Redwood (RWT) Risk Analysis

We finance (and hedge interest rate risk relating to) mortgage loans, securities, and other assets in our investment portfolio and mortgage banking pipelines through various borrowing facilities and derivatives. These arrangements typically require us to pledge collateral, make representations and warranties, and comply with operating and financial covenants (such as minimum tangible net worth and liquidity and maximum recourse leverage), margin call provisions, and events of default and cross-default provisions that expose us to liquidity risks. Many of our financing facilities are uncommitted, allowing lenders to decline to make new advances to us. Our financing facilities include marginable structures (i.e., subject to the lender's determination of the market value of pledged collateral) and non-marginable structures that can still trigger margin calls based on objective tests (e.g., loan delinquency or other credit events, property value declines evidenced by appraisal/BPO, extended financing periods for mortgage loans, exceeding concentration limits, reference-rate movements, or adverse regulatory changes). For example, we could be subject to a margin call on non-marginable debt if an appraisal indicates a decline in the value of the property securing the financed mortgage loan, or based on the occurrence of a triggering credit event impacting the financed mortgage loan followed by a decline in the market value of the financed mortgage loan (as determined by the lender). Broad home-price declines could increase margin exposure, particularly for assets financed during periods of elevated valuations. Market stress can rapidly increase margin calls. In early 2020, COVID-related volatility reduced the market value of financed loans and securities, producing significant margin calls that we met with cash or by posting additional collateral, or by selling assets, sometimes under adverse conditions, to fund these margin calls and/or to fund repayment of associated indebtedness. Margin calls may again require cash or collateral we cannot provide, force asset sales, or cause breaches of minimum liquidity covenants. Significant declines in the value of our assets, including loans and securities, can also breach net-worth and leverage covenants, requiring immediate repayments under financing facilities, terminating availability under affected facilities, and triggering cross-defaults to other indebtedness we have. Future mortgage-credit volatility-driven by macroeconomic, geopolitical, regulatory, or other events-may again depress values of mortgage loans and MBS and prompt further margin calls. Failures by other market participants to meet their margin calls could force liquidations that pressure prices and result in additional margin calls on our financed loans and securities. Delinquencies on financed mortgage loans may also trigger margin calls or loan repurchases. Rapid interest rate increases in 2022–2023 contributed to elevated delinquencies in residential-investor bridge loans, triggering margin calls and, at times, ineligibility for financing that required full repayment. Increased delinquencies and alleged representation-and-warranty breaches on certain residential-investor term loans have led to repurchases from securitizations, adversely affecting liquidity and our ability to securitize, finance, or sell assets. We may receive additional margin calls and may be unable to meet them, resulting in events of default, acceleration, cross-defaults, and potentially bankruptcy or insolvency. Representations, warranties, and covenants in our financing agreements relating to litigation can be breached if claims exceed thresholds or could have a material adverse effect on our business. During the pandemic, one loan seller sued us and others asserted demands relating to our loan purchase activity. Exceeding specified litigation thresholds could have triggered defaults, accelerated repayment, and cross-defaults under our financing agreements. Our short-term whole loan warehouse and securities repurchase financings generally mature within 365 days and 90 days, respectively. Renewals may be on less favorable terms or require additional collateral (functionally similar to a margin call). If a counterparty declines renewal, alternative financing may be difficult because financing counterparties often finance only securities they or their affiliates sold to us. Failure to obtain replacement financing would heighten the liquidity risks described above. Leverage magnifies these liquidity risks, including from unforeseen shocks to economic or market conditions. For additional information on liquidity and leverage-related risks, see Part II, Item 7 of this Annual Report.

Credit Risk Overview We assume credit risk primarily through (i) securities backed by residential consumer, residential investor, and multifamily loans and (ii) direct investments in those loans. We may also take credit risk through financing or risk-sharing transactions relating to such loans or associated servicing rights. Credit losses can arise from, among other things, fraud; weak underwriting or servicing; adverse economic conditions; increases in loan payments; real-estate/property value declines; lower rents or higher delinquencies in single-family and multifamily rentals; epidemics/pandemics; natural disasters and climate effects (e.g., flooding, drought, wildfires, severe weather); uninsured losses; over-leverage; environmental remediation; zoning/code changes; war/terrorism; legal and regulatory changes; and borrower-specific events (income loss, divorce, health issues). Additionally, residential investor and multifamily loans and securities face the same drivers of loss and additional risks: many are interest-only or otherwise non-fully amortizing, so repayment often depends on refinance or sale at maturity, and performance is sensitive to rental-market conditions. The rapid interest rate increases in 2022–2023 stressed certain residential investor bridge loans, elevating delinquencies and driving realized/unrealized losses. Further losses on these loans are possible. Additionally, alleged representation-and-warranty breaches on some residential investor term loans have led to repurchases from securitizations, pressuring liquidity and our ability to securitize, finance, or sell assets. Loss timing and severity may also be affected by modifications, liquidation delays, documentation errors, or servicer actions. A U.S. economic or housing downturn could increase losses beyond current expectations. Rising short-term interest rates increase required payments on adjustable-rate loans we hold directly or via securitizations, which can increase delinquencies and defaults. Tranche Position and Servicing-Advance Risk We often own subordinate and mezzanine securities with concentrated credit risk, including first-loss securities providing credit enhancement by incurring losses before more senior securities. Over-valuation of the property securing a mortgage at origination or subsequent value declines in the property can accelerate principal losses on our holdings of loans and securities to the extent sufficient collateral is not available to satisfy the borrower's obligations. For residential securities, servicers may stop advancing delinquent interest payments when