Redwood Trust (RWT) 8-K Redwood Trust Reports Fourth Quarter 2005 Results

Exhibit 99.2

The Redwood Review

4^thQuarter 2005

CONTENTS

INTRODUCTION		3
SHAREHOLDER LETTER		4
ABOUT REDWOOD TRUST		7
BUSINESS GROUP DISCUSSIONS
4	Residential Group	11
4	Commercial Group	14
4	CDO Group	16
FINANCIAL REVIEW
4	Finance Group Overview	18
4	GAAP Earnings	20
4	Core Earnings	21
4	Total Taxable Income	22
4	Core Taxable Income	23
4	REIT Taxable Income	24
4	Book Value per Share	25
4	Return on Equity	27
4	Discounts and Reserves	29
4	Dividends	31
APPENDIX
4	Glossary	32
4	Financial Tables	36

The Redwood Review — 4^thQuarter 2005

2

INTRODUCTION

The Redwood Review

This is our first Redwood Review. By publishing this Review on a quarterly basis, we hope to provide useful information that is accessible to shareholders seeking to learn more about our company and business.

We file quarterly reports on Form 10-Q and annual reports on Form 10-K with the Securities and Exchange Commission. Those filings and our quarterly earnings press releases provide information about our financial results from the perspective of Generally Accepted Accounting Principles (“GAAP”). These documents are available on our web site. We urge you to study them, as there is much to learn about Redwood Trust there.

In the Redwood Review, you have the opportunity to learn more about Redwood Trust through a discussion of GAAP results and also a discussion of tax results and non-GAAP measures. You will first find a quarterly shareholder letter and then a background section on Redwood Trust that highlights the key aspects of our business. Following that is a discussion of current trends within each of the business groups that comprise Redwood Trust, a review of various financial indicators for our business, a glossary explaining some of the specialized terms we use, and then the tables that we formerly published as the “Quarterly Financial Supplement.”

We expect that the form and content of the Redwood Review will evolve over time. We welcome your input during this process.

On a basic level, our primary business — assuming the credit risk of securitized residential and commercial real estate loans — is not that difficult to understand. The details and business metrics, however, can get complicated. We hope that this Review provides some insight and serves as a useful tool for better understanding your investment in Redwood Trust.

CAUTIONARY STATEMENT: This Redwood Review contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature, including the words “anticipated,” “estimated,” “should,” “expect,” “believe,” ”intend,” and similar expressions, are intended to identify forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in the Annual Report on Form 10-K under Item 1A “Risk Factors.” Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected are detailed from time to time in reports filed by us with the Securities and Exchange Commission, including Forms 10-Q and 8-K. Important factors that may impact our actual results include changes in interest rates and market values; changes in prepayment rates; general economic conditions, particularly as they affect the price of earning assets and the credit status of borrowers; the level of liquidity in the capital markets as it affects our ability to finance our real estate asset portfolio; and other factors not presently identified. In light of these risks, uncertainties, and assumptions, the forward-looking events mentioned, discussed in, or incorporated by reference into this Review might not occur. Accordingly, our actual results may differ from our current expectations, estimates, and projections. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

The Redwood Review — 4^th Quarter 2005 3

SHAREHOLDER LETTER

Fourth Quarter 2005

Dear Shareholders:

During the fourth quarter of 2005, we largely completed the asset sales program that we started mid-year. In total, we sold 40% of the residential credit-enhancement securities (“CES”) that we owned at Redwood as permanent assets. We sold primarily single B-rated (second-loss) securities while retaining most of our unrated first-loss credit-enhancement securities. This allowed us to substantially reduce our overall level of residential credit risk while also retaining the assets that could produce the highest economic gains should credit conditions for residential real estate continue to be favorable.

Our remaining residential credit-enhancement securities permanent asset portfolio of $330 million at December 31, 2005 is concentrated in first-loss securities that credit-enhance loans originated in 2003 and 2004. The $184 billion of underlying residential loans continue to produce superb credit results. Delinquencies have risen this quarter, although they remain at low levels. Normal seasoning patterns and hurricane damage account for most of the increase. We believe the slowing housing market has had little effect yet on our delinquency ratios. Credit losses continue to be very low — under one basis point (0.01%) per year.

Rising housing prices over the last few years have made it less likely that we will suffer credit losses from the residential loans underlying these securities. Even if housing markets deteriorate somewhat going forward, these securities could potentially generate high returns for us. If so, they could provide strong support for our earnings results in 2007, 2008, and 2009.

If real estate loan credit losses were to increase dramatically, as some predict, much of our investment in these securities could be lost. However, there would be no call on our capital from our credit-enhancement business. The credit guarantees we have made are limited and our maximum loss is equal to the investment we have already made. Furthermore, we do not leverage our investment in credit-enhancement securities. That is, we do not use debt to fund those investments. If the worst case happens, our strong balance sheet will be an asset.

Our asset sale program left us at year-end with $189 million of excess cash available to invest in new business. How to employ this capital, and when, are the primary short-term tactical decisions we are facing today.

We are not going to be in a hurry to invest our excess capital. While we remain optimistic about the long-term performance of the housing markets, we are starting to see numerous signs of weakness in the housing markets today. We believe that a weakening of the housing market would, if it continues, likely bring us excellent asset acquisition opportunities over the next few years. Our goal is to maintain cash balances to take advantage of these future opportunities. When liquidity dries up in the capital markets, that is when cash is the most valuable. Furthermore, from a risk perspective, we believe it is prudent to wait until some of the present uncertainties about the housing markets are cleared up before we commit all of our shareholders’ cash to new investments.

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The Redwood Review — 4^th Quarter 2005 4

SHAREHOLDER LETTER

Fourth Quarter 2005 (continued)

Our current plan, which is subject to change, is to invest our excess capital steadily over the next two to three years. Carrying excess capital will not help earnings in 2006, although we still expect to generate an acceptable return on equity (and declare regular dividends plus a special dividend) in 2006.

We are continuing to build our business of credit-enhancing securitized commercial real estate loans. Commercial real estate properties as a whole continue to improve their cash flows and valuations. Due to the level of competition in commercial credit-enhancement, and due to weakening commercial loan origination standards, the prospective returns from commercial
credit-enhancement securities at the moment are acceptable, but not overwhelming. We will continue to develop this business as part of our long-term growth and diversification strategy, and are pleased with our accomplishments to date in this area.

The market for sponsoring collateralized debt obligation (“CDO”) securitizations continues to be attractive, although it is has become more volatile. We expect to continue sponsoring Acacia CDO transactions during 2006. After Acacia completes each securitization, we expect to acquire and invest in all or a portion of the CDO equity securities created in these transactions. We expect that these will be attractive long-term permanent assets.

We believe that the CDO business is a fertile area for innovation. In 2005, we sponsored our first predominately commercial real estate CDO. We also incorporated synthetic assets in Acacia’s asset pools for the first time. Over the next few years, we expect our CDO sponsorship business to grow and evolve in interesting new ways, and continue to generate attractive new permanent asset investments and asset management fees.

Our residential mortgage conduit’s loan securitization business is in transition. In 2004 and prior years, we generated attractive levels of economic gains (gain on sale through securitization) by acquiring high-quality one- and six-month LIBOR adjustable-rate residential loans from originators, selling the loans to Sequoia securitization entities, and then sponsoring Sequoia securitizations of these loans. In today’s flat to inverted yield curve environment, however, LIBOR-indexed adjustable-rate loans (“ARMs”) are not an attractive option for homeowners. Origination volumes of this product have decreased dramatically. In addition, several Wall Street firms and others have entered the residential conduit business, thereby increasing competition and reducing economic gain-on-sale opportunities from securitization.

We are responding to these changes by broadening our residential conduit’s product line (both in terms of product type and loan quality characteristics) and by expanding our mortgage originator customer base. We are focusing on market areas and relationships where we believe we have, or can develop, a competitive advantage. We expect our residential conduit business to break-even economically this year (while also not absorbing much capital). Even at breakeven levels, our residential conduit brings multiple benefits to our business as a whole and is an excellent source of assets for us to invest in. In the longer term, we expect the residential conduit to develop in a manner that will once again generate attractive returns for our shareholders.

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The Redwood Review — 4^th Quarter 2005 5

SHAREHOLDER LETTER

Fourth Quarter 2005 (continued)

We continue to be large and active investors in the market for residential credit-enhancement securities created by others, and we continue to allocate the greater part of our capital to these assets. In the fourth quarter, we took advantage of some excellent acquisition opportunities. Acquisition pricing for some new assets improved, in part due to seasonal trends (as a result of supply/demand trends, the fourth quarter is usually a good time to buy assets) and also due to concerns about the housing markets.

In the fourth quarter, we continued to acquire credit-enhancement securities backed by negative amortization ARMs made to high-quality residential borrowers. Even though most of these loans are made to high-quality borrowers who make substantial down payments and do not need a negative amortization feature in order to afford their home, we still expect significantly higher delinquencies and losses from these loans compared to regular amortizing loans. Nevertheless, we believe we have a good chance of generating attractive risk-adjusted returns on these investments as a result of the way the securitizations of these riskier loan types are structured and because of attractive acquisition pricing for these credit-enhancement securities. Although seemingly attractive, there is substantial uncertainty about the future performance of these assets. As a result, we will limit our overall investment in these credit-enhancement securities.

As is usually the case following year-end, new asset acquisition pricing has firmed in the first quarter of 2006. If there is an underlying trend towards wider spreads and more attractive asset acquisition pricing, we are not likely to see evidence of it until the second half of 2006.

In sum, we are very comfortable with our current asset base. We are looking forward to seeing what kind of returns we can generate from managing these assets over the next few years. We expect to have excellent asset acquisition opportunities in the years ahead, and we have the cash available to take advantage of these opportunities. We believe our core business has good long-term growth potential. Furthermore, our business continues to evolve and develop in interesting ways that could add to our returns over time.

As always, we appreciate your support of Redwood Trust and look forward to our continued relationship.

Yours truly,

George E. Bull, III	Douglas B. Hansen
Chairman and CEO	President

The Redwood Review — 4^th Quarter 2005 6

ABOUT REDWOOD TRUST

Interesting Things About RWT

1. We are an entrepreneurial specialty finance company.

Our vision when we started Redwood Trust in 1994 was to create a company that is more efficient than banks, thrifts, and other financial institutions at owning, credit-enhancing, securitizing, and financing residential and commercial real estate loans.

Over time, we intend to build a variety of related and integrated specialty finance businesses in areas where we believe we can develop a competitive advantage.

For tax purposes, we are structured as a real estate investment trust (“REIT”). We also conduct business in our taxable non-REIT subsidiaries.

2. Our primary business activity is credit-enhancing securitized residential and commercial real estate loans.

Historically, money lent to homeowners and property owners came from bank deposits. Today, a growing percentage of money sourced to fund loans comes from capital markets investors who buy mortgage-backed securities — fixed income securities backed by a pool of real estate loans.

Most of these investors want to buy AAA-rated or other investment-grade mortgage-backed securities that do not have a significant risk of loss if an underlying real estate loan defaults. Someone else has to assume the risk. Redwood Trust is a specialist in evaluating and managing real estate loan credit, and our core business is assuming the risk of loan default for securitized loans. Because Redwood Trust partially credit-enhances (or “guarantees”) these securitized loans, the risk of credit loss is reduced for capital markets investors in mortgage-backed securities. As a credit-enhancer, we are exposed to real estate credit risk on many loans, but we also have the ability to produce strong financial results if the real estate loans we credit-enhance perform well.

3. We credit-enhance loans primarily by acquiring and owning first- and second-loss credit-enhancement securities.

In most securitizations of real estate loans, a variety of types of mortgage-backed securities are created, each with different characteristics with respect to average life, credit risk, prepayment risk, interest rate risk, and other variables.

One security is designated as the “first-loss” bond. If there are credit losses within the pool of securitized real estate loans, the principal value of the first-loss bond is reduced. If the entire principal value of the first-loss bond is eliminated due to credit losses within the securitized loan pool, then further credit losses reduce the principal value of the “second-loss” bond. Only when the entire principal value of the second-loss bond is eliminated do the other bonds issued from that securitization risk incurring credit losses. The first- and second-loss bonds are credit-enhancement securities, improving the creditworthiness of the other securities and protecting them from initial credit losses.

We typically acquire first-loss bonds at 25% to 35% of their principal value and second-loss bonds at 50% to 70% of their principal value. These bonds are acquired at a substantial discount to their principal value, as future credit losses could reduce or totally eliminate the principal value of these bonds. Our return on these investments is based on how much principal and interest we receive, and how quickly it comes in.

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The Redwood Review — 4^th Quarter 2005 7

ABOUT REDWOOD TRUST

Interesting Things About RWT (continued)

3. We credit-enhance loans primarily by acquiring and owning first and second-loss credit-enhancement securities(continued).

In an ideal environment, we would experience fast prepayments and low credit losses. We encountered this environment in 2003, 2004, and the first half of 2005. Conversely, our least favorable environment would be slow prepayments and high credit losses. We receive interest on the full principal value of bonds, so the interest earned on our cost basis is higher than the underlying coupon rate. For instance, on a bond with a principal value of $1 million — for which we may have paid only $300,000 — we receive interest based on the full principal value.

We typically do not receive principal payments until a few years into the deal, since the principal payments from the underlying loans are first used to pay down the most senior bonds. The amount of principal we ultimately receive is dependent on the amount of credit losses incurred before the deal is called, or when it matures. The timing of principal payments received and the timing of the realization of losses is also important to our investment returns. The faster we collect principal and the longer it takes to realize credit losses, the better it is for our investment returns.

4. Our primary focus is on credit-enhancing high-quality loans.

Most of the real estate loans we credit-enhance are above average in terms of loan quality as compared to other securitized real estate loans. As a result, our delinquency and loss rates have been significantly lower than the national average. When market conditions are favorable, we plan to expand our credit-enhancement activities to include more loans that have average or below-average quality characteristics. Nevertheless, it is likely that the bulk of the real estate loans we credit-enhance will continue to be of above-average quality.

Typically, 40% — 50% of the residential loans we credit-enhance are on homes located in California. This roughly equals the percentage of all jumbo loans that are located in California, which we consider to be one of the more attractive states for the residential credit-enhancement business.

5. As an integral part of our business, we also sponsor securitizations.

Our residential loan securitization business (our conduit) acquires residential whole loans from originators, accumulates loans over a period of weeks or months, and then sells the loans to newly-created securitization entities (typically called “Sequoia”) that create and sell securities backed by these loans (occasionally we also sell loans via bulk whole loan sales). We create economic gains on sale when the proceeds from the sale of securities exceed the purchase cost of the loans plus expenses. At December 31, 2005, 23% of our residential loan CES permanent asset portfolio were CES we acquired from the securitizations we have sponsored. We also have acquired some of the interest-only (“IO”) securities (prepayment rate sensitive securities) from these securitizations.

Our CDO group also sponsors securitizations. Over a period of several months, we acquire and aggregate a pool of diverse investment-grade and non-investment grade residential and commercial real estate securities and similar assets. We then sell this pool of assets to a newly-created securitization entity (typically called “Acacia”) that creates and sells asset-backed securities to the capital markets. We create economic gains on sale from these activities and earn ongoing management fees from outstanding Acacia transactions. As a permanent investment, Redwood typically acquires all or a portion of the CDO equity securities (which function as CES) from these CDO transactions.

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The Redwood Review — 4^th Quarter 2005 8

ABOUT REDWOOD TRUST

Interesting Things About RWT (continued)

6. We are one of the leaders in our market segments.

The securitized residential real estate loan market can be divided into three segments. The first segment consists of “conforming” lower-balance loans, usually of average or better quality. Most of these loans are credit-enhanced by Fannie Mae and Freddie Mac. The second segment consists of lower-quality loans that are credit-enhanced primarily by sub-prime mortgage origination companies. Redwood Trust is one of the largest credit-enhancers within the third segment, which consists of private label securitizations containing primarily larger-balance (“jumbo”) loans of above-average or average quality (prime and Alt-A). Redwood credit-enhances $184 billion of loans that have been securitized in private-label transactions, representing approximately 20% of the outstanding securitized loans in this segment.

Credit-enhancing commercial real estate loans is a newer business for Redwood. We have been developing our commercial business since 1998. We currently partially credit-enhance $26 billion commercial loans, representing approximately 3% of the outstanding commercial real estate loan balances that have been securitized. We participated in credit-enhancing 15% of all commercial real estate loans securitized in the U.S. during 2005.

7. We have some interesting competitive advantages.

As a non-regulated specialty finance company, we have greater freedom to operate in the capital markets and securitization markets than do financial institutions such as banks and insurance companies. We also enjoy lower operating costs.

As a public company with permanent capital, we have an advantage in investing in illiquid assets relative to investment companies and partnerships that might suffer investor withdrawals and liquidity issues.

As a real estate investment trust (“REIT”), we have tax advantages relative to corporations that have to pay corporate income taxes, typically one of the largest costs of doing business.

With nearly $1 billion of equity capital focused on this one business, we have size advantages that bring economies of scale as well as marketing and operating advantages.

As a company with a small number of employees (79 as of 12/31/05) and one integrated business, we have a strong culture that is entrepreneurial, innovative, focused, and disciplined.

8. We maintain a strong balance sheet.

Our business is currently funded primarily with equity capital. Compared to most financial institutions, we use very little debt financing. We currently utilize only equity capital to fund the credit-enhancement securities and other assets we hold as permanent assets for investment purposes.

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The Redwood Review — 4^th Quarter 2005 9

ABOUT REDWOOD TRUST

Interesting Things About RWT (continued)

8. We maintain a strong balance sheet(continued).

We use a combination of debt and equity to fund assets that are acquired by our conduit and our CDO group on a temporary basis for re-sale to a securitization entity (inventory assets). At December 31, 2005, we had $935 million of equity and $170 million of debt.

Our balance sheet is also strong because our maximum exposure to losses caused by credit risk is limited to our investment in credit-enhancement securities. In other words, our maximum loss within our credit-enhancement business is less than our equity capital base.

We may utilize more debt in the future, depending on which businesses we develop over time. Nevertheless, we expect to maintain a strong balance sheet.

9. We pay a regular dividend and may pay a special dividend.

As a REIT, we are required to distribute to shareholders as dividends at least 90% of our REIT taxable income, which is our income as calculated for tax purposes (exclusive of income earned in taxable non-REIT subsidiaries). In order to meet our dividend distribution requirements, we have been paying both a regular quarterly dividend and a year-end special dividend.

We set our regular quarterly dividend at a rate that we believe is reasonably likely to be sustainable over time under most market conditions. Our regular dividend rate is currently $0.70 per share per quarter, and our Board of Directors has indicated that their current intention is to maintain this quarterly regular dividend rate in 2006. Based on a share price of $41.27 as of February 23, 2006, the indicated yield to shareholders at the regular dividend rate is 6.8%.

If we earn more REIT taxable income than is required to fund the regular dividend, we will likely pay a special dividend in December. We expect our special dividend amount to be highly variable, and we may typically not pay a special dividend every year. We currently are forecasting that we will pay a special dividend at the end of 2006, although we believe the size of this special dividend is likely to be significantly less than the $3.00 per share special dividend we paid in December 2005. Our dividend policies and distribution practices may change over time.

Our dividend distributions for 2005 consisted of 76.709% ordinary income and 23.291% long-term capital gains income. There was no return of capital. Taxable shareholders may benefit from a lower tax rate on the portion of our dividend distributions that consists of capital gains.

10. We are a growth company.

The amount of real estate loans outstanding and the amount of these loans securitized have grown rapidly over many years. This is a long-term trend that we expect will continue, although there could be a cyclical slowing in the short-run. With competitive advantages in a growing market, we expect over time to have the opportunity to increase the size of our credit-enhancement and related businesses while also improving our book value per share and our average return on equity.

The Redwood Review — 4^thQuarter 2005 10

BUSINESS GROUP DISCUSSION

Residential Group Overview

Description

Redwood’s residential group credit-enhances securitized residential real estate loans by acquiring and owning first-loss, second-loss, and other credit-enhancement securities. The residential group also invests in other residential assets, including interest-only securities.

The residential group assists Redwood’s CDO group in the selection and management of the residential real estate assets owned by the Acacia CDO securitization entities that Redwood has sponsored.

In addition, the residential group operates as a conduit, acquiring residential real estate loans from mortgage origination companies and selling them for a profit via whole loan sales or via securitization under the Sequoia brand name.

Discussion

The residential real estate loans we credit-enhance are performing well. Credit losses continue to be minimal. Serious delinquencies remain at low levels, although they rose in the fourth quarter from $283 million to $367 million. As a percentage of current balances, delinquencies rose from 0.14% to 0.20%, in part due to a decrease in the balance of loans we credit-enhance from $195 billion to $184 billion. A portion of the increase in delinquencies is related to damage from the Katrina and Rita hurricanes. The remainder of the increase is largely explained by the normal seasoning pattern of residential loans.

Loans originated in 2005 made up 23% of our total managed portfolio of credit-enhanced residential loans of $184 billion. The 2005-originated loans we credit-enhance are performing well, in a manner consistent with earlier vintages at a similar point in their seasoning cycle.

Our pace of new acquisitions of residential credit enhancement securities that we hold at Redwood as permanent assets has slowed — we acquired $29 million in the third quarter of 2005, $46 million in the fourth quarter, and $9 million in the first quarter of 2006 through February 23. This is a result of weaker underwriting standards, lower volumes of high-quality origination and securitization, and acquisition prices that are not particularly attractive for some products. In addition, our current capital utilization plan limits our current pace of asset acquisition so that we can maintain excess cash balances in order to be able to take advantage of future opportunities.

Historically, we have credit-enhanced and securitized high-quality residential real estate loans. We have always felt the better balance of risk and reward was in the prime quality sector of the market, given the structure of securitizations, the historical track record (or lack of historical track record) for different types of loans, and the pricing of credit-enhancement business.

If we enter a period of sustained housing weakness over the next few years, we believe we may have opportunities to acquire distressed assets at attractive prices. In addition, underwriting standards, relative risk pricing, and securitization structuring for new credit-enhancement activities could eventually shift in favor of medium or lower-quality loans. We are initiating activities now in anticipation of expanding our credit criteria in the future should attractive opportunities arise. For example, in January 2006 we sponsored the securitization of a pool of Alt-A loans (although we did not retain any of the assets).

The Redwood Review — 4^thQuarter 2005 11

BUSINESS GROUP DISCUSSION

Residential Group Metrics

Chart 1: Residential Total Managed Portfolio

Ø  We estimate that we credit-enhance 1 in 10 jumbo loans.

Ø  We estimate that we credit-enhance almost 1 in 5 higher quality private-label securitized loans (most of which are jumbo loans).

Chart 2: Residential CES Portfolio by Loan Type (as of 4Q 2005, % By Market Value)

Ø	Total permanent asset market value = $330 million.
Ø	CES backed by negative amortization ARMs have become a larger part of our portfolio over the past 18 months.
Ø	$75 million, or 23%, of our total residential CES permanent assets were purchased from Sequoia securitizations we sponsored.

Chart 3: Residential CES Portfolio by Credit Quality (as of 4Q 2005, % of market value)

Ø	Total market value = $330 million.
Ø	The majority of the loans we credit-enhance are prime-quality loans.
Ø	8% of the market value of our CES portfolio are interests in transactions backed primarily by Alt-A quality loans (although transactions designated as prime quality do contain some Alt-A loans).

