REDWOOD TRUST INC

Current report

•regulatory risk related to HEI, including recharacterization or regulation as mortgage loans;

Current report

•the impact of state and local rent control or rent stabilization laws on the value of rental properties;

Current report

•our ability to raise, manage, and deploy capital;

Current report

Our business activity, profitability, asset values, and cash flows depend on U.S. and global economic conditions. Negative economic developments, including inflation, slower growth or recession, changes in fiscal or monetary policy (including Federal Reserve actions and benchmark interest rate shifts), international geopolitical events, political dynamics associated with the Trump administration, rising U.S. government debt, bank failures, weakness in housing and other real estate markets, rising unemployment, and domestic and global events such as pandemics or epidemics are likely to adversely impact our results.

Current report

Elevated inflation has driven higher and more volatile interest rates, which have reduced the fair value of many of our assets and affected our earnings, origination and acquisition volumes, ability to securitize or sell assets, cost of capital, liquidity, and ability to pay dividends. Higher rates may impair certain borrowers’ ability to make interest payments, refinance, or repay loans we hold for investment or for sale or securitization, as well as loans underlying mortgage-backed securities (MBS) and similar investments we own, increasing delinquencies and losses, as further discussed in these Risk Factors.

Current report

Ongoing government support for Fannie Mae and Freddie Mac (also referred to as "the Agencies") has sustained their dominance in mortgage finance and securitization, inhibiting private-sector securitization and potentially disadvantaging us given our role in transacting in the non-Agency sector of the mortgage finance market assuming non-Agency mortgage credit risk, including through SEMT® (Sequoia) and CAFL® (CoreVest) securitizations we sponsor. Although reform or privatization of Fannie Mae and Freddie Mac (including ending their conservatorships) is a stated federal policy objective of the Trump administration, the timing, substance, and impact of any reforms are uncertain and could negatively affect our competitiveness. In addition, the Federal Reserve’s termination of large-scale Agency MBS purchases and subsequent reductions of its MBS holdings have reduced overall demand for MBS, including private-label securities we issue, and further reductions or sales could continue to pressure demand.

Current report

Federal Reserve policy actions and communications influence market expectations and can disrupt our business, the value and returns of our portfolio of real estate-related investments, and the pipeline of mortgage loans we own or may originate or acquire. After significantly tightening monetary policy from 2022 through 2024, by curtailing Agency MBS purchases and repeatedly increasing the federal funds rate in response to inflation and tight labor markets, since 2024, it has gradually loosened policy by slowing its balance sheet reduction measures and cutting the federal funds rate. These actions and signals affect rates, spreads, and mortgage-asset valuations which are central to our business.

Current report

Even with policy easing, mortgage rates remain elevated and volatile relative to pre-2022 levels. If benchmark interest rates remain elevated or rise again, the supply of mortgage loans available for purchase or origination, and our ability to compete to acquire or originate them, could be negatively impacted due to lower refinance activity and by increased competition from large commercial banks that may operate with a lower cost of capital, including where Federal Reserve policies affect banks more favorably than us. The Federal Reserve’s balance-sheet reinvestment choices—especially continued curtailment of reinvestment into Agency MBS—may also influence MBS demand and spreads. We cannot predict the timing, direction, or market impact of future Federal Reserve actions, and each of these dynamics could adversely affect our earnings, business, and financial condition.

Current report

Rising benchmark interest rates generally decrease the value of fixed-rate mortgage loans and securities we own and of loans identified for origination or purchase, and increase the cost of our short- and long-term borrowings used to finance those assets and our business, as discussed below in these Risk Factors.

Current report

Housing and real estate markets, and many market participants (including Fannie Mae and Freddie Mac), are subject to extensive laws, regulations, and executive orders. Because residential housing and real-estate finance are frequent policy priorities, governmental authorities may more readily take actions affecting housing finance, landlord-tenant and lender rights, and housing market participants. Actions by regulators, courts, or legislatures regarding mortgage or housing-related contracts, including HEI, such as voiding or modifying contract provisions, adverse enforceability rulings, recharacterizing or regulating HEI as mortgage loans, or further restricting foreclosures, could reduce earnings and asset values, impair loss-mitigation, and increase the probability or severity of losses.

Current report

In 2025, several states proposed restricting certain business entities, pooled funds, and institutional purchasers from acquiring or holding interests in single-family homes, including through purchase caps, penalties, or tax measures, often without tailored exemptions. In early 2026, the Trump administration issued an executive order seeking to prevent large institutional investors from acquiring single-family homes. If enacted, these restrictions could, among other effects, limit single-family home acquisitions and ownership, force divestitures, restrict security interests and foreclosure-related ownership, and impose significant taxes—potentially affecting issuers of MBS and other pooled vehicles. Such laws could materially harm borrowers in our residential investor loan programs, reduce origination, acquisition, securitization, or sale opportunities, and prompt curtailment of residential consumer lending in affected states, which would adversely impact our business and earnings.

Current report

Regulatory frameworks for newer markets, such as HEI, remain unsettled. As discussed further in these Risk Factors, federal and state-level regulatory compliance enforcement and litigation related to HEI have intensified. In early 2026, we received a request for information from the Washington State Department of Financial Institutions related to Redwood’s origination and ownership of HEI entered into with residents of Washington State. These developments increase the likelihood that some jurisdictions will treat HEI as extensions of mortgage credit or as reverse mortgages, with attendant licensing, disclosure, and substantive compliance requirements, and penalties for noncompliance.

Current report

Government oversight and participation in our markets can also indirectly impact us. In 2023, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and OCC issued the “Basel III Endgame” capital rules for large banks. After extensive industry comment, Federal Reserve leaders have since indicated that broad and material changes were warranted and the rule would be re-proposed for additional public comment, with potential recalibration and scope changes under consideration; however, the timing and substance of any such changes remain uncertain. Stakeholders have warned that certain calibrations to these rules, particularly for securitization exposures, could reduce mortgage origination and sale volumes and raise borrowing costs, including by affecting wholesale financing such as the warehouse facilities we use. Early analyses of a potential re-proposal suggest lower aggregate capital increases than the initial 2023 draft, but outcomes are not final and impact assessments vary. Accordingly, if a final rule materially increases bank capital requirements for mortgage or securitization activities, our access to and cost of warehouse financing could be adversely affected, and our loan volumes, business, and the value and returns of our mortgage and MBS assets could be negatively impacted.

Current report

Other regulatory actions may also increase costs. Conforming loan limits rose on January 1, 2025 and again on January 1, 2026, which may reduce the supply or value of non-Agency loans and adversely affect our residential business. The Securities and Exchange Commission (SEC) adopted enhanced climate-related disclosure rules and California enacted climate-risk and emissions-related disclosure laws, although both are currently paused in litigation. Implementation of the final rules could increase our public-company compliance costs and the risk of misreporting newly mandated metrics.

Current report

Past interventions illustrate other potential impacts. During COVID-19, statutes (including the CARES Act) and Agency actions enabled broad payment forbearance and imposed foreclosure and eviction moratoria. Following the 2008 financial crisis, reforms altered the regulation of financial institutions, products, and markets, including accounting and capital standards. Heightened scrutiny and enforcement priorities—e.g., mortgage servicing, real-estate valuations, credit reporting, automated decision-making, and anti-discrimination—by the Consumer Financial Protection Bureau (CFPB), Federal Trade Commission (FTC), U.S. Department of Justice (DOJ), state regulators, and attorneys general could further increase our compliance costs and the costs of assets we acquire.

Current report

We cannot predict the timing, form, or impact of governmental actions or their unintended effects. Such actions may adversely—and possibly materially—affect our business and financial results and we may be unable to respond in ways that avoid negative impacts.

Current report

We face intense competition for investments, for acquiring, originating, selling, and securitizing loans, and across other aspects of our business. Competitors include commercial, regional, and community banks, other mortgage REITs, Fannie Mae and Freddie Mac, broker-dealers, investment advisors and funds, insurance companies, specialty finance companies, residential investor-loan originators, and other investors, including newly formed firms (formed on occasion by our former employees). Many competitors have greater resources, lower funding costs, broader distribution, or higher risk tolerances, enabling them to pursue a wider range of assets and offer more favorable terms. Competition can reduce opportunities and compress returns, adversely affecting our business and financial results.

