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 Note 4 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The following table presents the segment contribution from our three segments reconciled to our consolidated net income for the three months ended March 31, 2025 to the immediate preceding quarter December 31, 2024 and year-to-date period March 31, 2024.

Table 4 – Segment Results Summary

The sections that follow provide further detail on our business segments and their results of operations for the three months ended March 31, 2025 to the immediate preceding quarter December 31, 2024 and year-to-date period March 31, 2024.

Corporate/Other

Net expense from Corporate/Other remained essentially flat from three months ended March 31, 2025 to the three months ended December 31, 2024. The increase in net expenses from Corporate/Other for the three months ended March 31, 2025 to the three months ended March 31, 2024 was primarily driven by an increase in variable and fixed compensation expense associated with additional headcount and an increase in interest expense related to the higher cost of corporate unsecured debt issued in the first quarter of 2025 and payoffs of older vintage, lower coupon convertible debt.

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 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 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further detail on the composition of mortgage banking activities, net.

In the first quarter of 2025, we launched an additional mortgage loan conduit under our Aspire brand that acquires mortgage loans under expanded underwriting criteria as well as DSCR mortgage loans. While we expect and intend to report this activity as a separate standalone segment in the future, we are including its results within our Sequoia Mortgage Banking segment until this additional conduit activity reaches sufficient scale.

The following table presents key earnings and operating metrics for our Sequoia Mortgage Banking segment during the three months ended March 31, 2025 to the immediate preceding quarter December 31, 2024 and year-to-date period March 31, 2024.

Table 5 – Sequoia Mortgage Banking Earnings Summary and Operating Metrics

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

Activity at this segment is performed within our taxable REIT subsidiary and subject to federal and state income taxes. The provision for income taxes for the periods presented above resulted from GAAP income from these operations at our TRS during that period.

The following table provides the activity of residential consumer loans held in inventory for sale at our Sequoia Mortgage Banking business during the three months ended March 31, 2025.

Table 6 – Loan Inventory 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.

The increase in segment contribution in the three months ended March 31, 2025, as compared to the three months ended December 31, 2024, is due to higher loan purchase and lock volumes, driven by an increase in loan purchases from both banks and IMBs. For the first quarter of 2025, total lock volume of $4.0 billion was 73% higher quarter over quarter, our most active quarter since 2021, and 47% from IMBs and 53% from banks. Notably, in the first quarter of 2025 we locked $1 billion of seasoned loans in a bulk transaction from a large bank. That transaction contributed to the 265% quarter over quarter increase that we saw in bulk lock volumes. Reflecting the ongoing value our loan sellers place on the liquidity we provide, flow volumes also increased by 15% from the prior quarter. These volume increases stand in contrast to the broader industry which is reported by the Mortgage Bankers Association to have experienced a 22% decrease in volume over the same period.

Aspire locked $111 million of loans in the first quarter ended March 31, 2025, 72% of which are considered expanded underwriting loans and 28% of which are considered Debt Service Coverage Ratio ("DSCR") loans.

As has been the case in recent quarters, we also continue to see elevated adjustable-rate mortgage ("ARM") activity, which during the three months ended March 31, 2025 represented 24% of lock volume, compared to 6% for the three months ended December 31, 2024.

Distribution activity remained elevated for the three months ended March 31, 2025, though was lower relative to the fourth quarter 2024 as strength in securitization execution was offset by a decline in whole loan distribution. We completed three securitizations in the first quarter 2025, unchanged relative to the number of securitizations we completed during the fourth quarter 2024, but backed by 52% more jumbo loan collateral. During the quarter ended March 31, 2025, distributed a portion of the collateral from our $1 billion bulk purchase of seasoned jumbo loans, largely in whole loan form. We anticipate additional securitization and whole loan distributions related to this purchase in the second quarter 2025. At March 31, 2025, our securitization activity represented 21% of all jumbo securitization activity for 2025 and we were the largest bank and non-bank issuer of jumbo securitizations during the quarter.

Gain on sale activity during both periods remained in excess of our historical target range of 75 to 100 basis points, though was lower during the quarter ended March 31, 2025 at 123 basis points compared to the quarter ended December 31, 2024 at 181 basis points.