The Redwood Review — 4^th Quarter 2005

12

BUSINESS GROUP DISCUSSION

Residential Group Metrics

Chart 4: Residential Permanent Assets By Market Value

Ø	We sold $201 million of residential CES in 2005.
Ø	The paying down of the loans underlying interest-only (“IO”) securities, combined with a decline in value as a result of accelerated prepayments, contributed to an overall reduction in our IO portfolio. We acquired these IOs from Sequoia securitizations we sponsored.
Ø	Residential assets made up 65% of Redwood’s permanent assets at December 31, 2005.

Source: MBA National Delinquency Survey, Redwood Trust

Note:   Seriously delinquent loans (over 90 days, in foreclosure, in bankruptcy, or real estate owned) as a percentage of current balance.

Chart 5: Seriously Delinquent Loan %

Ø	Strong credit performance — delinquencies continue to be benign and significantly better than the industry.
Ø	Delinquencies in our portfolio rose in the fourth quarter of 2005, but are still far below national averages.

Chart 6: Prepayment History for Credit-Enhancement Portfolio

Ø	The flattening of the yield curve has contributed to acceleration of prepayments on ARMs.
Ø	Higher overall interest rates have slowed prepayments for fixed rate products.
Ø	Faster prepayments benefit our credit-enhancement assets, but harm returns from IOs.

The Redwood Review — 4^th Quarter 2005 13

BUSINESS GROUP DISCUSSION

Commercial Group Overview

Description

The commercial group credit-enhances securitized commercial real estate loans by acquiring and owning first-loss and other commercial credit-enhancement securities. The commercial group also invests in other commercial mortgage-backed securities (“CMBS”), commercial real estate loans, and related commercial assets. The commercial group assists Redwood’s CDO group in the selection and management of the commercial real estate assets owned by the Acacia CDO securitization entities Redwood sponsors.

Discussion

Commercial real estate fundamentals continue to show year-over-year improvement for most property types in many parts of the country. Contributing to this performance are lower interest rates, strong GDP growth, rising employment, and increasing new building construction costs. We believe commercial real estate should continue to perform reasonably well in the next few years, barring any unexpected external events.

The increase in commercial property values and cash flows does not mean the credit-enhancement business is risk-free. Property values are high, and they could be vulnerable in a less favorable environment. Due to competition from loan originators, property owners can now obtain higher leverage on their properties compared to what used to be acceptable. In addition, an increasing number of loans are being written as interest-only loans, with no principal payments required of the borrower until maturity. On the whole, even though commercial properties are largely healthy, we believe the risks of credit-enhancing commercial loans are increasing.

As a result of these increased risk factors, we have turned down an increasing number of new credit-enhancement opportunities. We are taking a cautious approach to this market, and we are patient in waiting for opportunities that fit our conservative credit philosophy. New transactions that pass our credit review standards do exist, however, and we expect to increase our book of commercial credit-enhancement business over time.

The $26 billion of securitized commercial real estate loans we credit-enhanced on December 31, 2005 are performing well. Serious delinquencies were $17 million, or 0.07% of current loan balances. We incurred no credit losses on the underlying loans in 2005. Our other commercial assets are also performing well, including an interest in specialized CMBS re-REMIC securitization that credit-enhances $17 billion of loans, commercial loans, other permanent assets, and assets owned by Acacia.

In anticipation of growth over time, we have added senior staff members who have significant industry experience in CMBS, and we continue to make investments in systems and processes in order to support our future growth.

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14

BUSINESS GROUP DISCUSSION

Commercial Group Metrics

Chart 7: Commercial CES Geographic Distribution

Ø The commercial loans we credit-enhance are diversified geographically.

Chart 8: Commercial Property Type Distribution

Ø Our retail and office exposures are high relative to other common property types (although they are consistent with the CMBS market as a whole). These property types include some large low leverage investment-grade loans on institutional quality real estate, so the actual risk is more balanced across property types.

Chart 9: Commercial CES Collateral Balance

Ø We participated in credit-enhancing 15% of the CMBS issued in 2005.

Ø This chart excludes $17 billion of loans underlying our first-loss interests in a re-REMIC of non-investment grade CMBS.

Chart 10: CMBS Permanent Asset Portfolio

Ø Commercial permanent assets made up 13% of Redwood’s total permanent assets at December 31, 2005.

The Redwood Review — 4^thQuarter 2005 15

BUSINESS GROUP DISCUSSION

CDO Group Overview

Description

The Redwood CDO group sponsors re-securitizations of diverse pools of residential and commercial real estate securities and other related assets. These collateralized debt obligations (“CDOs”) are issued under the Acacia brand name. The group manages the underlying pools of assets, earning asset management fees.

As a long-term investment, Redwood typically acquires all or a portion of the Acacia CDO equity securities that absorb the initial credit losses from the pool of securitized assets, and thus act as the credit-enhancement for the other (more senior) CDO securities issued by Acacia.

Discussion

Since we began sponsoring real estate CDO transactions in 2002, low interest rates, fast prepayments, and an excellent credit environment have given us opportunities to earn attractive returns from owning Acacia CDO equity securities.

The primary determinant of the returns we earn from our Acacia CDO equity investments is the credit performance of the securities Acacia has purchased and the performance of the loans underlying those securities. Credit results have been excellent. Two out of the nine Acacia CDO transactions we have sponsored have been upgraded (by rating agencies Standard & Poor’s and Moody’s), and we may see further upgrades if current credit performance trends continue. Strong credit performance has also produced strong investment results for capital markets investors who purchased the other securities Acacia has issued.

We expect there will continue to be good opportunities to create attractive new investments and build asset management fees for Redwood via the Acacia CDO program. However, credit quality has deteriorated in the residential and commercial new securities issuance markets while the acquisition prices we are being asked to pay for these new assets are often higher than we would like. At the same time, the market for selling CDO securities such as Acacia issues has become more volatile. Nevertheless, we think that Redwood is poised to meet these challenges.

The CDO market is a dynamic one, and we will need to be innovative in order to continue to grow. For instance, we sponsored Acacia’s first CDO backed primarily by commercial real estate securities in the fourth quarter of 2005. We may increase our use of interest rate agreements and other derivatives such as credit default swaps and synthetic asset agreements both as assets and also as hedges for Acacia. We are also considering other product types, partnerships, and strategies that could potentially help us expand our opportunities.

The Redwood Review – 4^thQuarter 2005 16

BUSINESS GROUP DISCUSSION

CDO Group Metrics

Chart 11: CDO Equity Investment

Ø 22% of Redwood’s permanent asset portfolio is now invested in CDO equity securities.

Ø We called Acacia 1 in December 2005.

Ø We sponsored our first predominantly commercial real estate CDO – Acacia CRE1 – in December 2005.

Chart 12: Collateral Composition for Acacia CDO Securitization Entities

Ø Acacia has recently begun to increase its commercial real estate investment activities.

Ø Sub-prime securities purchased in 2004 and 2005 were primarily A-rated and higher.

Chart 13: Acacia Collateral Rating History

															Acacia
	Acacia 2		Acacia 3		Acacia 4		Acacia 5		Acacia 6		Acacia 7		Acacia 8		CRE1
	May-03		Oct-03		Apr-04		Jul-04		Nov-04		Mar-05		Jul-05		Dec-05
Upgrades		45		26		9		6		1		0		1		1
Downgrades		0		0		0		0		0		0		0		0
Positive Watch		0		0		0		0		0		0		0		0
Negative Watch		0		0		0		0		0		0		0		0
Up/Down Ratio	45 to 0		26 to 0		9 to 0		6 to 0		1 to 0			N/A	1 to 0		1 to 0

Ø Upgrades of securities owned by Acacia are a sign that Acacia CDO equity may continue to perform well.

The Redwood Review — 4^thQuarter 2005 17

FINANCIAL REVIEW

Finance Group Overview

Description

Redwood’s finance group is responsible for financial reporting, tax, treasury, balance sheet management, and information technology.

Discussion

Overall, the fourth quarter was a good quarter from both a GAAP and tax perspective. Our adjusted return on equity was 19.3%. GAAP earnings were $1.68 per share, core earnings were $0.97 per share, and taxable income was $1.66 per share. Please see the following pages for definitions of taxable income, adjusted ROE, and other non-GAAP measures and for reconciliations of these measures to the most comparable GAAP measures.

We expect GAAP, core, and taxable income per share during 2006 will likely continue to decline from fourth quarter levels as a result of a reduced balance of IO securities acquired from our Sequoia program, a higher level of uninvested cash, and lower gains from sales and calls of CES. The CES and IO assets we accumulated several years ago produced extraordinary investment returns. The assets we are acquiring now are more likely, in our opinion, to produce returns that are attractive but not extraordinary.

Our GAAP earnings in 2004 benefited from $59 million of gains from calls, while 2005 earnings benefited from $43 million of gains from asset sales. We do not expect to generate the same level of gain income in 2006 as we are not planning significant asset sales and we have fewer callable assets.

The flatter yield curve (higher short-term interest rates relative to long-term interest rates) and the increase in popularity of negative amortization loans has led to an increase in prepayment rates for adjustable-rate residential loans such as those owned by Sequoia. The annualized constant prepayment rate (CPR) for Sequoia loans was 17% in 2004, 43% in 2005, 51% for the fourth quarter of 2005, and 50% for January 2006.

Through May of 2004, we acquired the interest-only securities (“IOs”) issued by Sequoia entities. These securities earn the spread between the interest income generated by the securitized loans and the interest expense cost of the asset-backed securities issued. The net interest income we earn from our Sequoia-related assets has been declining rapidly. There are three causes for this decline, each of which is exacerbated by faster principal prepayment rates. Within the Sequoia entities, principal payments received are first used to reduce the amount of AAA-rated Sequoia asset-backed securities outstanding. These are the lowest cost ABS issued by Sequoia, so the spread earned by Sequoia IOs narrows as the underlying pool of loans pays down. Principal payments reduce the balance of loans on which Sequoia IOs earn a spread, also reducing our net interest income. Finally, we have unamortized premium balances associated with these loans (as they are consolidated on our GAAP books) and we write these balances off at a faster rate as principal prepayments accelerate. The reduction in net interest income from Sequoia IOs has been one of the major factors in the reduction of our core earnings per share from peak levels.

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The Redwood Review — 4^thQuarter 2005 18

FINANCIAL REVIEW

Finance Group Overview

Discussion(continued)

These prepayments have had less of an impact on taxable income than on GAAP earnings due to timing differences. We expect these accumulated timing differences of $30 million at December 31, 2005 to begin to reverse in 2006 and 2007, lowering taxable income in those years.

The yield on our residential credit-enhancement portfolio (as defined for GAAP purposes, including CES owned by Acacia) declined from 18.5% in 2004 to 16.0% in 2005. Yields decreased as many of our more seasoned, higher-yielding assets (higher yielding as a result of several years of strong credit performance and favorable prepayments) were called or sold. Additionally, recently acquired residential CES generally are being carried for GAAP purposes at lower initial effective yields as increased competition has led to higher average acquisition prices and because we are not projecting the same strong credit results or favorable rapid prepayment patterns for these assets.

The yield for this portfolio increased to 17.3% in the fourth quarter of 2005 from 16.6% in the previous quarter because of rising effective yields for some more seasoned individual assets as a result of strong cumulative credit performance and rapid prepayment rates over time. The average yield for this portfolio also rose due to a change in asset mix as we sold lower-yielding second-loss CES while retaining higher-yield first-loss CES.

In general, we expect that our annual GAAP, core, and taxable income will continue to exceed our regular dividend of $2.80 per share, and that we will pay a special dividend in 2006. The amount of the special dividend will likely be significantly less than the $3.00 per share special dividend we distributed in 2005.

Despite our cautious short-term outlook, we remain long-term bulls on residential and commercial real estate due to the fundamentals of growing demand, limited supply, and increasing construction costs. Barring a major real estate collapse, we continue to believe that the most reasonable expectation for our earnings potential is an 11% to 18% average adjusted return on equity measured over a long period of time.

If we reduce our excess cash balances over the next few years by making wise investments, and we start to realize some of the upside potential inherent in our existing assets, then earnings and dividends per share in 2007 and 2008 could increase from 2006 levels.

The Redwood Review — 4^thQuarter 2005 19

FINANCIAL REVIEW

GAAP Earnings

a) What is This?

Income as calculated under Generally Accepted Accounting Principles in the United States.

b) Graph

GAAP Earnings per Share

c) Quarterly Update

Ø Our GAAP earnings were $42 million or $1.68 per share, for the fourth quarter of 2005. In the fourth quarter of 2004, GAAP earnings were $54 million, or $2.22 per share.

Ø Realized gains on sales and calls increased by $5 million from the fourth quarter of 2004 to the fourth quarter of 2005. In the fourth quarter of 2005, we sold $81 million in market value of residential CES for a GAAP gain on sale of $9 million, and also realized $4 million of gains from calls of $8 million in principal value of residential CES.

Ø Net interest income decreased by $17 million, primarily due to lower balances of earning assets (IO balance reduction as a result of prepayments, sales of CES) and higher balances of excess cash.

Ø Yields on the residential CES portfolio (as it is defined for GAAP) have started to increase in the last two quarters, and were slightly higher in fourth quarter of 2005 than the fourth quarter of 2004.

Ø Operating expenses increased by $4 million due to increases in information technology expenditures, headcount, and other expenses. We currently do not expect operating expenses to increase significantly in 2006 compared to 2005. Tax provisions for GAAP purposes were roughly equal in the fourth quarter periods of 2004 and 2005.

The Redwood Review — 4^thQuarter 2005 20

FINANCIAL REVIEW

Core Earnings

a) What is This?

Core earnings is a profitability measure that highlights earnings that are more likely to be on-going in nature. In calculating core earnings, we start with GAAP earnings and then exclude gains on sale, mark-to-market adjustments, and one time items that are unlikely to be repeated. Table 2 in the Appendix shows a reconciliation of core to GAAP earnings.

b) Graph

Core Earnings per Share

c) Quarterly Update

Ø Core earnings were $25 million, or $0.97 per share, for the fourth quarter of 2005. In the fourth quarter of 2004, core earnings were $46 million, or $1.86 per share.

Ø GAAP earnings of $42 million ($1.68 per share) exceeded core earnings by $18 million. Core earnings does not include $12 million gains from sales of CES and other securities, $4 million gains from calls of CES, $3 million GAAP mark-to-market income on interest rate agreements, and $1 million of GAAP mark-to-market write downs of securities (EITF 99-20).

Ø Core earnings per share comparisons versus prior quarters continue to show a downward trend. We achieved extraordinary earning levels in the last few years but we have not been able to sustain them.

The Redwood Review — 4^thQuarter 2005 21

FINANCIAL REVIEW

Total Taxable Income

a) What is This?

Total taxable income is a measure of our profitability. It is our pre-tax income as calculated for tax purposes. It includes pre-tax income earned at our parent company and REIT subsidiaries (REIT taxable income) as well as pre-tax income earned in our taxable non-REIT subsidiaries. Total taxable income can differ materially from GAAP earnings. Table 3 in the Appendix reconciles these two profitability measures.

b) Graph

Total Taxable Earnings per Share (Estimated for 2005)

c) Quarterly Update

Ø	Total taxable income was $1.66 per share in the fourth quarter of 2005 and $2.44 per share in the fourth quarter of 2004.
Ø	One of the differences between these two quarters was gain on sale for tax purposes from securitizations we sponsor. These gains were $11 million in the fourth quarter of 2004 but were zero for the fourth quarter of 2005. We expect the residential loan securitization business we conduct through our conduit operations will operate at a breakeven profitability in 2006.
Ø	For the fourth quarter, total taxable income was similar to GAAP earnings of $42 million. GAAP earnings included provisions for income and excise taxes of $4 million that were not included in the pre-tax taxable income calculation. Gains from sales and calls were $6 million lower for tax as our tax basis for assets is generally higher than our GAAP basis.
Ø	The yield we recognize on our Sequoia IO securities would currently be negative due to rapid Sequoia loan prepayments; however, we are not allowed to recognize a negative effective yield on assets for tax purposes. As a result, our cumulative taxable income has been higher by $30 million than it would have been otherwise, and our taxable income over the next few years will be lower by the same amount.

The Redwood Review — 4^th Quarter 2005 22

FINANCIAL REVIEW

Core Taxable Income

a) What is This?

Core taxable income is a profitability measure that highlights that portion of taxable income that is more likely to be on-going in nature. In calculating core taxable income, we start with total taxable income and then exclude gains on sale, tax deductions created by the exercise of stock options, and one time items that are unlikely to be repeated. Table 4 in the Appendix reconciles core taxable income and total taxable income to GAAP income.

b) Graph

Core Taxable Earnings per Share

c) Quarterly Update

Ø	In the fourth quarter of 2005, core taxable income was $36 million, or $1.44 per share. In the fourth quarter of 2004, it was $40 million, or $1.67 per share.
Ø	Fast prepayment speeds have substantially increased the income we recognized on our CES. If prepayment speeds slow down in the future, we will recognize less income on our CES and income on the IOs will remain approximately the same due to expense deferrals (see discussion under total taxable income).
Ø	Actual realized credit losses reduce taxable income as incurred, in an amount generally equal to the principal loss times our tax basis in the affected CES.

The Redwood Review — 4^th Quarter 2005 23

FINANCIAL REVIEW

REIT Taxable Income

a) What is This?

REIT taxable income is the primary determinant of the minimum amount of dividends we need to distribute in order to maintain our tax status as a real estate investment trust (REIT). REIT taxable income is pre-tax profit, as calculated for tax purposes, at Redwood Trust and our subsidiaries that have elected REIT tax status. (It does not include taxable income earned at our taxable non-REIT subsidiaries.) Over time, we must distribute at least 90% of our REIT taxable income as dividends. A reconciliation of GAAP income to REIT taxable income appears in Table 3 of the Appendix.

b) Graph

REIT Taxable Earnings per Share

c) Quarterly Update

Ø	For the fourth quarter of 2005, REIT taxable income was $40 million, or $1.59 per share. For the fourth quarter of 2004, it was $50 million, or $2.07 per share.
Ø	REIT taxable income has benefited from substantial gains due to call and sales activity. We expect reduced call and sales activity in 2006.
Ø	Due to increased levels of uninvested capital, REIT taxable income has generally shown a downward trend in recent quarters. We expect this trend to continue until we reinvest our cash proceeds.
Ø	REIT taxable income can be affected by one-time operating events such as stock option exercises (which reduce taxable income by the in-the-money amount of the exercised options).

The Redwood Review — 4^th Quarter 2005 24

FINANCIAL REVIEW

a) What is This?

Book value per share is the amount of equity capital we have per share of common stock outstanding. There are many different ways that equity capital can be measured. We usually focus on three measures, each of which we believe is useful for a different purpose.

GAAP book value is our common equity as calculated for GAAP purposes. It includes a mark-to-market valuation adjustment for many of our assets. Over time, our GAAP book value per share has been increasing as a result of retention of a portion of our income, increases in the market value of our assets, and sales of stock at prices that exceed book value.

Core book value is reported GAAP book value excluding those mark-to-market adjustments that were not included in our income statements. Core book value more closely reflects historical amortized costs rather than current market values.

Adjusted core book value is core book value less REIT taxable income that we have earned but not yet distributed as dividends. Since as a REIT we will be required to distribute this income, adjusted core book value is a measure that provides one estimate of the amount of equity capital we will have over the long-run in order to generate future earnings.

A reconciliation of GAAP book value to core book value and adjusted core book value appears in Table 8 of the Appendix.

b) Graph

GAAP Book Value per Share

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The Redwood Review — 4^th Quarter 2005 25

FINANCIAL REVIEW

Book Value per Share

c) Quarterly Update

Ø	For the year 2005, after declaring $5.80 per share of dividends, GAAP book value per share increased by 4% from $35.78 per share to $37.20 per share.
Ø	For the fourth quarter of 2005, GAAP book value declined by $3.83 per share. The primary cause of the decrease was the declaration of $3.70 per share of dividends during the quarter. Market values of assets also declined.
Ø	At December 31, 2005, core book value was $34.27 per share and adjusted core book value was $32.23 per share. During 2005, core book value and adjusted core book value increased by $2.85 per share and $2.37 per share, respectively.
Ø	At the end of our first quarter of operations in September 1994, GAAP book value was $11.67 per share. Since that time, we have been able to pay $34.63 per share of dividends and have increased GAAP book value by $25.53 per share.

The Redwood Review — 4^th Quarter 2005 26

FINANCIAL REVIEW

Return on Equity

a) What is This?

We believe return on equity (ROE) is one of the more useful measures of the profitability of our business. ROE is the amount of profit we generate each year per dollar of equity capital. There are numerous ways this could be calculated for Redwood since we monitor a number of different profit measures as well as a number of different measures of equity capital.

GAAP ROE is GAAP earnings divided by GAAP equity.

One interesting aspect to consider about GAAP ROE is that it will decline (all other things being equal) if our assets increase in market value. Many of our assets are marked-to-market through our balance sheet but not our income statement. An increase in asset market value will therefore increase GAAP equity but not our GAAP earnings, thus lowering GAAP ROE. Similarly, a decrease in asset market values will increase our GAAP ROE.

An alternative measure of ROE that may also be useful is Adjusted ROE, by which we mean GAAP income divided by core equity. Core equity excludes those balance sheet mark-to-market adjustments that are not included in our income statement. Only those asset market value changes that are included in our income statement will affect Adjusted ROE.

A reconciliation of GAAP ROE to Adjusted ROE, and of GAAP equity to core equity, appears in Table 8 of the Appendix.

b) Graph

Adjusted ROE

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The Redwood Review — 4^th Quarter 2005 27

FINANCIAL REVIEW

Return on Equity

c) Quarterly Update

Ø	GAAP ROE was 17% for the fourth quarter of 2005 and 21% for the year ended December 31, 2005.
Ø	Adjusted ROE was 19% for the fourth quarter and 24% for the year ended December 31, 2005. Adjusted ROE is greater than GAAP ROE due to the appreciation of the market values of assets that are marked-to-market through our GAAP balance sheet. This increases our GAAP equity and thus lowers GAAP ROE.

The Redwood Review — 4^th Quarter 2005 28

FINANCIAL REVIEW

Discounts and Reserves

a) What is This?

We expect to generate attractive earnings and dividends from our credit-enhancement business if the loans we credit enhance continue to incur very low credit losses.

One way to understand Redwood’s GAAP earnings potential if credit results remain favorable is to look at the balance of purchase discount for our residential and commercial credit-enhancement securities and the balance of credit reserve on the residential loans owned by Sequoia. These balances will become part of GAAP earnings (for the most part, over the next seven years) to the extent they are not diminished by credit losses. This income would be in addition to the coupon income and other income we earn on an on-going basis. (That portion of the purchase discount on CES that is not designated as credit protection is currently being amortized into income, so we are recognizing a portion of our GAAP upside potential in earnings today.)

