UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September 30, 2006~~March 31, 2007

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 000-27816

REDWOOD MORTGAGE INVESTORS VIII,

a California Limited Partnership

~~(Exact~~

(Exact name of registrant as specified in its charter)

California		94-3158788
(State or other jurisdiction of incorporation		(I.R.S. Employer
or organization)		Identification No.)

900 Veterans Blvd., Suite 500, Redwood City, CA	94063-1743
(Address of principal executive offices)	(Zip Code)

(650) 365-5341

~~(Registrant’s~~

(Registrant’s telephone number, including area code)

NOT APPLICABLE

~~(Former~~

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

~~Large Accelerated Filer~~o

~~Accelerated Filer~~o

~~Non-Accelerated Filer~~x

Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

Part I – Item 1. FINANCIAL STATEMENTS

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

CONSOLIDATED BALANCE SHEETS

~~SEPTEMBER 30, 2006 and~~MARCH 31, 2007 (unaudited) AND DECEMBER 31, ~~2005 (unaudited)~~2006 (audited)

(in thousands)

ASSETS

September 30,

December 31,

2006

2005

Cash and cash equivalents

$
27,242

$
28,853

Loans

Loans, secured by deeds of trust

252,924

214,012

Allowance for loan losses

(3,692
)

(3,138
)
Net loans

249,232

210,874

Interest and other receivables

Accrued interest and late fees

3,290

3,254

Advances on loans

155

103

Total interest and other receivables

3,445

3,357

Loan origination fees, net

24

72

Real estate held for sale, net of allowance of $1,417 and $1,000

for September 30, 2006 and December 31, 2005, respectively

19,893

21,328

Total other assets

19,917

21,400

Total assets

$
299,836

$
264,484

	March 31,			December 31,
	2007			2006
Cash and cash equivalents	$	14,454		$	18,096

Loans
Loans, secured by deeds of trust		268,302			261,097
Allowance for loan losses		(2,559	)		(2,786	)
Net loans		265,743			258,311

Interest and other receivables
Accrued interest and late fees		4,050			3,384
Advances on loans		4			96
Total interest and other receivables		4,054			3,480

Loan origination fees, net		78			104

Real estate held for sale, net of allowance of $2,348
for March 31, 2007 and December 31, 2006		28,035			25,231
Total other assets		28,113			25,335

Total assets	$	312,364		$	305,222

The accompanying notes are an integral part of the consolidated financial statements.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

CONSOLIDATED BALANCE SHEETS

~~SEPTEMBER 30, 2006 and~~MARCH 31, 2007 (unaudited) AND DECEMBER 31, ~~2005 (unaudited)~~2006 (audited)

(in thousands)

LIABILITIES AND PARTNERS’ CAPITAL

September 30,

December 31,

2006

2005

Liabilities

Line of credit

$
34,700

$
32,000

Accounts payable

30

10

Payable to affiliate

427

489

Other liabilities

72

—

Total liabilities

35,229

32,499

Minority interest

2,989

3,042

Investors in applicant status

699

776

Partners’ capital

Limited partners’ capital, subject to redemption net of

unallocated syndication costs of $1.687 and $1,653 for

September 30, 2006 and December 31, 2005, respectively;

and Formation Loan receivable of $12,464 and $11,506 for

September 30, 2006 and December 31, 2005, respectively

260,695

227,970

General partners’ capital, net of unallocated syndication costs

of $17 and $16 for September 30, 2006 and December 31, 2005,

respectively

224

197

Total partners’ capital

260,919

228,167

Total liabilities and partners’ capital

$
299,836

$
264,484

	March 31,		December 31,
	2007		2006
Liabilities
Line of credit	$	28,700	$	30,700
Accounts payable		52		76
Payable to affiliate		549		481
Accrued liabilities		344		—
Note payable		500		—
Total liabilities		30,145		31,257

Minority interest		3,035		3,017
Investors in applicant status		971		557

Partners’ capital
Limited partners’ capital, subject to redemption net of unallocated
syndication costs of $1,745 and $1,743 for March 31, 2007 and
December 31, 2006, respectively; and Formation Loan receivable
of $12,727 and $12,693 for March 31, 2007 and December 31, 2006,
respectively		277,977		270,160

General partners’ capital, net of unallocated syndication costs of $18
and $17 for March 31, 2007 and December 31, 2006, respectively		236		231

Total partners’ capital		278,213		270,391

Total liabilities and partners’ capital	$	312,364	$	305,222

The accompanying notes are an integral part of the consolidated financial statements.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2007 AND 2006 ~~AND 2005~~ (unaudited)

(in thousands, except for per limited partner amounts)

THREE MONTHS ENDED
SEPTEMBER 30,

NINE MONTHS ENDED
SEPTEMBER 30,

2006

2005

2006

2005
Revenues

Interest on loans
$
6,616

$
4,911

$
19,839

$
13,305
Interest-bank

18

4

40

88
Late fees

94

28

230

85
Gain on sale of real estate held for sale

-

-

-

183
Imputed interest on Formation Loan

99

100

295

299
Other

20

56

99

162

6,847

5,099

20,503

14,122
Expenses

Mortgage servicing fees

630

479

1,845

1,228
Interest expense

557

113

1,902

149
Amortization of loan origination fees

23

15

67

50
Provisions for losses on loans and real

estate held for sale

301

77

1,155

168
Asset management fees

255

212

726

592
Clerical costs through Redwood

Mortgage Corp.

82

79

246

217
Professional services

15

21

166

101
Amortization of discount on

imputed interest

99

100

295

299
Other

55

48

233

123

2,017

1,144

6,635

2,927
Net income
$
4,830

$
3,955

$
13,868

$
11,195

Net income: general partners (1%)
$
48

$
40

$
138

$
112
limited partners (99%)

4,782

3,915

13,730

11,083

$
4,830

$
3,955

$
13,868

$
11,195
Net income per $1,000 invested by limited

partners for entire period

-where income is compounded and retained
$
17.42

$
17.07

$
52.92

$
52.32

-where partner receives income in monthly

distributions
$
17.31

$
16.97

$
51.71

$
51.14

	2007		2006
Revenues
Interest on loans	$	6,810	$	6,422
Interest-bank		24		12
Late fees		93		67
Imputed interest on Formation Loan		159		98
Other		12		60
		7,098		6,659
Expenses
Mortgage servicing fees		659		571
Interest expense		512		515
Amortization of loan origination fees		26		18
Provisions for losses on loans and real estate held
for sale		133		573
Asset management fees		267		228
Clerical costs through Redwood Mortgage Corp.		83		82
Professional services		75		71
Amortization of discount on imputed interest		159		98
Other		44		91
		1,958		2,247
Net income	$	5,140	$	4,412

Net income: general partners (1%)	$	51	$	44
limited partners (99%)		5,089		4,368
	$	5,140	$	4,412
Net income per $1,000 invested by limited
partners for entire period

-where income is compounded and retained	$	17.42	$	17.26

-where partner receives income in monthly
distributions	$	17.32	$	17.16

The accompanying notes are an integral part of the consolidated financial statements.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2007 AND 2006 ~~AND 2005~~ (unaudited)

(in thousands)

2006

2005

Cash flows from operating activities

Net income

$
13,868

$
11,195

Adjustments to reconcile net income to net cash

provided by operating activities

Imputed interest income

(295
)

(299
)
Amortization of discount

295

299

Amortization of loan origination fees

67

50

Provision for loan and real estate losses

1,155

168

Gain on sale of real estate

-

(183
)
Change in operating assets and liabilities

Accrued interest and late fees

(36
)

(994
)
Advances on loans

(52
)

(26
)
Loan origination fees

(19
)

(3
)
Accounts payable

20

41

Payable to affiliate

(62
)

21

Other liabilities

72

-

Net cash provided by operating activities

15,013

10,269

Cash flows from investing activities

Loans originated

(131,328
)

(137,471
)
Principal collected on loans

92,893

93,545

Payments for development of real estate

(280
)

(756
)
Proceeds from disposition of real estate

637

1,541

Net cash used in investing activities

(38,078
)

(43,141
)
Cash flows from financing activities

Borrowings (payments) on line of credit, net

2,700

1,000

Contributions by partner applicants

27,355

32,167

Partners’ withdrawals

(7,249
)

(5,519
)
Syndication costs paid

(297
)

(672
)
Formation Loan lending

(2,114
)

(2,397
)
Formation Loan collections

1,112

884

Increase/(decrease) in minority interest

(53
)

137

Net cash provided by financing activities

21,454

25,600

Net decrease in cash and cash equivalents

(1,611
)

(7,272
)
Cash and cash equivalents – beginning of period

28,853

16,301

Cash and cash equivalents – end of period

27,242

9,029

Supplemental disclosures of cash flow information

Cash paid for interest

$
1,902

$
149

	2007			2006
Cash flows from operating activities
Net income	$	5,140		$	4,412
Adjustments to reconcile net income to net cash
provided by operating activities
Imputed interest income		(159	)		(98	)
Amortization of discount		159			98
Amortization of loan origination fees		26			18
Provision for loan and real estate losses		133			573
Change in operating assets and liabilities
Accrued interest and late fees		(1,089	)		(126	)
Advances on loans		40			60	)
Accounts payable		(24	)		7
Payable to affiliate		68			(28	)
Other liabilities		—			(7	)
Net cash provided by operating activities		4,294			4,909

Cash flows from investing activities
Loans originated		(35,580	)		(68,609	)
Principal collected on loans		26,694			13,934
Payments for development of real estate		(164	)		(117	)
Net cash used in investing activities		(9,050	)		(54,792	)

Cash flows from financing activities
Borrowings (payments) on line of credit, net		(2,000	)		18,000
Contributions by partner applicants		6,200			10,178
Partners’ withdrawals		(2,939	)		(2,089	)
Syndication costs paid		(98	)		(104	)
Formation Loan lending		(444	)		(746	)
Formation Loan collections		377			1,112
Increase in minority interest		18			30
Net cash provided by financing activities		1,114			26,381

Net decrease in cash and cash equivalents		(3,642	)		(23,502	)

Cash and cash equivalents – beginning of period		18,096			28,853

Cash and cash equivalents – end of period		14,454			5,351

Supplemental disclosures of cash flow information
Cash paid for interest	$	512		$	515

The accompanying notes are an integral part of these consolidated financial statements.

During the ~~third~~first quarter of ~~2006,~~2007, the partnership ~~sold one~~acquired a single family residence through foreclosure. This resulted in an increase in asset value of ~~its~~ real estate owned properties of $2,640,000, an increase in notes payable of $844,000 and ~~took~~ a ~~note back from~~decrease of $1,320,000 in loans receivable, $399,000 in accrued interest, $52,000 in advances and $25,000 in late charge receivables. In addition, the ~~buyer. This~~partnership sold a defaulted loan to a third party in return for cash. As a result, $360,000 was written off, which resulted in ~~an increase~~a decrease in loans receivable and a decrease in ~~real estate owned properties of $588,000.~~

allowance for loan loss reserve.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2006~~MARCH 31, 2007 (unaudited)

NOTE 1 – GENERAL

In the opinion of the management of the partnership, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the consolidated financial information included therein. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the partnership’s Form 10-K for the fiscal year ended December 31, ~~2005~~2006 filed with the Securities and Exchange Commission. The results of operations for the ~~nine~~three month period ended ~~September 30, 2006~~March 31, 2007 are not necessarily indicative of the operating results to be expected for the full year.

Formation Loans

The following summarizes Formation Loan transactions to ~~September 30, 2006~~March 31, 2007 (in thousands):

1st

2nd

3rd

4th

5th

6th

Total

Limited partner

contributions
$14,932

$29,993

$29,999

$49,985

$74,904

$39,545

$239,358

Formation Loan made
1,075

2,272

2,218

3,777

5,661

3,002

18,005
Discount on imputed

interest
(2)

(174)

(188)

(387)

(1,053)

(513)

(2,317)

Formation Loan made,

net
1,073

2,098

2,030

3,390

4,608

2,489

15,688
Repayments to date
(968)

(1,355)

(895)

(1,117)

(779)

(73)

(5,187)
Early withdrawal

penalties applied
(83)

(127)

(91)

(25)

(28)

-

(354)

Formation Loan, net

at September 30, 2006
22

616

1,044

2,248

3,801

2,416

10,147
Unamortized discount

on imputed interest
2

174

188

387

1,053

513

2,317

Balance

September 30, 2006
$24

$790

$1,232

$2,635

$4,854

$2,929

$12,464

Percent loaned
7.2%

7.6%

7.4%

7.6%

7.6%

7.6%

7.5%

	1st			2nd			3rd			4th			5th			6th			Total

Limited partner
contributions	$	14,932		$	29,993		$	29,999		$	49,985		$	74,904		$	53,227		$	253,040

Formation Loan made		1,075			2,272			2,218			3,777			5,661			4,006			19,009
Discount on imputed
interest		—			(146	)		(162	)		(341	)		(1,283	)		(1,391	)		(3,323	)

Formation Loan made,
net		1,075			2,126			2,056			3,436			4,378			2,615			15,686
Repayments to date		(991	)		(1,442	)		(980	)		(1,276	)		(1,008	)		(177	)		(5,874	)
Early withdrawal
penalties applied		(84	)		(135	)		(100	)		(39	)		(49	)		—			(407	)

Formation Loan, net
at March 31, 2007		—			549			976			2,121			3,321			2,438			9,405
Unamortized discount
on imputed interest		—			146			162			341			1,283			1,391			3,323

Balance
March 31, 2007	$	—		$	695		$	1,138		$	2,462		$	4,604		$	3,829		$	12,728

Percent loaned		7.2	%		7.6	%		7.4	%		7.6	%		7.6	%		7.5	%		7.5	%

The Formation Loan has been deducted from limited partners’ capital in the consolidated balance sheets. As amounts are collected from Redwood Mortgage Corp., the deduction from capital will be reduced. Interest has been imputed at the market rate of interest in effect at the date of the offerings’ close. An estimated amount of imputed interest was recorded for the offerings still outstanding. During the ~~nine~~three month periods ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005,~~ amortization expense of ~~$295,000~~$159,000 and ~~$299,000,~~$98,000, respectively, was recorded related to the discount on the imputed interest.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2006~~MARCH 31, 2007 (unaudited)

NOTE 1 – GENERAL (continued)

~~(continued)~~

Syndication costs

The partnership bears its own syndication costs, other than certain sales commissions, including legal and accounting expenses, printing costs, selling expenses, and filing fees. Syndication costs are charged against partners’ capital and are being allocated to the individual partners consistent with the partnership agreement.