For the three months ended March 31, 2025, our cost per loan was 21 basis points (calculated as operating expenses divided by loan purchase commitments), compared to 29 basis points for the quarter ended December 31, 2024, representing ongoing efficiency of our platform, particularly as we are able to lock a greater number loans while utilizing less capital. We continue to evaluate monetary policy, housing trends and economic data, among other factors, in developing our hedging strategy and we expect to continue to leverage a variety of instruments as hedges, including TBAs, interest rate futures, real estate securities, options and other types of securities.

Operating expenses for this segment increased for the first quarter of 2025, as compared to the preceding quarter, primarily due to an increase in loan acquisition costs related to the increase in loan purchases, as well as higher general and administrative expenses from variable and equity compensation due to improved segment performance for the three-months ended March 31, 2025.

Capital allocation to this segment was $425 million at March 31, 2025, compared to $350 million at December 31, 2024 due to higher loan purchase and lock volumes during the first quarter of 2025. We continue to competitively bid on bulk jumbo loan acquisition opportunities, including newer vintage and seasoned collateral, including both fixed and adjustable-rate mortgages while also focusing on forward flow agreements. As discussed in the Business Update section of this MD&A, looking ahead, we are focused on continuing to gain market share with our seller network, including as it relates to supporting our bank partners with balance sheet solutions for their legacy collateral.

We utilize a combination of capital and our residential consumer loan warehouse facilities to finance our inventory of residential consumer loans held-for-sale. At March 31, 2025, we had residential consumer warehouse facilities outstanding with $2.88 billion of total capacity and $1.66 billion of available capacity. 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 $800 million of total capacity and marginable facilities with $2.08 billion of total capacity.

Consistent growth trends also drove the increase in segment contribution in the three months ended March 31, 2025 compared to the same period ended March 31, 2024. Total loan sellers as of March 31, 2025 amounted to 209, compared to 190 as of March 31, 2024 with the increase driven largely by new bank sellers. Notably, lock volume increased 125% during the three months ended March 31, 2025 compared to March 31, 2024 driven by focused efforts to make inroads with this larger network of bank sellers as well as our existing network of IMBs. Notably, our efforts resulted in a 192% increase in bank lock activity and a 67% increase in IMB lock activity during the two periods. Both flow and bulk activity saw significant increases, rising 75% and 219% respectively. The market for seasoned bulk loan sales has picked up notably in 2025 compared to the same period in 2024. For instance, in the quarter ended March 31, 2025, over $10 billion in seasoned bulk jumbo loans were brought to market as banks evaluated holding this collateral on balance sheets compared to alternative uses of capital. We actively evaluate these legacy bulk pools as well as other bulk pools related to more recently originated on-the-run collateral. Three banks also exited or signaled their intention to exit all or some channels of mortgage lending during the first quarter 2025.

Distribution activity was up 47% in the first quarter 2025 relative to the same period ended 2024, driven by strength in securitization activity and a resurgence of whole loan activity that began in the fourth quarter 2024. Whole loan sales activity of $421 million in the first quarter 2025 was more than double the amount relative to the same period 2024. Total amount of loans securitized increased by 37% in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024, given the elevated volumes achieved in the quarters preceding the quarter ended March 31, 2025.

Gain on sale activity between the two periods was slightly higher at 123 basis points in the quarter ended March 31, 2025 compared to 107 basis points for the period ended March 31, 2024. Cost per loan also improved during the two periods. Cost per loan for the quarter ended March 31, 2025 was 21 basis points compared to 37 basis points for the quarter ended March 31, 2024.

Operating expenses for this segment increased for the three-month period ended 2025 relative to the same period ended 2024, primarily due to an increase in loan acquisition costs related to the increase in loan purchases, as well as higher general and administrative expenses from variable and equity compensation due to improved segment performance for the three-months ended March 31, 2024.

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, through whole loan sales or into our joint ventures. We typically transfer our residential investor bridge loans to our Redwood Investments portfolio, where they will either be retained for investment, securitized, sold as whole loans or distributed into joint ventures.

As it relates to our joint ventures, since mid-2023, we have established 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 table presents an earnings summary for our CoreVest Mortgage Banking segment for the three months ended March 31, 2025 to the immediate preceding quarter December 31, 2024 and year-to-date period March 31, 2024.

