REDWOOD TRUST INC

We report on our business using four segments: Sequoia Mortgage Banking, CoreVest Mortgage Banking, Redwood Investments and Legacy 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 four segments reconciled to our consolidated net income for the three and six months ended June 30, 2025 to the immediate preceding quarter March 31, 2025 and year-to-date period June 30, 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 and six months ended June 30, 2025 to the immediate preceding quarter ended March 31, 2025 and year-to-date period ended June 30, 2024.

Corporate/Other

Net expense from Corporate/Other remained essentially flat quarter-over-quarter, with no material change between the three months ended June 30, 2025 and March 31, 2025. For the six months ended June 30, 2025 compared to the same period in 2024, net expenses increased by $10 million, primarily due to an increase in variable and fixed compensation expense associated with additional headcount, and higher interest expense related to higher corporate debt balances for the first half of 2025, which also carried a higher interest rate than that of the convertible debt which matured in 2024.

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 or bulk 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 income is Mortgage banking income, which is comprised of net interest income from its inventory of loans held-for-sale, securities utilized for interest rate 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. 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. Direct operating expenses and tax expenses associated with these activities are also included in this segment.

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, which we also refer to as "non-QM", as well as DSCR mortgage loans. While we may 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 and six months ended June 30, 2025 to the immediate preceding quarter March 31, 2025 and year-to-date period through June 30, 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 and six months ended June 30, 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 decrease in segment contribution in the three months ended June 30, 2025, as compared to the three months ended March 31, 2025, is primarily due to lower lock volumes, partially offset by an increase in gain on sale margins and hedge outperformance. Total lock volume for the second quarter of 2025 was $3.6 billion and reflects a 10% decrease from the prior quarter but a 35% increase compared to the $2.7 billion reported in the second quarter of 2024 (see discussion in the section following for the six-month periods). Note that the quarter over quarter difference was primarily driven by a $1.0 billion seasoned bulk pool that we committed to purchase in the first quarter of 2025. Total lock volume in the second quarter of 2025 included $3.3 billion in Sequoia jumbo locks and $330 million from Aspire's mortgage banking activities.

The lock activity was marked by an increase in on-the-run (or current coupon) production volume, which rose 15% quarter over quarter despite a temporary pullback in April due to tariff-related market volatility. Notably, this was the highest quarter of on-the-run lock volume since 2021, a time when the jumbo mortgage origination market was more than three times the size it is today. The strength of our lock volume is supported by ongoing inroads with our network of 214 loan sellers, a number of which includes some of the largest bank and non-bank jumbo originators in the market.

Gain on sale margins remained above historical targets, at 131 basis points, compared to 123 basis points in the prior quarter and above the long-term target range of 75 to 100 basis points. This improvement was supported by favorable execution conditions and strong institutional demand for Sequoia’s securitized and whole loan offerings.

Distribution activity remained robust, with $2.9 billion of loans distributed during the quarter ($2.0 billion of which was through securitization and $0.9 billion of which was through whole loan sales), representing the most active distribution period since the second quarter of 2021. Sequoia continued to maintain its leadership in the jumbo loan RMBS market, completing four securitizations (three of which were backed by newly-originated loans and one of which was backed by seasoned loans) representing approximately 40% of all non-bank jumbo loan securitization volume year-to-date, underscoring its dominant market position.

The seller network also expanded meaningfully. Aspire, included under Sequoia Mortgage Banking, added new loan originators during the quarter, with its total seller network growing by 60% quarter over quarter to approximately 40 sellers. Notably, over 85% of Aspire’s current sellers overlap with the Sequoia network, pointing to cross-platform leverage and operational integration.

Adjustable-rate mortgage (ARM) activity remained elevated as a share of total locks, reaching approximately 10% of total Sequoia volume in the second quarter, in line with levels seen in the first quarter of 2025 and the fourth quarter of 2024, but up from just 0.3% in 2023. This trend reflects borrower demand for affordability solutions amid persistently elevated interest rates.

