Redwood Mortgage Investors Viii 10-Q 2016 Q2 Quarterly report

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 June 30, 2016

OR

o 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 name of registrant as specified in its charter)

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

1825 S. Grant Street, Suite 250, San Mateo, CA	94402
(Address of principal executive offices)	(Zip Code)

(650) 365-5341

(Registrant’s telephone number, including area code)

Not Applicable

(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.    x  YES    o  NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  YES    o  NO

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

Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o  YES    x  NO

Part I –FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Consolidated Balance Sheets

June 30, 2016 (unaudited) and December 31, 2015 (audited)

($ in thousands)

ASSETS

	June 30,		December 31,
	2016		2015
Cash, in banks	$	25,263	$	56,673
Loans,
Secured by deeds of trust
Principal		90,531		62,740
Advances	24			51
Accrued interest	791			372
Loan balance, secured		91,346		63,163
Unsecured		61		69
Allowance for loan losses		—		—
Loans, net		91,407		63,232
Real estate owned (REO)		80,166		82,949
Other assets, net		1,235		4,679
Total assets	$	198,071	$	207,533

LIABILITIES AND PARTNERS’ CAPITAL

Liabilities
Mortgages payable	$	27,228		$	27,509
Accounts payable and other liabilities	405				336
Payable to affiliate		4			12
Total liabilities		27,637			27,857
Partners’ capital
Limited partners’ capital, subject to redemption, net		178,023			187,495
General partners’ capital (deficit)		(859	)		(885	)
Total partners’ capital, net		177,164			186,610
Receivable from affiliate (formation loan)		(6,730	)		(6,934	)
Partners’ capital subject to redemption, net of formation loan		170,434			179,676
Total liabilities and partners’ capital	$	198,071		$	207,533

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

2

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Consolidated Income Statements

For the Three and Six Months Ended June 30, 2016 and 2015

($ in thousands) (unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Revenues, net
Loans
Interest income	$	1,684		$	1,517		$	3,087		$	2,883
Late fees		2			18			7			19
Revenue, loans		1,686			1,535			3,094			2,902
Provision for (recovery of) loan losses		(25	)		—			(25	)		400
Loans, net		1,711			1,535			3,119			2,502
REO
Rental operations, net		649			1,280			1,265			2,402
Interest on mortgages		(274	)		(393	)		(502	)		(773	)
Rental operations, net of mortgage interest		375			887			763			1,629
Realized gains/(losses) on sales		281			1,672			784			1,992
Impairment (loss)/gain		—			263			—			573
Holding costs, net of other income		563			(47	)		551			(81	)
REO, net		1,219			2,775			2,098			4,113
Total revenues, net		2,930			4,310			5,217			6,615
Operations Expense
Mortgage servicing fees		294			293			527			577
Asset management fees		172			183			348			367
Costs from Redwood Mortgage Corp.		491			443			975			971
Professional services		478			266			757			500
Other		22			116			13			116
Total operations expense		1,457			1,301			2,620			2,531
Net income	$	1,473		$	3,009		$	2,597		$	4,084
Net income
Limited partners (99%)	$	1,458		$	2,979		$	2,571		$	4,043
General partners (1%)		15			30			26			41
	$	1,473		$	3,009		$	2,597		$	4,084

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

3

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Consolidated Statements of Changes in Partners’ Capital

For the Six Months Ended June 30, 2016

($ in thousands) (unaudited)

	Limited
	Partners’
	Capital			General			Total
	Subject to			Partners’			Partners’
	Redemption, net			Capital (Deficit)			Capital
Balance, December 31, 2015	$	187,495		$	(885	)	$	186,610
Net income		2,571			26			2,597
Distributions		(1,322	)		—			(1,322	)
Liquidations		(10,721	)		—			(10,721	)
Balance, June 30, 2016	$	178,023		$	(859	)	$	177,164

For the Three Months Ended June 30, 2016

($ in thousands) (unaudited)

	Limited
	Partners’
	Capital			General			Total
	Subject to			Partners’			Partners’
	Redemption, net			Capital (Deficit)			Capital
Balance, March  31, 2016	$	182,612		$	(874	)	$	181,738
Net income		1,458			15			1,473
Distributions		(651	)		—			(651	)
Liquidations		(5,396	)		—			(5,396	)
Balance, June 30, 2016	$	178,023		$	(859	)	$	177,164

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

4

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Consolidated Statements of Cash Flows

For the Three and Six Months Ended June 30, 2016 and 2015

($ in thousands) (unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Cash from Operations
Interest received	$	1,481		$	1,769		$	2,636		$	2,800
Other loan income		5			14			17			19
Operations expense		(1,498	)		(1,322	)		(2,544	)		(2,467	)
Rental operations, net		418			881			1,214			3,027
Holding costs		563			(47	)		551			(75	)
Mortgage interest and borrowing related fees		(255	)		(838	)		(466	)		(1,195	)
Other assets		3,411			—			3,411			—
Total cash from operations		4,125			457			4,819			2,109
Cash from Investing Activities
Loans
Principal collected on loans - secured		11,660			14,078			16,634			15,942
Unsecured loan payments received (made)		4			3			8			3
Loans originated		(28,550	)		(10,326	)		(46,770	)		(20,980	)
Loans sold to affiliates		2,000			1,637			2,000			4,637
Advances on loans		—			18			(11	)		(103	)
Total - Loans		(14,886	)		5,410			(28,139	)		(501	)
REO
Sales		2,363			13,162			5,201			14,341
Development		(84	)		(500	)		(245	)		(1,235	)
Non-controlling interest		—			(470	)		—			(475	)
Total - REO		2,279			12,192			4,956			12,631
Total cash from investing activities		(12,607	)		17,602			(23,183	)		12,130
Cash from Financing Activities
Mortgages taken		—			27,747			—			27,747
Principal payments		(1,065	)		(17,679	)		(1,207	)		(17,881	)
Total cash from financing activities		(1,065	)		10,068			(1,207	)		9,866
Net increase/(decrease) in cash before distributions		(9,547	)		28,127			(19,571	)		24,105
Cash – partner liquidations		(5,396	)		(4,447	)		(10,721	)		(6,656	)
Formation loan payment, net of early withdrawal fees		104			81			204			81
Cash – partner distributions		(651	)		(573	)		(1,322	)		(1,142	)
Net increase/(decrease) in cash		(15,490	)		23,188			(31,410	)		16,388
Cash and cash equivalents, beginning of period	$	40,753		$	3,068		$	56,673		$	9,868
Cash and cash equivalents, June 30	$	25,263		$	26,256		$	25,263		$	26,256

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

5

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Consolidated Statements of Cash Flows

For the Three and Six Months Ended June 30, 2016 and 2015

($ in thousands) (unaudited)

Reconciliation of net income to net cash provided by (used in) operations:

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Cash flows from operations
Net income	$	1,473		$	3,009		$	2,597		$	4,084
Adjustments to reconcile net income to net cash provided by    (used in) operating activities
Amortization of borrowings-related origination fees		15			27			30			50
Provision for (recovery of) loan losses		(25	)		—			(25	)		400
REO – depreciation		—			78			—			301
REO – loss/(gain) on disposal		(281	)		(1,672	)		(784	)		(1,992	)
REO – impairment (gain)		—			(263	)		—			(573	)
Change in operation assets and liabilities
Accrued interest		(204	)		252			(452	)		(83	)
Allowance for loan losses-recoveries		25			—			25			—
Receivable from affiliate		—			(52	)		—			(52	)
Other assets		3,454			(618	)		3,414			(42	)
Accounts payable and other liabilities		(335	)		(402	)		23			(125	)
Payable to affiliate		3			98			(9	)		141
Net cash provided by (used in) operations	$	4,125		$	457		$	4,819		$	2,109
Supplemental disclosures of cash flow information
Non-cash investing activities
Real estate acquired through foreclosure/settlement on loans,    net of liabilities assumed	$	—		$	—		$	416		$	—
Cash paid for interest	$	270		$	411		$	495		$	768

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

6

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

NOTE 1 – ORGANIZATION AND GENERAL

In the opinion of the general partners, 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, 2015 filed with the U.S. Securities and Exchange Commission (SEC). The results of operations for the three and six month periods ended June 30, 2016 are not necessarily indicative of the operations results to be expected for the full year.

Redwood Mortgage Investors VIII, a California Limited Partnership (we, RMI VIII or the partnership) was formed in 1993 to engage in business as a mortgage lender and investor by making and holding-for-investment-mortgage loans secured by California real estate, primarily through first and second deeds of trust.

The partnership is externally managed. The general partners are Redwood Mortgage Corp. (RMC) and Michael R. Burwell (Burwell), an individual. Burwell is the president and majority shareholder of RMC through his holdings and beneficial interests in certain trusts. The general partners are solely responsible for managing the business and affairs of the partnership, subject to the voting rights of the limited partners on specified matters. Any one of the general partners acting alone has the power and authority to act for and bind the partnership. The mortgage loans the partnership invests in are arranged and are generally serviced by RMC.

The rights, duties and powers of the general and limited partners of the partnership are governed by the limited partnership agreement and Sections 15900 et seq. of the California Corporations Code. Partners should refer to the partnership agreement for complete disclosure of its provisions. A majority of the outstanding limited partnership units may, without the permission of the general partners, vote to: (i) terminate the partnership, (ii) amend the limited partnership agreement, (iii) approve or disapprove the sale of all or substantially all of the assets of the partnership, and (iv) remove or replace one or all of the general partners. The approval of all the limited partners is required to elect a new general partner to continue the partnership business where there is no remaining general partner after a general partner ceases to be a general partner other than by removal. The last offering of units of limited partnership interests closed in November 2008.

Profits and losses are allocated among the limited partners according to their respective capital accounts after one percent (1%) of profits and losses are allocated to the general partners. The monthly results are subject to subsequent adjustment as a result of quarterly and year-end accounting and reporting. Federal and state income taxes are the obligation of the partners, if and when taxes apply, other than the annual California franchise tax, and any California LLC cash receipts taxes paid by the partnership and its subsidiaries.