For tax accounting (which drives our dividend distributions), we cannot take any credit reserves and must amortize the entire purchase discount into taxable income. As a result, effective yields for the recently acquired assets are generally higher today for tax purposes than for GAAP purposes (losses are expensed as incurred). Future differences in the timing of amortizing the discount will depend on the credit performance and prepayment behavior of the assets.

b) Graph

Discounts and Credit Reserves per Share

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The Redwood Review — 4^thQuarter 2005 29

FINANCIAL REVIEW

Discounts and Reserves

c) Quarterly Update

Ø	On December 31, 2005, the net balance of all GAAP premiums and discounts associated with all consolidated residential and commercial real estate loans, securities, asset-backed securities issued, and other assets and liabilities was a net discount balance of $623 million, or $24.79 per share.
Ø	All premium balances are being amortized into income over time as an expense. A portion of the discount balance is currently being amortized, increasing our reported income. The remainder of the discount balance is not currently being amortized as we expect the principal balance of the related assets will be reduced by future credit losses. If these credit losses do not occur, we will amortize the entire discount balance into income over time.
Ø	As defined for GAAP, residential credit-enhancement securities had a net GAAP discount balance of $19.16 per share. We are currently estimating that cumulative credit losses will equal $14.11 per share. The remaining balance of $5.05 per share is currently being amortized into GAAP income.
Ø	Commercial credit-enhancement securities had a net discount balance of $4.87 per share. We are currently estimating that cumulative credit losses will equal $5.64 per share. As a result, we are currently writing down our GAAP basis in these assets over time by a cumulative total of $0.77 per share, creating a net amortization expense for GAAP purposes.
Ø	GAAP credit reserves on residential loans owned by Sequoia securitizations (and loans held by Redwood for sale to Sequoia) create a discount balance of $0.90 per share. The net premium on these loans, excluding the reserve, is $1.98 per share. For GAAP purposes, these loans are carried on our balance sheet at an effective price of 100.20% of principal value.
Ø	The net discount balance on all other assets and liabilities was $1.84 per share.
Ø	Recent sales of residential CES have not reduced our overall net discount and reserve balance per share since we sold primarily second-loss CES that have less of a discount while continuing to acquire first-loss CES.

The Redwood Review — 4^thQuarter 2005 30

FINANCIAL REVIEW

Dividends

a) What is This?

As a REIT, we are required to distribute at least 90% of our REIT taxable income each year as dividends. We have a regular dividend rate that is established at a level we believe is reasonably likely to be sustainable. To the extent the REIT taxable income we are required or choose to distribute is greater than our regular dividends distributions, we will make a special dividend distribution towards year-end.

b) Graph

Regular dividends

c) Quarterly Update

Ø	We declared four regular quarterly dividends of $0.70 per share in 2005 and, in the fourth quarter, declared and paid a special dividend of $3.00 per share. We permanently retained approximately 10% of the ordinary REIT taxable income we earned during 2005, and we intend to declare and distribute the remainder of our 2005 REIT taxable income as dividends by September 2006.
Ø	Based on our estimates of REIT taxable income during 2005, and the dividends distributed to date, we entered 2006 with $51 million ($2.04 per share) of undistributed REIT taxable income. We also retained 100% of the taxable income that we earned at our taxable REIT subsidiaries in 2005 (after taxes). By retaining a portion of our income, we seek to build equity per share, and thus potential earnings and dividends per share, over time. We anticipate following a similar pattern of retention and distribution in 2006.
Ø	During 2005, a portion of taxable income was in the form of net capital gains resulting from the sales and calls of some of our residential loan CES. Our income from this activity was long-term capital gain income for tax purposes. Thus, during 2005, 23.291% of our dividends distributed was characterized as a distribution of long-term capital gain income and the remaining 76.709% was characterized as a distribution of ordinary income. Our tax-paying shareholders may benefit to the degree they can take advantage of the lower tax rate on capital gains versus ordinary income.

The Redwood Review — 4^thQuarter 2005 31

APPENDIX

Glossary

All companies and analysts do not calculate non-GAAP measures in the same fashion. As a result, certain measures as calculated by the Redwood Trust may not be comparable to similarly titled measures reported by other companies.

ACACIA

Acacia is the brand name for the collateralized debt obligation (CDO) securitizations we sponsor. The underlying pool of assets for these CDO securitizations consists primarily of investment-grade and non-investment-grade rated securities backed by residential prime, residential sub-prime, and commercial real estate loans. Acacia also owns related assets such as CDO securities issued by other real estate oriented CDOs, corporate debt issued by equity REITs, commercial real estate loans, and synthetic assets derived from commercial real estate assets.

ADJUSTED CORE EQUITY (ADJUSTED BOOK VALUE)

Adjusted core equity (adjusted book value) is not a measure calculated in accordance with GAAP. We have minimum dividend distribution requirements as a REIT. We thus have future payment obligations, but these are not recognized in GAAP accounting until dividends are declared. Cash that we have earned but that we must pay out as dividends is not cash that will be available to us to acquire long-term assets and build our business. So when we try to answer questions such as “how much equity per share do we have available to build our business and to generate dividends in the long-term?” we use adjusted core equity per share. Adjusted core equity is core equity less undistributed REIT taxable income that is still undeclared but that will need to be paid out. A reconciliation of adjusted core equity to GAAP equity appears in the Appendix in Table 8.

BOOK VALUE

Book value is our common equity amount. It can be calculated in a number of ways, one of which is appropriate for GAAP.

CDO EQUITY SECURITIES

CDO equity securities are collateralized debt obligation securities that bear the initial credit losses of the assets owned by the securitization entities. They come in a variety of forms. They serve the same function as first-loss credit-enhancement securities issued from securitizations of residential and commercial real estate loans. Collateralized debt obligations, a type of asset-backed securitization, are usually backed by a pool of heterogeneous assets.

CONDUIT

A group that acquires closed loans from originators, accumulates loans over a period of time, and sells these loans, seeking to generate a gain on sale. Sales are usually made via securitization, but also can be done through bulk whole loan sales.

CORE EARNINGS

Core earnings is not a measure of earnings in accordance with GAAP. We attempt to strip some of the elements out of GAAP earnings that are temporary, one-time, or non-economic in nature or that relate to the past rather than the future, so that the underlying on-going “core” trend of earnings is more clear, at least in certain respects. We exclude realized gains (and losses) resulting from asset sales and calls from GAAP income. We sell assets from time to time as part of our on-going portfolio management activities. These sales can produce material gains and losses that could obscure the underlying trend of our long-term portfolio earnings, so we exclude them from core earnings. Similarly, we exclude gains from calls of residential credit-enhancement securities, as these are essentially sales of assets that produce a highly variable stream of income that may obscure some underlying income generation trends. GAAP earnings include mark-to-market income and expenses for certain of our assets and interest rate agreements.

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The Redwood Review — 4^thQuarter 2005 32

APPENDIX

Glossary

CORE EARNINGS (continued)

These are unrealized market value fluctuations — we exclude them from core earnings. Similarly, we have issued certain stock options that are “variable” and thus are marked-to-market for GAAP purposes. When our stock price goes up, it is a GAAP expense. When our stock price goes down, GAAP income is created. We exclude this from core earnings. Stock option expenses that stem from FAS 123 and FAS 123R are included in core earnings. Management believes that core earnings provide relevant and useful information regarding results from operations in addition to GAAP measures of performance. This is, in part, because market valuation adjustments on only a portion of the company’s assets and stock options and none of its liabilities are recognized through the income statement under GAAP and thus GAAP valuation adjustments may not be fully indicative of changes in market values on the balance sheet as a whole or a reliable guide to current operating performance. Furthermore, gains or losses realized upon sales of assets vary based on portfolio management decisions; a sale of an asset for a gain or a loss may or may not affect on going earnings from operations. A reconciliation of core earnings to GAAP income appears in Table 2 of the Appendix.

CORE EQUITY (CORE BOOK VALUE)

Core equity is not a measure calculated in accordance with GAAP. GAAP equity includes mark-to-market adjustments for certain of our assets and interest rate agreements. Core equity is GAAP equity with mark-to-market gains and losses (“accumulated other comprehensive income”) excluded. It approximates what our equity value would be if we used historical amortized cost accounting exclusively. A reconciliation of core equity to GAAP equity appears in Table 8 of the Appendix.

CORE REIT TAXABLE INCOME

Core REIT taxable income is REIT taxable income before gains and losses on asset sales and calls, and certain other expenses such as tax deductions for stock option exercises. It represents that portion of our REIT taxable income that may be more on-going in nature. A reconciliation of Core taxable income to GAAP Income appears in to GAAP Income is covered in Table 3 and 4 of the Appendix.

CORE TAXABLE INCOME

Core taxable income is total taxable income before gains and losses on asset sales and calls and certain other expenses such as tax deductions for stock option exercises. It represents that portion of our total taxable income that may be more on-going in nature. A reconciliation of Core taxable income to GAAP Income is covered in Table 3 and 4 of the Appendix.

CREDIT-ENHANCEMENT SECURITIES

Credit-enhancement securities (CES) absorb the initial credit losses generated by a pool of securitized assets. As a result, the more senior securities issued from that securitization are credit-enhanced (have less credit risk). These securities are also referred to as subordinated securities and B-pieces. Our permanent asset portfolio contains first-loss (usually non-rated) and second-loss (usually with a credit rating of single-B) CES securities or their equivalents. The first-loss security takes the initial risk. If losses exceed the principal value of the first-loss security, the second-loss security is at risk. The CDO equity securities we acquire from the Acacia CDO securitization transactions we sponsor function as CES for those transactions. On our GAAP balance sheet, residential credit-enhancement securities includes both permanent assets and also second- and third-loss (usually rated BB) securities that are owned by Acacia and are consolidated on our balance sheet.

GAAP

Generally Accepted Accounting Principals in the United States.

The Redwood Review — 4^th Quarter 2005 33

APPENDIX

Glossary

INTEREST-ONLY SECURITIES

Interest-only securities (“IOs”) are specialized securities that are backed by real estate loans. They receive interest payments calculated as a function of interest payments generated by the underlying loans. Typically, however, IO securities do not have a principal balance and they will not receive principal payments generated by those loans. Interest payments to IO securities usually equal the IO interest rate formula multiplied by a “notional” principal balance. The notional principal balance for an IO is typically reduced over time as the actual principal balance of the underlying pool of real estate loans pays down. Thus, IO cash flows are reduced as time passes and the loans pay down, and IO cash flows are typically reduced more quickly if loan prepayments accelerate. The IO securities that Redwood has acquired in the past from some Sequoia residential securitizations typically earn an interest amount that varies as a function of the remaining principal balance of Sequoia loans and the spread between the yield on the residential loans owned by Sequoia and the cost of the asset-backed securities issued by Sequoia.

INVENTORY ASSETS

Inventory assets are assets that we acquire to hold for several weeks or months that we then sell to a securitization entity. We use a combination of debt and equity to fund inventory assets.

LEVERAGE RATIOS

Because of the consolidation of independent securitization entities, it appears from our GAAP consolidated financial statements that Redwood is highly leveraged, with liabilities greater than seventeen times equity. In fact, Redwood has $170 million of debt and $935 million of equity supporting over $1 billion of earning assets at December 31, 2005. We currently only use debt to finance on a temporary basis the accumulation of inventory assets prior to sale to a securitization entity.

NEGATIVE AMORTIZATION (NEG AM ARMS, OPTION ARMS, OR MTA ARMS)

Negative Amortization ARMs (Neg Am ARMs, Option ARMs, or MTA ARMs) are monthly adjustable rate mortgages where the borrower can choose between different payment options. One of these options allows the borrower to make a minimum payment. This minimum payment is less than the interest accrued on the mortgage and in this instance the borrower’s loan balance will increase (negative amortization).

PERMANENT ASSETS

We seek to invest in assets that have the potential to provide high cash flow returns over a long period of time to help support our goal of maintaining steady dividends. We typically fund long-term investment assets entirely with equity (i.e., no debt). We refer to the assets we own that meet this criteria as permanent assets. Our permanent asset portfolio includes residential and commercial credit-enhancement securities and similar assets, residential interest-only securities, commercial real estate loans, and CDO equity securities.

PROFITABILITY RATIOS

Many financial institution analysts use asset-based profitability ratios such as interest rate spread and interest rate margin in their work analyzing financial institutions. Because of our consolidation of securitization entities for GAAP purposes, we believe equity-based profitability ratios are more appropriate for Redwood. Net interest income as a percentage of equity is a useful measure we believe. For operating expenses, we believe a useful measure is the efficiency ratio, or operating expenses as a percentage of net interest income.

The Redwood Review — 4^thQuarter 2005 34

APPENDIX

Glossary

REDWOOD DEBT

Redwood’s debt — the money we have to pay back to a lender — was $170 million at the end of the fourth quarter of 2005. Our GAAP balance sheet shows liabilities of $16 billion because all of the assets and liabilities of the independent securitization entities we have sponsored are consolidated. The liabilities of these entities are shown on our balance sheet as “asset-backed securities issued” — they are not obligations of Redwood Trust.

REDWOOD EARNING ASSETS

Redwood earning assets is not a measure calculated in accordance with GAAP. Redwood earning assets totaled approximately $1 billion at the end of 2005. Included in this amount are securities we have acquired from securitizations we have sponsored with a cost basis of approximately $182 million. All of the $16 billion of assets and asset-backed securities liabilities of the securitization entities we have sponsored are shown on our GAAP consolidated balance sheet, even though we do not own these assets and we are not responsible for the payment of these liabilities. For some analytical tasks (such as determining how much financial leverage Redwood carries on its balance sheet) we believe it makes more sense to consider the assets Redwood actually owns and the debt Redwood actually owes rather than including all GAAP assets and liabilities consolidated from securitization entities that are independent of Redwood. A reconciliation of earning assets to GAAP assets appears in Table 6 of the Appendix.

RETURN ON EQUITY AND ADJUSTED RETURN ON EQUITY

Return on Equity (“ROE”) is the amount of profit we generate each year per dollar of equity capital. Adjusted ROE is GAAP income divided by core equity. Core equity excludes those balance sheet mark-to-market adjustments that are not included in our income statement. Thus, only those asset market value changes that are included in our income statement will affect adjusted ROE. A reconciliation of GAAP ROE to adjusted ROE appears in Table 8 of the Appendix.

SEQUOIA

Sequoia is the brand name for most of the securitizations of residential real estate loans we have sponsored.

TOTAL RETAINED AND REIT RETAINED TAXABLE INCOME

Total Retained and REIT Retained Taxable Income are not measures calculated in accordance with GAAP. Total retained taxable income is the taxable income earned at the REIT after dividend distributions to our shareholders, plus all of the taxable income earned at our taxable REIT subsidiary, less corporate income taxes and excise taxes paid. REIT retained taxable income is the taxable income earned at the REIT after dividend distributions to our shareholders, less corporate income taxes and excise taxes paid. A reconciliation of total retained and REIT Retained Taxable Income to GAAP income is covered in Tables 3 and 4 of the Appendix.

TOTAL TAXABLE INCOME AND REIT TAXABLE INCOME

Total taxable income is not a measure calculated in accordance with GAAP. It is the pre-tax income calculated for tax purposes. Estimated total taxable income is an important measure as it is the basis of our dividend distributions to shareholders. Taxable income calculations differ significantly from GAAP income calculations. REIT taxable income is that portion of our taxable income that we earn in our parent company and REIT subsidiaries. It does not include taxable income earned in taxable non-REIT subsidiaries. We must distribute at least 90% of REIT taxable income as dividends to shareholders over time. As a REIT we are not subject to corporate income taxes on the REIT taxable income we distribute. The remainder of our taxable income is income we earn in taxable subsidiaries. We pay income tax on this income and we generally retain the after-tax income at the subsidiary level. We also pay income tax on the REIT taxable income we retain (we can retain up to 10% of the total). A reconciliation of total taxable income and REIT taxable to GAAP income appears in Table 3 of the Appendix.

The Redwood Review — 4^thQuarter 2005 35

APPENDIX DRAFT

FINANCIAL TABLES

The Redwood Review — 4^thQuarter 2005 Version 2.5 36

Table 1: GAAP Earnings (all $ in thousands, except per share data)

	Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			Q4:2003			2005			2004			2003
Redwood and consolidated entities interest income	$	234,233		$	245,735		$	248,669		$	236,957		$	204,834		$	171,804		$	144,865		$	130,158		$	111,071		$	965,594		$	651,661		$	332,033
Discount amortization income		11,936			12,714			8,395			9,316			9,146			9,012			9,077			8,836			10,407			42,361			36,071			37,752
Premium amortization expense		(14,451	)		(15,698	)		(10,203	)		(8,082	)		(7,105	)		802			(14,463	)		(11,646	)		(9,948	)		(48,434	)		(32,412	)		(30,163	)
Provision for credit losses		(877	)		805			1,527			(1,025	)		(1,697	)		(1,528	)		(1,500	)		(2,511	)		(3,268	)		430			(7,236	)		(8,646	)
Total GAAP Interest Income		230,841			243,556			248,388			237,166			205,178			180,090			137,979			124,837			108,262			959,951			648,084			330,976
Interest expense on Redwood Trust’s debt		(3,531	)		(3,845	)		(1,825	)		(2,728	)		(2,560	)		(2,312	)		(2,490	)		(2,571	)		(1,788	)		(11,929	)		(9,933	)		(7,038	)
ABS expenses consolidated from trusts		(186,457	)		(191,035	)		(191,985	)		(173,182	)		(143,078	)		(108,237	)		(78,809	)		(69,069	)		(67,552	)		(742,659	)		(399,193	)		(183,214	)
ABS issuance expense amortization		(6,069	)		(5,162	)		(5,386	)		(5,273	)		(4,783	)		(4,197	)		(4,305	)		(3,543	)		(4,333	)		(21,890	)		(16,828	)		(12,805	)
ABS interest agreement expense		3,573			623			876			1,469			606			(2,888	)		(5,988	)		(4,965	)		(2,358	)		6,541			(13,235	)		(8,175	)
ABS issuance premium amortization income		2,793			2,733			3,140			3,747			2,644			2,823			1,233			571			7,437			12,413			7,271			8,371
Total consolidated ABS expense		(186,160	)		(192,841	)		(193,355	)		(173,239	)		(144,611	)		(112,499	)		(87,869	)		(77,006	)		(66,806	)		(745,595	)		(421,985	)		(195,823	)
GAAP net interest income		41,150			46,870			53,208			61,199			58,007			65,279			47,620			45,260			39,668			202,427			216,166			128,115
Fixed compensation expense		(2,879	)		(2,802	)		(2,623	)		(2,778	)		(2,009	)		(1,959	)		(1,842	)		(2,230	)		(1,641	)		(11,082	)		(8,040	)		(5,948	)
Variable compensation expense		(4,624	)		(4,304	)		(4,824	)		(4,279	)		(2,908	)		(3,443	)		(4,722	)		(4,022	)		(3,575	)		(18,031	)		(15,095	)		(16,686	)
Fair value of stock options granted		(406	)		47			(348	)		(370	)		(299	)		(133	)		(547	)		(310	)		(388	)		(1,077	)		(1,289	)		(388	)
Other operating expense		(4,268	)		(3,866	)		(3,179	)		(3,322	)		(2,565	)		(2,512	)		(1,781	)		(1,735	)		(2,076	)		(14,635	)		(8,593	)		(7,018	)
Operating expenses		(12,177	)		(10,925	)		(10,974	)		(10,749	)		(7,781	)		(8,047	)		(8,892	)		(8,297	)		(7,680	)		(44,825	)		(33,017	)		(30,040	)
Excise taxes		(280	)		(285	)		(308	)		(307	)		165			(301	)		(190	)		(300	)		(341	)		(1,180	)		(626	)		(1,203	)
Variable stock option market value change		25			16			(2	)		84			3			(213	)		621			(1,429	)		(2,701	)		123			(1,018	)		(5,652	)
Total GAAP operating expenses		(12,432	)		(11,194	)		(11,284	)		(10,972	)		(7,613	)		(8,561	)		(8,461	)		(10,026	)		(10,722	)		(45,882	)		(34,661	)		(36,895	)
Realized gains on calls		4,266			2,914			4,421			7,548			11,205			20,472			15,246			11,816			47,562			19,149			58,739			56,560
Realized gains on sales		11,654			23,053			516			8,347			—			488			971			6,180			46			43,570			7,639			870
Loss on repurchase of ABS issued		—			—			—			—			—			—			—			—			(2,160	)		—			—			(2,160	)
Valuation write-downs for EITF 99-20		(1,111	)		(1,158	)		(1,710	)		(391	)		(1,573	)		(421	)		(3,846	)		(558	)		(2,818	)		(4,370	)		(6,398	)		(7,646	)
Interest rate agreements valuation adjustments		3,066			107			(182	)		(492	)		(411	)		47			(113	)		(1	)		19			2,499			(478	)		(448	)
Valuation adjustments on real estate loans		—			—			—			—			(375	)		—			—			—			(500	)		—			(375	)		(500	)
Net gains and valuation adjustments		17,875			24,916			3,045			15,012			8,846			20,586			12,258			17,437			42,149			60,848			59,127			46,676
Dividends on and earnings allocated to preferred stock		—			—			—			—			—			—			—			—			—			—			—			(696	)
Deferred tax benefit		—			—			—			—			—			—			5,180			—			—			—			5,180			—
Provision for income taxes		(4,097	)		(4,693	)		(4,054	)		(4,677	)		(4,826	)		(4,962	)		(1,509	)		(1,880	)		(1,162	)		(17,521	)		(13,177	)		(5,502	)
GAAP Net Income	$	42,496		$	55,899		$	40,915		$	60,562		$	54,414		$	72,342		$	55,088		$	50,791		$	69,933		$	199,872		$	232,635		$	131,698
Diluted average shares (000)		25,311			25,314			25,196			25,021			24,491			22,728			21,325			20,399			19,801			25,121			22,229			18,812
GAAP earnings per share	$	1.68		$	2.21		$	1.62		$	2.42		$	2.22		$	3.18		$	2.58		$	2.49		$	3.53		$	7.96		$	10.47		$	7.04

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 1 — GAAP Earnings A-1

Table 2: Core Earnings (all $ in thousands, except per share data)

