Exhibit 10.8.2

EMPLOYEE NON-QUALIFIED STOCK OPTION GRANT

     NON-QUALIFIED STOCK OPTION GRANT, dated as of the           day of
         , by and between Redwood Trust, Inc., a Maryland corporation (the
“Company”), and          , an employee of the Company (the “Optionee”).

     Pursuant to the 2002 Redwood Trust, Inc. Incentive Stock Plan (such Plan in
the form effective on the date hereof, the “Plan”), the Compensation Committee
(the “Committee”) has determined that the Optionee is to be granted a
Non-Qualified Stock Option (the “Option”) to purchase shares of the Company’s
common stock, on the terms and conditions set forth herein, and the Company
hereby grants such Option. It is intended that the Option not constitute an
“Incentive Stock Option” within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the “Code”). Any capitalized terms not defined
herein shall have the meaning set forth in the Plan.

1)   Number of Shares and Option Price. This Option Grant entitles the Optionee
to purchase          ( ) shares of the Company’s common stock, par value $0.01
per share (the “Original Option Shares”), at a price (the “Original Option
Price”) of           and 00/100 ($ ) per share, which is not less that the Fair
Market Value of the Option Shares as of the date hereof, as determined by the
Committee.

2)   DER’s This Option Grant also entitles the Optionee to receive Dividend
Equivalent Rights in the form of “accrued DERs” as defined in the Plan (“Accrued
DERs”) in an amount equal to the value of any common stock dividend (either in
cash or property) declared and accrued on the unexercised number of Option
Shares subject to the Option granted above, subject to the limitations specified
below. All such DER’s are intended to qualify as performance based compensation,
having as a performance objective and condition the requirement that (i) the
Company have sufficient earnings to declare and pay dividends during the period
while such DER’s accrue and (ii) solely

 

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    in the case of Accrued DERs payable with respect to unexercised Option
Shares pursuant to Section 4(d), the additional requirement that the number of
shares issued with respect to such Accrued DERs be reduced to the extent that
the fair market value of the stock at the termination of the Grant is not at
least equal to its Original Option Price.

  a)   Accrual of DERs will commence with common stock dividends with a record
date after the Date of Grant and will cease for common stock dividends with a
record date after the earlier of the exercise date of the related option and the
Expiration Date.     b)   The Accrued DERs will accrue on the Original Option
shares and on the shares represented by Accrued DERs as set forth in
Section 5(8) of the Plan on the payable date of the respective dividend.    
c)   The Optionee will not receive DER accrual for a dividend declared with
respect to Option Shares for which the related Option has been exercised or
terminated as of the record date of that dividend. The Optionee will not receive
DER accruals for a dividend declared with respect to Option Shares if the
Optionee is not an employee on the record date of that dividend, provided,
however, that the Optionee will receive DER accruals in the event of termination
of employment to the extent provided in Sections 7, 8, and 9 hereof.     d)  
DER accruals and Option grants are not considered compensation for purposes of
determination of severance or termination. This provision is subject to any
provisions relative to this issue in any employment agreement between the
Company and the Optionee in effect at the time of this grant (as it may be
amended or replaced from time to time).

3)   Period of Option. The term of the Option and of this Option Grant shall
commence on the date hereof (the “Date of Grant”) and, unless the Option is
previously exercised or terminated pursuant to this Option Grant, shall
terminate upon the expiration of ten years from the Date of Grant. Upon the
Expiration Date, all rights of the Optionee hereunder shall cease except the
right to receive payment in respect of accrued DERs, including accruals with
respect to any dividends with a record date that was

 

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    previous to the Expiration Date. The last day the Option may be exercised
pursuant to the terms of this Option Grant is the Expiration Date.

4)   Conditions of Exercise.

  a)   Subject to the provisions of paragraph (b) of this Section 4, the Option
shall become exercisable as follows:

  i)   25% of the Original Option Shares (rounded down to the nearest whole
number of  shares) on          ;     ii)   An additional 6.25% of the Original
Option Shares (rounded down to the nearest whole number of shares) on          ;
    iii)   An additional 6.25% of the Original Option Shares (rounded down to
the nearest whole number of shares) on          ;     iv)   An additional 6.25%
of the Original Option Shares (rounded down to the nearest whole number of
shares) on          ;     v)   An additional 6.25% of the Original Option Shares
(rounded down to the nearest whole number of shares) on          ;     vi)   An
additional 6.25% of the Original Option Shares (rounded down to the nearest
whole number of shares) on          ;     vii)   An additional 6.25% of the
Original Option Shares (rounded down to the nearest whole number of shares) on
         ;     viii)   An additional 6.25% of the Original Option Shares
(rounded down to the nearest whole number of shares) on          ;     ix)   An
additional 6.25% of the Original Option Shares (rounded down to the nearest
whole number of shares) on          ;     x)   An additional 6.25% of the
Original Option Shares (rounded down to the nearest whole number of shares) on
         ;     xi)   An additional 6.25% of the Original Option Shares (rounded
down to the nearest whole number of shares) on          ;     xii)   An
additional 6.25% of the Original Option Shares (rounded down to the nearest
whole number of shares) on          ;     xiii)   The balance of the Original
Option Shares on          .

