REDWOOD TRUST INC

We report on our business using three segments: Sequoia Mortgage Banking, CoreVest Mortgage Banking, and Redwood Investments. For additional information on our segments, refer to Part I, Item 1, and Note 4 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 (loss) for the years ended December 31, 2024 and 2023.

Table 4 – Segment Results Summary

The sections that follow provide further detail on our business segments and their results of operations for the years ended December 31, 2024 and 2023.

Corporate/Other

The increase in net expenses from Corporate/Other for the year ended December 31, 2024 was related to an increase in variable and equity compensation expense associated with improved operating results and overall 2024 earnings performance relative to 2023. Additionally, an increase in net interest expense was driven by the higher cost of corporate debt issued relative to repurchases and payoffs of older vintage, lower cost convertible debt in 2024, coupled with a decrease in interest income earned from lower average cash balances invested in money market funds and U.S. Treasury Securities in 2024 relative to 2023.

Sequoia Mortgage Banking Segment

This segment consists of a mortgage loan conduit that acquires residential consumer 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 Redwood Investments portfolio. Subordinate securities that we retain from our Sequoia securitizations (many of which we consolidate for GAAP purposes) are transferred to and held in our Redwood Investments segment. 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 and trading securities that we utilize to manage certain risks associated with our inventory of residential consumer loans held-for-sale within this segment. This segment’s main source of mortgage banking income is net interest income from its inventory of loans held-for-sale, securities utilized for hedging purposes, 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 Redwood Investments portfolio, and the hedges used to manage risks associated with these activities. Direct operating expenses and tax expenses associated with these activities are also included in this segment. See Note 5 in Part II, Item 8 of this Annual Report on Form 10-K for further details on the composition of mortgage banking activities, net).

The following tables present key earnings and operating metrics and loan inventory activity for our Sequoia Mortgage Banking segment for the years ended December 31, 2024 and 2023.

Table 5 – Sequoia Mortgage Banking Earnings Summary and Operating Metrics

Footnote to Table 5

(1)Operating expenses presented in the table above include general and administrative expenses and loan acquisition costs for this segment.

Table 6 – Loan Inventory Activity for Sequoia Mortgage Banking Operations

(1)Represents the fair value of the net transfers of loans from held-for-sale to held-for-investment within our Redwood Investments portfolio, associated with securitizations we sponsored that we consolidate under GAAP.

Segment contribution increased $51 million during the year ended December 31, 2024, primarily driven by significantly higher loan purchase and lock volumes from both banks and IMBs. Notably, total lock volume was 154% higher than in 2023 as IMB volumes grew 164% and bank volumes grew 141%. We estimate that our market share increased to between 4% and 5% in 2024, compared to our historical range of 1% to 3%. Market transaction volume in 2023 was impacted by the regional bank crisis which also caused considerable interest rate volatility during that time.

Volume increases during the year ended December 31, 2024 occurred as a result of focused efforts to build our network of bank sellers and increase wallet share with IMBs. We have added or re-established 95 bank seller relationships since the regional banking crisis of 2023 and as of year-end December 31, 2024, our total network of loan sellers is 210, over half of which are banks. We made significant progress with our network of new loan sellers during the year, including onboarding and commencing loan purchase activity. During the year ended December 31, 2024, we also saw an increase in bulk volume from banks and IMBs, including a portfolio of seasoned hybrid ARMs that we purchased from a bank in the third quarter of 2024 and securitized in the fourth quarter of 2024. Hybrid ARM lock volume increased during the year ended December 31, 2024, as hybrid ARMs represented 9% of total 2024 lock volume, compared to less than 1% for the year ended December 31, 2023. This activity came as a result of increased interest in these products from our seller network, as well as from the relaunch of updated underwriting guidelines. In addition to hybrid ARMs, we also launched updated guides for our CES mortgage loan product in early 2024 to address the growing demand from our seller network for home equity-related products.