continued advances are deemed unrecoverable, which can reduce values and impair projected cash flows. Whole-Loan and Risk-Sharing Exposures For loans we own directly, we bear losses after borrower equity is exhausted. We have also committed to absorb specified losses on certain conforming loans sold to the Agencies under risk-sharing arrangements. Mitigation actions may be ineffective and can increase ultimate loss. Small-Business Borrower Risk Loans to small, privately held investor-borrowers involve heightened business and financial risk, limited public information, and reliance on our due diligence. Insufficient diligence, errors in our diligence, and borrower fraud or misrepresentation have resulted in extensions of credit we would not otherwise have made, and we have incurred substantial losses on impacted loans. Borrower/industry downturns may coincide with collateral deterioration, leading to additional losses. Product-Feature Risk Many residential investor and multifamily loans we own feature partial amortization, negative amortization, hybrid/adjustable-rate mortgage features, or balloon payments. Loans with these features carry greater default and loss severity risk, especially when interest rates rise, than fully amortizing fixed-rate loans. Geographic Concentration and Catastrophe Risk Regional economic downturns can depress property values and raise defaults where our exposures are concentrated. Natural disasters and climate impacts can cause abrupt value declines; insurance may be unavailable or insufficient, leading to higher foreclosures and losses. We have significant exposure to California for residential consumer loans and, for residential investor and multifamily exposures, concentrations in Arizona, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Louisiana, New Jersey, New York, Ohio, Oregon, Texas, and Washington (see Notes 7–8 to the Financial Statements within this Annual Report). Loss Timing Losses incurred soon after origination, investment or securitization may disproportionately harm our returns. Elevated delinquencies and cumulative losses in securitized pools can delay our receipt of principal and interest and lower economic returns. Timing is affected by borrower creditworthiness and willingness to pay, and by laws or programs enabling modification, forbearance, bankruptcy, or rent relief. Limits of Risk Management We attempt to manage risks of credit losses by evaluating investments for impairment indicators and establishing GAAP reserves, but reserves and liquidity buffers may prove insufficient. Higher-than-expected losses can reduce GAAP earnings, cash flows, asset values, access to short-term borrowings, and our ability to securitize or finance assets. Our efforts to manage credit risk directly may fail for many reasons, including ineffective or uneconomic quality control, underwriting reviews, and loss-mitigation; counterparties including insurers, servicers, trustees, and custodians may fail to perform; the value of properties collateralizing loans (the primary source of funds for recoveries) may decline; rents on rental properties collateralizing residential investor loans may decline; and foreclosure delays can increase loss severities. Credit-Rating Limitations Credit ratings generally assess the risk of receipt of principal and interest payments on debt securities. Ratings may not reflect the risk of fair-value volatility or other factors that affect the value of debt securities, may not be adjusted on a timely basis in response to subsequent events, and can change abruptly, including due to changes in rating agency methodology. Downgrades can reduce values and cash flows of investments we own. Criteria and models used to rate securities backed by real-estate loans, HEI, and other assets may be revised as rating agencies gain data, potentially to the detriment of issuers and investors and affecting the mix of investment-grade/non-investment-grade issuance. Payment Forbearance Risk-Residential Consumer Residential mortgage loan borrowers may fail to make scheduled payments due to inability or unwillingness, or due to forbearance/modification programs (government-mandated or otherwise). For example, federal legislation in response to the COVID pandemic allowed many borrowers to receive forbearance relief and stop making payments. Nonpayment can materially impair the value of loans and securities we own, including whole loans, Sequoia securities, third-party residential mortgage-backed securities (RMBS), mortgage servicing rights (MSRs), excess MSRs, and servicer-advance investments. Delinquencies can redirect cash flows away from us and require us to fund principal and interest advances, or tax and insurance advances. Federal assistance programs may not apply to our predominantly non-Agency eligible assets. These effects can materially harm our financial condition, results, and cash flows. Payment Risk-Multifamily and Residential Investor Multifamily and residential-investor loans and related securities face similar risks, but tenant nonpayment may amplify borrowers' stress. A significant share of our residential-investor exposure is short-term bridge lending on non-income-producing renovation/construction properties. Since 2023, delinquencies in this portfolio have risen and borrowers have sought to renegotiate terms, including by seeking payment forbearance or waivers, interest rate reductions, or maturity extensions. For example, in 2025 we modified loans with approximately $129 million of unpaid principal balance (UPB) including by providing rate reductions and interest deferrals combined with new borrower capital, and extended maturities on loans with approximately $733 million of UPB. Construction or rehabilitation of these properties may be delayed or halted by operating disruptions or moratoria. These factors can materially reduce the value of related loans and securities.

The returns on most securities, loans, and HEI we own depend on the rate of prepayment or early termination of the underlying mortgages or HEI and payment amounts under HEI agreements. While prepayments typically slow in rising-rate environments and increase when rates fall, actual behavior is difficult to predict and can change rapidly. Adverse shifts in rates or payment amounts can reduce cash flows and earnings, reduce the fair value of many assets, and constrain our borrowing capacity. Because our effective yields and valuations rely on prepayment estimates that may prove imprecise, variability in prepayments can introduce earnings volatility and affect our ability to securitize assets. Certain holdings are especially sensitive to prepayments, including interest-only (IO) securities, (MSRs and excess MSRs. As an IO or MSR owner, we are entitled to receive a portion of borrower interest payments on the associated loan (single-family or multifamily residential loans). Accelerated prepayments on associated loans reduce cash flows from IOs and MSRs and may cause losses on IOs, MSRs and excess MSR investments. Some residential investor loans we originate or hold permit prepayment without penalty and/or allow maturity extensions at the borrower's option. Because these options are borrower-controlled, we may not accurately estimate cash-flow duration and earnings, and our ability to finance these loans may be adversely affected.

