Redwood Trust’s Successful Year Driven by Growth and Efficiency

Redwood Trust, a specialty finance company focused on housing credit, had a strong performance in 2024 despite a challenging market environment. The company’s three business segments - Sequoia Mortgage Banking, CoreVest Mortgage Banking, and Redwood Investments - all contributed to the company’s profitability and growth.

Sequoia Mortgage Banking Segment Gains Market Share

Redwood’s Sequoia Mortgage Banking segment, which acquires and securitizes residential consumer loans, saw a significant increase in loan purchase and lock volumes in 2024. The segment was able to grow its market share to between 4-5%, up from the historical range of 1-3%, by deepening relationships with its network of bank and independent mortgage bank (IMB) sellers.

The segment locked $8.95 billion in loans during the year, a 154% increase from 2023, as it onboarded 95 new bank seller relationships and increased wallet share with existing IMB partners. This growth was driven by Sequoia’s expertise, fast closing times, tailored product solutions, and seamless execution, which appealed to lenders looking for balance sheet solutions.

Sequoia’s mortgage banking income increased by $71 million year-over-year, primarily due to the higher loan volumes, improved efficiency metrics, tighter securitization spreads, and net hedge income. The segment’s cost per loan declined 59% to 29 basis points, within the company’s target range of 30-35 basis points. Redwood allocated $350 million of capital to this segment in 2024, up from $165 million in 2023, to support the growth in volumes.

Looking ahead, Redwood sees continued opportunities to gain market share, particularly by deepening relationships with banks seeking solutions for their on-balance sheet jumbo mortgage portfolios.

CoreVest Mortgage Banking Segment Expands Distribution Channels

Redwood’s CoreVest Mortgage Banking segment, which originates residential investor loans, also had a strong year, increasing its funding volumes by 9% to $1.77 billion. The segment benefited from growing demand for its bridge and term loan products as banks pulled back from lending in this space.

CoreVest’s segment contribution increased by $15 million, driven by higher volumes, tighter spreads, and improved distribution economics through whole loan sales and new joint venture partnerships. The segment established two joint ventures in 2023 and 2024 to invest in its bridge and term loan originations, which accounted for 53% of its $1.56 billion in distribution activity in 2024.

The segment’s net cost to originate improved by 27% to 1.14% in 2024 as higher funding volumes and lower expenses offset the impact of the rising interest rate environment on investor demand. CoreVest maintained $75 million of allocated capital in 2024, but improved its capital efficiency by 35% through increased loan distribution.

Going forward, CoreVest expects to continue benefiting from banks’ retreat from residential investor lending, allowing it to gain market share through its diverse product offerings and expanded distribution channels.

Redwood Investments Segment Navigates Market Volatility

Redwood’s Redwood Investments segment, which manages the company’s investment portfolio, saw a $19 million increase in segment contribution year-over-year. This was primarily driven by a $29 million improvement in investment fair value changes, partially offset by a $18 million decrease in net interest income.

The positive fair value changes were largely due to gains on Redwood’s Sequoia and CAFL securities, which offset declines in the value of the segment’s residential investor bridge loan portfolio. Fundamental credit performance remained strong in Redwood’s residential consumer loan investments, with delinquencies declining, but the residential investor sector continued to face headwinds from higher financing costs.

The size of Redwood’s investment portfolio increased in 2024 as the company deployed $525 million of capital into new residential securities and other investments. At year-end, 77% of the portfolio was organically created, with the remaining 23% acquired from third parties.

Looking ahead, Redwood sees opportunities to further enhance the efficiency of its investment portfolio and create reliable distribution channels to support predictable revenues and profitability.

Prudent Capital Management and Liquidity

Redwood maintains a strong capital position, with $2.08 billion in total capital at the end of 2024, consisting of $1.19 billion in equity, $880 million in corporate debt, and $13 million in promissory notes. The company had $245 million in unrestricted cash and cash equivalents, as well as $325 million in unencumbered assets that could be used to secure additional financing.

Redwood finances its mortgage banking operations and investment portfolio through a combination of recourse and non-recourse debt, including loan warehouse facilities, securities repurchase facilities, and asset-backed securitizations. The company carefully manages its exposure to margin calls and other risks associated with these financing arrangements.

At the end of 2024, Redwood was in compliance with all financial covenants related to its debt facilities, providing significant additional borrowing capacity if needed. The company’s balanced approach to financing, with a mix of fixed and floating rate debt, also helps mitigate interest rate risk.

Outlook and Strategic Priorities

As Redwood looks ahead, the company sees several strategic opportunities that could drive meaningful market share gains and increased financial returns. The new presidential administration is expected to bring changes to housing and mortgage lending policy and regulation, which Redwood believes will generally benefit the company’s business.

While mortgage interest rates remain elevated and may keep overall housing activity flat in 2025, Redwood is well-positioned to capitalize on the shifting market dynamics. The company’s focus on deepening relationships with banks, expanding its product offerings, and enhancing the efficiency and distribution capabilities of its operating platforms should support continued growth and profitability.

Redwood’s strong capital position, prudent risk management, and diversified business model position the company to navigate the evolving market environment and deliver value to shareholders over the long term.