Current report

Governmental actions also pose significant competitive threats. Fannie Mae and Freddie Mac buy loans and conduct securitizations. Before 2008, their conforming loan limit for single-unit homes in the continental U.S. was $417,000. Since 2008 it has been raised, and as of January 1, 2026 the maximum in certain high-cost areas is $1,249,125, encroaching on our addressable market of non-conforming loans. The Agencies have been in conservatorship since 2008 and effectively operate as government instrumentalities. Future legislation or executive/regulatory actions, including potential steps by the Trump administration to end conservatorship and privatize one or both enterprises, are uncertain. With ongoing governmental support, the Agencies finance a significant share of the mortgage market and compete aggressively given their size and low cost of funds. Privatization could expand their activities and make them even more formidable competitors. Absent changes that limit their role (e.g., to loan limits or guarantee fees), Agency competition will remain significant or increase. If home prices fall while conforming loan limits stay constant, more loans would likely qualify as conforming, further encroaching on our addressable market.

Current report

Additionally, the Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) guarantee qualified residential mortgages. FHA/VA loans accounted for roughly 27% of 2025 U.S. originations (through September 30, 2025) by dollar volume. The federal government’s ability—through the Agencies and FHA/VA—to finance large portions of the market at comparatively low funding costs represents substantial competition that could adversely affect our business.

Current report

Since the 2008 financial crisis, U.S. real estate, mortgage, and related capital markets have undergone significant change due to government interventions and new banking and mortgage-finance regulations. Future federal actions affecting Fannie Mae and Freddie Mac and broader housing finance, along with a final Basel III Endgame proposal, if implemented, remain uncertain. Other factors, including a rising or sustained elevated interest-rate environment (which would reduce refinance volumes), secular shifts in rent-versus-own preferences, and trends in housing cost and supply (including potential action by the Trump administration to build on surplus federal land), may further reshape industry conditions. Our business methods and financing model are evolving; if we fail to develop, enhance, and execute strategies responsive to these changes, our business and financial results may be adversely affected. New ventures and strategic shifts can expose us to new or different risks that we may not effectively identify or manage, as further discussed within these Risk Factors.

Current report

Our competitive landscape and the products and investments for which we compete also change with market conditions. Trends or sudden shifts, such as a final Basel III Endgame proposal, changes in the roles of Fannie Mae and Freddie Mac, adjustments in credit-rating agency criteria or processes, or broader U.S. economic changes, could impair our competitiveness if we do not respond effectively, adversely affecting our business and financial results.

Current report

We have historically relied on MBS issued by securitization entities we sponsor as a significant funding source for our residential consumer and residential investor mortgage banking businesses. As discussed below in these Risk Factors, securitization volumes vary year-to-year, and we may be unable to execute such transactions regularly or on acceptable terms. We also depend on whole-loan sales as a distribution channel and alternative to securitization. Market conditions have at times limited this activity in recent years. A prolonged disruption in whole-loan or securitization markets could adversely affect our earnings, growth, and liquidity.

Current report

Decisions we make about business strategy, investments, and capital allocation may not improve our results.

Current report

In recent years we expanded our mortgage banking activities to include acquiring and originating residential investor loans through CoreVest, accelerated the wind down of our Legacy Investments portfolio, and began investing in and originating HEI, including through Aspire. We launched RWT Horizons® to invest in early-stage, strategically aligned companies, changed the size and composition of our investment portfolio, and formed joint ventures with third parties to purchase mortgage loans from us.

Current report

These types of initiatives, together with developments in our focus on our core mortgage banking businesses and transition to a capital-light business model, are intended to grow mortgage banking revenues, broaden operations, and enhance our profitability. We raise equity and debt (secured and unsecured) and allocate capital among these initiatives based on our analysis of economic and market conditions, secular housing demand, and competitive dynamics. Our analyses may be wrong or fail to identify risks or competitive threats. For example, in the second quarter of 2025, we accelerated the wind down of our Legacy Investments portfolio and incurred associated losses as we moved forward with liquidations, term financings, or other resolutions for these assets, in order to redeploy capital into our mortgage banking business. We may incur additional losses, which could be significant, as we continue to wind down the Legacy Investments portfolio, and our reallocation of capital into our core mortgage banking businesses may fail to improve our profitability. As another example, we incurred losses in 2020 from materially reducing our portfolio amid COVID-related financing disruptions, and we have incurred losses on certain RWT Horizons® investments. If initiatives are not well-founded or cannot adapt to changing economic, market, regulatory, competitive, or other conditions, or if capital raising, allocation, and deployment do not support profitable growth, our revenues, profitability, book value, and competitiveness may be adversely affected.

Current report

Pursuing new businesses, expanding operations, or changing portfolio mix exposes us to new or additional risks. For example, originating and investing in HEI entailed novel financial, operational, and compliance risks, including evolving regulation and risks of direct-to-consumer origination. RWT Horizons® and our joint ventures also introduced distinct financial, operational, and regulatory risks. We may pursue registration with the SEC as an investment advisor to support the growth of these initiatives and our transition to a capital-light business model, and this may introduce additional risks. We may engage in activities or make investments with greater credit exposure (e.g., structurally subordinated interests or assets underwritten to expanded criteria, including subordinate-lien consumer mortgages). Our use of technology, including artificial intelligence (AI), may increase exposure to cyberattacks, IT outages, third-party dependencies, and risks from flawed development, configuration, or deployment.

Current report

We periodically raise capital via common stock, preferred stock, and debt (including convertible debt), including issuances since 2023 of $67 million of preferred stock, $124 million of common stock, $335 million of unsecured debt, and $90 million of convertible notes, and warrants to purchase approximately 6.6 million shares of common stock. Additional shares may be issued upon conversion of debt, exercise of warrants, under employee plans (including distributions on prior awards), and to fund merger and acquisition activity. Existing stockholders may be unable to participate in these issuances and may be diluted, and our uses of proceeds may not generate expected returns. If we do not make prudent decisions about raising, managing, and allocating capital, our business and results may be adversely impacted.

Current report

Strategic, financing, and investment decisions may fail to improve long-term profitability, leave less capital for higher-return opportunities, necessitate dilutive equity issuances, harm our reputation, constrain financing or capital-raising, or have other unforeseen consequences—any of which could materially adversely affect our business and results of operations. Activist stockholders may also seek changes to our strategy, investments, financing, or capital raising. Such activist campaigns—often focused on near-term measures (such as restructurings, increasing leverage, special dividends, stock repurchases, or asset/enterprise sales)—can be costly, divert management and Board attention, and adversely affect results.

Current report

Decisions about returning capital, including through dividends or repurchases of common stock, preferred stock, or convertible/other debt, may likewise fail to improve results. Our Board has authorized repurchases of common stock, preferred stock, and debt (including convertible debt). During 2025, we repurchased $53 million of common stock, and we repurchased or repaid $126 million of outstanding corporate debt securities. At December 31, 2025, we were authorized to repurchase up to approximately $111 million of common stock, $70 million of preferred stock, and remained separately authorized to repurchase outstanding debt. Repurchases reflect our view of relative value and capital structure at the time; however, alternative uses of capital may prove more accretive, and unforeseen needs may arise. Past or future repurchases may not improve results and could impair our ability to execute plans, meet obligations, access financing, or raise capital, which could be materially adverse.

Current report

Our use of financial leverage exposes us to heightened liquidity risks, including margin calls and acceleration of repayment from defaults and cross-defaults.

Current report

We finance (and hedge interest rate risk relating to) mortgage loans, securities, and other assets in our investment portfolio and mortgage banking pipelines through various borrowing facilities and derivatives. These arrangements typically require us to pledge collateral, make representations and warranties, and comply with operating and financial covenants (such as minimum tangible net worth and liquidity and maximum recourse leverage), margin call provisions, and events of default and cross-default provisions that expose us to liquidity risks. Many of our financing facilities are uncommitted, allowing lenders to decline to make new advances to us.

Current report

Our financing facilities include marginable structures(i.e., subject to the lender’s determination of the market value of pledged collateral)and non-marginable structures that can still trigger margin calls based on objective tests (e.g., loan delinquency or other credit events, property value declines evidenced by appraisal/BPO, extended financing periods for mortgage loans, exceeding concentration limits, reference-rate movements, or adverse regulatory changes). For example, we could be subject to a margin call on non-marginable debt if an appraisal indicates a decline in the value of the property securing the financed mortgage loan, or based on the occurrence of a triggering credit event impacting the financed mortgage loan followed by a decline in the market value of the financed mortgage loan (as determined by the lender). Broad home-price declines could increase margin exposure, particularly for assets financed during periods of elevated valuations.