	Q4:2005			Q3:2005				Q2:2005			Q1:2005			Q4:2004				Q3:2004			Q2:2004				Q1:2004				Q4:2003			2005				2004				2003
GAAP income items not included in CORE
Variable stock option market value change	$	25		$	16		(	$	2	)	$	84		$	3		(	$	213	)	$	621		(	$	1,429	)	(	$	2,701	)	$	123		(	$	1,018	)	(	$	5,652	)
Realized gains on calls of residential CES		4,266			2,914				4,421			7,548			11,205				20,472			15,246				11,816				47,562			19,149				58,739				56,560
Realized gains on asset sales		11,654			23,053				516			8,347			(76	)			489			971				6,255				46			43,570				7,639				870
Loss on repurchase of ABS issued		—			—				—			—			—				—			—				—				(2,160	)		—				—				(2,160	)
Valuation write-downs for EITF 99-20		(1,111	)		(1,158	)			(1,710	)		(391	)		(1,572	)			(422	)		(3,846	)			(558	)			(2,818	)		(4,370	)			(6,398	)			(7,646	)
Interest rate agreements valuation adjustments		3,066			107				(182	)		(492	)		(411	)			47			(113	)			(1	)			19			2,499				(478	)			(448	)
Commercial real estate valuation adjustments		—			—				—			—			(300	)			—			—				(75	)			(500	)		—				(375	)			(500	)
Net gains and valuation adjustments		17,875			24,916				3,045			15,012			8,846				20,586			12,258				17,437				42,149			60,848				59,127				46,676
Deferred tax benefit		—			—							—			—				—			5,180				—							—				5,180				—
Total GAAP / CORE differences		17,900			24,932				3,043			15,096			8,849				20,373			18,059				16,008				39,448			60,971				63,289				41,024
Core earnings		24,596			30,967				37,872			45,466			45,565				51,969			37,029				34,783				30,485			138,901				169,346				90,557
GAAP / CORE differences		17,900			24,932				3043			15,096			8,849				20,373			18,059				16,008				39,448			60,971				63,289				41,024
GAAP Net Income	$	42,496		$	55,899			$	40,915		$	60,562		$	54,414			$	72,342		$	55,088			$	50,791			$	69,933		$	199,872			$	232,635			$	131,581
Per Share Analysis
Variable stock option market value change	$	0.00		$	0.00			$	0.00		$	0.00		$	0.00				($0.01	)	$	0.03		(	$	0.07	)	(	$	0.14	)	$	0.00		(	$	0.05	)	(	$	0.30	)
Realized gains on calls of residential CES		0.17			0.12				0.18			0.30			0.46				0.90			0.71				0.58				2.40			0.77				2.64				3.01
Realized gains on asset sales		0.46			0.91				0.02			0.33			—				0.02			0.05				0.30				0.00			1.73				0.34				0.05
Loss on repurchase of ABS issued		—			—				—			—			—				—			—				—				(0.11	)		—				—				(0.11	)
Valuation write-downs for EITF 99-20		(0.04	)		(0.05	)			(0.07	)		(0.02	)		(0.06	)			(0.02	)		(0.18	)			(0.03	)			(0.14	)		(0.17	)			(0.29	)			(0.41	)
Interest rate agreements valuation adjustments		0.12			—				(0.01	)		(0.01	)		(0.02	)			0.00			—				(0.00	)			0.00			0.10				(0.02	)			(0.02	)
Commercial real estate valuation adjustments		—			—				—			—			(0.02	)			—			(0.01	)			—				(0.02	)		—				(0.02	)			(0.03	)
Deferred tax benefit		—			—				—			—			—				—			0.24				—				—			—				0.24				—
GAAP / CORE differences per share	$	0.71		$	0.98			$	0.12		$	0.60		$	0.36			$	0.89		$	0.84			$	0.78			$	1.99		$	2.43			$	2.85			$	2.19
CORE earnings per share		0.97			1.23				1.50			1.82			1.86				2.29			1.74				1.71				1.54			5.53				7.62				4.85
GAAP / CORE differences per share		0.71			0.98				0.12			0.60			0.36				0.89			0.84				0.78				1.99			2.43				2.85			$	2.19
GAAP earnings per share	$	1.68		$	2.21			$	1.62		$	2.42		$	2.22			$	3.18		$	2.58			$	2.49			$	3.53		$	7.96			$	10.47				7.04
Diluted average shares (000)		25,311			25,314				25,196			25,021			24,491				22,728			21,325				20,399				19,801			25,121				22,229				18,812

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 2 — Core Earnings A-2

Table 3: GAAP / TAX Differences (all $ in thousands, except per share data)

	Estimated																								Estimated
	Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			2005			2004			2003
GAAP net income	$	42,496		$	55,899		$	40,915		$	60,562		$	54,414		$	72,342		$	55,088		$	50,791		$	199,872		$	232,635		$	131,698
Interest income and expense differences		(1,573	)		1,353			(4,868	)		(20,091	)		(7,519	)		(23,527	)		5,208			(1,150	)		(25,179	)		(26,988	)		22,324
Provision for credit losses — GAAP		876			(805	)		(1,527	)		1,025			1,697			1,528			1,500			2,511			(431	)		7,236			8,646
Tax deductions for realized credit losses		34			(562	)		(737	)		(438	)		(247	)		(127	)		(506	)		(4	)		(1,703	)		(884	)		(825	)
Long-term compensation differences		1,051			2,892			2,138			1,969			(1,775	)		402			2,428			2,904			8,050			3,959			7,522
Stock option exercise deduction differences		(202	)		(2,944	)		(143	)		(477	)		(3,094	)		(745	)		(109	)		(12,073	)		(3,766	)		(16,021	)		(2,483	)
Depreciation of fixed asset differences		168			60			166			151			(176	)		(589	)		46			(6	)		545			(725	)		(686	)
Other operating expense differences		(781	)		283			(31	)		69			(2,495	)		(34	)		5			(16	)		(460	)		(2,540	)		885
Sale of assets to third parties differences		(4,612	)		(8,041	)		(2,476	)		(967	)		1,428			(576	)		(536	)		(566	)		(16,096	)		(250	)		(69	)
Call income of residential CES differences		(1,505	)		(319	)		120			(2,324	)		(2,872	)		(3,961	)		(2,157	)		(1,899	)		(4,028	)		(10,889	)		(8,402	)
Tax gain on securitizations		—			(392	)		808			2,558			10,749			11,153			10,303			—			2,974			32,205			—
Tax gain on intercompany sales and transfers		(473	)		170			2,371			3,260			3,256			28			(71	)		7,546			5,328			10,759			2,823
GAAP market valuation write downs (EITF 99-20)		1,110			2,048			820			391			1,572			422			3,846			558			4,369			6,398			7,646
Interest rate agreements differences		707			216			53			202			(688	)		(278	)		502			50			1,178			(414	)		(229	)
Provision for excise tax — GAAP		280			285			308			307			(165	)		301			190			300			1,180			626			1,203
Provision for income tax differences		4,096			5,013			3,035			134			4,827			2,834			(3,672	)		1,881			12,278			5,870			5,502
Preferred dividend — GAAP		—			—			—			—			—			—			—			—			—			—			696
Total taxable income (pre-tax)		41,672			55,156			40,952			46,331			58,912			59,173			72,065			50,827			184,111			240,977			176,251
Earnings from taxable subsidiaries		(1,703	)		(8,038	)		(1,715	)		(1,170	)		(8,903	)		(10,143	)		(11,721	)		(8,337	)		(12,626	)		(39,104	)		(7,861	)
REIT taxable income (pre-tax)	$	39,969		$	47,118		$	39,237		$	45,161		$	50,009		$	49,030		$	60,344		$	42,490		$	171,485		$	201,873		$	168,390
Shares outstanding at period end (000)		25,133			24,764			24,647			24,514			24,154			23,346			21,511			19,796			25,133			24,154			19,063
Total taxable income per share	$	1.66		$	2.23		$	1.66		$	1.89		$	2.44		$	2.53		$	3.35		$	2.57		$	7.44		$	10.89		$	9.64
REIT taxable income per share	$	1.59		$	1.90		$	1.59		$	1.84		$	2.07		$	2.10		$	2.81		$	2.15		$	6.93		$	9.12		$	9.21

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 3 — GAAP-Tax Diff A-3

Table 4: Taxable Income Estimates (all $ in thousands, except per share data)

	Estimated																								Estimated
	Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			2005			2004			2003
Taxable income in taxable subs (pre-tax)	$	1,703		$	8,038		$	1,715		$	1,170		$	8,903		$	10,143		$	11,721		$	8,337		$	12,626		$	39,104		$	7,861
REIT taxable income (pre-tax)		39,969			47,118			39,237			45,161			50,009			49,030			60,344			42,490			171,485			201,873			168,390
Total taxable income (pre-tax)	$	41,672		$	55,156		$	40,952		$	46,331		$	58,912		$	59,173		$	72,065		$	50,827		$	184,111		$	240,977		$	176,251
Core income (loss) in taxable subs (pre-tax)	$	(436	)	$	7,931		$	(611	)	$	(1,996	)	$	(2,185	)	$	(1,275	)	$	1,741		$	910		$	4,888		$	(809	)	$	7,192
Income from calls and sales in taxable subs (pre-tax)		2,139			107			2,326			3,166			11,088			11,418			9,980			7,427			7,738			39,913			669
Taxable income in taxable subs (pre-tax)		1,703			8,038			1,715			1,170			8,903			10,143			11,721			8,337			12,626			39,104			7,861
Income tax for taxable subs (actual tax due)		(572	)		(3,652	)		(870	)		(830	)		(5,773	)		(4,574	)		(1,600	)		(1,150	)		(5,924	)		(13,097	)		(873	)
After-tax income in taxable subs	$	1,131		$	4,386		$	845		$	340		$	3,130		$	5,569		$	10,121		$	7,187		$	6,702		$	26,007		$	6,988
Core REIT taxable income	$	36,660		$	33,065		$	36,198		$	30,741		$	42,544		$	34,272		$	47,040		$	39,708		$	136,664		$	163,564		$	128,522
Other ordinary REIT taxable income (expense)		865			(2,160	)		3,166			(565	)		(3,094	)		(745	)		(109	)		(12,073	)		1,306			(16,021	)		(5,477	)
Other ordinary REIT taxable income (expense)		37,525			30,905			39,364			30,176			39,450			33,527			46,931			27,635			137,970			147,543			123,045
Net long-term capital gain REIT taxable income		2,444			16,213			(127	)		14,985			10,559			15,503			13,413			14,855			33,515			54,330			45,345
REIT taxable income (pre-tax)	$	39,969		$	47,118		$	39,237		$	45,161		$	50,009		$	49,030		$	60,344		$	42,490		$	171,485		$	201,873		$	168,390
Total core taxable income	$	36,225		$	40,996		$	35,587		$	28,745		$	40,359		$	32,997		$	48,781		$	40,618		$	141,553		$	162,755		$	135,714
Income from calls, sales and stock option exercises		5,447			14,160			5,365			17,586			18,553			26,176			23,284			10,209			42,558			78,222			40,537
Total taxable income (pre-tax)	$	41,672		$	55,156		$	40,952		$	46,331		$	58,912		$	59,173		$	72,065		$	50,827		$	184,111		$	240,977		$	176,251
REIT taxable income (pre-tax)	$	39,969		$	47,118		$	39,237		$	45,161		$	50,009		$	49,030		$	60,344		$	42,490		$	171,485		$	201,873		$	168,390
Excise taxes due to deferrals		(280	)		(285	)		(308	)		(307	)		293			(301	)		(190	)		(300	)		(1,180	)		(498	)		(1,305	)
Income taxes due to earnings retention (actual tax due)		(1,230	)		(1,641	)		(1,830	)		(1,450	)		14			(1,537	)		(2,151	)		(1,267	)		(6,151	)		(4,941	)		(5,619	)
REIT taxable income available for distribution	$	38,460		$	45,192		$	37,099		$	43,404		$	50,316		$	47,192		$	58,003		$	40,923		$	164,154		$	196,434		$	161,466
After-tax income in taxable subs		1,131			4,386			845			340			3,130			5,569			10,121			7,187			6,702			26,007			6,988
REIT taxable income available for distribution		38,460			45,192			37,099			43,404			50,316			47,192			58,003			40,923			164,155			196,434			161,466
Total taxable income (after-tax)	$	39,591		$	49,578		$	37,944		$	43,744		$	53,446		$	52,761		$	68,124		$	48,110		$	170,857		$	222,441		$	168,454
Regular dividend per share	$	0.70		$	0.70		$	0.70		$	0.70		$	0.67		$	0.67		$	0.67		$	0.67		$	2.80		$	2.68		$	3.36
Special dividend per share		3.00			—			—			—			5.50			—			—			0.50			3.00			6.00			4.75
Total dividends per share	$	3.70		$	0.70		$	0.70		$	0.70		$	6.17		$	0.67		$	0.67		$	1.17		$	5.80		$	8.68		$	8.11
Shares at period end (000)		25,133			24,764			24,647			24,514			24,154			23,346			21,511			19,796			25,133			24,154			19,063
Dividends declared	$	92,150		$	17,335		$	17,253		$	17,160		$	146,707		$	15,642		$	14,412		$	23,162		$	143,898		$	199,923		$	137,435
Dividend deduction on stock issued through DRIP		263			128			112			56			1,048			844			712			655			559			3,259			1,161
Total dividend deductions	$	92,413		$	17,463		$	17,365		$	17,216		$	147,755		$	16,486		$	15,124		$	23,817		$	144,457		$	203,182		$	138,596
Taxable income (after-tax) retained in tax subs	$	1,131		$	4,386		$	845		$	340		$	3,130		$	5,569		$	10,121		$	7,187		$	6,702		$	26,007		$	6,988
REIT retained taxable income (after-tax)(1)		1,553			1,165			1,798			1,261			4,252			1,515			2,352			1,197			5,777			9,315			5,381
Total retained taxable earnings (after-tax)	$	2,684		$	5,551		$	2,643		$	1,601		$	7,382		$	7,084		$	12,473		$	8,384		$	12,479		$	35,322		$	12,369
Per share outstanding at quarter end
Core taxable income (pre-tax)	$	1.44		$	1.66		$	1.44		$	1.17		$	1.67		$	1.41		$	2.27		$	2.05		$	5.71		$	7.40		$	7.49
REIT taxable income (pre-tax)	$	1.59		$	1.90		$	1.59		$	1.84		$	2.07		$	2.10		$	2.81		$	2.15		$	6.93		$	9.12		$	9.21
Total taxable income (pre-tax)	$	1.66		$	2.23		$	1.66		$	1.89		$	2.44		$	2.53		$	3.35		$	2.57		$	7.44		$	10.89		$	9.64
Total retained taxable earnings (after-tax)	$	0.11		$	0.22		$	0.11		$	0.07		$	0.31		$	0.30		$	0.58		$	0.42		$	0.50		$	1.61		$	0.65

(1) REIT retained taxable income equals 10% of ordinary REIT taxable income less income taxes and excise taxes.

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 4 — Tax. Inc. A-4

Table 5: Retention and Distribution of Taxable Income (all $ in thousands, except per share data)

	Estimated																								Estimated
	Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			2005			2004			2003
Undistributed beginning of period REIT taxable income (pre-tax):	$	106,719		$	80,166		$	62,218		$	37,291		$	138,981		$	109,790		$	69,263		$	53,354		$	37,291		$	53,354		$	35,865
REIT taxable income (pre-tax)		39,970			47,118			39,237			45,161			50,009			49,030			60,344			42,490			171,486			201,873			168,390
Permanently retained (pre-tax)		(3,063	)		(3,102	)		(3,924	)		(3,018	)		(3,944	)		(3,353	)		(4,693	)		(2,764	)		(13,107	)		(14,754	)		(12,305	)
Dividend of 2002 income		—			—			—			—			—			—			—			—			—			—			(35,865	)
Dividend of 2003 income		—			—			—			—			—			(14,413	)		(15,124	)		(23,817	)		—			(53,354	)		(102,731	)
Dividend of 2004 income		—			(2,710	)		(17,365	)		(17,216	)		(147,755	)		(2,073	)		—			—			(37,291	)		(149,828	)		—
Dividend of 2005 income		(92,413	)		(14,753	)		—			—			—			—			—			—			(107,166	)		—			—
Undistributed REIT end of period taxable income (pre-tax):	$	51,213		$	106,719		$	80,166		$	62,218		$	37,291		$	138,981		$	109,790		$	69,263		$	51,213		$	37,291		$	53,354
Shares outstanding at period end		25,133			24,764			24,647			24,514			24,154			23,346			21,511			19,796			25,133			24,154			19,063
Undistributed REIT taxable income (pre-tax) per share outstanding	$	2.04		$	4.31		$	3.25		$	2.54		$	1.54		$	5.95		$	5.10		$	3.50		$	2.04		$	1.54		$	2.80
Undistributed REIT taxable income (pre-tax)
From 2003’s income		—			—			—			—			—			—			14,413			29,537			—			—			53,354
From 2004’s income		—			—			2,710			20,075			37,291			138,981			95,377			39,726			—			37,291			—
From 2005’s income		51,213			106,716			77,456			42,143			—			—			—			—			51,213			—			—
Total	$	51,213		$	106,716		$	80,166		$	62,218		$	37,291		$	138,981		$	109,790		$	69,263		$	51,213		$	37,291		$	53,354

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 5 — Ret. Tax. Inc. A-5

Table 6: Assets (all $ in millions)

	Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			Q4:2003
Residential loans owned by Redwood	$	45		$	17		$	300		$	256		$	193		$	259		$	161		$	97		$	43
Residential loans consolidated from entities		13,649			16,324			19,083			21,237			22,015			21,299			19,755			17,989			16,196
Total GAAP residential loans		13,694			16,341			19,383			21,493			22,208			21,558			19,916			18,086			16,239
HELOC loans owned by Redwood		—			—			—			—			—			—			—			—			—
HELOC loans consolidated from entities		181			215			247			279			296			317			327			—			—
Total GAAP HELOC loans		181			215			247			279			296			317			327			—			—
Commercial loans owned by Redwood		7			21			16			22			32			21			25			14			14
Commercial loans consolidated from entities		53			35			26			35			22			12			8			8			9
Total GAAP commercial loans		60			56			42			57			54			33			33			22			23
Residential CES owned by Redwood		311			338			469			373			351			327			312			256			251
Residential CES consolidated from entities		302			326			237			238			211			170			131			119			128
Total GAAP residential CES		613			664			706			611			562			497			443			375			379
Commercial CES owned by Redwood		58			44			29			29			14			9			2			2			—
Commercial CES consolidated from entities		—			—
Total GAAP Commercial CES		58			44			29			29			14			9			2			2			—
Other securities owned by Redwood		167			234			208			70			115			161			213			237			167
Other securities consolidated from entities		1,582			1,549			1,441			1,435			1,266			1,069			881			698			678
Total GAAP other securities		1,749			1,783			1,649			1,505			1,381			1,230			1,094			935			845
Cash owned by Redwood		176			163			72			65			57			76			38			58			58
Restricted cash consolidated from entities		72			59			48			58			36			45			20			14			22
Accrued interest receivable		76			80			85			82			72			62			49			44			40
Principal receivable		—			2			—			—			3			1			12			—			13
Interest rate agreements		31			25			13			29			16			10			17			1			2
Deferred tax asset		5			8			7			8			11			9			5			—			—
Deferred asset-backed security issuance costs		54			56			59			63			61			58			53			47			44
Other assets		8			9			6			6			7			7			7			6			5
Total GAAP assets	$	16,777		$	19,505		$	22,346		$	24,285		$	24,778		$	23,912		$	22,016		$	19,590		$	17,670
Residential loans owned by Redwood	$	45		$	17		$	300		$	256		$	193		$	259		$	161		$	97		$	43
HELOC loans owned by Redwood		—			—			—			—			—			—			—			—			—
Commercial loans owned by Redwood		7			21			16			22			32			21			25			14			14
Residential CES owned by Redwood		311			338			469			373			351			327			312			256			251
Commercial CES owned by Redwood		58			44			29			29			14			9			2			2			—
Other securities owned by Redwood		167			234			208			70			129			170			215			239			167
Cash owned by Redwood		176			163			72			65			57			76			38			58			58
Assets of securitizations for GAAP		15,767			18,449			21,034			23,224			23,810			22,867			21,102			18,814			17,011
ABS liabilities of entities for GAAP		(15,585	)		(18,238	)		(20,815	)		(23,057	)		(23,630	)		(22,680	)		(20,923	)		(18,630	)		(16,826	)
Redwood earning assets — GAAP basis	$	946		$	1,028		$	1,313		$	982		$	956		$	1,049		$	932		$	850		$	718

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 6 — Assets A-6

Table 7: Liabilities (all $ in millions)

	Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			Q4:2003
Redwood Trust debt: short-term	$	170		$	162		$	453		$	199		$	203		$	246		$	270		$	278		$	236
Redwood Trust debt: long-term		—			—			—			—			—			—			—			—			—
Total Redwood Trust debt		170			162			453			199			203			246			270			278			236
ABS issued, consolidated from entities		15,422			18,049			20,598			22,821			23,383			22,449			20,724			18,458			16,661
Unamortized IO issuance premium		143			163			186			202			210			185			161			162			153
Unamortized ABS issuance premium		20			25			31			34			37			46			38			10			12
ABS obligations of entities		15,585			18,237			20,815			23,057			23,630			22,680			20,923			18,630			16,826
Accrued interest payable		41			42			43			38			35			29			22			18			17
Interest rate agreements		1			1			3			0			1			7			1			12			4
Accrued expenses and other liabilities		28			30			23			26			29			32			28			21			22
Dividends payable		17			17			17			17			16			16			14			23			12
Total GAAP liabilities		15,842			18,489			21,354			23,337			23,914			23,010			21,258			18,982			17,117
Common stock and paid-in capital		825			808			803			795			773			727			625			549			518
Accumulated other comprehensive income		74			117			137			125			105			97			111			79			82
Cumulative GAAP earnings		681			639			583			542			482			427			355			299			249
Cumulative distributions to shareholders		(645	)		(548	)		(531	)		(514	)		(496	)		(349	)		(333	)		(319	)		(296	)
GAAP stockholders’ equity		935			1,016			992			948			864			902			758			608			553
Total GAAP liabilities and equity	$	16,777		$	19,505		$	22,346		$	24,285		$	24,778		$	23,912		$	22,016		$	19,590		$	17,670
Total Redwood Trust debt	$	170		$	162		$	453		$	199		$	203		$	246		$	270		$	278		$	236
GAAP stockholders’ equity		935			1016			992			948			864			902			758			608			553
Redwood capital	$	1,105		$	1,178		$	1,445		$	1,147		$	1,067		$	1,148		$	1,028		$	886		$	789
Redwood debt to equity ratio		18	%		16	%		46	%		21	%		23	%		27	%		36	%		46	%		43	%
Debt to capital ratio		15	%		14	%		31	%		17	%		19	%		21	%		26	%		31	%		30	%
Redwood earning assets	$	946		$	1,028		$	1,313		$	982		$	942		$	1,040		$	930		$	848		$	718
Redwood debt		170			162			453			199			203			246			270			278			236
Redwood net earning assets (GAAP basis)	$	776		$	866		$	860		$	783		$	739		$	794		$	660		$	570		$	482
Equity to earning assets		99	%		99	%		76	%		97	%		92	%		87	%		82	%		72	%		77	%

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 7 — Liabilities A-7

Table 8: Book Value and Profitability (all $ in thousands, except per share data)

	Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			Q4:2003			2005			2004			2003
GAAP equity	$	934,960		$	1,016,065		$	991,757		$	948,001		$	864,156		$	901,841		$	757,940		$	608,122		$	553,328		$	934,960		$	864,156		$	553,328
Balance sheet mark-to-market adjustments		73,731			117,043			137,380			124,784			105,357			96,452			111,221			78,517			82,179			73,731			105,357			82,179
Core equity	$	861,229		$	899,022		$	854,377		$	823,217		$	758,799		$	805,389		$	646,719		$	529,605		$	471,149		$	861,229		$	758,799		$	471,149
Core equity	$	861,229		$	899,022		$	854,377		$	823,217		$	758,799		$	805,389		$	646,719		$	529,605		$	471,149		$	861,229		$	758,799		$	471,149
REIT taxable income to be paid as dividends		51,213			106,716			80,166			62,218			37,291			138,982			109,790			69,263			53,354			51,213			37,291			53,354
Adjusted core equity	$	810,016		$	792,306		$	774,211		$	760,999		$	721,508		$	666,407		$	536,929		$	460,342		$	417,795		$	810,016		$	721,508		$	417,795
Shares outstanding at quarter end		25,133			24,764			24,647			24,514			24,154			23,346			21,511			19,796			19,063			25,133			24,154			19,063
GAAP equity per share	$	37.20		$	41.03		$	40.24		$	38.67		$	35.78		$	38.63		$	35.24		$	30.72		$	29.03		$	37.20		$	35.78		$	29.03
Core equity per share	$	34.27		$	36.30		$	34.66		$	33.58		$	31.42		$	34.50		$	30.06		$	26.75		$	24.72		$	34.27		$	31.42		$	24.72
Adjusted core equity per share	$	32.23		$	31.99		$	31.41		$	31.03		$	29.86		$	28.55		$	24.96		$	23.25		$	21.92		$	32.23		$	29.86		$	21.92
PROFITABILITY
Net interest income	$	41,150		$	46,870		$	53,208		$	61,199		$	58,007		$	65,279		$	47,620		$	45,260		$	39,668		$	202,427		$	216,166		$	128,115
Net interest income / average core equity		19	%		21	%		25	%		31	%		30	%		38	%		33	%		36	%		34	%		24	%		34	%		29	%
Operating expenses (before excise and VSOE)	$	12,177		$	10,925		$	10,974		$	10,749		$	7,781		$	8,047		$	8,892		$	8,297		$	7,680		$	44,825		$	33,017		$	30,040
Op exp before VSOE/Net interest income		30	%		23	%		21	%		18	%		13	%		12	%		19	%		18	%		19	%		22	%		15	%		23	%
GAAP net income	$	42,496		$	55,899		$	40,915		$	60,562		$	54,414		$	72,342		$	55,088		$	50,791		$	69,933		$	199,872		$	232,635		$	131,698
GAAP net income/average core equity		19	%		25	%		19	%		30	%		28	%		42	%		38	%		40	%		60	%		24	%		36	%		30	%
Core earnings	$	24,596		$	30,967		$	37,872		$	45,466		$	45,565		$	51,969		$	37,029		$	34,783		$	30,485		$	138,901		$	169,346		$	90,557
Core earnings/average core equity		11	%		14	%		18	%		23	%		23	%		30	%		25	%		27	%		26	%		16	%		26	%		20	%

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 8 — Book Value and Profitability A-8

Table 9: Asset / Liability Matching at December 31, 2005 (all $ in thousands)⁽¹⁾

			One-		Six-				Non				Total
			Month		Month		Fixed/		Interest				Liabilities
Asset	Asset		LIBOR		LIBOR		Hybrid		Bearing				And
Type	Amount		Liabilities		Liabilities		Liabilities		Liabilities		Equity		Equity
Cash (unrestricted)	$	175,885	$	175,885	$	—	$	—	$	—	$	—	$	175,885
One-Month LIBOR		5,030,366		5,030,366		—		—		—		—		5,030,366
Six-Month LIBOR		9,862,192		—		9,725,039		—		—		137,153		9,862,192
Other ARM		269,494		173,616		—		—		—		95,878		269,494
Fixed/Hybrid < 1 yr(1)		71,481		—		—		47,380		—		24,101		71,481
Fixed / Hybrid > 1yr		1,119,868		—		—		602,698		—		517,170		1,119,868
Non-Earning Assets		247,674		—		—		—		87,016		160,658		247,674
Total(2)	$	16,776,960	$	5,379,867	$	9,725,039	$	650,078	$	87,016	$	934,960	$	16,776,960

(1)	Projected principal receipts on fixed-rate and hybrid assets over the next twelve months.
(2)	includes assets and ABS liabilities of consolidated securitization entities.

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 9 — Asset/Liability Matching A-9

Table 10: Average Balance Sheet (all $ in thousands)

	Q4:2005		Q3:2005		Q2:2005		Q1:2005		Q4:2004		Q3:2004		Q2:2004		Q1:2004		Q4:2003		2005		2004		2003
Average residential real estate loans	$	14,627,880	$	17,373,023	$	20,054,970	$	21,640,501	$	21,716,898	$	20,484,287	$	18,754,200	$	16,916,295	$	14,381,270	$	18,402,001	$	19,476,842	$	9,932,961
Average residential HELOC		193,707		224,884		257,515		285,142		303,119		323,100		124,053		—		—		240,019		188,254		—
Average residential loan CES		534,420		585,663		550,460		493,412		424,879		368,887		317,235		287,078		272,999		541,224		349,779		275,308
Average commercial loan CES		44,109		32,192		25,085		19,255		10,836		7,372		2,075		677		—		30,234		5,261		—
Average commercial real estate loans		59,049		47,703		45,214		56,080		39,836		33,461		26,129		22,316		23,464		52,008		30,469		29,473
Average securities portfolio		1,743,808		1,687,506		1,548,085		1,423,487		1,267,692		1,141,456		978,014		861,328		709,867		1,601,837		1,062,901		532,683
Average cash and cash equivalents		339,379		134,422		124,707		124,685		126,556		101,937		81,450		70,641		116,265		181,259		95,251		87,886
Average earning assets		17,542,352		20,085,393		22,606,036		24,042,562		23,889,816		22,460,500		20,283,156		18,158,335		15,503,865		21,048,582		21,208,757	$	10,858,311
Average other assets		806,329		905,906		759,517		520,622		430,219		416,736		327,205		227,634		254,552		749,340		350,847		199,961
Average total assets	$	18,348,681	$	20,991,299	$	23,365,553	$	24,563,184	$	24,320,035	$	22,877,236	$	20,610,361	$	18,385,969	$	15,758,417	$	21,797,922	$	21,559,604	$	11,058,272
Average Redwood debt	$	253,302	$	297,788	$	216,639	$	277,423	$	348,177	$	404,589	$	539,231	$	447,931	$	410,631	$	261,322	$	434,662	$	363,311
Average asset-backed securities issues		16,941,243		19,542,413		22,067,276		23,324,111		22,956,247		21,606,164		19,350,833		17,299,503		14,708,963		20,448,735		20,313,995		10,126,303
Average total obligations		17,194,545		19,840,201		22,283,915		23,601,534		23,304,424		22,010,753		19,890,064		17,747,434		15,119,594		20,710,057		20,748,657		10,489,614
Average other liabilities		154,823		136,769		111,294		66,188		145,752		64,916		56,424		54,150		79,750		117,597		80,448		41,850
Average total liabilities		17,349,368		19,976,970		22,395,209		23,667,722		23,450,176		22,075,669		19,946,488		17,801,584		15,199,344		20,827,654		20,829,105		10,531,464
Average core equity		880,329		880,482		840,098		794,866		776,833		695,488		583,875		506,445		469,857		849,257		641,182		443,171
Average balance sheet mark-to-market adjustments		118,984		133,847		130,246		100,596		93,026		106,079		79,998		77,940		89,216		121,011		89,317		83,637
Average total equity		999,313		1,014,329		970,344		895,462		869,859		801,567		663,873		584,385		559,073		970,268		730,499		526,808
Average total liabilities and equity	$	18,348,681	$	20,991,299	$	23,365,553	$	24,563,184	$	24,320,035	$	22,877,236	$	20,610,361	$	18,385,969	$	15,758,417	$	21,797,922	$	21,559,604	$	11,058,272

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 10 — Average Balance Sheet A-10

Table 11: Balances & Yields (all $ in thousands)

		At period end
				Unamortized					Unrealized				For period ended
				Premium/		Credit			Gain /		Net Book		Average		Interest
		Current Face		(Discount)		Protection			(loss)		Value		Balance*		Income		Yield
Total Earning Assets (GAAP)	Q4: 2003	$	17,657,339	$	29,495		($225,947	)	$	82,600	$	17,543,487	$	15,503,865	$	108,262		2.79	%
	2003		17,657,339		21,354		(217,806	)		82,600		17,543,487		10,858,311		330,976		3.05	%
	Q1: 2004		19,595,182		47,341		(252,587	)		87,874		19,477,810		18,158,335		124,837		2.75	%
	Q2: 2004		21,975,772		57,582		(272,698	)		91,454		21,852,110		20,283,156		137,979		2.72	%
	Q3: 2004		23,883,198		102,744		(356,371	)		90,818		23,720,389		22,460,500		180,090		3.21	%
	Q4: 2004		24,863,331		104,063		(420,757	)		95,396		24,572,723		23,889,816		205,178		3.44	%
	2004		24,863,331		55,841		(372,535	)		95,396		24,572,723		21,208,757		648,084		3.06	%
	Q1: 2005		24,301,644		122,952		(487,952	)		102,711		24,039,355		24,042,562		237,166		3.95	%
	Q2: 2005		22,414,482		103,779		(522,490	)		133,210		22,128,981		22,606,036		248,388		4.40	%
	Q3: 2005		19,625,979		94,058		(551,562	)		98,874		19,267,349		20,085,393		243,556		4.85	%
	Q4: 2005		16,986,581		13,376		(527,213	)		56,542		16,529,286		17,542,352		230,841		5.26	%
	2005		16,986,581		13,376		(527,213	)		56,542		16,529,286		21,048,582		959,951		4.56	%
Residential Real Estate Loans	Q4: 2003	$	16,110,748	$	144,748		($16,336	)	$	—	$	16,239,160	$	14,381,270	$	82,727		2.30	%
	2003		16,110,748		144,748		(16,336	)		—		16,239,160		9,932,961		235,978		2.38	%
	Q1: 2004		17,950,901		154,451		(18,847	)		—		18,086,505		16,916,295		98,826		2.34	%
	Q2: 2004		19,766,481		169,174		(20,080	)		—		19,915,575		18,754,200		109,880		2.34	%
	Q3: 2004		21,381,784		197,472		(21,344	)		—		21,557,912		20,484,287		147,974		2.89	%
	Q4: 2004		22,023,888		207,607		(23,078	)		—		22,208,417		21,716,898		168,831		3.11	%
	2004		22,023,888		207,607		(23,078	)		—		22,208,417		19,476,842		525,511		2.70	%
	Q1: 2005		21,307,080		210,375		(24,231	)		—		21,493,224		21,640,501		194,877		3.60	%
	Q2: 2005		19,202,109		203,480		(22,396	)		—		19,383,193		20,054,970		203,743		4.06	%
	Q3: 2005		16,176,357		185,814		(20,991	)		—		16,341,180		17,373,023		191,914		4.42	%
	Q4: 2005		13,541,402		173,299		(20,868	)		—		13,693,833		14,627,880		175,124		4.79	%
	2005		13,541,402		173,299		(20,868	)		—		13,693,833		18,402,001		765,658		4.16	%
Home Equity Lines of Credit	Q4: 2003	$	—	$	—	$	—		$	—	$	—	$	—	$	—		0.00	%
	2003		—		—		—			—		—		—		—		0.00	%
	Q1: 2004		—		—		—			—		—		—		—		0.00	%
	Q2: 2004		317,045		10,043		(267	)		—		326,821		124,053		536		1.73	%
	Q3: 2004		308,697		9,029		(531	)		—		317,195		303,119		1,618		2.00	%
	Q4: 2004		288,954		8,087		(693	)		—		296,348		303,119		2,177		2.87	%
	2004		288,954		8,087		(693	)		—		296,348		188,254		4,331		2.30	%
	Q1: 2005		272,591		7,477		(596	)		—		279,472		285,142		2,558		3.59	%
	Q2: 2005		241,278		6,657		(563	)		—		247,372		257,515		2,467		3.83	%
	Q3: 2005		210,476		5,699		(1,038	)		—		215,137		224,884		1,696		3.02	%
	Q4: 2005		177,840		4,907		(1,788	)				180,959		193,707		1,475		3.05	%
	2005		177,840		4,907		(1,788	)		—		180,959		240,019		8,196		3.41	%

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 11 — Balances & Yields A-11

Table 11: Balances & Yields (all $ in thousands)

		At period end
				Unamortized						Unrealized				For period ended
				Premium/			Credit			Gain /		Net Book		Average		Interest
		Current Face		(Discount)			Protection			(loss)		Value		Balance*		Income		Yield
Residential Loan Credit-Enhancement Securities	Q4: 2003	$	623,692		($123,329	)		($200,970	)	$	79,334	$	378,727	$	272,999	$	17,394		25.49	%
	2003		623,692		(123,329	)		(200,970	)		79,334		378,727		275,308		68,091		24.73	%
	Q1: 2004		634,000		(110,994	)		(216,924	)		68,534		374,616		287,078		15,533		21.64	%
	Q2: 2004		712,908		(121,808	)		(235,535	)		86,674		442,239		317,235		16,077		20.27	%
	Q3: 2004		830,524		(109,367	)		(298,925	)		74,577		496,809		368,887		16,007		17.36	%
	Q4: 2004		933,772		(108,141	)		(342,706	)		78,733		561,658		424,879		16,985		15.99	%
	2004		933,772		(108,141	)		(342,706	)		78,733		561,658		349,779		64,602		18.47	%
	Q1: 2005		978,878		(89,405	)		(365,998	)		87,919		611,394		493,412		19,624		15.91	%
	Q2: 2005		1,103,737		(96,488	)		(404,180	)		103,126		706,195		550,460		19,439		14.13	%
	Q3: 2005		1,052,813		(89,429	)		(382,862	)		84,279		664,801		585,663		24,368		16.64	%
	Q4: 2005		1,035,874		(126,811	)		(354,610	)		58,196		612,649		534,420		23,133		17.31	%
	2005		1,035,874		(126,811	)		(354,610	)		58,196		612,649		541,224		86,564		15.99	%
Commercial Loan Credit- Enhancement Securities	Q4: 2003	$	—	$	—		$	—		$	—	$	—	$	—	$	—		0.00	%
	2003		—		—			—			—		—		—		—		0.00	%
	Q1: 2004		8,175		2,053			(8,175	)		95		2,148		677		35		20.46	%
	Q2: 2004		8,175		2,084			(8,175	)		10		2,094		2,075		61		11.67	%
	Q3: 2004		26,930		8,456			(26,930	)		686		9,142		7,372		346		18.80	%
	Q4: 2004		45,639		12,883			(45,639	)		1,615		14,498		10,836		233		8.61	%
	2004		45,639		12,883			(45,639	)		1,615		14,498		5,261		675		12.83	%
	Q1: 2005		88,671		25,344			(88,671	)		3,226		28,570		19,255		356		7.40	%
	Q2: 2005		87,210		24,847			(87,210	)		4,549		29,396		25,085		881		14.05	%
	Q3: 2005		138,530		41,127			(138,530	)		2,413		43,540		32,192		453		5.63	%
	Q4: 2005		175,343		19,474			(141,806	)		4,676		57,687		44,109		923		8.37	%
	2005		175,343		19,474			(141,806	)		4,676		57,687		30,234		2,613		8.64	%
Commercial Real Estate Loans	Q4: 2003	$	31,180		($120	)		($8,641	)	$	—	$	22,419	$	23,464	$	244		4.16	%
	2003		31,180		(120	)		(8,641	)		—		22,419		29,473		2,959		10.04	%
	Q1: 2004		31,136		(318	)		(8,641	)		—		22,177		22,316		701		12.56	%
	Q2: 2004		43,448		(1,261	)		(8,641	)		—		33,546		26,129		868		13.29	%
	Q3: 2004		43,410		(1,380	)		(8,641	)		—		33,389		33,461		1,038		12.40	%
	Q4: 2004		65,598		(2,478	)		(8,641	)		—		54,479		39,836		1,162		11.67	%
	2004		65,598		(2,478	)		(8,641	)		—		54,479		30,469		3,769		12.37	%
	Q1: 2005		67,365		(2,305	)		(8,456	)		—		56,604		56,080		1,587		11.32	%
	Q2: 2005		51,778		(1,843	)		(8,141	)		—		41,794		45,214		1,208		10.68	%
	Q3: 2005		66,348		(2,105	)		(8,141	)		—		56,102		47,703		1,209		10.14	%
	Q4: 2005		70,091		(2,258	)		(8,141	)		—		59,692		59,049		1,281		8.68	%
	2005		70,091		(2,258	)		(8,141	)		—		59,692		52,008		5,285		10.16	%

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 11 — Balances & Yields A-12

Table 11: Balances & Yields (all $ in thousands)

		At period end
				Unamortized					Unrealized					For period ended
				Premium/			Credit		Gain /			Net Book		Average		Interest
		Current Face		(Discount)			Protection		(loss)			Value		Balance*		Income		Yield
Securities	Q4: 2003	$	833,252	$	8,196		$	—	$	3,266		$	844,714	$	709,867	$	7,803		4.40	%
	2003		833,252		8,196			—		3,266			844,714		532,683		23,530		4.42	%
	Q1: 2004		913,104		2,149			—		19,245			934,498		861,328		9,576		4.45	%
	Q2: 2004		1,089,254		(650	)		—		4,770			1,093,374		978,014		10,484		4.29	%
	Q3: 2004		1,215,847		(1,466	)		—		15,555			1,229,936		1,141,456		12,932		4.53	%
	Q4: 2004		1,378,924		(13,895	)		—		15,048			1,380,077		1,267,692		15,282		4.82	%
	2004		1,378,924		(13,895	)		—		15,048			1,380,077		1,062,901		48,274		4.54	%
	Q1: 2005		1,522,345		(28,534	)		—		11,566			1,505,377		1,423,487		17,584		4.94	%
	Q2: 2005		1,656,177		(32,874	)		—		25,535			1,648,838		1,548,085		19,846		5.13	%
	Q3: 2005		1,818,295		(47,048	)		—		12,182			1,783,429		1,687,506		22,926		5.43	%
	Q4: 2005		1,810,146		(55,235	)		—		(6,330	)		1,748,581		1,743,808		26,075		5.98	%
	2005		1,810,146		(55,235	)		—		(6,330	)		1,748,581		1,601,837		86,431		5.40	%
Cash & Equivalents	Q4: 2003	$	58,467	$	—		$	—	$	—		$	58,467			$	94
	2003		58,467		—			—		—			58,467				418
	Q1: 2004		57,866		—			—		—			57,866				166
	Q2: 2004		38,461		—			—		—			38,461				73
	Q3: 2004		76,006		—			—		—			76,006				175
	Q4: 2004		126,556		—			—		—			57,246				508
	2004		95,251		—			—		—			57,246				922
	Q1: 2005		64,714		—			—		—			64,714				580
	Q2: 2005		72,193		—			—		—			72,193				804
	Q3: 2005		163,160		—			—		—			163,160				990
	Q4: 2005		175,885		—			—		—			175,885				2,830
	2005		175,885		—			—		—			175,885				5,204

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 11 — Balances & Yields A-13

Table 12: Portfolio Activity (all $ in thousands)

										Discount /									Net Mark-to-
							Principal			(Premium)						Net Charge-offs /			Market			Net Increase /
		Acquisitions		Sales			Payments			Amortization			Credit Provision			(Recoveries)			Adjustment			(Decrease)
Residential Real Estate Loans (GAAP)	Q4: 2003	$	2,897,863		($605	)		($458,957	)		($9,684	)		($2,769	)	$	50		$	12		$	2,425,910
	2003		11,401,367		(73,742	)		(1,266,702	)		(29,615	)		(8,146	)		81			738			10,023,981
	Q1: 2004		2,321,706		0			(460,334	)		(11,516	)		(2,511	)		0			0			1,847,345
	Q2: 2004		2,703,443		0			(859,148	)		(13,992	)		(1,233	)		0			0			1,829,070
	Q3: 2004		2,898,165		(112,811	)		(1,144,320	)		2,078			(1,264	)		0			489			1,642,337
	Q4: 2004		1,791,951		(865	)		(1,132,854	)		(5,993	)		(1,535	)		176			(375	)		650,505
	2004		9,715,265		(113,676	)		(3,596,656	)		(29,423	)		(6,543	)		176			114			5,969,257
	Q1: 2005		832,383		0			(1,539,387	)		(7,036	)		(1,307	)		154			0			(715,193	)
	Q2: 2005		426,806		(3,378	)		(2,526,236	)		(8,937	)		1,494			(34	)		254			(2,110,031	)
	Q3: 2005		332,049		(263,079	)		(3,098,691	)		(13,479	)		1,315			90			(218	)		(3,042,013	)
	Q4: 2005		271,742		(240,987	)		(2,665,727	)		(12,544	)		(128	)		250			48			(2,647,346	)
	2005		1,862,980		(507,444	)		(9,830,041	)		(41,996	)		1,374			460			84			(8,514,583	)
Home Equity Line of Credit	Q4: 2003	$	—	$	—		$	—		$	—		$	—		$	—		$	—		$	—
	2003		—		—			—			—			—			—			—			—
	Q1: 2004		—		—			—			—			—			—			—			—
	Q2: 2004		335,044		—			(7,706	)		(250	)		(267	)		—			—			326,821
	Q3: 2004		—		—			(8,290	)		(1,072	)		(264	)		—			—			(9,626	)
	Q4: 2004		—		—			(19,743	)		(942	)		(162	)		—			—			(20,847	)
	2004		335,044		—			(35,739	)		(2,264	)		(693	)		—			—			296,348
	Q1: 2005		—		—			(16,365	)		(608	)		97			—			—			(16,876	)
	Q2: 2005		127		—			(31,439	)		(821	)		33			—			—			(32,100	)
	Q3: 2005		—		—			(30,801	)		(959	)		(510	)		35			—			(32,235	)
	Q4: 2005		133		—			(32,773	)		(790	)		(749	)		—			—			(34,179	)
	2005		260		—			(111,378	)		(3,178	)		(1,129	)		35			—			(115,390	)
Residential Loan Credit-Enhancement Securities	Q4: 2003	$	77,367	$	—			($116,575	)	$	10,188		$	—		$	—		$	34,336		$	5,316
	2003		148,873		(1,248	)		(216,207	)		37,189			—			—			57,641			26,248
	Q1: 2004		37,608		(22,416	)		(34,640	)		8,637			—			—			6,700			(4,111	)
	Q2: 2004		75,027		—			(46,997	)		8,847			—			—			30,746			67,623
	Q3: 2004		82,918		—			(44,822	)		8,181			—			—			8,293			54,570
	Q4: 2004		72,976		—			(30,900	)		8,443			—			—			14,330			64,849
	2004		268,529		(22,416	)		(157,359	)		34,108			—			—			60,069			182,931
	Q1: 2005		67,809		(27,293	)		(23,932	)		8,727			—			—			24,425			49,736
	Q2: 2005		87,849		—			(20,400	)		7,775			—			—			19,577			94,801
	Q3: 2005		57,481		(98,775	)		(18,403	)		11,193			—			—			7,110			(41,394	)
	Q4: 2005		54,664		(81,292	)		(22,468	)		10,456			—			—			(13,512	)		(52,152	)
	2005		267,803		(207,360	)		(85,203	)		38,151			—			—			37,600			50,991

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 12 — Portfolio Activity A-14

Table 12: Portfolio Activity (all $ in thousands)

