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The Redwood Review

We file quarterly reports on Form 10-Q and annual reports on Form 10-K with the Securities and Exchange Commission. Those filings and our quarterly earnings press releases provide information about our financial results from the perspective of Generally Accepted Accounting Principles (GAAP). These documents are available on our web site. We urge you to study them, as there is much to learn about Redwood Trust there.

In the Redwood Review, you have the opportunity to learn more about Redwood Trust through a discussion of GAAP results and also a discussion of tax results and non-GAAP measures. You will first find a quarterly shareholder letter and then a background section on Redwood Trust that highlights the key aspects of our business. Following that is a discussion of current trends within each of the business groups that comprise Redwood Trust, a review of various financial indicators for our business, a glossary explaining some of the specialized terms we use, and then the tables that we formerly published as the “Quarterly Financial Supplement.”

On a basic level, our primary business — assuming the credit risk of securitized residential and commercial real estate loans — is not that difficult to understand. The details and business metrics, however, can get complicated. We hope that this Review provides some insight and serves as a useful tool for better understanding your investment in Redwood Trust.

We expect that the form and content of the Redwood Review will evolve over time. We welcome your input during this process.

CAUTIONARY STATEMENT: This Redwood Review contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature, including the words “anticipated,” “estimated,” “should,” “expect,” “believe,” ”intend,” and similar expressions, are intended to identify forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in the 2005 Annual Report on Form 10-K under Item 1A “Risk Factors.” Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected are detailed from time to time in reports filed by us with the Securities and Exchange Commission, including Forms 10-K, 10-Q, and 8-K. Important factors that may impact our actual results include changes in interest rates and market values; changes in prepayment rates; general economic conditions, particularly as they affect the price of earning assets and the credit status of borrowers; the level of liquidity in the capital markets as it affects our ability to finance our real estate asset portfolio; and other factors not presently identified. In light of these risks, uncertainties, and assumptions, the forward-looking events mentioned, discussed in, or incorporated by reference into this Review might not occur. Accordingly, our actual results may differ from our current expectations, estimates, and projections. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.


The Redwood Review		2		1^st Quarter 2006

First Quarter 2006

Dear Shareholders:

During the first quarter, we made significant progress in achieving our 2006 goals of asset growth in our core business, managing the real estate credit cycle appropriately, completing a variety of internal projects, and developing new business opportunities. Even though we are in a changing housing market, we feel we are well positioned to provide respectable returns for shareholders and to continue to build our business for the future.

In 2003 and 2004, Redwood’s business grew at a rate of over 50% per year. In 2005, given the level of acquisitions we made during the year, we would have grown our business by 23% if we had not decided to restructure the composition of our portfolio by selling a substantial amount of second-loss residential credit-enhancement securities. After reflecting these sales, our business (as measured by the market value of our permanent investment portfolio) on a net basis shrank by 9% in 2005.

For 2006, we are planning to resume a modest net growth rate between 10% to 15%. This growth will support increases in shareholder wealth, and is a growth rate that we feel is appropriate given the uncertainties surrounding residential real estate credit performance over the next year or two. Our growth target is subject to change. We may decide to grow faster than planned if we can generate especially attractive asset acquisition opportunities or if our outlook on the market environment changes.

Redwood Trust is structured into four operating groups, focusing on residential real estate, commercial real estate, collateralized debt obligations (CDOs), and finance / administration. We continuously foster teamwork by basing our portfolio management and performance measurement on the principle that we have one single business. To reinforce this principle, we pay variable compensation for each employee based on the adjusted return on equity of the whole company rather than based on the individual results of any one group.

Redwood’s residential group, our largest operating group, continues to face our biggest challenge: managing and investing through this phase of the residential real estate credit cycle. Our residential group continues to find opportunities to invest in high-quality residential credit securities that meet our high standards and hurdle rates. Nevertheless, we are voluntarily restraining our rate of growth in our residential credit-enhancement business in order to maintain excess cash balances — both for risk management purposes and to fund future acquisition opportunities. One way we are constraining our growth is by evaluating potential investments using assumptions regarding future credit losses and prepayment rates that are even more conservative than we typically use. As a result, our pace of acquisition has slowed because — when using these assumptions — the prices we are willing to pay for some types of assets are less than the current market price. Additionally, the assets we do buy using these more conservative assumptions have an extra margin for error (and could generate high returns in the absence of credit losses).

Over the past several years, the combination of historically low credit losses (driven largely by rising home prices) and fast prepayments (driven by low interest rates) has led to extraordinary returns for those who invested in credit-sensitive residential real estate securities. Many investors — Wall Street firms, banks, REITs, CDO managers, and hedge funds - have yet to


The Redwood Review		3		1^st Quarter 2006

First Quarter 2006

experience the liquidity issues, market value losses, margin calls, and credit losses that are a normal part of the residential real estate cycle. As a result, in our view, investments in some residential credit risk securities are, to a greater degree than in the past, perceived and priced as if the risk of material credit loss was somewhat remote. Continued good returns have drawn more investors, more capital, and more leveraged financing into this market.

Meanwhile, the supply of high-quality residential loans that are being securitized has fallen due to the overall slowdown in housing, reduced loan refinancings due to higher interest rates, and continued strong demand for whole loans from banks.

Anecdotal and statistical evidence continues to suggest that the health of the housing market peaked in 2005. Two important leading indicators of future loan credit performance are housing prices and loan delinquencies. In 2006, the overall rate of increase of housing prices is slowing, and prices have stabilized or are declining in some real estate markets. Meanwhile, residential delinquencies are rising. While the level of delinquencies is still low by historical standards, the trend is noteworthy.

We believe that the high demand for real estate-related investments, the ample supply of liquidity, the willingness of investors to use debt financing, and the relative scarcity of new high-quality residential assets will keep prices for residential securities elevated for some time. We do not anticipate a significant correction in asset pricing until actual credit losses begin to escalate. If this occurs, we believe that the capital markets for residential loan securities could experience significant stress. That could create very attractive asset acquisition opportunities for us.

Equally likely, however, in our opinion, is a future in which credit remains strong and asset prices remain at the somewhat elevated levels we find today. This would also likely be an attractive future for us. With our efficient balance sheet, low cost of operation, and other competitive strengths, even with higher asset prices we would expect to continue to prosper and grow in a manner attractive to shareholders.

Most of our current residential credit risk exposure is related to higher-quality loans that were originated in 2004 and earlier. As a result of rising home prices over the last few years, we expect that credit performance for these older loans will be significantly better than the performance of newer originations. Barring a severe real estate recession, we believe our earnings from our existing residential credit-enhancement assets could rise over time even if housing market stress intensifies. We are already recognizing higher yields on these assets now than we were in the past as a result of strong credit performance, reduction of future risk due to housing price increases, and rapid prepayment rates of the underlying loans. If credit losses on these assets remain low, we expect our earnings from these assets will continue to increase for several years. The potential upside from these assets is considerable.


The Redwood Review		4		1^st Quarter 2006

First Quarter 2006

In the first quarter, Redwood’s commercial group reached a major milestone when it acted for the first time as the lead buyer of credit enhancement securities for a new commercial mortgage backed securities (CMBS) issuance. This transaction was the culmination of several years of business development, and is a reflection of the market’s growing confidence in Redwood as a competent partner and investor in CMBS. As a lead buyer, Redwood has the ability to influence which loans are included in the CMBS. In addition, we gain better access to information that will help us manage our commercial real estate risks on an on-going basis. Up to this point, we have been investing in first-loss CMBS in conjunction with partners in arrangements where we were not in the lead position. Going forward, we intend to work both with partners and also on our own to continue to credit-enhance commercial loans by investing in selected first-loss CMBS. Our outlook for the credit performance of higher-quality commercial real estate loans is positive.

Redwood’s CDO group successfully sponsored its tenth Acacia CDO transaction in the first quarter of 2006. To date, Acacia’s CDO investments have primarily been in residential mortgage backed securities (RMBS) and CMBS with investment ratings of BB and above. We are continuing our efforts to expand our CDO group’s role in supporting our residential and commercial credit-enhancement activities. Over time, we expect to broaden our activities as a CDO investor and manager.

In general, we expect our earnings per share and our special dividend will be lower in 2006 than in 2005. We expect that GAAP earnings in one or more of the remaining quarters of 2006 could be materially lower than the $1.09 per share we earned in the first quarter, although that may not occur. Taxable income could also be lower than the $1.44 per share we earned in the first quarter (a reconciliation of GAAP earnings to taxable income is provided in the financial tables). There is a high degree of quarter-to-quarter variability of earnings in our business model, and short-term earnings trends should be interpreted with care. As management, we focus on building the net present value of future cash flows and on building our ability to sustain our regular dividend rate. We do not focus on quarterly earnings.

The potential for lower earnings over the next few quarters relative to the first quarter of 2006 (and relative to quarterly earnings over the last few years) results from higher unutilized capital, a newer portfolio on average (the higher-yielding seasoned assets have largely been sold or called), fewer gains from sales (as we are not planning a significant amount of sales at this time), and fewer calls (as we have fewer callable assets). There is also the potential for earnings volatility caused by increased premium amortization expenses on the residential loans consolidated from Sequoia trusts (as technical factors may accelerate these expenses, especially if short-term interest rates stabilize or begin to fall), various other complicated GAAP and tax accrual issues, and other factors that cause earnings to vary.

These factors mean that actual quarterly or annual results may vary widely from our expectations. Keeping that in mind, we currently expect that the lowest quarterly results we will report during this earnings cycle will occur sometime in 2006. If we reduce our excess cash balances each quarter, invest wisely, finish amortizing much of our Sequoia loan acquisition premium, and continue to increase our realization of the upside potential inherent in our existing assets, earnings and special dividends could increase from 2006 levels as we move into 2007 and beyond.


The Redwood Review		5		1^st Quarter 2006

First Quarter 2006

The mood at Redwood is upbeat. We are ready for the opportunities and challenges that might come. We have good assets and lots of cash. Our current phase IT and business reengineering projects, designed to improve productivity and support growth, are nearing completion. We are developing both existing and new businesses in a manner that builds on our strengths. There are many capable professionals at Redwood. They bring a great deal of experience and intellectual capital to their jobs. Redwood people enjoy working together, and we believe the teamwork that exists here dramatically improves our ability to grow and evolve. This combination — our team, Redwood’s culture, our portfolio of good assets, and a strong and efficient balance sheet — make us bullish on Redwood’s future prospects in the large and growing real estate markets.

Yours truly,



		George E. Bull, III		Douglas B. Hansen
		Chairman and CEO		President


The Redwood Review		6		1^st Quarter 2006

Interesting Things About RWT

	1.		We are an entrepreneurial specialty finance company.

			Our vision when we started Redwood Trust in 1994 was to create a company that is more efficient than banks, thrifts, and other financial institutions at owning, credit-enhancing, securitizing, and financing residential and commercial real estate loans.

			In addition, we are building a variety of related and integrated specialty finance businesses in areas where we believe we can develop a competitive advantage.

			For tax purposes, we are structured as a real estate investment trust (REIT). We also conduct business in our taxable non-REIT subsidiaries.

	2.		Our primary business activity is credit-enhancing securitized residential and commercial real estate loans.

			Historically, money lent to homeowners and property owners came from bank deposits. Today, a growing percentage of money sourced to fund loans comes from capital markets investors who buy mortgage-backed securities — fixed income securities backed by pools of real estate loans.

			Most of these investors want to buy AAA-rated or other investment-grade mortgage-backed securities that do not have a significant risk of credit loss if an underlying real estate loan defaults. Someone else has to assume the risk. Redwood Trust is a specialist in evaluating and managing real estate loan credit and our core business is assuming the risk of loan default for securitized loans. Because Redwood Trust partially credit-enhances (or “guarantees”) these securitized loans, the risk of credit loss is reduced for capital markets investors in mortgage-backed securities. As a credit-enhancer, we are exposed to real estate credit risk on many loans, but we also have the ability to produce strong financial results if the real estate loans we credit-enhance perform well.

	3.		We credit-enhance loans primarily by acquiring and owning first- and second-loss credit-enhancement securities.

			In most securitizations of real estate loans, a variety of types of mortgage-backed securities are created, each with different characteristics with respect to average life, credit risk, prepayment risk, interest rate risk, and other variables.

			One security is designated as the “first-loss” bond. If there are credit losses within the pool of securitized real estate loans, the principal value of the first-loss bond is reduced. If the entire principal value of the first-loss bond is eliminated due to credit losses within the securitized loan pool, then further credit losses reduce the principal value of the “second-loss” bond. Only when the entire principal value of the second-loss bond is eliminated do the other bonds issued from that securitization risk incurring credit losses. The first- and second-loss bonds are credit-enhancement securities, improving the creditworthiness of the other securities (more senior bonds) and protecting them from initial credit losses.

			We typically acquire first-loss bonds at 25% to 35% of their principal value and second-loss bonds at 50% to 70% of their principal value. These bonds are acquired at a substantial discount to their principal value as future credit losses could reduce or totally eliminate the principal value of these bonds. Our return on these investments is based on how much principal and interest we receive, and how quickly it comes in.

			(continued on next page)


The Redwood Review		7		1^st Quarter 2006

Interesting Things About RWT

	3.		We credit-enhance loans primarily by acquiring and owning first and second-loss credit-enhancement securities *(continued)*.

			In an ideal environment, we would experience fast prepayments and low credit losses. We encountered this environment in 2003, 2004, and 2005. Conversely, our least favorable environment would be slow prepayments and high credit losses. We receive interest on the full principal value of bonds, so the interest earned on our cost basis is higher than the underlying coupon rate. For instance, on a bond with a principal value of $1 million — for which we may have paid only $300,000 — we receive interest based on the full principal value.

			We typically do not receive principal payments until a few years into the deal, since the principal payments from the underlying loans are first used to pay down the most senior bonds. The amount of principal we ultimately receive is dependent on the amount of credit losses incurred before the deal is called, or when it matures. The timing of principal payments received and the timing of the realization of losses is also important to our investment returns. The faster we collect principal and the longer it takes to realize credit losses, the better it is for our investment returns.

	4.		Our primary focus is on credit-enhancing high-quality loans.

			Most of the real estate loans we credit-enhance are above average in terms of loan quality as compared to other securitized real estate loans. As a result, our delinquency and loss rates have been significantly lower than the national average. When market conditions are favorable, we plan to expand our credit-enhancement activities to include more loans that have average or below-average quality characteristics. Nevertheless, it is likely that the bulk of the real estate loans we credit-enhance will continue to be of above-average quality.

			Typically, 40% — 50% of the residential loans we credit-enhance are on homes located in California. This roughly equals the percentage of all jumbo loans that are located in California, which we consider to be one of the more attractive states for the residential credit-enhancement business.

	5.		As an integral part of our business, we also sponsor securitizations.

			Our residential loan securitization business (our conduit) acquires residential whole loans from originators, accumulates loans over a period of weeks or months, and then sells the loans to newly-created securitization entities (typically called “Sequoia”) that create and sell securities backed by these loans (occasionally we also sell loans via bulk whole loan sales). We create economic gains on sale when the proceeds from the sale of securities exceed the purchase cost of the loans plus expenses. At March 31, 2006, 21% of our residential loan CES permanent asset portfolio were CES we acquired from the securitizations we have sponsored. We also have acquired some of the interest-only (IO) securities (prepayment rate sensitive securities) from these securitizations.

			Our CDO group also sponsors securitizations. Over a period of several months, we acquire and aggregate a pool of diverse investment-grade and non-investment grade residential and commercial real estate securities and similar assets. We then sell this pool of assets to a newly created securitization entity (typically called “Acacia”) that creates and sells asset-backed securities to the capital markets. We create economic gains on sale from these activities and earn ongoing management fees from outstanding Acacia transactions. As a permanent investment, Redwood typically acquires all or a portion of the CDO equity securities (which function as CES) from these CDO transactions.


The Redwood Review		8		1^st Quarter 2006

Interesting Things About RWT

	6.		We are one of the leaders in our market segments.

			The securitized residential real estate loan market can be divided into three segments. The first segment consists of “conforming” lower-balance loans, usually of average or better quality. Most of these loans are credit-enhanced by Fannie Mae and Freddie Mac. The second segment consists of lower-quality loans that are credit-enhanced primarily by sub-prime mortgage origination companies. Redwood Trust is one of the largest credit-enhancers within the third segment, which consists of private-label securitizations containing primarily larger-balance (jumbo) loans of above-average or average quality (prime and Alt-A). Redwood credit-enhances $192 billion of loans that have been securitized in private-label transactions, representing approximately 20% of the outstanding securitized loans in this segment.

			Credit-enhancing commercial real estate loans is a newer business for Redwood. We have been developing our commercial business since 1998. We currently partially credit-enhance $28 billion commercial loans, representing approximately 5% of the outstanding commercial real estate loan balances that have been securitized.

	7.		We have some interesting competitive advantages.

			As a non-regulated specialty finance company, we have greater freedom to operate in the capital markets and securitization markets than do financial institutions such as banks and insurance companies. We also enjoy lower operating costs.

			As a public company with permanent capital, we have an advantage in investing in illiquid assets relative to investment companies and partnerships that might suffer investor withdrawals and liquidity issues.

			As a REIT, we have tax advantages relative to corporations that have to pay corporate income taxes, typically one of the largest costs of doing business.

			With $1 billion of equity capital focused on one business, we have size advantages that bring economies of scale as well as marketing and operating advantages.

			As a company with a small number of employees (76 as of 3/31/06) and one integrated business, we have a strong culture that is entrepreneurial, innovative, focused, and disciplined.

	8.		We maintain a strong balance sheet.

			Our business is currently funded primarily with equity capital. Compared to most financial institutions, we use very little debt financing. We currently utilize only equity capital to fund the credit-enhancement securities and other assets we hold as permanent assets for investment purposes.

			We use a combination of debt and equity to fund assets that are acquired by our conduit and our CDO group on a temporary basis for re-sale to a securitization entity (inventory assets). At March 31, 2006, we had $1 billion in equity capital and no debt.

			Our balance sheet is also strong because our maximum exposure to losses caused by credit risk is limited to our investment in credit-enhancement securities. In other words, our maximum loss within our credit-enhancement business is less than our equity capital base.

			We may utilize more debt in the future, depending on which businesses we develop over time. Nevertheless, we expect to maintain a strong balance sheet.


The Redwood Review		9		1^st Quarter 2006

Interesting Things About RWT

	9.		We pay a regular dividend and may pay a special dividend.

			As a REIT, we are required to distribute to shareholders as dividends at least 90% of our REIT taxable income, which is our income as calculated for tax purposes (exclusive of income earned in taxable non-REIT subsidiaries). In order to meet our dividend distribution requirements, we have been paying both a regular quarterly dividend and a year-end special dividend.

			We set our regular quarterly dividend at a rate that we believe is reasonably likely to be sustainable over time under most market conditions. Our regular dividend rate is currently $0.70 per share per quarter, and our Board of Directors has indicated that their current intention is to maintain this quarterly regular dividend rate in 2006. Based on a share price of $42.08 as of May 3, 2006, the indicated yield to shareholders at the regular dividend rate is 6.65%.

			If we earn more REIT taxable income than is required to fund the regular dividend, we will likely pay a special dividend in December. We expect our special dividend amount will be highly variable, and we may not pay a special dividend every year. We currently are forecasting that we will pay a special dividend at the end of 2006, although we believe the size of this special dividend is likely to be significantly less than the $3.00 per share special dividend we paid in December 2005. Our dividend policies and distribution practices may change over time.

	10.		We are a growth company.

			The amount of real estate loans outstanding and the amount of these loans securitized have grown rapidly over many years. This is a long-term trend that we expect will continue, although there could be a cyclical slowing in the short-run. With competitive advantages in a growing market, we expect over time to have the opportunity to increase the size of our credit-enhancement and related businesses while also improving our book value per share and our average return on equity.



The Redwood Review	10	1^st Quarter 2006

Residential Group Overview

Description

Redwood’s residential group credit-enhances securitized residential real estate loans by acquiring and owning first-loss, second-loss, and other credit-enhancement securities. The residential group also invests in other residential assets, including interest-only securities. The residential group assists Redwood’s CDO group in the selection and management of the residential real estate assets owned by the Acacia CDO securitization entities that Redwood sponsors.

In addition, the residential group operates as a conduit, acquiring residential real estate loans from mortgage origination companies and selling them for a profit via whole loan sales or via securitization under the Sequoia brand name.

Discussion

The residential group enjoyed a successful first quarter, even against the backdrop of an increasingly challenging market. Our team remained busy analyzing deals and looking for residential investment opportunities for our CES portfolio and our Acacia securitization entities. We were able to find attractive investments that met our high standards. We acquired $25 million of residential CES as permanent assets in the first quarter, and committed to acquire another $11 million of residential CES as permanent assets through May 3, 2006. The loans underlying these securities have strong credit profiles, with an average LTV of 71%, and an average FICO score of 731. Our ability to source these assets is partly attributable to our deep relationships with third-party issuers.

While we continue to succeed in finding attractive assets, the search for fairly priced, high-quality loans and securities has become increasingly difficult due to record high prices and the deterioration in credit quality for new originations. We believe loan credit quality is determined by the borrower’s credit profile and loan characteristics, not by the type of loan (i.e. hybrid, negative amortization, etc.). In pools of newly originated loans, we are seeing higher loan-to-value ratios, lower average credit scores, more loan originations for investment properties, and a higher percentage of loans made without income verification.

Our credit enhancement portfolio continues to perform well. Serious delinquencies remain low at 25 basis points, as have credit losses at 1 basis point (0.01%) on an annualized basis. Our securities backed by negative amortization loans, typically perceived as loans with higher risk, also continue to perform well with serious delinquencies of 30 basis points and credit losses annualized at less than 1 basis point.

We continue to focus on developing our mortgage loan securitization (conduit) activities, including building the infrastructure necessary to support a move into non-prime credit markets, where we feel opportunities will manifest in the future. This involves significant investment in human resources, business processes, and technology. As these markets evolve, we expect to find attractive opportunities for the securitization of loans and purchase of credit-enhancement securities in the Alt-A and subprime markets.


The Redwood Review		11		1^st Quarter 2006

Residential Group Metrics

Chart 1: Residential CES Portfolio by Vintage (as of Q1 2006, % By Market Value)

	Ø		72% of loans underlying our CES were originated prior to 2005. These have experienced significant housing price appreciation.

	Ø		The average seasoning of loans underlying our CES portfolio is 25 months.