Through ~~September 30, 2006,~~March 31, 2007, syndication costs of ~~$4,116,000~~$4,361,000 had been incurred by the partnership with the following distribution (in thousands):

Costs incurred

$
4,116

Early withdrawal penalties applied

(124
)
Allocated to date

(2,288
)

September 30, 2006 balance

$
1,704

Costs incurred	$	4,361
Early withdrawal penalties applied		(137	)
Allocated to date		(2,461	)

March 31, 2007 balance	$	1,763

The sixth offering of 100,000,000 units ($100,000,000) commenced August 4, 2005. Syndication costs attributable to the sixth offering will be limited to the lesser of 10% of the gross proceeds or $4,000,000 with excess to be paid by the general partners. As of ~~September 30, 2006~~March 31, 2007 the sixth offering had incurred syndication costs of ~~$858,000 (2.20%~~$1,103,000 (2.10% of contributions). Syndication costs are typically higher in the early stages of an offering.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The partnership’s consolidated financial statements include the accounts of its 100%-owned subsidiaries, Russian Hill Property Company, LLC (“Russian”) and Borrette Property Company, LLC (“Borrette”), and its 72.5%-owned subsidiary, Larkin Property Company, LLC (“Larkin”). All significant intercompany transactions and balances have been eliminated in consolidation.

~~Reclassifications~~

Certain reclassifications, not affecting previously reported net income or total partner capital, have been made to the previously issued consolidated financial statements to conform to the current year presentation.

~~REDWOOD MORTGAGE INVESTORS VIII~~

~~(A California Limited Partnership)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2006 (unaudited)~~

~~NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~ ~~(continued)~~

Loans secured by deeds of trust

At ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005,~~2006, the partnership had ~~six~~thirteen and seven loans past due 90 days or more in regularly scheduled monthly payment (“90 Day Past Due Loans”) totaling ~~$10,423,000~~$38,490,000 and ~~$17,662,000,~~$5,519,000, respectively.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007 (unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Loans secured by deeds of trust (continued)

Most of the partnership loans contain balloon payments at their maturity date, meaning that a lump sum payment of principal and interest is due at the maturity date. Borrowers occasionally are not able to pay the full amount due at the maturity date. The partnership may allow these borrowers to continue making the previously regularly scheduled monthly payments for periods of time to assist the borrower in meeting the balloon payment obligation. These loans for which the principal and/or any accrued interest is due and payable, but the borrower has failed to make such payment of principal and/or accrued interest are called “Past Maturity Loans”. At ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005,~~2006, the partnership had ~~ten~~five and ~~three~~seven loans totaling ~~$33,680,000~~$21,404,000 and ~~$9,201,000,~~$28,706,000, respectively, which were Past Maturity Loans. Some of the Past Maturity Loans are also categorized and included in the totals of the 90 Day Past Due Loans when they are both past their maturity date and they are more than 90 days late on regularly scheduled monthly payments. The total combined number of 90 Day Past Due Loans and Past Maturity Loans at ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005~~2006 was ~~eleven~~thirteen and ~~nine,~~ten, totaling ~~$34,469,000~~$38,490,000 and ~~$26,863,000,~~$30,055,000, respectively. Accrued interest, advances and late charge receivables on these loans totaled ~~$1,653,000~~$1,739,000 and ~~$3,202,000~~$1,568,000 as of ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005,~~2006, respectively. The partnership does not consider these loans to be impaired because, in the opinion of management, there is sufficient collateral to cover the amount outstanding to the partnership and the partnership is still accruing interest on these loans. At ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005~~2006 there were no loans categorized as impaired by the partnership.

Allowance for loan losses

The composition of the allowance for loan losses as of ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005~~2006 was as follows (in thousands):

Percent

Percent

September 30,

to total

December 31,

to total

2006

loans

2005

loans

Real estate mortgage

Single-family (1-4 units)

$
2,774

72.89
%

$
1,598

54.64
%
Apartments

156

6.86
%

145

8.98
%
Commercial

717

19.43
%

1,140

30.45
%
Land

45

0.82
%

255

5.93
%

$
3,692

100.00
%

$
3,138

100.00
%

Percent Percent
March 31, to total December 31, to total
2007 loans 2006 loans
Real estate mortgage
Single-family (1-4 units) $ 1,506 72.49 % $ 1,673 73.10 %
Apartments 197 6.29 % 160 5.71 %
Commercial 790 20.45 % 887 20.40 %
Land 66 0.77 % 66 0.79 %
$ 2,559 100.00 % $ 2,786 100.00 %

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2006~~MARCH 31, 2007 (unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

~~(continued)~~

Allowance for loan losses (continued) ~~(continued)~~

Activity in the allowance for loan losses for the ~~nine~~three months ~~through September 30, 2006~~ended March 31, 2007 and for the year ended December 31, ~~2005~~2006 was as follows (in thousands):

September 30,

December 31,

2006

2005

Balance at beginning of period

$
3,138

$
2,343

Charge-offs

Domestic

Real estate - mortgage

Single family (1-4 units)

99

26

Apartments

19

—

Commercial

—

34

Land

—

—

(118
)

(60
)
Recoveries

Domestic

Real estate - mortgage

��

Single family (1-4 units)

—

—

Apartments

7

—

Commercial

—

—

Land

—

—

7

—

Net charge-offs

(111
)

(60
)
Additions charge to operations

886

855

Transfer to real estate held for sale reserve

(221
)

—

Balance at end of period

$
3,692

$
3,138

Ratio of net charge-offs during the period

to average secured loans outstanding during

the period

0.05
%

0.03
%

March 31, December 31,
2007 2006
Balance at beginning of period $ 2,786 $ 3,138

Charge-offs
Domestic
Real estate - mortgage
Single family (1-4 units) — (112 )
Apartments — —
Commercial (360 ) (15 )
Land — —
(360 ) (127 )
Recoveries
Domestic
Real estate - mortgage
Single family (1-4 units) — —
Apartments — —
Commercial — —
Land — —
— —
Net charge-offs (360 ) (127 )
Additions charged to operations 133 927
Transfer to real estate held for sale reserve — (1,152 )

Balance at end of period $ 2,559 $ 2,786

Ratio of net charge-offs during the period to average
secured loans outstanding during the period 0.14 % 0.05 %

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2006~~MARCH 31, 2007 (unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

~~(continued)~~

Income taxes

No provision for federal and state income taxes (other than an $800 state minimum tax) is made in the consolidated financial statements since income taxes are the obligation of the limited partners if and when income taxes apply.

Net income per $1,000 invested

Amounts reflected in the consolidated statements of income as net income per $1,000 invested by limited partners for the entire period are amounts allocated to limited partners who held their investment throughout the period and have elected to either leave their earnings to compound or have elected to receive periodic distributions of their net income. Individual income is allocated each month based on the limited partners’ pro rata share of partners’ capital. Because the net income percentage varies from month to month, amounts per $1,000 will vary for those individuals who made or withdrew investments during the period, or selected other options.

Profits and losses

Profits and losses are allocated among the limited partners according to their respective capital accounts monthly after 1% of the profits and losses are allocated to the general partners.

Management estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Such estimates relate principally to the determination of the allowance for loan losses, including the valuation of impaired loans and the valuation of real estate held for sale. Actual results could differ significantly from these estimates.

~~NOTE 3 – GENERAL PARTNERS AND RELATED PARTIES~~

~~The following are commissions and/or fees, which are paid to the general partners.~~

~~Mortgage brokerage commissions~~

NOTE 3 – GENERAL PARTNERS AND RELATED PARTIES

The following are commissions and/or fees, which are paid to the general partners.

Mortgage brokerage commissions

For fees in connection with the review, selection, evaluation, negotiation and extension of loans, Redwood Mortgage Corp. may collect an amount equivalent to 12% of the loaned amount until six months after the termination date of the offering. Thereafter, loan brokerage commissions (points) will be limited to an amount not to exceed 4% of the total partnership assets per year. The loan brokerage commissions are paid by the borrowers and thus, are not an expense of the partnership.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2006~~MARCH 31, 2007 (unaudited)

NOTE 3 – GENERAL PARTNERS AND RELATED PARTIES (continued)

~~NOTE 3 – GENERAL PARTNERS AND RELATED PARTIES~~ ~~(continued)~~

Mortgage servicing fees

Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the unpaid principal are paid to Redwood Mortgage Corp., based on the unpaid principal balance of the loan portfolio, or such lesser amount as is reasonable and customary in the geographic area where the property securing the mortgage is located. Once a loan is categorized as impaired, mortgage servicing fees are no longer accrued thereon. Additional service fees are recorded upon the receipt of any subsequent payments on impaired loans.

~~Asset management fees~~

Asset management fees

The general partners receive monthly fees for managing the partnership’s loan portfolio and operations in an amount up to 1/32 of 1% of the “net asset value” (3/8 of 1% ~~annual)~~annually), which is the partnership’s total assets less its total liabilities.

Other fees

The Partnership Agreement provides for other fees such as reconveyance, mortgage assumption and mortgage extension fees. Such fees are incurred by the borrowers and are paid to the general partners.

~~Operating expenses~~

Operating expenses

Redwood Mortgage Corp., a general partner, is reimbursed by the partnership for all operating expenses incurred on behalf of the partnership, including without limitation, out-of-pocket general and administration expenses of the partnership, accounting and audit fees, legal fees and expenses, postage and preparation of reports to limited partners.

~~NOTE 4 – REAL ESTATE HELD FOR SALE~~

NOTE 4 – REAL ESTATE HELD FOR SALE

The following schedule reflects the cost of the properties and recorded reductions to estimated fair values, including estimated costs to sell, at ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005~~2006 (in thousands):

September 30,

December 31,

2006

2005

Costs of properties

$
21,310

$
22,328

Reduction in value

(1,417
)

(1,000
)

Real estate held for sale, net

$
19,893

$
21,328

March 31, December 31,
2007 2006

Costs of properties $ 30,383 $ 27,579
Reduction in value (2,348 ) (2,348 )

Real estate held for sale, net $ 28,035 $ 25,231

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30,~~MARCH 31, 2007 (unaudited)

NOTE 4 – REAL ESTATE HELD FOR SALE (continued)

In September 2004, the partnership acquired a single-family residence through a foreclosure sale. At the time the partnership took ownership of the property, the partnership’s investment totaled $1,937,000 including accrued interest and advances. The borrower had begun a substantial renovation of the property, which was not completed at the time of foreclosure. The partnership has decided to pursue development of the property by processing plans for the creation of two condominium units on the property. These plans will incorporate the majority of the existing improvements currently located on the property. At March 31, 2007 and December 31, 2006, ~~(unaudited)~~

~~NOTE 4 – REAL ESTATE HELD FOR SALE~~ ~~(continued)~~

the partnership’s total investment in this property was $1,766,000 and $1,759,000, respectively, net of a valuation allowance of $500,000.

In December 2004, the partnership acquired land through a deed in lieu of foreclosure. At the time the partnership took ownership of the property the partnership’s investment totaled $4,377,000 including accrued interest and advances. During 2006, management established a $490,000 reserve against this property to reduce the carrying amount to management’s estimate of the net realizable value of the property. During the third quarter of 2006, the partnership sold one of the three parcels at a loss of approximately $73,000, for which a reserve had been previously established. At March 31, 2007 and December 31, 2006 the partnership’s investment in this property was $3,222,000, net of a valuation allowance of $417,000.

