Exhibit 99.2

TABLE OF CONTENTS

		CAUTIONARY STATEMENT

This Redwood Review contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “believe,” “intend,” “seek,” “plan,” and similar expressions or their negative forms, or by references to strategy, plans, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our Annual Report on Form 10-K for the year ended December 31, 2011 under the caption “Risk Factors.” Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected are described below and may be described from time to time in reports we file with the Securities and Exchange Commission, including reports on Forms 10-K, 10-Q, and 8-K. We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.

Statements regarding the following subjects, among others, are forward-looking by their nature: (i) our statements relating to opportunities to invest in residential securities, our belief that there will continue to be sufficient market liquidity for the types of residential securities investments that we are financing in part with short-term debt, our statement that, as the private mortgage market recovers and private securitization activity increases, we expect our portfolio of residential securities investments will shift back to predominantly unlevered investments in more credit sensitive subordinate securities; and our statements relating to how we might use various types of debt financing to finance residential securities investments in the future; (ii) our statements relating to the activities we engage in that we include in our references to our mortgage banking business, including our statements relating to our future level of investment in mortgage servicing rights and the profitability of such investments, future sales of whole loans (other than through securitization transactions) and the profitability of such sales, and our expectation that our mortgage banking and mortgage conduit related activities will be an ongoing source of income for us in the future; (iii) any statements relating to our competitive position and our ability to compete in the future, including our ability to effectively compete to acquire residential securities and residential mortgage loans and our ability to compete to originate and acquire commercial debt investments; (iv) our statements relating to our future investment strategy and our ability to find investments with attractive risk return profiles, including, without limitation, statements relating to our efforts to acquire residential mortgage loans, make commercial debt investments, and make investments in residential securities in the secondary market; (v) our statement that our goal for 2012 is to invest a total of approximately $400 million of equity capital in third-party residential securities, new Sequoia residential securities, and commercial debt investments; (vi) our statement that we continue to target the purchase of $2 billion of residential mortgage loans in 2012, our statements relating to acquiring the residential mortgage loans included in our pipeline of residential mortgage loans that we have identified for purchase or plan to purchase through our residential conduit program, including the amount of such loans that we planned to purchase or have identified for purchase at March 31, 2012 and April 30, 2012, and our statement that it is our intent to finance our residential mortgage loans held for sale primarily through the use of warehouse lines of credit; (vii) statements relating to future residential loan securitization and sale transactions, the timing of the completion of those future transactions, and the number and size of those transactions we expect to complete in 2012 and future periods, which future transactions may not be completed when planned or at all, and, more generally, statements regarding the likelihood and timing of, and our participation in, future transactions of these types and our ability to finance residential loan acquisitions through the execution of these types of transactions, and the profitability of these transactions; (viii) our statement that we expect to recover an aggregate of $6 million of loan loss reserves that relate to ten Sequoia securitization entities in future periods upon the payoff or deconsolidation of those entities; (ix) our statements relating to the cash flows we expect to receive from our investments; (x) our statements relating to our estimate of our investment capacity (including that we estimate our investment capacity was $183 million at March 31, 2012) and our statement that we believe this level of investment capacity should carry us through the next two quarters; (xi) any statements relating to future market and economic conditions and the future volume of transactions in those markets, including, without limitation, future conditions in the residential and commercial real estate markets and related financing markets (e.g., the CMBS market), and the related potential opportunities for our residential and commercial businesses; (xii) our beliefs about, and our outlook for, the future direction of housing market fundamentals, including, without limitation, home prices, household formation and demand for housing, delinquency rates, foreclosure rates, prepayment rates, inventory of homes for sale, and mortgage interest rates and their potential impact on our business and results of operations and our beliefs that certain fundamentals are showing no sign of a “double dip” in mortgage performance, that certain delinquency trends should eventually cause total mortgage delinquencies to fall, that home prices are reaching levels of strong support (which we believe should shield against significant further downside to housing prices), that, absent a second recession, we do not expect more than 5% in national home price declines (with significant geographic