Chart 2: Residential CES Portfolio by State Concentration (as of Q1 2006, % By Notional Balance)

	Ø		Our largest state concentration is CA, with a fairly even distribution between Northern and Southern CA loans.

	Ø		Our California loans are out-performing the majority of other states. Our serious delinquencies in CA are 0.10% of current balances.

	Ø		Our serious delinquency percentage in other high concentration states include FL at 0.43%, NY at 0.15%, VA at 0.05%, and TX at 0.51%.

Chart 3: CES Permanent Asset Activity

	Ø		We continue to acquire residential CES assets at a medium pace.

	Ø		64% of Redwood’s permanent asset portfolio is now invested in residential CES and interest-only securities.


The Redwood Review		12		1^st Quarter 2006

Residential Group Metrics

Chart 4: Seriously Delinquent Loan %

	Ø		Seriously delinquent loans (over 90 days, in foreclosure, in bankruptcy, or real estate owned) are a percent of current balance.

	Ø		Overall serious delinquencies in prime markets are increasing.

	Ø		Our delinquencies also increased during the quarter, although on an absolute basis they remain at low levels.

Chart 5: Prepayment History for Credit-Enhancement Portfolio

Prepayment rates for ARMs remain elevated, while prepayment rates for other products remain at medium levels.

	Ø		In general, faster prepayments benefit our business as they enhance returns on our CES.

	Ø		Some assets (interest-only securities) that we have retained from our conduit’s securitization activities are backed by ARM loans. Accelerating ARM prepayments have hurt our returns from these securities.

Chart 6: Residential Total Managed Portfolio

	Ø		We estimate that we credit-enhance approximately 1 in 10 jumbo loans.

	Ø		We estimate that we credit-enhance almost 1 in 5 higher quality private-label securitized loans (most of which are jumbo loans).


The Redwood Review		13		1^st Quarter 2006

Commercial Group Overview

Description

The commercial group credit-enhances securitized commercial real estate loans by acquiring and owning first-loss and other commercial credit-enhancement securities (CES). Additional investments are made in other commercial mortgage-backed securities (CMBS), commercial real estate loans, and related commercial assets. The commercial group also selects investments and manages the commercial real estate assets owned by the Redwood sponsored Acacia CDO program.

Discussion

Our portfolio of commercial securities and loans continues to reflect current strong commercial market fundamentals. Barring any market dislocation, we expect this positive trend will continue to define the market for the foreseeable future.

The $28 billion of securitized commercial real estate loans underlying our credit-enhancement portfolio are performing well. As of March 31, 2006, serious delinquencies were $23 million, or 0.08% of current loan balances. We incurred no credit losses on the underlying loans in the first quarter of 2006. All of our other commercial real estate assets are performing to expectations.

Over the past two years, we have expanded our commercial business by buying the first-loss, or the B-piece, of CMBS deals, a market long dominated by a small number of players. Our initial entry into the market was in partnership with an established B-piece investor with whom we co-invested in over 14 transactions. However, in the first quarter of 2006 Redwood Trust served as the lead and sole B-piece buyer of a $1.7 billion transaction in which we committed to invest $9 million of permanent capital. As a lead buyer, Redwood Trust was solely responsible for the complete life cycle of the investment, including loan pool review, loan level due diligence, security documents negotiation, and the closing of the transaction.

As the lead buyer of a first-loss piece, Redwood retains the controlling class position and rights. This is important as it affords increased control and input into the resolution of distressed loans over the life of the securitization. Additionally, as controlling class, we benefit from access to more timely and detailed loan level information, which may help us mitigate principal losses.

The first quarter 2006 CMBS new issuance market is on pace for another year of record-setting volume. New issuance totaled $37 billion during the first quarter; for the complete year of 2005, new issuance volume was approximately $160 billion.

The tremendous amount of capital flowing into the CMBS sector has created a more aggressive underwriting environment. We look at many transactions, but remain focused on the analysis of commercial credit as our core competency. It is this credit focus that allows us to identify and invest in quality assets; we invest in only those assets that meet our relatively conservative investment criteria.


The Redwood Review		14		1^st Quarter 2006

CDO Group Overview

Description

The Redwood CDO group sponsors re-securitizations of diverse pools of residential and commercial real estate securities and other related assets. These collateralized debt obligations (CDOs) are issued under the Acacia brand name. The group manages the underlying pools of assets, earning asset management fees.

As a long-term investment, Redwood typically acquires all or a portion of the Acacia CDO equity securities that absorb the initial credit losses from the pool of securitized assets, and thus act as the credit-enhancement for the other (more senior) CDO securities issued by Acacia. The primary determinant of the returns we earn from our Acacia CDO equity investments is the credit performance of the securities Acacia has purchased and the performance of the loans underlying those securities.

Discussion

In the first quarter of 2006, we sponsored another CDO — Acacia 9. The assets for this transaction consisted primarily of residential securities backed by loans to prime-grade borrowers and CMBS securities, all rated between AAA and B, with an average rating of BBB-. Less than 3% of the assets consisted of securities backed by loans to low credit quality (subprime) borrowers and those securities were AAA or AA rated. We successfully sold the investment-grade-rated ABS securities that Acacia 9 created and we retained all of the Acacia 9 ABS securities rated below investment-grade as a long-term equity investment. We expect that this equity investment will create a return that is above our hurdle rate.

Credit results for all of our Acacia transactions remain healthy. ABS securities issued by Acacia 2 were upgraded by Moody’s for a second time, and we may see further upgrades of other Acacia ABS securities if current credit performance trends continue. We intend to call Acacia 2 in the second quarter of 2006.

While our Acacia CDO returns are still attractive, competition for assets and higher ongoing expenses associated with issuing Acacia ABS securities continue to decrease expected returns for new Acacia transactions relative to the high levels we saw in 2004 and 2005. Nonetheless, Redwood has several competitive advantages in the CDO market, including our track record and reputation as a CDO issuer and manager, our ability to invest in Acacia as an equity investor, our team of professionals throughout Redwood who use their long-standing relationships and market knowledge to help us acquire attractive assets, and our history as a credit risk manager. For these reasons, we remain optimistic about our ability to continue creating attractive new Acacia investments this year and beyond.

Other CDO market trends include an increased exposure to derivative assets in the form of credit default swaps. Redwood’s Acacia program has a very small exposure to similar instruments, but we expect that our exposure to those derivatives in future transactions may increase if the credit risk and pricing make sense. We are also considering some new CDO investments in commercial real estate assets and higher-yielding residential securities, as well as new partnerships and strategies that could potentially help us expand our opportunities in the future.


The Redwood Review		16		1^st Quarter 2006

Finance Group Overview

Description

Redwood’s finance group is responsible for financial reporting, tax, treasury, balance sheet management, and information technology.

Discussion

Our first quarter earnings results were at acceptable levels, with an adjusted return on equity of 12.8%. This is within the 11% to 18% return on equity range that we expect to generate as a long-term average. It also exceeds our cost of equity capital, which we estimate to be between 10% to 12%.

Our credit losses this quarter continue to be less than 1 basis point (0.01%) annualized of the residential and commercial loans we credit enhance.

Our balance sheet remains strong. We ended the quarter with no debt. Cash in excess of that required to fund our operations was $174 million — this cash is available to fund investments in new assets. Book value was $38.11 per share.

Our residential and commercial credit enhancement securities (CES) are carried at a discount to the face amount of the underlying securities of $25.62 per share for GAAP purposes and $22.28 per share for tax purposes. If the credit performance of these securities remains strong, a significant portion of this discount will be accreted into GAAP and tax income over the next five to seven years.

The table below presents our per share results, including GAAP and non-GAAP financial measures. Please see the following pages for the definitions of these non-GAAP measures and for reconciliations to the most comparable GAAP measures.


			Non-GAAP Financial Measures
					Total
	GAAP				Taxable		Core Taxable
	Earnings		Core Earnings		Income		Income
	Per Share		Per Share		Per Share		Per Share
First Quarter 2005	$	2.42	$	1.82	$	1.89	$	1.17
Fourth Quarter 2005	$	1.68	$	0.97	$	1.66	$	1.44
First Quarter 2006	$	1.09	$	1.16	$	1.44	$	1.52

Our GAAP earnings of $28 million ($1.09 per share) in the first quarter of 2006 decreased from $61 million ($2.42 per share) in the comparable quarter in 2005. The two primary reasons for this $33 million earnings decline are a $17 million decrease in net gains on sales, calls, and market value adjustments and a decrease in net interest income of $17 million.


The Redwood Review		18		1^st Quarter 2006

Finance Group Overview

We now have fewer callable assets and we are not planning significant asset sales in 2006. This is the primary reason for the decline in net gains from sales, calls, and market value adjustments. We expect this trend to continue for the remainder of 2006.

Our net interest income has steadily declined over the past four quarters. While the yields and total net interest income we earn on residential and commercial CES and our securities portfolio continue to improve, this benefit has been more than offset by the decline in the amount we earn on our Sequoia-related assets.

During the first quarter of 2006, net interest income from Sequoia assets was $17 million, a decrease of $23 million as compared to the first quarter of 2005. Over the last several years, Sequoia assets have generated high levels of net interest income for us, in part because the substantial economic gains we generated through the securitization process were not recognized concurrently in GAAP but rather served to lower our basis and raise our on-going yields from these assets. Due to increased competition in the securitization business, we are not currently able to generate high-yield Sequoia assets through sponsoring securitization transactions. As our remaining high-yield Sequoia assets pay off and are not replaced, our earnings from this source are reduced.

Faster prepayments of the loans underlying Sequoia have accelerated pay downs of our Sequoia assets, contributing to the decline in net interest income from this source. Prepayments both reduce the total amount of these earning assets and also increase premium amortization expenses. The annualized constant prepayment rate (CPR) for Sequoia’s loans was 25% for the first quarter of 2005, 51% in the fourth quarter of 2005, 45% in the first quarter of 2006, and 50% in April of 2006. The flatter yield curve continues to drive these fast prepayment rates.

The vast majority of our permanent investments are non-Sequoia assets such as residential CES and CDO equity securities that benefit from fast prepayment speeds and commercial CES that are not affected by residential prepayment speeds. The good news is that earnings from these non-Sequoia assets are increasing. Net interest income from these investments was $27 million in the first quarter of 2006, an increase of $7 million as compared to the first quarter of 2005. We achieved this improved result even with $119 million of higher average excess cash balances.

The yield on our residential CES increased to 20% this quarter compared to 16% in the first quarter of 2005. Our residential CES portfolio is beginning to season and has benefited from fast prepayments and strong credit performance. In addition, average yield for this portfolio increased because our asset sales last year consisted primarily of lower-yielding assets.

In the first quarter of 2006, core taxable income of $1.52 per share was $0.36 per share higher than GAAP core earnings. Differences in income recognition methodologies for GAAP and tax explain most of this difference. For tax, we are recognizing lower premium amortization expenses for Sequoia IO and higher discount accretion income for our CES. These timing differences will eventually reverse, boosting GAAP income relative to taxable income.

Finance Group Overview

The total market value of our permanent assets increased by 3% during the quarter from $568 million to $583 million. New acquisitions of permanent assets in the first quarter were strong at $45 million, of which $25 million was residential, $8 million commercial, and $12 million CDO. Additionally, we had $10 million of sales, $2 million of calls, $20 million of pay downs, and market value appreciation of $2 million. We are anticipating 10% to 15% net growth for 2006.

At quarter-end, we had $1.0 billion equity capital and no debt. Our equity capital was invested 38% in residential real estate assets, 7% in commercial real estate assets, 15% in CDO equity, 5% in interest rate agreements, 5% in capital to support conduit activities, 12% in cash and working capital to support existing operations and risk management, and 18% in excess cash available to fund future investments.

Of our $583 million equity that is invested in permanent assets, 64% is invested in residential assets, 12% is invested in commercial assets and 24% is invested in CDO assets.

During the first quarter, our excess capital declined from $189 million to $174 million; we continue to expect our excess capital to decline over time as we acquire new assets this year and next.

Redwood Trust Permanent Assets


The Redwood Review		20		1^st Quarter 2006

GAAP Earnings

	a)		What is This?

			Income calculated under Generally Accepted Accounting Principles in the United States.

	b)		Graph

GAAP Earnings per Share

Quarterly Update

	Ø		Our GAAP earnings were $28 million, or $1.09 per share, for the first quarter of 2006. In the first quarter of 2005, GAAP earnings were $61 million, or $2.42 per share.

	Ø		Net interest income decreased by $17 million, primarily due to lower balances of earning assets (IO balance reduction as a result of prepayments, sales of CES in the fourth quarter of 2005) and higher balances of excess cash.

	Ø		Sales, calls, and market value adjustments decreased by $17 million from the first quarter of 2005 to the first quarter of 2006. In the first quarter of 2006, we realized no gains from calls as compared to $8 million of call gains in the first quarter of 2005.

	Ø		Yields on our residential CES portfolio (as it is presented for GAAP) continued to increase in the last two quarters, as a result of continued strong credit performance, favorable prepayment behavior, and sales of lower-yielding assets.

	Ø		Operating expenses increased by $1 million from the first quarter of 2005 to the first quarter of 2006, but were at similar levels to the fourth quarter of 2005. Some of our current expenses include certain technology and infrastructure initiatives that will be completed during this year, so we anticipate the recent growth in our expenses to slow down.


The Redwood Review		21		1^st Quarter 2006

Core Earnings

	a)		What is This?

			Core earnings is a profitability measure that highlights earnings that are more likely to be on-going in nature. In calculating core earnings, we start with GAAP earnings and then exclude gains and losses on calls and sales, mark-to-market adjustments, and one-time items that are unlikely to be repeated. Table 2 in the Appendix shows a reconciliation of core to GAAP earnings.

	b)		Graph

Core Earnings per Share

Quarterly Update

	Ø		Core earnings were $30 million, or $1.16 per share, for the first quarter of 2006. In the first quarter of 2005, core earnings were $45 million, or $1.82 per share.

	Ø		Core earnings per share in the first quarter of 2006 exceeded the level generated in the prior quarter, and reversed a downward trend in earnings. However, we still have a substantial amount of unutilized capital, and it is likely that our core earnings will not begin a sustainable trend upwards until we are able to find attractive assets and more fully invest our capital. On a quarter to quarter basis, earnings could be volatile.

	Ø		Some of the volatility in our core earnings is a function of the accounting for certain assets, including the accounting for premium amortization on Sequoia’s loans. The amount of premium we amortize in any one quarter will depend on both prepayments and interest rates. If short term interest rates remain stable or fall, premium amortization expense could increase substantially.

	Ø		GAAP earnings were below core earnings by $2 million in the first quarter of 2006. Core earnings do not include net losses from mark-to-market adjustment on certain assets that were partially offset by gains from sales and calls of assets.


The Redwood Review		22		1^st Quarter 2006

Total Taxable Income

	a)		What is This?

			Total taxable income is a measure of our profitability. It is our pre-tax income as calculated for tax purposes. It includes pre-tax income earned at our parent company and REIT subsidiaries (REIT taxable income) as well as pre-tax income earned in our taxable non-REIT subsidiaries. Total taxable income can differ materially from GAAP earnings. Table 3 in the Appendix reconciles these two profitability measures.

	b)		Graph

Total Taxable Earnings per Share (Estimated for 2005 and Q1 2006)

Quarterly Update

	Ø		Total taxable income was $36 million, or $1.44 per share, in the first quarter of 2006 and $46 million, or $1.89 per share, in the first quarter of 2005.

	Ø		One reason for this reduced amount was lower gain on sales for tax purposes from securitizations we sponsor. We had no taxable securitization gains in the first quarter of 2006 while in the first quarter of 2005 we had $3 million. We expect minimal gains from our conduit business over the course of this year.

	Ø		Sales and call income also accounted for a portion of the difference in taxable income. We had minimal gains from these activities in the first quarter of 2006 as compared to realizing $12 million, or $0.50 per share, in the first quarter of 2005.

	Ø		Total taxable income was higher than GAAP earnings. The primary reason for this was that taxable earnings from loans and CES do not include expenses related to projected credit losses.


The Redwood Review		23		1^st Quarter 2006

Core Taxable Income

	a)		What is This?

			Core taxable income is a profitability measure that highlights that portion of taxable income that is more likely to be on-going in nature. In calculating core taxable income, we start with total taxable income and then exclude gains on sale, tax deductions created by the exercise of stock options, and one time items that are unlikely to be repeated. Table 4 in the Appendix reconciles core taxable income and total taxable income to GAAP income.

	b)		Graph

Core Taxable Earnings per Share

Quarterly Update

	Ø		In the first quarter of 2006, core taxable income was $39 million, or $1.52 per share. In the first quarter of 2005, it was $29 million, or $1.17 per share.

	Ø		Fast prepayment speeds have substantially increased the income we recognized on our CES as compared to the first quarter of 2005. If prepayment speeds slow down in the future, we may recognize less income on our CES.

	Ø		The yield we recognize on our Sequoia IO securities would currently be negative due to rapid Sequoia loan prepayments; however, we cannot recognize a negative effective yield on assets for tax purposes. As a result, our cumulative taxable income has been higher by $41 million than it would have been otherwise, and our taxable income over the next few years will be lower by the same amount.

	Ø		Actual realized credit losses reduce taxable income as incurred, in an amount equal to the principal loss times our tax basis in the affected CES. We had $1 million realized residential and commercial taxable credit losses in the first quarter of 2006, an increase from the $0.4 million we realized in the first quarter of 2005, but still a very low level of loss.


The Redwood Review		24		1^st Quarter 2006

REIT Taxable Income

	a)		What is This?

			REIT taxable income is the primary determinant of the minimum amount of dividends we need to distribute in order to maintain our tax status as a real estate investment trust (REIT). REIT taxable income is pre-tax profit, as calculated for tax purposes, at Redwood Trust and our subsidiaries that have elected REIT tax status. It does not include taxable income earned at our taxable non-REIT subsidiaries. Over time, we must distribute at least 90% of our REIT taxable income as dividends. A reconciliation of GAAP income to REIT taxable income appears in Table 3 of the Appendix.

Graph

REIT Taxable Earnings per Share

Quarterly Update

	Ø		For the first quarter of 2006, REIT taxable income was $35 million, or $1.39 per share. For the first quarter of 2005, it was $45 million, or $1.84 per share.

	Ø		Historically, REIT taxable income has benefited from substantial gains due to calls and sales activity. There were $0.4 million of gains from sales in the first quarter of 2006, as compared to $14.9 million of gains from calls and sales in the first quarter of 2005. We expect reduced call and sales activity throughout 2006.

	Ø		Due to increased levels of uninvested capital, REIT taxable income has generally shown a downward trend in recent quarters. We expect this trend to continue until we more fully invest our available capital.

	Ø		REIT taxable income can also be affected by irregular events such as stock option exercises (which reduce taxable income by the in-the-money amount of the exercised options).


The Redwood Review		25		1^st Quarter 2006

Book Value per Share

	a)		What is This?

			Book value per share is the amount of equity capital we have per share of common stock outstanding. There are many different ways that equity capital can be measured. We usually focus on three measures, each of which we believe is useful for a different purpose.

			GAAP book value is our common equity as calculated for GAAP purposes. It includes a mark-to-market valuation adjustment for certain of our assets (i.e., those whose changes in market valuations are reported on our balance sheet and not our income statement.) Over time, our GAAP book value per share has been increasing as a result of retention of a portion of our income, increases in the market value of our assets, and issuance of stock at prices in excess of book value.

			Core book value is GAAP book value excluding those mark-to-market adjustments for certain of our assets reflected on our balance sheets. Core book value more closely reflects historical amortized costs rather than current market values.

			Adjusted core book value is core book value less REIT taxable income that we have earned but not yet distributed as dividends to our stockholders. Given our current dividend policy and as allowed under the REIT rules, there may be a delay between our earning of income and our distribution of that income. Thus, adjusted core book value is a measure that provides one estimate of the amount of equity capital we have over the long-run in order to reinvest in new assets and generate future earnings.

			A reconciliation of GAAP book value to core book value and adjusted core book value appears in Table 8 of the Appendix.

	b)		Graph

GAAP Book Value per Share


The Redwood Review		26		1^st Quarter 2006

Book Value per Share

Quarterly Update

	Ø		Dividends reduce book value per share. GAAP book value declined in the fourth quarter of 2005 primarily because we declared both a $0.70 per share regular dividend and also a $3.00 per share special dividend.

	Ø		For the first quarter of 2006, after declaring $0.70 per share of regular dividends, GAAP book value per share increased by 2% from $37.20 per share to $38.11 per share.

	Ø		At March 31, 2006, core book value was $34.90 per share and adjusted core book value was $32.32 per share.

	Ø		At the end of our first quarter of operations in September 1994, GAAP book value was $11.67 per share. Since that time, we have been able to pay $35.33 per share of dividends and have increased GAAP book value by $26.44 per share.

	Ø		Book value per share is not necessarily an indicator of our market value or an indicator of the returns available to our shareholders. However, if you had acquired our stock at our initial public offering in August 1995, and had reinvested all dividends back into the stock, your annualized compound return as a shareholder through the first quarter of 2006 would have been 20%. Future results may vary.


The Redwood Review		27		1^st Quarter 2006

Return on Equity

	a)		What is This?

			We believe return on equity (ROE) is one of the more useful measures of the profitability of our business. ROE is the amount of profit we generate each year per dollar of equity capital. There are numerous ways this could be calculated for Redwood since we monitor a number of different profit measures as well as a number of different measures of equity capital.

			GAAP ROE is GAAP earnings divided by GAAP equity.

			One interesting aspect to consider about GAAP ROE is that it will decline (all other things being equal) if our assets increase in market value. Many of our assets are marked-to-market through our balance sheet but not our income statement. An increase in asset market value will therefore increase GAAP equity but not our GAAP earnings, thus lowering GAAP ROE. Similarly, a decrease in asset market values will increase our GAAP ROE.

			An alternative measure of ROE that may also be useful is Adjusted ROE, by which we mean GAAP income divided by core equity. Core equity excludes those balance sheet mark-to-market adjustments that are not included in our income statement. Only those asset market value changes that are included in our income statement will affect Adjusted ROE.

			A reconciliation of GAAP ROE to Adjusted ROE, and of GAAP equity to core equity, appears in Table 8 of the Appendix.

	b)		Graph

Adjusted ROE (Annualized)


The Redwood Review		28		1^st Quarter 2006

Discounts and Reserves

	a)		What is This?

			We expect to generate attractive earnings and dividends from our credit-enhancement business if the loans we credit enhance incur very low credit losses.