Changes in interest rates, the relationships among rates associated with different durations (e.g., yield curve shape), and rate volatility may negatively affect our earnings and financial results by decreasing the value of fixed-rate loans and securities in our investment portfolio or pipeline, altering loan and HEI prepayment rates, restricting liquidity, and weakening credit performance. We hedge some, but not all, interest rate risk but our hedges may be imperfect, and we may change our hedging mix over time. A portion of the loans and securities we own (or may acquire) have adjustable interest rates, so cash flows and reported earnings vary with changes in rates. We fund these assets with a mix of equity, fixed-rate debt, and floating-rate debt. Funding assets with mismatched rate profiles (e.g., funding fixed-rate assets with floating-rate debt) can reduce earnings and fair values when rates move. We may use derivatives to mitigate rate mismatches, but such strategies may not succeed. Higher interest rates generally reduce the value of many assets (other than IOs, MSRs/excess MSRs, and adjustable-rate assets), limiting earnings, securitization or sale activity, and liquidity. They can also curb borrowers' ability or willingness to pay or refinance and can depress property values, raising credit losses. The rapid rate increases in 2022–2023 contributed to elevated delinquencies in our residential-investor bridge portfolio, resulting in decreased earnings and realized credit losses; further stress, including additional losses, is possible in this portfolio. Higher rates also reduce mortgage originations, especially refinancings, limiting new asset acquisition. For residential-investor loans secured by rental properties, if rising interest expense is not offset by higher rents, delinquencies may increase and loan or security values may decline. Higher rates also raise our own financing costs as facilities are renewed or mature. For example, during 2024 and 2025, we had approximately $267 million of unsecured corporate debt mature that was effectively refinanced at significantly higher rates. When short-term rates exceed long-term rates (yield-curve inversion), prepayments on adjustable-rate residential loans may increase, reducing returns on IOs and MSRs associated with such loans. The interest rate environment is influenced by unpredictable geopolitical and macroeconomic events (e.g., pandemics/epidemics, wars, trade disputes, sanctions, inflation and employment data, changes in U.S. presidential administrations and Congress, government shutdowns, or sovereign debt rating changes in the U.S., U.K., Eurozone, or China). Adverse developments can disrupt the economy and markets, increase borrowing costs, strain counterparty strength, and reduce the value of our assets-negatively affecting the availability and cost of our short-term financing, our business, and our financial results.

Federal Reserve policy actions and communications influence market expectations and can disrupt our business, the value and returns of our portfolio of real estate-related investments, and the pipeline of mortgage loans we own or may originate or acquire. After significantly tightening monetary policy from 2022 through 2024, by curtailing Agency MBS purchases and repeatedly increasing the federal funds rate in response to inflation and tight labor markets, since 2024, it has gradually loosened policy by slowing its balance sheet reduction measures and cutting the federal funds rate. These actions and signals affect rates, spreads, and mortgage-asset valuations which are central to our business. Even with policy easing, mortgage rates remain elevated and volatile relative to pre-2022 levels. If benchmark interest rates remain elevated or rise again, the supply of mortgage loans available for purchase or origination, and our ability to compete to acquire or originate them, could be negatively impacted due to lower refinance activity and by increased competition from large commercial banks that may operate with a lower cost of capital, including where Federal Reserve policies affect banks more favorably than us. The Federal Reserve's balance-sheet reinvestment choices-especially continued curtailment of reinvestment into Agency MBS-may also influence MBS demand and spreads. We cannot predict the timing, direction, or market impact of future Federal Reserve actions, and each of these dynamics could adversely affect our earnings, business, and financial condition. Rising benchmark interest rates generally decrease the value of fixed-rate mortgage loans and securities we own and of loans identified for origination or purchase, and increase the cost of our short- and long-term borrowings used to finance those assets and our business, as discussed below in these Risk Factors. Certain aspects of our business may also be negatively impacted by declining interest rates, including by reducing the values of our mortgage servicing rights, interest-only certificates, and related assets, and increasing prepayments on higher-coupon loans. In addition, if financial markets interpret Federal Reserve actions or statements as signaling looser monetary policy and price in rate cuts that do not occur, we may experience a market correction in the values of our corporate securities. We cannot predict the extent or duration of any of these impacts.

As a REIT, we are required to distribute at least 90% of our taxable income to shareholders, which limits our ability to retain earnings and increases our reliance on external capital to fund growth. Our ability to raise capital-through common or preferred equity issuances, debt, or other financing arrangements-may be constrained by market conditions, investor demand, regulatory or contractual limitations, and restrictions under our charter, including limits on authorized shares and ownership tests. If we are unable to raise capital on acceptable terms, or at all, we may be unable to pursue attractive investment opportunities, expand our portfolio, or operate our business as planned. Adverse market conditions, including periods of economic uncertainty, credit stress, or volatility in the housing and mortgage markets, may further limit our access to capital or increase our cost of financing. In such circumstances, we may be required to raise capital on unfavorable terms, which could result in dilution to existing shareholders, higher interest expense, or increased transaction costs, or we may be forced to reduce or delay investments and growth initiatives. In addition, if growth is constrained, our general and administrative expenses may increase as a percentage of our capital base. We also have broad discretion in determining how to deploy available capital, and our investment decisions may not generate the returns we expect. If we are unable to effectively raise, allocate, or manage capital, our business, financial condition, results of operations, and ability to grow could be materially adversely affected.

