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 our overall outlook for Redwood and its businesses in the future (including our statement that the flexibility we have built into our operating platforms should enable us to react quickly as lenders, borrowers, and regulators converge toward an accepted mortgage financing framework) and our statements regarding the impact of Federal Reserve policies and plans on the value of our portfolio and volume of future business; (ii) any statements relating to future activities we may engage in, including sales of residential loans to the Agencies and any 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; (iii) any statements relating to our competitive position and our ability to compete in the future; (iv) any statements relating to our future investment strategy and future investment activity, including, without limitation, that over time we expect the senior securities in our investment portfolio to pay down or be sold and replaced with investments created through our mortgage banking activities and from the purchase of subordinate securities from other securitization sponsors; (v) our statement that we are on track to reach our goal of investing $400 million or more of equity capital during 2012; (vi) our statement that we expect to have 55 active loan sellers in our residential loan conduit by the end of 2012 and that we expect most of the 46 potential sellers who are in various stages of review and implementation to become active sellers to our residential conduit in the near-term; (vii) our statement that our goal over the next 12-to-18 months is to ramp up our non-Agency loan production so we are able to securitize $300 million or more of residential loans each month in the future and our statements relating to acquiring residential mortgage loans included in our pipeline of residential mortgage loans that we have identified for purchase or plan to purchase, including the amount of such loans that we planned to purchase or have identified for purchase during the third quarter of 2012, at September 30, 2012, in October 2012, and at the end of October 2012; (viii) 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; (ix) our statement that we expect to recover an aggregate of $5 million of loan loss reserves that relate to nine Sequoia securitization entities in future periods; (x) any statements relating to the cash flows we expect to receive from our investments; (xi) our statements relating to our estimate of our investment capacity

CAUTIONARY STATEMENT

(including that we estimate our investment capacity was $141 million at September 30, 2012) and our statement that we believe this level of investment capacity should sustain our capital needs well into the first quarter of 2013; (xii) 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, and the related potential opportunities for our residential and commercial businesses; (xiii) 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 delinquency trends should eventually cause total mortgage delinquencies to fall, that, absent a second recession, low interest rates should protect from additional downside movement in home prices, that we believe housing prices are in the process of stabilizing, and that we do not expect housing, in general, to be a significantly appreciating asset class for several years; (xiv) our statements that we currently anticipate investing $40 to $60 million in commercial mezzanine debt in the fourth quarter, that we plan to continue to generate fees by originating senior commercial loans and selling them to third parties that intend to securitize them, that the use of a warehouse facility to finance out mezzanine investments will potentially enhance the yield on these investments and free up equity capital for reinvestment, and that we continue to focus on establishing a more permanent financing source for our existing portfolio of mezzanine investments; (xv) 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; (xvi) any statements relating to our expectations regarding future interest income and net interest income, future earnings, future gains, future earnings volatility, and future trends in operating expenses and the factors that may affect those trends; and (xvii) our expectations and estimates relating to the characterization for income tax purposes of our dividend distributions (including, without limitation, that we expect a significant portion of the dividends we distribute in 2012 to be taxable to shareholders) 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 $123 million of credit losses on residential securities to be realized over an estimated three-to-five year period).

		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:

We are now well along with the execution of the business strategy we developed a couple of years ago. We will spare you a philosophical discussion over whether the execution phase or strategy phase is more important to our success. To us, the two are wholly interdependent and dynamic. However, we would readily confess that executing and seeing results… is a heck of a lot more fun.

As our businesses have gained momentum, we have received numerous investor inquiries asking for more color and details on the Redwood story. Accordingly, it’s a good time to take a quick look back, assess where we are, and talk a bit about what we see ahead. This quarterly letter will address all three points, but look for more “meat on the bone” regarding our plans and outlook for 2013 in our fourth quarter shareholder letter.