Aspire locked $330 million in expanded loans during the second quarter, marking a 197% increase quarter over quarter. Volume composition was split between 67% Bank Statement and 33% DSCR products, and 30% of total volume came from new sellers. Aspire also completed its first whole loan sales during the quarter, a notable milestone as it scales within the non-QM market.

For the three months ended June 30, 2025, our cost per loan was 26 basis points (calculated as operating expenses divided by loan purchase commitments), compared to 21 basis points for the quarter ended March 31, 2025, representing ongoing efficiency of our platform. We continue to evaluate monetary policy, housing trends and economic data, among other factors, in developing our interest rate 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 second 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 June 30, 2025.

Capital allocation to this segment was $475 million at June 30, 2025, compared to $425 million at March 31, 2025 due to higher loan purchases during the second quarter of 2025. We continue to competitively bid on bulk jumbo loan acquisition opportunities, including newer vintage and seasoned collateral and both fixed and adjustable-rate mortgages while also focusing on forward flow agreements. 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 June 30, 2025, we had residential consumer warehouse facilities outstanding with $2.96 billion of total capacity and $1.69 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 $400 million of total capacity and marginable facilities with $2.56 billion of total capacity.

Segment contribution from Sequoia Mortgage Banking increased significantly to $48 million for the six months ended June 30, 2025, up from $17 million in the prior-year period, an improvement of $31 million. This increase was driven by a substantial rise in income from mortgage banking activities from higher loan lock volumes and distribution activities, and ongoing operational efficiency.

Mortgage banking income (which includes net interest income and non-interest income from mortgage banking activities, net) totaled $80 million through June 30, 2025, representing an increase of $49 million or 157% compared to $31 million for the six months ended June 30, 2024. This growth was supported by strong performance across both flow and bulk acquisition channels, particularly from bank sellers, which saw enhanced engagement throughout the first half of 2025.

Total loan locks during the period reached $7.6 billion, up from $4.4 billion in the first half of 2024 — an increase of over 71%. This sharp growth reflects both a broadening of Sequoia's seller network, deepening of wallet share across existing relationships and an increase in bulk activity, as evidenced by a $1.0 billion seasoned pool that was locked during the first quarter of 2025.

Aspire, included in this segment's reported results, contributed $441 million in lock volume during the six months ended June 30, 2025, with the second quarter locks reaching $330 million, a 197% increase from the prior quarter. Aspire’s seller network increased by 60% during the second quarter to approximately 40 originators, and over 85% of these sellers also do business with Sequoia. Aspire also completed its first whole loan sale during the second quarter of 2025, marking a key milestone as the platform scales into an expanding non-QM market.

Key performance trends such as gain-on-sale margins, cost per loan, and operating efficiency followed a similar trajectory in the year-to-date comparison as observed in the quarter-over-quarter period, with both timeframes reflecting elevated margins, stable efficiency metrics (as measured primarily by cost per loan), and scaled distribution execution.

Distribution activity in the six months ended June 30, 2025 was elevated across securitization and whole loan activity with $4.9 billion distributed relative to $2.8 billion for the period ended June 30, 2024. Sequoia also sustained its leadership in the private-label RMBS market. Through the first half of 2025, it remained the top non-bank issuer of jumbo mortgage-backed securities, executing approximately 40% of non-bank jumbo securitization activity and operating with turn times twice as fast as peers.

Operating expenses increased to $16 million year-to-date, up from $11 million in the prior-year period. The increase reflects higher loan acquisition costs and volume-based variable compensation as loan activity scaled. Provision for income taxes increased from $3 million to $17 million, aligning with improved profitability.

Capital allocated to the Sequoia Mortgage Banking segment rose to $475 million at June 30, 2025, up from $300 million at June 30, 2024, consistent with the segment's growth trajectory and expanded pipeline.

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 or into joint ventures. 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.

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. Fee income associated with our administration of joint ventures and other loan-related administrative functions is also included in this segment. 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 and six months ended June 30, 2025 to the immediate preceding quarter March 31, 2025 and year-to-date period June 30, 2024.

