Redwood Trust : Q3'23 Redwood Review

Q3 2023

Redwood

Review

October 30, 2023

Cautionary Statement; Forward-Looking Statements

This presentation contains forward-looking statements, including statements regarding our 2023 forward outlook, current illustrative returns on assets that are either distributed through our various channels or retained on our balance sheet, estimates of upside and potential earnings in our investment portfolio from embedded discounts to par value on securities, outlook on jumbo residential loan purchase opportunities, and opportunities to capture jumbo residential mortgagee banking market share. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as "anticipate," "estimate," "will," "should," "expect," "believe," "intend," "seek," "plan" and similar expressions or their negative forms, or by references to strategy, plans, opportunities, or intentions. These forward- looking statements are subject to risks and uncertainties, including, among other things, those described in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 and any subsequent Quarterly Reports on Form 10-Q under the caption "Risk Factors." Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports the Company files with the Securities and Exchange Commission, including Current Reports on Form 8-K.

Additionally, this presentation contains estimates and information concerning our industry, including market size and growth rates of the markets in which we participate, that are based on industry publications and reports. This information involves many assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those referred to above, that could cause results to differ materially from those expressed in these publications and reports.

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Redwood's mission is to make quality housing, whether

rented or owned, accessible to all American households

O U R D I F F E R E N T I A T O R S

29-Year Track Record of	Control Credit through
Strong Performance
Disciplined Underwriting
and Earnings Generation
Diversified Product Set	Ability to Organically
with Balanced Earnings	Create Assets
Streams	for Balance Sheet
Industry Leading	Innovative Technology
Organically and
Operating Platforms
Through Partnerships
	®
Best-in-Class	Deep and
Securitization Platforms	Experienced
and Distribution Channels	Management Team

Detailed Endnotes are included at the end of this presentation.	3

Redwood's Leadership in Housing Finance Has Never Been More Relevant Than It Is Today

Poised to Capitalize on Generational

• Shift in How Mortgages are Funded

P	Long-Tenured Bank & Non-Bank
Seller Network

Solutions Provider to Parts

P of Housing Market Not

Well Served by

Government Programs

P	Diversified Product Set
Serving Homeowners and
	Housing Investors

• Deep Distribution Channels that Support Diversified Product Offerings

4

Detailed Endnotes are included at the end of this presentation.

Redwood is a Full Spectrum Mortgage Platform

Redwood provides strategic capital for sustainable innovation in housing finance

Strategy / Overview

Investment

Portfolio

Includes assets organically created through mortgage banking activities and investments sourced through partnerships and third parties

Residential

Mortgage Banking

Market leading non-Agency

correspondent platform serving

185 bank and non-bank originators

Business Purpose

Mortgage Banking

Leading direct life-cycle lender to single-family and multifamily housing investors; Term and Bridge loans

Products*

Organically

Created

RMBS & BPL

Third-Party Purchased

RPLs, HEI, CRT,

Multifamily

Securities

Prime Jumbo, Expanded

Prime Jumbo and Non-QM

Loans

Term	Bridge
Single-Family	Multifamily,
Rental ("SFR"),	Build/Renovate to
Multifamily	Rent, Fix & Flip

• of
  Allocated Capital(1)

Annual

Addressable

Market

Opportunity(2)

81%

~$45bn

10%

~$170bn	~$1tr+
Jumbo Lock	Jumbo Loan
Volume (Flow)	Sales

9%

~$130bn

(SFR + Multifamily)

Detailed Endnotes are included at the end of this presentation.

*BPL refers to business purpose loans. RPLs refer to reperforming loans. HEI refers to home equity investments. CRT refers to credit risk transfer.	5

Q3'23 Financial Performance

Earnings Per Share

GAAP Book Value

Common Dividend

GAAP EPS

(Diluted)

$0.00

($0.29)

Q3'23 Q2'23

Non-GAAP

EAD Per Share(1)

(Basic)
	$0.14
$0.09
Q3'23	Q2'23

	$9.26
$8.77
Q3'23	Q2'23

Q3'23 Total Economic Return:

(3.6)%(2)

$0.16$0.16

Q3'23Q2'23

9.0% Indicative Dividend Yield

as of September 30, 2023(3)

Capital Allocation(4)

Return on Equity

Financing & Capital

$1.5 billion of allocated capital

Residential	Business
Purpose
Mortgage

GAAP

ROE

Non-GAAP EAD ROE(5)

Banking	Mortgage
Banking
10%	9%

0.4%

4.3%

6.2%

Investment

Portfolio

81%

(12.3)%

Q3'23

Q2'23

Q3'23

Q2'23

Recourse Leverage Ratio(6)

2.3x	2.2x
Q3'23	Q2'23

Unrestricted Cash ($mm)

	$357
$204
Q3'23	Q2'23

Detailed Endnotes are included at the end of this presentation.	6
Earnings Available for Distribution ("EAD") and EAD Return on Equity ("EAD ROE") are non-GAAP measures. See "Non-GAAP Measures" slides in the Endnotes for additional information and reconciliation to GAAP metrics.