During 2005, the partnership acquired land through foreclosure. At the time the partnership took ownership of the property, the partnership’s investment totaled $1,359,000 including accrued interest and advances. The property was subsequently sold for a total of $1,542,000 and the partnership recognized a gain on sale of real estate in the amount of $183,000.

During 2006, the partnership acquired a single-family residence through foreclosure. At the time the partnership took ownership of the property, the partnership’s investment totaled $6,028,000. As of March 31, 2007 and December 31, 2006, approximately $165,000 and $111,000, respectively, in costs related to the development of this property have been capitalized. As of March 31, 2007 and December 31, 2006, the partnership’s investment in this property totaled $5,274,000 and $5,220,000, respectively, net of a valuation allowance of $919,000.

Russian

During 2002, a single-family residence that secured a partnership loan totaling $4,402,000, including accrued interest and advances, was transferred via a statutory warranty deed to a new entity named Russian Hill Property Company, LLC (“Russian”). Russian was formed by the partnership to complete the development and sale of the property. The assets, liabilities and operating results of Russian have been consolidated into the accompanying consolidated financial statements of the partnership. Costs related to the sale and development of this property were capitalized during 2003. Commencing January 2004, costs related to sales and maintenance of the property were ~~being~~ expensed. At ~~September 30, 2006~~each of March 31, 2007 and December 31, ~~2005~~2006 the partnership’s total investment in Russian was $3,979,000, net of a valuation allowance of $500,000.

In September 2004, the partnership acquired a single family residence through a foreclosure sale. At the time the partnership took ownership of the property, the partnership’s investment totaled $1,937,000 including accrued interest and advances. The borrower had begun a substantial renovation of the property, which was not completed at the time of foreclosure. The partnership has decided to pursue development of the property by processing plans for the creation of two condominium units on the property. These plans will incorporate the majority of the existing improvements currently located on the property. At September 30, 2006 and December

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, ~~2005 the partnership’s total investment in this property was $1,732,000 and $1,691,000, net of a valuation allowance of $500,000.~~
In December 2004, the partnership acquired land through a deed in lieu of foreclosure. At this date the partnership’s investment totaled $4,377,000 including accrued interest and advances. At September 30, 2006 and December 31, 2005 the partnership’s investment in this property was $3,638,000 and $4,505,000, respectively. During the third quarter of 2006, the partnership sold one of the three parcels at a loss of approximately $73,000. The partnership’s total investment in this property was $3,221,000, net of a valuation allowance of $417,000 at September 30, 2006.
During 2005, the partnership acquired land through foreclosure. At the time the partnership took ownership of the property, the partnership’s investment totaled $1,359,000 including accrued interest and advances. The property was subsequently sold for a total of $1,542,000 and the partnership recognized a gain on sale of real estate in the amount of $183,000.

2007 (unaudited)

NOTE 4 – REAL ESTATE HELD FOR SALE (continued)

Larkin

During 2005, the partnership acquired a multi-unit property through foreclosure. At the time the partnership took ownership of the property, the partnership’s investment, together with three other affiliate partnerships, totaled $10,595,000, including accrued interest and advances. Upon acquisition, the property was transferred via a statutory warranty deed to a new entity named Larkin Street Property Company, LLC (“Larkin”). The partnership owns a 72.50% interest in the property and the other three affiliates collectively own the remaining 27.50%. No valuation allowance has been established against this property as management is of the opinion that the property will have adequate equity to recover all partnerships’ investments. The assets, liabilities and operating results of Larkin have been consolidated into the accompanying consolidated financial statements of the partnership. As of ~~September 30, 2006,~~March 31, 2007, approximately ~~$797,000~~$967,000 in costs related to the development of this property have been capitalized. The partnership pursued ~~its effort~~efforts to recover funds from the guarantors of the original loan and during the third quarter of 2006 obtained $431,000, representing the partnership’s pro rata share of the recovery, from one of them. These proceeds were applied to reduce the partnership’s investment and as of ~~September 30, 2006,~~March 31, 2007, the partnership’s investment, together with the other affiliated partnerships, totaled ~~$10,961,000.~~

$11,131,000.

Borrette

~~REDWOOD MORTGAGE INVESTORS VIII~~

(

In February 2007, the partnership acquired a single-family residence through foreclosure. At the time the partnership took ownership of the property, the partnership’s investment totaled $2,640,000 including accrued interest, late charges, advances and the balance owed to the senior lien holder, including accrued charges. A ~~California Limited Partnership)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2006 (unaudited)~~

~~NOTE 5 – BANK LINE OF CREDIT~~

single asset entity named Borrette Property Company, LLC (“Borrette”) holds title to the property. The partnership beneficially owns 100% of the membership interests in Borrette. As of March 31, 2007 the partnership has spent approximately $35,000 for development work on the property. As of March 31, 2007, the partnership’s total investment in Borrette was $2,674,000.

NOTE 5 – BANK LINE OF CREDIT

The partnership has a bank line of credit in the maximum amount of the lesser of (1) $75,000,000, (2) one-third of partners’ capital, or (3) the borrowing base as defined in the agreement. The line of credit matures on November 15, ~~2007,~~2008, with borrowings at prime less 0.50% and secured by the partnership’s loan portfolio. The outstanding balances were ~~$34,700,000~~$28,700,000 and ~~$32,000,000~~$30,700,000 at ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005,~~2006, respectively. The interest rate was 7.75% at ~~September 30, 2006~~each of March 31, 2007 and ~~6.75% at~~ December 31, ~~2005.~~2006. The partnership may also be subject to a 0.5% fee on specified balances in the event the line is not utilized. The line of credit requires the partnership to comply with certain financial covenants. The partnership was in compliance with these covenants at ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005.~~

2006.

NOTE 6 – NOTE PAYABLE

The partnership took title to the Borrette property subject to an existing loan in the principal amount of $500,000 secured by a senior deed of trust. The loan is past maturity and due in full; however, the partnership has negotiated a forbearance agreement with the note holder to extend the time to repay this obligation. The senior mortgage calls for a balloon payment of principal and interest due April 30, 2007, as extended by the forbearance agreement. Management is in discussions with regard to possible further extension or modification of the terms of this note. The note rate of this indebtedness is 12.50% and monthly payments of interest only are $5,208.

13

REDWOOD MORTGAGE INVESTORS VIII
~~NOTE 6 – FAIR VALUE OF~~(A California Limited Partnership)

NOTES TO CONSOLIDATED FINANCIAL ~~INSTRUMENTS~~STATEMENTS

MARCH 31, 2007 (unaudited)

NOTE 7 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of financial instruments:

(a)	Cash and cash equivalents. The carrying amount equals fair value. All amounts, including interest bearing accounts, are subject to immediate withdrawal.

(b)

Secured loans carrying value was $252,924,000 and $214,012,000 at September 30, 2006 and December 31, 2005, respectively. The fair value of these loans of $254,390,000 and $215,102,000, respectively, was estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made. The applicable amount of the allowance for loan losses along with accrued interest and advances related thereto should also be considered in evaluating the fair value versus the carrying value.

~~Most~~ loans carrying value was $268,302,000 and $261,097,000 at March 31, 2007 and December 31, 2006, respectively. The fair value of these loans of $269,615,000 and $261,692,000, respectively, was estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made. The applicable amount of the allowance for loan losses along with accrued interest and advances related thereto should also be considered in evaluating the fair value versus the carrying value.

Loans are secured by recorded deeds of trust. At ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005~~2006 there were ~~102~~108 and 98103 secured loans outstanding, respectively, with the following characteristics:

September 30,

December 31,

2006

2005

Number of secured loans outstanding

102

98

Total secured loans outstanding

$
252,924

$
214,012

Average secured loan outstanding

$
2,480

$
2,184

Average secured loan as percent of total secured loans

0.98
%

1.02
%
Average secured loan as percent of partners’ capital

0.95
%

0.96
%

Largest secured loan outstanding

$
31,428

$
11,927

Largest secured loan as percent of total secured loans

12.43
%

5.57
%
Largest secured loan as percent of partners’ capital

12.05
%

5.23
%
Largest secured loan as percent of total assets

10.48
%

4.51
%

Number of counties where security is located (all California)

28

24

Largest percentage of secured loans in one county

18.86
%

25.36
%

Average secured loan to appraised value of security

based on appraised values and prior liens at time

loan was consummated

65.14
%

65.03
%

Number of secured loans in foreclosure status

2

1

Amount of secured loans in foreclosure

$
6,784

$
3,600

March 31, December 31,
2007 2006
Number of secured loans outstanding 108 103
Total secured loans outstanding $ 268,302 $ 261,097

Average secured loan outstanding $ 2,484 $ 2,487
Average secured loan as percent of total secured loans 0.93 % 0.95 %
Average secured loan as percent of partners’ capital 0.89 % 0.92 %

Largest secured loan outstanding $ 32,375 $ 32,156
Largest secured loan as percent of total secured loans 12.07 % 12.32 %
Largest secured loan as percent of partners’ capital 11.64 % 11.89 %
Largest secured loan as percent of total assets 10.36 % 10.54 %

Number of counties where security is located (all California) 28 26

Largest percentage of secured loans in one county 21.61 % 17.69 %

Average secured loan to appraised value of security based
on appraised values and prior liens at time loan was
consummated 66.32 % 65.95 %

Number of secured loans in foreclosure status — 2
Amount of secured loans in foreclosure $ — $ 2,108

14

REDWOOD MORTGAGE INVESTORS VIII

~~REDWOOD MORTGAGE INVESTORS VIII~~

(A California Limited Partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2006~~MARCH 31, 2007 (unaudited)

NOTE 78 – ASSET CONCENTRATIONS AND CHARACTERISTICS (in thousands) ~~(continued)~~

The following secured loan categories were held at ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005:~~

September 30,

December 31,

2006

2005

First Trust Deeds

$
120,301

$
135,945

Second Trust Deeds

130,204

73,138

Third Trust Deeds

2,419

4,929

Total loans

252,924

214,012

Prior liens due other lenders at time of loan

335,972

224,573

Total debt

$
588,896

$
438,585

Appraised property value at time of loan

$
904,009

$
674,436

Total secured loans as a percent of appraisals

based on appraised values and prior liens

at time loan was consummated

65.14
%

65.03
%

Secured loans by type of property

Single-family (1-4 units)

$
184,351

$
116,945

Apartments

17,359

19,209

Commercial

49,152

65,167

Land

2,062

12,691

$
252,924

$
214,012

2006:

	March 31,			December 31,
	2007			2006

First Trust Deeds	$	116,415		$	125,061
Second Trust Deeds		146,468			133,623
Third Trust Deeds		5,419			2,413
Total loans		268,302			261,097
Prior liens due other lenders at time of loan		373,045			329,554

Total debt	$	641,347		$	590,651

Appraised property value at time of loan	$	966,998		$	895,621

Total secured loans as a percent of appraisals
based on appraised values and prior liens
at time loan was consummated		66.32	%		65.95	%

Secured loans by type of property
Single-family (1-4 units)	$	194,493		$	190,859
Apartments		16,874			14,914
Commercial		54,873			53,262
Land		2,062			2,062

	$	268,302		$	261,097

The interest rates on the loans range from 7.00% to 13.00% at ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005.~~2006. This range of interest rates is typical of our portfolio.

Scheduled loan maturity dates as of ~~September 30, 2006~~March 31, 2007 are as follows:

Amount

Prior to December 31, 2006

$
37,753

Between January 1, 2007 and December 31, 2007

86,205

Between January 1, 2008 and December 31, 2008

92,582

Between January 1, 2009 and December 31, 2009

20,052

Between January 1, 2010 and December 31, 2010

7,789

Thereafter

8,543

$
252,924

Amount

Prior to December 31, 2007 $ 104,382
Between January 1, 2008 and December 31, 2008 103,307
Between January 1, 2009 and December 31, 2009 34,484
Between January 1, 2010 and December 31, 2010 11,769
Between January 1, 2011 and December 31, 2011 7,623
Thereafter 6,737

$ 268,302

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2006~~MARCH 31, 2007 (unaudited)

NOTE 78 – ASSET CONCENTRATIONS AND CHARACTERISTICS (in thousands) (continued)

The scheduled maturities for ~~2006~~2007 include ~~ten~~five past maturity loans totaling ~~$33,680,000,~~$21,404,000, and representing ~~13.32%~~7.98% of the portfolio at ~~September 30, 2006.~~March 31, 2007. Interest payments on ~~five~~all of these loans were categorized as 90 days or more ~~delinquent.~~past due. Occasionally the partnership allows borrowers to continue to make the payments on debt past maturity for periods of time. ~~Of these ten~~None of the past maturity loans ~~the partnership has begun~~are in foreclosure ~~proceedings by filing a notice~~as of ~~default on two with aggregate principal balances totaling $6,784,000.~~

March 31, 2007.

At times the partnership’s cash deposits exceed federally insured limits. Management believes deposits are maintained in financially secure financial institutions.