Table 7 – CoreVest Mortgage Banking Earnings Summary

CoreVest segment income presented in the table above is comprised of Mortgage banking income, consisting 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 and six months ended June 30, 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 and six months ended June 30, 2025, includes $31 million and $59 million, respectively, of construction draws, of which $16 million and $32 million, respectively, 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 June 30, 2025, as compared to the three months ended March 31, 2025, was primarily due to increased funding volume and improved distribution activity. Total loan fundings for the quarter were $509 million, up 6% from the prior quarter and 11% from the same period last year. Notably, this marked the highest quarterly origination volume for CoreVest since mid-2022, and underscored continued growth in borrower demand across all product lines. Product composition remained well diversified. RTL loans accounted for 33% of originations, with production also diversified across Term loans (39%), Bridge loans (22%), and DSCR loans (6%). RTL loans, Term loans, and DSCR all experienced growth of more than 20% from the prior quarter, highlighting CoreVest’s strategic positioning across small-balance and cash-flow-based investor segments.

The platform continues to benefit from borrower appetite for financing solutions in the single-family rental market, particularly as builders shift toward forward sales into rental communities. Management believes CoreVest has seen repeat activity with top-tier sponsors and is actively capturing market share from traditional bank lenders.

Distribution activity was notably strong, with $583 million of loans sold or participated during the quarter — a 38% increase from the prior quarter and the most active distribution period in the segment’s history. This included the completion of CoreVest's inaugural rated bridge loan securitization, backed by $284 million of RTL and other Bridge products. These distributions were otherwise executed through a combination of whole loan sales and sales to our joint ventures.

Net cost to originate (calculated as operating expenses, less upfront origination fees, divided by origination volumes) improved to 0.94% in the second quarter of 2025, compared to 1.22% in the first quarter of 2025. The stability in net cost to originate reflects CoreVest’s operating leverage and disciplined approach to expense management, even as volumes continue to scale.

CoreVest continues to operate in a large and expanding market, particularly for RTL and DSCR products, which together we estimate to be a $245 billion total addressable market. Management believes CoreVest remains well-positioned to capture increased share through platform depth, distribution relationships, and consistent borrower engagement.

Capital allocated to this segment was $93 million at June 30, 2025, down from $106 million at March 31, 2025. The platform remains focused on capital-efficient growth strategies, including ongoing engagement with JV partners and non-recourse financing structures to support its scaling loan inventory. Our inventory of loans is managed with a combination of our capital and loan warehouse facilities. At June 30, 2025, total warehouse capacity was $2.18 billion, with $1.48 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 $14 million during the six months ended June 30, 2025, compared to the six months ended June 30, 2024. The increase is attributable to higher mortgage banking income, driven by an increase in total loan funding volumes and robust distribution via whole loan sales and joint ventures. Funded volume for the six months ended June 30, 2025 was $991 million compared to $785 million for the period ended June 30, 2024, representing a 26% increase. All strategies saw growth over the period through growth was particularly notable in products of strategic focus such as RTL (54%) and DSCR (86%) loans. Term (18%) and bridge (7%) loans witnessed more modest gains.

Distribution activity for the sixth months ended June 30, 2025 was also elevated compared to the six months ended June 30, 2024. For the six months ended June 30, 2025, CoreVest distributed $991 million of loans compared to $785 million of loans for the six months ended June 30, 2024, an increase of 26%. A significant driver of the increase in distribution activity in 2025 compared to the same period 2024 was the establishment of our joint venture with CPP Investments, which was announced in March 2024 and became active in the third quarter of 2024. Net cost to originate improved from 2.61% in early 2024 to 0.94% in the second quarter of 2025, supported by increased operational scale without significant growth in operating expenses.

Redwood Investments Segment

This segment consists of retained operating investments sourced through our Sequoia securitizations and CoreVest term and bridge loan securitizations, some of which we consolidate for GAAP purposes, and other third-party securities.