The ongoing sources of funds for loans are the proceeds from (1) earnings retained (i.e. not distributed) in partners’ capital accounts, (2)  loan payoffs, (3) borrowers’ monthly principal and interest payments, (4) REO sales, and, (5) to a lesser degree and, if obtained, a line of credit.  Cash generated from loan payoffs and borrower payments of principal and interest is used for operating expenses, income distributions to partners, and unit redemptions.  The cash flow, if any, in excess of these uses is to be re-invested in new loans.

Distribution policy

At the time of their subscription for units, partners elected to have distributed to them their monthly, quarterly or annual allocation of profits, or to have profits allocated to their capital accounts to be retained by the partnership to compound.  Subject to certain limitations, those electing compounding may subsequently change their election. A partner’s election to receive cash distributions is irrevocable.

Beginning in September 2015, the distributions annual rate increased to two and one-half percent (2.5%) from two percent (2%).

7

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

Liquidity, capital withdrawals and early withdrawals

There is no established public trading and/or secondary market for the units, and none is expected to develop. There are substantial restrictions on transferability of units. To provide liquidity to limited partners, the partnership agreement provides that limited partners in the partnership for the minimum five-year period may withdraw all or a portion of their capital accounts in twenty (20) quarterly installments or longer, as determined by the general partners in light of partnership cash flow, beginning the last day of the calendar quarter following the quarter in which the notice of withdrawal is given.  A limited partner may liquidate all or part of their capital account in four (4) quarterly installments beginning on the last day of the calendar quarter following the quarter in which the notice of withdrawal is given, subject to a ten percent (10%) early withdrawal penalty applicable to any sums withdrawn prior to the time when such sums could have been withdrawn without penalty.  There is also a limited right of liquidation for an investor’s heirs upon an investor’s death.

The partnership does not establish a reserve from which to fund withdrawals and, accordingly, the partnership’s capacity to return a limited partner’s capital is restricted by the availability of partnership cash. No more than twenty percent (20%) of the total limited partners’ capital account balances at the beginning of any year, may be liquidated during any calendar year.

Lending and investment guidelines, objectives and criteria

Generally, interest rates on the partnership’s mortgage loans are not affected by market movements in interest rates. The partnership’s loans generally have shorter maturity terms than typical mortgages.  In the event a borrower is unable to repay in full the principal owing on the loan at maturity, the partnership may consider extending the term through a loan modification or may foreclose and take back the property for sale.

The partnership’s primary investment objectives are to:

· Yield a high rate of return from mortgage lending, and,

· Preserve and protect the partners’ capital.

The partnership generally funds loans:

· Having monthly payments of interest only or of principal and interest at fixed rates, calculated on a 30-year amortization basis, and,

· Having maturities of 5 years or less, not to exceed 15 years.

The cash flow and the income generated by the real property securing the loan factor into the credit decisions, as does the general creditworthiness, experience and reputation of the borrower. However, for loans secured by real property, other than owner-occupied personal residences, such considerations are subordinate to a determination that the value of the real property is sufficient, in and of itself, as a source of repayment. The amount of the partnership’s loan combined with the outstanding debt and claims secured by a senior deed of trust on the real property, if any, generally is not to exceed a percentage of the appraised value of the property (the “loan to value ratio”, or LTV) specified in the lending guidelines.

Term of the partnership

The term of the partnership will continue until 2032, unless sooner terminated as provided in the limited partnership agreement.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

8

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

The partnership’s consolidated financial statements include the accounts of the partnership, its wholly-owned subsidiaries (consisting of single-member limited liability companies representing ownership in a single real property asset), and, in 2015, its 72.5%-owned subsidiary (a single-asset limited liability company which is owned with affiliates and whose single asset was a development property in San Francisco County). All significant intercompany transactions and balances have been eliminated in consolidation.

Management estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the dates 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, when applicable, the valuation of impaired loans (which itself requires determining the fair value of the collateral), and the valuation of real estate held for sale and held as investment, at acquisition and subsequently. Actual results could differ significantly from these estimates.

Fair value estimates

GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

Fair values of assets and liabilities are determined based on the fair value hierarchy established in GAAP.  The hierarchy is comprised of three levels of inputs to be used.

· Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the partnership has the ability to access at the measurement date.  An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

· Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, in active markets and quoted prices for identical assets or liabilities that are not active, and inputs other than quoted prices that are observable or inputs derived from or corroborated by market data.

· Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs reflect the partnership’s own assumptions about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs are developed based on the best information available in the circumstances and may include the partnership’s own data.

Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the arithmetic difference between the fair value of the collateral, net of any senior liens, and the loan balance, where “loan balance” is the sum of the unpaid principal, advances and the recorded interest thereon. This computation is done for each loan (whether impaired or performing), and while loans secured by collateral of similar property type are grouped, there is enough distinction and variation in the collateral that a loan-by-loan, collateral-by-collateral analysis is appropriate.

The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values, and publicly available information on in-market transactions. Appraisals of commercial real property generally present three approaches to estimating value:  1) market comparables or sales approach; 2) cost to replace; and 3) capitalized cash flows or investment approach. These approaches may or may not result in a common, single value. The market-comparables approach may yield several different values depending on certain basic assumptions, such as, determining highest and best use (which may or may not be the current use); determining the condition (e.g. as-is, when-completed, or for land when-entitled); and determining the unit of value (e.g. as a series of individual unit sales or as a bulk disposition).

9

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

Management has the requisite familiarity with the markets it lends in generally and of the properties lent on specifically to analyze sales-comparables and assess their suitability and/or applicability. Management is acquainted with market participants – investors, developers, brokers, lenders – that are useful, relevant secondary sources of data and information regarding valuation and valuation variability. These secondary sources may have familiarity with and perspectives on pending transactions, successful strategies to optimize value, and the history and details of specific properties – on and off the market – that enhance the process and analysis that is particularly and principally germane to establishing value in distressed markets and/or property types.

Cash, in banks

The partnership considers all highly liquid financial instruments with maturities of three months or less at the time of purchase to be cash equivalents. At June 30, 2016 and December 31, 2015, certain partnership cash balances in banks may at times exceed federally insured limits.

Loans and interest income

Loans generally are stated at the unpaid principal balance (principal). Management has discretion to pay amounts (advances) to third parties on behalf of borrowers to protect the partnership’s interest in the loan. Advances include, but are not limited to, the payment of interest and principal on a senior lien to prevent foreclosure by the senior lien holder, property taxes, insurance premiums, and attorney fees. Advances generally are stated at the amounts paid out on the borrower’s behalf and any accrued interest on amounts paid out, until repaid by the borrower.

The partnership may fund a specific loan origination net of an interest reserve to insure timely interest payments at the inception (one to two years) of the loan. As monthly interest payments become due, the partnership funds the payments into the affiliated trust account.

If based upon current information and events, it is probable the partnership will be unable to collect all amounts due according to the contractual terms of the loan agreement, then a loan may be designated as impaired. Impaired loans are included in management’s periodic analysis of recoverability. If a valuation allowance has been established on an impaired loan, any subsequent payments on impaired loans are applied to late fees and then to reduce first the accrued interest, then advances, and then unpaid principal.

From time to time, the partnership negotiates and enters into loan modifications with borrowers whose loans are delinquent. In the normal course of the partnership’s operations, loans that mature may be renewed at then current market rates and terms for new loans. Such renewals are not designated as impaired, unless the renewed loan was previously designated as impaired.

Interest is accrued daily based on the unpaid principal balance of the loans. An impaired loan continues to accrue as long as the loan is in the process of collection and is considered to be well-secured. Loans are placed on non-accrual status at the earlier of management’s determination that the primary source of repayment will come from the foreclosure and subsequent sale of the collateral securing the loan (which usually occurs when a notice of sale is filed) or when the loan is no longer considered well-secured. When a loan is placed on non-accrual status, the accrual of interest is discontinued; however, previously recorded interest is not reversed. A loan may return to accrual status when all delinquent interest and principal payments become current in accordance with the terms of the loan agreement.

Allowance for loan losses

Loans and the related accrued interest and advances are analyzed on a periodic basis for ultimate recoverability. Delinquencies are identified and followed as part of the loan system. Delinquencies are determined based upon contractual terms. For impaired loans, a provision is made for loan losses to adjust the allowance for loan losses to an amount considered by management to be adequate, with due consideration to collateral values, such that the net carrying amount (unpaid principal balance, plus advances, plus accrued interest less the specific allowance) is reduced to the present value of future cash flows discounted at the loan’s effective interest rate, or, if a loan is collateral dependent, to the estimated fair value of the related collateral, net of any senior loans, and net of any costs to sell in arriving at net realizable value if planned disposition of the asset securing a loan is by way of sale.

The fair value estimates of the related collateral are derived from information available in the real estate markets including similar property, and may require the experience and judgment of third parties such as commercial real estate appraisers and brokers.

10

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

Loans determined not to be individually impaired are grouped by the property type of the underlying collateral, and for each loan and for the total by property type, the amount of protective equity or amount of exposure to loss is computed.

Based on its knowledge of the borrowers and their historical (and expected) performance, and the exposure to loss as indicated in the analysis, management estimates an appropriate reserve by property type for probable credit losses in the portfolio. Because the partnership is an asset-based lender, except as to owner-occupied residences, and because specific regions, neighborhoods and even properties within the same neighborhoods, vary significantly as to real estate values and transaction activity, general market trends, which may be indicative of a change in the risk of a loss, and a borrower’s creditworthiness are secondary to the condition of the property, the property type and the neighborhood/region in which the property is located, and do not enter substantially into the determination of the amount of the non-specific (i.e. general) reserves.

The partnership charges off uncollectible loans and related receivables directly to the allowance account once it is determined the full amount is not collectible.