Several factors may significantly affect whether a securitization transaction we execute or participate in is profitable or results in a loss. One key factor is the price we pay for, or cost of originating, the mortgage loans or other assets that are securitized. For residential mortgage loans, this price is influenced by competitive conditions in the loan acquisition market, originators' preferences to retain loans or sell them to third parties such as us, and the volume, scale, and cost structure of our residential consumer and residential investor businesses. Another factor affecting securitization profitability is the cost of the short-term debt we use to finance mortgage loans or other assets prior to securitization, which depends on the availability, interest rates, duration, and the percentage of our mortgage loans or other assets for which third parties are willing to provide short-term financing. After we acquire or originate mortgage loans or other assets intended for securitization, we may incur losses if the value of those assets declines prior to securitization. For mortgage loans, value declines may result from changes in interest rates, credit quality, or projected yields required by investors to invest in securitization transactions. To the extent we hedge against interest rate–related value declines, the cost of such hedging also affects securitization profitability. Profitability is further influenced by the criteria and conditions rating agencies apply in assigning ratings to asset-backed securities issued in our securitizations, including the percentage of securities receiving a triple-A or highest applicable rating to (also referred to as rating agency subordination level). Rating agency subordination levels can be affected by numerous factors, including, without limitation, the credit quality and geographic distribution of the securitized assets, the transaction structure, and other rating agency requirements. All other factors being equal, the greater the percentage of the asset-backed securities issued in a securitization transaction that the rating agencies will assign a triple-A rating or highest applicable rating to, the more profitable the transaction will be to us. The prices investors are willing to pay for asset-backed securities issued in our securitizations significantly affect transaction profitability and are influenced by various market factors. The underwriters or placement agents we select for securitization transactions, and the terms of their engagements, may affect transaction profitability. In addition, transaction costs and any liabilities incurred or reserved for in connection with a securitization may reduce profitability or result in losses. If we are unable to profitably execute future securitizations of residential consumer or residential investor mortgage loans, HEI, or other assets, including for the reasons described above or for other reasons, business and financial results could be materially adversely affected.

Through certain wholly owned subsidiaries, we have previously engaged in or participated in loan and HEI origination, investment, and securitization transactions involving single-family and multifamily residential consumer mortgage loans, residential investor mortgage loans, commercial real estate loans, HEI, and other assets. In the future we expect to continue to engage in or participate in loan and HEI origination, investment, and securitization transactions, including securitization transactions relating to residential consumer and residential investor mortgage loans and HEI, and may also engage in other types of securitization transactions or similar transactions. Sequoia securitization entities we sponsor issued ABS under our SEMT label, backed by residential mortgage loans held by these Sequoia entities. Similarly, CoreVest securitization entities (or "CAFL entities") we sponsor issued ABS under our CAFL label, backed by residential investor mortgage loans held by these CAFL entities. As a result of declining property values, increasing defaults, changes in interest rates, changes in regulation, and other factors, the aggregate cash flows from the loans held by the Sequoia and CAFL entities and the HEI held by the HEI securitization entities could be insufficient to repay in full the principal amount of ABS issued by these securitization entities. Although we are not directly liable for the ABS issued by these entities, ABS holders may nonetheless seek to hold us liable for losses, including through claims under federal or state securities laws or for alleged breaches of representations and warranties made in connection with these securitization transactions. In addition, holders of ABS issued by CAFL entities prior to our acquisition of CoreVest may assert claims against us relating to pre-acquisition activities. We have been named in such litigation in the past and may be named again in the future. Originating, investing in, transacting in, or funding HEI exposes us to risks that differ from those associated with our residential mortgage banking activities, including uncertainty regarding licensing requirements, regulatory compliance, enforcement actions, litigation, and claims. If HEI or HEI-related assets become subject to new or modified regulation, enforcement, litigation, or claims, or are recharacterized as loans-whether through federal action (including activity related to the January 2025 CFPB actions), state or local governmental (including the Washington State Department of Financial Institutions), quasi-governmental, consumer advocacy groups, homeowners, or otherwise-we may be unable to realize expected revenues or profits, or enforce our rights under HEI we own, and we could be subject to significant civil penalties, fines, or damages. In addition, litigation, regulatory actions or consumer remedies directed at large third-party HEI originators could adversely affect the value of HEI in which we are invested and our HEI-related business activity. For example, several broad-based class action lawsuits were filed in early 2026 against two different third-party HEI originators alleging that their HEI originations, among other things, constituted unlicensed mortgage lending, were carried out in violation of various consumer protection statutes, and resulted in usury statute violations, and are seeking damages, the voiding of HEI agreements and/or injunctive relief. Any such changes, events, litigation, or penalties could materially harm the value of our HEI and HEI-related assets and adversely affect our business, cash flows, financial condition, and results of operations, as further discussed in these Risk Factors. In addition, aspects of our business operations and practices may expose us to litigation. In the ordinary course of our business we enter into agreements relating to, among other things, loans we originate and