			One way to understand Redwood’s earnings potential if credit results remain favorable is to look at the balance of purchase discount for our residential and commercial credit-enhancement securities. These balances will become part of earnings (for the most part, over the next seven years) to the extent they are not diminished by credit losses. This income would be in addition to the coupon income and other income we earn on an on-going basis.

			For both GAAP and tax earnings, we currently amortize a portion of the discount into income. For tax accounting (which drives our dividend distributions), we cannot assume future credit losses and thus cannot take any credit reserves and must amortize the entire purchase discount into taxable income over time. For GAAP purposes, we designate a portion of the purchase discount on CES as credit reserve and this portion of the purchase discount is currently not being amortized into income. The portion of the discount that is not designated as credit reserve for GAAP purposes is currently amortized into income.

			The accounting treatment for GAAP and tax purposes also differs for loans. For GAAP, we establish a credit reserve based on our estimate of credit losses. For tax purposes, credit losses can only be expensed when incurred. Thus, we reduce our GAAP income relative to our taxable income to the extent that our quarterly credit provisions for loans exceed actual loan losses incurred in that quarter. If anticipated losses do not occur, these provisions would be reversed into GAAP income over time. If these losses do occur as anticipated, our future taxable income will be lower by this amount.

			As a result of these different accounting treatments, effective yields recognized for recently acquired assets have been higher for tax purposes than for GAAP purposes.

			Furthermore, as a result of these differences, the outstanding balance of purchase discount differs between GAAP and tax. Future differences in the timing of amortizing the discount will depend on the credit performance and prepayment behavior of the assets.


The Redwood Review		30		1^st Quarter 2006

Discounts and Reserves

Graph

Discounts and Credit Reserves per Share

Quarterly Update

	Ø		On March 31, 2006, the net balance of all GAAP premiums and discounts associated with all consolidated residential and commercial real estate loans, securities, asset-backed securities issued, and other assets and liabilities was a net discount balance of $650 million, or $25.62 per share.

	Ø		The net premium on residential loans owned by Sequoia securitizations (and loans held by Redwood for sale to Sequoia), net of credit reserves, was $1.31 per share. This includes the net premium on the loans, less any net premium on ABS issued by the securitizations’ trusts, as adjusted for the costs of creating and issuing these ABS. Our GAAP credit reserve on these loans was $0.88 per share. For GAAP purposes, these loans are carried on our balance sheet at an effective price of 100.28% of principal value.

	Ø		Residential credit-enhancement securities had a net GAAP discount balance of $19.41 per share, or $493 million, which is the difference between the face value and the amortized cost of these assets. We are currently estimating that cumulative credit losses will equal $14.76 per share. The remaining balance of $4.65 per share is currently being amortized into GAAP income.

	Ø		Commercial credit-enhancement securities had a net discount balance of $5.52 per share, or $140 million. We are currently estimating that cumulative credit losses will equal $6.61 per share, which is in excess of this discount. As a result, we are currently writing down our GAAP basis in these assets over time, creating a net amortization expense for GAAP purposes.


The Redwood Review		31		1^st Quarter 2006

Dividends

	a)		What is This?

			As a REIT, we are required to distribute at least 90% of our REIT taxable income each year as dividends. We have a regular dividend rate that is established at a level we believe is reasonably likely to be sustainable. To the extent the REIT taxable income we are required or choose to distribute is greater than our regular dividend distributions, we typically make a special dividend distribution towards year-end.

	b)		Graph

Regular Dividends

Quarterly Update

	Ø		We declared a regular quarterly dividend of $0.70 per share in the first quarter of 2006. Our Board has announced its intent to maintain the level of the regular quarterly dividend at $0.70 per share for the remainder of the year.

	Ø		Based on our estimates of REIT taxable income during 2005 and the first quarter of 2006, we entered the second quarter of 2006 with $65 million ($2.57 per share) of undistributed REIT taxable income.

	Ø		We plan to permanently retain approximately 10% of the ordinary REIT taxable income we earn during 2006, and to retain 100% of the taxable income we earn at our taxable REIT subsidiaries in 2006 (after taxes). By retaining a portion of our income, we seek to build book value per share, and thus potential earnings and dividends per share, over time.

	Ø		We are also likely to defer distribution of this year’s taxable income into the following year. We also expect to distribute a special dividend towards the end of 2006. We currently expect the amount of this special dividend will be significantly less than the $3.00 per share special dividend we paid in the fourth quarter of 2005.


The Redwood Review		33		1^st Quarter 2006

Glossary

All companies and analysts do not calculate non-GAAP measures in the same fashion. As a result, certain measures as calculated by Redwood Trust may not be comparable to similarly titled measures reported by other companies.

ABS

Asset Backed Securities – securities backed by financial assets that generate cash flows and each security has a certain priority to a portion of such cash flows.

ACACIA

Acacia is the brand name for the collateralized debt obligation (CDO) securitizations we sponsor. The underlying pool of assets for these CDO securitizations consists primarily of investment-grade and non-investment-grade rated securities backed by residential prime, residential sub-prime, and commercial real estate loans. Acacia also owns related assets such as CDO securities issued by other real estate oriented CDOs, corporate debt issued by equity REITs, commercial real estate loans, and synthetic assets derived from commercial real estate assets.

ADJUSTED CORE EQUITY (ADJUSTED BOOK VALUE)

Adjusted core equity (adjusted book value) is not a measure calculated in accordance with GAAP. We have minimum dividend distribution requirements as a REIT. We thus have future payment obligations, but these are not recognized in GAAP accounting until dividends are declared. Cash that we have earned but that we must pay out as dividends is not cash that will be available to us to acquire long-term assets and build our business. So when we try to answer questions such as “how much equity per share do we have available to build our business and to generate dividends in the long-term?” we use adjusted core equity per share. Adjusted core equity is core equity less undistributed REIT taxable income that is still undeclared but that will need to be paid out. A reconciliation of adjusted core equity to GAAP equity appears in the Appendix in Table 8.

ARMs

Adjustable Rate Mortgages.

BOOK VALUE

Book value is our common equity amount. It can be calculated in a number of ways, one of which is appropriate for GAAP.

CDO

Collateralized Debt Obligations – a re-securitization of a diverse pool of securities.

CDO EQUITY SECURITIES

CDO equity securities are securities that bear the initial credit losses of the assets owned by securitization entities. They come in a variety of forms. They serve the same function as first-loss credit-enhancement securities issued from securitizations of residential and commercial real estate securities.

CONDUIT

A group that acquires closed loans from originators, accumulates loans over a period of time, and sells these loans, seeking to generate a gain on sale. Sales are usually made via securitization, but also can be done through bulk whole loan sales.


The Redwood Review		35		1^st Quarter 2006

Glossary

CORE EARNINGS

Core earnings is not a measure of earnings in accordance with GAAP. We attempt to strip some of the elements out of GAAP earnings that are temporary, one-time, or non-economic in nature or that relate to the past rather than the future, so that the underlying on-going “core” trend of earnings is clearer, at least in certain respects. We exclude realized gains (and losses) resulting from asset sales and calls from GAAP income. We sell assets from time to time as part of our on-going portfolio management activities. These sales can produce material gains and losses that could obscure the underlying trend of our long-term portfolio earnings, so we exclude them from core earnings. Similarly, we exclude gains from calls of residential credit-enhancement securities, as these are essentially sales of assets that produce a highly variable stream of income that may obscure some underlying income generation trends. GAAP earnings also include mark-to-market income and expenses for certain of our assets and interest rate agreements. These are unrealized market value fluctuations – we exclude them from core earnings.

Management believes that core earnings provide relevant and useful information regarding results from operations in addition to GAAP measures of performance. This is, in part, because market valuation adjustments on only a portion of the company’s assets and stock options and none of its liabilities are recognized through the income statement under GAAP and thus GAAP valuation adjustments may not be fully indicative of changes in market values on the balance sheet as a whole or a reliable guide to current operating performance. Furthermore, gains or losses realized upon sales of assets vary based on portfolio management decisions; a sale of an asset for a gain or a loss may or may not affect on-going earnings from operations. A reconciliation of core earnings to GAAP income appears in Table 2 of the Appendix.

CORE EQUITY (CORE BOOK VALUE)

Core equity is not a measure calculated in accordance with GAAP. GAAP equity includes mark-to-market adjustments for certain of our assets and interest rate agreements. Core equity is GAAP equity with mark-to-market gains and losses (“accumulated other comprehensive income”) excluded. It approximates what our equity value would be if we used historical amortized cost accounting exclusively. A reconciliation of core equity to GAAP equity appears in Table 8 of the Appendix.

CORE REIT TAXABLE INCOME

Core REIT taxable income is REIT taxable income before gains and losses on asset sales and calls, and certain other expenses such as tax deductions for stock option exercises. It represents that portion of our REIT taxable income that may be more on-going in nature. A reconciliation of Core REIT taxable income to GAAP Income is covered in Tables 3 and 4 of the Appendix.

CORE TAXABLE INCOME

Core taxable income is total taxable income before gains and losses on asset sales and calls and certain other expenses such as tax deductions for stock option exercises. It represents that portion of our total taxable income that may be more on-going in nature. A reconciliation of Core taxable income to GAAP Income is covered in Tables 3 and 4 of the Appendix.

CPR

Constant (or Conditional) Prepayment Rate — an industry-standard measure of the speed at which mortgage loans prepay.


The Redwood Review		36		1^st Quarter 2006

Glossary

CREDIT-ENHANCEMENT SECURITIES (CES)

CES absorb the initial credit losses generated by a pool of securitized assets. As a result, the more senior securities issued from that securitization are credit-enhanced (have less credit risk). These securities are also referred to as subordinated securities and B-pieces. Our permanent asset portfolio contains residential and commercial first-loss (usually non-rated) and residential second-loss (usually with a credit rating of single-B) CES securities or their equivalents. The first-loss security takes the initial risk. If losses exceed the principal value of the first-loss security, the second-loss security is at risk. The CDO equity securities we acquire from the Acacia CDO securitization transactions we sponsor function as CES for those transactions. On our GAAP balance sheet, residential credit-enhancement securities includes both permanent assets and also second- and third-loss (usually rated BB) securities that are owned by Acacia and are consolidated on our balance sheet.

GAAP

Generally Accepted Accounting Principles in the United States.

INTEREST-ONLY SECURITIES (IOs)

IOs are specialized securities that are backed by real estate loans. They receive interest payments calculated as a function of interest payments generated by the underlying loans. Typically, however, IO securities do not have a principal balance and they will not receive principal payments generated by those loans. Interest payments to IO securities usually equal the IO interest rate formula multiplied by a “notional” principal balance. The notional principal balance for an IO is typically reduced over time as the actual principal balance of the underlying pool of real estate loans pays down. Thus, IO cash flows are reduced as time passes and the loans pay down, and IO cash flows are typically reduced more quickly if loan prepayments accelerate. The IO securities that Redwood has acquired in the past from some Sequoia residential securitizations typically earn an interest amount that varies as a function of the remaining principal balance of Sequoia loans and the spread between the yield on the residential loans owned by Sequoia and the cost of the asset-backed securities issued by Sequoia.

INVENTORY ASSETS

Inventory assets are assets that we acquire to hold for several weeks or months that we then sell to a securitization entity. We use a combination of debt and equity to fund inventory assets.

LEVERAGE RATIOS

We currently only use debt to finance on a temporary basis the accumulation of inventory assets prior to sale to a securitization entity. Thus, we do not, typically, have a significant amount of financial leverage. However, because of the consolidation of independent securitization entities, it appears from our GAAP consolidated financial statements that Redwood is highly leveraged, with total liabilities significantly greater than equity. These securitization structures are non-recourse to Redwood. Therefore, although included in our consolidated balance sheets, they do not represent financial leverage for Redwood.

NEGATIVE AMORTIZATION ARMS (NEG AM ARMS, OPTION ARMS, OR MTA ARMS)

Negative Amortization ARMs (Neg Am ARMs, Option ARMs, or MTA ARMs) are monthly adjustable rate mortgages where the borrower can choose between different payment options. One of these options allows the borrower to make a minimum payment. This minimum payment is less than the interest accrued on the mortgage and in this instance the borrower’s loan balance will increase (negative amortization).


The Redwood Review		37		1^st Quarter 2006

Glossary

PERMANENT ASSETS

We seek to invest in assets that have the potential to provide high cash flow returns over a long period of time to help support our goal of maintaining steady dividends. We typically fund long-term investment assets entirely with equity (i.e., no debt). We refer to the assets we own that meet this criteria as permanent assets. Our permanent asset portfolio includes residential and commercial credit-enhancement securities, residential interest-only securities, commercial real estate loans, and CDO equity securities.

PRIME RESIDENTIAL LOANS

High quality residential loans – typically high credit score borrowers, relatively lower loan-to-value ratios, and full documentation.

PROFITABILITY RATIOS

Many financial institution analysts use asset-based profitability ratios such as interest rate spread and interest rate margin in their work analyzing financial institutions. Because of our consolidation of securitization entities for GAAP purposes, we believe equity-based profitability ratios are more appropriate for Redwood. We believe, for example, that net interest income as a percentage of equity is a useful measure. For operating expenses, we believe a useful measure is the operating efficiency ratio, or operating expenses as a percentage of net interest income.

REDWOOD DEBT

All of our debt is short-term. We only use debt to fund the acquisition of our inventory assets. We obtain this debt from a variety of Wall Street firms, banks, and other institutions. In addition, we have a commercial paper facility that will allow us to issue short term debt to finance the acquisition of residential loans.

REDWOOD EARNING ASSETS

Redwood earning assets is not a measure calculated in accordance with GAAP. Redwood earning assets are our permanent assets, including securities we acquired from securitizations we sponsored. All of the assets and asset-backed securities liabilities of the securitization entities we have sponsored are shown on our GAAP consolidated balance sheet, even though we do not own these assets and we are not responsible for the payment of these liabilities. For some analytical tasks (such as determining how much financial leverage Redwood carries on its balance sheet) we believe it makes more sense to consider the assets Redwood actually owns and the debt Redwood actually owes rather than including all GAAP assets and liabilities consolidated from securitization entities that are independent of Redwood. A reconciliation of Redwood earning assets to GAAP assets appears in Table 6 of the Appendix.

REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC)

A REMIC is an entity used to structure securitization backed by real estate assets. A re-REMIC is the resecuritization of prior REMICs.

REAL ESTATE INVESTMENT TRUST (REIT)

A tax election that can be made by a corporation that invests in real estate assets. By meeting certain tests, including the distribution of at least 90% of REIT taxable income, profits are not taxed at the corporate level to the extent that dividends are distributed to stockholders.


The Redwood Review		38		1^st Quarter 2006

Glossary

RETURN ON EQUITY (ROE) AND ADJUSTED RETURN ON EQUITY

ROE is the amount of profit we generate each year per dollar of equity capital. Adjusted ROE is GAAP income divided by core equity. Core equity excludes those balance sheet mark-to-market adjustments that are not included in our income statement. Thus, only those asset market value changes that are included in our income statement will affect adjusted ROE. A reconciliation of GAAP ROE to adjusted ROE appears in Table 8 of the Appendix.

SEQUOIA

Sequoia is the brand name for most of the securitizations of residential real estate loans we have sponsored.

TAXABLE REIT SUBSIDIARY

A wholly-owned subsidiary of a REIT. The taxable REIT subsidiary does not have the income, asset, or distribution requirements that the REIT does. The REIT, however, is limited in its investments in Taxable REIT subsidiaries.

TOTAL RETAINED AND REIT RETAINED TAXABLE INCOME

Total Retained and REIT Retained Taxable Income are not measures calculated in accordance with GAAP. Total retained taxable income is the taxable income earned at the REIT after dividend distributions to our shareholders, plus all of the taxable income earned at our taxable REIT subsidiary, less corporate income taxes and excise taxes paid. REIT retained taxable income is the taxable income earned at the REIT after dividend distributions to our shareholders, less corporate income taxes and excise taxes paid. A reconciliation of total retained and REIT Retained Taxable Income to GAAP income is covered in Tables 3 and 4 of the Appendix.

TOTAL TAXABLE INCOME AND REIT TAXABLE INCOME

Total taxable income is not a measure calculated in accordance with GAAP. It is the pre-tax income calculated for tax purposes. Estimated total taxable income is an important measure as it is the basis of our dividend distributions to shareholders. Taxable income calculations differ significantly from GAAP income calculations. REIT taxable income is that portion of our taxable income that we earn in our parent company and REIT subsidiaries. It does not include taxable income earned in taxable non-REIT subsidiaries. We must distribute at least 90% of REIT taxable income as dividends to shareholders over time. As a REIT, we are not subject to corporate income taxes on the REIT taxable income we distribute. The remainder of our taxable income is income we earn in taxable subsidiaries. We pay income tax on this income and we generally retain the after-tax income at the subsidiary level. We also pay income tax on the REIT taxable income we retain (we can retain up to 10% of the total). A reconciliation of total taxable income and REIT taxable to GAAP income appears in Table 3 of the Appendix .


The Redwood Review		39		1^st Quarter 2006

Table 1: GAAP Earnings (all $ in thousands, except per share data)


	Q1:2006			Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			2005			2004
Redwood and consolidated entities interest income	$	224,362		$	234,233		$	245,735		$	248,669		$	236,957		$	204,834		$	171,804		$	144,865		$	130,158		$	965,594		$	651,661
Discount amortization income		14,661			11,936			12,714			8,395			9,316			9,146			9,012			9,077			8,836			42,361			36,071
Premium amortization expense		(13,398	)		(14,451	)		(15,698	)		(10,203	)		(8,082	)		(7,105	)		802			(14,463	)		(11,646	)		(48,434	)		(32,412	)
Provision for credit losses		(176	)		(877	)		805			1,527			(1,025	)		(1,697	)		(1,528	)		(1,500	)		(2,511	)		430			(7,236	)

Total GAAP Interest Income		225,449			230,841			243,556			248,388			237,166			205,178			180,090			137,979			124,837			959,951			648,084

Interest expense on Redwood Trust’s debt		(2,097	)		(3,531	)		(3,845	)		(1,825	)		(2,728	)		(2,560	)		(2,312	)		(2,490	)		(2,571	)		(11,929	)		(9,933	)

ABS expenses consolidated from trusts		(178,204	)		(186,457	)		(191,035	)		(191,985	)		(173,182	)		(143,078	)		(108,237	)		(78,809	)		(69,069	)		(742,659	)		(399,193	)
ABS issuance expense amortization		(5,907	)		(6,069	)		(5,162	)		(5,386	)		(5,273	)		(4,783	)		(4,197	)		(4,305	)		(3,543	)		(21,890	)		(16,828	)
ABS interest agreement expense		2,980			3,573			623			876			1,469			606			(2,888	)		(5,988	)		(4,965	)		6,541			(13,235	)
ABS issuance premium amortization income		2,526			2,793			2,733			3,140			3,747			2,644			2,823			1,233			571			12,413			7,271

Total consolidated ABS expense		(178,605	)		(186,160	)		(192,841	)		(193,355	)		(173,239	)		(144,611	)		(112,499	)		(87,869	)		(77,006	)		(745,595	)		(421,985	)

GAAP net interest income		44,747			41,150			46,870			53,208			61,199			58,007			65,279			47,620			45,260			202,427			216,166

Fixed compensation expense		(3,437	)		(2,879	)		(2,802	)		(2,623	)		(2,778	)		(2,009	)		(1,959	)		(1,842	)		(2,230	)		(11,082	)		(8,040	)
Variable compensation expense		(1,514	)		(3,689	)		(4,009	)		(4,200	)		(4,018	)		(2,811	)		(3,432	)		(4,709	)		(4,005	)		(15,916	)		(14,957	)
Equity Compensation expense		(2,694	)		(1,341	)		(248	)		(972	)		(631	)		(396	)		(144	)		(560	)		(327	)		(3,192	)		(1,427	)
Other operating expense		(4,162	)		(4,268	)		(3,866	)		(3,179	)		(3,322	)		(2,565	)		(2,512	)		(1,781	)		(1,735	)		(14,635	)		(8,593	)

Operating expenses		(11,807	)		(12,177	)		(10,925	)		(10,974	)		(10,749	)		(7,781	)		(8,047	)		(8,892	)		(8,297	)		(44,825	)		(33,017	)

Excise taxes		(295	)		(280	)		(285	)		(308	)		(307	)		165			(301	)		(190	)		(300	)		(1,180	)		(626	)
Variable stock option market value change		—			25			16			(2	)		84			3			(213	)		621			(1,429	)		123			(1,018	)

Total GAAP operating expenses		(12,102	)		(12,432	)		(11,194	)		(11,284	)		(10,972	)		(7,613	)		(8,561	)		(8,461	)		(10,026	)		(45,882	)		(34,661	)

Realized gains on calls		—			4,266			2,914			4,421			7,548			11,205			20,472			15,246			11,816			19,149			58,739
Realized gains on sales		1,059			11,654			23,053			516			8,347			—			488			971			6,180			43,570			7,639
Valuation write-downs for EITF 99-20		(3,226	)		(1,111	)		(1,158	)		(1,710	)		(391	)		(1,573	)		(421	)		(3,846	)		(558	)		(4,370	)		(6,398	)
Interest rate agreements valuation adjustments		297			3,066			107			(182	)		(492	)		(411	)		47			(113	)		(1	)		2,499			(478	)
Valuation adjustments on real estate loans		—			—			—			—			—			(375	)		—			—			—			—			(375	)

Net gains and valuation adjustments		(1,870	)		17,875			24,916			3,045			15,012			8,846			20,586			12,258			17,437			60,848			59,127

Deferred tax benefit		—			—			—			—			—			—			—			5,180			—			—			5,180
Provision for income taxes		(2,760	)		(4,097	)		(4,693	)		(4,054	)		(4,677	)		(4,826	)		(4,962	)		(1,509	)		(1,880	)		(17,521	)		(13,177	)

GAAP Net Income	$	28,015		$	42,496		$	55,899		$	40,915		$	60,562		$	54,414		$	72,342		$	55,088		$	50,791		$	199,872		$	232,635


Diluted average shares (000)		25,703			25,311			25,314			25,196			25,021			24,491			22,728			21,325			20,399			25,121			22,229
GAAP earnings per share	$	1.09		$	1.68		$	2.21		$	1.62		$	2.42		$	2.22		$	3.18		$	2.58		$	2.49		$	7.96		$	10.47



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 1 — GAAP Earnings	A-1

Table 2: Core Earnings (all $ in thousands, except per share data)


