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What changed in REDWOOD TRUST INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of REDWOOD TRUST INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+1072 added−946 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in REDWOOD TRUST INC's 2023 10-K

1072 paragraphs added · 946 removed · 765 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeFollowing is a further description of our three business segments: 1 Residential Mortgage Banking This 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 SEMT ® (Sequoia) private-label securitization program, or transfer into our investment portfolio.
Biggest changeOur investment portfolio is comprised of investments sourced through our mortgage banking operations as well as investments purchased from third-parties, and generates income primarily from net interest income and asset appreciation. 1 Following is a further description of our three business segments: Residential Consumer Mortgage Banking This 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 SEMT ® (Sequoia) private-label securitization program, or transfer into our investment portfolio.
Net interest income 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 portfolio.
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 portfolio.
Our DEIB work is focused on 1) developing and executing programs and processes that increase the representation of female and racially diverse employees at all levels within the organization; and 2) investing in programs, training, and mentorship that contribute to an inclusive and equitable work environment for all of our employees.
Our DEIB work is focused on 1) developing and executing programs and processes that increase the representation of female and racially/ethnically diverse employees at all levels within the organization; and 2) investing in programs, training, and mentorship that contribute to an inclusive and equitable work environment for all of our employees.
For additional discussion regarding our ability to compete successfully, see the risk factor below under the heading “ We are subject to intense competition and we may not compete successfully" in Part I, Item 1A of this Annual Report on Form 10-K. 4 Federal, State and Local Regulatory and Legislative Developments Our business is affected by conditions in the housing, BPL, multifamily, and real estate markets and the broader financial markets, as well as by the financial condition and resources of other participants in these markets.
For additional discussion regarding our ability to compete successfully, see the risk factor below under the heading “ We are subject to intense competition and we may not compete successfully" in Part I, Item 1A of this Annual Report on Form 10-K. 4 Federal, State and Local Regulatory and Legislative Developments Our business is affected by conditions in the housing and real estate markets and the broader financial markets, as well as by the financial condition and resources of other participants in these markets.
Certifications Our Chief Executive Officer and Chief Financial Officer have executed certifications dated February 28, 2023, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and we have included those certifications as exhibits to this Annual Report on Form 10-K.
Certifications Our Chief Executive Officer and Chief Financial Officer have executed certifications dated February 28, 2024, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and we have included those certifications as exhibits to this Annual Report on Form 10-K.
BPL bridge loans are mortgage loans which are generally secured by unoccupied (or in the case of certain multifamily properties, partially occupied) residential or multifamily real estate that the borrower owns as an investment and that is being renovated, rehabilitated or constructed.
BPL bridge loans are mortgage loans which are generally secured by unoccupied (or in the case of certain multifamily properties, partially occupied) single-family or multifamily residential real estate that the borrower owns as an investment and that is being renovated, rehabilitated or constructed.
We believe these industry standards most closely align with our business and investments and we chose this framework as it allows for comparable and reliable information, which is consistent with our commitment to provide transparent, useful, and relevant data to all of our stakeholders.
We believe these industry standards most closely align with our businesses and investments and we chose this framework as it allows for comparable and reliable information, which is consistent with our commitment to provide transparent, useful, and relevant data to all of our stakeholders.
Business purpose loans are loans to investors in single-family rental and multifamily properties, which we classify as either "term" loans (which include loans with maturities that generally range from 3 to 30 years) or "bridge" loans (which include loans with maturities that generally range between 12 and 36 months).
Business purpose loans are loans to investors in single-family and multifamily residential properties, which we classify as either "term" loans (which include loans with maturities that generally range from 3 to 30 years) or "bridge" loans (which include loans with maturities that generally range between 12 and 36 months).
In particular, because issues relating to residential real estate and housing finance can be areas of political focus, federal, state and local governments may be more likely to take actions that affect residential real estate (including both owner-occupied and rental real estate), the markets for financing residential real estate, landlord and tenant rights, and the participants in residential and business purpose real estate-related industries than they would with respect to other industries.
In particular, because issues relating to residential housing (including both owner-occupied and rental housing), and real estate finance can be areas of political focus, federal, state and local governments may be more likely to take actions that affect residential housing, the markets for financing residential housing, landlord and tenant rights, lender rights, and the participants in residential housing-related industries than they would with respect to other industries.
Redwood’s corporate mission of helping to make quality housing, whether rented or owned, accessible to all American households is integrated with, and linked to, our approach to ESG matters at Redwood. Our website includes information regarding ESG matters at Redwood, which we update from time to time. See “Information Available on Our Website” below.
Redwood’s corporate mission of making quality housing, whether rented or owned, accessible to all American households is integrated with, and linked to, our approach to ESG matters at Redwood. Our website includes information regarding ESG matters at Redwood, which we update from time to time. See “Information Available on Our Website” below.
Direct operating expenses and tax expenses associated with these activities are also included in this segment. Business Purpose Mortgage Banking This segment consists of a platform that originates and acquires business purpose lending ("BPL") loans for subsequent securitization, sale, or transfer into our investment portfolio.
Direct operating expenses and tax expenses associated with these activities are also included in this segment. Residential Investor Mortgage Banking This segment consists of a platform that originates business purpose lending ("BPL") loans for subsequent securitization, sale, or transfer into our investment portfolio.
In addition, our Chief Executive Officer certified to the New York Stock Exchange (NYSE) on June 14, 2022 that he was unaware of any violations by Redwood Trust, Inc. of the NYSE’s corporate governance listing standards in effect as of that date. 5
In addition, our Chief Executive Officer certified to the New York Stock Exchange (NYSE) on June 14, 2023 th at he was unaware of any violations by Redwood Trust, Inc. of the NYSE’s corporate governance listing standards in effect as of that date. 5
We operate our business in three 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.
We operate our business in three segments: Residential Consumer Mortgage Banking, Residential Investor 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.
Investment Portfolio This segment consists of organic investments sourced through our residential and business purpose mortgage banking operations, including primarily securities retained from our residential and business purpose securitization activities (some of which we consolidate for GAAP purposes), BPL 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 reperforming loan securitizations (both of which we consolidate for GAAP purposes), servicer advance investments, home equity investments ("HEIs"), and other housing-related investments and associated hedges.
Investment Portfolio This segment consists of organic investments sourced through our mortgage banking operations, including primarily securities retained from our residential consumer and investor securitization activities (some of which we consolidate for GAAP purposes), BPL bridge loans, as well as third-party investments including RMBS issued by third parties, investments in Freddie Mac K-Series multifamily loan securitizations and reperforming loan securitizations (both of which we consolidate for GAAP purposes), servicer advance investments, home equity investments ("HEI"), and other housing-related investments and associated hedges.
We refer to this securitization entity as the "HEI securitization entity." 2 We also consolidate certain third-party Freddie Mac K-Series and Freddie Mac Seasoned Loans Structured Transaction ("SLST") securitization entities that we determined were VIEs and for which we determined we were the primary beneficiary.
We refer to these securitization entities as "HEI securitization entities." We also consolidate certain third-party Freddie Mac K-Series and Freddie Mac Seasoned Loans Structured Transaction ("SLST") securitization and re-securitization entities that we determined were VIEs and for which we determined we were the primary beneficiary.
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.
This segment’s main source of income is net interest income from its inventory of loans held-for-sale, as well as income from mortgage banking activities, which includes valuation changes on loans we acquire (and associated loan purchase commitments) and subsequently sell, securitize, or transfer into our investment portfolio, and interest income/expense and gains/losses from hedges used to manage risks associated with these activities.
Employee Talent & Development We are focused on developing and advancing our employees through targeted learning programs that build specific job-based skills and leadership capabilities across the company. Our manager training program provides foundational leadership training to all managers of people and we provide focused development programs for rising women leaders within the organization.
Employee Talent & Development We are focused on developing and advancing our employees through targeted learning programs that build specific job-based skills and leadership capabilities across the company. We offer opportunities for training to all managers of people and focused development programs for rising women leaders within the organization.
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.
Our aggregation, origination and investment activities have evolved to incorporate a diverse mix of residential consumer and residential investor housing credit 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 are required under GAAP to consolidate the assets and liabilities of this securitization entity we have sponsored for financial reporting purposes.
We are required under GAAP to consolidate the assets and liabilities of HEI securitization entities we have sponsored for financial reporting purposes.
Our summer internship program provides opportunities for a diverse group of students while creating a pipeline of future talent for the company. Workforce Structure & Retention We regularly evaluate not only our ability to attract and retain our employees, but also the size and structure of our workforce.
Our summer internship program provides opportunities for a diverse group of students while creating a pipeline of future talent for the company. Employee Retention We regularly evaluate our ability to attract and retain our employees.
We typically distribute most of our term loans through our CAFL ® private-label securitization program, or through whole loan sales, and typically transfer our BPL bridge loans to our Investment Portfolio, where they will either be retained for investment or securitized, or will sell them as whole loans.
We typically distribute most of our term loans through our CAFL ® private-label securitization program, or through whole loan sales, and typically transfer our BPL bridge loans to co-investments in joint venture partnerships or to our Investment Portfolio, where they will either be retained for investment or securitized, or they are sold as whole loans.
Some of our competitors have greater resources than us and we may not be able to compete successfully with them. Some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more favorable relationships than we can.
Some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more favorable relationships than we can.
For additional discussion regarding federal, state and local legislative and regulatory developments, see the risk factor below under the heading “ Federal, state and local legislative and regulatory developments and the actions of governmental authorities and entities may adversely affect our business and the value of, and the returns on, mortgages, mortgage-related securities, HEIs, and other assets we own or may acquire in the future" in Part I, Item 1A of this Annual Report on Form 10-K.
For additional discussion regarding federal, state and local legislative and regulatory developments, see the risk factor below under the heading “ Federal, state and local legislative and regulatory developments and the actions of governmental authorities and entities may adversely affect our business and the value of, and the returns on, mortgages, mortgage-related securities, home equity investments, and other assets we own or may acquire in the future, including as a result of any negative impact on the availability of warehouse mortgage financing facilities to us and/or the cost of borrowing under such facilities ” in Part I, Item 1A of this Annual Report on Form 10-K.
In June 2022, we published an ESG Tear Sheet which included selected metrics disclosed in accordance with the Sustainability Accounting Standards Board (“SASB”) standards for the Financials Sector – Mortgage Finance and Asset Management & Custody Activities industries.
In September 2023, we published our second annual ESG Report, which included selected metrics disclosed in accordance with the Sustainability Accounting Standards Board (“SASB”) standards for the Financials Sector – Mortgage Finance and Asset Management & Custody Activities industries.
Our competitors include commercial banks, other mortgage REITs, Fannie Mae, Freddie Mac, regional and community banks, broker-dealers, investment advisors, insurance companies, and other specialty finance companies and financial institutions, as well as investment funds and other investors in real estate-related assets. In addition, other companies may be formed that will compete with us.
Our competitors include commercial banks, other mortgage REITs, Fannie Mae, Freddie Mac, regional and community banks, broker-dealers, investment advisors, insurance companies, BPL originators and HEI originators, and other specialty finance companies and financial institutions, as well as investment funds, venture capital investors, and other investors in real estate-related assets.
Redwood’s talented employees are core to the sustainability and long-term success of Redwood and we invest in programs that attract, retain, develop, and care for our people.
Our employees are dispersed across our offices, including in California, Colorado, New York, North Carolina, and Oregon. Redwood’s talented employees are core to the sustainability and long-term success of Redwood and we invest in programs that attract, retain, develop, and care for our people.
This segment’s main sources of mortgage banking income are net interest income earned on loans while they are held in inventory, origination and other fees on loans, mark-to-market adjustments on loans from the time loans are originated or purchased to when they are sold, securitized or transferred into our investment portfolio, and gains/losses from associated hedges.
This segment’s main sources of income are net interest income earned from its inventory of loans held-for-sale, as well as income from mortgage banking activities, which includes origination and other fees on loans, valuation changes on loans from the time they are originated or purchased to when they are sold, securitized or transferred into our investment portfolio, and gains/losses from hedges used to manage risks associated with these activities.
Human Capital Resources As of December 31, 2022, Redwood employed 347 full-time employees, 212 (or 61%) of which are directly engaged in the operations of our wholly-owned subsidiary, CoreVest, with the remainder spread across our Residential Mortgage Banking, Investment Portfolio and Corporate functions. Our employees are dispersed across our offices, including in California, Colorado, New York, North Carolina, and Oregon.
Human Capital Resources As of December 31, 2023, Redwood employed 289 full-time employees, 164 (or 57%) of which are directly engaged in the operations of our wholly-owned subsidiary, CoreVest, with the remainder spread across our Residential Consumer Mortgage Banking, Investment Portfolio, and Corporate functions.
We are required under Generally Accepted Accounting Principles in the United States (“GAAP”) to consolidate the assets and liabilities of CAFL securitization entities we have sponsored for financial reporting purposes. We refer to these securitization entities as the "consolidated CAFL entities." In addition, in 2021, we co-sponsored a securitization of HEIs.
We are required under GAAP to consolidate the assets and liabilities of CAFL securitization entities we have sponsored for financial reporting purposes. We refer to these securitization entities as the "consolidated CAFL entities." 2 In addition, we have co-sponsored securitizations of HEI.
These reductions in force decreased the company’s headcount approximately 24% since July 1, 2022, to 306 employees as of February 6, 2023. 3 Employee Satisfaction and Engagement We believe that the investments we make in driving a strong, values-based culture and supporting our employees through programs, development, and competitive pay enhances our organizational capability and has a direct impact on our business results and fulfillment of Redwood’s mission.
Voluntary employee turnover remained relatively low at 13% for 2023. 3 Employee Satisfaction and Engagement We believe that the investments we make in driving a strong, values-based culture and supporting our employees through programs, development, and competitive pay enhances our organizational capability and has a direct impact on our business results and fulfillment of Redwood’s mission.
Our Business Segments We operate our business in three segments: Residential Mortgage Banking, Business Purpose Mortgage Banking and Investment Portfolio. Our two mortgage banking segments generate income from the origination or acquisition of loans and the subsequent sale or securitization of those loans.
No changes were made to the composition of the segments. Our two mortgage banking segments generate income from the origination or acquisition of loans and the subsequent sale or securitization of those loans.
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 also includes various financial instruments, including derivatives and securities, that we utilize to manage certain risks associated with our inventory of residential loans held-for-sale within this segment.
Removed
Our investment portfolio is comprised of investments sourced through our mortgage banking operations as well as investments purchased from third-parties and generates income primarily from net interest income and asset appreciation.
Added
Our Business Segments We operate our business in three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking and Investment Portfolio. In the fourth quarter of 2023, we updated the names of two of our segments: Residential Mortgage Banking was changed to Residential Consumer Mortgage Banking; and Business Purpose Mortgage Banking was changed to Residential Investor Mortgage Banking.
Removed
In 2022, we acquired Riverbend Funding, LLC ("Riverbend") which added approximately 60 employees to our business purpose lending platform. Voluntary employee turnover remained relatively low at 10% for the year. In the fourth quarter of 2022 and the first quarter of 2023, we conducted workforce reductions to better align our organizational structure with financial results.
Added
We typically acquire prime jumbo mortgages and the related mortgage servicing rights on a flow basis from our extensive network of loan sellers. Securities that we retain from our Sequoia securitizations are transferred to and held in our Investment Portfolio segment.
Added
In addition, other companies may be formed that will compete with us (including, on occasion, by former employees of ours). Some of our competitors have greater resources than us and we may not be able to compete successfully with them.
Added
Other changes or actions by judges or legislators regarding mortgage loans and contracts, including the voiding of certain portions of these agreements or the promulgation of additional restrictions on mortgage foreclosures, may reduce our earnings, impair our ability to mitigate losses, or increase the probability and severity of losses.
Added
Moreover, to the extent we participate in markets that as-yet do not have fully developed regulatory frameworks or responsibilities, such as the market for home equity investments (HEI), we are subject to a heightened risk of new, enhanced, or changing regulation that is adverse to our business or burdensome to comply with.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeMaterial risks that may affect our business, operating results and financial condition include, but are not necessarily limited to, those relating to: Risks Related to our Business and Industry • general economic conditions and trends and the performance of the housing, real estate, mortgage finance, and broader financial markets; • changing benchmark interest rates, and the Federal Reserve’s actions and statements regarding monetary policy; • the impact of the COVID-19 pandemic; • federal, state and local legislative and regulatory developments and the actions of governmental authorities and entities; • 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; Risks Related to our Investments and Investing Activity • 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 and 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 ; • c hanges in interest rates or mortgage prepayment rates ; • investment and reinvestment risk; • asset performance, interest rate volatility, changes in credit spreads, and changes in liquidity in the market for real estate securities and loans; • o ur ability to finance the acquisition of real estate-related assets with short-term debt ; • t he ability of counterparties to satisfy their obligations to us ; • our exposure to the discontinuation of LIBOR; • foreclosure activity may expose us to risks associated with real estate ownership and operation; • we may enter into new lines of business, acquire other companies, or engage in other new strategic initiatives; Operational and Other 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 channels; • our involvement in loan origination and securitization transactions, the profitability of those transactions, and the risks we are exposed to in engaging in loan origination or securitization transactions ; • e xposure to claims and litigation, including litigation arising from loan origination and securitization transactions ; • acquisitions may fail to improve our business and could expose us to new or increased risks and costs; • w hether we have sufficient liquid assets to meet short-term needs ; • changes in our investment, financing, and hedging strategies and new risks we may be exposed to if we expand or reorganize; • our ability to successfully retain or attract key personnel ; 6 • our exposure to a disruption of our or a third party’s technology infrastructure and systems; • we are dependent on third-party information systems and third-party service providers; • our failure to maintain appropriate internal controls over financial reporting and disclosure controls and procedures; • our risk management efforts may not be effective; • we could be harmed by misconduct or fraud; • inadvertent errors, system failures or cybersecurity incidents could disrupt our business; • the impact on our reputation that could result from our actions or omissions or from those of others; • accounting rules related to certain of our transactions and asset valuations are highly complex and involve significant judgment and assumptions; • the future realization of our deferred tax assets is uncertain, and the amount of valuation allowance we may apply against our deferred tax assets may change materially in future periods; Risks Related to Legislative and Regulatory Matters Affecting our Industry • 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 required governmental licenses; Risks Related to Redwood's Capital, REIT and Legal/Organizational Structure • our ability to maintain our status as a REIT for tax purposes ; • decisions about raising, managing, and distributing capital ; • limitations imposed on our business due to our REIT status and our status as exempt from registration under the Investment Company Act of 1940 ; • provisions in our charter and bylaws and provisions of Maryland law may limit a change in control or deter a takeover; • the ability to take action against our directors and officers is limited by our charter and bylaws and provisions of Maryland law and we may indemnify them against certain losses; Other Risks Related to Ownership of Our Capital Stock • our stock may experience losses, volatility, and poor liquidity, and we may reduce our dividends; • limited number of institutional shareholders own a significant percentage of our common stock; • dividend distributions and the timing and character of such dividends may change; • future sales of our stock or other securities by us or our officers and directors may have adverse consequences for investors; • the conversion rights of our preferred stock may be detrimental to holders of our common stock; • payment of dividends in common stock could place downward pressure on market price; and • other factors not yet identified, including broad market fluctuations. 7 Risk Related to our Business and Industry General economic conditions and trends and the performance of the housing, real estate, mortgage finance, and broader financial markets have adversely affected, and may continue to adversely affect, our business and the value of, and returns on, real estate-related and other assets we own or may acquire and could also negatively impact our business and financial results.
