RWT 10-K & 10-Q changes, risk factors and insider trading

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We have also historically depended on the sale of whole loans as a channel for distributing loans and as an alternative to engaging in securitization transactions. However, for reasons similar to those described above with respect to securitization, market conditions have at times limited our whole loan sale activity in recent years. A prolonged disruption of the market for whole loans may adversely affect our earnings, growth, and liquidity. Even if regular residential consumer and residential investor whole loan purchase and sale activity continues among market participants, we do not know if such transaction activity will continue to be on terms and conditions that will permit us to participate or be favorable to us. And even if conditions are favorable to us, we may not be able to achieve and sustain the volume of whole loan sale activity we previously conducted. We may also pursue joint ventures or initiatives to form investment vehicles or funds with third-party investors to purchase loans, HEI, or other assets from us or from other sources, and to earn fees, incentives or other income in connection with these initiatives. For example, since 2023, we have established two joint ventures with large institutional investors to invest in residential investor bridge loans originated by CoreVest. To the extent we pursue additional, similar initiatives to establish joint ventures or form investment vehicles or funds with third-party investors, our efforts may not be successful, including any efforts we make to engage in the investment advisory business.

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

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

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

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

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

• Recent Developments

Over the past twelve months, our focus has been on strategically and efficiently driving the growth and scale of our operating platforms and investment strategy. The market generally spent much of 2024 focused on the onset of the Federal Reserve's short-term interest rate easing cycle. Despite the market anticipating lower short- and long-term interest rates, the initial stages of the Federal Reserve's short-term interest rate easing cycle coincided with a nearly 100 basis point rise in the 10-year Treasury yield from the Federal Reserve's first short-term interest rate cut in September 2024 through the end of 2024. Interest rate volatility was a theme for 2024, as the 10-year Treasury yield made three separate nearly 100 basis point swings across the year.

The year was also characterized by muted housing transaction activity, as current and prospective homeowners were faced with another year of high mortgage rates and low housing affordability. The Mortgage Banker’s Association ("MBA") estimates that total mortgage origination volume in 2024 was $1.8 trillion, a 9% increase from 2023 levels. The increase was partially driven by a late summer drop in rates that triggered mortgage loan refinance activity to increase 56% year over year. Purchase money mortgage lending activity was down 3% year over year.

Given this market backdrop, we were successful in profitably gaining market share for both of our operating platforms, while continuing to make accretive investments, sourced both organically and from third parties.

Within our Sequoia platform, we emphasized deepening and continuing to build relationships with our loan seller network, including both banks and independent mortgage banks ("IMBs"). Our thesis remains that banks will need balance sheet solutions for their on-the-run and legacy residential jumbo mortgage loan portfolios. From 2020 to 2023, bank holdings of jumbo loans increased 33%, yet a number of factors make holding these loans on balance sheet less attractive for banks, including capital treatment, funding mismatches and reduced net interest margin due to higher funding costs. Consistent with our focus on bank relationships, we remain focused on positioning ourselves to transact in large pools of mortgage loans emerging from the banking sector, which we believe has accelerated in early 2025. For example, in January 2025, three large regional banks spurred nearly $10 billion of seasoned mortgage pools to change hands, a trend that we currently expect will continue throughout 2025 with the potential for our existing bank relationships to evolve into more sizable bulk flow purchase opportunities for jumbo mortgage loans.

Given this dynamic, in 2024 we were actively engaged in both onboarding new loan sellers and strengthening relationships with existing ones. By the end of the year, more than half of our loan seller network consisted of banks. As these sellers transitioned to working with us, we had the opportunity to showcase our expertise, fast closing times, tailored product solutions, and seamless execution. This led to increased volume, a larger market share, and heightened distribution activity. We locked $8.95 billion of loans in 2024, supported by a combination of bulk (39%) and flow volume (61%). As evidence of our strengthening engagement with our bank and IMB relationships, quarterly flow volume in the fourth quarter of 2024 rose to its highest level since early 2022. Bulk activity also benefited from deepening relationships with our seller network, including the purchase of a $0.4 billion pool of seasoned hybrid adjustable-rate mortgage loans (“ARMs”) in the second half of 2024 from a large bank that we subsequently securitized later in the year. Consistent with this theme, in mid-February 2025, we executed a trade with a large money-center bank to acquire a pool of approximately $1 billion of jumbo and agency fixed and adjustable-rate loans, which we expect to settle early in the second quarter of 2025.