CAUTIONARY STATEMENT

variation), that residential mortgage loan servicers’ pursuit of alternative liquidation strategies in greater number should result in lower losses and a quicker housing recovery, and that our current estimate is that excess housing supply will be substantially reduced by 2014 or 2015; (xiii) our beliefs about the future direction of commercial real estate fundamentals and statements regarding the competitive landscape for, and availability of, financing for commercial real estate and our beliefs about whether trends in these areas are positive for our business (including our statements that we believe that mezzanine lending opportunities will continue to drive our commercial investment activity for the next few quarters); (xiv) our statements relating to the future potential competitive advantages of our commercial origination and investment platform, including that this platform could potentially generate fees and other income by originating and distributing senior mortgage loans to a wide network of investors, and our statement that our plan for our commercial platform includes developing appropriate financing sources; (xv) our statements that we expect a pickup in our commercial investment activity in the second quarter of 2012, that we believe we are still on pace to originate between $200 and $300 million in commercial debt investments in 2012, and that we anticipate increasing our exposure to commercial debt relating to multifamily properties over the course of 2012; (xvi) our statement that we hope to obtain debt financing on our portfolio of commercial debt investments in the second half of 2012 and our statement that we believe any such financing we obtain will represent a prudent level of debt financing for those assets; (xvii) our expectations regarding credit reserves, credit losses, the adequacy of credit support, and impairments and their impact on our investments (including as compared to our original expectations and credit reserve levels) and the timing of losses and impairments, and statements that the amount of credit reserves we designate are adequate or may require changes in the future; (xviii) any statements relating to our expectations regarding future interest income and net interest income, future earnings, future earnings volatility, and future trends in operating expenses and the factors that may affect those trends, including that we expect the level of operating expense in the second quarter of 2012 to be similar to the level of operating expense in the first quarter of 2012; (ixx) our Board of Directors’ intention to pay a regular dividend of $0.25 per share per quarter in 2012; and (xx) our expectations and estimates relating to the characterization for income tax purposes of our dividend distributions and our expectations and estimates relating to tax accounting and our anticipation of additional credit losses for tax purposes in future periods (and, in particular, our statement that, for tax purposes, we expect an additional $130 million of credit losses on residential securities to be realized over an estimated two-to-five year period).

Important factors, among others, that may affect our actual results include: general economic trends, the performance of the housing, commercial real estate, mortgage, credit, and broader financial markets, and their effects on the prices of earning assets and the credit status of borrowers; federal and state legislative and regulatory developments, and the actions of governmental authorities, including those affecting the mortgage industry or our business; our exposure to credit risk and the timing of credit losses within our portfolio; the concentration of the credit risks we are exposed to, including due to the structure of assets we hold and the geographical concentration of real estate underlying assets we own; our exposure to adjustable-rate and negative amortization mortgage loans; the efficacy and expense of our efforts to manage or hedge credit risk, interest rate risk, and other financial and operational risks; changes in credit ratings on assets we own and changes in the rating agencies’ credit rating methodologies; changes in interest rates; changes in mortgage repayment rates; the availability of assets for purchase at attractive prices and our ability to reinvest cash we hold; changes in the values of assets we own; changes in liquidity in the market for real estate securities and loans; our ability to finance the acquisition of real estate-related assets with short-term debt; the ability of counterparties to satisfy their obligations to us; our involvement in securitization transactions, the profitability of those transactions, and the risks we are exposed to in engaging in securitization transactions; exposure to claims and litigation, including litigation arising from our involvement in securitization transactions; whether we have sufficient liquid assets to meet short-term needs; our ability to successfully compete and retain or attract key personnel; our ability to adapt our business model and strategies to changing circumstances; changes in our investment, financing, and hedging strategies and new risks we may be exposed to if we expand our business activities; exposure to environmental liabilities and the effects of global climate change; failure to comply with applicable laws and regulations; our failure to maintain appropriate internal controls over financial reporting and disclosure controls and procedures; the impact on our reputation that could result from our actions or omissions or from those of others; changes in accounting principles and tax rules; our ability to maintain our status as a real estate investment trust (REIT) for tax purposes; limitations imposed on our business due to our REIT status and our status as exempt from registration under the Investment Company Act of 1940; decisions about raising, managing, and distributing capital; and other factors not presently identified.