										Discount /								Net Mark-to-
							Principal			(Premium)						Net Charge-offs /		Market			Net Increase /
		Acquisitions		Sales			Payments			Amortization			Credit Provision			(Recoveries)		Adjustment			(Decrease)
Commercial Loan Credit-Enhancement Securities	Q4: 2003	$	—	$	—		$	—		$	—		$	—		$	—	$	—		$	—
	2003		—		—			—			—			—			—		—			—
	Q1: 2004		2,053		—			—			—			—			—		94			2,147
	Q2: 2004		74		—			—			(42	)		—			—		(85	)		(53	)
	Q3: 2004		6,311		—			—			60			—			—		677			7,048
	Q4: 2004		4,770		—			—			(343	)		—			—		929			5,356
	2004		13,208		—			—			(325	)		—			—		1,615			14,498
	Q1: 2005		12,870		—			—			(409	)		—			—		1,611			14,072
	Q2: 2005		—		—			—			(346	)		—			—		1,173			827
	Q3: 2005		17,182		—			—			(902	)		—			—		(2,136	)		14,144
	Q4: 2005		13,028		—			—			(904	)		—			—		2,022			14,146
	2005		43,080		—			—			(2,561	)		—			—		2,670			43,189
Commercial Real Estate Loans	Q4: 2003	$	—	$	—			($31	)		($198	)		($500	)	$	—		($500	)		($1,189	)
	2003		6,442		(774	)		(11,353	)		(298	)		(500	)		—		(368	)		(6,851	)
	Q1: 2004		—		—			(45	)		(122	)		—			—		(75	)		(242	)
	Q2: 2004		17,066		(2,339	)		(3,233	)		(102	)		—			—		(23	)		11,369
	Q3: 2004		—		—			(29	)		(128	)		—			—		—			(157	)
	Q4: 2004		21,305		—			(83	)		(132	)		—			—		—			21,090
	2004		38,371		(2,339	)		(3,390	)		(484	)		—			—		(98	)		32,060
	Q1: 2005		6,732		—			(5,267	)		(30	)		185			—		505			2,125
	Q2: 2005		—		(11,192	)		(3,769	)		(99	)		—			—		250			(14,810	)
	Q3: 2005		14,219		(17	)		158			(69	)		—			—		17			14,308
	Q4: 2005		4,248		—			(506	)		(152	)		—			—		—			3,590
	2005		25,199		(11,209	)		(9,384	)		(350	)		185			—		772			5,213
Securities	Q4: 2003	$	256,588	$	—			($17,658	)		($343	)	$	—		$	—	$	1,042		$	239,629
	2003		565,760		(4,051	)		(53,790	)		(547	)		—			—		1,645			509,017
	Q1: 2004		84,225		(142	)		(9,807	)		(484	)		—			—		15,993			89,785
	Q2: 2004		192,626		(8,333	)		(10,069	)		(663	)		—			—		(14,686	)		158,875
	Q3: 2004		144,753		—			(18,489	)		(146	)		—			—		10,444			136,562
	Q4: 2004		176,341		—			(25,189	)		39			—			—		(1,050	)		150,141
	2004		597,945		(8,475	)		(63,554	)		(1,254	)		—			—		10,701			535,363
	Q1: 2005		168,337		(12,362	)		(27,070	)		115			—			—		(3,720	)		125,300
	Q2: 2005		156,182		(3,012	)		(22,333	)		151			—			—		12,472			143,460
	Q3: 2005		190,160		—			(41,618	)		566			—			—		(14,517	)		134,591
	Q4: 2005		169,736		(151,620	)		(38,005	)		907			—			—		(15,865	)		(34,847	)
	2005		684,415		(166,994	)		(129,026	)		1,739			—			—		(21,630	)		368,504

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 12 — Portfolio Activity A-15

Table 13: Residential Credit Results (all $ in thousands)

																					Losses To		Redwood’s			Total Credit
				Internally-						Total Credit			Seriously		Seriously						Securities Junior		Share of Net			Losses As % of
		Underlying		Designated		External Credit		Total Credit		Protection as %			Delinquent		Delinquent Loan			Total Credit			to Redwood's		Charge-			Loans
		Loans		Credit Reserve		Enhancement		Protection (1)		of Loans			Loans		%			Losses			Interest		offs/(Recoveries)			(Annualized)
Total Managed Resi Portfolio	Q4: 2003	$	84,243,923	$	217,306	$	46,476	$	263,782		0.31	%	$	137,978		0.16	%	$	1,645		$	357	$	1,288			<0.01	%
	2003		84,243,923		217,306		46,476		263,782		0.31	%		137,978		0.16	%		4,186			1,003		3,183			<0.01	%
	Q1: 2004		89,312,471		235,771		43,797		279,568		0.31	%		146,055		0.16	%		103			—		103			<0.01	%
	Q2: 2004		116,871,703		255,615		70,460		326,075		0.28	%		136,654		0.12	%		1,781			75		1,706			<0.01	%
	Q3: 2004		142,967,137		320,269		69,244		389,513		0.27	%		185,023		0.13	%		730			196		534			<0.01	%
	Q4: 2004		148,510,685		365,784		67,650		433,434		0.29	%		163,554		0.11	%		689			—		689			<0.01	%
	2004		148,510,685		365,784		67,650		433,434		0.29	%		163,554		0.11	%		3,303			271		3,032			<0.01	%
	Q1: 2005		151,434,189		390,229		92,467		482,696		0.32	%		217,159		0.14	%		1,377			—		1,377			<0.01	%
	Q2: 2005		183,248,239		426,576		141,970		568,546		0.31	%		245,399		0.13	%		740			196		544			<0.01	%
	Q3: 2005		195,243,546		403,853		134,967		538,820		0.28	%		282,850		0.14	%		1,812			220		1,592			<0.01	%
	Q4: 2005		183,727,043		375,478		140,907		516,385		0.28	%		366,934		0.20	%		1,175			—		1,175			<0.01	%
	2005		183,727,043		375,478		140,907		516,385		0.28	%		366,934		0.20	%		5,104			416		4,688			<0.01	%
Residential Real Estate Loans	Q4: 2003	$	16,110,748	$	16,336	$	—	$	16,336		0.10	%	$	5,419		0.03	%	$	50		$	—	$	50			<0.01	%
	2003		16,110,748		16,336		—		16,336		0.10	%		5,419		0.03	%		81			—		81			<0.01	%
	Q1: 2004		17,950,901		18,847		—		18,847		0.10	%		3,439		0.02	%		—			—		—			0.00	%
	Q2: 2004		19,766,481		20,080		—		20,080		0.10	%		5,362		0.03	%		—			—		—			0.00	%
	Q3: 2004		21,381,784		21,344		—		21,344		0.10	%		10,785		0.05	%		—			—		—			0.00	%
	Q4: 2004		22,023,888		23,078		—		23,078		0.10	%		13,338		0.06	%		176			—		176			<0.01	%
	2004		22,023,888		23,078		—		23,078		0.10	%		13,338		0.06	%		176			—		176			<0.01	%
	Q1: 2005		21,307,080		24,231		—		24,231		0.11	%		16,066		0.08	%		154			—		154			<0.01	%
	Q2: 2005		19,202,109		22,396		—		22,396		0.12	%		16,514		0.09	%		(34	)		—		(34	)		0.00	%
	Q3: 2005		16,176,357		20,991		—		20,991		0.13	%		22,956		0.14	%		90			—		90			<0.01	%
	Q4: 2005		13,541,402		20,868		—		20,868		0.15	%		35,748		0.26	%		251			—		251			<0.01	%
	2005		13,541,402		20,868		—		20,868		0.15	%		35,748		0.26	%		461			—		461			<0.01	%
Residential Loan CES	Q4: 2003	$	68,133,175	$	200,970	$	46,476	$	247,446		0.36	%	$	132,559		0.19	%	$	1,595		$	357	$	1,238			<0.01	%
	2003		68,133,175		200,970		46,476		247,446		0.36	%		132,559		0.19	%		4,105			1,003		3,102			<0.01	%
	Q1: 2004		71,361,570		216,924		43,797		260,721		0.37	%		142,616		0.20	%		103			—		103			<0.01	%
	Q2: 2004		97,105,222		235,535		70,460		305,995		0.32	%		131,292		0.14	%		1,781			75		1,706			<0.01	%
	Q3: 2004		121,585,353		298,925		69,244		368,169		0.30	%		174,238		0.14	%		730			196		534			<0.01	%
	Q4: 2004		126,486,797		342,706		67,650		410,356		0.32	%		150,216		0.12	%		513			—		513			<0.01	%
	2004		126,486,797		342,706		67,650		410,356		0.32	%		150,216		0.12	%		3,127			271		2,856			<0.01	%
	Q1: 2005		130,127,109		365,998		92,467		458,465		0.35	%		201,093		0.15	%		1,223			—		1,223			<0.01	%
	Q2: 2005		164,046,130		404,180		141,970		546,150		0.33	%		228,885		0.14	%		774			196		578			<0.01	%
	Q3: 2005		179,067,189		382,862		134,967		517,829		0.29	%		259,894		0.15	%		1,722			220		1,502			<0.01	%
	Q4: 2005		170,185,641		354,610		140,907		495,517		0.29	%		331,186		0.19	%		924			—		924			<0.01	%
	2005		170,185,641		354,610		140,907		495,517		0.29	%		331,186		0.19	%		4,643			416		4,227			<0.01	%

(1)   The credit reserve on residential real estate loans owned is only available to absorb losses on the residential real estate loan portfolio. The internally-designated credit reserves on loans credit enhanced and the external credit enhancement on loans credit enhanced are only available to absorb losses on the residential loan credit-enhancement portfolio. This table excludes the residential home equity lines of credit.

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 13 — Residential Credit A-16

Table 14: Residential Real Estate Loan Characteristics (at period end, all $ in thousands)

	Dec. 2005			Sept. 2005			Jun. 2005			Mar. 2005			Dec. 2004			Sep. 2004			Jun. 2004			Mar. 2004			Dec. 2003
Residential Loans	$	13,541,401		$	16,176,357		$	19,202,109		$	21,307,080		$	22,023,888		$	21,381,784		$	19,766,481		$	17,950,901		$	16,110,748
Number of loans		41,253			48,578			56,653			62,059			63,236			60,859			55,679			49,619			43,917
Average loan size	$	328		$	333		$	339		$	343		$	348		$	351		$	355		$	362		$	367
Adjustable %		99	%		100	%	��	100	%		100	%		100	%		100	%		100	%		100	%		100	%
Hybrid %		1	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Fixed %		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Negam%		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Interest Only%		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%
LIBOR 1M %		27	%		26	%		25	%		24	%		24	%		22	%		21	%		22	%		23	%
LIBOR 6M %		72	%		74	%		75	%		76	%		76	%		78	%		79	%		78	%		77	%
HYBRID %		1	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Northern CA		10	%		11	%		12	%		12	%		13	%		13	%		12	%		12	%		12	%
Southern CA		11	%		11	%		12	%		12	%		13	%		13	%		14	%		13	%		13	%
Florida		12	%		12	%		11	%		11	%		11	%		11	%		11	%		11	%		11	%
New York		5	%		5	%		5	%		5	%		5	%		5	%		5	%		5	%		6	%
Georgia		5	%		5	%		5	%		5	%		5	%		5	%		5	%		5	%		5	%
Texas		5	%		4	%		4	%		4	%		4	%		4	%		4	%		4	%		4	%
New Jersey		4	%		4	%		4	%		4	%		4	%		4	%		4	%		4	%		5	%
Arizona		4	%		4	%		4	%		4	%		4	%		4	%		4	%		4	%		4	%
Colorado		4	%		3	%		4	%		4	%		4	%		4	%		4	%		4	%		4	%
Virginia		3	%		3	%		3	%		3	%		3	%		3	%		3	%		3	%		3	%
North Carolina		3	%		2	%		2	%		2	%		2	%		2	%		2	%		2	%		2	%
Ohio		3	%		2	%		2	%		2	%		2	%		2	%		2	%		2	%		2	%
Other states		31	%		33	%		32	%		31	%		31	%		30	%		30	%		31	%		31	%
Year 2005 origination		6	%		5	%		4	%		3	%		0	%		0	%		0	%		0	%		0	%
Year 2004 origination		45	%		37	%		37	%		38	%		38	%		32	%		23	%		11	%		0	%
Year 2003 origination		27	%		39	%		40	%		41	%		42	%		46	%		52	%		60	%		66	%
Year 2002 origination		18	%		15	%		15	%		16	%		16	%		18	%		21	%		24	%		28	%
Year 2001 origination or earlier		4	%		4	%		4	%		3	%		4	%		4	%		5	%		5	%		6	%

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 14 — Residential Loans A-17

Table 14: Residential Real Estate Loan Characteristics (at period end, all $ in thousands)

	Dec. 2005			Sept. 2005			Jun. 2005			Mar. 2005			Dec. 2004			Sep. 2004			Jun. 2004			Mar. 2004			Dec. 2003
Wtg Avg Original LTV		69	%		68	%		69	%		68	%		68	%		68	%		68	%		68	%		68	%
Wtg Avg Original Effective LTV		67	%		67	%		67	%		67	%		67	%		66	%		66	%		66	%		65	%
Original LTV: 0% - 20%		1	%		1	%		1	%		1	%		1	%		1	%		1	%		1	%		1	%
Original LTV: 20% - 30%		1	%		2	%		2	%		2	%		2	%		2	%		2	%		2	%		2	%
Original LTV: 30% - 40%		4	%		4	%		4	%		4	%		4	%		4	%		4	%		5	%		5	%
Original LTV: 40% - 50%		7	%		8	%		7	%		7	%		7	%		8	%		8	%		8	%		8	%
Original LTV: 50% - 60%		11	%		11	%		11	%		11	%		12	%		11	%		12	%		12	%		13	%
Original LTV: 60% - 70%		21	%		20	%		20	%		20	%		20	%		20	%		20	%		20	%		20	%
Original LTV: 70% - 75%		14	%		14	%		14	%		15	%		15	%		14	%		14	%		14	%		13	%
Original LTV: 75% - 80%		34	%		32	%		33	%		32	%		31	%		31	%		30	%		29	%		28	%
Original LTV: 80% - 90%		2	%		3	%		2	%		2	%		2	%		2	%		2	%		2	%		3	%
Original LTV: 90% - 100%		5	%		6	%		6	%		6	%		6	%		7	%		7	%		7	%		7	%
Wtg Avg FICO		731			731			731			731			731			731			731			731			731
FICO: <= 600		1	%		1	%		1	%		1	%		1	%		1	%		1	%		1	%		1	%
FICO: 601 -620		1	%		1	%		1	%		1	%		1	%		1	%		1	%		1	%		1	%
FICO: 621 - 640		1	%		1	%		1	%		1	%		1	%		2	%		2	%		2	%		2	%
FICO: 641 -660		3	%		3	%		3	%		3	%		3	%		3	%		3	%		3	%		4	%
FICO: 661 - 680		8	%		8	%		8	%		8	%		8	%		8	%		8	%		8	%		7	%
FICO: 681 - 700		12	%		12	%		12	%		12	%		12	%		12	%		12	%		11	%		11	%
FICO: 701 - 720		15	%		14	%		14	%		14	%		14	%		14	%		14	%		14	%		14	%
FICO: 721 - 740		13	%		14	%		14	%		14	%		14	%		14	%		14	%		14	%		14	%
FICO: 741 - 760		15	%		15	%		15	%		16	%		16	%		16	%		16	%		16	%		16	%
FICO: 761 - 780		17	%		17	%		17	%		17	%		17	%		17	%		17	%		17	%		17	%
FICO: 781 - 800		11	%		11	%		11	%		11	%		11	%		11	%		11	%		11	%		12	%
FICO: >= 801		3	%		2	%		2	%		2	%		2	%		2	%		2	%		2	%		2	%
Conforming at Origination %		38	%		37	%		37	%		36	%		36	%		36	%		35	%		34	%		34	%
% balance in loans > $1mm per loan		13	%		14	%		13	%		13	%		14	%		14	%		14	%		15	%		16	%
2nd Home %		10	%		10	%		10	%		10	%		10	%		10	%		10	%		10	%		10	%
Investment Home %		2	%		2	%		2	%		2	%		2	%		2	%		2	%		2	%		2	%
Purchase		33	%		33	%		33	%		34	%		33	%		33	%		31	%		31	%		30	%
Cash Out Refi		34	%		34	%		34	%		34	%		34	%		35	%		36	%		36	%		35	%
Rate-Term Refi		32	%		32	%		32	%		31	%		31	%		31	%		31	%		31	%		32	%
Construction		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Other		1	%		1	%		1	%		1	%		1	%		1	%		1	%		2	%		2	%

This table only includes loans shown under “residential real estate loans” on our GAAP balance sheet. These are the loans securitized by Sequoia securitization entities sponsored by Redwood. Not included are loans underlying residential credit-enhancement securities by Redwood from securitizations sponsored by others.

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 14 — Residential Loans A-18

Table 15: Residential Loan Credit-Enhancement Securities — Underlying Collateral Characteristics (all $ in thousands)

	Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			Q4:2003
First loss position, principal value	$	471,079		$	433,557		$	425,080		$	375,646		$	352,752		$	320,975		$	279,927		$	262,329		$	255,570
Second loss position, principal value		170,928			231,837			306,145			265,639			276,720			244,042			197,403			176,672			174,592
Third loss position, principal value		393,867			387,419			372,512			337,593			304,300			265,507			235,578			194,999			193,530
Total principal value	$	1,035,874		$	1,052,813		$	1,103,737		$	978,878		$	933,772		$	830,524		$	712,908		$	634,000		$	623,692
First loss position, reported value	$	154,930		$	152,470		$	150,621		$	126,694		$	110,933		$	99,783		$	102,088		$	75,769		$	78,030
Second loss position, reported value		120,690			171,398			228,737			191,962			195,536			174,371			145,211			133,167			134,225
Third loss position, reported value		337,029			340,933			326,837			292,738			255,189			222,655			194,940			165,680			166,472
Total reported value	$	612,649		$	664,801		$	706,195		$	611,394		$	561,658		$	496,809		$	442,239		$	374,616		$	378,727
Internal Designated Credit Reserves	$	354,610		$	382,862		$	404,180		$	365,998		$	340,123			298,925		$	235,535		$	216,924		$	200,970
External Credit Enhancement		140,907			134,967			141,970			92,467			67,650			69,244			70,460			43,797			46,476
Total Credit Protection	$	495,517		$	517,829		$	546,150		$	458,465		$	407,773		$	368,169		$	305,995		$	260,721		$	247,446
As % of Total Portfolio		0.29	%		0.29	%		0.33	%		0.35	%		0.32	%		0.30	%		0.32	%		0.37	%		0.36	%
Underlying Residential Real Estate Loans	$	170,185,641		$	179,067,189		$	164,046,130		$	130,127,109		$	126,486,797		$	121,585,353		$	97,105,222		$	71,361,570		$	68,133,175
Number of credit-enhanced loans		500,907			527,048			492,513			343,928			332,130			281,543			222,725			158,904			150,031
Average loan size	$	340		$	340		$	333		$	378		$	381		$	432		$	436		$	449		$	454
Adjustable %		5	%		7	%		7	%		9	%		9	%		8	%		8	%		7	%		8	%
Negam %		24	%		18	%		18	%		18	%		17	%		14	%		12	%		11	%		12	%
Hybrid %		32	%		32	%		30	%		28	%		28	%		29	%		33	%		37	%		42	%
Fixed %		38	%		43	%		45	%		45	%		46	%		49	%		47	%		45	%		38	%
Interest Only %		24	%		24	%		23	%		24	%		24	%		24	%		24	%		22	%		25	%
Northern California		21	%		20	%		20	%		20	%		19	%		21	%		22	%		23	%		23	%
Southern California		25	%		24	%		24	%		23	%		22	%		23	%		23	%		23	%		24	%
Florida		6	%		5	%		5	%		5	%		6	%		5	%		5	%		4	%		4	%
New York		5	%		5	%		5	%		5	%		5	%		5	%		5	%		5	%		5	%
Virginia		4	%		4	%		4	%		4	%		4	%		4	%		4	%		4	%		4	%
New Jersey		3	%		4	%		4	%		4	%		4	%		4	%		4	%		4	%		4	%
Texas		3	%		3	%		3	%		3	%		3	%		3	%		3	%		3	%		3	%
Illinois		3	%		3	%		3	%		3	%		3	%		3	%		3	%		3	%		3	%
Colorado		2	%		3	%		3	%		3	%		3	%		3	%		3	%		3	%		3	%
Other states (none greater than 3%)		28	%		29	%		29	%		30	%		31	%		29	%		28	%		28	%		27	%

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 15 — Residential CES A-19

Table 15: Residential Loan Credit-Enhancement Securities — Underlying Collateral
Characteristics (all $ in thousands)

	Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			Q4:2003
Year 2005 origination		24	%		15	%		15	%		6	%		0	%		0	%		0	%		0	%		0	%
Year 2004 origination		34	%		41	%		51	%		55	%		55	%		51	%		39	%		16	%		0	%
Year 2003 origination		33	%		35	%		26	%		29	%		32	%		36	%		44	%		59	%		64	%
Year 2002 origination		6	%		6	%		5	%		6	%		7	%		7	%		9	%		14	%		19	%
Year 2001 origination		2	%		2	%		2	%		2	%		3	%		3	%		4	%		6	%		9	%
Year 2000 origination		0	%		0	%		0	%		0	%		0	%		0	%		1	%		1	%		1	%
Year 1999 origination		0	%		0	%		0	%		0	%		1	%		1	%		1	%		1	%		2	%
Year 1998 or earlier origination		1	%		1	%		1	%		2	%		2	%		2	%		2	%		3	%		5	%
Wtg Avg Original LTV		68	%		68	%		68	%		68	%		68	%		68	%		67	%		67	%		67	%
Original LTV: 0% - 20%		1	%		1	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Original LTV: 20% - 30%		2	%		2	%		2	%		2	%		2	%		2	%		2	%		2	%		2	%
Original LTV: 30% - 40%		3	%		3	%		3	%		3	%		3	%		3	%		3	%		4	%		4	%
Original LTV: 40% - 50%		8	%		8	%		8	%		8	%		8	%		8	%		8	%		8	%		8	%
Original LTV: 50% - 60%		12	%		12	%		12	%		12	%		12	%		13	%		13	%		13	%		13	%
Original LTV: 60% - 70%		22	%		22	%		23	%		23	%		23	%		23	%		24	%		24	%		23	%
Original LTV: 70% - 75%		15	%		15	%		15	%		15	%		15	%		15	%		15	%		15	%		15	%
Original LTV: 75% - 80%		34	%		34	%		33	%		33	%		33	%		33	%		32	%		31	%		31	%
Original LTV: 80% - 90%		2	%		2	%		3	%		3	%		3	%		2	%		2	%		2	%		3	%
Original LTV: 90% - 100%		1	%		1	%		1	%		1	%		1	%		1	%		1	%		1	%		1	%
Wtg Avg FICO		732			732			731			730			730			728			731			732			732
FICO: <= 600		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%
FICO: 601 -620		1	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%
FICO: 621 - 640		2	%		2	%		2	%		2	%		2	%		2	%		2	%		2	%		2	%
FICO: 641 -660		4	%		4	%		4	%		4	%		4	%		4	%		4	%		4	%		3	%
FICO: 661 - 680		7	%		7	%		7	%		7	%		7	%		7	%		7	%		7	%		6	%
FICO: 681 - 700		11	%		11	%		11	%		11	%		11	%		11	%		10	%		10	%		10	%
FICO: 701 - 720		13	%		13	%		13	%		13	%		13	%		13	%		13	%		13	%		13	%
FICO: 721 - 740		13	%		14	%		14	%		14	%		14	%		14	%		14	%		14	%		14	%
FICO: 741 - 760		15	%		15	%		15	%		16	%		16	%		16	%		16	%		16	%		16	%
FICO: 761 - 780		17	%		17	%		17	%		17	%		17	%		18	%		18	%		17	%		17	%
FICO: 781 - 800		12	%		12	%		12	%		11	%		11	%		11	%		11	%		11	%		11	%
FICO: >= 801		3	%		3	%		3	%		2	%		2	%		2	%		2	%		2	%		2	%
Unknown		2	%		2	%		2	%		2	%		2	%		2	%		3	%		4	%		5	%
Conforming at Origination %		25	%		23	%		22	%		20	%		17	%		15	%		17	%		11	%		9	%
% balance in loans > $1mm per loan		8	%		6	%		6	%		6	%		5	%		6	%		7	%		7	%		8	%
2nd Home %		6	%		6	%		5	%		5	%		5	%		5	%		6	%		5	%		5	%
Investment Home %		3	%		2	%		3	%		2	%		2	%		2	%		2	%		2	%		2	%
Purchase		37	%		37	%		40	%		36	%		34	%		33	%		32	%		30	%		31	%
Cash Out Refi		29	%		27	%		25	%		26	%		26	%		23	%		23	%		23	%		23	%
Rate-Term Refi		34	%		36	%		33	%		38	%		40	%		44	%		44	%		46	%		45	%
Construction		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Other		0	%		0	%		2	%		0	%		0	%		0	%		1	%		1	%		1	%

This table includes loans underlying residential credit-enhancement securities acquired from securitizations sponsored by others. Not included are loans underlying residential credit-enhancement securities acquired from Sequoia entities sponsored by Redwood.

