Redwood Trust Inc: Form 10-Q for the period ended Sep 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; (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 intention to continue reducing our capital allocation to Legacy Investments, targeting reducing the percentage of our capital allocated to Legacy investments down to a range of 0% to 5%; (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 third quarter of 2025 and at September 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 third quarter results reflect continued execution of Redwood’s strategic transition toward a more scalable and simplified operating model designed to capitalize on the transformative opportunities emerging across housing finance. In particular, we delivered on the objectives we outlined during our second quarter 2025 earnings call, profitably growing our mortgage banking business, accelerating the wind-down of our Legacy Investment portfolio and repurchasing our common shares under our increased repurchase authorization announced in July.

During the quarter, we made substantial progress in repositioning our balance sheet by redeploying capital from Legacy assets into higher-return core operating platforms, while continuing to repurchase common shares under our expanded authorization. Through late October, we have reduced our Legacy investment exposure to approximately 25% of total capital, tracking towards our year-end target of 20%, through nearly $1 billion of asset dispositions, including outright sales, structured financings, and other transactions. These asset dispositions included the transfer of $484 million in fair value of Legacy unsecuritized bridge loans and REO assets, the sale of $262 million in fair value of our HEI and $254 million in fair value of re-performing loan securities that we had retained from our consolidated Freddie Mac SLST securitization entities. These actions, together with the execution of new long-term, non-recourse financings and portfolio sales at accretive levels, have improved our earnings profile, reduced leverage, and enhanced balance-sheet flexibility to support mortgage banking growth.

Redwood’s operating platforms delivered record production during the third quarter, reflecting continued market share gains despite a subdued broader housing environment. Across the enterprise, we locked or originated nearly $6.8 billion of loans, the highest quarterly volume in our Company’s history. Within our Sequoia platform, lock volume reached a record $5.1 billion, driven by strong contributions from both bank and IMB counterparties and ongoing distribution momentum through our Sequoia securitization platform. Aspire also achieved exceptional growth, locking approximately $1.2 billion of prime quality, expanded-credit loans during the quarter. Leveraging our established Sequoia seller network, Aspire has rapidly scaled since its launch in January 2025 to become a leading non-QM aggregator, further broadening Redwood’s reach across the residential mortgage market. CoreVest funded $521 million in business purpose loans, supported by robust demand for residential investor products and the continued focus on smaller balance products. These results underscore the benefits of our diversified platform and our ability to generate attractive returns across a wide spectrum of housing finance opportunities. On the heels of this elevated activity, Redwood's mortgage banking segments generated its highest revenue since 2021.

We also strengthened our funding profile and extended the duration of our liabilities. Early in the fourth quarter, we retired the remaining $124 million of our maturing 2025 convertible debt and upsized our secured financing facility with an institutional investment manager from $250 million to $400 million, extending its maturity to 2028 and enhancing flexibility to support additional growth in our Mortgage Banking platforms. Concurrently, we extended the commitment period of our joint venture with this institutional investment manager, reinforcing the success of its capital-light strategy. While overall recourse leverage increased on the quarter, most of the increase was driven by record mortgage banking activity in the quarter while corporate leverage declined. Approximately 60% of the Company’s recourse debt now supports our mortgage banking activities, where loans are typically financed for short durations until they are sold or securitized.

Looking ahead, Redwood remains well positioned to benefit from multiple emerging tailwinds across the housing finance ecosystem. The Federal Reserve’s signal that it will end the runoff of its balance sheet suggests a shift toward a more accommodative monetary stance, which could drive lower front-end interest rates, steepen the yield curve, and support tighter mortgage spreads—all of which would enhance the Company’s funding economics and capital markets execution.

At the same time, potential housing-related policy initiatives, including federal efforts to increase housing supply and improve affordability, could further stimulate purchase activity and construction-related lending. Broader banking sector consolidation and regulatory recalibration under the Basel III endgame capital framework are also expected to create additional partnership opportunities for Redwood, as banks increasingly seek capital-efficient outlets for mortgage production and balance-sheet optimization.

Finally, renewed momentum in private-label securitization—with issuance volumes already exceeding full-year 2024 levels—has drawn renewed regulatory attention to improving non-agency RMBS market efficiency. Redwood has been actively engaged in this dialogue, advocating for enhanced disclosure standards that could attract greater institutional participation and strengthen market depth for the assets we originate.

Entering the fourth quarter, Redwood’s operating momentum remains strong. With strong production levels, a simplified balance sheet, expanded funding capacity, and deep institutional partnerships, we are well positioned to capitalize on improving market conditions and drive long-term 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 September 30, 2025 to the immediate preceding quarter ended June 30, 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 third quarter of 2025, compared to the second quarter of 2025. Similarly, references in this section to increases or decreases during the "nine month periods" refer to the change in results for the nine months ending September 30, 2025, compared to the nine months ending September 30, 2024.

