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                                                                    Exhibit 5.1


                         [LETTERHEAD OF TOBIN & TOBIN]

                                November 19, 1996



The Board of Directors
Redwood Trust, Inc.
591 Redwood Highway
Suite 3100
Mill Valley, CA  94941

                  Re:      Supplemental Prospectus to Registration Statement
                           on Form S-3 (Registration No. 333-11665; declared
                           effective September 19, 1996

Ladies and Gentlemen:

                  We have acted as your counsel in connection with the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and the sale by Redwood Trust, Inc., a Maryland corporation (the
"Company"), of an aggregate of 1,250,000 shares of the Company's common stock,
par value $0.01 per share (the "Common Stock" or the "Shares") pursuant to the
Underwriting Agreement, dated November 19, 1996, between the Company and
Montgomery Securities (the "Underwriting Agreement").

                  This opinion is delivered in accordance with the requirements
of Items 601(b)(5) and (23) of Regulation S-K under the Securities Act.

                  In connection with this opinion, we have examined and are
familiar with originals or copies, certified or otherwise identified to our
satisfaction, of (i) the Universal Shelf Registration Statement on Form S-3,
relating, among other securities, to the Shares, filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act on September 10,
1996, as amended and declared effective by the Commission on September 19, 1996
(together with all exhibits thereto, the "Registration Statement"), (ii) the
Supplemental Prospectus to the Registration Statement pursuant to Rule 424(b)(5)
of the Rules and Regulations promulgated under the Securities Act, relating to
the Shares (the "Supplemental Prospectus"), (iii) the Charter of the Company, as
amended, (iv) the Amended and Restated Bylaws of the Company, (v) resolutions
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                                 TOBIN & TOBIN

The Board of Directors
Redwood Trust, Inc.
November 19, 1996
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of the Board of Directors of the Company relating to the issuance and sale of
the Shares, the filing of the Supplemental Prospectus, and the previous filing
and effectiveness of the Registration Statement, adopted at a meeting on October
31, 1996 and resolutions of the Pricing Committee relating to the pricing of the
Shares and the Underwriting Agreement, adopted at a meeting on November 18, 
1996, and (vi) a specimen of the certificates representing the Shares. We have
also examined such other documents, certificates and records as we have deemed
necessary or appropriate as a basis for the opinion set forth below.

                  In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies, and
the authenticity of the originals of such copies. As to any facts material to
this opinion which we did not independently establish or verify, we have relied
upon oral or written statements and representations of officers and other
representatives of the Company and others.

                  Members of our firm are admitted to the practice of law in the
State of California and we do not express any opinion as to the laws of any
other jurisdiction, except for those matters of Maryland law for which we have
relied solely upon the legal opinion of Piper & Marbury, L.L.P., Baltimore,
Maryland, dated on or about November 19, 1996.

                  Based upon and subject to the foregoing, we are of the opinion
that the Shares to be issued by the Company in the offering, described in the
Registration Statement, have been duly and validly authorized for issuance, and,
upon issuance and delivery of the Shares to the Underwriters against payment
therefor in accordance with the terms of the Underwriting Agreement, the Shares
will be validly issued, fully paid and non-assessable.

                  We hereby consent to the filing of this opinion with the
Commission as Exhibit 5.1 to Form 8-K, and its incorporation by reference as an
exhibit to the Registration Statement. In giving such consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of
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                                 TOBIN & TOBIN

The Board of Directors
Redwood Trust, Inc.
November 19, 1996
Page 3

the Securities Act or under the rules and regulations of the
Commission promulgated thereunder.

                                                Very truly yours,


                                                 /s/   Tobin & Tobin