Biggest changeMaterial risks that may affect our business, operating results and financial condition include, but are not necessarily limited to, those relating to: Risks Related to our Business and Industry • general economic conditions and trends and the performance of the housing, real estate, mortgage finance, and broader financial markets; • changing benchmark interest rates, and the Federal Reserve’s actions and statements regarding monetary policy; • federal, state and local legislative and regulatory developments and the actions of governmental authorities and entities; • 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; • the impact of public health issues such as the COVID-19 pandemic; Risks Related to our Investments and Investing Activity • 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 and 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 ; • c hanges in interest rates or mortgage prepayment rates ; • investment and reinvestment risk; • asset performance, interest rate volatility, changes in credit spreads, and changes in liquidity in the market for real estate securities and loans; • o ur ability to finance the acquisition of real estate-related assets with short-term debt ; • t he ability of counterparties to satisfy their obligations to us ; • we may enter into new lines of business, acquire other companies, or engage in other new strategic initiatives; Operational and Other 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 channels; • our involvement in loan and HEI origination and securitization transactions, the profitability of those transactions, and the risks we are exposed to in engaging in loan origination or securitization transactions ; • foreclosure activity may expose us to risks associated with real estate ownership and operation; • e xposure to claims and litigation, including litigation arising from loan or HEI origination and securitization transactions ; • acquisitions or new business initiatives may fail to improve our business and could expose us to new or increased risks; • w hether we have sufficient liquid assets to meet short-term needs ; • changes in our investment, financing, and hedging strategies and new risks we may be exposed to if we expand or reorganize; • our ability to successfully retain or attract key personnel ; • we are dependent on third-party information systems and third-party service providers; • our exposure to a disruption of our or a third party’s technology infrastructure and systems; 6 • our failure to maintain appropriate internal controls over financial reporting and disclosure controls and procedures; • our risk management efforts may not be effective; • we could be harmed by misconduct or fraud; • inadvertent errors, system failures or cybersecurity incidents could disrupt our business; • the impact on our reputation that could result from our actions or omissions or from those of others; • accounting rules related to certain of our transactions and asset valuations are highly complex and involve significant judgment and assumptions; • the future realization of our deferred tax assets is uncertain, and the amount of valuation allowance we may apply against our deferred tax assets may change materially in future periods; Risks Related to Legislative and Regulatory Matters Affecting our Industry • 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 required governmental licenses; Risks Related to Redwood's Capital, REIT and Legal/Organizational Structure • our ability to maintain our status as a REIT for tax purposes ; • decisions about raising, managing, and distributing capital ; • limitations imposed on our business due to our REIT status and our status as exempt from registration under the Investment Company Act of 1940 ; • provisions in our charter and bylaws and provisions of Maryland law may limit a change in control or deter a takeover; • the ability to take action against our directors and officers is limited by our charter and bylaws and provisions of Maryland law and we may indemnify them against certain losses; Other Risks Related to Ownership of Our Capital Stock • our stock may experience losses, volatility, and poor liquidity, and we may reduce our dividends; • limited number of institutional shareholders own a significant percentage of our common stock; • future sales of our stock or other securities by us or our officers and directors may have adverse consequences for investors; • the change-in-control-related conversion rights of our preferred stock may be detrimental to holders of our common stock; • dividend distributions and the timing and character of such dividends may change; • payment of dividends in common stock could place downward pressure on market price; and • other factors not yet identified, including broad market fluctuations. 7 Risks Related to our Business and Industry General economic conditions and trends and the performance of the housing, real estate, mortgage finance, and broader financial markets have adversely affected, and may continue to adversely affect, our business and the value of, and returns on, real estate-related and other assets we own or may acquire and could also negatively impact our business and financial results.
These impacts could result from, among other things, a lower overall volume of mortgage refinance activity by mortgage borrowers and an increased level of competition from large commercial banks that may operate with a lower cost of capital than we do, including as a result of Federal Reserve monetary policies that impact banks more favorably than us and other non-bank institutions.
These impacts could result from, among other things, a lower overall volume of mortgage refinance activity by mortgage borrowers and an increased level of competition from large commercial banks that may operate with a lower cost of capital than we do, including as a result of Federal Reserve monetary policies that may impact banks more favorably than us and other non-bank institutions.
Under our borrowing facilities, interest rate swaps and other derivatives agreements, we pledge assets as security for our payment obligations and make various representations and warranties and agree to certain covenants, events of default, and other terms.
Under our borrowing facilities, interest rate swaps and other derivatives agreements, we pledge assets as security for our payment obligations, make various representations and warranties, and agree to certain covenants, events of default, and other terms.
In addition, rising interest rates may increase the credit risks associated with certain residential real estate loans. For example, the interest rate is adjustable for some of the loans held at securitization entities we have sponsored and for a portion of the loans underlying residential securities we have acquired from securitizations sponsored by others.
In addition, rising interest rates may increase the credit risks associated with certain residential real estate loans. For example, the interest rate is adjustable for some of the loans held at securitization entities we have sponsored and for a portion of the loans underlying securities we have acquired from securitizations sponsored by others.
Moreover, these types of real estate loans may not be fully amortizing ( e.g. , interest-only) and, therefore, the borrower’s ability to repay the principal when due may depend upon the ability of the borrower to refinance the loan or sell the property at maturity.
Moreover, these types of real estate loans may not be fully amortizing ( e.g. , interest-only loans) and, therefore, the borrower’s ability to repay the principal when due may depend upon the ability of the borrower to refinance the loan or sell the property at maturity.
For certain loans that have a negative amortization feature, the required monthly payment is increased after a specified number of months or after a maximum amount of negative amortization has occurred in order to amortize fully the loan by the end of its original term.
For certain loans that have a negative amortization feature, the required monthly payment is increased after a specified number of months or after a maximum amount of negative amortization has occurred in order to fully amortize the loan by the end of its original term.
Other negative amortizing loans limit the amount by which the monthly payment can be increased, which results in a larger final payment at maturity. As a result, negatively amortizing loans have performance characteristics similar to those of balloon loans.
Other negative amortizing loans limit the amount by which the monthly payment can be increased, which results in a larger final payment at maturity. As a result, negatively amortizing loans have performance characteristics similar to those of balloon-payment loans.
To the extent there are problems with the manner in which title and lien priority rights were established or transferred, securitization transactions that we sponsored and third-party sponsored securitizations that we hold investments in may experience losses, which could expose us to losses and could damage our ability to engage or invest in future securitization transactions.
To the extent there are problems with the manner in which title and lien priority rights were established or transferred, securitization transactions that we sponsored and third-party sponsored securitizations in which we hold investments may experience losses, which could expose us to losses and could damage our ability to engage or invest in future securitization transactions.
Adverse economic conditions, including as a result of the pandemic, have at times negatively impacted, and could again negatively impact, our operating platforms including our business purpose loan origination and residential loan purchase activities, as well as our HEI investment activities.
Adverse economic conditions, including as a result of the pandemic, have at times negatively impacted, and could again negatively impact, our operating platforms including our business purpose loan origination and residential loan purchase activities, as well as our HEI origination and investment activities.
For instance: • Compliance with the REIT income and asset rules, or uncertainty about the application of those rules to certain investments, may result in our holding investments in our taxable REIT subsidiaries (where any income they produce is subject to corporate-level taxation) when we would prefer to hold those investments in an entity that is taxed as a REIT (where they generally would not be subject to corporate-level taxation). • Compliance with the REIT income and asset rules may limit the type or extent of financing or hedging that we can undertake. • Our ability to own non-real estate assets and earn non-real estate related income is limited, and the rules for classifying assets and income are complicated.
For instance: • Compliance with the REIT income and asset rules, or uncertainty about the application of those rules to certain investments, may result in our holding investments in our taxable REIT subsidiaries (where any income they produce is subject to corporate-level taxation) when we would prefer to hold those investments in an entity that is taxed as a REIT (where they generally would not be subject to corporate-level taxation). • Compliance with the REIT income and asset rules may limit the type or extent of financing or hedging that we can undertake. • As a REIT, our ability to own non-real estate assets and earn non-real estate related income is limited, and the rules for classifying assets and income are complicated.
If we fail to comply with these limits, we may be forced to liquidate attractive investments on short notice on unfavorable terms in order to maintain our REIT status. • We generally use taxable REIT subsidiaries to own non-real estate assets and engage in activities that may give rise to non-real estate related income under the REIT rules.
If we fail to comply with these limits, we may be forced to liquidate attractive investments on short notice and on unfavorable terms in order to maintain our REIT status. • We generally use taxable REIT subsidiaries to own non-real estate assets and engage in activities that may give rise to non-real estate related income under the REIT rules.
The application of the tax laws to our business is complicated, and we may not interpret and apply some of the rules and regulations correctly. In addition, we may not make all available elections, which could result in our not being able to fully benefit from available deductions or benefits.
The application of the tax laws to our business is complicated, and we may not interpret or apply some of the rules and regulations correctly. In addition, we may not make all available elections, which could result in our not being able to fully benefit from available deductions or benefits.
In addition, if dividends on any shares of our Series A preferred stock are in arrears for six or more quarterly dividend periods, whether or not consecutive, the number of directors constituting our board of directors will, subject to the maximum number of directors authorized under our bylaws then in effect, be automatically increased by two and the holders of Series A preferred stock will be entitled to vote for the election of those two additional directors at a special meeting, and at each subsequent annual meeting until all dividends accumulated on the Series A preferred stock for all past dividend periods and the then-current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment.
In addition, if dividends on any shares of our Series A preferred stock are in arrears for six or more quarterly dividend periods, whether or not consecutive, the number of directors constituting our board of directors will, subject to the maximum number of directors authorized under our bylaws then in effect, be automatically increased by two and the holders of Series A preferred stock will be entitled to vote for the election of those two additional directors at a special meeting of shareholders, and at each subsequent annual meeting of shareholders until all dividends accumulated on the Series A preferred stock for all past dividend periods and the then-current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment.
The risks associated with incurring this type of debt in connection with securitization activity, the risks related to our ability to complete securitization transactions after we have accumulated loans or assets for that purpose, and the risks associated with the due diligence we conduct, and the representations and warranties we make, in connection with securitization activity are similar to the risks associated with acquiring and originating loans with the intent to sell them to third parties, as described in the immediately preceding risk factor titled “ Through certain of our wholly-owned subsidiaries we have engaged in the past, and plan to continue to engage, in acquiring residential mortgage loans and originating business purpose mortgage loans with the intent to sell these loans to third parties or hold them as investments.
The risks associated with incurring this type of debt in connection with securitization activity, the risks related to our ability to complete securitization transactions after we have accumulated loans or assets for that purpose, and the risks associated with the due diligence we conduct and the representations and warranties we make in connection with securitization activity are similar to the risks associated with acquiring and originating loans with the intent to sell them to third parties, as described in the immediately preceding risk factor titled “ Through certain of our wholly-owned subsidiaries we have engaged in the past and plan to continue to engage in acquiring residential and business-purpose mortgage loans and HEI, and originating business-purpose mortgage loans and HEI with the intent to sell these loans or HEI to third parties or hold them as investments.
To the extent HEIs or HEI-related assets are broadly subjected to new or modified form(s) of regulation, regulatory enforcement, litigation or claims, or are recharacterized as loans—whether such regulation or claims are initiated by federal, state or local governmental, quasi-governmental or consumer rights organizations, by homeowners themselves, or otherwise—we may be unable to continue our HEI transaction volume at current levels (or at all), we may be unable to realize expectations as to revenue or profit from HEI activities or to enforce our rights under HEIs we own, or we could be subjected to civil penalties, fines or damages, any of which might be significant.
To the extent HEI or HEI-related assets are broadly subjected to new or modified form(s) of regulation, regulatory enforcement, litigation or claims, or are recharacterized as loans—whether such regulation or claims are initiated by federal, state or local governmental, quasi-governmental or consumer rights organizations, by homeowners themselves, or otherwise—we may be unable to continue our HEI transaction volume at current levels (or at all), we may be unable to realize expectations as to revenue or profit from HEI activities or to enforce our rights under HEI we own, or we could be subjected to civil penalties, fines or damages, any of which might be significant.
We may experience an event of default under some or all of our short- and long-term debt and financing facilities if we do not meet future margin calls or maintain compliance with financial covenants and other terms of these debt obligations, which would permit the holders of the affected 15 indebtedness to accelerate the maturity of such indebtedness and could cause defaults under our other indebtedness, which could lead to an event of bankruptcy or insolvency, which would have a material adverse effect on our business, results of operations and financial condition.
We may experience an event of default under some or all of our short- and long-term debt and financing facilities if we do not meet future margin calls or maintain compliance with financial covenants and other terms of these debt obligations, which would permit the holders of the affected indebtedness to accelerate the maturity of such indebtedness and could cause defaults under our other indebtedness, which could lead to an event of bankruptcy or insolvency, which would have a material adverse effect on our business, results of operations and financial condition.
Implementation of financial reforms, whether through law, regulations, or policy, including changes to the manner in which financial institutions, financial products, and financial markets operate and are regulated and any related changes in the accounting standards that govern them, could adversely affect our business and financial results by subjecting us to regulatory oversight, making it more expensive to conduct our business, reducing or eliminating any competitive advantage we may have, or limiting our ability to expand, or could have other adverse effects on us.
Implementation of financial reforms, whether through law, regulations, or policy, including changes to the manner in which financial institutions, financial products, and financial markets operate and are regulated and any related changes in the accounting or capital standards that govern them, could adversely affect our business and financial results by subjecting us to regulatory oversight, making it more expensive to conduct our business, reducing or eliminating any competitive advantage we may have, or limiting our ability to expand, or could have other adverse effects on us.
Any disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our ability and mortgage loan borrowers’ ability to make regular payments of principal and interest ( e.g. , due to unemployment, underemployment, or reduced income or revenues, including as a result of tenants' inability to make rental payments) or to access savings or capital necessary to fund business operations or replace or renew maturing liabilities on a timely basis, and may adversely affect the valuation of financial assets and liabilities.
Any disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our ability and mortgage loan borrowers’ ability to make regular payments of principal and interest ( e.g. , due to unemployment, underemployment, or reduced income or revenues, including as a result of tenants' inability to make rental payments) or to access savings or capital necessary to fund business 44 operations or replace or renew maturing liabilities on a timely basis, and may adversely affect the valuation of financial assets and liabilities.
We have or may in the future experience service disruptions and failures caused by system or software failure, fire, power outages, telecommunications failures, team member misconduct, human error, computer hackers, computer viruses and disabling devices, malicious or destructive code, denial of service or information, as well as natural disasters, pandemic or outbreak of epidemic disease, and other similar events, and our business continuity and disaster recovery planning may not be sufficient for all situations.
We have experienced, and may in the future experience, service disruptions and failures caused by system or software failure, fire, power outages, telecommunications failures, team member misconduct, human error, computer hackers, computer viruses and disabling devices, malicious or destructive code, denial of service or information, as well as natural disasters, pandemic or outbreak of epidemic disease, and other similar events, and our business continuity and disaster recovery planning may not be sufficient for all situations.
Further discussion is set forth in the risk factors titled “Maintaining cybersecurity and complying with data privacy laws and regulations are important to our business and a breach of our cybersecurity or a violation of data privacy laws could result in serious harm to our reputation and have a material adverse impact on our business and financial results” and “Our technology infrastructure and systems are important and any significant disruption or breach of the security of this infrastructure or these systems could have an adverse effect on our business.
Further discussion is set forth in the risk factors titled “Maintaining information security and complying with data privacy laws and regulations are important to our business and a cybersecurity or data breach, or a violation of data privacy laws, could result in serious harm to our reputation and have a material adverse impact on our business and financial results” and “Our technology infrastructure and systems are important and any significant disruption or breach of the security of this infrastructure or these systems could have an adverse effect on our business.
In particular, because issues relating to residential housing (including both owner-occupied and rental housing), and real estate finance can be areas of political focus, federal, state and local governments may be more likely to take actions that affect residential housing, the markets for financing residential housing, landlord and tenant rights, lender rights, and the participants in residential housing-related industries than they would with respect to other industries.
In particular, because issues relating to residential housing (including both owner-occupied and rental housing), and real estate finance can be areas of 9 political focus, federal, state and local governments may be more likely to take actions that affect residential housing, the markets for financing residential housing, landlord and tenant rights, lender rights, and the participants in residential housing-related industries than they would with respect to other industries.
While these initiatives represent potential opportunities for future capital deployment, ultimately these initiatives may not produce sizable or attractive investment opportunities due to competition from other investors, regulatory issues, or federal housing finance reform initiatives that impact Fannie Mae and Freddie Mac. 24 Investments in diverse types of assets and businesses could expose us to new, different, or increased risks.
While these initiatives represent potential opportunities for future capital deployment, ultimately these initiatives may not produce sizable or attractive investment opportunities due to competition from other investors, regulatory issues, or federal housing finance reform initiatives that impact Fannie Mae and Freddie Mac. Investments in diverse types of assets and businesses could expose us to new, different, or increased risks.