Consolidated Results of Operations

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

Table 1 – Net (Loss) Income

(In Thousands, except per Share Data)

64

Three Months Ended September 30, 2025 Compared to Three Months Ended June 30, 2025

Net loss for the three months ended September 30, 2025 totaled $9 million, compared with $100 million for the three months ended June 30, 2025. The improvement reflects the sale or transfer of a portfolio of Legacy unsecuritized bridge loans and REO assets and third-party originated HEI that had been subject to negative fair value adjustments in the prior quarter, together with strong segment contribution from our Mortgage Banking operations in the current quarter.

Net interest income increased to $15 million from $14 million in the prior quarter, primarily driven by an increase in net interest income from our Sequoia Mortgage Banking operations of $6 million, which was offset by a decrease of $5 million in net interest income from our Redwood Investments portfolio. The increase in net interest income in our Sequoia Mortgage Banking operations was due to an increase in average loan balances and higher yields earned on residential consumer loans held-for-sale during the quarter. Lower net interest income in our Redwood Investments portfolio primarily reflected paydowns on our third-party securities during the third quarter, and to a lesser extent, continued third-party security sales of assets as part of our plans to wind-down the Legacy Investments portfolio.

Sequoia mortgage banking activities, net increased to $29 million from $24 million in the prior quarter. This increase was primarily due to a significant increase in lock volumes and distribution activity during the third quarter. Third-quarter lock volumes totaled $6.3 billion, up 75% from $3.6 billion in the second quarter. A significant portion of this lock volume increase was due to contribution from Aspire, which generated $1.2 billion of lock volume compared with $330 million in the prior quarter.

CoreVest mortgage banking activities, net declined to $11 million from $16 million in the prior quarter, reflecting normalized loan sale margins relative to elevated margins in the second quarter of 2025, partially offset by higher funding volumes. CoreVest funded $521 million of loans during the third quarter, a 2% increase from $509 million in the second quarter of 2025.

Negative Investment fair value changes, net improved to $7 million, compared with $85 million in the prior quarter. The second quarter of 2025 included significant fair value adjustments on unsecuritized bridge and term loan portfolios within Legacy Investments, reflecting both realized and anticipated resolutions as well as credit deterioration in certain vintages. Negative fair value changes in the current quarter were primarily related to a negative $6 million investment fair value change, largely reflecting adjustments associated with completing the resolution or transfer of $484 million in fair value of Legacy unsecuritized bridge loans and REO assets.

HEI income, net was $0.5 million, compared to a $13 million net loss in the prior quarter, reflecting the third-quarter sale of $262 million of third-party originated HEI, at levels consistent with the prior quarter valuations.

Operating expenses remained consistent with the prior quarter. General and administrative costs increased by $2 million largely driven by increased headcount supporting growth of new platforms such as Aspire and our expanded small balance focus within CoreVest. Portfolio management costs decreased by $3 million compared to the second quarter, as overall expense decreased with the sale of certain Legacy unsecuritized bridge loans and REO assets. Loan acquisition costs were broadly consistent with the prior quarter, as higher Sequoia volumes in the third quarter were offset by consistent volume within CoreVest as compared to the prior quarter.

Overall quarter-over-quarter results reflect a significant improvement in consolidated performance, supported by strong mortgage banking activity, stabilized investment valuations, and continued reduction in exposure to non-core Legacy assets.

See further discussion of these results in the Segment Results section in Part I, Item 2 of this Quarterly Report on Form 10-Q

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

Net loss for the nine months ended September 30, 2025 totaled $95 million, compared with net income of $55 million for the same period in 2024. The decline primarily reflects adverse fair value adjustments and the subsequent sales and transfers of a portfolio of Legacy unsecuritized bridge loans and REO assets and third-party originated HEI and higher operating expenses largely taken in the second quarter of 2025. These impacts were partially offset by stronger performance in our Mortgage Banking operations for the nine month period.

Net interest income decreased to $57 million from $75 million. The decline was largely driven by an increase in the balance of Legacy unsecuritized bridge and term loan portfolios placed on non-accrual in 2025, which in certain cases resulted in reversals of previously accrued interest income. Lower net interest income in our Redwood Investments portfolio reflected paydowns on our third-party securities, as well as third-party security sales of assets that are no longer aligned with our core strategic objectives. Corporate interest expense also increased by $8 million, reflecting higher unsecured debt balances and full utilization of the secured revolving financing facility established in 2024. These decreases were partially offset by higher net interest income from our Mortgage Banking operations. Sequoia net interest income increased by $28 million, driven by higher loan purchase volumes and lower base floating rates on financing facilities as SOFR declined for the nine month period in 2025, relative to the 2024 period. CoreVest net interest income also increased incrementally.

