Company: RWT-PA
Filing Date: 2025-03-03
Form Type: 10-K
Source: 0000930236-25-000007
Chunk: 207

Company: REDWOOD TRUST INC
Filing Date: 2025-03-03
Form: 10-K
Item: Item 1A
Chunk 207
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 Several states have implemented regulatory changes applying to certain HEI by expanding their definitions of “mortgage loan” to include “shared appreciation agreements” (or similar terminology), and there continues to be focus at both the state and federal level on the HEI asset class and larger, third-party HEI originators. In Connecticut, Illinois, and Maryland, for instance, state legislators have expanded their definition of mortgage loan to include “shared appreciation agreements” such as HEI. As a result, offering a shared appreciation agreement like an HEI requires a mortgage lending license in Connecticut, Illinois, and Maryland. Additional states’ mortgage regulators, without legislation or formal rulemaking of any kind, have taken a position that HEI originators should hold a residential mortgage lending license to originate HEI in their state, including, for example, Georgia and North Carolina. Such informal interpretive positions are often non-public, and only disclosed during direct contact with a particular regulator. If a state mortgage regulator determines that entering into, or investing in, HEI is activity covered by that state’s mortgage licensing statute (or another state licensing statute), our investment may be at risk if we, and/or our purchase and sale counterparty who enters into the HEI with the homeowner, do not possess the applicable license. Aside from Maryland, Illinois, and Connecticut, there is little, if any, guidance or precedent regarding HEI providers’ compliance with state mortgage laws, such as government-prescribed disclosures, regulatory disclosure guidance, or case law concerning material disclosures to consumers relating to products like HEI, which means that there can be no assurance that the steps we or our counterparties take to inform and educate consumers about the risks, benefits, costs, terms, and conditions of an HEI will be viewed as legally sufficient in the event of litigation or governmental action. 

In addition, federal regulatory agencies or a civil litigant may attempt to recharacterize or regulate the Options as mortgage loans under federal law. If the Options are recharacterized or regulated as mortgage loans, a number of additional Federal laws and 

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regulations may apply, such as the Equal Credit Opportunity Act (ECOA), the Home Mortgage Disclosure Act (HMDA), the Real Estate Settlement Procedures Act (RESPA), or the Truth in Lending Act (TILA), among others, as well as regulations promulgated thereunder. Violations of, or noncompliance with, additional laws and regulations carry the risk of significant penalties, damages, and other remedies that may be sought by governmental