Current report

Market stress can rapidly increase margin calls. In early 2020, COVID-related volatility reduced the market value of financed loans and securities, producing significant margin calls that we met with cash or by posting additional collateral, or by selling assets, sometimes under adverse conditions, to fund these margin calls and/or to fund repayment of associated indebtedness. Margin calls may again require cash or collateral we cannot provide, force asset sales, or cause breaches of minimum liquidity covenants. Significant declines in the value of our assets, including loans and securities, can also breach net-worth and leverage covenants, requiring immediate repayments under financing facilities, terminating availability under affected facilities, and triggering cross-defaults to other indebtedness we have.

Current report

Future mortgage-credit volatility—driven by macroeconomic, geopolitical, regulatory, or other events—may again depress values of mortgage loans and MBS and prompt further margin calls. Failures by other market participants to meet their margin calls could force liquidations that pressure prices and result in additional margin calls on our financed loans and securities. Delinquencies on financed mortgage loans may also trigger margin calls or loan repurchases. Rapid interest rate increases in 2022–2023 contributed to elevated delinquencies in residential-investor bridge loans, triggering margin calls and, at times, ineligibility for financing that required full repayment. Increased delinquencies and alleged representation-and-warranty breaches on certain residential-investor term loans have led to repurchases from securitizations, adversely affecting liquidity and our ability to securitize, finance, or sell assets. We may receive additional margin calls and may be unable to meet them, resulting in events of default, acceleration, cross-defaults, and potentially bankruptcy or insolvency.

Current report

Representations, warranties, and covenants in our financing agreements relating to litigation can be breached if claims exceed thresholds or could have a material adverse effect on our business. During the pandemic, one loan seller sued us and others asserted demands relating to our loan purchase activity. Exceeding specified litigation thresholds could have triggered defaults, accelerated repayment, and cross-defaults under our financing agreements.

Current report

Our short-term whole loan warehouse and securities repurchase financings generally mature within 365 days and 90 days, respectively. Renewals may be on less favorable terms or require additional collateral (functionally similar to a margin call). If a counterparty declines renewal, alternative financing may be difficult because financing counterparties often finance only securities they or their affiliates sold to us. Failure to obtain replacement financing would heighten the liquidity risks described above.

Current report

Leverage magnifies these liquidity risks, including from unforeseen shocks to economic or market conditions. For additional information on liquidity and leverage-related risks, see Part II, Item 7 of this Annual Report.

Current report

In acquiring or originating mortgage loans, mortgage servicing rights, and other assets, we obtain non-public personal information about borrowers. Since 2010, we have acquired more than 100,000 residential mortgage loans and servicing rights, in addition to residential-investor loans and HEI.

Current report

We maintain information-security measures, but they may be inadequate or compromised by external or internal actors, including hackers, cyber-attacks, malware, denial-of-service, phishing, social-engineering, and ransomware, as well as employee or vendor error or malfeasance. Threat actors increasingly use AI. Even sophisticated cyber-related defenses can fail due to human error, and attacks may remain undetected or dormant. We have experienced unauthorized IT access and social-engineering-related fraud, including fraudulent wire-transfer activity, and incurred immaterial losses in the past; however, we cannot predict or quantify the adverse impacts of any future incidents.

Current report

We are subject to evolving federal and state data privacy laws and regulations governing the collection, use, transfer, retention, and protection of personal information, and granting data-subject rights. We are also subject to emerging AI laws, including Colorado’s AI Act which imposes requirements on developers and deployers of “high-risk” AI systems aimed at preventing algorithmic discrimination in “consequential decisions” (including lending and housing). Other jurisdictions have proposed or enacted similar measures. These regulatory regimes are developing, may be inconsistent across jurisdictions, costly or difficult to implement, and may require changes to our business practices. Noncompliance with these laws and regulations, or failure to adhere to our public privacy notices, could lead to regulatory inquiries, enforcement, private litigation, fines, penalties, and other liabilities, any of which could be material.

Previous report

•decisions about raising, managing, and distributing capital;

Previous report

Our level of business activity and the profitability of our business, as well as the values of, and the cash flows from, the assets we own, are affected by developments in the U.S. economy and the broader global economy. As a result, negative economic developments are likely to negatively impact our business and financial results. There are a number of factors that could contribute to negative economic developments, including, but not limited to, inflation, tariffs, slower economic growth or recession, U.S. or international fiscal and monetary policy changes, including Federal Reserve policy shifts and changes in benchmark interest rates, international geopolitical dynamics, political dynamics associated with the incoming Trump administration, any potential or actual shutdown of the U.S. federal government as a result of Congressional inaction, complications caused by recurring U.S. federal budget deficits, ongoing sufficiency of the U.S. federal debt ceiling and the U.S. federal government's ability to continue servicing national debt, changing U.S. consumer spending patterns, bank failures, negative developments in the housing, single-family rental (SFR), multifamily, and real estate markets, home price depreciation, rising unemployment, rising government debt levels, or adverse global political and economic events, such as the outbreak of pandemic, epidemic disease, or warfare (including the ongoing wars between Russia and Ukraine, and Israel and Hamas).

Previous report

Elevated levels of inflation during the past several years have led to higher benchmark interest rates, and may lead to the sustained elevation of interest rates and more volatile interest rates in the future. Higher and more volatile interest rates have adversely affected, and may continue to adversely affect, our overall business, income, and our ability to pay dividends, including by reducing the fair value of many of our assets. This has adversely affected, and may continue to adversely affect, our earnings results, our volume of loan originations and acquisitions, our ability to securitize, re-securitize, or sell our assets, our cost of capital and our liquidity. Elevated interest rates have adversely affected, and may continue to adversely affect, the ability of certain borrowers to make interest payments or to refinance their loans, including loans we hold in our investment portfolio, loans we hold in anticipation of sale or securitization, and loans underlying our investments in mortgage-backed securities (MBS) and similar investments, as further discussed within these Risk Factors. Moreover, with respect to residential investor loans we hold in our investment portfolio and in anticipation of sale or securitization, and residential investor loans underlying mortgage-backed securities we own, elevated interest rates and higher costs to own and maintain properties (including in certain cases real estate taxes and insurance) have contributed to financial stress among certain cohorts of borrowers by increasing their monthly interest payments on floating rate loans, as well as reducing net cash flow generated by rental properties and increasing the costs, and inhibiting the sale of financed properties, associated with renovation-and-resale/rental projects and ground-up construction projects, contributing to increased delinquency rates and losses on loans to impacted borrowers. Our business and financial results may be harmed by our inability to accurately anticipate developments associated with changes in, or the outlook for, interest rates.

Previous report

Real estate values, home price appreciation trends, and the ability to generate returns by owning or taking credit risk on loans secured by real estate, are important to our business. The government’s support of mortgage markets through its support of Fannie Mae and Freddie Mac has contributed to Fannie Mae’s and Freddie Mac’s continued dominance of mortgage finance and securitization activity, inhibiting the growth of private sector mortgage securitization. This support may continue for some time and could have potentially negative consequences to us, since we have traditionally taken an active role in assuming credit risk in the private sector mortgage market, including through investments in SEMT® (Sequoia) and CAFL® (CoreVest) securitizations we sponsor. Congress and executive branch officials have periodically proposed various plans for reform of Fannie Mae and Freddie Mac (and the broader role of the government in the U.S. mortgage markets), and the reform or privatization of Fannie Mae and Freddie Mac (including through the termination of the conservatorship of these two GSEs) appears to be a priority for the Trump administration; however, it is unclear which reforms will ultimately be implemented, if any, what the time frame for any such reform would be, and what the impact on our business would be. The reform or privatization of Fannie Mae and Freddie Mac could, however, have a negative impact on our ability to compete with these very large enterprises. In addition, the Federal Reserve’s termination of its program to purchase Agency MBS, and subsequent reduction in the amount of MBS held on its balance sheet, has adversely affected the overall demand for mortgage-backed securities, including private-label mortgage-backed securities such as those issued by us, and any further reduction of the Federal Reserve’s holdings of MBS, including through sales of MBS on its balance sheet, could continue to negatively impact the demand for such securities.