Our ability to profitably execute or participate in future securitization transactions, including, in particular, securitizations of residential and business purpose mortgage loans, is dependent on numerous factors and if we are not able to achieve our desired level of profitability or if we incur losses in connection with executing or participating in future securitizations it could have a material adverse impact on our business and financial results.
Our ability to profitably execute or participate in future securitization transactions, including, in particular, securitizations of residential and business purpose mortgage loans and HEI, is dependent on numerous factors and if we are not able to achieve our desired level of profitability or if we incur losses in connection with executing or participating in future securitizations it could have a material adverse impact on our business and financial results.
The markets for such securities are not as mature as the market for residential mortgage-backed securities and dislocations in these markets or a change in the risk tolerance of investors or the perception of risk related to business purpose mortgage-backed securities or HEI-backed securities may negatively impact our ability to grow or sustain the volume of 12 business purpose mortgage-backed or HEI-backed securitization transactions we engage in, which may result in our business and financial results being adversely affected.
The markets for such securities are not as mature as the market for residential mortgage-backed securities and dislocations in these markets or a change in the risk tolerance of investors or the perception of risk related to business purpose mortgage-backed securities or HEI-backed securities may negatively impact our ability to grow or sustain the volume of business purpose mortgage-backed or HEI-backed securitization transactions we engage in, which may result in our business and financial results being adversely affected.
Our past and future decisions relating to the repurchases of Redwood common stock or other securities issued by Redwood could fail to improve our results of operations or could negatively impact our ability to execute our business plans, meet financial obligations, access financing, or raise additional capital, any or all of which could result in a material adverse effect on our business and results of operations.
Our past and future decisions relating to the repurchases of Redwood common stock, preferred stock or other securities issued by Redwood could fail to improve our results of operations or could negatively impact our ability to execute our business plans, meet financial obligations, access financing, or raise additional capital, any or all of which could result in a material adverse effect on our business and results of operations.
Higher interest rates also generally increase our financing costs as we renew or replace borrowing facilities or maturing debt. When short-term interest rates are high relative to long-term interest rates, an increase in adjustable-rate residential loan prepayments may occur, which would likely reduce our returns from owning interest-only securities backed by adjustable-rate residential loans.
In addition, higher interest rates also generally increase our financing costs as we renew or replace borrowing facilities or maturing debt. When short-term interest rates are high relative to long-term interest rates, an increase in adjustable-rate residential loan prepayments may occur, which would likely reduce our returns from owning interest-only securities backed by adjustable-rate residential loans.
In these circumstances we are exposed to certain risks, including, without limitation, that we may not be able to enter into subservicing agreements on terms favorable to us, or at all, that the sub-servicer may not properly service the loan in compliance with applicable laws and regulations or the contractual provisions governing their sub-servicing role, and that we would be held liable for the sub-servicer’s improper acts or omissions, whether resulting from a change in law effected or prompted by the Student Loan ABS Litigation, or otherwise, as discussed above under the Risk Factor titled “ Through certain of our wholly-owned subsidiaries we have engaged in the past, and expect to continue to engage in, securitization transactions relating to real estate mortgage loans and HEIs.
In these circumstances we are exposed to certain risks, including, without limitation, that we may not be able to enter into subservicing agreements on terms favorable to us, or at all, that the sub-servicer may not properly service the loan in compliance with applicable laws and regulations or the contractual provisions governing their sub-servicing role, and that we would be held liable for the sub-servicer’s improper acts or omissions, whether resulting from a change in law effected or prompted by the Student Loan ABS Litigation, or otherwise, as discussed above under the Risk Factor titled “ Through certain of our wholly-owned subsidiaries we have engaged in the past, and expect to continue to engage in, securitization transactions relating to real estate mortgage loans and HEI.
Alternatively, we could determine to change our investment strategy or financing plans to be more risk averse, resulting in potentially lower returns, which could also have an adverse effect on our financial returns. The performance of the assets we own and the investments we make will vary and may not meet our earnings or cash flow expectations.
Alternatively, we could determine to change our investment strategy or financing plans to be more risk averse, resulting in potentially lower returns, which could also have an adverse effect on our financial returns. 27 The performance of the assets we own and the investments we make will vary and may not meet our earnings or cash flow expectations.
For additional information regarding our exposure to liquidity risks and other risks related to our use of leverage, refer to Part II, Item 7 of this Annual Report on Form 10-K under the headings “Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities” and “Margin Call Provisions Associated with Short-Term Debt and Other Debt Financing”.
For additional information regarding our exposure to liquidity risks and other risks related to our use of leverage, refer to Part II, Item 7 of this Annual Report on 15 Form 10-K under the headings “Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities” and “Margin Call Provisions Associated with Short-Term Debt and Other Debt Financing”.
Future economic conditions, including credit results, prepayment patterns, and interest rate trends, are difficult to project with accuracy over the life of the assets we acquire, so there will be volatility in the reported returns over time. Our growth may be limited if assets are not available or not available at attractive prices.
Future economic conditions, including credit results, prepayment patterns, and interest 24 rate trends, are difficult to project with accuracy over the life of the assets we acquire, so there will be volatility in the reported returns over time. Our growth may be limited if assets are not available or not available at attractive prices.
In the event a counterparty that sells us residential or business purpose mortgage loans becomes insolvent or is acquired by a third party, we may be unable to enforce 31 our rights to have such counterparty repurchase loans in connection with a breach of loan representations and warranties, and we may suffer losses if we must repurchase delinquent loans.
In the event a counterparty that sells us residential or business purpose mortgage loans becomes insolvent or is acquired by a third party, we may be unable to enforce our rights to have such counterparty repurchase loans in connection with a breach of loan representations and warranties, and we may suffer losses if we must repurchase delinquent loans.
Our ability to execute or participate in future securitization transactions, including, in particular, securitizations of residential and business purpose mortgage loans, could be delayed, limited, or precluded by legislative and regulatory reforms applicable to asset-backed securities and the institutions that sponsor, service, rate, or otherwise participate in or contribute to the successful execution of a securitization transaction.
Our ability to execute or participate in future securitization transactions, including, in particular, securitizations of residential and business purpose mortgage loans or HEI, could be delayed, limited, or precluded by legislative and regulatory reforms applicable to asset-backed securities and the institutions that sponsor, service, rate, or otherwise participate in or contribute to the successful execution of a securitization transaction.
Even after governmental actions have been taken and we believe we understand the impacts of those actions, prevailing interpretations may shift, or we may not be able to effectively respond to them so as to avoid a negative impact on our business or financial results. We are subject to intense competition and we may not compete successfully.
Even after governmental actions have 10 been taken and we believe we understand the impacts of those actions, prevailing interpretations may shift, or we may not be able to effectively respond to them so as to avoid a negative impact on our business or financial results. We are subject to intense competition and we may not compete successfully.
Further, any federal assistance programs available to mortgage loan servicers may not be available to us because our business and investments are not focused on mortgage loans that are eligible to be purchased or guaranteed by Fannie Mae, Freddie Mac or governmental agencies such as the Federal Housing Administration or Department of Veteran Affairs.
Further, any federal assistance programs available to mortgage loan servicers may not be available to us because our business and investments generally are not focused on mortgage loans that are eligible to be purchased or guaranteed by Fannie Mae, Freddie Mac or governmental agencies such as the Federal Housing Administration or Department of Veteran Affairs.
In addition, foreclosure may create a negative public perception of the related 33 mortgaged property, resulting in a decrease in its value. Even if we are successful in foreclosing on a loan, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to us.
In addition, foreclosure may create a negative public perception of the related mortgaged property, resulting in a decrease in its value. Even if we are successful in foreclosing on a loan, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to us.
To the extent any of these service providers are liable for damages to third parties that have invested in these securitization transactions, we may incur costs and expenses as a result of our indemnification obligations. In addition, the securitization trusts or other securitization entities that own collateral underlying securitization transactions may be held liable for acts of third parties.
To the extent any of these service providers are liable for damages to third parties that have invested in these securitization transactions, we may incur costs and expenses as a result of our indemnification obligations. 36 In addition, the securitization trusts or other securitization entities that own collateral underlying securitization transactions may be held liable for acts of third parties.
As examples, since 2019, we have completed the acquisitions of three business purpose real estate loan origination platforms, CoreVest, 5 Arches, LLC (“5 Arches”), and Riverbend Funding, LLC (“Riverbend”), which we combined into a single platform, through which we now originate, acquire, and sell or securitize business purpose loans.
As examples, since 2019, we have completed the acquisitions of three business purpose real estate loan origination platforms, CoreVest, 5 Arches, LLC (“5 Arches”), and Riverbend Funding, LLC (“Riverbend”), which we combined into a single platform, through which we now 12 originate, acquire, and sell or securitize business purpose loans.
For loans or other investments we own directly (not through a securitization structure), we will most likely be in a position to incur credit losses, should they occur, only after losses are borne by the owner of the property ( e.g. , by a reduction in the owner’s equity 18 stake in the property).
For loans or other investments we own directly (not through a securitization structure), we will most likely be in a position to incur credit losses, should they occur, only after losses are borne by the owner of the property ( e.g. , by a reduction in the owner’s equity stake in the property).
In addition, the terms of any available debt may be unfavorable to us or impose restrictive covenants that could limit our business and operations or the violation of which could lead to losses and inhibit our ability to borrow in the future. We expect to pledge assets we acquire to secure the short-term debt we incur.
In addition, the terms of any available debt may be unfavorable to us or impose restrictive covenants that could limit our business and operations or the violation of which could lead to losses and inhibit our ability to borrow in the future. We expect to pledge assets we acquire to secure the short- 33 term debt we incur.
If, in the future, we determine that goodwill or intangible assets are impaired, we will be required to write down the value of these assets, as we did with our goodwill asset in 2020, up to the entire balance. Any write-down would have a negative effect on our consolidated financial statements.
If, in the future, we determine that goodwill or intangible assets are impaired, we will be required to write down the value of these assets, as we did with our goodwill asset in 2020, up to the entire balance. Any such write-down would have a negative effect on our consolidated financial statements.
Any such alteration or reorganization of our corporate structure or our tax elections could be complex, time consuming, and involve significant initial transaction costs. Additionally, any such alteration or reorganization could expose us to new risks or 42 potential liabilities for failure to meet regulatory or tax-related requirements, including the maintenance of our REIT status.
Any such alteration or reorganization of our corporate structure or our tax elections could be complex, time consuming, and involve significant initial transaction costs. Additionally, any such alteration or reorganization could expose us to new risks or potential liabilities for failure to meet regulatory or tax-related requirements, including the maintenance of our REIT status.
Pandemic-related disruptions to the normal operation of mortgage finance markets have impacted, and may again impact, our mortgage banking operations by, among other factors, limiting access to short-term or long-term financing for mortgage loans, disrupting the market for securitization transactions, or restricting our ability to access these markets or execute securitization transactions.
Pandemic-related disruptions to the normal operation of mortgage finance markets impacted, and may again impact, our mortgage banking operations by, among other factors, limiting access to short-term or long-term financing for mortgage loans, disrupting the market for securitization transactions, or restricting our ability to access these markets or execute securitization transactions.
Our assumptions may prove wrong, market conditions may change, or we may be exposed to higher-than-expected rates of delinquency, default, foreclosure, or litigation, any of which could have a negative impact on our financial or operational results related to these acquisitions and to our business as a whole.
Our assumptions may prove wrong, market conditions may change, or we may be exposed to higher-than-expected rates of delinquency, default, 26 foreclosure, or litigation, any of which could have a negative impact on our financial or operational results related to these acquisitions and to our business as a whole.
For example, as a result of the pandemic, residential mortgage subservicers received an unprecedented level of requests from mortgage borrowers for payment forbearances and, as a result, their operational infrastructures may not have properly processed this increased volume of requests effectively or in a manner that is in our best interests.
For example, as a result of the pandemic, residential mortgage subservicers received an unprecedented level of requests from mortgage borrowers for payment forbearances and, as a result, their operational infrastructures may not have properly processed the increased volume of requests effectively or in a manner that is in our best interests.
A failure by any or all of the members to make such capital contributions for amounts required to fund servicer advances could result in an event of default under our servicer advance financing and a complete loss of our investment in SA Buyer and its servicer advance investments and excess MSRs.
A failure by any or all of the members to make such capital contributions for amounts required to fund servicer advances could result in an event of default under our servicer advance financing and a complete loss of our investment in SA Buyer and its servicer advance investments 38 and excess MSRs.
These securitization transactions and investments expose us to potentially material risks, in the same manner as described in the risk factor titled “ Through certain of our wholly-owned subsidiaries we have engaged in the past, and expect to continue to engage in, securitization transactions relating to real estate mortgage loans.
These securitization transactions and investments expose us to potentially material risks, in the same manner as described in the risk factor titled “ Through certain of our wholly-owned subsidiaries we have engaged in the past, and expect to continue to engage in, securitization transactions relating to real estate mortgage loans and HEI.
While we are not required to obtain licenses to purchase mortgage-backed securities, the purchase of residential and business purpose mortgage loans in the secondary market, and the origination of business purpose loans, as well as the securitization of these assets, may, in some circumstances, either now or in the future, require us to maintain various state licenses.
While we are not required to obtain licenses to purchase mortgage-backed securities, the purchase of residential and business purpose mortgage loans in the secondary market, and the origination of business purpose loans or HEI, as well as the securitization of these assets, may, in some circumstances, either now or in the future, require us to maintain various state licenses.
This support may continue for some time and could have potentially negative consequences to us, since we have traditionally taken an active role in assuming credit risk in the private sector mortgage market, including through investments in SEMT ® (Sequoia) and CAFL ® securitizations we sponsor.
This support may continue for some time and could have potentially negative consequences to us, since we have traditionally taken an active role in assuming credit risk in the private sector mortgage market, including through investments in SEMT ® (Sequoia) and CAFL ® (CoreVest) securitizations we sponsor.
The rate at which interest accrues on these loans may change more frequently or to a greater extent than payment adjustments on an adjustable-rate loan, and adjustments of monthly payments may be subject to limitations or may be limited by the borrower’s option to pay less than the full accrual rate.
The rate at which interest accrues on these loans may change more frequently or to a greater extent than payment adjustments on an adjustable-rate loan, and adjustments of monthly payments may be subject to limitations or may be limited 19 by the borrower’s option to pay less than the full accrual rate.
Operational and Other Risks Through certain of our wholly-owned subsidiaries we have engaged in the past and plan to continue to engage in acquiring residential and business-purpose mortgage loans and originating business-purpose mortgage loans with the intent to sell these loans to third parties or hold them as investments.
Operational and Other Risks Through certain of our wholly-owned subsidiaries we have engaged in the past and plan to continue to engage in acquiring residential and business-purpose mortgage loans and HEI, and originating business-purpose mortgage loans and HEI with the intent to sell these loans or HEI to third parties or hold them as investments.
In connection with our business of acquiring and originating loans, engaging in securitization transactions, and investing in HEI and third-party issued securities and other assets, we rely on third party service providers to perform certain services, comply with applicable laws and regulations, and carry out contractual covenants and terms.
In connection with our business of acquiring and originating loans and HEI, engaging in securitization transactions, and investing in third-party issued securities and other assets, we rely on third-party service providers to perform certain services, comply with 37 applicable laws and regulations, and carry out contractual covenants and terms.
Rating agencies could alter their ratings processes or criteria after we have accumulated loans or other assets for securitization in a manner that effectively reduces the value of those previously acquired or originated loans or requires that we incur additional costs to comply with those processes and criteria.
Rating agencies could alter their ratings processes or criteria after we have accumulated loans, HEI, or other assets for securitization in a manner that effectively reduces the value of those previously acquired or originated loans or assets or requires that we incur additional costs to comply with those processes and criteria.
The CFPB may revisit whether additional updates should be made to regulations, and any such updates could negatively impact our residential mortgage banking business. Environmental protection laws that apply to properties that secure or underlie our loan and investment portfolio could result in losses to us.
The CFPB may revisit whether additional updates should be made to regulations, and any such updates could negatively impact our residential consumer mortgage banking business. Environmental protection laws that apply to properties that secure or underlie our loan and investment portfolio could result in losses to us.
If demand for buying whole-loans weakens, we may be forced to incur additional debt on unfavorable terms or may be unable to borrow to finance these assets, which may in turn impact our ability to continue acquiring or originating loans over the short or long term.
If demand for buying whole-loans or HEI weakens, we may be forced to incur additional debt on unfavorable terms or may be unable to borrow to finance these assets, which may in turn impact our ability to continue acquiring or originating loans or HEI over the short or long term.
This type of loan is typically used for acquiring and rehabilitating or improving the quality of single-family residential investment properties and generally serves as an interim financing solution for borrowers and/or properties prior to the borrower selling the property or stabilizing the property and obtaining long-term permanent financing.
This type of loan is typically used for acquiring and rehabilitating or improving the quality of single-family residential or multi-family investment properties and generally serves as an interim financing solution for borrowers and/or properties prior to the borrower selling the property or stabilizing the property and obtaining long-term permanent financing.
For example, to the extent investors in a securitization transaction would have significant exposure to representations and warranties made by us or by one or more counterparties we acquire loans from, rating agencies may determine that this exposure increases investment risks relating to the securitization transaction.
For example, to the extent investors in a securitization transaction would have significant exposure to representations and warranties made by us or by one or more counterparties we acquire loans or HEI from, rating agencies may determine that this exposure increases investment risks relating to the securitization transaction.
As an example, wire transfers are an attractive target of fraudulent activity due to the speed and finality of payment, and the nature of our mortgage banking activities requires us frequently to transfer funds to various counterparties in connection with the origination or acquisition of mortgage loans.
As an example, wire transfers are an attractive target of fraudulent activity due to the speed and finality of payment, and the nature of our mortgage banking and HEI activities requires us frequently to transfer funds to various counterparties in connection with the origination or acquisition of mortgage loans and HEI.
Our calculations of the fair value of the securities, loans, MSRs, derivatives, and certain other assets we own or consolidate are based upon assumptions that are inherently subjective and involve a high degree of management judgment. We report the fair values of securities, loans, MSRs, derivatives, and certain other assets on our consolidated balance sheets.