Table 7 – CoreVest Mortgage Banking Earnings Summary

CoreVest Mortgage Banking income presented in the table above is comprised of net interest income from our loans held-for-sale in inventory, mortgage banking activities, net (see Note 5 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further detail on the composition of mortgage banking activities), and other income, net for this segment. Operating expenses presented in the table above includes general and administrative expenses, loan acquisition costs and other expenses (including amortization of purchased intangibles) for this segment.

Activity of this segment that is performed within/at our TRS is subject to federal and state income taxes. The benefit from income taxes was primarily due to GAAP losses generated by this segment’s operations at our TRS in those periods presented above.

The following table provides unsecuritized residential investor loan origination activity during the three months ended March 31, 2025.

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 changeson 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 for the three months ended March 31, 2025, includes $29 million of construction draws, of which $16 million were related to construction draws on loans sold to joint ventures.

(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.

The increase in segment contribution in the three months ended March 31, 2025, as compared to the three months ended December 31, 2024, is due to the $2 million increase in mortgage banking income from the first quarter of 2025 compared to the fourth quarter in 2024. This increase was primarily attributable to improved economics from whole loan sales and sales to joint ventures, partially offset by slightly lower margins and funding volumes quarter over quarter.

Net cost to originate (calculated as operating expenses, less upfront origination fees, divided by origination volumes) of 1.22% for the three months ending March 31, 2025, was up slightly from our net cost to originate of 1.14% for all of 2024, and increased from 0.70% for the three months ending December 31, 2024. Distribution activity remained strong in the first quarter of 2025 with distributions of $421 million through a combination of whole loan sales and sales to joint ventures.

Funding volumes declined 4% in the first quarter 2025 relative to the fourth quarter 2024, as ongoing strength in bridge production was offset by a decline in higher margin term production due in part to interest rate volatility during the quarter. The first quarter of the year also tends to be impacted by seasonal factors, with volumes historically moving higher as the year progresses. While quarterly funded volumes were down quarter over quarter, we saw ongoing momentum in areas of strategic focus, namely Residential Transition Loans ("RTL"), DSCR loans and lines of credit (“LOC”). Combined, originations of these products were up 35% quarter over quarter. Originations remained focused on single-family collateral in the first quarter of 2025, particularly for bridge loans, as 98% of total bridge fundings during the quarter were backed by single-family properties and 2% were backed by multifamily properties.

Capital allocated to this segment was $100 million at March 31, 2025 up from $75 million at December 31, 2024 as we carried certain loans on our balance sheet ahead of intended distribution in the second quarter 2025. We remain focused on our capital light strategy within this segment, utilizing joint ventures and loan sales. Our inventory of loans is managed with a combination of our capital and loan warehouse facilities. At March 31, 2025, total warehouse capacity was $2.33 billion, with $1.54 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).

CoreVest segment contribution increased $7 million during the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase is attributable to higher mortgage banking income, driven by a 48% increase to total funded volumes, including approximately a 60% year-over-year increase in higher margin term loans. Other funding strategies, such as RTL, DSCR and LOC, also saw increases year over year. Net cost to originate improved to 1.22% during the three months ended March 31, 2025, compared to 2.61% during the three months ended March 31, 2024 as a result of higher loan funding volumes and slightly lower expenses during the first quarter of 2025. Distribution activity in the first quarter 2025 was nearly three times higher than the same period 2024, particularly driven by the increase in joint venture distributions ($253 million during the first quarter ended 2025 relative to $53 million for the first quarter ended 2024) after launching our second joint venture in the second quarter of 2024.

Redwood Investments Segment

This segment consists of retained operating 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.

In the first quarter of 2025, to help investors better understand our go-forward strategy with regards to our Redwood Investments portfolio, we recategorized our investments into three portfolio strategies: Retained Operating Investments, Third-Party Portfolio Investments and Legacy Bridge Investments. Retained Operating Investments primarily consists of retained securities from our Sequoia and CoreVest term and bridge securitizations. Third-Party Portfolio Investments primarily consists of retained securities from securitizations of re-performing loans, servicing investments, HEI investments and other third party securities that reflect our long-term thesis on housing credit. Legacy Bridge Investments primarily consists of unsecuritized bridge loans of the 2021 and 2022 vintage. There was no impact to the segment financial results as a result of this change. All prior period amounts presented within this quarterly report related to these changes in this document were conformed to this presentation.