Previous report

Actions taken by the Federal Reserve to set or adjust monetary policy, and statements it makes regarding monetary policy, have adversely affected, and may continue to affect, the expectations and outlooks of market participants in ways that disrupt our business, and the value of, and returns on, our portfolio of real-estate related investments and the pipeline of mortgage loans we own or may originate or acquire. For example, the Federal Reserve significantly tightened monetary policy from 2022 through 2024 by terminating its program to purchase Agency MBS and by increasing the federal funds rate numerous times due to rising inflation and tight labor market conditions, among other reasons. In 2024, the Federal Reserve began to gradually loosen monetary policy, but more recently, in late 2024, the Federal Reserve has signaled that the pace of benchmark interest rate cuts may slow or be paused for as long as needed, until inflation and unemployment rates reach satisfactory levels. Although the Federal Reserve has indicated that additional rate increases may be unnecessary in the near-to-medium-term, the Federal Reserve could maintain rates at their current elevated levels for a prolonged period of time and could, at any time, decide to change course and increase the federal funds rate based on economic indicators or for any other reason. Increasing and sustained elevated rates have led to, and could continue to cause, a significant and sustained reduction in mortgage loan origination volumes, particularly the volume of mortgage refinancings, and the value of fixed-rate mortgage loans and securities we own. Sustained elevated rates or additional rate increases may further reduce loan volumes and asset values, and dampen or reverse home-price appreciation trends, which would have an adverse effect on our earnings, our business, and financial condition.

Previous report

When benchmark interest rates rise, one of the immediate potential impacts on our business is generally a reduction in the overall value of the pool of mortgage loans that we own and the overall value of the pipeline of mortgage loans that we have identified for origination or purchase. Elevated or rising benchmark interest rates also generally have a negative impact on the overall cost of short- and long-term borrowings we use to finance our acquisitions and holdings of mortgage loans and our business more broadly, including existing adjustable-rate borrowings and potential future borrowings. For example, as of December 31, 2024, we had $124 million in outstanding unsecured corporate debt maturing in 2025 that we may repay (all or in part) with the proceeds of new unsecured debt that has been or would be expected to be incurred at significantly higher interest rates than the maturing borrowings. Furthermore, declining values of mortgage loans may trigger a requirement to post additional margin (or collateral) to lenders to offset any associated decline in value of the mortgage loans we finance with short-term borrowings that are subject to market value-based margin calls. Most of the short-term borrowing facilities we use to finance our acquisitions and holdings of mortgage loans are uncommitted and all such short-term facilities have a limited term, which could result in these types of borrowings not being available in the future to fund our acquisitions and holdings and could result in our being required to sell holdings of mortgage loans and incur losses. Similar impacts would also be expected with respect to the short-term borrowings we use to finance our acquisitions and holdings of residential consumer, residential investor, and multifamily MBS. In addition, any inability to fund originations or acquisitions of mortgage loans could damage our reputation as a reliable counterparty in the mortgage finance markets.

Previous report

To the extent benchmark interest rates continue at their current elevated levels or begin to rise again, it could further impact the volume of mortgage loans available for purchase or origination in the marketplace and our ability to compete to acquire or originate mortgage loans as part of our mortgage banking activities. These impacts could result from, among other things, a lower overall volume of mortgage refinance activity by mortgage borrowers and an increased level of competition from large commercial banks that may operate with a lower cost of capital than we do, including as a result of Federal Reserve monetary policies that may impact banks more favorably than us and other non-bank institutions.

Previous report

As noted above, our business is affected by conditions in the housing and real estate markets and the broader financial markets, as well as by the financial condition and resources of other participants in these markets. These markets and many of the participants in these markets are subject to, or regulated under, various federal, state and local laws, regulations and executive orders. In some cases, the government or government-sponsored entities, such as Fannie Mae and Freddie Mac, directly participate in these markets. In particular, because issues relating to residential housing (including both owner-occupied and rental housing), and real estate finance can be areas of political focus, federal, state and local governments may be more likely to take actions that affect residential housing, the markets for financing residential housing, landlord and tenant rights, lender rights, and the participants in residential housing-related industries than they would with respect to other industries. Other changes or actions by regulators, judges or legislators regarding mortgage loans and contracts or other housing-related contracts, including home equity investments (HEI), including the voiding of certain portions of these agreements, adverse determinations regarding enforceability of HEI or their recharacterization or regulation as mortgage loans, or the promulgation of additional restrictions on mortgage foreclosures, may reduce our earnings and the value of assets in our investment portfolio, impair our ability to mitigate losses, or increase the probability and severity of losses.

Previous report

For example, during 2025, lawmaking bodies in several different states have proposed legislation intended to restrict certain business entities, pooled investment funds, and institutional purchasers from acquiring, owning, or, in some cases, obtaining an interest in, single-family residential real estate within their state. These proposals generally attempt to prohibit restricted entities from purchasing residential real estate, and/or establish a maximum allowable number of single-family residential homes that can be purchased or held in inventory by certain specified types of entities. Some of these proposals would establish statutory penalties for violations, while others attempt to establish significant tax penalties to be levied upon specified purchasers and owners of single-family residential homes. Whether accomplished through outright prohibition, taxation, zoning restrictions, or otherwise, many of these proposals fail to include properly tailored exclusions and exemptions. If certain of these proposals were to become law, they could have broad consequences on participants in the mortgage or general real estate industries. Such consequences could include, without limitation, restricting single-family rental owners and/or operators from acquiring or owning single-family residential properties, forced divestiture of single-family real estate already owned, restricting entities from holding security interests in single-family real estate, restricting parties from taking ownership of single-family real estate through foreclosure of a security interest, or levying substantial transfer and other taxes on these and other activities. Depending on the individual law, restricted parties could be read to include certain issuers of mortgage-backed securities and other pooled investment entities. If certain of these proposals become law, it could have a significant detrimental impact on actual and prospective borrowers under our residential investor loan programs as well as residential investor loan origination, acquisition, and securitization or sale opportunities. Additionally, certain of these proposals may cause originators of, and investors in, residential consumer loans to curtail or potentially cease originating, purchasing, selling, or securitizing loans collateralized by properties in specific states. These and other potential consequences of this type of legislation may reduce the volume of loans we originate or acquire and may reduce our earnings and the value of assets in our investment portfolio, impair our ability to mitigate losses, or increase the probability or severity of losses, which could result in negative impacts on our business, assets, financial condition, and results of operations, which could be material.

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Moreover, to the extent we participate in markets that as-yet do not have fully developed regulatory frameworks or responsibilities, such as the market for HEI, we are subject to regulatory uncertainty and a heightened risk of new, enhanced, or changing regulation that is adverse to our business or burdensome to comply with. For example, on January 15, 2025, the CFPB took several coordinated actions relating to HEI (the “January 2025 CFPB Actions”), including issuing a consumer advisory on home equity contracts, publishing an HEI market overview, and filing an amicus curiae (“friend of the court”) brief in a federal district court case regarding one specific consumer’s HEI contract with a third-party provider (Roberts v. Unlock Partnership Solutions AOI Inc., et al., No. 24-cv-01374 (D. N.J. March 4, 2024)). In its amicus brief, the CFPB expressed certain non-binding views on the particular HEI contract at issue in the case, including that the provider’s HEI is a “residential mortgage loan” and therefore “credit” under the Truth in Lending Act. Although none of the January 2025 CFPB Actions is binding or amounts to enforceable law or regulation, the materials are illuminating as to how the CFPB could approach these issues with respect to different types of HEI products. While the materials may not reflect the CFPB’s current views following the recent change in U.S. presidential administration, there is no assurance that the CFPB’s opinions will change, or that the CFPB will not act upon these opinions through formal rulemaking, enforcement, or other official activity. Additionally, the CFPB released a comprehensive report outlining recommendations to strengthen state-level consumer protection laws and to provide a roadmap to enforcement strategies for state lawmakers and regulators. If the CFPB, or another federal or state regulator, were to regulate HEI as a form of credit, our compliance costs would increase, and such regulation could negatively, and materially, impact on our business, assets, financial condition, and results of operations.