Healthy investor demand for our products supported strong distribution execution for our Sequoia platform. The majority of our distribution activity within this business in 2024 was through securitizations, as we completed twelve transactions backed by $5.2 billion of loans – our highest level of Sequoia securitization activity since 2013. Into the end of the year, we engaged in a resurgence of whole loan sales activity, selling $1.4 billion of loans to a handful of buyers in the fourth quarter of 2024, the highest quarterly activity in this distribution channel since the first quarter of 2022.

To support greater transaction volume and the needs of our loan seller network, we also expanded our set of product offerings in 2024, especially as our network of originators faced a housing market with muted activity. We launched new guidelines for both hybrid ARMs and closed-end second (“CES”) lien mortgage loans early in 2024. These efforts were coupled in early 2025 with the launch of expanded loan products under our Aspire brand. These new Aspire product offerings include loans to consumers who qualify for financing through alternative methods of calculating income, including bank statements, as well as debt service coverage ratio (“DSCR”) loans to housing investors that complement CoreVest’s direct lending capabilities. The expansion of Aspire comes at a time when demand for non-traditional financing solutions is growing, as persistently higher interest rates and constrained housing supply continue to impede refinancing activity and the path to homeownership for many American households. Aspire intends to source these new loan types through a growing base of origination partners that will enjoy access to both Redwood’s core prime jumbo and expanded product set.

Our CoreVest platform was also focused in 2024 on further supporting its network of real estate investors with its broad product set. In 2024, CoreVest was able to gain market share, especially given the pullback by banks as they adjusted their allocation of resources and balance sheets to residential lending. As a result, borrowers who had historically procured funding from banks, actively sought out our platform for solutions. The result was $1.7 billion of fundings across our bridge loan products (59% of full year 2024 fundings) and term loan products (41% of full year 2024 fundings).

Over the last two years, as long-term interest rates have remained elevated, real estate investors have favored short-duration, fully prepayable bridge loans over longer-term, fixed-rate term loans with lender prepayment protection. That trend generally continued across 2024, with bridge loan volumes remaining elevated across the year, driven by ongoing growth of our single-asset bridge (“SAB”) loan product. In the fourth quarter, borrower demand for term loans picked up considerably, rising 43% in the fourth quarter relative to the third quarter 2024, and to the highest quarterly level we have seen for term fundings since mid-2022.

On a product specific basis, CoreVest also continued to see demand for our lines of credit, both within the traditional fix and flip sector, as well as the aggregation lines of credit, which are an attractive solution for real estate investors looking for a lower cost of capital as they stabilize or acquire newly-built homes.

Volume growth was supported by our differentiated distribution platform which includes securitization, whole loan sales and sales to joint ventures. In March of 2024, we established a $500 million joint venture with a large institutional investor, with the capacity to purchase both bridge and term loans originated by CoreVest. The launch of this joint venture, which was created to support the growth ambitions of our CoreVest platform, was very impactful from the onset. Ultimately for the year, we distributed $1.56 billion of loans, 53% of which were transfers to joint ventures, 26% of which were whole loan sales and 21% of which were through securitization. In the fourth quarter of 2024, we completed our first securitization that included loans from one of our joint ventures.

Optimizing and strengthening our capital position was an ongoing focus across the year, especially as we grew our volumes. We strategically reallocated capital, emphasizing growth in our operating platforms and continuing engagement with our partners (such as our joint ventures). As such, both our Sequoia and CoreVest platforms achieved improved operating and capital efficiency metrics across the year. Additionally, investment activity across 2024 was elevated, as we deployed $525 million of capital, including assets sourced from third parties and organically created investments. Looking ahead, we aim to further enhance the efficiency of our platforms, while also creating reliable distribution channels with the capacity to enhance our liquidity and pricing, supporting predictable revenues and profitability.