Mortgage banking activities, net increased to $114 million from $73 million in the prior-year period, reflecting stronger performance across our Mortgage Banking operations. Within Sequoia, Mortgage banking activities, net increased by $34 million, as lock volumes rose to $13.9 billion from $6.7 billion, supported by continued strength in both flow and bulk executions, including the purchase of a large seasoned loan pool in the first quarter of 2025, along with outperformance of interest rate hedges. Sequoia also benefited from substantial growth in our new Aspire initiative during the nine month 2025 period, where lock volumes totaled $1.7 billion. CoreVest reported $39 million of Mortgage banking income during the nine-month 2025 period, compared with $32 million in the prior year, driven by higher funding levels and improved execution economics across residential transition ("RTL"), term, and debt service coverage ratio ("DSCR") loans, as well as active securitization, whole loan sale and joint ventures activity across the platform.

Investment fair value changes shifted to a $97 million net loss from a $11 million net gain in the prior nine month period, reflecting significant markdowns on a portfolio of Legacy unsecuritized bridge loans and REO assets and other non-core assets. This was partially offset by fair value gains, net of associated interest rate hedges, on our securities portfolio, which benefitted from tighter credit spreads during the period.

HEI recorded a $2 million net loss, compared with a $36 million net gain in the prior nine-month period. The change reflects fair value losses recognized on the sale of $262 million of third-party originated HEI in the second quarter of 2025, as well as lower housing price appreciation observed in 2025 compared to 2024.

Operating expenses increased to $163 million from $139 million in the prior nine month period, primarily reflecting higher fixed and variable compensation tied to volume growth and higher portfolio-management costs linked to Legacy loan resolutions.

See further discussion of these results in the Segment Results section in Part I, Item 2 of this Quarterly Report on Form 10-Q

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 nine months ended September 30, 2025, the immediate preceding quarter ended June 30, 2025 and year-to-date period ended September 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 nine months ended September 30, 2025, the immediate preceding quarter ended June 30, 2025 and year-to-date period ended September 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) Servicing income, net 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 nine months ended September 30, 2025, the immediate preceding quarter June 30, 2025, and year-to-date period September 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 nine months ended September 30, 2025, the immediate preceding quarter ended June 30, 2025, and year-to-date period ended September 30, 2024.

Corporate/Other

Net expenses from Corporate/Other remained consistent quarter over quarter, with no material change between the three months ended September 30, 2025 and June 30, 2025. For the nine months ended September 30, 2025, compared to the same period in 2024, net expenses increased by $10 million. The increase in the nine month periods primarily reflect higher compensation and related costs associated with increased headcount supporting growth of new platforms such as Aspire and our expanded small balance loan focus within CoreVest, higher portfolio management expenses related to legacy loan resolutions, and higher corporate interest expense driven by higher corporate debt balances and interest rates on existing corporate debt during 2025.

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. We utilize a combination of capital and our residential consumer loan warehouse facilities to finance our inventory of residential consumer loans held-for-sale. 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 changes in fair value of loans we acquire and subsequently sell, securitize, or transfer into our Redwood investments portfolio, loan purchase commitments, interest rate lock commitments 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". These loan programs, primarily bank statement and DSCR loans, are designed for prime quality borrowers seeking alternative underwriting solutions, a segment that continues to grow within the U.S housing market. 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 nine months ended September 30, 2025, the immediate preceding quarter June 30, 2025, and year-to-date period through September 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 that is performed within our taxable REIT subsidiary is 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 nine months ended September 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 September 30, 2025 Compared to Three Months Ended June 30, 2025

The $12 million increase in segment contribution in the three months ended September 30, 2025, as compared to the three months ended June 30, 2025 was primarily due to higher lock volumes and distribution activity. Operating expenses remained consistent quarter-over-quarter, demonstrating continued cost discipline and scalability of the Sequoia platform as production reached record levels.

Sequoia locked $6.3 billion of loans during the third quarter, up 75% from $3.6 billion in the prior quarter. Of this amount $5.1 billion were prime jumbo loans, representing a 54% increase from $3.3 billion in the second quarter. Volume was elevated across both bank and independent mortgage bank (“IMB”) sellers, each of which recorded more than a 50% increase in lock volume contributions quarter over quarter. The platform continues to see opportunities across products, including the purchase of bulk pools of seasoned loan portfolios. Third quarter lock volume of $1.3 billion, or 25%, was considered seasoned. Over the last twelve months,

Sequoia has locked $2.4 billion of seasoned bank collateral capturing opportunities from institutions repositioning balance sheets as well as the increase in industry merger and acquisition activity. Approximately 10% of third quarter lock volume was considered Adjustable Rate Mortgages ("ARM") or Closed-End Seconds ("CES"). These market dynamics and product breadth continue to broaden Sequoia's sourcing abilities, contributing to the record lock volumes achieved in the third quarter.