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As a result of the government’s statutory and regulatory oversight of the markets we participate in and the government’s direct and indirect participation in these markets, federal, state and local governmental actions, policies, and directives can have an adverse effect on these markets and on our business and the value of, and the returns on, mortgages, mortgage-related securities, and other assets we own or may acquire in the future, which effects may be material. For example, on July 27, 2023, the Federal Reserve System (“Federal Reserve”), Federal Deposit Insurance Corporation (“FDIC”), and Office of the Comptroller of the Currency (“OCC”) issued a notice of proposed rulemaking and request for comment on a proposal to implement the final components of the Basel III Capital Accords in the United States (“Basel III Endgame proposal”). The Basel III Endgame proposal, if adopted, would apply a broader set of capital requirements to banking organizations with $100 billion or more in assets and, generally, require such organizations to reserve additional capital against certain of their assets. More recently, in late 2024, the Vice Chair for Supervision at the Federal Reserve called for changes to the Basel III Endgame proposal that would decrease the contemplated capital requirements. The potential impact of the Basel III Endgame proposal and its many components are hotly debated issues among bankers, regulators, asset managers, and mortgage industry participants, among others. Many stakeholders suggest that this proposal, if adopted, would lead to an overall reduction in mortgage loan origination and sale volumes, and increased borrowing costs for loan borrowers and mortgage industry participants, including as a result of the proposal’s potential impact on the cost and availability of wholesale mortgage financing, such as the warehouse mortgage financing facilities we use to finance our short- and long-term holdings of mortgage loans. Whether the Basel III Endgame proposal becomes effective and, if so, in what form, is subject to significant uncertainty, as is the potential impact any such enactment might have on the U.S. and global economy, mortgage and real estate markets, and on our business, our loan origination and acquisition volumes, and the value of, and returns on, mortgages, mortgage-backed securities, and other assets we own or may acquire in the future. The Basel III Endgame proposal, if enacted, may have a negative impact on our business, financial condition, and results of operations, and that impact may be material.

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As another example, Fannie Mae and Freddie Mac conforming loan limits increased significantly on January 1, 2024 and again on January 1, 2025. These increases, as well as future increases in conforming loan limits, may adversely impact the amount and/or value of non-Agency loans available for purchase, which could have a material adverse effect on our residential business. As another example, in recent years, the Securities and Exchange Commission proposed certain rules to enhance public company disclosure requirements, including with respect to climate-related risk and greenhouse gas emissions, and adopted rules requiring enhanced disclosure relating to cybersecurity events and risk management. The state of California has also enacted legislation mandating certain corporate disclosures of climate- and emissions-related information. In addition, in 2021, Congress enacted the Corporate Transparency Act (“CTA”), which, among other things, requires certain legal entities to disclose their “beneficial ownership information” through a reporting system administered by FinCEN. The CTA went into effect in January 2024, including a gradual phasing-in of the reporting requirement for entities formed prior to 2024, allowing such reports to be filed at any time prior to January 1, 2025. Since going into effect, the CTA has faced numerous legal challenges, one of which led to a stay of enforcement; however, as of the date of this Report, enforcement has resumed, with FinCEN extending the compliance date for most organizations to March 21, 2025. If and when the Securities and Exchange Commission or other governmental or regulatory bodies adopt and implement final rules or laws on these or other topics, such disclosure requirements would increase the cost, potentially significantly, of maintaining our status as a public company and of hiring third-party auditors and other consultants, as well as enhancing the risk of incorrectly reporting newly mandated metrics (such as our direct and indirect greenhouse gas emissions, or the climate-related impacts on our financial statements at the line-item level).

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Furthermore, as a result of the economic and market disruption caused by the COVID pandemic, federal and state governmental authorities encouraged and, in certain cases, mandated, responses to forbearance requests from borrowers with respect to monthly mortgage payment obligations by enacting statutes, including the federal CARES Act, and promulgating various orders, regulations, and guidance to enable borrowers to defer and reschedule monthly mortgage payments, coupled with enacting or extending nationwide and/or local foreclosure and eviction moratoria. As another example, the financial crisis of 2007-2008 and subsequent financial turmoil prompted the federal government to put into place new statutory and regulatory frameworks and policies for reforming the U.S. financial system. Implementation of financial reforms, whether through law, regulations, or policy, including changes to the manner in which financial institutions, financial products, and financial markets operate and are regulated and any related changes in the accounting or capital standards that govern them, could adversely affect our business and financial results by subjecting us to regulatory oversight, making it more expensive to conduct our business, reducing or eliminating any competitive advantage we may have, or limiting our ability to expand, or could have other adverse effects on us. Moreover, policy changes aimed at enhancing regulatory scrutiny and enforcement priorities around, for example, mortgage servicing, real estate valuations, credit reporting, automated decision-making, and anti-discrimination, including by the Consumer Financial Protection Bureau ("CFPB"), the Federal Trade Commission (“FTC”), the Department of Justice (“DOJ”), state financial and real estate regulators, and state attorneys general, could further increase our compliance costs and the costs of loans or other assets we acquire.

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Ultimately, we cannot assure you of the impact that governmental actions may have on our business or the financial markets and, in fact, they may adversely affect us, possibly materially. We cannot predict whether or when such actions may occur or what unintended or unanticipated impacts, if any, such actions could have on our business and financial results. Even after governmental actions have been taken and we believe we understand the impacts of those actions, prevailing interpretations may shift, or we may not be able to effectively respond to them so as to avoid a negative impact on our business or financial results.

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We are subject to intense competition in seeking investments, acquiring, originating, and selling loans, engaging in securitization transactions, and in other aspects of our business. Our competitors include commercial banks, other mortgage REITs, Fannie Mae, Freddie Mac, regional and community banks, broker-dealers, investment advisors, insurance companies, residential investor loan originators and HEI originators, and other specialty finance companies and financial institutions, as well as investment funds, venture capital investors, and other investors in real estate-related assets. In addition, other companies may be formed (including, on occasion, by our former employees) that will compete with us. Some of our competitors have greater resources than us and we may not be able to compete successfully with them. Some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more favorable relationships than we can. Furthermore, competition for investments, making loans, acquiring and selling loans, and engaging in securitization transactions may lead to a decrease in the opportunities and returns available to us.

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In addition, there are significant competitive threats to our business from governmental actions and initiatives that have already been undertaken or which may be undertaken in the future. Sustained competition from governmental actions and initiatives could have a material adverse effect on us. For example, Fannie Mae and Freddie Mac are, among other things, engaged in the business of acquiring loans and engaging in securitization transactions. Until 2008, competition from Fannie Mae and Freddie Mac was limited to some extent due to the fact that they were statutorily prohibited from purchasing loans for single unit residences in the continental United States with a principal amount in excess of $417,000, while much of our business had historically focused on acquiring residential loans with a principal amount in excess of that amount. Since 2008, this loan size limit has been elevated above the historical loan size limit, andas of January 1, 2025, the maximum loan size limit was$1,209,750 for loans made to secure single unit real estate purchases in certain high-cost areas of the U.S.

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In addition, since 2008, Fannie Mae and Freddie Mac have been in conservatorship and have become, in effect, instruments of the U.S. federal government. It is unclear whether any future federal legislation or executive or regulatory actions regarding Fannie Mae and Freddie Mac will continue to maintain, or increase, the role of those entities in the housing finance market, including whether the incoming Trump administration will take steps to end the conservatorship and privatize Fannie Mae and Freddie Mac. As long as there is governmental support for these entities to continue to operate and provide financing to a significant portion of the mortgage finance market, they will represent significant business competition due to, among other things, their large size and low cost of funding. To the extent the Trump administration moves forward with terminating the conservatorships and privatizing, in whole or in part, Fannie Mae and Freddie Mac, these enterprises could expand their business and become even more formidable as competitors.

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Regardless of whether their conservatorships are terminated and/or these enterprises are privatized, to the extent that laws, regulations, executive orders or policies governing the business activities of Fannie Mae and Freddie Mac are not changed to limit their role in housing finance (such as a change in these loan size limits or in the guarantee fees they charge), the competition from these two governmental entities will remain significant or could increase. In addition, to the extent that property values decline while loan size limits remain the same, it may have the same effect as an increase in these limits, as a greater percentage of loans would likely be within the size limit. Any increase in the loan size limit, or in the overall percentage of loans that are within the limit, allows Fannie Mae and Freddie Mac to compete against us to a greater extent than they previously had been able to compete and our business could be adversely affected. Additionally, the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) guarantee qualified residential mortgages, and FHA and VA loans accounted for approximately 25% of the aggregate dollar value of residential loans originated in the U.S. in 2023. The federal government’s ability to provide financing to a significant portion of the mortgage finance market through these entities represents significant business competition due to, among other things, their size and low cost of funding.