This Redwood Review may contain statistics and other data that in some cases have been obtained from or compiled from information made available by servicers and other third-party service providers.

		INTRODUCTION

Note to Readers:

We file annual reports (on Form 10-K) and quarterly reports (on Form 10-Q) with the Securities and Exchange Commission. These filings and our earnings press releases provide information about Redwood and our financial results in accordance with generally accepted accounting principles (GAAP). We urge you to review these documents, which are available through our web site, www.redwoodtrust.com.

This document, called The Redwood Review, is an additional format for providing information about Redwood through a discussion of many GAAP as well as non-GAAP metrics, such as taxable income and economic book value. Supplemental information is also provided in the Financial Tables in this Review to facilitate more detailed understanding and analysis of Redwood. When we use non-GAAP metrics it is because we believe that these figures provide additional insight into Redwood’s business. In each case in which we discuss a non-GAAP metric you will find an explanation of how it has been calculated, why we think the figure is important, and a reconciliation between the GAAP and non-GAAP figures.

References herein to “Redwood,” the “company,” “we,” “us,” and “our” include Redwood Trust, Inc. and its consolidated subsidiaries. References to “at Redwood” exclude all consolidated securitization entities (with the exception of the resecuritization we completed in the third quarter of 2011) in order to present our operations in the way management analyzes them.

Note that because we round numbers in the tables to millions, except per share amounts, some numbers may not foot due to rounding.

We hope you find this Review helpful to your understanding of our business. We thank you for your input and suggestions, which have resulted in our changing the form and content of The Redwood Review over time.

We welcome your continued interest and comments.

SHAREHOLDER LETTER

Dear Fellow Shareholders:

At Redwood, we are actively managing and positioning our residential and commercial businesses for growth. It’s tricky business, as no one knows exactly how the new world of mortgage finance will evolve once the government finally loosens its grip. Our guess is that it will look very different from the pre-crisis days. So, for the past three years, our priority has been to build residential and commercial business foundations that are not only solid bases for growth, but also provide the optionality to adapt as the new normal unfolds.

It has taken a while, but when we stand back and survey the landscape and our competitive position, we like what we see. We now have solid beachhead origination platforms, are under all the right tents, have excellent relationships and a great brand, and have a deep bench with the right skill sets to execute. The next step is to expand our footprint and advance our business model. We have a lot of ideas that we discuss in the ensuing pages.

In characterizing the first quarter, we can’t bring ourselves to say “pleased” as to us it’s become an overused, shallow and trite word. Let’s just say, we’re off to a good start for the year. We still have a lot of wood to chop, but the good news is the Redwood team is unified, fired up and ready.

As always, thank you for your patience and continued support.

Martin S. Hughes		Brett D. Nicholas
CEO		President

First Quarter 2012 Results

Overview

We had a productive first quarter of 2012 on just about every front. For the quarter, we generated attractive economic returns and reported GAAP earnings of $0.37 per share, some of which was driven by our accounting elections that are more fully described in the GAAP earnings section below .We paid a first quarter dividend of $0.25 per share, while REIT taxable income was $0.13 per share. As discussed in the Cash Flow module on page 24 of this Redwood Review, our cash from investments of $74 million in the first quarter of 2012 was in excess of the $50 million of combined interest on debt, dividends, and cash operating expenses we paid during the quarter.

