Redwood Trust Q2 2025 Earnings Report

Redwood Trust EPS Results

• Actual EPS: $0.18
• Consensus EPS: $0.19
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: N/A

Redwood Trust Revenue Results

• Actual Revenue: ($38.10) million
• Expected Revenue: $31.00 million
• Beat/Miss: Missed by -$69.10 million
• YoY Revenue Growth: N/A

Redwood Trust Announcement Details

• Quarter: Q2 2025
• Date: 7/30/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, July 30, 2025
• Conference Call Time: 8:00AM ET

Redwood Trust (NYSE:RWT), together with its subsidiaries, operates as a specialty finance company in the United States. The company operates through three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking, and Investment Portfolio. The Residential Consumer Mortgage Banking segment operates a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to its investment portfolio. This segment also offers derivative financial instruments to manage risks associated with residential loans. The Residential Investor Mortgage Banking segment operates a platform that originates business purpose loans to investors in single-family and multifamily residential properties and bridge loans for subsequent securitization, sale, or transfer into its investment portfolio. The Investment Portfolio segment invests in securities retained from residential consumer and investor securitization activities, and business purpose lending bridge loans, as well as residential mortgage-backed securities issued by third parties, Freddie Mac K-Series multifamily loan securitizations and reperforming loan securitizations, servicer advance investments, home equity investments, and other housing-related investments. The company is elected to be taxed as a real estate investment trust (REIT) for federal income tax purposes. Redwood Trust, Inc. was incorporated in 1994 and is headquartered in Mill Valley, California.

Redwood Trust Q2 2025 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: Accelerated wind-down of the legacy portfolio drove a $0.79 per-share fair value loss and reduced GAAP book value from $8.39 to $7.49.
• Positive Sentiment: Company expects to free up $200 million–$250 million of capital by year-end 2025 for redeployment into higher-return core platforms.
• Positive Sentiment: Raised share repurchase authorization to $150 million, having repurchased 2.4 million shares since June and planning more aggressive buybacks.
• Positive Sentiment: Mortgage banking platforms remained strong: Sequoia locked $3.3 billion of jumbo loans (up 15% Q/Q) with margins above historical averages, while Aspire’s lock volume tripled to $330 million.
• Neutral Sentiment: Introduced “Core Segments EAD” metric showing a 14.5% ROE in Q2 and guiding consolidated EAD returns of 9%–12% for 2026.

Presentation

[Operator]

and welcome to the Redwood Trust Second Quarter twenty twenty five Financial Results Conference Call and Webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Caitlin Moritz, Head of Investor Relations. Caitlin, please go ahead.

[Kaitlyn Mauritz, Chief of Staff & Head of Investor Relations at Redwood Trust]

Thank you, operator. Hello, everyone, and thank you for joining us today for Redwood's second quarter twenty twenty five earnings conference call. With me on today's call are Chris Sabate, Chief Executive Officer Dash Robinson, President and Brook Carillo, Chief Financial Officer. Before we begin today, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward looking statements. Forward looking statements are based on current expectations, forecasts and assumptions, and include risks and uncertainties that could cause actual results to differ materially.

[Kaitlyn Mauritz, Chief of Staff & Head of Investor Relations at Redwood Trust]

We encourage you to read the company's annual report on Form 10 ks, which provides a description of some of the factors that could have a material impact on the company's performance and cause actual results to differ from those that may be expressed in forward looking statements. On this call, we may also refer to both GAAP and non GAAP financial measures. The non GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non GAAP financial measures are provided in our second quarter Redwood review, which is available on our website, redwoodtrust.com. Also note that the content of today's conference call contain time sensitive information that are only accurate as of today.

[Kaitlyn Mauritz, Chief of Staff & Head of Investor Relations at Redwood Trust]

We do not intend and undertake no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded and will be available on our website later today. With that, I'll turn the call over to Chris for opening remarks.

[Christopher Abate, CEO & Director at Redwood Trust]

Thanks, Kate, and good morning, everyone. Our second quarter results reflected our decision to accelerate Redwood's strategic transition toward a more scalable and simplified operating model, an evolution we first articulated at our twenty twenty four Investor Day. The avenues for growth we see today across our operating platforms are unequivocally transformative, particularly amid evolving market dynamics in single family housing, shifts in bank lending practices and potential outcomes related to the GSEs. In light of this, we took decisive steps to begin reducing exposure to holdings that now reside outside of our core operating footprint. These include our legacy multifamily bridge loan portfolio, third party securities portfolio and other non core legacy assets, the vast majority of which we have held for years.