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U.S. real estate markets, the mortgage industry and the related capital markets have undergone significant changes since the U.S. financial crisis of 2007-08, including due to the significant governmental interventions in these areas and changes to the laws and regulations that govern the banking and mortgage finance industry. Additionally, it remains unclear how any future federal legislation or executive or regulatory actions regarding Fannie Mae and Freddie Mac and the housing finance market more broadly, including the Basel III Endgame proposal, if it becomes effective, will impact these markets and our business. Additional factors, including a rising or sustained elevated interest rate environment, which has caused, and may continue to cause, the volume of refinance loans to decline, and secular trends in consumer demand for renting versus owning a residence, as well as trends in the cost and supply of available housing, including as a result of potential action by the incoming Trump administration to build houses on surplus federal land, may also contribute to evolving conditions in the mortgage industry and capital markets. Our methods of, and model for, doing business and financing our investments are changing and if we fail to develop, enhance, and implement strategies to adapt to changing conditions in the mortgage finance industry and capital markets, our business and financial results may be adversely affected. For example, as benchmark interest rates have risen over recent years, we have continued to focus on investing in HEI and in platforms that originate HEI, including our own HEI origination platform, Aspire, as we believe that there is and will continue to be increasing consumer demand for HEI as an alternative for homeowners to access equity in their homes and for home buyers to fund a portion of a home purchase down payment. However, our beliefs and assumptions about the market for HEI may not anticipate changing circumstances or certain risks, including regulatory risks, associated with a direct-to-consumer product of this nature, and may not be successful. Furthermore, new business ventures and changes we make to our business to respond to changing circumstances may expose us to new or different risks than those to which we were previously exposed, and we may not effectively identify or manage those risks, as further discussed within these Risk Factors.

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Similarly, the competitive landscape in which we operate and the products and investments for which we compete are also affected by changing conditions. There may be trends or sudden changes in our industry or regulatory environment, such as the Basel III Endgame proposal, changes in the role of government-sponsored entities, such as Fannie Mae and Freddie Mac, changes in the role of credit rating agencies or their rating criteria or processes, or changes in the U.S. economy more generally. If we do not effectively respond to these changes, our ability to effectively compete in the marketplace may be negatively impacted, which would likely result in our business and financial results being adversely affected.

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We have historically depended upon the issuance of mortgage-backed securities by the securitization entities we sponsor as a significant funding source for our residential consumer and residential investor mortgage business. While we have engaged in numerous residential consumer and residential investor mortgage securitization transactions both before and since the Great Financial Crisis, the amount of securitization activity we engage in varies from year to year, and we do not know if market conditions will allow us to continue to regularly engage in these types of securitization transactions. Additionally, since 2022 we have co-sponsored two securitizations of HEI, began originating HEI and have purchased HEI from third parties with the expectation that we would continue to aggregate HEI for future securitization. A prolonged disruption of these securitization markets may adversely affect our earnings, growth, and liquidity. Even if regular residential consumer and residential investor mortgage loan securitization activity continues among market participants other than government-sponsored entities, we do not know if it will continue to be on terms and conditions that will permit us to participate or be favorable to us. And even if conditions are favorable to us, we may not be able to achieve and sustain the volume of securitization activity we previously conducted. Additionally, securities collateralized by residential investor loans, such as those issued by CoreVest under the CAFL® label, make up a small portion of the total market-wide volume of mortgage-backed securities issued, and the market for securities collateralized by HEI has only recently come into existence. The markets for such securities are not as mature as the market for residential mortgage-backed securities and dislocations in these markets or a change in the risk tolerance of investors or the perception of risk related to residential investor mortgage-backed securities or HEI-backed securities may negatively impact our ability to grow or sustain the volume of residential investor mortgage-backed or HEI-backed securitization transactions we engage in, which may result in our business and financial results being adversely affected.

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Decisions we make about our business strategy and investments, as well as decisions about raising capital or returning capital to shareholders and investors (through dividends or repurchases of common stock, preferred stock, or convertible or other debt), could fail to improve our business and results of operations.

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Over recent years, we have announced several new initiatives to expand our mortgage banking activities and alter our investment portfolio, including by expanding our mortgage banking activities to include, for example, acquiring and originating loans secured by non-owner occupied rental properties generally made up of one to four units and residential bridge loans (which we collectively refer to as “residential investor” real estate loans), and optimizing the size and target returns of our investment portfolio. As examples, since 2019, we have completed the acquisitions of three residential investor real estate loan origination platforms, CoreVest, 5 Arches, LLC (“5 Arches”), and Riverbend Funding, LLC (“Riverbend”), which we combined into a single platform, through which we now originate, acquire, and sell or securitize residential investor loans. We have also completed strategic investments in, may make additional investments in, or raise or allocate additional capital to fund, internal or third-party residential consumer and residential investor mortgage origination platforms, HEI origination platforms, including the launch of our internal Aspire HEI origination platform in 2023, investment advisory or asset management initiatives, and our RWT Horizons® venture investing initiative, through which we invest in early-stage companies strategically aligned with our business across the lending, real estate, and financial technology sectors to drive innovations across our residential consumer and residential investor mortgage loan platforms. Other new investment initiatives include investing in residential securities collateralized by re-performing and non-performing mortgage loans, multifamily loans and securities, subordinate lien residential loans and securities, HEI, investments in excess mortgage servicing rights (“MSRs”) and servicer advance investments related to pools of single-family and small-balance multifamily residential mortgage loans, and a multifamily investment fund to acquire workforce housing properties. We also occasionally sell lower-yielding securities in our investment portfolio in order to redeploy capital into higher-yielding securities as part of our portfolio and capital management strategies. In addition, we have completed and may continue to pursue initiatives to form joint ventures or investment vehicles or funds with third-party investors to purchase loans, HEI, or other assets from us or from other sources and to earn fees, incentives or other income in connection with these initiatives.

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These new initiatives are intended to grow our mortgage banking businesses, expand the scope of our operations, and enhance our investment portfolio, allocate capital to profitable business and investment opportunities, and support innovation in real estate and financial technology. These initiatives are premised on our outlook for economic and market conditions, secular trends in consumer demand for housing, as well as competitive considerations. Over the long term, the assumptions underlying these trends and changes, or assumptions regarding the risk profile of these initiatives and investments, could turn out to be incorrect, we could be unable to compete effectively with more established market participants, or economic and market conditions could develop in a manner that is not consistent with our assumptions. For example, during 2020, the composition of our investment portfolio changed significantly as a result of asset sales undertaken in response to the financing market disruptions resulting from the pandemic. As a result, the risk profile of the assets held in our investment portfolio is materially different than it was prior to onset of the pandemic. Moreover, we may determine to undertake significant additional asset sales in the future, including in response to adverse economic or financial market conditions. If we are unable to adapt our strategic and capital deployment decisions and maintain an appropriately diversified or liquid investment portfolio, our achievement of growth and revenue goals, our profitability, and competitiveness in the market may be adversely impacted.

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Additionally, these initiatives may have more risks, and different risks, than our traditional mortgage banking activities and investment portfolio. For example, our portfolio and capital management strategies may include selling securities and reinvesting in securities with greater exposure to credit risk due to their structural credit enhancement of senior securities, as well as more limited payment histories. As other examples, originating and investing in HEI, originating and investing in residential investor mortgage loans, pursuing initiatives to form joint ventures or investment vehicles or funds with third-party investors, and incorporating blockchain technology into our operations and/or the securitization transactions we sponsor exposes us to new and different risks than our traditional residential mortgage banking activities, including potential uncertainty with respect to regulatory matters or litigation (with respect to HEI, investment advisory initiatives and blockchain, AI, or other technology initiatives), and higher rates of delinquency, default, foreclosure and litigation (with respect to residential investor mortgage loans and subordinate-lien financing). Our RWT Horizons® venture investing platform also exposes us to new and different risks, including risks related to making equity investments in early-stage companies that may not have substantial operating histories, and initiatives we have completed and may continue to pursue to form joint ventures or investment vehicles or funds with third-party investors to purchase loans, HEI, or other assets from us or from other sources – and to earn fees, incentives or other income in connection with these initiatives – may not be successful, including any efforts we make to engage in the investment advisory business. Moreover, investing in, and expanding the scope of, our operating platforms and pursuing these types of initiatives can expose us to new and different risks, including regulatory and compliance risks, as well as operational risks. As a result, these new initiatives could fail to improve the long-term profitability of Redwood, could fail to result in capital being available for or deployed into more profitable businesses and investments, could result in dilutive issuances of equity, warrants, or options to acquire equity, or debt securities convertible into equity to fund our business and investment activities, or could otherwise damage our business, our reputation, our ability to access financing, and our ability to raise capital, or could have other unforeseen consequences, any or all of which could result in a material adverse effect on our business and results of operations in the future. Decisions we make in the future about our business strategy and investments, as well as decisions about raising capital or returning capital to shareholders or investors (through dividends or repurchases of common stock, preferred stock, or convertible or other debt), could also fail …

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To the extent they disagree with decisions we have made about our business, strategy, investments, financing or capital raising, significant activist stockholders may attempt to effect changes at our company, which could impact the pursuit of business strategies and initiatives and could negative adversely affect our business and results of operations. Campaigns by stockholders to effect changes at publicly-traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming and could divert the attention of our board of directors and senior management from the management of our operations and the pursuit of our business strategies.

