Redwood Trust Inc: Form 10-K for the period ended Dec 31, 2025

Introduction

Redwood Trust, Inc., together with its subsidiaries, is a specialty finance company focused on several distinct areas of housing credit, with a mission to make quality housing, whether rented or owned, accessible to all American households. Our operating platforms occupy a unique position in the housing finance value chain, providing 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 and our publicly-traded securities. Our aggregation, origination, and investment activities have evolved to incorporate a diverse mix of residential consumer and residential investor housing credit assets. We operate our business across four reportable segments: Sequoia Mortgage Banking, CoreVest Mortgage Banking, Redwood Investments, and Legacy Investments.

Our goal is to provide attractive returns to shareholders through a stable and growing stream of earnings and dividends, capital appreciation, and a continued commitment to technological innovation that supports disciplined, risk‑minded growth. Our primary sources of income are net interest income from our investments and non-interest income from our mortgage banking activities. Net interest income primarily consists of the interest income we earn on investments, less the interest expense we incur on borrowed funds and other liabilities. Non-interest income from mortgage banking activities is generated through the origination and acquisition of loans, and their subsequent sale, securitization, or transfer to our investment portfolios.

Redwood Trust, Inc. has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), beginning with its taxable year ended December 31, 1994. We generally refer, collectively, to Redwood Trust, Inc. and those of its subsidiaries that are not subject to subsidiary-level corporate income tax as “the REIT” or “our REIT.” We generally refer to subsidiaries of Redwood Trust, Inc. that are subject to subsidiary-level corporate income tax as “our taxable REIT subsidiaries” or “TRS.” Our mortgage banking activities and investments in mortgage servicing rights ("MSRs") are generally carried out through our taxable REIT subsidiaries, while our portfolio of mortgage- and other real estate-related investments is primarily held at our REIT. We generally intend to retain profits generated and taxed at our taxable REIT subsidiaries, and to distribute as dividends at least 90% of the taxable income we generate at our REIT.

Redwood Trust, Inc. was incorporated in the State of Maryland on April 11, 1994, and commenced operations on August 19, 1994. On October 15, 2019, Redwood acquired CoreVest American Finance Lender, LLC and certain affiliated entities ("CoreVest"), at which time CoreVest became wholly owned by Redwood.

Our executive offices are located at One Belvedere Place, Suite 300, Mill Valley, California 94941. References herein to “Redwood,” the “company,” “we,” “us,” and “our” include Redwood Trust, Inc. and its consolidated subsidiaries, unless the context otherwise requires. In statements regarding qualification as a REIT, such terms refer solely to Redwood Trust, Inc.

Financial information concerning our business, both on a consolidated basis and with respect to each of our segments, is set forth in Financial Statements and Supplementary Data as well as in Management’s Discussion and Analysis of Financial Condition and Results of Operations which are included in Part II, Items 8 and 7, respectively, of this Annual Report on Form 10-K.

Our Business Segments

We operate our business in four segments: Sequoia Mortgage Banking, CoreVest Mortgage Banking, Redwood Investments and Legacy Investments. Following is a further description of these segments:

Sequoia Mortgage Banking

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. We typically acquire residential consumer mortgages and the related mortgage servicing rights on a flow basis from our extensive network of loan sellers. Securities that we retain from our Sequoia securitizations are transferred to and held in our Redwood Investments segment. This segment also includes various financial instruments, including derivatives and securities, that we utilize to manage certain risks associated with our inventory of residential loans held-for-sale within 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, commonly referred to as "Expanded" loans. These loans, which primarily include bank statement and Debt Service Coverage Ratio ("DSCR") loans, are designed for prime-quality borrowers seeking alternative underwriting solutions, a segment that continues to grow within the U.S. housing market. The results of Aspire are currently included within our Sequoia Mortgage Banking 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. Direct operating expenses and tax expenses associated with these activities are also included in this segment.

CoreVest Mortgage Banking

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 3 to 30 years) or "bridge" loans (fixed and floating-rate loans with maturities that generally range between 12 and 36 months, typically used to finance transitional properties or value-add strategies).

Residential investor term loans include both larger balance and smaller balance mortgage loans secured by stabilized residential real estate (primarily 1-4 units detached or multifamily) that the borrower owns as an investment property and rents to residential tenants. Our smaller balance term loans are referred to as DSCR loans, which are fixed or floating rate loans underwritten primarily on the basis of the property's debt service coverage ratio, rather than the borrower's personal income, and designed for stabilized rental properties.

Residential investor bridge loans include both larger balance and smaller balance 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 smaller balance bridge loans are referred to as Residential Transition Loans (“RTL”) loans, which are short-term, typically fixed-rate loans secured by 1-4 units residential properties that are commonly used by investors to acquire, renovate, or reposition properties prior to stabilization or exit.

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

Redwood Investments

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

In the second quarter of 2025, as a part of the Company's accelerated shift towards a scalable and simplified operating model, legacy unsecuritized bridge and term loan portfolios, our consolidated re-performing loan securitization entities, 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 Redwood Investments portfolio will focus on retained interests from the Company’s own securitizations and other investment vehicles, 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.

Legacy Investments

This segment consists of assets no longer aligned with our core strategic objectives, including legacy unsecuritized bridge and term loans, residential re-performing loan securities 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. 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 assets. Direct operating expenses and tax provisions associated with these activities are also included in this segment.

Consolidated Securitization Entities

We sponsor our SEMT® (Sequoia) securitization program, which we use for the securitization of residential mortgage loans. We are required under Generally Accepted Accounting Principles in the United States (“GAAP”) to consolidate the assets and liabilities of certain Sequoia securitization entities which we have determined to be VIEs and in which we have a controlling financial interest. We refer to certain Redwood Sequoia (previously Redwood Select) prime loans as the "consolidated Sequoia entities."

We also sponsor our CAFL® securitization program, which we use for the securitization of residential investor term and bridge loans. We are required under GAAP to consolidate the assets and liabilities of certain CAFL securitization entities which we have determined to be VIEs and in which we have a controlling financial interest. We refer to these securitization entities as the "consolidated CAFL entities."

In addition, we have co-sponsored securitizations of Home Equity Investments ("HEI"). We are required under GAAP to consolidate the assets and liabilities of HEI securitization entities which we have determined to be VIEs and in which we have a controlling financial interest. We refer to these securitization entities as "HEI securitization entities."

Where applicable, in analyzing our results of operations, we distinguish results from current operations "at Redwood" and from consolidated entities. Each of these consolidated entities is independent of Redwood and of each other, and the assets and liabilities of these entities are not owned by us or legal obligations of ours, respectively, although we are exposed to certain financial risks associated with any role we carry out for these entities (e.g., as sponsor or depositor) and, to the extent we hold securities issued by, or other investments in, these entities, we are exposed to the performance of these entities and the assets they hold.

Human Capital/Corporate Responsibility

Redwood’s management, under the oversight of the Board of Directors, formulates Redwood’s approach to human capital and corporate responsibility matters. Redwood’s corporate mission of making quality housing, whether rented or owned, accessible to all American households is integrated with, and linked to, our approach to corporate responsibility and to the long-term sustainability and profitability of our business. From a human capital perspective, Redwood invests in programs that attract, retain, develop, and care for our people, as we believe our human capital resources are critical to supporting our ability to generate long-term value for our shareholders and to fulfill our mission.

Human Capital Resources

As of December 31, 2025, Redwood employed 351 full-time employees, including our executive officers, 245 (or 70%) of which are directly engaged in our Mortgage Banking platforms, Sequoia (inclusive of Aspire) and CoreVest. At CoreVest, 162 employees (46%) directly engaged in originating loans to borrowers. The remainder are spread across the Investment Portfolio and Corporate functions. Our employees are generally dispersed across our offices, including in California, Colorado, New York, North Carolina, and Oregon, while certain of our employees work on a fully remote basis. Redwood’s talented employees are core to the sustainability and long-term success of Redwood and we invest in programs that attract, retain, develop, and care for our people. Cultural priorities and values are closely intertwined with our overarching business strategy and we believe these priorities support Redwood’s ability to fulfill our mission, generate long-term value for our shareholders and the communities which we serve and contribute to our ongoing focus on having a strong, healthy culture and a capable and satisfied workforce.

Employee Talent & Development

We are focused on and committed to developing and advancing our employees through targeted learning programs that build specific job-based skills and leadership capabilities across the company. We offer a variety of training opportunities for our employees including programs for managers of people and development programs for rising leaders. In addition, we offer a menu of skills-based training for all employees and support for specific ongoing education and professional certifications. We regularly assess the talent and skills of our workforce and prioritize the promotion or transfer of current employees for open roles. Feedback and coaching are core to our overall people development programs and our performance management process is designed to foster specific and frequent performance discussions. We believe that attracting and retaining a qualified workforce with a variety of perspectives, personal and professional experiences and backgrounds supports the long-term sustainability of our business and operations and we strive to create qualified candidate pools for any open positions across the company. Our summer internship program is structured and organized to provide opportunities for students while creating a pipeline of future talent for the company.

Employee Retention

We regularly evaluate our ability to attract and retain our employees. Voluntary employee turnover remained relatively low at 8.8% for 2025.

Community Giving

Being involved with and giving back to our communities is an important aspect of our culture. We strive to have a positive impact on the communities where we live and work and support the future development and well-being of our communities. We designate corporate grants for a variety of non-profit organizations and causes; this has historically included equal housing and affordability, education and poverty. In addition, we have an employee-led foundation that manages and raises funds for a variety of charitable causes. All employees are invited to participate through various fundraising initiatives and by submitting grant requests for causes that they are passionate about. Volunteerism is also important at Redwood, and we regularly sponsor community events and provide paid time off for volunteer activities.

Employee Benefits

We offer a competitive compensation structure to our employees, including short- and long-term financial incentives, generous health and welfare benefits including a wellness stipend to be used for fitness and wellness services, paid family leave, fertility benefits, employee service awards, reimbursement for mortgage and renter’s insurance and paid time off to promote a healthy work/life balance. We also offer all employees the ability to participate in our Employee Stock Purchase Plan ("ESPP"), which incentivizes stock ownership among our employees by providing the opportunity to purchase Redwood common stock at a discounted price through payroll deductions.

Corporate Responsibility

We prioritize corporate responsibility initiatives that matter most to our business and shareholders. As noted above, our mission to make quality housing, whether rented or owned, accessible to all American households - guides our workforce’s day-to-day collaboration and serves as a cultural foundation. As such, we prioritize business initiatives and products that align with this mission. Through our Operating Businesses as well as our investments, we play an active role in supporting various areas of the residential housing market, including enhancing liquidity in the residential real estate finance markets and, in turn, facilitating home ownership and access to housing across the United States. Our Board of Directors oversees management’s approach to corporate responsibility matters, with standing Board Committees playing a primary role in overseeing different aspects of corporate responsibility. Management regularly reports to the Board and its committees regarding corporate responsibility matters.

Competition

We are subject to intense competition in seeking investments, acquiring, originating, and selling loans, engaging in securitization transactions, and in other aspects of our business. Our competitors include commercial banks, other mortgage REITs, Fannie Mae, Freddie Mac, regional and community banks, broker-dealers, investment advisors, insurance companies, residential investor originators, and other specialty finance companies and financial institutions, as well as investment funds, venture capital investors, and other investors in real estate-related assets. In addition, other companies may be formed that will compete with us (including, on occasion, by former employees of ours). Some of our competitors have greater resources than us and we may not be able to compete successfully with them. Some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more favorable relationships than we can. Furthermore, competition for investments, making loans, acquiring and selling loans, engaging in securitization transactions, and in other aspects of our business may lead to a decrease in the opportunities and returns available to us. For additional discussion regarding our ability to compete successfully, see the risk factor below under the heading “We are subject to intense competition and we may not compete successfully" in Part I, Item 1A of this Annual Report on Form 10-K.

Federal, State and Local Regulatory and Legislative Developments

Our business is affected by conditions in the housing and real estate markets and the broader financial markets, as well as by the financial condition and resources of other participants in these markets. These markets and many of the participants in these markets are subject to, or regulated under, various federal, state and local laws and regulations. In some cases, the government or government-sponsored entities, such as Fannie Mae and Freddie Mac, directly participate in these markets. In particular, because issues relating to residential housing (including both owner-occupied and rental housing), and real estate finance can be areas of political focus, federal, state and local governments may be more likely to take actions that affect residential housing, the markets for financing residential housing, landlord and tenant rights, lender rights, institutional ownership of residential housing, and the participants in residential housing-related industries than they would with respect to other industries. Other changes or actions by judges or legislators regarding mortgage loans and contracts, including the voiding of certain portions of these agreements or the promulgation of additional restrictions on mortgage foreclosures, may reduce our earnings, impair our ability to mitigate losses, or increase the probability and severity of losses. Moreover, to the extent we participate in markets that as-yet do not have fully developed regulatory frameworks or responsibilities, such as the market for HEI, we are subject to a heightened risk of new, enhanced, or changing regulation that is adverse to our business or burdensome to comply with. As a result of the government’s statutory and regulatory oversight of the markets we participate in and the government’s direct and indirect participation in these markets, federal, state and local governmental actions, policies, and directives can have an adverse effect on these markets and on our business and the value of, and the returns on, mortgages, mortgage-related securities, HEI, and other assets we own or may acquire in the future, which effects may be material. For additional discussion regarding federal, state and local legislative and regulatory developments, see the risk factor below under the heading “Federal, state, and local legislative and regulatory developments, and actions by governmental authorities and entities, may adversely affect our business and the value of, and returns on, mortgages, mortgage-related securities, HEI, and other assets we own or may acquire, including by reducing the availability of, or increasing the cost of, our warehouse mortgage financing” in Part I, Item 1A of this Annual Report on Form 10-K.

Information Available on Our Website

Our website can be found at www.redwoodtrust.com (http://www.redwoodtrust.com). We make available, free of charge through the investor information 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 the charters for our Audit Committee, Compensation Committee, and Governance and Nominating Committee, our Corporate Governance Standards, Policy Regarding Majority Voting, 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, director, or senior officer (as defined in the Code). In addition, our website includes information concerning purchases and sales of our equity securities by our executive officers and directors, as well as 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 Annual Report on Form 10-K.

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

Certifications

Our Chief Executive Officer and Chief Financial Officer have executed certifications dated February 27, 2026, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and we have included those certifications as exhibits to this Annual Report on Form 10-K. In addition, our Chief Executive Officer certified to the New York Stock Exchange (NYSE) on June 10, 2024 that he was unaware of any violations by Redwood Trust, Inc. of the NYSE’s corporate governance listing standards in effect as of that date.

Summary of Risk Factors

The risk factors summarized and detailed below could materially harm our business, operating results and/or financial condition, impair our future prospects and/or cause the price of our equity or debt securities to decline. These are not all of the risks we face and other factors not presently known to us or that we currently believe are immaterial may also affect our business if they occur. Material risks that may affect our business, operating results and financial condition include, but are not necessarily limited to, those relating to:

Risks Related to our Business and Industry (Page 8)

• adverse economic and market conditions, including in housing, real estate, mortgage finance, and broader financial markets;
• changing benchmark interest rates and the Federal Reserve’s actions and statements;
• federal, state and local legislative and regulatory developments and the actions of governmental authorities and entities;
• our ability to compete successfully;
• our ability to adapt our business model and strategies;
• strategic business and capital deployment decisions we make;
• our use of financial leverage;
• our exposure to a breach of our cybersecurity or data security;
• the impact of public health events such as pandemics;

Risks Related to our Investments and Investing Activity (Page 13)

• 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 of our efforts to manage or hedge credit risk, 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;

Operational and Other Risks (Page 22)

• 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, investment, 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;
• 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;
• 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;
• the impact on our reputation that could result from our actions or omissions or from those of others;
• 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;

Risks Related to Legislative and Regulatory Matters Affecting our Industry (Page 35)

• the impact of changes to U.S. federal income tax laws on the U.S. housing market, mortgage finance markets, and our business;
• regulatory risk related to HEI, including recharacterization or regulation as mortgage loans;
• the impact of state and local rent control or rent stabilization laws on the value of rental properties;
• our failure to comply with applicable laws and regulation, including our ability to obtain or maintain required governmental licenses;

Risks Related to Redwood's Capital, REIT and Legal/Organizational Structure (Page 39)

• our ability to maintain our status as a REIT for tax purposes;
• our ability to raise, manage, and deploy capital;
• limitations imposed on our business due to our REIT status and our status as exempt from registration under the Investment Company Act of 1940;
• provisions in our charter and bylaws and provisions of Maryland law may limit a change in control or deter a takeover;
• the ability to take action against our directors and officers is limited by our charter and bylaws and provisions of Maryland law and we may indemnify them against certain losses;

Other Risks Related to Ownership of Our Capital Stock (Page 42)

• our stock may experience losses, volatility, and poor liquidity, and we may reduce our dividends;
• a limited number of institutional shareholders own a significant percentage of our common stock;
• future sales of our stock or other securities by us or our officers and directors may have adverse consequences for investors;
• the change-in-control-related conversion rights of our preferred stock may be detrimental to holders of our common stock;
• dividend distributions and the timing and character of such dividends may change;
• payment of dividends in common stock could place downward pressure on market price; and
• other factors not yet identified, including broad market fluctuations.

Risks Related to our Business and Industry

Adverse economic and market conditions, including in housing, real estate, mortgage finance, and broader financial markets, have affected, and may continue to affect, our business, our financial results, and the values and returns of the real estate-related and other assets we own or may acquire.

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

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

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

Our ability to fund our business and investment strategy depends on access to sufficient capital, which in turn depends on market conditions. We cannot assure you that acceptable capital will be available to us when needed. If market disruption or other factors limit our access to capital, we may be unable to fund planned growth, which would harm our business and financial results.

Changing benchmark interest rates, and the Federal Reserve’s actions and statements, have affected, and may continue to affect, fixed income and mortgage finance markets in ways that adversely impact our business and financial results, our loan origination and acquisition volumes, and the values and returns of real estate-related investments and other assets we own or may acquire.

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

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

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

Certain aspects of our business may also be negatively impacted by declining interest rates, including by reducing the values of our mortgage servicing rights, interest-only certificates, and related assets, and increasing prepayments on higher-coupon loans. In addition, if financial markets interpret Federal Reserve actions or statements as signaling looser monetary policy and price in rate cuts that do not occur, we may experience a market correction in the values of our corporate securities. We cannot predict the extent or duration of any of these impacts.

Federal, state, and local legislative and regulatory developments, and actions by governmental authorities and entities, may adversely affect our business and the value of, and returns on, mortgages, mortgage-related securities, HEI, and other assets we own or may acquire, including by reducing the availability of, or increasing the cost of, our warehouse mortgage financing.

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

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

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

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

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

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

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

We are subject to intense competition and we may not compete successfully.

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

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

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

Our business model and strategies, and our actions (or inactions) to implement and adapt them, entail risk and may not succeed.

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

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

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

We may pursue joint ventures or form investment vehicles or funds with third-party investors to purchase loans, or other assets and to earn fees or incentives; for example, since 2023 we have established two joint ventures with large institutional investors to invest in residential investor loans originated by CoreVest. Additional similar initiatives, including establishing joint ventures that invest in residential consumer mortgage loans, may not succeed.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Maintaining information security and complying with data-privacy and technology laws are critical; a cybersecurity or data incident, or a violation of such laws, could materially harm us.

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

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

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

If personal information is compromised, whether on our systems or those of our service providers with whom we share such data, we may face statutory or actual damages and significant costs (including costs related to investigation, notification, credit monitoring, regulatory fines/penalties, and potential ransom payments), as well as operational disruptions, reputational harm, and loss of business, revenues, and profits.

Several regulators (including the SEC, FTC, and state regulatory and law enforcement agencies) require reporting of certain security incidents in prescribed formats and timeframes; failures to comply could result in penalties or legal action. Publicized security issues affecting us or key third parties (of ours or our vendors/counterparties) may also damage our reputation with loan sellers/buyers, borrowers, customers, investors, and other counterparties. These risks may grow as we expand web-based offerings, rely more on cloud services, and utilize external cybersecurity tools and vendors.

Our business depends on communications and information systems, including for loan acquisition/origination activities, liability management, internal controls, and interest-rate hedging. A failure or interruption of our systems, or critical third-party systems, including due to ransomware, could impede operations and, if prolonged, have a material adverse effect on our business, results of operations, and financial condition.

Public health events (including pandemics such as COVID-19) have adversely affected, and may again affect, our business, liquidity, and results.

Public health crises outside our control can disrupt U.S. and global economies and financial and real estate markets, and affect our financial condition and core operations, including mortgage acquisition, origination, and distribution; investment-portfolio activity and valuations; liquidity; and our workforce. For example, the COVID-19 pandemic caused significant volatility and ongoing repercussions across economies, markets, and supply chains.

A pandemic can impair mortgage banking and asset performance. Government responses may drive unemployment higher and depress real-estate financing activity; borrowers and tenants may miss or seek forbearance on mortgage loan payments; and credit risk on our assets may rise during severe market stress. Policy actions (including by the Federal Reserve) can also move interest rates and credit spreads sharply, reducing asset values and altering mortgage loan borrower prepayment behavior, each of which could materially adversely affect results.

A pandemic can also constrain capital markets and liquidity. Disruptions may limit access to short- or long-term financing for loans, MBS, and other real estate assets; disrupt securitizations; or restrict our ability to execute them. Lenders may reassess exposure, curtail uncommitted capacity, or increase borrowing costs. Investor demand for loans we originate or acquire, for MBS we issue—SEMT® and CAFL®—or for other assets may decline, further pressuring liquidity and returns.

The impact of a future public health crisis on the economy, our liquidity, financial condition, and results could be material. Many risk factors in this Item 1A were directly or indirectly affected during COVID-19 and could be again with a resurgence or new epidemic.

Risks Related to our Investments and Investing Activity

The nature of our assets and investments exposes us to credit risk that could adversely affect asset values, earnings, dividends, cash flows, liquidity, and our business.

Credit Risk Overview

We assume credit risk primarily through (i) securities backed by residential consumer, residential investor, and multifamily loans and (ii) direct investments in those loans. We may also take credit risk through financing or risk-sharing transactions relating to such loans or associated servicing rights. Credit losses can arise from, among other things, fraud; weak underwriting or servicing; adverse economic conditions; increases in loan payments; real-estate/property value declines; lower rents or higher delinquencies in single-family and multifamily rentals; epidemics/pandemics; natural disasters and climate effects (e.g., flooding, drought, wildfires, severe weather); uninsured losses; over-leverage; environmental remediation; zoning/code changes; war/terrorism; legal and regulatory changes; and borrower-specific events (income loss, divorce, health issues).

Additionally, residential investor and multifamily loans and securities face the same drivers of loss and additional risks: many are interest-only or otherwise non-fully amortizing, so repayment often depends on refinance or sale at maturity, and performance is sensitive to rental-market conditions. The rapid interest rate increases in 2022–2023 stressed certain residential investor bridge loans, elevating delinquencies and driving realized/unrealized losses. Further losses on these loans are possible. Additionally, alleged representation-and-warranty breaches on some residential investor term loans have led to repurchases from securitizations, pressuring liquidity and our ability to securitize, finance, or sell assets.

Loss timing and severity may also be affected by modifications, liquidation delays, documentation errors, or servicer actions. A U.S. economic or housing downturn could increase losses beyond current expectations. Rising short-term interest rates increase required payments on adjustable-rate loans we hold directly or via securitizations, which can increase delinquencies and defaults.

Tranche Position and Servicing-Advance Risk

We often own subordinate and mezzanine securities with concentrated credit risk, including first-loss securities providing credit enhancement by incurring losses before more senior securities. Over-valuation of the property securing a mortgage at origination or subsequent value declines in the property can accelerate principal losses on our holdings of loans and securities to the extent sufficient collateral is not available to satisfy the borrower’s obligations. For residential securities, servicers may stop advancing delinquent interest payments when continued advances are deemed unrecoverable, which can reduce values and impair projected cash flows.

Whole-Loan and Risk-Sharing Exposures

For loans we own directly, we bear losses after borrower equity is exhausted. We have also committed to absorb specified losses on certain conforming loans sold to the Agencies under risk-sharing arrangements. Mitigation actions may be ineffective and can increase ultimate loss.

Small-Business Borrower Risk

Loans to small, privately held investor-borrowers involve heightened business and financial risk, limited public information, and reliance on our due diligence. Insufficient diligence, errors in our diligence, and borrower fraud or misrepresentation have resulted in extensions of credit we would not otherwise have made, and we have incurred substantial losses on impacted loans. Borrower/industry downturns may coincide with collateral deterioration, leading to additional losses.

Product-Feature Risk

Many residential investor and multifamily loans we own feature partial amortization, negative amortization, hybrid/adjustable-rate mortgage features, or balloon payments. Loans with these features carry greater default and loss severity risk, especially when interest rates rise, than fully amortizing fixed-rate loans.

Geographic Concentration and Catastrophe Risk

Regional economic downturns can depress property values and raise defaults where our exposures are concentrated. Natural disasters and climate impacts can cause abrupt value declines; insurance may be unavailable or insufficient, leading to higher foreclosures and losses. We have significant exposure to California for residential consumer loans and, for residential investor and multifamily exposures, concentrations in Arizona, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Louisiana, New Jersey, New York, Ohio, Oregon, Texas, and Washington (see Notes 7–8 to the Financial Statements within this Annual Report).

Loss Timing

Losses incurred soon after origination, investment or securitization may disproportionately harm our returns. Elevated delinquencies and cumulative losses in securitized pools can delay our receipt of principal and interest and lower economic returns. Timing is affected by borrower creditworthiness and willingness to pay, and by laws or programs enabling modification, forbearance, bankruptcy, or rent relief.

Limits of Risk Management

We attempt to manage risks of credit losses by evaluating investments for impairment indicators and establishing GAAP reserves, but reserves and liquidity buffers may prove insufficient. Higher-than-expected losses can reduce GAAP earnings, cash flows, asset values, access to short-term borrowings, and our ability to securitize or finance assets. Our efforts to manage credit risk directly may fail for many reasons, including ineffective or uneconomic quality control, underwriting reviews, and loss-mitigation; counterparties including insurers, servicers, trustees, and custodians may fail to perform; the value of properties collateralizing loans (the primary source of funds for recoveries) may decline; rents on rental properties collateralizing residential investor loans may decline; and foreclosure delays can increase loss severities.

Credit-Rating Limitations

Credit ratings generally assess the risk of receipt of principal and interest payments on debt securities. Ratings may not reflect the risk of fair-value volatility or other factors that affect the value of debt securities, may not be adjusted on a timely basis in response to subsequent events, and can change abruptly, including due to changes in rating agency methodology. Downgrades can reduce values and cash flows of investments we own. Criteria and models used to rate securities backed by real-estate loans, HEI, and other assets may be revised as rating agencies gain data, potentially to the detriment of issuers and investors and affecting the mix of investment-grade/non-investment-grade issuance.

Payment Forbearance Risk—Residential Consumer

Residential mortgage loan borrowers may fail to make scheduled payments due to inability or unwillingness, or due to forbearance/modification programs (government-mandated or otherwise). For example, federal legislation in response to the COVID pandemic allowed many borrowers to receive forbearance relief and stop making payments. Nonpayment can materially impair the value of loans and securities we own, including whole loans, Sequoia securities, third-party residential mortgage-backed securities (RMBS), mortgage servicing rights (MSRs), excess MSRs, and servicer-advance investments. Delinquencies can redirect cash flows away from us and require us to fund principal and interest advances, or tax and insurance advances. Federal assistance programs may not apply to our predominantly non-Agency eligible assets. These effects can materially harm our financial condition, results, and cash flows.

Payment Risk—Multifamily and Residential Investor

Multifamily and residential-investor loans and related securities face similar risks, but tenant nonpayment may amplify borrowers’ stress. A significant share of our residential-investor exposure is short-term bridge lending on non-income-producing renovation/construction properties. Since 2023, delinquencies in this portfolio have risen and borrowers have sought to renegotiate terms, including by seeking payment forbearance or waivers, interest rate reductions, or maturity extensions. For example, in 2025 we modified loans with approximately $129 million of unpaid principal balance (UPB) including by providing rate reductions and interest deferrals combined with new borrower capital, and extended maturities on loans with approximately $733 million of UPB. Construction or rehabilitation of these properties may be delayed or halted by operating disruptions or moratoria. These factors can materially reduce the value of related loans and securities.

Changes in mortgage or HEI prepayments, and HEI payment amounts, could reduce our earnings, dividends, cash flows, and liquidity.

The returns on most securities, loans, and HEI we own depend on the rate of prepayment or early termination of the underlying mortgages or HEI and payment amounts under HEI agreements. While prepayments typically slow in rising-rate environments and increase when rates fall, actual behavior is difficult to predict and can change rapidly. Adverse shifts in rates or payment amounts can reduce cash flows and earnings, reduce the fair value of many assets, and constrain our borrowing capacity. Because our effective yields and valuations rely on prepayment estimates that may prove imprecise, variability in prepayments can introduce earnings volatility and affect our ability to securitize assets.

Certain holdings are especially sensitive to prepayments, including interest-only (IO) securities, (MSRs and excess MSRs. As an IO or MSR owner, we are entitled to receive a portion of borrower interest payments on the associated loan (single-family or multifamily residential loans). Accelerated prepayments on associated loans reduce cash flows from IOs and MSRs and may cause losses on IOs, MSRs and excess MSR investments.

Some residential investor loans we originate or hold permit prepayment without penalty and/or allow maturity extensions at the borrower’s option. Because these options are borrower-controlled, we may not accurately estimate cash-flow duration and earnings, and our ability to finance these loans may be adversely affected.

Interest-rate fluctuations may reduce earnings and increase earnings volatility.

Changes in interest rates, the relationships among rates associated with different durations (e.g., yield curve shape), and rate volatility may negatively affect our earnings and financial results by decreasing the value of fixed-rate loans and securities in our investment portfolio or pipeline, altering loan and HEI prepayment rates, restricting liquidity, and weakening credit performance. We hedge some, but not all, interest rate risk but our hedges may be imperfect, and we may change our hedging mix over time.

