REDWOOD TRUST INC

Business Update

The positioning we established during 2023 led to tangible progress in the first quarter of 2024, demonstrated by increases in GAAP earnings and book value per share. Capital we raised in the fourth quarter of 2023 was deployed into accretive investments and used to retire maturing corporate debt. Residential Consumer lock volumes reached their highest level since the beginning of the Federal Reserve's interest rate tightening cycle in the first quarter of 2022, despite slow housing transaction activity. We also progressed towards the updated operating efficiency goals we conveyed to investors in March 2024 through expense reduction activities. In addition, the closing of our multi-pronged transaction with CPP Investments (“CPP”) in March 2024 was an important milestone in the evolution of our business model that we expect to help support our profitable growth in the years to come.

We believe we're at a critical crossroad in how private capital funds homeownership and overall housing investment. Last year, we announced a key strategic goal of evolving our investment approach, deploying capital alongside institutional partners while driving organic scale within our operating platforms. As we look forward, we believe this approach will significantly evolve our revenue mix over time and deliver differentiated income streams to shareholders. We believe that the CPP partnership provides more certainty of capital and more predictable cash flow streams through recurring fee-based income, while helping to unlock the operating leverage of our platforms. The $750 million CPP transaction includes a $500 million of joint venture, with potential cumulative purchasing power of $4 billion to acquire Residential Investor loans over the next several years (inclusive of planned third-party warehouse financing facilities). Additionally, we obtained flexible debt financing from CPP through a new $250 million secured revolving financing facility, designed to address the anticipated growth trajectory for our Residential Consumer business and finance certain of our unencumbered assets.

The first quarter of 2024 validated the opportunity for our Residential Consumer business to drive loan acquisition volume and profitability amidst persistently higher interest rates and low housing transaction activity. We locked $1.8 billion of loans during the quarter, a 53% increase from the fourth quarter. Lock volume was supported by strength in flow activity from banks as well as from bulk purchases. This segment delivered a 17% return on capital, supported by three accretive securitizations totaling $1.2 billion, which were issued on a monthly cadence that drove efficient capital turnover at increased volumes. Issuance spreads have continued to tighten and early in the second quarter of 2024 we have already priced our fourth securitization of the year.

Our first quarter jumbo lock volume mix reflected increased wallet share across our network of loan sellers, with bank lock volumes higher from the fourth quarter even as overall mortgage production at banks fell. Additionally, we witnessed a doubling of our quarterly lock volume with independent mortgage bankers ("IMBs"), as relationships with these sellers provide a longstanding strategic moat for the business that remains critical to growing market share going forward. Of our total lock volume for the quarter, 30% came from bulk acquisitions, an exciting development as our enhanced capital position will allow us to continue to be more aggressive in this channel and pursue larger, seasoned portfolios that complement on-the-run flow production. Collectively, these metrics reflect the unique positioning our franchise brings to both sellers and investors.

We directly originated our first home equity investment option (“HEI”) contracts through our Aspire platform in the first quarter, a significant milestone that we have continued to build on by growing Aspire's geographical footprint to include additional states. As mortgage rates hover above 7%, the buoyancy of prices for single-family homes has preserved homeowner equity that many are still unable to access, making HEI and other related products all the more attractive. While traditional second mortgage products remain an important source of liquidity for consumers, and will remain a focus of ours, they still fall short of addressing the needs for many homeowners. Additionally, we expect to continue differentiating both our HEI and traditional home equity products with structures that reflect the needs of today’s consumers.

Within our Residential Investor segment, our priorities remain prudently growing top-line revenue, proactively managing credit risk, and returning the business to sustained profitability. For the first quarter, we funded $326 million of loans, effectively flat from fourth quarter volumes. Revenue margins and segment profitability improved quarter over quarter, driven by tightening securitization spreads. Volume trends picked up later in the first quarter, and given recent volatility in benchmark interest rates, we built important momentum in less interest rate-sensitive products, including single-asset bridge loans.

Distribution channels for our Residential Investor loans remain open and are benefiting from more favorable market conditions. First quarter bridge production was largely distributed into our Oaktree joint venture and our three revolving bridge loan securitizations.