We put $136 million of equity capital to work during the first quarter of 2012 to acquire $311 million of investments (and used $175 million of short-term debt to finance the new investments). Market conditions were generally favorable during the first quarter, allowing us to recover much of the market value declines we saw in our securities portfolio during the fourth quarter of 2011. Operationally, we expanded the scale and capabilities of our residential business .Our commercial business, while continuing to make opportunistic debt investments, is evolving towards the broader-based lending platform we envisioned.

Putting it all together, our GAAP book value increased to $12.22 per share in the first quarter of 2012 from $11.36 per share at the end of the fourth quarter of 2011, as detailed in the following table.

QUARTERLY OVERVIEW

Investment and Portfolio Sales Activity

During the first quarter of 2012, we focused much of our efforts on efficiently deploying excess capital at attractive returns while growing our residential and commercial businesses. Highlights of the quarter included investments in two new Sequoia securitizations, four newly originated commercial debt investments and one commercial debt acquisition, and additional secondary investments in more liquid senior securities that were largely financed through repurchase facilities. The following table summarizes our first quarter of 2012 and fourth quarter of 2011 investment activity.

Our overall investment pace for the first quarter ran a little ahead of our goal for the year of investing approximately $400 million of equity capital in third-party Residential Mortgage-Backed Securities (RMBS), new Sequoia RMBS, and commercial debt investments. In addition to new investment acquisition activity, we sold $53 million of third-party RMBS for GAAP gains of $6 million.

At March 31, 2012, our estimate of our available investment capacity was $183 million. Based on our current expectation for new investment activity, we believe this excess capacity should carry us through the next two quarters. If and when the time comes to raise capital, our approach will be based on what we believe to be in the best interest of shareholders. Our capital raising efforts could include freeing up additional capital internally, the issuance of corporate debt or preferred equity, or the issuance of common equity.

		QUARTERLY OVERVIEW

Residential Loan Business

We continued to make steady progress growing our residential mortgage loan business in the first quarter of 2012, which was highlighted by the two securitizations of residential mortgage loans that we completed: one in January of $416 million and the other in March of $328 million. Our GAAP gains on these two securitizations totaled $7 million, while our economic gains (which take into account our hedging costs) were closer to $4 million. Contributing to the profitability of the transactions was a combination of tighter credit spreads on the senior securities issued, lower subordination levels, and lower hedging costs.

Our March 2012 securitization included two important features that are reflective of a more mature, fully functioning securitization market. First, six weeks prior to the transaction, we entered into an agreement with the underwriter of the transaction to sell forward the underlying triple-A securities. This reduced our hedging timeframe and costs and enabled us to lock in credit spreads. We are hopeful that we can replicate this type of agreement for future transactions. Second, the underwriter structured the triple-A tranche to create three different time-tranched triple-A securities. We believe this refinement tailors cash flows and yields to meet different senior investor needs, thus improving liquidity for triple-A securities. It is also notable that the average mortgage rate charged to prime borrowers in this transaction was only about 50 basis points higher than the mortgage rate a borrower could obtain on a government-backed conforming balance loan. The pre-crisis historical average was a spread of approximately 25 basis points. While we are not yet back to the historical spread levels, the trend is encouraging, especially considering the fact that we are the only repeat RMBS issuer since the financial crisis.

In anticipation of our next securitization, we held $301 million of residential loans at March 31, 2012, and at April 30, 2012, we held $331 million and had identified another $394 million that we plan to purchase. We currently expect our next securitization to occur late in the second quarter or possibly early in the third quarter. While our conduit business continues to face headwinds from sustained government involvement in mortgage finance and from commercial banks that are flush with liquidity and bidding aggressively for high-quality jumbo loans, we believe we are gaining momentum — adding new sellers each quarter (with 22 active sellers at March 31, 2012), for an anticipated 30 to 40 active sellers by year end. We continue to target completing four to six securitizations and purchase $2 billion of loans in 2012.