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 three months ended March 31, 2025 to the immediate preceding quarter ended December 31, 2024 and the year-to-date period ended March 31, 2024.

Table 9 – Redwood Investments Earnings Summary

The following table presents an earnings summary of our Redwood Investments segment for the three months ended March 31, 2025 to the immediate preceding quarter ended December 31, 2024 broken out by our strategies within the Redwood Investments segment.

Table 10 – Redwood Investments Earnings Summary by Strategy

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 3 inthe Consolidated Results of Operations in Part I, Item 2 of this Quarterly Report on Form 10-Q for further detail on the composition of investment fair value changes (the difference in amounts in the table above and in Table 3 relates to fair value changes for investments held at corporate/other).

We hold certain of our investments, primarily our MSRs, at our TRS. Activity of this segment that is performed within/at our TRS is subject to federal and state income taxes. The benefit from income taxes was primarily due to GAAP losses generated by this segment’s operations at our TRS and our provision for income taxes at this segment is primarily driven by the amount of income earned from portfolio assets.

The increase in segment contribution during the three months ended March 31, 2025, as compared to the three months ended December 31, 2024, is due to the $20 million improvement in Investment fair value changes, net. This improvement was driven by investment fair value gains, net on Third-Party Portfolio Investments as a decline in benchmark interest rates resulted in higher valuations. This was partially offset by higher residential bridge loan delinquencies resulting in incremental negative fair value changes on certain 2021 and 2022 vintage bridge loans in Legacy Bridge Investments.

Fundamental performance of our residential consumer assets within our Retained Operating Investments (e.g. Sequoia (SEMT)) and Third Party Portfolio Investments (e.g. reperforming loans (SLST)) continue 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 Sequoia and re-performing loan securities portfolios were stable in the first quarter 2025 at 0.2% and 7.2% of our total unpaid principle balances, respectively, compared to 0.2% and 7.3% at December 31, 2024.

Certain residential investor assets within our Retained Operating Investments continue to manage through the impacts of elevated benchmark interest rates and overall financing costs for investors, particularly for loans originated in 2021 and 2022 when interest rates were significantly lower. In anticipation of this impact, our CoreVest team has continued to work with borrowers well in advance of their loan maturities to assess project plans and position borrowers to manage towards successful completions. Delinquencies greater than 90 days across our residential investor bridge loans were higher in the first quarter of 2025 relative to the fourth quarter 2024, primarily driven by two sponsor relationships. Overall, delinquencies in this portion of our portfolio are concentrated in 2021 and 2022 vintages, as compared to our post 2022 vintages which are largely focused on single-family strategies and continue to perform well and reflect the strength of our more recent investment focus. To that end, we continue to actively reduce exposure in the legacy bridge loan portfolio, seeking resolutions that optimize net present value, including traditional property liquidations and restructurings that better position a sponsor to refinance, as well as more recently pursuing partnership-based solutions with other capital providers at both an asset-specific and portfolio level. Overall repayment velocity in this bridge loan portfolio remains positive, as approximately 10% of the overall bridge loan portfolio (by UPB) paid off during the first quarter of 2025 and we resolved approximately 9% of bridge loans (by UPB) that were 90 or more days delinquent at December 31, 2024, progress that has continued into the second quarter 2025.

Operating expenses at this segment increased $2 million in the first quarter of 2025 compared to the fourth quarter in 2024, primarily due to increased portfolio management costs incurred for the management of specially serviced residential investor bridge loans and related workout arrangements in Legacy Bridge Loan Investments.

The decrease in segment contribution in the three months ended March 31, 2025, as compared to the three months ended March 31, 2024 is due the change in Investment fair value changes, net of $26 million from a $22 million net gain during the first quarter of 2024, to a $5 million net loss during the three months ended March 31, 2025. This decrease was primarily related to impairments and the impact of interest rate modifications on the values of our unsecuritized residential investor bridge and term loan portfolios at fair value in Legacy Bridge Investments. This was offset by investment fair value gains, net of associated interest rate hedges, on our Third Party Portfolio Investments during the three months ended March 31, 2024.