This letter hits on a few familiar themes in our ongoing effort to clearly define and differentiate our business model and our goals. In the simplest terms, we are an operating business that utilizes the tax advantages of a REIT structure to efficiently hold mortgage-related investments. Our loan platforms create home-grown residential and commercial mortgage investments and generate fees. Our overarching goal is to deliver a growing stream of attractive, sustainable earnings and dividends. We strive to help our shareholders recognize the broader franchise value of our businesses so they won’t categorize us with passive investment companies whose shares generally trade near book value.

A Quick Look Back

As the financial world engaged in massive deleveraging at the onset of the financial crisis, Redwood made a strategic decision to invest in and build out our residential and commercial loan platforms in order to have proprietary, steady sources of attractive investments and fee-generating opportunities. There is a commonality of themes between our residential and commercial lines of business. In both businesses, we initially established ourselves as an intermediary between lenders (who face borrowers) and senior investors in the capital markets. In addition, we believe that our biggest competitive advantage in both lines of business is our willingness to get dirty, do the hard stuff, and make life easier for the lenders and investors we work with. Our strategy syncs up well with the structure of our balance sheet and the talents and extensive relationships of the professionals who make up both our residential and commercial teams.

On the residential side, our focus over the last few years was to source prime, jumbo mortgages primarily for sale through private securitization, but also at times through bulk sales. While our initial market opportunity was very small, our confidence in the long-term was driven by three big business assumptions: the government would eventually reduce its outsized role in the mortgage market; new bank regulation, Basel III, and legacy portfolio issues would open up an opportunity for independent mortgage companies; and traditional private AAA institutional investors would return to providing attractive financing for prime residential loans through private-label mortgage-backed securitization (“PLMBS”). At times, many pundits argued that this last assumption was, well … crazy. Some even exclaimed that privately-financed mortgage rates would stay at least 2 to 3 points higher than comparable government Agency rates in this next era of private mortgage lending.

On the commercial side, we set our sights on an inevitable wave of commercial loan refinancing demand brought about by a pre-crisis era of high-leverage lending. An immediate need was identified for mezzanine capital that could bridge the gap between commercial borrowers’ funding needs and what traditional senior lenders would provide in a deleveraged world. We also began to position our platform to one day become a direct provider of senior commercial loans, offering value through greater flexibility and certainty of execution for borrowers.

		SHAREHOLDER LETTER

Where We Are

In general, we would say that our plans for both our residential and commercial businesses are coming together.

On the residential side, the build-out of our loan platform took a bit longer than anticipated and was a drag on earnings in 2011 and into 2012. We endured a few bumps along the road, but the good news is that our Sequoia loan platform is up, running, and scalable. One of the many highlights you will read about in this Redwood Review is that from a credit standpoint, we have yet to see a 60-day delinquent borrower in any of our seven Sequoia securitizations completed since April 2010. And from a liquidity standpoint, we provided credit-enhancement for 68 different AAA investors including banks, insurance companies and money managers in these transactions.

Our big business assumptions are also playing out nicely. (Maybe we weren’t crazy!) Over the past two years, the Agency loan limit for high cost areas has come down from $729,750 to $625,500, and guarantee fees charged by the Agencies have almost doubled. All four of the biggest U.S. banks have announced a significant reduction or complete elimination of their wholesale lending channels, which has opened up an opportunity for independent mortgage companies, like Redwood. And, most importantly, private AAA credit spreads continue to tighten, which improves our loan pricing and enables our sellers to offer lower mortgage rates to mortgage borrowers. How much lower? Based on the execution of our recent PLMBS transactions, we are now pricing 30-year fixed-rate jumbo loans very competitively against major portfolio lenders. And in some (albeit limited) cases, we can even price loans that conform to the government’s “Agency jumbo” criteria (e.g., loans ranging from $417,000 to $625,499) competitively against the government-backed Agencies themselves. The point is, the gap is narrowing.

