REDWOOD
MORTGAGE INVESTORS VII


(a
California Limited Partnership)


Index
to Form 10-K





December
31, 2007





Part IPage
      No.Item
      1   – Business
            4Item
      2   – Properties
            9Item
      3   – Legal Proceedings
            9Item
      4   – Submission of Matters to a Vote of Security Holders
      (Partners)
            9Part IIItem
      5   – Market for the Registrant’s “Limited Partnership
      Units” and Related Unitholder Matters
            10Item
      6   – Selected Financial Data
            10Item
      7   – Management Discussion and Analysis of Financial
      Condition and Results of Operations
            12Item
      7a – Quantitative and Qualitative Disclosures About Market
      Risk
            18Item
      8   – Financial Statements and Supplementary
      Data
            21Item
      9   – Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosure
            47Item
      9a – Controls and Procedures
            47Item
      9b – Other Information
            47Part IIIItem
      10 – Directors, Executive Officers and Corporate
Governance
            48Item
      11 – Executive Compensation
            49Item
      12 – Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters
            50Item
      13 – Certain Relationships and Related Transactions, and Director
      Independence
            50Item
      14 – Principal Accountant Fees and Services
            50Part IVItem
      15 – Exhibits, Financial Statements and Schedules
            51Signatures
            52Certifications
            53


1








UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549








FORM
10-K








(Mark
One)


[X]
            ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For
the Year Ended December 31, 2007





OR





[   ]
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For
the transition period from ______________ to ______________








Commission
File Number:  000-19992








REDWOOD
MORTGAGE INVESTORS VII,


a
California Limited Partnership


(Exact
name of registrant as specified in its charter)








California
            94-3094928(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification)








900
      Veterans Blvd., Suite 500, Redwood City, CA
            94063(address
      of principal executive offices)
            (zip
      code)








(650)
      365-5341


(Registrant’s
telephone number, including area code)








Securities
      registered pursuant to Section 12 (b) of the Act:
            NONE





Securities
      registered pursuant to Section 12 (g) of the Act:
            Limited
      Partnership Units





2


Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act of 1933, as amended.





Yes
            
            
            No
            XX





Indicate
by check mark if the registrant is not required to file pursuant to Section 13
or Section 15(d) of the Securities Act of 1934, as amended.





Yes
            
            
            No
            XX





Indicate
by check mark whether the registrant (1) has filed all reports to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.





Yes
            XX
            
            No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.





Large
      Accelerated Filer
            
            Accelerated
      Filer
            
            Non-Accelerated
      Filer
            X





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).





Yes
            
            
            No
            XX





As of
June 30, 2007, the aggregate value of limited partnership units held by
non-affiliates was $9,284,676. This calculation is based on the capital account
balance of the limited partners and excludes partnership units held by the
general partner.





Documents
incorporated by reference:





Portions
of the Prospectus dated October 20, 1989, and Supplement #5 dated February 14,
1992, filed on form S-11, are incorporated in Parts II, III, and IV. Exhibits
filed as part of Form S-11 Registration Statement #33-30427 are incorporated in
part IV.


3


Part I





Item 1 –
Business





Redwood
Mortgage Investors VII, a California Limited Partnership (the “Partnership”),
was organized in 1989.  Michael R. Burwell and Gymno Corporation, a
California corporation, are the general partners.  The address of the
Partnership and the general partners is 900 Veterans Blvd., Suite 500, Redwood
City, California 94063.  The Partnership is organized to engage in
business as a mortgage lender, for the primary purpose of making loans secured
by deeds of trust on California real estate.  Loans are arranged and
serviced by Redwood Mortgage Corp., an affiliate of the general
partners.  The Partnership’s objectives are to make investments, as
referred to above, which will: (i) provide the maximum possible cash returns,
which limited partners may elect to (a) receive as monthly, quarterly or annual
cash distributions or (b) have credited to their capital accounts and applied to
Partnership activities; and (ii) preserve and protect the Partnership’s
capital.  The Partnership’s general business is more fully described
under the section entitled “Investment Objectives and Criteria” pages 26-31 of
the Prospectus, which is incorporated by reference.





Originally,
60,000 Units were offered on a “best efforts” basis through broker/dealer member
firms of the Financial Industry Regulatory Authority (FINRA).  In
accordance with the terms of the Prospectus, the general partners increased the
number of Units for sale from 60,000 to 120,000 and elected to continue the
offering until September 30, 1992.  The offering closed on September
30, 1992, and the limited partners contributed capital totaled $11,998,359 of an
approved $12,000,000 issue, in Units of $100 each.  The final SR
report (Report of Sales of Securities and use of proceeds therefrom) was filed
on September 21, 1992.