[Christopher Abate, CEO & Director at Redwood Trust]

While these investments were initially aligned with our strategy and return thresholds, some are now fully valued, while others have underperformed as interest rates rose and have become a significant drag on our forward earnings. In assessing the shifts now occurring in housing finance and the growth potential of our mortgage banking platforms, where capital allocation has grown by over $200,000,000 in the past year and we have generated combined GAAP returns north of 20% in each of the past four quarters, the opportunity cost of simply allowing legacy investments to naturally run off has become too great, prompting us to more proactively reposition our capital. The decision to accelerate the wind down of our legacy portfolio resulted in approximately $0.79 per share of fair value and repositioning charges in the second quarter as we move forward with liquidations, term financings or other resolutions for these assets. This was the primary contributing factor to a reduction in our GAAP book value per share to $7.49 at 06/30/2025, as compared to $8.39 at 03/31/2025. However, our consistent use of fair value accounting standards as compared to cost accounting methods used by banks and other financial institutions positions us to reflect asset values at levels aligned with current market conditions, facilitating more expeditious outcomes.

[Christopher Abate, CEO & Director at Redwood Trust]

We estimate the total capital ultimately harvested from these legacy investments will total up to 200,000,000 to $250,000,000 by year end 2025 and our ability to quickly redeploy that capital into our operating platforms will result in higher quality, more predictable earnings and a simplified revenue mix. In support of this transition, which is well underway, we recently began repurchasing our common shares, buying back 2,400,000.0 shares since June 2025. Following today's second quarter earnings release, we plan to become more aggressive buyers of our common shares, having recently received an increased stock repurchase authorization to $150,000,000 from our Board of Directors. As we continue to free up capital through our strategic portfolio transition, we expect utilization under this authorization to increase until our share price begins to more fairly value the go forward earnings power of our platform, driven by the potential for continued strong mortgage banking returns at increased scale, fueled in part by under earning capital freed up from our legacy activities. Over the past year, we've allocated an additional $200,000,000 of capital to our operating platforms, a trend we anticipate continuing as these operating platforms swiftly increase in scale.

[Christopher Abate, CEO & Director at Redwood Trust]

The well documented retrenchment by banks and mortgage lending has enabled Redwood to meaningfully expand loan acquisition volumes and market share even as overall housing activity remains subdued. Through our network, we have seen increased demand from our bank partners for capital efficient solutions that address a broader segment of their loan production. To offer context, we have sourced and are currently reviewing over $55,000,000,000 of seasoned bulk jumbo pool opportunities from regional banks. While some sales may require a modest improvement in benchmark interest rates, many are actionable now reflecting conviction among many bank executives in the value of our partnership. Additionally, the recent reemergence of bank M and A activity is expected to result in further portfolio dispositions as acquirers utilizing purchase accounting are motivated to sell these portfolios.

[Christopher Abate, CEO & Director at Redwood Trust]

More broadly, the prospect of transformative housing market reform or GSE privatization has the potential to create generational opportunities for us, particularly given that our core operating objectives closely resemble that of a private sector GSE. As some may recall, Fannie Mae and Freddie Mac's previous market share as privatized companies was substantially below where it sits today with the GSE still enjoying the benefit of full backing by the federal government under conservatorship. We expect and are prepared for the role of the private sector to expand dramatically under any form of privatization or as a result of any federal housing policy shifts aimed at reducing taxpayer exposure to housing finance. Given rapidly advancing narratives in the future of the GSEs in Washington, we remain deeply engaged with prominent regulatory and market stakeholders who are shaping housing policy and expect Redwood to be positioned advantageously irrespective of policy outcomes. I'll now turn the call over to Dash, who will cover our operating results.

[Dashiell Robinson, President at Redwood Trust]

Thank you, Chris.

[Dashiell Robinson, President at Redwood Trust]

Operating performance in the second quarter built on recent momentum as our mortgage banking platforms continue to deliver elevated returns driven by increased market share, operating efficiencies and accretive channels for distribution. To start, Sequoia locked $3,300,000,000 of jumbo loans in the second quarter, representing a 15% increase in on the run or current coupon flow volume versus Q1. Notably, this was Sequoia's highest quarterly flow volume since 2021, when total industry volumes were more than three times current levels, underscoring meaningful growth in market share and increased opportunities to capture portfolios sold by banks and other institutions. While seasoned bulk activity may remain episodic, as Chris mentioned, meaningful activity has commenced with approximately $15,000,000,000 of such pools trading in the 2025. The resumption of bank M and A activity and more depositories seeking creative capital solutions for both legacy and newly originated books of business are expected to drive further activity for us going forward.