As a general matter, we would also observe that the return of PLMBS for prime loans is a lot further along than market observers might think. The formula to regain the confidence of AAA investors is not that complicated. Start with well-underwritten prime loan collateral; align interests throughout the mortgage chain; and follow best practices for completing securitizations — especially for representations and warranties, for which Redwood has taken the lead. We would even add that the ratings process is now working much more smoothly than it was even a year ago.

But what is really encouraging to us are the catalysts we see coming together that we think will provide a big boost to restoring a fully functioning private market that works for home buyers and lenders alike.

SHAREHOLDER LETTER

On the commercial side, we have established ourselves as a “one-stop” financing solution for borrowers seeking to purchase or refinance stabilized, income-producing commercial real estate. We are now one of the most active providers of mezzanine loans on such properties. We achieved this status over the last two years by working together with various senior lenders in the origination process. Our portfolio of nearly $300 million of mezzanine investments was created by working with 19 different senior lenders including banks, insurance companies, CMBS conduits, and Freddie Mac. We believe that the diversification of our portfolio and the overall performance of the underlying properties since origination is a testament to our origination platform and disciplined credit process. The fact that we were able to secure warehouse financing for this portfolio late in the third quarter of 2012 is further validation of the origination platform our team has developed.

What We See Ahead

Time will tell, but we are excited about our competitive position as the mortgage market evolves. And while we are now making the shift from strategy to execution, we continue to keep our eyes on the horizon. The flexibility we have built into our operating platforms should enable us to react quickly as lenders, borrowers, and regulators slowly converge toward an accepted financing framework built on private capital.

Execution for our residential business, in the simplest terms, means that we continue to add loan sellers, loan products and senior capital sources. In the near term, we see two broad paths to realizing this goal. First, we continue to expand our footprint in the non-Agency lending space by leveraging our Sequoia platform. We expect non-Agency loan volumes to continue to rise as housing recovers and the government stands down, and we see no obvious signs (to the extent the economy cooperates) that we cannot successfully compete for this business if we maintain our commitment to providing top-notch service to our counterparties.

The other big path we are pursuing — a path that has become an option to us as a result of our conduit build-out — is sourcing agency conforming loans. We are in the midst of the approval process to reestablish Redwood as an authorized loan seller/servicer to Fannie Mae and Freddie Mac, and we are planning to begin offering our sellers conforming mortgage pricing options in early 2013. This expansion of our platform presents a significant growth opportunity for us (the annual Agency origination market

		SHAREHOLDER LETTER

is still about ten times larger than the non-Agency market) and will require some additional build-out of our infrastructure over the coming quarters will be required. But the potential benefits are significant. Not only does this present us with expanded fee-generating opportunities, but it also gives us the ability to create and retain mortgage servicing rights.

Down the road, we also see opportunity to finance prime borrowers who do not fit into today’s tight credit box, perhaps because they own a business or work for a commission rather than a salary. We believe these borrowers are being underserved by the market today. The key to a program of this type will depend on our ability to find a reliable senior capital source.

For our commercial business, the team will be increasingly focused on providing a broader product set directly to borrowers and generating fee income by selling senior loans. We anticipate that our ease of execution and our willingness and ability to take credit risk on stabilized properties in good markets will result in significant growth in our origination activity. We are now actively pursuing many such opportunities and anticipate an increase in fees generated while continuing to create attractive mezzanine investments for our portfolio. Our established and ongoing relationships within in the industry will continue to be the key to successfully executing on our strategy.

There is still a lot of work to do, and we have no illusions about the challenges we face in both of our businesses. But looking back over the past few years, we’ve come a long way. Relative to new entrants that may seek to take advantage of a rebound in housing and changing government policy and regulatory objectives, we have a big head start. You, the shareholder, have made that possible. We will continue to work hard to reward your patience, and look forward to building on the Redwood franchise.