acquire, investments we make, assets and loans we sell, financing transactions, venture capital investments, third parties we retain to provide us with goods and services, and our leased office space. We also regularly enter into confidentiality agreements with third parties under which we receive confidential information. A breach of any such agreement could subject us to claims for damages and related litigation. For example, when we sell whole loans in the secondary market, we make customary representations and warranties about such loans to the loan purchaser. In addition, we may be required to repurchase loans due to borrower fraud or in the event of early payment default on a mortgage loan. The remedies available to a purchaser of mortgage loans may be broader than those available to us against the borrower or correspondent. Further, if a purchaser enforces its remedies against us, we may not be able to enforce the remedies we have against the borrower or correspondent seller. Financing for repurchased loans may be limited or unavailable and may be available only at significant discounts to the repurchase price. Such loans are also typically sold at substantial discounts to unpaid principal balance. Significant repurchase activity could adversely affect our business, cash flows, results of operations, and financial condition. As a result of past or future activities of our residential investor loan platforms, we may be subject to lender liability claims, which could result in losses if asserted successfully. A number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed "lender liability." Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or stockholders. We may also be subject to litigation, including class actions, or regulatory enforcement actions, including by the CFPB, relating to residential mortgage servicer performance, including compliance with forbearance and foreclosure requirements arising from the pandemic or other alleged servicer misconduct. As further discussed in these Risk Factors, the Student Loan ABS Litigation may give rise to additional theories of securitization entity liability based on third-party servicer conduct. We cannot assure investors that such claims will not arise or that we will not incur significant liability if they do. In addition, we may be subject to such claims relating to activities conducted at 5 Arches, CoreVest, and Riverbend, either prior to or following our acquisitions of those platforms. We are subject to various other laws and regulations applicable to our business and operations, including, without limitation, privacy and labor and employment laws, and failure to comply with these requirements could result in claims for damages, litigation, regulatory enforcement actions, and penalties. In particular, any failure to protect the confidentiality of consumers' personal or financial information obtained in the course of our business (such as social security numbers) could expose us to losses, as further discussed in these Risk Factors. We may also face litigation or claims, including claims for injunctive relief, arising from the hiring of employees subject to non-compete, non-solicitation, or other restrictive covenants with prior employers. Defending litigation, whether meritorious or not, may require significant time and resources and divert management's attention from our operations. We may be required to establish or increase reserves for potential litigation losses, which could be material. If we are unsuccessful in defending any such matters, resulting losses could materially affect our financial condition and results of operations.

Directly originating, transacting in, and funding HEI has exposed us to risks that differ from, and in some cases may be greater than, those associated with our traditional residential mortgage banking activities. HEI represent a new product category with evolving market practices, regulatory treatment, and investor expectations. As discussed below in these Risk Factors, HEI are subject to significant legal and regulatory uncertainty. Beyond those regulatory considerations, our HEI business presents additional strategic, operational, and execution risks. HEI differ from traditional mortgage loans in structure, economics, duration, and performance characteristics. As a result, historical mortgage banking experience may not fully predict HEI performance, consumer behavior, litigation exposure, or regulatory outcomes. Market acceptance of HEI remains developing, and demand may fluctuate based on economic conditions, home price volatility, regulatory developments, or consumer perception. If regulatory changes, litigation, or market conditions reduce consumer demand for HEI or limit our ability to originate, acquire, or finance HEI, we may be unable to realize anticipated revenues or returns. In connection with our HEI activities, we have developed and maintained operational infrastructure, compliance systems, internal controls, policies, and procedures tailored to HEI. This includes oversight of third-party originators, servicers, and other service providers involved in HEI activities. Failure to effectively design, implement, or monitor these systems and controls could result in compliance deficiencies, operational disruptions, increased costs, reputational harm, or enforcement exposure. Our HEI activities may subject us to litigation or claims from homeowners, regulators, consumer advocacy groups, investors, or other parties. Such claims could allege, among other things, inadequate disclosures, unfair or deceptive practices, licensing violations, or improper calculation of amounts due under HEI agreements. Even if unsuccessful, litigation can be costly, time-consuming, and damaging to our reputation. For example, several broad-based class action lawsuits were filed in early 2026 against two different third-party HEI originators alleging that their HEI originations, among other things, constituted unlicensed mortgage lending, were carried out in violation of various consumer protection statutes, and resulted in usury statute violations, and are seeking damages, the voiding of HEI agreements and/or injunctive relief. Adverse judgments, settlements, enforcement actions, or required changes to business practices could result in losses, impairments of HEI assets, increased compliance costs, or limitations on our ability to conduct HEI-related activities. If HEI or HEI-related assets become subject to new or modified regulation, enforcement actions, litigation, operational challenges, or adverse market developments, we may be unable to achieve expected returns, enforce our contractual rights, or realize anticipated cash flows. Any of these developments could materially adversely affect our HEI business, the value of our HEI and HEI-related assets, and our business, cash flows, financial condition, and results of operations.