[Dashiell Robinson, President at Redwood Trust]

Flow volume remained balanced between both banks and non banks driven by sustained momentum across our expanding loan seller network, which now includes active relationships with sellers accounting for 80% of the jumbo origination market. Notably, we continue to grow our sourcing network by partnering with new sellers, several of whom are looking to sell their production for the first time and are engaging Redwood as their sole takeout partner. Our ability to deliver flexible balance sheet solutions across a variety of loan types, including adjustable rate loans and certain specialized production segments continues to set us apart and we remain in active collaboration with partners to develop tailored portfolio strategies. Importantly, Sequoia's distribution activity remained robust with gain on sale margins exceeding historical averages for the fourth consecutive quarter. In the second quarter, we distributed nearly $3,000,000,000 of loans, primarily through four securitizations for $2,000,000,000 maintaining our monthly pace of issuance and bringing total Sequoia year to date issuance to $5,000,000,000 This represents our most active issuance period since 2021 and speaks to the continued investor demand for the platform's production.

[Dashiell Robinson, President at Redwood Trust]

Our Aspire business built meaningful traction during the second quarter, reflecting the strength of our market positioning and depth of our originator relationships. As a reminder, Aspire's recently broadened mandate now includes acquisition of an expanded set of loan products from sellers as well as direct origination of home equity investments or HEI. Aspire's lock volume tripled sequentially to $330,000,000 driven by engagement from a growing network of originators. The platform remains in its early stages of scaling with expectations for meaningful growth across the next few quarters. Activity in July alone has already surpassed second quarter lock volume, signaling continued momentum as we move the business forward.

[Dashiell Robinson, President at Redwood Trust]

The credit profile of Aspire's production remains strong and in line with expectations. The current pipeline carries an average borrower credit score of seven fifty three with an average LTV of just under 70%. Balance between loans to owner occupants whose financial profile warrants an alternative underwrite and smaller balance loans underwritten to rental income made to housing investors. The non QM origination market grew over 60% last year and industry estimates suggest that significant growth will continue in 2025 given growing borrower need for expanded loan products. Moreover, an important competitive advantage for Aspire that we anticipated has begun to emerge, namely the increased share of the expanded credit market captured by our existing seller network.

[Dashiell Robinson, President at Redwood Trust]

We are just scratching the surface with our current network of jumbo sellers, who by our estimates now account for 50% to 60% of Aspire's addressable market. This is a significant runway of growth for Aspire with originators who know our platform and value consistency of client experience across a broad array of offerings. This group is now complemented by a cohort of sellers new to our platform who are primarily focused on Aspire's products and eager to diversify their distribution to include a platform like Redwoods. For now, Aspire's distribution remains focused on whole loan sales to a growing bench of capital partners, reflecting robust investor demand, including from insurance companies and asset managers. This dynamic creates an ideal ecosystem for Redwood, seamlessly connecting loan originators seeking reliable distribution channels with institutional investors pursuing attractive assets.

[Dashiell Robinson, President at Redwood Trust]

Given the platform's strong initial performance, expanding seller base and alignment with Redwood's core strengths, we remain optimistic about Aspire's long term growth potential and its role in capturing a growing market share. Our business purpose lending platform, CorVest, funded over $500,000,000 in loans during the second quarter, a slight increase relative to the first quarter and its highest volume since mid-twenty twenty two. Performance was driven by 20% plus quarterly growth in term loans, DSCR and smaller balance residential transition loans or RTL, partially offset by a decline in other bridge volume. Borrower loyalty remained strong as evidenced by our high repeat customer rate during the quarter, an important indicator of stability amid signs of housing stress in select regions. Our approach to credit risk remains dynamic, including targeted overlays, tightened leverage in more vulnerable markets and enhanced structural protections.

[Dashiell Robinson, President at Redwood Trust]

As many other lenders in this space remain aggressive, we believe this measured approach to underwriting coupled with strategic hires within our small balance product segment that are already meaningfully contributing position the platform for continued prudent growth. As with our other platforms, demand for CorVest production remains elevated and the second quarter represented CorVest high watermark for distribution activity, nearly $600,000,000 through a combination of whole loan sales, sales to joint ventures and securitizations, including our first rated securitization backed by RTL and other bridge loans, an important benchmark for the business. Turning to overall bridge portfolio performance, ninety day plus delinquencies across the bridge portfolio were 11% at June 30, down from 12.1% at March 31. Of note, the Redwood Review now presents this metric broken out between core and legacy bridge loan portfolios. As previously discussed, the performance of our legacy bridge portfolio has been a material drag on both earnings and overall investment performance.

[Dashiell Robinson, President at Redwood Trust]

These loans primarily originated in 2021 and 2022 were underwritten during a period of significantly lower interest rates, more favorable financing conditions and different market fundamentals. As Chris noted, during the second quarter, we took additional steps to reduce exposure to this portfolio, including loan and REO sales and other structured exits. Since 03/31/2025 and inclusive of activity thus far in July, approximately $425,000,000 of total bridge loans repaid or resolved, including over $200,000,000 from the 2021 and 2022 vintages. I'll now turn the call over to Brooke to discuss our financial results.