 

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  b)   The right of the Optionee to purchase Original Option Shares that have
become exercisable under clause (a) above may be exercised, in whole or in part,
at any time or from time to time up to the Expiration Date, but only during the
period in which such Option remains otherwise exercisable as herein provided.  
  c)   Upon exercise of any Original Option Shares, the Optionee will receive
the number of shares representing Accrued DER’s associated with each exercised
Original Option Share.     d)   If the Optionee has not exercised all of the
Original Option Shares by the Expiration Date, the Optionee shall be entitled to
receive a number of shares with respect to accrued but unpaid DERs equal to (if
greater than zero) the total number of shares that would have been received had
the Option been exercised on the Expiration Date (the remaining unexercised
Original Option shares plus the remaining accrued DER shares) less the number of
shares that would have been required to make the option exercise payment on that
date (the Original Option Price times the remaining Original Option Shares,
divided by the fair market value of Redwood Stock on the Expiration Date). The
Optionee will not be eligible, however, to receive a number of shares greater
than the number of remaining accrued DER shares at expiration. Such payment will
be made within 30 days of the Expiration Date. Payment of Accrued DERs with
respect to unexercised Original Option Shares pursuant to this section 4(d) is
subject to approval by the stockholders of the Company of an authorizing
amendment to the Plan. If the Plan is not amended to allow for this type of
provision in 2004, then this provision 4(d) will not be considered a part of
this Option Grant.

5) Limits on Transferability of Option.

  a)   Except as provided in (b) below, the Option and this Option Grant shall
not be transferable otherwise than by will or by the laws of descent and
distribution or pursuant to a “qualified domestic relations order,” as defined
in the Employee Retirement Income Security Act of 1974; and the Option may be
exercised, during the lifetime of the Optionee, only by the Optionee or in
accordance with the terms of a qualified domestic relations order.

 

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  b)   The Option may also be transferred to persons and entities referred to in
Section 5(6)(b) of the Plan or as may be approved by the Committee upon request.
Any transfer must comply with the terms of Section 5(6)(b), including the
provision that no consideration is permitted for any transfer, unless approved
by the Committee. Following transfer, the Option shall continue to be subject to
the same terms and conditions as are applicable prior to transfer and the terms
“Optionee,” “Participant,” “Stock Option Holder,” and other references to the
original Optionee shall be deemed to refer to the transferee, provided, however
that

  i)   The provisions of this Option Grant dealing with events of termination of
employment shall continue to be applied to the employment of the original
Optionee (so that following any event of termination of employment of the
original Optionee, the Option shall be exercisable by the transferee, but only
to the extent and for the periods specified in this Option Grant); and     ii)  
The original Optionee shall continue to be subject to Section 10(3) of the Plan
regarding payment of taxes, including the provision entitling the Company to
deduct taxes from amounts otherwise due to the original Optionee. Any transfer
of the Option shall automatically include the transfer of DERs granted with the
Option; DERs may not be transferred separately from the Option.

6)   Exercise of Option. Options that have become exercisable may be exercised
in whole or in part at any time during the period herein specified by giving
written notice of exercise to the Company specifying the number of shares to be
purchased, accompanied by payment in full of the purchase price in cash or its
equivalent as determined by the Committee. As determined by the Committee, in
its sole discretion, payment in whole or in part may also be made in the form of
unrestricted Stock already owned by the Optionee, based in each case, on the
Fair Market Value of the Stock on the date the Option is exercised. Any payment
in the form of stock already owned by the Optionee may be effected by use of an
Acknowledgement and Attestation Form approved by the Committee.

 

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All deliveries and distributions under this Option Grant are subject to
withholding of all applicable taxes. At the election of the Optionee, but
subject to the sole discretion of the Committee and such rules and limitations
as may be established by the Committee from time to time, such withholding
obligations may be satisfied through the surrender of shares of common stock
which the Optionee already owns, or to which the Optionee is otherwise receiving
shares of common stock upon exercise under the Plan.

The Optionee may be able to defer payment of taxes on income realized in
connection with the exercise of these options by participating in the Company’s
Deferred Compensation Plan, subject to the eligibility requirements and other
rules and procedures of the Deferred Compensation Plan in place at that time.

