short-term securitization debt, as well as other assets and liabilities for these entities.
(8)At March 31,September 30, 2022 and December 31, 2021, represents HEIs owned at Redwood of $74$201 million and $33 million, respectively, andas well as our retained economic investment in securities issued by the consolidated HEI securitization entity of $14 million and $10 million, respectively. At March 31,September 30, 2022, for GAAP purposes, we consolidated $153$140 million of HEIs and $121$105 million of ABS issued, as well as other assets and liabilities for thisthe consolidated HEI securitization entity. At December 31, 2021, for GAAP purposes, we consolidated $160 million of HEIs and $137 million of ABS issued, as well as other assets and liabilities for thisthe consolidated HEI securitization entity.
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The growth in our Investment Portfolio during the first quarter nine months of 2022 was primarily attributable to a net increase in businessbusiness purpose bridge loans the acquisition of residential jumbo loans from calls and incremental investments in HEIs through a third-party flow purchase agreement. agreements. See the Investments Detail and Activity section that follows for additional detail on our portfolio investments and their associated borrowings.
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The following table presents an earnings summary for our Investment Portfolio segment for the three and nine months ended March 31, 2022.September 30, 2022 and 2021.
Table 10 – Investment Portfolio Earnings Summary
Three Months Ended
(In Thousands)March 31, 2022
Net interest income$53,991 
Investment fair value changes, net(5,406)
Other income, net5,282 
Realized gains, net2,581 
Operating expenses(3,684)
Provision for income taxes(1,830)
Segment Contribution$50,934 
Three Months Ended September 30,  Nine Months Ended September 30,
(In Thousands)20222021Change20222021Change
Net interest income$45,006$41,945$3,061 $140,885 $105,066 $35,819 
Investment fair value changes, net(61,780)26,324 (88,104)(165,297)121,812 (287,109)
Other income, net3,906 1,842 2,064 15,423 7,121 8,302 
Realized gains, net— 6,703 (6,703)2,581 17,803 (15,222)
Operating expenses(3,872)(4,684)812 (10,833)(12,106)1,273 
Benefit from (provision for) income taxes(5,664)(1,045)(4,619)(6,808)(2,561)(4,247)
Segment Contribution$(22,404)$71,085 $(93,489)$(24,049)$237,135 $(261,184)
The decrease in contribution from the Investment Portfolio during the three- and nine-month periods was primarily attributable to negative investment fair value changes, as discussed in the preceding Consolidated Results of Operations section of this MD&A. These decreases were partially offset by higher net interest income and other income during the three- and nine-month periods, each as discussed in the Consolidated Results of Operations section of this MD&A.
The increase in net interest income from our Investment Portfolio during the nine-month periods primarily resulted from an increase in the average balance of investments in that period in 2022 as we deployed capital into new investments, including primarily into business purpose bridge loans. Net interest income duringfor the first quarter ofnine months ended September 30, 2022, included approximately $8 million of yield maintenance income (triggered by prepayments) received on retained SFR securities. This was a significant increase from prior quarterssecurities of $8 million in the first quarter of 2022, $4 million in the second quarter of 2022, and while any amounts$3 million in the third quarter of yield maintenance income are difficult to forecast, we would generally not expect to receive amounts of this magnitude in future quarters.2022. Additionally, during the first quarter of 2022, we recorded $8 million of discount accretion for AFS securities.securities, much of which was associated with securities we expected to be called given high prepayment speeds experienced during 2021. As a result of interest rate increases, early in 2022 we have delayed thechanged our assumptions for expected call dates for certain available-for-sale securities and expect discount accretion income from these securities declined, resulting in $1 million of discount accretion in both the second and third quarters of 2022. Net interest income from the investment portfolio was also impacted by higher borrowing costs in 2022, driven primarily by rising benchmark interest rates. While the majority of the floating-rate debt utilized within our investment portfolio finances floating-rate assets, we do have some exposure to declinerising interest rates and further increases in future quarters.benchmark interest rates or borrowing spreads could negatively impact our net interest income. Additionally, to the extent market interest rates remain elevated and we refinance fixed-rate debt that matures in the near-term, our interest costs could increase and negatively impact our net interest income.
Investment fair value changes, net is primarily comprised of the change in fair value (both realized and unrealized) of our portfolio investments accounted for under the fair value option and hedges associated with these investments (seeinvestments. See Table 5.6 in Note 5 in Part I, Item 1 of this Quarterly Report on Form 10-Q for further detail on the composition of investment fair value changes – note(the difference in amount fromamounts in the table above toand in Table 5.6 in the notes to our consolidated financial statements relates to fair value changes for investments held at corporate/other). The negative investment fair value changes in the first threenine months of 2022 were predominantly unrealized and resulted primarily from credit spread widening across many of our investments during the quarter.investments. Rising benchmark interest rates and slower actual and expected prepayment speeds resulted in positive fair value changes for our interest onlyinterest-only securities and hedges allocated to our investment portfolio, andwhich partially offset the negative fair value changes. Additionally, credit improvements benefitedin several of our investments including, in particular, our retained CAFL SFR securities.securities and bridge loans positively impacted fair values for those assets. While our investments generally continue to experience strongstable credit performance, further spread widening, a deterioration in credit, or declines in home price appreciation could result in additional negative investment fair value changes for our investments.

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Other income, net within this segment is primarily comprised of income (loss) from our MSR investments, bridge loan extension fees, and risk share investment income. Details on the composition of Other income, isnet are included in Note 2021 in Part I, Item 1 of this Quarterly Report on Form 10-Q. Realized gains, net generally result from sales or calls of available-for-sale securities we own. Refer to the analysis of this line item in the Consolidated Results of Operations section of this MD&A for an explanation of current year activity.activity during 2022. Operating expenses at this segment are primarily attributable to compensation expenseexpenses and remained relatively consistent year-over-yeardecreased overall during the three and nine month periods, as decreases in the first quarter ofvariable compensation were partially offset by higher fixed compensation costs resulting from higher headcount in 2022.
We hold certain of our investments, primarily our MSRs, at our taxable REIT subsidiary. Our Provision for income taxes changes in relation toat this segment is primarily driven by the amount of income earned from theseportfolio assets as well as from gains or losses from hedges held at the TRS and, generallyfor 2022, reflects positive net income in the first three months of 2022.

earned from investment portfolio activities at our taxable REIT subsidiary.
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Investments Detail and Activity
This section presents additional details on our investments and their activity during the three and nine months ended March 31,September 30, 2022.
Real Estate Securities Portfolio
The following table sets forth our real estate securities activity by collateral type for the three and nine months ended March 31,September 30, 2022.
Table 11 – Real Estate Securities Activity by Collateral Type (1)
Three Months Ended March 31, 2022ResidentialMultifamilyTotal
(In Thousands)SeniorSubordinateMezzanine
Beginning fair value$21,787 $322,909 $32,715 $377,411 
Acquisitions:
  Sequoia securities— — — — 
  Third-party securities5,006 10,000 — 15,006 
Sales:
  Sequoia securities— — — — 
  Third-party securities— — — — 
Gains on sales and calls, net— 1,914 — 1,914 
Effect of principal payments (2)
— (14,924)(6,679)(21,603)
Change in fair value, net7,413 (19,547)(1,712)(13,846)
Ending Fair Value$34,206 $300,352 $24,324 $358,882 
Three Months Ended September 30, 2022ResidentialMultifamilyTotal
(In Thousands)SeniorSubordinateMezzanine
Beginning fair value$31,496 $231,652 $21,130 $284,278 
Acquisitions— — — — 
Sales(4,142)— — (4,142)
Gains on sales and calls, net— — — — 
Effect of principal payments (2)
— (359)— (359)
Change in fair value, net1,506 (22,173)102 (20,565)
Ending Fair Value$28,860 $209,120 $21,232 $259,212 
Nine Months Ended September 30, 2022ResidentialMultifamilyTotal
(In Thousands)SeniorSubordinateMezzanine
Beginning fair value$21,787 $322,909 $32,715 $377,411 
Acquisitions5,006 10,000 — 15,006 
Sales(14,334)(13,137)— (27,471)
Gains on sales and calls, net— 1,914 — 1,914 
Effect of principal payments (2)
— (16,036)(8,688)(24,724)
Change in fair value, net16,401 (96,530)(2,795)(82,924)
Ending Fair Value$28,860 $209,120 $21,232 $259,212 
(1)Amounts presented in this table include securities reported on our balance sheet and doesdo not include securities we own in consolidated entities. See the following table for a presentation of all securities we own, including those in consolidated entities.
(2)The effectEffect of principal payments reflects the change in fair value due to principal payments, which is calculated as the cash principal received on a given security during the period multiplied by the prior quarter ending price or acquisition price for that security.
At March 31,September 30, 2022, our securities at Redwood (exclusive of securities owned in consolidated entities) consisted of fixed-rate assets (92%(90%), adjustable-rate assets (6%(7%), and hybrid assets that reset within the next year (2%(3%).