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 15 — Residential CES A-20

Table 16: Commercial Real Estate Loans — Characteristics (all $ in thousands)

	Q4:2005			Q3:2005			Q2:2005			Q1:2005			Q4:2004			Q3:2004			Q2:2004			Q1:2004			Q4:2003
Commercial Mortgage Loans	$	59,692		$	56,102		$	41,794		$	56,604		$	54,479		$	33,389		$	33,546		$	22,177		$	22,419
Number of Loans		13			12			9			12			9			7			6			9			9
Average Loan Size	$	4,592		$	4,675		$	4,644		$	4,717		$	6,053		$	4,770		$	5,591		$	2,464		$	2,491
Serious Delinquency		—			—			—			—			—			—			—			—			—
Realized Credit losses		—			—			—			—			—			—			—			—			—
California %		25	%		28	%		37	%		42	%		44	%		72	%		72	%		65	%		65	%

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 16 — Commercial Loans A-21

Table 17: Commercial Loan Credit Results (all $ in thousands)

																				Losses To
				Internally-																Securities		Redwood’s			Total Credit
				Designated						Total Credit			Seriously		Seriously					Junior to		Share of Net			Losses As %
		Underlying		Credit		External Credit		Total Credit		Protection as			Delinquent		Delinquent			Total Credit		Redwood’s		Charge-offs/			of Loans
		Loans (1)		Securities		Enhancement		Protection (2)		% of Loans			Loans		Loan %			Losses		Interest		(Recoveries)			(Annualized)
Total Managed Commercial Portfolio	Q4: 2003	$	31,180	$	8,641	$	—	$	8,641		27.71	%	$	—		0.00	%	$	50	$	—	$	50			0.64	%
	2003		31,180		8,641		—		8,641		27.71	%		—		0.00	%		81		—		81			0.26	%
	Q1: 2004		1,355,451		16,816		—		16,816		1.24	%		—		0.00	%		—		—		—			0.00	%
	Q2: 2004		1,365,536		16,816		—		16,816		1.23	%		—		0.00	%		—		—		—			0.00	%
	Q3: 2004		22,285,400		35,571		1,655,482		1,691,053		7.59	%		389,611		1.75	%		1,351		1,351		—			0.02	%
	Q4: 2004		26,139,083		54,280		1,633,055		1,687,335		6.46	%		362,956		1.39	%		5,135		4,959		176			0.08	%
	2004		26,139,083		54,280		1,633,055		1,687,335		6.46	%		362,956		1.39	%		6,486		6,310		176			0.02	%
	Q1: 2005		30,996,417		97,127		1,610,628		1,707,755		5.51	%		288,581		0.93	%		45,808		45,493		315			0.59	%
	Q2: 2005		31,293,511		95,351		1,588,200		1,683,551		5.38	%		254,503		0.81	%		19,622		18,161		1,461			0.25	%
	Q3: 2005		39,368,505		146,671		1,565,773		1,712,444		4.35	%		267,612		0.68	%		1,043		1,040		3			0.01	%
	Q4: 2005		43,018,611		149,947		1,603,266		1,753,213		4.08	%		284,954		0.66	%		14,365		14,397		(32	)		0.13	%
	2005		43,018,611		149,947		1,603,266		1,753,213		4.08	%		284,954		0.66	%		80,838		79,091		1,747			0.19	%
Commercial Real Estate Loans	Q4: 2003	$	31,180	$	8,641	$	—	$	8,641		27.71	%	$	—		0.00	%	$	50	$	—	$	50			0.64	%
	2003		31,180		8,641		—		8,641		27.71	%		—		0.00	%		81		—		81			0.26	%
	Q1: 2004		31,136		8,641		—		8,641		27.75	%		—		0.00	%		—		—		—			<0.01	%
	Q2: 2004		43,448		8,641		—		8,641		19.89	%		—		0.00	%		—		—		—			<0.01	%
	Q3: 2004		43,410		8,641		—		8,641		19.91	%		—		0.00	%		—		—		—			<0.01	%
	Q4: 2004		65,598		8,641		—		8,641		13.17	%		—		0.00	%		176		—		176			1.07	%
	2004		65,598		8,641		—		8,641		13.17	%		—		0.00	%		176		—		176			0.27	%
	Q1: 2005		67,365		8,456		—		8,456		12.55	%		—		0.00	%		315		—		315			1.87	%
	Q2: 2005		51,778		8,141		—		8,141		15.72	%		—		0.00	%		—		—		—			0.00	%
	Q3: 2005		66,348		8,141		—		8,141		12.27	%		—		0.00	%		—		—		—			0.00	%
	Q4: 2005		70,091		8,141		—		8,141		11.61	%		—		0.00	%		—		—		—			0.00	%
	2005		70,091		8,141		—		8,141		11.61	%		—		0.00	%		315		—		315			0.45	%
Commercial Loan Credit-Enhancement Securities	Q4: 2003	$	—	$	—	$	—	$	—		0.00	%	$	—		0.00	%	$	—	$	—	$	—			0.00	%
	2003		—		—		—		—		0.00	%		—		0.00	%		—		—		—			0.00	%
	Q1: 2004		1,324,315		8,175		0		8,175		0.62	%		0		0.00	%		—		—		—			0.00	%
	Q2: 2004		1,322,088		8,175		0		8,175		0.62	%		0		0.00	%		—		—		—			0.00	%
	Q3: 2004		22,241,990		26,930		1,655,482		1,682,412		7.56	%		389,611		1.75	%		1,351		1,351		—			0.02	%
	Q4: 2004		26,073,485		45,639		1,633,055		1,678,694		6.44	%		362,956		1.39	%		4,959		4,959		—			0.08	%
	2004		26,073,485		45,639		1,633,055		1,678,694		6.44	%		362,956		1.39	%		6,310		6,310		—			0.02	%
	Q1: 2005		30,929,052		88,671		1,610,628		1,699,299		5.49	%		288,581		0.93	%		45,493		45,493		—			0.59	%
	Q2: 2005		31,241,733		87,210		1,588,200		1,675,410		5.36	%		254,503		0.81	%		19,622		18,161		1,461			0.25	%
	Q3: 2005		39,302,157		138,530		1,565,773		1,704,303		4.34	%		267,612		0.68	%		1,043		1,040		3			0.01	%
	Q4: 2005		42,948,520		141,806		1,603,266		1,745,072		4.06	%		284,954		0.66	%		14,365		14,397		(32	)		0.13	%
	2005		42,948,520		141,806		1,603,266		1,745,072		4.06	%		284,954		0.66	%		80,523		79,091		1,432			0.19	%

(1)	At December 31, 2005, we credit-enhanced $43 billion of commercial loans through our investments in commercial loan credit-enhancement securities. This includes $17 billion of commercial real estate loans credit enhanced through our interests in a CMBS re-REMIC, and $ 26 billion of commercial real estate loans credit enhanced through the ownership of first-loss CMBS securities.
(2)	The credit reserve on commercial real estate loans owned is only available to absorb losses on the commercial real estate loan portfolio. The internally-designated credit reserves on commercial loans credit enhanced and the external credit enhancement on commercial loans credit enhanced are only available to absorb losses on the commercial loan credit-enhancement portfolio.

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 17 — Commercial Credit A-22

Table 18: Commercial Credit-Enhancement Securities — Underlying Collateral Characteristics (all $ in thousands)

	Dec. 2005			Sep. 2005			Jun. 2005			Mar. 2005			Dec. 2004			Sep. 2004			Jun. 2004			Mar. 2004
Underlying Commercial Real Estate Loans	$	25,881,564		$	20,906,898		$	12,492,337		$	11,498,141		$	5,859,585		$	1,319,931		$	1,322,088		$	1,324,315
Number of credit-enhanced loans		1,857			1,428			801			717			392			93			93			93
Average loan size	$	13,937		$	14,640		$	15,595		$	16,036		$	14,948		$	14,193		$	14,216		$	14,240
State Distribution
CA		16	%		17	%		17	%		17	%		18	%		18	%		18	%		18	%
NY		14	%		14	%		15	%		14	%		10	%		0	%		0	%		0	%
TX		8	%		8	%		10	%		9	%		8	%		6	%		6	%		6	%
VA		5	%		4	%		1	%		1	%		2	%		6	%		6	%		6	%
FL		7	%		3	%		2	%		2	%		2	%		5	%		5	%		5	%
Other		50	%		54	%		55	%		57	%		60	%		65	%		65	%		65	%
Property Type Distribution
Office		37	%		40	%		45	%		44	%		42	%		28	%		28	%		27	%
Retail		31	%		32	%		34	%		33	%		31	%		41	%		41	%		41	%
Multi-Family		13	%		11	%		9	%		10	%		12	%		11	%		11	%		11	%
Hotel		7	%		6	%		6	%		8	%		6	%		4	%		4	%		4	%
Self-Storage		4	%		3	%		2	%		2	%		2	%		3	%		3	%		3	%
Industrial		2	%		3	%		2	%		1	%		2	%		4	%		4	%		4	%
Other		6	%		5	%		2	%		3	%		4	%		10	%		10	%		10	%
Weighted Average Current LTV		68	%		69	%		67	%		68	%		67	%		68	%		68	%		68	%
Weighted Average Debt Service Coverage Ratio		1.66			1.67			1.73			1.71			1.79			1.89			1.89			1.89

The information presented above represents collateral information on our non-rated commercial CES portfolio, and excludes loans underlying a non-rated CES investment in a re-REMIC interest.

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 18 — Commercial CES A-23

Table 19: Securities Portfolio — Characteristics (all $ in thousands)

			RATING
	Total		AAA		AA		A		BBB		BB		B		Unrated
Commercial Real Estate	$	322,366	$	10,704	$	1,936	$	20,326	$	129,316	$	130,315	$	29,769	$	—
Residential Prime		690,329		29,476		240,275		194,202		226,376		—		—		—
Residential Subprime		442,114		5,000		86,225		291,915		58,974		—		—		—
Residential Second Lien		107,550		—		48,720		53,767		5,063		—		—		—
Manufactured Housing		—		—		—		—		—		—		—		—
REIT Corporate Debt		31,569		—		—		—		23,582		7,987		—		—
Real Estate CDOs		154,653		37,040		24,716		36,576		43,748		11,176		—		1,397
Total Securities Portfolio	$	1,748,581	$	82,220	$	401,872	$	596,786	$	487,059	$	149,478	$	29,769	$	1,397

Includes a portion of Redwood’s permanent investment portfolio, plus securities consolidated from Acacia CDO securitization entities sponsored by Redwood, plus securities held by Redwood temporarily prior to sale to Acacia. Does not include securities purchased for Acacia or Redwood’s permanent investment portfolio from securitization entities sponsored by Redwood, as those securities are eliminated in the GAAP consolidation of the underlying entities. Does not include residential or commercial credit-enhancement securities.

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 19 — Securities Portfolio A-24

Table 20: ABS Issued Characteristics — Residential Mortgage Loans (Sequoia) (all $ in thousands)

												Principal		Interest
					Original					Estimated		Outstanding At		Rate At
Sequoia	Debt		Issue		Issue			Stated		Callable		December 31,		December 31,
ABS Issued (1)	Rating		Date		Amount		Index	Maturity		Date		2005		2005
Sequoia 1 A1	AAA			07/29/97	$	334,347	1m LIBOR		2028	Called		$	0	NM
Sequoia 1 A2	AAA			07/29/97		200,000	Fed Funds		2028	Called			—	NM
Sequoia 2 A1	AAA			11/06/97		592,560	1y Treasury		2029	Called			—	NM
Sequoia 2 A2	AAA			11/06/97		156,600	1m LIBOR		2029	Called			—	NM
Sequoia 3 A1	AAA			06/26/98		225,459	Fixed to 12/02		2028	Retired			—	NM
Sequoia 3 A2	AAA			06/26/98		95,000	Fixed to 12/02		2028	Retired			—	NM
Sequoia 3 A3	AAA			06/26/98		164,200	Fixed to 12/02		2028	Retired			—	NM
Sequoia 3 A4	AAA			06/26/98		121,923	1m LIBOR		2028	Called			—	NM
Sequoia 3 M1	AA/AAA			06/26/98		16,127	1m LIBOR		2028	Called			—	NM
Sequoia 3 M2	A/AA			06/26/98		7,741	1m LIBOR		2028	Called			—	NM
Sequoia 3 M3	BBB/A			06/26/98		4,838	1m LIBOR		2028	Called			—	NM
Sequoia 1A A1	AAA			05/04/99		157,266	1m LIBOR		2028	Called			—	NM
Sequoia 4 A	AAA			03/21/00		377,119	1m LIBOR		2024		2007		106,901		4.73	%
Sequoia 5 A	AAA			10/29/01		496,667	1m LIBOR		2026		2009		167,466		4.72	%
Sequoia 5 B1	AA			10/29/01		5,918	1m LIBOR		2026		2009		4,354		5.17	%
Sequoia 5 B2		A		10/29/01		5,146	1m LIBOR		2026		2009		3,786		5.17	%
Sequoia 5 B3	BBB			10/29/01		2,316	1m LIBOR		2026		2009		1,704		5.17	%
Sequoia 6A	AAA			04/26/02		496,378	1m LIBOR		2027		2009		188,979		4.69	%
Sequoia 6B1	AA			04/26/02		5,915	1m LIBOR		2027		2009		4,905		5.07	%
Sequoia 6B2		A		11/17/05		2,315	1m LIBOR		2027		2009		4,264		5.07	%
Sequoia 6B3	BBB			11/17/05		1,534	1m LIBOR		2027		2009		1,920		5.07	%
Sequoia 7A	AAA			05/29/02		554,686	1m LIBOR		2032		2008		172,194		4.71	%
Sequoia 7B1	AA			05/29/02		8,080	1m LIBOR		2032		2008		5,421		5.12	%
Sequoia 7B2		A		11/17/05		5,771	1m LIBOR		2032		2008		3,872		5.41	%
Sequoia 7B3	BBB			11/17/05		3,463	1m LIBOR		2032		2008		2,324		5.41	%
Sequoia 8 1A-1	AAA			07/30/02		50,000	1m LIBOR		2032	Retired			—	NM
Sequoia 8 1A-2	AAA			07/30/02		61,468	Fixed to 12/04		2032		2008		5,177		5.64	%
Sequoia 8 2A	AAA			07/30/02		463,097	1m LIBOR		2032		2008		171,577		4.67	%
Sequoia 8 3A	AAA			07/30/02		49,973	6m LIBOR		2032		2008		9,616		5.13	%
Sequoia 8 B1	AA			07/30/02		9,069	1m LIBOR		2032		2008		6,164		5.05	%
Sequoia 8 B2		A		11/17/05		5,505	1m LIBOR		2032		2008		3,742		5.30	%
Sequoia 8 B3	BBB			11/17/05		3,886	1m LIBOR		2032		2008		2,641		5.30	%
Sequoia 9 1A	AAA			08/28/02		381,689	1m LIBOR		2032		2011		146,640		4.72	%
Sequoia 9 2A	AAA			08/28/02		168,875	1m LIBOR		2032		2011		36,188		5.16	%
Sequoia 9 B1	AA			08/28/02		7,702	1m LIBOR		2032		2011		5,698		5.12	%
Sequoia 10 1A	AAA			09/26/02		822,375	1m LIBOR		2027		2011		349,768		4.77	%
Sequoia 10 2A-1	AAA			09/26/02		190,000	1m LIBOR		2027		2011		78,069		4.75	%
Sequoia 10 2A-2	AAA			09/26/02		3,500	1m LIBOR		2027		2011		3,020		5.05	%
Sequoia 10 B1	AA			09/26/02		12,600	1m LIBOR		2027		2011		11,442		5.17	%
Sequoia 10 B2		A		09/26/02		8,400	1m LIBOR		2027		2011		7,628		5.17	%
Sequoia 10 B3	BBB			09/26/02		4,725	1m LIBOR		2027		2011		4,291		5.77	%
Sequoia 11 A	AAA			10/30/02		695,210	1m LIBOR		2032		2011		256,839		4.82	%
Sequoia 11 B1	AA			10/30/02		9,726	1m LIBOR		2032		2011		8,295		5.34	%
Sequoia 12 A	AAA			12/19/02		1,080,076	1m LIBOR		2033		2009		411,300		4.82	%
Sequoia 12 B1	AA			12/19/02		16,815	1m LIBOR		2033		2009		15,141		5.22	%
Sequoia 2003-1 A1	AAA			02/27/03		798,206	1m LIBOR		2033		2009		331,642		4.75	%
Sequoia 2003-1 A2	AAA			02/27/03		190,000	6m LIBOR		2033		2009		73,812		4.44	%
Sequoia 2003-1 B1	AA			02/27/03		15,905	1m LIBOR		2033		2009		15,060		5.25	%
Sequoia 2003-1 B2		A		02/27/03		8,210	Pass Through		2033		2009		7,774		4.99	%
Sequoia 2003-2 A1	AAA			04/29/03		500,000	1m LIBOR		2022		2009		214,035		4.70	%
Sequoia 2003-2 A2	AAA			04/29/03		303,600	6m LIBOR		2022		2009		122,311		4.70	%
Sequoia 2003-2 M1	AA			04/29/03		11,480	1m LIBOR		2016		2009		11,480		5.02	%
Sequoia 2003-3 A1	AAA			06/26/03		379,455	1m LIBOR		2023		2009		156,941		4.70	%
Sequoia 2003-3 A2	AAA			06/26/03		149,922	6m LIBOR		2023		2009		51,268		5.02	%
Sequoia 2003-3 B1	AA			06/26/03		9,075	1m LIBOR		2025		2009		8,374		5.02	%
MLCC 2003-C A1	AAA			06/26/03		773,795	1m LIBOR		2023		2012		319,471		4.71	%
MLCC 2003-C A2	AAA			06/26/03		200,002	6m LIBOR		2023		2012		86,437		5.06	%

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 20 — Sequoia Loans A-25

Table 20: ABS Issued Characteristics — Residential Mortgage Loans (Sequoia) (all $ in thousands)