Q3'23 Business Performance

Financing &

Capital

• Unrestricted cash and cash equivalents of $204 million at September 30, 2023
• $2.2 billion of excess capacity on warehouse facilities as of September 30, 2023

Residential

Mortgage

Banking

• Increased capital allocated to this segment to $150 million, up from $80 million in Q2'23
• Distributed $391 million of loans through securitization ($338 million) and whole loan sales ($54 million)
• $1.6 billion of locks(1), representing a significant QoQ increase driven by growth in seller base and favorable securitization market
• Achieved gross margins of 80bps during the quarter, within our historical 75bps to 100bps range

BPL

Mortgage

Banking

Investment

Portfolio

Q4'23 QTD

Activity(2)

• $411 million of loan fundings (74% bridge / 26% term)
• • Volumes increased modestly QoQ driven by a 10% increase in bridge fundings
• Distributed $340 million of BPL loans through private securitization ($278 million) and whole loan sales ($62 million)
• Deployed approximately $70 million of capital into internally sourced investments, while generating incremental capital from sales of non-strategicthird-party assets
• Closed SEMT 2023-4 securitization, backed by $369 million of jumbo loans
• Priced securitization backed by HEI, with approximately $139 million of securities expected to be issued through co-sponsored deal(3)
• Sold $44 million of BPL term loans
• Repurchased approximately $5 million of convertible debt due July 2024(4)

Detailed Endnotes are included at the end of this presentation. Note: Totals may not foot due to rounding.	7

Select Q3'23 Corporate Highlights

Jumbo Loan Network

50+ New or Re-Established Bank Seller

Relationships in Q3'23

• To date, over 50% of these new sellers have already begun selling Redwood loans(1)

Product & Platform Launch

Distribution Activity

Distributed ~$730 Million

of Loans

• Through securitizations and whole loan sales, we distributed $730 million of residential and BPL loans

ESG

Launched Aspire, In-House HEI Platform

• Formally launched Aspire, HEI origination platform to support homeowners' ability to access the equity in their homes

Issued Annual ESG

Report with Enhanced Disclosure

• For the second consecutive year, published an ESG report in accordance with SASB Standards, demonstrating our continued progress on ESG disclosure

Detailed Endnotes are included at the end of this presentation.	8

Basel III Endgame: Bank Regulatory Capital in Focus

While it will take time for the Basel III regulations to be finalized, banks have already begun responding to

forthcoming changes

Summary of Basel III Endgame

• In July 2023, Basel III Endgame was unveiled, proposing stricter capital requirements for banks with over $100 billion in assets
• Banks are expected to comply with these changes before the official compliance date (estimated mid-2028)
• Coupled with higher capital requirements, we expect changes to meaningfully impact bank business models going forward, including sales of mortgage production or ceding of market share(1)

Banks are Already Preparing for Basel III Endgame

Looking ahead to Basel III		And while the ultimate
" finalization, we intend to		" impact of potentially higher
adapt and manage to the		capital requirements won't
new rules very quickly as		be known until the Basel III
we have shown in the		Endgame is finalized, we
past…		have been actively working
		through mitigating actions.
- Jamie Dimon, JPM Q3'23		- Jane Fraser, Citi Q3'23 Earnings
Earnings Conference Call		Conference Call

Proposed Risk Weight Impact to Bank Holdings of Mortgages(2)

▪ More stringent stress testing		Basel III Endgame Proposed Risk
	Weight for Residential Mortgages
including treatment of
						90%
mortgage holdings
▪ Higher overall capital	Weight					70%
40%			60%
thresholds
		45%	50%
▪ Inclusion of AOCI in capital	Risk
for larger cohort of banks
▪ Higher risk-transfer
thresholds for regulatory
	≤50% 50% <	60% <	80% <	90% <	LTV
capital relief transactions
		LTV ≤	LTV ≤	LTV ≤	LTV ≤	>100%
			60%	80%	90%	100%

Detailed Endnotes are included at the end of this presentation.	9

Substantial Opportunity for Redwood Residential

Shifting regulatory landscape could result in massive opportunity for our

Residential Mortgage Banking platform(1)

Holdings of Jumbo Loans by Bank Portfolios(2)

Jumbo Market Share by Lender Type(3)

$1,500

on Bank
Jumbo Loans Held	Balance Sheets	$1,300
$1,100
$ Billions of

Of the $2.8 trillion of

residential assets held on bank balance sheets, $1.4 trillion are jumbo loans

Money-Center

Banks, 43%

Non-Banks,

12%

	A significant portion of
Regional Banks,	this market share could
	change hands
28%
Others, 17%

$900
2018	2019	2020	2021	2022	2023

We have seen an increase in pools for sale from

banks, a trend that we expect to continue(1)

2021 - Q2'2023

Jumbo Market Share

We see an opportunity to unlock market and wallet

share as depositories pivot to an "originate to

sell" model

Detailed Endnotes are included at the end of this presentation.	10