[Brooke Carillo, CFO at Redwood Trust]

Thank you, Dash. We reported a GAAP net loss of $100,200,000 or $0.76 per share for the second quarter. The net loss was primarily driven by our decision to accelerate the wind down of our legacy portfolio and the associated fair value changes that reflect realized and anticipated resolutions on legacy bridge loans and other non core portfolios. GAAP book value per common share was $7.49 at June 30 relative to $8.39 per share at March 31. To enhance investor transparency, we've introduced a new reporting segment, legacy investments, which separately presents assets targeted for sale or other disposition.

[Brooke Carillo, CFO at Redwood Trust]

Core segments earnings available for distribution or core segments EAD is a newly introduced non GAAP financial measure this quarter designed to provide investors with greater insight into the performance of our core business operations, which are Sequoia and CorVest together with their related investments in an allocated portion of our corporate segment by excluding the impact of our legacy investments segment. Core segments EAD for the quarter was $25,000,000 or $0.18 per share, equating to a 14.5% annualized ROE. This is as compared to $28,000,000 or $0.20 per share in the first quarter. Our results highlight the resilience and earnings power of our core platform. Collectively, our mortgage banking platforms continued to profitably scale.

[Brooke Carillo, CFO at Redwood Trust]

These businesses delivered combined returns exceeding 20% and mortgage banking gain on sale margins above target levels for the fourth consecutive quarter despite market volatility and persistently high interest rates. Additionally, banking revenue increased 88% compared to the same period last year. Sequoia Mortgage Banking posted strong quarterly performance generating segment net income of $22,000,000 and a 19% annualized ROE. On the run or current production jumbo loan loss volume grew 15% sequentially to $3,300,000,000 and Aspire loan volumes were $330,000,000 nearly triple the prior quarter's level as we continue to ramp that business. CoreVest Mortgage Banking achieved $6,000,000 in segment net income and an annualized EAD ROE of 34%.

[Brooke Carillo, CFO at Redwood Trust]

The quarter's results underscore the ongoing strength of distribution as well as higher volumes, particularly given a 20% increase in activity in our higher margin term loan production. Redwood Investments, which now represents primarily residential housing investments sourced from our leading mortgage banking platforms reported segment net income of $12,000,000 compared to $25,000,000 for the first quarter. This quarter saw more muted asset valuation gains relative to last quarter, but credit quality in the portfolio remained steady. During the quarter, we deployed $100,000,000 into retained operating investments aligned with our mid teens return targets. Legacy investments recorded $104,000,000 loss for the quarter, primarily driven by incremental negative fair value adjustments and accelerated asset sales and resolution.

[Brooke Carillo, CFO at Redwood Trust]

These factors together with bridge loans paydowns contributed to a 17% reduction in capital allocated to legacy investments since 03/31/2025. As we look ahead, we are focused on reducing our capital allocation for legacy investments to 20% by year end from 33% at the end of the second quarter, positioning us to raise and reallocate approximately 200,000,000 to $250,000,000 of additional capital toward our higher earning core platforms. Our long term target remains to reduce our capital allocated to legacy investments to between 0% to 5% by the 2026. We anticipate our consolidated EAD returns will increase to a range of 9% to 12% by year end positioning us with the ability to cover our dividend level as we enter 2026 and providing potential for further earnings growth throughout the year. From a leverage perspective, total recourse financing increased modestly to $3,300,000,000 from $2,900,000,000 at March 31, primarily due to growth in short term secured borrowings supporting increased jumbo volumes.

[Brooke Carillo, CFO at Redwood Trust]

These balances typically turn over within thirty days. This increase coupled with the decline in tangible equity led to a rise in our recourse leverage ratio to 3.2 times from 2.5 times at the end of Q1. We proactively reduced the marginal securities repo by 60% given the sale of certain third party securities. Our liquidity remains solid as we ended the quarter with approximately $3.00 $2,000,000 in unrestricted cash. Reflecting our conviction in Redwood's intrinsic value, we increased share repurchases buying back 2,400,000.0 shares since the start of the second quarter and expect to be active in the third quarter given Chris' comments related to our expanded authorization announced today.

[Brooke Carillo, CFO at Redwood Trust]

I'll close by reiterating our open comments. Redwood is at a strategic turning point. We are evolving towards platform and we are confident this will result in sustainably higher profitability and long term shareholder value creation. And now I will turn it back to the operator for Q and A.