Initially, our conduit’s activities were primarily centered on acquiring 15- and 30-year fixed rate loans for sale through private securitization. While we continue to push our securitization efforts, we have broadened our loan products and distribution capabilities to include direct whole loan sales to banks, life insurance companies, or other whole loan buyers. The decision to sell whole loans versus securitizing 100% of the loans that we buy is based on changing market dynamics and continued strong demand for whole loans by commercial banks. Currently, demand is strong for high-quality hybrid adjustable-rate loans, which are a good fit for bank balance sheets. We expect to complete bulk sales of hybrid adjustable-rate loans in the second quarter and generate modest gains. In addition, we are now in the process of renewing our relationships with the GSEs and intend to add conforming loans to our product menu.

QUARTERLY OVERVIEW

Residential Loan Business (continued)

At the end of the first quarter of 2012, we owned the servicing rights to $304 million of prime-quality jumbo residential loans that were sourced through our conduit. We earn fees from these servicing rights, but do not service any loans in-house, nor do we currently plan to do so. Instead, we retain a nationally recognized sub-servicer. The recent decline in the market value of servicing rights — from an historic range of roughly 5 to 6 times the annual servicing fee to approximately 2 to 3 times today — has piqued our interest in an investment in servicing rights. In our opinion, major bank servicers have recently backed-off their servicing bid in the face of a deluge of existing servicing issues to work through, a refined focus on limiting servicing retention to their retail customers, and upcoming capital limitations under Basel III. Whether this decline is a secular or temporary phenomenon is an open question. In any event, we are positioned and stand ready to acquire attractively priced jumbo servicing rights, and potentially GSE conforming servicing rights down the road.

Commercial Real Estate Business

Progress in our commercial business continued during the first quarter of 2012 as we originated four additional commercial debt investments totaling $20 million and acquired one for $7 million. This boosted our investment portfolio to 19 investments totaling $178 million at March 31, 2012. These investments have been originated and structured in connection with third parties originating over $1 billion of new commercial mortgages on higher quality, stabilized properties. We recently added key personnel with expertise in the multifamily and capital markets segments of commercial investing, coinciding with our increased activity in those sectors. While the pace of our investment activity slowed from the fourth quarter of 2011, we expect a pickup in activity in the second quarter of 2012 based on opportunities that we have identified through April 2012.

We believe that mezzanine lending opportunities will continue to drive commercial investment activity for the next few quarters. Longer term, we are also focused on growing our franchise value through a commercial origination and investment platform that includes originating senior and mezzanine loans together. We believe that offering a one-stop financing solution for our target borrowers will be a strong competitive advantage of our franchise. It could also potentially generate fees and other income by distributing the senior loans through a wide network that includes CMBS, banks, life insurance companies, and the GSEs. Ultimately, we hope to help fill a growing capital void in the commercial mortgage market while also leveraging our internal skill set, broad sourcing relationships, and willingness to hold long-term commercial investments on our balance sheet. Part of our plan for the commercial business includes developing appropriate financing alternatives with various counterparties that could take the form of repurchase facilities, warehouse lines, and non-recourse securitized financing.

Looking ahead, we plan to continue originating commercial debt investments and exploring financing options for our commercial portfolio to potentially enhance its return. Currently our portfolio generates a gross yield in excess of 10% and is funded entirely with equity capital. We continue to expect to originate between $200 million and $300 million of commercial debt investments in 2012, and as this dynamic business evolves we will continue to seek the best way to maximize value for shareholders.

		QUARTERLY OVERVIEW

Residential Securities Portfolio

The first quarter of 2012 — at least until late March — could be characterized by the “risk-on” tone observed in the broader equity markets. Mortgage-related investments followed cues from equities and generally increased in price throughout the quarter as credit spreads narrowed, with many senior RMBS meeting or exceeding the performance of corporate and other fixed income securities. Our securities portfolio in particular largely recovered the $0.56 per share decline in market value observed in the fourth quarter of 2011, rallying $0.52 per share in the first quarter of 2012 as pricing improved.

