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1. Company Snapshot

1.a. Company Description

Redwood Trust, Inc., together with its subsidiaries, operates as a specialty finance company in the United States.The company operates through three segments: Residential Mortgage Banking, Business Purpose Mortgage Banking, and Investment Portfolio.The Residential 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 Business Purpose Mortgage Banking segment operates a platform that originates and acquires business purpose loans, such as single-family rental and bridge loans for subsequent securitization, sale, or transfer into its investment portfolio.The Investment Portfolio segment invests in securities retained from residential and business purpose securitization activities, and residential and small-balance multifamily 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 qualifies as a real estate investment trust (REIT) for federal income tax purposes.As a REIT, it intends to distribute at least 90% of its taxable income as dividends to shareholders.Redwood Trust, Inc.


was incorporated in 1994 and is headquartered in Mill Valley, California.

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1.b. Last Insights on RWT

Redwood Trust's recent performance was negatively impacted by a decline in its economic return on book value, which decreased to 2.1% in Q3 2024, down from 6.8% year-to-date 2024. Additionally, the company's GAAP net income was not disclosed in the recent earnings release, which may indicate a decline in profitability. The lack of information on key metrics such as net interest income and net interest margin also raises concerns about the company's performance.

1.c. Company Highlights

2. Strong Operational Performance Amidst Legacy Asset Wind-Down

The company's third-quarter financial performance was marked by a GAAP net loss of $9.5 million or $0.08 per share, compared to a loss of $100 million or $0.76 per share in the second quarter. However, the non-GAAP EAD earnings per share came in at $0.20, beating estimates of $0.16. Revenue growth is expected to be robust, with analysts estimating a 23.8% increase in revenues for the next year. The mortgage banking segment was a highlight, with Sequoia launching $5.1 billion of loans, a 53% increase from Q2, and Aspire also seeing significant growth. The combined GAAP return on equity for mortgage banking segments reached 28% in Q3.

Publication Date: Nov -18

📋 Highlights
  • Record Loan Production:: Sequoia generated $5.1 billion in loans, a 53% QoQ increase, with seller network covering 80% of jumbo production market share.
  • Profitability Growth:: Mortgage banking segment achieved 28% GAAP ROE in Q3, with Sequoia’s ROE rising to 29% (up from 19% in Q2) and net income of $34 million.
  • Capital Reallocation:: $150 million in capital freed from legacy assets, with $400 million remaining to be redeployed into mortgage banking over 4–5 quarters ($100M/quarter).
  • Loss Improvement:: GAAP net loss narrowed to $9.5 million ($0.08/share) in Q3 from $100 million ($0.76/share) in Q2, driven by legacy asset resolution and NII drag reduction.
  • Earnings Per Share (EAD):: Core EAD business generated $0.20/share in Q3, with non-GAAP EAD ROE at 10% (down from 16% prior quarter) due to lower investment portfolio income.

Operational Highlights

The company's operational performance was strong, with Sequoia Mortgage Banking segment net income rising to $34 million, producing a 29% ROE. The Aspire non-QM market is growing organically, driven by employment mix, awareness, and technology, with a 40% DSCR volume in smaller balance rental loans. As Dashiell Robinson noted, "We're seeing significant growth runway in the non-QM market, driven by consumer demand, awareness, and technology."

Legacy Asset Wind-Down and Capital Redeployment

The company continues to wind down its legacy assets, with $600 million of legacy bridge assets resolved or transferred during the quarter. This has freed up $150 million of capital for reinvestment into mortgage banking, which has generated greater than 20% ROEs for the past 4-5 quarters. The company expects to release an additional $100 million of capital per quarter over the next 4-5 quarters.

Valuation and Outlook

With a P/E Ratio of -7.34 and a P/B Ratio of 0.0, the company's valuation is not straightforward. However, the P/S Ratio of 3.11 suggests that the market is pricing in significant revenue growth. The company's ROE of -10.33% is a concern, but the mortgage banking segment's ROE is a bright spot. As the company continues to redeploy capital into its core businesses, investors will be watching to see if the expected revenue growth materializes.

3. NewsRoom

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Redwood Trust Senior Notes: A Solid Hold After Earnings

Nov -28

Source: seekingalpha.com

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Redwood Trust Prices $100 Million Senior Notes Offering

Nov -17

Source: businesswire.com

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Redwood Trust, Inc. $RWT Shares Acquired by Campbell & CO Investment Adviser LLC

Nov -17

Source: defenseworld.net

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Redwood Trust (RWT) Loses 11.4% in 4 Weeks, Here's Why a Trend Reversal May be Around the Corner

Nov -04

Source: zacks.com

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Redwood Trust, Inc. (NYSE:RWT) Given Consensus Rating of “Hold” by Analysts

Nov -03

Source: defenseworld.net

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Mutual of America Capital Management LLC Reduces Stake in Redwood Trust, Inc. $RWT

Oct -31

Source: defenseworld.net

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Redwood Trust, Inc. (RWT) Q3 2025 Earnings Call Transcript

Oct -30

Source: seekingalpha.com

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Here's What Key Metrics Tell Us About Redwood Trust (RWT) Q3 Earnings

Oct -30

Source: zacks.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (6.82%)

6. Segments

Investment Portfolio

Expected Growth: 7.03%

Redwood Trust, Inc.'s 7.03% investment portfolio growth is driven by a strong demand for mortgage-backed securities, diversification into commercial real estate, and a disciplined capital allocation strategy. Additionally, the company's ability to navigate interest rate volatility and its focus on credit quality have contributed to its growth.

