Company: RWT-PA
Filing Date: 2025-08-08
Form Type: 10-Q
Source: 0000930236-25-000029
Chunk: 346

Company: REDWOOD TRUST INC
Filing Date: 2025-08-08
Form: 10-Q
Item: Part I, Item 8
Chunk 346
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5, as compared to the three months ended March 31, 2025, is due to the $67 million decline in Investment fair value changes, net and $23 million decline in HEI income, net. In the second quarter of 2025, we recognized valuation losses on our legacy unsecuritized bridge and term loan portfolios, third-party securities portfolio, and other non-core legacy assets, reflecting adverse market developments and anticipated near-term resolutions on these assets, as well as changes in the underlying performance of certain Legacy bridge loans, reflecting increased delinquencies and credit stress in certain 2021 and 2022 vintage loans. These loans were underwritten during a period of significantly lower interest rates and more favorable financing conditions and different market fundamentals. During the second quarter, we took additional steps to reduce our exposure to this portfolio, including loan and REO sales, and other structured exits. 

The decline in HEI income, net was primarily driven by negative fair value adjustments due to a slowdown in home price appreciation during the second quarter of 2025, as well as a $14 million fair value loss on our third-party originated HEI portfolio. The latter of which reflects the anticipated near-term sale of a substantial portion of this portfolio.

 Capital allocated to Legacy Investments declined by $107 million or 17% at June 30, 2025 from March 31, 2025, largely due to paydowns, sales and fair value adjustments of our legacy unsecuritized bridge and term loan portfolios and the sale, or pending sale, of non-core third-party securities portfolio and other legacy assets. Looking ahead, we intend to continue reducing our capital allocation to Legacy Investments, targeting a decrease to approximately 20% by year-end 2025 from 33% at the end of the second quarter. This would allow us to potentially reallocate up to $200 to $250 million of capital to our core mortgage banking platforms over time. While subject to market conditions and execution timing, our long-term goal is to bring the percentage of our capital allocated to Legacy Investments down to a range of 0% to 5% by the end of 2026. As we execute on this reallocation strategy, we believe there is an opportunity for consolidated returns to improve.

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

The decrease in segment contribution in the six months ended June 30, 2025, as compared to the six months ended June