Company: RWT-PA
Filing Date: 2025-03-03
Form Type: 10-K
Source: 0000930236-25-000007
Chunk: 247

Company: REDWOOD TRUST INC
Filing Date: 2025-03-03
Form: 10-K
Item: Item 1A
Chunk 247
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 of real estate financing products, like HEI, to obtain certain licenses and permits. In Connecticut, Illinois, and Maryland, for instance, legislators have passed laws that impact HEI, including by expanding the definition of “residential mortgage loan” under the state mortgage lending statute to include “shared appreciation agreements,” including HEI. As a result, offering a shared appreciation agreement like an HEI in these three states requires a mortgage lending license. In July 2023, Maryland enacted a similar law. Other states, such as Washington, have considered and/or are considering formalizing legislation or regulation of HEI. If, or more likely when, additional states determine that originating, transacting in, or investing in, HEI is activity covered by that state’s mortgage licensing statute (or another existing or new state licensing statute), our HEI activities and investments relating to those states may be at risk if HEI we originate or acquire are not originated in compliance with the applicable requirements.

Aside from the examples of Maryland, Connecticut and Illinois noted above, there is limited explicit statutory and regulatory guidance or case law concerning key aspects of operating an HEI business or investing in HEI. For example, there is limited explicit legislative or regulatory guidance of the material disclosures that are required to be provided 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 HEI, will be viewed as legally sufficient in the event of litigation or governmental action, including with respect to consumer allegations that an HEI originator engaged in unfair or deceptive acts or practices (UDAP) in connection with originating HEI. Further, there can be no assurance that we or our service providers have obtained all appropriate licenses and permits at the appropriate time in connection with HEI origination, transaction and investment activity. In certain states, loans made by unlicensed entities, or with interest rates in excess of usury limits, are void or voidable and, in addition, under the usury laws of most states, civil monetary penalties, restitution obligations and other penalties can accrue with respect to any person who receives unlawful interest – all of which highlight the risk associated with HEI being recharacterized or regulated as mortgage loans. Certain statutory and regulatory violations related to HEI could also result in imposition of criminal penalties and/or treble damages. Accordingly, we could be subject to claims for damages or disgorgement or we could become subject