We took advantage of the relative strength of the RMBS market and sold $53 million of somewhat illiquid securities during the first quarter of 2012. Our intention is to actively manage our portfolio and these sales were consistent with our efforts to more efficiently invest our capital as we grow our residential and commercial businesses. In April 2012, the market for RMBS and CMBS remained relatively stable, allowing us to invest another $12 million (net of repo borrowings) of equity capital in third-party RMBS. We remain focused on managing credit-sensitive securities in our portfolio that could be particularly susceptible to adverse performance should the economy begin to slow once again. As always, our decision to sell or hold investments will be primarily focused on prevailing market conditions, any associated credit concerns, and capital allocation decisions.

In the first quarter of 2012, we continued employing what we believe to be prudent amounts of short-term recourse financing against our securities portfolio in order to free up equity capital for additional long-term investments. Some shareholders have questioned whether this represents a new business strategy and a fundamental shift in our more recent approach to favoring term or permanent financing for investments. In short, the answer is that our use of a combination of short-term debt and equity to finance these investments does not represent a new strategy or fundamental shift in our views on liquidity. We have previously used short-term financing on securities and our current use reflects the investment opportunities that are available at the current time. As the private mortgage market recovers and private securitization activity increases, we expect that our investment portfolio will shift back to predominantly unlevered investments in more credit-sensitive subordinate securities. Most of the RMBS we are currently financing are senior securities that are of the type that have been actively sought by banks, REITs, insurance companies, and hedge funds (an important consideration in taking into account the liquidity risk associated with using short-term debt financing). We believe there will continue to be sufficient market liquidity for these types of RMBS investments.

As we utilize short-term debt to capitalize on what we have described in prior quarters as a diminishing opportunity to source seasoned senior RMBS at attractive levels, we continue to set aside additional capital as part of our management of the liquidity risks associated with recourse financing. To the extent this securities portfolio grows to a sufficient size, we would look to obtain term financing for our investments through the use of a non-recourse structured debt facility, such as the resecuritization of senior residential securities we completed in July 2011. At March 31, 2012, our residential securities portfolio totaled $1 billion and was financed with a combination of $304 million of short-term debt, $207 million of non-recourse resecuritization debt, and $489 million of equity capital.

QUARTERLY OVERVIEW

GAAP Income Summary

Our first quarter GAAP earnings of $0.37 per share significantly outpaced our fourth quarter of 2011 GAAP loss of $0.03 per share. Our first quarter 2012 results include the effects of GAAP accounting standards that became applicable to us beginning in the first quarter as a result of recent activity in our residential loan business. These accounting changes, which are described in more detail throughout this section, coincided with formatting changes to our presentation of GAAP income for the first quarter of 2012. We believe these changes will more closely reflect the underlying economics of our business as it evolves.

Net interest income after provision and other market valuation adjustments was $17 million higher than the fourth quarter of 2011 as a result of higher net yields on investments after factoring in borrowing costs, fewer impairments on subordinate securities, and a significantly lower loan loss provision related to legacy Sequoia securitizations. The first quarter of 2012 also benefited from approximately $3 million of hedging expenses taken in the fourth quarter of 2011 as negative market valuation adjustments that related to a Sequoia securitization we completed in January 2012.

As part of our first quarter 2012 assessment of loan loss reserves, we observed that delinquencies and defaults appeared to be stabilizing after some seasonal effects in the fourth quarter of 2011, indicating to us that our reserve is currently adequate for expected charge-offs. In addition, we are assessing whether to maintain our interests in certain consolidated Sequoia entities where we have recorded loan loss provisions that meet or exceed our GAAP investment in the entities. This assessment addresses excess GAAP provisions, but is grounded in our normal process of evaluating portfolio positions — i.e., weighing the economics of maintaining our investments in each entity versus selling them. In the first quarter, we sold interests in five legacy Sequoia entities and realized $7 million of gains after determining that we should deconsolidate these entities in accordance with GAAP. The gains were comprised of both recoveries of excess provisions as well as cash raised by selling our interests in the five entities. To the extent that the economics remain favorable, our bias will be to potentially look to deconsolidate additional legacy Sequoia entities that may otherwise require us to record future GAAP provisions in excess of our investments at risk.