A portion of the loans and securities we own (or may acquire) have adjustable interest rates, so cash flows and reported earnings vary with changes in rates. We fund these assets with a mix of equity, fixed-rate debt, and floating-rate debt. Funding assets with mismatched rate profiles (e.g., funding fixed-rate assets with floating-rate debt) can reduce earnings and fair values when rates move. We may use derivatives to mitigate rate mismatches, but such strategies may not succeed.

Higher interest rates generally reduce the value of many assets (other than IOs, MSRs/excess MSRs, and adjustable-rate assets), limiting earnings, securitization or sale activity, and liquidity. They can also curb borrowers’ ability or willingness to pay or refinance and can depress property values, raising credit losses. The rapid rate increases in 2022–2023 contributed to elevated delinquencies in our residential-investor bridge portfolio, resulting in decreased earnings and realized credit losses; further stress, including additional losses, is possible in this portfolio. Higher rates also reduce mortgage originations, especially refinancings, limiting new asset acquisition. For residential-investor loans secured by rental properties, if rising interest expense is not offset by higher rents, delinquencies may increase and loan or security values may decline. Higher rates also raise our own financing costs as facilities are renewed or mature. For example, during 2024 and 2025, we had approximately $267 million of unsecured corporate debt mature that was effectively refinanced at significantly higher rates.

When short-term rates exceed long-term rates (yield-curve inversion), prepayments on adjustable-rate residential loans may increase, reducing returns on IOs and MSRs associated with such loans.

The interest rate environment is influenced by unpredictable geopolitical and macroeconomic events (e.g., pandemics/epidemics, wars, trade disputes, sanctions, inflation and employment data, changes in U.S. presidential administrations and Congress, government shutdowns, or sovereign debt rating changes in the U.S., U.K., Eurozone, or China). Adverse developments can disrupt the economy and markets, increase borrowing costs, strain counterparty strength, and reduce the value of our assets—negatively affecting the availability and cost of our short-term financing, our business, and our financial results.

We have significant investment and reinvestment risks.

New assets we acquire or originate may not generate yields as attractive as yields on our current assets, which could result in a decline in our earnings per share or stockholders’ equity over time.

Assets we acquire, originate, or invest in may not generate our expected economic returns or GAAP yields, and realized cash flows may be materially lower than anticipated, including negative returns on new investments, originations, or acquisitions. To maintain portfolio size and earnings, we must reinvest a portion of the cash flows received from principal repayments, interest, and asset sales. Many of our assets generate monthly principal and interest payments, and certain MBS may be redeemed prior to maturity. In addition, we may sell assets as part of our portfolio and capital management strategies. Principal repayments, redemptions, and asset sales generate cash but also reduce the size of our existing portfolio.

If assets we acquire or invest in earn lower GAAP yields than those currently held, our reported earnings per share may decline over time as existing assets are paid down, redeemed, or sold, assuming comparable expenses. Under the effective yield method we apply to certain assets, GAAP yields are based on assumptions regarding future cash flows, and a portion of cash received may reduce the asset’s basis. As a result of these factors, our GAAP accretion/amortization basis may be lower than the current fair values of these assets. Assets with a lower GAAP basis than current fair values generate higher GAAP yields, and such yields may not be available on newly acquired assets. Future economic conditions, including credit results, prepayment patterns, and interest rate trends, are difficult to project accurately over the life of the assets we acquire, and reported returns may therefore be volatile over time.

Our growth may be limited if assets are not available or not available at attractive prices.

To reinvest cash flows from payments we receive on existing investments and deploy raised capital, we may seek to originate, acquire, or invest in new assets. If asset availability is limited or pricing is unfavorable, we may be unable to originate, acquire, or invest in assets that generate attractive returns. Asset supply may decline if originations decrease or if there are fewer secondary-market sales of seasoned assets. In particular, assets we view as offering favorable risk-adjusted returns may not be available for purchase or origination.

We do not originate residential consumer loans and therefore rely on the broader origination market to supply the types of loans we seek to invest in. At times, origination volumes may decline significantly due to rising interest rates, heightened credit concerns, tighter underwriting standards, increased regulation, or concerns about economic growth or housing values. For example, during 2019 and 2020, mortgage interest rates declined and remained low through 2021, resulting in elevated industry-wide origination volumes driven largely by mortgage borrowers' refinancing activity. By contrast, from 2022 through 2023, increases in the federal funds rate led to materially higher mortgage interest rates. Although the Federal Reserve began reducing short-term benchmark rates in

September 2024, long-term mortgage rates remained elevated. If long-term interest rates remain elevated or increase, refinance and purchase origination volumes are likely to decline and may not return to prior levels, making it more difficult for us to acquire loans and securities. Similar conditions could also reduce origination volumes at our residential investor loan platform, limiting assets available for transfer to our investment portfolio, sale, or securitization.

We originate residential investor loans, but we may be unwilling to offer loan proceeds or interest rates that borrowers find acceptable or that are competitive, which could reduce loan origination volumes. In addition, the supply of newly issued RMBS collateralized by residential consumer mortgage loans may decline if securitization economics are unfavorable or if regulatory requirements discourage or limit participation in securitization markets. Further, a lack of demand for triple-A rated securities could significantly reduce the availability of subordinate real estate securities.

We have entered into credit risk-sharing arrangements with Fannie Mae and Freddie Mac and invested in credit risk transfer securities under which we are compensated for assuming credit losses on new conforming loans or participating in similar risk-sharing or transfer structures. We may continue to make such credit-related investments and may pursue recent initiatives to grow our mortgage banking businesses and increase loan origination and acquisition volumes. Although these initiatives present potential opportunities for capital deployment, they may not generate meaningful or attractive investment opportunities due to competition from other investors, regulatory constraints, or federal housing finance reform initiatives affecting Fannie Mae and Freddie Mac.

Investments in diverse types of assets and businesses could expose us to new, different, or increased risks.

We have invested, and may continue to invest, in a range of real estate and non-real-estate assets that differ from our traditional investments or may be riskier, for example, assets in subordinate lien positions. We may also engage in securitizations, transactions, joint ventures, services, investment fund management, and other operating businesses that differ from those we have historically pursued. For example, in recent years we expanded our mortgage loan purchases to include residential investor bridge loans and residential investor term loans. Since 2019, we have acquired three residential investor loan origination platforms, CoreVest (2019), 5 Arches (2019), and Riverbend (2022), which we combined into a single platform for originating residential investor loans. These acquisitions have increased our holdings of residential investor whole loans and our issuance and ownership of securities backed by such loans under the CAFL® securitization label. We have also made, and may continue to make, strategic investments in internal or third-party residential consumer and residential investor mortgage origination platforms and through our RWT Horizons® venture investing initiative. In addition, in recent years we have invested in subordinate securities backed by re-performing and non-performing residential loans, multifamily securities, HEI and HEI-backed securities, excess MSR investments, servicer advance investments related to residential mortgage loans, and a multifamily fund focused on workforce housing. We have also pursued, and may continue to pursue, joint ventures or investment vehicles with third-party investors to acquire loans, HEI, or other assets and to earn related fees, incentives, or other income.

Any of these actions may expose us to new, different, or heightened investment, operational, financial, regulatory, or management risks. Many of these investments are complex and highly structured and involve partnerships or joint ventures with co-investors or co-sponsors, which may limit liquidity. In addition, for transactions with novel or complex structures, the associated risks may not be fully understood by market participants.

As discussed further in these Risk Factors, originating and investing in HEI presents new business, operational, and regulatory risk, including the risk that HEI may be recharacterized or regulated as mortgage loans by courts, legislation, or regulatory agencies. Financing for such non-traditional investments may be limited or costly, reducing liquidity and investable capital. If our assumptions regarding property values or appreciation are incorrect, returns may decline, and if property values fall or our ability to enforce HEI terms is constrained, we may incur losses, including a total loss of our investment. Investments in HEI, or residential consumer, residential investor loans, or other assets secured by subordinate/junior liens, or in securities backed by such assets, also involve risks that are greater than, or not present in, senior-lien products, including increased loss severity due to the subordinate lien position, and risk of loss related to home price appreciation (or depreciation). Our assumptions may prove incorrect, market conditions may change, or we may be exposed to higher-than-expected rates of delinquency, default, foreclosure, or litigation, any of which could have a negative impact on our financial or operational results related to these acquisitions and to our business as a whole

As another example, one of our excess MSR investments includes a related investment in servicer advances financed with non-recourse debt. Although non-recourse financing generally limits losses to the value of the collateral, a default could result in a complete loss of our servicer advance investment and the associated excess MSRs. In addition, when this financing matures, we may be unable to renew it on favorable terms, or at all, which could adversely affect the value of our investment. Additional discussion of these risks is included in Part II, Item 7 of this Annual Report.

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

We may invest in non-real-estate asset-backed securities (ABS), corporate debt, or equity, including various types of IO securities from residential consumer, residential investor, and multifamily securitizations sponsored by us or others. These investments may involve higher credit and prepayment risks, increasing our potential exposure to losses. We may also invest in non-U.S. assets, which may expose us to currency risk (which we may choose not to hedge) and differing credit, prepayment, hedging, interest rate, liquidity, legal, and other risks. In addition, our RWT Horizons® venture investing platform focuses primarily on early-stage businesses in the real estate, lending, and financial technology sectors. These investments may take various forms, including convertible debt or equity, and involve unique risks, including the risk of a total loss of the amount invested. We have experienced losses on certain of these investments and may incur losses in the future. Such investments may expose us to new or heightened risks that we did not anticipate, which could adversely affect financial returns. Further, investments in certain assets or businesses may create a risk that the income or activities associated with those investments could cause us to fail to satisfy the requirements to maintain our REIT status or our exemption from registration under the Investment Company Act, as further discussed in these Risk Factors.

Our capital strategy includes pursuing joint ventures and investment vehicles or funds with third-party investors to acquire loans, HEIs, or other assets originated by our operating platforms or sourced through our mortgage banking and investment activities, and, where applicable, to earn related fees, incentives, or other income. These initiatives may expose us to risks different from those associated with our traditional mortgage banking activities and may not be successful, including any efforts to engage in providing investment advisory services. In addition, such initiatives may require us to register as an investment adviser with federal or state regulators, resulting in increased regulatory compliance costs and related risks.

We may change our investment strategy or financing plans, which may result in riskier investments and diminished returns.

We may change our investment strategy or financing plans at any time, which could result in investments that differ from, and may be riskier than, those we have previously made or described. Changes in strategy or financing may increase our exposure to interest rate risk, default risk, and real estate market volatility. Decisions to increase leverage could amplify these risks, while decisions to reduce leverage could lower investment returns. In addition, certain recent investment activity involves financing incurred by joint venture entities we do not control, which is not reflected on our balance sheet. Changes in our strategy may also result in investments in new asset classes or different allocations among asset categories. For example, we have expanded our mortgage banking and investment activities through initiatives such as acquiring and originating residential investor term and bridge loans, completing the acquisitions of CoreVest, 5 Arches, and Riverbend, and optimizing portfolio size and target returns. We have also made, and may continue to make, strategic investments in residential consumer and residential investor mortgage origination platforms, our RWT Horizons® venture investing initiative, subordinate and non-performing loan-backed securities, multifamily securities, HEI and HEI-backed assets, excess MSR and servicer advance investments, and multifamily loan and property investment funds. In addition, since 2023, we have formed joint ventures with large institutional investors to purchase loans we originate, and we may continue to pursue similar joint ventures, investment vehicles, or funds with third-party investors to acquire loans, HEI, or other assets from us or other sources and to earn related fees, incentives, or other income. These initiatives may target investments with different return profiles or employ leverage differently than in the past. We may also determine to increase our exposure to securities backed by non-prime or subprime residential mortgage loans or assets secured by junior liens, which could increase investment risk and adversely affect returns. Conversely, we may adopt more conservative investment or financing strategies that reduce risk but also lower returns, which could also adversely affect our financial performance.

The performance of the assets we own and the investments we make will vary and may not meet our earnings or cash flow expectations. In addition, the cash flows and earnings from, and market values of, securities, loans, and other assets we own may be volatile.

We seek to manage certain risks associated with acquiring, originating, holding, selling, and managing real estate loans and securities, HEI, and other real estate-related investments. However, no risk management can eliminate the variable nature of the cash flows, fair values, or financial results generated by these assets. Changes in credit performance, prepayment or settlement rates, and interest rates affect cash flows and values, and the impact may be significant for assets with concentrated risk exposures. For example, cash flows from HEI we originate, acquire, or securitize depend on the timing of HEI settlements, which typically occur upon sale or refinancing of the underlying home but may take thirty (30) years or longer. If few HEI settle over extended periods, or if settlements generate limited proceeds due to declines in property values or other adverse conditions, cash flows from HEI we own, or HEI-backed securities we hold, may be significantly lower than forecasted. Variability in cash flows affects returns on investment and the level and volatility of reported income. Because revenue on certain assets is based on estimates of yield or value over the asset’s remaining life, changes in expected cash flows may require immediate adjustments to reported earnings, including the recognition of losses, increasing volatility of earnings. In addition, both our GAAP results and non-GAAP performance measures may be volatile. Ongoing SEC scrutiny of non-GAAP metrics has required changes to our presentation or calculation methods and may require additional changes in the future, further contributing to variability and volatility in reported results.

Changes in the fair values of our assets, liabilities, and derivatives can have various negative effects on us, including reduced earnings, increased earnings volatility, and volatility in our book value.

The fair values of our assets and liabilities, including derivatives, may be volatile and changes in fair value can affect our revenue and income. Fair values may change rapidly due to movements in interest rates, perceived risk, supply and demand dynamics, and actual or projected cash flows, including prepayments and credit performance. Declines in fair value do not necessarily reflect deterioration in future cash flows. Fair values of illiquid assets are difficult to estimate, which may increase volatility in our earnings and book value.

For example, the value of real estate-related securities in our investment portfolio are subject to changes in credit spreads, which reflect the yield demanded by the market based on their credit profile relative to a specific benchmark, and are a measure of the perceived risk of the investment. Fixed-rate securities are generally valued using a spread over fixed-rate U.S. Treasuries or swap rates of similar maturity. Until recently, many floating-rate securities were valued based on a market credit spread over LIBOR and, recently (due to the cessation of LIBOR in 2023), another floating-rate index such as the Secured Overnight Financing Rate (“SOFR”) or the American Interbank Offered Rate (“Ameribor”), and such valuations are affected by changes in SOFR, Ameribor, or other index spreads. An increase in supply or decrease in demand for these securities may cause the market to require higher yields, resulting in wider spreads and lower asset values. For example, market volatility during the COVID pandemic and the regional banking crisis in early 2023 led to significant declines in the market value of our securities portfolio during 2020 and 2023, respectively. Since 2022, interest-rate volatility and other economic factors, including the regional banking crisis, have again caused spreads to increase and reduced portfolio values. Conversely, decreasing spreads would generally increase the value of our real estate-related securities. Changes in the market value of our securities portfolio may affect our net equity, net income, and cash flows, directly through unrealized gains or losses on available-for-sale securities and indirectly through impacts on our borrowing capacity and access to capital. Widening credit spreads have contributed to, and may continue to contribute to, net unrealized losses recorded in accumulated other comprehensive (loss) income or retained earnings, which have reduced, and may further reduce, our book value per share.

For GAAP purposes, we mark to market most assets and certain liabilities on our consolidated balance sheets, and valuation adjustments on certain assets, liabilities, and most derivatives are reflected in our consolidated statements of (loss) income. Assets funded with particular liabilities or hedges may be subject to different mark-to-market treatment than the related liability or hedge. If we sell an asset that has not been marked to market through earnings at a price below its cost basis, we may be required to recognize a loss, reducing reported earnings.

Our loan sale profit margins generally reflect gains or losses from the period between identifying a loan for purchase and its sale or securitization. These margins may include market valuation changes, hedging gains or losses, and transaction expenses. However, under GAAP, these components may be recognized unevenly across reporting periods, which may increase volatility and cause reported results to differ from the underlying economics of our business activity.

Our calculations of the fair value of the securities, loans, HEI, MSRs, derivatives, and certain other assets we own or consolidate are based upon assumptions that are inherently subjective and involve a high degree of management judgment.

We report the fair value of securities, loans, HEI, MSRs, derivatives, and certain other assets on our consolidated balance sheets. In determining fair value, we rely on market-based assumptions, including assumptions regarding interest rates, prepayment speeds, home price appreciation, discount rates, credit losses, and the timing of such losses. These assumptions are inherently subjective and require significant management judgment, particularly for illiquid assets for which observable market prices are not available. Different assumptions could materially affect our fair value measurements and financial results, as further discussed in these Risk Factors. For additional information, see Note 5 to the Financial Statements included in this Annual Report on Form 10-K.

Investments we make, hedging transactions that we enter into, and the manner in which we finance our investments and operations expose us to various risks, including liquidity risk, risks associated with the use of leverage, market risks, and counterparty risk.

Many of our investments have limited liquidity.

Many of the residential consumer, residential investor, multifamily, and other securities we own, as well as the residential consumer loans, residential investor loans, and HEI we hold or originate, are generally illiquid, with limited pools of potential buyers, particularly on short notice. At times, a substantial portion of our assets may be illiquid, and market turbulence may further reduce liquidity. As a result, we may be unable to sell assets when desired or at favorable prices, or may incur significant losses if sales are required.

Our level of indebtedness and liabilities could limit cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations, and impair our ability to satisfy our obligations under our convertible notes and other debt instruments.

At December 31, 2025, our total consolidated liabilities (excluding indebtedness associated with asset-backed securities and other liabilities of consolidated entities for which we are not liable) were approximately $4.9 billion. We may incur additional indebtedness in the future to meet financing needs. Our level of indebtedness could have significant adverse effects on our business, results of operations, and financial condition, including by:

• increasing our vulnerability to adverse economic, market, or industry conditions;
• limiting our ability to obtain additional financing;
• requiring a substantial portion of operating cash flows to be used to service debt, reducing cash available for other purposes;
• requiring asset sales to repay maturing debt or satisfy margin calls;
• reducing our flexibility in planning for, or reacting to, changes in our business;
• causing dilution to existing stockholders from the exercise of warrants or the conversion of convertible or exchangeable securities into common stock; and
• placing us at a competitive disadvantage relative to less leveraged competitors or those with greater or lower-cost access to capital.

We cannot assure you that we will maintain sufficient cash reserves or generate operating cash flows adequate to pay principal, any premium, and interest on our indebtedness, or that our cash needs will not increase. If we are unable to generate sufficient cash or otherwise obtain necessary funds to meet our payment obligations, or if we fail to comply with the terms of our outstanding indebtedness, we could be in default. Such a default could permit lenders to accelerate maturities and trigger cross-defaults under other indebtedness. Any default could have a material adverse effect on our business, results of operations, and financial condition. For additional information regarding our indebtedness, see Part II, Item 7 of this Annual Report.

Our use of financial leverage could expose us to increased risks.

We generally fund residential consumer and residential investor loans acquired or originated for future sale or securitization using a combination of equity and short-term debt, and we also invest in securities and loans financed with short- and long-term debt. By incurring this debt (i.e., by applying financial leverage), we seek to enhance returns on invested equity. However, as a result of using financial leverage (whether for the accumulation of loans or related to longer-term investments), we could also incur significant losses if borrowing costs or related hedging costs increase relative to asset earnings, if we are subject to margin calls or forced to sell pledged collateral under adverse market conditions. In addition, our debt financing arrangements include financial covenants, such as minimum tangible net worth or stockholders’ equity, minimum liquidity, or maximum recourse leverage ratios. Failure to comply with these financial covenants could result in defaults, forced collateral liquidation under unfavorable conditions, and limits on our ability to incur additional debt to fund operations, as further discussed in these Risk Factors and in Part II, Item 7 of this Annual Report.

The inability to access financial leverage through warehouse and repurchase facilities, credit facilities, or other forms of debt financing may inhibit our ability to execute our business plan, which could have a material adverse effect on our financial results, financial condition, and business.

Our ability to fund our business and investment strategy depends on obtaining warehouse, repurchase, or other debt financing on acceptable terms. For example, while aggregating mortgage loans or other assets prior to sale or securitization, we generally finance those assets through borrowings under warehouse, repurchase, or credit facilities and other short-term financing arrangements.

We cannot assure you that we will be able to establish or maintain sufficient sources of short-term debt when needed. Many of our short-term financing arrangements are not committed, allowing lenders to limit or decline additional borrowings for any reason.

Because of the short-term nature of this financing, lenders may also decline to renew our short-term debt upon maturity or expiration, making continued access to short-term financing difficult. During periods of market stress, such as during the COVID-related market dislocations in 2020 or the regional banking crisis in early 2023, lenders may reduce or withdraw liquidity, making it difficult or costly to renew short-term borrowings as they mature. If counterparties are unwilling or unable to provide financing on acceptable terms, or if borrowing costs rise materially, our business and financial results could be adversely affected. Lenders’ ability to fund us may also change for reasons unrelated to our performance, as occurred when one of our borrowing facilities was affected by lender insolvency following the early 2023 banking crisis. Further, our ability to increase borrowing capacity under existing facilities may be constrained by our ability to raise equity capital, which may not be available on favorable terms or at all.

Hedging activities may reduce earnings, may fail to reduce earnings volatility, and may fail to protect our capital in difficult economic environments.

We seek to hedge certain interest rate risks, and at times prepayment risk and fair value exposure, by aligning the characteristics of our assets and related current or anticipated liabilities and by entering into interest rate agreements. The number and scope of these agreements may vary over time. We generally seek to enter into interest rate hedging agreements that provide an appropriate and efficient means of managing exposure to changes in interest rates.

The use of interest rate hedging agreements and other hedging instruments may reduce long-term earnings if the risks being hedged do not materialize. We generally hedge to seek to mitigate the effects of short-term earnings volatility, to stabilize liability costs or fair values, to stabilize our economic returns from a securitization transaction, or to stabilize the future cost of anticipated securities issuances. Hedging strategies may not achieve these objectives. For example, during market dislocations in 2020 related to the COVID pandemic, we determined that our interest rate hedges were no longer effective in hedging asset values and terminated substantially all outstanding hedges, resulting in realized losses. Although we have since re-established certain hedging activities, there can be no assurance that future market or financial conditions will allow us to maintain an effective interest rate risk hedging program. Even under normal market conditions, hedging loan acquisition pipelines may be ineffective due to loan fallout or other factors. In addition, interest rate hedging may increase short-term earnings volatility, particularly if we do not elect certain accounting treatments for our hedges or hedged items. Declines in the fair value of hedging instruments may not be offset by increases in the value of hedged assets or liabilities and increases in hedge values may not fully offset declines in hedged positions. Changes in fair values of interest rate agreements may also require us to post significant cash or other collateral.

We may also hedge by taking short, forward, or long positions in U.S. Treasuries, mortgage securities, or other financial instruments, and may enter into long or short credit derivative transactions linked to real estate assets. These derivatives may expose us to additional risks, including liquidity risk if no active market exists, basis risk resulting from interest rate movements that may require cash payments or cause value declines, and counterparty risk if a counterparty is unable or unwilling to perform its obligations.

Our earnings may fluctuate from period to period due to the accounting treatment of certain derivatives or related assets or liabilities whose terms do not align with those of the derivatives, or due to our inability to qualify for hedge accounting treatment for certain hedging instruments.

We enter into derivative contracts that may expose us to contingent liabilities and those contingent liabilities may not appear on our balance sheet. We may invest in synthetic securities, credit default swaps, and other credit derivatives, which expose us to additional risks.

We enter into derivative contracts, including interest rate swaps, options, “to-be-announced” forward contracts (TBAs), and futures, that may require us to make cash payments in certain circumstances. These obligations represent contingent liabilities that may not be reflected on our balance sheet, and our ability to satisfy them depends on asset liquidity and access to capital and cash. Funding these obligations could adversely affect our financial condition.

We may also invest in synthetic securities, credit default swaps, or other credit derivatives referencing real estate securities or indices. These instruments may involve risks greater than those of the referenced securities or indices and are contractual arrangements and not acquisitions of referenced securities or other assets. As a result, we have no enforcement or ownership rights with respect to the underlying assets, and if a counterparty becomes insolvent, we would be treated as a general creditor with no claim of title with respect to the referenced security.

Hedging activities may subject us to increased regulation.

The Dodd-Frank Act increased regulation of companies, including Redwood and certain of our subsidiaries, that enter into interest rate hedging agreements and other hedging instruments and derivatives. As a result, we or certain subsidiaries could be required to register as, and be regulated as, a commodity pool operator or commodity trading advisor. If we are unable to maintain applicable exemptions, our business or financial results could be adversely affected. In addition, requirements for central clearing of certain swap transactions, as well as margin, capital, and other regulatory requirements applicable to swap markets and participants, may increase the cost or reduce the availability of hedging transactions and may limit our ability to use swaps in securitization transactions.

Our results could be adversely affected by counterparty credit risk.

We are exposed to credit risk arising from the counterparties with whom we do business, including the risk that a counterparty may fail to perform its contractual obligations, which is generally heightened during periods of economic stress. The economic effects of the pandemic and the regional banking crisis in early 2023, and related market volatility, have at times triggered additional periods of economic slowdown or recession, and such conditions have jeopardized, and could again jeopardize, the solvency of certain counterparties. In addition, counterparties may seek to reduce credit exposure through offsetting, or “back-to-back,” hedging transactions, and a counterparty’s ability to settle a synthetic transaction may depend on the performance of its own counterparties. The risks associated with these arrangements may differ materially from those of exchange-traded transactions, which typically are backed by clearing organization guarantees, daily mark-to-market settlement, and regulatory capital and segregation requirements. Transactions entered into directly between counterparties generally lack these protections and therefore expose us to increased counterparty default risk. Moreover, enforcing our rights against an insolvent counterparty may present practical or timing challenges.

If a counterparty to our borrowings becomes insolvent, we may be unable to recover the full value of our pledged collateral. Insolvency of one or more financing counterparties could also reduce available financing, limit our ability to leverage assets, and prevent us from obtaining replacement financing on attractive terms, or at all. For example, following the regional banking crisis in early 2023, one of our borrowing facilities was affected by lender insolvency. If a counterparty to our interest rate or other derivative agreements becomes insolvent, or interprets such agreements unfavorably, we may be unable to realize hedge benefits, may lose pledged cash or collateral, or may be required to unwind these agreements at a loss. If a counterparty that sells us residential consumer or residential investor mortgage loans becomes insolvent or is acquired, we may be unable to enforce repurchase rights for breaches of representations and warranties and could incur losses on delinquent loans. Similarly, if a sub-servicer becomes insolvent or fails to perform, delinquencies and credit losses may increase and we may not receive funds when due, or at all. We attempt to diversify our counterparty exposure and (except with respect to loan-level representations and warranties) attempt to limit our counterparty exposure to counterparties with investment-grade credit ratings, although we may not always be able to do so. Our counterparty risk management strategies may not be effective, and our earnings and cash flows could be adversely affected.

Operational and Other Risks

Through certain of our wholly-owned subsidiaries we have engaged in the past and plan to continue to engage in acquiring residential consumer and residential investor mortgage loans and originating residential investor mortgage loans and HEI with the intent to sell these loans to third parties or hold them as investments. Similarly, we have engaged in the past, and may continue to engage, in acquiring residential MSRs and in originating and acquiring HEI. These types of transactions and investments expose us to potentially material risks.

Acquiring and originating mortgage loans and other assets with intent to sell to third parties generally requires us to incur debt, including short-term debt on a recourse or non-recourse basis, to finance the accumulation of these assets. This type of debt may not be available to us, or may be available only on an uncommitted basis, even in cases where a line of credit had previously been made available or committed to us. In addition, the terms of any available debt may be unfavorable or may impose restrictive covenants that could limit our business and operations, and any breach of such covenants could result in losses and restrict our ability to borrow in the future. When we originate or acquire assets for sale, we make assumptions regarding the cash flows and market values of those assets. If these assumptions prove incorrect, or if market values or other conditions change, the resulting sale may be less favorable than anticipated and could negatively affect our financial results.

Furthermore, if we are unable to complete the sale of these assets, our business and financial results could be negatively affected. We have limited capacity to hold residential consumer loans, residential investor loans, and other assets on our balance sheet, and our business is not structured to retain the full volume of assets we routinely acquire or originate for sale. If demand for whole-loan or HEI purchases weakens, we may be forced to incur additional debt on unfavorable terms or may be unable to obtain financing for these assets, which could impair our ability to continue acquiring or originating loans or other assets in the short or long term.

Additionally, mortgage loan borrowers that have been or continue to be negatively impacted by rising interest rates, pandemic disease, natural disasters, or other adverse economic conditions may fail to remit principal and interest payments on a timely basis, or at all. To the extent borrowers do not make required payments, the value of the mortgage loans we own will likely be impaired, potentially materially, as further discussed within these Risk Factors.

Before originating or acquiring loans, HEI, or other assets for sale, we may conduct underwriting and due diligence on various aspects of the asset. In doing so, we rely on resources and data available to us, which may be limited, as well as on investigations performed by third parties. In some cases, we may conduct due diligence only on a sample of a loan, HEI, or asset pool and assume that the sample is representative of the entire pool. Our underwriting and due diligence processes may fail to identify matters that could lead to losses. If our underwriting is insufficiently robust, if our due diligence is inadequate or limited in scope, third parties provide inaccurate or fraudulent information, or the scope of our underwriting or due diligence is limited, we may incur losses. Losses may occur if a counterparty that sold us a loan or other asset (or that is the obligor, or related to the obligor, of a residential investor loan we originate or acquire) refuses or is unable (e.g., due to its financial condition) to repay or repurchase the asset or pay damages to us if we determine subsequent to purchase that representations or warranties made in connection with the sale or origination were inaccurate. In addition, when we originate mortgage loans or other assets secured by real estate, we may rely on title insurance companies and their agents to conduct title reviews and, when applicable, issue title insurance regarding the validity and priority of the mortgage or lien interests we expect to receive as collateral. If the title review is inaccurate or the title insurance company or its agent fails to properly perform its procedures (whether due to error, misconduct, or fraud), as has occurred in the past and may occur again in the future, we may be unable to successfully establish the mortgage or lien or appropriate priority, which may impair our ability to realize on the value of the collateral if the borrower or obligor fails to fulfill their obligations to us. Moreover, to the extent we seek recourse to title insurance, we may be unsuccessful in receiving insurance proceeds and may expend resources in pursuing such claims. Our ability to operate our business as described above depends on the availability and productivity of our personnel and the personnel of our third-party vendors. If our management or personnel, or the personnel of key vendors, are affected in significant numbers by natural disaster, pandemic or epidemic disease, or other force majeure event, our business and operating results may be negatively impacted.