During the year ended December 31, 2024 our residential consumer mortgage loan conduit locked $8.99 billion of loans ($7.37 billion adjusted for expected pipeline fallout – i.e., loan purchase commitments), and purchased $7.12 billion of loans. During the year ended December 31, 2024, we distributed $1.67 billion through whole loan sales and completed twelve securitizations backed by $5.21 billion of loans. At December 31, 2024, our securitization activity represented approximately 20% of all jumbo loan securitization activity industry-wide for 2024 and we were the largest non-bank issuer of jumbo loan securitizations. In addition to securitization distribution, we witnessed the reemergence of whole loan sale activity in the fourth quarter of 2024, as we sold $1.42 billion of whole loans to a number of buyers. This activity represented the largest volume of whole loan sales since the first quarter of 2022.

For the year ended December 31, 2024, this segment earned gross margins of 137 basis points, well in excess of our historical target range of 75 to 100 basis points, driven in part by hedge outperformance and spread tightening on securitization execution, particularly in the second half of 2024. For the year ended December 31, 2024, our cost per loan was 29 basis points (calculated as operating expenses divided by loan purchase commitments), compared to our historical target range of 30 to 35 basis points, and down from 71 basis points for the full year ended December 31, 2023. We actively manage our exposure to various market risks that can impact the value of our loan inventory in this segment, and our segment contribution in the year ended December 31, 2024 reflected higher income from our hedges within mortgage banking activities. We continue to evaluate monetary policy, housing trends and economic data, among other factors, in developing our hedging strategy and we may leverage a variety of instruments as hedges, including TBAs, interest rate futures, trading securities, options and other types of securities.

Operating expenses for this segment increased primarily due to an increase in aggregate loan acquisition costs related to the increase in loan purchase volume, as well as higher general and administrative expenses from variable and equity compensation due to improved segment performance for the year ended December 31, 2024.

Capital allocation to this segment increased to $350 million in 2024, compared to $165 million in 2023, reflecting the rise in volumes observed during the year. We were focused on capital efficiency throughout the year, ultimately reducing average days loans are held on balance sheet by 58% and cost per loan by 59%. We continue to competitively bid on bulk jumbo loan acquisition opportunities, including both newer vintage and seasoned collateral, while also focusing on forward flow agreements. As discussed inthe Business Update section of this MD&A, looking ahead, we are focused on continuing to gain market share with our seller network, particularly by deepening our partnerships with banks.

Our inventory of loans is managed with a combination of our capital along with loan warehouse facilities with a total capacity of $2.18 billion, and $1.22 billion of available capacity, each at December 31, 2024. These facilities included non-marginable facilities (i.e., not subject to margin calls based solely on the lender's determination, in its discretion, of the market value of the underlying collateral that is non-delinquent) with $700 million of total capacity and marginable facilities with $1.48 billion of total capacity.

Activity in this segment is performed within our taxable REIT subsidiary and subject to federal and state income taxes. The provision for income taxes for the year ended December 31, 2024 is based on GAAP income from these operations at our TRS during that period.

CoreVest Mortgage Banking Segment

This segment consists of a platform that originates residential investor loans for subsequent securitization, sale, or transfer into our investment portfolio. Residential investor 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 three to thirty years) or "bridge" loans (which include loans with maturities that generally range between six and 36 months). Term loans are mortgage loans secured by stabilized residential real estate (primarily 1-4 unit detached or multifamily) that the borrower owns as an investment property and rents to residential tenants. Residential investor 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 real estate that the borrower owns as an investment and that is being renovated, rehabilitated or constructed. Our bridge loans are first-lien, interest-only loans. In some instances, for borrowers experiencing financial difficulty based on specific facts and circumstances, we may amend or modify certain terms of our bridge loans. These modifications and amendments include interest rate reductions, and extended maturity dates. In other instances, we extend maturities in the normal course of business, generally for between three to six months on average. These extensions are usually provided to align with updated rehabilitation timelines on the underlying properties. In addition to modifying loan terms, from time to time, we may also amend a loan's underlying budget (including allocations to hard/soft costs, interest reserves and other items) or construction and completion milestones, if warranted, based on progress with the project versus the initial budget and timelines.

We typically distribute most of our term loans through our CAFL® private-label securitization program, or through whole loan sales, and typically transfer our residential investor bridge loans to our Redwood Investments portfolio, where they will either be retained for investment, securitized, or sold as whole loans. Since 2023, we have also established joint ventures with global investment managers as another avenue through which we can distribute our bridge and term loan production.