Credit performance in 2024 in our residential consumer backed investments (largely jumbo and reperforming loans) remained strong, with generally declining delinquencies and LTVs. We continued to work through pockets of stress in our CoreVest portfolio, particularly related to parts of our multifamily bridge portfolio, successfully recasting loans, extending timelines and working with borrowers to bring in fresh capital. This work helps to position their projects, and our portfolio's performance, for greater success. Since the fourth quarter of 2022, multifamily fundings have been less than 20% of overall bridge fundings, as we have strategically increased focus on single-family renovate or build for rent ("BFR") and SAB production.

As we focus on 2025, we continue to assess the impact of the Los Angeles wildfires on our business and we are currently monitoring mortgage loans in the affected areas. Based on our assessments to date, we have not identified circumstances that we believe would have a material adverse impact on our business.

Finally, as we move through 2025, we remind ourselves of our long-held view that most challenges and opportunities in the mortgage finance market we participate in relate back to policymaking in at the Federal level. With such a significant shift in governing philosophy from the new presidential administration, much is likely to change in the arenas of housing and mortgage lending policy and regulation – and we anticipate the vast majority of the changes we currently expect to see, will benefit Redwood. As a result, although mortgage interest rates remain elevated and may cause overall housing activity to remain flat in 2025, we see several strategic opportunities that could drive meaningful market share gains for our platforms and increased financial returns for Redwood and our shareholders.

Net Interest Income

Net interest income increased by $10 million from $93 million in 2023 to $103 million in 2024. Net interest income from Sequoia Mortgage Banking operations increased by $43 million, primarily due to higher average residential consumer loan balances and the addition of certain hedges accretive to net interest income. This was partially offset by a decrease of $18 million from our Redwood Investments portfolio from $139 million in 2023 to $121 million in 2024, primarily related to lower net interest income from our bridge loan portfolio, an increase in borrowing costs on debt facilities and ABS issued to finance our investments within this segment.

Corporate net interest expense increased by $18 million from $50 million in 2023 to $68 million in 2024. The increase was primarily related to the higher cost of corporate debt issued recently relative to repurchases and payoffs of older vintage, lower coupon convertible debt. During the year ended December 31, 2024, we issued $60 million of 9.125%, $85 million of 9.00% senior notes, $40 million of 7.75% convertible senior notes, and procured a secured revolving financing facility, which we drew on beginning in the second quarter of 2024. Additionally, we earned lower interest income at the corporate level in 2024 from lower average cash balances invested in money market funds and U.S. Treasury Securities relative to 2023.

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

Mortgage Banking Activities, Net

Mortgage Banking activities, net increased by $32 million from $67 million in 2023 to $99 million in 2024, primarily due to higher Sequoia Mortgage Banking revenues.

Sequoia Mortgage Banking activities increased by $30 million, primarily attributable to a significant increase in loan purchase volumes from both banks and independent mortgage bankers ("IMBs") across bulk and flow transactions, as well as a combination of improved efficiency metrics, spread tightening on securitization execution and net hedge income, particularly in the third and fourth quarter of 2024.

CoreVest Mortgage Banking activities increased by $2 million, primarily attributable to higher volumes experienced throughout 2024, combined with improved economics from whole loan sales and sales to joint ventures during the year.

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

Investment Fair Value Changes, Net

Investment fair value changes, net improved by $30 million year over year, primarily due to ongoing strength in credit performance on our securities portfolio and spread tightening across our securities and performing whole loan portfolios, offset by negative fair value changes on our bridge and unsecuritized term loans and, to a lesser extent, paydowns on assets held at a premium.

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

HEI Income, net

HEI income, net increased by $7 million year over year. Home price appreciation, discount rates and prepayment speeds are the primary drivers of HEI Income, net. As such, gains in the value of our HEI portfolio over the first three quarters of 2024 were the result of home price appreciation and prepayment speeds exceeding modeled assumptions. In the fourth quarter of 2024, gains in the HEI portfolio were lower relative to prior quarters as realized home price appreciation slowed to levels more in line with modeled assumptions.

Details on the composition of HEI income, net is included in Note 10 in Part II, Item 8 of this Annual Report on Form 10-K.