Residential investor loan delinquencies within our term and bridge loan portfolios remained stable from the fourth quarter of 2023 and we have continued to emphasize disciplined underwriting and product selection. At March 31, 2024, loans 90+ days delinquent within the bridge loan portfolio were primarily originated in the third quarter of 2022 or earlier, one of the key points at which we evolved our origination approach. Since late 2022, our Residential Investor production mix has remained predominantly focused on single-family loans where performance has remained resilient.

First Quarter Key Financial Results and Metrics

The following table presents key financial metrics for the three months ended March 31, 2024 and December 31, 2023.

Table 1 – Key Financial Results and Metrics

(1)Economic return on book value is based on the periodic change in GAAP book value per common share plus dividends declared per common share during the period. It does not represent an annualized figure.

First Quarter Operational Highlights

Residential Consumer Mortgage Banking

•Locked $1.8 billion of jumbo loans,(1) up 53% from $1.2 billion in the fourth quarter of 2023

◦First quarter 2024 flow lock volume was up 31% relative to the fourth quarter 2023

◦First quarter 2024 total independent mortgage bank ("IMB") lock volume and total bulk volume each doubled relative to the fourth quarter 2023

◦We are actively engaged with 74 depository institutions, relative to 68 in the fourth quarter 2023

•Achieved gross margins of 107 basis points, above our historical target range of 75 to 100 basis points

•Distributed $1.4 billion of jumbo loans through three securitizations ($1.19 billion) and whole loan sales ($202 million)

•Closed first directly originated home equity investment ("HEI") and launched closed-end second ("CES") lien product to our Residential Consumer Seller network

Residential Investor Mortgage Banking

•Funded $326 million of residential investor loans in the first quarter of 2024 (64% bridge and 36% term), compared to $343 million in the fourth quarter of 2023

◦Average February and March funding volumes up 20% from January levels as pipeline grew into the start of second quarter of 2024

•Distributed $59 million of loans through whole loan sales and sales to joint ventures ("JVs")

Investment Portfolio

•Deployed approximately $115 million of capital into internally sourced and third-party investments, the largest single quarter of deployment since the third quarter of 2022

•RPL and jumbo securities saw stability in 90 day+ delinquency rates at 8.1% and 0.2%, respectively; 90 day+ delinquency rates for our combined CAFL securities and bridge loan portfolio were 5.0%, as compared to 4.7% at December 31, 2023(2)

•Secured recourse leverage ratio of 0.9x at March 31, 2024(3)

Financing Highlights

•Unrestricted cash and cash equivalents of $275 million and unencumbered assets of approximately $370 million at March 31, 2024

•Grew excess warehouse financing capacity to $2.69 billion at March 31, 2024

◦Successfully renewed or established three loan financing facilities with key counterparties for $750 million, including $250 million secured revolving financing facility with CPP Investments

•Repurchased $31 million of Redwood's convertible debt (at a discount to par) across outstanding 2024 and 2027 maturities

•Issued $60 million of senior unsecured notes due 2029

Footnotes to Business Highlights

1. Lock volume represents loans identified for purchase from loan sellers. Lock volume does not account for potential fallout from pipeline that typically occurs through the lending process.

2. Re-performing loan ("RPL") and jumbo securities delinquency rate calculations were updated in Q4'23 to be weighted by notional balances of loans collateralizing each of our securities investments (prior periods presented were conformed to updated calculation). Bridge loan and CAFL securities delinquency rates are calculated as BPL term loans in our consolidated CAFL securitizations, our portion of loans held at JVs, unsecuritized bridge loans held for investment, and bridge and term loans held for sale with a delinquent payment greater than 90 days, divided by the total notional balance of loans in consolidated CAFL securitizations, our portion of loans held at JVs, unsecuritized bridge loans held for investment, and bridge and term loans held for sale.

3. Secured recourse leverage ratio for our Investment Portfolio is defined as secured recourse debt financing our investment portfolio assets divided by capital allocated to our investment portfolio.

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