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The following table sets forth activity in our real estate securities portfolio for the three and nine months ended March 31,September 30, 2022, organized by investments organically created through our mortgage banking segments and acquired from third-parties. This table includes both our securities held on balance sheet and our economic interest in securities we own in securitizations we consolidate in accordance with GAAP.
Table 12 – Activity of Real Estate Securities Owned at Redwood and in Consolidated Entities
Three Months Ended March 31, 2022Residential OrganicBusiness Purpose OrganicThird-Party InvestmentsTotal
Sequoia Securities on Balance SheetConsolidated Sequoia SecuritiesConsolidated CAFL SecuritiesConsolidated SLST SecuritiesConsolidated Multifamily SecuritiesOther
Third-Party Securities
Three Months Ended September 30, 2022Three Months Ended September 30, 2022Residential OrganicBusiness Purpose OrganicThird-Party InvestmentsTotal
Sequoia Securities on Balance SheetConsolidated Sequoia SecuritiesConsolidated CAFL SecuritiesConsolidated SLST SecuritiesConsolidated Multifamily SecuritiesOther
Third-Party Securities
(In Thousands)(In Thousands)Sequoia Securities on Balance SheetConsolidated Sequoia SecuritiesConsolidated CAFL SecuritiesConsolidated SLST SecuritiesConsolidated Multifamily SecuritiesOther
Third-Party Securities
Total(In Thousands)
Beginning fair valueBeginning fair valueBeginning fair value$112,562 $236,777 $307,413 $390,416 $31,732 $171,716 $1,250,616 
Acquisitions(1)Acquisitions(1)— 3,742 — — — 15,006 Acquisitions(1)— — 13,603 — — — 13,603 
SalesSales— — — — — — — Sales— — — — — (4,142)(4,142)
Gains on sales and calls, netGains on sales and calls, net284 — — — — 1,630 1,914 Gains on sales and calls, net— — — — — — — 
Effect of principal payments (2)
Effect of principal payments (2)
(10,439)(938)— (11,148)— (11,164)(33,689)
Effect of principal payments (2)
(123)(1,856)— (13,144)— (236)(15,359)
Change in fair value, netChange in fair value, net(2,588)(3,825)4,048 3,074 264 (11,258)(10,285)Change in fair value, net(5,863)(11,001)(6,585)(42,088)315 (14,702)(79,924)
Ending Fair Value (1)
Ending Fair Value (1)
133,014 244,396 305,554 436,677 31,921 225,868 1,377,430 
Ending Fair Value (1)
$106,576 $223,920 $314,431 $335,184 $32,047 $152,636 $1,164,794 
Nine Months Ended September 30, 2022Residential OrganicBusiness Purpose OrganicThird-Party InvestmentsTotal
Sequoia Securities on Balance SheetConsolidated Sequoia SecuritiesConsolidated CAFL SecuritiesConsolidated SLST SecuritiesConsolidated Multifamily SecuritiesOther
Third-Party Securities
(In Thousands)
Beginning fair value$145,757 $245,417 $301,506 $444,751 $31,657 $231,654 $1,400,742 
Acquisitions (1)
— 3,742 37,290 — — 15,006 56,038 
Sales(3,854)(612)— — — (23,617)(28,083)
Gains on sales and calls, net284 — — — — 1,630 1,914 
Effect of principal payments (2)
(10,755)(3,889)— (34,716)— (13,969)(63,329)
Change in fair value, net(24,856)(20,738)(24,365)(74,851)390 (58,068)(202,488)
Ending Fair Value$106,576 $223,920 $314,431 $335,184 $32,047 $152,636 $1,164,794 
(1)At March 31,During the nine months ended September 30, 2022, $5we retained $4 million of securities within the "Other third-party securities" column and $3 million of securities within the "Sequoia Securities on Balance Sheet" column of this table were used as hedges for our residential mortgage banking operations. These same securities are presented as a component of securities within our residential lending segment on our segment balance sheet.from one Sequoia securitization.
(2)The effectEffect of principal payments reflects the change in fair value due to principal payments, which is calculated as the cash principal received on a given security during the period multiplied by the prior quarter ending price or acquisition price for that security.
During the three months ended March 31, 2022, we retained $4 million of securities from one Sequoia securitization. At March 31,September 30, 2022, our securities (both those held on our balance sheet and our economic interests in consolidated VIEs) consisted of fixed-rate assets (98%), adjustable-rate assets (1%) and hybrid assets that reset within the next year (1%).
We directly finance our holdings of real estate securities with a combination of non-recourse debt, non-marginable term debt and marginable debt in the form of repurchase (or “repo”) financing. At March 31,September 30, 2022, real estate securities with a fair value of $492$425 million (including securities owned in consolidated Sequoia and CAFL securitization entities) were financed with $317$305 million of long-term, non-marginable recourse debt through our subordinate securities financing facilities, re-performing loan securities with a fair value of $437$335 million were financed with $129$99 million of non-recourse securitization debt, and real estate securities with a fair value of $97$170 million (including securities owned in consolidated securitization entities) were financed with $75$124 million of short-term debt incurred through repurchase facilities with fourseven different counterparties. The remaining $352$235 million of our securities, including certain securities we own that were issued by consolidated securitization entities, were financed with capital.