The
Partnership began selling Units in October 1989 and began investing in mortgages
in December 1989.  At December 31, 2007, the Partnership had a balance
in its secured loan portfolio totaling $6,202,522 with interest rates thereon
ranging from 7.00% to 11.00%.





Currently,
loans secured by First Trust Deeds comprise 81.37% of the amount of funds in the
secured loan portfolio followed by Second Trust Deeds of 17.19% and Third Trust
Deeds of 1.44%.  Single Family (1-4 unit) homes total 42.13% of the
secured loans versus 45.84% in 2006.  Commercial loans increased from
last year, now comprising 39.92% of the secured portfolio.  Loans on
apartments totaled 11.21%.  Of the total secured loans, 74.30% are
located in the nine counties, which comprise the San Francisco Bay Area, 19.58%
are in counties adjacent to the San Francisco Bay Area and the balance of 6.12%
are primarily in Southern California.  Loan size decreased the past
year, and is now averaging $248,101 per loan, a decrease of
$34,555.  Some of the larger loans invested in by the Partnership are
fractionalized between other affiliated partnerships with objectives similar to
those of the Partnership to further reduce risk.  Average equity per
loan transaction based on appraised values and senior debt at the inception date
of the loan, which is our loan plus any senior loans, divided by the property’s
appraised value, subtracted from 100%, stood at 40.31%.  Generally,
the greater the equity, the greater the protection for the
lender.  The Partnership’s loan portfolio is in good condition with no
property in foreclosure as of December 2007.





Delinquencies
are discussed under Item 7 – Management’s Discussion and Analysis of Financial
Condition and Results of Operations.





4


Competition
and General Economic Conditions.





The
Partnership’s major competitors in providing mortgage loans are banks, savings
and loan associations, thrifts, conduit lenders, mortgage brokers, and other
entities both larger and smaller than the Partnership.  Many of these
lenders are not portfolio lenders and rely upon their ability to sell notes they
have funded in order to provide further capital resources to continue their
lending operations.  In addition, many competitors, due to their size,
are unable to regularly entertain loan requests at or above $1,000,000, thus
reducing the competition and allowing the Partnership to provide higher quality
loans and/or higher returns.





From 2004
through 2006, competition for real estate loans was strong, particularly among
residential lenders.  Partly due to competitive factors, underwriting
standards decreased and innovative loan products developed.  As a
result, many borrowers who previously had a difficult time obtaining real estate
financing were able to obtain real estate loans.  In 2007, real estate
purchase volumes continued to decline from their highs in
2005.  Accompanying lower purchase volumes, loan demand decreased,
values began to decline and loan delinquencies began to
increase.  Together, these factors, as well as others, contributed to
a reduced demand for mortgage backed securities.  Lenders reliant upon
the sale of their notes to provide additional capital for lending faced a credit
squeeze, pressure on capital, and earnings.  During 2007, over 250
lenders ceased to do business in the United States, resulting in diminished
competition in the lending industry.  The general partners believe the
lower level of competition may provide an opportunity for the Partnership to
seek well-qualified borrowers with desirable security for its lending
operations.  It is possible that coupon rates may rise as competition
lessens, and as interest rate spreads increase a clearer risk return equation
may develop.





During
2007, the national economy itself has decelerated.  Real Gross
Domestic Product, the output of goods and services produced by labor and
property located in the United States increased at an annual rate of 0.6% in the
fourth quarter of 2007 as compared to 2.1% in the fourth quarter of
2006.  For the first through fourth quarters of  2007, Real
Gross Domestic Product was 0.6%, 3.8%, 4.9% and 0.6%  as compared to
4.8%, 2.4%, 1.1% and 2.1% for the first through fourth quarters of
2006.  The Federal Reserve is not forecasting a recession but does
anticipate slow growth for this year and higher unemployment.





The
unemployment rate for the United States increased in the fourth quarter of 2007
to 5.0% as compared to 4.7% for the third quarter, 4.7% for the second quarter
and 4.5% for the first quarter.  In January and February of 2008, the
national unemployment rate fell to 4.9% and 4.8%, respectively.  On a
comparison basis, the annual unemployment rates for the United States were 4.6%
for 2007, 4.6% for 2006, 5.1% for 2005 and 5.5% for 2004.  In
California, unemployment rates increased 1% year over year from 4.9% in December
2006 to 5.9% as of December 2007.  Unemployment is a significant
indicator of a borrower’s ability to make payments.