Approximately $1.2 billion of locks were Aspire non-QM loans, a 277% increase relative to $330 million in the second quarter. The increase in third quarter lock volume was driven by ongoing growth of the Aspire platform, including a 46% increase in loan sellers during the quarter. Indicative of the ongoing scale of the platform, September lock volume of $550 million represented a record month for Aspire. Third quarter lock volume had a weighted average credit score of 749 and weighted average LTV of 71%.

Gain on sale margins for the segment averaged 93 basis points, towards the high end of the company’s long-term target range of 75 to 100 basis points, compared to 131 basis points in the prior quarter. The quarter-over-quarter decrease was primarily driven by a higher proportion of bulk executions and modest spread compression in August, partially offset by favorable hedge performance. Sequoia’s execution efficiency and stable investor participation supported consistent operating results during the quarter. Cost per loan (calculated as operating expenses divided by loan purchase commitments) improved to 18 basis points, from 33 basis points in the prior-year period, and 26 basis points in the prior quarter. The platform continues to utilize a combination of interest-rate futures, TBAs, and other hedging instruments to mitigate pipeline volatility and protect execution margins. Over time, we expect cost per loan to normalize within a range of approximately 25 to 35 basis points as market activity and production volumes stabilize.

Distribution activity remained robust, with approximately $2.7 billion of loans sold during the quarter, including $1.9 billion through Sequoia securitizations, $716 million through Sequoia whole loan sales and $146 million through Aspire whole loan sales. Sequoia also completed four jumbo securitizations during the period, reflecting elevated capital markets activity compared to recent quarters. Investor participation remained steady, allowing the platform to execute transactions efficiently and continue to recycle capital through its mortgage banking operations.

Capital allocated to this segment was approximately $550 million at September 30, 2025, compared to $475 million at June 30, 2025, reflecting higher working capital requirements associated with increased loan inventory and securitization activity. The Sequoia platform remains focused on capital-efficient growth through active loan sales and securitizations, supporting our ability to turn capital over quickly. Loan inventory is financed through a combination of corporate capital and consumer loan warehouse facilities.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

Sequoia segment contribution increased by $43 million during the nine months ended September 30, 2025, compared to the same period in 2024. The increase was driven by factors consistent with those discussed in the quarterly comparison above, including higher mortgage banking income from increased loan lock and purchase volumes, strong distribution activity, tightening credit spreads, and sustained operating efficiency.

Total loan locks for the nine months ended September 30, 2025 were $13.9 billion, compared to $6.7 billion in the same period of 2024, a substantial increase of 109%. Growth was broadly based across both flow and bulk channels, supported by deeper engagement with bank sellers as well as increased activity from IMBs. Aspire, which is included within this segment, generated $1.7 billion of lock volume through September 30, 2025, reflecting the platform's January 2025 launch and strong growth driven by an expanding seller base and increasing investor demand for non-QM products.

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 normalized margins, stable efficiency metrics, and scaled distribution execution.

Gain-on-sale margins for the nine months ended September 30, 2025 were above the company’s long-term target range of 75 to 100 basis points, compared to elevated levels in 2024 driven by the rally in interest rates, hedge outperformance and spread tightening on securitization execution.

Distribution activity for the nine months ended September 30, 2025 totaled approximately $7.7 billion of loans sold through a combination of securitizations and whole-loan sales, compared to $4.4 billion in 2024, reflecting strong capital-markets execution and efficient balance-sheet turnover.

Operating expenses increased compared to the prior-year period, consistent with higher loan volumes and performance-based compensation.

Capital allocated to the Sequoia Mortgage Banking segment increased to $550 million at September 30, 2025, compared to $300 million at September 30, 2024, supporting elevated production and distribution levels.

CoreVest Mortgage Banking Segment

This segment consists of a platform that originates residential investor loans for subsequent securitization, sale, or transfer into our Redwood Investments 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. Our inventory of loans is managed with a combination of our capital and loan warehouse 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). This segment also includes various derivative financial instruments that we utilize to manage certain risks associated with our inventory of residential investor loans held-for-sale within this segment.

We typically distribute most of our term loans through our CAFL® private-label securitization program, through whole loan sales or transfers into our Redwood Investments portfolio or into one of our joint ventures.

Since mid-2023, we have established joint ventures with two separate institutional investment managers, one to invest in residential investor bridge loans originated by CoreVest and another 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 from its inventory of loans held-for-sale, securities utilized for interest hedging purposes, as well as mortgage banking activities, net which includes 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. 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. 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 nine months ended September 30, 2025, the immediate preceding quarter June 30, 2025, and year-to-date period September 30, 2024.