8894


The following table summarizes the credit characteristics of our entire real estate securities portfolio by collateral type at March 31,September 30, 2022. This table includes both our securities held on balance sheet and our economic interests in securities we own in securitizations we consolidate in accordance with GAAP.
Table 13 – Credit Statistics of Real Estate Securities Owned at Redwood and in Consolidated Entities
March 31, 2022Weighted Average Values for Non-IO Securities
Market Value -
IO
Securities
Market Value -
Non-IO Securities
Principal Balance - Non-IO
Securities
Gross Weighted Average Coupon90+ Delinquency3-Month Prepayment Rate
Investment Thickness(1)
September 30, 2022September 30, 2022Weighted Average Values
Market Value -
IO
Securities
Market Value - Non-IO
 Securities
Principal Balance - Non-IO
Securities
Gross Weighted Average Coupon90+ Delinquency3-Month Prepayment Rate
Investment Thickness(1)
(Dollars in Thousands)(Dollars in Thousands)Market Value -
IO
Securities
Market Value -
Non-IO Securities
Principal Balance - Non-IO
Securities
Gross Weighted Average Coupon90+ Delinquency3-Month Prepayment Rate
Investment Thickness(1)
(Dollars in Thousands)
Sequoia securities on balance sheetSequoia securities on balance sheetSequoia securities on balance sheet$28,511 $78,065 $140,149 3.8 %0.4 %10 %%
Consolidated Sequoia securitiesConsolidated Sequoia securities19,895 224,501 249,672 4.9 %2.0 %45 %40 %Consolidated Sequoia securities23,955 199,965 246,570 4.7 %2.0 %16 %42 %
Total Sequoia SecuritiesTotal Sequoia Securities44,141 333,269 390,040 4.6 %1.5 %40 %30 %Total Sequoia Securities52,466 278,030 386,719 4.4 %1.5 %14 %30 %
Consolidated Freddie Mac SLST securitiesConsolidated Freddie Mac SLST securities14,662 422,015 521,573 4.5 %11.9 %12 %28 %Consolidated Freddie Mac SLST securities18,089 317,095 498,023 4.5 %12.9 %%29 %
RPL securities on balance sheetRPL securities on balance sheet357 63,163 143,369 4.3 %3.9 %14 %%RPL securities on balance sheet347 31,963 142,734 4.3 %3.7 %%%
Total RPL SecuritiesTotal RPL Securities15,019 485,178 664,942 4.5 %10.9 %12 %25 %Total RPL Securities18,436 349,058 640,757 4.5 %12.0 %%26 %
Consolidated Freddie Mac K-Series securitiesConsolidated Freddie Mac K-Series securities— 31,921 36,468 4.3 %— %— %%Consolidated Freddie Mac K-Series securities— 32,047 36,468 4.3 %— %— %10 %
Multifamily securities on balance sheetMultifamily securities on balance sheet375 23,948 24,885 2.9 %— %52 %%Multifamily securities on balance sheet166 21,066 22,809 4.1 %— %24 %11 %
Total Multifamily SecuritiesTotal Multifamily Securities375 55,869 61,353 3.7 %— %23 %10 %Total Multifamily Securities166 53,113 59,277 4.2 %— %10 %11 %
Consolidated CAFL securitiesConsolidated CAFL securities46,199 259,355 367,058 5.3 %2.1 %21 %14 %Consolidated CAFL securities34,268 280,163 424,677 5.3 %2.2 %16 %17 %
Other third-party securitiesOther third-party securities9,623 128,402 156,310 3.4 %1.0 %19 %%Other third-party securities12 99,082 142,912 3.4 %0.6 %10 %%
Total SecuritiesTotal Securities$115,357 $1,262,073 $1,639,703 Total Securities$105,348 $1,059,446 $1,654,342 
(1)Investment thickness represents the average size of the subordinate securities we own as investments in securitizations, relative to the average overall size of the securitizations. For example, if our investment thickness (of first-loss securities) with respect to a particular securitization is 10%, we have exposure to the first 10% of credit losses resulting from loans underlying that securitization. We generally own first loss positions in Sequoia, RPL and CAFL securities. We own both first loss and mezzanine positions (positions credit enhanced by subordinate securities) in multifamily and other third-party securities.










We primarily target investments that have a sensitivity to housing credit risk, typically sourced through our operating businesses where we control the underwriting and review of underlying collateral. During the first nine months of 2022, our investment portfolio continued to demonstrate strong performance across a range of credit metrics, including loan delinquencies which generally remained stable, and loan-to-value ratios (LTVs), which continued to decline or remain stable. Given the seasoned nature of our investments (particularly within our RPL securities and Sequoia securities), many of these investments are supported by substantial home price appreciation and borrower equity in the underlying homes.
8995


Bridge Loans Held-for-Investment
The following table provides the activity of bridge loans held-for-investment during the three and nine months ended March 31,September 30, 2022.
Table 14 – Bridge Loans Held-for-Investment - Activity
Three Months Ended
(In Thousands)March 31, 2022
Fair value at beginning of period$944,606 
Transfers between portfolios (1)
417,296 
Transfers to REO(272)
Principal repayments(149,376)
Changes in fair value, net(2,304)
Fair Value at End of Period$1,209,950 
Three Months EndedNine Months Ended
(In Thousands)September 30, 2022September 30, 2022
Fair value at beginning of period$1,651,489 $944,606 
Transfers between portfolios (1)
423,425 1,400,849 
Transfers to REO— (963)
Principal repayments(175,007)(436,545)
Changes in fair value, net1,079 (6,961)
Fair Value at End of Period$1,900,986 $1,900,986 
(1)We originate bridge loans at our TRS and then transfer them to our REIT. Origination fees and any fair value changes on these loans prior to transfer are recognized within Mortgage banking activities, net on our consolidated statements of income.income (loss). Once the loans are transferred to our REIT, they are classified as held-for-investment, with subsequent fair value changes generally recorded through Investment fair value changes, net on our consolidated statements of income.income (loss). For bridge loans held at our REIT that are transferred into our CAFL bridge securitization,securitizations, we record any changes in fair value from the date of origination or purchase to the time of securitization as Mortgage banking activities, net on our consolidated statements of income.income (loss). Once loans are transferred into this securitization, any changes in fair value are recorded through Investment fair value changes, net on our consolidated statements of income.income (loss).
Our $1.21$1.90 billion of bridgebridge loans held-for-investment and $56 million of bridge loans held-for-sale at March 31,September 30, 2022 were comprised of first-lien, interest-only loans with a weighted average couponcoupon of 6.47%8.05% and original maturities of six to 36 months. At origination, the weighted average FICO score of borrowers backing these loans was 744743 and the weighted average LTV ratio of these loans was 67%66%. At March 31,September 30, 2022, of the 1,3843,579 loans in this portfolio, 3749 of these loans with an aggregate fair value of $31 million and an aggregate unpaid principal balance of $33 million were in foreclosure and 98 loans with an aggregate fair value of $38 million and an aggregate unpaid principal balance of $42$41 million were in foreclosure and 56 loans with an aggregate fair value of $28 million and an unpaid principal balance of $33 million were greater than 9090-or-more days delinquent (certain loans in foreclosure were also at least 90 days delinquent).
We finance our bridge loans with a combination of recourse, non-marginable warehouse facilities, non-recourse, non-marginable warehouse facilities, and non-recourse securitization debt. During the second quarter of 2022, we completed our second bridge loan securitization. This bridge loan securitization included a 24-month revolving feature that allows us to add additional loans as loans within the structure pay down. The two bridge securitization structures have $550 million of total capacity. At March 31,September 30, 2022, we had: $45$524 million of debt incurred through short-term warehouse facilities with one counterparty,four counterparties, which was secured by $62$703 million of business purpose bridge loans; $678$565 million of debt incurred through long-term facilities with threetwo different counterparties, which was secured by $816$700 million of business purpose bridge loans; and $270$485 million of securitization debt secured by $292$512 million of business purpose bridge loans and $8$16 million of restricted cash.

The following table provides the composition of bridge loans held-for-investment by product type as of
September 30, 2022 and December 31, 2021.
Table 15 – Bridge Loans Held-for-Investment - By Product Type
(In Thousands)September 30, 2022December 31, 2021
Multifamily$1,049,538 $326,004 
Renovate / Build to rent660,870 375,729 
Fix and Flip107,333 150,928 
Other83,245 91,945 
Fair Value at End of Period$1,900,986 $944,606 
9096


Residential Loans
The following table provides the activity of residential loans held at our investment portfolio during the three and nine months ended March 31,September 30, 2022.
Table 1516 – Investment Portfolio Residential Loans - Activity
Three Months Ended
(In Thousands)March 31, 2022
Fair value at beginning of period$172,048 
Acquisitions102,258 
Principal repayments(23,990)
Changes in fair value, net(4,252)
Fair Value at End of Period$246,064 
Three Months EndedNine Months Ended
(In Thousands)September 30, 2022September 30, 2022
Fair value at beginning of period$222,144 $172,048 
Acquisitions— 102,258 
Sales(48,759)(48,759)
Principal repayments(8,967)(48,831)
Changes in fair value, net(6,614)(18,912)
Fair Value at End of Period$157,804 $157,804 
(1)Represents the net transfers of loans into or out of our investment portfolio and their reclassification between held-for-sale to held-for-investment.
During threethe nine months ended March 31,September 30, 2022, we called three of our unconsolidated Sequoia securitizations and purchased $102 million (unpaid principal balance) of loans from the securitization trusts.