Our calculations of the fair value of the securities, loans, HEI, MSRs, derivatives, and certain other assets we own or consolidate are based upon assumptions that are inherently subjective and involve a high degree of management judgment. We report the fair values of securities, loans, HEI, MSRs, derivatives, and certain other assets on our consolidated balance sheets.
In addition, borrowers often use the proceeds of a conventional mortgage to repay a bridge loan. BPL Bridge loans therefore are subject to risks of a borrower’s inability or unwillingness to obtain permanent financing to repay the loan. BPL Bridge loans, like other loans, are also subject to risks of borrower defaults, bankruptcies, fraud, and other losses.
In addition, borrowers often use the proceeds of a conventional mortgage to repay a bridge loan. BPL bridge loans therefore are subject to risks of a borrower’s inability or unwillingness to obtain permanent financing to repay the loan. BPL bridge loans, like other loans, 35 are also subject to risks of borrower defaults, bankruptcies, fraud, and other losses.
Rating agencies could reach this conclusion either because of our financial condition or the financial condition of one or more counterparties from which we acquire loans or HEIs, or because of the aggregate amount of loan-related or HEI-related representations and warranties (or other contingent liabilities) we, or one or more counterparties from which we acquire loans or HEIs, have made or have exposure to.
Rating agencies could reach this conclusion either because of our financial condition or the financial condition of one or more counterparties from which we acquire loans or HEI, or because of the aggregate amount of loan-related or HEI-related representations and warranties (or other contingent liabilities) we, or one or more counterparties from which we acquire loans or HEI, have made or have exposure to.
Since 37 these provisions were implemented over the past several years, the rating agencies’ assessment of these risks has generally been consistent with ours, but to the extent their assessments diverge from ours, this could negatively impact our ability to execute securitization transactions.
Since these provisions were implemented over the past several years, the rating agencies’ assessment of these risks has generally been consistent with ours, but to the extent their assessments diverge from ours, this could negatively impact our ability to execute securitization transactions.
In addition, the cash flows and earnings from, and market values of, securities, loans, and other assets we own may be volatile. We seek to manage certain of the risks associated with acquiring, originating, holding, selling, and managing real estate loans and securities and other real estate-related investments.
In addition, the cash flows and earnings from, and market values of, securities, loans, and other assets we own may be volatile. We seek to manage certain of the risks associated with acquiring, originating, holding, selling, and managing real estate loans and securities, HEI, and other real estate-related investments.
However, as a result of using financial leverage (whether for the accumulation of loans or related to longer-term investments), we could also incur significant losses if our borrowing costs increase relative to the earnings on our assets and costs of any related hedges.
However, as a result of using financial leverage (whether for the accumulation of loans or related to longer-term investments), we could also incur significant losses if our borrowing costs or costs of any related hedges increase relative to the earnings on our assets.
In addition, we periodically raise capital by issuing common stock, preferred stock, or debt securities convertible into common stock, through underwritten public offerings, in at-the-market (“ATM”) offerings, under our direct stock purchase and dividend reinvestment plan, or in private placement transactions.
In addition, we periodically raise capital by issuing common stock, preferred stock, or debt securities (including debt securities convertible into common stock), through underwritten public offerings, in at-the-market (“ATM”) offerings, under our direct stock purchase and dividend reinvestment plan, or in private placement transactions.
A borrower’s ability to repay its loan may be adversely impacted by numerous factors, including a downturn in its industry or other negative local or more general economic conditions. Deterioration in a borrower’s financial condition and prospects may be accompanied by deterioration in the collateral for the loan.
Furthermore, a borrower’s ability to repay its loan may be adversely impacted by numerous factors, including a downturn in its industry or other negative local or more general economic conditions. Deterioration in a borrower’s financial condition and prospects may be accompanied by deterioration in the collateral for the loan.
As a result of these various factors, our basis for GAAP amortization purposes may be lower than the current fair values of these assets. Assets with a lower GAAP basis than current fair values generate higher GAAP yields, and such yields are not necessarily available on newly acquired assets.
As a result of these various factors, our basis for GAAP accretion/amortization purposes may be lower than the current fair values of these assets. Assets with a lower GAAP basis than current fair values generate higher GAAP yields, and such yields are not necessarily available on newly acquired assets.
Business purpose and multifamily real estate loans and real estate loans collateralizing business purpose and multifamily securities are particularly sensitive to conditions in the rental housing market and to demand for residential rental properties. We may have heightened credit losses associated with certain securities and investments we own.
Business purpose term loans and multifamily real estate loans and real estate loans collateralizing business purpose and multifamily securities are particularly sensitive to conditions in the rental housing market and to demand for residential rental properties. We may have heightened credit losses associated with certain securities and investments we own.
Acquiring and originating mortgage loans with intent to sell these loans to third parties generally requires us to incur short-term debt, either on a recourse or non-recourse basis, to finance the accumulation of loans or other assets prior to sale.
Acquiring and originating mortgage loans, HEI, and other assets with intent to sell these loans, HEI, or other assets to third parties generally requires us to incur short-term debt, either on a recourse or non-recourse basis, to finance the accumulation of loans, HEI, or other assets prior to sale.
We have a limited capacity to hold residential and business purpose loans on our balance sheet as investments, and our business is not structured to buy-and-hold the full volume of loans that we routinely acquire or originate with the intent to sell.
We have a limited capacity to hold residential and business purpose loans and HEI on our balance sheet as investments, and our business is not structured to buy-and-hold the full volume of loans or HEI that we routinely acquire or originate with the intent to sell.
We also rely on technology infrastructure and systems of third parties who provide services to us and with whom we transact business.” Our business may be adversely affected if our reputation is harmed. Our business is subject to significant reputational risks.
We also rely on technology infrastructure and systems of third parties who provide services to us and with whom we transact business.” 48 Our business may be adversely affected if our reputation is harmed. Our business is subject to significant reputational risks.
We have also completed strategic investments in, may make additional investments in, or raise or allocate additional capital to fund, internal or third-party residential and business purpose mortgage origination platforms, HEI origination platforms, and our RWT Horizons ® venture investing initiative.
We have also completed strategic investments in, may make additional investments in, or raise or allocate additional capital to fund, internal or third-party residential and business purpose mortgage origination platforms, HEI origination platforms, and our RWT Horizons ® 25 venture investing initiative.
In these circumstances, we have in the past and may in the future also prepare or assist in the preparation of 34 marketing and disclosure documentation, including documentation that is included in term sheets, offering documents, and prospectuses relating to those securitization transactions.
In these circumstances, we have in the past and may in the future also prepare or assist in the preparation of marketing and disclosure documentation, including documentation that is included in term sheets, offering documents, and prospectuses relating to those securitization transactions.
As a result, significant judgment is required in assessing the possible need for a valuation allowance and changes to our assumptions could result in a material change in the valuation allowance with a corresponding impact on the provision for income taxes in the period including such change.
As a result, significant judgment is required in 49 assessing the possible need for a valuation allowance and changes to our assumptions could result in a material change in the valuation allowance with a corresponding impact on the provision for income taxes in the period including such change.
Our failure to obtain or maintain required licenses or our failure to comply with regulatory requirements that are applicable to our business of acquiring or originating mortgage loans may restrict our business and investment options and could harm our business and expose us to penalties or other claims.
Our failure to obtain or maintain required licenses or our failure to comply with regulatory requirements that are applicable to our business of acquiring or originating mortgage loans or HEI may restrict our business and investment options and could harm our business and expose us to penalties or other claims.
We believe that we will be treated for U.S. federal income tax purposes as the owner of the assets that are the subject of any such agreements notwithstanding that such agreements may transfer record ownership of the assets to the counterparty during the term of the agreement.
We believe that we will be treated for U.S. federal income tax purposes as the owner of the assets that are the subject of any such agreements notwithstanding that such agreements may transfer record ownership of these assets to the counterparty during the term of the agreement.
SA Buyer has agreed to 36 purchase all future arising servicer advances under certain residential mortgage servicing agreements. SA Buyer relies, in part, on its members to make committed capital contributions in order to pay the purchase price for future servicer advances.
SA Buyer has agreed to purchase all future arising servicer advances under certain residential mortgage servicing agreements. SA Buyer relies, in part, on its members to make committed capital contributions in order to pay the purchase price for future servicer advances.
In the event of insolvency of a counterparty, we will be treated as a general creditor of the counterparty and will have no claim of title with respect to the referenced security. Hedging activities may subject us to increased regulation.
In the event of insolvency of a counterparty, we will be treated as a general creditor of the counterparty and will have no claim of title with respect to the referenced security. 32 Hedging activities may subject us to increased regulation.
Our access to third-party sources of capital depends on a number of factors, including the market’s perception of our growth potential, our current debt levels, the market price of our preferred stock or common stock, and our current and potential future earnings.
Moreover, our access to third-party sources of capital depends on a number of factors, including the market’s perception of our growth potential, our current debt levels, the market price of our preferred stock or common stock, and our current and potential future earnings.
A further discussion of some of these risks is set forth in the risk factor titled “ Maintaining cybersecurity and complying with data privacy laws and regulations are important to our business and a breach of our cybersecurity or a violation of data privacy laws could result in serious harm to our reputation and have a material adverse impact on our business and financial results. ” Defending a lawsuit (whether merited or meritless) can consume significant resources and may divert management’s attention from our operations.
A further discussion of some of these risks is set forth in the risk factor titled “ Maintaining information security and complying with data privacy laws and regulations are important to our business and a cybersecurity or data breach, or a violation of data privacy laws, could result in serious harm to our reputation and have a material adverse impact on our business and financial results. ” Defending a lawsuit (whether merited or meritless) can consume significant resources and may divert management’s attention from our operations.
We need cash to make interest payments, to post as collateral to counterparties and lenders who provide us with short-term debt financing and who engage in other transactions with us, to fund acquisitions of mortgage loans and HEIs, to fund originations of business purpose loans (including to fund construction-related draws on bridge loans), to fund investment partnerships to which we have committed capital, for working capital, to fund REIT dividend distribution requirements, to comply with financial covenants and regulatory requirements, to fund general and administrative expenses, and for other needs and purposes.
We need cash to make interest payments, to post as collateral to counterparties and lenders who provide us with short-term debt financing and who engage in other transactions with us, to fund acquisitions of mortgage loans and HEI, to fund originations of business purpose loans (including to fund construction-related draws on bridge loans) and HEI, to fund investment partnerships to which we have committed capital, for working capital, to fund REIT dividend distribution requirements, to comply with financial covenants and regulatory requirements, to fund general and administrative expenses, and for other needs and purposes.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeExecutive and Administrative Office Locations and Lease Expirations Location Lease Expiration One Belvedere Place, Suite 300 2028 Mill Valley, CA 94941 8310 South Valley Highway, Suite 425 2031 Englewood, CO 80112 4 Park Plaza, Suite 900 2027 Irvine, CA 92614 650 Fifth Avenue, Suite 2120 2025 New York, NY 10019
Biggest changeExecutive and Administrative Office Locations and Lease Expirations Location Lease Expiration One Belvedere Place, Suite 300 2028 Mill Valley, CA 94941 8310 South Valley Highway, Suite 425 2031 Englewood, CO 80112 4 Park Plaza, Suite 900 2027 Irvine, CA 92614 650 Fifth Avenue, Suite 2120 2025 New York, NY 10019 62

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS For information on our legal proceedings, see Note 17 to the Financial Statements within this Annual Report on Form 10-K under the heading "Loss Contingencies - Litigation, Claims and Demands." ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 58 PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS For information on our legal proceedings, see Note 17 to the Financial Statements within this Annual Report on Form 10-K under the heading "Loss Contingencies - Litigation, Claims and Demands." ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 63 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeInformation with respect to compensation plans under which equity securities of the registrant are authorized for issuance is set forth in Part II, Item 12 of this Annual Report on Form 10-K. 60 Performance Graph The following graph presents a cumulative total return comparison of our common stock, over the last five years, to the S&P Composite-500 Stock Index and the FTSE NAREIT Mortgage REIT index.
Biggest changeTotal Number of Shares Purchased or Acquired Average Price per Share Paid Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or approximate dollar value) of Shares that May Yet be Purchased under the Plans or Programs (In Thousands, except Per Share Data) October 1, 2023 - October 31, 2023 — $ — — $ — November 1, 2023 - November 30, 2023 — $ — — $ — December 1, 2023 - December 31, 2023 — $ — — $ — Total — $ — — $ 101,265 Information with respect to compensation plans under which equity securities of the registrant are authorized for issuance is set forth in Part II, Item 12 of this Annual Report on Form 10-K. 65 Performance Graph The following graph presents a cumulative total return comparison of our common stock, over the last five years, to the S&P Composite-500 Stock Index, the FTSE NAREIT Mortgage REIT index and the BBG mREIT Index.
The total returns reflect stock price appreciation and the reinvestment of dividends for our common stock and for each of the comparative indices, assuming that $100 was invested in each on December 31, 2017. The information has been obtained from sources believed to be reliable; but neither its accuracy nor its completeness is guaranteed.
The total returns reflect stock price appreciation and the reinvestment of dividends for our common stock and for each of the comparative indices, assuming that $100 was invested in each on December 31, 2018. The information has been obtained from sources believed to be reliable; but neither its accuracy nor its completeness is guaranteed.
The cash dividends declared on our common stock for each full quarterly period during 2022 and 2021 were as follows: Common Dividends Declared Record Date Payable Date Per Share Dividend Type Year Ended December 31, 2022 Fourth Quarter 12/20/2022 12/28/2022 $ 0.23 Regular Third Quarter 9/23/2022 9/30/2022 $ 0.23 Regular Second Quarter 6/23/2022 6/30/2022 $ 0.23 Regular First Quarter 3/24/2022 3/31/2022 $ 0.23 Regular Total $ 0.92 Year Ended December 31, 2021 Fourth Quarter 12/17/2021 12/28/2021 $ 0.23 Regular Third Quarter 9/23/2021 9/30/2021 $ 0.21 Regular Second Quarter 6/23/2021 6/30/2021 $ 0.18 Regular First Quarter 3/24/2021 3/31/2021 $ 0.16 Regular Total $ 0.78 All dividend distributions are made with the authorization of the board of directors at its discretion and will depend on such items, including, for example, GAAP net income, financial condition, REIT taxable income, other non-GAAP measures of profitability and returns, maintenance of REIT status, and other factors that the board of directors may deem relevant from time to time.
The cash dividends declared on our common stock for each full quarterly period during 2023 and 2022 were as follows: Common Dividends Declared Record Date Payable Date Per Share Dividend Type Year Ended December 31, 2023 Fourth Quarter 12/20/2023 12/28/2023 $ 0.16 Regular Third Quarter 9/22/2023 9/29/2023 $ 0.16 Regular Second Quarter 6/23/2023 6/30/2023 $ 0.16 Regular First Quarter 3/24/2023 3/31/2023 $ 0.23 Regular Total $ 0.71 Year Ended December 31, 2022 Fourth Quarter 12/20/2022 12/28/2022 $ 0.23 Regular Third Quarter 9/23/2022 9/30/2022 $ 0.23 Regular Second Quarter 6/23/2022 6/30/2022 $ 0.23 Regular First Quarter 3/24/2022 3/31/2022 $ 0.23 Regular Total $ 0.92 All dividend distributions are made with the authorization of the board of directors at its discretion and will depend on such items, including, for example, GAAP net income, financial condition, REIT taxable income, other non-GAAP measures of profitability and returns, maintenance of REIT status, and other factors that the board of directors may deem relevant from time to time.
In July 2022, our Board of Directors approved an authorization for the repurchase of up to $125 million of our common stock, and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt.
In July 2022, our Board of Directors approved an authorization for the repurchase of up to $125 million of our common stock, and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt. In May 2023, our Board of Directors approved an additional authorization for the repurchase of up to $70 million of our preferred stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed and traded on the NYSE under the symbol RWT. At February 17, 2023, our common stock was held by approximately 516 holders of record and the total number of beneficial stockholders holding stock through depository companies was approximately 53,909.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed and traded on the NYSE under the symbol RWT. At February 21, 2024, our common stock was held by approximately 500 holders of record and the total number of beneficial stockholders holding stock through depository companies was approximately 49,076.
None of the dividend distributions made in 2022 are expected to be characterized for federal income tax purposes as a return of capital or long-term capital gain dividends.
None of the common stock or preferred stock dividend distributions made in 2023 are expected to be characterized for federal income tax purposes as long-term capital gain dividends.
At December 31, 2022, $101 million of this current total authorization remained available for repurchases of shares of our common stock. 59 The following table contains information on the shares of our common stock that we purchased or otherwise acquired during the three months ended December 31, 2022.
At December 31, 2023, $101 million of this current total authorization remained available for repurchases of shares of our common stock, $70 million remained available for repurchases of shares of our preferred stock, and we also continued to be authorized to repurchase outstanding debt securities. 64 The following table contains information on the shares of our common stock that we purchased or otherwise acquired during the three months ended December 31, 2023.
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.
Under these repurchase authorizations, 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. The common stock repurchase authorization replaced the $100 million common stock repurchase authorization approved by the Board of Directors in 2018.
The total return performance shown on the graph is not necessarily indicative of future performance of our common stock. 2017 2018 2019 2020 2021 2022 Redwood Trust, Inc. 100 109 129 74 119 69 FTSE NAREIT Mortgage REIT Index 100 97 118 96 111 82 S&P Composite-500 Index 100 96 126 149 191 157 ITEM 6. [RESERVED] 61
The total return performance shown on the graph is not necessarily indicative of future performance of our common stock. 2018 2019 2020 2021 2022 2023 Redwood Trust, Inc. 100 118 68 109 63 77 FTSE NAREIT Mortgage REIT Index 100 121 99 114 84 97 S&P Composite-500 Index 100 131 156 200 164 207 BBG mREIT Index 100 124 96 113 86 98 ITEM 6. [RESERVED] 66
As reported on our Current Report on Form 8-K on January 26, 2023, for dividend distributions made in 2022, we expect our dividends paid in 2022 to be characterized as 58% ordinary income and 42% qualified dividends.