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

Martin S. Hughes		Brett D. Nicholas
CEO		President

QUARTERLY OVERVIEW

Third Quarter 2012 Results

Overview

We generated strong financial results for the third quarter of 2012 and continued to gain momentum in both our residential and commercial operating platforms. We feel like we got the big things right during the third quarter — we continued to add new residential loan sellers and had a record quarter for loan purchases through our residential conduit, we recognized profits and recycled capital through portfolio management while modestly growing net interest income, and we made strides in building out our commercial business’ infrastructure to increase its focus on senior loan originations. We generally feel very good about the organic growth we are seeing in our residential and commercial businesses.

Financial Results

Our third quarter 2012 earnings of $40 million, or $0.48 per share, significantly outpaced our second quarter 2012 results of $20 million, or $0.24 per share, largely as a result of higher income from mortgage banking activities and additional gains from sales of residential portfolio securities early in the third quarter. It was a good quarter and many of our business metrics are headed in the right direction, but the combination of rising prices for RMBS stemming from QE3, credit spread tightening for securities issued through our recent securitizations, and a one-time accounting change resulted in an unusual boost to third quarter earnings that may not be easily repeatable. The following table presents a high-level summary of GAAP earnings for the third and second quarters of 2012.

Our GAAP book value at September 30, 2012, was $12.88 per share, an increase of $0.88 from June 30, 2012. Our GAAP book value increased largely as a result of rising prices for both RMBS and residential loans held on our balance sheet. We also retained $0.23 per share of our third quarter 2012 GAAP earnings after the payment of our $0.25 per share third quarter dividend. Unlike recent quarters, we did not experience a decline in book value related to the hedges on our long-term debt as long-term interest rates were essentially unchanged at the beginning and end of the quarter.

		QUARTERLY OVERVIEW

Financial Results (continued)

The following table presents a summary of GAAP book value for the third and second quarters of 2012.

Investment and Portfolio Sales Activity

During the third quarter of 2012, our capital deployment occurred at a slower pace than the past two quarters, but remained on track to reach our goal of investing $400 million or more of equity capital during 2012. Highlights of the quarter included our September Sequoia securitization and four newly originated commercial mezzanine loans. We purchased $56 million of RMBS, and sold $62 million. These sales generated realized GAAP gains of $14 million. The following table summarizes our investment activity through the first three quarters of 2012.

At September 30, 2012, we estimate our investment capacity, defined as the amount of capital we have readily available for long-term investments was $141 million, as compared to $90 million at June 30, 2012.

Residential Loan Business

Our Sequoia residential platform continues to expand. We closed SEMT 2012-4, a $313 million securitization on September 21, 2012. Subsequent to quarter end, at the end of October, we closed SEMT 2012-5, a $320 million securitization. These were our fourth and fifth securitizations in 2012, compared to two in 2011 and one in 2010. This brings us to eight securitizations totaling $2.6 billion completed in the post-crisis period. We also completed two whole loan sales totaling $53 million in the third quarter of 2012.

At September 30, 2012, we had 49 active residential loan sellers, up from 37 at June 30, 2012, and we expect to have 55 active loan sellers by year end. We also have 46 potential sellers who are in various stages of review and implementation, most of whom we expect will become active sellers in the near term.

Many of our sellers are regional and community banks that serve borrowers looking to lock-in long-term loans at historically low mortgage rates. Redwood, through its purchase of closed loans, provides these banks with the ability to originate competitively priced 15- and 30-year fixed-rate mortgages without having to incur the interest rate risk normally associated with holding these loans over the long term. Many of our loan sellers also appreciate that Redwood is not a bank and, therefore, not a direct competitor for their customer relationships.

In the third quarter, we identified loans for purchase totaling $1.1 billion, up from $691 million in the second quarter and $419 million in the third quarter of 2011, as shown in the chart below. In October 2012, we identified an additional $758 million of loans for purchase. While we are not certain our loan volume growth trajectory can be sustained for an extended period, we stand to benefit from these increased volumes, in part due to the fact that they generally allow us to complete securitizations more quickly. Our goal is to ramp up our non-Agency loan production over the next 12-to-18 months so we are able to securitize $300 million or more each month.