Home Equity Investments
Table 17 – HEI at Investment Portfolio Segment - Activity
Home Equity Investments(1)
Three Months EndedNine Months Ended
(In Thousands)September 30, 2022September 30, 2022
Balance at beginning of period$276,366 $192,740 
New/additional investments79,050 176,439 
Sales/distribution— — 
Repayments(9,361)(35,187)
Changes in fair value, net(5,618)6,445 
Other— — 
Balance at End of Period$340,437 $340,437 
(1)Our home equity investments presented in this table as of September 30, 2022, include $140 million of HEIs owned in our consolidated HEI securitization entity and $201 millionof HEIs owned directly at Redwood. At September 30, 2022, our economic investment in the consolidated HEI securitization entity was $14 million (for GAAP purposes, we consolidated $140 million of HEIs and $105 million of ABS issued, as well as other assets and liabilities for this entity).
Changes in fair value, net for HEIs primarily reflects changes in actual and expected home price appreciation (HPA). While home prices generally increased during the first half of 2022, in the third quarter of 2022, some regions began experiencing home price declines leading to a downward adjustment of our HPA assumptions, which negatively affected HEI valuations. Additional details on our HEIs is included in Note 10 of our Notes to Consolidated Financial Statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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Other Investments
The following table sets forth our other investments activity at our Investment Portfolio segment by significant asset type for the three and nine months ended March 31,September 30, 2022.
Table 1618 – Other Investments at Investment Portfolio Segment - Activity(1)
Three Months Ended March 31, 2022
Servicing
Investments(1)
Home Equity
Investments(2)
MSRs and
Excess
Servicing
OtherTotal
Three Months Ended September 30, 2022Three Months Ended September 30, 2022
Servicing
Investments(2)
MSRs and
Excess
Servicing
OtherTotal
(In Thousands)(In Thousands)
Servicing
Investments(1)
Home Equity
Investments(2)
MSRs and
Excess
Servicing
OtherTotal(In Thousands)MSRs and
Excess
Servicing
Balance at beginning of periodBalance at beginning of periodBalance at beginning of period$273,210 $64,363 $1,868 $339,441 
New/additional investmentsNew/additional investments— 40,141 4,543 — 44,684 New/additional investments— — — — 
Sales/distributionSales/distribution— — — (4,300)(4,300)Sales/distribution— — (813)(813)
Reductions in investments(45,005)(12,671)— (30)(57,706)
Servicer advances (repayments), netServicer advances (repayments), net5,629 — — 5,629 
Changes in fair value, netChanges in fair value, net(3,081)6,923 1,759 719 6,320 Changes in fair value, net(3,905)885 25 (2,995)
OtherOther— — (209)— (209)Other— — (107)(107)
Balance at End of PeriodBalance at End of Period$302,837 $227,133 $62,762 $2,324 $595,056 Balance at End of Period$274,934 $65,248 $973 $341,155 
Nine Months Ended September 30, 2022
Servicing
Investments(2)
MSRs and
Excess
Servicing
OtherTotal
(In Thousands)
Balance at beginning of period$350,923 $56,669 $5,935 $413,527 
New/additional investments— 4,543 — 4,543 
Sales/distribution— — (5,582)(5,582)
Servicer (repayments) advances, net(65,772)— — (65,772)
Changes in fair value, net(10,217)4,245 757 (5,215)
Other— (209)(137)(346)
Balance at End of Period$274,934 $65,248 $973 $341,155 
(1)Excludes $72 million of Strategic investments which are included in Corporate/Other.
(2)Our servicing investments are owned through our consolidated Servicing Investment entities. At March 31,September 30, 2022,, our economic investment in these entities was $99$93 million (for GAAP purposes, we consolidated $336$308 million of servicing investments, $253$233 million of non-recourse short-term securitization debt, as well as other assets and liabilitiesliabilities for these entities). At December 31, 2021, our economic investment in these entities was $103 million (for GAAP purposes, we consolidated $385 million of servicing investments, $294 million of non-recourse short-term securitization debt, as well as other assets and liabilities for these entities).
(2)Our home equity investments presented in this table as of March 31, 2022, include $153 million of HEIs owned in our consolidated HEI securitization entity and $74 million of HEIs owned directly at Redwood. At March 31, 2022, our economic investment in this entity was $14 million (for GAAP purposes, we consolidated $153 million of HEIs and $121 million of ABS issued, as well as other assets and liabilities for this entity).
Reductions in investments for our servicing investments primarily representrepresents recoveries of servicing advances within our consolidated servicing VIEs. Positive changes in fair value for HEIs in 2022 primarily reflect improvements in home prices (positive HPA). Changes in fair value, net for MSRs and excess servicingExcess Servicing for the three and nine months ended September 30, 2022 includeincludes a reduction in basis from the regular receipt of scheduled cash flows, which was more than offset by a positive impact to fair value from a decrease in forecasted prepayment speeds.
Additional details on our other investmentsOther Investments is included in Note 1011 of our Notes to Consolidated Financial Statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
9198


Income Taxes
Taxable Income, REIT Status and Dividend Characterization
As a REIT, under the Internal Revenue Code, Redwood is required to distribute to shareholders at least 90% of its annual REIT taxable income, excluding net capital gains, and meet certain other requirements that relate to, among other matters, the assets it holds, the income it generates, and the composition of its stockholders. To the extent Redwood retains REIT taxable income, including net capital gains, it is taxed at corporate tax rates. Redwood also earns taxable income at its taxable REIT subsidiaries (TRS), which it is not required to distribute under the Internal Revenue Code.
In MarchSeptember 2022, our Board of Directors declared a regular dividend of $0.23 per share for the firstthird quarter of 2022, which was paid on March 31,September 30, 2022 to shareholders of record on March 24,September 23, 2022. As of March 31,September 30, 2022, our year-to-date dividend distributions of $0.23$0.69 per share exceeded our minimum distribution requirements and we believe that we have met all requirements for qualification as a REIT for federal income tax purposes. Many requirements for qualification as a REIT are complex and require analysis of particular facts and circumstances. Often there is only limited judicial or administrative interpretive guidance and as such there can be no assurance that the Internal Revenue Service or courts would agree with our various tax positions. If we were to fail to meet all the requirements for qualification as a REIT and the requirements for statutory relief, we would be subject to federal corporate income tax on our taxable income and we would not be able to elect to be taxed as a REIT for four years thereafter. Such an outcome could have a material adverse impact on our consolidated financial statements.
While our minimum REIT dividend requirement is generally 90% of our annual REIT taxable income, we carried a $37 million federal net operating loss carry forward (NOL) into 2022 at our REIT that affords us the ability to retain REIT taxable income up to the NOL amount, tax free, rather than distributing it as dividends. Federal income tax rules require the dividends paid deduction to be applied to reduce REIT taxable income before the applicability of NOLs is considered; therefore, REIT taxable income must exceed our dividend distribution for us to utilize a portion of our NOL and any remaining NOL amount will carry forward into future years.
While the exact amount is uncertain at this time, we currently expect a significant portion of our 2022 dividend distributions to be taxable as ordinary income for federal income tax purposes. Any remaining amount is currently expected to be characterized as a return of capital, which in general is nontaxable (provided it does not exceed a shareholder's tax basis in Redwood shares) and reduces a shareholder's basis in Redwood shares (but not below zero). To the extent such distributions exceed a shareholder's basis in Redwood shares, such excess amount would be taxable as capital gain. Under the federal income tax rules applicable to REITs, none of Redwood’s 2022 dividend distributions are currently expected to be characterized as long-term capital gain dividends. The income or loss generated at our TRS will not directly affect the tax characterization of our 2022 dividends; however, any dividends paid from our TRS to our REIT would allow a portion of our REIT’s dividends to be classified as qualified dividends.
Tax Provision under GAAP
For the three and nine months ended March 31,September 30, 2022, and 2021, we recorded a tax provision of $1 million and a tax benefit of $2$10 million, respectively. For the three and nine months ended September 30, 2021, we recorded tax benefit of $4 million and a tax provision of $12$14 million, respectively. Our tax provision is primarily derived from the activities at our TRS as we do not book a material tax provision associated with income generated at our REIT. TheFor the nine-month periods, the switch to a tax benefit from a tax provision year-over-year was primarily the result of GAAP income being recorded at our TRS during this period in 2021 versus GAAP losses being recorded at our TRS during this period in 2022. For the three-month periods, while GAAP income was earned at the TRS during both periods, the switch to a tax provision from a tax benefit year-over-year was due to the release of valuation allowance on a portion of our deferred tax assets in 2021.
Realization of our deferred tax assets ("DTAs") is dependent on many factors, including generating sufficient taxable income prior to the expiration of NOL carryforwards and generating sufficient capital gains in future periods prior to the expiration of capital loss carryforwards. To the extent we determine it is more likely than not that we will not be able to realize a deferred tax asset, we establish a valuation allowance accordingly. At December 31, 2021, we reported net federal ordinary and capital DTAs with no valuation allowance recorded against them. We continue to believe it is more likely than not that we will realize all of our federal deferred tax assets; therefore, there continues to be no valuation allowance recorded against our net federal DTAs. As we have experienced year-to-date GAAP losses at our TRS, we are continuing to monitor our estimate of the realizability of our net deferred tax assets and will reassess the need for a valuation allowance, in whole or in part, in future periods.
Consistent with prior periods, we continued to maintain a valuation allowance against the majority of our net state DTAs as realization of our state DTAs is dependent on generating sufficient taxable income in the same jurisdictions in which the DTAs exist and we project most of our state DTAs will expire prior to their utilization.
9299