Since mid-2023, we have established two joint ventures with two separate institutional investment managers, one in the second quarter of 2023 to invest in residential investor bridge loans originated by CoreVest and another in the first quarter of 2024 to invest in residential investor bridge and term loans originated by CoreVest. We administer the joint ventures for ongoing fees and are entitled to earn additional performance fees upon realization of specified return hurdles.

This segment also includes various derivative financial instruments that we utilize to manage certain risks associated with our inventory of loans held-for-sale. 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 Redwood Investments portfolio, and gains/losses from associated hedges. Direct operating expenses and tax expenses associated with these activities are also included in this segment.

The following tables present an earnings summary and Residential Investor loan origination activity for our CoreVest Mortgage Banking segment for the years ended December 31, 2024 and 2023.

Table 7 – CoreVest Mortgage Banking Earnings Summary

Table 8 – Residential Investor Loans Funding Activity

(1)We originate Residential investor bridge loans at our TRS and transfer many of them to our REIT. Origination fees and any fair value changes on these loans prior to transfer or sale are recognized within Mortgage banking activities, net on our consolidated statements of income. Loans transferred to our REIT are classified as held-for-investment, with fair value changes subsequent to their transfer generally recorded through Investment fair value changes, net on our consolidated statements of income. For the carrying value and activity of our Residential investor bridge loans held-for-investment, see the Redwood Investments section that follows.

(2)Funding and sales for Residential investor bridge loans in 2024, includes $49 million related to construction draws on loans sold to a joint venture with an institutional investment manager.

(3)For Residential investor term loans, amounts primarily represent loans transferred into consolidated securitizations reflected within our Redwood Investments Segment. Residential investor bridge loan amounts represent the transfer of loans originated or acquired by our CoreVest Mortgage Banking segment at our TRS and transferred to our Redwood Investments segment at our REIT in the preceding footnote.

CoreVest mortgage banking segment contribution presented in Table 7 above is comprised of net interest income from our loans held-for-sale in inventory, mortgage banking activities, net (see Note 5 in Part II, Item 8 of this Annual Report on Form 10-K for further detail on the composition of mortgage banking activities, net), and other income, net for this segment. Operating expenses presented in the table above include general and administrative expenses, loan acquisition costs and other expenses (including amortization of purchase intangibles) for this segment.

Segment contribution increased $15 million during the year ended December 31, 2024. This increase is primarily driven by growth in mortgage banking income from strong funding volumes, tightening spreads and improved distribution economics (including from whole loan sales and sales to joint ventures), as well growing asset management and other income and improved operating efficiencies. We witnessed a 9% increase in overall funding volumes in 2024 relative to 2023, largely attributable to growth in originations of term loans and SAB loans, as well as overall borrower demand for our bridge products. Originations remained focused on single-family properties in 2024, with 93% of fundings backed by single-family real estate and 7% backed by multifamily properties. We continue to emphasize originating loans backed by single-family properties and are no longer active in the origination of the type of bridge loans backed by larger multifamily properties that we originated in 2022 and prior.

Bridge loan demand has remained high as banks retreated from lending in this space, and SAB loan fundings increased to $486 million, up 85% from 2023. While term loan volumes were tempered in the first three quarters of 2024, they increased considerably in the fourth quarter of 2024 to the highest level since the second quarter of 2022. Distribution activity reached $1.56 billion, with joint ventures accounting for 53% of the total up from 3% in 2023. Distribution activity also included securitizations, including our first securitization with collateral from one of our joint ventures, and several whole loan sales. Looking ahead, given our established joint ventures, as well a growing network of whole loan buyers, we continue to see healthy demand for our production through our distribution channels.

Net cost to originate (calculated as operating expenses, less upfront origination fees, divided by origination volume) improved by 27% to 1.14% during the year ended December 31, 2024, compared to 1.57% during the year ended December 31, 2023, primarily driven by higher funding volumes and lower expenses incurred. Distribution activity was elevated in 2024 with distributions of $1.56 billion through securitizations, whole loan sales and sales to joint ventures and an additional $290 million to existing revolving bridge loan securitizations, compared to $915 million for the year ended December 31, 2023. Additionally, in the fourth quarter of 2024, we completed our first securitization that included loans from one of our joint ventures.