Securitization transactions expose us to many risks that are similar to the risks associated with acquiring or originating loans or other assets for sale, including risks associated with incurring short-term type of debt to finance the accumulation of loans or other assets, market demand risks related to our ability to complete securitizations, and the risks associated with the due diligence we conduct and the representations and warranties we make in connection with securitization activity, as further discussed above in these Risk Factors. When engaging in securitization transactions, we prepare marketing and disclosure materials, including term sheets, offering documents, and prospectuses or offering memorandums that include disclosures regarding risks of the offered securities, the securitization transactions and the underlying assets being securitized. If these materials are alleged or determined to contain inaccuracies or omissions, we may be liable under federal or state securities laws or other laws for damages to third parties that invest in these securitizations, including in circumstances where disclosures were prepared in reliance on third parties, and may incur costs in connection with disputing these allegations or settling claims. Certain securitizations rely on exemptions from federal risk retention requirements, which require that the underlying mortgage loans satisfy certain criteria. We may be subject to risk retention requirements of other jurisdictions, including internationally, based on the locations of transaction investors, which may differ materially from the requirements in the United States. Our process for ensuring compliance with risk retention requirements applicable to securitization transactions we sponsor or co-sponsor may incorrectly identify loans that do not meet the applicable criteria, including due to data entry or calculation errors during the review of these criteria, or due to errors in our interpretation of these requirements. Failure to comply with applicable risk-retention requirements could result in losses, including, for example, as a result of a requirement to repurchase securitized loans or assets that did not meet these criteria, regulatory enforcement actions or reputational damages. We have also sold or contributed commercial and multifamily real estate loans to third parties that have securitized these loans. In connection with these transactions, we have in the past and may in the future prepare and assist in preparing marketing and disclosure materials, including term sheets, offering documents, and prospectuses. We could be liable under federal or state securities laws, or other laws, for disclosures relating to these securitizations, including disclosures prepared by third parties or relating to loans we did not sell or contribute to the securitization. Additionally, we typically retain third-party service providers when we engage in securitization transactions, including underwriters or initial purchasers, trustees, administrative and paying agents, and custodians, among others. We frequently contractually agree to indemnify these parties against certain claims or losses arising from their services to us or the securitization issuer. If any such service provider is liable for damages to third parties that have invested in these securitizations, we may incur costs and expenses pursuant to these indemnification obligations. Securitization trusts and other securitization entities that own collateral underlying securitization transactions may be held liable for the acts of third parties and may be required to obtain state mortgage lending licenses. For example, the CFPB has asserted the power to investigate and bring enforcement actions against securitization entities for the bad acts of their servicers or sub-servicers, and may initiate future actions against securitization entities, including those we sponsor or invest in. In Maryland, courts and regulators found that the assignee of a home equity line of credit, a securitization trust, was required to obtain certain state lending licenses to have legal authority to foreclose on mortgage debt, before legislation was subsequently enacted exempting securitization trusts from such requirements. Other states or local jurisdictions may adopt similar laws or regulations or assert that securitization trusts must obtain a particular license or permit. Any civil penalties or compliance costs could reduce amounts available for distribution to investors and/or the value of the underlying securities. The SEC and the FDIC have published regulations governing ABS, including RMBS. In addition, the SEC has recently finalized rules prohibiting certain conflicts of interest in securitization transactions, which require us, as a sponsor, to adopt policies and procedures to review, approve, and track transactions that may be deemed "conflicted transactions." These requirements may limit certain risk-mitigation strategies we might otherwise pursue and may increase our compliance costs and operational burden. There may be defects in the legal processes or documentation governing transactions in which securitization trusts and other secondary purchasers take legal ownership of residential mortgage loans or other assets and establish their rights as first-priority lienholders on underlying mortgaged property or other assets. If title or lien priority was not properly established or transferred, securitizations we sponsor, or third-party securitizations in which we invest, could experience losses, which may expose us to losses and adversely affect our ability to sponsor or invest in future securitization transactions. Furthermore, we may sponsor or invest in securitization transactions that are new to Redwood or are new securitization products entirely. For example, during 2021, we co-sponsored a securitization of HEI and completed our first securitization collateralized by residential investor bridge loans, and during 2023, we co-sponsored a securitization of HEI that was among the first ever to receive a rating from a ratings agency. As another example, we have incorporated blockchain technology into securitization transactions we sponsor for reporting purposes and, potentially, we may engage in the issuance of "tokenized" digital securities. The above risks may be heightened with new transactions (or those new to Redwood) due to limited institutional or industry knowledge, limited experience with, and/or lack of a mature market for these products.