LIQUIDITY AND CAPITAL RESOURCES
Summary
In addition to the proceeds from equity and debt capital-raising transactions, our principal sources of cash and liquidity consist of borrowings under mortgage loan warehouse facilities, secured term financing facilities, securities repurchase agreements, payments of principal and interest we receive from our investment portfolio assets, proceeds from the sale of investment portfolio assets, and cash generated from our operating activities. Our most significant uses of cash are to purchase and originate mortgage loans for our mortgage banking operations and manage hedges associated with those activities, to purchase investment securities and make other investments, to repay principal and interest on our debt, to meet margin calls associated with our debt and other obligations, to make dividend payments on our capital stock, and to fund our operations.
At March 31,September 30, 2022, our total capital was $2.10$2.02 billion and included $1.45$1.15 billion of equity capital and $653$863 million of convertible notes and long-term debt on our consolidated balance sheet, including $199 million of convertible debt due in 2023, $150 million of convertible debt due in 2024, $172 million of exchangeable debt due in 2025, $215 million of convertible debt due in 2027 and $140 million of trust-preferred securities due in 2037.
As of March 31,September 30, 2022, our unrestricted cash was $409$297 million, and we estimate we had approximately $140$160 million of available capital. While we believe our available cash is sufficient to fund our operations, we may raise equity or debt capital from time to time to increase our unrestricted cash and liquidity, to repay existing debt, to make long-term portfolio investments, to fund strategic acquisitions and investments, or for other purposes. To the extent we seek to raise additional capital, our approach will continue to be based on what we believe to be in the best interests of the company.
In the discussion that follows and throughout this document, we distinguish between marginable and non-marginable debt. When we refer to non-marginable debt and marginable debt, we are referring to whether or not such debt is subject to market value-based margin calls based solely on the lender's determination, in its discretion, of the market value of the underlying collateral that is non-delinquent. If a mortgage loan is financed under a marginable warehouse facility, to the extent the market value of the loan declines (which market value is generally determined by the counterparty under the facility), we will be subject to a margin call, meaning we will be required to either immediately reacquire the loan or meet a margin requirement to pledge additional collateral, such as cash or additional residentialmortgage loans, in an amount at least equal to the decline in value. Non-marginable debt may be subject to a margin call due to delinquency ofor another credit event related to the mortgage or security being financed, a decline in the value of the underlying asset securing the collateral, an extended dwell time (i.e., period of time financed using a particular financing facility) for certain types of loans, or a change in the interest rate of a specified reference security relative to a base interest rate amount. For example, we could be subject to a margin call on non-marginable debt if an appraisal or broker price opinion indicates a decline in the estimated value of the property securing the mortgage loan that is financed by us under a loan warehouse facility.facility, or based on the occurrence of a triggering credit event impacting the financed collateral which is followed by a decline in the market value of the financed collateral (as determined by the lender).
We also distinguish between recourse and non-recourse debt. When we refer to non-recourse debt, we mean debt that is payable solely from the assets pledged to secure such debt, and under which debt no creditor or lender has direct or indirect recourse to us, or any other entity or person (except for customary exceptions for fraud, acts of insolvency, or other "bad acts"), if such assets are inadequate or unavailable to pay off such debt.
At September 30, 2022, in aggregate, we had $2.86 billion of secured recourse debt outstanding, financing our mortgage banking and investment portfolio, of which $480 million was marginable and $2.38 billion was non-marginable.
We are subject to risks relating to our liquidity and capital resources, including risks relating to incurring debt under residential loan warehouse facilities, securities repurchase facilities, and other short- and long-term debt facilities and other risks relating to our use of derivatives. A further discussion of these risks is set forth below under the heading “Risks Relating to Debt Incurred under Short-and Long-Term Borrowing Facilities."

100


Repurchase Authorization
OurDuring the third quarter of 2022, our Board of Directors previously approved an authorization for the repurchase of up to $100$125 million of our common stock, and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt. Under this authorization, shares or securities may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. This common stock repurchase authorization replaced the $100 million common stock repurchase authorization approved by the Board of Directors in 2018, has no expiration datetime limit, may be modified, suspended or discontinued at any time, and does not obligate us to acquire any specific number of shares or securities. During the three months ended March 31, 2022, we did not repurchase any shares or debt. At March 31, 2022, $78 millionThe Board of the currentDirectors also continued its previous authorization remained available for the repurchase of shares of our common stock and we also continued to be authorized to repurchase outstanding debt securities. Like other investments we may make, any repurchases of our common stock or debt securities under this authorization would reduce our available capital and unrestricted cash described above.

During the three and nine months ended September 30, 2022, we repurchased 3.4 million and 7.1 million shares of our common stock for $24 million and $56 million, respectively. At September 30, 2022, $101 million of the authorization remained available for the repurchase of shares of our common stock and we also continued to be authorized to repurchase outstanding debt securities. Subsequent to September 30, 2022, and through November 4, 2022, we repurchased $3 million of our convertible notes due in August 2023.
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Cash Flows and Liquidity for the ThreeNine Months Ended March 31,September 30, 2022
Cash flows from our mortgage banking activities and our investments can be volatile from quarter to quarter depending on many factors, including the profitability of mortgage banking activities, the timing and amount of securities acquisitions, sales and repayments, as well as changes in interest rates, prepayments, and credit losses. Therefore, cash flows generated in the current period are not necessarily reflective of the long-term cash flows we will receive from these investments or activities.
Cash Flows from Operating Activities
Cash flows from operating activities were negative $292$129 million during the threenine months ended March 31,September 30, 2022. This amount includes the net cash utilized during the period from the purchase and sale of residential mortgage loans and the origination and sale of our business purpose loans associated with our mortgage banking activities. Purchases of loans are financed to a large extent with short-term and long-term debt, for which changes in cash are included as a component of financing activities. ExcludingDuring the first nine months of 2022, excluding cash flows from the purchase, origination, sale, and principal payments of loans classified as held-for-sale and the settlement of associated derivatives (which cumulatively totaled $218 million), cash flows from operating activities were positive $126 million and positive $90 million during the first three months of 2022 and 2021, respectively.$88 million.
Cash Flows from Investing Activities
During the threenine months ended March 31,September 30, 2022, our net cash provided by investing activities was $270$169 million and primarily resulted from proceeds from principal payments on loans held-for-investment. Although we generally intendheld-for-investment, securities and other investment in excess of cash deployed to hold our loans and investment securities as long-term investments, we may sell certain of these assets in order to manage our liquidity needs and interest rate risk, to meet other operating objectives, and to adapt to market conditions.
investments. Because many of our investment securities and loans are financed through various borrowing agreements, a significant portion of the proceeds from any sales or principal payments of these assets are generally used to repay balances under these financing sources. Similarly, all or a significant portion of cash flows from principal payments of loans at consolidated securitization entities would generally be used to repay ABS issued by those entities.
Although we generally intend to hold our loans and investment securities as long-term investments, we may sell certain of these assets in order to manage our liquidity needs and interest rate risk, to meet other operating objectives, and to adapt to market conditions.
As presented in the "Supplemental Noncash Information" subsection of our consolidated statements of cash flows, during the threenine months ended March 31,September 30, 2022, we transferred loans between held-for-sale and held-for-investment classification and retained securities from securitizations we sponsored,long-term debt to short-term debt, which represent significant non-cash transactions that were not included in cash flows from investing activities.