Activity at this segment is performed within our taxable REIT subsidiary and subject to federal and state income taxes. The benefit from income taxes for the year ended December 31, 2024 was primarily due to GAAP pre-tax losses generated by this segment's operations in those periods.

Capital allocated to this segment stayed flat relative to 2023 at $75 million in 2024, but our capital efficiency improved by 35% due to an increased pace of loan distribution supported by our joint venture structures. Our inventory of loans is managed with a combination of our capital and loan warehouse facilities. At December 31, 2024, total warehouse capacity was $2.33 billion, with $1.49 billion of available capacity (inclusive of capacity on non-recourse facilities). All of these facilities are non-marginable (i.e., not subject to margin calls based solely on the lender's determination, in its discretion, of the market value of the underlying collateral that is non-delinquent).

Redwood Investments Segment

This segment consists of organic investments sourced through our Sequoia and CoreVest Mortgage Banking operations, including primarily securities retained from our mortgage banking securitization activities (some of which we consolidate for GAAP purposes) and residential investor 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, HEI, and other housing-related investments and associated hedges. This segment’s main sources of income are net interest income and other income from investments, changes in fair value of investments and associated hedges, and realized gains and losses upon the sale of securities. Direct operating expenses and tax provisions associated with these activities are also included in this segment.

The following table presents an earnings summary for our Redwood Investments segment for the years ended December 31, 2024 and 2023.

Table 9 – Redwood Investments Earnings Summary

Investment fair value changes, net is primarily comprised of the change in fair value (both realized and unrealized) of our portfolio investments accounted for under the fair value option and interest rate hedges associated with these investments. See Table 4 in the Consolidated Results of Operations section of this MD&A for further detail on the composition of investment fair value changes (the difference in amounts in the table above and in Table 4 relates to fair value changes for investments held at corporate/other).

Segment contribution increased $19 million during the year ended December 31, 2024. This increase is primarily driven by a $29 million improvement in negative investment fair value changes, net, offset by a $18 million decrease in net interest income in 2024 as compared to 2023. Negative investment fair value changes in 2024 primarily reflected the net impact from higher benchmark interest rates on our re-performing loan securities and negative fair value changes on our residential investor bridge loans, all of which we hold at fair value. This was offset by investment fair value gains, net of associated interest rate hedges, on our securities portfolio of $49 million all of which primarily related to increases in the fair value of our Sequoia and CAFL net interests retained from our consolidated securitizations. Net interest income decreases in 2024 primarily related to lower net interest income from our bridge loan portfolio, an increase in borrowing costs on debt facilities and ABS issued to finance our investments within this segment.

Fundamental performance of our residential consumer assets within our Redwood Investments portfolio continues to be driven by strong employment data, embedded equity protection associated with loan seasoning and home price appreciation, and borrowers motivated to stay current on their low-coupon mortgages. Notably, 90 day+ delinquencies on our reperforming loan securities (SLST) portfolio declined to 7.3% at December 31, 2024, compared to 8.4% at December 31, 2023, while our 90 day delinquencies within our Sequoia securities portfolio remained steady at 0.20% at December 31, 2024 and December 31, 2023.

The residential investor sector continues to manage through the impacts of elevated interest rates and overall financing costs for investors, particularly for loans originated in 2021 and 2022 when mortgage loan interest rates were lower. In anticipation of this impact, our team has continued to work with borrowers well in advance of their loan maturities to assess project plans and ensure they manage towards successful completions. Delinquencies greater than 90 days across our residential investor bridge loans increased to 6.7% at December 31, 2024 from 4.4% at December 31, 2023. This increase was predominantly driven by the 2022 vintage portfolio, and increased slightly for our SAB and Build for Rent ("BFR") products. REO values in the residential investor bridge portfolio decreased in 2024, and we continue to manage through pockets of stress, largely with a handful of more significant borrower relationships where a combination of rate modifications, maturity extensions and fresh equity has been utilized. Overall repayment velocity in the bridge portfolio remains positive, as approximately 37% of the bridge book (gross) paid off during the year ended December 31, 2024 and we resolved $34 million in aggregate unpaid principal of loans that were 90 or more days delinquent at December 31, 2023, excluding transfers to REO.