	Q1:2006			Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			2005			2004
GAAP income items not included in Core earnings
Variable stock option market value change	$	0		$	25		$	16		($	2	)	$	84		$	3		($	213	)	$	621		($	1,429	)	$	123		($	1,018	)

Realized gains on calls of residential CES		—			4,266			2,914			4,421			7,548			11,205			20,472			15,246			11,816			19,149			58,739
Realized gains on asset sales		1,059			11,654			23,053			516			8,347			(76	)		489			971			6,255			43,570			7,639
Valuation write-downs for EITF 99-20		(3,226	)		(1,111	)		(1,158	)		(1,710	)		(391	)		(1,572	)		(422	)		(3,846	)		(558	)		(4,370	)		(6,398	)
Interest rate agreements valuation adjustments		297			3,066			107			(182	)		(492	)		(411	)		47			(113	)		(1	)		2,499			(478	)
Commercial real estate valuation adjustments		—			—			—			—			—			(300	)		—			—			(75	)		—			(375	)

Net gains and valuation adjustments		(1,870	)		17,875			24,916			3,045			15,012			8,846			20,586			12,258			17,437			60,848			59,127

Deferred tax benefit		—			—						—			—			—			—			5,180			—			—			5,180

Total GAAP / Core earnings differences		(1,870	)		17,900			24,932			3,043			14,001			8,849			20,373			18,059			16,008			59,876			63,289

Core earnings		29,885			24,596			30,967			37,872			45,466			45,565			51,969			37,029			34,783			138,901			169,346
GAAP / Core earnings differences		(1,870	)		17,900			24,932			3043			15,096			8,849			20,373			18,059			16,008			60,971			63,289

GAAP Net Income	$	28,015		$	42,496		$	55,899		$	40,915		$	60,562		$	54,414		$	72,342		$	55,088		$	50,791			199,872		$	232,635


Per Share Analysis
Variable stock option market value change	$	0.00		$	0.00		$	0.00		($	0.00	)	$	0.00		$	0.00		($	0.01	)	$	0.03		($	0.07	)	$	0.00		($	0.05	)
Realized gains on calls of residential CES		—			0.17			0.12			0.18			0.30			0.46			0.90			0.71			0.58			0.76			2.64
Realized gains on asset sales		0.04			0.46			0.91			0.02			0.33			—			0.02			0.05			0.30			1.73			0.34
Valuation write-downs for EITF 99-20		(0.13	)		(0.04	)		(0.05	)		(0.07	)		(0.02	)		(0.06	)		(0.02	)		(0.18	)		(0.03	)		(0.17	)		(0.29	)
Interest rate agreements valuation adjustments		0.01			0.12			0.00			(0.01	)		(0.02	)		(0.02	)		0.00			—			(0.00	)		0.10			(0.02	)
Commercial real estate valuation adjustments		—			—			—			—			—			(0.02	)		—			(0.01	)		—			—			(0.02	)
Deferred tax benefit		—			—			—			—			—			—			—			0.24			—			—			0.24

GAAP / Core earnings differences per share	($	0.07	)	$	0.71		$	0.98		$	0.12		$	0.60		$	0.36		$	0.89		$	0.84		$	0.78		$	2.43		$	2.85

Core earnings per share		1.16			0.97			1.22			1.50			1.82			1.86			2.29			1.74			1.71			5.53			7.62
GAAP / Core earnings differences per share		(0.07	)		0.71			0.98			0.12			0.60			0.36			0.89			0.84			0.78			2.43			2.85

GAAP earnings per share	$	1.09		$	1.68		$	2.21		$	1.62		$	2.42		$	2.22		$	3.18		$	2.58		$	2.49		$	7.96		$	10.47

Diluted average shares (000)		25,703			25,311			25,314			25,196			25,021			24,491			22,728			21,325			20,399			25,121			22,229



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 2 — Core Earnings	A-2

Table 3: GAAP / TAX Differences (all $ in thousands, except per share data)


	Estimated			Estimated												Actual												Estimated			Actual
	Q1:2006			Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			2005			2004

GAAP net income	$	28,015		$	42,496		$	55,899		$	40,915		$	60,562		$	54,414		$	72,342		$	55,088		$	50,791		$	199,872		$	232,635
Interest income and expense differences		6,216			(1,573	)		1,353			(4,868	)		(20,091	)		(7,519	)		(23,527	)		5,208			(1,150	)		(25,179	)		(26,988	)
Provision for credit losses — GAAP		176			876			(805	)		(1,527	)		1,025			1,697			1,528			1,500			2,511			(431	)		7,236
Tax deductions for realized credit losses		(1,002	)		34			(562	)		(737	)		(438	)		(247	)		(127	)		(506	)		(4	)		(1,703	)		(884	)
Long-term compensation differences		2,520			1,051			2,892			2,138			1,969			(1,775	)		402			2,428			2,904			8,050			3,959
Stock option exercise deduction differences		(1,126	)		(202	)		(2,944	)		(143	)		(477	)		(3,094	)		(745	)		(109	)		(12,073	)		(3,766	)		(16,021	)
Depreciation of fixed asset differences		176			168			60			166			151			(176	)		(589	)		46			(6	)		545			(725	)
Other operating expense differences		(261	)		(781	)		283			(31	)		69			(2,495	)		(34	)		5			(16	)		(460	)		(2,540	)
Sale of assets to third parties differences		(798	)		(4,612	)		(8,041	)		(2,476	)		(967	)		1,428			(576	)		(536	)		(566	)		(16,096	)		(250	)
Call income of residential CES differences		204			(1,505	)		(319	)		120			(2,324	)		(2,872	)		(3,961	)		(2,157	)		(1,899	)		(4,028	)		(10,889	)
Tax gain on securitizations		—			—			(392	)		808			2,558			10,749			11,153			10,303			—			2,974			32,205
Tax gain on intercompany sales and transfers		(19	)		(473	)		170			2,371			3,260			3,256			28			(71	)		7,546			5,328			10,759
GAAP market valuation write downs (EITF 99-20)		3,226			1,110			2,048			820			391			1,572			422			3,846			558			4,369			6,398
Interest rate agreements differences		(451	)		707			216			53			202			(688	)		(278	)		502			50			1,178			(414	)
Provision for excise tax — GAAP		295			280			285			308			307			(165	)		301			190			300			1,180			626
Provision for income tax differences		(703	)		4,096			5,013			3,035			134			4,827			2,834			(3,672	)		1,881			12,278			5,870

Total taxable income (pre-tax)		36,468			41,672			55,156			40,952			46,331			58,912			59,173			72,065			50,827			184,111			240,977

Earnings from taxable subsidiaries		(1,087	)		(1,703	)		(8,038	)		(1,715	)		(1,170	)		(8,903	)		(10,143	)		(11,721	)		(8,337	)		(12,626	)		(39,104	)

REIT taxable income (pre-tax)	$	35,381		$	39,969		$	47,118		$	39,237		$	45,161		$	50,009		$	49,030		$	60,344		$	42,490		$	171,485		$	201,873


Shares outstanding at period end (000)		25,382			25,133			24,764			24,647			24,514			24,154			23,346			21,511			19,796			25,133			24,154
Total taxable income per share	$	1.44		$	1.66		$	2.23		$	1.66		$	1.89		$	2.44		$	2.53		$	3.35		$	2.57		$	7.44		$	10.89
REIT taxable income per share	$	1.39		$	1.59		$	1.90		$	1.59		$	1.84		$	2.07		$	2.10		$	2.81		$	2.15		$	6.93		$	9.12



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 3 — GAAP-Tax Diff	A-3

Table 4: Taxable Income Estimates (all $ in thousands, except per share data)


	Estimated			Estimated												Actual												Estimated			Actual
	Q1:2006			Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			2005			2004

Taxable income in taxable subs (pre-tax)	$	1,087		$	1,703		$	8,038		$	1,715		$	1,170		$	8,903		$	10,143		$	11,721		$	8,337		$	12,626		$	39,104
REIT taxable income (pre-tax)		35,381			39,969			47,118			39,237			45,161			50,009			49,030			60,344			42,490			171,485			201,873

Total taxable income (pre-tax)	$	36,468		$	41,672		$	55,156		$	40,952		$	46,331		$	58,912		$	59,173		$	72,065		$	50,827		$	184,111		$	240,977

Core income (loss) in taxable subs (pre-tax)	$	1,087			($436	)	$	7,931			($611	)		($1,996	)		($2,185	)		($1,275	)	$	1,741		$	910		$	4,888			($809	)
Income from calls and sales in taxable subs (pre-tax)		—			2,139			107			2,326			3,166			11,088			11,418			9,980			7,427			7,738			39,913

Taxable income in taxable subs (pre-tax)		1,087			1,703			8,038			1,715			1,170			8,903			10,143			11,721			8,337			12,626			39,104
Income tax for taxable subs (actual tax due)		(530	)		(572	)		(3,652	)		(870	)		(830	)		(5,773	)		(4,574	)		(1,600	)		(1,150	)		(5,924	)		(13,097	)

After-tax income in taxable subs	$	557		$	1,131		$	4,386		$	845		$	340		$	3,130		$	5,569		$	10,121		$	7,187		$	6,702		$	26,007

Core REIT taxable income	$	37,388		$	36,660		$	33,065		$	36,198		$	30,741		$	42,544		$	34,272		$	47,040		$	39,708		$	136,664		$	163,564
Other ordinary REIT taxable income (expense)		(2,446	)		865			(2,160	)		3,166			(565	)		(3,094	)		(745	)		(109	)		(12,073	)		1,306			(16,021	)

Other ordinary REIT taxable income (expense)		34,942			37,525			30,905			39,364			30,176			39,450			33,527			46,931			27,635			137,970			147,543
Net long-term capital gain REIT taxable income		439			2,444			16,213			(127	)		14,985			10,559			15,503			13,413			14,855			33,515			54,330

REIT taxable income (pre-tax)	$	35,381		$	39,969		$	47,118		$	39,237		$	45,161		$	50,009		$	49,030		$	60,344		$	42,490		$	171,485		$	201,873

Total core taxable income	$	38,475		$	36,225		$	40,996		$	35,587		$	28,745		$	40,359		$	32,997		$	48,781		$	40,618		$	141,553		$	162,755
Income from calls, sales and stock option exercises		(2,007	)		5,447			14,160			5,365			17,586			18,553			26,176			23,284			10,209			42,558			78,222

Total taxable income (pre-tax)	$	36,468		$	41,672		$	55,156		$	40,952		$	46,331		$	58,912		$	59,173		$	72,065		$	50,827		$	184,111		$	240,977

REIT taxable income (pre-tax)	$	35,381		$	39,969		$	47,118		$	39,237		$	45,161		$	50,009		$	49,030		$	60,344		$	42,490		$	171,485		$	201,873
Excise taxes due to deferrals		(295	)		(280	)		(285	)		(308	)		(307	)		293			(301	)		(190	)		(300	)		(1,180	)		(498	)
Income taxes due to earnings retention (actual tax due)		(1,712	)		(1,230	)		(1,641	)		(1,830	)		(1,450	)		14			(1,537	)		(2,151	)		(1,267	)		(6,151	)		(4,941	)
REIT taxable income available for distribution		33,374		$	38,460		$	45,192		$	37,099		$	43,404		$	50,316		$	47,192		$	58,003		$	40,923		$	164,154		$	196,434


After-tax income in taxable subs	$	557		$	1,131		$	4,386		$	845		$	340		$	3,130		$	5,569		$	10,121		$	7,187		$	6,702		$	26,007

REIT taxable income available for distribution		33,374			38,460			45,192			37,099			43,404			50,316			47,192			58,003			40,923			164,155			196,434
Total taxable income (after-tax)	$	33,931		$	39,591		$	49,578		$	37,944		$	43,744		$	53,446		$	52,761		$	68,124		$	48,110		$	170,857		$	222,441

Regular dividend per share	$	0.70		$	0.70		$	0.70		$	0.70		$	0.70		$	0.67		$	0.67		$	0.67		$	0.67		$	2.80		$	2.68
Special dividend per share		—			3.00			—			—			—			5.50			—			—			0.50			3.00			6.00

Total dividends per share	$	0.70		$	3.70		$	0.70		$	0.70		$	0.70		$	6.17		$	0.67		$	0.67		$	1.17		$	5.80		$	8.68

Shares at period end (000)		25,382			25,133			24,764			24,647			24,514			24,154			23,346			21,511			19,796			25,133			24,154

Dividends declared	$	17,767		$	92,150		$	17,335		$	17,253		$	17,160		$	146,707		$	15,642		$	14,412		$	23,162		$	143,898		$	199,923
Dividend deduction on stock issued through DRIP		176			263			128			112			56			1,048			844			712			655			559			3,259

Total dividend deductions	$	17,943		$	92,413		$	17,463		$	17,365		$	17,216		$	147,755		$	16,486		$	15,124		$	23,817		$	144,457		$	203,182

Taxable income (after-tax) retained in tax subs	$	557		$	1,131		$	4,386		$	845		$	340		$	3,130		$	5,569		$	10,121		$	7,187		$	6,702		$	26,007
REIT retained taxable income (after-tax) (1)		1,312			1,553			1,165			1,798			1,261			4,252			1,515			2,352			1,197			5,777			9,315

Total retained taxable earnings (after-tax)	$	1,869		$	2,684		$	5,551		$	2,643		$	1,601		$	7,382		$	7,084		$	12,473		$	8,384		$	12,479		$	35,322

Per share outstanding at quarter end
Core taxable income (pre-tax)	$	1.52		$	1.44		$	1.66		$	1.44		$	1.17		$	1.67		$	1.41		$	2.27		$	2.05		$	5.71		$	7.40
REIT taxable income (pre-tax)	$	1.39		$	1.59		$	1.90		$	1.59		$	1.84		$	2.07		$	2.10		$	2.81		$	2.15		$	6.93		$	9.12
Total taxable income (pre-tax)	$	1.44		$	1.66		$	2.23		$	1.66		$	1.89		$	2.44		$	2.53		$	3.35		$	2.57		$	7.44		$	10.89
Total retained taxable earnings (after-tax)	$	0.07		$	0.11		$	0.22		$	0.11		$	0.07		$	0.31		$	0.30		$	0.58		$	0.42		$	0.50		$	1.61


(1)		REIT retained taxable income equals 10% of ordinary REIT taxable income less income taxes and excise taxes.



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 4 — Tax. Inc.	A-4

Table 5: Retention and Distribution of Taxable Income (all $ in thousands, except per share data)


	Estimated			Estimated												Actual												Estimated			Actual
	Q1:2006			Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			2005			2004
Undistributed beginning of period REIT taxable income (pre-tax):	$	51,213		$	106,719		$	80,166		$	62,218		$	37,291		$	138,981		$	109,790		$	69,263		$	53,354		$	37,291		$	53,354
REIT taxable income (pre-tax)		35,381			39,970			47,118			39,237			45,161			50,009			49,030			60,344			42,490			171,486			201,873
Permanently retained (pre-tax)		(3,320	)		(3,063	)		(3,102	)		(3,924	)		(3,018	)		(3,944	)		(3,353	)		(4,693	)		(2,764	)		(13,107	)		(14,754	)
Dividend of 2002 income		—			—			—			—			—			—			—			—			—			—			—
Dividend of 2003 income		—			—			—			—			—			—			(14,413	)		(15,124	)		(23,817	)		—			(53,354	)
Dividend of 2004 income		—			—			(2,710	)		(17,365	)		(17,216	)		(147,755	)		(2,073	)		—			—			(37,291	)		(149,828	)
Dividend of 2005 income		(17,943	)		(92,413	)		(14,753	)		—			—			—			—			—			—			(107,166	)		—

Undistributed REIT taxable income at end of period:	$	65,331		$	51,213		$	106,719		$	80,166		$	62,218		$	37,291		$	138,981		$	109,790		$	69,263		$	51,213		$	37,291


Shares outstanding at period end		25,382			25,133			24,764			24,647			24,514			24,154			23,346			21,511			19,796			25,133			24,154

Undistributed REIT taxable income (pre-tax) per share outstanding	$	2.57		$	2.04		$	4.31		$	3.25		$	2.54		$	1.54		$	5.95		$	5.10		$	3.50		$	2.04		$	1.54

Undistributed REIT taxable income (pre-tax)
From 2003’s income		—			—			—			—			—			—			—			14,413			29,537			—			—
From 2004’s income		—			—			—			2,710			20,075			37,291			138,981			95,377			39,726			—			37,291
From 2005’s income		33,270			51,213			106,716			77,456			42,143			—			—			—			—			51,213			—
From 2006’s income		32,061			—			—			—			—			—			—			—			—			—			—

Total	$	65,331		$	51,213		$	106,716		$	80,166		$	62,218		$	37,291		$	138,981		$	109,790		$	69,263		$	51,213		$	37,291



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 5 — Ret. Tax. Inc.	A-5

Table 6: Assets (all $ in millions)


	Q1:2006			Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004
Residential loans owned by Redwood	$	87		$	45		$	17		$	300		$	256		$	193		$	259		$	161		$	97
Residential loans consolidated from entities		11,741			13,649			16,324			19,083			21,237			22,015			21,299			19,755			17,989

Total GAAP residential loans		11,828			13,694			16,341			19,383			21,493			22,208			21,558			19,916			18,086

HELOC loans owned by Redwood		—			—			—			—			—			—			—			—			—
HELOC loans consolidated from entities		162			181			215			247			279			296			317			327			—

Total GAAP HELOC loans		162			181			215			247			279			296			317			327			—

Commercial loans owned by Redwood		2			7			21			16			22			32			21			25			14
Commercial loans consolidated from entities		53			53			35			26			35			22			12			8			8

Total GAAP commercial loans		55			60			56			42			57			54			33			33			22

Residential CES owned by Redwood		305			311			338			469			373			351			327			312			256
Residential CES consolidated from entities		339			302			326			237			238			211			170			131			119

Total GAAP residential CES		644			613			664			706			611			562			497			443			375

Commercial CES owned by Redwood		67			58			44			29			29			14			9			2			2
Commercial CES consolidated from entities		—			—			—			—			—			—			—			—			—

Total GAAP Commercial CES		67			58			44			29			29			14			9			2			2

Other securities owned by Redwood		53			167			234			208			70			115			161			213			237
Other securities consolidated from entities		1,765			1,582			1,549			1,441			1,435			1,266			1,069			881			698

Total GAAP other securities		1,818			1,749			1,783			1,649			1,505			1,381			1,230			1,094			935

Cash owned by Redwood		85			176			163			72			65			57			76			38			58
Restricted cash consolidated from entities		131			72			59			48			58			36			45			20			14
Accrued interest receivable		73			76			80			85			82			72			62			49			44
Principal receivable		2			—			2			—			—			3			1			12			—
Interest rate agreements		48			31			25			13			29			16			10			17			1
Deferred tax asset		5			5			8			7			8			11			9			5			—
Deferred asset-backed security issuance costs		52			54			56			59			63			61			58			53			47
Other assets		10			8			9			6			6			7			7			7			6

Total GAAP assets	$	14,979		$	16,777		$	19,505		$	22,346		$	24,285		$	24,778		$	23,912		$	22,016		$	19,590


Residential loans owned by Redwood	$	87		$	45		$	17		$	300		$	256		$	193		$	259		$	161		$	97
HELOC loans owned by Redwood		—			—			—			—			—			—			—			—			—
Commercial loans owned by Redwood		2			7			21			16			22			32			21			25			14
Residential CES owned by Redwood		305			311			338			469			373			351			327			312			256
Commercial CES owned by Redwood		67			58			44			29			29			14			9			2			2
Other securities owned by Redwood		53			167			234			208			70			129			170			215			239
Cash owned by Redwood		85			176			163			72			65			57			76			38			58
Assets of securitizations for GAAP		14,060			15,767			18,449			21,034			23,224			23,810			22,867			21,102			18,814
ABS liabilities of entities for GAAP		(13,930	)		(15,585	)		(18,238	)		(20,815	)		(23,057	)		(23,630	)		(22,680	)		(20,923	)		(18,630	)

Redwood earning assets — GAAP basis	$	729		$	946		$	1,028		$	1,313		$	982		$	956		$	1,049		$	932		$	850



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 6 — Asset	A-6

Table 7: Liabilities (all $ in millions)


	Q1:2006			Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004

Redwood Trust debt: short-term	$	0		$	170		$	162		$	453		$	199		$	203		$	246		$	270		$	278
Redwood Trust debt: long-term		—			—			—			—			—			—			—			—			—

Total Redwood Trust debt		—			170			162			453			199			203			246			270			278

ABS issued, consolidated from entities		13,788			15,422			18,049			20,598			22,821			23,383			22,449			20,724			18,458
Unamortized IO issuance premium		124			143			163			186			202			210			185			161			162
Unamortized ABS issuance premium		18			20			25			31			34			37			46			38			10

ABS obligations of entities		13,930			15,585			18,237			20,815			23,057			23,630			22,680			20,923			18,630

Accrued interest payable		43			41			42			43			38			35			29			22			18
Interest rate agreements		0			1			1			3			0			1			7			1			12
Accrued expenses and other liabilities		21			28			30			23			26			29			32			28			21
Dividends payable		18			17			17			17			17			16			16			14			23

Total GAAP liabilities		14,012			15,842			18,489			21,354			23,337			23,914			23,010			21,258			18,982

Common stock and paid-in capital		839			825			808			803			795			773			727			625			549
Accumulated other comprehensive income		82			74			117			137			125			105			97			111			79
Cumulative GAAP earnings		709			681			639			583			542			482			427			355			299
Cumulative distributions to shareholders		(663	)		(645	)		(548	)		(531	)		(514	)		(496	)		(349	)		(333	)		(319	)

GAAP stockholders’ equity		967			935			1,016			992			948			864			902			758			608

Total GAAP liabilities and equity	$	14,979		$	16,777		$	19,505		$	22,346		$	24,285		$	24,778		$	23,912		$	22,016		$	19,590


Total Redwood Trust debt	$	0		$	170		$	162		$	453		$	199		$	203		$	246		$	270		$	278
GAAP stockholders’ equity		967			935			1016			992			948			864			902			758			608

Redwood capital	$	967		$	1,105		$	1,178		$	1,445		$	1,147		$	1,067		$	1,148		$	1,028		$	886

Redwood debt to equity ratio		0	%		18	%		16	%		46	%		21	%		23	%		27	%		36	%		46	%
Debt to capital ratio		0	%		15	%		14	%		31	%		17	%		19	%		21	%		26	%		31	%

Redwood earning assets	$	729		$	946		$	1,028		$	1,313		$	982		$	942		$	1,040		$	930		$	848
Redwood debt		0			170			162			453			199			203			246			270			278