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Cash Flows from Financing Activities

During the threenine months ended March 31,September 30, 2022, our net cash used inprovided by financing activities was $27$202 million. This primarily resulted from $531net long-term debt borrowings of $787 million, which included the issuance of $215 million of convertible debt in June 2022, as well as $132 million of net repaymentsborrowings under ABS issued, including from the issuance of CAFL SFR, CAFL bridge and Sequoia ABS securitizations during the nine months ended September 30, 2022. These amounts were partially offset by $1.04 billion of net paydowns on short-term debt as we reduced our overallborrowings, resulting primarily from a reduction in financed loan inventory forat our mortgage banking businesses,operations through September 30, 2022, as well as from the payment of our three quarterly dividend. These outflows were partially offset by proceeds from net borrowings under long-term debt and ABS issued to finance higher balances of investment assets, as well as cashdividends totaling $85 million. Cash raised through stock issuances under our ATM program.program of $68 million during the first quarter of 2022 were partially offset by stock repurchases of $56 million during the second and third quarters of 2022.
During the threenine months ended March 31,September 30, 2022, we declared dividends of $0.23$0.69 per common share. On March 14,September 13, 2022, the Board of Directors declared a regular dividend of $0.23 per share for the firstthird quarter of 2022, which was paid on March 31,September 30, 2022 to shareholders of record on March 24,September 23, 2022.
In accordance with the terms of our outstanding deferred stock units, cash-settled deferred stock units, and restricted stock units, which are generally long-term compensation awards, each time we declare and pay a dividend on our common stock, we are required to make a dividend equivalent cash payment in that same per share amount on each outstanding deferred stock unit, cash-settled deferred stock unit, and restricted stock unit.


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Material Cash Requirements
In the normal course of business, we enter into transactions that may require future cash payments. As required by GAAP, some of these obligations are recorded on the balance sheet, while others are off-balance sheet or recorded on the balance sheet in amounts different from the full contract or notional amount of the transaction. For additional information on our commitments and contingencies as of March 31, 2022, see Note 16 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Our material cash requirements from known contractual and other obligations during the twelve months following March 31,September 30, 2022 include maturing short-term debt, interest payments on short-term and long-term debt, and payments on operating leases.leases, and funding commitments for bridge loans and under HEI flow purchase agreements. Our material cash requirements from known contractual and other obligations beyond the twelve months following March 31,September 30, 2022 include maturing long-term debt, interest payments on long-term debt, and payments on operating leases. leases and funding commitments for bridge loans and under HEI flow purchase agreements.
At September 30, 2022, we had commitments to fund up to $990 million of additional advances on existing bridge loans. These commitments are generally subject to loan agreements with covenants regarding the financial performance of the borrower and other terms regarding advances that must be met before we fund the commitment (e.g. funding is dependent on actual progress on a project and we retain the option to conduct due diligence with respect to each draw request to confirm conditions have been met). Approximately $650 million of the commitments are for longer-term build-for-rent loans (which generally have funding caps below their full commitment amount) and are expected to fund over the next eight quarters. Additionally, at September 30, 2022, we had $1.66 billion of available warehouse capacity for business purpose loans and the majority of our $1.96 billion balance of bridge loans outstanding matures over the next 12 to 24 months, which will provide an additional source of cash that can be used to fund our commitments.
At September 30, 2022, we had outstanding flow purchase agreements with multiple third parties, with an aggregate commitment to purchase $350 million of HEIs, $149 million of which commitments remained outstanding. These purchase agreements specify monthly minimum and maximum amounts of HEIs subject to such purchase commitments. We may terminate the purchase agreement and associated purchase commitment relating to $85 million of remaining commitments upon 90 days prior notice. Subsequent to September 30, 2022, we entered into a repurchase agreement providing financing for HEIs. The committed amount and maximum borrowing limit under the facility is $150 million and the facility has a one-year term. As of the date of this report, there were no borrowings outstanding under this facility.
For additional information regarding our material cash requirements, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 under the caption Contractual Obligations. For additional information on commitments and contingencies as of September 30, 2022 that could impact our liquidity and capital resources, see Note 17 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, which supplements the disclosures included in Note 16 to the Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
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Several of our loan warehouse facilities were established with initial one-year terms and are regularly amended on an annual basis to extend the terms for an additional year ahead of their maturity. We renewed several of these facilities in the first quarternine months of 2022 and have other such facilities with scheduled maturities in 2022.during the next twelve months. While there is no assurance of our ability to renew these facilities, given current market conditions for these types of facilities remain favorable and we would expect to extend these in the normal course of business. Aside from these facilities, we
We expect to meet our obligations coming due in less than one year from March 31,September 30, 2022, through a combination of cash on hand, payments of principal and interest we receive from our investment portfolio assets, proceeds from the sale of investment portfolio assets, cash generated from our operating activities, or incremental borrowings under existing, new or amended financing facilities.arrangements. As of September 30, 2022, we had approximately $500 million of pledgeable and unencumbered assets.
During the threefirst nine months ended March 31,of 2022, the highest balance of our short-term debt outstanding was $2.39 billion. See Note 1314 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on our short-term debt. See Note 15 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on our long-term debt.
Liquidity Needs for our Mortgage Banking Activities
We generally use loan warehouse facilities to finance the residential loans we acquire and the business purpose loans we originate or acquire in our mortgage banking operations while we aggregate the loans for sale or securitization. These facilities may be designated as short-term or long-term for financial reporting purposes, depending on the remaining maturity of the facility or the amount of time individual borrowings may remain outstanding on a facility.
At March 31,September 30, 2022, we had residential warehouse facilities outstanding with sevennine different counterparties, with $2.75$2.85 billion of total capacity and $1.53$2.10 billion of available capacity. These included non-marginable facilities with $1.38 billion of total capacity and marginable facilities with $1.38$1.48 billion of total capacity.
At March 31,September 30, 2022, we had business purpose warehouse facilities outstanding with foursix different counterparties, with $1.85$3 billion of total capacity and $760 million$1.66 billion of available capacity. All of these facilities are non-marginable.
Several of these facilities have variable interest rates based on LIBOR or SOFR benchmarks and recent policy statements from the Federal Reserve indicate the likelihood of an increasingfurther increases in the federal funds rate, which would result in higher benchmark rates and interest costs for us under certain of our debt facilities.
As discussed above, several of the facilities we use to finance our mortgage banking loan inventory are short-term in nature and will require renewals. Additionally, because several of our warehouse facilities are uncommitted, at any given time we may not be able to obtain additional financing under them when we need it, exposing us to, among other things, liquidity risks. Additional information regarding risks related to the debt we use to finance our mortgage banking operations can be found under the heading "Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities" that follows within this section.
Liquidity Needs for our Investment Portfolio
We use various forms of secured recourse and non-recourse debt to finance assets in our investment portfolio. We distinguish our debt between recourse and non-recourse, as our non-recourse debt is mostly comprised of ABS issued, which has unique characteristics that differentiate it in important ways from our recourse debt. When we refer to non-recourse debt, we mean debt that is payable solely from the assets pledged to secure such debt, and under which debt no creditor or lender has direct or indirect recourse to us, or any other entity or person (except for customary exceptions for fraud, acts of insolvency, or other "bad acts"), if such assets are inadequate or unavailable to pay off such debt.
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ABS issued represents debt of securitization entities that we consolidate for GAAP reporting purposes. Our exposure to these entities is primarily through the financial interests we have purchased or retained from these entities (typically subordinate securities and interest only securities). Each securitization entity is independent of Redwood and of each other and the assets and liabilities are not owned by and are not legal obligations of Redwood. As the debt issued by these entities is not a direct obligation of Redwood, and since the debt generally can remain outstanding for the full term of the loans it is financing within each securitization, this debt effectively provides permanent financing for these assets. See Notes 4 and 14,15, respectively, in Part I, Item 1 of this Quarterly Report on Form 10-Q, for additional information on our principles of consolidation and our asset-backed securities issued.
Separately, we use non-recourse debt in the form of non-marginable term facilities to finance a portion of our business purpose bridge loan portfolio. While this debt is non-recourse to Redwood, it does have fixed terms with prepayment options that allows us to refinance this debt or ultimately repay it upon maturity. The remainder of the debt we use to finance our investments is recourse debt. For securities we have financed, the majority of our financing is in the form of recourse non-marginable secured term debt, with the smaller remaining amount being marginable securities repurchase debt. Additionally, a portion of our business purpose bridge loan portfolio is financed with recourse non-marginable secured term debt.
At March 31, 2022,
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We use a balanced combination of fixed and floating rate debt to finance our fixed and floating rate investments. Recent policy statements from the Federal Reserve indicate the likelihood of further increases in aggregate, we had $2.94 billion of secured recourse debt outstanding, financingthe federal funds rate, which if enacted could result in lower net interest income to the extent our mortgage bankingvariable rate assets and investment portfolio, ofliabilities are not aligned. Additionally, to the extent interest rates remain elevated or increase further, certain fixed-rate term borrowings that mature in the coming quarters could have to be refinanced at higher interest rates, which $619 million was marginable and $2.32 billion was non-marginable.could cause a reduction in net interest income.
Corporate Capital
In addition to secured recourse and non-recourse debt we use specifically in association with our mortgage banking operations and within our investment portfolio, we also use unsecured recourse debt to finance our overall operations. This is generally in the form of convertible debt securities we issue in the public markets and also includes trust preferred securities. See Note 15 in Part II, Item 8 of thisour Annual Report on Form 10-K, for additional information on our long-term debt.
Other Commitments and Contingencies
For additional information on commitments and contingencies that could impact our liquidity and capital resources, see Note 16 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, which supplements the disclosures included in Note 16 to the Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Risks Relating to Debt Incurred Under Short- and Long-Term Borrowing Facilities
As described above under the heading “Results of Operations,” in the ordinary course of our business, we use debt financing obtained through several different types of borrowing facilities to, among other things, finance the acquisition and/or origination of residential and business purpose mortgage loans (including those we acquire or originate in anticipation of sale or securitization), and finance investments in securities and other investments. We may also use short- and long-term borrowings to fund other aspects of our business and operations, including the repurchase of shares of our common stock. Recourse debt incurred under these facilities is generally either the direct obligation of Redwood Trust, Inc., or the direct obligation of subsidiaries of Redwood Trust, Inc. and guaranteed by Redwood Trust, Inc. Risks relating to debt incurred under these facilities are described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, under the caption(s) “Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities,” and “Our use of financial leverage exposes us to increased risks, including liquidity risks from margin calls and potential breaches of the financial covenants under our borrowing facilities, which could result in our being required to immediately repay all outstanding amounts borrowed under these facilities and these facilities being unavailable to use for future financing needs, as well as triggering cross-defaults under other debt agreements.”