In the second quarter of 2025, as a part of the Company's accelerated shift towards a scalable and simplified operating model and wind-down of the legacy unsecuritized bridge and term loan portfolios, third-party securities portfolio, and other non-core legacy assets held in this segment historically were formally reclassified to the newly established Legacy Investments segment. This reclassification did not impact the consolidated financial results but served to streamline reporting and better align Redwood’s disclosure with its strategic focus. All relevant prior period amounts and disclosures have been conformed to reflect the current segment structure.

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 our Redwood Investments portfolio.

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 and six months ended June 30, 2025 to the immediate preceding quarter ended March 31, 2025 and the year-to-date period ended June 30, 2024.

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 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 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 decrease in segment contribution during the three months ended June 30, 2025, as compared to the three months ended March 31, 2025, is due to the $13 million decline in Investment fair value changes, net. This decline was driven by muted asset valuation gains, driven by the lower impact of spread tightening in the second quarter of 2025 relative to the first quarter of 2025.

Fundamental performance of assets within this segment saw consistent trends in underlying credit and continue to be driven by relatively healthy 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 Securities, CAFL Term Securities and retained bridge securities were stable-to-improving in the second quarter 2025 at 0.3%, 7.1% and 3.6% of our total unpaid principal balances, respectively, compared to 0.2% and 8.4% and 3.8% at March 31, 2025.

As we continue to expand our focus on our operating platforms, we intend to allocate capital accordingly. In line with this strategy, during the second quarter we deployed approximately $100 million into retained operating investments, targeting returns in the range of 15% to 20%.

The decrease in segment contribution in the six months ended June 30, 2025, as compared to the six months ended June 30, 2024 is due to the decline in Investment fair value changes, net of $46 million driven by similar trends as mentioned above.

The following table presents details of our Redwood Investments Portfolio at June 30, 2025 and March 31, 2025 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, Freddie Mac K-Series, and Servicing Investments as noted.

Table 10 – 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 $11.59 billion of loans and $10.98 billion of ABS issued associated with these investments at June 30, 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 $2.27 billion of loans and $1.95 billion of ABS issued associated with these investments at June 30, 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 June 30, 2025 includes net risk share investments of $17 million, representing $19 million of restricted cash and other assets, net of other liabilities of $2 million.

(4)Represents our economic investment in securities issued by consolidated Freddie Mac K-Series securitization entities. For GAAP purposes, we consolidated $423 million of loans and $387 million of ABS issued associated with these investments at June 30, 2025. We consolidated $425 million of loans and $389 million of ABS issued associated with these investments at December 31, 2024.

(5)At June 30, 2025 and December 31, 2024, represents HEI originated and owned by Redwood.

(6)Represents our economic investment in consolidated Servicing Investment variable interest entities. At June 30, 2025, for GAAP purposes, we consolidated $263 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 securitization debt, as well as other assets and liabilities for these entities.

The size of our Redwood Investments portfolio increased since December 31, 2024, primarily due to the retention of $249 million of securities from the seven Sequoia securitizations during the six months ended June 30, 2025, as well as an increase in securitized residential investor bridge loans as a result of securitization sponsored by our joint venture during the three months ending June 30, 2025, which we consolidate for GAAP purposes. These increases were offset by the sales of $115 million of non-strategic third-party securities during the six months ended June 30, 2025 to facilitate the rotation of capital toward our operating platforms and retained operating investments throughout the remainder of 2025. At both June 30, 2025 and December 31, 2024, 93% and 87% of our Redwood Investments portfolio economic interests were retained interests from our securitizations or securitized bridge loans, respectively, and 7% and 13% 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 in this segment and their activity during the three and six months ended June 30, 2025.

Real Estate Securities Portfolio

The following table sets forth activity in our real estate securities portfolio for the three and six months ended June 30, 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 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 period multiplied by the prior quarter ending price or acquisition price for that security.