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

Even if we obtain representations and warranties from the counterparties from whom we acquire loans, HEI, or other assets, or from borrowers or their related parties, these protections may not parallel the representations and warranties we make or may fail to protect us from losses, including, for example, due to the fact that the counterparty may be insolvent or otherwise unable to make a payment to us at the time we make a claim for repayment or damages for a breach of representation of warranty. Moreover, asserting breaches of representations and warranties against counterparties, borrowers, or related parties may negatively affect our business relationships with them and reduce the volume of business we conduct with these counterparties, which could impair our ability to acquire loans and adversely affect our operations. To the extent we have significant exposure to representations and warranties made by one or more counterparties, we may determine, as a risk-management matter, to reduce or discontinue loan acquisitions from those parties, which could reduce the volume of residential loans we acquire and negatively impact our business and financial results.

Our portfolio of residential investor loans and, to a lesser extent, HEI held for investment represents a substantial portion of our overall investment portfolio, and such loans and HEI expose us to new and different risks from our traditional investments in residential consumer mortgage loans.

A substantial portion of our loan portfolio held for investment consists of residential investor mortgage loans, particularly residential investor bridge loans, which are directly exposed to losses arising from default and foreclosure. Therefore, the value of the underlying property, creditworthiness and financial position of the borrower and/or its guarantor(s) and the priority and enforceability of the associated lien will significantly impact the value of such mortgages. Regardless of whether we participated in negotiating the loan terms, there can be no assurance of the adequacy of the protection of the terms of the loan, including the validity or enforceability of the loan, guaranties, and the maintenance of the anticipated priority and perfection of the security interests. Furthermore, claims may be asserted that might interfere with the enforcement of our rights. If foreclosure occurs, we may assume direct ownership of the underlying real estate, and the proceeds from any subsequent sale may be insufficient to recover our cost basis in the loan, resulting in a loss. Any costs incurred or delays experienced in completing a foreclosure or liquidating the property could further reduce proceeds and increase the resulting loss.

Residential investor loans we own are subject to similar risks as residential mortgage loans if borrowers who are adversely affected by rising interest rates, pandemic disease, natural disasters, or other economic conditions fail to timely remit principal and interest payments. In addition, if tenants of multifamily or residential investor loan borrowers are unable or unwilling to make rental payments, or if rental payment obligations are deferred or waived under forbearance, relief, or waiver programs, including those imposed or sponsored by governmental authorities or offered by landlords, the value of multifamily and residential investor loans and residential investor mortgage-backed securities we own will likely be impaired, potentially materially, as further discussed in these Risk Factors.

A portion of our residential investor loan portfolio is currently, and may in the future be, delinquent and subject to increased credit risk due to factors such as high property leverage, borrower financial distress, or rising debt service costs. Delinquent loans may require substantial workout negotiations or restructurings, including interest rate reductions, deferral or capitalization of past-due interest, or maturity extensions. However, even if successful, borrowers may still be unable or unwilling to make payments under revised terms or refinance at maturity.

If a restructuring is unsuccessful, we may be required to foreclose on the underlying property, a process that can be lengthy and costly and may require out-of-pocket costs and significant internal resources. Borrowers may delay foreclosure by asserting claims, counterclaims, or defenses, including, without limitation, lender liability claims and defenses, or by filing for bankruptcy protection, in an effort to prolong the foreclosure action and exert negotiating pressure on us to agree to a modification of the loan or favorable buy-out of the borrower’s position. In some states, foreclosure actions may take several years to litigate, and under certain state laws, such as New York’s, if a foreclosure action is abandoned or dismissed without prejudice, reinstating any such action may be difficult or impossible due to statutes of limitations. Foreclosure may also negatively affect public perception of a property and reduce its value. Even if foreclosure is completed, liquidation proceeds from the sale of the property may be insufficient to recover our cost basis in the loan, and any delays or additional costs could further reduce recoveries and increase losses. Such losses could, in the aggregate, have a material adverse effect on our business, operations, and financial condition.

Residential investor bridge loans on properties in transition may involve greater risk of loss than traditional mortgage loans. These loans are typically used for acquiring and rehabilitating or improving the quality of single-family residential investor or multi-family investment properties and are intended as interim financing prior to the borrower selling or stabilizing the property and obtaining long-term permanent financing. Borrowers under these residential investor bridge loans often identify what they believe is an undervalued asset that has been under-managed or located in a recovering market. If the market fails to improve as projected, or if the borrower fails to enhance property management or asset value, the borrower may not generate sufficient returns to repay the transitional loan, and we may be unable to recover some or all of our loan principal or anticipated cash flows. In addition, borrowers often use the proceeds of a conventional mortgage to repay a bridge loan. Residential investor bridge loans are therefore subject to the risk that a borrower may be unable or unwilling to obtain such financing. Like other loans, residential investor bridge loans are also subject to risks of borrower default, bankruptcy, fraud, and other losses. In the event of a default on residential investor bridge loans we hold, we bear the risk of loss of principal and unpaid interest and fees to the extent the value of the collateral is insufficient to cover amounts owed to us and any senior indebtedness to us. Any such losses could materially adversely affect our business, results of operations, and financial condition.

Our portfolio of HEI and HEI-backed securities held for investment, and HEI origination activity exposes us to additional risks, including litigation, regulatory and compliance risks, the risk that HEI may be recharacterized as mortgage loans or deemed unfair, deceptive, or abusive under federal or state consumer protection laws, and financial risks associated with the junior or subordinate lien position of HEI, including risks of foreclosure, default, and loss, as further discussed in these Risk Factors.

Through certain of our wholly-owned subsidiaries we have engaged in the past, and expect to continue to engage in, securitization transactions relating to real estate mortgage loans and HEI. In addition, we have invested in and continue to invest in MBS and other ABS issued in securitization transactions sponsored by other companies. These types of transactions and investments expose us to potentially material risks.

Securitization transactions expose us to many risks that are similar to the risks associated with acquiring or originating loans or other assets for sale, including risks associated with incurring short-term type of debt to finance the accumulation of loans or other assets, market demand risks related to our ability to complete securitizations, and the risks associated with the due diligence we conduct and the representations and warranties we make in connection with securitization activity, as further discussed above in these Risk Factors.

When engaging in securitization transactions, we prepare marketing and disclosure materials, including term sheets, offering documents, and prospectuses or offering memorandums that include disclosures regarding risks of the offered securities, the securitization transactions and the underlying assets being securitized. If these materials are alleged or determined to contain inaccuracies or omissions, we may be liable under federal or state securities laws or other laws for damages to third parties that invest in these securitizations, including in circumstances where disclosures were prepared in reliance on third parties, and may incur costs in connection with disputing these allegations or settling claims. Certain securitizations rely on exemptions from federal risk retention requirements, which require that the underlying mortgage loans satisfy certain criteria. We may be subject to risk retention requirements of other jurisdictions, including internationally, based on the locations of transaction investors, which may differ materially from the requirements in the United States. Our process for ensuring compliance with risk retention requirements applicable to securitization transactions we sponsor or co-sponsor may incorrectly identify loans that do not meet the applicable criteria, including due to data entry or calculation errors during the review of these criteria, or due to errors in our interpretation of these requirements. Failure to comply with applicable risk-retention requirements could result in losses, including, for example, as a result of a requirement to repurchase securitized loans or assets that did not meet these criteria, regulatory enforcement actions or reputational damages.

We have also sold or contributed commercial and multifamily real estate loans to third parties that have securitized these loans. In connection with these transactions, we have in the past and may in the future prepare and assist in preparing marketing and disclosure materials, including term sheets, offering documents, and prospectuses. We could be liable under federal or state securities laws, or other laws, for disclosures relating to these securitizations, including disclosures prepared by third parties or relating to loans we did not sell or contribute to the securitization. Additionally, we typically retain third-party service providers when we engage in securitization transactions, including underwriters or initial purchasers, trustees, administrative and paying agents, and custodians, among others. We frequently contractually agree to indemnify these parties against certain claims or losses arising from their services to us or the securitization issuer. If any such service provider is liable for damages to third parties that have invested in these securitizations, we may incur costs and expenses pursuant to these indemnification obligations.

Securitization trusts and other securitization entities that own collateral underlying securitization transactions may be held liable for the acts of third parties and may be required to obtain state mortgage lending licenses. For example, the CFPB has asserted the power to investigate and bring enforcement actions against securitization entities for the bad acts of their servicers or sub-servicers, and may initiate future actions against securitization entities, including those we sponsor or invest in. In Maryland, courts and regulators found that the assignee of a home equity line of credit, a securitization trust, was required to obtain certain state lending licenses to have legal authority to foreclose on mortgage debt, before legislation was subsequently enacted exempting securitization trusts from such requirements. Other states or local jurisdictions may adopt similar laws or regulations or assert that securitization trusts must obtain a particular license or permit. Any civil penalties or compliance costs could reduce amounts available for distribution to investors and/or the value of the underlying securities.

The SEC and the FDIC have published regulations governing ABS, including RMBS. In addition, the SEC has recently finalized rules prohibiting certain conflicts of interest in securitization transactions, which require us, as a sponsor, to adopt policies and procedures to review, approve, and track transactions that may be deemed “conflicted transactions.” These requirements may limit certain risk-mitigation strategies we might otherwise pursue and may increase our compliance costs and operational burden.

There may be defects in the legal processes or documentation governing transactions in which securitization trusts and other secondary purchasers take legal ownership of residential mortgage loans or other assets and establish their rights as first-priority lienholders on underlying mortgaged property or other assets. If title or lien priority was not properly established or transferred, securitizations we sponsor, or third-party securitizations in which we invest, could experience losses, which may expose us to losses and adversely affect our ability to sponsor or invest in future securitization transactions.

Furthermore, we may sponsor or invest in securitization transactions that are new to Redwood or are new securitization products entirely. For example, during 2021, we co-sponsored a securitization of HEI and completed our first securitization collateralized by residential investor bridge loans, and during 2023, we co-sponsored a securitization of HEI that was among the first ever to receive a rating from a ratings agency. As another example, we have incorporated blockchain technology into securitization transactions we sponsor for reporting purposes and, potentially, we may engage in the issuance of “tokenized” digital securities. The above risks may be heightened with new transactions (or those new to Redwood) due to limited institutional or industry knowledge, limited experience with, and/or lack of a mature market for these products.

Adverse economic conditions have at times negatively impacted, and could again negatively impact, our operating platforms including our residential investor loan origination and residential consumer loan purchase activities.

Adverse economic conditions have at times adversely impacted, and could again adversely impact, our business and operations. Such impact may be due to temporary or lasting changes involving the status, practices, or procedures of our operating platforms, including our loan origination and purchase activities, as well as our HEI investment and origination activities. For example, in the first half of 2020, the effects of the pandemic led us to temporarily limit residential consumer loan purchases and reduce residential investor loan originations, which resulted in disputes with certain counterparties, litigation, and related costs. Any future disruptions to our operating platforms could similarly have a material adverse effect on our reputation, business, financial condition, results of operations, and cash flows. More recently, disruptions in mortgage finance markets resulting from inflation, changes in U.S. monetary policy, including shifts in Federal Reserve policy and changes in benchmark interest rates, and the regional banking crisis in early 2023 have adversely affected our operations involving the acquisition and distribution of residential mortgage loans and the origination, acquisition, and distribution of residential investor loans and HEI. These operations may continue to be impaired by, among other factors, limited access to short- or long-term financing on attractive terms, disruptions in securitization markets, or an inability to access or execute securitization transactions. Additionally, during and after periods of adverse economic conditions, we may be unable to originate or acquire residential consumer or residential investor mortgage loans in sufficient volume and on sufficiently economic terms to operate our mortgage banking businesses profitably, which could require reductions in operating expenses, including employee headcount, and impair our ability to scale operations when conditions improve. Any of these factors could negatively impact our financial results, including mortgage banking income, gain on sale income, and net interest income.

In connection with our operating and investment activity, we rely on third parties to perform certain services, comply with applicable laws and regulations, and carry out contractual covenants and terms, the failure of which by any of these third parties may adversely impact our business and financial results.

In connection with acquiring and originating loans and HEI, engaging in securitization transactions, and investing in third-party securities and other assets, we rely on third-party service providers to perform services, comply with applicable laws and regulations, and fulfill contractual obligations. As a result, we are exposed to risks arising from a third party’s failure or inability to perform, including due to force majeure events such as the COVID pandemic, bankruptcy of loan or HEI servicers, fraud, negligence, errors, miscalculations, workforce or supply chain disruptions, or insolvency. For example, because of the COVID pandemic, residential mortgage sub-servicers received unprecedented volumes of requests from mortgage borrowers for payment forbearances and, as a result, their operational infrastructures may not have properly processed the increased volume of requests effectively or in a manner that is in our best interests. In addition, loan servicers have faced allegations of improper practices in handling the loan modification and foreclosure processes. If a third-party loan or HEI servicer fails to perform its obligations, loans, HEI, and securities we hold as investments may experience losses, securitizations we sponsor may perform poorly, and our ability to complete future securitization transactions could be harmed.

The CFPB and DOJ have indicated they intend to expand enforcement of fair lending laws, including through increased supervisory and enforcement activity related to mortgage subservicer performance and the use of AI or automated valuation methods in underwriting decisions. Our Sequoia and CoreVest mortgage banking businesses and HEI initiatives rely on third-party appraisals and valuation tools in the underwriting process, obtained on the collateral underlying each prospective mortgage or HEI. The quality of these appraisals may vary widely in accuracy and consistency. Appraisers may feel pressure from the broker or originator to provide an appraisal in the amount necessary to enable the originator to make the loan or HEI regardless of whether the value of the property justifies such an appraised value. Inaccurate or inflated appraisals may result in an increase in the severity of losses on mortgage loans or HEI and could have a material and adverse effect on our business, results of operations, and financial condition. Additionally, our residential investor platform may utilize third-party inspectors in connection with funding advances on residential investor bridge loans for rehabilitation or ground-up construction. These third parties may be required to certify a borrower’s eligibility for advances based on the achievement of construction milestones. We also utilize title insurance companies to obtain title insurance policies to protect against damages and financial losses arising from defects in legal title to a property relating to mortgage loans or HEI. We have experienced, and may continue to experience, fraudulent or negligent conduct by borrowers and third parties that has resulted in the disbursement of under-collateralized funds and could cause us to incur financial losses on loans we have originated.

For certain loans and HEI that we hold, sell, or securitize, we retain the servicing rights and engage a sub-servicer to service those loans. In these circumstances, we are exposed to risks including our inability to enter into subservicing agreements on favorable terms, or at all; a sub-servicer’s failure to service loans or HEI in compliance with applicable laws, regulations, or contractual requirements; and potential liability for a sub-servicer’s acts or omissions, including those arising from legal developments such as the Student Loan ABS Litigation or otherwise, as further discussed within these Risk Factors. In addition, because sub-servicers have access to borrowers’ non-public personal information, we may incur liability in connection with a data breach involving a sub-servicer. We are also generally obligated to fund required servicing advances on delinquent loans or HEI. If a single sub-servicer services a significant portion of the loans or HEI for which we own servicing rights, these risks may be concentrated around this single sub-servicer counterparty. If there are significant advance obligations that must be funded in respect of loans or HEI where we own servicing rights, it could materially adversely affect our business and financial results.

In addition, we have made investments through joint ventures or partnerships with unaffiliated third parties. Some of these entities rely on members or partners to make committed capital contributions to fund investment purchases, address financing shortfalls, or satisfy indemnification or securitization-related repurchase obligations. A failure by any member to fund required capital contributions could result in defaults under the terms of the investment or related financing and a loss of our investment in the joint venture and its related investments. For example, in connection with our servicer advance investments, we consolidate an entity that was formed to finance servicing advances and for which we, through our control of an affiliated partnership entity (the "SA Buyer") formed to invest in servicer advance investments and excess MSRs, are the primary beneficiary. SA Buyer has agreed to purchase all future arising servicer advances under certain residential mortgage servicing agreements. SA Buyer relies on its members to make committed capital contributions in order to pay the purchase price for future servicer advances. A failure by any or all of the members to make such capital contributions for amounts required to fund servicer advances could result in an event of default under our servicer advance financing and a complete loss of our investment in SA Buyer and its servicer advance investments and excess MSRs. Additionally, to the extent that the servicer of the underlying mortgage loans (who is unaffiliated with us except through their co-investment in SA Buyer and the related financing entity) fails to recover the servicer advances in which we have invested, or takes longer than we expect to recover such advances, the value of our investment could be adversely affected and we could fail to achieve our expected returns and suffer losses.

We rely on corporate trustees to act on our behalf, and on behalf of other ABS holders, to enforce our rights as security holders. Under the terms of most ABS we hold, we do not have direct enforcement rights against the issuer and must instead rely on a trustee to act for all holders. If a trustee is not required to act, or fails to do so, we could incur losses.

Our ability to execute or participate in future securitization transactions could be delayed, limited, or precluded by legislative and regulatory reforms applicable to asset-backed securities and the institutions that sponsor, service, rate, or otherwise participate in or contribute to the successful execution of a securitization transaction.

Various federal and state laws and regulations affect our ability to execute securitization transactions, including the Dodd-Frank Act. Provisions of the Dodd-Frank Act relate to, among other things, the legal and regulatory framework under which ABS, including RMBS and securities backed by residential investor mortgage loans and HEI, are issued through the execution of securitization transactions. In addition, the SEC and FDIC have published regulations applicable to the issuance of ABS, including RBMS, and the SEC has finalized rules prohibiting certain conflicts of interest in securitization transactions. These rules require us, as a sponsor of securitization transactions, to adopt policies and procedures to identity and monitor transactions that could be considered “conflicted transactions” and may limit certain risk-mitigating practices or increase compliance costs and operational burdens. Additional federal or state laws and regulations affecting securitization transactions may be proposed, enacted, or implemented. Federal and state agencies, law enforcement authorities, and private litigants have initiated and may in the future initiate, broad-based enforcement actions or claims that could result in industry-wide changes to the origination, transfer, servicing, or securitization of mortgage loans or HEI, any of which could adversely affect our ability to execute future securitization transactions, as further discussed within these Risk Factors.

Rating agencies can affect our ability to execute or participate in securitization transactions, or reduce the returns we expect to earn from executing securitization transactions, by deciding not to publish ratings for our securitization transactions (or deciding not to consent to the inclusion of those ratings in the prospectuses or other documents we file with the SEC relating to securitization transactions), and by altering the criteria and process they follow in publishing ratings. Rating agencies may also change their rating processes or criteria after we have accumulated loans or other assets for securitization, which could reduce the value of those assets or require us to incur additional costs to comply with revised requirements. For example, to the extent investors in a securitization transaction would have significant exposure to representations and warranties made by us or by one or more counterparties we acquire loans or HEI from, rating agencies may determine that this exposure increases investment risks relating to the securitization transaction. Rating agencies could reach this conclusion based on our financial condition, the financial condition of one or more counterparties from whom we acquire loans or HEI, or the aggregate level of loan or HEI-related representation and warranties or other contingent liabilities to which we or such counterparties are exposed.

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

Furthermore, factors such as (i) accounting standards applicable to securitization transactions and (ii) capital and leverage requirements affecting banks’ and other regulated financial institutions’ holdings of ABS, could reduce investor demand for securities issued in our securitizations or increase competition from other institutions that originate, acquire, and hold residential mortgage loans, HEI, and other assets and execute securitization transactions.

Our ability to profitably execute or participate in future securitization transactions, including, in particular, securitizations of residential consumer and residential investor mortgage loans is dependent on numerous factors and if we are not able to achieve our desired level of profitability or if we incur losses in connection with executing or participating in future securitizations it could have a material adverse impact on our business and financial results.

Several factors may significantly affect whether a securitization transaction we execute or participate in is profitable or results in a loss. One key factor is the price we pay for, or cost of originating, the mortgage loans or other assets that are securitized. For residential mortgage loans, this price is influenced by competitive conditions in the loan acquisition market, originators’ preferences to retain loans or sell them to third parties such as us, and the volume, scale, and cost structure of our residential consumer and residential investor businesses. Another factor affecting securitization profitability is the cost of the short-term debt we use to finance mortgage loans or other assets prior to securitization, which depends on the availability, interest rates, duration, and the percentage of our mortgage loans or other assets for which third parties are willing to provide short-term financing.

After we acquire or originate mortgage loans or other assets intended for securitization, we may incur losses if the value of those assets declines prior to securitization. For mortgage loans, value declines may result from changes in interest rates, credit quality, or projected yields required by investors to invest in securitization transactions. To the extent we hedge against interest rate–related value declines, the cost of such hedging also affects securitization profitability. Profitability is further influenced by the criteria and conditions rating agencies apply in assigning ratings to asset-backed securities issued in our securitizations, including the percentage of securities receiving a triple-A or highest applicable rating to (also referred to as rating agency subordination level). Rating agency subordination levels can be affected by numerous factors, including, without limitation, the credit quality and geographic distribution of the securitized assets, the transaction structure, and other rating agency requirements. All other factors being equal, the greater the percentage of the asset-backed securities issued in a securitization transaction that the rating agencies will assign a triple-A rating or highest applicable rating to, the more profitable the transaction will be to us.

The prices investors are willing to pay for asset-backed securities issued in our securitizations significantly affect transaction profitability and are influenced by various market factors. The underwriters or placement agents we select for securitization transactions, and the terms of their engagements, may affect transaction profitability. In addition, transaction costs and any liabilities incurred or reserved for in connection with a securitization may reduce profitability or result in losses. If we are unable to profitably execute future securitizations of residential consumer or residential investor mortgage loans, HEI, or other assets, including for the reasons described above or for other reasons, business and financial results could be materially adversely affected.

Our past and future loan and HEI origination, investment, and securitization activities or other past and future business or operating activities or practices could expose us to litigation, which may adversely affect our business and financial results.

Through certain wholly owned subsidiaries, we have previously engaged in or participated in loan and HEI origination, investment, and securitization transactions involving single-family and multifamily residential consumer mortgage loans, residential investor mortgage loans, commercial real estate loans, HEI, and other assets. In the future we expect to continue to engage in or participate in loan and HEI origination, investment, and securitization transactions, including securitization transactions relating to residential consumer and residential investor mortgage loans and HEI, and may also engage in other types of securitization transactions or similar transactions. Sequoia securitization entities we sponsor issued ABS under our SEMT® label, backed by residential mortgage loans held by these Sequoia entities. Similarly, CoreVest securitization entities (or “CAFL entities”) we sponsor issued ABS under our CAFL® label, backed by residential investor mortgage loans held by these CAFL entities. As a result of declining property values, increasing defaults, changes in interest rates, changes in regulation, and other factors, the aggregate cash flows from the loans held by the Sequoia and CAFL entities and the HEI held by the HEI securitization entities could be insufficient to repay in full the principal amount of ABS issued by these securitization entities. Although we are not directly liable for the ABS issued by these entities, ABS holders may nonetheless seek to hold us liable for losses, including through claims under federal or state securities laws or for alleged breaches of representations and warranties made in connection with these securitization transactions. In addition, holders of ABS issued by CAFL entities prior to our acquisition of CoreVest may assert claims against us relating to pre-acquisition activities. We have been named in such litigation in the past and may be named again in the future.

Originating, investing in, transacting in, or funding HEI exposes us to risks that differ from those associated with our residential mortgage banking activities, including uncertainty regarding licensing requirements, regulatory compliance, enforcement actions, litigation, and claims. If HEI or HEI-related assets become subject to new or modified regulation, enforcement, litigation, or claims, or are recharacterized as loans—whether through federal action (including activity related to the January 2025 CFPB actions), state or local governmental (including the Washington State Department of Financial Institutions), quasi-governmental, consumer advocacy groups, homeowners, or otherwise—we may be unable to realize expected revenues or profits, or enforce our rights under HEI we own, and we could be subject to significant civil penalties, fines, or damages. In addition, litigation, regulatory actions or consumer remedies directed at large third-party HEI originators could adversely affect the value of HEI in which we are invested and our HEI-related business activity. For example, several broad-based class action lawsuits were filed in early 2026 against two different third-party HEI originators alleging that their HEI originations, among other things, constituted unlicensed mortgage lending, were carried out in violation of various consumer protection statutes, and resulted in usury statute violations, and are seeking damages, the voiding of HEI agreements and/or injunctive relief. Any such changes, events, litigation, or penalties could materially harm the value of our HEI and HEI-related assets and adversely affect our business, cash flows, financial condition, and results of operations, as further discussed in these Risk Factors.

In addition, aspects of our business operations and practices may expose us to litigation. In the ordinary course of our business we enter into agreements relating to, among other things, loans we originate and acquire, investments we make, assets and loans we sell, financing transactions, venture capital investments, third parties we retain to provide us with goods and services, and our leased office space. We also regularly enter into confidentiality agreements with third parties under which we receive confidential information. A breach of any such agreement could subject us to claims for damages and related litigation. For example, when we sell whole loans in the secondary market, we make customary representations and warranties about such loans to the loan purchaser. In addition, we may be required to repurchase loans due to borrower fraud or in the event of early payment default on a mortgage loan. The remedies available to a purchaser of mortgage loans may be broader than those available to us against the borrower or correspondent. Further, if a purchaser enforces its remedies against us, we may not be able to enforce the remedies we have against the borrower or correspondent seller. Financing for repurchased loans may be limited or unavailable and may be available only at significant discounts to the repurchase price. Such loans are also typically sold at substantial discounts to unpaid principal balance. Significant repurchase activity could adversely affect our business, cash flows, results of operations, and financial condition.

As a result of past or future activities of our residential investor loan platforms, we may be subject to lender liability claims, which could result in losses if asserted successfully. A number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or stockholders. We may also be subject to litigation, including class actions, or regulatory enforcement actions, including by the CFPB, relating to residential mortgage servicer performance, including compliance with forbearance and foreclosure requirements arising from the pandemic or other alleged servicer misconduct. As further discussed in these Risk Factors, the Student Loan ABS Litigation may give rise to additional theories of securitization entity liability based on third-party servicer conduct. We cannot assure investors that such claims will not arise or that we will not incur significant liability if they do. In addition, we may be subject to such claims relating to activities conducted at 5 Arches, CoreVest, and Riverbend, either prior to or following our acquisitions of those platforms.

We are subject to various other laws and regulations applicable to our business and operations, including, without limitation, privacy and labor and employment laws, and failure to comply with these requirements could result in claims for damages, litigation, regulatory enforcement actions, and penalties. In particular, any failure to protect the confidentiality of consumers’ personal or financial information obtained in the course of our business (such as social security numbers) could expose us to losses, as further discussed in these Risk Factors. We may also face litigation or claims, including claims for injunctive relief, arising from the hiring of employees subject to non-compete, non-solicitation, or other restrictive covenants with prior employers.

Defending litigation, whether meritorious or not, may require significant time and resources and divert management’s attention from our operations. We may be required to establish or increase reserves for potential litigation losses, which could be material. If we are unsuccessful in defending any such matters, resulting losses could materially affect our financial condition and results of operations.

Litigation of the type initiated during 2017 against various trustees of residential mortgage-backed securitization transactions issued prior to financial crisis of 2007-2008 (“RMBS trustee litigation”) negatively impacted, and could further negatively impact, the value of securities we hold, could expose us to indemnification claims, and could impact the profitability of our participation in future securitization transactions.

Litigation against RMBS trustees has related to, among other things, claims by certain investors in the RMBS issued in those transactions that the trustees breached their obligations by, among other things, failing to adequately investigate and pursue remedies against mortgage loan originators and servicers. Although we have not been a party to RMBS trustee litigation, such litigation has previously adversely affected the value of certain RMBS issued prior to the Great Financial Crisis (“legacy RMBS”) held in our investment portfolio and could similarly affect the value of other legacy RMBS we continue to hold or acquire. In particular, trustees of various legacy RMBS transactions that have been the subject of RMBS trustee litigation have withheld funds from investors in the RMBS issued in those transactions by asserting that, pursuant to their indemnification rights against the securitization trusts established under the applicable transaction documents, they are entitled to apply those funds to offset litigation expenses. Further, certain trustees have asserted that their indemnification rights entitle them to withhold large lump sum amounts to hold and apply to anticipated future litigation expenses. Similar trustee holdbacks could reduce the value of our securities portfolio and could result in material losses.

Our acquisitions of 5 Arches, CoreVest, and Riverbend, or future acquisitions, could fail to improve our business or result in diminished returns, could expose us to new or increased risks, and could increase our cost of doing business.

Since 2019, we have acquired three residential investor real estate loan origination platforms, 5 Arches, CoreVest, and Riverbend, all of which we have combined into a single platform to originate, acquire, and distribute residential investor loans. We may pursue additional business acquisitions in the future. We have also made strategic investments in, and may continue to invest in or allocate additional capital to, internal or third-party residential consumer and residential investor mortgage origination platforms and HEI origination platforms. If we encounter unanticipated or unmitigated challenges in connection with these acquisitions or investments, we may fail to achieve expected returns. In addition, if our assumptions are wrong or market conditions change, capital may be deployed less efficiently, limiting our ability to invest in more profitable opportunities.

Our residential investor loan origination platform depends on conditions in the investor real estate market, and adverse conditions, such as higher borrowing costs or low capitalization rates, may reduce demand for our loans and adversely affect our business, results of operations, and financial condition. Our residential investor loan borrowers are primarily owners of single-family and small to medium-sized multifamily rental properties and residential properties intended for rehabilitation and resale or rental. Accordingly, our performance is closely tied to the success of investors and small business owners in these markets. Negative trends in real estate market conditions may reduce demand for our products and services and adversely affect our operating results.

Directly originating mortgage loans exposes us to risks greater than those associated with our historical mortgage banking activities, including increased regulation by federal and state regulatory authorities, additional litigation exposure, challenges integrating operations, failures to maintain effective internal controls, procedures and policies, and other unforeseen liabilities, expenses, or delays related to acquisitions or loan origination activities. In addition, we may originate other housing-related investments, such as HEI, which could subject us to similar risks.