As reported on our Current Report on Form 8-K filed on January 30, 2024, for dividend distributions made in 2023, we expect our common stock dividends paid in 2023 to be characterized for federal income tax purposes as 39% ordinary income (Section 199A), 23% qualified dividends, and 38% return of capital, and we expect our preferred stock dividends paid in 2023 to be characterized as 63% ordinary income and 37% qualified dividends.
This common stock repurchase authorization replaced the $100 million common stock repurchase authorization approved by the Board of Directors in 2018, has no time limit, may be modified, suspended or discontinued at any time, and does not obligate us to acquire any specific number of shares or securities.
These repurchase authorizations have no time limit, may be modified, suspended or discontinued at any time, and do not obligate us to acquire any specific number of shares or securities.
During the year ended December 31, 2022, we repurchased 7,129,653 shares of our common stock pursuant to this authorization for $56 million. During the year ended December 31, 2021, we did not repurchase any shares of our common stock.
During the year ended December 31, 2022, we repurchased 7.1 million shares of our common stock for $56 million and repurchased and early retired $32 million of our convertible notes.
At February 21, 2023, there were 113,588,813 shares of common stock outstanding.
At February 26, 2024, there were 131,577,032 shares of common stock outstanding.
Removed
The Board of Directors also continued its previous authorization for the repurchase of 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.
Added
During the year ended December 31, 2023, we did not repurchase any of our common stock or preferred stock and repurchased and early retired $81 million of our convertible and exchangeable debt.
Removed
Total Number of Shares Purchased or Acquired Average Price per Share Paid Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or approximate dollar value) of Shares that May Yet be Purchased under the Plans or Programs (In Thousands, except Per Share Data) October 1, 2022 - October 31, 2022 — (1) $ — — $ — November 1, 2022 - November 30, 2022 — $ — — $ — December 1, 2022 - December 31, 2022 — $ — — $ — Total — $ — — $ 101,265 (1) Represents fewer than 1,000 shares reacquired to satisfy tax withholding requirements related to the vesting of restricted shares in October 2022 at the then market price of $5.74 per share.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeTable 3 – Net Interest Income Years Ended December 31, 2022 2021 2020 (Dollars in Thousands) Interest Income/ (Expense) Average Balance (1) Yield Interest Income/ (Expense) Average Balance (1) Yield Interest Income/ (Expense) Average Balance (1) Yield Interest Income Residential loans, held-for-sale $ 52,897 $ 1,256,532 4.2 % $ 49,779 $ 1,635,663 3.0 % $ 19,985 $ 538,580 3.7 % Residential loans - HFI at Redwood (2) — — — % — — — % 21,000 494,097 4.3 % Residential loans - HFI at Legacy Sequoia (2) 5,663 205,909 2.8 % 4,709 254,830 1.8 % 9,059 316,844 2.9 % Residential loans - HFI at Sequoia (2) 126,120 3,596,640 3.5 % 74,025 1,983,936 3.7 % 87,093 1,883,855 4.6 % Residential loans - HFI at Freddie Mac SLST (2) 65,822 1,651,215 4.0 % 76,288 2,067,313 3.7 % 85,609 2,209,182 3.9 % BPL loans - HFS 28,915 492,759 5.9 % 14,443 294,634 4.9 % 20,415 378,293 5.4 % BPL loans - HFI 118,624 1,552,745 7.6 % 54,510 719,907 7.6 % 60,252 842,296 7.2 % BPL term loans - HFI at CAFL 214,942 3,049,569 7.0 % 201,838 3,404,933 5.9 % 136,950 2,544,738 5.4 % Multifamily loans - HFI at Freddie Mac K-Series 18,938 445,062 4.3 % 19,266 486,095 4.0 % 54,813 1,404,068 3.9 % Trading securities 17,446 142,027 12.3 % 22,783 146,328 15.6 % 33,940 286,382 11.9 % Available-for-sale securities 20,262 136,898 14.8 % 31,921 129,261 24.7 % 15,665 140,783 11.1 % Other interest income 38,225 924,629 4.1 % 25,364 817,808 3.1 % 27,135 775,386 3.5 % Total interest income 707,854 13,453,985 5.3 % 574,926 11,940,708 4.8 % 571,916 11,814,504 4.8 % Interest Expense Short-term debt facilities (69,898) 1,651,503 (4.2) % (37,714) 1,670,279 (2.3) % (44,454) 1,188,487 (3.7) % Short-term debt - servicer advance financing (9,570) 234,173 (4.1) % (4,867) 183,335 (2.7) % (6,441) 201,175 (3.2) % Promissory notes (1,040) 15,376 (6.8) % — — — % — — — % Short-term debt - convertible notes, net (3,835) 72,787 (5.3) % — — — % — — — % ABS issued - Legacy Sequoia (2) (5,207) 204,372 (2.5) % (3,040) 251,855 (1.2) % (5,945) 312,351 (1.9) % ABS issued - Sequoia (2) (111,060) 3,361,050 (3.3) % (59,949) 1,755,124 (3.4) % (73,643) 1,681,490 (4.4) % ABS issued - Freddie Mac SLST (2) (52,901) 1,373,679 (3.9) % (64,633) 1,805,744 (3.6) % (66,859) 1,897,194 (3.5) % ABS issued - Freddie Mac K-Series (17,407) 413,223 (4.2) % (17,686) 456,353 (3.9) % (51,521) 1,324,678 (3.9) % ABS issued - CAFL (183,644) 3,115,246 (5.9) % (160,493) 3,173,576 (5.1) % (101,740) 2,363,624 (4.3) % Long-term debt facilities (51,456) 1,140,820 (4.5) % (40,516) 794,144 (5.1) % (45,318) 708,611 (6.4) % Long-term debt - FHLBC — — — % (2) 279 (0.7) % (10,411) 589,269 (1.8) % Long-term debt - corporate (46,382) 694,991 (6.7) % (37,849) 651,156 (5.8) % (41,673) 693,838 (6.0) % Total interest expense (552,400) 12,277,220 (4.5) % (426,749) 10,741,845 (4.0) % (448,005) 10,960,717 (4.1) % Net Interest Income $ 155,454 $ 148,177 $ 123,911 (1) Average balances for residential loans held-for-sale and held-for-investment, business purpose loans held-for-sale and held-for-investment, multifamily loans held-for-investment, and trading securities are calculated based upon carrying values, which represent estimated fair values.
Biggest changeTable 3 – Net Interest Income Years Ended December 31, 2023 2022 2021 (Dollars in Thousands) Interest Income/ (Expense) Average Balance (1) Yield Interest Income/ (Expense) Average Balance (1) Yield Interest Income/ (Expense) Average Balance (1) Yield Interest Income Residential loans, held-for-sale $ 21,128 $ 348,942 6.1 % $ 52,897 $ 1,256,532 4.2 % $ 49,779 $ 1,635,663 3.0 % Residential loans - HFI at Legacy Sequoia (2) 10,313 158,476 6.5 % 5,663 205,909 2.8 % 4,709 254,830 1.8 % Residential loans - HFI at Sequoia (2) 161,720 3,776,652 4.3 % 126,120 3,596,640 3.5 % 74,025 1,983,936 3.7 % Residential loans - HFI at Freddie Mac SLST (2) 60,750 1,387,656 4.4 % 65,822 1,651,215 4.0 % 76,288 2,067,313 3.7 % BPL loans - HFS 14,601 235,180 6.2 % 28,915 492,759 5.9 % 14,443 294,634 4.9 % BPL loans - HFI 150,218 1,608,067 9.3 % 85,345 1,115,981 7.6 % 49,145 643,899 7.6 % BPL term loans - HFI at CAFL (2) 166,861 2,871,111 5.8 % 214,942 3,049,569 7.0 % 201,838 3,404,933 5.9 % BPL bridge loans - HFI at CAFL (2) 50,636 517,844 9.8 % 33,279 436,764 7.6 % 5,365 76,008 7.1 % Multifamily loans - HFI at Freddie Mac K-Series (2) 18,645 422,053 4.4 % 18,938 445,062 4.3 % 19,266 486,095 4.0 % Trading securities (3) 12,560 72,486 17.3 % 17,446 142,027 12.3 % 22,783 146,328 15.6 % AFS securities 8,990 102,874 8.7 % 20,262 136,898 14.8 % 31,921 129,261 24.7 % Other interest income 48,040 1,001,953 4.8 % 38,225 924,629 4.1 % 25,364 817,808 3.1 % Total interest income 724,462 12,503,294 5.8 % 707,854 13,453,985 5.3 % 574,926 11,940,708 4.8 % Interest Expense Short-term debt facilities (92,018) 1,143,854 (8.0) % (69,898) 1,651,503 (4.2) % (37,714) 1,670,279 (2.3) % Short-term debt - servicer advance financing (14,323) 176,921 (8.1) % (9,570) 234,173 (4.1) % (4,867) 183,335 (2.7) % Promissory notes (1,325) 19,415 (6.8) % (1,040) 15,376 (6.8) % — — — % Short-term debt - convertible notes, net (8,695) 152,537 (5.7) % (3,835) 72,787 (5.3) % — — — % ABS issued - Legacy Sequoia (2) (9,980) 157,487 (6.3) % (5,207) 204,372 (2.5) % (3,040) 251,855 (1.2) % ABS issued - Sequoia (2) (144,325) 3,578,192 (4.0) % (111,060) 3,361,050 (3.3) % (59,949) 1,755,124 (3.4) % ABS issued - Freddie Mac SLST (2) (43,652) 1,112,095 (3.9) % (52,901) 1,373,679 (3.9) % (64,633) 1,805,744 (3.6) % ABS issued - Freddie Mac K-Series (2) (17,110) 389,610 (4.4) % (17,407) 413,223 (4.2) % (17,686) 456,353 (3.9) % ABS issued - CAFL Term (2) (135,166) 2,555,269 (5.3) % (167,729) 2,717,897 (6.2) % (158,548) 3,103,259 (5.1) % ABS issued - CAFL Bridge (2) (21,528) 486,928 (4.4) % (15,915) 397,349 (4.0) % (1,945) 70,317 (2.8) % Long-term debt facilities (95,644) 1,213,764 (7.9) % (51,456) 1,140,820 (4.5) % (40,516) 794,144 (5.1) % Long-term debt - corporate (47,753) 587,578 (8.1) % (46,382) 694,991 (6.7) % (37,851) 651,435 (5.8) % Total interest expense (631,519) 11,573,650 (5.5) % (552,400) 12,277,220 (4.5) % (426,749) 10,741,845 (4.0) % Net Interest Income $ 92,943 $ 155,454 $ 148,177 77 Footnotes to Table 3 (1) Average balances for residential loans held-for-sale and held-for-investment, business purpose loans held-for-sale and held-for-investment, multifamily loans held-for-investment, and trading securities are calculated based upon carrying values, which represent estimated fair values.
Corporate/Other The $6 million decrease in net expense from Corporate/Other in 2022 was primarily due to a $21 million reduction in general and administrative expenses from lower variable compensation expense associated with a decrease in earnings in 2022 from 2021, as well as $13 million of positive investment fair value changes in 2022 related to certain of our strategic investments and $2 million of gains from extinguishment of debt.
The $6 million decrease in net expense from Corporate/Other in 2022 was primarily due to a $21 million reduction in general and administrative expenses from lower variable compensation expense associated with a decrease in earnings in 2022 from 2021, as well as $13 million of positive investment fair value changes in 2022 related to certain of our strategic investments and $2 million of gains from extinguishment of debt.
In accordance with the terms of our outstanding deferred stock units, cash-settled deferred stock units and restricted stock units, which are stock-based compensation awards, each time we declare and pay a dividend on our common stock, we are required to make a dividend equivalent payment in that same per share amount on each outstanding deferred stock unit, cash-settled deferred stock unit, and restricted stock unit.
In accordance with the terms of our outstanding deferred stock units, cash-settled deferred stock units, restricted stock units and cash-settled restricted stock units, which are stock-based compensation awards, each time we declare and pay a dividend on our common stock, we are required to make a dividend equivalent payment in that same per share amount on each outstanding deferred stock unit, cash-settled deferred stock unit, restricted stock unit and cash-settled restricted stock unit.
In the event a counterparty to one or more of our warehouse facilities becomes insolvent or unable or unwilling to perform its obligations under the facility, we may be unable to access short-term financing we need or fail to recover the full value of our mortgage loans financed. Securities Repurchase Facilities .
In the event a counterparty to one or more of our warehouse facilities becomes insolvent or unable or unwilling to perform its obligations under the facility, we may be unable to access short-term financing we need or we may fail to recover the full value of our mortgage loans financed. Securities Repurchase Facilities .
Significant inputs used to estimate the fair value of these assets include certain unobservable inputs (e.g., those requiring our own data or assumptions) that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on our reported earnings and financial condition.
Significant inputs used to estimate the fair value of these assets include certain unobservable inputs (e.g., those requiring our own data or assumptions) that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on our reported earnings and financial condition.
Significant inputs used to estimate the fair value of these assets include certain unobservable inputs (e.g., those requiring our own data or assumptions) that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on our reported earnings and financial condition.
Significant inputs used to estimate the fair value of these assets include certain unobservable inputs (e.g., those requiring our own data or assumptions) that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on our reported earnings and financial condition.
Significant inputs used to estimate the fair value of these assets include certain unobservable inputs (e.g., those requiring our own data or assumptions) that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on our reported earnings and financial condition.
Significant inputs used to estimate the fair value of these assets include certain unobservable inputs (e.g., those requiring our own data or assumptions) that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on our reported earnings and financial condition.
We evaluate our deferred tax assets each period to determine if a valuation allowance is required based on whether it is "more likely than not" that some portion of the deferred tax assets would not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of sufficient taxable income during future periods.
We evaluate our deferred tax assets each period to determine if a valuation allowance is required based on whether it is "more likely than not" that some portion of the deferred tax assets would not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of sufficient taxable income during future periods.
We conduct our evaluation by considering, among other things, all available positive and negative evidence, historical operating results and cumulative earnings analysis, forecasts of future profitability, and the duration of statutory carryforward periods.
We conduct our evaluation by considering, among other things, all available positive and negative evidence, historical operating results and cumulative earnings analysis, forecasts of future profitability, and the duration of statutory carryforward periods.
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 residential loans, in an amount at least equal to the decline in value.
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 loans, in an amount at least equal to the decline in value.
Additionally, while expenses from long-term incentive awards increased in 2022 from new award grants, the expense for certain awards (PSUs, csDSUs and Cash Performance Awards) decreased approximately $3 million from 2021, due to negative adjustments (decreasing the expense) related to changes in vesting assumptions and decreases in our stock price during the year.
While expenses from long-term incentive awards increased in 2022 from new award grants, the expense for certain awards (PSUs, csDSUs and Cash Performance Awards) decreased approximately $3 million from 2021, due to negative adjustments (decreasing the expense) related to changes in vesting assumptions and decreases in our stock price during the year.
See Note 20 in Part II, Item 8 of this Annual Report on Form 10-K for further detail on the composition of mortgage banking activities. Operating expenses presented in the table above includes general and administrative expenses, loan acquisition costs and other expenses for this segment.
See Note 20 in Part II, Item 8 of this Annual Report on Form 10-K 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.
Servicer Advance Financing . In connection with our servicer advance investments, we consolidate an entity that was formed to finance servicing advances and for which we, through our control of an affiliated entity majority owned by Redwood (the "SA Buyer") formed to invest in servicer advance investments and excess MSRs, are the primary beneficiary.
In connection with our servicer advance investments, we consolidate an entity that was formed to finance servicing advances and for which we, through our control of an affiliated entity majority owned by Redwood (the "SA Buyer") formed to invest in servicer advance investments and excess MSRs, are the primary beneficiary.
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.
Because many of our investment securities, loans and HEI 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.
Changes in our estimates of required loss contingency reserves could have a material effect on our reported earnings and financial condition. 103 Changes in Provision for Taxes Our provision for income taxes is primarily the result of GAAP income or losses generated at our TRS.
Changes in our estimates of required loss contingency reserves could have a material effect on our reported earnings and financial condition. Changes in Provision for Taxes Our provision for income taxes is primarily the result of GAAP income or losses generated at our TRS.
Significant inputs used to estimate the fair value of certain of our derivatives include unobservable inputs (e.g., those requiring our own data or assumptions) that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on reported earnings and our financial condition. 102 Additionally, the nature of the instruments we use and the accounting treatment for the specific assets, liabilities, and derivatives may therefore lead to volatility in our periodic earnings, even when we are meeting our hedging objectives.
Significant inputs used to estimate the fair value of certain of our derivatives include unobservable inputs (e.g., those requiring our own data or assumptions) that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on reported earnings and our financial condition. 110 Additionally, the nature of the instruments we use and the accounting treatment for the specific assets, liabilities, and derivatives may therefore lead to volatility in our periodic earnings, even when we are meeting our hedging objectives.
Additional details on our other investments is included in Note 11 in Part II, Item 8 of this Annual Report on Form 10-K. 86 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.
Additional details on our other investments is included in Note 11 in Part II, Item 8 of this Annual Report on Form 10-K. 95 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.
These repurchase facilities include the margin call provisions described below and during the twelve months ended December 31, 2022, and through the date of this Annual Report on Form 10-K, we complied with any margin calls received from creditors under these repurchase facilities: • If at any time the market value (as determined by the creditor) of any securities financed under a facility declines, then the creditor may demand that we transfer additional collateral to the creditor (in the form of cash, U.S.
These repurchase facilities include the margin call provisions described below and during the twelve months ended December 31, 2023, and through the date of this Annual Report on Form 10-K, we complied with any margin calls received from creditors under these repurchase facilities: • If at any time the market value (as determined by the creditor) of any securities financed under a facility declines, then the creditor may demand that we transfer additional collateral to the creditor (in the form of cash, U.S.
Significant inputs used to estimate the fair value of these assets include certain unobservable inputs (e.g., those requiring our own data or assumptions) that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on our reported earnings and financial condition. 101 For AFS securities, cumulative unrealized gains and losses are recorded as a component of Accumulated other comprehensive income in our consolidated balance sheets.
Significant inputs used to estimate the fair value of these assets include certain unobservable inputs (e.g., those requiring our own data or assumptions) that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on our reported earnings and financial condition. 109 For AFS securities, cumulative unrealized gains and losses are recorded as a component of Accumulated other comprehensive income in our consolidated balance sheets.