Redwood net earning assets (GAAP basis)	$	729		$	776		$	866		$	860		$	783		$	739		$	794		$	660		$	570
Working capital		238			159			150			132			165			125			108			98			38

GAAP stockholders’ equity	$	967		$	935		$	1,016		$	992		$	948		$	864		$	902		$	758		$	608


Equity to earning assets		133	%		99	%		99	%		76	%		97	%		92	%		87	%		82	%		72	%



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 7 — Liabilities	A-7

Table 8: Book Value and Profitability (all $ in thousands, except per share data)


	Q1:2006			Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			2005			2004

GAAP equity	$	967,333		$	934,960		$	1,016,065		$	991,757		$	948,001		$	864,156		$	901,841		$	757,940		$	608,122		$	934,960		$	864,156
Balance sheet mark-to-market adjustments		81,591			73,731			117,043			137,380			124,784			105,357			96,452			111,221			78,517			73,731			105,357

Core equity	$	885,742		$	861,229		$	899,022		$	854,377		$	823,217		$	758,799		$	805,389		$	646,719		$	529,605		$	861,229		$	758,799

Core equity	$	885,742		$	861,229		$	899,022		$	854,377		$	823,217		$	758,799		$	805,389		$	646,719		$	529,605		$	861,229		$	758,799
REIT taxable income to be paid as dividends		65,331			51,213			106,716			80,166			62,218			37,291			138,982			109,790			69,263			51,213			37,291

Adjusted core equity	$	820,411		$	810,016		$	792,306		$	774,211		$	760,999		$	721,508		$	666,407		$	536,929		$	460,342		$	810,016		$	721,508

Shares outstanding at quarter end		25,382			25,133			24,764			24,647			24,514			24,154			23,346			21,511			19,796			25,133			24,154

GAAP equity per share	$	38.11		$	37.20		$	41.03		$	40.24		$	38.67		$	35.78		$	38.63		$	35.24		$	30.72		$	37.20		$	35.78
Core equity per share	$	34.90		$	34.27		$	36.30		$	34.66		$	33.58		$	31.42		$	34.50		$	30.06		$	26.75		$	34.27		$	31.42
Adjusted core equity per share	$	32.32		$	32.23		$	31.99		$	31.41		$	31.03		$	29.86		$	28.55		$	24.96		$	23.25		$	32.23		$	29.86

PROFITABILITY
Net interest income (NII)	$	44,747		$	41,150		$	46,870		$	53,208		$	61,199		$	58,007		$	65,279		$	47,620		$	45,260		$	202,427		$	216,166
Net interest income / average core equity		20	%		19	%		21	%		25	%		31	%		30	%		38	%		33	%		36	%		24	%		34	%

Operating expenses (before excise tax and VSOE)	$	11,807		$	12,177		$	10,925		$	10,974		$	10,749		$	7,781		$	8,047		$	8,892		$	8,297		$	44,825		$	33,017
Op exp (before excise tax and VSOE)/NII		26	%		30	%		23	%		21	%		18	%		13	%		12	%		19	%		18	%		22	%		15	%

GAAP net income	$	28,015		$	42,496		$	55,899		$	40,915		$	60,562		$	54,414		$	72,342		$	55,088		$	50,791		$	199,872		$	232,635
GAAP net income/average core equity (adjusted ROE)		13	%		19	%		25	%		19	%		30	%		28	%		42	%		38	%		40	%		24	%		36	%

Core earnings	$	29,885		$	24,596		$	30,967		$	37,872		$	45,466		$	45,565		$	51,969		$	37,029		$	34,783		$	138,901		$	169,346
Core earnings/average core equity		14	%		11	%		14	%		18	%		23	%		23	%		30	%		25	%		27	%		16	%		26	%



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 8 — BV & Profit	A-8

Table 9: Asset / Liability Matching at March 31, 2006 (all $ in thousands)⁽¹⁾


			One-		Six-				Non				Total
			Month		Month		Fixed/		Interest				Liabilities
Asset	Asset		LIBOR		LIBOR		Hybrid		Bearing				And
Type	Amount		Liabilities		Liabilities		Liabilities		Liabilities		Equity		Equity
Cash (unrestricted)	$	85,466	$	85,466	$	—	$	—	$	—	$	—	$	85,466
One-Month LIBOR		4,580,605		4,580,605		—		—		—		—		4,580,605
Six-Month LIBOR		8,400,168		—		8,243,073		—		—		157,095		8,400,168
Other ARM		288,323		155,318		—		—		—		133,005		288,323
Fixed/Hybrid < 1 yr ⁽¹⁾		78,263		—		—		73,062		—		5,201		78,263
Fixed / Hybrid > 1yr		1,226,123		—		—		792,383		—		433,740		1,226,123
Non-Earning Assets		319,794		—		—		—		81,502		238,292		319,794

Total ⁽²⁾	$	14,978,742	$	4,821,389	$	8,243,073	$	865,445	$	81,502	$	967,333	$	14,978,742


(1)		Projected principal receipts on fixed-rate and hybrid assets over the next twelve months.

(2)		Includes assets and ABS liabilities of consolidated securitization entities.



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 9 — Asset-Liab.	A-9

Table 10: Average Balance Sheet (all $ in thousands)


	Q1:2006		Q4:2005		Q3:2005		Q2:2005		Q1:2005		Q4:2004		Q3:2004		Q2:2004		Q1:2004		2005		2004

Average residential real estate loans	$	12,374,811	$	14,627,880	$	17,373,023	$	20,054,970	$	21,640,501	$	21,716,898	$	20,484,287	$	18,754,200	$	16,916,295	$	18,402,001	$	19,476,842
Average residential HELOC		167,708		193,707		224,884		257,515		285,142		303,119		323,100		124,053		—		240,019		188,254
Average residential loan CES		560,191		534,420		585,663		550,460		493,412		424,879		368,887		317,235		287,078		541,224		349,779
Average commercial loan CES		56,800		44,109		32,192		25,085		19,255		10,836		7,372		2,075		677		30,234		5,261
Average commercial real estate loans		56,777		59,049		47,703		45,214		56,080		39,836		33,461		26,129		22,316		52,008		30,469
Average securities portfolio		1,769,502		1,743,808		1,687,506		1,548,085		1,423,487		1,267,692		1,141,456		978,014		861,328		1,601,837		1,062,901
Average cash and cash equivalents		244,002		339,379		134,422		124,707		124,685		126,556		101,937		81,450		70,641		181,259		95,251

Average earning assets		15,229,791		17,542,352		20,085,393		22,606,036		24,042,562		23,889,816		22,460,500		20,283,156		18,158,335		21,048,582		21,208,757
Average other assets		609,692		806,329		905,906		759,517		520,622		430,219		416,736		327,205		227,634		749,340		350,847

Average total assets	$	15,839,483	$	18,348,681	$	20,991,299	$	23,365,553	$	24,563,184	$	24,320,035	$	22,877,236	$	20,610,361	$	18,385,969	$	21,797,922	$	21,559,604


Average Redwood debt	$	137,181	$	253,302	$	297,788	$	216,639	$	277,423	$	348,177	$	404,589	$	539,231	$	447,931	$	261,322	$	434,662
Average asset-backed securities issued		14,663,134		16,941,243		19,542,413		22,067,276		23,324,111		22,956,247		21,606,164		19,350,833		17,299,503		20,448,735		20,313,995

Average total obligations		14,800,316		17,194,545		19,840,201		22,283,915		23,601,534		23,304,424		22,010,753		19,890,064		17,747,434		20,710,057		20,748,657
Average other liabilities		86,937		154,823		136,769		111,294		66,188		145,752		64,916		56,424		54,150		117,597		80,448

Average total liabilities		14,887,253		17,349,368		19,976,970		22,395,209		23,667,722		23,450,176		22,075,669		19,946,488		17,801,584		20,827,654		20,829,105

Average core equity		877,212		880,329		880,482		840,098		794,866		776,833		695,488		583,875		506,445		849,257		641,182
Average balance sheet mark-to-market adjustments		75,018		118,984		133,847		130,246		100,596		93,026		106,079		79,998		77,940		121,011		89,317
Average total equity		952,230		999,313		1,014,329		970,344		895,462		869,859		801,567		663,873		584,385		970,268		730,499

Average total liabilities and equity	$	15,839,483	$	18,348,681	$	20,991,299	$	23,365,553	$	24,563,184	$	24,320,035	$	22,877,236	$	20,610,361	$	18,385,969	$	21,797,922	$	21,559,604



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 10 — Average Balance Sheet	A-10

Table 11: Balances & Yields (all $ in thousands)


		At period end											For period ended
				Unamortized					Unrealized
				Premium/		Credit			Gain /		Net Book		Average		Interest
		Current Face		(Discount)		Protection			(loss)		Value		Balance		Income		Yield

Total Earning Assets (GAAP)	Q1: 2004		19,595,182		47,341		(252,587	)		87,874		19,477,810		18,158,336		124,837		2.75	%
	Q2: 2004		21,975,772		57,582		(272,698	)		91,454		21,852,110		20,283,156		137,979		2.72	%
	Q3: 2004		23,883,198		102,744		(356,371	)		90,818		23,720,389		22,460,501		180,090		3.21	%
	Q4: 2004		24,863,331		104,063		(420,757	)		95,396		24,572,723		23,889,816		205,178		3.44	%
	2004		24,832,026		104,063		(420,757	)		95,396		24,572,723		21,208,757		648,084		3.06	%
	Q1: 2005		24,301,644		122,952		(487,952	)		102,711		24,039,355		24,042,562		237,166		3.95	%
	Q2: 2005		22,414,482		103,779		(522,490	)		133,210		22,128,981		22,606,036		248,388		4.40	%
	Q3: 2005		19,625,979		94,058		(551,562	)		98,874		19,267,349		20,085,393		243,556		4.85	%
	Q4: 2005		16,986,581		13,376		(527,213	)		56,542		16,529,286		17,542,352		230,841		5.26	%
	2005		16,986,581		13,376		(527,213	)		56,542		16,529,286		21,048,582		959,951		4.56	%
	Q1: 2006		15,168,319		12,215		(572,066	)		50,480		14,658,948		15,229,791		225,449		5.92	%

Residential Real Estate Loans	Q1: 2004		17,950,901		154,451		(18,847	)		—		18,086,505		16,916,295		98,826		2.34	%
	Q2: 2004		19,766,481		169,174		(20,080	)		—		19,915,575		18,754,200		109,880		2.34	%
	Q3: 2004		21,381,784		197,472		(21,344	)		—		21,557,912		20,484,287		147,974		2.89	%
	Q4: 2004		22,023,888		207,607		(23,078	)		—		22,208,417		21,716,898		168,831		3.11	%
	2004		22,023,888		207,607		(23,078	)		—		22,208,417		19,476,842		525,511		2.70	%
	Q1: 2005		21,307,080		210,375		(24,231	)		—		21,493,224		21,640,501		194,877		3.60	%
	Q2: 2005		19,202,109		203,480		(22,396	)		—		19,383,193		20,054,970		203,743		4.06	%
	Q3: 2005		16,176,357		185,814		(20,991	)		—		16,341,180		17,373,023		191,914		4.42	%
	Q4: 2005		13,541,402		173,299		(20,868	)		—		13,693,833		14,627,880		175,124		4.79	%
	2005		13,541,402		173,299		(20,868	)		—		13,693,833		18,402,001		765,658		4.16	%
	Q1: 2006		11,686,976		161,827		(21,014	)		—		11,827,789		12,374,811		163,227		5.28	%

Home Equity Lines of Credit	Q1: 2004		—		—		—			—		—		—		—		0.00	%
	Q2: 2004		317,045		10,043		(267	)		—		326,821		124,053		536		1.73	%
	Q3: 2004		308,697		9,029		(531	)		—		317,195		323,100		1,618		2.00	%
	Q4: 2004		288,954		8,087		(693	)		—		296,348		303,119		2,177		2.87	%
	2004		288,954		8,087		(693	)		—		296,348		188,254		4,331		2.30	%
	Q1: 2005		272,591		7,477		(596	)		—		279,472		285,142		2,558		3.59	%
	Q2: 2005		241,278		6,657		(563	)		—		247,372		257,515		2,467		3.83	%
	Q3: 2005		210,476		5,699		(1,038	)		—		215,137		224,884		1,696		3.02	%
	Q4: 2005		177,840		4,907		(1,788	)		—		180,959		193,707		1,475		3.05	%
	2005		177,840		4,907		(1,788	)		—		180,959		240,019		8,196		3.41	%
	Q1: 2006		159,478		4,307		(1,358	)		—		162,427		167,708		2,437		5.81	%



Redwood Review - 1st Quarter 2006	APPENDIX — Table 11 — Balances & Yields	A-11

Table 11: Balances & Yields (all $ in thousands)


		At period end												For period ended
				Unamortized						Unrealized
				Premium/			Credit			Gain /		Net Book		Average		Interest
		Current Face		(Discount)			Protection			(loss)		Value		Balance		Income		Yield

Residential Loan Credit-Enhancement Securities	Q1: 2004		634,000		(110,994	)		(216,924	)		68,534		374,616		287,078		15,533		21.64	%
	Q2: 2004		712,908		(121,808	)		(235,535	)		86,674		442,239		317,235		16,077		20.27	%
	Q3: 2004		830,524		(109,367	)		(298,925	)		74,577		496,809		368,887		16,007		17.36	%
	Q4: 2004		933,772		(108,141	)		(342,706	)		78,733		561,658		424,879		16,985		15.99	%
	2004		933,772		(108,141	)		(342,706	)		78,733		561,658		349,779		64,602		18.47	%
	Q1: 2005		978,878		(89,405	)		(365,998	)		87,919		611,394		493,412		19,624		15.91	%
	Q2: 2005		1,103,737		(96,488	)		(404,180	)		103,126		706,195		550,460		19,439		14.13	%
	Q3: 2005		1,052,813		(89,429	)		(382,862	)		84,279		664,801		585,663		24,368		16.64	%
	Q4: 2005		1,035,874		(126,811	)		(354,610	)		58,196		612,649		534,420		23,133		17.31	%
	2005		1,035,874		(126,811	)		(354,610	)		58,196		612,649		541,224		86,564		15.99	%
	Q1: 2006		1,087,135		(118,990	)		(373,781	)		49,459		643,823		560,191		27,748		19.81	%

Commercial Loan Credit-Enhancement Securities	Q1: 2004		8,175		2,053			(8,175	)		95		2,148		677		35		20.68	%
	Q2: 2004		8,175		2,084			(8,175	)		10		2,094		2,075		61		11.76	%
	Q3: 2004		26,930		8,456			(26,930	)		686		9,142		7,372		346		18.77	%
	Q4: 2004		45,639		12,883			(45,639	)		1,615		14,498		10,836		233		8.60	%
	2004		45,639		12,883			(45,639	)		1,615		14,498		5,261		675		12.83	%
	Q1: 2005		88,671		25,344			(88,671	)		3,226		28,570		19,255		356		7.40	%
	Q2: 2005		87,210		24,847			(87,210	)		4,549		29,396		25,085		881		14.05	%
	Q3: 2005		138,530		41,127			(138,530	)		2,413		43,540		32,192		453		5.63	%
	Q4: 2005		175,343		19,474			(141,806	)		4,676		57,687		44,109		923		8.37	%
	2005		175,343		19,474			(141,806	)		4,676		57,687		30,234		2,613		8.64	%
	Q1: 2006		198,681		27,700			(167,772	)		8,039		66,648		56,800		759		5.34	%

Commercial Real Estate Loans	Q1: 2004		31,136		(318	)		(8,641	)		—		22,177		22,316		701		12.56	%
	Q2: 2004		43,448		(1,261	)		(8,641	)		—		33,546		26,129		868		13.29	%
	Q3: 2004		43,410		(1,380	)		(8,641	)		—		33,389		33,461		1,038		12.41	%
	Q4: 2004		65,598		(2,478	)		(8,641	)		—		54,479		39,836		1,162		11.67	%
	2004		65,598		(2,478	)		(8,641	)		—		54,479		30,469		3,769		12.37	%
	Q1: 2005		67,365		(2,305	)		(8,456	)		—		56,604		56,080		1,587		11.32	%
	Q2: 2005		51,778		(1,843	)		(8,141	)		—		41,794		45,214		1,208		10.69	%
	Q3: 2005		66,348		(2,105	)		(8,141	)		—		56,102		47,703		1,209		10.14	%
	Q4: 2005		70,091		(2,258	)		(8,141	)		—		59,692		59,049		1,281		8.68	%
	2005		70,091		(2,258	)		(8,141	)		—		59,692		52,008		5,285		10.16	%
	Q1: 2006		65,508		(2,200	)		(8,141	)		—		55,167		56,777		1,238		8.72	%



Redwood Review - 1st Quarter 2006	APPENDIX — Table 11 — Balances & Yields	A-12

Table 11: Balances & Yields (all $ in thousands)


		At period end												For period ended
				Unamortized					Unrealized
				Premium/			Credit		Gain /			Net Book		Average		Interest
		Current Face		(Discount)			Protection		(loss)			Value		Balance		Income		Yield

Securities	Q1: 2004		913,104		2,149			—		19,245			934,498		861,328		9,576		4.45	%
	Q2: 2004		1,089,254		(650	)		—		4,770			1,093,374		978,014		10,484		4.29	%
	Q3: 2004		1,215,847		(1,466	)		—		15,555			1,229,936		1,141,456		12,932		4.53	%
	Q4: 2004		1,378,924		(13,895	)		—		15,048			1,380,077		1,267,692		15,282		4.82	%
	2004		1,378,924		(13,895	)		—		15,048			1,380,077		1,062,901		48,274		4.54	%
	Q1: 2005		1,522,345		(28,534	)		—		11,566			1,505,377		1,423,487		17,584		4.94	%
	Q2: 2005		1,656,177		(32,874	)		—		25,535			1,648,838		1,548,085		19,846		5.13	%
	Q3: 2005		1,818,295		(47,048	)		—		12,182			1,783,429		1,687,506		22,926		5.43	%
	Q4: 2005		1,810,146		(55,235	)		—		(6,330	)		1,748,581		1,743,808		26,075		5.98	%
	2005		1,810,146		(55,235	)		—		(6,330	)		1,748,581		1,601,837		86,431		5.40	%
	Q1: 2006		1,885,075		(60,429	)		—		(7,018	)		1,817,628		1,769,502		27,563		6.23	%

Cash & Equivalents	Q1: 2004		57,866		—			—		—			57,866		70,642		166
	Q2: 2004		38,461		—			—		—			38,461		81,450		73
	Q3: 2004		76,006		—			—		—			76,006		101,938		175
	Q4: 2004		57,246		—			—		—			57,246		126,556		508
	2004		57,246		—			—		—			57,246		95,251		922
	Q1: 2005		64,714		—			—		—			64,714		124,685		580
	Q2: 2005		72,193		—			—		—			72,193		124,707		804
	Q3: 2005		163,160		—			—		—			163,160		134,422		990
	Q4: 2005		175,885		—			—		—			175,885		339,379		2,830
	2005		175,885		—			—		—			175,885		181,259		5,204
	Q1: 2006		85,466		—			—		—			85,466		244,002		2,477



Redwood Review - 1st Quarter 2006	APPENDIX — Table 11 — Balances & Yields	A-13

Table 12: Portfolio Activity (all $ in thousands)


										Discount /									Net Mark-to-
							Principal			(Premium)			Credit			Net Charge-offs /			Market			Net Increase /
		Acquisitions		Sales			Payments			Amortization			Provision			(Recoveries)			Adjustment			(Decrease)

Residential Real Estate Loans (GAAP)	Q1: 2004		2,321,706		—			(460,334	)		(11,516	)		(2,511	)		—			—			1,847,345
	Q2: 2004		2,703,443		—			(859,148	)		(13,992	)		(1,233	)		—			—			1,829,070
	Q3: 2004		2,898,165		(112,811	)		(1,144,320	)		2,078			(1,264	)		—			489			1,642,337
	Q4: 2004		1,791,951		(865	)		(1,132,854	)		(5,993	)		(1,535	)		176			(375	)		650,505
	2004		9,715,265		(113,676	)		(3,596,656	)		(29,423	)		(6,543	)		176			114			5,969,257
	Q1: 2005		832,383		—			(1,539,387	)		(7,036	)		(1,307	)		154			—			(715,193	)
	Q2: 2005		426,806		(3,378	)		(2,526,236	)		(8,937	)		1,494			(34	)		254			(2,110,031	)
	Q3: 2005		332,049		(263,079	)		(3,098,691	)		(13,479	)		1,315			90			(218	)		(3,042,013	)
	Q4: 2005		271,742		(240,987	)		(2,665,727	)		(12,544	)		(128	)		250			48			(2,647,346	)
	2005		1,862,980		(507,444	)		(9,830,041	)		(41,996	)		1,374			460			84			(8,514,583	)
	Q1: 2006		52,689		—			(1,907,113	)		(11,475	)		(463	)		425			—			(1,865,937	)

Home Equity Line of Credit	Q1: 2004		—		—			—			—			—			—			—			—
	Q2: 2004		335,044		—			(7,706	)		(250	)		(267	)		—			—			326,821
	Q3: 2004		—		—			(8,290	)		(1,072	)		(264	)		—			—			(9,626	)
	Q4: 2004		—		—			(19,743	)		(942	)		(162	)		—			—			(20,847	)
	2004		335,044		—			(35,739	)		(2,264	)		(693	)		—			—			296,348
	Q1: 2005		—		—			(16,365	)		(608	)		97			—			—			(16,876	)
	Q2: 2005		127		—			(31,439	)		(821	)		33			—			—			(32,100	)
	Q3: 2005		—		—			(30,801	)		(959	)		(510	)		35			—			(32,235	)
	Q4: 2005		133		—			(32,773	)		(790	)		(749	)		—			—			(34,179	)
	2005		260		—			(111,378	)		(3,178	)		(1,129	)		35			—			(115,390	)
	Q1: 2006		—		—			(18,361	)		(600	)		322			108			—			(18,531	)