(2)At June 30, 2025, $97 million of Sequoia Securities and $108 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 June 30, 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 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 June 30, 2025, we had: CAFL securities with a fair value of $330 million that were financed with $265 million of non-marginable recourse debt through two subordinate securities financing facilities; Sequoia securities we owned from consolidated and unconsolidated Sequoia securitization trusts with a fair value of $477 million that were financed with $382 million of non-recourse re-securitization debt (ABS issued); real estate securities with a fair value of $167 million (including securities owned in consolidated securitization entities) that were financed with $93 million of recourse debt incurred through repurchase facilities; and $161 million of securities that were financed using a recourse residential MSR warehouse facility. The remaining $106 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 and CAFL term securities at June 30, 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 12 – Credit Statistics (1)

(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)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.

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

Legacy Investments Segment

In the second quarter of 2025, we established Legacy Investments as a new reportable segment. This new segment primarily consists of assets no longer aligned with our core strategic objectives, including legacy unsecuritized bridge and term loans, third-party securities portfolio and other non-core legacy assets. These assets were previously included within the Redwood Investments segment, and are in the active process of sale, runoff, or other disposition as part of accelerated strategic repositioning of our business model. This segment is expected to wind down over time as the assets are sold or otherwise resolved. We expect to free up $200 to $250 million in capital from these legacy investments by year-end 2025, which would be available to redeploy into our operating platforms, related investments, or other uses. All relevant prior period amounts and disclosures have been conformed to reflect the current segment structure.

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 or disposition of assets. 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 Legacy Investments segment for the three and six months ended June 30, 2025 to the immediate preceding quarter ended March 31, 2025 and the year-to-date period ended June 30, 2024.

Table 13 – Legacy 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 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 at our TRS. Activity of this segment that is performed within 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 decrease in segment contribution during the three months ended June 30, 2025, as compared to the three months ended March 31, 2025, is due to the $67 million decline in Investment fair value changes, net and $23 million decline in HEI income, net. In the second quarter of 2025, we recognized valuation losses on our legacy unsecuritized bridge and term loan portfolios, third-party securities portfolio, and other non-core legacy assets, reflecting adverse market developments and anticipated near-term resolutions on these assets, as well as changes in the underlying performance of certain Legacy bridge loans, reflecting increased delinquencies and credit stress in certain 2021 and 2022 vintage loans. These loans were underwritten during a period of significantly lower interest rates and more favorable financing conditions and different market fundamentals. During the second quarter, we took additional steps to reduce our exposure to this portfolio, including loan and REO sales, and other structured exits.

The decline in HEI income, net was primarily driven by negative fair value adjustments due to a slowdown in home price appreciation during the second quarter of 2025, as well as a $14 million fair value loss on our third-party originated HEI portfolio. The latter of which reflects the anticipated near-term sale of a substantial portion of this portfolio.

Capital allocated to Legacy Investments declined by $107 million or 17% at June 30, 2025 from March 31, 2025, largely due to paydowns, sales and fair value adjustments of our legacy unsecuritized bridge and term loan portfolios and the sale, or pending sale, of non-core third-party securities portfolio and other legacy assets. Looking ahead, we intend to continue reducing our capital allocation to Legacy Investments, targeting a decrease to approximately 20% by year-end 2025 from 33% at the end of the second quarter. This would allow us to potentially reallocate up to $200 to $250 million of capital to our core mortgage banking platforms over time. While subject to market conditions and execution timing, our long-term goal is to bring the percentage of our capital allocated to Legacy Investments down to a range of 0% to 5% by the end of 2026. As we execute on this reallocation strategy, we believe there is an opportunity for consolidated returns to improve.

The decrease in segment contribution in the six months ended June 30, 2025, as compared to the six months ended June 30, 2024 is due to the decline in Investment fair value changes, net of $67 million and the decline in HEI income, net of $28 million, driven by similar trends as mentioned above.

Investments Detail and Activity

This section presents additional details on our securities portfolio, home equity investments and unsecuritized residential investor loans held in this segment and their activity during the three and six months ended June 30, 2025.