7)   Termination by Death. If the Optionee’s relationship as an employee with
the Company terminates by reason of death, the Option becomes immediately fully
vested and exercisable. DER’s will continue to be accrued on unexercised shares
with respect to dividend record dates occurring during the remaining exercise
period as noted below. After termination by death, the Option may be exercised
until the later of (a) a period of twelve (12) months after the date of death or
(b) ___, ___, 200_. <insert date shown on (4)(xiii) + 30 days> but in no case
beyond the stated term of this Option Grant.   8)   Termination by Reason of
Disability. If the Optionee’s relationship as an employee with the Company
terminates by reason of disability, the Option becomes immediately fully vested
and exercisable. DER’s will continue to be accrued on unexercised shares with
respect to dividend record dates occurring during the remaining exercise period
as noted below. After termination by disability the Option may be exercised
until the later of (a) a period of twelve (12) months after the date of
termination or (b) ___, ___, 200_. <insert date shown on (4)(xiii) + 30 days>but
in no case beyond the stated term of this Option Grant; provided, however, that
if the Optionee dies prior to the end of the exercise period following
termination by disability, such Option may thereafter be exercised until the
later of (a) a period of twelve (12) months

 

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    after the date of death or (b) ___, ___, 200_. <insert date shown on
(4)(xiii) + 30 days> but in no case beyond the stated term of this Option Grant

9)   Other Termination.

  a)   Upon termination by retirement (as defined by the Committee), the Option
shall remain outstanding and continue to vest and become exercisable pursuant to
Section 4, until the later to occur of (i) thirty (30) days after the last
dividend record date for which any Options are yet unvested under the terms of
this Option Grant, or (ii) the until the later of (a) a period of thirty-six
(36) months after the date of retirement or (b) ___, ___, 200_. <insert date
shown on (4)(xiii) + 30 days> but in no case beyond the stated term of this
Option Grant. Following termination by retirement, DER’s will continue to be
accrued under the provisions of this Option Grant with respect to dividend
record dates occurring during the remaining original vesting period, as noted
herein. .     b)   If the Optionee’s relations as an employee with the Company
terminates for any reason other than death, disability, or retirement, the
Option may be exercised, but only to the extent vested and exercisable at the
time of such termination, until the earlier to occur of (a) three (3) months
from the date of such termination or (b) the expiration of the stated term of
the Option. The Optionee is not eligible to accrue DER’s for record dates
subsequent to the date of such termination.     c)   Notwithstanding anything in
this Option Grant to the contrary, if there is in effect an employment
agreement, as such employment agreement as may be amended or replaced from time
to time(the “Employment Agreement”), between the Optionee and the Company on the
Date of Grant, then upon termination of the Optionee’s employment either by the
Company other than for Cause (as such term is defined in the Employment
Agreement) or by the Optionee for Good Reason (as such term is defined in the
Employment Agreement), the Option shall become fully vested and exercisable and
DER’s will be accrued and payable to the Optionee as provided in the Employment
Agreement . If not specifically provided in the Employment Agreement, DER’s will
be accrued pursuant to the provisions of this Option Grant. If the Optionee’s
employment with the Company terminates

 

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      because of termination by the Company for Cause (as such term is defined
in the Employment Agreement) or because the Optionee terminates employment
without Good Reason (as such term is defined in the Employment Agreement), the
Option may be exercised, but only to the extent vested and exercisable at the
time of such termination, until the earlier to occur of (a) three (3) months
from the date of such termination, (b) the expiration of the stated term of the
Option, or (c) such time as may otherwise be provided in the Employment
Agreement.

10)   At-Will Employment. This Option Grant is not an employment contract and
nothing in this Option Grant shall be deemed to create in any way whatsoever any
obligation on your part to continue in the employ of the Company or on the part
of the Company to continue your employment with the Company. It is understood
and agreed to by you, as an Optionee under the Plan, that this Option Grant and
your participation in the Plan does not alter the at-will nature of your
relationship with the Company (subject to the terms of the Employment
Agreement). The at-will nature of your relationship with the Company can only be
altered by a writing signed by both you and the President of the Company.  
11)   Notices. Any notice required or permitted under this Option Grant shall be
deemed given when delivered personally, or when deposited in a United States
Post Office, postage prepaid, addressed, as appropriate, to the Optionee either
at the Optionee’s address hereinbelow set forth or such other address as the
Optionee may designate in writing to the Company, and to the Company: Attention:
Douglas B. Hansen (or his designee), at the Company’s address or such other
address as the Company may designate in writing to the Optionee.   12)   Failure
to Enforce Not a Waiver. The failure of the Company to enforce at any time any
provision of this Option Grant shall in no way be construed to be a waiver of
such provision or of any other provision hereof.

 

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13)   Existing Agreements. This Option Grant does not supersede nor does it
modify any existing agreements between the Optionee and the Company.   14)  
Governing Law. This Option Grant shall be governed by and construed according to
the laws of the State of Maryland without regard to its principles of conflict
of laws.   15)   Incorporation of Plan. The Plan is hereby incorporated by
reference and made a part hereof, and the Option and this Option Grant are
subject to all terms and conditions of the Plan.   16)   Amendments. This Option
Grant may be amended or modified at any time by an instrument in writing signed
by the parties hereto.

IN WITNESS WHEREOF, the parties have executed this Option Grant on the day and
year first above written.

REDWOOD TRUST, INC.

By                                                                        
                

      Harold F. Zagunis, CFO/Corporate Secretary
      Redwood Trust, Inc.
      One Belvedere Place, Suite #300
      Mill Valley, California 94941

The undersigned hereby accepts and agrees to all the terms and provisions of the
foregoing Option Grant and to all the terms and provisions of the Plan herein
incorporated by reference.

By                                                                        
                
[employee name]
[employee address]