Operating Expenses

Operating expenses increased by $18 million year over year, primarily related to an increase in variable and equity compensation expense associated with improved operating results and overall 2024 earnings performance, as well as increased portfolio management costs incurred in 2024, which were related to specially serviced residential investor bridge loans and related workout arrangements.

Details on the composition of General and Administrative expenses are included in Note 22 in Part II, Item 8 of this Annual Report on Form 10-K.

Provision for Income Taxes

Our provision for income taxes is almost entirely related to activity at our taxable REIT subsidiaries, which primarily includes our mortgage banking operations and MSR investments, as well as certain other investment and hedging activities. The tax provision for the year ended December 31, 2024 reflects GAAP income earned at our TRS, resulting primarily from improved mortgage banking results.

For additional detail on income taxes, see the “Taxable Income and Tax Provision” section that follows.

The operating environment remained characterized by subdued housing activity and affordability challenges, with mortgage applications continuing to track below pre-pandemic levels. Despite this backdrop, Redwood continued to gain market share across its platforms, supported by its established origination network and ability to provide liquidity and execution solutions to both bank and non-bank counterparties.

Our Sequoia platform delivered record quarterly lock volume of $6.5 billion, compared to $5.3 billion in the fourth quarter of 2025 and continued market share gains across both bank and independent mortgage bank counterparties. Distribution activity remained strong, with $5.5 billion of loans sold or securitized compared to $4.1 billion in the prior quarter, including a record level of securitization issuance. With respect to the types of loan products that our Sequoia platform acquires, in the first quarter of 2026 we added a program to acquire mortgage loans tailored to medical professionals and we expect to begin acquiring HELOCs in the second quarter of 2026, complementing our acquisitions of closed-end second lien mortgage loans. Operating efficiency continued to improve, with cost per loan (calculated as operating expenses divided by loan purchase commitments for the Sequoia platform) declining to 18 basis points from 26 basis points, reflecting the benefits of scale and operating leverage.

Aspire continued to scale as a standalone platform in 2026, generating $1.6 billion of lock volume and completing its inaugural securitization transaction during the quarter. Distribution remained diversified, with approximately $1.0 billion of loans sold through a combination of this inaugural securitization and whole loan sales, supported by strong demand from institutional investors. The platform’s expanding seller network and product breadth continue to support growth opportunities across the non-QM market.

CoreVest funded $432 million of loans during the quarter, reflecting a modest decline from the prior quarter as the platform took a more measured approach to originations late in the first quarter in response to increased market volatility. Despite lower overall volume, CoreVest continued to make progress in its strategic focus on smaller-balance products, including RTL and DSCR loans, while maintaining strong distribution activity of approximately $694 million across securitizations, whole loan sales, and joint venture transfers.

Our Legacy Investments portfolio continued to decline as a percentage of total capital, decreasing to approximately 15% at March 31, 2026, compared to 19% at year-end 2025, reflecting ongoing asset resolution activity and capital redeployment into higher-return operating platforms.

In addition, we continued to invest in technology and operational infrastructure to support scalable growth across our platforms. Through our RWT Horizons initiatives, we advanced the use of automation and data-driven processes across mortgage banking functions, contributing to improved execution speed and operational efficiency. These efforts are designed to enhance our ability to scale production while maintaining disciplined cost management.

Looking ahead, the broader housing finance market continues to be influenced by interest rate volatility, evolving monetary policy, and geopolitical uncertainty. While these factors may contribute to near-term variability in market activity, they also reinforce the importance of capital-efficient platforms capable of adapting to changing conditions.

Net loss for the three months ended March 31, 2026 totaled $7 million, compared with net income of $18 million for the three months ended December 31, 2025. The decline was primarily driven by lower mortgage banking activities reflecting reduced gain on sale margins across the Sequoia and Aspire mortgage banking platforms, as the fourth quarter of 2025 benefited from more favorable market conditions, including tighter mortgage spreads and stronger execution on loan sales, that did not recur in the first quarter of 2026. Results were further impacted by market-driven negative fair value changes on our investment portfolio during a period of increased interest rate and spread volatility late in the first quarter of 2026. These impacts were partially offset by higher net interest income from our Mortgage Banking platforms, improved servicing income, and lower losses within our Legacy Investments segment.