Similar trends as mentioned above also drove the increase in operating expenses in the three months ended March 31, 2025 compared to the same period ended March 31, 2024, primarily due to increased portfolio management costs incurred for Legacy Bridge Investments.

The following table presents details of our Redwood Investments Portfolio at March 31, 2025 and December 31, 2024 organized by investments in retained securities from Sequoia and CoreVest securitizations and those acquired from third-parties. Amounts presented in the table represent our retained economic interests in consolidated Sequoia, CAFL Term, SLST, Freddie Mac K-Series, Servicing Investment and HEI securitizations as noted.

Table 11 – Redwood Investments - Detail of Economic Interests

(1)Represents our retained economic investment in securities issued by consolidated Sequoia securitization VIEs. For GAAP purposes, we consolidated $10.18 billion of loans and $9.64 billion of ABS issued associated with these investments at March 31, 2025. We consolidated $8.82 billion of loans and $8.40 billion of ABS issued associated with these investments at December 31, 2024.

(2)Represents our retained economic investment in securities issued by consolidated CAFL Term securitization VIEs. For GAAP purposes, we consolidated $2.39 billion of loans and $2.07 billion of ABS issued associated with these investments at March 31, 2025. We consolidated $2.49 billion of loans and $2.17 billion of ABS issued associated with these investments at December 31, 2024.

(3)Other investments at March 31, 2025 includes net risk share investments of $26 million, representing $29 million of restricted cash and other assets, net of other liabilities of $2 million.

(4)Represents our economic investment in securities issued by consolidated SLST securitization entities. For GAAP purposes, we consolidated $1.28 billion of loans and $1.02 billion of ABS issued associated with these investments at March 31, 2025. We consolidated $1.24 billion of loans and $1.01 billion of ABS issued associated with these investments at December 31, 2024.

(5)Represents our economic investment in securities issued by consolidated Freddie Mac K-Series securitization entities. For GAAP purposes, we consolidated $424 million of loans and $388 million of ABS issued associated with these investments at March 31, 2025. We consolidated $425 million of loans and $389 million of ABS issued associated with these investments at December 31, 2024.

(6)Represents our economic investment in consolidated Servicing Investment variable interest entities. At March 31, 2025, for GAAP purposes, we consolidated $262 million of servicing investments and $161 million of non-recourse short-term securitization debt, as well as other assets and liabilities for these entities. At December 31, 2024, for GAAP purposes, we consolidated $262 million of servicing investments and $159 million of non-recourse short-term securitization debt, as well as other assets and liabilities for these entities.

(7)At March 31, 2025 and December 31, 2024, represents HEI owned at Redwood of $262 million and $257 million, respectively and our retained economic investment in securities issued by consolidated HEI securitization entities of $50 million and $47 million, respectively.

The size of our Redwood Investments portfolio increased slightly since December 31, 2024, primarily due to the retention of $138 million of securities from the three Sequoia securitizations during three months ended March 31, 2025, offset by principal payments received on our securitized bridge loans. At both March 31, 2025 and December 31, 2024, 78% of our Redwood Investments portfolio economic interests were retained interests from our securitizations or securitized and unsecuritized bridge loans, respectively, and 22% were purchased from third parties, respectively. 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 their activity during the three months ended March 31, 2025.

Real Estate Securities Portfolio

The following table sets forth activity in our real estate securities portfolio for the three months ended March 31, 2025, organized by investments in retained securities from Sequoia and CoreVest securitizations and those acquired from third parties. This table includes both our securities held on balance sheet and our economic interest in securities we own in securitizations we consolidate in accordance with GAAP.

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

(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 period multiplied by the prior quarter ending price or acquisition price for that security.

(2)At March 31, 2025, $51 million of Sequoia Securities and $126 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 March 31, 2025, our securities owned at Redwood and in consolidated entities consisted of fixed-rate assets (98%), adjustable-rate assets (<1%) and hybrid assets that reset within the next 15 months (2%).

We sold $14 million of securities in the first quarter of 2025. In April 2025, we sold an additional $50 million of non-strategic, third-party securities. Strategically, we will look to continue reducing our exposure to our investment portfolio, namely legacy bridge and third-party investments. This could result in an approximate rotation of approximately 20% of capital toward our operating platforms and retained operating investments throughout the remainder of 2025.