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Our Board of Directors has approved authorizations for the repurchase of Redwood common stock, preferred stock, and debt securities, including debt securities convertible or exchangeable into common stock issued by Redwood. We did not repurchase any common stock or preferred stock during 2024. In 2024, we repurchased and repaid $72 million of our outstanding debt securities. At December 31, 2024, we continued to have authorization to repurchase up to approximately $101 million of shares of common stock, up to $70 million of shares of preferred stock, and continued to be separately authorized to repurchase our outstanding debt securities. If we repurchase shares of Redwood common stock, preferred stock or other securities issued by Redwood, it is generally because at the time we believe the shares or securities are trading at attractive levels relative to other uses of capital or investment opportunities then available to us and/or because we believe it contributes to a more robust capitalization structure for our company; however, it is possible that other uses of this capital could have been more accretive to our earnings or book value or that subsequent capital needs arise that were not contemplated at the time we made these decisions. Our past and future decisions relating to the repurchases of Redwood common stock, preferred stock or other securities issued by Redwood could fail to improve our results of operations or could negatively impact our ability to execute our business plans, meet financial obligations, access financing, or raise additional capital, any or all of which could result in a material adverse effect on our business and results of operations.

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In addition, we periodically raise capital by issuing common stock, preferred stock, or debt securities (including debt securities convertible into common stock), through underwritten public offerings, in at-the-market (“ATM”) offerings, under our direct stock purchase and dividend reinvestment plan, or in private placement transactions. For example, in 2023, we issued $70 million of preferred stock in an underwritten public offe ring and $124 million of common stock through ATM offerings. In 2024, we issued $145 million of unsecured debt securities, $40 million of convertible notes, and $15 million of warrants to purchase common stock. We may issue additional shares of common stock upon conversion of our convertible debt or upon exchange of our exchangeable debt, upon the exercise of any options or warrants for common stock we issue, to our directors, officers and employees under our employee stock purchase plan and our incentive plan, including upon the exercise of, or in respect of, distributions on equity awards previously granted thereunder, and to fund merger and acquisition activity. It may not be possible for existing stockholders to participate in future share issuances, which may dilute existing stockholders’ interests in us. To the extent we raise capital to fund our operations and investment activities, our approach to raising capital is based on what we believe to be in the best interests of the company and, therefore, our stockholders. However, it is possible that our use of the proceeds of such capital raising transactions may not yield a significant return or any return at all for our stockholders. If we are not able to make prudent decisions about raising, managing, and distributing our capital, our business and financial results may be adversely impacted.

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Our use of financial leverage exposes us to increased risks, including liquidity risks from margin calls and potential breaches of the financial covenants under our borrowing facilities, which could result in our being required to immediately repay all outstanding amounts borrowed under these facilities and these facilities being unavailable to use for future financing needs, as well as triggering cross-defaults under other debt agreements.

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We use a variety of borrowing facilities and derivatives agreements to fund or hedge assets in our investment portfolio and mortgage banking pipelines that present us with liquidity risks. Under our borrowing facilities, interest rate swaps and other derivatives agreements, we pledge assets as security for our payment obligations, make various representations and warranties, and agree to certain covenants, events of default, and other terms. In addition, many of our borrowing facilities are uncommitted, meaning that each time we request a new borrowing under such a facility, the lender has the option to decline to extend credit to us. The terms of these facilities and agreements typically include financial covenants (such as covenants to maintain a minimum amount of tangible net worth or stockholders’ equity and/or a minimum amount of liquid assets and/or a maximum ratio of recourse debt to tangible net worth or stockholders’ equity), margin requirements (which typically require us to pledge additional collateral, usually in the form of cash, loans or securities, if and when the value of previously pledged collateral declines), operating covenants (such as covenants to conduct our business in accordance with applicable laws and regulations and covenants to provide notice of certain events to creditors), representations and warranties (such as representations and warranties relating to characteristics of pledged collateral, our exposure to litigation and/or regulatory enforcement actions and the absence of material adverse changes to our financial condition, our operations, or our business prospects), and events of default (such as the failure to make a payment when due, a breach of covenant or representation/warranty, and cross-defaults, pursuant to which an event of default or similar event under a borrowing facility triggers an event of default under one or more other facilities).

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For example, due to volatility in financial markets resulting from the pandemic, the market value of loans and securities financed under our borrowing facilities declined significantly in the first half of 2020; in particular, over a compressed time frame near end of the first quarter of 2020. As a result, we received a material increase in margin calls from counterparties under our marginable borrowing facilities (i.e., borrowing facilities 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). We satisfied these margins calls by pledging additional collateral, such as cash or additional loans or securities, with a value equal to the decline in value of the collateral, adjusted for the percentage of the asset value financed (our haircut percentage), or by repaying the outstanding borrowings against such collateral. In some cases, we sold assets under adverse market conditions to generate liquidity in response to such margin calls.

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We also maintain borrowing facilities that we describe as non-marginable, because they are not subject to market-value based margin calls subject to the lender’s determination, in its sole discretion, of the market value of the underlying collateral. Non-marginable debt may be subject to a margin call due to delinquency or another credit event related to the mortgage loan or security being financed, a decline in the value of the underlying property securing the mortgage loan or HEI being financed, as determined by an appraisal, broker price opinion, or similar objective source, an extended dwell time (i.e., period of time financed using a particular financing facility) for certain types of mortgage loans, concentration limits as to asset type or the geographic location of the underlying property, a change in the interest rate of a specified reference security relative to a base interest rate amount, or an adverse regulatory change impacting the HEI being financed. For example, we could be subject to a margin call on non-marginable debt if an appraisal or broker price opinion indicates a decline in the estimated value of the property securing the mortgage loan that is financed, or based on the occurrence of a triggering credit event impacting the financed mortgage loan which is followed by a decline in the market value of the financed mortgage loan (as determined by the lender). If U.S. home prices experience widespread declines, as a result of increased benchmark interest rates, declining economic conditions, or for other reasons, our non-marginable borrowing facilities, and mortgage loans, HEI, or securities financed thereunder during recent periods of elevated home prices, could be particularly exposed to lender margin calls.

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Margin calls expose us to a number of significant risks, including that we may be unable to meet these margin calls, we may again sell assets under adverse market conditions in response to such margin calls, or we may breach financial covenants under our borrowing facilities requiring maintenance of a minimum amount of liquid assets, as a result of a decrease in the values of the assets pledged as collateral.

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Additionally, significant and widespread decreases in the values of our assets could cause us to breach the financial covenants under our borrowing facilities related to net worth and leverage. Such covenants, if breached, can result in our being required to immediately repay all outstanding amounts borrowed under these facilities and these facilities being unavailable to use for future financing needs, as well as triggering cross-defaults under other borrowing agreements. During 2020 and since, we have amended financial covenants in several borrowing agreements and remained in compliance; however, we cannot be certain whether we will continue to be able to remain in compliance with these financial covenants, or whether our financing counterparties will negotiate terms or agreements in respect of these financial covenants in the future. While we take great effort to achieve uniformity across our financial covenants with various counterparties, variances between facilities may expose us to the risk of default and cross-default.

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Our borrowing facilities also contain representations, warranties, and/or covenants related to litigation that could be breached, for example, if we are subject to litigation proceedings and claims in excess of specified dollar thresholds or that could have a material adverse effect on our business. For instance, in connection with the impact of the COVID pandemic on the non-Agency mortgage finance market and on our business and operations, one of our loan seller counterparties subjected us to litigation and others made demands regarding perceived obligations to them. If the individual or aggregate amount of such litigation or any threatened litigation exceeded specified dollar thresholds or could have had a material adverse effect on our business, we could have breached representations, warranties, or covenants under our borrowing agreements, which breach could result in our being required to immediately repay all outstanding amounts borrowed under these facilities and these facilities being unavailable to use for future financing needs, as well as triggering cross-defaults under other borrowing agreements.