Real estate owned (REO)

Real estate owned (REO) is property acquired in full or partial settlement of loan obligations generally through foreclosure, and is recorded at acquisition at the lower of the amount owed on the loan (legal basis), plus any senior indebtedness, or at the property’s net realizable value, which is the fair value less estimated costs to sell, as applicable. The fair value estimates are derived from information available in the real estate markets, including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. The estimates figure materially in calculating the value of the property at acquisition, the level of charge to the allowance for loan losses and any subsequent valuation reserves. After acquisition, costs incurred relating to the development and improvement of property are capitalized to the extent they do not cause the recorded value to exceed the net realizable value, whereas costs relating to holding and disposition of the property are expensed as incurred. After acquisition, REO is analyzed periodically for changes in fair values and any subsequent write down is charged to operations expense. Any recovery in the fair value subsequent to such a write down is recorded, not to exceed the value recorded at acquisition. Recognition of gains on the sale of real estate is dependent upon the transaction meeting certain criteria related to the nature of the property and the terms of the sale, including potential seller financing.

Rental income/depreciation

Rental income is recognized when earned in accordance with the lease agreement. For commercial leases, the costs associated with originating the lease are amortized over the lease term. Residential lease terms generally range from month-to-month to one-year, and the expenses of originating the lease are expensed as incurred. Real estate owned that is designated held for sale is not depreciated. Real estate that was designated held for investment, and rented was depreciated on a straight-line basis over the estimated useful life of the property.

Recently issued accounting pronouncements

 On June 16, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-13 (ASU 2016-13) Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), which introduces new guidance for the accounting for credit losses on instruments within its scope.

ASU 2016-13 introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments, including loans. It also modifies the impairment model for available-for-sale (AFS) debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination.  ASU 2016-13’s approach, referred to as the current expected credit losses (CECL) model, applies to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes loans, held-to-maturity debt securities, loan commitments, financial guarantees, and net investments in leases, as well as reinsurance and trade receivables. Upon initial recognition of the exposure, the CECL model requires an entity to estimate the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses (ECL) should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments.  ASU 2016-13 does not prescribe a specific method to make the estimate so its application will require significant judgment

11

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

Generally, the initial estimate of the ECL and subsequent changes in the estimate will be reported in current earnings. The ECL will be recorded through an allowance for loan losses (ALL) in the statement of financial position.

ASU 2016-13 will be effective for SEC filers in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of fiscal years beginning after December 15, 2018 including interim periods within those fiscal years.

The partnership is evaluating the impact of ASU 2016-13 on the credit analytics and other process used in establishing the ALL.  The initial – and preliminary conclusion – is that, because RMI VIII is a real estate based lender, relying primarily on low LTV’s/significant protective equity in making the lending decision,  the impact on reported financial position and results of operations will not be material to the financial position or results from operations of the partnership.

NOTE 3 – GENERAL PARTNERS AND OTHER RELATED PARTIES

The general partners are entitled to one percent (1%) of the profits and losses, which amounted to approximately $15,000 and $30,000 for the three months ended, and $26,000 and $41,000 for the six months ended June 30, 2016 and 2015, respectively. Beginning with calendar year 2010, and continuing until January 1, 2020, RMC assigned its right to two-thirds of one percent (0.66%) of profits and losses to Burwell in exchange for Burwell assuming one hundred percent (100%) of the general partners’ equity deficit.

Formation loan/Commissions paid to broker-dealers

Commissions to broker-dealers (B/D sales commissions) for sales of limited partnership interests were paid by RMC and were not paid directly by the partnership out of offering proceeds.  Instead, the partnership advanced to RMC amounts sufficient to pay the B/D sales commissions and premiums paid to partners in connection with unsolicited orders up to seven percent (7%) of offering proceeds.  The receivable arising from the advances is unsecured, and non-interest bearing and is referred to as the “formation loan.” If the general partners are removed and RMC is no longer receiving payments for services rendered, the formation loan is forgiven, per the terms of the partnership agreement.

The formation loan transactions are summarized in the following table at June 30, 2016 ($ in thousands).

	2016
Balance January 1	$	6,934
Formation loans made		—
Early withdrawal penalties		(204	)
Repayments		—
Balance June 30	$	6,730

The scheduled payments on the formation loan are presented in the following table ($ in thousands).

2016	$	446
2017		650
2018		650
2019		650
2020		650
Thereafter		3,684
Total	$	6,730

The loan brokerage commissions on the mortgage loans originated for RMI VIII are the primary source of the repayments made by RMC for the formation loan.

12

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

The following commissions and fees are paid by borrowers directly to RMC.

- Brokerage commissions, loan originations

In connection with the review, selection, evaluation, negotiation and extension of loans, the general partners may collect loan brokerage commissions (points) limited to an amount not to exceed 4% of the total partnership assets per year. The loan brokerage commissions are paid by borrowers, and thus, are not an expense of the partnership. Loan brokerage commissions paid to the general partners by borrowers were $649,682 and $230,808, for the three months ended, and $1,167,601 and $444,657 for the six months ended June 30, 2016 and 2015, respectively.

- Other fees

The partnership agreement provides for other fees such as reconveyance, mortgage assumption and mortgage extension fees. Such fees are incurred by borrowers and are paid to the general partners. Other fees totaled $40,523 and $38,964, for the three months ended, and $51,759 and $44,370 for the six months ended June 30, 2016 and 2015, respectively.

The following commissions and fees are paid by the partnership to RMC.

- Mortgage servicing fees

RMC earns mortgage servicing fees of up to 1.5% annually of the unpaid principal balance of the loan portfolio.  The mortgage servicing fees are accrued monthly on all loans.  Remittance to RMC is made monthly unless the loan has been assigned a specific loss reserve, at which point remittance is deferred until the specific loss reserve is no longer required, or the property has been acquired by the partnership.

Mortgage servicing fees paid to RMC were approximately $294,000 and $293,000 for the three months ended, and $527,000 and $577,000 for the six months ended June 30, 2016 and 2015, respectively.  No mortgage servicing fees were waived during any period reported.

- Asset management fees

The general partners receive monthly fees for managing the partnership’s loan portfolio and operations of up to 1/32 of 1% of the “net asset value” (3/8 of 1% annually).

Asset management fees were approximately $172,000 and $183,000 for the three months ended, and $348,000 and $367,000 for the six months ended June 30, 2016 and 2015, respectively. No asset management fees were waived during any period reported.

- Costs from Redwood Mortgage Corp.

RMC is reimbursed by the partnership for operations expense incurred on behalf of the partnership, including without limitation, accounting and audit fees, legal fees and expenses, postage and preparation of reports to limited partners and out-of-pocket general and administration expenses. The decision to request reimbursement of any qualifying charges is made by RMC in its sole discretion. Expenses reimbursed to RMC totaled $491,000 and $443,000  for the three months ended, and $975,000 and $971,000 for the six months ended June 30, 2016 and 2015, respectively.  RMC did not waive its right to request reimbursement of any qualifying charges during any period reported.

NOTE 4 – LOANS

Loans generally are funded at a fixed interest rate with a loan term of up to five years.

As of June 30, 2016, 47 (84%) of the partnership’s loans (representing 97% of the aggregate principal of the partnership’s loan portfolio) have a term of five years or less from loan inception.  The remaining loans have terms longer than five years.  Substantially all loans are written without a prepayment penalty clause.

13

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

As of June 30, 2016, 21 (38%) of the loans outstanding (representing 60% of the aggregate principal balance of the partnership’s loan portfolio) provide for monthly payments of interest only, with the principal due in full at maturity.  The remaining loans require monthly payments of principal and interest, typically calculated on a 30-year amortization, with the remaining principal balance due at maturity.

Secured loans unpaid principal balance (principal)

Secured loan transactions are summarized in the following table for the six months ended June 30, 2016 and 2015, respectively          ($ in thousands).

	2016			2015
Principal, January 1	$	62,740		$	71,017
Loans funded or acquired		46,770			20,980
Principal payments received		(16,634	)		(15,942	)
Loans sold to affiliates		(2,000	)		(4,637	)
Foreclosures		(345	)		—
Other - loans charged off against allowance		—			(65	)
Principal, June 30	$	90,531		$	71,353

There were no renewals during the six months ended June 30, 2016.

14

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

Loan characteristics

Secured loans had the characteristics presented in the following table as of June 30, 2016 and December 31, 2015 ($ in thousands).

	June 30,			December 31,
	2016			2015
Number of secured loans		56			53
Secured loans – principal	$	90,531		$	62,740
Secured loans – lowest interest rate (fixed)		5.0	%		5.0	%
Secured loans – highest interest rate (fixed)		11.0	%		11.0	%
Average secured loan – principal	$	1,617		$	1,184
Average principal as percent of total principal		1.8	%		1.9	%
Average principal as percent of partners’ capital		0.9	%		0.6	%
Average principal as percent of total assets		0.8	%		0.6	%
Largest secured loan – principal	$	14,000		$	14,000
Largest principal as percent of total principal		15.5	%		22.3	%
Largest principal as percent of partners’ capital		7.9	%		7.5	%
Largest principal as percent of total assets		7.1	%		6.7	%
Smallest secured loan – principal	$	94		$	95
Smallest principal as percent of total principal		0.1	%		0.2	%
Smallest principal as percent of partners’ capital		0.1	%		0.1	%
Smallest principal as percent of total assets		0.1	%		0.1	%
Number of counties where security is located (all California)	18				20
Largest percentage of principal in one county		25.5	%		23.7	%
Number of secured loans in foreclosure status		—			1
Secured loans in foreclosure – principal	$	—		$	345
Number of secured loans with an interest reserve		—			—
Interest reserves	$	—		$	—

As of June 30, 2016, the partnership’s largest loan, in the unpaid principal balance of approximately $14,000,000 (representing 15.5% of outstanding secured loans and 7.1% of partnership total assets), had an interest rate of 7.3%, was secured by a commercial building in Contra Costa county, and has a maturity of January 1, 2019.

As of June 30, 2016, the partnership had no outstanding construction or rehabilitation loans and no commitments to fund construction, rehabilitation or other loans.

15

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

Lien position

At funding, secured loans had the following lien positions and are presented in the following table as of June 30, 2016 and December 31, 2015 ($ in thousands).