[Operator]

Thank you. We'll now be conducting a question and answer session. Session. Our first question is coming from Bose George from KBW. Your line is now live.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hey, everyone. Good morning. When we think about that 9% to 12% EAD for 2026, should we calculate that based on the 7.49 of book value? Or should we strip out the 20% of the capital that's still going to be in the legacy piece at the end of the year?

[Brooke Carillo, CFO at Redwood Trust]

So that's a blended number inclusive of the legacy portfolio, so you would calculate on our full book value.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, great. And then in terms of the home equity investments that was moved into the legacy piece, can you just talk about that portfolio? What changed? And yes, just the thought process there.

[Christopher Abate, CEO & Director at Redwood Trust]

Yeah, Bose. What the only thing that changed is speeding up the evolution of our operating model. So we've talked about capital light. We've talked about our franchise value sort of being towards sourcing assets and distributing assets through securitizations and into the hands of third parties, private credit. I think the HEI book on balance sheet had appreciated quite a bit over the years.

[Christopher Abate, CEO & Director at Redwood Trust]

And we've decided that recovering that capital and deploying it into the operating platforms is use at this point. Also, you started to see some trailing off of HPA in many sectors of the country. And I think there's a few good reasons to move on from that book. The good news though is that that process is very much underway. Expect to have a lot more to talk about in Q3.

[Christopher Abate, CEO & Director at Redwood Trust]

But I think the overall message this quarter is our evolution to this capital light structure where a lot of the sort of on balance sheet investing that we've done in the past for balance sheet is going turn into capital that moves into our operating platforms and co investments with third parties.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, great. And then just the losses this quarter, the charges, etcetera, that sort of incorporates what you expect to take as these loans are being disposed. So is it, are you reasonably comfortable that this is kind of marks on these legacy assets as they work their way through?

[Christopher Abate, CEO & Director at Redwood Trust]

We obviously really leaned in this quarter. I think that reflects our conviction to hit the fast forward button on the transition of the operating model. Each of these legacy assets, particularly the bridge loans, each one has its own special situation. They're not homogenous pools, like even HEI for instance. And so I think the we really leaned in on the marks and we did our best to reflect, kind of actionable levels.

[Christopher Abate, CEO & Director at Redwood Trust]

There continues to be fundamental challenges with some of these assets, which has also informed our thinking. The operating environment there is not necessarily improving. But I do think that where this business is headed and where we need our internal focus, right answer was to lean in as we did. And again, recovering that capital $20,000,000,250,000,000 and redeploying it is something we think we can do very quickly based on the opportunities we're seeing, which we talked about in the scripts. So that's really what's informed the number and we're certainly hoping that reflects actionable levels.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Great, that's helpful. Thank you.

[Operator]

Thank you. Next question is coming from Chris Bimbo from Piper Sandler. Your line is now live.

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

Thank you. Appreciate taking my questions. Just following up on that last question, the dispositions of the bridge loans and legacy portfolio. So you're citing expected to generate up to $250,000,000 of incremental capital by year end. What types of prices versus the prior marks do you expect to sell those loans at?

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

And then who are you seeing broadly as potential buyers? And then how has that appetite been so far?

[Dashiell Robinson, President at Redwood Trust]

Hey, Chris, this is Dash. So to clarify, 200 to $250,000,000 includes the overall legacy investments portfolio. Some of that is some of that's bridge and some of that's some of the other asset costs we talked about. As Chris articulated, we have the position in mark commensurate with where we have been executing in the second quarter and through July through today. We've resolved about $200,000,000 of that legacy portfolio.

[Dashiell Robinson, President at Redwood Trust]

The marks also reflect actionable levels for another subset of that portfolio that we expect to monetize in the third quarter. In terms of the buyers and the overall market, I would say, as Chris said, each of these loans is its own story. We have had some success being more aggressive in just selling notes or REO. We have had a number of these loans refinanced out, which has been good. And so I would say that liquidity is pretty varied.

[Dashiell Robinson, President at Redwood Trust]

There are buyers out there that would look at portfolios, but we've had success as well just working through these line by line. And I think the message is we're trying to do that more expeditiously because frankly the earn back period on unlocking this capital is extremely short when you combine all the mortgage banking opportunities we've got, obviously the share buyback announcement. The capital we can unlock here is extremely accretively deployed very, very quickly. It's not like it takes time to do that. It's pretty instant offense as we've seen.

[Dashiell Robinson, President at Redwood Trust]

And so we're going to be intelligent at the prices at which we transact. As you're well aware, just the overall operating conditions within the multifamily market broadly remain mixed or challenged, potentially better said. And so I think some of this portfolio is small subset of sort of a broader macro environment that a lot of others are dealing with significantly more quantum than we are, and we have to be cognizant of that as we try and transact. So we're trying to be as intelligent as we can and obviously maximize the value at which we exit these, but a big piece of that is the deployable capital we're unlocking and that's a very, very important part of the story.