NOTE 89 – COMMITMENTS AND CONTINGENCIES

Construction/Rehabilitation Loans

The partnership makes construction and rehabilitation loans which are not fully disbursed at loan inception. The partnership ~~has approved~~approves the borrowers up to a maximum loan balance; however, disbursements are made periodically during completion phases of the construction or rehabilitation or at such other times as required under the loan documents. At ~~September 30, 2006~~March 31, 2007 there were ~~$25,615,000~~$11,869,000 of undisbursed loan funds which will be funded by a combination of borrower monthly mortgage payments, line of credit draws, retirements of principal on current loans, cash, and capital contributions from investors. The partnership does not maintain a separate cash reserve to hold the undisbursed obligations, which are intended to be funded.

Workout Agreements

The partnership has negotiated various contractual workout agreements with borrowers whose loans are past maturity or who are delinquent in making payments. The partnership iswas not obligated to fund additional money on these loans as of ~~September 30, 2006.~~March 31, 2007. There ~~is one loan totaling $788,000~~were no loans in a workout ~~agreement~~agreements as of ~~September 30, 2006.~~

~~Legal proceedings~~

March 31, 2007.

Legal proceedings

The partnership is involved in various legal actions arising in the normal course of business. In the opinion of management, such matters will not have a material effect upon the financial position of the partnership.

~~NOTE 9 – SUBSEQUENT EVENTS~~

~~None~~

Part I – Item 2.

~~MANAGEMENT’S~~MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE PARTNERSHIP

Critical Accounting Policies.

In preparing the consolidated financial statements, management is required to make estimates based on the information available that affect the reported amounts of assets and liabilities as of the balance sheet dates and revenues and expenses for the reporting periods. Such estimates relate principally to the determination of (1) the allowance for loan losses (i.e. the amount of allowance established against loans receivable as an estimate of potential loan losses) including the accrued interest and advances that are estimated to be unrecoverable based on estimates of amounts to be collected plus estimates of the value of the property as collateral and (2) the valuation of real estate acquired through foreclosure. At ~~September 30, 2006~~March 31, 2007 the partnership owned ~~five~~seven real estate properties, which were taken back from defaulted borrowers.

Loans and related accrued interest, fees, and advances are analyzed on a periodic basis for recoverability. Delinquencies are identified and followed as part of the loan system. Provisions are made to adjust the allowance for loan losses and real estate held for sale to an amount considered by management to be adequate, with due consideration to original collateral values at loan inception and to provide for unrecoverable accounts receivable, including impaired loans, other loans, accrued interest, late fees and advances on loans, and other accounts receivable (unsecured).

Recent trends in the economy have been taken into consideration in the aforementioned process of arriving at the allowance for loan losses and real estate. Actual results could vary from the aforementioned provisions for losses. If the probable ultimate recovery of the carrying amount of a loan, with due consideration for the fair value of collateral, is less than amounts due according to the contractual terms of the loan agreement and the shortfall in the amounts due are not insignificant, the carrying amount of the loan is reduced to the present value of future cash flows discounted at the loan’s effective interest rate. If a loan is collateral dependent, it is valued at the estimated fair value of the related collateral.

If events and/or changes in circumstances cause management to have serious doubts about the collectibility of the contractual payments, a loan may be categorized as impaired and interest is no longer accrued. Any subsequent payments on impaired loans are applied to reduce the outstanding loan balances, including accrued interest and advances.

Real estate held for sale includes real estate acquired through foreclosure and is stated at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s estimated fair value, less estimated costs to sell.

The partnership periodically compares the carrying value of real estate to expected undiscounted future cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds future undiscounted cash flows, the assets are reduced to estimated fair value.

��

Forward-Looking Statements.

Certain statements in this Report on Form 10-Q which are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, including statements regarding the partnership’s expectations, hopes, intentions, beliefs and strategies regarding the future. Forward-looking statements include statements regarding future interest rates and economic conditions and their effect on the partnership and its assets, trends in the California real estate market, trends in the California real estate market moving towards normalcy, estimates as to the allowance for loan losses and the valuation of real estate held for sale, anticipated loan fundings, estimates of future limited partner withdrawals, additional foreclosures in ~~2006~~2007 and their effects on liquidity, the partnership’s plans to develop certain properties, and recovering certain values for properties through sale. Actual results may be materially different from what is projected by such forward-looking statements. Factors that might cause such a difference include unexpected changes in economic conditions and interest rates, including such conditions in California, the impact of competition and competitive pricing, unexpected shortfalls in cash flow required to develop certain properties, and downturns in the real estate markets in which the partnership has made loans. All forward-looking statements and reasons why results may differ included in this Form 10-Q are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results may differ.

Related Parties.

The general partners of the partnership are Redwood Mortgage Corp., Gymno Corporation and Michael R. Burwell. Most partnership business is conducted through Redwood Mortgage Corp., which arranges, services, and maintains the loan portfolio for the benefit of the partnership. The fees received by the general partners are paid pursuant to the partnership agreement and are determined at the sole discretion of the general partners, subject to limitations imposed by the partnership agreement. In the past the general partners have elected not to take the maximum compensation. The following is a list of various partnership activities for which related parties are compensated.

•

Mortgage Brokerage CommissionsFor fees in connection with the review, selection, evaluation, negotiation and extension of loans, the partnership may collect an amount equivalent to 12% of the loaned amount until six months after the termination date of the offering. Thereafter, the loan brokerage commissions (points) will be limited to an amount not to exceed 4% of the total partnership assets per year. The loan brokerage commissions are paid by the borrowers, and thus, are not an expense of the partnership. Loan brokerage commissions paid by the borrowers were ~~$2,960,000~~$852,000 and ~~$3,063,000 for the nine month periods ended September 30, 2006 and 2005, and $126,000 and $968,000~~$1,858,000 for the three month periods ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005,~~ respectively.

•

Mortgage Servicing Fees Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% on an annual basis) of the unpaid principal of the partnership’s loans are paid to Redwood Mortgage Corp., or such lesser amount as is reasonable and customary in the geographic area where the property securing the mortgage is located. Mortgage servicing fees ~~of $1,845,000~~were $659,000 and ~~$1,228,000 were incurred for the nine month periods ended September 30, 2006 and 2005, and $630,000 and $479,000~~$571,000 for the three month periods ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005,~~ respectively.

•

Asset Management FeesThe general partners receive monthly fees for managing the partnership’s portfolio and operations up to 1/32 of 1% of the‘net asset value’ (3/8 of 1% on an annual basis). Management fees to the general partners ~~of $726,000~~were $267,000 and ~~$592,000 were incurred for the nine month periods ended September 30, 2006 and 2005, and $255,000 and $212,000~~$228,000 for the three month periods ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005,~~ respectively.

•

Other Fees The partnership agreement provides that the general partners may receive other fees such as processing and escrow, reconveyance, mortgage assumption and mortgage extension fees. Such fees are incurred by the borrowers and are paid to the general partners. Such fees totaled ~~$41,000~~$18,000 and ~~$57,000 for the nine month periods ended September 30, 2006 and 2005, and~~ $13,000 ~~and $18,000~~ for the three month periods ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005,~~ respectively.

•

Income and LossesAll income and losses are credited or charged to partners in relation to their respective partnership interests. The allocation of income and losses to the general partners (combined) ~~shall be~~is a total of 1%, which was ~~$138,000~~$51,000 and ~~$112,000 for the nine month periods ended September 30, 2006 and 2005, and $48,000 and $40,000~~$44,000 for the three month periods ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005,~~ respectively.

•

Operating ExpensesRedwood Mortgage Corp. is reimbursed by the partnership for all operating expenses actually incurred on behalf of the partnership, including without limitation, out-of-pocket general and administration expenses of the partnership, accounting and audit fees, legal fees and expenses, postage and preparation of reports to limited partners. Operating expenses totaled ~~$246,000~~$83,000 and ~~$217,000 for the nine month periods ended September 30, 2006 and 2005, and~~ $82,000 ~~and $79,000~~ for the three month periods ended ~~September 30,~~March 31, 2007 and 2006, respectively, and ~~2005, respectively,~~ were reimbursed to Redwood Mortgage Corp.

•

Contributed CapitalThe general partners jointly and severally were to contribute 1/10 of 1% in cash contributions as proceeds from the offerings are received from the limited partners. As of ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005,~~2006, a general partner, Gymno Corporation, had contributed ~~$240,000~~$253,000 and ~~$213,000,~~$223,000, respectively, as capital in accordance with Section 4.02(a) of the partnership agreement.

•

Sales Commission – “Formation Loan” to Redwood Mortgage Corp.Sales commissions relating to the capital contributions by limited partners are not paid directly by the partnership out of the offering proceeds. Instead, the partnership loans to Redwood Mortgage Corp., a general partner, amounts necessary to pay all sales commissions and amounts payable in connection with unsolicited orders. The loan is referred to as the “Formation Loan”. It is unsecured and non-interest bearing and is applied to reduce limited partners’ capital in the consolidated balance sheets. The sales commissions range between 0% (for units sold by the general partners) and 9%. It is estimated that the total amount of the Formation Loan will approximate 7.6% based on the assumption that 65% of the investors will reinvest earnings, which qualify for the higher commission percentage.

The amount of the annual installments paid by Redwood Mortgage Corp. are determined at annual installments of one-tenth of the principal balance of each Formation Loan at December 31 of each year until the offering period is closed. Thereafter, the remaining Formation Loan is paid in ten equal amortizing payments over a period of ten years.

Results of Operations– For the ~~nine and~~ three months ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~

Changes in the partnership’s operating results for the ~~nine and~~ three month periods ended ~~September 30,~~March 31, 2007 versus 2006 ~~versus 2005~~ are discussed below:

Changes during the nine months ended September 30, 2006
versus 2005

Changes during the three months ended September 30, 2006
versus 2005

Net income

$
2,673,000

$
875,000

Revenue

Interest on loans

6,534,000

1,705,000

Interest – interest-bearing accounts

(48,000
)

14,000

Late fees

145,000

66,000

Gain on sale of real estate held for sale

(183,000
)

—

Imputed interest on Formation Loan

(4,000
)

(1,000
)

Other

(63,000
)

(36,000
)

$
6,381,000

$
1,748,000

Expenses

Mortgage servicing fees

617,000

151,000

Interest expense

1,753,000

444,000

Amortization of loan origination fees

17,000

8,000

Provision for losses on loans and real estate

held for sale

987,000

224,000

Asset management fees

134,000

43,000

Clerical costs through Redwood Mortgage Corp.

29,000

3,000

Professional services

65,000

(6,000
)

Amortization of discount on imputed interest

(4,000
)

(1,000
)

Other

110,000

7,000

$
3,708,000

$
873,000

Net income increase

$
2,673,000

$
875,000

	Changes during the three months ended March 31, 2007 versus 2006
Net income	$	728,000
Revenue
Interest on loans		388,000
Interest – interest-bearing accounts		12,000
Late fees		26,000
Imputed interest on Formation Loan		61,000
Other		(48,000	)
	$	439,000

Expenses
Mortgage servicing fees		88,000
Interest expense		(3,000	)
Amortization of loan origination fees		8,000
Provision for losses on loans and real estate
held for sale		(440,000	)
Asset management fees		39,000
Clerical costs through Redwood Mortgage Corp.		1,000
Professional services		4,000
Amortization of discount on imputed interest		61,000
Other		(47,000	)
	$	(289,000	)

Net income	$	728,000

The secured loan portfolio balance remained relatively unchanged from $268,675,000 as of March 31, 2006 to $268,302,000 as of March 31, 2007. However, the increase in interest on loans of ~~$6,534,000 (49%) for the nine month period and $1,705,000 (35%~~$388,000 (6.04%) for the three month period ended ~~September 30, 2006~~March 31, 2007 as compared to the same ~~periods~~period in ~~2005,~~2006, was due primarily to the increased size of the partnership average secured loan portfolio of ~~$252,924,000~~$269,244,000 at ~~September 30, 2006~~March 31, 2007 as compared to ~~$207,311,000~~an average balance of $246,961,000 at ~~September 30, 2005.~~March 31, 2006. The increase ~~in interest on loans for the nine month period ended September 30, 2006~~ was ~~mitigated by~~also due to a ~~lower~~higher average portfolio interest rate of ~~9.67%~~9.76% at ~~September 30, 2006~~March 31, 2007 as compared to ~~9.98%~~9.67% at September 30, 2005, and 9.67% and 9.70% for the three month periods ended September 30, 2006 and 2005, respectively. Average loan balances for the nine and three month periods ended September 30, 2006 and 2005 were $256,487,000 and $175,079,000 for the nine month periods and $256,667,000 and $201,273,000 for the three month periods, respectively. Additionally, interest income increased throughMarch 31, 2006. The increase was partially offset by a reduction in the collection of interest enhancements and interest rate provisions due upon repayment of our loans. For the ~~nine and~~ three month periods ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~ interest ~~enhancement~~enhancements and additional interest income totaled ~~$1,225,000~~$239,000 and ~~$193,000 for the nine month periods and $386,000 and $33,000 for the three month periods,~~$318,000, respectively.