Operating expenses at this segment increased by $4 million for the year ended December 31, 2024 , primarily due to increased portfolio management costs incurred for the management of specially serviced residential investor bridge loans and related workout arrangements in comparison to 2023.

We hold certain of our investments, primarily our MSRs, at our taxable REIT subsidiary. Our provision for income taxes at this segment is primarily driven by the amount of income earned from portfolio assets and reflects positive net income earned from investment portfolio activities at our taxable REIT subsidiary.

The following table presents details of our Redwood Investments portfolio at December 31, 2024 and 2023 organized by investments organically created through our mortgage banking segments and those acquired from third-parties. Amounts presented in the table represent our retained economic interests in consolidated Sequoia, CAFL SFR, Freddie Mac SLST, Freddie Mac K-Series, Servicing Investment and HEI securitizations as noted.

Table 10 – Redwood Investments - Detail of Economic Interest

(1)Represents our retained economic investment in securities issued by consolidated Sequoia securitization VIEs. For GAAP purposes, we consolidated $8.82 billion of loans and $8.40 billion of ABS issued associated with these investments at December 31, 2024. We consolidated $4.64 billion of loans and $4.43 billion of ABS issued associated with these investments at December 31, 2023.

(2)Organic other investments at December 31, 2024 includes net risk share investments of $26 million, representing $29 million of restricted cash and other assets, net of other liabilities of $3 million.

(3)Represents our retained economic investment in securities issued by consolidated CAFL Term securitization VIEs. For GAAP purposes, we consolidated $2.49 billion of loans and $2.17 billion of ABS issued associated with these investments at December 31, 2024. We consolidated $2.97 billion of loans and $2.65 billion of ABS issued associated with these investments at December 31, 2023.

(4)Represents our economic investment in securities issued by consolidated Freddie Mac SLST securitization entities. For GAAP purposes, we consolidated $1.24 billion of loans and $1.01 billion of ABS issued associated with these investments at December 31, 2024. We consolidated $1.36 billion of loans and $1.09 billion of ABS issued associated with these investments at December 31, 2023.

(5)Represents our economic investment in securities issued by consolidated Freddie Mac K-Series securitization entities. For GAAP purposes, we consolidated $425 million of loans and $389 million of ABS issued associated with these investments at December 31, 2024. We consolidated $425 million of loans and $392 million of ABS issued associated with these investments at December 31, 2023.

(6)Represents our economic investment in consolidated Servicing Investment VIEs. At December 31, 2024, for GAAP purposes, we consolidated $262 million of servicing investments and $159 million of non-recourse securitization debt, as well as other assets and liabilities for these entities. At December 31, 2023, for GAAP purposes, we consolidated $257 million of servicing investments and $154 million of non-recourse securitization debt, as well as other assets and liabilities for these entities.

(7)At December 31, 2024 and December 31, 2023, represents HEI owned at Redwood of $257 million and $245 million, respectively and our retained economic investment in securities issued by consolidated HEI securitization entities of $47 million and $34 million, respectively.

The size of our Redwood Investments portfolio increased since December 31, 2023, as we actively deployed capital into new residential Sequoia securities and other residential securities investments. At December 31, 2024 and December 31, 2023, 77% and 80% of our Redwood Investments portfolio economic interests were organically created, respectively, and 23% and 20% were purchased from third parties, respectively. This was offset by a decrease in residential investor bridge loans, driven by repayments and negative fair value changes since December 31, 2023. Capital deployment activities into internally-sourced and third-party investments for the year ended December 31, 2024 totaled $113 million and represented the highest level of capital deployment since the third quarter of 2022. See the Investments Detail and Activity section that follows for additional detail on our portfolio investments and their associated borrowings.

Investments Detail and Activity

This section presents additional details on our investments (both within our Redwood Investments segment and held at a corporate level) and their activity during the years ended December 31, 2024 and 2023.

Real Estate Securities Portfolio

The following table sets forth activity in our real estate securities portfolio for the year ended December 31, 2024, organized by investments organically created through our mortgage banking segments and acquired from third parties. This table includes both our securities held on balance sheet and our economic interest in securities we own in securitizations we consolidate in accordance with GAAP. Additionally, this table includes securities held both in our Redwood Investments segment and our Sequoia Mortgage Banking segment.