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

Great. Thanks, Dash. I appreciate all the color there. And then just last question for me. Just on the Sequoia gain on sale margin definitely outperformed as you have been.

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

Can you discuss just some of the drivers there? And do you think you could remain above that 75 to 100 basis point longer term target over the near term? I don't update on that in the prepared remarks.

[Christopher Abate, CEO & Director at Redwood Trust]

Yeah, mean, again, we're always hesitant to forecast above the range for obvious reasons, just the push and pull of the market and capacity corrections and so forth. But we have been able to generate strong returns in Sequoia. We're off to a very good start in Q3. We're off to a very good start in each of the platforms through July. So there's optimism there that margins could remain elevated.

[Christopher Abate, CEO & Director at Redwood Trust]

We also the pricing of our Sequoias is extremely tight today. It's the best pricing we've seen in some time without getting into specifics. And so I think the execution, the fact that we've completed eight deals through July, just being very regimented about our issuance. I think all of that's played into the efficiencies that are driving those margins. So, we don't like to project higher than that long term average, but certainly we're optimistic that we can continue to generate strong returns in that segment.

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

Great. Thanks for the color. I appreciate taking my questions.

[Operator]

Thank you. Our next question is coming from Doug Harter from UBS. Your line is now live.

[Douglas Harter, Equity Research Analyst at UBS Group]

Thanks. I want to dig a little bit more into the $0.79 loss. Can you just help us sort of compartmentalize that loss? How much of that is future cash flow or losses that you would have recognized but just over a longer time? How much of that is just kind of an acceleration of disposing under earning assets?

[Douglas Harter, Equity Research Analyst at UBS Group]

And kind of what was that expected time frame just as we can think about that payback period?

[Brooke Carillo, CFO at Redwood Trust]

I'm happy to take that, Doug. I mean, in terms of the composition, it is largely driven by our older vintage multifamily and, to a certain extent, just 'twenty one, '21, early twenty twenty two vintage bridge, where we continue to see all of our delinquencies really focused. That is the vast majority of that breakdown. I would say the majority is where we see near term resolutions or expected liquidation. As Chris mentioned, fundamentals remain challenged.

[Brooke Carillo, CFO at Redwood Trust]

So a portion also was driven by fundamentals and also some of our HEI and other third party book that we mentioned was a part of that as well.

[Christopher Abate, CEO & Director at Redwood Trust]

Doug, I would also add, those marks do reflect, as Dash noted, any situation where we feel like we have an active resolution strategy that we can execute in the near term. So, as you know, most of these assets certainly through many peers are booked using CECL and other sort of cost based reserving methodologies. I think the downside of fair value accounting is you have to be closer to the bid side and it can be more volatile. But I think the optimism we have of kind of moving on from these legacy investments and again steering all of our internal resources towards growing these platforms that definitely informed the decision to move now. I feel it was absolutely the right decision for the company.

[Christopher Abate, CEO & Director at Redwood Trust]

And we're going to resolve these as quickly as we can, but we did want to lean in again and do our best to get the marks where seeing visibility and where we could potentially transact.

[Douglas Harter, Equity Research Analyst at UBS Group]

Got it. And you mentioned that you expect a relatively quick payback. Is there any way you can conceptualize that to kind of help us see the logic of kind of taking this hit upfront and kind of getting the higher earnings and just how to think about what that actual payback period is?

[Christopher Abate, CEO & Director at Redwood Trust]

Yeah, we can maybe tag team this one. But the first thing I'd say is, we plan to be we plan to have, I would say the most aggressive buyback posture we've had since I've been in my seat. We deeply care about shareholder value and given where the stock is traded, the idea of freeing up this capital and buying back shares is extremely attractive and instantly accretive as you know. So I think the buyback is going to be a meaningful portion of the other side of the story if you will. And then the businesses are scaling, think as rapidly as we've seen certainly post COVID.

[Christopher Abate, CEO & Director at Redwood Trust]

We've deployed a lot of capital. I think we said $200,000,000 over the last year into these operating platforms. They are we have the capacity to do more. It takes a lot of working capital to acquire loans for securitization or other distributions. And if we have the capital to deploy there, I think the great thing about the operating platforms is we're locking loans every day.

[Christopher Abate, CEO & Director at Redwood Trust]

It's not as opportunistic as investing in third party assets. It's very consistent business. So I think the payback periods we feel really, really good about. To be honest, the only question is how quickly this capital sort of comes back in house. And I think that's why we specified by year end getting the legacy capital, significant portion of it back.

