REDWOOD TRUST INC

Business Update

Our third quarter 2026 results reflect the durability of Redwood’s mortgage banking model amid one of the most challenging interest rate environments in recent years, as the 10-year Treasury yield increased approximately 80 basis points ("bps") and credit spreads widened. During the quarter, our mortgage banking platforms distributed approximately $8.8 billion 1 of loans through securitizations, whole loan sales, and joint ventures, as we deliberately moderated acquisitions, accelerated distributions, and reduced balance sheet exposure in response to market conditions. These actions helped maintain strong liquidity, as we ended the quarter with $201 million of cash and cash equivalents and warehouse line utilization of 37% (including facilities at our joint ventures) at September 30, 2026.

Our financial results reflected continued profitability across our mortgage banking platforms in the aggregate, offset by Legacy Investments and the impact of market volatility. Redwood reported a GAAP net loss of $(0.39) per share, compared to a GAAP net loss of $(0.03) per share in the second quarter, while our mortgage banking platforms generated $27 million of combined GAAP net income. GAAP book value per share declined to $6.56 at September 30, 2026 from $6.90 at June 30, 2026, driven principally by losses associated with accelerated Legacy Investments resolutions, interest expense and other carrying costs within Legacy Investments, fair value declines in retained investments as interest rates rose sharply, and the $0.18 per share common dividend.

Our Sequoia platform locked $5.1 billion of loans during the third quarter, compared to $5.6 billion in the second quarter, while gain-on-sale margin increased to 113 bps from 92 bps, exceeding our historical target range. Products outside of 30-year fixed rate, including hybrid adjustable-rate mortgages, medical professional loans, agency non-owner-occupied loans, closed-end second lien loans ("CES") and home equity lines of credit ("HELOCs"), represented 36% of lock volume, while bank counterparties represented 32% of volume, demonstrating the benefits of a broader product suite amid higher mortgage rates. Sequoia distributed approximately $7.1 billion 1 of loans through securitizations, whole loan sales, and joint venture transfers, including ten securitizations and $1.2 billion of transfers to its joint venture. Cost per loan increased to 20 bps from 17 bps in the second quarter, due primarily to the moderation in volumes.

Aspire locked approximately $1.1 billion of loans during the third quarter, compared to $2.1 billion in the second quarter, with the decline largely reflecting a deliberate decision to tighten our operating posture, reduce bulk purchases and prioritize credit quality as credit spreads widened. Aspire maintained an active network of more than 165 loan sellers and distributed approximately $1.3 billion of loans through securitizations and whole loan sales, including the fourth and fifth transactions issued through its SPIRE securitization platform. We also continued the operational work necessary to begin utilizing Aspire’s strategic joint venture. Aspire's gain-on-sale margin was negative 7 bps in the third quarter, compared to 101 bps in the second quarter, reflecting lower hedge effectiveness on beginning-of-quarter loan inventory, extended distribution timelines and wider non-QM securitization spreads.

CoreVest funded approximately $406 million of loans during the quarter, relatively consistent with the second quarter, as higher rates continued to weigh on the term loan pipeline. Fundings consisted of approximately 74% bridge loans and 26% term loans, with bridge production increasing 35% from the prior quarter. CoreVest distributed approximately $427 million of newly originated loans through joint venture transfers, replenishments of bridge loan securitizations, and whole loan sales.

Across our platforms, distribution remained a key driver of risk management and our ability to recycle capital. During the quarter, we completed approximately $6.8 billion of securitizations, including $639 million securitized through our Castlelake joint venture, bringing securitization issuance for the first nine months of 2026 to over $20 billion. Sequoia completed the first securitization issued through its Castlelake joint venture, while our Aspire joint venture progressed toward initial deployment. These partnerships provide additional distribution capacity and allow us to earn upfront economics on loan sales, ongoing administration fees and participation in joint venture profits, while reducing the amount of Redwood capital required to finance and hold loans.

Capital allocated to Legacy Investments declined to approximately $116 million at September 30, 2026 from $195 million at June 30, 2026 and declined approximately 75% over the past year. During the quarter, we continued to execute dispositions and resolutions, including the resolution of approximately $82 million of UPB of Legacy bridge loans and REO, with an additional $42 million resolved in October 2026. These actions are intended to reduce the associated financing burden associated with these positions and release capital for debt reduction and other accretive uses.

We also announced our plan to transition from a REIT to a taxable C-Corporation beginning in 2027 to better align our corporate structure with our operating model and provide greater flexibility to retain and reinvest earnings and utilize existing tax assets. During the quarter, we issued $205 million of convertible notes, used a portion of the proceeds to repay approximately 40% of our convertible debt maturing in 2027, and repurchased 9.2 million common shares for $34 million.