Further, CoreVest engages in and sponsors securitization transactions under the CAFL® label involving residential investor term loans and bridge loans. In connection with the CoreVest acquisition, we acquired, and expect to continue to hold, MBS issued in CAFL® securitizations. These activities and investments expose us to potentially material risks, as further discussed in these Risk Factors.

In connection with our acquisitions of CoreVest, 5 Arches, and Riverbend, a portion of the purchase price was allocated to goodwill and intangible assets, and future acquisitions may similarly result in such allocations. The amount allocated to goodwill and intangible assets reflects the excess of the purchase price over the net identifiable assets acquired. Accounting standards require us to test these assets for impairment at least annually, or more frequently if impairment indicators arise. For example, in the first quarter of 2020, as a result of the COVID pandemic and its impact on our business, following an impairment assessment, we recorded a non-cash goodwill impairment expense and wrote down the entire $89 million remaining value of our goodwill asset associated with our acquisitions of 5 Arches and CoreVest. As of December 31, 2025, we recorded $23 million of goodwill and $11 million of intangible assets on our consolidated balance sheets. If we determine in the future that goodwill or intangible assets are impaired, we will be required to write down the value of these assets, as we did with our goodwill asset in 2020, up to the entire balance. Any such write-down would have a negative effect on our consolidated financial statements.

Originating, transacting in and funding HEI has exposed us to new and different business and operational risks.

Directly originating, transacting in, and funding HEI has exposed us to risks that differ from, and in some cases may be greater than, those associated with our traditional residential mortgage banking activities. HEI represent a new product category with evolving market practices, regulatory treatment, and investor expectations. As discussed below in these Risk Factors, HEI are subject to significant legal and regulatory uncertainty. Beyond those regulatory considerations, our HEI business presents additional strategic, operational, and execution risks.

HEI differ from traditional mortgage loans in structure, economics, duration, and performance characteristics. As a result, historical mortgage banking experience may not fully predict HEI performance, consumer behavior, litigation exposure, or regulatory outcomes. Market acceptance of HEI remains developing, and demand may fluctuate based on economic conditions, home price volatility, regulatory developments, or consumer perception. If regulatory changes, litigation, or market conditions reduce consumer demand for HEI or limit our ability to originate, acquire, or finance HEI, we may be unable to realize anticipated revenues or returns.

In connection with our HEI activities, we have developed and maintained operational infrastructure, compliance systems, internal controls, policies, and procedures tailored to HEI. This includes oversight of third-party originators, servicers, and other service providers involved in HEI activities. Failure to effectively design, implement, or monitor these systems and controls could result in compliance deficiencies, operational disruptions, increased costs, reputational harm, or enforcement exposure.

Our HEI activities may subject us to litigation or claims from homeowners, regulators, consumer advocacy groups, investors, or other parties. Such claims could allege, among other things, inadequate disclosures, unfair or deceptive practices, licensing violations, or improper calculation of amounts due under HEI agreements. Even if unsuccessful, litigation can be costly, time-consuming, and damaging to our reputation. For example, several broad-based class action lawsuits were filed in early 2026 against two different third-party HEI originators alleging that their HEI originations, among other things, constituted unlicensed mortgage lending, were carried out in violation of various consumer protection statutes, and resulted in usury statute violations, and are seeking damages, the voiding of HEI agreements and/or injunctive relief. Adverse judgments, settlements, enforcement actions, or required changes to business practices could result in losses, impairments of HEI assets, increased compliance costs, or limitations on our ability to conduct HEI-related activities.

If HEI or HEI-related assets become subject to new or modified regulation, enforcement actions, litigation, operational challenges, or adverse market developments, we may be unable to achieve expected returns, enforce our contractual rights, or realize anticipated cash flows. Any of these developments could materially adversely affect our HEI business, the value of our HEI and HEI-related assets, and our business, cash flows, financial condition, and results of operations.

Our cash balances and cash flows may be insufficient relative to our cash needs.

We need cash to make interest payments, post collateral to counterparties and lenders providing short-term financing or engaging in other transactions with us, fund acquisitions of mortgage loans, fund originations of residential investor loans (including construction-related draws on bridge loans), fund committed investment partnerships, meet working capital needs, satisfy REIT dividend distribution requirements, comply with financial covenants and regulatory requirements, fund required repurchases of mortgage loans or HEI, pay general and administrative expenses, and for other purposes. We may also require cash to repay short-term borrowings when due or if collateral values decline, financing terms become less favorable, or other circumstances arise. In addition, we may need cash to meet margin calls on derivative instruments and to repay outstanding convertible notes, exchangeable securities, and unsecured notes maturing in 2027, 2029, and 2030.

Our sources of cash flow include principal and interest payments on loans and securities we own, proceeds from HEI settlements, asset sales, securitizations, short-term borrowings, long-term debt issuances, and equity offerings. These sources may be insufficient to meet our cash needs. Cash flows from loan repayments may decline if prepayments slow or credit quality deteriorates, and cash flows from HEI may decline if property sales or refinancings decrease. For example, for some of our assets, cash flows are “locked-out” and we receive less than our pro-rata share of principal payment cash flows in the early years of the investment, or, in the case of HEI, no periodic payments at all for the duration of the investment.

Events such as the regional banking crisis in early 2023 and the COVID pandemic have, at times, adversely affected, and could again adversely affect, our ability to access debt and equity capital on attractive terms, or at all. Disruptions or instability in global financial markets, or deteriorating credit and financing conditions, may impair our ability, and the ability of mortgage loan borrowers, to make timely principal and interest payments (e.g., due to unemployment, underemployment, or reduced income or revenues, including as a result of tenants' inability to make rental payments) or to access savings or capital needed to fund operations or refinance maturing obligations. Such conditions may also adversely affect the valuation of financial assets and liabilities. These circumstances could limit or prevent our ability to borrow, increase margin calls under our financing facilities, impair compliance with liquidity, net worth, or leverage covenants, or materially adversely affect the value of our investments and our business, financial condition, results of operations, and cash flows.

Our minimum dividend distribution requirements could exceed our cash flows if our income as calculated for tax purposes significantly exceeds our net cash flows. This could occur when taxable income (including non-cash income such as discount amortization and interest accrued on negative amortizing loans) exceeds cash flows received. Although the Internal Revenue Code provides limited relief for certain non-cash income, such relief may not sufficiently reduce our required cash distributions. If our liquidity needs exceed our access to liquidity, we may be required to sell assets, potentially at unfavorable times, which could reduce earnings. In adverse cash flow situations, our ability to sell assets may be constrained, potentially jeopardizing our REIT status or solvency, as further discussed in these Risk Factors.

Initiating new business activities or significantly expanding or reorganizing our existing business activities may expose us to new risks, could fail to result in the expected benefits, and could increase our cost of doing business.

Initiating new business activities or significantly expanding or reorganizing existing operations, including through acquisitions, changes in corporate structure, or the formation of new business units or joint ventures, may support our growth strategy and response to industry developments. However, such initiatives may expose us to new risks and regulatory compliance requirements that we may be unable to manage effectively. In addition, these efforts may not be successful, and revenues generated from any new or expanded initiative or reorganization may be insufficient to offset associated costs, resulting in losses.

For example, in recent years we have expanded our mortgage banking and investment activities, including the acquisition and origination of residential investor term and bridge loans, acquiring three residential investor loan origination platforms and reorganizing them into a single platform, and launched an HEI origination platform. In addition, we have made, and continue to make, early-stage venture capital investments through our RWT Horizons® investment platform. We have also completed, and may continue to pursue, initiatives to form joint ventures, investment vehicles, or funds with third-party investors to acquire loans, HEI, or other assets from us or other sources and to earn fees, incentives, or other income in connection with these initiatives, and we may pursue registration with the SEC as an investment advisor to support the growth of these initiatives, as further discussed in these Risk Factors.

In connection with initiating new business activities or expanding or reorganizing business activities to support growth or for other business reasons, we may create new subsidiaries or alter our corporate structure. These subsidiaries are typically wholly owned, directly or indirectly, by Redwood, or in some cases, structured as partnerships or joint ventures with third-party co-investors, in which case Redwood may hold only a partial ownership interest. The creation of these subsidiaries or implementation of partnerships, joint ventures, or reorganizations may increase administrative costs and subject us to additional legal and reporting obligations, for example, because new subsidiaries may be incorporated in states other than Maryland or may be established in a foreign jurisdiction, or new or restructured business activities may be subject to additional regulation. Any new subsidiary we create may (i) elect, together with us, to be treated as a taxable REIT subsidiary, (ii) elect to be treated as a REIT, or (iii) if wholly owned, be treated as a qualified REIT subsidiary. Taxable REIT subsidiaries are wholly-owned or partially-owned subsidiaries of a REIT that pay corporate income tax on the income they generate. A taxable REIT subsidiary cannot deduct its dividends paid to its parent in determining its taxable income and any dividends paid to the parent are generally recognized as income at the parent level. With respect to subsidiaries formed as partnerships or joint ventures with third-party co-investors, we may be a passive partner or investor, or otherwise unable to exert operational control over these subsidiaries, which may expose us to risks associated with the conduct of those in control, including total loss of our investment.

We regularly evaluate our corporate structure in light of our business activities, opportunities, and strategic growth plans. For example, growth in our mortgage banking platforms may require us to alter or reorganize our corporate structure to better support our strategic and business plans. Any such changes could require one or more subsidiaries to elect REIT or taxable REIT subsidiary status, or to be treated, or cease to be treated, as a qualified REIT subsidiary. In conducting these evaluations, we compare our existing structure and tax elections with alternatives such as creating new subsidiaries or modifying tax elections, entering into partnerships or joint ventures, or implementing structural changes involving the separation or external management of one or more business units. Any alteration or reorganization of our corporate structure or tax elections could be complex, time-consuming, and costly, and may expose us to new risks or potential liabilities, including risks related to conflicts of interest, regulatory compliance, tax requirements, or the maintenance of our REIT status. Even if pursued, there is no assurance that any such reorganization would be successfully completed or that we would effectively manage the associated risks, complexities, or compliance obligations. In addition, the evaluation, analysis, and strategic planning supporting any such action may not produce the expected benefits due to changed circumstances, unforeseen risks, or insufficient returns relative to the costs incurred. As our business and markets continue to evolve, our efforts to grow through new initiatives, acquisitions, or structural changes may not be successful and may subject us to additional risks and regulatory requirements.

Our future success depends on our ability to attract and retain key personnel.

Our future success depends on the continued availability and service of skilled personnel, including our executive officers and management team. Concerns among current or prospective employees regarding prior or potential future workforce reductions, or the impact of economic, regulatory, or other factors on our ability to maintain or expand our business, could adversely affect our ability to hire or retain personnel. In addition, if unemployment rates decline or remain at normal or below-normal levels, competition for qualified personnel may increase and become more costly. We cannot assure you that we will be able to attract and retain key personnel at historical cost levels, or at all. Further, the COVID pandemic, or a similar disruptive economic or geopolitical event, could impair operational continuity if our business continuity plan is ineffective or inadequately implemented or deployed during a disruption. We currently offer employees a range of benefits, including health and mental health coverage, prescription drug benefits, dental and vision benefits, flexible spending accounts, paid and unpaid leave, wellbeing benefits, disability/accident coverage, and participation in a 401(k) plan. We cannot assure you that we will be able to continue offering comparable benefits at similar cost levels in the future.

Because retaining key personnel is critical to our future success, we have entered into restrictive covenant agreements with certain key employees that seek to limit their ability, for specified periods following termination, to solicit our employees or customers or to compete with us. Such covenants may be unenforceable in certain jurisdictions, or enforceable only to a limited extent. In 2024, the FTC announced a nationwide rule prohibiting employers from imposing non-compete covenants on employees based on preliminary findings that these types of restrictive covenants constitute an unfair method of competition and therefore violate federal antitrust laws, but the rule was enjoined by a federal court and the FTC later rescinded its appeal. However, although the FTC's proposed nationwide ban on non-compete covenants is not currently in effect, the FTC has indicated that it may continue to pursue targeted, case-by-case enforcement actions challenging certain non-compete arrangements under Section 5 of the FTC Act. In addition, California, Colorado, and other states have enacted laws expanding the geographic reach of its restrictions on non-compete and other restrictive covenants and providing affirmative notice and private enforcement rights relating to, the unenforceability of certain non-compete and other restrictive covenants with respect to employees in those states. Under these or similar laws, we may be subject to litigation or claims, including injunctive relief, in connection with hiring employees subject to non-compete, non-solicitation, or similar covenants with prior employers. To the extent restrictive covenants are unenforceable following an employee’s departure, our ability to retain key personnel may be reduced and competition for employees, customers, and business may increase, which could adversely affect our financial condition, results of operations, and cash flows.

Our technology infrastructure and systems are important and any significant disruption or breach of the security of this infrastructure or these systems could have an adverse effect on our business. We also rely on technology infrastructure and systems of third parties who provide services to us and with whom we transact business.

We depend on the secure, efficient, and uninterrupted operation of our technology infrastructure, as well as those of certain third parties and affiliates on which we rely, including computer systems, hardware, software applications, and data centers. The websites and networks we use must support high transaction volumes and deliver frequently updated information, the accuracy and timeliness of which is critical to our business. Our technology, and that of our service providers, must enable loan application and acquisition processes that equal or exceed the experience provided by our competitors. We also regularly engage in software development, either internally or with third-party providers, to enhance our technology, operational efficiency, and customer experience. These initiatives may be costly, time- and resource-intensive, subject to delays, and may fail to achieve anticipated benefits. Significant cost overruns, delays, or failures of key technology projects could materially adversely affect our reputation, business, results of operations, or financial condition.

In addition, we rely on computer hardware and software systems to analyze, acquire, and manage our investments, oversee our operations and risk associated with our business, assets, and liabilities, and prepare our financial statements. Any material disruption to the availability or functionality of these systems could impair our liquidity, damage our reputation, and adversely affect our operations and our ability to timely and accurately report financial results. These risks may increase as we further expand our use of web-based offerings, cloud service providers, and cybersecurity tools and vendors.

We have experienced, and may in the future experience, service disruptions and failures. Disruptions may be caused by system or software failure, fire, power outages, telecommunications failures, employee misconduct, human error, computer hackers, AI errors, misinformation, ransomware attacks, computer viruses and disabling devices, malicious or destructive code, denial of service or information, as well as natural disasters, pandemic or outbreak of epidemic disease, and other similar events. Our business continuity and disaster recovery planning may not be sufficient for all situations. A portion of our workforce operates remotely on a hybrid or full-time basis, requiring access to our systems through home networks, and our remote-work security controls may be insufficient to prevent unauthorized access or system disruptions. In addition, technology upgrades or system integrations may cause service interruptions. For example, in 2024, CrowdStrike published a faulty update to its popular security software, resulting in the crash of millions of computer systems worldwide. This outage had a limited impact on us, but similar outages may significantly impact our businesses, either directly, through our third parties, or through third parties of our vendors/counterparties. Prolonged outages affecting our systems or those of third parties on which we (or our vendors/counterparties) rely may lack effective backups or workarounds. Any such disruption could delay or interrupt services provided to loan sellers, applicants, customers, counterparties, or other stakeholders, or impair third parties’ ability to provide critical services to us.

Any breach of the security of our systems could adversely affect our operations and our ability to prepare financial statements. Although we have implemented security measures to protect our systems and data, these measures may not prevent unauthorized access. A security breach could result in data loss, system unavailability, reputational harm, increased regulatory scrutiny or penalties, fraud, litigation, liability to third parties, and other operational disruptions, as further discussed in these Risk Factors.

We may not be able to make technological improvements as quickly as demanded by our loan sellers, borrowers, and customers, which could harm our ability to attract loan sellers, borrowers, and customers, and adversely affect our results of operations, financial condition and liquidity.

The financial services industry is undergoing rapid technological change, including the increasing use of technology-driven products and services, such as those powered by AI. While the effective use of technology increases efficiency and enables financial and lending institutions to better serve clients and reduce costs, the use of any emerging technologies, such as those incorporating AI, machine-learning, or algorithmic decision-making, poses an array of risks. Our future success will depend, in part, upon our ability to address the needs of our loan sellers, borrowers, and customers by using technology, such as mobile and online services, to provide products and services that will satisfy demands for convenience, as well as to create additional efficiencies in our operations, and to do so in a thoughtful and legally compliant manner. For example, with the recent proliferation of AI-enabled products and services, certain state and federal lawmakers and regulators have developed, or are developing, laws governing the use of AI (“AI Laws”). For example, the Colorado AI Act requires developers and deployers of certain “high-risk” AI systems to comply with statutory requirements, including adopting policies and procedures to manage associated risks. The Colorado AI Act focuses primarily on preventing algorithmic discrimination in specified “consequential decisions,” including those affecting consumer financial or lending services and housing. Other jurisdictions have adopted, or are likely to adopt, similar AI legislation.

We may be unable to implement new technology-driven products and services as quickly, securely, or in a legally compliant manner as our competitors, or to successfully market these offerings to loan sellers, borrowers, and customers. Failure to keep pace with technological change in the financial services industry, or to implement such changes prudently, could impair our ability to attract investors or customers and adversely affect our results of operations, financial condition, and liquidity.

Our business could be adversely affected by deficiencies in our disclosure controls and procedures or internal controls over financial reporting.

The design and effectiveness of our disclosure controls and procedures and internal controls over financial reporting may not prevent all errors, misstatements, or misrepresentations. Although management regularly evaluates the effectiveness of these controls, there can be no assurance that they will be effective in achieving all control objectives at all times. Any deficiencies, including material weaknesses or significant deficiencies that have occurred or may occur in the future, could result in misstatements of our financial results or other reported metrics, restatements of our financial statements, declines in our stock price, or other material adverse effects on our business, reputation, financial results, or liquidity, and could cause investors and creditors to lose confidence in our reported financial information.

Our risk management efforts may not be effective.

We could incur substantial losses and experience disruptions to our business operations if we are unable to effectively identify, manage, monitor, and mitigate financial risks, including credit, interest rate, prepayment, liquidity, and other market-related risks, as well as operational risks related to our business, assets, and liabilities, including mortgage operations, legal and compliance, human resources, climate-related, data privacy, cybersecurity, technology, and financial reporting risks. Our risk management policies, procedures, and techniques may not be sufficient to identify all risks to which we are exposed, to adequately mitigate identified risks, or to identify additional risks that may arise in the future. In addition, the expansion of our business activities, including through acquisitions, may expose us to risks to which we have not previously been subject or increase our exposure to certain risks, and we may not effectively identify, manage, monitor, or mitigate these risks as our business evolves or grows, as further discussed in these Risk Factors.

We could be harmed by misconduct or fraud that is difficult to detect.

We are exposed to risks arising from misconduct by our employees, contractors, or other third parties with whom we have relationships. For example, our employees could execute unauthorized transactions, use our assets improperly or without authorization, compromise our physical or technological security, perform improper activities, use confidential information for improper purposes, or mis-record or otherwise try to hide improper activities from us. In addition, we have experienced, and may continue to experience, fraudulent or negligent activity by borrowers and certain third parties, including construction inspectors and title insurance company employees, that has resulted in the disbursement of under-collateralized funds and has caused financial losses on loans we originate. Similar misconduct may also occur in connection with loan administration or other services we provide for third parties. Such misconduct may be difficult to detect and, if not prevented or identified, could result in losses, claims, or regulatory enforcement actions. Accordingly, misconduct by employees, contractors, or other parties could subject us to losses or regulatory sanctions and harm our reputation, and our controls may not be effective in detecting or preventing this activity.

Inadvertent errors, including, for example, errors in the implementation of information technology systems, could subject us to financial loss, litigation, or regulatory action.

Our employees, contractors we use, and other third parties with whom we have relationships may make inadvertent errors or fall victim to social engineering attacks or other fraud schemes, which could subject us to financial losses, claims, or enforcement actions. Such errors may include mistakes in executing, recording, or reporting transactions we enter into for ourselves or with respect to assets we manage for others, as well as errors in settling payment or funding obligations, including wire transfers. Although we have policies and procedures intended to mitigate these risks, including controls related to wire transfers, we have experienced fraudulent and erroneous activity in our operations and have incurred financial losses as a result. Errors in the implementation or operation of information technology systems, compliance systems and procedures, or other operational systems and procedures could also interrupt our business or expose us to financial losses, claims, or enforcement actions. Such errors may result in the inadvertent disclosure of mortgage borrower, HEI customer, or other consumer non-public personal information. The risk of inadvertent errors may be greater in business activities that are new to us or involve non-standardized terms, in areas of rapid expansion, or where we rely on new employees or third parties with whom we have only recently established relationships, as further discussed in these Risk Factors.

Our business may be adversely affected if our reputation is harmed. Our brand recognition is important to the success of our business and we are exposed to intellectual property-related risks associated with our brands.

Our business is subject to significant reputational risk, and any failure, or perceived failure, to address issues affecting our reputation could harm our business. Such issues may include actual or alleged legal or regulatory violations, failures in governance, workforce engagement, or climate-risk initiatives, inaccurate reporting of related metrics, or deficiencies in risk management, technology, or operations. In addition, market rumors or actual or perceived associations with counterparties whose reputations are in question could adversely affect us. Lawsuits involving us, the resolution of such litigation, allegations of employee misconduct or wrongful termination, adverse publicity, conflicts of interest, ethical concerns, or failures to safeguard information technology systems or protect personal information could also cause significant reputational harm. Such damage could result not only in immediate financial losses, but also in the loss of business relationships, reduced access to capital and liquidity, and difficulties in recruiting and retaining personnel.

Our brand recognition is important to our business, and we operate under various brand names, including Redwood, Sequoia, Aspire, CoreVest®, RWT Horizons®, SEMT®, and CAFL®. While we seek to protect the intellectual property associated with these brands, we may be unable to detect or adequately prevent infringement of our brand names. In addition, third parties may allege that our use of certain brand names infringes their intellectual property rights and may seek to restrict or prevent such use. We may be required to engage in legal proceedings to defend our intellectual property or to pursue infringement claims against others. Such proceedings may be costly, time-consuming, and may not result in favorable outcomes. An adverse determination could require us to discontinue use of certain brand names, result in the loss of intellectual property rights, or lead to financial liabilities. Any such outcome could cause losses or require costly rebranding efforts.

Our financial results are determined and reported in accordance with generally accepted accounting principles (and related conventions and interpretations), or GAAP, and are based on estimates and assumptions made in accordance with those principles, conventions, and interpretations. Furthermore, the amount of dividends we are required to distribute as a REIT is driven by the determination of our income in accordance with the Internal Revenue Code rather than GAAP.

Our reported GAAP financial results differ from the taxable income results that drive our dividend distribution requirements and, therefore, our GAAP results may not be an accurate indicator of taxable income and dividend distributions.

Generally, the cumulative income recognized on an investment asset is the same for GAAP and tax purposes, although the timing of recognition over the asset’s life may differ materially. In addition, certain expenses are subject to permanent differences in recognition under GAAP and tax accounting, which may be material. As a result, GAAP earnings reported in any period may not be indicative of future dividend distributions to holders of our common stock.

Our minimum dividend distribution requirements are determined under REIT tax laws and are based on our REIT taxable income as calculated under the Internal Revenue Code, although our Board of Directors may elect to distribute amounts in excess of these requirements. Retained GAAP earnings should not be expected to equal cumulative distributions, as dividend decisions, permanent differences between GAAP and tax accounting, and temporary timing differences may result in material variances between these amounts.

Over time, accounting principles, conventions, rules, and interpretations change, which could affect our reported GAAP and taxable earnings and stockholders’ equity.

Accounting rules applicable to our business change from time to time, and changes in GAAP or their interpretation may affect our reported income, earnings, and stockholders’ equity. Changes in tax accounting rules or interpretations may also affect our taxable income and dividend distribution requirements. Anticipating and planning for such changes may be difficult.

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.

We have significant net deferred tax assets (“DTAs”), primarily from net operating loss (“NOL”) carryforwards, capital loss carryforwards, and tax-deductible goodwill, which may reduce taxes on future taxable income. As of December 31, 2025, net DTAs without a valuation allowance totaled $12 million. Realization of our DTAs is dependent on many factors, including generating sufficient taxable income prior to the expiration of NOL carryforwards and generating sufficient capital gains in future periods prior to the expiration of capital loss carryforwards. Under GAAP, if it is determined that it is not more likely than not that a deferred tax asset will be realized, a valuation allowance must be recorded, reducing the value of the DTAs. As of December 31, 2025, we believed it was more likely than not that all federal DTAs would be realized and therefore recorded no material valuation allowance. This evaluation will be based on all available evidence, including assumptions concerning future taxable income and capital gains income and our ability to rely on these assumptions considering our earnings in recent periods. As a result, significant judgment is required in assessing the possible need for a valuation allowance and changes to our assumptions could result in a material change in the valuation allowance with a corresponding impact on the provision for income taxes in the period including such change. If we conclude that it is not more likely than not that our DTAs will be realized, then a valuation allowance would be established with corresponding charges to GAAP earnings and book value per share. Such charges could cause a material reduction, up to the full value of our net DTAs (for which a valuation allowance has not previously been established), to our GAAP earnings and book value per share for the quarterly and annual periods in which they are established and could have a material and adverse effect on our business, financial results, or liquidity.

Risks Related to Legislative and Regulatory Matters Affecting our Industry

Changes to the U.S. federal income tax laws could have an adverse impact on the U.S. housing market, mortgage finance markets, and our business.

From time to time, U.S. federal, state, and local governments enact substantive changes to income tax laws, rules, and regulations that affect the housing and mortgage finance markets and our business. For example, the Tax Cuts and Jobs Act, enacted in 2017, among other things and subject to certain exceptions, reduced for individuals the annual residential mortgage-interest deduction for purchase money mortgage debt, and eliminated for individuals the deduction for interest with respect to home equity indebtedness. In addition, the One Big Beautiful Bill Act, enacted in 2025, made additional changes to individual and business tax provisions that may affect housing-related incentives, mortgage borrowing, and investment activity. Changes such as these, or other future changes to income tax laws and regulations that are unknown or cannot be predicted, could adversely affect home prices, mortgage borrower liquidity, borrower delinquencies, and market values of mortgages, MBS, HEI, and other housing or mortgage-related assets. Such changes could also affect origination volumes and business activity levels, any of which could negatively impact our business and financial results.

HEI are subject to regulatory risk at the federal, state, and local levels and may be subject to recharacterization or regulated as mortgage loans, reverse mortgages, or other forms of “credit.”

HEI are subject to regulatory risk at the federal, state, and local levels. The legal framework applicable to HEI remains unsettled, and courts, legislatures, or regulators may recharacterize or regulate HEI as mortgage loans, reverse mortgages, or other forms of “credit.” Any such recharacterization or regulatory action could subject HEI to additional licensing, disclosure, substantive, reporting, or enforcement requirements and could adversely affect the value, enforceability, or collectability of HEI we originate, acquire, finance, or securitize.

Federal regulators or civil litigants may seek to regulate HEI under existing federal consumer financial laws. In January 2025, the CFPB filed an amicus brief in HEI-related litigation expressing non-binding views that the HEI at issue constituted a “residential mortgage loan” and therefore “credit” subject to the Truth in Lending Act (“TILA”), and issued related guidance indicating continued monitoring of the market. Although these materials were not binding, they illustrate how federal regulators may approach HEI.

If HEI are deemed to constitute mortgage loans or “credit” under federal law, additional statutes and regulations could apply to their origination, servicing, ownership, or transfer, including TILA, the Equal Credit Opportunity Act (“ECOA”), the Home Mortgage Disclosure Act (“HMDA”), and the Real Estate Settlement Procedures Act (“RESPA”), together with their implementing regulations. Application of these laws could impose additional compliance obligations and increase costs. Alleged violations could result in investigations, enforcement actions, civil litigation (including class actions), monetary penalties, rescission rights, damages, or other remedies. Such outcomes could materially adversely affect our business, financial condition, results of operations, and the value or enforceability of HEI and HEI-related assets.

State regulatory scrutiny of HEI has also increased. Certain states, including Connecticut, Illinois, and Maryland, have amended their statutes to expand the definition of “residential mortgage loan” to include “shared appreciation agreements” or similar products, such as HEI, thereby requiring mortgage lending licenses to offer such products in those jurisdictions. Other states have considered or may adopt similar legislation or regulations.

In addition, state regulators or courts may determine—through enforcement actions, litigation, or interpretive positions—that HEI constitute mortgage loans, reverse mortgages, or other regulated credit products under existing law. For example, in 2025, litigation and regulatory actions in certain jurisdictions asserted that HEI fall within existing mortgage or consumer protection statutes. In early 2026, we received a request for information from the Washington State Department of Financial Institutions regarding HEI origination and investment activities involving Washington residents.

If regulators determine that entering into, originating, purchasing, servicing, or investing in HEI constitutes licensed mortgage activity, and we or our counterparties are found not to hold required licenses or comply with applicable requirements, HEI in those jurisdictions could be subject to enforcement actions, penalties, rescission, litigation, or challenges to enforceability.

Most states maintain laws governing licensing, usury, consumer disclosures, and unfair or deceptive acts or practices (“UDAP”). If HEI are recharacterized as loans, they could become subject to state interest rate limits, disclosure requirements, or other substantive restrictions. Although HEI we originate include a maximum investor return cap established at origination, there can be no assurance that such caps would ensure compliance with applicable usury laws if HEI are treated as loans.

Outside of jurisdictions that have expressly amended their statutes, there is limited statutory guidance or case law addressing key aspects of HEI, including required consumer disclosures. There can be no assurance that disclosures or consumer education provided by us or our counterparties regarding the risks, benefits, costs, terms, and conditions of HEI will be deemed legally sufficient in litigation or regulatory proceedings.

Violations of applicable laws and regulations could result in civil monetary penalties, restitution, disgorgement, rescission rights, treble damages, criminal penalties, or determinations that HEI are void or voidable. Any such developments could materially adversely affect the value of our HEI and HEI-related assets, and our business, financial condition, and results of operations.

State and local rent control or rent stabilization regulations may reduce the value of single-family rental or multifamily properties collateralizing mortgage loans we own, or those underlying the securities or other investments we own. As a result, the value of these types of mortgage loans, securities, and other investments may be negatively impacted, which impacts could be material.