Securities Portfolio

The following table sets forth activity in our securities held in our Legacy Investments segment for the three and six months ended June 30, 2025. This table includes our economic interests in securities issued by consolidated re-performing loan securitization entities which we consolidate in accordance with GAAP. For GAAP purposes, we consolidated $1.26 billion of loans and $1.01 billion of ABS issued associated with these investments at June 30, 2025. We consolidated $1.24 billion of loans and $1.01 billion of ABS issued associated with these investments at December 31, 2024. At June 30, 2025, our re-performing loan securities were financed with $131 million of non-recourse securitization debt (ABS issued).

Table 14 – Activity of Securities Retained from Consolidated Re-Performing Securities

(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.

Home Equity Investments

In the second quarter of 2025, we began reporting our third-party originated HEI portfolio as part of our Legacy Investments segment, as substantial portion of these HEI investments are expected to be sold or disposed of as part of an accelerated strategic repositioning of our business model. At June 30, 2025, $238 million of unsecuritized HEI and $341 million of securitized HEI were included in the Legacy Investments segment, as presented in the table below.

Table 15 – HEI at Legacy Investments

The following table provides the components of HEI income, net at Legacy Investments for the three and six months ended June 30, 2025 and 2024.

Table 16 – Components of HEI Income, net at Legacy Investments

(1)Amount includes interest expense associated with ABS issued, which totaled $3 million and $6 million, for the three and six months ended June 30, 2025 and 2024, respectively.

We finance a portion of our unsecuritized HEI through a short-term, recourse, non-marginable warehouse facility. At June 30, 2025, there was $90 million of debt outstanding on this warehouse facility, secured by HEI with a fair value of $171 million. At June 30, 2025, for GAAP purposes, we consolidated $341 million of HEI, $206 million of ABS and $90 million of third-party non-controlling interests held in our consolidated HEI securitization entities, for a net economic interest of $51 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.

Legacy Unsecuritized Bridge and Term Loan Portfolios

The following table provides the activity of the legacy unsecuritized bridge and term loans during the three and six months ended June 30, 2025.

Table 17 – Legacy Unsecuritized Bridge and Term Loan Portfolios - Activity

(1)Advances reflect newly originated loans that we intend to sell to securitizations or to our joint ventures.

For the three and six months ended June 30, 2025, interest income, net recognized on Legacy bridge and term loans totaled $9 million and $28 million, respectively. These amounts include a net write-off of deferred interest of $0.5 million in the three months ended June 30, 2025 and recognition of $4 million of deferred income during the six months ended June 30, 2025. The decrease in net interest income recognized in the three-month period was due to an increase in the balance of our legacy unsecuritized bridge and term loan portfolios on non-accrual during the quarter.

At June 30, 2025, legacy unsecuritized bridge and term loans in this portfolio with an aggregate fair value of $186 million and an unpaid principal balance of $274 million, were greater than 90+ days delinquent. Included in the 90+ days delinquent balance are legacy bridge loans in foreclosure with an aggregate fair value of $35 million and an aggregate unpaid principal balance of $53 million. Additionally, the fair value of REO associated with legacy unsecuritized bridge loans decreased from $66 million at March 31, 2025, to $58 million at June 30, 2025, resulting from dispositions and a decrease in fair value totaling $9 million, partially offset by transfers to REO of $8 million.

In the second quarter of 2025, the fair value of the legacy unsecuritized bridge and term loan portfolios declined by $69 million. This decline was driven by fair value losses recognized during the period, reflecting adverse market developments and anticipated near-term resolutions on these loans, as well as changes in the underlying performance on certain of these loans, particularly those of the 2021 and 2022 vintage. These valuations are subject to a rigorous fair value process for our residential investor loans, which consistently includes regular management reviews of underlying property fundamentals and the fair value of the collateral securing the loan, updated third-party appraisals, estimated sales costs, and independent market data verification where available. 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.

Fair value changes also reflect the impact of loan modifications during the period, particularly extensions and interest deferrals, which may have resulted in downward adjustments to loan valuations. These modifications were predominantly related to bridge loans with underlying project delays, borrower financial stress, or market-driven refinancing challenges. The fair value impact of such modifications is incorporated into the Company’s valuation models and contributed to the overall movement in loan values during the period.