	June 30, 2016								December 31, 2015
	Loans		Principal			Percent			Loans		Principal			Percent
First trust deeds		33	$	66,828			74	%		32	$	44,078			70	%
Second trust deeds		22		20,703			23			21		18,662			30
Third trust deeds		1		3,000			3			—		—			—
Total secured loans		56	$	90,531			100	%		53		62,740			100	%
Liens due other lenders at loan closing				33,765								30,920
Total debt			$	124,296							$	93,660
Appraised property value at loan closing			$	245,659							$	178,188
Percent of total debt to appraised values (LTV) at    loan closing(1)				51.8	%							54.5	%

(1) Based on appraised values and liens due other lenders at loan closing. The weighted-average loan-to-value (LTV) computation above does not take into account subsequent increases or decreases in property values following the loan closing, nor does it include decreases or increases of the amount owing on senior liens to other lenders.

Property type

Secured loans summarized by property type are presented in the following table as of June 30, 2016 and December 31, 2015 ($ in thousands).

	June 30, 2016						December 31,2015
	Loans	Principal		Percent			Loans	Principal		Percent
Single family(2)	37	$	39,843		44	%	33	$	27,673		45	%
Multi-family	2		893	1			1		584	1
Commercial	16		49,345	54			18		34,033	53
Land	1		450	1			1		450	1
Total secured loans	56	$	90,531		100	%	53	$	62,740		100	%

(2) Single family property type as of June 30, 2016 consists of 15 loans with principal of approximately $12,358,000 that are owner occupied and 22 loans with principal of approximately $27,485,000 that are non-owner occupied. At December 31, 2015, single family property consisted of 15 loans with principal of approximately $14,157,000 that were owner occupied and 18 loans with principal of approximately $13,516,000 that were non-owner occupied.

Single family properties include owner-occupied and non-owner occupied single family homes (1-4 unit residential buildings), condominium units, townhouses, and condominium complexes. As of June 30, 2016 and December 31, 2015, one and two, respectively, of the partnership’s loans with a principal balance of $343,000 and $993,000, respectively, were secured by condominium properties.

16

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

Distribution by California counties

The distribution of secured loans outstanding by the California county in which the primary collateral is located is presented in the following table as of June 30, 2016 and December 31, 2015 ($ in thousands).

	June 30, 2016					December 31, 2015
	Unpaid Principal Balance		Percent			Unpaid Principal Balance		Percent
San Francisco Bay Area(3)
San Mateo	$	18,608		20.5	%	$	8,008		12.8	%
Contra Costa		14,325		15.8			14,327		22.8
San Francisco		11,727		12.9			7,656		12.2
Alameda		9,443		10.4			920		1.5
Solano		1,875		2.1			2,575		4.1
Santa Clara		1,192		1.3			4,924		7.9
Napa		969		1.1			976		1.6
Marin		774		0.9			674		1.1
		58,913		65.0			40,060		64.0
Other Northern California
El Dorado		2,044		2.3			2,045		3.2
Monterey		3,519		3.9			1,366		2.2
Santa Cruz		891		1.0			928		1.5
Sacramento		420		0.5			421		0.6
Calaveras		153		0.2			156		0.2
San Benito		94		0.1			95		0.1
		7,121		8.0			5,011		7.8
Total Northern California		66,034		73.0			45,071		71.8
Los Angeles & Coastal
Los Angeles		23,050		25.5			14,873		23.7
Orange		667		0.7			669		1.1
San Diego		675		0.7			375		0.6
Ventura		—		—			344		0.5
		24,392		26.9			16,261		25.9
Other Southern California
Kern		105		0.1			108		0.2
San Bernardino		—		—			1,300		2.1
		105		0.1			1,408		2.3
Total Southern California		24,497		27.0			17,669		28.2
Total Secured Loans Balance	$	90,531		100.0	%	$	62,740		100.0	%

(3) Includes the Silicon Valley

17

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

Delinquency, modifications, and workout agreements

Secured loans summarized by payment delinquency are presented in the following table as of June 30, 2016 and December 31, 2015 ($ in thousands).

	June 30, 2016				December 31, 2015
	Loans		Amount		Loans		Amount
Past Due
30-89 days		—	$	—		—	$	—
90-179 days		2		793		1		345
180 or more days		1		4,000		—		—
Total past due		3	$	4,793		1		345
Current		53		85,738		52		62,395
Total secured loan balance		56	$	90,531		53	$	62,740

At June 30, 2016, the partnership had one workout agreement in effect with a principal balance of $153,000. The borrower had made all required payments under the workout agreement, and was included in the above table as current. The loan was designated as impaired, but was not in non-accrual status. The loan of $4.0 million was past its maturity date at June 30, 2016 and December 31, 2015.  The borrower has listed the property for sale and – due to the substantial protective equity in the property – it is reasonably assured that the partnership will be paid in full accordance with the note.

Scheduled maturities

Secured loans are scheduled to mature as presented in the following table ($ in thousands).

Scheduled maturities, as of June 30, 2016	Loans		Principal		Percent
2016(4)		4	$	1,467		2	%
2017		20		28,955		32
2018		7		19,133		21
2019		14		31,735		35
2020		6		3,200		4
2021		3		1,150		1
Thereafter		1		891		1
Total future maturities		55		86,531		96
Matured as of June 30, 2016		1		4,000		4
Total secured loan balance		56	$	90,531		100	%

(4) Loans maturing in 2016 from July 1 to December 31.

It is the partnership’s experience that loans may be repaid or refinanced before, at or after the contractual maturity date. For matured loans, the partnership may continue to accept payments while pursuing collection of amounts owed from borrowers. Therefore, the above tabulation for scheduled maturities is not a forecast of future cash receipts.

18

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

Matured loans

Secured loans past maturity are summarized in the following table as of June 30, 2016 and December 31, 2015 ($ in thousands).

	June 30,			December 31,
	2016			2015
Number of loans(5)		1			1
Principal	$	4,000		$	4,000
Advances		—			—
Accrued interest		198			85
Total secured loan balance	$	4,198		$	4,085
Percent of principal		4	%		6	%

(5) At June 30, 2016 and December 31, 2015, the loan past maturity was not designated non-accrual, as the loan has an LTV substantially below 50%. The borrower has listed the property for sale and – due to the substantial protective equity in the property - it is reasonably assured that the partnership will be paid in full accordance with the note.

Loans in non-accrual status

Secured loans in non-accrual status are summarized in the following table as of June 30, 2016 and December 31, 2015 ($ in thousands).

	June 30,		December 31,
	2016		2015
Number of loans		1		2
Principal	$	231	$	577
Advances		2		32
Accrued interest		0		14
Loan balance	$	233	$	623
Foregone interest	$	—	$	—

At June 30, 2016, there were three loans with a principal balance of $4,792,773, that were contractually 90 or more days past due as to principal or interest and not in non-accrual status. At December 31, 2015, there was one loan with a loan balance of $345,000, that was contractually 90 or more days past due as to principal or interest and not in non-accrual status.

Loans designated impaired

Impaired loans had the balances shown and the associated allowance for loan losses presented in the following table as of June 30, 2016 and December 31, 2015 ($ in thousands).

	June 30,		December 31,
	2016		2015
Principal	$	4,384	$	732
Recorded investment(6)	$	4,590	$	784
Impaired loans without allowance	$	4,590	$	784
Impaired loans with allowance	$	—	$	—
Allowance for loan losses, impaired loans	$	—	$	—
Number of Loans		3		3

(6) Recorded investment is the sum of principal, advances, and interest accrued for financial reporting purposes.

19

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

Impaired loans had the average balances and interest income recognized and received in cash as presented in the following table as of, and for, the six months ended June 30, 2016 and the year ended December 31, 2015 ($ in thousands).

	June 30,		December 31,
	2016		2015
Average recorded investment	$	2,687	$	10,992
Interest income recognized	$	212	$	43
Interest income received in cash	$	13	$	29

Allowance for loan losses

At June 30, 2016 and December 31, 2015, the partnership had not recorded an allowance for loan losses, as all loans were deemed to have protective equity such that collection is reasonably assured for amounts owing.

NOTE 5 – REAL ESTATE OWNED (REO)

Transactions and activity, including changes in the net book values, are presented in the following table for the three and six months ended June 30, 2016 ($ in thousands).

	Three Months Ended June 30,			Six Months Ended June 30,
Balance, beginning of period	$	82,164		$	82,949
Acquisitions		—			1,388
Dispositions		(2,082	)		(4,416	)
Improvements/betterments		84			245
Balance, end of period	$	80,166		$	80,166

At June 30, 2016, all properties are designated held for sale.

The following transactions closed during the three months ended June 30, 2016:

- Sold 6 of the 62 units remaining at the beginning of the period, in a condominium complex in Los Angeles County with a gain of approximately $25,000.

- Sold 1 of the 2 units remaining at the beginning of the period, in a condominium complex in Alameda County with a gain of approximately $203,000.

- Sold 1 of the 13 units remaining at the beginning of the period, in a condominium complex in San Francisco County with a gain of approximately $135,000.

The following transactions closed during the three months ended March 31, 2016:

- Sold 8 of the 70 units remaining at the beginning of the period, in a condominium complex in Los Angeles County with a gain of approximately $89,000.

- Sold 2 of the 4 units remaining at the beginning of the period, in a condominium complex in Alameda County with a gain of approximately $415,000.

- Acquired 3 commercial units and a parking lot located in Ventura County.

20

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

REO summarized by property classification is presented in the following table ($ in thousands).

	June 30, 2016				December 31, 2015
	Properties		NBV		Properties		NBV
Property classification
Rental		9	$	76,366		8	$	79,149
Non-Rental		3		3,800		3		3,800
Total REO, net		12	$	80,166		11	$	82,949

Rental properties consist of the following nine properties at June 30, 2016:

- In Los Angeles County, 56 units in a condominium complex.

- In Contra Costa County, 29 units in a condominium complex.

- In Los Angeles County, a 126 unit condominium complex.

- In Amador County, a commercial property.

- In Contra Costa County, a commercial property.

- In Alameda County, 1 unit in a condominium complex.