Numerous counties and municipalities, including areas where properties securing certain of the single-family rental and multifamily mortgage loans we own, or the properties underlying the securities or other investments we hold, are located, impose rent control or rent stabilization requirements on apartment buildings and other rental housing. These ordinances may limit rent increases to fixed percentages, increases tied to the consumer price index, amounts set or approved by a governmental agency, or to amounts determined through mediation or arbitration. In some jurisdictions, including, for example, New York City, many apartment buildings are subject to rent stabilization, and some units are subject to rent control. These regulations, among other things, may limit the ability of single-family rental and multifamily property owners who have borrowed money (including in the form of mortgage debt) to finance their property to raise rents above specified percentages. Limitations on a borrower’s ability to raise property rents, especially as borrowers face rising or high financing costs, may impair such borrower’s ability to repair or renovate the mortgaged property, make mortgage loan payments or where rent increases are capped, keep pace with inflation.

Some states, counties and municipalities have imposed or may impose stricter rent control or rent stabilization regulations. For example, in 2019, the California, Oregon, and New York state legislatures passed laws limiting or restricting landlords’ ability to increase rents on certain renters at the time of lease renewal, after a vacancy, or on an annual basis, and the California and Oregon laws additionally restrict or limit tenant evictions by creating conditions to evicting certain tenants. These laws and similar legislative or regulatory measures may reduce the value of single-family rental and multifamily properties collateralizing mortgage loans we own, or underlying securities or other investments we own, in jurisdictions subject to such rent regulations, which may adversely affect the value of such loans, securities, and investments, and such effects may be material.

We may not be able to obtain or maintain the governmental licenses or registrations required to operate our business and we may fail to comply with various state and federal laws and regulations applicable to our business, which could harm our business.

While we are not required to obtain licenses to purchase MBS, the purchase of HEI, residential consumer and residential investor mortgage loans in the secondary market, the origination of residential investor loans or HEI, and the securitization of these assets may require us to obtain and maintain various state licenses. In certain circumstances, acquiring the right to service residential mortgage loans and certain residential investor mortgage loans may also require state licensing, even though we do not presently expect to engage in direct loan servicing. HEI origination, administration, investment, and funding activities may likewise require us to obtain or maintain additional state licenses. In addition, initiatives we have undertaken and may continue to pursue to form joint ventures, investment vehicles, or funds with third-party investors for the purchase of loans, HEI, or other assets—and to earn fees, incentive compensation, or other income in connection with such initiatives—may require us to register as an investment advisor with federal or state regulatory authorities. We could be delayed in conducting certain business if we were first required to obtain a federal or state license or registration. We cannot assure you that we will be able to obtain or maintain all licenses required for our activities or that we will avoid significant delays in doing so. Once licenses are issued, we must comply with ongoing reporting and other regulatory requirements to maintain them, and there is no assurance we will satisfy all such requirements. Our failure to obtain or maintain required licenses, or to comply with applicable regulatory requirements relating to our acquisition or origination of mortgage loans or HEI, may restrict our business and investment activities, harm our operating results, and expose us to penalties or other claims.

For example, under the Dodd-Frank Act, the CFPB has regulatory authority over aspects of our business arising from our residential mortgage banking activities, including, without limitation, the authority to bring enforcement actions for noncompliance with applicable CFPB regulations. The CFPB also evaluates whether companies such as Redwood take appropriate steps to ensure that business arrangements with service providers do not present risks to consumers. The sub-servicers we retain to service residential mortgage loans (when we own the related MSRs) and to service HEI are among our most significant service providers with respect to our residential mortgage banking and HEI activities and our failure to take steps to ensure that these sub-servicers are servicing these residential mortgage loans and HEI in accordance with applicable law and regulation could result in enforcement action by the CFPB against us that could restrict our business, expose us to penalties or other claims, negatively impact our financial results, and damage our reputation. In addition, failure by sub-servicers who service securitized loans or HEI could result in the associated securitization entity being held liable for the sub-servicer’s actions, which could cause losses to us, including reductions in the value of mortgage securities issued by such entities that we hold as investments, as further discussed in these Risk Factors.

As another example, in early 2026, we received a request for information from the Washington State Department of Financial Institutions related to Redwood’s origination and ownership of HEI entered into with residents of Washington State. To the extent the Washington State Department of Financial Institutions or other state regulatory agencies were to successfully assert that the ownership of HEI is subject to licensure, we could be subject to enforcement action, private litigation, fines, penalties, including litigation asserting that certain terms of HEI we own are not enforceable. Any such enforcement action, litigation, fines, or penalties could materially harm the value of our HEI and HEI-related assets and adversely affect our business, cash flows, financial condition, and results of operations, as further discussed in these Risk Factors.

As another example, rules under HMDA that took effect in January 2018 impose expanded data collection and additional reporting requirements on mortgage lenders and purchasers of residential mortgage loans. These expanded requirements may increase the likelihood of data errors, which regulators may view as indications of inadequate controls or poor compliance processes, and which could lead to civil monetary penalties. The availability of more detailed data may also increase regulatory scrutiny of our mortgage loan purchasing patterns or our data security measures. In addition, ECOA, the Fair Housing Act, Fair Credit Reporting Act, and other federal and state laws and regulations that apply to certain of our investment and business activities, include consumer protections relating to discrimination, abusive and deceptive practices, and other consumer-related matters. To the extent these laws and regulations apply to us, our failure to comply with them, even if unintentional, could result in liabilities, fines, and remediation requirements that could be material. Noncompliance could also arise from our, or an advisor’s, incorrect conclusion that certain aspects of our investment or business activities, including, for example, HEI-related activities, are not subject to certain laws or regulations.

We also seek to maintain our status as an approved servicer for residential mortgage loans sold to Freddie Mac, and we are in the process of applying for status as an approved seller/servicer to Fannie Mae. Approved servicers or seller/servicers must conduct their operations in accordance with the respective Agency's applicable policies and guidelines, including ongoing compliance with net worth, liquidity, and operational requirements. Failure to maintain (or obtain) this status would prevent us from servicing mortgage loans for these entities, or could restrict our business and investment options, and could harm our business or expose us to losses or other claims.

With respect to residential mortgage loans or HEI we own or originate, or which we have purchased and subsequently sold, we may be subject to liability for potential violations of the CFPB’s TILA-RESPA Integrated Disclosure rule (also referred to as “TRID”) or other similar consumer protection laws and regulations, which could adversely impact our business and financial results.

Federal consumer protection laws and regulations have been enacted and promulgated that are designed to regulate residential mortgage loan underwriting and originators’ lending processes, standards, and disclosures to borrowers. These laws and regulations include the CFPB’s “TRID”, “ability-to-repay” and “qualified mortgage” regulations. In addition, various federal, state, and local laws and regulations are intended to discourage predatory lending practices by residential mortgage loan originators. For example, the federal Home Ownership and Equity Protection Act of 1994 (HOEPA) prohibits inclusion of certain provisions in residential mortgage loans that have mortgage rates or origination costs in excess of prescribed levels and requires that borrowers be given certain disclosures prior to origination. Some states have enacted, or may enact, similar laws or regulations, which in some cases may impose restrictions and requirements greater than those under federal laws and regulations. In addition, under the anti-predatory lending laws of some states, the origination of certain residential mortgage loans, including loans that are classified as “high cost” loans under applicable law, must satisfy a net tangible benefits test with respect to the borrower. This test, as well as standards set forth in the “ability-to-repay” and “qualified mortgage” regulations, may be subjective and open to interpretation. In particular, the CFPB’s “qualified mortgage” regulations were subject to a transition period from March 1, 2021, through October 1, 2022, during which both the existing and revised regulations were in effect, creating potential interpretive and implementation challenges. As a result, a court may find that a residential mortgage loan failed to meet an applicable standard or test even if the originator reasonably believed such requirement had been satisfied. Failure by residential mortgage loan originators or servicers to comply with these laws and regulations could subject us, as an assignee or purchaser of such loans or as an investor in securities backed by them, to monetary penalties and foreclosure-related defenses, including recoupment or setoff of finance charges and fees collected, and could result in rescission of affected loans. Any such outcomes could adversely affect our business and financial results.

Furthermore, as further discussed in these Risk Factors, the January 2025 CFPB Actions expressed non-binding views regarding HEI, including the view that one consumer’s HEI contract constituted a “residential mortgage loan” and therefore “credit” under TILA. If the CFPB, or any other federal or state regulator, were to regulate HEI as a form of credit, our compliance costs would increase, and such regulation could have a negative, and potentially material, impact on our business, assets, financial condition, and results of operations. The CFPB may revisit whether additional regulations, or updates to existing regulations, are warranted, and any such changes could negatively affect our Sequoia mortgage banking or HEI asset.

Environmental protection laws that apply to properties that secure or underlie our loan and investment portfolio could result in losses to us. We may also be exposed to environmental liabilities with respect to properties of which we become direct or indirect owners or to which we take title, which could adversely affect our business and financial results.

Under the laws of several states, contamination of a property may give rise to a lien on the property, securing recovery of cleanup costs. In some states, such a lien may take priority over the lien of an existing mortgage, which could impair the value of a security we own backed by such property or reduce the value of such a property that underlies loans we have made or own. In addition, under certain state laws and under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, we may be liable for costs of addressing releases or threatened releases of hazardous substances at a property securing or underlying a loan we hold if our agents or employees become sufficiently involved in the hazardous waste aspects of the borrower’s operations of that loan, regardless of whether the environmental condition was caused by us or the borrower.

In the course of our business, we may take title to real estate or otherwise become a direct or indirect owner of real estate, including through foreclosure, through exercising rights and remedies under HEI we own, or through participation in an investment fund acquiring workforce housing properties. If we take title, or when we are a direct or indirect owner, we could be subject to environmental liabilities with respect to the property, including liability to governmental entities or third parties for property damage, personal injury, investigation, and clean-up costs. We may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property, and such costs could be substantial. If we ever become subject to significant environmental liabilities, our business and financial results could be materially and adversely affected.

Risks Related to Redwood's Capital, REIT and Legal/Organizational Structure

We have elected to be taxed as a REIT and, as such, are required to meet certain tests in order to maintain our REIT status. This adds complexity and costs to running our business and exposes us to additional risks.

Failure to qualify as a REIT could adversely affect our net income and dividend distributions and could adversely affect the value of our stock.

We have elected to be taxed as a REIT for federal income tax purposes since 1994. The requirements for REIT qualification, however, are highly technical and complex and often require applying detailed legal rules to specific facts for which there is limited judicial or administrative guidance. Accordingly, we cannot assure you that the Internal Revenue Service (the “IRS”) or a court would agree with our conclusion that we have qualified as a REIT in prior years, or that changes in our investments, our business, or applicable law will not cause us to fail to qualify as a REIT in the future. Furthermore, in an environment where asset values may change rapidly, prior planning for compliance with REIT qualification rules may be disrupted. If we were to fail to qualify as a REIT for federal income tax purposes and did not qualify for statutory relief, we would be subject to federal corporate income tax on our taxable income and would not be permitted a deduction for dividends paid to shareholders. In such circumstances, we may be required to borrow funds or sell assets to pay the resulting taxes, even if market conditions are unfavorable. In addition, unless relief were available, we would be prohibited from electing REIT status again for four years thereafter. Failure to qualify as a REIT could adversely affect our dividend distributions and could adversely affect the value of our stock.

Maintaining REIT status and avoiding the generation of excess inclusion income at Redwood Trust, Inc. and certain of our subsidiaries may reduce our flexibility and could limit our ability to pursue certain opportunities. Failure to appropriately structure our business and transactions to comply with laws and regulations applicable to REITs could have adverse consequences.

To maintain REIT status, we must follow certain rules and meet certain tests. In doing so, our flexibility in managing our operations may be reduced. For instance:

• Compliance with the REIT income and asset rules, or uncertainty regarding the application of those rules to certain investments, may result in our holding investments in our taxable REIT subsidiaries (where the income produced is subject to corporate-level taxation) rather than in an entity taxed as a REIT (where such income generally would not be subject to corporate-level taxation).
• Compliance with the REIT income and asset rules may limit the type or extent of financing or hedging that we can undertake.
• As a REIT, our ability to own non-real estate assets and earn non-real estate related income is limited, and the rules for classifying assets and income are complex. Our ability to own equity interests in other entities is also limited. If we fail to comply with these limits, we may be required to liquidate attractive investments on short notice and on unfavorable terms to maintain our REIT status.
• We generally use taxable REIT subsidiaries to own non-real estate assets and to engage in activities that may generate non-real estate related income under the REIT rules. However, our ability to invest in taxable REIT subsidiaries is limited. No more than 25% (20% for taxable years beginning after December 31, 2017 and before January 1, 2026) of the value of our total assets may consist of securities of one or more taxable REIT subsidiaries. Maintaining compliance with this limit could require us to constrain the growth of our taxable REIT subsidiaries and the business activities they conduct.
• Meeting minimum REIT dividend distribution requirements could reduce our liquidity. We may earn non-cash REIT taxable income due to timing and/or character mismatches between the computation of our income for tax and accounting purposes. Earning non-cash REIT taxable income could require us to sell assets, incur debt, or raise new equity to fund required distributions.
• We could be viewed as a “dealer” with respect to certain transactions and become subject to a 100% prohibited transaction tax or other entity-level taxes on income from those transactions.

Furthermore, the rules we must follow and the tests we must satisfy to maintain our REIT status may change, or the interpretation of these rules and tests by the IRS may change.

In addition, our stated goal has been to avoid generating excess inclusion income at Redwood Trust, Inc. and certain of its subsidiaries that would be taxable as unrelated business taxable income (“UBTI”) to our tax-exempt shareholders. Achieving this goal has limited, and may continue to limit, our flexibility in pursuing certain transactions or may require us to pursue certain transactions through a taxable REIT subsidiary, which would reduce the net returns on these transactions due to the associated tax liabilities payable by the subsidiary. Despite our efforts, we may not be able to avoid creating or distributing UBTI to our common and preferred shareholders.

To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions, and the unavailability of such capital on favorable terms at the desired times, or at all, may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, which could adversely affect our financial condition, results of operations, cash flow and per-share trading price of our stock.

To qualify as a REIT, we generally must distribute at least 90% of our REIT taxable income (excluding net capital gains) to our stockholders each year, and we are subject to regular corporate income taxes on any portion of REIT taxable income (including net capital gains) we do not distribute. We are also subject to a 4% nondeductible excise tax to the extent that the distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our net capital gains, and 100% of our undistributed income from prior years. To maintain our REIT status and avoid federal income and excise taxes, we may need to borrow funds to meet these distribution requirements, even when market conditions for such borrowings are unfavorable. These borrowing needs may arise from differences in timing between our recognition of income for federal income tax purposes and the actual receipt of cash. For example, we may be required to accrue interest, discount other income on mortgage loans, MBS, HEI and other types of debt securities or interests in debt securities before we receive any payments of interest or principal on such assets. Moreover, our access to third-party sources of capital depends on several factors, including the market’s perception of our growth potential, our current debt levels, the market price of our preferred stock or common stock, and our current and potential future earnings. We cannot assure you that we will be able to obtain capital on favorable terms at the times we require it, or at all. If we cannot raise capital when needed, we may be required to curtail investment activity or dispose of assets at unfavorable times, which could adversely affect our financial condition, results of operations, cash flows, and the trading price of our stock.

Dividends payable by REITs, including us, generally do not qualify for the reduced tax rates available for some dividends.

The maximum U.S. federal income tax rate for qualified dividends paid by domestic non-REIT corporations to U.S. stockholders that are individuals, trusts, or estates is generally 20%. Although dividends paid by REITs are generally not eligible for this rate (subject to limited exceptions), such stockholders may deduct up to 20% of ordinary REIT dividends. While this deduction reduces the effective tax rate on certain REIT dividends, the rate remains higher than the rate applicable to qualified dividends from non-REIT corporations.

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

The failure of mezzanine loans, mortgage loans, MBS, or HEI subject to a repurchase agreement to qualify as real estate assets would adversely affect our ability to qualify as a REIT.

When we enter into short-term financing arrangements in the form of repurchase agreements, we sell certain assets to a counterparty and simultaneously agree to repurchase them, including mortgage loans, MBS, or HEI. We believe we are treated for U.S. federal income tax purposes as the owner of these assets during the term of the repurchase agreement, even though record ownership may temporarily transfer to the counterparty. However, the IRS could assert that we did not own the assets during the term of the agreement, in which case we could fail to qualify as a REIT.

In addition, we have acquired and may continue to acquire or originate mezzanine loans, which are loans secured by equity interests in a partnership or limited liability company that owns real estate directly or indirectly. Revenue Procedure 2003-65 provides a safe harbor under which a mezzanine loan that meets each of the specified requirements will be treated as a real estate asset for purposes of the REIT asset tests, and interest earned on such a loan will be treated as qualifying mortgage interest for purposes of the 75% gross income test. Although taxpayers may rely on this safe harbor, it does not prescribe substantive tax law. We believe the mezzanine loans we have treated as real estate assets generally satisfied the safe harbor requirements. However, the IRS could challenge the tax treatment of these loans, and if such a challenge were sustained, we could be subject to penalty taxes or, in certain circumstances, fail to qualify as a REIT.

Changes in tax rules could adversely affect REITs and could adversely affect the value of our stock.

Federal income tax rules are continually under review by Congress, the IRS, and the U.S. Department of the Treasury. Future changes to the tax laws or regulations applicable to REITs or to mortgage or real estate related financial products could adversely affect our operations or reduce any competitive advantages we may have relative to non-REIT entities, either of which could reduce the value of our stock.

The application of the tax laws to our business is complicated, and we may not interpret or apply some of the rules and regulations correctly. In addition, we may not make all available elections, which could result in our not being able to fully benefit from available deductions or benefits. Furthermore, the elections, interpretations and applications we do make could be deemed by the IRS to be incorrect and could have adverse impacts on our GAAP earnings and potentially on our REIT status.

The Internal Revenue Code, and the rules, regulations, guidance, and procedures issued under it, may change, and the IRS’s interpretation of these authorities may also change. Where the application of these rules to our business is unclear, we may have to interpret them. Although we seek advice from outside tax advisors in making these determinations, our interpretations may prove incorrect, which could have adverse consequences.

Our tax payments and dividend distributions, which we structure to meet REIT distribution requirements, depend largely on our estimates of taxable income and the application and interpretation of numerous tax rules and regulations. Although certain relief provisions may be available if we misinterpret these rules, we may not be able to fully rely on them, which could adversely affect our REIT status. In addition, our GAAP earnings include tax provisions and benefits based in part on our taxable income estimates, and if these estimates prove incorrect, we may be required to adjust our tax provisions, which could be material. To the extent we hold deferred tax assets, changes in our ability to realize those assets may require us to record a valuation allowance with corresponding charges to GAAP earnings and book value per share, which also could be material.

Our ability to raise, manage, and deploy capital is critical to our business and may adversely affect our financial results and growth.

As a REIT, we are required to distribute at least 90% of our taxable income to shareholders, which limits our ability to retain earnings and increases our reliance on external capital to fund growth. Our ability to raise capital—through common or preferred equity issuances, debt, or other financing arrangements—may be constrained by market conditions, investor demand, regulatory or contractual limitations, and restrictions under our charter, including limits on authorized shares and ownership tests. If we are unable to raise capital on acceptable terms, or at all, we may be unable to pursue attractive investment opportunities, expand our portfolio, or operate our business as planned.

Adverse market conditions, including periods of economic uncertainty, credit stress, or volatility in the housing and mortgage markets, may further limit our access to capital or increase our cost of financing. In such circumstances, we may be required to raise capital on unfavorable terms, which could result in dilution to existing shareholders, higher interest expense, or increased transaction costs, or we may be forced to reduce or delay investments and growth initiatives. In addition, if growth is constrained, our general and administrative expenses may increase as a percentage of our capital base.

We also have broad discretion in determining how to deploy available capital, and our investment decisions may not generate the returns we expect. If we are unable to effectively raise, allocate, or manage capital, our business, financial condition, results of operations, and ability to grow could be materially adversely affected.

Conducting our business in a manner so that we are exempt from registration under, and in compliance with, the Investment Company Act may reduce our flexibility and could limit our ability to pursue certain opportunities. At the same time, failure to continue to qualify for exemption from the Investment Company Act could adversely affect us.

Under the Investment Company Act, an “investment company” (as defined therein) is required to register with the SEC and is subject to extensive and potentially adverse regulations relating to, among other things, operating methods, management, capital structure, dividends, and transactions with affiliates. Companies primarily engaged in acquiring mortgages and other liens on or interests in real estate are generally exempt from these requirements. We believe we have operated our business so that we are not subject to registration under the Investment Company Act. To continue doing so, however, Redwood and each of our subsidiaries must either operate outside the definition of an investment company or satisfy an applicable exclusion under the Investment Company Act. For example, to avoid being defined as an investment company, an entity may limit its ownership or holdings of investment securities to less than 40% of its total assets. To qualify for other exclusions, entities must, among other things, maintain at least 55% of their assets in qualifying real estate assets (the “55% Requirement”) and an additional 25% in qualifying real estate assets or other real estate-related assets (the “25% Requirement”). Rapid changes in the value of our assets may disrupt prior planning to comply with these requirements.

If Redwood or one of our subsidiaries were to fall within the definition of an investment company under the Investment Company Act and fail to qualify for an exclusion or exemption (for example, if it was required to and failed to meet the 55% Requirement or the 25% Requirement), it could, among other things, be required either (i) to change the manner in which it conducts operations to avoid being required to register as an investment company or (ii) to register as an investment company, either of which could adversely affect us by, among other things, requiring us to dispose of certain assets or to change the structure of our business in ways that we may not believe to be in our best interests. Legislative or regulatory changes relating to the Investment Company Act which affect our efforts to qualify for exclusions or exemptions, including our ability to comply with the 55% Requirement and the 25% Requirement, could also result in these adverse effects on us.

If we were deemed an unregistered investment company, we could be subject to monetary penalties and injunctive relief, we could be unable to enforce contracts with third parties, and third parties could seek rescission of transactions entered into while we were deemed to be an unregistered investment company.

Provisions in our charter and bylaws and provisions of Maryland law may limit a change in control or deter a takeover that might otherwise result in a premium price being paid to our shareholders for their shares in Redwood.

To maintain our status as a REIT, no more than 50% in value of our outstanding capital stock may be owned, actually or constructively, by five or fewer individuals (defined in the Internal Revenue Code to include certain entities). To protect against ownership concentration that could jeopardize our REIT status and for other purposes, our charter generally prohibits any single shareholder, or group of affiliated shareholders, from beneficially owning (as defined in the charter) more than 9.8% of the outstanding shares of any class of our stock, unless our Board waives or modifies this limit. Likewise, the articles supplementary for our Series A preferred stock generally prohibit any person from beneficially or constructively owning (as such terms are defined in the articles supplementary) more than 9.8% of the outstanding Series A preferred stock, unless our Board waives or modifies that limit. These limits may prevent a third party from acquiring control of us without the consent of our Board. Our Board has granted a limited number of waivers to institutional investors, subject to specified terms and conditions, and may amend these waivers or grant additional waivers in the future.

Certain provisions of our charter and bylaws and of the Maryland General Corporation Law (“MGCL”) may also discourage a third party from making an acquisition proposal and may inhibit a change in control. For example, our charter authorizes our Board to issue preferred stock from time to time, and to establish the terms, preferences, and rights of the preferred stock without shareholder approval. In addition, provisions of our charter and the MGCL restrict shareholders’ ability to remove directors and fill the resulting vacancies and restrict control share acquisitions. These and other provisions may deter offers to acquire our stock or significant ownership positions on terms that would be attractive to shareholders, thereby limiting the opportunity for shareholders to receive a premium over prevailing market prices.

The ability to take action against our directors and officers is limited by our charter and bylaws and provisions of Maryland law and we may (or, in some cases, are obligated to) indemnify our current and former directors and officers against certain losses relating to their service to us.

Our charter limits the liability of our directors and officers to us and to our shareholders for pecuniary damages to the fullest extent permitted by Maryland law. Our charter and bylaws also may require us to indemnify our directors and officers, and those of our subsidiaries and affiliates, to the maximum extent permitted by Maryland law in connection with any proceeding to which they are, or are threatened to be, made a party by reason of their service to us. We have entered into, and may in the future enter into, indemnification agreements with our directors and certain officers, as well as with directors and certain officers of our subsidiaries and affiliates, that obligate us to indemnify these individuals against certain losses and related defense costs arising from their service to us or to our subsidiaries or affiliates.

Other Risks Related to Ownership of Our Capital Stock

Investing in our stock may involve a high degree of risk. Investors in our stock may experience losses, volatility, limited liquidity, and reductions in dividends.

An investment in our stock may involve a higher degree of risk than other types of investments. Economic, financial market, industry, operational, regulatory, and company-specific factors, including those relating to our investing activity, business operations, financial results, dividend practices, and organizational structure, could reduce or eliminate the value of our stock. These risks may not be suitable for many investors, and investors may experience volatile returns and material losses. In addition, trading volume in our stock (i.e., its liquidity) may be insufficient to permit investors to sell their shares when they choose or at prices they consider reasonable.

Our earnings, cash flows, book value, and dividends may be volatile and are difficult to predict, and investors should not rely on our estimates, projections, or management’s expectations. The sustainability of our financial performance will depend on numerous factors, including our investment and business activity, access to debt and equity financing, the returns earned on our assets, credit losses, prepayments, operating expenses, and other risks described herein. Because our preferred stock has priority as to dividends and liquidating distributions, dividends available to our common stockholders may be limited. Although we seek to pay regular dividends, we may reduce or suspend dividends on our common stock, or defer dividends on our preferred stock, for a variety of reasons and without prior public notice. While we have paid special dividends on our common stock in the past, we have not done so since 2007 and may not do so in the future. Any change in the amount or form of our dividends may adversely affect the value of our stock.

A limited number of institutional shareholders own a significant percentage of our common stock, which could have adverse consequences to other holders of our stock.

Based on filings of Schedules 13D and 13G with the SEC, we believe that as of December 31, 2025, three institutional shareholders each owned 5% or more of our outstanding common stock and collectively held approximately 37% of our outstanding common stock, and institutional shareholders in the aggregate owned more than 84% of our outstanding common stock. Furthermore, these or other investors could significantly increase their ownership of our preferred or common stock, including through the conversion of outstanding convertible or exchangeable notes into common stock. Significant ownership positions may give such shareholders substantial influence over matters submitted to a vote of our shareholders, including the election of directors and transactions involving a change in control. If any significant shareholder were to liquidate all or a substantial portion of its holdings, or if our stock were removed from an industry or broad-based market index in which it is included, the market price of our stock could be adversely affected.

Although our charter generally prohibits any shareholder from beneficially owning more than 9.8% of any class of our outstanding stock, and our articles supplementary for our Series A preferred stock similarly prohibit any shareholder from beneficially or constructively owning more than 9.8% of our outstanding Series A preferred stock, our Board of Directors has granted a limited number of waivers of these limits to institutional investors and may amend the existing ownership limitation waivers it has granted to a limited number of institutional investors or grant new waivers. Any such waivers could permit increased ownership concentration among one or more shareholders.

Future sales or issuances of our common stock, preferred stock or other securities, by us or by our officers, directors, or senior employees, may have adverse consequences for investors.

We may issue additional shares of preferred stock or common stock, warrants to purchase common stock, or securities convertible into or exchangeable for common stock in public offerings or private placements, including as consideration in acquisition or financing transactions. Holders of outstanding warrants, convertible notes, or exchangeable securities may also acquire additional shares of common stock through conversion or exercise, as applicable. In addition, we may issue common stock under our direct stock purchase and dividend reinvestment plan and to our directors, officers, and employees under our equity and employee stock purchase plans, including upon the exercise of, or in respect of distributions on, previously granted awards. We are not required to offer these shares to existing shareholders on a preemptive basis, and existing shareholders may be unable to participate in future issuances, which could dilute their interests. Moreover, purchases by market participants of securities issued by us in future transactions may reduce or replace purchases they might otherwise make in the open market, decreasing trading volume and potentially reducing the market price and liquidity of our stock.

As of December 31, 2025, our directors and executive officers collectively beneficially owned less than 3% of our common stock. Sales of shares by these individuals are required to be publicly reported and are monitored by many market participants in making investment decisions. As a result, future sales by these individuals could negatively affect the market price of our stock.

The change-in-control-related conversion rights of our preferred stock may be detrimental to holders of our common stock.

We currently have 2.8 million shares of Series A preferred stock outstanding, which may be converted into common stock upon the occurrence of certain specified change-in-control events. The conversion rate would be based on the number of shares of common stock having a value equal to the $25.00 per-share liquidation preference, subject to a maximum conversion rate of approximately seven shares of common stock for each share of Series A preferred stock. The conversion of the Series A preferred stock into common stock would dilute existing common stockholders, could adversely affect the market price of our common stock, and could impair our ability to raise additional equity capital.

Dividend distributions on our stock may not be declared or paid or dividends on our common stock may decrease over time. Dividends on our common stock may be paid in shares of common stock, in cash, or a combination of shares of common stock and cash. Changes in the amount and timing of dividend distributions we pay or in the tax characterization of dividend distributions we pay may adversely affect the market price of our stock or may result in holders of our stock being taxed on dividend distributions at a higher rate than initially expected.

Our dividend distributions are driven by several factors, including our minimum distribution requirements under REIT tax laws and our REIT taxable income as calculated under the Internal Revenue Code. We are generally required to distribute at least 90% of our REIT taxable income to our stockholders, although our GAAP financial results may differ materially from our REIT taxable income. In addition, our Series A preferred stock has a preference on dividend payments and liquidating distributions that may limit dividends paid to holders of our common stock.

In the year ended December 31, 2025, we paid approximately $93 million of cash dividends on our common stock, or $0.72 per share. Dividend payments to holders of our Series A preferred stock are due quarterly on January 15, April 15, July 15, and October 15, each currently in the amount of $1.75 million (or $0.6250 per share of Series A preferred stock) until the first interest rate reset date on April 15, 2028. Our ability to continue paying quarterly dividends may be adversely affected by several factors, including those described in this Annual Report on Form 10-K. We may also consider paying future dividends to common stockholders in shares of common stock, in cash, or a combination thereof. Any decision regarding the composition of such dividends would reflect our analysis of liquidity at the time of payment, including cash balances and cash flows. For example, we may choose to distribute shares of common stock in lieu of cash, or in combination with cash, to satisfy dividend obligations to common stockholders, which could dilute existing common stockholders.