Table 7 – CoreVest Mortgage Banking Earnings Summary

(In Thousands)

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 nine months ended September 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.

(2) Funding and sales for Residential investor bridge loans for the three and nine months ended September 30, 2025, includes $34 million and $94 million, respectively, of construction draws, of which $6 million and $38 million, respectively, were related to construction draws on loans sold to our 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 September 30, 2025 Compared to Three Months Ended June 30, 2025

The decrease in segment contribution in the three months ended September 30, 2025, as compared to the three months ended June 30, 2025 was due to normalized loan sale margins, partially offset by higher funding volumes. Operating expenses declined slightly quarter-over-quarter, demonstrating continued discipline in expense management as production scaled.

CoreVest funded $521 million of loans during the quarter, up 2% from $509 million in the prior quarter and 14% from the same period in 2024 — marking the highest quarterly funding volume since the third quarter of 2022. Average loan size declined 32% relative to this period, reflecting an intentional focus on small balance and cash flow based investor products.

Loan production remained well diversified, with 37% term, 32% small-balance residential transitional ("RTL"), 24% bridge and 7% DSCR loans. The composition reflects CoreVest’s ongoing expansion across multiple investor-focused lending strategies, positioning the platform to meet a broad range of borrower needs.

Distribution activity remained strong, with $425 million of loans sold through a combination of whole loan sales, securitizations, and sales to one of our joint ventures. Notably, $207 million of loans were transferred to one of our joint ventures, split evenly between bridge and term loans, and $179 million of term and bridge loans sold through whole loan sales. Year to date, we have distributed over $1.4 billion of loans across channels, demonstrating the ongoing strength of our distributions and demand for the assets we create, while also advancing the Company’s capital-light strategy and expanded recurring fee income opportunities.

Net cost to originate, calculated as operating expenses less upfront origination fees divided by total origination volume, improved to 0.60% in the third quarter, compared to 0.94% in the second quarter and 1.22% in the first quarter of 2025. The third quarter results also included a one-time recovery of previously recognized costs, which is not expected to recur in future periods. 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 expand its footprint and capture market share within the small-balance investor lending market. Fundings for DSCR and RTL loans are up 141% and 23%, respectively, compared to the same quarter in 2024. During the quarter, we also saw increased demand from borrowers for build-for-rent (BFR) strategies and we are pursuing strategic partnerships with homebuilders to drive opportunities across our term loan and DSCR products. We are also benefiting from a broader industry shift, as banks retreat from certain investor loan segments and homebuilders increasingly pursue forward sales to institutional buyers. CoreVest continues to operate in a large and expanding market, particularly for RTL and DSCR products. 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 $147 million at September 30, 2025, up from $93 million at June 30, 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.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

CoreVest segment contribution increased $12 million during the nine months ended September 30, 2025, compared to the nine months ended September 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 nine months ended September 30, 2025 was $1.5 billion compared to $1.2 billion for the nine months ended September 30, 2024, representing a 22% increase. Nearly all strategies saw growth over the period, with funded volumes increasingly concentrated in products of strategic focus such as RTL and DSCR loans.

Distribution activity for the nine months ended September 30, 2025 was also elevated compared to the nine months ended September 30, 2024. For the nine months ended September 30, 2025, CoreVest distribution increased by 51% to $1.4 billion of loans compared to $948 million of loans for the nine months ended September 30, 2024. Demand for our products from investors remains elevated and these sales were executed through a combination of whole-loan sales, securitizations, and joint-venture contributions as we focus on capital-efficient growth.

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. 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.

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 historically held in this segment were formally reclassified to the newly established Legacy Investments segment. This reclassification did not impact our 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 with sensitivity to housing credit risk, sourced through our operating platforms where we control the underwriting and collateral review. Going forward, the portfolio will focus on retained interests from the Company’s own securitizations and collateralized assets, rather than third-party securities, consistent with Redwood’s strategic shift toward internally originated investments.

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 nine months ended September 30, 2025, the immediate preceding quarter ended June 30, 2025, and the year-to-date period ended September 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 at 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 at our TRS.

Three Months Ended September 30, 2025 Compared to Three Months Ended June 30, 2025

The $2 million decrease in segment contribution during the three months ended September 30, 2025, as compared to the three months ended June 30, 2025, is due to a $5 million decline in Net interest income, offset by a $7 million improvement in Investment fair value losses, net. The modest net decline reflected paydowns of third-party securities, partially offset by gains on retained investments as rates declined and spreads tightened.