We directly finance our holdings of real estate securities with a combination of recourse, non-marginable term debt financing, non-recourse, non-marginable re-securitization debt, and recourse, marginable securities repurchase financing. At March 31, 2025, we had: CAFL securities with a fair value of $320 million that were financed with $267 million of non-marginable recourse debt through a subordinate securities financing facility; re-performing loan securities with a fair value of $264 million (including securities owned in consolidated securitization entities) that were financed with $139 million of non-recourse securitization debt (ABS issued); Sequoia securities we owned from consolidated and unconsolidated Sequoia securitization trusts with a fair value of $331 million that were financed with $276 million of non-recourse re-securitization debt (ABS issued); real estate securities with a fair value of $314 million (including securities owned in consolidated securitization entities) that were financed with $236 million of recourse debt incurred through repurchase facilities; and $107 million of securities that were financed using a recourse residential MSR warehouse facility. The remaining $200 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 Sequoia securities, CAFL term securities and SLST (Re-performing loan) securities at March 31, 2025. 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 13 – Credit Statistics

(1)The methodology for calculating weighted average values for securities investments presented in the tables above, including delinquency rates, is based on notional balances of loans collateralizing each of our securities investments.

(2)Sequoia Securities presented in this table include subordinate and interest only or certificated servicing securities.

(3)HPI updated average LTV is calculated based on the current loan balance and an updated property value amount that is formulaically adjusted from value at origination based on the FHFA home price index (“HPI”).

(4)Delinquency percentages at underlying securitizations are calculated using unpaid principal balance ("UPB"). Aggregate delinquency amounts by security type are weighted using the UPB of the loans collateralizing each of our securities investments.

(5)Includes loans over 90 days delinquent and all loans in foreclosure (regardless of delinquency status).

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 of between 15-20% on Third-Party Portfolio and Retained Operating Investments.1 During the first quarter of 2025, our Sequoia Securities portfolio continued to demonstrate stable credit 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 SLST Re-performing loan securities and Sequoia securities), many of our residential investments are supported by stable home price appreciation and borrower equity in the underlying homes. For the term loans underlying our consolidated CAFL securities, 90 day+ delinquencies increased modestly during the first quarter of 2025.

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 MD&A for a review of risk factors that may impact our ability to realize our target returns.

Residential Investor Bridge Loans Held-for-Investment

The following table provides the activity of residential investor bridge loans held-for-investment during the three months ended March 31, 2025.

Table 14 – Residential Investor Bridge Loans Held-for-Investment - Activity

(1)Includes whole loan sales to third parties and our joint ventures.

(2)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.

(3)In the fourth quarter of 2024, we completed our first CAFL securitization sponsored by one of our joint ventures. During the three months ended March 31, 2025, we transferred $43 million of residential investor loans to the securitization issuer under the replenishment feature of this transaction. For additional information on our principles of consolidation, see Note 16 of the Notes to Consolidated Financial Statements, included in Part I, Item 1 of the 2025 Quarterly Report on Form 10-Q.

The fair value of residential investor bridge loans held-for-investment of $1.81 billion at March 31, 2025, were comprised of first-lien, interest-only loans with a weighted average coupon of 9.28% and original maturities of 6 to 36 months. At March 31, 2025, interest income, net recognized on these loans totaled $72 million, of which $2 million represented deferred interest. The fair value of the subset of these loans with modifications involving interest deferrals totaled $626 million at March 31, 2025 . This subset of loans had a weighted average coupon of 9.10%, of which 3.77% represented deferred interest.

At origination, the weighted average FICO score of sponsors of these loan borrowers was 753 and the weighted average as-repaired LTV ratio of these loans was 66%. Overall repayment velocity on these loans was strong in three months ended March 31, 2025 with principal repayments of $178 million.

At March 31, 2025, loans in this portfolio with an aggregate fair value of $230 million and an unpaid principal balance of $272 million, were greater than 90+ days delinquent. Included in the 90+ days delinquent balance are loans in foreclosure with an aggregate fair value of $33 million and an aggregate unpaid principal balance of $48 million. Additionally, REO associated with bridge loans decreased from $78 million at December 31, 2024, to $68 million at March 31, 2025, resulting from a decrease in fair value of $14 million, partially offset by transfers to REO of $2 million.