Acquiring and originating mortgage loans and other assets with intent to sell to third parties generally requires us to incur debt, including short-term debt on a recourse or non-recourse basis, to finance the accumulation of these assets. This type of debt may not be available to us, or may be available only on an uncommitted basis, even in cases where a line of credit had previously been made available or committed to us. In addition, the terms of any available debt may be unfavorable or may impose restrictive covenants that could limit our business and operations, and any breach of such covenants could result in losses and restrict our ability to borrow in the future. When we originate or acquire assets for sale, we make assumptions regarding the cash flows and market values of those assets. If these assumptions prove incorrect, or if market values or other conditions change, the resulting sale may be less favorable than anticipated and could negatively affect our financial results. Furthermore, if we are unable to complete the sale of these assets, our business and financial results could be negatively affected. We have limited capacity to hold residential consumer loans, residential investor loans, and other assets on our balance sheet, and our business is not structured to retain the full volume of assets we routinely acquire or originate for sale. If demand for whole-loan or HEI purchases weakens, we may be forced to incur additional debt on unfavorable terms or may be unable to obtain financing for these assets, which could impair our ability to continue acquiring or originating loans or other assets in the short or long term. Additionally, mortgage loan borrowers that have been or continue to be negatively impacted by rising interest rates, pandemic disease, natural disasters, or other adverse economic conditions may fail to remit principal and interest payments on a timely basis, or at all. To the extent borrowers do not make required payments, the value of the mortgage loans we own will likely be impaired, potentially materially, as further discussed within these Risk Factors. Before originating or acquiring loans, HEI, or other assets for sale, we may conduct underwriting and due diligence on various aspects of the asset. In doing so, we rely on resources and data available to us, which may be limited, as well as on investigations performed by third parties. In some cases, we may conduct due diligence only on a sample of a loan, HEI, or asset pool and assume that the sample is representative of the entire pool. Our underwriting and due diligence processes may fail to identify matters that could lead to losses. If our underwriting is insufficiently robust, if our due diligence is inadequate or limited in scope, third parties provide inaccurate or fraudulent information, or the scope of our underwriting or due diligence is limited, we may incur losses. Losses may occur if a counterparty that sold us a loan or other asset (or that is the obligor, or related to the obligor, of a residential investor loan we originate or acquire) refuses or is unable (e.g., due to its financial condition) to repay or repurchase the asset or pay damages to us if we determine subsequent to purchase that representations or warranties made in connection with the sale or origination were inaccurate. In addition, when we originate mortgage loans or other assets secured by real estate, we may rely on title insurance companies and their agents to conduct title reviews and, when applicable, issue title insurance regarding the validity and priority of the mortgage or lien interests we expect to receive as collateral. If the title review is inaccurate or the title insurance company or its agent fails to properly perform its procedures (whether due to error, misconduct, or fraud), as has occurred in the past and may occur again in the future, we may be unable to successfully establish the mortgage or lien or appropriate priority, which may impair our ability to realize on the value of the collateral if the borrower or obligor fails to fulfill their obligations to us. Moreover, to the extent we seek recourse to title insurance, we may be unsuccessful in receiving insurance proceeds and may expend resources in pursuing such claims. Our ability to operate our business as described above depends on the availability and productivity of our personnel and the personnel of our third-party vendors. If our management or personnel, or the personnel of key vendors, are affected in significant numbers by natural disaster, pandemic or epidemic disease, or other force majeure event, our business and operating results may be negatively impacted. When selling mortgage loans or HEI, or acquiring servicing rights associated with residential mortgage loans, we typically make representations and warranties to purchasers or other third parties regarding various characteristics of those assets, including characteristics we seek to verify through our underwriting and due diligence. If any such representation or warranty is inaccurate with respect to any asset, we may be required to repurchase that asset or pay damages, which may result in a loss. We generally only establish reserves for potential representations and warranty liabilities we make if we believe such liabilities are both probable and estimable under GAAP. Accordingly, we may have no reserves for these potential liabilities or any reserves we establish may be inadequate. Even if we obtain representations and warranties from the counterparties from whom we acquire loans, HEI, or other assets, or from borrowers or their related parties, these protections may not parallel the representations and warranties we make or may fail to protect us from losses, including, for example, due to the fact that the counterparty may be insolvent or otherwise unable to make a payment to us at the time we make a claim for repayment or damages for a breach of representation of warranty. Moreover, asserting breaches of representations and warranties against counterparties, borrowers, or related parties may negatively affect our business relationships with them and reduce the volume of business we conduct with these counterparties, which could impair our ability to acquire loans and adversely affect our operations. To the extent we have significant exposure to representations and warranties made by one or more counterparties, we may determine, as a risk-management matter, to reduce or discontinue loan acquisitions from those parties, which could reduce the volume of residential loans we acquire and negatively impact our business and financial results. Our portfolio of residential investor loans and, to a lesser extent, HEI held for investment represents a substantial portion of our overall investment portfolio, and such loans and HEI expose us to new and different risks from our traditional investments in residential consumer mortgage loans. A substantial portion of our loan portfolio held for investment consists of residential investor mortgage loans, particularly residential investor bridge loans, which are directly exposed to losses arising from default and foreclosure. Therefore, the value of the underlying property, creditworthiness and financial position of the borrower and/or its guarantor(s) and the priority and enforceability of the associated lien will significantly impact the value of such mortgages. Regardless of whether we participated in negotiating the loan terms, there can be no assurance of the adequacy of the protection of the terms of the loan, including the validity or enforceability of the loan, guaranties, and the maintenance of the anticipated priority and perfection of the security interests. Furthermore, claims may be asserted that might interfere with the enforcement of our rights. If foreclosure occurs, we may assume direct ownership of the underlying real estate, and the proceeds from any subsequent sale may be insufficient to recover our cost basis in the loan, resulting in a loss. Any costs incurred or delays experienced in completing a foreclosure or liquidating the property could further reduce proceeds and increase the resulting loss. Residential investor loans we own are subject to similar risks as residential mortgage loans if borrowers who are adversely affected by rising interest rates, pandemic disease, natural disasters, or other economic conditions fail to timely remit principal