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 CAFL Bridge Securities improved to 2.9% in the third quarter of 2025, compared to 3.6% in the second quarter of 2025. Our 90 day + delinquency balances for Sequoia Securities and CAFL Term Securities were stable in the third quarter of 2025 at 0.3% and 7.7% of our total unpaid principal balances, respectively, compared to 0.3% and 7.1% in the second quarter of 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 third quarter we deployed approximately $30 million of capital into assets sourced from our operating businesses and completed our fourth non-recourse financing transaction of retained investments, reducing total security repo balances to $28 million.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

The $54 million decrease in segment contribution in the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024 is primarily due to the decline in Investment fair value changes, net of $39 million driven by rate declines and spread tightening in the nine month period.

Redwood Investments Detail

The following table presents a balance sheet summary for our Redwood Investments segment as of September 30, 2025 and June 30, 2025.

Table 10 – Redwood Investments Balance Sheet Summary

(In Thousands)

(1) Represents our retained economic investment in securities issued by consolidated Sequoia securitization VIEs. For GAAP purposes, we consolidated $13.08 billion of loans and $12.43 billion of ABS issued associated with these investments at September 30, 2025. We consolidated $11.59 billion of loans and $10.98 billion of ABS issued associated with these investments at June 30, 2025. At September 30, 2025 and June 30, 2025, excludes $93 million and $97 million, respectively, of retained Sequoia securities that were used as hedges for our Sequoia Mortgage Banking segment.

(2) Represents our retained economic investments in securities issued by consolidated CAFL Term securitization VIEs. For GAAP purposes, we consolidated $2.14 billion of loans and $1.82 billion of ABS issued associated with these investments at September 30, 2025. We consolidated $2.27 billion of loans and $1.95 billion of ABS issued associated with these investments at June 30, 2025.

(3) At September 30, 2025 and June 30, 2025 represents HEI originated and owned by Redwood.

(4) Other investments at both September 30, 2025 and 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. Also includes mortgage servicing rights of $31 million and $32 million at September 30, 2025 and June 30, 2025, respectively.

(5) Represented our economic investment in securities issued by a consolidated Freddie Mac K-Series securitization entity which were paid off in full during the three months ending September 30, 2025. For GAAP purposes, we consolidated $423 million of loans and $387 million of ABS issued associated with these investments at June 30, 2025.

(6) Represents our economic investment in consolidated Servicing Investment variable interest entities. At September 30, 2025, for GAAP purposes, we consolidated $248 million of servicing investments and $151 million of non-recourse short-term securitization debt, as well as other assets and liabilities for these entities. At June 30, 2025, for GAAP purposes, we consolidated $263 million of servicing investments and $161 million of non-recourse securitization debt, as well as other assets and liabilities for these entities.

The size of our Redwood Investments portfolio on an economic basis remained relatively flat for the three months ended September 30, 2025. The retention of residential consumer securities from our four Sequoia securitizations during the three months ended September 30, 2025, was offset by sales of third-party securities and the payoff of our multifamily securities upon the call of the underlying securitization.

The following table summarizes the credit characteristics of Sequoia securities and CAFL term securities at September 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 – 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 portfolios and other non-core Legacy assets, that are in the active process of sale, runoff, or other disposition as part of accelerated strategic repositioning of our business model. These assets were previously included within the Redwood Investments segment. We finance our Legacy assets with a combination of recourse and non-recourse, non-marginable warehouse facilities, non-recourse, non-marginable re-securitization debt, and a portion of a secured, revolving financing facility. All relevant prior period amounts and disclosures have been conformed to reflect the current segment structure.

During the third quarter of 2025, we executed on our plan to accelerate the wind down the Legacy Investments portfolio ahead of schedule by accelerating the repositioning of the Legacy Investments portfolio through approximately $1 billion of dispositions and structured transactions. See further detail in the Investments Detail and Activity section of this segment discussion.

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 nine months ended September 30, 2025, the immediate preceding quarter ended June 30, 2025, and the year-to-date period ended September 30, 2024.

Table 12 – Legacy Investments Earnings Summary

(In Thousands)

78

Investment fair value changes, net is primarily comprised of the change in fair value (both realized and unrealized) of our loans and portfolio investments accounted for under the fair value option and related interest rate hedges. 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 at our TRS.

Three Months Ended September 30, 2025 Compared to Three Months Ended June 30, 2025

Legacy Investments reported a $22 million segment loss during the three months ended September 30, 2025, driven by Net interest loss of $9 million from continued net interest margin pressure and Investment fair value losses, net of $7 million. During the third quarter of 2025, we transferred a portfolio of unsecuritized bridge loans and REO totaling $484 million in fair value to newly formed partnership structure (the “Legacy Trust”). In connection with this transfer, we recognized a negative $6 million investment fair value change, reflecting adjustments associated with completing the transaction.