Additionally, there may be substantial increases in the interest rates under the financing arrangement if the debt is not repaid, 97 extended or refinanced prior to the expected repayment date, which may be before the related maturity date.
Additionally, there may be substantial increases in the interest rates under the financing arrangement if the debt is not repaid, extended or refinanced prior to the expected repayment date, which may be before the related maturity date.
We are subject to risks relating to our liquidity and capital resources, including risks relating to incurring debt under loan warehouse facilities, securities repurchase facilities, and other short- and long-term debt facilities and other risks relating to our use of derivatives.
We are subject to risks relating to our liquidity and capital resources, including risks relating to incurring debt under loan warehouse facilities, securities repurchase facilities, other short- and long-term debt facilities, and other risks relating to our corporate debt and use of derivatives.
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 December 31, 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 December 31, 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 $4 billion in additional recourse indebtedness.
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 December 31, 2023 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 December 31, 2023 our level of recourse indebtedness resulted in our being in compliance with these covenants at a level such that we could incur at least $4 billion in additional recourse indebtedness.
Corporate Capital In addition to secured recourse and non-recourse leverage 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.
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.
Cash Flows and Liquidity for the Year Ended December 31, 2022 Cash flows from our mortgage banking activities and our investments can be volatile from quarter to quarter depending on many factors, including the timing and amount of loan originations, acquisitions, sales and profitability within our mortgage banking operations, the timing and amount of securities acquisitions, sales and repayments, as well as changes in interest rates, prepayments, and credit losses.
Cash Flows and Liquidity for the Year Ended December 31, 2023 Cash flows from our mortgage banking activities and our investments can be volatile from quarter to quarter depending on many factors, including the timing and amount of loan originations, acquisitions, sales and profitability within our mortgage banking operations, the timing and amount of securities acquisitions, sales and repayments, as well as changes in interest rates, prepayments, and credit losses.
Treasury obligations (in certain cases), or additional mortgage loans or HEIs) with a value equal to the amount of the decline. The conditions precedent to which the creditor may request updated valuation reports varies by agreement, including, for example, based on an agreed schedule, or based on the number of days the loan has been financed under such facility.
Treasury obligations (in certain cases), or additional mortgage loans or HEI) with a value equal to the amount of the decline. The conditions precedent to which the creditor may request updated valuation reports varies by agreement, including, for example, based on an agreed schedule, or based on the number of days the loan has been financed under such facility.
See Note 5 in Part II, Item 8 of this Annual Report on Form 10-K, for additional information on our assets and liabilities accounted for at fair value at December 31, 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 this Annual Report on Form 10-K, for additional information on our assets and liabilities accounted for at fair value at December 31, 2023, 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.
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.
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 2023 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.
For additional information on our segments, refer to Part I, Item 1, and Note 24 in Part II, Item 8 of this Annual Report on Form 10-K. The following table presents the segment contribution from our three segments reconciled to our consolidated net income for the years ended December 31, 2022, 2021, and 2020.
For additional information on our segments, refer to Part I, Item 1, and Note 24 in Part II, Item 8 of this Annual Report on Form 10-K. The following table presents the segment contribution from our three segments reconciled to our consolidated net income for the years ended December 31, 2023, 2022, and 2021.
Our investments continue to focus on companies that have a direct nexus to our operating platforms and investment portfolio. The extreme volatility that public technology companies saw permeated its way through valuations and the fundraising environment for late-stage companies, and ultimately earlier stage companies as well.
Our investments continue to focus on companies that have a direct nexus to our operating platforms and investment portfolio. In 2023, the extreme volatility that public technology companies saw permeated its way through valuations and the fundraising environment for late-stage companies, and ultimately earlier stage companies as well.
Other Risks In addition to the market and other 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 ” of this Annual Report on Form 10-K. 104
Other Risks In addition to the market and other 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 ” of this Annual Report on Form 10-K. 112
This primarily resulted from $1.12 billion of net paydowns on short-term borrowings, resulting primarily from a reduction in financed loan inventory at our mortgage banking operations through December 31, 2022, as well as from the payment of our yearly dividends totaling $112 million and $33 million of net repayments under ABS issued (net of proceeds from the issuance of CAFL ® SFR, CAFL ® bridge and SEMT ® (Sequoia) ABS securitizations) during the year ended December 31, 2022.
This primarily resulted from $1.12 billion of net paydowns on short-term borrowings, resulting primarily from a reduction in financed loan inventory at our mortgage banking operations through December 31, 2022, as well as from the payment of our yearly common stock dividends totaling $112 million and $33 million of net repayments under ABS issued (net of proceeds from the issuance of CAFL ® SFR, CAFL ® bridge and SEMT ® ABS securitizations) during the year ended December 31, 2022.
If we receive any such demand as a result of a margin deficit based on an updated valuation report, we would generally be required to transfer the additional collateral as soon as the same day to within five business days depending on the terms of the agreement.
If we receive any such demand as a result of a margin deficit based on an updated valuation report, we would generally be required to transfer the additional collateral as soon as the same day to within three business days depending on the terms of the agreement.
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 or home equity investment that is financed by us under a 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).
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 particular, outstanding amounts borrowed under this facility could become immediately due and payable if there is a failure to pay any amounts due under the facility, the failure to repurchase the securities by the final maturity date, or upon the insolvency of Redwood, as guarantor.
In particular, outstanding amounts borrowed under a facility could become immediately due and payable if there is a failure to pay any amounts due under such facility, the failure to repurchase the securities by the final maturity date, or upon the insolvency of Redwood, as guarantor.
As noted above, one source of our debt financing is secured borrowings under residential and business purpose loan and HEI warehouse facilities we have established and, as of December 31, 2022, were in place with several different financial institution counterparties.
As noted above, one source of our debt financing is secured borrowings under residential and business purpose loan and HEI warehouse facilities we have established and, as of December 31, 2023, were in place with several different financial institution counterparties.
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 and, therefore, our stockholders. In the discussion that follows and throughout this document, we distinguish between marginable and non-marginable debt.
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 margin calls based solely on the lender's determination, in its discretion, of the market value of the underlying collateral that is non-delinquent.
When we refer to non-marginable debt and marginable debt, we are referring to whether or not such debt can be 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.
Cash Flows from Investing Activities During 2022, our net cash provided by investing activities was $214 million and primarily resulted from proceeds from principal payments on investments. These amounts were partially offset by cash outflows for new investments, including primarily BPL bridge loans and HEIs.
Cash Flows from Investing Activities In 2022, our net cash provided by investing activities was $214 million and primarily resulted from proceeds from principal payments on investments. These amounts were partially offset by cash outflows for new investments, including primarily BPL bridge loans and HEIs.
Similar to the uncommitted warehouse and securities repurchase facilities described herein, under these facilities we make various representations and warranties and have agreed to certain covenants, events of default, and other terms that if breached or triggered can result in our being required to immediately repay all outstanding amounts borrowed under this facility and this facility being unavailable to use for future financing needs.
Similar to the uncommitted warehouse and securities repurchase facilities described herein, under these facilities we make various representations and warranties and have agreed to certain covenants, events of default, and other terms that if breached or triggered can result in our being required to immediately repay all outstanding amounts borrowed under a facility and such facility being unavailable to use for future financing needs.
Periodic fluctuations in the values of our HEIs can be caused by changes in the discount rate assumptions used to value HEIs, changes in assumptions regarding future projected home values, changes in assumptions regarding future projected prepayment rates of residential mortgage loans, as well as changes in the rate and magnitude of defaults on the portfolio.
Periodic fluctuations in the values of our HEI can be caused by changes in the discount rate assumptions used to value HEI, changes in assumptions regarding future projected home values, changes in assumptions regarding future projected prepayment rates of residential mortgage loans, as well as changes in the rate and magnitude of defaults on the portfolio.
If we breach or trigger the representations and warranties, covenants, events of default, or other terms of our warehouse facilities, we are exposed to liquidity and other risks, including of the type described in Part I, Item 1A of this Annual Report on Form 10-K under the heading “ Risk Factors ,” and in Part II, Item 7A of this Annual Report on Form 10-K under the heading “ Market Risks .” In addition to the residential and business purpose loan and HEI warehouse facilities described above, in the ordinary course of business we may seek to establish additional warehouse facilities that may be of a similar or greater size and may have similar or more restrictive terms.
If we breach or trigger the representations and warranties, covenants, events of default, or other terms of our warehouse facilities, we are exposed to liquidity and other risks, including of the type described in Part I, Item 1A of this Annual Report on Form 10-K under the heading “ Risk Factors ,” and in Part II, Item 7A of this Annual Report on Form 10-K under the heading “ Market Risks .” 104 In addition to the residential consumer and residential investor loan and HEI warehouse facilities described above, in the ordinary course of business we may seek to establish additional warehouse facilities that may be of a similar or greater size and may have similar or more restrictive terms.
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.
See Note 5 in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022, incorporated herein by reference, for the same information on these assets and liabilities as of December 31, 2022.
If we breach or trigger the representations and warranties, covenants, events of default, or other terms of this subordinate securities financing facility, we are exposed to liquidity and other risks, including of the type described in Part I, Item 1A of this Annual Report on Form 10-K under the heading “ Risk Factors ,” and in Part II, Item 7A of this Annual Report on Form 10-K under the heading “ Market Risks .” Financial Covenants Associated With Short-Term Debt and Other Debt Financing Set forth below is a summary of the financial covenants associated with our short-term debt and other debt financing facilities. • Residential and Business Purpose Loan and HEI Warehouse Facilities .
If we breach or trigger the representations and warranties, covenants, events of default, or other terms of this subordinate securities financing facility, we are exposed to liquidity and other risks, including of the type described in Part I, Item 1A of this Annual Report on Form 10-K under the heading “ Risk Factors ,” and in Part II, Item 7A of this Annual Report on Form 10-K under the heading “ Market Risks .” Financial Covenants Associated With Short-Term Debt and Other Debt Financing Set forth below is a summary of the financial covenants associated with our short-term debt and other debt financing facilities. • Residential Consumer and Residential Investor Loan and HEI Warehouse Facilities .
See the " Investments Detail and Activity " section that follows for additional detail on our portfolio investments and their associated borrowings. The following table presents an earnings summary for our Investment Portfolio segment for the years ended December 31, 2022, 2021 and 2020.
See the Investments Detail and Activity section that follows for additional detail on our portfolio investments and their associated borrowings. The following table presents an earnings summary for our Investment Portfolio segment for the years ended December 31, 2023, 2022 and 2021.
Financial covenants included in these warehouse facilities are further described below under the heading “ Financial Covenants Associated with Short-Term Debt and Other Debt Financing .” These residential and business purpose loan and HEI warehouse facilities could also become unavailable and outstanding amounts borrowed thereunder could become immediately due and payable if there is a material adverse change in our business.
Financial covenants included in these warehouse facilities are further described below under the heading “ Financial Covenants Associated with Short-Term Debt and Other Debt Financing .” These residential consumer and residential investor loan and HEI warehouse facilities could also become unavailable and outstanding amounts borrowed thereunder could become immediately due and payable if there is a material adverse change in our business.
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.
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 (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.
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 " and in Part I, Item 1A - Risk Factors of this Annual Report on Form 10-K. 89 Repurchase Authorization In August 2022, our Board of Directors approved an authorization for the repurchase of up to $125 million of our common stock, and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt.
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 " and in Part I, Item 1A - Risk Factors of this Annual Report on Form 10-K. 98 Repurchase Authorization In July 2022, our Board of Directors approved an authorization for the repurchase of up to $125 million of our common stock, and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt.
Similarly, all or a significant portion of cash flows from principal payments of loans, securities and HEIs at consolidated securitization entities would generally be used to repay ABS issued by those entities.
Similarly, all or a significant portion of cash flows from principal payments of loans, securities and HEI at consolidated securitization entities would generally be used to repay ABS issued by those entities.
Such charges could cause a material reduction, up to the full value of our net DTAs for which a valuation allowance has not previously been established, to our GAAP earnings and book value per share for the quarterly and annual periods in which they are established and could have a material and adverse effect on our business, financial results, or liquidity.
Such charges could cause a material reduction, up to the full value of our net DTAs for which a valuation allowance has not previously been established, to our GAAP earnings and book value per share for the quarterly and annual periods in which they are established and could have a material and adverse effect on our financial results.
Residential and Business Purpose Loan and HEI Warehouse Facilities . One source of our debt financing is secured borrowings under loan warehouse facilities. 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.
One source of our debt financing is secured borrowings under loan and HEI warehouse facilities. 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.
The value of additional residential mortgage loans transferred as additional collateral is determined by the creditor. • Under certain non-marginable residential and business purpose loan and HEI warehouse facilities, if the value of the property securing a mortgage loan or HEI financed under a facility declines (as determined by an appraisal, broker price opinion, or home price appreciation index, as applicable), then the creditor may demand that we transfer additional collateral to the creditor (in the form of cash, U.S.
The value of additional residential mortgage loans transferred as additional collateral is determined by the creditor. • Under certain non-marginable residential consumer and residential investor loan and HEI warehouse facilities, if the value of the property securing a mortgage loan or HEI financed under a facility declines (as determined by an appraisal, broker price opinion, or home price appreciation index, as applicable), then the creditor may demand that we transfer additional collateral to the creditor (in the form of cash, U.S.
For trading securities and collateralized financing entities, changes in fair values are recorded in Investment fair value changes, net on our consolidated statements of income (loss) in the period in which the valuation change occurs. For available-for-sale securities, changes in fair value are generally recorded in Accumulated other comprehensive income in our consolidated balance sheets (as discussed further below).
For trading securities and collateralized financing entities, changes in fair values are recorded in Investment fair value changes, net on our consolidated statements of income (loss) in the period in which the valuation change occurs. For AFS securities, changes in fair value are generally recorded in Accumulated other comprehensive income in our consolidated balance sheets (as discussed further below).
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 risks Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part II, Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Our MD&A is presented in six main sections: • Overview • Recent Developments • Results of Operations – Consolidated Results of Operations – Results of Operations by Segment – Income Taxes • Liquidity and Capital Resources • Critical Accounting Estimates • Market and Other risks Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part II, Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Changes in Fair Values of HEIs HEIs are carried on our consolidated balance sheets at their estimated fair values, with changes in fair values recorded in our consolidated statements of income (loss) in Investment fair value changes, net.
Changes in Fair Values of HEI HEI are carried on our consolidated balance sheets at their estimated fair values, with changes in fair values recorded in our consolidated statements of income (loss) in Investment fair value changes, net.
Changes in Yields for Securities The yields we project on available-for-sale real estate securities can have a significant effect on the periodic interest income we recognize for financial reporting purposes. Yields can vary as a function of credit results, prepayment rates, interest rates and call assumptions.
Changes in Yields for Securities The yields we project on AFS real estate securities can have a significant effect on the periodic interest income we recognize for financial reporting purposes. Yields can vary as a function of credit results, prepayment rates, interest rates and call assumptions.
We determine the extent to which realization of our DTAs is not assured and 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 determine the extent to which realization of our DTAs is not assured and establish a valuation allowance accordingly. At December 31, 2022, we reported net federal ordinary and capital DTAs with no material valuation allowance recorded against them.
Real Estate Securities Portfolio The following table sets forth our real estate securities activity by collateral type for the years ended December 31, 2022 and 2021.
Real Estate Securities Portfolio The following table sets forth our real estate securities activity by collateral type for the years ended December 31, 2023 and 2022.
This is generally in the form of convertible debt securities we issue in the public markets and also includes trust preferred securities and promissory notes.
This is generally in the form of convertible and non-convertible senior debt securities we issue in the public markets and also includes trust preferred securities and promissory notes.
Consolidated Results of Operations The following table presents the components of our net income for the years ended December 31, 2022, 2021, and 2020.
Consolidated Results of Operations The following table presents the components of our net income for the years ended December 31, 2023, 2022, and 2021.
The following table provides the composition of BPL bridge loans held-for-investment by product type as of December 31, 2022 and 2021.
The following table provides the composition of BPL bridge loans held-for-investment by product type as of December 31, 2023 and 2022.
Unless otherwise specified, references in this section to increases or decreases in 2022 refer to the change in results from 2021 to 2022, and increases or decreases in 2021 refer to the change in results from 2020 to 2021.
Unless otherwise specified, references in this section to increases or decreases in 2023 refer to the change in results from 2022 to 2023, and increases or decreases in 2022 refer to the change in results from 2021 to 2022.
For additional detail on other comprehensive loss, net, see Note 18 in Part II, Item 8 of this Annual Report on Form 10-K. 70 Net Interest Income The following tables present the components of net interest income for the years ended December 31, 2022, 2021, and 2020.
For additional detail on other comprehensive loss, net, see Note 18 in Part II, Item 8 of this Annual Report on Form 10-K. 76 Net Interest Income The following tables present the components of net interest income for the years ended December 31, 2023, 2022, and 2021.
These warehouse facilities include the margin call provisions described below and during the twelve months ended December 31, 2022, and through the date of this Annual Report on Form 10-K, we complied with any margin calls received from creditors under these warehouse facilities: 99 • Under our marginable residential loan warehouse facilities, if at any time the market value of any residential mortgage loan financed under a facility declines, then the creditor may demand that we transfer additional collateral to the creditor (in the form of cash, U.S.
These warehouse facilities include the margin call provisions described below and during the twelve months ended December 31, 2023, and through the date of this Annual Report on Form 10-K, we complied with any margin calls received from creditors under these warehouse facilities: • Under our marginable residential consumer loan warehouse facilities, if at any time the market value of any residential mortgage loan financed under a facility declines (as determined by the creditor), then the creditor may demand that we transfer additional collateral to the creditor (in the form of cash, U.S.
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.
Additionally, we have non-recourse debt in the form of non-marginable warehouse 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.
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). The following table presents an earnings summary for our Business Purpose Mortgage Banking segment for the years ended December 31, 2022, 2021 and 2020.
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). The following table presents an earnings summary for our Residential Investor Mortgage Banking segment for the years ended December 31, 2023, 2022 and 2021.
The following table details our federal NOLs and capital loss carryforwards available as of December 31, 2022.
The following table details our federal NOLs and capital loss carryforwards available as of December 31, 2023.
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).
