Redwood Trust Inc: Form 10-Q for the period ended Jun 30, 2025

INTRODUCTION

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in five main sections:

• Overview
• Results of Operations
• Consolidated Results of Operations
• Results of Operations by Segment
• Income Taxes
• Liquidity and Capital Resources
• Critical Accounting Estimates
• Market and Other Risks

Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and in Part II, Item 8, Financial Statements and Supplementary Data in our most recent Annual Report on Form 10-K, as well as the sections entitled “Risk Factors” in Part I, Item 1A of our most recent Annual Report on Form 10-K and Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as other cautionary statements and risks described elsewhere in this report and our most recent Annual Report on Form 10-K. The discussion in this MD&A contains forward-looking statements that involve substantial risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, such as those discussed in the Cautionary Statement below.

References herein to “Redwood,” the “company,” “we,” “us,” and “our” include Redwood Trust, Inc. and its consolidated subsidiaries, unless the context otherwise requires. Financial information concerning our business is set forth in this MD&A and our consolidated financial statements and notes thereto, which are included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Our website can be found at www.redwoodtrust.com (http://www.redwoodtrust.com). We make available, free of charge through the investor relations section of our website, access to our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”). We also make available, free of charge, access to our charters for our Audit Committee, Compensation Committee, and Governance and Nominating Committee, our Corporate Governance Standards, and our Code of Ethics governing our directors, officers, and employees. Within the time period required by the SEC and the New York Stock Exchange, we will post on our website any amendment to the Code of Ethics and any waiver applicable to any executive officer or director of Redwood. In addition, our website includes information concerning purchases and sales of our equity securities by our executive officers and directors, and may include disclosure relating to certain non-GAAP financial measures (as defined in the SEC’s Regulation G) that we may make public orally, telephonically, by webcast, by broadcast, or by similar means from time to time. The information on our website is not part of this Quarterly Report on Form 10-Q.

Our Investor Relations Department can be contacted at One Belvedere Place, Suite 300, Mill Valley, CA 94941, Attn: Investor Relations, telephone (866) 269-4976.

Our Business

Redwood Trust, Inc., together with its subsidiaries, is a specialty finance company focused on several distinct areas of housing credit where we provide liquidity to growing segments of the U.S. housing market not well served by government programs. We deliver customized housing credit investments to a diverse mix of investors, through our best-in-class securitization platforms, whole-loan distribution activities, joint ventures and our publicly traded shares. Our goal is to provide attractive returns to shareholders through a stable and growing stream of earnings and dividends, capital appreciation, and a commitment to technological innovation that facilitates risk-minded scale. We operate our business in four segments: Sequoia Mortgage Banking, CoreVest Mortgage Banking, Redwood Investments and Legacy Investments.

In the second quarter of 2025, we announced our decision to accelerate our strategic transition towards a more scalable and simplified operating model, which involves meaningfully reducing exposure to holdings that now reside outside of our core operating footprint. As part of this transition, we identified and began reporting a new reportable segment, Legacy Investments, which was previously included within the Redwood Investments segment and primarily consists of assets no longer aligned with our core strategic objectives and involves positions primarily linked to legacy unsecuritized bridge and term loan portfolios, third-party securities portfolio, third-party originated HEI, and other non-core legacy assets. These assets are in the active process of sale, runoff, or other disposition as part of the accelerated strategic repositioning of our business model noted above. Legacy Investments segment is expected to wind down over time as the assets are sold or otherwise resolved.

For a full description of our segments, see Part 1, Item 1—Business in our Annual Report on Form 10-K for the year ended December 31, 2024. For further information on our segments, see Note 4 in Part 1, Item 1 - Financial Statements and Results of Operations by Segment in Part 1, Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q.

Cautionary Statement

This Quarterly Report on Form 10-Q and the documents incorporated by reference herein contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “believe,” “intend,” “seek,” “plan” and similar expressions or their negative forms, or by references to strategy, plans, opportunities, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, under the caption “Risk Factors.” Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports we file with the SEC, including reports on Forms 10-Q and 8-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Statements regarding the following subjects, among others, are forward-looking by their nature: (i) statements we make regarding Redwood's business strategy and strategic focus, including statements relating to our overall market position, strategy and long-term prospects (including trends driving the flow of capital in the housing finance market, our strategic initiatives designed to capitalize on those trends, our ability to attract capital to finance those initiatives, our approach to raising capital, and our ability to pay dividends in the future); (ii) statements related to our financial outlook and expectations for 2025 and future years, including statements regarding the economic impacts of inflation, monetary policy, volatility and potential regulatory changes in the banking sector, and shifting sources of liquidity in the residential mortgage market, statements regarding the anticipated sale or resolution of assets within our Legacy Investments segment, including our expectation to free up $200 to $250 million in capital from these legacy investments by year-end 2025; (iii) statements related to opportunities we see for our residential consumer and residential investor platforms, and our positioning to capture market share; (iv) statements related to our investment portfolio including our current target returns related to capital deployment opportunities between 15% and 20%, our expectation to sell or dispose of substantially all of our third-party originated HEI portfolio, statements relates to our expectation to continue reducing our capital allocation to Legacy Investments and potentially reallocating up to $200 to $250 million of capital to our core mortgage banking platforms over time; (v) statements relating to acquiring residential mortgage loans in the future that we have identified for purchase or plan to purchase, including the amount of such loans that we locked in anticipation of purchase during the second quarter of 2025 and at June 30, 2025, expected fallout and the corresponding volume of residential mortgage loans expected to be available for purchase, total net jumbo loan exposure, and residential mortgage loans subject to forward sale commitments; (vi) statements we make regarding future dividends, including with respect to our regular quarterly dividends in 2025; and (vii) statements regarding our expectations and estimates relating to the characterization for income tax purposes of our dividend distributions, our expectations and estimates relating to tax accounting, tax liabilities and tax savings, and GAAP tax provisions, and our estimates of REIT taxable income and TRS taxable income.

Important factors, among others, that may affect our actual results include:

• general economic trends and the performance of the housing, real estate, mortgage finance, and broader financial markets;
• changing benchmark interest rates, and the Federal Reserve’s actions and statements regarding monetary policy;
• federal, state, and local legislative and regulatory developments and the actions of governmental authorities and entities;
• the impact of public health issues such as the COVID-19 pandemic;
• our ability to compete successfully;
• our ability to adapt our business model and strategies to changing circumstances;
• our use of financial leverage and strategic business and capital deployment decisions we make;
• our exposure to a breach of our cybersecurity or data security;
• our exposure to credit risk and the timing of credit losses within our portfolio;
• the concentration of the credit risks we are exposed to, including due to the structure of assets we hold and the geographical concentration of real estate underlying assets we own, and our exposure to environmental and climate-related risks;
• the efficacy and expense efforts to manage or hedge credit or interest rate risk, and other financial and operational risks;
• changes in credit ratings on assets we own and changes in the rating agencies’ credit rating methodologies;
• changes in interest rates or mortgage prepayment rates;
• investment and reinvestment risk;
• asset performance, interest rate volatility, changes in credit spreads, and changes in liquidity in the market for real estate securities and loans;
• our ability to finance the acquisition of real estate-related assets with short-term debt;
• the ability of counterparties to satisfy their obligations to us;
• we may enter into new lines of business, acquire other companies, or engage in other new strategic initiatives;
• changes in the demand from investors for residential consumer and residential investor mortgages and investments, and our ability to distribute residential consumer and residential investor mortgages through our whole-loan distribution channels;
• our involvement in loan and HEI origination and securitization transactions, the profitability of those transactions, and the risks we are exposed to in engaging in loan origination or securitization transactions;
• foreclosure activity may expose us to risks associated with real estate ownership and operation;
• exposure to claims and litigation, including litigation arising from loan or HEI origination and securitization transactions;
• acquisitions or new business initiatives may fail to improve our business and could expose us to new or increased risks;
• whether we have sufficient liquid assets to meet short-term needs;
• the impact of tariffs and global trade disruptions on us;
• changes in our investment, financing, and hedging strategies and new risks we may be exposed to if we expand or reorganize;
• our ability to successfully retain or attract key personnel;
• we are dependent on third-party information systems and third-party service providers;
• our exposure to a disruption of our or a third party's technology infrastructure and systems;
• the impact on our reputation that could result from our actions or omissions or from those of others;
• our failure to maintain appropriate internal controls over financial reporting and disclosure controls and procedures;
• our risk management efforts may not be effective;
• we could be harmed by misconduct or fraud;
• inadvertent errors, system failures or cybersecurity incidents could disrupt our business;
• accounting rules related to certain of our transactions and asset valuations are highly complex and involve significant judgment and assumptions;
• the future realization of our deferred tax assets is uncertain, and the amount of valuation allowance we may apply against our deferred tax assets may change materially in future periods;
• the impact of changes to U.S. federal income tax laws on the U.S. housing market, mortgage finance markets, and our business;
• our failure to comply with applicable laws and regulation, including our ability to obtain or maintain governmental licenses;
• our ability to maintain our status as a REIT for tax purposes;
• limitations imposed on our business due to our REIT status and our status as exempt from registration under the Investment Company Act of 1940;
• our stock may experience price declines, volatility, and poor liquidity, and we may reduce our dividends;
• decisions about raising, managing, and distributing capital;
• dividend distributions and the timing and character of such dividends may change;
• limited number of institutional shareholders own a significant percentage of our common stock; and
• other factors not yet identified, including broad market fluctuations.