Capital allocated to Legacy Investments declined by $63 million or 12% at September 30, 2025 from June 30, 2025, largely due to dispositions and paydowns on our Legacy unsecuritized bridge and term loan portfolios and HEI portfolio. Through October 2025, we further reduced our capital allocated to our Legacy investments through the sale of our SLST re-performing loan securities. Looking ahead, we intend to continue reducing our capital allocation to Legacy Investments, targeting a decrease to approximately 20% by year-end 2025 from 28% at the end of the third quarter. While subject to market conditions and execution timing, we are targeting reducing the percentage of our capital allocated to Legacy Investments down to a range of 0% to 5%. As we execute on this reallocation strategy, we believe there is an opportunity for consolidated returns to improve.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

Legacy Investments reported a $128 million segment loss in the nine months ended September 30, 2025, driven by Investment fair value losses, net of $91 million. The second quarter of 2025 included significant fair value adjustments on Legacy unsecuritized bridge and term loans, reflecting both realized and anticipated resolutions as well as credit deterioration in certain vintages. In the third quarter of 2025, we recognized an additional negative $6 million investment fair value change, reflecting adjustments associated with completing the transfer of a portfolio of unsecuritized bridge loans and REO totaling $484 million in fair value to the Legacy Trust.

Investments Detail and Activity

The following table presents a balance sheet summary for our Legacy Investments segment as of September 30, 2025 and June 30, 2025.

Table 13 – Legacy Investments Balance Sheet Summary

(In Thousands)

(1) At September 30, 2025 and June 30, 2025, represents third-party originated HEI at Redwood, as well as our net investment HEI securitization entities.

(2) On September 30, 2025, we transferred a portfolio totaling $484 million in fair value of legacy unsecuritized bridge loans and REO assets to the Legacy Trust and retained a $182 million subordinate beneficial interest in the Legacy Trust. The beneficial interest represents our right to residual cash flows from the Legacy Trust after payment of senior financing and preferred interests and is recorded as an AFS security, measured at fair value and classified as a Level 3 asset. See further information in Note 9 of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Footnotes to table 13 continued

(3) Residential re-performing loan securities (SLST) reflects the fair value of the securities we retained from our consolidated Freddie Mac SLST securitization entities. We sold these securities in October 2025. See further information on our VIEs in Note 16 of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

During the third quarter of 2025, we continued to execute on our plan to accelerate the wind down of the Legacy Investments portfolio through $746 million of dispositions and structured transactions. These included the sale of $262 million in fair value of our HEI, and the transfer of $484 million in fair value of Legacy unsecuritized bridge loans and REO assets to the Legacy Trust. These transactions reduced associated recourse debt by more than $300 million and unlocked approximately $115 million of capital.

Additionally, in October 2025, we further reduced this segment's capital base by selling the securities that we had retained from our consolidated Freddie Mac SLST securitization entities totaling $254 million. In conjunction with this agreement, we deconsolidated our securitized re-performing loans and related ABS issued. In addition, we exercised our call of the Freddie Mac SLST re-securitization entity and paid off the underlying ABS issued.

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 nine months ended September 30, 2025.

Table 14 – Legacy Unsecuritized Bridge and Term Loan Portfolios - Activity

(in thousands)

For the three and nine months ended September 30, 2025, gross interest income recognized on Legacy bridge and term loans totaled $8 million and $36 million, respectively. These amounts include a write-off of deferred interest of $0.4 million in the three months ended September 30, 2025 and recognition of $4 million of deferred income during the nine months ended September 30, 2025.

At September 30, 2025, legacy unsecuritized bridge and term loans in this portfolio with an aggregate fair value of $192 million and an unpaid principal balance of $241 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 $17 million and an aggregate unpaid principal balance of $23 million. Additionally, the fair value of REO associated with legacy unsecuritized bridge loans decreased to $24 million at September 30, 2025, from $58 million at June 30, 2025, resulting from the sale of one REO property to the Legacy Trust for $29 million and a decrease in fair value totaling $5 million, partially offset by transfers to REO of $29 million and payoffs of $29 million. Legacy REO properties are actively being marketed and are expected to be resolved over the next few quarters.

During the third quarter of 2025, as part of our plans to accelerate the wind-down of the Legacy Investments portfolio, we transferred a portfolio totaling $484 million in fair value of legacy unsecuritized bridge loans and REO assets to the Legacy Trust. These transfers met the criteria to be accounted for as sales for financial reporting purposes, in accordance with GAAP. As part of the transaction, we retained a $182 million subordinate beneficial interest in the Legacy Trust, which is recorded as an AFS real estate security on our Consolidated balance sheet. See Note 9 for further discussion on the beneficial interest. See Notes 4, 8, 9 and 19 of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Loan Composition

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

Table 15 – Legacy Loans - By 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 September 30, 2025, the fair value of our Legacy bridge and term loans and associated REO represented 88.4% 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 plans to accelerate the wind-down of the Legacy Investments portfolio, 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.