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 (for example, funding is dependent on actual progress on a project and we retain the right to conduct due diligence with respect to each draw request to confirm conditions have been met).
These financing facilities are fully and unconditionally guaranteed by Redwood. One financing facility became eligible to be terminated, at our option, in September 2022, and has a final maturity in September 2024, provided that the interest rate on amounts outstanding under the facility increases between October 2022 and September 2024.
These financing facilities are fully and unconditionally guaranteed by Redwood. One financing facility that became eligible to be terminated, at our option, in September 2022, has a final maturity in September 2024, and includes step-ups in the interest rate on amounts outstanding under the facility between October 2022 and September 2024.
BPL Bridge loan amounts represent the transfer of loans originated or acquired by our Business Purpose Mortgage Banking segment at our TRS and transferred to our Investment Portfolio segment at our REIT as described in the preceding footnote.
BPL Bridge loan amounts represent the transfer of loans originated or acquired by our Residential Investor Mortgage Banking segment at our TRS and transferred to our Investment Portfolio segment at our REIT as described in the preceding footnote.
Additionally, during the third and fourth quarters of 2022, we initiated various expense management initiatives, including the restructuring of our Business Purpose Mortgage Banking management team, and incurred $7 million of employee severance and related transition expenses.
Additionally, during the third and fourth quarters of 2022, we initiated various expense management initiatives, including the restructuring of our Residential Investor Mortgage Banking management team, and incurred $7 million of employee severance and related transition expenses.
In the event a counterparty to one or more of our securities repurchase facilities becomes insolvent or unable or unwilling to perform its obligations under the facility, we may be unable to access the short-term financing we need or fail to recover the full value of our securities financed. Other Short-Term Debt Facility .
In the event a counterparty to one or more of our securities repurchase facilities becomes insolvent or unable or unwilling to perform its obligations under the facility, we may be unable to access the short-term financing we need or fail to recover the full value of our securities financed. 105 Servicer Advance Financing .
At December 31, 2022, $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.
At December 31, 2023, $101 million of the current authorization remained available for the repurchase of shares of our common stock, $70 million remained available for the repurchase of shares of our preferred stock, and we also continued to be authorized to repurchase outstanding debt securities.
RWT Horizons During 2022, we continued to expand RWT Horizons, our investment initiative focused on early-stage technology companies with business plans focused on innovations that can disrupt the mortgage finance landscape.
We continued to selectively expand RWT Horizons, our investment initiative focused on early-stage technology companies with business plans focused on innovations that we believe can disrupt the mortgage finance landscape.
If we receive any such demand, (i) under one of our residential loan warehouse facilities, we would generally be required to transfer the additional collateral on the same day (although demands received after a certain time would only require the transfer of additional collateral on the following business day) and (ii) under one of our residential loan warehouse facilities, we would generally be required to transfer the additional collateral on the following business day.
If we receive any such demand, (i) under two of our residential consumer loan warehouse facilities, we would generally be required to transfer the additional collateral on the same day (although demands received after a certain time would only require the transfer of additional collateral on the following business day) and (ii) under two of our residential consumer loan warehouse facilities and our MSR financing facility, we would generally be required to transfer the additional collateral on the following business day.
Financial covenants included in these securities repurchase facilities are as follows and at December 31, 2022, and through the date of this Annual Report on Form 10-K, we were in compliance with each of these financial covenants: • Maintenance of a minimum dollar amount of stockholders’ equity/tangible net worth at Redwood. • Maintenance of a minimum dollar amount of cash and cash equivalents at Redwood. • Maintenance of a maximum ratio of consolidated recourse indebtedness to consolidated adjusted tangible net worth at Redwood. • Committed Line of Credit .
Financial covenants included in these securities repurchase facilities are as follows and at December 31, 2023, and through the date of this Annual Report on Form 10-K, we were in compliance with each of these financial covenants: • Maintenance of a minimum dollar amount of stockholders’ equity/tangible net worth at Redwood. • Maintenance of a minimum dollar amount of cash and cash equivalents at Redwood. • Maintenance of a maximum ratio of consolidated recourse indebtedness to consolidated adjusted tangible net worth at Redwood. • Servicer Advance Financing .
The value of additional residential and business purpose mortgage loans or HEIs transferred as additional collateral is determined by the creditor. • Securities Repurchase Facilities . Another source of our short-term debt financing is through secured borrowings under securities repurchase facilities we have established with various financial institution counterparties.
The value of additional residential consumer and residential investor mortgage loans or HEI transferred as additional collateral is determined by the creditor. • Securities Repurchase Facilities . Another source of our short-term debt financing is through secured borrowings under securities repurchase facilities we have established with various financial institution counterparties.
The value of additional collateral pledged is determined by the creditor. 100 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.
The value of additional securities transferred as additional collateral is determined by the creditor. 108 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.
The income or loss generated at our TRS does not directly affect the tax characterization of our 2022 dividends; however, the $45 million dividend paid from our TRS to our REIT allowed a portion of our REIT’s dividends to be classified as qualified dividends.
The income or loss generated at our TRS does not directly affect the tax characterization of our 2023 dividends; however, a $22 million dividend paid from our TRS to our REIT in 2023 allowed a portion of our REIT’s dividends to be classified as qualified dividends.
During 2022, negative investment fair value changes reflected extreme levels of credit spread widening across many of our longer-duration, fixed-rate investments, partially offset by fair value increases in our IO securities, MSRs, and interest rate hedges, which benefited from rising interest rates.
During the year ended December 31, 2022, negative investment fair value changes reflected extreme levels of credit spread widening across many of our longer-duration, fixed-rate investments, partially offset by fair value increases in our IO securities and interest rate hedges, which benefited from rising interest rates.
At December 31, 2021, our full-year dividend distributions of $0.92 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.
At December 31, 2023, our full-year dividend distributions 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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

30 edited+1 added−6 removed35 unchanged
Biggest changeOur future results depend greatly on the credit performance of the underlying loans (this table assumes no credit losses), future interest rates, prepayments, and our ability to invest our existing cash and future cash flow. 108 Quantitative Information on Market Risk Principal Amounts Maturing and Effective Rates During Period December 31, 2022 (Dollars in Thousands) 2023 2024 2025 2026 2027 Thereafter Principal Balance Fair Value Interest Rate Sensitive Assets (1) Residential Loans - HFS (2) Adjustable Rate Principal $ 41 $ — $ — $ — $ — $ — $ 41 $ 31 Interest Rate 6.00 % N/A N/A N/A N/A N/A Fixed Rate Principal 817,660 — — — — — 817,660 776,651 Interest Rate 5.13 % N/A N/A N/A N/A N/A Hybrid Principal 4,362 — — — — — 4,362 4,099 Interest Rate 4.84 % N/A N/A N/A N/A N/A Residential Loans - HFI at Sequoia Adjustable Rate Principal 45,457 35,363 30,740 26,812 23,845 42,187 204,404 184,932 Interest Rate 5.36 % 5.12 % 4.49 % 4.34 % 4.30 % 4.30 % Fixed Rate Principal 334,137 307,449 283,093 260,762 240,323 2,421,327 3,847,091 3,190,417 Interest Rate 3.29 % 3.29 % 3.29 % 3.30 % 3.30 % 3.30 % Residential Loans - HFI at Freddie Mac SLST Fixed Rate Principal 144,454 139,341 128,664 118,618 109,405 1,078,754 1,719,236 1,457,058 Interest Rate 4.02 % 4.19 % 4.18 % 4.17 % 4.16 % 4.16 % Business Purpose Loans - HFS (2) Fixed Rate Principal 395,139 — — — — — 395,139 364,073 Interest Rate 6.03 % N/A N/A N/A N/A N/A BPL Term Loans - HFI at CAFL Fixed Rate Principal 46,348 48,821 51,427 54,171 57,062 3,005,592 3,263,421 2,944,984 Interest Rate 5.21 % 5.21 % 5.21 % 5.21 % 5.21 % 5.21 % BPL Bridge Loans - HFI at Redwood Adjustable Rate Principal 304,987 570,696 537,566 — — — 1,413,249 1,412,453 Interest Rate 10.79 % 9.90 % 8.87 % N/A N/A N/A Fixed Rate Principal 91,685 8,200 — — — — 99,885 94,693 Interest Rate 8.44 % 6.64 % N/A N/A N/A N/A BPL Bridge Loans - HFI at CAFL Adjustable Rate Principal 275,985 120,478 8,400 — — — 404,863 405,514 Interest Rate 10.15 % 9.77 % 8.77 % N/A N/A N/A Fixed Rate Principal 109,433 370 — — — — 109,803 110,869 Interest Rate 8.44 % 6.50 % N/A N/A N/A N/A Multifamily Loans - HFI at Freddie Mac K-Series Fixed Rate Principal 8,325 8,638 430,230 — — — 447,193 424,552 Interest Rate 4.21 % 4.22 % 3.55 % N/A N/A N/A 109 Quantitative Information on Market Risk Principal Amounts Maturing and Effective Rates During Period December 31, 2022 (Dollars in Thousands) 2023 2024 2025 2026 2027 Thereafter Principal Balance Fair Value Interest Rate Sensitive Assets (continued) Residential Senior Securities Fixed Rate (3) Principal $ — $ — $ — $ — $ — $ — $ — $ 28,867 Interest Rate 0.12 % 0.12 % 0.12 % 0.12 % 0.12 % 0.11 % Residential Subordinate Securities Fixed Rate Principal 2,129 2,044 1,880 1,456 532 388,601 396,642 188,729 Interest Rate 4.60 % 4.55 % 4.53 % 4.56 % 4.56 % 4.80 % Hybrid Principal 579 507 502 500 498 13,103 15,689 10,205 Interest Rate 4.00 % 3.84 % 3.57 % 4.05 % 4.03 % 3.27 % Multifamily Securities Adjustable Rate Principal 4,498 — — — — 9,280 13,778 12,674 Interest Rate 9.04 % 10.27 % 9.99 % 10.00 % 9.93 % 9.98 % Interest Rate Sensitive Liabilities Asset-Backed Securities Issued Sequoia Entities Adjustable Rate Principal 41,150 32,495 28,105 23,101 20,053 55,143 200,047 184,191 Interest Rate 5.60 % 4.80 % 4.08 % 3.84 % 3.77 % 3.08 % Fixed Rate Principal 323,744 290,999 265,643 243,852 224,184 2,247,293 3,595,715 2,971,109 Interest Rate 2.65 % 2.64 % 2.62 % 2.61 % 2.61 % 2.61 % Freddie Mac SLST Entities Fixed Rate Principal 191,260 98,758 91,306 84,204 77,664 763,460 1,306,652 1,222,150 Interest Rate 3.27 % 3.16 % 3.16 % 3.17 % 3.17 % 3.17 % Freddie Mac K-Series Entities Fixed Rate Principal 8,325 8,638 393,762 — — — 410,725 392,785 Interest Rate 2.69 % 2.70 % 2.28 % N/A N/A N/A CAFL Entities (4) Fixed Rate Principal 168,845 292,948 350,596 538,877 285,463 1,685,521 3,322,250 3,115,807 Interest Rate 3.29 % 3.05 % 3.17 % 3.23 % 3.05 % 3.05 % HEI Entities Fixed Rate Principal 28,441 27,619 23,586 20,284 9,032 — 108,962 100,710 Interest Rate 3.76 % 3.76 % 5.76 % 5.76 % 7.56 % N/A Short-Term Debt Principal 1,856,237 — — — — — 1,856,237 1,853,664 Interest Rate 6.59 % N/A N/A N/A N/A N/A 110 Quantitative Information on Market Risk Principal Amounts Maturing and Effective Rates During Period December 31, 2022 (Dollars in Thousands) 2023 2024 2025 2026 2027 Thereafter Principal Balance Fair Value Interest Rate Sensitive Liabilities (continued) Long-Term Debt Convertible Notes Principal $ 176,685 $ 150,200 $ 162,092 $ — $ 215,000 $ — $ 703,977 $ 638,049 Interest Rate 6.08 % 6.53 % 6.89 % 7.75 % 7.75 % N/A Trust Preferred Securities and Subordinated Notes Principal — — — — — 139,500 139,500 83,700 Interest Rate 7.31 % 6.37 % 5.78 % 5.69 % 5.76 % 5.90 % Other Long-Term Debt Principal — 599,719 410,639 68,995 — — 1,079,353 1,069,946 Interest Rate 6.43 % 6.43 % 6.23 % 4.75 % N/A N/A Interest Rate Agreements Interest Rate Swaps (Purchased) Notional Amount — — 60,000 — 75,000 150,000 285,000 14,625 Receive Strike Rate 3.24 % 4.88 % 3.67 % 3.26 % 3.25 % 3.35 % Pay Strike Rate 2.62 % 2.62 % 2.62 % 2.72 % 2.72 % 2.79 % (1) For the key assumptions and sensitivity analysis for assets retained from securitizations that we deconsolidated, refer to Note 4 in Part II, Item 8 of this Annual Report.
Biggest changeOur future results depend greatly on the credit performance of the underlying loans (this table assumes no credit losses), future interest rates, prepayments, and our ability to invest our existing cash and future cash flow. 116 Quantitative Information on Market Risk Principal Amounts Maturing and Effective Rates During Period December 31, 2023 (Dollars in Thousands) 2024 2025 2026 2027 2028 Thereafter Principal Balance Fair Value Interest Rate Sensitive Assets (1) Residential Loans - HFS (2) Adjustable Rate Principal $ 38 $ — $ — $ — $ — $ — $ 38 $ 28 Interest Rate 7.63 % N/A N/A N/A N/A N/A Fixed Rate Principal 916,090 — — — — — 916,090 910,482 Interest Rate 6.25 % N/A N/A N/A N/A N/A Hybrid Principal 749 — — — — — 749 682 Interest Rate 6.50 % N/A N/A N/A N/A N/A Residential Loans - HFI at Sequoia Adjustable Rate Principal 36,090 28,219 24,929 22,442 19,175 25,198 156,053 139,739 Interest Rate 5.62 % 4.59 % 4.26 % 4.21 % 4.08 % 4.08 % Fixed Rate Principal 497,729 450,004 407,494 369,553 336,101 3,181,979 5,242,860 4,640,464 Interest Rate 4.12 % 4.12 % 4.12 % 4.13 % 4.13 % 4.13 % Residential Loans - HFI at Freddie Mac SLST Fixed Rate Principal 122,097 119,274 111,324 104,029 97,140 1,061,110 1,614,974 1,359,242 Interest Rate 4.00 % 4.17 % 4.16 % 4.15 % 4.14 % 4.14 % Business Purpose Loans - HFS (2) Fixed Rate Principal 187,886 — — — — — 187,886 180,250 Interest Rate 7.50 % N/A N/A N/A N/A N/A BPL Term Loans - HFI at CAFL Fixed Rate Principal 44,278 46,703 49,260 51,958 54,804 2,947,128 3,194,131 2,971,725 Interest Rate 5.34 % 5.34 % 5.34 % 5.34 % 5.34 % 5.34 % BPL Bridge Loans - HFI at Redwood Adjustable Rate Principal 467,014 552,541 — — — — 1,019,555 1,010,289 Interest Rate 11.59 % 10.52 % N/A N/A N/A N/A Fixed Rate Principal 167,010 138,719 — — — — 305,729 295,438 Interest Rate 8.82 % 8.04 % N/A N/A N/A N/A BPL Bridge Loans - HFI at CAFL Adjustable Rate Principal 386,231 177,677 6,418 — — — 570,326 574,871 Interest Rate 11.44 % 10.78 % 10.09 % N/A N/A N/A Fixed Rate Principal 178,168 8,080 — — — — 186,248 187,725 Interest Rate 9.58 % 10.11 % N/A N/A N/A N/A Multifamily Loans - HFI at Freddie Mac K-Series Fixed Rate Principal 8,638 430,230 — — — — 438,868 425,285 Interest Rate 4.22 % 3.55 % N/A N/A N/A N/A 117 Quantitative Information on Market Risk Principal Amounts Maturing and Effective Rates During Period December 31, 2023 (Dollars in Thousands) 2024 2025 2026 2027 2028 Thereafter Principal Balance Fair Value Interest Rate Sensitive Assets (continued) Residential Senior Securities Fixed Rate (3) Principal $ — $ — $ — $ — $ — $ — $ — $ 36,109 Interest Rate 0.14 % 0.14 % 0.14 % 0.14 % 0.14 % 0.14 % Residential Subordinate Securities Fixed Rate Principal 430 412 336 185 163 138,912 140,438 79,021 Interest Rate 3.61 % 3.67 % 3.67 % 3.68 % 3.77 % 4.65 % Hybrid Principal 327 295 282 267 248 5,745 7,164 5,566 Interest Rate 3.13 % 2.44 % 2.23 % 2.27 % 3.26 % 2.82 % Multifamily Securities Adjustable Rate Principal 4,498 — — — — 3,000 7,498 7,101 Interest Rate 7.16 % 6.91 % 6.55 % 6.53 % 6.63 % 6.80 % Interest Rate Sensitive Liabilities Asset-Backed Securities Issued Sequoia Entities Adjustable Rate Principal 32,500 25,570 21,513 18,621 15,784 37,118 151,106 138,530 Interest Rate 5.54 % 4.19 % 4.28 % 3.73 % 3.63 % 2.76 % Fixed Rate Principal 488,488 439,844 396,113 358,220 325,892 2,991,983 5,000,540 4,430,130 Interest Rate 3.74 % 3.74 % 3.74 % 3.73 % 3.73 % 3.73 % Freddie Mac SLST Entities Fixed Rate Principal 129,939 123,965 179,779 73,823 436,210 384,941 1,328,657 1,265,777 Interest Rate 3.78 % 3.79 % 3.80 % 2.72 % 2.72 % 2.72 % Freddie Mac K-Series Entities Fixed Rate Principal 8,638 393,762 — — — — 402,400 391,977 Interest Rate 2.72 % 2.30 % N/A N/A N/A N/A CAFL Entities (4) Fixed Rate Principal 297,614 323,164 495,751 298,737 296,533 1,761,026 3,472,825 3,362,978 Interest Rate 3.73 % 3.85 % 3.92 % 3.72 % 3.37 % 3.37 % HEI Entities Fixed Rate Principal 53,823 49,707 46,938 37,101 18,542 27,020 233,131 222,488 Interest Rate 5.65 % 5.71 % 9.86 % 5.81 % 3.62 % 3.62 % Short-Term Debt Principal 1,416,510 — — — — — 1,416,510 1,414,644 Interest Rate 7.61 % N/A N/A N/A N/A N/A 118 Quantitative Information on Market Risk Principal Amounts Maturing and Effective Rates During Period December 31, 2023 (Dollars in Thousands) 2024 2025 2026 2027 2028 Thereafter Principal Balance Fair Value Interest Rate Sensitive Liabilities (continued) Long-Term Debt Convertible Notes Principal $ 142,977 $ 156,666 $ — $ 210,910 $ — $ — $ 510,553 $ 488,341 Interest Rate 6.54 % 6.90 % 7.75 % 7.75 % N/A N/A Trust Preferred Securities and Subordinated Notes Principal — — — — — 139,500 139,500 92,070 Interest Rate 7.18 % 5.82 % 5.55 % 5.60 % 5.69 % 5.95 % Other Long-Term Debt Principal — 1,115,627 66,967 — — — 1,182,594 1,177,287 Interest Rate 6.62 % 6.62 % 5.28 % N/A N/A N/A Interest Rate Agreements Interest Rate Swaps (Purchased) Notional Amount — — — — — 50,000 50,000 1,742 Receive Strike Rate 4.44 % 3.26 % 3.05 % 3.11 % 3.20 % 3.34 % Pay Strike Rate 3.11 % 3.11 % 3.11 % 3.11 % 3.11 % 3.11 % (1) For the key assumptions and sensitivity analysis for assets retained from securitizations that we deconsolidated, refer to Note 4 in Part II, Item 8 of this Annual Report.