If we determine that future dividends would represent a return of capital or would not be required under applicable REIT tax laws and regulations, we may discontinue dividend payments on our common stock until such dividends again represent a distribution of income or become required under applicable REIT tax requirements. Any reduction or elimination of dividend distributions would reduce the dividends received by holders of our stock and could reduce the market price of our stock and our ability to raise capital in future securities offerings. In addition, if dividends on any shares of our Series A preferred stock are in arrears for six or more quarterly dividend periods, whether or not consecutive, the size of our board of directors will automatically increase by two directors (subject to the maximum number authorized under our bylaws), and holders of the Series A preferred stock will be entitled to elect those additional directors at a special meeting of shareholders and at each subsequent annual meeting until all accumulated and current dividends have been paid or declared and funds set aside for payment.

The rate at which holders of our stock are taxed on dividends we pay, and the characterization of such dividends as ordinary income, qualified dividends, long-term capital gains, or return of capital, may affect the market price of our stock. Although we announce the expected tax characterization of dividend distributions, the actual characterization may differ due to errors, adjustments made during the preparation of our tax returns, or changes resulting from an IRS or state tax audit, which could result in stockholders incurring higher tax liabilities than expected.

We may pay taxable dividends on our common stock in cash and in shares of common stock, in which case stockholders may sell shares of our stock to pay tax on such dividends, placing downward pressure on the market price of our stock.

We may satisfy the REIT 90% distribution requirement through taxable distributions payable in shares of our common stock. IRS Revenue Procedure 2017-45 permits publicly offered REITs to pay elective cash/stock dividends and provides that such distributions will be treated as taxable dividends under Section 301 of the Internal Revenue Code, provided that at least 20% of the total distribution is payable in cash and the other conditions set forth in the Revenue Procedure are satisfied.

If we pay a taxable dividend in cash and common stock, taxable stockholders will be required to include the full amount of the dividend as taxable income to the extent of our current and accumulated earnings and profits. As a result, stockholders may owe income tax in excess of the cash portion received. A U.S. stockholder who sells the shares distributed to cover this tax may receive proceeds that are less than the amount included in taxable income, depending on the market price at the time of sale. In addition, we may be required to withhold U.S. federal income tax on such dividends for certain non-U.S. stockholders, including on the stock portion. If a significant number of stockholders sell shares to pay taxes on these dividends, this selling could place downward pressure on the trading price of our common stock.

The market price of our stock could be negatively affected by various factors, including broad market fluctuations.

The market price of our stock may be negatively affected by various factors, which may change over time, including:

• Our actual or anticipated financial condition, performance, and prospects, and those of our competitors.
• Market conditions for similar securities issued by other specialty finance companies, REITs and industry participants.
• Demand for assets we originate or acquire, including assets held in our investment portfolio.
• Changes in how investors and research analysts assess our stock, including adjustments to valuation methodologies.
• Changes in analyst recommendations or earnings estimates for us, our competitors, or our industry.
• General economic and financial market conditions, including actual and projected interest rates, prepayment activity, credit performance, mortgage origination volumes, market conditions for assets we hold or invest in, and developments in casualty insurance (including homeowner’s insurance) markets.
• Regulatory proposals or changes affecting financial markets, financial institutions, related industries, or financial products.
• Events that undermine confidence in financial markets, including instability or failure of major financial institutions or significant corporations, terrorist attacks, warfare (including in Ukraine and the Middle East), natural or man-made disasters, pandemics or epidemics, or threatened or actual armed conflicts.

Stock price fluctuations may occur even when unrelated to our financial performance, and investors could experience declines in the value of their investment for reasons beyond our control.

Cybersecurity Risk Management and Strategy

We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical information technology (“IT”) systems and information. Our cybersecurity risk management program includes a cybersecurity incident response plan and is one aspect of the overall set of policies, procedures and techniques that we employ at the Company to manage risk. Many of the mechanisms for identifying, managing and reporting on cybersecurity risk are integrated into the Company’s broader policies and procedures relating to risk management; however, due to the unique nature of cybersecurity risk, key aspects of our cybersecurity risk management program are intended to function on a stand-alone basis, including to ensure rapid escalation and response to cybersecurity incidents.

Our cybersecurity risk management program includes:

• Risk assessments designed to help identify material cybersecurity risks to our critical systems, information, operations, and our Company’s overall IT environment;
• A team of IT professionals principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) together with our legal/compliance team, our response to cybersecurity incidents;
• Use of third-party service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls, including, without limitation, periodic penetration testing, network vulnerability and web application scanning, and system monitoring via System Information and Event Management (“SIEM”) or other monitoring tools;
• Employee and contractor trainings on information security awareness, data privacy awareness, and phishing/social engineering mitigation, as well as periodic tabletop exercises involving IT professionals and executive management to review roles and responsibilities and walk through practical aspects of responding to cybersecurity incidents;
• A cybersecurity incident response plan that sets forth guidelines, policies and procedures for identification, escalation, containment, investigation, remediation, recovery, notification, legal compliance and related processes and actions in response to a cybersecurity incident; and
• A risk management process for third-party service providers, suppliers, and vendors, which includes criteria for risk-based categorization of these third parties and policies and procedures relating to assessing their cybersecurity practices prior to engagement and periodic monitoring during the course of engagement.

We design and assess our cybersecurity risk management program based on the National Institute of Standards and Technology Cybersecurity Framework (“NIST CSF”) – i.e., we use the NIST CSF as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business, but our use of the NIST CSF as a guide does not mean that we meet the particular technical standards, specifications, or requirements of all of the NIST CSF.

We have not currently identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected or that we believe are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition. For additional information about cybersecurity risk, refer to Part II, Item 7 of this Annual Report on Form 10-K generally and under the heading “Maintaining information security and complying with data-privacy and technology laws are critical; a cybersecurity or data incident, or a violation of such laws, could materially harm us” in Part I, Item 1A of this Annual Report on Form 10-K.

Cybersecurity Governance

As part of its risk oversight function, our Board, including through delegation to its Audit Committee, regularly receives risk management reporting from various officers of the Company responsible for different risk disciplines, including with respect to cybersecurity and IT risk, and oversees management’s administration of our cybersecurity risk management program. For example, officers within our IT department provide periodic (generally at least once per quarter) reports from management to the Audit Committee related to cybersecurity, our cybersecurity risk management program and related risks, with copies of these reports also provided to our full Board. These reports supplement materials and presentations from outside experts that are also provided to our Board members from time to time as part of the Board’s and Audit Committee’s continuing education on risk oversight topics such as cybersecurity that impact companies in our industry and, more generally, publicly-traded companies. In addition, management provides event-driven updates to the Audit Committee and Board regarding any material cybersecurity incidents and, as appropriate, any incidents with lesser impact potential. Under our cybersecurity incident response plan, our Chief Legal Officer is responsible for escalating to the Audit Committee and Board information regarding any material cybersecurity incident.

Our management team, including officers within our IT department, is responsible for assessing and managing our material risks from cybersecurity threats. Our IT department has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and the external cybersecurity consultants we retain. The officers and employees of the Company who manage our IT function and our cybersecurity risk management program have significant experience, individually and collectively, and key members of our IT department hold industry certifications, including multiple individuals who are Certified Information System Security Professionals (“CISSP”) and Certified Information Systems Auditors (“CISA”). Overall, we believe we have a team of IT professionals skilled in a range of disciplines related to the design and implementation of our cybersecurity program, as well as in assessing security controls and processes and addressing or remediating emerging threats and findings that are identified.

Members of our senior management team supervise our IT function and its efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents. In addition to day-to-day management, our senior management team’s supervision of these efforts includes receiving and responding to briefings from IT personnel, updates on cyberthreat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us, and notification of significant alerts and reports produced by third parties and security tools deployed in our IT environment.

Our principal executive and administrative office is located in Mill Valley, California and we have additional offices, including at the locations listed below. We do not own any properties and lease the space we utilize for our offices. Additional information on our leases is included in Note 19 to the Financial Statements within this Annual Report on Form 10-K. The following table presents the locations and remaining lease terms of our primary offices.

Executive and Administrative Office Locations and Lease Expirations

For information on our legal proceedings, see Note 19 to the Financial Statements within this Annual Report on Form 10-K under the heading "Loss Contingencies - Litigation, Claims and Demands."

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 II, Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K. References herein to “Redwood,” the “company,” “we,” “us,” and “our” include Redwood Trust, Inc. and its consolidated subsidiaries, unless the context otherwise requires. 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 in Part I, Item 1, Business and in Part I, Item 1A, Risk Factors of this Annual Report on Form 10-K.

OVERVIEW

Our Business

Redwood Trust, Inc., together with its subsidiaries, is a specialty finance company focused on several distinct areas of housing credit, with a mission to make quality housing, whether rented or owned, accessible to all American households. Our operating platforms occupy a unique position in the housing finance value chain, providing 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 and our publicly-traded securities.

Our aggregation, origination, and investment activities have evolved to incorporate a diverse mix of residential consumer and residential investor housing credit assets. We operate our business across four reportable segments: Sequoia Mortgage Banking, CoreVest Mortgage Banking, Redwood Investments, and Legacy Investments. Our two mortgage banking segments generate income from the origination or acquisition of loans and the subsequent sale or securitization of those loans. Our Redwood Investments portfolio is comprised of investments sourced through our mortgage banking operations as well as investments purchased from third-parties, and generates income primarily from net interest income and asset appreciation. Our Legacy Investments portfolio is comprised of assets that were previously included within the Redwood Investments segment and generates income primarily from net interest income.

Redwood Trust, Inc. has elected to be taxed as a real estate investment trust (“REIT”). We generally refer, collectively, to Redwood Trust, Inc. and those of its subsidiaries that are not subject to subsidiary-level corporate income tax as “the REIT” or “our REIT.” We generally refer to subsidiaries of Redwood Trust, Inc. that are subject to subsidiary-level corporate income tax as “our taxable REIT subsidiaries” or “TRS.”

For a full description of our segments, see Part I, Item 1—Business in this Annual Report on Form 10-K.

Business Update

Over the past year, our focus has been on advancing Redwood Trust’s strategic transition toward a more scalable, capital-efficient, and simplified operating model centered on our mortgage banking platforms. During 2025, we accelerated the repositioning of our balance sheet, reallocated capital away from legacy investment activities, and materially expanded the scale of our core operating businesses. These efforts resulted in record production volumes and improved capital efficiency, positioning us for a more durable and predictable earnings profile, which we saw begin to materialize in the fourth quarter of 2025.

The housing finance market in 2025 was characterized by continued affordability challenges, subdued overall transaction activity, and evolving dynamics across bank and non-bank mortgage lending. While mortgage rates remained elevated for much of the year, volatility in interest rates and capital markets persisted, alongside shifting regulatory and policy considerations affecting housing supply, bank balance sheet positions, and institutional participation in residential mortgage finance. Against this backdrop, retrenchment by banks from certain areas of mortgage lending continued to create opportunities for non-bank platforms capable of providing liquidity, distribution, and capital-efficient execution at scale.

In response to these market dynamics, we furthered our role as a leading provider of capital to the non-agency market, emphasizing growth across our Mortgage Banking platforms, which is comprised of Sequoia (inclusive of Aspire) and CoreVest, while actively reducing exposure to assets and strategies that no longer align with our long-term operating objectives. For the full year, our Mortgage Banking platforms generated a record level of production, comprised of $20.7 billion of Sequoia loan locks and $2.0 billion of CoreVest funded volume, more than double our 2024 production. During the second half of 2025, Sequoia loan lock and CoreVest loan funding volume was $14.1 billion, which on a standalone basis, would have represented our second-largest production year ever.

At December 31, 2025, 81% of our capital was allocated to our Mortgage Banking platforms and Redwood Investments, compared to approximately 62% at the end of 2024, reflecting our continued shift toward an originate-to-distribute business model. A central element of our strategy in 2025 was the accelerated wind-down of our Legacy Investments portfolio. These assets, which include legacy unsecuritized bridge loans, residential re-performing loan securities, and third-party originated investments, were largely accumulated during prior periods when market conditions and return opportunities differed materially from those prevailing today.

Throughout the year, we executed a series of asset dispositions, financings, and restructurings to reduce our exposure to Legacy Investments, improve balance sheet flexibility, and enhance our earnings profile. During 2025, we completed approximately $1.2 billion of legacy asset dispositions, including outright sales, structured financings, and partnership transactions. As a result, Legacy Investments declined from approximately 33% of total capital in mid-2025 to 19% by year-end, with continued progress expected as remaining assets are resolved.

Proceeds from these actions enabled the repayment of higher-cost secured debt, improved utilization of flexible funding sources, and redeployment of capital into higher-return operating activities. In parallel, we actively managed our corporate capital structure, including repayment of our convertible notes that matured in 2025, issuance of $190 million of senior unsecured debt, and repurchase of $53 million of common stock during the year, the latter of which contributed approximately $0.13 per share of book value accretion.

Our Sequoia platform, which includes Aspire, delivered record production in 2025, reflecting continued market share gains across both bank and independent mortgage bank (“IMB”) counterparties. Full-year Sequoia lock volume totaled approximately $20.7 billion, increasing substantially year over year, with record quarterly production achieved in both the third and fourth quarters. In the fourth quarter alone, Sequoia locked $6.8 billion of loans (inclusive of Aspire activity), representing a 193% increase compared to the fourth quarter of 2024. Overall 2025 volumes translated into 7.0% of jumbo market share, up from 4.3% in 2024 and compared to our 1-2% historical average.

Aspire, our expanded-credit and non-QM platform included within the Sequoia platform, completed its first full year of operations in 2025 and scaled rapidly throughout the year. Aspire locked $3.2 billion of loans in 2025, including record quarterly production of approximately $1.5 billion in the fourth quarter. Aspire’s seller network expanded to 123 originators, with 69% of volume sourced from originators that also transact with Sequoia, demonstrating the benefits of our integrated platform approach.

Bulk transactions represented a significant portion of Sequoia’s activity during the year, particularly with bank counterparties seeking capital-efficient alternatives to holding residential mortgage loans on balance sheet. Production was supported by continued strength in both flow and bulk executions, including the purchase of a large seasoned loan pools in each of the first and third quarters of 2025 and additional seasoned bank collateral acquired during 2025 as institutions repositioned balance sheets amid increased merger and acquisition activity. Product breadth also contributed to record lock volumes, including growth in Adjustable-Rate Mortgages (“ARMs”) and Closed-End Seconds (“CES”), reflecting borrower demand for alternative affordability structures in a higher-rate environment and broadening Sequoia’s sourcing capabilities. Refinancing volumes for our Sequoia prime jumbo products increased during the second half of 2025, representing approximately 35% of second-half lock volume, compared to approximately 26% in the first half of the year.

Distribution remained a core differentiator across the Sequoia platform, inclusive of Aspire. During the fourth quarter, Sequoia distributed approximately $3.0 billion of loans through securitizations and an additional $1.2 billion through whole loan sales, supporting rapid capital turnover and attractive returns. Loans were typically held on balance sheet for approximately 36 days prior to sale or securitization, limiting balance sheet risk and enhancing capital efficiency. As production volumes increased, cost per loan (calculated as operating expenses divided by loan purchase commitments) declined to 0.23% in 2025 from 0.29% in 2024, a 21% year-over-year improvement driven by operating leverage and disciplined cost management.

Distribution capabilities expanded alongside production within Aspire. During 2025, Aspire completed $914 million of loan sales to various institutional buyers, including its first whole loan sale to a bank in the fourth quarter, and prepared for the launch of its inaugural securitization platform in early 2026. These activities supported improved capital turnover and positioned Aspire for continued growth and enhanced returns as volumes scale.

CoreVest continued to expand its footprint in business purpose lending, delivering 13% year-over-year growth in funded volume during 2025. Production increasingly shifted toward smaller-balance products, including RTL and DSCR loans. In the fourth quarter, RTL represented 37% of funded volume, while DSCR production increased 43% from the prior quarter. Importantly, these two products represented 40% of CoreVest's full year 2025 volume, representing clear progress on our strategic focus for the platform.

Distribution activity supported improved liquidity and capital efficiency, while credit performance remained an area of focus. The second and fourth quarters of 2025 each represented record quarters for CoreVest distribution activity, reflecting continued momentum across securitizations, whole loan sales, and transfers to joint ventures. Since launching our joint venture strategy, cumulative loan transfers to these vehicles were $2.1 billion in early 2026, underscoring the scale and capital efficiency achieved through this distribution channel. We continued to apply targeted credit overlays, tightened leverage in vulnerable markets, and actively managed legacy exposures. As a result of these efforts, 90-day-plus delinquencies in the legacy unsecuritized bridge loans portfolio declined significantly during the year, and remaining exposure became increasingly concentrated in a smaller number of assets.

Net cost to originate, calculated as operating expenses less upfront origination fees divided by total origination volume, improved 22% year-over-year from 1.18% in 2024 to 0.92% in 2025. The improvement reflects higher production volumes, disciplined expense management and improved revenue margins achieved through joint venture and other distribution channels. These efficiency gains follow improvements realized in 2024 and demonstrate operating leverage as production volumes increase.

Capital efficiency was a defining feature of our operating model in 2025. Across our mortgage banking platforms, working capital usage averaged approximately 2.5% of total production volume, reflecting high levels of capital turnover driven by sales, securitizations, and joint venture activity.

As volumes scaled, revenue growth significantly outpaced operating expense growth. Combined mortgage banking fixed cost per loan declined by approximately 44% year over year, while revenue-to-expense efficiency improved by 35%. Total operating expenses declined to approximately 0.9% of production volume, compared to 1.6% in the prior year, reflecting disciplined cost management and operating leverage embedded in our model.

By the end of 2025, Redwood Trust operated with a simplified balance sheet, a greater concentration of capital in core operating activities, and an expanded network of institutional capital partners. Our operating platforms entered 2026 with strong production momentum, diversified funding and distribution channels, and infrastructure designed to support continued growth as housing market conditions evolve.

While housing affordability, interest rate trends, and policy developments remain key variables influencing market activity, we believe the structural changes implemented during 2025 have strengthened our ability to generate durable returns across a range of market environments. Our focus remains on scaling our operating platforms, efficiently deploying capital, and creating long-term value through disciplined execution and risk management.

RESULTS OF OPERATIONS

Within this Results of Operations section, we provide commentary that compares results year-over-year for 2025 and 2024. Most tables include "changes" columns that show the amounts by which the results from 2025 are greater or less than the results from the respective period in 2024. Unless otherwise specified, references in this section to increases or decreases in 2025 refer to the change in results from 2024 to 2025.

Consolidated Results of Operations

The following table presents the components of our net (loss) income by segments for the years ended December 31, 2025 and 2024.

Table 1 – Net (Loss) Income

(In Thousands)

54

Comparison of Consolidated Results of Operations for Years Ended December 31, 2025 and 2024

Net loss for the year ended December 31, 2025 totaled $77 million, compared with net income of $47 million for the year ended December 31, 2024. The decline primarily reflects adverse fair value adjustments and reduced net interest income primarily associated with our Legacy bridge loan portfolio, lower HEI income, net and higher operating expenses tied to volume growth across the Mortgage Banking platforms. This decline was partially offset by stronger performance in our Mortgage Banking operations.

Net interest income decreased to $83 million from $103 million year over year. 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 was primarily due to lower average balances of term loan securitizations and the higher average cost of debt on securitized bridge loans incurred in 2025. These decreases were partially offset by higher net interest income from our Mortgage Banking operations. Sequoia net interest income in particular increased by $39 million, driven by higher loan purchase volumes and lower base floating rates on financing facilities as SOFR declined in 2025, relative to the prior year. CoreVest net interest income also increased by $3 million, primarily driven by increased funding volumes and lower SOFR.

Mortgage banking activities, net increased to $167 million from $99 million in the prior-year period, reflecting stronger performance across volume, profitability and efficiency for our Mortgage Banking operations. Sequoia Mortgage banking activities, net increased by $58 million, as lock volumes rose to $20.7 billion from $9.0 billion in the prior year. This growth was supported by continued strength in both flow and bulk executions across our network of loan sellers, including the purchase of various seasoned loan pools during 2025, along with outperformance of interest rate hedges. Sequoia also benefited from substantial growth in our new Aspire platform in 2025, where lock volumes totaled $3.2 billion. CoreVest reported $51 million of Mortgage banking income during 2025, compared with $42 million in the prior year, driven by higher funding levels, improved execution economics across products, as well as elevated distribution across securitization, whole loan sales and sales to joint ventures.

Investment fair value changes increased to a $97 million net loss in 2025 from a $15 million net loss in the prior year. The decline was primarily driven by negative fair value adjustments on our legacy unsecuritized bridge loans, and to a lesser extent, legacy unsecuritized term loans, reflecting increased delinquencies and credit stress in certain 2021 and 2022 vintage loans. These loans were underwritten during a period of significantly lower interest rates, more favorable financing conditions and different market fundamentals. These negative fair value adjustments reflected both realized and anticipated near-term resolutions on these loans, REO assets and other non-core legacy assets associated with completing the resolution or transfer of these assets. This decline was partially offset by fair value gains, net of associated interest rate hedges, on our net investment in our consolidated SLST (re-performing loans) securitization entities which benefitted from lower rates and improved credit performance in 2025 compared to 2024. In the fourth quarter of 2025, we sold all of the securities that we had retained from our SLST securitization entities and deconsolidated our securitized re-performing loans and related ABS issued.

HEI income (loss), net recorded a $0.7 million net gain in 2025, compared with a $42 million net gain in the prior-year 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 $222 million from $184 million year over year, primarily reflecting higher fixed and variable compensation tied to volume growth across the Mortgage Banking platforms, as well as higher portfolio-management costs linked to Legacy loan resolutions.

For additional detail on these results, see the “Segment Results” section that follows.

Comparison of Consolidated Results of Operations for Years Ended December 31, 2024 and 2023

For a discussion of our consolidated results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023, please refer to Item 7 of Part II, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report in Form 10-K for the year ended December 31, 2024, which was filed with the SEC on March 3, 2025.

Consolidated Net Interest Income

The following tables present the components of net interest income recorded in each line item of our consolidated statements of (loss) income for the years ended December 31, 2025 and 2024.

Table 2 – Consolidated Net Interest Income

(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 (loss) 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 (loss) income for the years ended December 31, 2025 and 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 (loss) 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 Part I, Item 1, and Note 4 in Part II, Item 8 of this Annual Report on Form 10-K.

The following table presents the segment contribution from our four segments reconciled to our consolidated net (loss) income for the years ended December 31, 2025 and 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 years ended December 31, 2025 and 2024.

Corporate/Other

Expenses from Corporate/Other remained flat year-over-year, primarily attributable to offsetting changes in expense components. Higher compensation and related costs associated with increased headcount supporting Mortgage Banking platform growth were largely offset by lower corporate interest expense resulting from lower average corporate debt balances.

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 residential consumer 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.

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 "Expanded". 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 finance 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.

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 in Part II, Item 8 of this Annual Report on Form 10-K 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.

The following tables present key earnings and operating metrics and loan inventory activity for our Sequoia Mortgage Banking segment for the years ended December 31, 2025 and 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 for the years ended December 31, 2025 and 2024.

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.

Sequoia Mortgage Banking segment contribution increased to $126 million from $61 million for 2025, as compared to the prior year, driven by higher mortgage banking income from increased loan lock and purchase volumes, strong distribution activity, tightening credit spreads, and sustained operating efficiency. The Sequoia Mortgage Banking segment represents one of the Company’s primary capital-efficient operating platforms and a key driver of earnings growth. During 2025, the segment transitioned into a phase of scaled execution, reflecting sustained engagement with loan sellers, consistent access to capital markets, and continued operating leverage. Results for the year reflect both higher production volumes and disciplined execution across acquisition, hedging, and distribution activities.

Total loan locks for the year ended December 31, 2025 were $20.7 billion, compared to $9.0 billion in the prior year, representing a 130% increase. Growth was broad-based across both flow and bulk acquisition channels and was supported by deeper engagement with bank sellers as well as increased activity from independent mortgage bankers or IMBs. Our network now includes 210 originators across banks and IMBs and we estimate our full-year 2025 jumbo market share at 7%, up materially from prior years. Lock volume benefited from continued demand for prime jumbo products and increased availability of seasoned collateral as financial institutions evaluated balance sheet repositioning opportunities. In addition, we increased our lock volume in other products such as closed-end second liens ("CES") and adjustable rate-mortgages ("ARMs").

Aspire, which is included within the Sequoia Mortgage Banking segment, contributed $3.2 billion of lock volume during 2025 following its launch in the first quarter of the year. Aspire’s activity was supported with strong contributions from both flow and bulk channels, with close to 69% sourced through flow channels and approximately 70% from sellers in the Sequoia network. Although Aspire remains early in its development, performance to date highlights strengthening investor demand for "Expanded" products in a growing market segment, supporting overall segment results.

Distribution activity remained robust during 2025, with approximately $4.0 billion of loans sold through whole-loan sales and sixteen securitizations completed, backed by $8.5 billion of loans. Of the $4.0 billion of whole loan sales, nearly $1 billion related to Aspire-originated loans, with the remainder attributable to Sequoia prime jumbo production. The combination of whole loan sales and securitizations supported efficient balance sheet turnover and capital recycling throughout the year.

Gain on sale margins (calculated as net revenue divided by loan purchase commitments) for the segment averaged 116 basis points, exceeding the company’s long-term target range of 75 to 100 basis points, compared to 137 basis points in 2024. The year-over-year decrease was primarily driven by a higher proportion of bulk executions and modest spread compression, partially offset by favorable hedge performance and disciplined execution. Margins remained above the company's long-term target range of 75 to 100 basis points.

Operating expenses increased by $18 million year over year, reflecting higher loan acquisition costs, increased variable compensation associated with increased production levels and operating expenses related to the build out of Aspire. Cost per loan (calculated as operating expenses divided by loan purchase commitments) improved to 23 basis points in 2025 from 29 basis points in 2024, reflecting continued operating leverage as volumes scaled. The platform continues to utilize a combination of interest-rate futures, TBAs, and other hedging instruments to mitigate pipeline volatility and protect execution margins.

Capital allocated to the Sequoia Mortgage Banking segment increased to $650 million at December 31, 2025, compared to $350 million at December 31, 2024, reflecting higher working capital requirements associated with increased loan inventory and securitization activity, including approximately $200 million allocated to Aspire, which commenced operations in the first quarter of 2025. Despite higher average capital allocation during the year, the segment maintained loan holding periods of approximately 36 days. This was supported by consistent whole-loan sales and securitization execution, which enabled active capital recycling and limited balance sheet duration risk.

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 3 to 30 years) or "bridge" loans (fixed and floating-rate loans with maturities that generally range between 12 and 36 months, typically used to finance transitional properties or value-add strategies).

Residential investor term loans include both larger balance and smaller balance mortgage loans secured by stabilized residential real estate (primarily 1-4 units detached or multifamily) that the borrower owns as an investment property and rents to residential tenants. Our smaller balance term loans are referred to as DSCR loans, which are fixed or floating-rate loans underwritten primarily on the basis of the property's debt service coverage ratio, rather than the borrower's personal income, and designed for stabilized rental properties.

Residential investor bridge loans include both larger balance and smaller balance 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 smaller balance bridge loans are referred to as RTL loans, which are short-term, typically fixed-rate loans secured by 1-4 units residential properties that are commonly used by investors to acquire, renovate, or reposition properties prior to stabilization or exit.

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).

We typically distribute most of our loans through our CAFL® private-label securitization program, through whole loan sales, transfers into our Redwood Investments portfolio or into sales into one of our joint ventures. 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 rate 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 in Part II, Item 8 of this Annual Report on Form 10-K 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 years ended December 31, 2025 and 2024.

Table 7 – CoreVest Mortgage Banking Earnings Summary

(In Thousands)

CoreVest Mortgage Banking segment contribution presented in Table 7 above is comprised of net interest income from our loans held-for-sale in inventory, mortgage banking activities, net (see Note 5 in Part II, Item 8 of this Annual Report on Form 10-K for further detail on the composition of mortgage banking activities, net), fee income (loss) from administration services for our joint ventures and other income, net for this segment. Operating expenses presented in the table above include general and administrative expenses, loan acquisition costs and other expenses (including amortization of purchase intangibles) for this segment. 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 in those periods presented above.

The following table provides unsecuritized residential investor loan origination activity for the years ended December 31, 2025 and 2024.

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 (loss) 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 (loss) income.

(2) Fundings and sales for Residential investor bridge loans for the year ended December 31, 2025 includes $126 million of construction draws, of which $88 million were related to construction draws on loans sold to our joint ventures. Funding and sales for Residential investor bridge loans in 2024, includes $49 million related to construction draws on loans sold to a joint venture with an institutional investment manager.

(3) Fundings include small-balance loans, consisting of DSCR loans reported within Residential investor term loans and RTL loans reported within Residential investor bridge loans.

(4) For the years ended December 31, 2025 and 2024, acquisitions include loans acquired from a residential construction loan originator, with whom we have a strategic equity method investment, and loan repurchases. See Note 12 in Part II, Item 8 of this Annual Report on Form 10-K for further information.

(5) 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.

CoreVest segment contribution increased to $20 million from $2 million for 2025, as compared to the prior year, primarily driven by higher mortgage banking income resulting from increased funding volumes, improved distribution execution, a shift in product mix toward smaller-balance investor loans, and operating efficiencies across the platform.

CoreVest funded $2.0 billion of loans during 2025, representing a 13% increase compared to $1.7 billion in 2024, driven by continued borrower demand across bridge and term lending products and growth in small balance loans, RTL and DSCR loans, areas of strategic focus for the platform. Approximately 40% of 2025 funded volume consisted of small-balance loans: RTL production increased by 36% to $641 million from $471 million in 2024, while DSCR volumes grew 134% to $150 million from $64 million. The shift in mix reflects strong demand for transitional and cash-flow-based lending products and aligns production with institutional investor demand for these assets.

CoreVest’s lending activity continues to primarily serve small- to mid-sized investors, with approximately 86% of funded volume for the last two years attributable to borrowers who own fewer than 100 housing units. Only a nominal share of originations is associated with larger institutional investors, and CoreVest’s largest borrowers are generally focused on purpose-built Build-for-Rent ("BFR") communities rather than the acquisition of existing scattered-site single-family rental ("SFR") properties.