Our sources of debt financing include secured borrowings under residential and business purpose mortgage loan warehouse facilities (including recourse and non-recourse warehouse facilities), short-term securities repurchase facilities, a $10 million committed line of short-term secured credit from a bank, short-term servicer advance financing, a secured, revolving debt facility collateralized by mortgage servicing rights, and subordinate securities financing facilities.

Aggregate borrowing limits are stated under certain of these facilities, and certain other facilities have no stated borrowing limit, but many of the facilities are uncommitted, which means that any request we make to borrow funds under these uncommitted facilities may be declined by the lender for any reason, even if at the time of the borrowing request we have then-outstanding borrowings that are less than the borrowing limits under these facilities. In general, financing under these facilities is obtained by transferring or pledging mortgage loans or securities to the counterparty in exchange for cash proceeds (in an amount less than 100% of the principal amount of the transferred or pledged assets).
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Under many of our mortgage loan warehouse facilities and our short-term securities repurchase facilities, while transferred or pledged assets are financed under the facility, to the extent the value of the assets, or the collateral underlying those assets, declines, we are generally required to either immediately reacquire the assets or meet a margin requirement to transfer or pledge additional assets or cash in an amount at least equal to the decline in value. We refer to borrowing facilities with margin call provisions based solely on the lender's determination, in its discretion, of changes in the market value of transferred or pledged assets, which determinations of market value are generally within the sole discretion of the lending counterparty, as marginable debt. Borrowing facilities that we refer to as non-marginable debt may be subject to a margin call due to delinquency ofor another credit event related to the mortgage or security being financed, a decline in the value of the underlying asset securing the collateral, or a change in the interest rate of a specified reference security relative to a base interest rate amount. For example, we could be subject to a margin call on non-marginable debt if an appraisal or broker price opinion indicates a decline in the estimated value of the property securing the mortgage loan that is financed by us under a loan warehouse facility, or based on the occurrence of a triggering credit event impacting the financed collateral which is followed by a decline in the market value of the financed collateral (as determined by the lender), in which case the creditor may demand that we transfer additional collateral to the creditor (in the form of cash, U.S. Treasury obligations (in certain cases), or additional mortgage loans) with a value equal to the amount of the decline. Of our active financing arrangements with outstanding balances at March 31,September 30, 2022, only our short-term securities repurchase facilities (with $75$124 million of borrowings outstanding at March 31,September 30, 2022), and sevensix of our residential mortgage loan warehouse facilities (with $1.22 billion$356 million of borrowings outstanding at March 31,September 30, 2022) retain market-value based margin call provisions.provisions based solely on the lender's determination of market value and, as such, are considered marginable.

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Margin call provisions under these facilities are further described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 under the caption “Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities - Margin Call Provisions Associated with Short-Term Debt and Other Debt Financing.” Financial covenants included in these facilities are further described Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 under the caption “Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities - Financial Covenants Associated with Short-Term Debt and Other Debt Financing.”

Because many of these borrowing facilities are uncommitted, at any given time we may not be able to obtain additional financing under them when we need it, exposing us to, among other things, liquidity risks of the types described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 under the heading “Risk Factors,” and in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2021 under the heading “Market Risks.” In addition, with respect to mortgage loans that at any given time are already being financed through these warehouse facilities, we are exposed to market, credit, liquidity, and other risks of the types described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 under the heading “Risk Factors,” and in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2021 under the heading “Market Risks,” if and when those loans or securities become ineligible to be financed, decline in value, or have been financed for the maximum term permitted under the applicable facility.

At March 31,September 30, 2022, and through the date of this Quarterly Report on Form 10-Q, we were in compliance with the financial covenants associated with our short-term debt and other debt financing facilities. In particular, with respect to: (i) financial covenants that require us to maintain a minimum dollar amount of stockholders’ equity or tangible net worth at Redwood, at March 31,September 30, 2022 our level of stockholders’ equity and tangible net worth resulted in our being in compliance with these covenants by more than $200 million; and (ii) financial covenants that require us to maintain recourse indebtedness below a specified ratio at Redwood, at March 31,September 30, 2022 our level of recourse indebtedness resulted in our being in compliance with these covenants at a level such that we could incur at least $600 millionmore than $5 billion in additional recourse indebtedness.