		QUARTERLY OVERVIEW

GAAP Income Summary (continued)

During the first quarter of 2012, we engaged in a number of new activities related to our residential operations that we felt were best captured in a new income statement line item titled “Mortgage Banking Activities, net”. This line item is our attempt to reflect the most significant operating activities of our residential conduit, notably the expenses associated with hedging loans in our pipeline and any associated gain or loss on the completion of our securitizations accounted for as sales for GAAP. We shifted to a sale accounting framework for Sequoia securitizations completed in the first quarter of 2012 and expect to continue to use this framework for most future securitizations. This had the effect of pulling forward any gain or loss associated with acquiring and securitizing loans, as opposed to recognizing those amounts through net interest income over the life of the securitization, which is what GAAP requires for securitizations that are accounted for as financings and consolidated on our books. This change had an immediate impact on our first quarter 2012 results, as we were able to offset substantially all of the hedging expenses we had incurred in the fourth quarter of 2011 relating to our January 2012 securitization, as the increased price of the securitized loans resulted in a higher gain on sale. Unfortunately, we can’t guarantee that future securitizations transactions will occur so soon after hedging expenses are incurred or that they will offset these expenses. Therefore, we will likely continue to experience timing differences — to varying degrees — between the quarterly income and expenses we report relating to our residential conduit.

Also, as a result of completing securitizations accounted for as sales in the first quarter, we recorded mortgage servicing rights assets for the first time and we will also be recording any income, gain, or loss relating to servicing rights in the new Mortgage Banking Activities, net line item. These rights are included with certain loans we have acquired and are recognized as assets to the extent we retain the rights but sell or transfer the associated loans into a securitization accounted for as a sale. Finally, we expect to report income associated with selling whole loans out of our residential conduit in the second quarter of 2012 and for these and any future whole loan sales, we plan to record the related gains or losses through Mortgage Banking Activities, net. We currently expect these conduit related activities to become an ongoing source of income for us in the future.

As a result of this new presentation, “Realized Gains, net” will continue to show amounts for activities such as sales of securities, that are not generated by our ongoing business, but are more episodic or opportunistic in nature. We believe this change will help readers of our financial statements better distinguish between the results generated by our ongoing residential and commercial businesses and other items that may make evaluating the progress of these ongoing businesses difficult.

The “GAAP Income” section of this Redwood Review provides additional details on our earnings for the first quarter.

FINANCIAL INSIGHTS

Book Value

		FINANCIAL INSIGHTS

Book Value (continued)

FINANCIAL INSIGHTS

Balance Sheet

		FINANCIAL INSIGHTS

Balance Sheet (continued)

Real Estate Loans

Real Estate Securities

(1) Included in the residential securities table above are $332 million of senior securities that are included in a resecuritization that we completed in July 2011. Under GAAP accounting, we account for the resecuritization as a financing even though these securities are owned by the resecuritization entity and are legally not ours. We own only the securities and interests that we acquired from the resecuritization entity, which amounted to $125 million at March 31, 2012. As a result, to adjust at March 31, 2012 for the legal and economic interests that resulted from the resecuritization, Total Residential Senior Securities would be decreased by $332 million to $402 million, Total Re-REMIC Residential Securities would be increased by $125 million to $280 million, and Total Residential Securities would be reduced by $207 million to $796 million.

(2) Non-prime residential securities consist of $281 million of Alt-A senior and subordinate and $2 million of subprime subordinate securities.

FINANCIAL INSIGHTS

Balance Sheet (continued)

Real Estate Securities (continued)

Investments in the Securitization Entities

Debt

		FINANCIAL INSIGHTS

Balance Sheet (continued)

Debt (continued)

Capital and Cash

FINANCIAL INSIGHTS

GAAP Income

		FINANCIAL INSIGHTS

GAAP Income (continued)