Company: RWT-PA
Filing Date: 2025-03-03
Form Type: 10-K
Source: 0000930236-25-000007
Chunk: 190

Company: REDWOOD TRUST INC
Filing Date: 2025-03-03
Form: 10-K
Item: Item 1A
Chunk 190
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 pledged to secure short-term warehouse borrowings and a portion of the residential investor and multifamily real estate loans and loans underlying multifamily securities we have acquired may have adjustable interest rates. Accordingly, as short-term interest rates rise, required monthly payments from borrowers will rise under the terms of these adjustable-rate mortgages, and this may increase borrowers’ delinquencies and defaults. 

Credit losses on residential investor and multifamily real estate loans and real estate loans collateralizing residential investor and multifamily securities can occur for many of the reasons noted above for residential real estate loans. For example, the rapid increase in benchmark interest rates during 2022 and 2023 contributed to financial stress among certain cohorts of borrowers on residential investor bridge loans in our investment portfolio and increases in delinquencies within this portfolio, which has resulted in realized and unrealized credit losses and could result in additional realized and unrealized credit losses in the future. Moreover, these types of real estate loans may not be fully amortizing (e.g., interest-only loans) and, therefore, the borrower’s ability to repay the principal when due may depend upon the ability of the borrower to refinance the loan or sell the property at maturity. residential investor term loans and multifamily real estate loans and real estate loans collateralizing residential investor and multifamily securities are particularly sensitive to conditions in the rental housing market and to demand for residential rental properties. Additionally, increased delinquencies associated with alleged breaches of representations and warranties with respect to certain residential investor term loans in securitization transactions have resulted in our repurchase of certain impacted loans out of securitization structures. This in turn may adversely affect our liquidity and other aspects of our business, including our ability to securitize, finance, or otherwise sell, real estate loans and securities.

We may have heightened credit losses associated with certain securities and investments we own.

Within a securitization of residential consumer, multifamily, or residential investor real estate loans, various securities are created, each of which has varying degrees of credit risk. We often own the securities in which there is more (or the most) concentrated credit risk associated with the underlying real estate loans.

In general, losses on an asset securing a residential consumer, multifamily, or residential investor real estate loan included in a securitization will be borne first by the owner of the property (i.e., the owner will first lose any equity invested in the property) and, thereafter, by the first-loss security holder, and then by holders of more senior securities. In the