- In San Francisco County, 12 units in a condominium complex.

- In San Francisco County, a commercial property.

- In Ventura County, a commercial property.

Non-Rental properties consist of the following three properties at June 30, 2016:

- In Fresno County, a partially completed home subdivision.

- In Stanislaus County, approximately 14 acres zoned commercial.

- In Marin County, approximately 13 acres zoned for residential development.

21

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

Earnings from rental operations are presented in the following table for the three and six months ended June 30, 2016 and 2015 ($ in thousands).

	Three Months Ended				Six Months Ended
	2016		2015		2016		2015
Rental income	$	1,414	$	2,544	$	2,781	$	5,128
Operating expenses, rentals
Administration and payroll		198		344		383		687
Homeowner association fees		115		182		230		376
Professional services		16		14		26		17
Utilities and maintenance		183		242		388		544
Advertising and promotions		4		19		9		37
Property taxes		188		301		397		620
Other		59		81		81		141
Total operating expenses, rentals		763		1,183		1,514		2,422
Net operating income		651		1,361		1,267		2,706
Depreciation		—		77		—		294
Receiver fees		2		4		2		10
Rental operations, net		649		1,280		1,265		2,402
Interest on mortgages		274		393		502		773
Rental operation, net of mortgage interest	$	375	$	887	$	763	$	1,629

Leases on residential properties are one-year lease terms or month to month.  There is one commercial lease with a three-year term for annual rent payments of approximately $85,000.  The lease expires in August 2017, with an option to extend.

Mortgages payable

Mortgages payable transactions are summarized in the following table for the six months ended June 30, 2016 ($ in thousands).

	2016
Principal, January 1	$	27,509
Mortgages acquired by foreclosure(1)		926
Principal repaid		(1,207	)
Principal, June 30	$	27,228

(1) In February, 2016, the partnership took ownership of a property through foreclosure of its second mortgage, subject to the existing deed of trust.  The loan was paid in full in June, 2016.

Mortgage payable as of June 30, 2016 and December 31, 2015 are summarized in the following table (mortgage balance $ in thousands).

	June 30,		December 31,
	2016		2015
NorthMarq Capital – Secured by a condominium complex,    located in Los Angeles County, matures July 1, 2022,    interest rate (3.11%) varies monthly (LIBOR plus 2.73%),    monthly payment(2)(3) $167,753	$	27,228	$	27,509

(2) Monthly payments include amounts for various impounds such as property taxes, insurance, and repairs.

(3) Monthly payments based upon a 30-year amortization, with a balloon payment due at maturity. 

22

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

Future minimum payments of principal at June 30, 2016 are presented in the following table ($ in thousands).

2016 (July 1 to December 31)	$	290
2017		595
2018		613
2019		633
2020		653
Thereafter		24,444
Total	$	27,228

NOTE 6 – FAIR VALUE

The partnership does not record loans, REO or mortgages payable at fair value on a recurring basis.

The recorded amount of the performing loans (i.e., the loan balance) is deemed to approximate the fair value, as is the loan balance of loans designated impaired for which a specific reserve has not been recorded (i.e., the loan is well collateralized, such that the collection of the amount owed is assured, including foregone interest, if any).

Certain assets and liabilities are measured at fair value on a non-recurring basis and are listed below.

- Loans designated impaired (i.e., that are collateral dependent with a specific reserve)

- REO for which a valuation reserve has been recorded

- REO acquired through foreclosure during the year

Assets and liabilities measured at fair value on a non-recurring basis in the six months ended June 30, 2016 are presented in the following table ($ in thousands).

	Fair Value Measurement at Report Date Using
	Quoted Prices		Significant
	In Active		Other		Significant
	Markets For		Observable		Unobservable		Total
	Identical Assets		Inputs		Inputs		As Of
Item	(Level 1)		(Level 2)		(Level 3)		06/30/2016
Impaired loans with specific allowance, net for which an    adjustment was recorded in the year	$	—	$	—	$	—	$	—
REO for which a valuation reserve has been recorded in the    year	$	—	$	—	$	—	$	—
REO acquired through foreclosure during the year(1)	$	—	$	416	$	—	$	416

(1) The dollar amount presented is the net of the fair value of the property at acquisition of the REO and the principal and interest owing on the first mortgage assumed of approximately $926,000. The mortgage was paid off in June 2016

23

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

The following methods and assumptions are used when estimating fair value.

(a) Secured loans, performing (i.e., not designated as impaired) (Level 2) –Each loan is reviewed for its delinquency, protective equity (LTV) adjusted for the most recent valuation of the underlying collateral, remaining term to maturity, borrower’s payment history and other factors.  Also considered is the limited resale market for the loans. Most companies or individuals making similar loans as the partnership intend to hold the loans until maturity as the average contractual term of the loans (and the historical experience of the time the loan is outstanding due to pre-payments) is shorter than conventional mortgages.  Furthermore, there are no prepayment penalties to be collected and any loan buyers would be unwilling to risk paying above par. Due to these factors, sales of the loans are infrequent, and an active market does not exist.

(b) Secured loans, designated impaired (Level 2) – Secured Loans designated impaired are deemed collateral dependent, and the fair value of the loan is the lesser of the fair value of the collateral or the enforceable amount owing under the note. The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values and publicly available information on in-market transactions Level 2 inputs.

The following methods are used depending upon the property type of the collateral of the secured loans.

Single family – Management’s preferred method for determining the fair market value of its single-family residential assets is the sale comparison (sales comp) method. Management primarily obtains sale comps through its subscription to the RealQuest service, but also uses free online services such as Zillow.com and other available resources to supplement this data. Sale comps are reviewed for similarity to the subject property, examining features such as proximity to subject, number of bedrooms and bathrooms, square footage, sale date, condition and year built.

If applicable sale comps are not available or deemed unreliable, management will seek additional information in the form of brokers’ opinions of value or appraisals.

Multi-family residential – The partnership’s multi-family residential assets consist of multiple owned units at fractured condominium projects and wholly owned apartment complexes with condominium overlays. Management’s fair market value analysis compares the aggregate retail value of the units as for-sale condominiums against the asset’s value as an income-producing rental property in determining its most favorable market.

Management’s preferred method for determining the aggregate retail value of its multifamily units is the sale comparison method for the individual condominium units. Management primarily obtains sale comps via its subscription to the RealQuest service, but also uses free online services such as Zillow.com to supplement this data. Sale comps are reviewed for similarity to the subject property, examining features such as proximity to subject, number of bedrooms and bathrooms, square footage, sale date, condition, amenities and year built. For fractured condominium projects, sales of units within the same community are preferred.

Management compiles the list of the most relevant sale comps and derives an average price per square foot, which is then applied to the average square footage of partnership-owned units at the subject property to determine the average price per unit and the gross square footage of all partnership units to determine the aggregate retail value of the units as for-sale condominiums.

Where adequate sale comps are not available, management will seek additional information in the form of brokers’ opinions of value or appraisals.

Management’s preferred method for valuing its multifamily assets as income-producing rental operations is the direct capitalization method when rental operations are consistent and rental income and expenses have been normalized. In order to determine market capitalization rates (cap rates), management refers to published data from reliable third-party sources such as the CBRE Cap Rate Survey. Management then applies the appropriate cap rate to the property’s most recent available annual net operating income to determine the property’s value as an income-producing project. When reliable net operating income information is not available, or the project is under development, or is under-performing to market, management will seek additional information and analysis to determine the cost to improve and the intrinsic fair value.

24

REDWOOD MORTGAGE INVESTORS VIII,

A California Limited Partnership

Notes to Consolidated Financial Statements

June 30, 2016 (unaudited)

Where such information is available, management may also determine the asset’s value as an income-producing rental project via the sale comparison method by comparing the value of similar multifamily assets sold recently. This method typically applies only to wholly owned apartment complexes.

Management compares the aggregate retail value to the value as an income-producing rental project to determine the property’s current highest and best use/ most favorable market, setting the fair market value accordingly.

Commercial buildings – Where commercial rental income information is available, management’s preferred method for determining the fair value of its commercial real estate assets is the direct capitalization method. In order to determine cap rates for properties of the same class and location as the subject, management refers to reputable third-party sources such as the CBRE Cap Rate Survey. Management then applies the appropriate cap rate to the subject’s most recent available annual net operating income to determine the property’s value as an income-producing commercial rental project.  When reliable net operating income information is not available or the project is under development or is under-performing to market, management will seek additional information and analysis to determine the cost to improve and the intrinsic fair value of stabilized properties performing at market, less any cost to improve.

Supplementally, and particularly when reliable net operating income is not available or the project is under development, management will seek additional information in the form of a sale comparison analysis (where adequate sale comps are available), brokers’ opinion of value, or appraisal.

Commercial land – Commercial land has many variations/uses, thus requiring management to employ a variety of methods depending upon the unique characteristics of the subject land. Management may rely on information in the form of a sale comparison analysis (where adequate sales comps are available), brokers’ opinion of value or appraisal.

(c) Unsecured loans (Level 3). Unsecured loans are valued at their principal less any discount or loss reserves established by management after taking into account the borrower’s creditworthiness and ability to repay the loan.

(d) Mortgages payable (Level 2). The partnership has mortgages payable. The interest rates are deemed to be at market rates for the type and location of the securing property, the length of the mortgage, and the other terms and conditions are deemed to be customary. All of the partnership’s mortgages are deemed to be at fair value as they are either, with variable interest rates which have adjusted within the past twelve months, or were refinanced/extended within the past twelve months with terms and conditions deemed customary for the collateral property.

NOTE 7 – COMMITMENTS AND CONTINGENCIES, OTHER THAN LOAN AND REO COMMITMENTS

Legal proceedings

In the normal course of business, the partnership may become involved in various legal proceedings (such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc.) to collect debt owed under promissory notes, to enforce the provisions of deeds of trust, to protect its interest in real property subject to the deeds of trust, and to resolve disputes with borrowers, lenders, lien holders and mechanics. None of these actions typically would be of any material importance. As of the date hereof, the partnership was not involved in any legal proceedings other than those that would be considered part of the normal course of business.