The ~~decrease~~increase in interest from interest-bearing accounts of ~~$48,000 (55%~~$12,000 (100%) for the ~~nine~~three month period ended ~~September 30,~~March 31, 2007 as compared to the same period in 2006 iswas due to ~~smaller~~a larger average monthly ~~deposits~~deposit of ~~$2,812,000~~$3,636,000 for the ~~nine month period~~three months ended ~~September 30, 2006~~March 31, 2007, as compared to an average monthly deposit of ~~$9,693,000~~$3,137,000 for the same period in ~~2005.~~ 2006. In addition, the interest rate averaged 2.69% for the current quarter versus an average interest rate of 1.47% for the same period in 2006.

The increase in ~~interest from interest-bearing accounts~~late fee income of ~~$14,000 (350%~~$26,000 (38.81%) for the three month period ended ~~September 30, 2006~~March 31, 2007 as compared to the same period in ~~2005 is~~2006 was due to ~~a larger average monthly deposit~~an overall increase in loans past maturity and/or delinquent 90 days or more in interest payments. There were thirteen such loans totaling $38,490,000 as of ~~$2,887,000 for the three months ended September 30, 2006,~~March 31, 2007 as compared to ~~an average monthly deposit~~nine loans totaling $22,999,000 as of $1,224,000 for the same period in 2005. In addition, the monthly percentage rate averaged 2.33% for the current quarter versus the monthly average percentage rate of 1.41% for the same quarter in 2005.

March 31, 2006.

The decrease in gain on sale of real estate held for sale of $183,000 (100%) for the nine and three month periods ended September 30, 2006 as compared to the same periods in 2005 was primarily due to a gain realized upon the disposal of a real estate property during the first quarter of 2005. No gain on real estate sales occurred during the first three quarters of 2006.

The decrease in other income of ~~$63,000 (39%) for the nine month period and $36,000 (64%~~$48,000 (80%) for the three month period ended ~~September 30, 2006~~March 31, 2007 as compared to the same ~~periods~~period in ~~2005 is~~2006 was primarily ~~the result of~~due to a decrease in miscellaneous income that the partnership generates from other sources ~~by $24,000 and $1,000~~of $7,000 and a decrease in the sale of certain partnership units of ~~$38,000 and $34,000~~$41,000 for the ~~nine and~~ three month ~~periods~~period ended ~~September 30, 2006~~March 31, 2007 as compared to the same ~~periods~~period in ~~2005.~~2006. The partnership accepts unsolicited orders for units from investors who utilize the services of a registered investment advisor. If an investor utilizes the services of a registered investment advisor in acquiring units, Redwood Mortgage Corp. will contribute to the partnership an amount equal to the sales commissions otherwise attributable to a sale of units through a participating broker dealer. This amount is based on the investor’s election to retain earnings (9%) or have their earnings distributed (5%).

The increase in mortgage servicing fees of ~~$617,000 (50%) for the nine month period and $151,000 (32%~~$88,000 (15.41%) for the three month period ended ~~September 30, 2006~~March 31, 2007 as compared to the same ~~periods~~period in ~~2005 is~~2006 was primarily due to an increase in the average size of the loan portfolio from ~~$207,311,000~~$246,961,000 for the quarter ended ~~September 30, 2005~~March 31, 2006 to an average portfolio size of ~~$252,924,000~~$269,224,000 for the quarter ended ~~September 30, 2006.~~

March 31, 2007.

The ~~increase~~decrease in interest expense of ~~$1,753,000 (1,177%) for the nine month period and $444,000 (393%~~$3,000 (0.58%) for the three month period ended ~~September 30, 2006~~March 31, 2007 as compared to the same ~~periods~~period in ~~2005 is~~2006 was primarily due to a ~~substantial increase~~decrease in the weighted average borrowing of ~~$32,323,000 for the nine month period and $27,014,000~~$24,824,000 for the three month period ended ~~September 30, 2006~~March 31, 2007 as compared to a weighted average borrowing of ~~$3,495,000 and $7,870,000~~$30,178,000 in the same ~~periods~~period of ~~2005.~~2006. Interest expense on the line of credit is tied to the bank’s prime rate. ~~Weighted~~This decrease was partially offset by an increase in the weighted average ~~rates~~borrowing rate. The weighted average rate for the ~~nine and~~ three month ~~periods~~period ended ~~September 30, 2006 were 7.84% and~~March 31, 2007 was 8.25% while the weighted average ~~rates~~rate for the corresponding ~~periods~~period of 2005 were 5.68% and 5.74%, respectively. The bank’s prime rate also increased from 5.25% as of January 2005 to 8.25% as of September 30, 2006. The increase in interest expense for the periods discussed above is primarily because the partnership has begun to utilize its credit line more fully to fund loans as they become available.

2006 was 6.82%.

The increase in amortization of loan origination fees of ~~$17,000 (34%) and~~ $8,000 ~~(53%~~(44.44%) during the ~~nine and~~ three month ~~periods~~period ended ~~September 30, 2006~~March 31, 2007 as compared to the same period in ~~2005 is~~2006 was due to increased fees for an extension of the maturity date ~~and an increase~~on the credit line.

The decrease in the ~~credit line from $42,000,000 to $75,000,000 during 2006.~~

~~The increase in~~ provision for losses on loans and real estate held for sale of ~~$987,000 (588%) for the nine month period and $224,000 (291%~~$440,000 (76.79%) for the three month period ended ~~September 30, 2006~~March 31, 2007 as compared to the same ~~periods~~period in ~~2005 is~~2006 was due to management’s decision to make additional provisions in line with the increase in the partnership’s loan portfolio. Loan balances increased from $207,311,000 as of September 30, 2005 to $252,924,000 as of September 30, 2006; thus management made an increase in total provisiondetermination that accumulated reserves totaling $4,906,000 against loan losses and real estate held for sale ~~from $3,503,000~~ as of ~~September 30, 2005~~March 31, 2007 compared to ~~$5,109,000~~$4,699,000 as of ~~September 30, 2006.~~

March 31, 2006 was adequate. Secured loan portfolio balances remained relatively unchanged from $268,675,000 as of March 31, 2006 to $268,302,000 as of March 31, 2007.

The increase in the asset management fees of ~~$134,000 (23%) for the nine month period and $43,000 (20%~~$39,000 (17.11%) for the three month period ended ~~September 30, 2006~~March 31, 2007 as compared to the same ~~periods~~period in ~~2005 is~~2006 was due to an increase in the limited partners’ capital under management to ~~$260,695,000~~$277,977,000 at ~~September 30, 2006~~March 31, 2007 from ~~$216,038,000~~$240,149,000 at ~~September 30, 2005.~~

March 31, 2006.

The increase in professional fees of ~~$65,000 (64%) for the nine month period and a decrease of $6,000 (29%~~$4,000 (5.63%) for the three month period ended ~~September 30, 2006~~March 31, 2007 as compared to the same ~~periods~~period in ~~2005 is~~2006 was primarily due to increased ~~costs~~fees and ~~differences in~~ the timing of ~~billing, payment of fees~~professional services and costs associated with the various partnership regulatory filings, and the annual audit. ~~Section 404~~The increase in professional services includes both the general accounting and attorney costs. We anticipate the cost of professional services during 2007 will increase due to the partnership initiating additional compliance work in accordance with the Sarbanes-Oxley Act of ~~2002 requires us to evaluate, remediate, test and report~~2002.

The increase in amortization of discount on ~~our internal controls over financial reporting beginning with our Annual Report on Form 10-K~~imputed interest of $61,000 (62.24%) for the ~~fiscal year ending December~~three month period ended March 31, 2007. We plan to prepare for compliance with Section 404 by assessing, strengthening and testing our system of internal controls to provide the basis for our report. The process of strengthening our internal controls and complying with Section 404 is expensive and time consuming. As a result, we anticipate an increase in professional fees in future periods as we move toward compliance with Section 404 by the fiscal year end December 31, 2007.

~~At September 30, 2006, outstanding loans with filed notices of default totaled two with outstanding principal balances of $6,784,000 or 2.68% of outstanding secured loans~~2007 as compared to the same period in 2006, was primarily due to increases in the Formation Loan from the sale of additional limited partnership investments.

The decrease in other expenses of $47,000 (51.65%) for the three month period ended March 31, 2007 as compared to the same period in 2006, was primarily due to a decrease in miscellaneous expense of $50,000 and a decrease in upkeep costs on properties owned by the partnership of $8,000. These decreases were partially offset by increases in subscription interest while new funds from limited partners awaited entry into the partnership, postage and printing costs totaling ~~$6,135,000~~$11,000.

At March 31, 2007, there were no loans outstanding with a filed notice of default as compared to the two loans totaling $7,245,000 or ~~2.96%~~2.70% of outstanding secured loans that existed at ~~September 30, 2005. These foreclosures~~March 31, 2006. Foreclosures are ~~a reflection~~not an unusual occurrence in the segment of the ~~economic times that existed at September 30, 2006 and 2005, and are not unusual~~lending industry in ~~the general partners’ experience.~~

which we operate.

The general partners received mortgage brokerage commissions from loan borrowers of ~~$2,960,000~~$852,000 and ~~$3,063,000 for the nine month periods and $126,000 and $968,000~~$1,858,000 for the three month periods ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005,~~ respectively. Through the first ~~two quarters~~quarter of ~~2006~~2007 the partnership funded ~~$114,321,000~~$35,580,000 in loans and earned ~~$2,834,000~~$852,000 in mortgage brokerage commissions for the general partners as compared to ~~$93,179,000~~$68,609,000 in loans and ~~$2,095,000~~$1,858,000 in commissions for the ~~corresponding~~same period in 2005. During the third quarter of 2006 the partnership funded $16,807,000 in loans and earned $126,000 in commissions for the general partners as compared to $44,292,000 in loans and $968,000 in commissions for the corresponding period in 2005.2006. The decrease is due to a lesser ~~number~~amount of loans being funded during the three month period ended ~~September 30, 2006~~March 31, 2007 as compared to the ~~corresponding~~same period ~~of 2005.~~in 2006. In spite of the lower volume funded during the ~~third~~first quarter of ~~2006,~~2007, anticipated loan fundings for the ~~fourth quarter~~remaining three quarters of ~~2006~~2007 appears sufficient to allow the partnership to stay fully invested.

Allowance for Losses.

The general partners periodically review the loan portfolio, examining the status of delinquencies, borrowers’ payment records, as well as other factors. Based upon this information and other data, the allowance for loan losses is increased or decreased. Borrower foreclosures are a normal aspect of partnership operations. The partnership is not a credit based lender and hence while it reviews the credit history and income of borrowers, and if applicable, the income from income producing properties, the general partners expect that the partnership will on occasion take back real estate security. As of ~~September 30, 2006,~~March 31, 2007, the partnership had ~~eleven~~thirteen loans past due 90 days or more on interest payments and/or past maturity, totaling ~~$34,469,000. With respect to two~~$38,490,000. As of ~~these eleven loans, we have~~March 31, 2007 there were no filed notices of ~~default, beginning the process of foreclosure.~~

default.

The partnership periodically enters into workout agreements with borrowers who are past maturity or delinquent in their regular payments. As of ~~September 30, 2006~~March 31, 2007 the partnership had ~~entered into one~~no loans with workout ~~agreement with principal balance totaling $788,000.~~agreements. Typically, a workout agreement allows the borrower to extend the maturity date of the balloon payment and/or allows the borrower to make current monthly payments while deferring for periods of time, past due payments, and allows time to pay the loan in full. These workout agreements and foreclosures generally exist within our loan portfolio to greater or lesser degrees, depending primarily on the health of the economy. The number of foreclosures and workout agreements will generally rise during difficult economic times and conversely fall during good economic times. ~~The number and amount of foreclosures existing at September 30, 2006, in management’s opinion, does~~At March 31, 2007 the partnership did not have ~~a material effect on our results of operations or liquidity. These workouts~~any pending foreclosures. Workouts and foreclosures ~~have been~~are considered when management ~~arrived~~arrives at appropriate loan loss reserves and based on our experience, are reflective of our loan marketplace segment. In ~~2006,~~2007, we may initiate foreclosure proceedings on delinquent borrowers or borrowers who become delinquent during the balance of the year. We may take back additional real estate through the foreclosure process in ~~2006.~~2007. Borrower foreclosures are a normal aspect of partnership operations and the general partners anticipate that they will not have a material effect on our results of operations or liquidity. As a prudent guard against potential losses, the general partners have made provisions for losses on loans and real estate held for sale of ~~$5,109,000~~$4,906,000 through ~~September 30, 2006.~~March 31, 2007. These provisions for losses were made to protect against collection losses. The total cumulative provision for losses as of ~~September 30, 2006~~March 31, 2007 is considered by the general partners to be adequate. Because of the number of variables involved, the magnitude of the swings possible and the general partners’ inability to control many of these factors, actual results may and do sometimes differ significantly from estimates made by the general partners.

PORTFOLIO REVIEW– For the ~~nine~~three months ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~

Loan Portfolio.