and interest payments. In addition, if tenants of multifamily or residential investor loan borrowers are unable or unwilling to make rental payments, or if rental payment obligations are deferred or waived under forbearance, relief, or waiver programs, including those imposed or sponsored by governmental authorities or offered by landlords, the value of multifamily and residential investor loans and residential investor mortgage-backed securities we own will likely be impaired, potentially materially, as further discussed in these Risk Factors. A portion of our residential investor loan portfolio is currently, and may in the future be, delinquent and subject to increased credit risk due to factors such as high property leverage, borrower financial distress, or rising debt service costs. Delinquent loans may require substantial workout negotiations or restructurings, including interest rate reductions, deferral or capitalization of past-due interest, or maturity extensions. However, even if successful, borrowers may still be unable or unwilling to make payments under revised terms or refinance at maturity. If a restructuring is unsuccessful, we may be required to foreclose on the underlying property, a process that can be lengthy and costly and may require out-of-pocket costs and significant internal resources. Borrowers may delay foreclosure by asserting claims, counterclaims, or defenses, including, without limitation, lender liability claims and defenses, or by filing for bankruptcy protection, in an effort to prolong the foreclosure action and exert negotiating pressure on us to agree to a modification of the loan or favorable buy-out of the borrower's position. In some states, foreclosure actions may take several years to litigate, and under certain state laws, such as New York's, if a foreclosure action is abandoned or dismissed without prejudice, reinstating any such action may be difficult or impossible due to statutes of limitations. Foreclosure may also negatively affect public perception of a property and reduce its value. Even if foreclosure is completed, liquidation proceeds from the sale of the property may be insufficient to recover our cost basis in the loan, and any delays or additional costs could further reduce recoveries and increase losses. Such losses could, in the aggregate, have a material adverse effect on our business, operations, and financial condition. Residential investor bridge loans on properties in transition may involve greater risk of loss than traditional mortgage loans. These loans are typically used for acquiring and rehabilitating or improving the quality of single-family residential investor or multi-family investment properties and are intended as interim financing prior to the borrower selling or stabilizing the property and obtaining long-term permanent financing. Borrowers under these residential investor bridge loans often identify what they believe is an undervalued asset that has been under-managed or located in a recovering market. If the market fails to improve as projected, or if the borrower fails to enhance property management or asset value, the borrower may not generate sufficient returns to repay the transitional loan, and we may be unable to recover some or all of our loan principal or anticipated cash flows. In addition, borrowers often use the proceeds of a conventional mortgage to repay a bridge loan. Residential investor bridge loans are therefore subject to the risk that a borrower may be unable or unwilling to obtain such financing. Like other loans, residential investor bridge loans are also subject to risks of borrower default, bankruptcy, fraud, and other losses. In the event of a default on residential investor bridge loans we hold, we bear the risk of loss of principal and unpaid interest and fees to the extent the value of the collateral is insufficient to cover amounts owed to us and any senior indebtedness to us. Any such losses could materially adversely affect our business, results of operations, and financial condition. Our portfolio of HEI and HEI-backed securities held for investment, and HEI origination activity exposes us to additional risks, including litigation, regulatory and compliance risks, the risk that HEI may be recharacterized as mortgage loans or deemed unfair, deceptive, or abusive under federal or state consumer protection laws, and financial risks associated with the junior or subordinate lien position of HEI, including risks of foreclosure, default, and loss, as further discussed in these Risk Factors.

Since 2019, we have acquired three residential investor real estate loan origination platforms, 5 Arches, CoreVest, and Riverbend, all of which we have combined into a single platform to originate, acquire, and distribute residential investor loans. We may pursue additional business acquisitions in the future. We have also made strategic investments in, and may continue to invest in or allocate additional capital to, internal or third-party residential consumer and residential investor mortgage origination platforms and HEI origination platforms. If we encounter unanticipated or unmitigated challenges in connection with these acquisitions or investments, we may fail to achieve expected returns. In addition, if our assumptions are wrong or market conditions change, capital may be deployed less efficiently, limiting our ability to invest in more profitable opportunities. Our residential investor loan origination platform depends on conditions in the investor real estate market, and adverse conditions, such as higher borrowing costs or low capitalization rates, may reduce demand for our loans and adversely affect our business, results of operations, and financial condition. Our residential investor loan borrowers are primarily owners of single-family and small to medium-sized multifamily rental properties and residential properties intended for rehabilitation and resale or rental. Accordingly, our performance is closely tied to the success of investors and small business owners in these markets. Negative trends in real estate market conditions may reduce demand for our products and services and adversely affect our operating results. Directly originating mortgage loans exposes us to risks greater than those associated with our historical mortgage banking activities, including increased regulation by federal and state regulatory authorities, additional litigation exposure, challenges integrating operations, failures to maintain effective internal controls, procedures and policies, and other unforeseen liabilities, expenses, or delays related to acquisitions or loan origination activities. In addition, we may originate other housing-related investments, such as HEI, which could subject us to similar risks. Further, CoreVest engages in and sponsors securitization transactions under the CAFL label involving residential investor term loans and bridge loans. In connection with the CoreVest acquisition, we acquired, and expect to continue to hold, MBS issued in CAFL securitizations. These activities and investments expose us to potentially material risks, as further discussed in these Risk Factors. In connection with our acquisitions of CoreVest, 5 Arches, and Riverbend, a portion of the purchase price was allocated to goodwill and intangible assets, and future acquisitions may similarly result in such allocations. The amount allocated to goodwill and intangible assets reflects the excess of the purchase price over the net identifiable assets acquired. Accounting standards require us to test these assets for impairment at least annually, or more frequently if impairment indicators arise. For example, in the first quarter of 2020, as a result of the COVID pandemic and its impact on our business, following an impairment assessment, we recorded a non-cash goodwill impairment expense and wrote down the entire $89 million remaining value of our goodwill asset associated with our acquisitions of 5 Arches and CoreVest. As of December 31, 2025, we recorded $23 million of goodwill and $11 million of intangible assets on our consolidated balance sheets. If we determine in the future that goodwill or intangible assets are impaired, we will be required to write down the value of these assets, as we did with our goodwill asset in 2020, up to the entire balance. Any such write-down would have a negative effect on our consolidated financial statements.