Table 11 – Activity of Real Estate Securities Owned at Redwood and in Consolidated Entities

(1)The effect of principal payments reflects the change in fair value due to principal payments, which is calculated as the cash principal received on a given security during the year multiplied by the prior quarter ending price or acquisition price for that security.

(2)At December 31, 2024, $51 million of Sequoia Securities and $144 million of Other Third-Party Securities were used as hedges for our Sequoia Mortgage Banking operations, and were included in our Sequoia Mortgage Banking segment.

At December 31, 2024, our securities owned at Redwood and in consolidated entities consisted of fixed-rate assets (97%), adjustable-rate assets (1%), hybrid assets that reset within the next year (<1%), and hybrid assets that reset between 12 and 36 months (2%).

We directly finance our holdings of real estate securities with a mix of non-marginable and marginable, recourse and non-recourse debt financing. At December 31, 2024, we had: CAFL securities with a fair value of $318 million that were financed with $268 million of non-marginable recourse debt through subordinate securities financing facilities; re-performing loan securities with a fair value of $242 million (including securities owned in consolidated securitization entities) that were financed with $146 million of non-recourse securitization debt (ABS issued); Sequoia securities we owned from consolidated and unconsolidated Sequoia securitization trusts with a fair value of $227 million that were financed with $184 million of non-recourse re-securitization debt (ABS issued); real estate securities with a fair value of $282 million (including securities owned in consolidated securitization entities) that were financed with $210 million of recourse debt incurred through repurchase facilities; and $60 million of securities that were financed using a recourse residential MSR warehouse facility. The remaining $298 million of our securities, including certain securities we own that were issued by consolidated securitization entities, were financed with capital.

The following table summarizes the credit characteristics of our entire real estate securities portfolio by collateral type at December 31, 2024. This table includes both our securities held on balance sheet and our economic interest in securities we own in securitizations we consolidate in accordance with GAAP.

Table 12 – Credit Statistics of Real Estate Securities Owned at Redwood and in Consolidated Entities

(1)Weighted averages presented in this table, including delinquencies, are weighted using the notional balance of loans collateralizing each securitization in which we own a security.

(2)Investment thickness represents the average size of the subordinate securities we own as investments in securitizations, relative to the average overall size of the securitizations. For example, if our investment thickness (of first-loss securities) with respect to a particular securitization is 10%, we have exposure to the first 10% of credit losses resulting from loans underlying that securitization. We generally own first loss positions in Sequoia, RPL and CAFL securities. We own both first loss and mezzanine positions (positions credit enhanced by subordinate securities) in multifamily and other third-party securities.

(3)At December 31, 2024, $51 million of Sequoia Securities and $144 million of Other Third-Party Securities were used as hedges for our Residential Mortgage Banking operations, and were included in our Sequoia Mortgage Banking segment.

We primarily target investments that have a sensitivity to housing credit risk, typically sourced through our operating businesses where we control the underwriting and review of underlying collateral. We currently target returns related to capital deployment opportunities between 15-20% for mortgage banking opportunities, 12-18% for organically retained securities and joint-venture co-investments, and 15-20% for opportunistic third-party investments.1 During 2024, our overall residential and Agency multifamily securities portfolio continued to demonstrate stable fundamentals, driven by underlying loan seasoning, low 90+ day delinquencies and embedded growth in home prices and rents. Given the seasoned nature of our investments (particularly within our RPL securities and Sequoia securities), many of our residential investments are supported by stable home price appreciation and borrower equity in the under

1 Target returns are based on management's market observations, estimates, and assumptions, including our assumptions regarding the use of leverage, credit losses, prepayment speeds, and market interest rates. Actual returns may differ due to these or other factors. See "Cautionary Statement" above within this Annual Report on Form 10-K for a review of risk factors that may impact our ability to realize our target returns.

lying homes. For the term loans underlying our consolidated CAFL securities, 90 day+ delinquencies increased steadily throughout 2024 but remained at an overall low level relative to modeled expectations.