This Quarterly Report on Form 10-Q may contain statistics and other data that in some cases have been obtained from or compiled from information made available by servicers and other third-party service providers.

OVERVIEW

Business Update

Our second quarter results reflect our decision to accelerate Redwood’s strategic transition toward a more scalable and simplified operating model. This decision comes as we see avenues for growth across our operating platforms that can be transformative —particularly amid evolving market dynamics in single-family housing finance, shifts in bank lending practices and potential outcomes related to changes in housing policy within the Federal government, including potential outcomes related to the future structure and role of Fannie Mae and Freddie Mac. In light of this, we took decisive steps to begin to meaningfully reduce exposure to portfolio holdings that now reside outside of our core operating footprint. These include our legacy unsecuritized bridge loans, third-party securities portfolio, and other non-core legacy assets, such as third-party originated HEI, the vast majority of which we have held for years. While these investments were initially aligned with our strategy and return thresholds, some are valued at a level that is attractive for sale to lock in gains, while others have underperformed as interest rates have risen and have become a significant drag on our forward earnings. In assessing the shifts now occurring in housing finance, and the growth potential of our mortgage banking platforms – where capital allocation has grown by over $200 million in the past year and where we have generated combined GAAP returns in excess of 20% in each of the past four quarters – the opportunity cost of allowing legacy investments to naturally run off has prompted us to more proactively reposition our capital.

This strategic transition and capital repositioning is supported by the fact that our operating platforms have been swiftly increasing in scale. The retrenchment by banks in mortgage lending has enabled Redwood to meaningfully expand loan acquisition volumes and market share, even as overall housing activity remains subdued. As part of this trend, through our network we have seen increased demand from bank counterparties for capital-efficient solutions that address a broader segment of their loan production.

The decision to accelerate the wind-down of our legacy portfolio resulted in approximately $(0.79) per share of fair value and repositioning charges in the second quarter, as we moved forward with liquidations, term financings, or other resolutions for these assets. This was the primary contributing factor to a reduction in our GAAP book value per share to $7.49 at June 30, 2025, as compared to $8.39 at March 31, 2025. We expect to free up $200 to $250 million in capital from these legacy investments by year-end 2025, which we plan to redeploy into our operating platforms and into other uses to support a more stable earnings profile and streamlined revenue mix.

In support of this transition, we recently began repurchasing our common shares, buying back 1.6 million common shares in June 2025 and an additional 2.5 million common shares during the third quarter through August 7, 2025. In July 2025, our Board increased our common stock repurchase authorization to $150 million.

With respect to our second quarter operating performance, Redwood’s mortgage banking platforms continue to profitably grow amidst a complex environment. The impact of “Liberation Day” tariff announcements at the outset of the second quarter caused financial markets to enter a tariff-driven decline from which there seems to have been a temporary recovery. Our posture early in the second quarter was appropriately cautious, but our operating activity quickly rebounded, and we finished with sequential growth in overall mortgage banking revenues, closing with particularly strong activity in June that has sustained into the third quarter. Our mortgage banking platforms continued to deliver combined GAAP returns above 20%, reflecting a broadening operating footprint despite a sustained slowdown in overall housing market activity.

Sequoia’s jumbo loan lock volume for newly originated or "current coupon" loans in the second quarter of 2025 was its highest since 2021. Amidst sluggish home purchase activity and in a market bereft of meaningful mortgage loan refinance activity, this growth highlights the significant progress we have made in expanding our "wallet share" across both bank and non-bank loan sellers. We are encouraged by the continued depth and diversification of our sourcing network, which exceeds 200 loan sellers with no significant volume concentrated with any one of these sellers.

Second, our Aspire platform, which commenced acquiring expanded residential loan products (also referred to as "non-QM loans") in January, gained meaningful traction in the second quarter, driven by growing lock volume sourced from an increasing number of originators. Aspire’s lock volume tripled compared to the first quarter of 2025. We are in the early stages of leveraging our existing Sequoia seller network to grow Aspire, as many long-time jumbo-loan sellers begin insourcing direct origination of these types of products. These established relationships are now complemented by an expanding group of new non-QM loan sellers who recognize Redwood’s ability to deliver innovative solutions across a variety of home lending products. Given Aspire’s current growth trajectory and relative scale, we remain confident in the platform’s significant potential.

Our business purpose lending platform, CoreVest, funded over $500 million in loans during the second quarter, marking its highest volume since mid-2022. Borrower loyalty remains strong, as evidenced by our high repeat-customer rate during the quarter—an important indicator of stability amid signs of housing stress in select regions. Our diligent approach to credit risk, including targeted credit overlays, tightened leverage in more vulnerable markets, and enhanced structural protections, continues to support strong loan performance and deepening distribution channels. Moreover, strategic hires within our small-balance product segment have significantly contributed to CoreVest’s volumes and positioned the platform for continued prudent growth.

RESULTS OF OPERATIONS

Within this Results of Operations section, in accordance with Item 303(c)(2)(ii) of Regulation S-K, we have elected to discuss any material changes in our results of operations by comparing our quarter ended June 30, 2025 to the immediate preceding quarter ended March 31, 2025. We believe that providing a sequential discussion of our results of operations offers highly relevant information for investors and stakeholders to understand and analyze our business activities. Additionally, we generally continue to address material changes in our results of operations for the most recent fiscal year-to-date period, compared to the corresponding year-to-date period of the preceding fiscal year, pursuant to Item 303(c)(2)(i) of Regulation S-K. Unless otherwise specified, references in this section to increases or decreases during the "three-month periods" refer to the change in results for the second quarter of 2025, compared to the first quarter of 2025.

Consolidated Results of Operations

The following table presents the components of our net income (loss) for the three and six months ended June 30, 2025 to the immediate preceding quarter ended March 31, 2025 and year-to-date period ended June 30, 2024.

Table 1 – Net (Loss) Income

(In Thousands, except per Share Data)

63

Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025

Net Interest Income

Net interest income decreased by $14 million during the second quarter of 2025, primarily due to an $11 million decline from our Legacy Investments segment. The decrease was largely due to an increase in the balance of our legacy unsecuritized bridge and term loan portfolios on non-accrual during the quarter, which in certain cases caused a reversal of prior quarter net interest income. This segment was previously included within Redwood Investments, and primarily consists of assets no longer aligned with our core strategic objectives and involves positions primarily linked to legacy unsecuritized bridge and term loan portfolios, our third-party securities portfolio, and other non-core legacy assets. These assets are in the active process of sale, runoff, or other disposition as part of accelerated strategic repositioning of our business model. This segment is expected to wind down over time as the assets are sold or otherwise resolved.