		QUARTERLY OVERVIEW

Residential Loan Business (continued)

At the end of the third quarter of 2012, we owned mortgage servicing rights (“MSRs”) on $566 million of prime-quality jumbo residential loans acquired through our conduit. The capitalized value of these MSRs was $2.65 million, or 47 basis points of the mortgage loans. We earn fees from these MSRs, but outsource the actual servicing.

Commercial Real Estate Business

In the third quarter of 2012, we funded four mezzanine investments totaling $40 million, which increased our year-to-date total to 17 investments totaling $136 million. We currently anticipate investing $40 to $60 million in mezzanine debt in the fourth quarter. At September 30, 2012, our portfolio consisted of 31 investments totaling $286 million, generated a gross yield over 10%, and was funded entirely with equity capital. As we noted last quarter, we have capped the amount of equity capital we plan to invest in our commercial business at $300 million for the foreseeable future.

During the third quarter of 2012, we obtained a $150 million three-year warehouse facility to finance our mezzanine investments, which will potentially enhance the yield on these investments and free up equity capital for reinvestment. We are continuing to focus on establishing a more permanent financing source for our existing portfolio of mezzanine investments.

Our commercial business is moving forward as anticipated and we are now channeling many of our resources toward senior loan origination and distribution channels. Early in the fourth quarter, we received a $645,000 fee associated with the third quarter sale of a $37 million senior loan to a commercial loan conduit. We plan to continue to generate additional fees by originating senior commercial loans and subsequently selling them to third parties that intend to securitize them; however, at this stage in the development of our senior lending business, it is difficult to estimate the level of fees we might generate from this activity in future quarters.

Residential Securities Portfolio

At September 30, 2012, our residential securities portfolio totaled $1 billion and was financed with a combination of $365 million of short-term debt, $179 million of non-recourse resecuritization debt, and $517 million of equity capital. Along with firming housing prices, we believe QE3 has been a net positive for our RMBS portfolio. The Fed’s aggressive purchases of Agency MBS is crowding out Agency investors, some of whom are turning to private label RMBS for higher yields while pushing prices higher. As a result, our RMBS portfolio was up over 2 points in price or $45 million in the quarter. Ample market liquidity afforded us an opportunity to rebalance our seasoned RMBS portfolio and free-up capital for new investments. Sales of securities in the third quarter of 2012 totaled $62 million for gains of $14 million, as compared to sales of $49 million for gains of $7 million in the second quarter of 2012. However, as is often the case, rising prices on securities reduced our expected returns on new acquisitions, and we reduced our acquisition activity in the third quarter of 2012.

Our business model is not dependent upon our ability to acquire seasoned senior securities in the secondary market. Our purchases of senior securities have been opportunistic investments that have allowed us to put capital to work and generate income while the residential securitization market regains

QUARTERLY OVERVIEW

its footing. Over time, we expect that the senior securities in our investment portfolio, which currently represent about 71% of the portfolio, will pay down or be sold and replaced with investments created through our mortgage banking activities and from the purchase of subordinate securities from other securitization sponsors. In the first nine months of 2012, we have retained $91 million (net of sales) of RMBS from our own Sequoia securitizations. The net capital required to fund ongoing investments in our securitizations is generally expected to range between $15 to $20 million per $300 million securitization.

Capital

Based on our current expectation for new investment activity and our ability to free up capital from our securities portfolio, we believe our estimated investment capacity of $141 million should sustain our capital needs well into the first quarter of 2013. However, market conditions can change quickly, which could result in a desire to raise capital sooner. Our efforts to raise capital for new investments could include freeing up additional capital internally through sales or asset-specific financings, the issuance of corporate convertible debt or preferred equity, or the issuance of common equity. Our approach to raising capital will continue to be based on what we believe to be in the best long-term interest of shareholders.