Distribution activity increased to $2.1 billion during the year ended December 31, 2025, representing a 33% increase compared to $1.6 billion in 2024. During the year, loans were distributed across multiple channels, including whole loan sales, securitizations and sales to joint ventures. Of the 2025 total, $980 million of loans were transferred to one of our joint ventures, split evenly between bridge and term loans. The increase in distribution activity reflects broader execution across these channels and sustained investor demand for our products, supporting improved capital turnover during the year.

Net cost to originate, calculated as operating expenses less upfront origination fees divided by total origination volume, improved 22% year-over-year from 1.18% in 2024 to 0.92% in 2025. The improvement reflects higher production volumes, disciplined expense and improved revenue margins achieved through joint venture and other distribution channels. These efficiency gains follow improvements realized in 2024 and demonstrate operating leverage as production volumes increase.

Capital allocated to CoreVest, including capital allocated to joint ventures, increased to $145 million at December 31, 2025 from $75 million at December 31, 2024, reflecting higher funding volumes and increased loan inventory levels. The platform continues to utilize joint venture structures and non-recourse financing arrangements to support loan inventory and facilitate 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, legacy unsecuritized bridge and term loan portfolios, our consolidated re-performing loan securitization entities, 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 Redwood Investments portfolio will focus on retained interests from the Company’s own securitizations and other investment vehicles, 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 years ended December 31, 2025 and 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. Gains and losses from the sale of AFS securities are recorded as Realized gains, net, in our consolidated statements of (loss) income. See Table 3 in the Consolidated Results of Operations section of this MD&A for further detail on the composition of investment fair value changes (the difference in amounts in the table above and in Table 4 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.

During the year ended December 31, 2025, segment contribution was $65 million lower than the prior year. Net interest income decreased $18 million in 2025 as compared to 2024, primarily due to lower net interest income from securitized term loans and higher average cost of debt on securitized bridge loans incurred in 2025. Investment fair value changes, net declined by $38 million year over year. In 2025, investment fair value changes, net was $1 million, reflecting the benefit from improved credit performance on Sequoia retained and servicing investments, partially offset by a decrease in the value of securitized bridge loans. This compares with investment fair value changes, net in 2024 of $38 million, which was largely attributable to improved credit performance and spread tightening on our CAFL term and Sequoia retained investments. Operating expenses at this segment increased by $11 million in 2025, primarily due to expenses associated with a higher average balance of bridge loans securitized in 2025 relative to 2024.

Fundamental performance of our residential consumer assets within our Redwood Investments portfolio continues to be driven by strong 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, our 90 day+ delinquencies within our Sequoia securities portfolio remained steady at 0.3% at December 31, 2025 compared to 0.2% at December 31, 2024. The 90 day+ delinquencies on our CAFL Term securities portfolio increased to 10.1% at December 31, 2025, compared to 7.4% at December 31, 2024. This increase was largely attributable to a modest increase in newly delinquent loans (net of resolutions) and portfolio runoff due to the resulting decline in the number of loans outstanding, which increased the delinquency rate on a percentage basis in 2025.

We hold certain of our investments, including our MSRs, at our taxable REIT subsidiary. Our provision for (or benefit from) income taxes at this segment is primarily driven by the amount of GAAP income earned (or loss recognized) from investment portfolio activities at our taxable REIT subsidiary.

Redwood Investments Detail

The following table presents a balance sheet summary for our Redwood Investments segment as of December 31, 2025 and 2024.

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 $14.84 billion of loans and $14.12 billion of ABS issued associated with these investments at December 31, 2025. We consolidated $8.82 billion of loans and $8.40 billion of ABS issued associated with these investments at December 31, 2024. At December 31, 2025 and 2024, excludes $134 million and $51 million, respectively, of retained Sequoia securities that were used as hedges for our Sequoia Mortgage Banking segment.

(2) Represents our retained economic investment in securities issued by consolidated CAFL Term securitization VIEs. For GAAP purposes, we consolidated $1.99 billion of loans and $1.68 billion of ABS issued associated with these investments at December 31, 2025. We consolidated $2.49 billion of loans and $2.17 billion of ABS issued associated with these investments at December 31, 2024.

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

(4) Other investments at both December 31, 2025 and 2024 includes net risk share investments of $18 million, representing $19 million of restricted cash and other assets, net of other liabilities of $1 million. Also includes mortgage servicing rights of $33 million and $32 million at December 31, 2025 and 2024, respectively.

(5) Represents our economic investment in securities issued by a consolidated Freddie Mac K-Series securitization entity which were paid off in full during the year ended December 31, 2025. For GAAP purposes, we consolidated $425 million of loans and $389 million of ABS issued associated with these investments at December 31, 2024.

(6) Represents our economic investment in consolidated Servicing Investment VIEs. At December 31, 2025, for GAAP purposes, we consolidated $266 million of servicing investments and $152 million of non-recourse securitization debt, as well as other assets and liabilities for these entities. At December 31, 2024, for GAAP purposes, we consolidated $262 million of servicing investments and $159 million of non-recourse securitization debt, as well as other assets and liabilities for these entities.

During 2025, the size of our Redwood Investments portfolio increased as we deployed capital into new residential Sequoia securities and residential investor bridge loan securitizations, including those sponsored by one of our joint ventures. This was offset by sales and calls of third-party residential and multi-family securities in the portfolio. At December 31, 2025 and December 31, 2024, 95% and 87% of our Redwood Investments were retained from our mortgage banking operations, and 5% and 13% were purchased from third parties for interest rate hedging purposes. This trajectory aligns with Redwood’s strategic shift toward internally-originated investments rather than securities issued by third parties.

The following table summarizes the credit characteristics of Sequoia securities and CAFL term securities at December 31, 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) Underlying loan performance information provided in this table is generally reported on a one-month lag. As such, the data reported in this table is from December 2025 reports, which reflect a loan performance date of November 2025. 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 notional value 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, residential re-performing loan securities and other non-core Legacy assets, that are in the active process of sale, runoff, or other disposition as part of an accelerated strategic repositioning of our business model. These assets were previously included within the Redwood Investments segment. We finance our assets in this segment with a combination of recourse and non-recourse, non-marginable warehouse facilities, 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. At year-end 66% of capital in this portfolio was related to Legacy Bridge Loans (inclusive of certain unsecuritized term loans) and 34% was related to Legacy HEI.

During 2025, we executed on our plan to accelerate the wind down of the Legacy Investments portfolio through approximately $1.2 billion of dispositions and structured transactions. This included the sale of $484 million in fair value of legacy unsecuritized bridge loans and REO assets to a newly formed partnership structure specific for the accelerated wind-down of the Legacy Investments portfolio ("Legacy Trust"). In connection with this transaction, we 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 in the Legacy Investments segment. See further information on this beneficial interest in Note 9 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. As a result of these efforts, Legacy Investments declined from approximately 33% of total capital in mid-2025 to 19% by year-end 2025, with continued progress expected through 2026 as remaining assets are resolved or refinanced.

The continued wind-down of our Legacy Investments portfolio is simplifying our balance sheet and will continue to free up investment capital as we progress with further disposition activity. Asset sales and other accretive financings have enabled the repayment of higher cost secured debt and more efficient utilization of flexible funding sources, including our secured revolving financing facility with one of our joint venture partners. We remain focused on further reducing the legacy portfolio in 2026 while prioritizing maximum recovery through both outright sales and partnership structures that recycle capital while preserving upside where we believe it makes economic sense.

This segment’s earnings are primarily driven by net interest income and other income from investments, changes in the 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 years ended December 31, 2025 and 2024.

Table 12 – Legacy Investments Earnings Summary

(In Thousands)

Investment fair value changes, net is primarily comprised of the change in fair value (both realized and unrealized) of our portfolio investments accounted for under the fair value option and interest rate hedges associated with these investments. See Table 3 in the Consolidated Results of Operations section of this MD&A 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 Redwood Investments and 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.

Legacy Investments reported a $147 million segment loss during the year ended December 31, 2025, with $104 million of the loss recognized in the second quarter of 2025 upon the establishment of the Legacy Investments segment. Net interest loss totaled $25 million in 2025, driven by an increase in 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. Investment fair value losses, net totaled $99 million in 2025, driven by valuation losses recognized on our legacy unsecuritized bridge and term loan portfolios, consolidated re-performing loan securitization entities, and other non-core legacy assets. These losses were driven by realized and anticipated near-term resolutions on these assets and changes in the underlying performance of certain legacy bridge loans, particularly in 2021 and 2022 vintage loans. These loans were underwritten during a period of significantly lower interest rates, more favorable financing conditions and different market fundamentals.

During the year ended December 31, 2025, we executed on our plan to accelerate the wind down of the Legacy Investments portfolio through $1.2 billion of dispositions and structured transactions. We completed approximately $662 million of dispositions of legacy unsecuritized bridge loans and REO assets, including the sale of $484 million in fair value of such assets to the Legacy Trust, $262 million in fair value of HEI, and $254 million of securities we had retained from our consolidated re-performing loan securitization entities. Since the second quarter of 2025 we reduced associated recourse debt by more than $200 million and unlocked approximately $200 million of capital redeployment.

Capital allocated to Legacy Investments declined by $230 million or 43% at December 31, 2025 from 2024, largely due to dispositions and paydowns on our legacy unsecuritized bridge and term loan portfolios, HEI portfolio, and SLST securitized re-performing loans. At December 31, 2025 our capital allocation to Legacy Investments was 19%. The pace of further reductions to capital allocated to Legacy Investments will depend on among other things, broader market conditions and market conditions more specific to the types of assets held in this segment. As we execute on this reallocation strategy, we believe there is an opportunity for consolidated returns to improve.

Investments Detail and Activity

The following table presents a balance sheet summary for our Legacy Investments segment as of December 31, 2025 and 2024.

Table 13 – Legacy Investments Balance Sheet Summary

(In Thousands)

(1) At December 31, 2025 and 2024, represents third-party originated HEI, as well as our net investment in HEI securitization entities.

(2) During the year ended December 31, 2025 we sold 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 8, 9 and 19 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

(3) Residential re-performing loan securities (SLST) reflects the fair value of the securities we retained from our consolidated re-performing loan securitization entities. We sold these securities in 2025. See further information on our VIEs in Note 16 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Legacy Unsecuritized Bridge and Term Loan Portfolios

The following table provides the activity of the legacy unsecuritized bridge and term loans for the years ended December 31, 2025.

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

(In Thousands)

(1) The acquisitions reflected in this table were recorded at the lower of cost or market, and the resulting carrying value approximated fair value at December 31, 2025.

For the year ended December 31, 2025, gross interest income recognized on legacy bridge and term loans totaled $42 million. This amount included a write-off of deferred interest of $13 million.

At December 31, 2025, legacy unsecuritized bridge and term loans in this portfolio with an aggregate fair value of $102 million and an unpaid principal balance of $134 million, were greater than 90+ days delinquent. Of this amount, $82 million of unpaid principal balance related to legacy bridge loans, compared to $243 million at March 31, 2025, reflecting significant resolutions, payoffs and transfers to REO during the year. 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 increased to $91 million at December 31, 2025, from $76 million at December 31, 2024, resulting from transfers to REO of $91 million, partially offset from the sale of one REO property to the Legacy Trust for $33 million, a decrease in fair value totaling $0.2 million and payoffs of $42 million. Legacy REO properties are actively being marketed and are expected to be resolved over the next few quarters.

During 2025, as part of the transaction involving the sale of $484 million in fair value of legacy unsecuritized bridge loans and REO assets to the Legacy Trust, 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 Notes 8, 9 and 19 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.

Loan Composition

The following table provides the composition of legacy unsecuritized term and bridge loans by product type at December 31, 2025.

Table 15 – Legacy Loans - By Product Type at Legacy Investments

(In Thousands)

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

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

At December 31, 2025, the fair value of our legacy bridge and term loans and associated REO represented 85.6% 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

Taxable Income, REIT Status and Dividend Characterization

As a REIT, under the Internal Revenue Code, Redwood is required to distribute to shareholders at least 90% of its annual REIT taxable income, excluding net capital gains, and meet certain other requirements that relate to, among other matters, the assets it holds, the income it generates, and the composition of its stockholders. To the extent Redwood retains REIT taxable income, including net capital gains, it is taxed at corporate tax rates. Redwood also earns taxable income at its taxable REIT subsidiaries ("TRS"), which it is not required to distribute under the Internal Revenue Code.

At December 31, 2025, our full-year dividend distributions exceeded our minimum distribution requirements and we believe that we have met all requirements for qualification as a REIT for federal income tax purposes. Many requirements for qualification as a REIT are complex and require analysis of particular facts and circumstances. Often there is only limited judicial or administrative interpretive guidance and as such there can be no assurance that the Internal Revenue Service or courts would agree with our various tax positions. If we were to fail to meet all the requirements for qualification as a REIT and the requirements for statutory relief, we would be subject to federal corporate income tax on our taxable income and we would not be able to elect to be taxed as a REIT for four years thereafter. Such an outcome could have a material adverse impact on our consolidated financial statements.

The tax basis in assets and liabilities at the REIT was $4.68 billion and $2.73 billion, respectively, at December 31, 2025. The GAAP basis in assets and liabilities at the REIT was $20.21 billion and $19.31 billion, respectively, at December 31, 2025. The primary difference in both the tax and GAAP assets and liabilities is attributable to securitization entities that are consolidated for GAAP reporting purposes but not for tax purposes.

Our 2025 common stock dividend distributions are expected to be characterized for federal income tax purposes as 39% ordinary dividend income (Section 199A), 2% qualified dividends, and 59% return of capital. Our 2025 Series A preferred stock dividend distributions are expected to be characterized for federal income tax purposes as 96% ordinary dividend income (Section 199A) and 4% qualified dividends. Under the federal income tax rules applicable to REITs, none of the 2025 dividend distributions, neither common nor Series A preferred, are expected to be characterized as capital gain dividend income. The income or loss generated at our TRS does not directly affect the tax characterization of our 2025 dividends; however, a $2 million dividend paid from a TRS to our REIT in 2025 allowed a portion of our REIT’s dividends to be classified as qualified dividends.

Tax Provision under GAAP

For the years ended December 31, 2025, 2024 and 2023 we recorded tax provisions of $25 million, $19 million and $2 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. Our TRS income is generally earned from our mortgage banking activities, MSRs, and other non-REIT eligible security investments. The effective tax rate for GAAP income earned at our TRS in 2025 was approximately 25%.

At December 31, 2025, we reported net deferred tax assets of $12 million. Realization of our deferred tax assets ("DTAs") at December 31, 2025 is dependent on many factors, including generating sufficient taxable income prior to the expiration of NOL carryforwards (where applicable) and generating sufficient capital gains in future periods prior to the expiration of capital loss carryforwards. We determine the extent to which realization of our DTAs is not assured and establish a valuation allowance accordingly. At December 31, 2025, we reported net federal ordinary and capital DTAs with no material valuation allowance recorded against them. We closely analyze the realizability of our net deferred tax assets in whole and in part and evaluate our deferred tax assets each period to determine if a valuation allowance is required based on whether it is "more likely than not" that some portion of the deferred tax assets would not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of sufficient taxable income during future periods. We conduct our evaluation by considering, among other things, all available positive and negative evidence, historical operating results and cumulative earnings analysis, forecasts of future profitability, and the duration of statutory carryforward periods. Based on this analysis, we continue to believe it is more likely than not that we will realize our federal deferred tax assets in future periods as income is earned at our TRS; therefore, there continues to be no material valuation allowance recorded against our net federal DTAs. This evaluation requires significant judgment in assessing the possible need for a valuation allowance and changes to our assumptions could result in a material change in the valuation allowance with a corresponding impact on the provision for income taxes in the period including such change.

If in a future period, based on available evidence, we conclude that it is not more likely than not that our DTAs will be realized, then a valuation allowance would be established with a corresponding charge to GAAP earnings, which would reduce our book value. Such charges could cause a material reduction, up to the full value of our net DTAs for which a valuation allowance has not previously been established, to our GAAP earnings and book value per share for the quarterly and annual periods in which they are established and could have a material and adverse effect on our financial results.

Consistent with prior periods, we continued to maintain a valuation allowance against the majority of our net state DTAs as realization of our state DTAs is dependent on generating sufficient taxable income in the same jurisdictions in which the DTAs exist and we project most of our state DTAs will expire prior to their utilization.

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, including financing loans held for sale and managing hedges associated with those activities; to purchase investment securities and make other investments, to repay principal and interest on our debt, including warehouse and other recourse borrowings as loans are sold or securitized; 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 December 31, 2025, our total capital was $1.76 billion, consisting of (i) $0.98 billion of equity capital, (ii) $769 million of convertible notes and other corporate debt on our consolidated balance sheets (including $297 million of convertible debt due in 2027, $143 million of senior unsecured notes due in 2029, $189 million of senior unsecured notes due in 2030, and $140 million of trust-preferred securities due in 2037), and (iii) $9 million of promissory notes payable on demand, subject to a 90-day notice. Excluding the $9 million promissory notes payable on demand within 90 days, at December 31, 2025, our corporate debt does not have any portion maturing in 2026.

Our capital structure continues to reflect the strategic shift toward mortgage banking, which is characterized by faster capital turnover and an originate-to-distribute model. Approximately 62% of our recourse debt is concentrated within our mortgage banking platforms, where loans typically remain on balance sheet for a short duration and related borrowings are repaid as loans are sold or securitized, supporting rapid recycling of our capital for subsequent reinvestment.

Liquidity remains strong, with $256 million of unrestricted cash at December 31, 2025, providing meaningful financial flexibility. 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 on our debt.

At December 31, 2025, in aggregate, we had $3.63 billion of secured recourse debt outstanding, financing our mortgage banking operations and investment portfolio, of which $2.71 billion was marginable and $926 million was non-marginable. The majority of this debt relates to short-term warehouse financing supporting our Sequoia and Aspire mortgage banking platforms, where capital turns rapidly, with loans remaining on balance sheet for an average of approximately 36 days before being sold or securitized.

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" and in Part I, Item 1A - Risk Factors of this Annual Report on Form 10-K.

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 year ended December 31, 2025, we repurchased 9.2 million shares of our common stock for a total cost of $53 million and we repurchased $3 million of our senior unsecured notes. At December 31, 2025, $111 million of the 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. Like investments we may make, any repurchases of our common stock, preferred stock, or debt securities under these authorizations would reduce our available capital and unrestricted cash described above.

Cash Flows and Liquidity for the Year Ended December 31, 2025

Cash flows from our mortgage banking activities and our investments can be volatile from year to year 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

In 2025, cash flows used in operating activities increased by $4.23 billion from $5.86 billion in the year ended December 31, 2024, to $10.09 billion in the year ended December 31, 2025, primarily due to the increase in residential consumer loan purchases and an increase in originations of residential investor loans 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 $10.11 billion of net cash outflows for 2025, compared to $5.84 billion of net cash outflows in 2024), cash flows from operating activities were positive $13 million for the year ended December 31, 2025 and negative $26 million for the year ended December 31, 2024.

Cash Flows from Investing Activities

In 2025, our net cash provided by investing activities was $4.53 billion. This was due to the receipt of $4.66 billion of principal payments received on primarily securitized loans held-for-investment. Additionally, during 2025, we sold $385 million of real estate securities, including $254 million of residential re-performing loan securities, as well as $262 million of third-party originated HEI from our Legacy Investments segment. 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

In 2025, our net cash provided by financing activities was $5.70 billion. This primarily resulted from $4.52 billion of net borrowings under ABS issued (resulting from the issuance of sixteen Sequoia securitizations, two residential investor bridge securitizations, as well as the issuance of ABS through three Sequoia re-securitizations of certain consolidated and unconsolidated Sequoia securities, net of related issuance costs), and $1.34 billion of net borrowings on debt obligations. During the year ending December 31, 2025, net cash provided from debt obligations included two issuances of senior notes due in 2030 totaling $190 million, 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. During 2025, we repaid $124 million of our exchangeable notes at the maturity date.

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 our 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 December 31, 2025 include maturing debt obligations, interest payments on debt obligations and ABS issued, funding commitments for residential investor and consumer loans, strategic investments, potential repurchases of previously sold or securitized loans, payments on operating leases, and other current payables. Our material cash requirements from known contractual and other obligations beyond the twelve months following December 31, 2025 include maturing long-term debt, interest payments on long-term debt, payments on operating leases and funding commitments for residential investor bridge loans, and strategic investments (including our joint ventures), and principal and interest payments under ABS issued (as described further below under Liquidity Needs for our Investment Portfolio).

At December 31, 2025, we had commitments to fund up to $258 million of additional advances on existing residential investor bridge loans, of which $92 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. Additionally, at December 31, 2025, we had $1.84 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.

In the third quarter of 2025, in connection with the sale of legacy unsecuritized bridge loans to the Legacy Trust, we entered into an agreement to provide up to $35 million of capital support if the Legacy Trust’s portfolio loan-to-value ratios exceed specified thresholds. We funded $10 million at closing, with up to $25 million in additional funding commitments if certain triggers are met. The arrangement was determined to have a fair value of zero initially and at December 31, 2025. The fair value of this funding commitment will be re-evaluated each reporting period.

In the first quarter of 2024, we entered into a joint venture with an institutional investment manager pursuant to which we will offer to sell certain residential investor bridge and term loans we originate into joint venture entities that meet specified criteria at contractually pre-established prices. We have committed approximately $140 million of equity capital to be allocated to the joint venture entities and joint venture co-investments to be held in Redwood's investment portfolio. At December 31, 2025, we had $42 million of net contributed capital to the joint venture.

In the second quarter of 2023, we entered into a joint venture with another institutional investment manager to invest in residential investor bridge loans originated by CoreVest. We have a commitment to contribute up to approximately $19 million to the joint venture to fund the joint venture's purchase of residential investor bridge loans, under the updated terms of the joint venture. At December 31, 2025, we had $5 million of contributed capital to the joint venture.

For additional information on commitments and contingencies as of December 31, 2025 that could impact our liquidity and capital resources, see Note 19 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Most of our loan warehouse facilities and our servicer advance financing 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 2025, extinguished others we deemed under-utilized, and have other such facilities with scheduled maturities during the next twelve months. While there is no assurance of our ability to renew our other facilities maturing in the next year, given current market conditions we expect to extend these in the normal course of business.

We expect to meet our obligations coming due in less than one year from December 31, 2025, through a combination of cash on hand, payments of principal and interest we receive from our investment portfolio assets, cash generated from our operating activities, incremental borrowings under existing, new or amended financing arrangements, or through the issuance of equity or debt capital.

See Note 18 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K 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 December 31, 2025, our residential consumer loan warehouse facilities total capacity was $3.55 billion of total capacity, with $756 million of available capacity. These included non-marginable facilities with $400 million of total capacity and marginable facilities with $3.15 billion of total capacity. At December 31, 2025, our residential investor loan warehouse facilities total capacity was $2.13 billion, with $1.84 billion of available capacity. All of the residential investor financing facilities are non-marginable. 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 portfolio.

In October 2025, we extended the commitment period of our joint venture partnership with an institutional investment manager through September 2028 to support ongoing platform growth for our CoreVest Mortgage Banking operations. Additionally, we increased the commitment amount of our secured revolving financing facility from $250 million to $400 million and extended the maturity through March 2027, with an option to extend the maturity through September 2028. Our secured revolving financing facility may be used to finance our Redwood Investments and Sequoia and CoreVest mortgage banking operations, as well as Legacy Investments. This facility provides recourse financing secured by eligible collateral, which may include residential securities, other investments, and equity interests in certain operating subsidiaries. This facility is structured as non-marginable; however, it may be subject to margin requirements or cash flow sweeps under certain circumstances.

As discussed above, several of the facilities we use to finance our mortgage banking loan inventory are short-term in nature and will require renewals. Additionally, because several of our warehouse facilities are uncommitted, at any given time we may not be able to obtain additional financing under them when we need it, exposing us to, among other things, liquidity risks. 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

We use various forms of secured recourse and non-recourse debt to finance assets in our investment portfolio. Our ABS issued is non-recourse and represents debt of securitization entities that we consolidate for GAAP reporting purposes. Our exposure to these entities is primarily through the financial interests we have purchased or retained from these entities (typically subordinate securities and interest only securities). As the debt issued by these entities is not a direct obligation of Redwood and generally remains outstanding for the full term of the underlying loans, it effectively provides long-term financing for these assets. Certain ABS issued, including CAFL bridge loan, are subject to optional redemptions and interest rate step-ups. If we do not redeem these securitizations, the interest rates increase, reducing net interest income; if we elect to redeem them, we must secure alternative financing or utilize available cash. See Note 16 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional information on our principles of consolidation and Note 17 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional information on our asset-backed securities issued.

We also utilize non-recourse, non-marginable warehouse facilities to finance a portion of our residential investor loan portfolio. These facilities have fixed terms and may be refinanced or repaid at maturity. In addition, we consolidate an entity formed to finance servicer advances through non-recourse securitization debt secured by those advances. Our joint ventures similarly maintain dedicated, non-recourse warehouse facilities. See Notes 12 and 19 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional information regarding our residential investor bridge loan joint ventures.

The remainder of the debt used to finance our investments consists of secured recourse facilities, including subordinate securities financing facilities, residential investor loan financing facilities, MSR financing, repurchase agreements, and our HEI warehouse facility. Certain subordinate financing facilities are subject to optional redemption and interest rate step-ups, which may increase financing costs if not refinanced.

Delinquencies on residential investor bridge loans financed through warehouse facilities may result in reduced advance rates or repurchase requirements, requiring the use of additional liquidity. Elevated delinquencies within certain CAFL bridge securitizations could also affect structural features of those transactions, including amortization or revolving provisions.

We use a mix of fixed- and floating-rate debt to finance fixed- and floating-rate investments in order to manage interest rate exposure and net interest income. If interest rates remain elevated, maturing fixed-rate borrowings may require refinancing at higher rates. Conversely, if interest rates decline, approximately 47% of our portfolio debt is callable or matures within the next twelve months, which may provide flexibility if rates decline.

At December 31, 2025, in addition to our ABS issued, our Redwood Investments portfolio was financed with $524 million of secured recourse debt, of which $127 million was marginable and $397 million was non-marginable, and $312 million of secured non-recourse debt that was non-marginable. In addition, $71 million of borrowings from our secured revolving financing facility was allocated to this segment.

Liquidity Needs for our Legacy Investments

At December 31, 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). Certain residential investor warehouse facilities may impose advance rate step-downs or repurchase requirements if underlying loan performance or property valuations deteriorate, which could require the use of additional liquidity. At December 31, 2025, we have also allocated $212 million of outstanding borrowings from our secured revolving financing facility to finance our Legacy Investments segment.

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 debt generally consists of convertible and non-convertible senior debt securities issued in the public markets and also includes trust preferred securities and promissory notes. See Note 18 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional information on our unsecured debt obligations, net.

Risks Relating to Debt Incurred under Borrowing Facilities

In the ordinary course of our business, we use debt financing obtained through various types of borrowing facilities to finance the acquisition and/or origination of residential consumer and investor loans and HEI, as well as investments in securities and other investments. We may also use borrowings to fund other aspects of our operations, including repurchases of common or preferred stock or debt securities. Debt incurred under these facilities is generally either a direct obligation of Redwood Trust, Inc. or its subsidiaries and, in the case of recourse debt, is guaranteed by Redwood Trust, Inc.

Residential Consumer and Investor Loans, MSRs, and HEI Warehouse Facilities. We utilize secured loan, MSR, and HEI warehouse facilities as a primary method of debt financing. As of December 31, 2025, we maintained residential consumer loan warehouse facilities with seven different financial institution counterparties, as well as residential investor loan warehouse facilities financing both term and bridge loans.

The aggregate borrowing limits under these facilities as of December 31, 2025, were:

• Residential consumer loan warehouse facilities: $3.55 billion
• Residential investor loan warehouse facilities: $2.13 billion
• MSR warehouse facility: $125 million
• HEI warehouse facility: $150 million

These facilities are generally uncommitted, meaning a counterparty may decline a borrowing request even if available capacity exists under the facility. Under these arrangements, we transfer mortgage loans, MSRs, or HEI to a counterparty in exchange for cash proceeds at less than 100% of the asset’s principal amount and agree to repurchase the assets at a later date for the same amount plus a financing charge.

To qualify for financing, the loans, MSRs, or HEI must initially and thereafter satisfy specific eligibility criteria. Loans generally may not be delinquent or in default, although certain facilities permit limited continued financing if a loan becomes delinquent. These facilities also impose maximum financing periods, or “dwell time” limits, which may be as short as 364 days, and may include geographic concentration limits on underlying collateral. Our general strategy is to repay borrowings using proceeds from securitization, asset sales, new financing arrangements, or other sources of capital at or before the financing's maturity.

Our warehouse facilities can be categorized as either "marginable" or "non-marginable." Under marginable facilities, a decline in the market value of a financed loan (as determined by the counterparty) may result in a margin call, requiring us to either repurchase the loan or post additional collateral (such as cash or other loans) equal to the value decline. Non-marginable facilities may also permit margin calls under specified circumstances, including loan delinquency, other credit events, declines in underlying property values, extended dwell times, or specified interest rate movements.

For example, a margin call could occur if an appraisal indicates a drop in the estimated value of the property securing the financed mortgage loan. Many warehouse facilities also include netting or offset provisions, allowing a lender to use amounts owed to us under other financial arrangements (e.g., derivative contracts) to satisfy a margin call.

The uncommitted nature of certain warehouse facilities may limit our ability to obtain additional financing when needed. In addition, loans or HEI that become ineligible for financing, decline in value, or exceed permitted financing terms may require repayment or the use of additional liquidity. These facilities are subject to customary representations, warranties, covenants, and events of default. A breach of these provisions, including cross-defaults under other debt arrangements, could result in acceleration of outstanding borrowings and restrict future access to financing. Financial covenants associated with these debt facilities are detailed further in the "Financial Covenants Associated with Debt Facilities and Other Debt Financing" section.

A material adverse change in our business could result in the termination of certain facilities and the acceleration of outstanding borrowings. Failure to comply with facility terms may adversely affect our liquidity, as outlined in the "Risk Factors" and "Market Risks" sections of the Annual Report on Form 10-K.

