Redwood Trust’s Successful Year Driven by Growth and Efficiency Gains

Redwood Trust, a specialty finance company focused on the housing market, had a strong performance in 2024 despite a challenging economic 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.

The Sequoia Mortgage Banking segment saw a significant increase in loan purchase and lock volumes, with a 154% jump in total lock volume compared to 2023. This was driven by Redwood’s focus on building relationships with banks and independent mortgage lenders, who are looking for balance sheet solutions for their jumbo mortgage loan portfolios. Redwood was able to gain market share, capturing 4-5% of the jumbo mortgage market in 2024, up from its historical range of 1-3%.

The segment’s mortgage banking income increased by $71 million, or 236%, year-over-year, due to higher loan volumes, improved efficiency metrics, and stronger securitization execution. Redwood completed 12 Sequoia securitizations in 2024, totaling $5.2 billion in loans, making it the largest non-bank issuer of jumbo loan securitizations. The segment also saw a resurgence in whole loan sale activity in the fourth quarter, selling $1.4 billion of loans.

The CoreVest Mortgage Banking segment also had a strong year, with a 9% increase in overall funding volumes compared to 2023. The segment’s focus on single-family rental and “build-for-rent” properties, as well as its differentiated distribution platform, including securitizations, whole loan sales, and sales to joint ventures, contributed to its success. Segment contribution increased by $15 million, or 118%, year-over-year, driven by growth in mortgage banking income and improved operating efficiencies.

The Redwood Investments segment saw a $19 million, or 17%, increase in segment contribution. This was primarily due to a $29 million improvement in investment fair value changes, partially offset by a $18 million decrease in net interest income. The residential consumer assets in this segment continued to perform well, with delinquencies declining, while the residential investor bridge loan portfolio experienced some stress, particularly in the 2022 vintage. Redwood worked proactively with borrowers to address the impacts of rising interest rates and elongated project timelines.

Overall, Redwood’s net income increased by $56 million, from a loss of $2 million in 2023 to a profit of $54 million in 2024. This was driven by strong performance across all three business segments, with the Sequoia Mortgage Banking segment being the primary contributor.

Redwood’s focus on strategic and efficient growth, as well as its ability to adapt to market conditions, has positioned the company for continued success. The company’s expansion of product offerings, such as hybrid ARMs and closed-end second lien mortgages, and the launch of its Aspire brand to serve non-traditional borrowers, demonstrate its commitment to innovation and meeting the evolving needs of the housing market.

Looking ahead, Redwood is optimistic about the potential impact of changes in federal housing and mortgage lending policies under the new presidential administration. The company believes these changes could create significant strategic opportunities that could drive further market share gains and increased financial returns.

Redwood’s strong liquidity position, with $245 million in unrestricted cash and cash equivalents and $325 million in unencumbered assets at the end of 2024, provides the company with the flexibility to capitalize on these opportunities. The company’s disciplined approach to capital management, including its share repurchase program and strategic debt issuances, has also strengthened its financial position.

In conclusion, Redwood Trust’s performance in 2024 was marked by significant growth, improved efficiency, and a focus on innovation. The company’s diversified business model, strong liquidity, and adaptability to market conditions position it well for continued success in the years ahead.