												Principal		Interest
					Original					Estimated		Outstanding At		Rate At
Sequoia	Debt		Issue		Issue			Stated		Callable		December 31,		December 31,
ABS Issued (1)	Rating		Date		Amount		Index	Maturity		Date		2005		2005
MLCC 2003-C B1	AA			06/26/03		10,553	1m LIBOR		2025		2012		9,836		5.03	%
MLCC 2003-D A	AAA			07/29/03		992,833	1m LIBOR		2028		2012		453,279		4.69	%
MLCC 2003-D B1	AA			07/29/03		10,758	1m LIBOR		2028		2012		10,508		5.01	%
Sequoia 2003-4 1A1	AAA			07/29/03		148,641	1m LIBOR		2033		2009		73,356		4.68	%
Sequoia 2003-4 1A2	AAA			07/29/03		150,000	6m LIBOR		2033		2009		72,566		4.18	%
Sequoia 2003-4 1B1	AA			07/29/03		3,864	1m LIBOR		2033		2009		3,864		5.02	%
Sequoia 2003-4 2A1	AAA			07/29/03		189,415	1m LIBOR		2033		2011		123,054		4.72	%
Sequoia 2003-4 2M1	AA			07/29/03		9,986	1m LIBOR		2033		2011		9,986		4.84	%
Sequoia 2003-4 2B1	AA			07/29/03		2,367	1m LIBOR		2033		2011		2,367		5.02	%
Sequoia 2003-5 A1	AAA			08/27/03		675,596	1m LIBOR		2033		2009		265,433		4.68	%
Sequoia 2003-5 A2	AAA			08/27/03		149,609	6m LIBOR		2033		2009		61,049		4.37	%
Sequoia 2003-5 B1	AA			08/27/03		15,043	1m LIBOR		2033		2009		14,157		4.97	%
Sequoia 2003-6 A1	AAA			10/29/03		458,238	1m LIBOR		2033		2009		171,673		4.68	%
Sequoia 2003-6 A2	AAA			10/29/03		180,474	6m LIBOR		2033		2009		71,398		4.69	%
Sequoia 2003-6 B1	AA			10/29/03		11,287	1m LIBOR		2033		2009		10,140		4.95	%
Sequoia 2003-7 A1	AAA			11/25/03		290,000	1m LIBOR		2034		2009		116,740		4.69	%
Sequoia 2003-7 A2	AAA			11/25/03		505,100	6m LIBOR		2034		2009		195,926		4.93	%
Sequoia 2003-7 B1	AA			11/25/03		16,607	1m LIBOR		2034		2009		15,502		4.92	%
Sequoia 2003-8 A1	AAA			12/23/03		791,768	1m LIBOR		2034		2009		362,045		4.69	%
Sequoia 2003-8 A2	AAA			12/23/03		150,000	6m LIBOR		2034		2009		71,107		4.99	%
Sequoia 2003-8 B1	AA			12/23/03		14,166	1m LIBOR		2034		2009		14,166		4.96	%
Sequoia 2003-8 B2		A		12/23/03		8,304	1m LIBOR		2034		2009		8,304		5.62	%
MLCC 2003-E A1	AAA			08/28/03		823,305	1m LIBOR		2028		2012		386,900		4.69	%
MLCC 2003-E A2	AAA			08/28/03		150,000	6m LIBOR		2028		2012		60,800		4.38	%
MLCC 2003-E B1	AA			08/28/03		10,547	1m LIBOR		2028		2012		10,547		4.98	%
MLCC 2003-F A1	AAA			09/25/03		839,000	1m LIBOR		2028		2012		389,317		4.70	%
MLCC 2003-F A2	AAA			09/25/03		270,000	6m LIBOR		2028		2012		124,462		4.43	%
MLCC 2003-F A3	AAA			09/25/03		175,000	Pass Through		2028		2012		87,984		5.59	%
MLCC 2003-F B1	AA			09/25/03		13,913	1m LIBOR		2028		2012		13,913		4.98	%
MLCC 2003-H A1	AAA			12/22/03		365,708	1m LIBOR		2029		2012		179,301		4.70	%
MLCC 2003-H A2	AAA			12/22/03		240,000	6m LIBOR		2029		2012		124,538		5.05	%
MLCC 2003-H A3A	AAA			12/22/03		119,613	Pass Through		2029		2012		54,735		5.65	%
MLCC 2003-H B1	AA			12/22/03		7,875	1m LIBOR		2029		2012		7,875		4.93	%
MLCC 2003-H B2		A		12/22/03		6,000	1m LIBOR		2029		2012		6,000		5.63	%
Sequoia 2004-1 A1	AAA			01/28/04		601,250	6m LIBOR		2034		2010		265,325		4.18	%
Sequoia 2004-1 B1	AA			01/28/04		9,375	1m LIBOR		2034		2010		9,046		4.92	%
Sequoia 2004-1 B2		A		01/28/04		5,937	1m LIBOR		2034		2010		5,729		5.42	%
Sequoia 2004-2 A1	AAA			02/25/04		671,998	6m LIBOR		2034		2010		300,641		4.31	%
Sequoia 2004-2 B1	AA			02/25/04		11,550	1m LIBOR		2034		2010		11,211		4.87	%
Sequoia 2004-2 B2		A		02/25/04		7,000	1m LIBOR		2034		2010		6,795		5.35	%
Sequoia 2004-3 A1	AAA			03/30/04		894,673	6m LIBOR		2034		2010		386,943		4.27	%
Sequoia 2004-3 M1	AA			03/30/04		13,800	1m LIBOR		2034		2010		13,800		4.87	%
Sequoia 2004-3 M2		A		03/30/04		9,200	1m LIBOR		2034		2010		9,200		5.27	%
Sequoia 2004-4 A1	AAA			04/29/04		785,971	6m LIBOR		2010		2010		338,127		4.62	%
Sequoia 2004-4 B1	AA			04/29/04		14,612	1m LIBOR		2010		2010		14,116		4.87	%
Sequoia 2004-4 B2		A		04/29/04		8,350	1m LIBOR		2010		2010		8,067		5.27	%
Sequoia 2004-5 A1	AAA			05/27/04		547,657	Pass Through		2012		2012		238,948		5.49	%
Sequoia 2004-5 A2	AAA			05/27/04		185,613	1m LIBOR		2012		2012		88,563		4.63	%
Sequoia 2004-5 A3	AAA			05/27/04		74,897	6m LIBOR		2012		2012		35,736		4.86	%
Sequoia 2004-5 B1	AA			05/27/04		14,874	1m LIBOR		2012		2012		14,874		4.85	%
Sequoia 2004-5 B2		A		05/27/04		8,499	1m LIBOR		2012		2012		8,499		5.25	%
Sequoia 2004-6 A1	AAA			06/29/04		500,000	Pass Through		2012		2012		233,620		5.25	%
Sequoia 2004-6 A2	AAA			06/29/04		185,687	1m LIBOR		2012		2012		102,372		4.65	%
Sequoia 2004-6 A3a	AAA			06/29/04		196,500	6m LIBOR		2012		2012		91,899		4.96	%
Sequoia 2004-6 A3b	AAA			06/29/04		3,500	6m LIBOR		2012		2012		1,637		5.11	%
Sequoia 2004-6 B1	AA			06/29/04		15,725	1m LIBOR		2012		2012		15,725		4.87	%
Sequoia 2004-6 B2		A		06/29/04		9,250	1m LIBOR		2012		2012		9,250		5.25	%

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 20 — Sequoia Loans A-26

Table 20: ABS Issued Characteristics — Residential Mortgage Loans (Sequoia) (all $ in thousands)

												Principal		Interest
					Original					Estimated		Outstanding At		Rate At
Sequoia	Debt		Issue		Issue			Stated		Callable		December 31,		December 31,
ABS Issued (1)	Rating		Date		Amount		Index	Maturity		Date		2005		2005
SEMHT 2004-01 A	AAA			06/29/04		317,044	1m LIBOR		2014		2012		173,617		4.60	%
Sequoia 2004-7 A1	AAA			07/29/04		498,828	Pass Through		2034		2012		128,569		4.88	%
Sequoia 2004-7 A2	AAA			07/29/04		252,102	1m LIBOR		2034		2012		140,729		4.68	%
Sequoia 2004-7 A3a	AAA			07/29/04		247,874	6m LIBOR		2034		2012		129,281		4.18	%
Sequoia 2004-7 A3b	AAA			07/29/04		3,956	6m LIBOR		2034		2012		2,063		4.40	%
Sequoia 2004-7 B1	AA			07/29/04		18,900	1m LIBOR		2034		2012		18,900		4.92	%
Sequoia 2004-7 B2		A		07/29/04		11,025	1m LIBOR		2034		2012		11,025		5.31	%
Sequoia 2004-8 A1	AAA			08/27/04		365,049	1m LIBOR		2034		2012		197,044		4.72	%
Sequoia 2004-8 A2	AAA			08/27/04		418,050	6m LIBOR		2034		2012		206,634		4.41	%
Sequoia 2004-8 B1	AA			08/27/04		16,400	1m LIBOR		2034		2012		16,400		4.89	%
Sequoia 2004-8 B2		A		08/27/04		8,200	1m LIBOR		2034		2012		8,200		5.27	%
Sequoia 2004-9 A1	AAA			09/29/04		453,364	1m LIBOR		2034		2012		265,535		4.71	%
Sequoia 2004-9 A2	AAA			09/29/04		296,310	6m LIBOR		2034		2012		163,664		4.38	%
Sequoia 2004-9 B1	AA			09/29/04		14,915	1m LIBOR		2034		2012		14,915		4.88	%
Sequoia 2004-9 B2		A		09/29/04		8,242	1m LIBOR		2034		2012		8,242		5.25	%
Sequoia 2004-10 A-1A	AAA			10/28/04		110,000	1m LIBOR		2034		2012		67,492		4.68	%
Sequoia 2004-10 A-1B	AAA			10/28/04		12,225	1m LIBOR		2034		2012		7,501		4.74	%
Sequoia 2004-10 A-2	AAA			10/28/04		203,441	1m LIBOR		2034		2012		124,825		4.69	%
Sequoia 2004-10 A-3A	AAA			10/28/04		180,000	6m LIBOR		2034		2012		96,263		4.69	%
Sequoia 2004-10 A-3B	AAA			10/28/04		20,000	6m LIBOR		2034		2012		10,696		4.75	%
Sequoia 2004-10 A-4	AAA			10/28/04		126,799	6m LIBOR		2034		2012		67,811		4.70	%
Sequoia 2004-10 B-1	AA			10/28/04		14,042	1m LIBOR		2034		2012		14,042		4.87	%
Sequoia 2004-10 B-2		A		10/28/04		6,849	1m LIBOR		2034		2012		6,849		5.22	%
Sequoia 2004-11 A1	AAA			11/23/04		433,985	1m LIBOR		2034		2013		255,694		4.67	%
Sequoia 2004-11 A2	AAA			11/23/04		86,036	6m LIBOR		2034		2013		50,775		4.90	%
Sequoia 2004-11 A3	AAA			11/23/04		170,694	1m LIBOR		2034		2013		129,893		4.67	%
Sequoia 2004-11 B1	AA			11/23/04		8,947	1m LIBOR		2034		2013		8,947		4.87	%
Sequoia 2004-11 B2		A		11/23/04		6,084	1m LIBOR		2034		2013		6,084		5.22	%
Sequoia 2004-12 A1	AAA			12/22/04		380,510	1m LIBOR		2035		2013		235,661		4.64	%
Sequoia 2004-12 A2	AAA			12/22/04		208,392	6m LIBOR		2035		2013		125,976		4.96	%
Sequoia 2004-12 A3	AAA			12/22/04		218,331	6m LIBOR		2035		2013		110,890		4.99	%
Sequoia 2004-12 B1	AA			12/22/04		8,588	1m LIBOR		2035		2013		8,588		4.87	%
Sequoia 2004-12 B2		A		12/22/04		6,134	1m LIBOR		2035		2013		6,134		5.22	%
Sequoia 2005-1 A1	AAA			01/27/05		298,055	1m LIBOR		2035		2013		191,031		4.60	%
Sequoia 2005-1 A2	AAA			01/27/05		100,000	6m LIBOR		2035		2013		69,108		4.10	%
Sequoia 2005-1 B1	AA			01/27/05		7,067	1m LIBOR		2035		2013		7,067		4.79	%
Sequoia 2005-1 B2		A		01/27/05		3,949	1m LIBOR		2035		2013		3,949		5.07	%
Sequoia 2005-2 A1	AAA			02/24/05		202,462	1m LIBOR		2035		2013		120,853		4.59	%
Sequoia 2005-2 A2	AAA			02/24/05		126,737	6m LIBOR		2035		2013		73,396		4.29	%
Sequoia 2005-2 B1	AA			02/24/05		6,016	1m LIBOR		2035		2013		6,016		4.76	%
Sequoia 2005-2 B2		A		02/24/05		3,266	1m LIBOR		2035		2013		3,266		5.04	%
Sequoia 2005-3 A1	AAA			04/28/05		349,687	1m LIBOR		2035		2013		249,536		4.57	%
Sequoia 2005-3 B1	AA			04/28/05		6,208	1m LIBOR		2035		2013		6,208		4.74	%
Sequoia 2005-3 B2		A		04/28/05		3,287	1m LIBOR		2035		2013		3,287		5.01	%
Madrona 2005-A	BBB			08/25/05		5,400	1m LIBOR		2008		2008		5,400		6.14	%
SEMT 2005-4 1-A1	AAA			09/29/05		133,459,000	1m LIBOR		2035		2013		118,703		4.59	%
SEMT 2005-4 1-A2	AAA			09/29/05		14,829,000	1m LIBOR		2035		2013		13,190		4.74	%
SEMT 2005-4 1-B1	AA			09/29/05		2,093,000	1m LIBOR		2035		2013		2,093		4.82	%
SEMT 2005-4 1-B2	AA			09/29/05		1,395,000	1m LIBOR		2035		2013		1,395		5.00	%
SEMT 2005-4 2-A1	AAA			09/29/05		160,096,000	Pass Through		2035		2013		148,698		4.08	%
SEMT 2005-4 2-A2	AAA			09/29/05		10,268,000	Pass Through		2035		2013		9,537		4.08	%
SEMT 2005-4 2-B1	AA			09/29/05		1,740,000	Pass Through		2035		2013		1,740		4.08	%
SEMT 2005-4 2-B2		A		09/29/05		696,000	Pass Through		2035		2013		696		4.08	%
Total Sequoia ABSIssuance					$	354,826,647						$	13,246,990		4.70	%

(1) Does not include Sequoia ABS acquired by Redwood or Acacia

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 20 — Sequoia Loans A-27

Table 21: ABS Issued Characteristics — IO’s from Residential Real Estate Loans
(Sequoia Interest-Only Certificates Issued) (all $ in thousands)

											Adjusted Issue		Interest
				Original					Estimated		Amount At		Rate At
Sequoia ABS	Debt	Issue		Issue			Stated		Callable		December 31,		December 31,
IO’s Issued (1)	Rating	Date		Amount		Index	Maturity		Date		2005		2005
MLCC 2003-C X-A-2	AAA		06/26/03	$	12,662	Fixed		2007		2011	$	1,584		4.50	%
MLCC 2003-D X-A-1	AAA		07/29/03		22,371	Fixed		2007		2012		3,489		4.50	%
MLCC 2003-E X-A-1	AAA		08/28/03		16,550	Fixed		2007		2012		3,683		4.25	%
MLCC 2003-F X-A-1	AAA		09/25/03		18,666	Fixed		2007		2012		4,190		4.50	%
Sequoia 2003-6 X-1	AAA		10/29/03		8,220	Fixed		2007		2009		1,742		4.50	%
SMFC 2003A AX1	AAA		10/31/03		70,568	Fixed		2007		2007		12,140		4.50	%
Sequoia 2003-7 X-1	AAA		11/25/03		10,345	Fixed		2007		2012		2,354		4.25	%
Sequoia 2003-8 X-1	AAA		12/23/03		12,256	Fixed		2007		2009		3,033		4.50	%
Sequoia 2004-1 X-1	AAA		01/28/04		7,801	Fixed		2007		2009		2,092		4.00	%
Sequoia 2004-2 X-1	AAA		02/25/04		8,776	Fixed		2007		2009		2,512		3.75	%
SMFC 2004A AX1	AAA		02/26/04		10,626	Fixed		2007		2007		3,587		3.75	%
MLCC 2003-H X-A-1	AAA		12/22/03		10,430	Fixed		2007		2012		3,002		4.25	%
Sequoia 2004-4 X-1	AAA		05/28/04		9,789	Fixed		2010		2009		3,405		4.25	%
Sequoia 2004-5 X-1	AAA		05/27/04		3,371	Fixed		2012		2012		1,191		4.15	%
Sequoia 2004-6 X-A	AAA		06/29/04		10,884	Through		2012		2012		6,803		N/A
Sequoia 2004-7 X-A	AAA		07/29/04		12,145	Through		2034		2012		7,598		N/A
Sequoia 2004-8 X-A	AAA		08/27/04		18,270	Through		2034		2012		11,927		N/A
Sequoia 2004-9 X-A	AAA		09/29/04		16,951	Through		2034		2012		11,267		N/A
Sequoia 2004-10 X-A	AAA		10/28/04		14,735	Through		2034		2012		10,024		N/A
Sequoia 2004-11 X-A-1	AAA		11/23/04		12,603	Through		2034		2013		8,866		N/A
Sequoia 2004-11 X-A-2	AAA		11/23/04		4,697	Through		2034		2013		3,360		N/A
Sequoia 2004-12 X-A-1	AAA		12/22/04		14,453	Through		2035		2013		10,432		N/A
Sequoia 2004-12 X-A-2	AAA		12/22/04		4,619	Through		2035		2013		5,081		N/A
Sequoia 2005-1 X-A	AAA		01/27/05		9,669	Through		2035		2013		7,206		N/A
Sequoia 2005-2 X-A	AAA		02/24/05		7,484	Through		2035		2013		5,633		N/A
Sequoia 2005-3 X-A	AAA		04/28/05		8,183	Through		2035		2013		6,587		N/A
Total Sequoia Issuance				$	357,124						$	142,788		4.31	%

(1) Does not include Sequoia IO’s acquired by Redwood or Acacia

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 21 — Residential IOs A-28

Table 22: ABS Characteristics — Commercial Real Estate Loans (all $ in thousands)

Principal

Interest

Original

Estimated

Outstanding At

Rate At

Commercial

Debt

Issue

Issue

Stated

Callable

December 31,

December 31,

ABS Issued

Rating

Date

Amount

Index

Maturity

Date

2005

2005

Commercial 1

NR

03/30/01

$

9,010

1m LIBOR

2002

Paid Off

$

—

N/A

Commercial 2

NR

03/30/01

8,320

1m LIBOR

2003

Paid Off

—

N/A

Commercial 3

NR

03/01/02

8,318

1m LIBOR

2003

Paid Off

—

N/A

Commercial 4

NR

08/18/03

5,595

6m LIBOR

2009

Paid Off

—

N/A

Commercial 5

NR

12/10/04

4,030

6m LIBOR

2005

Paid Off

—

N/A

Commercial 6

NR

02/07/05

4,250

Fixed

2009

NC

4,250

12.00

%

Commercial

$

39,523

$

4,250

12.00

%

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 22 — Commercial ABS A-29

Table 23: CDO ABS Issued Characteristics
Acacia (all $ in thousands)

												Principal		Interest
					Original					Estimated		Outstanding At		Rate At
	Debt		Issue		Issue			Stated		Callable		December 31,		December 31,
CDO Issuance (1)	Rating		Date		Amount		Index	Maturity		Date		2005		2005
Acacia CDO 1 A	AAA			12/10/02	$	224,250	3m LIBOR		2018		2010	$	—		4.34	%
Acacia CDO 1 B	AA			12/10/02		45,000	3m LIBOR		2037		2010		—		5.06	%
Acacia CDO 1 C	BBB			12/10/02		15,750	3m LIBOR		2037		2010		—		6.46	%
Acacia CDO 2 A	AAA			05/13/03		222,000	3m LIBOR		2023		2011		182,697		4.44	%
Acacia CDO 2 B	AA			05/13/03		45,375	3m LIBOR		2038		2011		45,375		5.09	%
Acacia CDO 2 C	BBB			05/13/03		16,500	3m LIBOR		2038		2011		16,500		7.04	%
Acacia CDO 3 A	AAA			11/04/03		222,000	3m LIBOR		2038		2011		206,830		4.34	%
Acacia CDO 3 B	AA			11/04/03		45,750	3m LIBOR		2038		2011		45,750		4.96	%
Acacia CDO 3 C	BBB			11/04/03		16,500	3m LIBOR		2038		2011		16,500		7.16	%
Acacia CDO 4 A	AAA			04/08/04		229,400	3m LIBOR		2039		2012		228,990		3.94	%
Acacia CDO 4 B1	AA			04/08/04		45,300	3m LIBOR		2039		2012		45,300		4.41	%
Acacia CDO 4 B2	AA			04/08/04		2,000	Fixed		2039		2012		2,000		4.81	%
Acacia CDO 4 C1	BBB			04/08/04		13,700	3m LIBOR		2039		2012		13,700		6.41	%
Acacia CDO 4 C2	BBB			04/08/04		3,000	Fixed		2039		2012		3,000		6.81	%
Acacia CDO 5 A	AAA			07/14/04		222,500	3m LIBOR		2039		2012		222,328		4.13	%
Acacia CDO 5 B	AA			07/14/04		42,250	3m LIBOR		2039		2012		42,250		4.60	%
Acacia CDO 5 C		A		07/14/04		9,000	3m LIBOR		2039		2012		9,000		5.20	%
Acacia CDO 5 D		A		07/14/04		3,000	3m LIBOR		2039		2012		3,000		5.75	%
Acacia CDO 5 E	BBB			07/14/04		5,375	3m LIBOR		2039		2012		5,375		6.55	%
Acacia CDO 6 A1	AAA			11/09/04		222,000	3m LIBOR		2040		2012		221,583		4.14	%
Acacia CDO 6 A2	AAA			11/09/04		15,000	3m LIBOR		2040		2012		15,000		4.43	%
Acacia CDO 6 B	AA			11/09/04		27,000	3m LIBOR		2040		2012		27,000		4.58	%
Acacia CDO 6 C		A		11/09/04		6,500	3m LIBOR		2040		2012		6,500		5.13	%
Acacia CDO 6 D		A		11/09/04		3,000	3m LIBOR		2040		2012		3,000		5.78	%
Acacia CDO 6 E1	BBB			11/09/04		1,500	3m LIBOR		2040		2012		1,500		6.58	%
Acacia CDO 6 E2	BBB			11/09/04		7,000	Fixed		2040		2012		7,000		6.95	%
Acacia CDO 7 A	AAA			03/10/05		231,700	3m LIBOR		2045		2013		231,691		3.85	%
Acacia CDO 7 B	AA			03/10/05		28,100	3m LIBOR		2045		2013		28,100		4.14	%
Acacia CDO 7 C		A		03/10/05		6,000	3m LIBOR		2045		2013		6,000		4.74	%
Acacia CDO 7 D	BBB			03/10/05		16,200	3m LIBOR		2045		2013		16,200		6.16	%
Acacia CDO 8 A1	AAA			07/14/05		175,000	3m LIBOR		2045		2013		174,921		3.84	%
Acacia CDO 8 A2	AAA			07/14/05		15,000	3m LIBOR		2045		2013		15,000		3.99	%
Acacia CDO 8 B	AA			07/14/05		22,000	3m LIBOR		2045		2013		22,000		4.11	%
Acacia CDO 8 C		A		07/14/05		20,000	3m LIBOR		2045		2013		20,000		4.76	%
Acacia CDO 8 D		A-		07/14/05		10,000	3m LIBOR		2045		2013		10,000		5.21	%
Acacia CDO 8 E	BBB			07/14/05		10,000	3m LIBOR		2045		2013		10,000		6.41	%
Acacia CRE1 Class A	AAA			12/14/05		159,000	3m LIBOR		2045		2013		159,000		4.85	%
Acacia CRE1 Class B	AA			12/14/05		39,000	3m LIBOR		2045		2013		39,000		4.98	%
Acacia CRE1 Class C		A		12/14/05		21,000	3m LIBOR		2045		2013		21,000		5.53	%
Acacia CRE1 Class D		A		12/14/05		18,000	3m LIBOR		2045		2013		18,000		5.83	%
Acacia CRE1 Class E	BBB			12/14/05		11,250	3m LIBOR		2045		2013		11,250		6.53	%
Acacia CRE1 Class F	BBB			12/14/05		13,500	3m LIBOR		2045		2013		13,500		7.13	%
Total CDO Issuance					$	2,506,400						$	2,165,840		4.42	%

(1) Does not include ABS acquired by Redwood or Acacia

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 23 — CDO ABS A-30

Table 24: ABS Resecuritization Characteristics
Other Resecuritizations — (SMFC) (all $ in thousands)

												Principal		Interest
Other					Original					Estimated		Outstanding At		Rate At
Resecuritization	Debt		Issue		Issue			Stated		Callable		December 31,		December 31,
Issuance (1)	Rating		Date		Amount		Index	Maturity		Date		2005		2005
SMFC 2002A A1	AAA			04/30/02	$	64,761	1m LIBOR		2030		2005	$	0		N/A
SMFC 2002A A2	AAA			04/30/02		15,861	1m LIBOR		2029		2005		—		N/A
SMFC 2002B I A1	AA			12/19/02		16,855	Fixed		2031		2005		524		5.43	%
SMFC 2002B I A2		A		12/19/02		18,274	Fixed		2031		2005		568		5.68	%
SMFC 2002B I A3	BBB			12/19/02		17,221	Fixed		2031		2005		536		6.38	%
SMFC 2002B I A4	BB			12/19/02		25,133	Fixed		2031		2005		782		6.75	%
SMFC 2002B II A1	AA			12/19/02		15,517	Fixed		2039		2005		636		4.82	%
SMFC 2002B II A2		A		12/19/02		18,345	Fixed		2039		2005		751		4.92	%
SMFC 2002B II A3	BBB			12/19/02		14,989	Fixed		2039		2005		614		5.35	%
SMFC 2002B II A4	BB			12/19/02		8,347	Fixed		2039		2005		342		6.00	%
Total Resecuritizations					$	215,303						$	4,753		5.65	%

(1) Does not include ABS acquired by Redwood or Acacia

The Redwood Review — 4th Quarter 2005 APPENDIX — Table 24 — SMFC ABS A-31