Net interest income increased by $9 million during the quarter, driven by growth and capital deployment across our Mortgage Banking platforms. Sequoia contributed the majority of the increase, with net interest income increasing by approximately $7 million, primarily reflecting higher income earned on loans held-for-sale, increased average inventory balances, and modest benefits from lower benchmark rates. Aspire also contributed incremental growth, with net interest income increasing by approximately $1 million as the platform continued to scale, while CoreVest remained relatively consistent quarter over quarter. These increases were partially offset by a $2 million decline in net interest income from Redwood Investments due to portfolio repositioning and paydowns, partially offset by income generated from retained operating investments sourced through our mortgage banking platforms. Legacy Investments net interest loss improved by approximately $4 million, driven by continued portfolio runoff and lower secured financing costs on our legacy bridge loans which were optimized into an accretive secured financing structure during the quarter.

Mortgage banking activities remained strong, with total production increasing to $8.5 billion from $7.3 billion in the prior quarter, reflecting continued scale across Sequoia and Aspire and strong demand across securitizations, whole loan sales, and joint ventures. Despite this growth, mortgage banking activities, net declined to $32 million from $53 million in the prior quarter. The decrease was primarily due to lower gain-on-sale margins across platforms, reflecting less favorable market conditions and increased interest rate and spread volatility, particularly late in the first quarter. At Sequoia, margins declined to 96 basis points from 136 basis points in the prior quarter, while Aspire margins declined to 73 basis points from 92 basis points. These declines were partially offset by higher volumes, including a 22% increase in Sequoia lock volumes to $6.5 billion and continued growth in Aspire production, as well as strong distribution activity, including the platform's inaugural securitization. CoreVest mortgage banking activities, net also declined as lower margins and modestly lower funding volumes more than offset continued distribution activity, reflecting a more cautious origination approach late in the quarter in response to market volatility and evolving borrower demand.

Investment fair value changes were a significant driver of the quarter-over-quarter decline, reflecting a $23 million negative fair value changes in the first quarter of 2026. These changes were primarily driven by market-driven valuation changes and portfolio seasoning within Redwood Investments, while underlying asset performance remained generally stable across most of the portfolio. Valuation impacts within Legacy Investments were largely consistent with the prior quarter.

Overall, first quarter results reflect continued strength in our core Mortgage Banking platforms, including record production volumes, improving operating efficiency, and strong capital velocity, offset by normalization of gain-on-sale margins and market-driven valuation changes. Results also reflect continued execution on our strategic repositioning, including scaling capital-light operating platforms such as Sequoia and Aspire, alongside ongoing reduction in exposure to non-core Legacy Investments.

See further discussion of these results in the Segment Results section in Part I, Item 2 of this Quarterly Report on Form 10-Q Net loss for the three months ended March 31, 2026 totaled $7 million, compared with net income of $14 million for the three months ended March 31, 2025. The decline was primarily driven by negative investment fair value changes reflecting market-driven valuation declines across our investment portfolio. During the first quarter of 2026, interest rates across the U.S. Treasury yield curve increased by approximately 15 to 35 basis points, which adversely impacted the more interest rate‑sensitive portions of the portfolio.

The decline in net income over the three month periods was also attributable to higher operating expenses, including approximately $7 million of severance and organizational restructuring costs, as well as higher portfolio management and loan acquisition expenses. These impacts were partially offset by higher net interest income from our Mortgage Banking platforms, reflecting growth and continued capital deployment across Sequoia and Aspire mortgage banking. The underlying factors driving these variances are consistent with those discussed above in the comparison of the first quarter of 2026 to the fourth quarter of 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 income for the three months ended March 31, 2026, the immediate preceding quarter ended December 31, 2025 and year-to-date period ended March 31, 2025.

Table 2 – Consolidated Net Interest Income

(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)Yield is calculated as interest income/expense divided by average balance. Interest income on loans is based on stated loan coupons, net of interest write offs on non-performing loans.

(3)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.

(4)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.