Sequoia Mortgage Banking contributed $3 million lower net interest income due to lower volume as total lock volumes fell by 10% compared to the first quarter of 2025. Furthermore, a large, seasoned bulk portfolio that we locked in the first quarter and settled in the second quarter lowered the gross coupon on our pipeline relative to the first quarter.

Additional detail on net interest income is provided in the “Net Interest Income” section that follows.

Mortgage Banking Activities, Net

Mortgage Banking activities, net increased by $8 million during the second quarter of 2025, primarily due to higher CoreVest Mortgage Banking revenues.

The increase in CoreVest Mortgage Banking activities of $6 million was primarily attributable to improved economics from whole loan sales and joint venture executions, as we saw a 38% increase in loan distribution volume to $583 million, the highest level of quarterly distribution in CoreVest's history. Increased volume and our origination mix contributed to the increase in revenue, as loan fundings increased by 6% to $509 million, compared to the prior quarter. Notably we saw higher originations of higher-margin term loans.

The increase in Sequoia Mortgage Banking activities of $2 million was primarily attributable to a strong execution on loan sales despite a 10% decline in total lock volume from the prior quarter, as well as outperformance of this segment's interest rate hedges. Gain-on-sale margins expanded to 131 basis points, exceeding historical averages, and distribution activity remained robust, with $2.9 billion of loans distributed.

A more detailed analysis of the changes in this line item is included in the “Sequoia Mortgage Banking Segment” and “CoreVest Mortgage Banking Segment” sections that follows.

Investment Fair Value Changes, Net

Investment fair value changes, net declined by $80 million, resulting in a loss of $85 million during the second quarter of 2025. The decline was primarily driven by negative fair value adjustments on our legacy unsecuritized bridge loans, and to a lesser extent, legacy unsecuritized term loans, reflecting both realized and anticipated near-term resolutions on these loans and other non-core legacy assets, as well as changes in the underlying performance of certain legacy unsecuritized bridge and term loan portfolios. In the second quarter of 2025, we began reporting these loans as part of our Legacy Investments segment.

A more detailed analysis of the changes in this line item is included in the “Redwood Investments Segment” and "Legacy Investments Segment" section that follows.

HEI Income, net

HEI income, net decreased by $23 million, resulting in a loss of $13 million during the second quarter of 2025. This was primarily driven by a $14 million fair value loss on our third-party originated HEI portfolio, which are legacy HEI options originated by third-parties and primarily acquired between 2019 and 2022. This fair value change reflected an anticipated near-term disposition, as we intend to a substantial portion of the portfolio during the third quarter of 2025. In the second quarter of 2025, we began reporting this HEI portfolio as part of our Legacy Investments segment. Furthermore, HEI income, net declined due to negative fair value adjustments due to a slowdown in home price appreciation and prepayment speeds during the quarter.

Additional detail on our HEI income is presented in Table 10.3 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Operating Expenses

Operating expenses increased by $4 million during the second quarter of 2025, primarily due to higher portfolio management costs related to specially-serviced residential investor bridge loans.

Additional detail on our General and administrative expenses is presented in Table 22.1 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Provision for Income Taxes

Our provision for income taxes is almost entirely related to activity at our Taxable REIT Subsidiaries ("TRS"), which primarily includes our mortgage banking activities and MSR investments, as well as certain other investment and hedging activities. The tax provision for the second quarter of 2025 declined by $2 million, primarily due to losses related to legacy residential investor loans and a reduction in our estimated effective tax rate, reflecting a favorable change for us based on California’s tax apportionment methodology for financial institutions.

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

Net Interest Income

Net interest income decreased by $8 million for the six months ended June 30, 2025 compared to the same period in 2024. The decline was largely due to an increase in the balance of our legacy unsecuritized bridge and term loan portfolios on non-accrual during the second quarter of 2025, which in certain cases caused a reversal of prior period's net interest income. In addition, corporate interest expense rose by $6 million due to higher unsecured debt balances and fully utilizing the maximum capacity under the secured revolving financing facility established in 2024.

These decreases were partially offset by net interest income from Sequoia and CoreVest mortgage banking, including a $17 million increase from Sequoia, driven by higher loan purchase volumes, capital deployment into certain interest rate hedging instruments, and lower base floating rates on our financing facilities as SOFR declined over 90 basis points between June 30, 2024 and June 30, 2025. CoreVest mortgage banking also contributed $1 million increase in net interest income.

Additional detail on net interest income is provided in the “Net Interest Income” section that follows.

Mortgage Banking Activities, Net

Mortgage Banking activities, net increased by $40 million in the six months ended June 30, 2025 compared to the same period in 2024, due to both higher Sequoia Mortgage Banking and CoreVest Mortgage Banking revenues.

The increase in Sequoia Mortgage Banking activities, net of $32 million was primarily attributable to a 71% year-over-year increase in lock volumes during the six-month period. Lock volume for the six-month period ended June 30, 2025 totaled $7.6 billion, compared to $4.4 billion for the period ended June 30, 2024 as 2025 volumes were supported by continued strength across both flow and bulk executions, including the bulk purchase of a $1.0 billion seasoned loan portfolio in the first quarter of 2025. This also included $441 million of loans locked by Aspire, a mortgage banking business initiative that was newly established in 2025. Sequoia achieved gain-on-sale margins of over 100 basis points, exceeding typical historical levels, and distributed $4.9 billion of loans in the six months ended June 30, 2025.

The increase in CoreVest Mortgage Banking activities, net of $8 million was primarily attributable to higher funding volumes, totaling $991 million in the six months ended June 30, 2025, representing a 26% increase to the same period in 2024. The increase also reflected improved margins and execution economics, supported by strong demand for residential transition (RTL) loans, Term loans, and DSCR loans, as well as active securitization, whole loan sale and joint venture activity across the platform.

A more detailed analysis of the changes in this line item is included in the “Sequoia Mortgage Banking Segment” and “CoreVest Mortgage Banking Segment” sections that follows.

Investment Fair Value Changes, Net

Investment fair value changes, net changed by $113 million, from a $23 million gain in the six months ended June 30, 2024 to a $90 million net loss in the same period in 2025. The decline was primarily related to impairments and adverse fair value adjustments reflecting both realized and anticipated near-term resolutions on our legacy unsecuritized bridge and term loan portfolios and other non-core legacy assets, as well as changes in the underlying performance of certain Legacy bridge loans. These losses were partially offset by fair value gains, net of associated interest rate hedges, on our securities portfolio, which benefited from tighter credit spreads during the period.

A more detailed analysis of the changes in this line item is included in the “Redwood Investments Segment” and "Legacy Investments Segment" section that follows.

HEI Income, net

HEI income, net decreased by $28 million, from a $25 million gain in the six months ended June 30, 2024 to a $3 million loss in the same period in 2025. This was primarily driven by driven by similar trends as described above for the three-month periods in the section above, including the anticipated sale of a substantial portion of this portfolio in the third quarter of 2025.

Additional detail on our HEI income is presented in Table 10.3 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Operating Expenses

Operating expenses increased by $17 million in the six months ended June 30, 2025 compared to the same period ended in 2024, primarily driven by an increase in fixed compensation associated with hiring directly at our operating platforms to support higher volumes and profitability, as well as higher variable and equity compensation expense and higher portfolio management costs related to specially serviced residential investor bridge loans.