97105


CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. A discussion of critical accounting policies and the possible effects of changes in estimates on our consolidated financial statements is included in Note 2 — Basis of Presentation and Note 3 — Summary of Significant Accounting Policies included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We have elected the fair value option of accounting for a significant portion of the assets and some of the liabilities on our balance sheet, and the majority of these assets and liabilities utilize Level 3 valuation inputs, which require a significant level of estimation uncertainty. See Note 5 in Part I, Item 1 of this Quarterly Report on Form 10-Q, for additional information on our assets and liabilities accounted for at fair value at March 31,September 30, 2022, including the significant inputs used to estimate their fair values and the impact the changes in their fair values had to our financial condition and results of operations. See Note 5 in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021, incorporated herein by reference, for the same information on these assets and liabilities as of December 31, 2021. Periodic fluctuations in the values of these assets and liabilities are inherently volatile and thus can lead to significant period-to-period GAAP earnings volatility.
Additional detail on our critical accounting estimates is included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, under the heading "Critical Accounting Estimates."

MARKET AND OTHER RISKS
We seek to manage risks inherent in our business — including but not limited to credit risk, interest rate risk, prepayment risk, liquidity risk, and fair value risk — in a prudent manner designed to enhance our earnings and dividends and preserve our capital. In general, we seek to assume risks that can be quantified from historical experience, to actively manage such risks, and to maintain capital levels consistent with these risks. Information concerning the risks we are managing, how these risks are changing over time, and potential GAAP earnings and taxable income volatility we may experience as a result of these risks is discussed in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
In addition to the market risks described above, our business and results of operations are subject to a variety of types of risks and uncertainties, including, among other things, those described under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Information concerning market risk is incorporated herein by reference to Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as supplemented by the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations and “Market Risks” within Item 2 above. Other than the developments described thereunder, including changes in the fair values of our assets, there have been no other material changes in our quantitative or qualitative exposure to market risk since December 31, 2021.
Item 4. Controls and Procedures
We have adopted and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed on our reports under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and that the information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) of the Exchange Act, we have carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level.
There have been no changes in our internal control over financial reporting during the firstthird quarter of 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For information on our legal proceedings, see Note 1617 to the Financial Statements within this Quarterly Report on Form 10-Q under the heading "Loss Contingencies - Litigation, Claims and Demands," which supplements the disclosures included in Note 16 to the Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 under the heading “Loss Contingencies - Litigation, Claims and Demands.”
Item 1A. Risk Factors
Our risk factors are discussed under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended March 31,September 30, 2022, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.
In February 2018,July 2022, our Board of Directors authorized the repurchase of up to $125 million of common stock. This common stock repurchase authorization replaces the $100 million common stock repurchase authorization approved anby the Board of Directors in 2018, has no time limit and may be modified, suspended or discontinued at any time. The Board of Directors also continued its previous authorization for the repurchase of our common stock, increasing the total amount authorized for repurchases of common stock to $100 million, and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt. This authorization increased the previous share repurchase authorization approved in February 2016 and has no expiration date.securities. This repurchase authorization does not obligate us to acquire any specific number of shares or securities. Under this authorization, shares or securities may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. During the three months ended March 31,September 30, 2022, we did not repurchase any shares.repurchased 3.4 million shares of our common stock for a total cost of $24 million. At March 31,September 30, 2022, $78$101 million of this current authorization remained available for the repurchase of shares of our common stock and we also continued to be authorized to repurchase outstanding debt securities. During the nine months ended September 30, 2022, we repurchased 7.1 million shares of our common stock for a total cost of $56 million under our current and previously-approved Board of Director authorizations.
The following table contains information on the shares of our common stock that we purchased or otherwise acquired during the three months ended March 31,September 30, 2022.
Total Number of Shares Purchased or AcquiredAverage
Price per
Share Paid
Total Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number (or approximate dollar value) of Shares that May Yet be Purchased under the Plans or Programs
(In Thousands, except per Share Data)
January 1, 2022 - January 31, 2022— $— — $— 
February 1, 2022 - February 28, 2022— $— — $— 
March 1, 2022 - March 31, 202226 (1)$10.39 — $78,369 
Total26 $10.39 — $78,369 
(1)Represents shares reacquired to satisfy tax withholding requirements related to the vesting of restricted shares.
Total Number of Shares Purchased or AcquiredAverage
Price per
Share Paid
Total Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number (or approximate dollar value) of Shares that May Yet be Purchased under the Plans or Programs
(In Thousands, except per Share Data)
July 1, 2022 - July 31, 2022— $— — $— 
August 1, 2022 - August 31, 20221,126 $8.07 1,126 $115,907 
September 1, 2022 - September 30, 20222,322 $6.30 2,322 $101,265 
Total3,448 $6.88 3,448 $101,265 
Item 3. Defaults Upon Senior Securities
None.
Item 4. Not Applicable
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Item 5. Other Information
None.Effective November 2, 2022, our Board of Directors adopted Amended and Restated Bylaws of the Company in order to incorporate changes to the provisions in Article II of the Bylaws relating to annual meetings of stockholders. These changes include, among other things, updated provisions related to stockholder meetings held by phone, video, and remote communications, updated requirements related to the form of proxy cards and proxy solicitation by stockholders, updated information required to be included in a stockholder's notice of nomination of individuals for election as a director, and accompanying certifications to be made by the stockholder submitting such nomination, and clarify provisions relating to compliance with federal proxy rules, including Exchange Act Rule 14a-9, by stockholders submitting nominations.
The preceding summary of the amendment and restatement of the Bylaws of the Company is qualified in its entirety by reference to, and should be read in connection with, the complete copy of the Amended and Restated Bylaws attached as Exhibit 3.2.1 to this Quarterly Report on Form 10-Q and incorporated by reference herein.
On November 3, 2022, Redwood amended and restated its employment agreements with each of Christopher J. Abate (Redwood’s CEO), Dashiell I. Robinson (Redwood’s President), Brooke E. Carillo (Redwood’s CFO), Andrew P. Stone (Redwood’s Executive Vice President, Chief Legal Officer, and Secretary), and Sasha G. Macomber (Redwood’s Chief Human Resource Officer). These agreements were amended and restated to, among other things, update or clarify certain defined terms, update and clarify certain notice and cure terms, and update provisions related to arbitration and costs related to dispute resolution, as well as to reflect previously disclosed compensation terms applicable to these officers.
The preceding summary of the five amended and restated employment agreements is qualified in its entirety by reference to, and should be read in connection with, the complete copies of the amended and restated employment agreements attached as Exhibits 10.2, 10.3, 10.4, 10.5 and 10.6 to this Quarterly Report on Form 10-Q and incorporated by reference herein.
100109


Item 6. Exhibits

Exhibit
Number
Exhibit
3.1
3.1.1
3.1.2
3.1.3
3.1.4
3.1.5
3.1.6
3.1.7
3.1.8
3.1.9
3.1.10
3.1.11
3.1.12
3.2.1
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
31.1
31.2
32.1
32.2
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Exhibit
Number
Exhibit
101Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended March 31,September 30, 2022, is filed in inline XBRL-formatted interactive data files:
 
(i) Consolidated Balance Sheets at March 31,September 30, 2022 and December 31, 2021;
(ii) Consolidated Statements of Income (Loss) for the three and nine months ended March 31,September 30, 2022 and 2021;
(iii) Statements of Consolidated Comprehensive Income (Loss) for the three and nine months ended March 31,September 30, 2022 and 2021;
(iv) Consolidated Statements of Changes in Stockholders' Equity for the three and nine months ended March 31,September 30, 2022 and 2021;
(v) Consolidated Statements of Cash Flows for the threenine months ended March 31,September 30, 2022 and 2021; and
(vi) Notes to Consolidated Financial Statements.
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
______________________
* Indicates exhibits that include management contracts or compensatory plan arrangements.
101111


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
REDWOOD TRUST, INC.
Date:May 6,November 4, 2022By:/s/ Christopher J. Abate
Christopher J. Abate
Chief Executive Officer
(Principal Executive Officer)
Date:May 6,November 4, 2022By:/s/ Brooke E. Carillo
Brooke E. Carillo
Chief Financial Officer
(Principal Financial Officer)
Date:May 6,November 4, 2022By:/s/ Collin L. Cochrane
Collin L. Cochrane
Chief Accounting Officer
(Principal Accounting Officer)
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