The partnership’s loan portfolio consists primarily of short-term (one to five years), fixed rate loans secured by real estate. As of ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~ the partnership’s loans secured by real property collateral in the ~~six~~nine San Francisco Bay Area counties (San Francisco, San Mateo, Santa Clara, Alameda, Contra Costa, Napa, Solano, Sonoma and Marin) represented ~~$139,238,000 (55.05%~~$159,370,000 (59.40%) and ~~$148,737,000 (71.75%~~$156,639,000 (58.30%) of the outstanding secured loan portfolio. An additional ~~$54,994,000 (21.74%~~$49,824,000 (18.57%) and ~~$33,654,000 (16.23%~~$56,816,000 (21.15%) were in counties adjacent to the ~~six~~ San Francisco Bay Area, ~~counties,~~ totaling, with the loans in the ~~six~~nine San Francisco Bay Area counties, ~~$194,232,000 (76.79%~~$209,194,000 (77.97%) and ~~$182,391,000 (87.98%~~$213,455,000 (79.45%). The remainder of the portfolio represented loans secured primarily by Northern California real estate.

As of ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~ the partnership held ~~102~~108 and 93103 secured loans, respectively, in the following categories (in thousands):

September 30,

2006

2005

Single family homes (1-4 units)
$
184,351

72.89
%

$
102,891

49.63
%
Commercial

49,152

19.43
%

67,777

32.69
%
Apartments (5+ units)

17,359

6.86
%

18,734

9.04
%
Land

2,062

0.82
%

17,909

8.64
%

Total
$
252,924

100.00
%

$
207,311

100.00
%

	March 31,
	2007				2006
Single family homes (1-4 units)	$	194,493	72.49	%	$	169,196	62.97	%
Commercial		54,873	20.45	%		68,520	25.50	%
Apartments (5+ units)		16,874	6.29	%		17,996	6.70	%
Land		2,062	0.77	%		12,963	4.83	%

Total	$	268,302	100.00	%	$	268,675	100.00	%

As of ~~September 30, 2006,~~March 31, 2007, the partnership held ~~102~~108 loans secured by deeds of trust. The following table sets forth the priorities, asset concentrations and maturities of the loans held by the partnership as of ~~September 30, 2006.~~

March 31, 2007.

PRIORITIES, ASSET CONCENTRATIONS AND MATURITIES OF LOANS

As of ~~September 30, 2006~~March 31, 2007 (in thousands)

# of Secured Loans

Amount

Percent
1^st Mortgages
49

$ 120,301

47.56%
2^nd Mortgages
49

130,204

51.48%
3^rd Mortgages
4

2,419

0.96%
Total
102

$ 252,924

100.00%

Maturing prior to 12/31/06
11

$ 37,753

14.93%
Maturing between 01/01/07 and 12/31/07
36

86,205

34.08%
Maturing between 01/01/08 and 12/31/08
16

92,582

36.60%
Maturing after 12/31/08
39

36,384

14.39%
Total
102

$ 252,924

100.00%

Average secured loan as a % of secured loan portfolio

$ 2,480

0.98%
Largest secured loan as a % of secured loan portfolio

31,428

12.43%
Smallest secured loan as a % of secured loan portfolio

13

0.01%
Average secured loan-to-value at time of loan based on

appraisals and prior liens at time of loan

65.14%
Largest secured loan as a percent of partnership assets

31,428

10.48%

# of Secured Loans
Amount

Percent

1^st Mortgages
52 $ 116,415 43.39 %
2^nd Mortgages
51 146,468 54.59 %
3^rd Mortgages
5 5,419 2.02 %
Total 108 $ 268,302 100.00 %

Maturing prior to 12/31/07 31 $ 104,382 38.90 %
Maturing between 01/01/08 and 12/31/08 20 103,307 38.51 %
Maturing between 01/01/09 and 12/31/09 17 34,484 12.85 %
Maturing after 12/31/09 40 26,129 9.74 %
Total 108 $ 268,302 100.00 %

Average secured loan as a % of secured loan portfolio $ 2,484 0.93 %
Largest secured loan as a % of secured loan portfolio 32,375 12.07 %
Smallest secured loan as a % of secured loan portfolio 66 0.02 %
Average secured loan-to-value at time of loan based on
appraisals and prior liens at time of loan 66.32 %
Largest secured loan as a percent of partnership assets 32,375 10.36 %

Liquidity and Capital Resources.

Partnership capital continued to increase during the ~~nine~~three month period ended ~~September 30, 2006.~~March 31, 2007. The partnership received new limited partner capital contributions of ~~$27,321,000~~$6,189,000 for the ~~nine~~three month period ended ~~September 30, 2006~~March 31, 2007 as compared to ~~$32,121,000~~$10,165,000 for the ~~nine~~three month period ended ~~September 30, 2005.~~March 31, 2006. Retained earnings of limited partners that have chosen to compound earnings were ~~$8,521,000~~$3,121,000 for the ~~nine~~three month period ended ~~September 30, 2006,~~March 31, 2007, as compared to ~~$7,003,000~~$2,720,000 for the ~~nine~~three month period ended ~~September 30, 2005.~~March 31, 2006. The increased partnership capital assisted in the partnership’s ability to increase loans outstanding to ~~$252,924,000~~$268,302,000 at ~~September 30, 2006,~~March 31, 2007, as compared to ~~$207,311,000~~$268,675,000 at September 30, 2005. The partnership closed the fifth offering in August, 2005 with subscriptions of $74,904,000 for the $75,000,000 offering. The sixth offering of $100,000,000 commenced on August 4, 2005. Of the $32,121,000 in limited partner contributions for the nine month period ended September 30, 2005, $27,592,000 related to the partnership’s fifth offering and $4,529,000 related to the sixth offering.

March 31, 2006.

The partnership relies upon purchases of units, loan payoffs, borrowers’ mortgage payments, and to a lesser degree, its line of credit for the source of funds for loans and for the undisbursed portion of Construction Loans and Rehabilitation Loans (see the discussion under the caption “ASSET QUALITY” in Item 3 of Part I of this Form 10-Q). Mortgage interest rates have decreased somewhat from those available at the inception of the partnership. If interest rates were to increase substantially, the yield of the partnership’s loans may provide lower yields than other comparable debt-related investments. As such, additional limited partner unit purchases could decline, which would reduce the overall liquidity of the partnership. Additionally, since the partnership has made primarily fixed rate loans, if interest rates were to rise, the likely result would be a slower prepayment rate for the partnership. This could cause a lower degree of liquidity as well as a slowdown in the ability of the partnership to invest in loans at the then current interest rates. Conversely, in the event interest rates were to decline, the partnership could experience a surge of unit purchases by prospective limited partners, and/or significant borrower prepayments. In such event, if the partnership can only obtain the then existing lower rates of interest, there may be a dilution of the partnership’s yield on loans, thereby lowering the partnership’s overall yield to the limited partners. The partnership to a lesser degree relies upon its line of credit to fund loans. Generally, the partnership’s loans are fixed rate, whereas the credit line is a variable rate loan. In the event of a significant increase in overall interest rates, the credit line rate of interest could increase to a rate above the average portfolio rate of interest. Should such an event occur, the general partners would desire to pay off the line of credit and would generally not use it to fund loans. This could reduce the overall liquidity of the partnership. Cash is constantly being generated from borrower payments of

interest, principal and loan payoffs. Currently, cash flow greatly exceeds partnership expenses and cash distribution requirements to limited partners. Excess cash flow is invested in new loan opportunities, and for funding the undisbursed portion of Construction and Rehabilitation Loans, and is used to reduce the partnership credit line or for other partnership business.

At the time of subscription to the partnership, limited partners must elect either to receive monthly, quarterly or annual cash distributions from the partnership, or to compound earnings in their capital account. If an investor initially elects to receive monthly, quarterly or annual distributions, such election, once made, is irrevocable. If the investor initially elects to compound earnings in his/her capital account, in lieu of cash distributions, the investor may, after three (3) years, change the election and receive monthly, quarterly or annual cash distributions. Earnings allocable to limited partners, who elect to compound earnings in their capital account, will be retained by the partnership for making further loans or for other proper partnership purposes; and such amounts will be added to such limited partners’ capital accounts.

During the ~~nine and~~ three month periods ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005,~~ the partnership, after allocation of syndication costs, made the following allocation of earnings both to the limited partners who elected to compound their earnings, and those that chose to distribute:

Nine months ended September 30,

Three months ended September 30,

2006

2005

2006

2005
Compounding
$
8,521,000

$
7,003,000

$
2,958,000

$
2,476,000
Distributing
$
4,959,000

$
3,906,000

$
1,740,000

$
1,378,000

	Three months ended March 31,
	2007		2006
Compounding	$	3,121,000	$	2,720,000
Distributing	$	1,882,000	$	1,565,000

As of ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~ limited partners electing to receive cash distributions of earnings represented ~~38%~~39% and ~~37%~~38%, respectively, of the limited partners’ outstanding capital accounts. These percentages have remained relatively stable. The general partners anticipate that after all capital has been raised, the percentage of limited partners electing to withdraw earnings will decrease due to the dilution effect which occurs when compounding limited partners’ capital accounts grow through compounded earnings.

The partnership also allows the limited partners to withdraw their capital account subject to certain limitations and penalties. Once a limited partner’s initial five-year hold period has passed, the general partners expect to see an increase in liquidations due to the ability of limited partners to withdraw without penalty. This ability to withdraw five years after a limited partner’s investment has the effect of providing limited partner liquidity and the general partners expect a portion of the limited partners to avail themselves of this liquidity. The general partners expect to see increasing numbers of limited partner withdrawals during a limited partner’s 5^th through 10^th anniversary, at which time the bulk of those limited partners who have sought withdrawal have been liquidated. Since the five-year hold period for many limited partners has yet to expire, as of ~~September 30, 2006,~~March 31, 2007, many limited partners may not have yet opted for such liquidation. Earnings and capital liquidations including early withdrawals during the ~~nine and~~ three month ~~periods~~period ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~ were:

Nine months ended September 30,

Three months ended September 30,

2006

2005

2006

2005
Cash distributions
$
4,959,000

$
3,906,000

$
1,740,000

$
1,378,000
Capital liquidation*
$
2,206,000

$
1,547,000

$
969,000

$
524,000

Total
$
7,165,000

$
5,453,000

$
2,709,000

$
1,902,000

	Three months ended March 31,
	2007		2006
Cash distributions	$	1,882,000	$	1,565,000
Capital liquidation*	$	1,047,000	$	491,000

Total	$	2,929,000	$	2,056,000

* These amounts represent gross of early withdrawal penalties.

Limited partners may liquidate their investment over a one-year period subject to certain limitations and penalties. During the ~~nine and~~ three month periods ended ~~September 30,~~March 31, 2007 and 2006, ~~and 2005,~~ capital liquidated subject to the 10% penalty for early withdrawal was:

Nine months ended September 30,

Three months ended September 30,
2006

2005

2006

2005
$ 578,000

$ 443,000

$ 241,000

$ 198,000

Three months ended March 31,
2007		2006
$	415,000	$	119,000

These liquidated amounts are included in the total earnings and capital liquidations reported above and ~~represents 0.22%~~represent 0.15% and ~~0.009% (nine and~~0.05% for the three months ended ~~September 30, 2006), 0.21%~~March 31, 2007 and ~~0.09% (nine and three months ended September 30, 2005),~~2006, respectively, of the limited partners’ ending capital as of the end of the respective periods. These withdrawals are within the normally anticipated range and represent a small percentage of limited partner capital.

In some cases in order to satisfy broker dealers and other reporting requirements, the general partners have valued the limited partners’ interest in the partnership on a basis which utilizes a per unit system of calculation, rather than based upon the investors’ capital account. This information has been reported in this manner in order to allow the partnership to integrate with certain software used by the broker dealers and other reporting entities. In those cases, the partnership will report to broker dealers, trust companies and others a “reporting” number of units based upon a $1.00 per unit calculation. The number of reporting units provided will be calculated based upon the limited partner’s capital account value divided by $1.00. Each investor’s capital account balance is set forth periodically on the partnership account statement provided to investors. The reporting units are solely for broker dealers requiring such information for their software programs and do not reflect actual units owned by a limited partner or the limited partners’ right or interest in cash flow or any other economic benefit in the partnership. Each investor’s capital account balance is set forth periodically on the partnership account statement provided to investors. The amount of partnership earnings each investor is entitled to receive is determined by the ratio that each investor’s capital account bears to the total amount of all investor capital accounts then outstanding. The capital account balance of each investor should be included on any NASD member client account statement in providing a per unit estimated value of the client’s investment in the partnership in accordance with NASD Rule 2340.

While the general partners have set an estimated value for the partnership units, such determination may not be representative of the ultimate price realized by an investor for such units upon sale. No public trading market exists for the partnership units and none is likely to develop. Thus, there is no certainty that the units can be sold at a price equal to the stated value of the capital account. Furthermore, the ability of an investor to liquidate his or her investment is limited subject to certain liquidation rights provided by the partnership, which may include early withdrawal penalties.

Current Economic Conditions.