Additional detail on our General and administrative expenses is presented in Table 22.1 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Provision for Income Taxes

Our provision for income taxes is almost entirely related to activity at our taxable REIT subsidiaries ("TRS"), which primarily includes our mortgage banking activities and MSR investments, as well as certain other investment and hedging activities. The increase of $5 million for the tax provision in the six months ended June 30, 2025 was primarily the result of a higher effective rate and higher income from mortgage banking activities at our TRS compared to the same period ended June 30, 2024.

Consolidated Net Interest Income

The following tables present the components of net interest income recorded in each line item of our consolidated statements of income for the three and six months ended June 30, 2025 to the immediate preceding quarter ended March 31, 2025 and year-to-date period ended June 30, 2024.

Table 2 – Consolidated Net Interest Income

(Dollars in Thousands)

67

(Dollars in Thousands)

(1) Average balances for residential consumer loans, residential investor loans, and trading securities are calculated based upon carrying values, which represent fair values. Average balances for AFS securities, debt facilities, corporate debt and certain ABS issued are calculated based upon amortized historical cost. Average balances for ABS carried at fair value are calculated based upon fair value.

(2) Interest income and interest expense securitized loans reflect activity from consolidated VIEs. While we consolidate these entities for GAAP reporting purposes, economically, we earn interest income from the securities we own in these entities, which is represented by the net interest income (interest income less interest expense) from these consolidated entities presented in the table above.

(3) Real estate securities include trading securities consisting primarily of interest-only securities, which generate a higher cash interest yield. This interest income may be offset by a decline in fair value (recognized through investment fair value changes, net on our consolidated statements of income) related to the receipt of cash flows each period, resulting in a lower overall economic yield for these investments.

Consolidated Market Valuation Gains and Losses, Net

The following table presents the net market valuation gains and losses recorded in each line item of our consolidated statements of income for the three and six months ended June 30, 2025 to the immediate preceding quarter ended March 31, 2025 and year-to-date period ended June 30, 2024.

Table 3 – Consolidated Market Valuation Gains and Losses, Net

(In Thousands)

(1) Represents fair value changes on trading securities that are being used along with risk management derivatives to manage the market risks associated with our Sequoia Mortgage Banking operations.

(2) Mortgage banking activities, net presented above does not include fee income from loan originations or acquisitions, provisions for repurchases, or other expenses that are components of Mortgage banking activities, net presented on our consolidated statements of income, as these amounts do not represent market valuation changes.

(3) Includes changes in fair value of the securitized loans held-for-investment, securitized HEI, REO and the ABS issued at the entities, which, netted together, represent the change in value of our investments at the consolidated VIEs accounted for under the CFE election.

(4) Other investments includes changes in fair value of REO assets.

(5) Other income excludes net MSR fee income or provision for repurchases, as these amounts do not represent market valuation adjustments.

Results of Operations by Segment

We report on our business using four segments: Sequoia Mortgage Banking, CoreVest Mortgage Banking, Redwood Investments and Legacy Investments. For additional information on our segments, refer to Note 4 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The following table presents the segment contribution from our four segments reconciled to our consolidated net income for the three and six months ended June 30, 2025 to the immediate preceding quarter March 31, 2025 and year-to-date period June 30, 2024.

Table 4 – Segment Results Summary

(In Thousands)

The sections that follow provide further detail on our business segments and their results of operations for the three and six months ended June 30, 2025 to the immediate preceding quarter ended March 31, 2025 and year-to-date period ended June 30, 2024.

Corporate/Other

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

Sequoia Mortgage Banking Segment

This segment consists of a mortgage loan conduit that acquires residential consumer loans from third-party originators for subsequent sale to whole loan buyers, securitization through our SEMT® (Sequoia) private-label securitization program, or transfer into our Redwood Investments portfolio. Subordinate securities that we retain from our Sequoia securitizations (many of which we consolidate for GAAP purposes) are transferred to and held in our Redwood Investments segment. We typically acquire prime jumbo mortgages and the related mortgage servicing rights on a flow or bulk basis from our extensive network of loan sellers. This segment also includes various derivative financial instruments that we utilize to manage certain risks associated with our inventory of residential consumer loans held-for-sale within this segment.

This segment’s main source of income is Mortgage banking income, which is comprised of net interest income from its inventory of loans held-for-sale, securities utilized for interest rate hedging purposes, as well as income from mortgage banking activities, which includes valuation increases (or gains) on loans we acquire and subsequently sell, securitize, or transfer into our Redwood investments portfolio, and the hedges used to manage risks associated with these activities. See Note 5 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further detail on the composition of mortgage banking activities, net. Direct operating expenses and tax expenses associated with these activities are also included in this segment.

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

The following table presents key earnings and operating metrics for our Sequoia Mortgage Banking segment during the three and six months ended June 30, 2025 to the immediate preceding quarter March 31, 2025 and year-to-date period through June 30, 2024.

Table 5 – Sequoia Mortgage Banking Earnings Summary and Operating Metrics

(In Thousands)

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

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

The following table provides the activity of residential consumer loans held in inventory for sale at our Sequoia Mortgage Banking business during the three and six months ended June 30, 2025.

Table 6 – Loan Inventory for Sequoia Mortgage Banking Operations

(In Thousands)

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

Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025

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

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

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

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

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

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

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

For the three months ended June 30, 2025, our cost per loan was 26 basis points (calculated as operating expenses divided by loan purchase commitments), compared to 21 basis points for the quarter ended March 31, 2025, representing ongoing efficiency of our platform. We continue to evaluate monetary policy, housing trends and economic data, among other factors, in developing our interest rate hedging strategy and we expect to continue to leverage a variety of instruments as hedges, including TBAs, interest rate futures, real estate securities, options and other types of securities.

Operating expenses for this segment increased for the second quarter of 2025, as compared to the preceding quarter, primarily due to an increase in loan acquisition costs related to the increase in loan purchases, as well as higher general and administrative expenses from variable and equity compensation due to improved segment performance for the three-months ended June 30, 2025.

Capital allocation to this segment was $475 million at June 30, 2025, compared to $425 million at March 31, 2025 due to higher loan purchases during the second quarter of 2025. We continue to competitively bid on bulk jumbo loan acquisition opportunities, including newer vintage and seasoned collateral and both fixed and adjustable-rate mortgages while also focusing on forward flow agreements. Looking ahead, we are focused on continuing to gain market share with our seller network, including as it relates to supporting our bank partners with balance sheet solutions for their legacy collateral.

We utilize a combination of capital and our residential consumer loan warehouse facilities to finance our inventory of residential consumer loans held-for-sale. At June 30, 2025, we had residential consumer warehouse facilities outstanding with $2.96 billion of total capacity and $1.69 billion of available capacity. These facilities included non-marginable facilities (i.e., not subject to margin calls based solely on the lender's determination, in its discretion, of the market value of the underlying collateral that is non-delinquent) with $400 million of total capacity and marginable facilities with $2.56 billion of total capacity.

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

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

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

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

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

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

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

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

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

CoreVest Mortgage Banking Segment

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

We typically distribute most of our term loans through our CAFL® private-label securitization program, through whole loan sales or into our joint ventures. We typically transfer our residential investor bridge loans to our Redwood Investments portfolio, where they will either be retained for investment, securitized, sold as whole loans or distributed into joint ventures.

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

This segment also includes various derivative financial instruments that we utilize to manage certain risks associated with our inventory of loans held-for-sale. This segment’s main sources of mortgage banking income are net interest income earned on loans while they are held in inventory, origination and other fees on loans, mark-to-market adjustments on loans from the time loans are originated or purchased to when they are sold, securitized or transferred into our Redwood Investments portfolio, and gains/losses from associated hedges. Fee income associated with our administration of joint ventures and other loan-related administrative functions is also included in this segment. Direct operating expenses and tax expenses associated with these activities are also included in this segment.

The following table presents an earnings summary for our CoreVest Mortgage Banking segment for the three and six months ended June 30, 2025 to the immediate preceding quarter March 31, 2025 and year-to-date period June 30, 2024.