[Christopher Abate, CEO & Director at Redwood Trust]

But each of these assets is its own story and we're working them out. The good news is, as I said, is that we've started this earlier in the second quarter and we feel like we're well on our way to moving this position and recovering the capital.

[Brooke Carillo, CFO at Redwood Trust]

Just to understand the point, think, our EAP ROE on our legacy book was negative 22%. So even forgetting removing all of the investment fair value losses associated with some of the changes in valuation this quarter. You saw a dramatic decline in net interest income. So there is a large we said the opportunity cost has never been higher. That's both from kind of a NIM perspective and full economic return.

[Brooke Carillo, CFO at Redwood Trust]

We can immediately redeploy that negative 22% into our 20 plus percent operating businesses or our stock north of that. So in fact, for some of the resolutions we've seen, we've seen inside of a one quarter payback period.

[Douglas Harter, Equity Research Analyst at UBS Group]

Very helpful. Thank you.

[Operator]

Thank you. Our next question is coming from Eric Hagen from BTIG. Your line is now live.

[Eric Hagen, MD, BTIG Mortgage & Specialty Finance Analyst at BTIG]

Hey, thanks. Good morning, guys. Maybe a follow-up around the margins in the Jumbo channel. I mean, under what scenarios at this point could you see the margins there like really expand? I mean, do you think originators have the capacity to handle an increase in demand when rates fall and the margin would stay kind of the same?

[Christopher Abate, CEO & Director at Redwood Trust]

Yes. I mean, there's obviously a lot of capacity. The market has been slow. The spring selling season was slow. So from a housing activity perspective, I think everybody has been hoping for lower mortgage rates and it just hasn't manifested.

[Christopher Abate, CEO & Director at Redwood Trust]

So from that standpoint, we don't necessarily expect TAM to grow, but our wallet share has been growing significantly. And the way that we really expand those average margins is by bolting on bulk pools and opportunistic pools from banks particularly to supplement our daily flow volume. So flow volume is very strong. It's the highest it's been in two or three years. If we can supplement that with bulk, that really leverages the operation, if you will.

[Christopher Abate, CEO & Director at Redwood Trust]

It leverages the team and you really start to see those efficiencies move towards net margins. So I think for us, it's still a volume story, it's a wallet share story. And the goal is to have a growing flow business where we're facing originators each day locking loans. And then we cited some very large opportunities that we're currently reviewing and evaluating, most of which we think we're seeing exclusively. So if some of those come to pass this quarter, I think that will be a very positive part of the story for margins.

[Dashiell Robinson, President at Redwood Trust]

The other thing I'd add Eric is just the overall universe of investors for jumbo compared to even a more nascent asset class like NonQM probably has some room to the ceiling to continue to grow. Our securitizations are very, very well subscribed, but there's still an opportunity to grow that buyer base, particularly as our as robust and we're over a deal a month at this point. To piggyback Chris' point as well, the seasoned portfolios, obviously those come at a discount. That's a very different value proposition for a lot of pockets of capital who are hedging out premium and convexity risk elsewhere in their portfolios. Obviously, those discount pools create an interesting balance in terms of profile.

[Dashiell Robinson, President at Redwood Trust]

And as Chris said, because we're just uniquely accessing those pools, we bought a couple of billion dollar pools already this year of discount. There's a lot more to come, we hope. That's another opportunity for margin expansion to be able to control that type of convexity profile as a complement to our on the run business.

[Eric Hagen, MD, BTIG Mortgage & Specialty Finance Analyst at BTIG]

Really helpful color. Thank you, guys. What's the feedback or outlook for the Bridge portfolio in light of tariffs and other higher input costs? I mean, is the expectation that a Fed rate cut would be a major catalyst for that portfolio, a refinancing opportunity for those loans? Could we actually see any mark to market upside for that portfolio when the Fed does cut? Thank you.

[Dashiell Robinson, President at Redwood Trust]

Yes, good question, Eric. I think, look, certainly a Fed cut, any sort of recompression in overall cap rates would be helpful. Those are things we pay extremely close attention to in our on the run bridge business where we're doing infill ground up or transition loan fix and flip, just really paying close attention to those input costs. We're still seeing relatively healthy ROEs for the sponsors, which as you know is really a leading indicator for the health of that overall business and what are these sponsors working for, how much cushion is there in the deals that they see. We've become more selective in certain markets for sure.

[Dashiell Robinson, President at Redwood Trust]

Some of the input costs have certainly eased when you look at lumber and things like that. That's definitely been helpful. But yes, could definitely help. Overall reduction in mortgage rate could also increase the overall velocity of those businesses. Sponsors are able to get out of their projects more quickly and redeploy.