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Volatility in the mortgage credit markets, including continued volatility due to macroeconomic, geopolitical, regulatory, or other events may cause the market value of loans, HEI, and securities we own, and that are pledged to secure financing, to decline again as they did in 2020, and our financing counterparties may make additional margin calls. Furthermore, if other market participants fail to meet margin calls associated with mortgage loans, HEI, or securities they finance, their financing counterparties could terminate their financing and seek to sell significant amounts of loans, HEI, and securities, which could again depress the market value of these types of assets and result in additional margin calls on us and other borrowers. Additionally, as described above, securities financed under our short-term securities repurchase facilities, and loans and HEI financed under certain whole-loan warehouse/secured revolving borrowing facilities, are subject to mark-to-market treatment and may incur margin calls or may require us to repurchase such loans in the event the loans become delinquent. For example, the rapid increase in benchmark interest rates during 2022 and 2023 contributed to financial stress among certain cohorts of borrowers on residential investor bridge loans in our investment portfolio and increases in delinquencies within this portfolio, which has resulted in margin calls on certain financed loans that have become delinquent and, in some cases, ineligibility for financing which has required us to repay the entire amounts borrowed against such ineligible loans. Additionally, increased delinquencies associated with alleged breaches of representations and warranties with respect to certain residential investor term loans in securitization transactions have caused us to repurchase impacted loans out of securitization structures. This in turn may adversely affect our liquidity and other aspects of our business, including our ability to securitize, finance, or otherwise sell, real estate loans and securities. We may receive additional margin calls in the future and there is no assurance that we will be able to meet such margin calls. We may experience an event of default under some or all of our short- and long-term debt and financing facilities if we do not meet future margin calls or maintain compliance with financial covenants and other terms of these debt obligations, which would permit the holders of the affected indebtedness to accelerate the maturity of such indebtedness and could cause defaults under our other indebtedness, which could lead to an event of bankruptcy or insolvency, which would have a material adverse effect on our business, results of operations and financial condition.

Previous report

Additionally, at the end of the fixed period applicable to the financing of a security under a securities repurchase facility (which generally does not exceed 90 days), we may request the same counterparty to renew the financing for an additional fixed period. If the same counterparty renews the financing, it may not be on terms that are as favorable to us as the expiring financing and the counterparty may require us to post additional collateral to renew the financing (which requirement would impact our liquidity in the same manner as a margin call). If the same counterparty does not renew the financing, it may be difficult for us to obtain financing for that security under one of our other securities repurchase facilities, due to the fact that the financial institution counterparties to our securities repurchase facilities generally only provide financing for securities that we purchased from them or one of their affiliates. If we are not able to obtain additional financing when we need it, we could be exposed to liquidity risks of the types described above.

Previous report

Our use of leverage increases our exposure to liquidity risks, including liquidity risks related to unforeseen economic developments such as the pandemic, and may adversely impact our liquidity, cash balances, and financial results. For additional information regarding our exposure to liquidity risks and other risks related to our use of leverage, refer to Part II, Item 7 of this Annual Report.

Previous report

When we acquire or originate real estate mortgage loans, or the rights to service mortgage loans, we come into possession of non-public borrower or borrower-principal personal information that a bad actor or an identity thief could utilize when engaging in fraudulent activity or theft. We also come into possession of similar personal information about customers when we acquire or originate HEI. We may share this information with third parties, such as loan or HEI sub-servicers, outside vendors, third parties interested in acquiring such loans or HEI from us, or lenders extending credit to us collateralized by such loans or HEI. We have acquired more than 100,000 residential mortgage loans and rights to service residential mortgage loans since 2010 in addition to acquiring or originating other types of mortgage loans (including residential investor loans) and HEI throughout our operating history.

Previous report

While we have information security measures in place to protect this information and detect and prevent security breaches, such measures may be inadequate in protecting against threats, or these security measures may be compromised as a result of third-party action, including intentional misconduct by computer hackers, cyber-attacks, "phishing", social engineering, or ransomware attacks, employee, service provider or vendor error, or malfeasance or other intentional or unintentional acts by employees, third parties and bad actors, including third-party service providers. Threat actors continue to use increasingly sophisticated techniques and tools, including artificial intelligence, to gain unauthorized access to enterprise data and information systems. Borrower, customer, or consumer data, including personal information, may be lost, exposed, or subject to unauthorized access or use as a result of accidents, errors, or malfeasance by our employees, independent contractors, or others working with us or on our behalf. Even highly sophisticated protective measures may fail as a result of human error; for instance, an employee of ours or a third party’s may succumb to a phishing or social engineering attack resulting in unauthorized access to our or their information technology systems. Additionally, our servers and systems, and those of our service providers, may be vulnerable to computer malware, break-ins, denial-of-service attacks, ransomware attacks, and similar disruptions from unauthorized tampering with our computer systems, which could result in someone obtaining unauthorized access to borrower, customer or consumer data, other personal information, or other company data, including confidential or proprietary business information. In the past, we have experienced unauthorized access to certain data and information. We have also experienced fraudulent activity initiated through social engineering attacks by malicious third-party actors. As an example, wire transfers are an attractive target of fraudulent activity due to the speed and finality of payment, and the nature of our mortgage banking and HEI activities requires us frequently to transfer funds to various counterparties in connection with the origination or acquisition of mortgage loans and HEI. Although we have policies and procedures in place to mitigate risks related to wire transfers, we have experienced fraudulent and erroneous activity in our business operations and have incurred immaterial financial losses related to such activity. Our response to these incidents has been to take immediate steps to investigate and address the unauthorized access or fraudulent activity, and past unauthorized access and fraudulent activity related to “phishing” or social engineering has not had a material effect on our business and financial results. Although we have designed and implemented information security systems and processes to protect sensitive information from bad actors, such systems …

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Current report — wording carried from elsewhere

As another example, in connection with our acquisitions of CoreVest, 5 Arches, and Riverbend, we made assumptions regarding the cash flows and investments expected to be generated from these businesses. In addition, originating and investing in residential investor mortgage loans exposes us to risks different from those associated with our traditional residential mortgage banking activities, including higher potential rates of delinquency, default, foreclosure, and litigation.

Current report — wording carried from elsewhere

When selling mortgage loans or HEI, or acquiring servicing rights associated with residential mortgage loans, we typically make representations and warranties to purchasers or other third parties regarding various characteristics of those assets, including characteristics we seek to verify through our underwriting and due diligence. If any such representation or warranty is inaccurate with respect to any asset, we may be required to repurchase that asset or pay damages, which may result in a loss. We generally only establish reserves for potential representations and warranty liabilities we make if we believe such liabilities are both probable and estimable under GAAP. Accordingly, we may have no reserves for these potential liabilities or any reserves we establish may be inadequate.

Current report — wording carried from elsewhere

Our ability to continue to securitize residential mortgage loans or other assets in the future will depend, in part, on the rating agencies’ assessment of the investment risks that result from, in the case of loans, the ability-to-repay regulations and the TILA-RESPA Integrated Disclosure Rule (TRID), or, in the case of HEI, investment risks arising from an emerging or changing regulatory landscape, including the risk of HEI being recharacterized or regulated as mortgage loans, such as in response to the January 2025 CFPB Actions. With respect to residential mortgage loans, this risk includes how rating agencies assess investment risks associated with non-material errors in loan-related disclosures and loans with interest-only payment features. As another example, with respect to loans with a debt-to-income ratio greater than 43%, which following amendments to the “qualified mortgage” definition in 2021 may now qualify as “qualified mortgages” under CFPB rules if they meet the amended definition (including an annual percentage rate test), rating agencies may nonetheless determine that such loans pose greater risk to investors. Since these provisions were implemented, rating agencies’ assessments have generally been consistent with ours, but any divergence could negatively impact our ability to execute securitization transactions. Moreover, ratings agencies have only recently begun issuing ratings for HEI securitizations, and as they gain experience and data, the ratings framework applicable to HEI may change, potentially significantly.

Current report — wording carried from elsewhere

As a result, investors may view REIT investments as less attractive than investments in non-REIT corporations, which may adversely affect the value of our common stock and preferred stock.

Previous report — wording carried elsewhere

Our ability to operate our business in the manner described above depends on the availability and productivity of our personnel and the personnel of third-party vendors. To the extent our management or personnel, or those of our key vendors, are impacted in significant numbers by natural disaster, outbreak of pandemic or epidemic disease, or other force majeure event, our business and operating results may be negatively impacted.

Previous report — wording carried elsewhere

“TRID”) or other similar consumer protection laws and regulations, which could adversely impact our business and financial results.

Previous report — wording carried elsewhere

The CFPB may revisit whether additional regulations, or updates to existing ones, should be made, and any such updates could negatively impact our Sequoia mortgage banking and/or HEI business.