Company: RWT-PA
Filing Date: 2025-01-15
Form Type: 424B5
Source: 0001104659-25-003632
Chunk: 101

Company: REDWOOD TRUST INC
Filing Date: 2025-01-15
Form: 424B5
Chunk 101
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 on or proceeds from disposition of such assets, and may be required to report taxable income in early periods that exceeds
the economic income ultimately realized on such assets.

If we were to acquire debt
instruments in the secondary market for less than their face amount, the amount of such discount generally would be treated as “market
discount” for U.S. federal income tax purposes. Accrued market discount is reported as income when, and to the extent that, any
payment of principal of the debt instrument is made, unless we elect to include accrued market discount in income as it accrues. Principal
payments on certain loans are made monthly, and consequently accrued market discount may have to be included in income each month as
if the debt instrument were assured of ultimately being collected in full. If we collect less on the debt instrument than our purchase
price plus the market discount we had previously reported as income, we may not be able to benefit from any offsetting loss deductions
in a subsequent taxable year.

If we were to acquire securities
issued with original issue discount, we would generally be required to accrue original issue discount based on the constant yield to
maturity of the securities, and to treat it as taxable income in accordance with applicable U.S. federal income tax rules even though
smaller or no cash payments were received on such debt instrument. As in the case of the market discount discussed in the preceding paragraph,
the constant yield in question would be determined and we would be taxed based on the assumption that all future payments due on securities
in question will be made, with consequences similar to those described in the previous paragraph if all payments on the securities are
not made.

In addition, in the event
that any debt instruments or other securities we acquire are delinquent as to mandatory principal and interest payments, or in the event
payments with respect to a particular debt instrument are not made when due, we may nonetheless be required to continue to recognize
the unpaid interest as taxable income. Similarly, we may be required to accrue interest income with respect to subordinate mortgage-backed
securities at the stated rate regardless of whether corresponding cash payments are received.

We may also be required under
the terms of indebtedness that we borrow from private lenders to use cash received from interest payments to make principal payments
on that indebtedness, with the effect of recognizing income but not having a corresponding amount of cash available for distribution
to our stockholders.

Finally, we are required
to recognize certain items of income for U.S. federal