Commitments

None.

NOTE 8 – SUBSEQUENT EVENTS

None.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto, which are included in Item 1 of this report on Form 10-Q, as well as the audited financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the partnership’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the U.S. Securities and Exchange Commission. The results of operations for the three and six month periods ended June 30, 2016 are not necessarily indicative of the operations results to be expected for the full year.

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 Exchange Act of 1934, as amended (or the Exchange Act), including statements regarding the partnership’s expectations, hopes, intentions, beliefs and strategies regarding the future.  Forward-looking statements, which are based on various assumptions (some of which are beyond our control), may be identified by reference to a future period or periods or by use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “continue,” “possible” or similar terms or variations on those terms or the negative of those terms.  Forward-looking statements include statements regarding trends in the California real estate market, future interest rates and economic conditions and their effect on the partnership and its assets, estimates as to the allowance for loan losses, estimates of future redemptions of units, future funding of loans by the partnership, and beliefs relating to how the partnership will be affected by current economic conditions and trends in the financial and credit markets.  Actual results may be materially different from what is projected by such forward-looking statements.  Factors that might cause such a difference include, but are not limited to, the following:

· changes in economic conditions and interest rates,

· the impact of competition and competitive pricing for mortgage loans,

· downturns in the California real estate markets which affect the general partners’ and our ability to find suitable loans in a weaker economy where there is less activity in the real estate market,

· our ability to grow our mortgage lending business,

· the general partners’ ability to make and arrange for loans that fit our investment criteria,

· the concentration of credit risks to which we are exposed,

· increases in payment delinquencies and defaults on our mortgage loans, and

· changes in government regulation and legislative actions affecting our business.

All forward-looking statements and reasons why results may differ included in this report on 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.

Overview

Redwood Mortgage Investors VIII, a California Limited Partnership (we, RMI VIII or the partnership) was formed in 1993 to engage in business as a mortgage lender and investor by making and holding-for-investment mortgage loans secured by California real estate, primarily through first and second deeds of trust. The partnership is externally managed. The general partners are Redwood Mortgage Corp. (RMC) and Michael R. Burwell (Burwell), an individual.

See Note 1 (Organization and General) to the financial statements included in Part I, Item 1 of this report on Form 10-Q for additional detail on the organization and operations of RMI VIII which detail is incorporated by this reference into this Item 2. For a detailed presentation of the partnership activities for which the general partners and related parties are compensated and related transactions, including the formation loan to RMC, See Note 1 (Organization and General) and Note 3 (General Partners and Other Related Parties) to the financial statements included in Part I, Item 1 of this report which presentation is incorporated by this reference into this Item 2.

Critical Accounting Policies

See Note 2 (Summary of Significant Accounting Policies) to the financial statements included in Part I, Item 1 of this report for a detailed presentation of critical accounting policies, which presentation is incorporated by this reference into this Item 2.

26

Results of Operations

General Economic Conditions

All of our mortgage loans are secured by California real estate.  Our secured-loan investment activity and the value of the real estate securing our loans is significantly dependent on economic activity and employment conditions in the state.  Wells Fargo’s Economics Group periodically provides timely, relevant information and analysis in its commentary and reports.  Highlights from recently issued reports from Wells Fargo Securities Economics Group are presented below.

In the publication: California Mid-Year Economic Update (dated June 23, 2016):

Newly Released Data Show Stronger GDP Growth in the Golden State – While a few signs of slowing are evident, California’s economy remains in the midst of a tremendous run of economic growth. Nonfarm employment growth has averaged nearly three percent over the past three years, and the state’s jobless rate has tumbled to 5.2 percent, narrowing the gap to the U.S. rate to just half a percentage point.  California’s good fortune has largely been due to the rapid growth of technology, knowledge-based and creative industries.

Recently released data from the U.S. Bureau of Economic Analysis put some solid numbers behind California’s recent performance.  Real gross domestic product (GDP) grew 4.1 percent in 2015 to 2.46 trillion, …. Growth slowed during the second half of the year, however, with real GDP rising at 2.7 percent annualized in the fourth quarter and averaging just 1.6 percent during the second half of the year. This past year marked the strongest growth rate since 2004 and was also one of the fastest growth rates of any state, tying Oregon for the largest percentage gain.  California easily outpaced the national average for the fourth consecutive year, as the nation grew at a lesser 2.4 percent growth pace.  California, which accounts for 13.8 percent of national GDP, accounted for 23.8 percent of the nation’s growth in 2015.

California’s world-renown technology sector, which is largely captured in the information and professional, scientific & technical services sectors, continued in the fourth quarter. The two sectors made the most significant contribution to California’s real GDP growth, contributing a combined 1.3 percentage points to the 2.7 percent overall annualized growth during the quarter.  Moreover, tech-related growth in California has far outpaced the national average over the past year, with tech output growing by a larger 10.3 percent in the California relative to a 6.0 percent gain nationwide.

Housing remains a bright spot in the state’s economy, as California’s burgeoning employment and population growth continues to fuel demand for new homes.  Residential construction activity ramped up in 2015, with single-family permits registering 44,132 units for the year, marking their highest level since 2007. The multifamily market also continued to thrive, with 53,479 units permitted in 2015. The gains in housing helped boost construction output, which accounted for 0.26 percentage points of real GDP growth in the fourth quarter. That said, we expect the pace of construction to moderate slightly through the balance of this year and in 2017. Multifamily development is set to cool from its breakneck pace and population growth is likely to take a bit of a breather, as residents and would-be residents re-examine the costs and the benefits of living in expensive coastal regions in the Bay Area and Southern California.

In the publication “California Employment Conditions” June 2016 (dated July 22, 2016), the Wells Fargo Economics Group notes:

Hiring Ramps Back Up in June – California employers boosted hiring in June, as nonfarm employment rose by 40,300 jobs, following a 27,500 gain in May.  Through the first six months of this year, nonfarm employment has increased by an average 30,900 jobs per month, which is a marked deceleration from the 40,250 jobs monthly on average in 2015.

California’s important tech sector appears to be losing some of its momentum.  The information industry, which includes software publishing, internet search portals and data processing, cut 3,200 jobs in June, and added an average of 800 jobs a month during the first half of 2016. This is a far cry from the 1,440 jobs added on average in 2015.  By contrast hiring held steady in professional & technical services, which includes computer systems design, adding 4,800 jobs in June, following a huge 10,900-job gain in May.  Manufacturing added 3,600 jobs in June but is California’s only major industry that shrank over the past year.  Construction employment declined for the second-straight month but shows the strongest year-to-year growth.

On a regional basis, the majority of California’s metropolitan areas reported job gains in June.  The Los Angeles-Long Beach-Glendale area reported the largest increase, with 11,500 jobs added.  The San Francisco Bay Area added just over 10,000 jobs, with 6,500 jobs added in San Francisco and 3,500 jobs added in the South Bay.  Other notable pickups came from Anaheim, Fresno and Sacramento, which each added 3,500 jobs or more. Bakersfield was the only metro area posting a major decline, losing 2,100 jobs in June.  This marks the second-consecutive monthly loss for Bakersfield, where energy-related cutbacks are taking a toll.

California’s rapid job growth and strong gains in the high-paying tech sector have driven personal incomes up 5.4 percent over the past year.  While California easily outpaced the nation’s 4.4 percent personal income growth, the state’s higher costs continue to stretch resident’s finances… The consumer price index (CPI) in California has risen at a much  faster rate than its national counterpart.  Rapidly rising housing costs and higher prices for services in general have pushed the California CPI up 2.1 percent over the past year.  Consumer prices in the Bay Area increased by an even larger 2.8 percent.

27

Performance Highlights

For the three and six months ended June 30, 2016, net income available to limited partners as a percent of Limited Partners’ capital – average daily balance was 3.2% and 2.8% (annualized), respectively. Distributions to those limited partners electing periodic distributions was 2.5% (annualized).

For the six months ended June 30, 2016, continuing improvement in interest on loans ($3.087 million in 2016, $2.883 million in 2015, and $1.446 million in 2014) is reflective of the growth in the portfolio of performing loans and the increasing effective yield rate (8.4% in 2016, 7.3% and 2015, and 5.3% in 2014).  For the six months ended June 30, 2016, the effective yield rate on the loan portfolio and the portfolio interest rate (average daily balance) were equal at 8.4%, indicating that nearly all loans are performing.

As of June 30, 2016, the Secured loans – average daily balance for 2016 decreased approximately $2.430 million or approximately 3.2% compared to the average daily balance for the same period in 2015, due primarily to the foreclosure of an impaired loan with a principal balance of approximately $16.3 million during 2015.  The property was sold in 2015.

REO income decreased approximately $1.556 million  (56.1%) for the three months ended, and $2.015 million (49.0%) for the six months ended June 30, 2016, compared to the same period in 2015, due primarily to the sale of certain REO properties declining from $136.270 million to $80.166 million.  REO income includes earnings from rental operations, net of mortgage interest, holding costs of non-rental properties, impairment gains or losses on all REO and gains or losses on the sale of REO.

Net income for the six months ended June 30, 2016 was $2.597 million, a decrease of $1.487 million (36.4%) compared to the same period in 2015. Total operations expense as a percent of interest income on loans was 86.5% and 85.8% for the three months ended, and 84.9% and 87.8% for the six months ended June 30, 2016 and 2015, respectively.

28

Key Performance Indicators

The table below shows key performance indicators for the six months ended June 30 ($ in thousands).