With a weighted average quarter-end carrying value of 67 cents to each one dollar of face value, we estimate our securities portfolio had approximately $2.18 per common share of net discount to par at quarter end. We believe continued stable credit performance in our underlying securities portfolio, combined with firming of risk sentiment and a return to more normalized prepayment speeds, could contribute to our ability to realize potential upside in book value over time, reversing unrealized losses taken over the past few years that were largely driven by technical spread widening. See "Cautionary Statement" above within this MD&A for a review of risk factors that may impact our ability to realize this potential upside in book value.

Residential Investor Bridge Loans Held-for-Investment

The following table provides the activity of residential investor bridge loans held-for-investment during the years ended December 31, 2024 and 2023.

Table 13 – Residential Investor Bridge Loans Held-for-Investment - Activity

(1)We originate residential investor bridge loans at our TRS and transfer a portion of them to our REIT that we intend to hold for investment. Origination fees and any fair value changes on these loans prior to transfer are recognized within Mortgage banking activities, net on our Consolidated statements of income (loss). Once the loans are transferred to our REIT, they are classified as held-for-investment, with subsequent fair value changes generally recorded through Investment fair value changes, net on our consolidated statements of income.

(2)In the fourth quarter of 2024, we completed our first CAFL securitization sponsored by our joint venture. This securitization involved loans contributed from our joint venture and by CoreVest. This securitization vehicle has been determined to be a VIE that we consolidate under GAAP as we are the primary beneficiary. For additional information on our principles of consolidation, see Note 15 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this Annual Report on Form 10-K.

Our $1.86 billion of residential investor bridge loans held-for-investment at December 31, 2024, were comprised of first-lien, interest-only loans with a weighted average coupon of 9.34% and original maturities of 6 to 36 months. At origination, the weighted average FICO score of sponsors of these loan borrowers was 754 and the weighted average as-repaired LTV ratio of these loans was 66%. Overall repayment velocity on these loans was strong in year ended December 31, 2024 with principal repayments of $876 million.

At December 31, 2024, loans in this portfolio with an aggregate fair value of $122 million and an unpaid principal balance of $149 million, were greater than 90 days delinquent. Included in the 90 days delinquent balance are loans in foreclosure with an aggregate fair value of $69 million and an aggregate unpaid principal balance of $90 million. Additionally, REO associated with bridge loans decreased from $88 million at December 31, 2023, to $78 million at December 31, 2024, resulting from a decrease in fair value of $16 million, offset by transfers to REO of $11 million and the sale of five REO properties for $5 million during year ended December 31, 2024.

The fair value of residential investor bridge loans held-for-investment of $1.86 billion at December 31, 2024 declined from $2.07 billion at December 31, 2023. Changes in the value of these loans during the year ended December 31, 2024 primarily reflect principal repayments and reductions in the fair values for non-accrual bridge loans and certain modified bridge loans since the fourth quarter of 2023. For the year ended December 31, 2024, we modified or put into forbearance loans with a total aggregate unpaid principal balance of $848 million. Of this balance, loans with reductions in contractual interest rates (including, in certain cases, deferrals of interest) had an aggregate unpaid principal balance of $663 million, and an aggregate fair value of $645 million at December 31, 2024. The modification terms on these loans involved conversions of the contractual interest rates on the loans from floating to fixed and/or deferrals of a portion of the stated pay rate to an extended date or to maturity. In 2024, modifications on these loans maintained a weighted average contractual interest rate of approximately 9.09%, of which 4.46% represented deferred interest.

For the year ended December 31, 2024, we modified four BFR loans with a total aggregate unpaid principal balance of $142 million and an aggregate fair value of $140 million, respectively, at December 31, 2024. These loans were a subset of the $848 million of modified loans and had previously been modified in 2024. The previous modifications on these loans amended the interest rate to a combination of current pay and deferred interest. Because they finance the construction of rental housing, many BFR projects do not generate net operating income until the later stages of the loan term. As such, BFR loans are sized to include allocations for interest expense. During the year ended December 31, 2024, the modifications on these loans amended the allocation of loan commitments between hard and soft costs, interest expense and other expenses, provided maturity extensions of 10 months on average (subject to mandatory partial repayments during the loan term), and established a hard lockbox and funding of interest reserves to cover debt service shortfalls.