Residential Loan Credit-Enhancement Securities	Q1: 2004		37,608		(22,416	)		(34,640	)		8,637			—			—			6,700			(4,111	)
	Q2: 2004		75,027		—			(46,997	)		8,847			—			—			30,746			67,623
	Q3: 2004		82,918		—			(44,822	)		8,181			—			—			8,293			54,570
	Q4: 2004		72,976		—			(30,900	)		8,443			—			—			14,330			64,849
	2004		268,529		(22,416	)		(157,359	)		34,108			—			—			60,069			182,931
	Q1: 2005		67,809		(27,293	)		(23,932	)		8,727			—			—			24,425			49,736
	Q2: 2005		87,849		—			(20,400	)		7,775			—			—			19,577			94,801
	Q3: 2005		57,481		(98,775	)		(18,403	)		11,193			—			—			7,110			(41,394	)
	Q4: 2005		54,664		(81,292	)		(22,468	)		10,456			—			—			(13,512	)		(52,152	)
	2005		267,803		(207,360	)		(85,203	)		38,151			—			—			37,600			50,991
	Q1: 2006		52,821		(9,650	)		(17,469	)		13,155			—			—			(7,683	)		31,174



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 12 — Portfolio Activity	A-14

Table 12: Portfolio Activity (all $ in thousands)


										Discount /								Net Mark-to-
							Principal			(Premium)			Credit			Net Charge-offs /		Market			Net Increase /
		Acquisitions		Sales			Payments			Amortization			Provision			(Recoveries)		Adjustment			(Decrease)

Commercial Loan Credit-Enhancement Securities	Q1: 2004		2,053		—			—			—			—			—		94			2,147
	Q2: 2004		74		—			—			(42	)		—			—		(85	)		(53	)
	Q3: 2004		6,311		—			—			60			—			—		677			7,048
	Q4: 2004		4,770		—			—			(343	)		—			—		929			5,356
	2004		13,208		—			—			(325	)		—			—		1,615			14,498
	Q1: 2005		12,870		—			—			(409	)		—			—		1,611			14,072
	Q2: 2005		—		—			—			(346	)		—			—		1,173			827
	Q3: 2005		17,182		—			—			(902	)		—			—		(2,136	)		14,144
	Q4: 2005		13,028		—			—			(904	)		—			—		2,022			14,146
	2005		43,080		—			—			(2,561	)		—			—		2,670			43,189
	Q1: 2006		7,496		—			(585	)		(1,276	)		—			—		3,326			8,961

Commercial Real Estate Loans	Q1: 2004		—		—			(45	)		(122	)		—			—		(75	)		(242	)
	Q2: 2004		17,066		(2,339	)		(3,233	)		(102	)		—			—		(23	)		11,369
	Q3: 2004		—		—			(29	)		(128	)		—			—		—			(157	)
	Q4: 2004		21,305		—			(83	)		(132	)		—			—		—			21,090
	2004		38,371		(2,339	)		(3,390	)		(484	)		—			—		(98	)		32,060
	Q1: 2005		6,732		—			(5,267	)		(30	)		185			—		505			2,125
	Q2: 2005		—		(11,192	)		(3,769	)		(99	)		—			—		250			(14,810	)
	Q3: 2005		14,219		(17	)		158			(69	)		—			—		17			14,308
	Q4: 2005		4,248		—			(506	)		(152	)		—			—		—			3,590
	2005		25,199		(11,209	)		(9,384	)		(350	)		185			—		772			5,213
	Q1: 2006		—		—			(4,583	)		93			(35	)		—		—			(4,525	)

Securities	Q1: 2004		84,225		(142	)		(9,807	)		(484	)		—			—		15,993			89,785
	Q2: 2004		192,626		(8,333	)		(10,069	)		(663	)		—			—		(14,686	)		158,875
	Q3: 2004		144,753		—			(18,489	)		(146	)		—			—		10,444			136,562
	Q4: 2004		176,341		—			(25,189	)		39			—			—		(1,050	)		150,141
	2004		597,945		(8,475	)		(63,554	)		(1,254	)		—			—		10,701			535,363
	Q1: 2005		168,337		(12,362	)		(27,070	)		115			—			—		(3,720	)		125,300
	Q2: 2005		156,182		(3,012	)		(22,333	)		151			—			—		12,472			143,460
	Q3: 2005		190,160		—			(41,618	)		566			—			—		(14,517	)		134,591
	Q4: 2005		169,736		(151,620	)		(38,005	)		907			—			—		(15,865	)		(34,847	)
	2005		684,415		(166,994	)		(129,026	)		1,739			—			—		(21,630	)		368,504
	Q1: 2006		103,866		(3,984	)		(27,614	)		650			—			—		(3,871	)		69,047



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 12 — Portfolio Activity	A-15

Table 13: Residential Credit Results (all $ in thousands)


																					Losses To		Redwood’s			Total Credit
				Internally-						Total Credit			Seriously		Seriously						Securities Junior		Share of Net			Losses As % of
		Underlying		Designated		External Credit		Total Credit		Protection as %			Delinquent		Delinquent Loan			Total Credit			to Redwood’s		Charge-			Loans
		Loans		Credit Reserve		Enhancement		Protection (1)		of Loans			Loans		%			Losses			Interest		offs/(Recoveries)			(Annualized)

Total Managed Resi Portfolio	Q1: 2004		89,312,471		235,771		43,797		279,568		0.31	%		146,055		0.16	%		103			—		103			<0.01	%
	Q2: 2004		116,871,703		255,615		70,460		326,075		0.28	%		136,654		0.12	%		1,781			75		1,706			<0.01	%
	Q3: 2004		142,967,137		320,269		69,244		389,513		0.27	%		185,023		0.13	%		730			196		534			<0.01	%
	Q4: 2004		148,510,685		365,784		67,650		433,434		0.29	%		163,554		0.11	%		689			—		689			<0.01	%
	2004		148,510,685		365,784		67,650		433,434		0.29	%		163,554		0.11	%		3,303			271		3,032			<0.01	%
	Q1: 2005		151,434,189		390,229		92,467		482,696		0.32	%		217,159		0.14	%		1,377			—		1,377			<0.01	%
	Q2: 2005		183,248,239		426,576		141,970		568,546		0.31	%		245,399		0.13	%		740			196		544			<0.01	%
	Q3: 2005		195,243,546		403,853		134,967		538,820		0.28	%		282,850		0.14	%		1,812			220		1,592			<0.01	%
	Q4: 2005		183,727,043		375,478		140,907		516,385		0.28	%		366,934		0.20	%		1,175			—		1,175			<0.01	%
	2005		183,727,043		375,478		140,907		516,385		0.28	%		366,934		0.20	%		5,104			416		4,688			<0.01	%
	Q1: 2006		192,386,213		394,795		128,015		522,810		0.27	%		474,871		0.25	%		3,002			—		3,002			<0.01	%


Residential Real Estate Loans	Q1: 2004		17,950,901		18,847		—		18,847		0.10	%		3,439		0.02	%		—			—		—			0.00	%
	Q2: 2004		19,766,481		20,080		—		20,080		0.10	%		5,362		0.03	%		—			—		—			0.00	%
	Q3: 2004		21,381,784		21,344		—		21,344		0.10	%		10,785		0.05	%		—			—		—			0.00	%
	Q4: 2004		22,023,888		23,078		—		23,078		0.10	%		13,338		0.06	%		176			—		176			<0.01	%
	2004		22,023,888		23,078		—		23,078		0.10	%		13,338		0.06	%		176			—		176			<0.01	%
	Q1: 2005		21,307,080		24,231		—		24,231		0.11	%		16,066		0.08	%		154			—		154			<0.01	%
	Q2: 2005		19,202,109		22,396		—		22,396		0.12	%		16,514		0.09	%		(34	)		—		(34	)		0.00	%
	Q3: 2005		16,176,357		20,991		—		20,991		0.13	%		22,956		0.14	%		90			—		90			<0.01	%
	Q4: 2005		13,541,402		20,868		—		20,868		0.15	%		35,748		0.26	%		251			—		251			<0.01	%
	2005		13,541,402		20,868		—		20,868		0.15	%		35,748		0.26	%		461			—		461			<0.01	%
	Q1: 2006		11,686,976		21,014		—		21,014		0.18	%		48,677		0.42	%		425			—		425			<0.01	%

Residential Loan CES	Q1: 2004		71,361,570		216,924		43,797		260,721		0.37	%		142,616		0.20	%		103			—		103			<0.01	%
	Q2: 2004		97,105,222		235,535		70,460		305,995		0.32	%		131,292		0.14	%		1,781			75		1,706			<0.01	%
	Q3: 2004		121,585,353		298,925		69,244		368,169		0.30	%		174,238		0.14	%		730			196		534			<0.01	%
	Q4: 2004		126,486,797		342,706		67,650		410,356		0.32	%		150,216		0.12	%		513			—		513			<0.01	%
	2004		126,486,797		342,706		67,650		410,356		0.32	%		150,216		0.12	%		3,127			271		2,856			<0.01	%
	Q1: 2005		130,127,109		365,998		92,467		458,465		0.35	%		201,093		0.15	%		1,223			—		1,223			<0.01	%
	Q2: 2005		164,046,130		404,180		141,970		546,150		0.33	%		228,885		0.14	%		774			196		578			<0.01	%
	Q3: 2005		179,067,189		382,862		134,967		517,829		0.29	%		259,894		0.15	%		1,722			220		1,502			<0.01	%
	Q4: 2005		170,185,641		354,610		140,907		495,517		0.29	%		331,186		0.19	%		924			—		924			<0.01	%
	2005		170,185,641		354,610		140,907		495,517		0.29	%		331,186		0.19	%		4,643			416		4,227			<0.01	%
	Q1: 2006		180,699,237		373,781		128,015		501,796		0.28	%		426,194		0.24	%		2,577			—		2,577			<0.01	%


(1)		The credit reserve on residential real estate loans owned is only available to absorb losses on the residential real estate loan portfolio. The internally-designated credit reserves on loans credit enhanced and the external credit enhancement on loans credit enhanced are only available to absorb losses on the residential loan credit-enhancement portfolio. This table excludes the residential home equity lines of credit.



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 13 — Residential Credit	A-16

Table 14: Residential Real Estate Loan Characteristics (at period end, all $ in thousands)


	Mar. 2006			Dec. 2005			Sept. 2005			Jun. 2005			Mar. 2005			Dec. 2004			Dec. 2003

Residential Loans	$	11,686,976		$	13,541,402		$	16,176,357		$	19,202,109		$	21,307,080		$	22,023,888		$	16,110,748
Number of loans		35,972			41,426			48,578			56,653			62,059			63,236			43,917
Average loan size	$	325		$	327		$	333		$	339		$	343		$	348		$	367
Adjustable %		99	%		98	%		100	%		100	%		100	%		100	%		100	%
Hybrid %		1	%		2	%		0	%		0	%		0	%		0	%		0	%
Fixed %		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Negam%		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Interest Only%		99	%		99	%		100	%		100	%		100	%		100	%		100	%

LIBOR 1M %		27	%		27	%		26	%		25	%		24	%		24	%		23	%
LIBOR 6M %		71	%		71	%		74	%		75	%		76	%		76	%		77	%
HYBRID %		2	%		2	%		0	%		0	%		0	%		0	%		0	%

Southern CA		11	%		11	%		11	%		12	%		12	%		13	%		13	%
Northern CA		10	%		12	%		11	%		12	%		12	%		13	%		12	%
Florida		12	%		13	%		12	%		11	%		11	%		11	%		11	%
New York		6	%		5	%		5	%		5	%		5	%		5	%		6	%
Georgia		5	%		5	%		5	%		5	%		5	%		5	%		5	%
Texas		5	%		4	%		4	%		4	%		4	%		4	%		4	%
New Jersey		4	%		4	%		4	%		4	%		4	%		4	%		5	%
Arizona		4	%		4	%		4	%		4	%		4	%		4	%		4	%
Colorado		4	%		4	%		4	%		4	%		4	%		4	%		4	%
Virginia		3	%		3	%		3	%		3	%		3	%		3	%		3	%
Other states		36	%		35	%		36	%		36	%		35	%		35	%		33	%

Year 2005 origination		5	%		6	%		5	%		4	%		3	%		0	%		0	%
Year 2004 origination		36	%		45	%		37	%		37	%		38	%		38	%		0	%
Year 2003 origination		40	%		27	%		39	%		40	%		40	%		42	%		66	%
Year 2002 origination		15	%		18	%		15	%		15	%		16	%		16	%		28	%
Year 2001 origination or earlier		4	%		5	%		4	%		4	%		4	%		4	%		6	%



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 14 — Residential Loans	A-17

Table 14: Residential Real Estate Loan Characteristics (at period end, all $ in thousands)


	Mar. 2006			Dec. 2005			Sept. 2005			Jun. 2005			Mar. 2005			Dec. 2004			Dec. 2003
Wtg Avg Original LTV		68	%		69	%		68	%		69	%		68	%		68	%		68	%
Wtg Avg Original Effective LTV		66	%		67	%		67	%		67	%		67	%		67	%		65	%
Original LTV: 0% - 20%		1	%		1	%		1	%		1	%		1	%		1	%		1	%
Original LTV: 20% - 30%		2	%		2	%		2	%		2	%		2	%		2	%		2	%
Original LTV: 30% - 40%		4	%		4	%		4	%		4	%		4	%		4	%		5	%
Original LTV: 40% - 50%		8	%		7	%		7	%		7	%		7	%		7	%		8	%
Original LTV: 50% - 60%		12	%		11	%		11	%		11	%		11	%		12	%		13	%
Original LTV: 60% - 70%		20	%		21	%		20	%		20	%		20	%		20	%		20	%
Original LTV: 70% - 75%		14	%		14	%		14	%		14	%		15	%		15	%		13	%
Original LTV: 75% - 80%		31	%		34	%		32	%		33	%		32	%		31	%		28	%
Original LTV: 80% - 90%		2	%		2	%		2	%		2	%		2	%		2	%		3	%
Original LTV: 90% - 100%		6	%		5	%		6	%		6	%		6	%		6	%		7	%

Wtg Avg FICO		730			731			731			731			731			731			731
FICO: <= 600		1	%		1	%		1	%		1	%		1	%		1	%		1	%
FICO: 601 -620		1	%		1	%		1	%		1	%		1	%		1	%		1	%
FICO: 621 - 640		2	%		1	%		1	%		1	%		1	%		1	%		2	%
FICO: 641 -660		3	%		3	%		3	%		3	%		3	%		3	%		4	%
FICO: 661 - 680		8	%		8	%		8	%		8	%		8	%		8	%		7	%
FICO: 681 - 700		12	%		12	%		12	%		12	%		12	%		12	%		11	%
FICO: 701 - 720		14	%		15	%		14	%		14	%		14	%		14	%		14	%
FICO: 721 - 740		13	%		13	%		14	%		14	%		14	%		14	%		14	%
FICO: 741 - 760		15	%		15	%		15	%		15	%		16	%		16	%		16	%
FICO: 761 - 780		17	%		17	%		17	%		17	%		17	%		17	%		17	%
FICO: 781 - 800		11	%		11	%		11	%		11	%		11	%		11	%		12	%
FICO: >= 801		3	%		3	%		2	%		2	%		2	%		2	%		2	%

Conforming at Origination %		37	%		38	%		37	%		37	%		36	%		36	%		34	%
% balance in loans > $1mm per loan		14	%		13	%		14	%		13	%		13	%		14	%		16	%

2nd Home %		11	%		10	%		10	%		10	%		10	%		10	%		10	%
Investment Home %		3	%		2	%		2	%		2	%		2	%		2	%		2	%

Purchase		32	%		33	%		33	%		33	%		34	%		34	%		30	%
Cash Out Refi		34	%		34	%		34	%		34	%		34	%		34	%		35	%
Rate-Term Refi		32	%		32	%		32	%		32	%		31	%		31	%		32	%
Construction		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Other		1	%		1	%		1	%		1	%		1	%		1	%		2	%

This table only includes loans shown under “residential real estate loans” on our GAAP balance sheet. These are primarily the loans securitized by Sequoia securitization entities sponsored by Redwood. Not included are loans underlying residential credit-enhancement securities by Redwood from securitizations sponsored by others.



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 14 — Residential Loans	A-18

Table 15: Residential Loan Credit-Enhancement Securities — Underlying Collateral Characteristics (all $ in thousands)


	Q1:2006			Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q4:2003

First loss position, principal value	$	481,681		$	471,079		$	433,557		$	425,080		$	375,646		$	352,752		$	255,570
Second loss position, principal value		187,268			170,928			231,837			306,145			265,639			276,720			174,592
Third loss position, principal value		418,186			393,867			387,419			372,512			337,593			304,300			193,530

Total principal value	$	1,087,135		$	1,035,874		$	1,052,813		$	1,103,737		$	978,878		$	933,772		$	623,692

First loss position, reported value	$	148,399		$	154,930		$	152,470		$	150,621		$	126,694		$	110,933		$	78,030
Second loss position, reported value		136,088			120,690			171,398			228,737			191,962			195,536			134,225
Third loss position, reported value		359,336			337,029			340,933			326,837			292,738			255,189			166,472

Total reported value	$	643,823		$	612,649		$	664,801		$	706,195		$	611,394		$	561,658		$	378,727

Internal Designated Credit Reserves	$	373,781		$	354,610		$	382,862		$	404,180		$	365,998		$	340,123		$	200,970
External Credit Enhancement		128,015			140,907			134,967			141,970			92,467			67,650			46,476

Total Credit Protection	$	501,796		$	495,517		$	517,829		$	546,150		$	458,465		$	407,773		$	247,446
As % of Total Portfolio		0.28	%		0.29	%		0.29	%		0.33	%		0.35	%		0.32	%		0.36	%

Underlying Residential Real Estate Loans	$	180,699,237		$	170,185,641		$	179,067,189		$	164,046,130		$	130,127,109		$	126,486,797		$	68,133,175
Number of credit-enhanced loans		515,939			500,907			527,048			492,513			343,928			332,130			150,031
Average loan size	$	350		$	340		$	340		$	333		$	378		$	381		$	454

Adjustable %		5	%		6	%		7	%		7	%		9	%		9	%		8	%
Negam %		23	%		24	%		18	%		18	%		18	%		17	%		12	%
Hybrid %		35	%		32	%		32	%		30	%		28	%		28	%		42	%
Fixed %		36	%		38	%		43	%		45	%		45	%		46	%		38	%

Interest Only %		21	%		24	%		24	%		23	%		24	%		24	%		25	%

Southern California		25	%		25	%		24	%		24	%		23	%		22	%		24	%
Northern California		23	%		21	%		20	%		20	%		20	%		19	%		23	%
Florida		6	%		6	%		5	%		5	%		5	%		6	%		4	%
New York		5	%		5	%		5	%		5	%		5	%		5	%		5	%
Virginia		4	%		4	%		4	%		4	%		4	%		4	%		4	%
New Jersey		3	%		3	%		4	%		4	%		4	%		4	%		4	%
Texas		3	%		3	%		3	%		3	%		3	%		3	%		3	%
Illinois		3	%		3	%		3	%		3	%		3	%		3	%		3	%
Other states (none greater than 3%)		28	%		30	%		32	%		32	%		33	%		34	%		30	%



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 15 — Residential CES	A-19

Table 15: Residential Loan Credit-Enhancement Securities — Underlying Collateral Characteristics (all $ in thousands)


	Q1:2006			Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q4:2003

Year 2006 origination		1	%		0	%		0	%		0	%		0	%		0	%		0	%
Year 2005 origination		28	%		24	%		15	%		14	%		6	%		0	%		0	%
Year 2004 origination		29	%		34	%		41	%		50	%		54	%		55	%		0	%
Year 2003 origination		30	%		33	%		35	%		26	%		29	%		32	%		64	%
Year 2002 origination		7	%		6	%		6	%		5	%		6	%		7	%		19	%
Year 2001 origination		3	%		2	%		2	%		2	%		2	%		3	%		9	%
Year 2000 origination		0	%		0	%		0	%		0	%		0	%		0	%		1	%
Year 1999 origination		1	%		0	%		0	%		0	%		0	%		1	%		2	%
Year 1998 or earlier origination		1	%		1	%		1	%		1	%		2	%		2	%		5	%

Wtg Avg Original LTV		68	%		68	%		68	%		68	%		68	%		68	%		67	%
Original LTV: 0% - 20%		1	%		1	%		1	%		0	%		0	%		0	%		0	%
Original LTV: 20% - 30%		2	%		2	%		2	%		2	%		2	%		2	%		2	%
Original LTV: 30% - 40%		3	%		3	%		3	%		3	%		3	%		3	%		4	%
Original LTV: 40% - 50%		7	%		8	%		8	%		8	%		8	%		8	%		8	%
Original LTV: 50% - 60%		12	%		12	%		12	%		12	%		12	%		12	%		13	%
Original LTV: 60% - 70%		22	%		22	%		22	%		23	%		23	%		23	%		23	%
Original LTV: 70% - 75%		15	%		15	%		15	%		15	%		15	%		15	%		15	%
Original LTV: 75% - 80%		34	%		34	%		34	%		33	%		34	%		33	%		31	%
Original LTV: 80% - 90%		3	%		2	%		2	%		3	%		3	%		3	%		3	%
Original LTV: 90% - 100%		2	%		1	%		1	%		1	%		1	%		1	%		1	%

Wtg Avg FICO		731			732			732			731			730			730			732
FICO: <= 600		1	%		0	%		0	%		0	%		0	%		0	%		0	%
FICO: 601 -620		1	%		1	%		0	%		0	%		0	%		0	%		0	%
FICO: 621 - 640		2	%		2	%		2	%		2	%		2	%		2	%		2	%
FICO: 641 -660		4	%		4	%		4	%		4	%		4	%		4	%		3	%
FICO: 661 - 680		7	%		7	%		7	%		7	%		7	%		7	%		6	%
FICO: 681 - 700		11	%		11	%		11	%		11	%		11	%		11	%		10	%
FICO: 701 - 720		13	%		13	%		13	%		13	%		13	%		13	%		13	%
FICO: 721 - 740		14	%		13	%		14	%		14	%		14	%		14	%		14	%
FICO: 741 - 760		15	%		15	%		15	%		15	%		16	%		16	%		16	%
FICO: 761 - 780		16	%		17	%		17	%		17	%		17	%		17	%		17	%
FICO: 781 - 800		12	%		12	%		12	%		12	%		11	%		11	%		11	%
FICO: >= 801		3	%		3	%		3	%		3	%		2	%		2	%		2	%
Unknown		3	%		2	%		2	%		2	%		2	%		2	%		5	%

Conforming at Origination %		25	%		25	%		23	%		22	%		20	%		17	%		9	%
% balance in loans > $1mm per loan		8	%		8	%		6	%		6	%		6	%		5	%		8	%

2nd Home %		6	%		6	%		6	%		5	%		5	%		5	%		5	%
Investment Home %		3	%		3	%		2	%		3	%		2	%		2	%		2	%

Purchase		37	%		36	%		36	%		35	%		36	%		34	%		31	%
Cash Out Refi		29	%		29	%		27	%		26	%		26	%		26	%		23	%
Rate-Term Refi		33	%		34	%		36	%		38	%		38	%		40	%		45	%
Construction		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Other		0	%		0	%		0	%		1	%		0	%		0	%		1	%

This table includes loans underlying residential credit-enhancement securities acquired from securitizations sponsored by others. Not included are loans underlying residential credit-enhancement securities acquired from Sequoia entities sponsored by Redwood.