~~The rate~~

During 2006 and through the first quarter of ~~economic expansion within~~2007, the United States economy as a whole preformed well, although there has ~~slowed from the second quarter of 2006 and throughout prior periods~~been a noticeable deceleration in ~~2006. The~~growth. Gross Domestic Product ~~(GDP) growth~~increased at a 1.3% rate ~~was 1.6% for the third quarter compared to a 2.6% rate in the second quarter and 5.6%~~ for the first quarter of 2007 as compared to a 2.5% rate for the fourth quarter of 2006 and 3.4% for the year 2006. The positive GDP ~~was 3.2%~~increases are healthy overall but indicate a slowing economy. Unemployment continued to remain low during the first quarter of 2007 at a rate of 4.9% for ~~all of 2005 and 3.9% for all of 2004. This decrease in the GDP growth rate shows a clear deceleration to~~ the United States, ~~economy, yet is still~~ a ~~healthy indicator~~rate of economic activity and is expected, given the Federal Reserve’s policy over the last 24 months of raising interest rates to cool the economy and help to fight inflation. With the recent decrease in oil prices and hence energy prices from highs during the spring of 2006 above $70 per barrel to just under $60 per barrel in October and November of 2006, coupled with increasing interest rates5.2% for California and a ~~slowing economy, inflation would not seem to be~~rate of much concern. The Consumer Price Index for all Urban Consumers decreased 0.5% in September of 2006. The index is 2.1% higher than in September of 2005, leading one to conclude that inflation is well within a reasonable level. Employment continues to expand and the unemployment rate4.2% for the ~~nation dropped to 4.6% in September~~city of 2006 from 4.7% in August of 2006 and from 5.1% in September of 2005. In California, unemployment numbers also fell to 4.8% in September of 2006 from 4.9% in August of 2006 and from 5.2% in September of 2005.

San Francisco. The Federal Reserve ~~has now met three times since they had halted their march toward higher interest rates beginning~~Board left the Federal Funds Rate unchanged at 5.25% at its April, 2007 meeting and for its previous six consecutive meetings. The 10-year treasury bonds continued to trade in ~~2004 and has not raised interest rates further. Mortgage rates have been declining~~a narrow margin during the ~~third~~first quarter of ~~2006. In June of 2006, a 30-year~~2007 at around 4.7%. This has helped 30 year fixed rate ~~mortgage was priced~~mortgages to remain consistent during the first quarter at approximately 6.68% versus a price of approximately 6.4% in September of 2006 and 6.36% in October of 2006. These recent rates are higher than in 2005, but not as appreciably higher as one might think. In September and October of 2005, 30-year fixed rate loans were priced at 6.07% and 5.77%, respectively. In most respects, the United States economy is healthy and there seems to be little likelihood of a recession.

6.2%.

The partnership makes loans primarily in Northern California. As such the regional real estate market is of primary concern to the partnership. As of ~~September 30,~~March 31, 2007 and 2006, approximately 59.40% ($159,370,000) and ~~2005, approximately 55.05%~~58.30% ($~~139,238,000) and 71.75% (148,737,000)~~156,639,000), respectively, of the loans held by the partnership were in ~~six~~the nine San Francisco Bay Area ~~Counties, respectively. An~~Counties. As of March 31, 2007 and 2006, an additional ~~21.74%~~18.57% ($~~54,994,000)~~49,824,000) and ~~16.23%~~21.15% ($~~33,654,000)~~56,816,000), respectively, of loans were in counties adjacent to the ~~six~~nine San Francisco Bay Area ~~Counties;~~Counties, totaling, with the loans in the ~~six~~nine San Francisco Bay Area counties, ~~76.79%~~77.97% and ~~87.98%~~79.45% of loans in the ~~six~~nine San Francisco Bay Area counties and adjacent counties, respectively. The remainder of the loans held was secured primarily by Northern California real estate outside of the San Francisco Bay Area.

~~Appreciation in~~

In general, California residential real estate ~~has clearly abated from~~continued to appreciate in value during the double digit rates enjoyed during 2004 and 2005. The residential real estate market trend seems to be toward values that reflect modest price increases, and in some market segments, decreases from the historic 2005 record setting price highs.first quarter of 2007. According to ~~the California Association of Realtors, in September of 2006~~Dataquick, the median price of a California ~~single family~~ home in March, 2007 was ~~$553,050, which was 1.8% higher than the median price in September of 2005 of $543,510, but 4% lower than the median price in August of 2006 of $576,360. The September of 2006 median price of~~$484,000 a California condominium was $427,330, which was 0.5% higher than the median price in September of 2005 of $448,696, but 1.5% lower than the median price in August of 2006 of $420,920. In September of 2006,new record up 3% from the median price of ~~a San Francisco Bay Area single-family home was $725,870, which was 2.2% higher than the median price~~$470,000 in ~~September of 2005, but 1.5% lower than the median price in August~~March of 2006. Dataquick reports that “because of a shift in purchase patterns, a decline (in median prices) from August to September is normal for the season.” Marketing periods for properties have elongated to the more traditional timeframes traditionally expected during the 90’s and 80’s. The ~~California Association of Realtors reported the median~~total sales volumes (the number of ~~days to sell a single-family home~~homes sold) has been declining. During March, 2007 the sales volume was 5427.5% less than March, 2006. The slow down in ~~September of 2006, as compared to 30 in September of 2005. The elongated sales process has increased inventories~~the number of homes sold has not significantly impacted residential sales prices. Mortgage interest rates for both fixed and adjustable rate loans have been relatively stable leaving residential affordability similar to ~~seven months and is holding steady at that level, which is close to the long-term historic average of a normal market.~~2006. The stable ~~values of~~and slowly appreciating residential real estate ~~and a return to a more traditional real estate marketplace~~price environment is comforting to the ~~partnership. Loan-to-values~~partnership as appraised values for originated loans can be relied upon and appraisers should have adequate and reliable data upon which to ~~form~~make value opinions.

Commercial ~~real estate~~properties continued ~~the~~their strong performance ~~it has been turning~~ in the San Francisco Bay Area. Vacancy in office properties was 8.6% for the ~~last three years. Across virtually all sectors,~~first quarter of 2007 and rents ~~are increasing modestly, vacancies are in a downward trend, absorption is increasing, and sales are at healthy levels with prices increasing. CB Richard Ellis reported that~~increased 9.7% to over $40 per square foot for Class A properties. All other regions of the ~~overall~~ San Francisco ~~office~~Bay Area exhibited similar improved results from 2006. A strong commercial market ~~vacancy dropped 110 basis points during the third quarter to 9.0%. The market absorbed nearly 800,000 square feet of space~~indicates strong job and economic growth, which ~~brought the positive absorption to over two million square feet~~is good for commercial property values and for the ~~year to date 2006.~~

lenders who secure loans on commercial properties.

For partnership loans outstanding as of ~~September 30, 2006,~~March 31, 2007, the partnership had an average loan-to-value ratio of ~~65.14%~~66.32%, computed based on appraised values and senior liens as of the date the loan was made. This percentage does not account for any increases or decreases in property values since the date the loan was made, nor does it include any reductions in principal on senior indebtedness through amortization of payments after the loan was made. Management believes that this low loan-to-value ratio will assist the partnership in weathering loan delinquencies and foreclosures should they ~~eventuate.~~

occur.

Contractual Obligations.

A summary of the contractual obligations of the partnership as of ~~September 30, 2006~~March 31, 2007 is set forth below (in thousands):

Contractual Obligation

Total

Less than 1 Year

1-3 Years

3-5 Years

Line of credit

$
34,700

$
—

$
24,101

$
10,599

Construction loans

4,156

4,156

—

—

Rehabilitation loans

21,459

21,459

—

—

Total

$
60,315

$
25,615

$
24,101

$
10,599

~~Part I – Item 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

Contractual Obligation	Total		Less than 1 Year		1-3 Years		3-5 Years
Line of credit	$	28,700	$	—	$	19,933	$	8,767
Construction loans		929		929		—		—
Term loans		500		500		—		—
Rehabilitation loans		10,940		10,940		—		—

Total	$	41,069	$	12,369	$	19,933	$	8,767

Part I – Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following table contains information about the cash held in money market accounts, loans held in the partnership’s portfolio and loans to the partnership pursuant to its line of credit as of ~~September 30, 2006.~~March 31, 2007. The presentation, for each category of information, aggregates the assets and liabilities by their maturity dates for maturities occurring in each of the years ~~2006~~2007 through ~~2010~~2011 and separately aggregates the information for all maturities arising after ~~2010.~~2011. The carrying values of these assets and liabilities approximate their fair market values as of ~~September 30, 2006~~March 31, 2007 (in thousands):

2006
2007
2008
2009
2010
Thereafter
Total
Interest earning assets:

Money market accounts
$23,788

$23,788
Average interest rate
2.75%

2.75%
Loans secured by deeds of

trust
$37,753
86,205
92,582
20,052
7,789
8,543
$252,924
Average interest rate
10.28%
9.65%
9.60%
9.82%
9.41%
9.47%
9.73%
Average interest rate

—

—
Interest bearing liabilities:

Line of credit

$967
11,567
11,567
10,599

$34,700
Average interest rate
7.84%

7.84%

2007 2008 2009 2010 2011 Thereafter Total
Interest earning assets:
Money market accounts $ 12,543 $ 12,543
Average interest rate 2.75 % 2.75 %
Loans secured by deeds
of trust $ 104,382 103,307 34,484 11,769 7,623 6,737 $ 268,302
Average interest rate 9.81 % 9.85 % 10.20 % 9.77 % 9.39 % 9.46 % 9.86 %
Interest bearing liabilities:
Line of credit $ 798 9,567 9,568 8,767 $ 28,700
Average interest rate 8.25 % 8.25 %
Term loan $ 500 $ 500
Average interest rate 12.50 % 12.50 %

Market Risk.

The partnership’s line of credit bears interest at a variable rate, tied to the prime rate. As a result, the partnership’s primary market risk exposure with respect to its obligations is changes in interest rates, which will affect the interest cost of outstanding amounts on the line of credit. The partnership may also suffer market risk tied to general trends affecting real estate values that may impact the partnership’s security for its loans.

The partnership’s primary market risk in terms of its profitability is the exposure to fluctuations in earnings resulting from fluctuations in general interest rates. The majority of the partnership’s mortgage loans earn interest at fixed rates. Changes in interest rates may also affect the value of the partnership’s investment in mortgage loans and the rates at which the partnership reinvests funds obtained from loan repayments and new capital contributions from limited partners. If interest rates increase, the interest rates the partnership obtains from reinvested funds will generally increase, but the value of the partnership’s existing loans at fixed rates will generally tend to decrease. The risk is mitigated by the fact that the partnership does not intend to sell its loan portfolio, rather such loans are held until they are paid off. If interest rates decrease, the amounts becoming available to the partnership for investment due to repayment of partnership loans may be reinvested at lower rates than the partnership had been able to obtain in prior investments, or than the rates on the repaid loans. In addition, interest rate decreases may encourage borrowers to refinance their loans with the partnership at a time where the partnership is unable to reinvest in loans of comparable value.

The partnership does not hedge or otherwise seek to manage interest rate risk. The partnership does not enter into risk sensitive instruments for trading purposes.

ASSET QUALITY

A consequence of lending activities is that occasionally losses will be experienced and that the amount of such losses will vary from time to time, depending upon the risk characteristics of the loan portfolio as affected by economic conditions and the financial experiences of borrowers. Many of these factors are beyond the control of the general partners. There is no precise method of predicting specific losses or amounts that ultimately may be charged off on particular segments of the loan portfolio, especially in light of the current economic environment.

The conclusion that a loan may become uncollectible, in whole or in part, is a matter of judgment. Although institutional lenders are subject to requirements and regulations that, among other things, require them to perform ongoing analyses of their portfolios, loan-to-value ratios, reserves, and other metrics, and to obtain and maintain current information regarding their borrowers and the securing properties, the partnership is not subject to these regulations and has not adopted all of these practices. Rather, the general partners, in connection with the periodic closing of the accounting records of the partnership and the preparation of the financial statements, determine whether the allowance for loan losses is adequate to cover potential loan losses of the partnership. As of ~~September 30, 2006~~March 31, 2007, thirteen loans totaling $38,490,000 were delinquent over 90 days on interest payments. This includes five matured loans totaling $21,404,000. As of March 31, 2007 the general partners have determined that the allowance for loan losses and real estate held for sale of ~~$5,109,000 (1.96%~~$4,906,000 (1.76% of net assets) is adequate in amount. Because of the number of variables involved, the magnitude of the swings possible and the general partners’ inability to control many of these factors, actual results may and do sometimes differ significantly from estimates made by the general partners. As of September 30, 2006, six loans totaling $10,423,000 were delinquent over 90 days on interest payments. This includes five matured loans totaling $9,635,000. In addition, five loans totaling $24,045,000 were also past maturity but were current in interest payment as of September 30, 2006, for a combined total of eleven loans past due 90 days or more in interest payments, and/or past maturity totaling $34,469,000.