In addition to the financial risks described above, we are subject to a variety of other risks in the ordinary conduct of our business, including risks related to our business and industry (such as economic, competitive, and strategic risks), operational risks (including cybersecurity and technology risks), risks related to legislative and regulatory compliance matters, and risks related to our REIT status and our status under the Investment Company Act of 1940, among others.
Business, Operational, Regulatory, and Other Risks In addition to the financial risks described above, we are subject to a variety of other risks in the ordinary conduct of our business, including risks related to our business and industry (such as economic, competitive, and strategic risks), operational risks (including cybersecurity and technology risks), risks related to legislative and regulatory compliance matters, and risks related to our REIT status and our status under the Investment Company Act of 1940, among others.
Prepayment Risk Prepayment risks exist in many of the assets on our consolidated balance sheets. In general, discount securities benefit from faster prepayment rates on the underlying real estate loans while premium securities (such as certain IOs we own), and mortgage servicing assets benefit from slower prepayments on the underlying loans.
Prepayment Risk Prepayment risks exist in many of the assets and liabilities on our consolidated balance sheets. In general, discount securities and loans benefit from faster prepayment rates on the underlying real estate loans while premium securities and loans (such as certain IOs we own), and mortgage servicing assets benefit from slower prepayments on the underlying loans.
To supplement the discussion above of the market risks we face, the following table incorporates information that may be useful in analyzing certain market risks that may affect our consolidated balance sheet at December 31, 2022. The table presents principal cash flows and related average interest rates for material interest rate sensitive assets and liabilities by year of repayment.
To supplement the discussion above of the market risks we face, the following table incorporates information that may be useful in analyzing certain market risks that may affect our consolidated balance sheet at December 31, 2023. The table presents principal cash flows and related average interest rates for material interest rate sensitive assets and liabilities by year of repayment.
The forward curve (future interest rates as implied by the yield structure of debt markets) at December 31, 2022, was used to project the average coupon rates for each year presented. The timing of principal cash flows includes assumptions on the prepayment speeds of assets based on their recent prepayment performance and future prepayment performance consistent with the forward curve.
The forward curve (future interest rates as implied by the yield structure of debt markets) at December 31, 2023, was used to project the average coupon rates for each year presented. The timing of principal cash flows includes assumptions on the prepayment speeds of assets based on their recent prepayment performance and future prepayment performance consistent with the forward curve.
We would be exposed to liquidity risk to the extent the values of these loans or HEIs decline and/or the counterparties we use to finance these investments adversely change our borrowing requirements. We attempt to mitigate our liquidity risk from short-term financing facilities by setting aside adequate capital, in addition to amounts required by our financing counterparties.
We would be exposed to liquidity risk to the extent the values of these loans or HEI decline and/or the counterparties we use to finance these investments adversely change our borrowing requirements. We attempt to mitigate our liquidity risk from short-term financing facilities by setting aside adequate capital, in addition to amounts required by our financing counterparties.
However, we may not always be successful in analyzing risks, reviewing underwriting criteria, foreseeing adverse changes in credit performance or in effectively mitigating future credit losses and the ability to sell an asset may be limited due to the structure of the asset or the absence of a liquid market for the asset.
Additionally, we may not always be successful in analyzing risks, reviewing underwriting criteria, foreseeing adverse changes in credit performance or in effectively mitigating future credit losses and the ability to sell an asset may be limited due to the structure of the asset or the absence of a liquid market for the asset.
Changes in the fair value of the loans or HEIs, once sold or securitized, do not have an impact on our liquidity. However, changes in fair values during the accumulation period (while these loans or HEIs are typically funded with short-term debt before they are sold or securitized) may impact our liquidity.
Changes in the fair value of the loans or HEI, once sold or securitized, do not have an impact on our liquidity. However, changes in fair values during the accumulation period (while these loans or HEI are typically funded with short-term debt before they are sold or securitized) may impact our liquidity.
We are exposed to interest rate risk during the “accumulation” period - the period from when we enter into agreements to purchase the loans or HEIs with the intention of selling or securitizing them through to the future date when we ultimately sell or securitize them.
We are exposed to interest rate risk during the “accumulation” period - the period from when we enter into agreements to purchase or originate the loans or HEI with the intention of selling or securitizing them through to the future date when we ultimately sell or securitize them.
Credit losses on residential real estate loans and securities can occur for many reasons, including: poor origination practices; fraud; poor underwriting; poor servicing practices; weak economic conditions; increases in payments required to be made by borrowers; declines in the value of real estate; natural disasters, the effects of climate change (including flooding, drought, and severe weather) and other natural events; uninsured property loss; over-leveraging of the borrower; costs of remediation of environmental conditions, such as indoor mold; acts of war or terrorism; changes in legal protections for lenders and other changes in law or regulation; and personal events affecting borrowers, such as reduction in income, job loss, divorce, or health problems.
Credit losses on residential real estate loans and securities can occur for many reasons, including, but not limited to: poor origination practices; fraud; poor underwriting; poor servicing practices; weak economic conditions; increases in payments required to be made by borrowers (including, for example, for hazard insurance covering their property); declines in the value of real estate; natural disasters, the effects of climate change (including flooding, drought, and severe weather) and other natural events; uninsured property loss; over-leveraging of the borrower; costs of remediation of environmental conditions, such as indoor mold; acts of war or terrorism; changes in legal protections for lenders and other changes in law or regulation; and personal events affecting borrowers, such as reduction in income, job loss, divorce, or health problems.
Credit losses on these real estate loans and securities can occur for many of the reasons noted above for residential and business-purpose real estate loans, including: poor origination practices; fraud; faulty appraisals; documentation errors; poor underwriting; legal errors; poor servicing practices; weak economic conditions; decline in the value of properties; declining rents on single and multifamily residential rental properties; special hazards; earthquakes and other natural events; over-leveraging of the borrower or on the property; reduction in market rents and occupancies and poor property management practices; and changes in legal protections for lenders.
Credit losses on these real estate loans and securities can occur for many of the same reasons noted above for residential consumer and residential investor real estate loans, including: poor origination practices; fraud; faulty appraisals; documentation errors; poor underwriting; legal errors; poor servicing practices; weak economic conditions; decline in the value of properties; declining rents on single and multifamily residential rental properties; special hazards; earthquakes and other natural events; over-leveraging of the borrower or on the property; reduction in market rents and occupancies and poor property management practices; increases in operating cost (including, for example, increases in the cost of insurance); and changes in legal protections for lenders.
(2) As we generally expect our residential loans held-for-sale to be sold within one year, we have only presented principal amounts and effective rates through 2023. (3) The fair value of fixed-rate senior securities includes $29 million interest-only securities, for which there is no principal at December 31, 2022.
(2) As we generally expect our loans held-for-sale to be sold within one year, we have only presented principal amounts and effective rates through 2024. (3) The fair value of fixed-rate senior securities are entirely interest-only securities, for which there is no principal at December 31, 2023.
Our activities and balance sheets are measured with reference to historical cost or fair value without considering inflation. Fair Value and Liquidity Risks To fund our assets we may use a variety of debt alternatives in addition to equity capital that present us with fair value and liquidity risks.
Our consolidated financial statements are prepared in accordance with GAAP. Our activities and balance sheets are measured with reference to historical cost or fair value without considering inflation. 115 Fair Value and Liquidity Risks To fund our assets we may use a variety of debt alternatives in addition to equity capital that present us with fair value and liquidity risks.
In addition, if the U.S. economy or the housing market were to weaken (and that weakening was in excess of what we anticipated), credit losses could increase beyond levels that we have anticipated. Credit losses on business purpose real estate loans and securities can occur for many of the reasons noted above for residential real estate loans and securities.
In addition, if the U.S. economy or the housing market were to deteriorate (and that deteriorating was in excess of what we anticipated), credit losses could increase beyond levels that we have anticipated. Credit losses on residential investor real estate loans and securities can occur for many of the reasons noted above for residential consumer real estate loans and securities.
We seek to manage these risks, including by maintaining what we believe to be adequate cash and capital levels. 107 We acquire or originate residential and business purpose loans and HEIs and then hold, sell or securitize them as part of our mortgage banking operations.
We seek to manage these risks, including by maintaining what we believe to be adequate cash and capital levels. We acquire or originate residential consumer and residential investor loans and HEI and then hold, sell or securitize them as part of our mortgage banking operations.
Under our servicer advance financing, the consolidated partnership (SA Buyer) and the securitization entity, along with the servicer (who is unaffiliated with us except through their co-investment in SA Buyer and the securitization entity), make various representations and warranties and have agreed to certain covenants, events of default, and other terms that if breached or triggered can result in acceleration of all outstanding amounts borrowed under this facility and this facility being unavailable to use for future financing needs.
If the securitization entity is unable to pay the outstanding balance of the notes, the financing counterparty may foreclose on the servicer advances pledged as collateral. 114 Under our servicer advance financing, the consolidated partnership (SA Buyer) and the securitization entity, along with the servicer (who is unaffiliated with us except through their co-investment in SA Buyer and the securitization entity), make various representations and warranties and have agreed to certain covenants, events of default, and other terms that if breached or triggered can result in acceleration of all outstanding amounts borrowed under this facility and this facility being unavailable to use for future financing needs.
In addition, we may invest in riskier loan types with the potential for higher delinquencies and losses as compared to regular amortization loans, but believe these securities offer us the opportunity to generate attractive risk-adjusted returns as a result of attractive pricing and the manner in which these securitizations are structured.
In addition, we may invest in riskier loan types with the potential for higher delinquencies and losses as compared to regular amortization loans, but believe these securities offer us the opportunity to generate attractive risk-adjusted returns given pricing and the manner in which these securitizations are structured. Nevertheless, there remains substantial uncertainty about the future performance of these assets.
While the table above presents the repayment of this debt in 2029 upon its legal maturity, the ABS issued may be paid down earlier based on the actual paydown of collateral included in the securitization at the end of the revolving period in 2024. 111
While the table above presents the repayment of this debt in 2029 or 2030 upon their legal maturity, the ABS issued may be paid down earlier based on the actual paydown of collateral included in the securitization at the end of each securitization's respective revolving period. 119
Residential and Business Purpose Loans and Securities Our residential and business purpose loans and securities backed by residential loans are generally secured by real property.
Residential Consumer and Residential Investor Loans and Securities Our residential consumer and residential investor loans and securities backed by residential loans are generally secured by real property.
In addition, if the U.S. economy were to weaken (and that weakening was in excess of what we anticipated), credit losses could increase beyond levels that we have anticipated. Moreover, the principal balance of multifamily loans may be significantly larger than the residential and business-purpose real estate loans we own.
In addition, if the U.S. economy were to deteriorate (and that deteriorating was in excess of what we anticipated), credit losses could increase beyond levels that we have anticipated. Moreover, the principal balance of multifamily loans are generally significantly larger than the residential consumer and residential investor real estate loans we own.
Additionally, we acquire and originate residential, business purpose loans and HEIs using secured debt financing and we generally then sell or securitize these assets.
Additionally, we acquire and originate residential consumer and residential investor loans and HEI using secured debt financing and we generally then sell or securitize these assets.
Nevertheless, there remains substantial uncertainty about the future performance of these assets. 105 Additionally, we own residential mortgage credit risk transfer (or "CRT") securities issued by Fannie Mae and Freddie Mac ("the Agencies"), for which we assume credit risk both on the residential loans that the securities reference, as well as corporate credit risk from the Agencies, as our investments in the securities are not secured by the reference loans.
Additionally, we may own from time to time residential mortgage credit risk transfer (or "CRT") securities issued by Fannie Mae and Freddie Mac ("the Agencies"), for which we assume credit risk both on the residential loans that the securities reference, as well as corporate credit risk from the Agencies, as our investments in the securities are not secured by the reference loans.
(4) Our CAFL entities include two bridge loan securitizations with a cumulative outstanding ABS issued balance of $485 million at December 31, 2022, that each have revolving features that end in 2024 and have final maturities in 2029.
(4) Our CAFL entities include three bridge loan securitizations with a cumulative outstanding ABS issued balance of $715 million at December 31, 2023. Two of the securitizations have revolving features that end in 2024 and have final maturities in 2029 and one has a revolving feature that ends in 2025 and has a final maturity in 2030.
To the extent we find the credit risks on specific assets are changing adversely, we may be able to take actions, such as selling the affected investments, to mitigate potential losses.
To the extent we find the credit risks on specific assets are changing adversely, we may be able to take actions, such as selling the affected investments, to mitigate potential losses. The market may adversely change before we have the ability to sell the affected investment and we may sell below our estimated fair market value.
For additional details, refer to Part II, Item 7 of this Annual Report on Form 10-K and see the discussion titled “Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities. Business, Operational, Regulatory, and Other Risks Home equity investment contracts we invest in are secured by real property.
For additional details, refer to Part II, Item 7 of this Annual Report on Form 10-K and see the discussion titled “Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities.
Business purpose real estate loans and securities are particularly sensitive to conditions in the rental housing market, including declining or delinquent rents, and to demand for rental residential properties.
Residential investor real estate loans and securities are particularly sensitive to conditions in the rental housing market, including declining or delinquent rents, the level of operating expenses required to maintain properties, and to demand for rental residential properties, as well as changes in the financial wherewithal of the borrower.
Consequently, we can expect these lower credit-quality loans to have higher rates of delinquency and loss, and if such losses differ from our assumptions, we could incur credit losses.
Consequently, we can expect these lower credit-quality loans to have higher rates of delinquency and loss, and to have increased levels of credit losses relative to prime-quality loans.
We do not have the direct ability to control the servicer’s compliance with such covenants and tests and the failure of SA Buyer, the securitization entity, or the servicer to satisfy any such covenants or tests could result in a partial or total loss on our investment. 106 Interest Rate Risk Changes in interest rates and the shape of the yield curve can affect the cash flows and fair values of our assets, liabilities, and derivative financial instruments and, consequently, affect our earnings and reported equity.
We do not have the direct ability to control the servicer’s compliance with such covenants and tests and the failure of SA Buyer, the securitization entity, or the servicer to satisfy any such covenants or tests could result in a partial or total loss on our investment.
Accordingly, when short-term interest rates rise, required monthly payments from homeowners may rise under the terms of these loans, and this may increase borrowers’ delinquencies and defaults that can lead to additional credit losses.
Accordingly, when short-term interest rates rise, required monthly payments from homeowners may rise under the terms of these loans, and this may increase borrowers’ delinquencies and defaults that can lead to additional credit losses. 113 We may also own some securities backed by loans that are not prime quality such as re-performing and non-performing loans, Alt-A quality loans, and subprime loans, that have substantially higher credit risk characteristics than prime-quality loans.
Inflation Risk Virtually all of our consolidated assets and liabilities are financial in nature. As a result, changes in interest rates and other factors drive our performance more directly than does inflation.
Inflation Risk Virtually all of our consolidated assets and liabilities are financial in nature. Realized and expected inflation can have a material impact on interest rates, the economy, consumer behavior, financial market conditions and other conditions which could lead to adverse changes to our financial instruments and can lead to lower returns on our investments than originally anticipated.
Removed
We may also own some securities backed by loans that are not prime quality such as re-performing and non-performing loans, Alt-A quality loans, and subprime loans, that have substantially higher credit risk characteristics than prime-quality loans.
Added
Interest Rate Risk Changes in the level of interest rates and the shape of the yield curve can affect the cash flows and fair values of our assets, liabilities, and derivative financial instruments and, consequently, affect our earnings and reported equity.
Removed
If the securitization entity is unable to pay the outstanding balance of the notes, the financing counterparty may foreclose on the servicer advances pledged as collateral.
Removed
In addition, loans held for investment at premiums also benefit from slower prepayments whereas loans held at discounts benefit from faster prepayments.
Removed
That said, changes in interest rates generally correlate with inflation rates or changes in inflation rates, and therefore adverse changes in inflation or changes in inflation expectations can lead to lower returns on our investments than originally anticipated. Our consolidated financial statements are prepared in accordance with GAAP.
Removed
Losses on these investments can occur for many reasons, including: poor origination practices; fraud; faulty appraisals; documentation errors; poor underwriting; legal errors; poor servicing practices; weak economic conditions; decline in the value of properties; special hazards; earthquakes and other natural events; over-leveraging of the borrower or on the property; actions by the homeowner's creditors; regulatory changes; and changes in legal protections for lienholders.
Removed
In addition, if the U.S. economy or the housing market were to weaken (and that weakening was in excess of what we anticipated), losses could increase beyond levels that we have anticipated.

Other RWTO 10-K year-over-year comparisons