Table 7 – CoreVest Mortgage Banking Earnings Summary

(In Thousands)

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

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

The following table provides unsecuritized residential investor loan origination activity during the three and six months ended June 30, 2025.

Table 8 – Residential Investor Loans - Funding Activity

(In Thousands)

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

(2) Funding and sales for Residential investor bridge loans for the three and six months ended June 30, 2025, includes $31 million and $59 million, respectively, of construction draws, of which $16 million and $32 million, respectively, were related to construction draws on loans sold to joint ventures.

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

Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025

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

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

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

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

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

Capital allocated to this segment was $93 million at June 30, 2025, down from $106 million at March 31, 2025. The platform remains focused on capital-efficient growth strategies, including ongoing engagement with JV partners and non-recourse financing structures to support its scaling loan inventory. Our inventory of loans is managed with a combination of our capital and loan warehouse facilities. At June 30, 2025, total warehouse capacity was $2.18 billion, with $1.48 billion of available capacity (inclusive of capacity on non-recourse facilities). All of these facilities are non-marginable (i.e., not subject to margin calls based solely on the lender's determination, in its discretion, of the market value of the underlying collateral that is non-delinquent).

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

CoreVest segment contribution increased $14 million during the six months ended June 30, 2025, compared to the six months ended June 30, 2024. The increase is attributable to higher mortgage banking income, driven by an increase in total loan funding volumes and robust distribution via whole loan sales and joint ventures. Funded volume for the six months ended June 30, 2025 was $991 million compared to $785 million for the period ended June 30, 2024, representing a 26% increase. All strategies saw growth over the period through growth was particularly notable in products of strategic focus such as RTL (54%) and DSCR (86%) loans. Term (18%) and bridge (7%) loans witnessed more modest gains.

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

Redwood Investments Segment

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

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

We primarily target investments that have a sensitivity to housing credit risk, typically sourced through our operating businesses where we control the underwriting and review of underlying collateral. We currently target returns related to capital deployment opportunities of between 15-20% on our Redwood Investments portfolio.

This segment’s main sources of income are net interest income and other income from investments, changes in fair value of investments and associated hedges, and realized gains and losses upon the sale of securities. Direct operating expenses and tax provisions associated with these activities are also included in this segment.

The following table presents an earnings summary for our Redwood Investments segment for the three and six months ended June 30, 2025 to the immediate preceding quarter ended March 31, 2025 and the year-to-date period ended June 30, 2024.

Table 9 – Redwood Investments Earnings Summary

(In Thousands)

Investment fair value changes, net is primarily comprised of the change in fair value (both realized and unrealized) of our portfolio investments accounted for under the fair value option and interest rate hedges associated with these investments. See Table 3 in the Consolidated Results of Operations in Part I, Item 2 of this Quarterly Report on Form 10-Q for further detail on the composition of investment fair value changes (the difference in amounts in the table above and in Table 3 relates to fair value changes for investments held at corporate/other).

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

Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025

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

Fundamental performance of assets within this segment saw consistent trends in underlying credit and continue to be driven by relatively healthy employment data, embedded equity protection associated with loan seasoning and home price appreciation, and borrowers motivated to stay current on their low-coupon mortgages. Notably, 90 day+ delinquencies on our Sequoia Securities, CAFL Term Securities and retained bridge securities were stable-to-improving in the second quarter 2025 at 0.3%, 7.1% and 3.6% of our total unpaid principal balances, respectively, compared to 0.2% and 8.4% and 3.8% at March 31, 2025.

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

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

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

The following table presents details of our Redwood Investments Portfolio at June 30, 2025 and March 31, 2025 organized by investments in retained securities from Sequoia and CoreVest securitizations and those acquired from third-parties. Amounts presented in the table represent our retained economic interests in consolidated Sequoia, CAFL Term, Freddie Mac K-Series, and Servicing Investments as noted.

Table 10 – Redwood Investments - Detail of Economic Interests

(In Thousands)

(1) Represents our retained economic investment in securities issued by consolidated Sequoia securitization VIEs. For GAAP purposes, we consolidated $11.59 billion of loans and $10.98 billion of ABS issued associated with these investments at June 30, 2025. We consolidated $8.82 billion of loans and $8.40 billion of ABS issued associated with these investments at December 31, 2024.

(2) Represents our retained economic investment in securities issued by consolidated CAFL Term securitization VIEs. For GAAP purposes, we consolidated $2.27 billion of loans and $1.95 billion of ABS issued associated with these investments at June 30, 2025. We consolidated $2.49 billion of loans and $2.17 billion of ABS issued associated with these investments at December 31, 2024.

(3) Other investments at June 30, 2025 includes net risk share investments of $17 million, representing $19 million of restricted cash and other assets, net of other liabilities of $2 million.

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

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

(6) Represents our economic investment in consolidated Servicing Investment variable interest entities. At June 30, 2025, for GAAP purposes, we consolidated $263 million of servicing investments and $161 million of non-recourse short-term securitization debt, as well as other assets and liabilities for these entities. At December 31, 2024, for GAAP purposes, we consolidated $262 million of servicing investments and $159 million of non-recourse securitization debt, as well as other assets and liabilities for these entities.

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

Investments Detail and Activity

This section presents additional details on our investments in this segment and their activity during the three and six months ended June 30, 2025.

Real Estate Securities Portfolio

The following table sets forth activity in our real estate securities portfolio for the three and six months ended June 30, 2025. This table includes both our securities held on balance sheet and our economic interest in securities we own in securitizations we consolidate in accordance with GAAP.

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

(In Thousands)

78

(In Thousands)

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

(2) At June 30, 2025, $97 million of Sequoia Securities and $108 million of Other Third-Party Securities were used as hedges for our Sequoia Mortgage Banking operations, and were included in our Sequoia Mortgage Banking segment. At June 30, 2025, our securities owned at Redwood and in consolidated entities consisted of fixed-rate assets (98%), adjustable-rate assets (<1%) and hybrid assets that reset within the next 15 months (2%).

We directly finance our holdings of real estate securities with a combination of recourse, non-marginable term debt financing, non-recourse, non-marginable re-securitization debt, and recourse, marginable securities repurchase financing. At June 30, 2025, we had: CAFL securities with a fair value of $330 million that were financed with $265 million of non-marginable recourse debt through two subordinate securities financing facilities; Sequoia securities we owned from consolidated and unconsolidated Sequoia securitization trusts with a fair value of $477 million that were financed with $382 million of non-recourse re-securitization debt (ABS issued); real estate securities with a fair value of $167 million (including securities owned in consolidated securitization entities) that were financed with $93 million of recourse debt incurred through repurchase facilities; and $161 million of securities that were financed using a recourse residential MSR warehouse facility. The remaining $106 million of our securities, including certain securities we own that were issued by consolidated securitization entities, were financed with capital.

The following table summarizes the credit characteristics of Sequoia securities and CAFL term securities at June 30, 2025. This table includes both our securities held on balance sheet and our economic interest in securities we own in securitizations we consolidate in accordance with GAAP.

Table 12 – Credit Statistics (1)

(Dollars in Thousands)

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

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

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

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

Legacy Investments Segment

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

This segment’s main sources of income are net interest income and other income from investments, changes in fair value of investments and associated hedges, and realized gains and losses upon the sale or disposition of assets. Direct operating expenses and tax provisions associated with these activities are also included in this segment.

The following table presents an earnings summary for our Legacy Investments segment for the three and six months ended June 30, 2025 to the immediate preceding quarter ended March 31, 2025 and the year-to-date period ended June 30, 2024.