The partnership also makes loans requiring periodic disbursements of funds. As of ~~September 30, 2006,~~March 31, 2007, there were 21ten such loans. These loans include either ground up construction of buildings and/or loans for rehabilitation of existing structures. Interest on these loans is computed using a simple interest method and only on the amounts disbursed on a daily basis.

A summary of the status of the partnership’s loans which are periodically disbursed, as of ~~September 30, 2006,~~March 31, 2007, is set forth below:

Complete Construction

Rehabilitation
Disbursed funds
$12,815,000

$79,671,000

Undisbursed funds
$4,156,000

$21,459,000

$16,971,000

$101,130,000

	Complete Construction		Rehabilitation
Disbursed funds	$	5,866,000	$	57,666,000
Undisbursed funds	$	929,000	$	10,940,000
	$	6,795,000	$	68,606,000

“Construction Loans” are determined by the management to be those loans made to borrowers for the construction of entirely new structures or dwellings, whether residential, commercial or multifamily properties. The partnership has approved the borrowers up to a maximum loan balance; however, disbursements are made in phases throughout the construction process. As of ~~September 30, 2006,~~March 31, 2007, the partnership had commitments for Construction Loans totaling ~~$16,971,000,~~$6,795,000, of which ~~$12,815,000~~$5,866,000 had been disbursed and ~~$4,156,000~~$929,000 remains to be disbursed.

The partnership also makes loans, the proceeds of which are used to remodel, add to and/or rehabilitate an existing structure or dwelling, whether residential, commercial or multifamily properties and which, in the determination of management, are not Construction Loans. Many of these loans are for cosmetic refurbishment of both interiors and exteriors of existing condominiums. The refurbished units are then sold to new users, and the sales proceeds are used to repay the partnership’s loans. These loans are referred to by management as “Rehabilitation Loans”. As of ~~September 30, 2006~~March 31, 2007 the partnership had commitments for Rehabilitation Loans totaling ~~$101,130,000,~~$68,606,000, of which ~~$79,671,000~~$57,666,000 had been disbursed and ~~$21,459,000~~$10,940,000 remains to be disbursed. While the partnership does not classify Rehabilitation Loans as Construction Loans, Rehabilitation Loans do carry some of the same risks as Construction Loans. There is no limit on the amount of Rehabilitation Loans the partnership may make.

Part I – Item 4. CONTROLS AND PROCEDURES

As of ~~September 30, 2006,~~March 31, 2007, the partnership carried out an evaluation, under the supervision and with the participation of the general partners of the effectiveness of the design and operation of the partnership’s disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the general partners concluded that the partnership’s disclosure controls and procedures are effective for the purposes set forth in Rule 13a-15. There were no changes in the partnership’s internal control over financial reporting during the partnership’s ~~third~~first fiscal quarter that have materially affected, or are reasonably likely to materially affect, the partnership’s internal control over financial reporting.

PART II– OTHER INFORMATION

~~Item 1.~~

~~Legal Proceedings~~

Item 1. Legal Proceedings

~~Item 1A.~~

~~Risk Factors~~

~~Not Applicable.~~

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Use of Proceeds~~

Item 1A. Risk Factors

A description of the risk factors with respect to investing in the limited partnership units publicly offered by the partnership is set forth in the partnership’s prospectus, dated August 4, 2005, beginning on page 8, under the section “Risk Factors”, which is incorporated herein by reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable.

~~Item 3.~~

~~Defaults Upon Senior Securities~~

Item 3. Defaults Upon Senior Securities

Not Applicable.

~~Item 4.~~

~~Submission of Matters to a Vote of Security Holders~~

Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable.

~~Item 5.~~

~~Other Information~~

Item 5. Other Information

None.

~~Item 6.~~

~~Exhibits~~

Item 6. Exhibits

31.1 Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized on the ~~14th~~15th day of ~~November, 2006.~~

May, 2007

REDWOOD MORTGAGE INVESTORS VIII


By:	/S/ Michael R. Burwell
	Michael R. Burwell, General Partner


By:	Gymno Corporation, General Partner



	By:	/S/ Michael R. Burwell
		Michael R. Burwell, President, Secretary/Treasurer & Chief Financial Officer


By:	Redwood Mortgage Corp., General Partner



	By:	/S/ Michael R. Burwell
		Michael R. Burwell, President, Secretary/Treasurer

Exhibit 31.1

GENERAL PARTNER CERTIFICATION

I, Michael R. Burwell, General Partner, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage Investors VIII, a California Limited Partnership (the “Registrant”);

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

4.	The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have:

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)

evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.	The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ Michael R. Burwell

_____________________________

Michael R. Burwell, General Partner

~~November 14, 2006~~

May 15, 2007

Exhibit 31.2

~~Exhibit 31.2~~

PRESIDENT AND CHIEF FINANCIAL OFFICER CERTIFICATION

I, Michael R. Burwell, President, Secretary/Treasurer and Chief Financial Officer of Gymno Corporation, General Partner, and Redwood Mortgage Corp., General Partner, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage Investors VIII, a California Limited Partnership (the “Registrant”);

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

4.	The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have:

(a)

(b)

(c)

5.	The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ Michael R. Burwell

Michael R. Burwell, President, Secretary/Treasurer

and Chief Financial Officer of Gymno Corporation, General

Partner, and Redwood Mortgage Corp., General Partner

~~November 14, 2006~~

May 15, 2007

Exhibit 32.1

~~Exhibit 32.1~~

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Redwood Mortgage Investors VIII (the “Partnership”) on Form 10-Q for the period ending ~~September 30, 2006~~March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, General Partner of the Partnership, certify, that to the best of my knowledge:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed “filed” with the Securities and Exchange Commission.

~~/s/ Michael R. Burwell~~

~~_____________________________~~

~~Michael R. Burwell, General Partner~~

~~November 14, 2006~~

/s/ Michael R. Burwell

_____________________________

Michael R. Burwell, General Partner

May 15, 2007

Exhibit 32.2

~~CERTIFICATION PURSUANT TO~~

~~18 U.S.C. SECTION 1350~~

~~AS ADOPTED PURSUANT TO~~

~~SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002~~

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Redwood Mortgage Investors VIII (the “Partnership”) on Form 10-Q for the period ending ~~September 30, 2006~~March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, President, Secretary/Treasurer & Chief Financial Officer of Gymno Corporation, General Partner of the Partnership, and Redwood Mortgage Corp., General Partner of the Partnership, certify that to the best of my knowledge:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed “filed” with the Securities and Exchange Commission.

~~/s/ Michael R. Burwell~~

~~Michael R. Burwell, President,~~

~~Secretary/Treasurer & Chief Financial~~

~~Officer of Gymno Corporation, General Partner,~~

~~and Redwood Mortgage Corp., General Partner~~

~~November 14, 2006~~

/s/ Michael R. Burwell

______________________________________

Michael R. Burwell, President,

Secretary/Treasurer & Chief Financial

Officer of Gymno Corporation, General Partner,

and Redwood Mortgage Corp., General Partner

May 15, 2007

	September 30,			December 31,
	2006			2005
Cash and cash equivalents	$	27,242		$	28,853

Loans
Loans, secured by deeds of trust		252,924			214,012
Allowance for loan losses		(3,692	)		(3,138	)
Net loans		249,232			210,874

Interest and other receivables
Accrued interest and late fees		3,290			3,254
Advances on loans		155			103
Total interest and other receivables		3,445			3,357

Loan origination fees, net		24			72

Real estate held for sale, net of allowance of $1,417 and $1,000
for September 30, 2006 and December 31, 2005, respectively		19,893			21,328
Total other assets		19,917			21,400

Total assets	$	299,836		$	264,484

	THREE MONTHS ENDED SEPTEMBER 30,					NINE MONTHS ENDED SEPTEMBER 30,
		2006		2005		2006		2005
Revenues
Interest on loans	$	6,616	$	4,911	$	19,839	$	13,305
Interest-bank		18		4		40		88
Late fees		94		28		230		85
Gain on sale of real estate held for sale		-		-		-		183
Imputed interest on Formation Loan		99		100		295		299
Other		20		56		99		162
		6,847		5,099		20,503		14,122
Expenses
Mortgage servicing fees		630		479		1,845		1,228
Interest expense		557		113		1,902		149
Amortization of loan origination fees		23		15		67		50
Provisions for losses on loans and real
estate held for sale		301		77		1,155		168
Asset management fees		255		212		726		592
Clerical costs through Redwood
Mortgage Corp.		82		79		246		217
Professional services		15		21		166		101
Amortization of discount on
imputed interest		99		100		295		299
Other		55		48		233		123
		2,017		1,144		6,635		2,927
Net income	$	4,830	$	3,955	$	13,868	$	11,195

Net income: general partners (1%)	$	48	$	40	$	138	$	112
limited partners (99%)		4,782		3,915		13,730		11,083
	$	4,830	$	3,955	$	13,868	$	11,195
Net income per $1,000 invested by limited
partners for entire period

-where income is compounded and retained	$	17.42	$	17.07	$	52.92	$	52.32

-where partner receives income in monthly
distributions	$	17.31	$	16.97	$	51.71	$	51.14

Costs incurred	$	4,116
Early withdrawal penalties applied		(124	)
Allocated to date		(2,288	)

September 30, 2006 balance	$	1,704

			Percent				Percent
	September 30,		to total		December 31,		to total
	2006		loans		2005		loans
Real estate mortgage
Single-family (1-4 units)	$	2,774	72.89	%	$	1,598	54.64	%
Apartments		156	6.86	%		145	8.98	%
Commercial		717	19.43	%		1,140	30.45	%
Land		45	0.82	%		255	5.93	%
	$	3,692	100.00	%	$	3,138	100.00	%

	Amount

Prior to December 31, 2006	$	37,753
Between January 1, 2007 and December 31, 2007		86,205
Between January 1, 2008 and December 31, 2008		92,582
Between January 1, 2009 and December 31, 2009		20,052
Between January 1, 2010 and December 31, 2010		7,789
Thereafter		8,543

	$	252,924

	Amount

Prior to December 31, 2007	$	104,382
Between January 1, 2008 and December 31, 2008		103,307
Between January 1, 2009 and December 31, 2009		34,484
Between January 1, 2010 and December 31, 2010		11,769
Between January 1, 2011 and December 31, 2011		7,623
Thereafter		6,737

	$	268,302

	Changes during the nine months ended September 30, 2006 versus 2005				Changes during the three months ended September 30, 2006 versus 2005
Net income		$	2,673,000			$	875,000
Revenue
Interest on loans			6,534,000				1,705,000
Interest – interest-bearing accounts			(48,000	)			14,000
Late fees			145,000				66,000
Gain on sale of real estate held for sale			(183,000	)			—
Imputed interest on Formation Loan			(4,000	)			(1,000	)
Other			(63,000	)			(36,000	)
		$	6,381,000			$	1,748,000

Expenses
Mortgage servicing fees			617,000				151,000
Interest expense			1,753,000				444,000
Amortization of loan origination fees			17,000				8,000
Provision for losses on loans and real estate
held for sale			987,000				224,000
Asset management fees			134,000				43,000
Clerical costs through Redwood Mortgage Corp.			29,000				3,000
Professional services			65,000				(6,000	)
Amortization of discount on imputed interest			(4,000	)			(1,000	)
Other			110,000				7,000
		$	3,708,000			$	873,000

Net income increase		$	2,673,000			$	875,000

	# of Secured Loans	Amount	Percent
1^st Mortgages	49	$ 120,301	47.56%
2^nd Mortgages	49	130,204	51.48%
3^rd Mortgages	4	2,419	0.96%
Total	102	$ 252,924	100.00%

Maturing prior to 12/31/06	11	$ 37,753	14.93%
Maturing between 01/01/07 and 12/31/07	36	86,205	34.08%
Maturing between 01/01/08 and 12/31/08	16	92,582	36.60%
Maturing after 12/31/08	39	36,384	14.39%
Total	102	$ 252,924	100.00%

Average secured loan as a % of secured loan portfolio		$ 2,480	0.98%
Largest secured loan as a % of secured loan portfolio		31,428	12.43%
Smallest secured loan as a % of secured loan portfolio		13	0.01%
Average secured loan-to-value at time of loan based on
appraisals and prior liens at time of loan			65.14%
Largest secured loan as a percent of partnership assets		31,428	10.48%

	Nine months ended September 30,				Three months ended September 30,
		2006		2005		2006		2005
Compounding	$	8,521,000	$	7,003,000	$	2,958,000	$	2,476,000
Distributing	$	4,959,000	$	3,906,000	$	1,740,000	$	1,378,000

	2006	2007	2008	2009	2010	Thereafter	Total
Interest earning assets:
Money market accounts	$23,788						$23,788
Average interest rate	2.75%						2.75%
Loans secured by deeds of
trust	$37,753	86,205	92,582	20,052	7,789	8,543	$252,924
Average interest rate	10.28%	9.65%	9.60%	9.82%	9.41%	9.47%	9.73%
Average interest rate				—			—
Interest bearing liabilities:
Line of credit		$967	11,567	11,567	10,599		$34,700
Average interest rate	7.84%						7.84%