A notable capital development in the third quarter relates to the use of our Direct Stock Purchase Plan (“DSPP”). We made a few changes to the DSPP in the third quarter, to better align with general market terms for overnight stock issuances. We then validated our new terms by conducting a relatively small offering of $30 million of common equity. This translated into the issuance of almost 2.1 million shares of common stock at a price of $14.41 per share on September 11, 2012. We like issuing shares through our DSPP for a couple of reasons. First, under our DSPP, we are able to efficiently issue shares directly to investors at a price (to both Redwood and the investors) that we believe is better than pricing for a similarly sized underwritten transaction. Second, the DSPP can give us the flexibility to issue equity on a “just in time” basis, rather than raising a large amount of equity capital in a single transaction and risk having too much cash sitting idle on our balance sheet. Should investment and growth opportunities arise that merit a larger capital raise, we retain the flexibility to raise capital through more traditional underwritten offerings.

		FINANCIAL INSIGHTS

Balance Sheet

FINANCIAL INSIGHTS

Balance Sheet (continued)

Real Estate Loans

Real Estate Securities

(1) Included in the residential securities table above are $325 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 $141 million at September 30, 2012. As a result, to adjust at September 30, 2012 for the legal and economic interests that resulted from the resecuritization, Total Residential Senior Securities would be decreased by $325 million to $434 million, Total Re-REMIC Residential Securities would be increased by $141 million to $291 million, and Total Residential Securities would be reduced by $184 million to $877 million.

(2) Non-prime residential securities consist of $267 million of Alt-A senior and subordinate securities and $2 million of subprime subordinate securities.

(3) All of the securities from the 2012 vintage are from our Sequoia securitizations.

		FINANCIAL INSIGHTS

Balance Sheet (continued)

Real Estate Securities (continued)

(1) Included in the acquisitions and sales totals are investments in and sales of investments in Sequoia Entities. For detailed information on these acquisitions and sales, see Cash Flow discussion on pages 23 and 24.

Investments in the Securitization Entities

FINANCIAL INSIGHTS

Balance Sheet (continued)

Debt

Capital and Cash

		FINANCIAL INSIGHTS

GAAP Income

FINANCIAL INSIGHTS

GAAP Income (continued)

		FINANCIAL INSIGHTS

GAAP Income (continued)

Redwood Parent

FINANCIAL INSIGHTS

GAAP Income (continued)

Redwood Parent (continued)

Consolidated Entities

		FINANCIAL INSIGHTS

REIT Taxable Income and Dividends

Summary

As a REIT, Redwood is required to distribute to shareholders at least 90% of its REIT taxable income (and meet certain other requirements), although Redwood’s Board of Directors can declare dividends in excess of this minimum requirement. REIT taxable income is defined as income calculated for tax purposes that is earned at Redwood and its qualified REIT subsidiaries. Redwood also earns taxable income at its taxable subsidiaries, which it is not required to distribute. To the extent Redwood retains taxable income that is not distributed to shareholders, it is taxed at corporate tax rates. A reconciliation of GAAP and taxable income is set forth in Table 2 in the Financial Tables in this Review.

Overview

FINANCIAL INSIGHTS

Cash Flow

		FINANCIAL INSIGHTS

Cash Flow (continued)

SEQUOIA RESIDENTIAL MORTGAGE LOAN BUSINESS

Summary

We purchase newly originated loans (mainly prime jumbo loans) that meet our collateral criteria from third-party originators on a flow or bulk basis. Loans acquired through this process (our “conduit”) are expected to be securitized through Sequoia securitization entities, which acquire residential mortgage loans from our conduit and issue RMBS backed by these loans, or are sold as whole loans. Most of the senior or investment-grade rated RMBS issued by Sequoia Entities are sold to third-party investors. Redwood generally acquires the subordinate or non-investment grade securities but has also acquired senior securities and interest-only securities from the Sequoia Entities.

Quarterly Update

		RESIDENTIAL REAL ESTATE SECURITIES