Table 13 – Legacy Investments Earnings Summary

(In Thousands)

Investment fair value changes, net is primarily comprised of the change in fair value (both realized and unrealized) of our portfolio investments accounted for under the fair value option and interest rate hedges associated with these investments. See Table 3 in the Consolidated Results of Operations in Part I, Item 2 of this Quarterly Report on Form 10-Q for further detail on the composition of investment fair value changes (the difference in amounts in the table above and in Table 3 relates to fair value changes for investments held at corporate/other).

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

Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025

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

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

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

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

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

Investments Detail and Activity

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

Securities Portfolio

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

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

(In Thousands)

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

Home Equity Investments

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

Table 15 – HEI at Legacy Investments

(In Thousands)

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

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

(In Thousands)

(In Thousands)

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

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

Additional details on our HEI are included in Note 10 of our Notes to Consolidated Financial Statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Legacy Unsecuritized Bridge and Term Loan Portfolios

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

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

(in thousands)

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

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

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

In the second quarter of 2025, the fair value of the legacy unsecuritized bridge and term loan portfolios declined by $69 million. This decline was driven by fair value losses recognized during the period, reflecting adverse market developments and anticipated near-term resolutions on these loans, as well as changes in the underlying performance on certain of these loans, particularly those of the 2021 and 2022 vintage. These valuations are subject to a rigorous fair value process for our residential investor loans, which consistently includes regular management reviews of underlying property fundamentals and the fair value of the collateral securing the loan, updated third-party appraisals, estimated sales costs, and independent market data verification where available. The amounts we may ultimately recover through the foreclosure of loans and the sale of the underlying collateral or through alternative strategies, such as through loan sales or discounted payoffs, could vary materially from our estimates and could have a material impact on our earnings in future periods.

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

Loan Modifications

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

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

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

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

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

For the three months ended June 30, 2025, we modified loans by extending maturities and/or covenant terms with an aggregate unpaid principal balance of $303 million, of which $169 million had been previously modified in a prior period. While we continue to actively engage with certain borrowers to address the impacts of rising interest rates, elongated project timelines, or other issues, further increases in delinquencies or modifications within our residential investor bridge loan portfolio could ultimately result in further decreases in net interest income and the fair value of our bridge loans held for investment, and further instances of borrower/sponsor financial stress could lead to realized credit losses. An increase in maturity extensions in the residential investor bridge portfolio would increase the expected time to repayment with a potential impact on fair values and credit losses. However, given the overall short duration nature of our bridge loans, a certain level of maturity extensions are a routine asset management outcome for these loans, irrespective of market conditions. When we provide these types of maturity extensions, our asset management function also seeks to charge a fee. For the three months ended June 30, 2025, the average length of maturity extensions granted on residential investor bridge loans was under five months.

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

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

(In Thousands)

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

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

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

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

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

Income Taxes

REIT Status and Dividend Characterization

While the exact amount is uncertain at this time, we currently expect a portion of our 2025 common stock dividend distributions to be taxable as ordinary income for federal income tax purposes. Any remaining amount is currently expected to be characterized as a return of capital, which in general is nontaxable (provided it does not exceed a shareholder's tax basis in Redwood shares) and reduces a shareholder's basis in Redwood shares (but not below zero). To the extent such distributions exceed a shareholder's basis in Redwood shares, such excess amount would be taxable as capital gains. We currently expect all of our 2025 preferred stock dividend distributions to be taxable as ordinary income for federal income tax purposes. Under the federal income tax rules applicable to REITs, none of Redwood’s 2025 dividend distributions are currently expected to be characterized as long-term capital gain dividends. The income or loss generated at our TRS will not directly affect the tax characterization of our 2025 dividends; however, any dividends paid from our TRS to our REIT would allow a portion of our REIT’s dividends to be classified as qualified dividends.

Tax Provision under GAAP

For the three and six months ended June 30, 2025, we recorded tax provisions of $5 million and $11 million, respectively. For both the three and six months ended June 30, 2024, we recorded tax provisions of $5 million. Our tax provision is primarily derived from the activities at our TRS, as we do not book a material tax provision associated with income generated at our REIT. The increase in the tax provision year-over-year was primarily the result of increased GAAP income earned at our TRS in 2025 compared to 2024. Refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 under the caption Income Taxes for additional information regarding our tax provision and deferred tax assets.

Subsequent to June 30, 2025, the One Big Beautiful Bill Act (the “OBBB Act”) was enacted on July 4, 2025. The OBBB Act contains various provisions which will impact the Company, including restoring the taxable REIT subsidiary limit to 25%, permanently reinstating 100% bonus depreciation, and increasing interest deduction limits, among other various federal income tax law changes. The OBBB Act had no impact to the income tax provision during the quarter ended June 30, 2025, and the Company is currently evaluating the impact to the consolidated financial statements in future quarters but does not expect the impact to be material.

LIQUIDITY AND CAPITAL RESOURCES

Summary

In addition to the proceeds from equity and debt capital-raising transactions, our principal sources of cash and liquidity consist of borrowings under mortgage loan and HEI warehouse facilities, secured term financing facilities, securities repurchase agreements, a corporate secured revolving financing facility, payments of principal and interest we receive from our investment portfolio assets, proceeds from the sale of investment portfolio assets, and cash generated from our mortgage banking operating activities, such as the sale and securitization of mortgage loans. Our most significant uses of cash are to purchase and originate mortgage loans for our mortgage banking operations and manage hedges associated with those activities, to purchase investment securities and make other investments, to repay principal and interest on our debt, to meet margin calls associated with our debt and other obligations, to make dividend payments on our capital stock, to fund draws on our bridge loan portfolio and other commitments when requested, and to fund our operations.

At June 30, 2025, our total capital was $1.81 billion, consisting of (i) $1.05 billion of equity capital, (ii) $745 million of unsecured and other corporate debt on our consolidated balance sheets (including $124 million of exchangeable debt due in October 2025, $247 million of convertible debt due in 2027, $145 million of senior unsecured notes due in 2029, $90 million of senior unsecured notes due in 2030 and $140 million of trust-preferred securities due in 2037), and (iii) $11 million of promissory notes.

At June 30, 2025, our unrestricted cash and cash equivalents were $302 million. In addition, our unencumbered assets of approximately $125 million at June 30, 2025 represent assets that could be pledged on a secured financing basis to provide another source of liquidity, as needed. While we believe our available cash is sufficient to fund our operations, we may raise equity or debt capital from time to time to increase our unrestricted cash and liquidity, to repay existing debt, to make long-term portfolio investments, to fund strategic acquisitions and investments, or for other purposes. In particular, we continue to focus on additional joint ventures with strategic investors who seek to acquire the assets our operations originate and source and/or seek to provide capital to support the growth potential of our operating platforms. To the extent we seek to raise additional capital, our approach will continue to be based on what we believe to be in the best interests of the Company.

In the discussion that follows and throughout this document, we distinguish between marginable and non-marginable debt and recourse and non-recourse debt. Refer to the section set forth below under the heading "Risks Relating to Debt Incurred under Borrowing Facilities" for additional information regarding these terms that describe our debt.

At June 30, 2025, in aggregate, we had $2.53 billion of secured recourse debt outstanding, financing our mortgage banking operations and investment portfolio, of which $1.42 billion was marginable and $1.11 billion was non-marginable.

We are subject to risks relating to our liquidity and capital resources, including risks relating to incurring debt under loan warehouse facilities, securities repurchase facilities, other short- and long-term debt facilities and other risks relating to our corporate debt and use of derivatives. A further discussion of these risks is set forth below under the heading “Risks Relating to Debt Incurred under Borrowing Facilities."

Repurchase Authorization

Our Board of Directors previously approved authorizations for the repurchase of up to $125 million of our common stock, the repurchase up to $70 million of our preferred stock, and the repurchase of outstanding debt securities, including convertible and exchangeable debt. During the three months ended June 30, 2025, we repurchased 1.6 million shares of our common stock for a total cost of $9 million. During the three and six months ended June 30, 2025 we did not repurchase any shares of our preferred stock or of our convertible and exchangeable debt. At June 30, 2025, $92 million of the previously approved authorization remained available for the repurchase of shares of our common stock, and $70 million remained available for the repurchase of shares of our preferred stock.