	2016			2015			2014
Limited Partners’ capital – end-of-period	$	178,023			192,735			198,598
Limited Partners’ capital – average balance	$	182,710			194,667			200,193
Secured loans – average daily balance	$	73,616			76,046			59,966
Secured loans – end-of-period	$	90,531			71,353			59,031
Interest on loans	$	3,087			2,883			1,446
Portfolio interest rate(1)		8.4	%		7.3	%		6.6	%
Effective yield rate(2)		8.4	%		7.6	%		5.3	%
Provision for (recovery of) loan losses	$	(25	)		400			(160	)
Percent(2)		(0.1	)%		1.1	%		(0.5	)%
Real estate owned (REO)
REO – end of period	$	80,166			136,270			175,427
Mortgages payable – end-of-period	$	27,228			45,608			48,290
Rental operations, net	$	1,265			2,402			2,100
Interest on mortgages payable	$	502			773			1,093
Rental operations, net after mortgage interest	$	763			1,629			1,007
Realized gains on REO sales	$	784			1,992			2
Operations expense	$	2,620			2,531			1,899
Net Income	$	2,597			4,084			683
Percent(3)(4)		2.8	%		4.2	%		0.7	%
Partner Distributions	$	1,322			1,142			1,119
Percent (annual rate)(5)		2.5	%		2.0	%		2.0	%
Partner Liquidations(6)	$	10,721			6,656			2,822

(1) Stated note interest rate, weighted daily average

(2) Percent of secured loans – average daily balance, annualized

(3) Percent of limited partners’ capital – average balance, annualized

(4) Percent based on the net income available to limited partners (excluding 1% of profits and losses allocated to general partners)

(5) Percent distributed from limited partners’ capital accounts for partners electing periodic distributions.  In September 2015, the distribution rate (annualized) was raised to 2.5% from the 2.0% in effect until that date and prior.

(6) Liquidations are made once a quarter, on the last business day of the quarter.

29

The table below shows key performance indicators for the three months ended June 30 ($ in thousands).

	2016			2015			2014
Limited Partners’ capital – end-of-period	$	178,023			192,735			198,598
Limited Partners’ capital – average balance	$	180,318			193,756			199,358
Secured loans – average daily balance	$	81,108			75,562			59,159
Secured loans – end-of-period	$	90,531			71,353			59,031
Interest on loans	$	1,684			1,517			778
Portfolio interest rate(1)		8.4	%		7.5	%		6.6	%
Effective yield rate(2)		8.3	%		8.0	%		5.3	%
Provision for (recovery of) loan losses	$	(25	)		—			(130	)
Percent(2)		(0.1	)%		0.0	%		(0.9	)%
Real estate owned (REO)
REO – end of period	$	80,166			136,270			175,427
Mortgages payable – end-of-period	$	27,228			45,608			48,290
Rental operations, net	$	649			1,280			1,160
Interest on mortgages payable	$	274			393			547
Rental operations, net after mortgage interest	$	375			887			613
Realized gains on REO sales	$	281			1,672			—
Operations expense	$	1,457			1,301			960
Net Income	$	1,473			3,009			553
Percent(3)(4)		3.2	%		6.1	%		1.1	%
Partner Distributions	$	651			573			562
Percent (annual rate)(5)		2.5	%		2.0	%		2.0	%
Partner Liquidations(6)	$	5,396			4,447			1,503

(1) Stated note interest rate, weighted daily average

(2) Percent of secured loans – average daily balance, annualized

(3) Percent of limited partners’ capital – average balance, annualized

(4) Percent based on the net income available to limited partners (excluding 1% of profits and losses allocated to general partners)

(5) Percent distributed from limited partners’ capital accounts for partners electing periodic distributions.  In September 2015, the distribution rate (annualized) was raised to 2.5% from the 2.0% in effect until that date and prior.

(6) Liquidations are made once a quarter, on the last business day of the quarter.

Limited Partners’ Capital – End-of-Period

The June 30, 2016 end-of-period limited partners’ capital balance was approximately $178 million, which was a decrease of approximately 7.6% ($14.7 million) over 2015’s $192.7 million.

Secured Loans – End-of-Period

The June 30, 2016 end-of-period secured loan balance of approximately $90.5 million, was an increase of approximately 26.9% ($19.2 million) over the June 30, 2015 end-of-period secured loan balance of approximately $71.3 million.

30

The partnership added approximately $28.6 million and $46.8 million of new loans for the three and six months ended June 30, 2016 (respectively).

As of June 30, 2016, 47 (84%) of the partnership’s loans (representing 97% of the aggregate principal of the partnership’s loan portfolio) have a term of five years or less from loan inception.  The remaining loans have terms longer than five years. Substantially all loans are written without a prepayment-penalty clause. As of June 30, 2016, 21 (38%) of the loans outstanding (representing 60% of the aggregate principal balance of the partnership’s loan portfolio) provide for monthly payments of interest only, with the principal due in full at maturity.  The remaining loans require monthly payments of principal and interest, typically calculated on a 30-year amortization, with the remaining principal balance due at maturity.

We have sought to exercise strong discipline in underwriting loan applications and lending against collateral at amounts that create a mortgage portfolio that has substantial protective equity (i.e., safety margins to outstanding debt) as indicated by the overall conservative weighted average loan-to-value ratio (LTV) which at June 30, 2016 was 51.8%.  Thus, per the appraisal-based valuations at the time of loan inception, borrowers have, in the aggregate, equity of 48.2% in the property, and we as lenders have lent in the aggregate 51.8% (including other senior liens on the property) against the properties we hold as collateral for the repayment of our loans.

See Note 4 (Loans) to the financial statements included in Part I, Item 1 of this report for detailed presentations on the secured loan portfolio and on the allowance for loan losses, which presentations are incorporated by this reference into this Item 2.

REO – End-of-Period

At June 30, 2016, the partnership held 12 REO properties (9 rental properties), all of which were designated held for sale. The June 30, 2016 end-of-period REO balance was approximately $80.2 million, which was a decrease of approximately 41.2% ($56.1 million) compared to the June 30, 2015 balance of $136.3 million, due to REO sales made in a favorable real estate market.

At June 30, 2016, approximately 84.0% ($67.3 million) of total REO was comprised of two properties located in Glendale, California.

The total REO balance and number of properties held is expected to continue to decline as the remaining properties are managed for income, marketed and sold, with the proceeds reinvested into new loans.

See Note 5 (REO) to the financial statements included in Part I, Item 1 of this report for detailed presentations of REO sales transactions, rental activity, and additional information regarding REO activity during the period.

Mortgages Payable – End-of-Period

The June 30, 2016 end-of-period mortgages payable balance was approximately $27.2 million, which was a decrease of approximately 40.3% ($18.4 million) compared to the June 30, 2015 balance of $45.6 million. The decrease is due to the partnership making regular mortgage payments consisting of principal and interest, and the payoff of loans due to the sale of REO held as collateral.

31

Analysis and discussion of income from operations

Significant changes to income or expense areas for the six month period ended June 30, 2016 compared to the same period in 2015 are summarized in the following table ($ in thousands).

						REO, net
			Provision for			Rental,									Holding						Net
	Interest		(Recovery of)			Net After			Gains/			Impairment			Costs,			Operations			Income
	Income		LoanLosses			Interest			(Losses) on sales			(Loss)/Gain			Net			Expense			/(Loss)
Six months ended
June 30, 2016	$	3,087	$	(25	)	$	763		$	784		$	—		$	551		$	2,620		$	2,597
June 30, 2015		2,883		400			1,629			1,992			573			(81	)		2,531			4,084
Change	$	204	$	(425	)	$	(866	)	$	(1,208	)	$	(573	)	$	632		$	89		$	(1,487	)
Change
Loan balance increase (decrease)		18		—			—			—			—			—			(51	)		69
Effective interest rate		186		—			—			—			—			—			—			186
Stabilized portfolio		—		(425	)		—			—			—			—			—			(425	)
REO sales		—		—			(1,041	)		(1,208	)		(573	)		49			—			(2,773	)
Cost reimbursements		—		—			—			—			—			—			(44	)		44
Professional services		—		—			—			—			—			—			257			(257	)
Change in rental operations		—		—			—			—			—			—			—			—
Other		—		—			175			—			—			583			(73	)		1,669
Change	$	204	$	(425	)	$	(866	)	$	(1,208	)	$	(573	)	$	632		$	89		$	(1,487	)

The table above displays only significant changes to net income for the period, and is not intended to cross foot.

Significant changes to income or expense areas for the three month period ended June 30, 2016 compared to the same period in  2015 are summarized in the following table ($ in thousands).

						REO, net
			Provision for			Rental,									Holding						Net
	Interest		(Recovery of)			Net After			Gains/			Impairment			Costs,			Operations			Income
	Income		LoanLosses			Interest			(Losses) on sales			(Loss)/Gain			Net			Expense			/(Loss)
Three months ended
June 30, 2016	$	1,684	$	(25	)	$	375		$	281		$	—		$	563		$	1,457		$	1,473
June 30, 2015		1,517		—			887			1,672			263			(47	)		1,301			3,009
Change	$	167	$	(25	)	$	(512	)	$	(1,391	)	$	(263	)	$	610		$	156		$	(1,536	)
Change
Loan balance increase (decrease)		114		—			—			—			—			—			—			114
Effective interest rate		53		—			—			—			—			—			—			53
Stabilized portfolio		—		(25	)		—			—			—			—			—			25
REO sales		—		—			(512	)		(1,391	)		(263	)		27			—			(2,139	)
Cost reimbursements		—		—			—			—			—			—			—			—
Professional services		—		—			—			—			—			—			212			(212	)
Other		—		—			—			—			—			583			(56	)		623
Change	$	167	$	(25	)	$	(512	)	$	(1,391	)	$	(263	)	$	610		$	156		$	(1,536	)

The table above displays only significant changes to net income for the period, and is not intended to cross foot.

32

Interest on loans

Interest on loans increased approximately $167,000 (11.0%) for the three months ended and $204,000 (7.1%) for the six months ended June 30, 2016, compared to the same periods in 2015, respectively, due to the continued increase in the balance of performing loans and the increase in the effective interest rates.

Provision for (recovery of) loan losses/allowance for loan losses

At June 30, 2016, the partnership had no allowance for loan losses as all loans had protective equity such that at June 30, 2016, collection was deemed probable for amounts owing.

REO - rental operations, net after mortgage interest

At June 30, 2016 the partnership held 9 rental properties, all of which were designated held for sale, and not subject to depreciation.