Loan Modifications

For the three months ended June 30, 2025, we made modifications to certain Legacy bridge loans, including adjustments to the contractual interest rates. In certain cases, these adjustments involved deferrals of interest. Other modifications were limited to extensions of loan maturities and/or covenant terms.

We may also offer maturity extensions, subject to mandatory partial repayments during the loan term. In some cases, we will establish a hard cash management structure (to enable Redwood, as the lender, to control all cash flows at the property) and fund interest reserves to cover potential debt service shortfalls. Any shift in our intended exit strategy could have implications for the valuation of these loans. Additionally, we may further modify loans that were previously modified. These subsequent modifications may include further changes to the contractual interest pay rate and deferred interest terms.

In the three months ended June 30, 2025, consistent with our strategic transition from non-core legacy assets, we have adopted a more aggressive approach to resolving modified and legacy loans, accelerating the wind-down of underperforming or non-core legacy assets to proactively reduce long-term exposure. This includes advancing loan and REO sales, executing structured exits, and, where necessary, accelerating foreclosure or liquidation processes on assets with limited workout potential.

For the three months ended June 30, 2025, we modified or put into forbearance loans with a total aggregate unpaid principal balance of $363 million. This balance included modifications to the contractual interest rates (including, in certain cases, deferrals of interest) on loans, modifications involving only extensions of loan maturities and/or covenant terms and further modifications on loans that had been previously modified in a prior period.

For the three months ended June 30, 2025, we modified loans primarily involving adjustments in contractual interest rates (including, in certain cases, deferrals of interest) with an aggregate unpaid principal balance of $60 million, of which $25 million had been previously modified in a prior period. Modifications on these loans maintained a weighted average contractual interest rate of approximately 8.91% of which 3.72% represented deferred interest, respectively. The further modifications on these loans involved one or more of: (i) additional amendments to the contractual interest pay rate and deferred interest, (ii) maturity extensions (subject to mandatory partial repayments during the loan term) and (iii) establishment of a hard cash management structure (to enable Redwood, as the lender, to control all cash flows at the property), along with funding interest reserves to cover debt service shortfalls.

For the three months ended June 30, 2025, we modified loans by extending maturities and/or covenant terms with an aggregate unpaid principal balance of $303 million, of which $169 million had been previously modified in a prior period. 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 financial 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 a fee. For the three months ended June 30, 2025, the average length of maturity extensions granted on residential investor bridge loans was under five months.

The following table provides the composition of legacy unsecuritized bridge and term loans by product type as of June 30, 2025.

Table 18 – Legacy Loans - By Product/Strategy Type at Legacy Investments

(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 June 30, 2025, the fair value of our Legacy bridge and term loans and associated REO represented 84.8% 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 ($483 million at June 30, 2025) and associated multifamily REO ($21 million at June 30, 2025), represented 84.9% 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 part of our strategic shift away from non-core legacy assets, we have revised our underwriting practices to discontinue the active origination of large multifamily loans. Consequently, we expect our exposure to multifamily loans and REO to decline over time as we proactively reduce long-term exposure to the Legacy bridge loan portfolio.

We finance our legacy unsecuritized bridge and term loan portfolios with a combination of recourse and non-recourse, non-marginable warehouse facilities, and a portion of a secured, revolving financing facility. At June 30, 2025, we had $594 million of debt incurred through warehouse facilities, which was secured by unsecuritized residential investor bridge and term loans with a fair value of $879 million. At June 30, 2025, unsecuritized bridge and term loans with a fair value of $511 million were financed with $335 million of non-marginable, recourse warehouse facilities. At June 30, 2025, unsecuritized bridge and term loans with a fair value of $367 million were financed with $262 million of non-marginable, non-recourse warehouse facilities. Additionally, at June 30, 2025, our Legacy bridge loans were partially financed by secured, revolving financing facility borrowings.