The fair value of residential investor bridge loans held-for-investment of $1.81 billion at March 31, 2025 declined slightly from $1.86 billion at December 31, 2024. Changes in the value of these loans during the first quarter of 2025 reflect incremental negative fair value changes primarily resulting from higher bridge loan delinquencies on certain 2021 and 2022 vintage bridge loans. For the three months ended March 31, 2025 and December 31, 2024, we modified or put into forbearance loans with a total aggregate unpaid principal balance of $206 million and $353 million, respectively. This balance included modifications to the contractual interest rates (including, in certain cases, deferrals of interest) on loans and modifications involving only extensions of loan maturities and/or covenant terms.

For the three months ended March 31, 2025 and December 31, 2024, loans with modifications involving reductions in contractual interest rates (including, in certain cases, deferrals of interest) had an aggregate unpaid principal balance of $68 million and $167 million at March 31, 2025 and December 31, 2024, respectively. In the three months ended March 31, 2025, modifications on these loans maintained a weighted average contractual interest rate of approximately 5.00% and 8.64%, of which 0% and 5.39% represented deferred interest, respectively. Of this balance, $68 million and $24 million, respectively, included loans that had previously been modified and the further modifications on these loans involved additional amendments to the contractual interest pay rate and deferred interest. We also provided maturity extensions, subject to mandatory partial repayments during the loan term, and established a hard lockbox along with funding interest reserves to cover debt service shortfalls. Of the $68 million in total aggregate unpaid principal balance that was further modified in the three months ended March 31, 2025, we have subsequently resolved in the second quarter of 2025 two of these loans totaling $36 million at the agreed upon modified terms.

For the three months ended March 31, 2025 and December 31, 2024, loans with modifications involving extensions in loan maturities and/or covenant terms (but no changes to contractual interest rate) had an aggregate unpaid principal balance of $138 million and $186 million at March 31, 2025 and December 31, 2024, respectively. While we continue to actively engage 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. 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 these types of maturity extensions, our asset management function also seeks to charge fees related to these extensions. For both the first quarter of 2025 and fourth quarter of 2024, the average length of maturity extensions granted on residential investor bridge loans was seven months and five months, respectively.

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 March 31, 2025, we had $705 million of debt incurred through warehouse facilities, which was secured by residential investor bridge loans with a fair value of $1.10 billion; and $708 million of securitization debt secured by $769 million of residential investor bridge loans, $35 million of restricted cash and $38 million of other assets. At March 31, 2025, the unpaid principal balance of bridge loans financed was $1.91 billion, of which $530 million was financed with non-recourse, non-marginable facilities, $621 million was financed with recourse, non-marginable facilities, and $760 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 March 31, 2025 and December 31, 2024.

Table 15 – 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 and small multifamily properties (generally less than 20 units).

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

At March 31, 2025, the fair value of our total residential investor bridge loans held-for-investment and associated REO represented 95.3% 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 ($744 million at March 31, 2025) and associated multifamily REO ($24 million at March 31, 2025), represented 91.3% 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. In the second quarter of 2025, we have begun taking steps to accelerate the reduction of our legacy bridge loan portfolio in order to streamline our operations and focus our human and investment capital on strategic go-forward activities.

Home Equity Investments

The following table provides the activity of HEI held at our Redwood Investment segment during the three months ended March 31, 2025.

Table 16 – HEI at Redwood Investments Segment - Activity

(1)Our HEI presented in this table as of March 31, 2025, include $338 million of HEI owned in our consolidated HEI securitization entities and $262 million of HEI owned directly at Redwood.

We finance a portion of our HEI through a short-term warehouse facility. At March 31, 2025, there was $92 million of debt outstanding on this warehouse facility, secured by HEI with a fair value of $208 million.

Additional details on our HEI are included in Note 10 of our Notes to Consolidated Financial Statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q. During the three months ended March 31, 2025, positive investment fair value changes primarily reflected improvements in actual and forecasted home price appreciation, relative to previously modeled amounts.