In July 2025, our Board of Directors approved an authorization for the repurchase of up to $150 million of our common stock, and continued its previous authorizations for the repurchase of up to $70 million of our preferred stock, and the repurchase of our outstanding debt securities, including convertible and exchangeable debt. This authorization replaced our previous $125 million common stock repurchase authorization. This authorization has no expiration date and does not obligate us to acquire any specific number of shares or securities. During the third quarter of 2025, we have continued to repurchase shares of our common stock and we are evaluating the potential for additional common share repurchases, given the current trading price of our common shares, relative to the book value per share of our common stock currently outstanding. Any repurchases of our common stock, preferred stock, or debt securities under these authorizations would reduce our available capital and unrestricted cash described above.

Cash Flows and Liquidity for the Six Months Ended June 30, 2025

Cash flows from our mortgage banking activities and our investments can be volatile from quarter to quarter depending on many factors, including the timing and amount of loan originations, acquisitions, sales and profitability within our mortgage banking operations, the timing and amount of securities acquisitions, sales and repayments, as well as changes in interest rates, prepayments, and credit losses. Therefore, cash flows generated in the current period are not necessarily reflective of the long-term cash flows we will receive from these operating or investment activities.

Cash Flows from Operating Activities

Cash flows used in operating activities decreased by $1.15 billion from negative $2.92 billion in the six months ended June 30, 2024 to negative $4.07 billion in the six months ended June 30, 2025, primarily due to the increase in residential consumer loan purchases as well as an increase in originations of residential investor loans held for sale associated with our mortgage banking activities. Excluding cash flows from the purchase, origination, sale and principal payments of loans classified as held-for-sale, and the settlement of associated derivatives (which cumulatively totaled $4.11 billion of net cash outflows for the six months 2025 period, compared to $2.97 billion of net cash outflows for the six month 2024 period), cash flows from operating activities were positive $43 million during the first six months of 2025 and positive $51 million for the first six months of 2024.

Cash Flows from Investing Activities

During the six months ended June 30, 2025, our net cash provided by investing activities was $1.64 billion and primarily resulted from proceeds from principal payments on loans held-for-investment and other investments, in excess of cash deployed into these investments. Because many of our investment securities, loans and HEI are financed through various borrowing agreements, a significant portion of the proceeds from any sales or principal payments of these assets are generally used to repay balances under these financing sources. Similarly, all or a significant portion of cash flows from principal payments of loans and HEI at consolidated securitization entities would generally be used to repay ABS issued by those entities.

Cash Flows from Financing Activities

During the six months ended June 30, 2025, our net cash provided by financing activities was $2.56 billion. This primarily resulted from $2.35 billion of net borrowings under ABS issued (resulting from the issuance of six Sequoia securitizations as well as the issuance of $100 million and $109 million of ABS through two Sequoia re-securitizations of certain consolidated and unconsolidated Sequoia securities during the six months ending June 30, 2025, net of related issuance costs), and $281 million of net borrowings on debt obligations. During the six months ending June 30, 2025, net cash provided from debt obligations included the issuance of $90 million of senior notes as well as a $93 million recourse subordinate financing facility providing non-marginable debt financing of certain securities retained from our Sequoia securitizations and other third-party securities.

Material Cash Requirements

In the normal course of business, we enter into transactions that may require future cash payments. As required by GAAP, some of these obligations are recorded on the balance sheet, while others are off-balance sheet or recorded on the balance sheet in amounts different from the full contractual or notional amount of the transaction.

Our material cash requirements from known contractual and other obligations during the twelve months following June 30, 2025, include maturing debt obligations, interest payments on debt obligations and ABS issued, payments on operating leases, funding commitments for residential investor and consumer loans, strategic investments, potential repurchases of previously sold or securitized loans, and other current payables. Our material cash requirements from known contractual and other obligations beyond the twelve months following June 30, 2025, include maturing long-term debt, interest payments on long-term debt, payments on operating leases and funding commitments for residential investor bridge loans, strategic investments, and principal and interest payments under ABS issued (as described further below under Liquidity Needs for our Redwood Investments).

At June 30, 2025, we had commitments to fund up to $435 million of additional advances on existing residential investor bridge loans. These commitments are generally subject to loan agreements with covenants regarding the financial performance of the borrower and other terms regarding advances that must be met before we fund the commitment (for example, funding is dependent on actual progress on a project and we retain the right to conduct due diligence with respect to each draw request to confirm conditions have been met). A majority of the commitments are for longer-term renovate/build-for-rent loans (which generally have funding caps below their full commitment amount) and are expected to fund over the next several quarters. At June 30, 2025, we had $1.48 billion of available warehouse capacity for residential investor loans and scheduled bridge loan maturities are expected to provide an additional source of cash that can be used to fund our commitments.

For additional information regarding our material cash requirements, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 under the caption Contractual Obligations. For additional information on commitments and contingencies as of June 30, 2025 that could impact our liquidity and capital resources, see Note 19 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, which supplements the disclosures included in Note 18 to the Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2024.

Our 5.75% exchangeable senior notes mature in October 2025 and have an outstanding principal balance of $124 million at June 30, 2025. We expect to utilize cash on hand to repay our exchangeable senior notes that are maturing, which will reduce the amount of cash that can be deployed into our business and could reduce the earnings potential of our business. Further, if market rates for corporate capital remain elevated and we chose to issue new corporate capital, it could negatively impact our profitability.

We expect to meet our obligations coming due in less than one year from June 30, 2025 most likely from borrowings under existing, new or amended financing arrangements, or through other previously mentioned sources of capital including cash on hand. As of June 30, 2025, we had approximately $125 million of unencumbered assets, and we currently estimate we could generate incremental capital through financing certain of these assets. Our unencumbered assets consist primarily of interest-only securities, retained securities from our securitization activities, bridge loans, and HEI.

See Note 18 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on our debt obligations.

Liquidity Needs for our Mortgage Banking Activities

We generally use loan warehouse facilities to finance the loans we acquire and originate in our mortgage banking operations while we aggregate the loans for sale or securitization.

At June 30, 2025, we had residential consumer warehouse facilities outstanding with $2.96 billion of total capacity and $1.69 billion of available capacity. These included non-marginable facilities with $400 million of total capacity and marginable facilities with $2.56 billion of total capacity. At June 30, 2025, we had non-marginable, residential investor warehouse facilities outstanding available to finance our unsecuritized residential investor loans in our Redwood Investments, CoreVest Mortgage Banking and Legacy Investments segments with $2.18 billion of total capacity and $1.48 billion of available capacity. Borrowing under these facilities used to finance our CoreVest Mortgage Banking loan inventory at June 30, 2025 totaled $110 million. We note that several of these facilities used to finance our CoreVest Mortgage Banking loan inventory are also used to finance bridge loans held in our Legacy Investments portfolio at June 30, 2025.

Most of our loan warehouse facilities were established with initial one-year terms and are regularly amended on an annual basis to extend the terms for an additional year ahead of their maturity. We renewed several of these facilities during the six-months ended June 30, 2025, and have other such facilities with scheduled maturities during the next twelve months. See Note 18 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on the loan warehouse facilities used for our Mortgage Banking operations.

Additional information regarding risks related to the debt we use to finance our mortgage banking operations can be found under the heading "Risks Relating to Debt Incurred under Borrowing Facilities" that follows within this section.

Liquidity Needs for our Redwood Investments

At June 30, 2025, in addition to our ABS issued, our investment portfolio was financed with $514 million of secured recourse debt, of which $178 million was marginable and $336 million was non-marginable, and $1.3 billion of secured non-recourse debt that was non-marginable. At June 30, 2025, we have also allocated $43 million of outstanding borrowings from our secured revolving financing facility to finance our Redwood Investments segment. Our secured revolving financing facility may be used to finance both our Redwood Investments, Sequoia and CoreVest mortgage banking operations, as well as Legacy Investments.