The Redwood Review – 1st Quarter 2006	APPENDIX — Table 15 — Residential CES	A-20

Table 17: Commercial Loan Credit Results (all $ in thousands)


																				Losses To
				Internally-																Securities		Redwood’s			Total Credit
				Designated						Total Credit			Seriously		Seriously					Junior to		Share of Net			Losses As %
		Underlying		Credit		External Credit		Total Credit		Protection as			Delinquent		Delinquent			Total Credit		Redwood’s		Charge-offs/			of Loans
		Loans (1)		Securities		Enhancement		Protection (2)		% of Loans			Loans		Loan %			Losses		Interest		(Recoveries)			(Annualized)

Total Managed Commercial Portfolio	Q1: 2004		1,355,451		16,816		—		16,816		1.24	%		—		0.00	%		—		—		—			0.00	%
	Q2: 2004		1,365,536		16,816		—		16,816		1.23	%		—		0.00	%		—		—		—			0.00	%
	Q3: 2004		22,285,400		35,571		1,655,482		1,691,053		7.59	%		389,611		1.75	%		1,351		1,351		—			0.02	%
	Q4: 2004		26,139,083		54,280		1,633,055		1,687,335		6.46	%		362,956		1.39	%		5,135		4,959		176			0.08	%
	2004		26,139,083		54,280		1,633,055		1,687,335		6.46	%		362,956		1.39	%		6,486		6,310		176			0.02	%
	Q1: 2005		30,996,417		97,127		1,610,628		1,707,755		5.51	%		288,581		0.93	%		45,808		45,493		315			0.59	%
	Q2: 2005		31,293,511		95,351		1,588,200		1,683,551		5.38	%		254,503		0.81	%		19,622		18,161		1,461			0.25	%
	Q3: 2005		39,368,505		146,671		1,565,773		1,712,444		4.35	%		267,612		0.68	%		1,043		1,040		3			0.01	%
	Q4: 2005		43,018,611		149,947		1,603,266		1,753,213		4.08	%		284,954		0.66	%		14,365		14,397		(32	)		0.13	%
	2005		43,018,611		149,947		1,603,266		1,753,213		4.08	%		284,954		0.66	%		80,838		79,091		1,747			0.19	%
	Q1: 2006		44,638,811		175,913		1,573,585		1,749,498		3.92	%		242,667		0.54	%		5,084		5,047		37			0.05	%

Commercial Real Estate Loans	Q1: 2004		31,136		8,641		—		8,641		27.75	%		—		0.00	%		—		—		—			0.00	%
	Q2: 2004		43,448		8,641		—		8,641		19.89	%		—		0.00	%		—		—		—			0.00	%
	Q3: 2004		43,410		8,641		—		8,641		19.91	%		—		0.00	%		—		—		—			0.00	%
	Q4: 2004		65,598		8,641		—		8,641		13.17	%		—		0.00	%		176		—		176			1.07	%
	2004		65,598		8,641		—		8,641		13.17	%		—		0.00	%		176		—		176			0.27	%
	Q1: 2005		67,365		8,456		—		8,456		12.55	%		—		0.00	%		315		—		315			1.87	%
	Q2: 2005		51,778		8,141		—		8,141		15.72	%		—		0.00	%		—		—		—			0.00	%
	Q3: 2005		66,348		8,141		—		8,141		12.27	%		—		0.00	%		—		—		—			0.00	%
	Q4: 2005		70,091		8,141		—		8,141		11.61	%		—		0.00	%		—		—		—			0.00	%
	2005		70,091		8,141		—		8,141		11.61	%		—		0.00	%		315		—		315			0.45	%
	Q1: 2006		65,508		8,141		—		8,141		12.43	%		—		0.00	%		35		—		35			0.21	%

Commercial Loan Credit-	Q1: 2004		1,324,315		8,175		—		8,175		0.62	%		—		0.00	%		—		—		—			0.00	%
Enhancement Securities	Q2: 2004		1,322,088		8,175		—		8,175		0.62	%		—		0.00	%		—		—		—			0.00	%
	Q3: 2004		22,241,990		26,930		1,655,482		1,682,412		7.56	%		389,611		1.75	%		1,351		1,351		—			0.02	%
	Q4: 2004		26,073,485		45,639		1,633,055		1,678,694		6.44	%		362,956		1.39	%		4,959		4,959		—			0.08	%
	2004		26,073,485		45,639		1,633,055		1,678,694		6.44	%		362,956		1.39	%		6,310		6,310		—			0.02	%
	Q1: 2005		30,929,052		88,671		1,610,628		1,699,299		5.49	%		288,581		0.93	%		45,493		45,493		—			0.59	%
	Q2: 2005		31,241,733		87,210		1,588,200		1,675,410		5.36	%		254,503		0.81	%		19,622		18,161		1,461			0.25	%
	Q3: 2005		39,302,157		138,530		1,565,773		1,704,303		4.34	%		267,612		0.68	%		1,043		1,040		3			0.01	%
	Q4: 2005		42,948,520		141,806		1,603,266		1,745,072		4.06	%		284,954		0.66	%		14,365		14,397		(32	)		0.13	%
	2005		42,948,520		141,806		1,603,266		1,745,072		4.06	%		284,954		0.66	%		80,523		79,091		1,432			0.19	%
	Q1: 2006		44,573,303		167,772		1,573,585		1,741,357		3.91	%		242,667		0.54	%		5,049		5,047		2			0.05	%


(1)		At March 31, 2006, we credit-enhanced $45 billion of commercial loans through our investments in commercial loan credit-enhancement securities. This includes $17 billion of commercial real estate loans credit enhanced through our interests in a CMBS re-REMIC, and $28 billion of commercial real estate loans credit enhanced through the ownership of first-loss CMBS securities.

(2)		The credit reserve on commercial real estate loans owned is only available to absorb losses on the commercial real estate loan portfolio. The internally-designated credit reserves on commercial loans credit enhanced and the external credit enhancement on commercial loans credit enhanced are only available to absorb losses on the commercial loan credit-enhancement portfolio.



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 17 — Commercial Credit	A-22

Table 18: Commercial Credit-Enhancement Securities — Underlying Collateral Characteristics
(all $ in thousands)


	Mar. 2006			Dec. 2005			Sep. 2005			Jun. 2005			Mar. 2005			Dec. 2004			Dec. 2003

Underlying Commercial Real Estate Loans	$	27,999,540		$	25,881,564		$	20,906,898		$	12,492,337		$	11,498,141		$	5,859,585		$	0
Number of credit-enhanced loans		1,977			1,857			1,428			801			717			392			—
Average loan size	$	14,163		$	13,937		$	14,640		$	15,595		$	16,036		$	14,948		$	0

State Distribution
CA		17	%		16	%		17	%		17	%		17	%		18	%		0	%
NY		14	%		14	%		14	%		15	%		14	%		10	%		0	%
TX		8	%		8	%		8	%		10	%		9	%		8	%		0	%
FL		7	%		7	%		3	%		2	%		2	%		2	%		0	%
VA		5	%		5	%		4	%		1	%		1	%		2	%		0	%
Other		49	%		50	%		54	%		55	%		57	%		60	%		0	%

Property Type Distribution
Office		37	%		37	%		40	%		45	%		44	%		42	%		0	%
Retail		30	%		31	%		32	%		34	%		33	%		31	%		0	%
Multi-Family		15	%		13	%		11	%		9	%		10	%		12	%		0	%
Hotel		7	%		7	%		6	%		6	%		8	%		6	%		0	%
Self-Storage		4	%		4	%		3	%		2	%		2	%		2	%		0	%
Industrial		3	%		2	%		3	%		2	%		1	%		2	%		0	%
Other		4	%		6	%		5	%		2	%		3	%		4	%		0	%

Weighted Average Current LTV		69	%		68	%		69	%		67	%		68	%		67	%		0	%

Weighted Average Debt Service Coverage Ratio		1.63			1.66			1.67			1.73			1.71			1.79			—

The information presented above represents collateral information on our non-rated commercial CES portfolio, and excludes loans underlying a non-rated CES investment in a re-REMIC interest.



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 18 — Commercial CES	A-23

Table 19: Securities Portfolio At March 31, 2006— Characteristics (all $ in thousands)


			RATING
	Total		AAA		AA		A		BBB		BB		B		Unrated

Commercial Real Estate	$	317,551	$	10,730	$	1,936	$	19,441	$	125,902	$	130,472	$	29,070	$	—

Residential Prime		756,142		40,156		260,807		210,470		244,709		—		—		—

Residential Subprime		442,197		5,012		86,149		291,474		59,562		—		—		—

Residential Second Lien		99,950		2,906		46,673		45,324		5,047		—		—		—

REIT Corporate Debt		31,053		—		—		—		23,068		7,985		—		—

Real Estate CDOs		170,735		44,019		28,207		36,569		46,396		14,188		—		1,356


Total Securities Portfolio	$	1,817,628	$	102,823	$	423,772	$	603,278	$	504,684	$	152,645	$	29,070	$	1,356

Includes a portion of Redwood’s permanent investment portfolio, plus securities consolidated from Acacia CDO securitization entities sponsored by Redwood, plus securities held by Redwood temporarily prior to sale to Acacia. Does not include securities purchased for Acacia or Redwood’s permanent investment portfolio from securitization entities sponsored by Redwood, as those securities are eliminated in the GAAP consolidation of the underlying entities. Does not include residential or commercial credit-enhancement securities.



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 19 — Securities Portfolio	A-24

Table 20: ABS Issued Characteristics — Residential Mortgage Loans (Sequoia) (all $ in thousands)


												Principal		Interest
					Original					Estimated		Outstanding At		Rate At
Sequoia	Debt		Issue		Issue			Stated		Callable		March 31,		March 31,
ABS Issued (1)	Rating		Date		Amount		Index	Maturity		Date		2006		2006
Sequoia 1 A1	AAA			07/29/97	$	334,347	1m LIBOR		2028	Called				NM
Sequoia 1 A2	AAA			07/29/97		200,000	Fed Funds		2028	Called			—	NM
Sequoia 2 A1	AAA			11/06/97		592,560	1y Treasury		2029	Called			—	NM
Sequoia 2 A2	AAA			11/06/97		156,600	1m LIBOR		2029	Called			—	NM
Sequoia 3 A1	AAA			06/26/98		225,459	Fixed to 12/02		2028	Retired			—	NM
Sequoia 3 A2	AAA			06/26/98		95,000	Fixed to 12/02		2028	Retired			—	NM
Sequoia 3 A3	AAA			06/26/98		164,200	Fixed to 12/02		2028	Retired			—	NM
Sequoia 3 A4	AAA			06/26/98		121,923	1m LIBOR		2028	Called			—	NM
Sequoia 3 M1	AA/AAA			06/26/98		16,127	1m LIBOR		2028	Called			—	NM
Sequoia 3 M2	A/AA			06/26/98		7,741	1m LIBOR		2028	Called			—	NM
Sequoia 3 M3	BBB/A			06/26/98		4,838	1m LIBOR		2028	Called			—	NM
Sequoia 1A A1	AAA			05/04/99		157,266	1m LIBOR		2028	Called			—	NM
Sequoia 4 A	AAA			03/21/00		377,119	1m LIBOR		2024		2006		97,618		5.15	%
Sequoia 5 A	AAA			10/29/01		496,667	1m LIBOR		2026		2007		153,328		5.13	%
Sequoia 5 B1	AA			10/29/01		5,918	1m LIBOR		2026		2007		3,987		5.58	%
Sequoia 5 B2		A		10/29/01		5,146	1m LIBOR		2026		2007		3,467		5.58	%
Sequoia 5 B3	BBB			10/29/01		2,316	1m LIBOR		2026		2007		1,560		5.58	%
Sequoia 6A	AAA			04/26/02		496,378	1m LIBOR		2027		2007		168,294		5.10	%
Sequoia 6B1	AA			04/26/02		5,915	1m LIBOR		2027		2007		4,368		5.48	%
Sequoia 6B2		A		11/17/05		2,315	1m LIBOR		2027		2007		3,798		5.48	%
Sequoia 6B3	BBB			11/17/05		1,534	1m LIBOR		2027		2007		1,709		5.48	%
Sequoia 7A	AAA			05/29/02		554,686	1m LIBOR		2032		2006		144,936		5.12	%
Sequoia 7B1	AA			05/29/02		8,080	1m LIBOR		2032		2006		4,563		5.53	%
Sequoia 7B2		A		11/17/05		5,771	1m LIBOR		2032		2006		3,259		5.82	%
Sequoia 7B3	BBB			11/17/05		3,463	1m LIBOR		2032		2006		1,956		5.82	%
Sequoia 8 1A-1	AAA			07/30/02		50,000	1m LIBOR		2032	Retired			—	NM
Sequoia 8 1A-2	AAA			07/30/02		61,468	Fixed to 12/04		2032		2006		4,875		6.02	%
Sequoia 8 2A	AAA			07/30/02		463,097	1m LIBOR		2032		2006		155,405		5.08	%
Sequoia 8 3A	AAA			07/30/02		49,973	6m LIBOR		2032		2006		7,512		6.20	%
Sequoia 8 B1	AA			07/30/02		9,069	1m LIBOR		2032		2006		5,574		5.45	%
Sequoia 8 B2		A		11/17/05		5,505	1m LIBOR		2032		2006		3,384		5.70	%
Sequoia 8 B3	BBB			11/17/05		3,886	1m LIBOR		2032		2006		2,388		5.70	%
Sequoia 9 1A	AAA			08/28/02		381,689	1m LIBOR		2032		2008		125,571		5.13	%
Sequoia 9 2A	AAA			08/28/02		168,875	1m LIBOR		2032		2008		28,814		6.22	%
Sequoia 9 B1	AA			08/28/02		7,702	1m LIBOR		2032		2008		4,783		5.53	%
Sequoia 10 1A	AAA			09/26/02		822,375	1m LIBOR		2027		2008		305,316		5.18	%
Sequoia 10 2A-1	AAA			09/26/02		190,000	1m LIBOR		2027		2008		67,545		5.16	%
Sequoia 10 2A-2	AAA			09/26/02		3,500	1m LIBOR		2027		2008		2,613		5.46	%
Sequoia 10 B1	AA			09/26/02		12,600	1m LIBOR		2027		2008		9,971		5.58	%
Sequoia 10 B2		A		09/26/02		8,400	1m LIBOR		2027		2008		6,647		5.58	%
Sequoia 10 B3	BBB			09/26/02		4,725	1m LIBOR		2027		2008		3,739		6.18	%
Sequoia 11 A	AAA			10/30/02		695,210	1m LIBOR		2032		2008		219,685		5.23	%
Sequoia 11 B1	AA			10/30/02		9,726	1m LIBOR		2032		2008		7,095		5.75	%
Sequoia 12 A	AAA			12/19/02		1,080,076	1m LIBOR		2033		2007		337,757		4.82	%
Sequoia 12 B1	AA			12/19/02		16,815	1m LIBOR		2033		2007		12,434		5.22	%
Sequoia 2003-1 A1	AAA			02/27/03		798,206	1m LIBOR		2033		2007		271,692		5.16	%
Sequoia 2003-1 A2	AAA			02/27/03		190,000	6m LIBOR		2033		2007		54,188		5.34	%
Sequoia 2003-1 B1	AA			02/27/03		15,905	1m LIBOR		2033		2007		13,202		5.66	%
Sequoia 2003-1 B2		A		02/27/03		8,210	Pass Through		2033		2007		6,815		5.84	%
Sequoia 2003-2 A1	AAA			04/29/03		500,000	1m LIBOR		2022		2007		189,881		5.11	%
Sequoia 2003-2 A2	AAA			04/29/03		303,600	6m LIBOR		2022		2007		104,414		4.70	%
Sequoia 2003-2 M1	AA			04/29/03		11,480	1m LIBOR		2016		2007		11,480		5.43	%
Sequoia 2003-3 A1	AAA			06/26/03		379,455	1m LIBOR		2023		2007		133,057		5.11	%
Sequoia 2003-3 A2	AAA			06/26/03		149,922	6m LIBOR		2023		2007		43,095		5.02	%
Sequoia 2003-3 B1	AA			06/26/03		9,075	1m LIBOR		2025		2007		7,741		5.43	%



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 20 — Sequoia Loans	A-25

Table 20: ABS Issued Characteristics — Residential Mortgage Loans (Sequoia) (all $ in thousands)


												Principal		Interest
					Original					Estimated		Outstanding At		Rate At
Sequoia	Debt		Issue		Issue			Stated		Callable		March 31,		March 31,
ABS Issued (1)	Rating		Date		Amount		Index	Maturity		Date		2006		2006
MLCC 2003-C A1	AAA			06/26/03		773,795	1m LIBOR		2023		2008		282,347		5.15	%
MLCC 2003-C A2	AAA			06/26/03		200,002	6m LIBOR		2023		2008		73,485		5.06	%
MLCC 2003-C B1	AA			06/26/03		10,553	1m LIBOR		2025		2008		9,238		5.47	%
MLCC 2003-D A	AAA			07/29/03		992,833	1m LIBOR		2028		2008		395,942		5.13	%
MLCC 2003-D B1	AA			07/29/03		10,758	1m LIBOR		2028		2008		9,851		5.45	%
Sequoia 2003-4 1A1	AAA			07/29/03		148,641	1m LIBOR		2033		2007		63,157		5.09	%
Sequoia 2003-4 1A2	AAA			07/29/03		150,000	6m LIBOR		2033		2007		61,876		5.05	%
Sequoia 2003-4 1B1	AA			07/29/03		3,864	1m LIBOR		2033		2007		3,670		5.43	%
Sequoia 2003-4 2A1	AAA			07/29/03		189,415	1m LIBOR		2033		2008		114,110		5.13	%
Sequoia 2003-4 2M1	AA			07/29/03		9,986	1m LIBOR		2033		2008		9,986		5.25	%
Sequoia 2003-4 2B1	AA			07/29/03		2,367	1m LIBOR		2033		2008		2,367		5.43	%
Sequoia 2003-5 A1	AAA			08/27/03		675,596	1m LIBOR		2033		2007		220,137		5.09	%
Sequoia 2003-5 A2	AAA			08/27/03		149,609	6m LIBOR		2033		2007		53,370		5.27	%
Sequoia 2003-5 B1	AA			08/27/03		15,043	1m LIBOR		2033		2007		13,028		5.38	%
Sequoia 2003-6 A1	AAA			10/29/03		458,238	1m LIBOR		2033		2007		146,770		5.09	%
Sequoia 2003-6 A2	AAA			10/29/03		180,474	6m LIBOR		2033		2007		63,782		4.69	%
Sequoia 2003-6 B1	AA			10/29/03		11,287	1m LIBOR		2033		2007		9,479		5.36	%
Sequoia 2003-7 A1	AAA			11/25/03		290,000	1m LIBOR		2034		2007		100,981		5.10	%
Sequoia 2003-7 A2	AAA			11/25/03		505,100	6m LIBOR		2034		2007		164,501		4.93	%
Sequoia 2003-7 B1	AA			11/25/03		16,607	1m LIBOR		2034		2007		14,360		5.33	%
Sequoia 2003-8 A1	AAA			12/23/03		791,768	1m LIBOR		2034		2007		306,415		5.10	%
Sequoia 2003-8 A2	AAA			12/23/03		150,000	6m LIBOR		2034		2007		62,765		4.99	%
Sequoia 2003-8 B1	AA			12/23/03		14,166	1m LIBOR		2034		2007		13,134		5.37	%
Sequoia 2003-8 B2		A		12/23/03		8,304	1m LIBOR		2034		2007		7,699		6.03	%
MLCC 2003-E A1	AAA			08/28/03		823,305	1m LIBOR		2028		2008		330,164		5.13	%
MLCC 2003-E A2	AAA			08/28/03		150,000	6m LIBOR		2028		2008		52,116		5.29	%
MLCC 2003-E B1	AA			08/28/03		10,547	1m LIBOR		2028		2008		9,783		5.42	%
MLCC 2003-F A1	AAA			09/25/03		839,000	1m LIBOR		2028		2008		344,521		5.14	%
MLCC 2003-F A2	AAA			09/25/03		270,000	6m LIBOR		2028		2008		102,232		5.42	%
MLCC 2003-F A3	AAA			09/25/03		175,000	Pass Through		2028		2008		75,052		6.14	%
MLCC 2003-F B1	AA			09/25/03		13,913	1m LIBOR		2028		2008		12,999		5.42	%
MLCC 2003-H A1	AAA			12/22/03		365,708	1m LIBOR		2029		2008		145,398		5.14	%
MLCC 2003-H A2	AAA			12/22/03		240,000	6m LIBOR		2029		2008		95,780		5.05	%
MLCC 2003-H A3A	AAA			12/22/03		119,613	Pass Through		2029		2008		45,364		5.84	%
MLCC 2003-H B1	AA			12/22/03		7,875	1m LIBOR		2029		2008		7,392		5.37	%
MLCC 2003-H B2		A		12/22/03		6,000	1m LIBOR		2029		2008		5,632		6.07	%
Sequoia 2004-1 A1	AAA			01/28/04		601,250	6m LIBOR		2034		2007		212,346		5.05	%
Sequoia 2004-1 B1	AA			01/28/04		9,375	1m LIBOR		2034		2007		8,149		5.33	%
Sequoia 2004-1 B2		A		01/28/04		5,937	1m LIBOR		2034		2007		5,161		5.83	%
Sequoia 2004-2 A1	AAA			02/25/04		671,998	6m LIBOR		2034		2007		259,254		5.21	%
Sequoia 2004-2 B1	AA			02/25/04		11,550	1m LIBOR		2034		2007		10,455		5.28	%
Sequoia 2004-2 B2		A		02/25/04		7,000	1m LIBOR		2034		2007		6,336		5.76	%
Sequoia 2004-3 A1	AAA			03/30/04		894,673	6m LIBOR		2034		2006		330,380		5.31	%
Sequoia 2004-3 M1	AA			03/30/04		13,800	1m LIBOR		2034		2006		13,800		5.28	%
Sequoia 2004-3 M2		A		03/30/04		9,200	1m LIBOR		2034		2006		9,200		5.68	%
Sequoia 2004-4 A1	AAA			04/29/04		785,971	6m LIBOR		2010		2007		291,051		4.62	%
Sequoia 2004-4 B1	AA			04/29/04		14,612	1m LIBOR		2010		2007		13,158		5.28	%
Sequoia 2004-4 B2		A		04/29/04		8,350	1m LIBOR		2010		2007		7,519		5.68	%
Sequoia 2004-5 A1	AAA			05/27/04		547,657	Pass Through		2012		2008		199,336		5.53	%
Sequoia 2004-5 A2	AAA			05/27/04		185,613	1m LIBOR		2012		2008		73,868		5.04	%
Sequoia 2004-5 A3	AAA			05/27/04		74,897	6m LIBOR		2012		2008		29,807		4.86	%
Sequoia 2004-5 B1	AA			05/27/04		14,874	1m LIBOR		2012		2008		13,665		5.26	%
Sequoia 2004-5 B2		A		05/27/04		8,499	1m LIBOR		2012		2008		7,808		5.66	%
Sequoia 2004-6 A1	AAA			06/29/04		500,000	Pass Through		2012		2008		184,782		5.75	%
Sequoia 2004-6 A2	AAA			06/29/04		185,687	1m LIBOR		2012		2008		86,148		5.06	%
Sequoia 2004-6 A3a	AAA			06/29/04		196,500	6m LIBOR		2012		2008		79,444		4.96	%
Sequoia 2004-6 A3b	AAA			06/29/04		3,500	6m LIBOR		2012		2008		1,415		5.11	%
Sequoia 2004-6 B1	AA			06/29/04		15,725	1m LIBOR		2012		2008		14,840		5.28	%
Sequoia 2004-6 B2		A		06/29/04		9,250	1m LIBOR		2012		2008		8,730		5.66	%