Subsequent to quarter-end, we expanded our strategic capital partnership with one of our CoreVest joint venture partners, extending the commitment period of the joint venture and secured revolving financing facility to March 2030 and increasing the facility’s capacity from $400 million to $500 million. The expansion also included amendments to related warrants to purchase common stock. In connection with our planned C-Corporation Conversion, we agreed to repurchase $53.1 million in liquidation amount of trust preferred securities. The agreement provides for a waiver of the REIT maintenance covenant set forth in the related junior subordinated notes, effective upon the final settlement of the repurchase.

We continued to invest in technology and operational infrastructure through RWT Horizons. AI-enabled automation expanded across technology support, finance, loan-pricing and underwriting processes, generating additional time savings and productivity improvements across the enterprise. During the first nine months of 2026, our engineering team also exceeded its full-year 2025 delivery pace without net additions to headcount, while the RWT Horizons venture investment portfolio contributed positively to fair value changes during the quarter.

Looking ahead, housing market activity continues to be influenced by elevated interest rates, affordability constraints, and uncertainty regarding economic growth. Our priorities are to accelerate remaining Legacy Investment resolutions, reduce corporate leverage through opportunistic repurchases of unsecured debt while addressing our remaining 2027 convertible debt maturity, and maintaining an expense structure appropriate for the volumes and returns available in mortgage banking. Our planned transition to a C-Corporation in 2027 is expected to support these priorities through greater earnings retention and utilization of existing tax assets. Together with expanded financing capacity and capital released through Legacy Investment resolutions, these benefits are intended to strengthen our balance sheet, support reinvestment in our Mortgage Banking platforms, expand our access to the unsecured debt markets through time and establish a more sustainable foundation for long-term book value growth.

Corporate Structure Update

As noted above, we have announced a plan to discontinue our election to be treated as a REIT for U.S. federal income tax purposes and convert to a taxable C-corporation, effective for the calendar year ending December 31, 2027 (the “C-corporation Conversion”). The C-corporation Conversion plan is expected to deliver three principal economic benefits: greater flexibility to retain and reinvest earnings in the Company’s mortgage banking platforms; a pathway to a more efficient financing structure and a lower cost of capital; and more effective utilization of our existing tax assets and lower tax liabilities in the near term.

As part of the C-corporation Conversion plan, the Board is realigning the Company’s quarterly dividend policy to the level of $0.02 per common share – a level consistent with banks, asset managers and specialty finance companies with comparable operating models – allowing the Company to retain and reinvest a greater portion of its earnings. The new quarterly dividend policy is expected to become effective upon the Board’s declaration of the fourth quarter 2026 common stock dividend in December 2026. We also expect that a C-corporation structure, supported by greater earnings retention and a stronger balance sheet, will broaden the Company’s access to institutional unsecured debt and equity capital and provide greater flexibility in future financing arrangements. Additionally, the C-corporation Conversion will allow us to use net operating loss carryforwards (“NOLs”) from our REIT-qualified businesses to offset taxes on earnings from our tax-paying businesses, which represent the vast majority of total earnings, effectively lowering the tax liabilities, and related cash expense, of our mortgage banking businesses over a multi-year period. Because of the utility the tax assets will have in this new structure, we expect to recognize an initial benefit to book value in the fourth quarter of 2026 of approximately $0.73 to $0.77 per share (estimated benefit as of September 30, 2026).

Together with our planned C-corporation Conversion, we also announced a plan to conduct an exchange offer under which common shares could be exchanged, at the holder’s option, for a new series of preferred stock with a dividend yield aligned with income-oriented investors. The exchange offer will provide common stockholders the opportunity to exchange some or all of the Redwood common stock they hold for shares of a new issue of 11.00% Series B Preferred Stock. We currently plan to exchange up to $50 million of common stock for shares of Series B Preferred Stock; the aggregate size of the exchange offer remains subject to change and may be increased.

We also announced the adoption of a Tax Benefits Preservation Rights Plan (the “Rights Plan”) to help protect the Company’s ability to use its NOLs and other tax assets under Section 382 of the Internal Revenue Code of 1986, as amended (the “IRC”). We estimate that we currently have approximately $304 million of U.S. federal NOLs available to offset future taxable income following the C-corporation Conversion. Our ability to use these NOLs would be substantially limited if we experienced an “ownership change” within the meaning of Section 382 of the IRC. The Rights Plan was adopted to help ensure that the NOLs are not impaired by changes to our stockholder base.

The Board also approved a 1-for-5 reverse stock split of our common stock, scheduled to take effect on January 4, 2027. The reverse stock split is being effected to enhance the marketability of our common stock, broaden our appeal to investors and better align its share structure with Redwood's evolving business model. Together with greater earnings retention and the utilization of tax assets under our planned C-Corporation transition, these actions are intended to strengthen our balance sheet, establish a more sustainable foundation for organic book value growth beginning in 2027, and expand our access to the unsecured debt markets through time.