Rental operations, net after mortgage interest decreased by approximately $512,000 for the three months ended, and $866,000 for six months ended  June 30, 2016 compared to the same periods in 2015, respectively, primarily due to the sale of REO properties.

Rental financial highlights by property type are presented in the table below for the six months ended June 30, 2016 ($ in thousands).

											Rental,
	Rental		Rental				Receiver		Mortgage		Net After
	Income		Expenses		Depreciation		Fees		Interest		Interest
Property type
Residential	$	2,528	$	1,268	$	—	$	1	$	465	$	794
Commercial(1)		253		246		—		1		37		(31	)
Total	$	2,781	$	1,514	$	—	$	2	$	502	$	763

Rental financial highlights by property type are presented in the table below for the three months ended June 30, 2016 ($ in thousands).

											Rental,
	Rental		Rental				Receiver		Mortgage		Net After
	Income		Expenses		Depreciation		Fees		Interest		Interest
Property type
Residential	$	1,253	$	628	$	—	$	1	$	237	$	387
Commercial(1)		161		135		—		1		37		(12	)
Total	$	1,414	$	763	$	—	$	2	$	274	$	375

(1) The partnership took ownership of a property through foreclosure of its second mortgage, subject to the existing deed of trust.  The loan was paid in full in June, 2016.

REO – realized gains/(losses) on REO sales

The realized gains/(losses) on REO sales is presented in the following table for the six months ended June 30, 2016, and 2015 ($ in thousands).

Six months ended June 30,	Sales proceeds, net		Gains(losses)
2016	$	5,201	$	784
2015	$	14,341	$	1,992

The realized gains/(losses) on REO sales is presented in the following table for the three months ended June 30, 2016, and 2015 ($ in thousands).

Three months ended June 30,	Sales proceeds, net		Gains(losses)
2016	$	2,363	$	281
2015	$	13,162	$	1,672

33

Revenues – REO – Impairment (loss)/gain

The REO impairment (loss)/gain is primarily driven by specific reserves, associated with the estimated net realizable value of properties, as analyzed each year.

Operations Expense

Significant changes to operations expense areas for the six month period ended June 30, 2016 compared to the same period in 2015 are summarized in the following table ($ in thousands).

	Mortgage			Asset			Costs
	Servicing			Management			From			Professional
	Fees			Fees			RMC			Services			Other			Total
For the six months ended,
June 30, 2016	$	527		$	348		$	975		$	757		$	13		$	2,620
June 30, 2015		577			367			971			500			116			2,531
Change	$	(50	)	$	(19	)	$	4		$	257		$	(103	)	$	89
Explanation of change
Loan balance increase (decrease)		(51	)		—			—			—			—			(51	)
Manager expense allocations		—			—			(44	)		—			—			(44	)
Professional services rendered		—			—			48			259			—			307
Capital balance decrease		—			(19	)		—			—			—			(19	)
Other		1			—			—			(2	)		(103	)		(104	)
Change	$	(50	)	$	(19	)	$	4		$	257		$	(103	)	$	89

Significant changes to operations expense areas for the three month period ended June 30, 2016 compared to the same period in 2015 are summarized in the following table ($ in thousands).

	Mortgage		Asset			Costs
	Servicing		Management			From		Professional
	Fees		Fees			RMC		Services		Other			Total
For the three months ended,
June 30, 2016	$	294	$	172		$	491	$	478	$	22		$	1,457
June 30, 2015		293		183			443		266		116			1,301
Change	$	1	$	(11	)	$	48	$	212	$	(94	)	$	156
Explanation of change
Manager expense allocations		—		—			—		—		—			—
Professional services rendered		—		—			48		212		—			260
Capital balance decrease		—		(11	)		—		—		—			(11	)
Other		1		—			—		—		(94	)		(93	)
Change	$	1	$	(11	)	$	48	$	212	$	(94	)	$	156

– Mortgage servicing fees

The decrease in mortgage servicing fees was due to the decrease in the average secured loan balance for the six months ended June 30, 2016.

– Asset management fees

The decrease in asset management fees was due to the reduction in the total capital under management for the three and six months ended June 30, 2016.

34

– Costs from RMC

The increase in costs from RMC for the three months ended June 30, 2016 was due primarily to a change in when professional services are rendered.  

– Professional services

Professional services, including audit & tax fess, increased due primarily to changes in the provision of services rendered for the three and six months ended June 30, 2016.

Liquidity and Capital Resources

The ongoing sources of funds for loans are the proceeds from (1) earnings retained (i.e. not distributed) in partners’ capital accounts, (2) loan payoffs, (3) borrowers’ monthly principal and interest payments, (4) REO sales, and, (5) to a lesser degree and, if obtained, a line of credit.  Cash generated from loan payoffs and borrower payments of principal and interest is used for operating expenses, income distributions to partners, and partner liquidations.  The cash flow, if any, in excess of these uses is to be re-invested in new loans.

Cash flows by operating function for the three and six months ended June 30, 2016 and 2015 are summarized in the following table ($ in thousands).

	Three Months Ended June 30, 2015						Six Months Ended June 30, 2015
	2016			2015			2016			2015
Loan earnings and payments
Interest	$	1,481		$	1,769		$	2,636		$	2,800
Other loan income		5			14			17			19
Operations expense		(1,523	)		(1,322	)		(2,615	)		(2,467	)
Principal payments and recoveries		11,689			14,081			16,667			15,945
Total cash from loan earnings		11,652			14,542			16,705			16,297
Loans originated, net		(26,550	)		(8,689	)		(44,770	)		(16,343	)
Advances on loans		—			18		��	(11	)		(103	)
Total cash from loan production		(26,550	)		(8,671	)		(44,781	)		(16,446	)
Cash from loan earnings and production		(14,898	)		5,871			(28,076	)		(149	)
REO operations, sales and development
Rental operations, net		334			602			1,015			2,377
Holding costs		563			(738	)		551			(1,135	)
Other Assets		3,411			—			3,411			—
Proceeds from real estate sales		2,363			13,162			5,201			14,341
Cash from REO operations, sales and development		6,671			13,026			10,178			15,583
Outside financing
Interest expense		(255	)		(838	)		(466	)		(1,195	)
Principal, net		(1,065	)		10,068			(1,207	)		9,866
Cash from outside financing		(1,320	)		9,230			(1,673	)		8,671
Net cash increase/(decrease) before distributions to limited    partners		(9,547	)		28,127			(19,571	)		24,105
Partner withdrawals
Distributions		(651	)		(573	)		(1,322	)		(1,142	)
Early withdrawal fees		104			81			204			81
Liquidations		(5,396	)		(4,447	)		(10,721	)		(6,656	)
Cash used in partner withdrawals		(5,943	)		(4,939	)		(11,839	)		(7,717	)
Net increase/(decrease) in cash	$	(15,490	)	$	23,188		$	(31,410	)	$	16,388
Cash, end of period	$	25,263		$	26,256		$	25,263		$	26,256

35

Contractual Obligations

The partnership’s contractual obligations consist of one mortgage notes payable of approximately $27.2 million which matures in 2022. See Note 5 (Real Estate Owned (REO)) to the financial statements included in Part I, Item 1 of this report for a detailed presentation on mortgage notes payable, which presentation is incorporated by this reference into this Item 2.

At June 30, 2016, the partnership had no construction or rehabilitation loans outstanding.

Distributions to limited partners

At the time of their subscription to the partnership, limited partners elected either to receive monthly, quarterly or annual cash distributions from the partnership, or to compound profits in their capital account. If an investor initially elected to receive monthly, quarterly or annual distributions, such election, once made, is irrevocable. If the investor initially elected to compound profits in their 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. Profits allocable to limited partners who elect to compound profits 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. The percentage of limited partners electing distribution of allocated net income, by weighted average to total partners’ capital was 58.3% and 60.0% at June 30, 2016 and 2015, respectively.

Off-balance Sheet Arrangements

During the six months ended June 30, 2016, we had no material off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, result of operations, liquidity, capital expenditures or capital resources.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk (Not included as smaller reporting company)

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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 (as defined in Rule 13a-15(e) or 15d-15(e)  of the Securities Exchange Act of 1934), as of the end of the period covered by this report. Based upon that evaluation, the general partners concluded the partnership’s disclosure controls and procedures were effective.

Changes to Internal Control Over Financial Reporting

There have not been any changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the manager’s or partnership’s internal control over financial reporting.

36

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

In the normal course of business, the partnership may become involved in various types of legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc. to enforce provisions of the deeds of trust, collect the debt owed under promissory notes or protect or recoup its investment from real property secured by the deeds of trust and resolve disputes between borrowers, lenders, lien holders and mechanics. None of these actions would typically be of any material importance. As of June 30, 2016, the partnership was not involved in any legal proceedings other than those that would be considered part of the normal course of business.

ITEM 1A. Risk Factors

Not included as the partnership is a smaller reporting company.

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

There were no sales of securities by the partnership which were not registered under the Securities Act pf 1933.

Liquidations are made once a quarter, on the last business day of the quarter. Liquidations for the three months ended June 30, 2016 were $5,396,605. The unit liquidation program is ongoing and available to partners beginning one year after the purchase of the units.  The maximum number of units that may be liquidated in any year and the maximum amount of liquidation available in any period to partners are subject to certain limitations.

ITEM 3. Defaults Upon Senior Securities

Not Applicable.

ITEM 4. Mine Safety Disclosures

Not Applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

Exhibit No.	Description of 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
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

37

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	REDWOOD MORTGAGE INVESTORS VIII, a California Limited Partnership
	(Registrant)
Date:  August  15, 2016	By:	Redwood Mortgage Corp., General Partner
		By:	/s/ Michael R. Burwell
		Name:	Michael R. Burwell
		Title:	President, Secretary and Treasurer
			(On behalf of the registrant, and in the capacity of principal financial officer), Director
Date:  August 15, 2016	By:	Michael R. Burwell, General Partner
		By:	/s/ Michael R. Burwell
		Name:	Michael R. Burwell
		Title:	General Partner

38

EXHIBIT INDEX

Exhibit No.	Description of 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
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

39