While we continue to work proactively with certain borrowers to address the impacts of rising interest rates, elongated project timelines, or other issues, further increases in delinquencies or modifications within our residential investor bridge loan portfolio could ultimately result in further decreases in net interest income and the fair value of our bridge loans held for investment, and further instances of borrower/sponsor stress could lead to realized credit losses. In addition to the loan modifications described above, during 2024, we extended the loan covenant terms and/or extended the maturities on $402 million of loans (representing cumulative unpaid principal balance as of December 31, 2024). An increase in maturity extensions in the residential investor bridge portfolio would increase the expected time to repayment with a potential impact on fair values and credit losses. However, given the overall short duration nature of our bridge loans, a certain level of maturity extensions are a routine asset management outcome for these loans, irrespective of market conditions. When we provide routine maturity extensions, our asset management function also seeks to increase the interest rate on these loans and/or charge a fee. In 2024, the average length of maturity extensions granted on residential investor bridge loans was four months.

We generally value delinquent residential investor loans at a dollar price that is informed by various market data, including the fair value of the collateral securing a loan, for which we typically receive third-party appraisals, as well as estimated sales costs. The amounts we may ultimately recover through the foreclosure of loans and the sale of the underlying collateral or through alternative strategies, such as through loan sales or discounted payoffs, could vary materially from our estimates and could have a material impact on our earnings in future periods.

We finance our residential investor bridge loans with a combination of recourse, non-marginable warehouse facilities, non-recourse, non-marginable facilities, and non-recourse securitization debt. At December 31, 2024, we had $735 million of debt incurred through warehouse facilities, which was secured by residential investor bridge loans with a fair value of $1.06 billion; and $761 million of securitization debt secured by $823 million of residential investor bridge loans, $16 million of restricted cash and $59 million of other assets. At December 31, 2024, the unpaid principal balance of bridge loans financed was $1.91 billion, of which $448 million was financed with recourse, non-marginable facilities, $648 million was financed with non-recourse, non-marginable facilities, and $810 million was financed through non-recourse CAFL bridge securitizations.

The following table provides the composition of residential investor bridge loans held-for-investment by product type as of December 31, 2024 and 2023.

Table 14 – Residential Investor Bridge Loans Held-for-Investment - By Product/Strategy Type

(1)Includes loans to finance acquisition and/or stabilization of existing housing stock or to finance new construction of residential properties for rent.

(2) Includes loans for light to moderate renovation of residential investor and small multifamily properties (generally less than 20 units).

(3) Includes loans for predominantly light to moderate rehab projects on multifamily properties.

At December 31, 2024, the fair value of our total residential investor bridge loans held-for-investment and associated REO represented 97.1% of the combined unpaid principal balance of these loans and the unpaid principal balance of the loans associated with the REO at time of foreclosure. The fair value of multifamily loans within this population ($762 million at December 31, 2024) and associated multifamily REO ($32 million at December 31, 2024), represented 93.9% of the combined unpaid principal balance of these loans and the unpaid principal balance of the loans associated with the REO at time of foreclosure. As we have revised our underwriting practices to discontinue the active origination of large multi-family loans, we expect the exposure to multifamily loans and REO to decrease over time.

Home Equity Investments

The following table provides the activity of HEI held at our Redwood Investments segment during the years ended December 31, 2024 and 2023.

Table 15 – HEI at Redwood Investments Segment - Activity

(1)Our HEI presented in this table as of December 31, 2024, include $332 million of HEI owned in our consolidated HEI securitization entities and $257 million of HEI owned directly at Redwood.

We finance a portion of our HEI through a short-term warehouse facility. At December 31, 2024, there was $97 million of debt outstanding on this warehouse facility, secured by HEI with a fair value of $207 million.

Additional details on our HEI is included in Note 10 of our Notes to Consolidated Financial Statements, included in Part II, Item 8 of this Annual Report on Form 10-K. During the year ended December 31, 2024, positive investment fair value changes primarily have been the result of home price appreciation and prepayment speeds exceeding modeled assumptions over the first three quarters of 2024. In the fourth quarter of 2024, gains in the HEI portfolio were lower relative to prior quarters as home price appreciation slowed to levels more in line with modeled assumptions.