In addition to the warehouse facilities described above, we may establish additional facilities in the ordinary course of business, which could be larger in size or subject to more restrictive terms. If a counterparty to one or more of our warehouse facilities becomes insolvent or otherwise fails to perform, we may be unable to access short-term financing or recover the full value of financed assets.

Securities Repurchase Facility. We also obtain financing through securities repurchase facilities with financial institution counterparties. These facilities do not have aggregate borrowing limits but are uncommitted, meaning counterparties may decline borrowing requests. Under these arrangements, we transfer securities to a counterparty in exchange for cash proceeds at less than 100% of the securities’ fair value and agree to repurchase the securities at a later date for the same amount plus a financing charge.

Under these securities repurchase facilities, securities are financed for a fixed period, which would not generally exceed 90 days. We generally intend to repay the short-term financing of a security under one of these facilities through a renewal of that financing with the same counterparty, through a sale of the security, or with other sources of capital. If the market value of a financed security declines (as determined by the counterparty), we may be required to repurchase the security or post additional collateral, such as cash or U.S. Treasury securities, equal to the decline in value. As of December 31, 2025, borrowings under securities repurchase facilities totaled $31 million. See further discussion below under the heading “Margin Call Provisions Associated with Debt Facilities and Other Debt Financing.”

At the end of the fixed period applicable to the financing of a security under a securities repurchase facility, if we intend to continue financing that security, we would typically request the same counterparty to renew the financing for an additional fixed period. If the counterparty does not renew the financing, it may be difficult to obtain financing for that security under another securities repurchase facility, as counterparties may only provide financing for securities purchased from them or their affiliates.

Because our securities repurchase facilities are uncommitted, at any given time we may not be able to obtain additional financing under them when we need it, exposing us to, among other things, liquidity risks as described in Part I, Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors,” and in Part II, Item 7A of this Annual Report on Form 10-K under the heading “Market Risks.” In addition, securities financed under these facilities are subject to market, credit, and liquidity risks if they decline in value or reach the maximum financing term permitted under the applicable facility.

Under our securities repurchase facilities, we also make various representations and warranties and have agreed to certain covenants, events of default, and other terms (including of the type described above under the heading “Residential Consumer and Residential Investor Warehouse Facilities”) that if breached or triggered can result in our being required to immediately repay all outstanding amounts borrowed under these facilities and these facilities being unavailable to use for future financing needs. In particular, the terms of these facilities include financial covenants, cross-default provisions, judgment default provisions, and other events of default (including of the type described above under the heading “Residential Consumer and Investor Loans and HEI Warehouse Facilities”). Financial covenants included in our repurchase facilities are further described below under the heading “Financial Covenants Associated with Debt Facilities and Other Debt Financing.”

Our securities repurchase facilities could also become unavailable and outstanding amounts borrowed thereunder could become immediately due and payable if there is a material adverse change in our business. If we breach or trigger the representations and warranties, covenants, events of default, or other terms of our securities repurchase facilities, we are exposed to liquidity and other risks, including of the type described in Part I, Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors,” and in Part II, Item 7A of this Annual Report on Form 10-K under the heading “Market Risks.”

In the ordinary course of business we may seek to establish additional securities repurchase facilities that may have similar or more restrictive terms. In the event a counterparty to one or more of our securities repurchase facilities becomes insolvent or unable or unwilling to perform its obligations under the facility, we may be unable to access the short-term financing we need or fail to recover the full value of our securities financed.

Servicer Advance Financing. In connection with our servicer advance investments, we consolidate an entity that was formed to finance servicing advances and for which we, through our control of an affiliated entity majority owned by Redwood (the "SA Buyer") formed to invest in servicer advance investments and excess MSRs, are the primary beneficiary. The servicer advance financing consists of non-recourse securitization debt secured by servicer advances. Although we consolidate the securitization entity, its assets and liabilities are not legal obligations of Redwood.

SA Buyer has agreed to purchase future servicer advances under certain residential mortgage servicing agreements and relies, in part, on committed capital contributions from its members to fund those purchases. A failure by members to fund required contributions could result in an event of default under the financing and a loss of our investment in SA Buyer and its servicer advance investments and excess MSRs. In addition, if the servicer of the underlying mortgage loans fails to recover servicer advances, or recovery is delayed beyond expectations, the value of our investment could be adversely affected.

The outstanding balance of servicer advances securing the financing is not expected to be repaid before the maturity date in December 2026. We expect to seek renewal or refinancing; however, there can be no assurance such financing will be extended on acceptable terms, which may include higher interest rates, reduced advance rates, or more restrictive conditions. If the financing is not renewed or refinanced, the securitization entity will be required to repay the outstanding balance at maturity. If repayment is not made, the counterparty may foreclose on the pledged servicer advances.

Under this financing, SA Buyer, the securitization entity, and the servicer make customary representations, warranties, and covenants. A breach of these provisions could result in acceleration of outstanding borrowings and a loss on our investment. The financial covenants of SA Buyer included in this servicer advance financing are further described below under the heading “Financial Covenants Associated with Debt Facilities and Other Debt Financing.”

Subordinate Securities Financing Facilities. We obtain non-marginable recourse financing on subordinate securities through subordinate securities financing facilities. Financing is obtained by transferring securities to the counterparty in exchange for cash proceeds at less than 100% of fair value and agreeing to repurchase those securities for the same amount plus a financing charge. These facilities are fully and unconditionally guaranteed by Redwood.

At December 31, 2025, borrowings under one facility totaled $263 million secured by $330 million of real estate securities (including securities retained from consolidated CAFL® securitization entities). Borrowings under a second facility totaled $87 million, secured by $110 million of real estate securities (including securities retained from consolidated Sequoia securitizations and certain third-party issued interest-only securities).

In the ordinary course of business, we may establish additional long-term securities repurchase facilities that could be larger or subject to more restrictive terms.

These facilities contain customary representations, warranties, covenants, and events of default. A breach of these provisions, including failure to repurchase securities at maturity or insolvency of Redwood as guarantor, could result in acceleration of outstanding borrowings and restrict future access to financing. Additional discussion of related risks is included in Part I, Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors,” and in Part II, Item 7A of this Annual Report on Form 10-K under the heading “Market Risks.”

Secured Revolving Financing Facility. We also utilize a secured revolving facility providing non-marginable recourse financing secured by previously unencumbered assets, including retained subordinate securities and equity interests in certain subsidiaries. The facility is fully and unconditionally guaranteed by Redwood Trust, Inc. This facility has a capacity of $400 million, matures on March 31, 2027 (with an option to extend to September 30, 2028) and had $283 million outstanding at December 31, 2025. Although characterized as non-marginable, the facility may require additional collateral or cash flow sweeps if declines in collateral value cause the effective advance rate to exceed specified thresholds.

These facilities contain customary representations, warranties, covenants, and events of default. A breach of these provisions, including failure to repurchase securities at maturity or insolvency of Redwood as guarantor, could result in acceleration of outstanding borrowings and restrict future access to financing. Additional discussion of related risks is included in Part I, Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors,” and in Part II, Item 7A of this Annual Report on Form 10-K under the heading “Market Risks.”

Financial Covenants Associated With Debt Facilities and Other Debt Financing

Set forth below is a summary of the financial covenants associated with our debt facilities and other debt financing facilities.

• Residential Consumer and Residential Investor Loan, Securities and MSR Repurchase Facilities, and HEI Warehouse Facilities. As noted above, one source of our debt financing is secured borrowings under residential consumer and residential investor loan facilities, securities and MSR repurchase facilities, and HEI warehouse facilities that we have established with various financial institution counterparties and, as of December 31, 2025, were in place with several different financial institution counterparties. Financial covenants included in these facilities are as follows and at December 31, 2025, and through the date of this Annual Report on Form 10-K, we were in compliance with each of these financial covenants:
• Maintenance of a minimum dollar amount of stockholders’ equity/tangible net worth at Redwood.
• Maintenance of a minimum dollar amount of cash and cash equivalents at Redwood.
• Maintenance of a maximum ratio of consolidated recourse indebtedness to stockholders’ equity or tangible net worth at Redwood.
• Servicer Advance Financing. As noted above, servicer advance financing consists of non-recourse securitization debt, secured by servicing advances. Financial covenants associated with this financing facility are as follows and at December 31, 2025, and through the date of this Annual Report on Form 10-K, we were in compliance with each of these financial covenants:
• Maintenance of a minimum dollar amount of stockholders’ equity/tangible net worth at SA Buyer.
• Maintenance of a minimum dollar amount of cash and cash equivalents at SA Buyer.
• Corporate Secured Revolving Financing Facility. As noted above, another source of our debt financing is through a corporate secured revolving financing facility. Financial covenants included in this facility are as follows and at December 31, 2025, and through the date of this Annual Report on Form 10-K, we were in compliance with each of these financial covenants:
• Maintenance of a minimum dollar amount of stockholders’ equity/tangible net worth at Redwood.
• Maintenance of a minimum dollar amount of cash and cash equivalents at Redwood.
• Maintenance of a maximum ratio of consolidated recourse indebtedness to consolidated adjusted tangible net worth at Redwood.
• Maintenance of a minimum ratio of consolidated adjusted tangible net worth at Redwood to outstanding under this facility.

As noted above, at December 31, 2025, and through the date of this Annual Report on Form 10-K, we were in compliance with the financial covenants associated with our debt financing facilities. In particular, with respect to these covenants:

• We exceeded minimum equity and tangible net worth requirements by more than $200 million; and
• We could have incurred approximately $2 billion of additional recourse indebtedness while remaining in compliance with leverage covenants.

Margin Call Provisions Associated With Debt Facilities and Other Debt Financing

• Residential Consumer and Residential Investor Loan, MSR, and HEI Warehouse Facilities. As noted above, one source of our debt financing is secured borrowings under residential consumer and residential investor loan and HEI warehouse facilities we have established and, as of December 31, 2025, were in place with several different financial institution counterparties. These warehouse facilities include the margin call provisions described below and during the twelve months ended December 31, 2025, and through the date of this Annual Report on Form 10-K, we complied with any margin calls received from creditors under these warehouse facilities:
• Under our marginable residential consumer loan warehouse facilities, if at any time the market value of any residential consumer loan financed under a facility declines (as determined by the creditor), then the creditor may demand that we transfer additional collateral to the creditor (in the form of cash, U.S. Treasury obligations (in certain cases), or additional residential consumer loans) with a value equal to the amount of the decline. If we receive any such demand, (i) under two of our residential consumer loan warehouse facilities, we would generally be required to transfer the additional collateral on the same day (although demands received after a certain time would only require the transfer of additional collateral on the following business day) and (ii) under two of our residential consumer loan warehouse facilities and our MSR financing facility, we would generally be required to transfer the additional collateral on the following business day. The value of additional residential mortgage loans transferred as additional collateral is determined by the creditor.
• Under certain non-marginable residential consumer and residential investor loan and HEI warehouse facilities, if the value of the property securing a mortgage loan or HEI financed under a facility declines (as determined by an appraisal, broker price opinion, or home price appreciation index, as applicable), then the creditor may demand that we transfer additional collateral to the creditor (in the form of cash, U.S. Treasury obligations (in certain cases), or additional mortgage loans or HEI) with a value equal to the amount of the decline. The conditions precedent to which the creditor may request updated valuation reports varies by agreement, including, for example, based on an agreed schedule, or based on the number of days the loan has been financed under such facility. If we receive any such demand as a result of a margin deficit based on an updated valuation report, we would generally be required to transfer the additional collateral as soon as the same day to within three business days depending on the terms of the agreement. The value of additional residential consumer and residential investor mortgage loans or HEI transferred as additional collateral is determined by the creditor.
• Securities Repurchase Facilities. As noted above, another source of our debt financing is through secured borrowings under securities repurchase facilities we have established with various financial institution counterparties. These repurchase facilities include the margin call provisions described below and during the twelve months ended December 31, 2025, and through the date of this Annual Report on Form 10-K, we complied with any margin calls received from creditors under these repurchase facilities:
• If at any time the market value (as determined by the creditor) of any securities financed under a facility declines, then the creditor may demand that we transfer additional collateral to the creditor (in the form of cash, U.S. Treasury obligations, or additional securities) with a value equal to the amount of the decline. If we receive any such demand, we would generally be required to transfer the additional collateral on the same day (although demands received after a certain time would only require the transfer of additional collateral on the following business day). The value of additional securities transferred as additional collateral is determined by the creditor.
• Secured Revolving Financing Facility. As noted above, another source of our debt financing is through a corporate secured revolving financing facility. This facility includes the margin call provisions described below and during the twelve months ended December 31, 2025, and through the date of this Annual Report on Form 10-K, we complied with any margin calls received from the creditor under this facility:
• If at any time the market value of financed collateral declines in an aggregate amount that causes the effective advance rate associated with the financing facility to exceed a specified threshold, based on market value determinations by Redwood and one or more third party valuation agents, then the creditor may demand that we transfer additional collateral to the creditor (in the form of cash, U.S. Treasury obligations, or additional securities) in an amount sufficient to decrease the effective advance rate below the specified threshold. If we receive any such demand, we would generally be required to transfer the additional collateral within five business days. The value of additional collateral transferred to satisfy the margin call is determined by the creditor.

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 II, Item 8 of this Annual Report on Form 10-K. Management discusses the ongoing development and selection of these critical accounting policies with the Audit Committee of the Board of Directors.

Following is a description of our critical accounting estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.

Assets and Liabilities Accounted for at Fair Value

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 II, Item 8 of this Annual Report on Form 10-K, for additional information on our assets and liabilities accounted for at fair value at December 31, 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. Below, we provide additional information regarding the critical accounting estimates for these assets and liabilities.

Consolidated Entities Accounted for under the Consolidated Financing Entities Election

We have elected to account for most of our consolidated securitization VIEs as collateralized financing entities and use the fair value of the liabilities issued by these entities (comprised of the ABS issued and the securities we retain in the entities, which we determined to be more observable) to determine the fair value of the assets held at these entities (generally residential consumer loans, residential investor loans, and HEI). Significant inputs used to estimate the fair value of these liabilities include certain unobservable inputs that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on our reported earnings and financial condition.

Changes in the Fair Value of Loans Held at Fair Value

We have elected the fair value option for our residential consumer loans and residential investor loans. As such, these loans are carried on our consolidated balance sheets at their fair value and changes in the fair values of these loans are recorded in Mortgage Banking activities, net or Investment fair value changes, net on our consolidated statements of (loss) income in the period in which the valuation change occurs. Significant inputs used to estimate the fair value of these assets include certain unobservable inputs that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on our reported earnings and financial condition.

Changes in Fair Values of Real Estate Securities

Our real estate securities are classified as either trading or AFS securities, and in both cases are carried on our consolidated balance sheets at their fair values. In addition, we invest in securities of certain securitization entities that we are required to consolidate for GAAP reporting purposes and account for under the consolidated financing entity election, as previously described. For trading securities and collateralized financing entities, changes in fair values are recorded in Investment fair value changes, net on our consolidated statements of (loss) income in the period in which the valuation change occurs. For AFS securities, changes in fair value are generally recorded in Accumulated other comprehensive (loss) income in our consolidated balance sheets (as discussed further below).

Periodic fluctuations in the values of our securities can be caused by changes in the discount rate assumptions used to value the securities, as well as actual and anticipated prepayments, delinquencies, losses and other factors on the loans underlying the securitizations in which we own securities. Significant inputs used to estimate the fair value of these assets include certain unobservable inputs that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on our reported earnings and financial condition.

For AFS securities, cumulative unrealized gains and losses are recorded as a component of Accumulated other comprehensive (loss) income in our consolidated balance sheets. Unrealized gains are not credited to current earnings and unrealized losses are not charged against current earnings to the extent they are temporary in nature. Certain factors may require us, however, to recognize a decline in the value of AFS securities as an allowance for credit losses recorded through our current earnings. These factors include a change in our ability or intent to hold AFS securities, adverse changes to projected cash flows of assets, or the likelihood that declines in the fair values of assets would not return to their previous levels within a reasonable time. Estimates used to determine the allowance for credit losses on AFS securities require significant judgment and changes in these estimates have had and are reasonably likely to have a material effect on our reported earnings and financial condition.

Changes in Fair Values of HEI

HEI are carried on our consolidated balance sheets at their fair values, with changes in fair values recorded in our consolidated statements of (loss) income in HEI Income, net. Periodic fluctuations in the values of our HEI can be caused by changes in the discount rate assumptions used to value HEI, changes in assumptions regarding future projected home values, changes in assumptions regarding future projected prepayment rates of residential mortgage loans, as well as changes in the rate and magnitude of defaults on the portfolio. Significant inputs used to estimate the fair value of these assets include certain unobservable inputs that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on our reported earnings and financial condition.

Changes in Fair Values of Derivative Financial Instruments

We generally use derivatives as part of our mortgage banking activities (e.g., to manage risks associated with loans we plan to acquire and subsequently sell or securitize), in relation to our residential investments (to manage risks associated with our securities, MSRs, and held-for-investment loans), and to manage variability in debt interest expense indexed to adjustable rates, and cash flows on assets and liabilities that have different coupon rates (fixed rates versus floating rates, or floating rates based on different indices). Significant inputs used to estimate the fair value of certain of our derivatives include unobservable inputs that require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on reported earnings and our financial condition.

Additionally, the nature of the instruments we use and the accounting treatment for the specific assets, liabilities, and derivatives may therefore lead to volatility in our periodic earnings, even when we are meeting our hedging objectives. Most of our derivatives are accounted for as trading instruments with associated changes in value recorded through our consolidated statements of (loss) income. Changes in value of the assets and liabilities we manage by using derivatives may not be accounted for similarly. This could lead to reported income and book values in specific periods that do not necessarily reflect the economics of our risk management strategy. Even when the assets and liabilities are similarly accounted for as trading instruments, periodic changes in their values may not coincide as other market factors (e.g., supply and demand) may affect certain instruments and not others at any given time.

Changes in Values of Real Estate Owned ("REO")

REO property acquired through, or in lieu of, foreclosure is initially recorded at fair value, and subsequently reported at the lower of its carrying amount or fair value (less estimated costs to sell). We generally obtain third-party valuations to assist in determining the initial fair value of REO properties, and will obtain updated valuations when we believe market conditions may have meaningfully changed. While third-party valuations offer strong support for estimated values, we may record REO property at different values if, for instance, we believe a property's value differs or if we are willing to sell the property at a lower price. Additionally, estimates of value may not prove to be accurate, and market conditions can also change rapidly, whereby estimated values could decline in subsequent periods. As such, changes in our estimates of the fair value of REO could have a material effect on our reported earnings and financial condition.

Changes in Yields for Securities

The yields we project on AFS real estate securities can have a significant effect on the periodic interest income we recognize for financial reporting purposes. Yields can vary as a function of credit results, prepayment rates, interest rates and call assumptions. If estimated future credit losses are less than our prior estimate, credit losses occur later than expected, prepayment rates are faster than expected (meaning the present value of projected cash flows is greater than previously expected for assets acquired at a discount to principal balance), or securities are called (or called sooner than expected) the yield over the remaining life of the security may be adjusted upwards. If estimated future credit losses exceed our prior expectations, credit losses occur more quickly than expected, prepayments occur more slowly than expected (meaning the present value of projected cash flows is less than previously expected for assets acquired at a discount to principal balance) or securities are not called (or called later than expected), the yield over the remaining life of the security may be adjusted downward.

Changes in the actual maturities of real estate securities may also affect their yields to maturity. Actual maturities are affected by the contractual lives of the associated mortgage collateral, periodic payments of principal, and prepayments of principal. Therefore, actual maturities of AFS securities are generally shorter than stated contractual maturities. Stated contractual maturities are generally greater than 10 years. The assumptions we use to estimate future cash flows and the resulting effective yields and interest income, require significant judgment to develop, and changes in these estimates have had and are reasonably likely to have a material effect on our reported earnings and financial condition.

Changes in Provision for Taxes

Our provision for income taxes is primarily the result of GAAP income or losses generated at our TRS. Deferred tax assets/liabilities are generated by temporary differences in GAAP income and taxable income at our taxable subsidiaries and are a significant component of our GAAP provision for income taxes. We evaluate our deferred tax assets each period to determine if a valuation allowance is required based on whether it is "more likely than not" that some portion of the deferred tax assets would not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of sufficient taxable income during future periods. We conduct our evaluation by considering, among other things, all available positive and negative evidence, historical operating results and cumulative earnings analysis, forecasts of future profitability, and the duration of statutory carryforward periods. The estimate of net deferred tax assets and associated valuation allowances could change in future periods to the extent that actual or revised estimates of future taxable income during the carry-forward periods change from current expectations. Any such changes to our estimates could have a material effect on our reported earnings and financial condition.

MARKET AND OTHER RISKS

Market Risks

We seek to manage risks inherent in our business — including but not limited to credit risk, interest rate risk, prepayment risk, inflation 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 under the caption “Risk Factors” of this Annual Report on Form 10-K, under the caption "Risks Relating to Debt Incurred under Borrowing Facilities" within this MD&A, and under the caption "Quantitative and Qualitative Disclosures About Market Risk" of this Annual Report on Form 10-K.

Other Risks

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” of this Annual Report on Form 10-K.

Market Risks

We are exposed to market risks arising from changes in interest rates, credit conditions, prepayment behavior, inflation and broader economic conditions. These factors may affect the fair value of our assets and liabilities, the timing and amount of cash flows, and our earnings and equity.

We seek to manage these risks through active asset and liability management, the use of derivatives, portfolio diversification, and maintaining appropriate capital and liquidity levels. However, market conditions may change in ways that adversely affect our results.

Additional discussion of these risks is included in Part I, Item 1A, Risk Factors, and in Part II, Item 7 of this Annual Report on Form 10-K.

Credit Risk

We assume credit risk primarily through our ownership of residential consumer loans, residential investor loans, multifamily loans, mortgage-backed securities, and certain credit risk transfer securities, as well as through exposure to business counterparties. These investments are subject to the risk of borrower default, deterioration in property values, adverse economic conditions, and changes in regulatory or market environments.

Residential Consumer and Residential Investor Loans and Securities. Our residential consumer and residential investor loans and securities backed by residential loans are generally secured by real property. Credit losses on residential real estate loans and securities can occur for many reasons, including but not limited to: risk of borrower default, deterioration in property values, adverse economic conditions, and changes in market or regulatory environments.

Residential investor loans may be particularly sensitive to rental market conditions and borrower refinancing risk, especially where loans are interest-only or otherwise not fully amortizing. In addition, adjustable-rate loans may experience higher delinquencies in rising rate environments.

With respect to most of the legacy Sequoia securitization entities sponsored by us that we consolidate and for a portion of the loans underlying residential loan securities we have acquired from securitizations sponsored by others, the interest rate is adjustable. Accordingly, when short-term interest rates rise, required monthly payments from homeowners may rise under the terms of these loans, and this may increase borrowers’ delinquencies and defaults that can lead to additional credit losses.

We may also own from time to time some securities backed by loans that are not prime quality such as re-performing and non-performing loans, Alt-A quality loans, and subprime loans, that have substantially higher credit risk characteristics than prime-quality loans. Consequently, we can expect these lower credit-quality loans to have higher rates of delinquency and loss, and to have increased levels of credit losses relative to prime-quality loans. In addition, we may invest in securities backed by riskier loan types with the potential for higher delinquencies and losses as compared to regular amortization loans, but believe these investments offer us the opportunity to generate attractive risk-adjusted returns given pricing and the manner in which these securitizations are structured. Nevertheless, there remains substantial uncertainty about the future performance of these assets.

Additionally, we may own from time to time residential mortgage credit risk transfer (or "CRT") securities issued by Fannie Mae and Freddie Mac ("the Agencies"), for which we assume credit risk both on the residential loans that the securities reference, as well as corporate credit risk from the Agencies, as our investments in the securities are not secured by the reference loans.

Additional information regarding credit risks is included in Part I, Item 1A of this Annual Report on Form 10-K.

Counterparties

We are also exposed to credit risk with respect to our business and lender counterparties. For example, counterparties we acquire loans from, lend to, or invest in, make representations and warranties and covenants to us, and may also indemnify us against certain losses. To the extent we have suffered a loss and are entitled to enforce those agreements to recover damages, if our counterparties are insolvent or unable or unwilling to comply with these agreements we would suffer a loss due to the credit risk associated with our counterparties. As an example, under borrowing facilities and certain other derivative agreements, we sometimes transfer assets as collateral to our counterparties. To the extent a counterparty is not able to return this collateral to us if and when we are entitled to its return, we could suffer a loss due to the credit risk associated with that counterparty.

In addition, because we rely on the availability of credit under committed and uncommitted borrowing facilities to fund our business and investments, our counterparties’ willingness and ability to extend credit to us under these facilities is a significant counterparty risk (and is discussed further below under the heading “Fair Value and Liquidity Risks”).

Interest Rate Risk

Changes in interest rates and the shape of the yield curve can affect the cash flows and fair values of our assets, liabilities, and derivative financial instruments. Rising rates generally reduce the value of fixed-rate assets and increase financing costs, while declining rates may reduce income from certain servicing and interest-only investments and accelerate prepayments. We are exposed to interest rate risk during the period between loan origination or acquisition and ultimate sale or securitization (the “accumulation period”). We use derivative instruments to mitigate a portion of this exposure; however, we do not fully hedge all interest rate risk. For additional details, refer to Part I, Item 1A of this Annual Report on Form 10-K and see the risk factor titled “Interest-rate fluctuations may reduce earnings and increase earnings volatility.”

We invest in securities, residential consumer loans, residential investor loans, and other mortgage- or housing-related assets, which all expose us to interest rate risk. Additionally, we acquire and originate residential consumer and residential investor loans and HEI using secured debt financing and we generally then sell or securitize these assets. We are exposed to interest rate risk during the “accumulation” period - the period from when we enter into agreements to purchase or originate the loans with the intention of selling or securitizing them through to the future date when we ultimately sell or securitize them.

To mitigate this interest rate risk, we use derivative financial instruments for risk management purposes. We may also use derivative financial instruments in an effort to maintain a close match between pledged assets and debt. However, we generally do not attempt to completely hedge changes in interest rates, and at times, we may be subject to more interest rate risk than we generally desire in the long term. Changes in interest rates will have an impact on the values and cash flows of our assets and corresponding liabilities.

Prepayment Risk

Prepayment risks exist in many of the assets and liabilities on our consolidated balance sheets. In general, discount securities and loans benefit from faster prepayment rates on the underlying real estate loans while premium securities and loans (such as certain IOs we own), and mortgage servicing assets benefit from slower prepayments on the underlying loans.

When evaluating investments, we apply baseline assumptions regarding expected prepayment speeds; however, actual prepayment behavior may differ from expectations due to changes in interest rates, housing market conditions, borrower behavior, or other factors. Variations from assumed prepayment rates may adversely affect earnings, cash flows, and dividends. For additional details, refer to Part I, Item 1A of this Annual Report on Form 10-K, Risk Factors.

Inflation Risk

Inflation and expectations of future inflation can influence interest rates, financing costs, property values, and broader economic conditions. Sustained inflation may increase borrowing costs, reduce housing affordability, or otherwise affect asset performance and valuation.

Although our assets and liabilities are primarily financial in nature and measured at historical cost or fair value in accordance with GAAP, changes in inflation may indirectly affect our earnings and financial condition through their impact on market conditions and interest rates.

Fair Value and Liquidity Risks

We finance our assets through a combination of equity capital and short- and long-term debt, including warehouse facilities, repurchase agreements, securitizations, and other secured and unsecured borrowings. Changes in the fair value of our assets may affect our liquidity, particularly during periods when assets are financed with short-term debt.

During the accumulation period — when loans or other assets are funded prior to sale or securitization — declines in asset values may reduce borrowing capacity or require the posting of additional collateral under marginable facilities. In addition, certain financing arrangements are uncommitted or subject to renewal, and counterparties may elect not to extend additional credit or may do so on less favorable terms.

We seek to manage liquidity risk by maintaining what we believe to be adequate capital and cash reserves, diversifying financing sources, and structuring certain financings as non-recourse or non-marginable where appropriate. For additional discussion of risks relating to leverage, margin requirements, and liquidity refer to Part I, Item 1A Risk Factors and to Part II, Item 7 under the discussion titled “Risks Relating to Debt Incurred under Borrowing Facilities." Of this Annual Report on Form 10-K

Business, Operational, Regulatory, and Other Risks

In addition to the financial risks described above, our business is subject to a variety of operational, regulatory, and strategic risks. These risks are further discussed in Part I, Item 1A Risk Factors of this Annual Report on Form 10-K.

Quantitative Information on Market Risk

The following table presents principal cash flows and related average interest rates for material interest rate-sensitive assets and liabilities at December 31, 2025. The forward interest rate curve at December 31, 2025, was used to project average coupon rates. Principal cash flow timing reflects assumptions regarding prepayment speeds based on recent performance and forward curve expectations.

The table assumes no credit losses. Actual results will vary based on credit performance, interest rate movements, prepayment behavior, and reinvestment of cash flows.

(Dollars in Thousands)

84

(Dollars in Thousands)

(1) As we generally expect our loans held-for-sale to be sold within one year, we have only presented principal amounts and effective rates through 2026.

(2) The fair value of fixed-rate senior securities are primarily interest-only securities, for which there is no principal at December 31, 2025.

(3) Our CAFL entities include six bridge loan securitizations with a cumulative outstanding ABS issued balance of $1.15 billion at December 31, 2025. Three of the securitizations had revolving features that ended in 2024 or 2025 and final maturities in 2029 and 2030. One of the securitizations has a revolving period that ends in 2027 and has a final maturity in 2031, and two have revolving features that end in 2027, and final maturities in 2040. While the table above presents the repayment of this debt in 2029, 2030, and after 2030 upon the legal maturity dates, the ABS issued may be paid down earlier based on the actual paydown of collateral included in the securitization at the end of each securitization's respective revolving period.

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.

Management of Redwood Trust, Inc., together with its consolidated subsidiaries (the Company, or Redwood), is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles (GAAP).

As of the end of our 2025 fiscal year, management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework established in Internal Control - Integrated Framework released by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2025, was effective.

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

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and the board of directors of Redwood; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

The Company’s internal control over financial reporting as of December 31, 2025, has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report appearing on page F-3, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025.