Corporate / Other

Expected Growth: 4.77%

Redwood Trust's Corporate/Other segment growth of 4.77% is driven by increasing mortgage banking activities, expansion of third-party servicing, and growth in mortgage-backed securities issuance. Additionally, the company's strategic investments in technology and digital platforms have improved operational efficiency, contributing to the segment's growth.

Residential Investor Mortgage Banking

Expected Growth: 7.88%

Redwood Trust's Residential Investor Mortgage Banking growth of 7.88% is driven by increasing demand for single-family rental properties, low interest rates, and a strong housing market. Additionally, the company's diversified investor base, efficient operations, and strategic partnerships contribute to its growth momentum.

Residential Consumer Mortgage Banking

Expected Growth: 7.87%

The 7.87% growth in Residential Consumer Mortgage Banking at Redwood Trust, Inc. is driven by increasing demand for housing, low interest rates, and government-backed mortgage programs. Additionally, the segment benefits from Redwood's diversified loan portfolio, strong origination capabilities, and efficient risk management practices, enabling the company to capitalize on market opportunities and expand its market share.

7. Detailed Products

Residential Mortgage-Backed Securities (RMBS)

Redwood Trust, Inc. originates, acquires, and securitizes residential mortgage-backed securities (RMBS) to provide financing for single-family and multifamily residential mortgages.

Commercial Mortgage-Backed Securities (CMBS)

Redwood Trust, Inc. originates, acquires, and securitizes commercial mortgage-backed securities (CMBS) to provide financing for commercial properties such as office buildings, shopping centers, and apartments.

Business Purpose Loans

Redwood Trust, Inc. originates and acquires business purpose loans, which are used for investment properties, fix-and-flip projects, and other business purposes.

Single-Family Rental (SFR) Loans

Redwood Trust, Inc. originates and acquires single-family rental loans, which are used to finance the purchase or refinance of single-family rental properties.

Multifamily Loans

Redwood Trust, Inc. originates and acquires multifamily loans, which are used to finance the purchase or refinance of apartment buildings and other multifamily properties.

8. Redwood Trust, Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Redwood Trust, Inc. is medium due to the presence of alternative investment options in the mortgage banking industry.

Bargaining Power Of Customers

The bargaining power of customers is low for Redwood Trust, Inc. as the company operates in a niche market with limited customer concentration.

Bargaining Power Of Suppliers

The bargaining power of suppliers is medium for Redwood Trust, Inc. as the company relies on a few large suppliers for its mortgage loan purchases.

Threat Of New Entrants

The threat of new entrants is high for Redwood Trust, Inc. due to the relatively low barriers to entry in the mortgage banking industry.

Intensity Of Rivalry

The intensity of rivalry is high for Redwood Trust, Inc. due to the competitive nature of the mortgage banking industry and the presence of several established players.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 91.56%
Debt Cost 3.95%
Equity Weight 8.44%
Equity Cost 11.60%
WACC 4.59%
Leverage 1085.54%

11. Quality Control: Redwood Trust, Inc. passed 3 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Two Harbors Investment

A-Score: 6.6/10

Value: 9.2

Growth: 4.2

Quality: 6.6

Yield: 10.0

Momentum: 2.0

Volatility: 7.7

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MFA Financial

A-Score: 6.5/10

Value: 7.8

Growth: 2.3

Quality: 7.9

Yield: 10.0

Momentum: 2.5

Volatility: 8.3

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Redwood Trust

A-Score: 6.0/10

Value: 6.8

Growth: 4.0

Quality: 6.0

Yield: 10.0

Momentum: 2.0

Volatility: 7.0

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Ellington Residential Mortgage REIT

A-Score: 5.7/10

Value: 4.5

Growth: 2.8

Quality: 5.2

Yield: 10.0

Momentum: 2.5

Volatility: 9.3

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Cherry Hill Mortgage

A-Score: 5.5/10

Value: 8.9

Growth: 3.1

Quality: 4.5

Yield: 10.0

Momentum: 0.5

Volatility: 5.7

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ACRES Commercial Realty

A-Score: 4.7/10

Value: 6.6

Growth: 4.1

Quality: 3.1

Yield: 0.0

Momentum: 7.5

Volatility: 7.0

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

5.65$

Current Price

5.65$

Potential

-0.00%

Expected Cash-Flows