We use various forms of secured recourse and non-recourse debt to finance assets in our investment portfolio. Refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 under the caption Liquidity and Capital Resources for additional information regarding our forms of financing assets in our investment portfolio, as well as for our descriptions of what constitutes non-recourse and non-marginable debt.

See Note 17 and Note 18 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on our asset-backed securities issued and debt obligations, respectively.

Liquidity Needs for our Legacy Investments

At June 30, 2025, we financed our Legacy Investments with a combination of recourse and non-recourse, non-marginable residential investor loan warehouse facilities, a recourse non-marginable HEI facility, and non-recourse securitization debt (ABS issued). At June 30, 2025, we have also allocated $208 million of outstanding borrowings from our secured revolving financing facility to finance our Legacy Investments segment.

Refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 under the caption Liquidity and Capital Resources for additional information regarding our forms of financing for our investments, as well as for our descriptions of what constitutes non-recourse and non-marginable debt.

See Note 17 and Note 18 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on our asset-backed securities issued and debt obligations, respectively.

Corporate Capital

In addition to secured recourse and non-recourse debt we use specifically in association with our mortgage banking operations, Redwood Investments and Legacy investment portfolios, we also use unsecured recourse debt to finance our overall operations. This is generally in the form of convertible and non-convertible senior debt securities we issue in the public markets and also includes trust preferred securities and promissory notes. See Note 18 Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 17 in Part II, Item 8 of our Annual Report on Form 10-K, for additional information on our unsecured debt obligations.

Risks Relating to Debt Incurred under Borrowing Facilities

As described above under the heading “Results of Operations,” in the ordinary course of our business, we use debt financing obtained through several different types of borrowing facilities to, among other things, finance the acquisition and/or origination of residential consumer mortgage loans, residential investor mortgage loans, and HEI (including those we acquire or originate in anticipation of sale or securitization), and finance investments in securities and other investments. We may also use borrowings to fund other aspects of our business and operations, including the repurchase of shares of our capital stock. Recourse debt incurred under these facilities is generally either the direct obligation of Redwood Trust, Inc., or the direct obligation of subsidiaries of Redwood Trust, Inc. and guaranteed by Redwood Trust, Inc. Risks relating to debt incurred under these facilities are described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, under the caption(s) “Risks Relating to Debt Incurred under Borrowing Facilities,” and “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.”

Aggregate borrowing limits are stated under certain of these facilities, and certain other facilities have no stated borrowing limit, but many of the facilities are uncommitted, which means that any request we make to borrow funds under these uncommitted facilities may be declined by the lender for any reason, even if at the time of the borrowing request we have then-outstanding borrowings that are less than the borrowing limits under these facilities. In general, financing under these facilities is obtained by transferring or pledging mortgage loans or securities to the counterparty in exchange for cash proceeds (in an amount less than 100% of the principal amount of the transferred or pledged assets). Given that we may not be able to obtain additional financing under uncommitted lines when we need it, we are exposed to, among other things, liquidity risks of the types described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 under the heading “Risk Factors,” and in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2024 under the heading “Market Risks.” In addition, with respect to mortgage loans that at any given time are already being financed through these warehouse facilities, we are exposed to market, credit, liquidity, and other risks of the types described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 under the heading “Risk Factors,” and in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2024 under the heading “Market Risks,” if and when those loans or securities become ineligible to be financed, decline in value, or have been financed for the maximum term permitted under the applicable facility.

Under many of our mortgage loan and HEI warehouse facilities, our securities repurchase facilities, and our secured revolving financing facility, while transferred or pledged mortgage loans, HEI, or securities are financed under the facility, to the extent the value of the loans, HEI, or securities, or the collateral underlying those loans, HEI, or securities, declines, we are generally required to either immediately reacquire the loans or securities or meet a margin requirement to transfer or pledge additional loans, securities or cash in an amount at least equal to the decline in value. Of our active financing arrangements with outstanding balances at June 30, 2025, only our securities repurchase facilities (with $93 million of borrowings outstanding at June 30, 2025), seven of our residential consumer mortgage loan warehouse facilities (with a combined $1.2 billion of borrowings outstanding at June 30, 2025), and a certificated MSR facility (with $85 million of borrowings outstanding at June 30, 2025) retain market-value based margin call provisions based solely on the lender's determination of market value and, as such, are considered marginable.

Margin call provisions under these facilities are further described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 under the caption “Risks Relating to Debt Incurred under Borrowing Facilities - Margin Call Provisions Associated With Debt Facilities and Other Debt Financing .” Financial covenants included in these facilities are further described Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 under the caption “Risks Relating to Debt Incurred under Borrowing Facilities - Financial Covenants Associated With Debt Facilities and Other Debt Financing.”

At June 30, 2025, and through the date of this Quarterly Report on Form 10-Q, we were in compliance with the financial covenants associated with our debt financing facilities. Our financial covenants require us to maintain a minimum dollar amount of stockholders’ equity or tangible net worth and minimum liquidity, as well as financial covenants that require us to maintain recourse indebtedness below a specified ratio. In particular, with respect to: (i) financial covenants that require us to maintain a minimum dollar amount of stockholders’ equity or tangible net worth at Redwood, at June 30, 2025, our level of stockholders’ equity and tangible net worth resulted in our being in compliance with these covenants by more than $200 million; and (ii) financial covenants that require us to maintain recourse indebtedness below a specified ratio at Redwood, at June 30, 2025, our level of recourse indebtedness resulted in our being in compliance with these covenants at a level such that we could incur at least $4 billion in additional recourse indebtedness.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. A discussion of critical accounting policies and the possible effects of changes in estimates on our consolidated financial statements is included in Note 2 — Basis of Presentation and Note 3 — Summary of Significant Accounting Policies included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We have elected the fair value option of accounting for a significant portion of the assets and some of the liabilities on our balance sheet, and the majority of these assets and liabilities utilize Level 3 valuation inputs, which require a significant level of estimation uncertainty. See Note 6 in Part I, Item 1 of this Quarterly Report on Form 10-Q, for additional information on our assets and liabilities accounted for at fair value at June 30, 2025, including the significant inputs used to estimate their fair values and the impact the changes in their fair values had to our financial condition and results of operations. See Note 6 in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2024, incorporated herein by reference, for the same information on these assets and liabilities as of December 31, 2024. Periodic fluctuations in the values of these assets and liabilities are inherently volatile and thus can lead to significant period-to-period GAAP earnings volatility.

Additional detail on our critical accounting estimates is included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024, under the heading "Critical Accounting Estimates."

MARKET AND OTHER RISKS

We seek to manage risks inherent in our business — including but not limited to credit risk, interest rate risk, prepayment risk, liquidity risk, and fair value risk — in a prudent manner designed to enhance our earnings and dividends and preserve our capital. In general, we seek to assume risks that can be quantified from historical experience, to actively manage such risks, and to maintain capital levels consistent with these risks. Information concerning the risks we are managing, how these risks are changing over time, and potential GAAP earnings and taxable income volatility we may experience as a result of these risks is discussed in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

In addition to the market and other risks described above, our business and results of operations are subject to a variety of types of risks and uncertainties, including, among other things, those described under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Information concerning market risk is incorporated herein by reference to Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as supplemented by the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Market Risks” within Item 2 above. Other than the developments described thereunder, including changes in the fair values of our assets, there have been no other material changes in our quantitative or qualitative exposure to market risk since December 31, 2024.

We have adopted and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed on our reports under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and that the information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) of the Exchange Act, we have carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level.

There have been no changes in our internal control over financial reporting during the second quarter of 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our risk factors are discussed under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024.