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 20 — Sequoia Loans	A-26

Table 20: ABS Issued Characteristics — Residential Mortgage Loans (Sequoia) (all $ in thousands)


												Principal		Interest
					Original					Estimated		Outstanding At		Rate At
Sequoia	Debt		Issue		Issue			Stated		Callable		March 31,		March 31,
ABS Issued (1)	Rating		Date		Amount		Index	Maturity		Date		2006		2006
SEMHT 2004-01 A	AAA			06/29/04		317,044	1m LIBOR		2014		2008		155,318		4.60	%
Sequoia 2004-7 A1	AAA			07/29/04		498,828	Pass Through		2034		2008		103,543		5.92	%
Sequoia 2004-7 A2	AAA			07/29/04		252,102	1m LIBOR		2034		2008		122,518		5.09	%
Sequoia 2004-7 A3a	AAA			07/29/04		247,874	6m LIBOR		2034		2008		105,387		5.05	%
Sequoia 2004-7 A3b	AAA			07/29/04		3,956	6m LIBOR		2034		2008		1,682		5.27	%
Sequoia 2004-7 B1	AA			07/29/04		18,900	1m LIBOR		2034		2008		18,319		5.33	%
Sequoia 2004-7 B2		A		07/29/04		11,025	1m LIBOR		2034		2008		10,686		5.72	%
Sequoia 2004-8 A1	AAA			08/27/04		365,049	1m LIBOR		2034		2008		167,805		5.13	%
Sequoia 2004-8 A2	AAA			08/27/04		418,050	6m LIBOR		2034		2008		181,227		5.31	%
Sequoia 2004-8 B1	AA			08/27/04		16,400	1m LIBOR		2034		2008		16,029		5.30	%
Sequoia 2004-8 B2		A		08/27/04		8,200	1m LIBOR		2034		2008		8,015		5.68	%
Sequoia 2004-9 A1	AAA			09/29/04		453,364	1m LIBOR		2034		2008		229,546		5.12	%
Sequoia 2004-9 A2	AAA			09/29/04		296,310	6m LIBOR		2034		2008		141,206		5.42	%
Sequoia 2004-9 B1	AA			09/29/04		14,915	1m LIBOR		2034		2008		14,915		5.29	%
Sequoia 2004-9 B2		A		09/29/04		8,242	1m LIBOR		2034		2008		8,242		5.66	%
Sequoia 2004-10 A-1A	AAA			10/28/04		110,000	1m LIBOR		2034		2008		57,403		5.09	%
Sequoia 2004-10 A-1B	AAA			10/28/04		12,225	1m LIBOR		2034		2008		6,380		5.15	%
Sequoia 2004-10 A-2	AAA			10/28/04		203,441	1m LIBOR		2034		2008		106,164		5.10	%
Sequoia 2004-10 A-3A	AAA			10/28/04		180,000	6m LIBOR		2034		2008		79,688		4.69	%
Sequoia 2004-10 A-3B	AAA			10/28/04		20,000	6m LIBOR		2034		2008		8,854		4.75	%
Sequoia 2004-10 A-4	AAA			10/28/04		126,799	6m LIBOR		2034		2008		56,136		4.70	%
Sequoia 2004-10 B-1	AA			10/28/04		14,042	1m LIBOR		2034		2008		14,042		5.28	%
Sequoia 2004-10 B-2		A		10/28/04		6,849	1m LIBOR		2034		2008		6,849		5.63	%
Sequoia 2004-11 A1	AAA			11/23/04		433,985	1m LIBOR		2034		2009		214,419		5.08	%
Sequoia 2004-11 A2	AAA			11/23/04		86,036	6m LIBOR		2034		2009		44,994		4.90	%
Sequoia 2004-11 A3	AAA			11/23/04		170,694	1m LIBOR		2034		2009		123,287		5.08	%
Sequoia 2004-11 B1	AA			11/23/04		8,947	1m LIBOR		2034		2009		8,947		5.28	%
Sequoia 2004-11 B2		A		11/23/04		6,084	1m LIBOR		2034		2009		6,084		5.63	%
Sequoia 2004-12 A1	AAA			12/22/04		380,510	1m LIBOR		2035		2009		195,421		5.05	%
Sequoia 2004-12 A2	AAA			12/22/04		208,392	6m LIBOR		2035		2009		104,058		4.96	%
Sequoia 2004-12 A3	AAA			12/22/04		218,331	6m LIBOR		2035		2009		89,305		4.99	%
Sequoia 2004-12 B1	AA			12/22/04		8,588	1m LIBOR		2035		2009		8,588		5.28	%
Sequoia 2004-12 B2		A		12/22/04		6,134	1m LIBOR		2035		2009		6,134		5.63	%
Sequoia 2005-1 A1	AAA			01/27/05		298,055	1m LIBOR		2035		2009		160,345		5.01	%
Sequoia 2005-1 A2	AAA			01/27/05		100,000	6m LIBOR		2035		2009		57,278		4.97	%
Sequoia 2005-1 B1	AA			01/27/05		7,067	1m LIBOR		2035		2009		7,067		5.20	%
Sequoia 2005-1 B2		A		01/27/05		3,949	1m LIBOR		2035		2009		3,949		5.48	%
Sequoia 2005-2 A1	AAA			02/24/05		202,462	1m LIBOR		2035		2008		101,463		5.00	%
Sequoia 2005-2 A2	AAA			02/24/05		126,737	6m LIBOR		2035		2008		59,110		5.19	%
Sequoia 2005-2 B1	AA			02/24/05		6,016	1m LIBOR		2035		2008		6,016		5.17	%
Sequoia 2005-2 B2		A		02/24/05		3,266	1m LIBOR		2035		2008		3,266		5.45	%
Sequoia 2005-3 A1	AAA			04/28/05		349,687	1m LIBOR		2035		2009		218,340		4.98	%
Sequoia 2005-3 B1	AA			04/28/05		6,208	1m LIBOR		2035		2009		6,208		5.15	%
Sequoia 2005-3 B2		A		04/28/05		3,287	1m LIBOR		2035		2009		3,287		5.42	%
Madrona 2005-A	BBB			08/25/05		5,400	1m LIBOR		2008		2008		5,400		6.33	%
SEMT 2005-4 1-A1	AAA			09/29/05		133,459	1m LIBOR		2035		2009		103,280		5.00	%
SEMT 2005-4 1-A2	AAA			09/29/05		14,829	1m LIBOR		2035		2009		11,476		5.15	%
SEMT 2005-4 1-B1	AA			09/29/05		2,093	1m LIBOR		2035		2009		2,093		5.23	%
SEMT 2005-4 1-B2	AA			09/29/05		1,395	1m LIBOR		2035		2009		1,395		5.41	%
SEMT 2005-4 2-A1	AAA			09/29/05		160,096	Pass Through		2035		2013		144,136		4.08	%
SEMT 2005-4 2-A2	AAA			09/29/05		10,268	Pass Through		2035		2013		9,244		4.08	%
SEMT 2005-4 2-B1	AA			09/29/05		1,740	Pass Through		2035		2013		1,740		4.08	%
SEMT 2005-4 2-B2		A		09/29/05		696	Pass Through		2035		2013		696		4.08	%

Total Sequoia ABS Issuance					$	30,575,223						$	11,362,031		5.12	%


(1)		Does not include Sequoia ABS acquired by Redwood or Acacia



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 20 — Sequoia Loans	A-27

Table 21: ABS Issued Characteristics — IOs from Residential Real Estate Loans
(Sequoia Interest-Only Certificates Issued) (all $ in thousands)


									Adjusted Issue		Interest
				Original				Estimated	Amount At		Rate At
Sequoia ABS	Debt	Issue		Issue			Stated	Callable	March 31,		March 31,
IO’s Issued (1)	Rating	Date		Amount		Index	Maturity	Date	2006		2006

MLCC 2003-C X-A-2	AAA		06/26/03	$	12,662	Fixed	2007	2011	$	1,234		4.50	%
MLCC 2003-D X-A-1	AAA		07/29/03		22,371	Fixed	2007	2012		2,749		4.50	%
MLCC 2003-E X-A-1	AAA		08/28/03		16,550	Fixed	2007	2012		2,930		4.25	%
MLCC 2003-F X-A-1	AAA		09/25/03		18,666	Fixed	2007	2012		3,300		4.50	%
Sequoia 2003-6 X-1	AAA		10/29/03		8,220	Fixed	2007	2009		1,317		4.50	%
SMFC 2003A AX1	AAA		10/31/03		70,568	Fixed	2007	2007		8,695		4.50	%
Sequoia 2003-7 X-1	AAA		11/25/03		10,345	Fixed	2007	2012		1,805		4.25	%
Sequoia 2003-8 X-1	AAA		12/23/03		12,256	Fixed	2007	2009		2,359		4.50	%
Sequoia 2004-1 X-1	AAA		01/28/04		7,801	Fixed	2007	2009		1,644		4.00	%
Sequoia 2004-2 X-1	AAA		02/25/04		8,776	Fixed	2007	2009		1,994		3.75	%
SMFC 2004A AX1	AAA		02/26/04		10,626	Fixed	2007	2007		2,651		3.75	%
MLCC 2003-H X-A-1	AAA		12/22/03		10,430	Fixed	2007	2012		2,461		4.25	%
Sequoia 2004-4 X-1	AAA		05/28/04		9,789	Fixed	2010	2009		2,753		4.25	%
Sequoia 2004-5 X-1	AAA		05/27/04		3,371	Fixed	2012	2012		968		4.15	%
Sequoia 2004-6 X-A	AAA		06/29/04		10,884	Pass Through	2012	2012		6,141		N/A
Sequoia 2004-7 X-A	AAA		07/29/04		12,145	Pass Through	2034	2012		6,910		N/A
Sequoia 2004-8 X-A	AAA		08/27/04		18,270	Pass Through	2034	2012		10,833		N/A
Sequoia 2004-9 X-A	AAA		09/29/04		16,951	Pass Through	2034	2012		10,291		N/A
Sequoia 2004-10 X-A	AAA		10/28/04		14,735	Pass Through	2034	2012		9,141		N/A
Sequoia 2004-11 X-A-1	AAA		11/23/04		12,603	Pass Through	2034	2013		8,107		N/A
Sequoia 2004-11 X-A-2	AAA		11/23/04		4,697	Pass Through	2034	2013		3,105		N/A
Sequoia 2004-12 X-A-1	AAA		12/22/04		14,453	Pass Through	2035	2013		9,514		N/A
Sequoia 2004-12 X-A-2	AAA		12/22/04		4,619	Pass Through	2035	2013		5,081		N/A
Sequoia 2005-1 X-A	AAA		01/27/05		9,669	Pass Through	2035	2013		6,584		N/A
Sequoia 2005-2 X-A	AAA		02/24/05		7,484	Pass Through	2035	2013		5,132		N/A
Sequoia 2005-3 X-A	AAA		04/28/05		8,183	Pass Through	2035	2013		6,060		N/A


Total Sequoia Issuance				$	357,124				$	123,761		4.31	%


(1)		Does not include Sequoia IO’s acquired by Redwood or Acacia



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 21 — Residential IOs	A-28

Table 23: CDO ABS Issued Characteristics

Acacia (all $ in thousands)


								Principal		Interest
			Original				Estimated	Outstanding At		Rate At
	Debt	Issue	Issue			Stated	Callable	March 31,		March 31,
CDO Issuance (1)	Rating	Date	Amount		Index	Maturity	Date	2006		2006

Acacia CDO 2 A	AAA	05/13/03		222,000	3m LIBOR	2023	2011		168,460	5.11%
Acacia CDO 2 B	AA	05/13/03		45,375	3m LIBOR	2038	2011		45,375	5.76%
Acacia CDO 2 C	BBB	05/13/03		16,500	3m LIBOR	2038	2011		16,500	7.71%
Acacia CDO 3 A	AAA	11/04/03		222,000	3m LIBOR	2038	2011		197,036	5.03%
Acacia CDO 3 B	AA	11/04/03		45,750	3m LIBOR	2038	2011		45,750	6.65%
Acacia CDO 3 C	BBB	11/04/03		16,500	3m LIBOR	2038	2011		16,500	7.85%
Acacia CDO 4 A	AAA	04/08/04		229,400	3m LIBOR	2039	2012		226,934	4.50%
Acacia CDO 4 B1	AA	04/08/04		45,300	3m LIBOR	2039	2012		45,300	4.97%
Acacia CDO 4 B2	AA	04/08/04		2,000	Fixed	2039	2012		2,000	4.81%
Acacia CDO 4 C1	BBB	04/08/04		13,700	3m LIBOR	2039	2012		13,700	6.97%
Acacia CDO 4 C2	BBB	04/08/04		3,000	Fixed	2039	2012		3,000	6.81%
Acacia CDO 5 A	AAA	07/14/04		222,500	3m LIBOR	2039	2012		222,275	4.68%
Acacia CDO 5 B	AA	07/14/04		42,250	3m LIBOR	2039	2012		42,250	5.15%
Acacia CDO 5 C	A	07/14/04		9,000	3m LIBOR	2039	2012		9,000	5.75%
Acacia CDO 5 D	A	07/14/04		3,000	3m LIBOR	2039	2012		3,000	6.30%
Acacia CDO 5 E	BBB	07/14/04		5,375	3m LIBOR	2039	2012		5,375	7.10%
Acacia CDO 6 A1	AAA	11/09/04		222,000	3m LIBOR	2040	2012		221,443	4.69%
Acacia CDO 6 A2	AAA	11/09/04		15,000	3m LIBOR	2040	2012		15,000	4.98%
Acacia CDO 6 B	AA	11/09/04		27,000	3m LIBOR	2040	2012		27,000	5.13%
Acacia CDO 6 C	A	11/09/04		6,500	3m LIBOR	2040	2012		6,500	5.68%
Acacia CDO 6 D	A	11/09/04		3,000	3m LIBOR	2040	2012		3,000	6.33%
Acacia CDO 6 E1	BBB	11/09/04		1,500	3m LIBOR	2040	2012		1,500	7.13%
Acacia CDO 6 E2	BBB	11/09/04		7,000	Fixed	2040	2012		7,000	6.95%
Acacia CDO 7 A	AAA	03/10/05		231,700	3m LIBOR	2045	2013		231,690	4.86%
Acacia CDO 7 B	AA	03/10/05		28,100	3m LIBOR	2045	2013		28,100	5.15%
Acacia CDO 7 C	A	03/10/05		6,000	3m LIBOR	2045	2013		6,000	5.75%
Acacia CDO 7 D	BBB	03/10/05		16,200	3m LIBOR	2045	2013		16,200	7.17%
Acacia CDO 8 A1	AAA	07/14/05		175,000	3m LIBOR	2045	2013		174,790	3.92%
Acacia CDO 8 A2	AAA	07/14/05		15,000	3m LIBOR	2045	2013		15,000	4.07%
Acacia CDO 8 B	AA	07/14/05		22,000	3m LIBOR	2045	2013		22,000	4.19%
Acacia CDO 8 C	A	07/14/05		20,000	3m LIBOR	2045	2013		20,000	4.84%
Acacia CDO 8 D	A-	07/14/05		10,000	3m LIBOR	2045	2013		10,000	5.29%
Acacia CDO 8 E	BBB	07/14/05		10,000	3m LIBOR	2045	2013		10,000	6.49%
Acacia CRE1 Class A	AAA	12/14/05		159,000	3m LIBOR	2045	2013		159,000	4.85%
Acacia CRE1 Class B	AA	12/14/05		39,000	3m LIBOR	2046	2013		39,000	4.98%
Acacia CRE1 Class C	A+	12/14/05		21,000	3m LIBOR	2046	2013		21,000	5.53%
Acacia CRE1 Class D	A-	12/14/05		18,000	3m LIBOR	2046	2013		18,000	5.83%
Acacia CRE1 Class E	BBB+	12/14/05		11,250	3m LIBOR	2046	2013		11,250	6.53%
Acacia CRE1 Class F	BBB-	12/14/05		13,500	3m LIBOR	2046	2013		13,500	7.13%
Acacia 9 Class A	AAA	03/09/06		235,000	3m LIBOR	2046	2013		235,000	5.16%
Acacia 9 Class B	AA-	03/09/06		21,800	3m LIBOR	2046	2013		21,800	5.36%
Acacia 9 Class C	A	03/09/06		9,000	3m LIBOR	2046	2013		9,000	6.11%
Acacia 9 Class D	BBB	03/09/06		12,000	3m LIBOR	2046	2013		12,000	8.01%

Total CDO Issuance			$	2,499,200				$	2,417,228	5.00%


*(1)*		*Does not include ABS acquired by Redwood or Acacia*



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 23 — CDO ABS	A-30

Table 24: ABS Resecuritization Characteristics

Other Resecuritizations — (SMFC) (all $ in thousands)


									Principal		Interest
Other				Original				Estimated	Outstanding At		Rate At
Resecuritization	Debt	Issue		Issue			Stated	Callable	March 31,		March 31,
Issuance (1)	Rating	Date		Amount		Index	Maturity	Date	2006		2006

SMFC 2002A A1	AAA		04/30/02	$	64,761	1m LIBOR	2030	2006	$	—		N/A
SMFC 2002A A2	AAA		04/30/02		15,861	1m LIBOR	2029	2006		—		N/A
SMFC 2002B I A1	AA		12/19/02		16,855	Fixed	2031	2006		489		5.43	%
SMFC 2002B I A2	A		12/19/02		18,274	Fixed	2031	2006		530		5.68	%
SMFC 2002B I A3	BBB		12/19/02		17,221	Fixed	2031	2006		499		6.38	%
SMFC 2002B I A4	BB		12/19/02		25,133	Fixed	2031	2006		729		6.75	%
SMFC 2002B II A1	AA		12/19/02		15,517	Fixed	2039	2006		613		4.82	%
SMFC 2002B II A2	A		12/19/02		18,345	Fixed	2039	2006		725		4.92	%
SMFC 2002B II A3	BBB		12/19/02		14,989	Fixed	2039	2006		593		5.35	%
SMFC 2002B II A4	BB		12/19/02		8,347	Fixed	2039	2006		330		6.00	%

Total Resecuritizations				$	215,303				$	4,507		5.64	%


*(1)*		*Does not include ABS acquired by Redwood or Acacia*



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 24 — SMFC ABS	A-31


INTRODUCTION			2

SHAREHOLDER LETTER			3

ABOUT REDWOOD TRUST			7

BUSINESS GROUP DISCUSSIONS

4 Residential Group			11

4 Commercial Group			14

4 CDO Group			16

FINANCIAL REVIEW

4 Finance Group Overview			18

4 GAAP Earnings			21

4 Core Earnings			22

4 Total Taxable Income			23

4 Core Taxable Income			24

4 REIT Taxable Income			25

4 Book Value per Share			26

4 Return on Equity			28

4 Discounts and Reserves			30

4 Dividends			33

APPENDIX

4 Glossary			35

4 Financial Tables			41

	Ø		Our CES portfolio continues to grow.

	Ø		12% of Redwood’s permanent asset portfolio is now invested in commercial real estate assets.

	Ø		24% of Redwood’s permanent asset portfolio is now invested in CDO equity securities.

	Ø		We called Acacia 1 in December 2005.

	Ø		We issued Acacia 9 in March 2006.

	Ø		Acacia has recently begun to increase its commercial real estate investment activities.

	Ø		Sub-prime securities purchased in 2004 and 2005 were primarily A-rated and higher.

	Ø		GAAP ROE was 12% for the first quarter of 2006 as compared to 27% in the first quarter of 2005.

	Ø		Adjusted ROE was 13% for the first quarter of 2006 and 30% for the first quarter of 2005. Adjusted ROE is greater than GAAP ROE due to the appreciation of the market values of assets that are marked-to-market through our GAAP balance sheet. This increases our GAAP equity and thus lowers GAAP ROE.

	Ø		Over the very long term, we expect to generate an average adjusted return on equity between 11% and 18%.

	Ø		The net discount balance on all other assets and liabilities was $2.00 per share. This includes the net discount on our remaining securities (net of other deferred bond issuance costs).

	Ø		For tax purposes, at March 31, 2006, the net balance of all premiums and discounts associated with residential and commercial real estate loans, securities, asset-backed securities issued, and other assets and liabilities was a net discount balance of $566 million, or $22.28 per share.

	Ø		Credit losses, as reported for GAAP, were $3 million, or $0.10 per share, in the first quarter of 2006 for the residential loans we credit-enhance. There were no losses on the commercial real estate loans we credit enhance. For both the residential and commercials loans, credit losses were less than one basis point (0.01%) on an annualized basis of the loans outstanding.



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 16 — Commercial Loans	A-21



The Redwood Review — 1st Quarter 2006	APPENDIX — Table 22 — Commercial ABS	A-29