[Dashiell Robinson, President at Redwood Trust]

So there would be a number of ancillary benefits there for sure.

[Eric Hagen, MD, BTIG Mortgage & Specialty Finance Analyst at BTIG]

Really good stuff. Thank you, guys.

[Operator]

Thank you. Next question is coming from Dom Fendetti from Wells Fargo. Your line is now live.

[Donald Fandetti, Managing Director at Wells Fargo]

Yes. Can you just remind us of your sensitivity if the Fed does cut in terms of NII? There's some modest pickup. Is that correct?

[Brooke Carillo, CFO at Redwood Trust]

Yes. John, we did see that through the last couple of Fed cuts. We do have some sensitivity there between our fixed rate Sequoia pipeline and the floating liabilities and finance event is where the vast majority of our recourse leverage sits today. So, just kind of if mortgage rates remain elevated, we would expect to pick up a modest benefit there as well as some other parts of our fixed rate portfolio. Another area we've been locking more arms than we have historically through the Sequoia platform and represented over 12% of our production year to date.

[Brooke Carillo, CFO at Redwood Trust]

And we've it's a big focus area for us in terms of some of these seasoned bulk portfolios We would expect that production to continue to pick up as well.

[Donald Fandetti, Managing Director at Wells Fargo]

Great. Thank you.

[Operator]

Thank you. Next question today is coming from Steve Delaney from JMP Securities. Your line is now live.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Hey, good morning, everybody. So look, it's never easy as a public company to be bold, but I have to applaud you pushing a little harder on the strategy reset button in the second quarter, best to kind of focus on the future and not the problems of the past. With that said, thinking big picture about the core housing market, the owner occupied market. It seems to me we're in a situation right now where we're seeing record HPA in terms of home prices, but interest rates are kind of holding things back. I'm curious from sort of like a product offering standpoint, you know, as the Fed begins easing, you know, probably not much until '26 and that has some impact on the longer end and we see, thirty year rates coming down.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Do you have some thoughts of how to recapture sort of maybe a once in a five year opportunity within the prime jumbo segment? Because we really just don't we don't hear people talking about that because people have got a lot of HPA, but they don't like mortgage rates. And I'm just curious if there's a plan on how to maximize that opportunity when that activity picks up again. Thank you.

[Christopher Abate, CEO & Director at Redwood Trust]

Yeah Steve, it's been a tough issue for homeowners. This lockout effect is very real and many people are 300 basis 400 basis points kind of out of the money as far as where they could take out a mortgage today versus sitting with the one they got at home. So that's a real issue and things like closed end seconds and other ways to bank the consumer, we're very focused on. As far as refis go, slowly more and more in the market just by way of people moving and changing jobs and growing their families. A much bigger percentage, I think closing in on 15% or 20% of mortgages are actually much closer to the current rate in the high 6s.

[Christopher Abate, CEO & Director at Redwood Trust]

And so those mortgages could very easily be refinanced with a few Fed rate cuts and some help on the long end. So I think a riddle we're all trying to solve. It's been a tough market. But I think if you look at our strategy, where we've been focused is market share because of this. If you can't if half the business is traditionally refis and that market has been very, very slow, you got to take share and that's exactly what we're doing.

[Christopher Abate, CEO & Director at Redwood Trust]

The good news for us is if rates do come down, will just be an accelerator on the business. If we've got higher wallet share today and rates come down, we would expect to preserve that share. So certainly there's been a lot of headwinds in mortgage. I think candidly it's been significantly worse in multi family where I think everybody is dealing with some of those challenges including the GSEs. But in single family housing, I think it's the jumbo market's been extremely resilient and we're constantly looking for ways to re bank the consumer and make sure that we retain the relationships.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Appreciate the comments, Chris. Thanks.

[Christopher Abate, CEO & Director at Redwood Trust]

Thanks, Steve.

[Operator]

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

[Kaitlyn Mauritz, Chief of Staff & Head of Investor Relations at Redwood Trust]

Thank you, operator, and thank you, everyone, for joining today. We appreciate the continued sponsorship and engagement, and we wish you a good rest of your day.

[Operator]

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Participants

Executives

• Kaitlyn Mauritz, Chief of Staff & Head of Investor Relations
• Christopher Abate, CEO & Director
• Dashiell Robinson, President
• Brooke Carillo, CFO

Analysts

• Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)
• Crispin Love, Director - Equity Research at Piper Sandler Companies
• Douglas Harter, Equity Research Analyst at UBS Group
• Eric Hagen, MD, BTIG Mortgage & Specialty Finance Analyst at BTIG
• Donald Fandetti, Managing Director at Wells Fargo
• Steven Delaney, Analyst at Citizens JMP Securities, LLC