EXHIBIT 8.1


                        [Giancarlo & Gnazzo Letterhead]





                                January 23, 1997



Redwood Trust, Inc.
591 Redwood Highway
Suite 3100
Mill Valley, CA 94941


                Re:      Redwood Trust, Inc. Registration Statement for Amended
                         and Restated 1994 Executive and Non-Employee Director
                         Stock Option Plan


Dear Ladies and Gentlemen:

         You have requested our opinion in connection with the Form S-8/S-3
Registration Statement, dated January 23, 1997 (the "Registration Statement")
being filed by Redwood Trust, Inc.  (the "Company") with respect to its Amended
and Restated 1994 Executive and Non-Employee Director Stock Option Plan.

         We have acted as your special tax counsel in connection with the
Registration Statement and Prospectus related thereto, and have assisted in the
preparation of the tax summary for each such document.  In formulating our
opinions, we have reviewed (i) the Registration Statement and the Prospectus
Supplement, (ii) the Articles of Incorporation of the Company, as amended and
supplemented to date, (iii) the Bylaws, as amended, of the Company, and (iv)
such resolutions, certificates, records, and other documents provided by the
Company as we have deemed necessary or appropriate as a basis for the opinions
set forth below.  In addition, the Company has provided us with a certificate
(the "Officer's Certificate"), executed by a duly appointed and knowledgeable
officer of the Company, and upon which we have relied, setting forth certain
representations relating to various factual and other matters including the
prior, current and future methods of operation of the Company.  We have also
relied upon the opinion of Piper & Marbury, L.L.P., dated on or about the date
hereof, with respect to certain matters of Maryland law.

         In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or other copies, and the
authenticity of the originals of such copies.

         In rendering our opinions, we have assumed that the transactions
described in or contemplated by the foregoing documents have been or will be
consummated in accordance with such operative documents, and that such
documents accurately reflect the material facts of such transactions.  In
addition, our opinions are based on the correctness of the following specific
assumptions:  (i) the Company has been and will continue to be organized and
operated in the manner described in the Officer's Certificate, the Registration
Redwood Trust, Inc.
January 23, 1997
Page 2



Statement, and the other relevant documents referred to above; and (ii) there
have been no changes in the applicable laws of the State of Maryland, the
Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder by the Treasury Department (the "Treasury Regulations"),
and the interpretations of the Code and the Treasury Regulations by the courts
and the Internal Revenue Service, all as they exist on the date of this letter.
With respect to these assumptions, it should be noted that (x) in the case of
the former assumption, the representations set forth in the Officer's
Certificate are highly factual in nature and reflect an intention with respect
to the future conduct of the business of the Company which may not be
achievable if there are future changes in the circumstances of the Company and
(y) in the case of the latter assumption, statutes, regulations, judicial
decisions, and administrative interpretations are subject to change at any time
and, in some circumstances, with retroactive effect.  Any material change that
is made after the date hereof in any of the foregoing bases for our opinions
could adversely affect our conclusions.

         Based on the foregoing, we are of the opinion that the Company has
been organized and operated in conformity with the requirements for
qualification as a "real estate investment trust" under the Code since the
commencement of its operations on August 19, 1994 through September 30, 1996,
the date of the most recent unaudited financials statements of the Company
reviewed by us, and the Company's current and contemplated methods of
operation, as described in the Registration Statement and the Prospectus
related thereto, and as represented to us by the Company, will enable it to
continue to so qualify.

         Other than as expressly stated above, we express no opinion on any
issue relating to the Company or to any investment therein or under any law
other than the Federal income tax laws.

         We are furnishing this opinion to you solely in connection with the
filing of the Registration Statement and it is not to be relied upon, used,
circulated, quoted or otherwise referred to for any other purpose without our
express written permission.

         We consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to Giancarlo & Gnazzo, A
Professional Corporation under the caption "Certain Federal Income Tax
Considerations" in the Registration Statement.


                                                Very truly yours,


                                                Giancarlo & Gnazzo
                                                A Professional Corporation