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 nine months ended September 30, 2025, we recorded tax provisions of $6 million and $17 million, respectively. For the three and nine months ended September 30, 2024, we recorded tax provision of $7 million and $13 million, respectively. 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.

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 Company has evaluated the impact the OBBB Act had on the consolidated financial statements and determined there was no material impact to the income tax provision during the quarter ended September 30, 2025, and does not expect a material impact on the Company's effective tax rate for 2025.

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 retain 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 September 30, 2025, our total capital was $1.80 billion, consisting of (i) $1.00 billion of equity capital, (ii) $793 million of unsecured and other corporate debt on our consolidated balance sheets (including $124 million of exchangeable debt which was repaid in full in October 2025, $297 million of convertible debt due in 2027, $143 million of senior unsecured notes due in 2029, $89 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 September 30, 2025, our unrestricted cash and cash equivalents were $226 million. In addition, we recently upsized one facility from $250 million to $400 million, giving us additional drawable capacity. 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 September 30, 2025, in aggregate, we had $3.02 billion of secured recourse debt outstanding, financing our mortgage banking operations and investment portfolio, of which $2.17 billion was marginable and $848 million 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

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 three and nine months ended September 30, 2025, we repurchased 5.0 million and 6.5 million shares of our common stock for a total cost of $29 million and $38 million. During the three months ended September 30, 2025 we repurchased $3 million of our senior notes. At September 30, 2025, $126 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.

Cash Flows and Liquidity for the Nine Months Ended September 30, 2025

Net cash 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

Net cash used in operating activities increased by $1.73 billion from negative $5.01 billion in the nine months ended September 30, 2024 to negative $6.73 billion in the nine months ended September 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 $6.71 billion of net cash outflows for the nine months 2025 period, compared to $5.08 billion of net cash outflows for the nine month 2024 period), cash flows from operating activities were negative $26 million during the first nine months of 2025 and positive $68 million for the first nine months of 2024.

Cash Flows from Investing Activities

During the nine months ended September 30, 2025, our net cash provided by investing activities was $2.92 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 nine months ended September 30, 2025, our net cash provided by financing activities was $3.83 billion. This primarily resulted from $3.06 billion of net borrowings under ABS issued (resulting from the issuance of ten Sequoia securitizations as well as the issuance of ABS through three Sequoia re-securitizations of certain consolidated and unconsolidated Sequoia securities during the nine months ending September 30, 2025, net of related issuance costs), and $892 million of net borrowings on debt obligations. During the nine months ending September 30, 2025, net cash provided from debt obligations included the issuance of $90 million of senior notes, 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, as well as the issuance of $50 million of 7.75% senior convertible notes due in 2027 in a private offering.

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 September 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 September 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 September 30, 2025, we had commitments to fund up to $261 million of additional advances on existing residential investor bridge loans, of which $84 million related to loans currently in securitizations co-sponsored by one of our joint ventures. 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 September 30, 2025, we had $1.77 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 September 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 had an outstanding principal balance of $124 million at September 30, 2025 and were paid off in full in October 2025.

We expect to meet our obligations coming due in less than one year from September 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.

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 September 30, 2025, we had residential consumer warehouse facilities outstanding with $3.37 billion of total capacity and $1.10 billion of available capacity. These included non-marginable facilities with $400 million of total capacity and marginable facilities with $2.97 billion of total capacity. At September 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 $1.77 billion of available capacity. Borrowing under these facilities used to finance our CoreVest Mortgage Banking loan inventory at September 30, 2025 totaled $170 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 September 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 nine-months ended September 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.

In October 2025, we extended our joint venture partnership with an institutional investment manager through September 2028 to support ongoing platform growth for our CoreVest Mortgage Banking segment.

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 September 30, 2025, in addition to our ABS issued, our investment portfolio was financed with $490 million of secured recourse debt, of which $117 million was marginable and $373 million was non-marginable, and $387 million of secured non-recourse debt that was non-marginable. At September 30, 2025, we have also allocated $48 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. In October 2025, we increased the commitment amount of our secured revolving financing facility from $250 million to $400 million and extended this facility to September 2028.

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 September 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 September 30, 2025, we have also allocated $202 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. Subsequent to quarter end we added $150 million of borrowing capacity to an existing secured credit facility. 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 September 30, 2025, only our securities repurchase facilities (with $28 million of borrowings outstanding at September 30, 2025), seven of our residential consumer mortgage loan warehouse facilities (with a combined $2.1 billion of borrowings outstanding at September 30, 2025), and a certificated MSR facility (with $89 million of borrowings outstanding at September 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 September 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 September 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 September 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 $3 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 September 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 third 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.