Month to
month, inflation has been volatile throughout 2006 and 2007.  The cost
of oil, a component in inflation, has fluctuated but followed a significant
upward trend rising to $110 per barrel in March of 2008.  The Consumer
Price Index for All Urban Consumers decreased in December of 2007 by 0.1% before
seasonal adjustment, but was up by 4.1% for the year.  Consumer Price
Index increases were 2.5% for 2006, 3.4% for 2005 and 1.9% for
2004.  At the same time, interest rates have been declining as the
Federal Reserve has exhibited strong resolve in attempting to stimulate the
economy through a variety of means, including lowering the Federal Funds
Rate.  After having left the Federal Funds Rate unchanged at 5.25% for
more than two years, in September 2007 the Federal Reserve acted to decrease the
Federal Funds Rate by 0.50%, then again by 0.25% in October 2007, 0.25% in
December 2007, 1.25% in January 2008, and 0.75% in March 2008 to a level of
2.25%.  Long term interest rates, represented by the 10 year treasury
bonds, have responded somewhat to the lowered Federal Funds
Rates.  However, as long term rates are not directly related to the
Federal Funds Rate, it is likely to take some time before the lowering of the
Federal Funds Rate will have its full effect.  As of September 30,
2007, the 10 year Treasury yield was 4.61%, at December 31, 2007 it was 4.04%,
and at March 22, 2008 it was 3.34%.  The lowering of the Federal Funds
Rate has also had an effect of lowering interest rates on longer term
maturities.  These lower interest rates help the affordability of
owning real estate.





Mortgage
rates have responded slowly to the Federal Reserves actions to lower interest
rates.  Freddie Mac reports average interest rates for 30 year fixed
rate conforming loans were 6.16% for March of 2007, 6.66% for June of 2007,
6.38% for September of 2007, 6.10% for December of 2007 and 5.87% on March 20,
2008.  Historically, the annual average rate for 30 year fixed rate
conforming mortgages has been 6.34% in 2007, 6.41% in 2006, 5.87% in 2005, and
5.83% in 2004.  The recent downward trend in interest rates on real
estate loans should begin to stimulate real estate sales volumes which have been
declining since their high point in 2005.





5


On a
national level, both residential sales volumes and median home prices dropped in
2007.  Sales of existing homes as reported by the National Association
of Realtors declined from 7,076,000 in 2005 to 6,478,000 in 2006 and to
5,652,000 in 2007.  The median national sales price of existing homes
was $219,000 in 2005.  It increased to $221,900 in 2006 and then
declined to $219,000 in 2007.





The
Partnership is expecting a reduced number of lenders in the marketplace along
with strengthened underwriting standards throughout the
industry.  Each of these factors is expected to lead to increased
lending opportunities.  Nevertheless, in many of our lending areas,
residential real estate values have been declining, which will require the
Partnership to be diligent in determining appropriate loan to value
parameters.  In addition, the slowing economy will create less demand
and perhaps further increases in unemployment which might make it more difficult
for borrowers to meet their monetary obligations.  Lowered interest
rates and the Federal Reserve’s efforts to further stimulate the economy could
mitigate these factors and have positive effects on the partnership and
borrowers’ abilities to meet their financial obligations.





6


Secured
Loan Portfolio





A summary
of the Partnership’s secured loan portfolio as of December 31, 2007 is set forth
below.




Loans
      as a Percentage of Appraised ValuesFirst
      Trust Deed Loans
            
            $
            5,046,885Appraised
      Value of Properties at Time of Loan
            
            
            9,054,300Total
      First Trust Deeds as a % of Appraisal
            
            
            55.74
            %First
      Trust Deed Loans
            
            
            5,046,885Second
      Trust Deed Loans
            
            
            1,065,972Third
      Trust Deed Loans
            
            
            89,6656,202,522Priority
      positions due other Lenders at Time of LoanFirst
      Trust Deed Loans due other Lenders
            
            
            2,278,163Second Trust Deed Loans due other
      Lenders
            
            
            30,000Total
      Debt
            
            
            8,510,685Appraised
      Property Value at Time of Loan
            
            
            14,257,967Total
      debt as a % of Appraisal based on appraisals and priorliens
      at date of loan
            
            
            59.69
            %Number
      of Secured Loans Outstanding
            
            
            25Average
      Secured Loan
            
            
            248,101Average
      Secured Loan as a % of Secured Loans Outstanding
            
            
            4.00
            %Largest
      Secured Loan Outstanding
            
            
            500,000Largest
      Secured Loan as a % of Secured Loans Outstanding
            
            
            8.06
            %Largest
      Secured Loan as a % of Partnership Assets
            
            
            5.35
            %




Secured
      Loans as a Percentage of Total Secured Loans
            
            PercentFirst
      Trust Deed Loans
            
            
            81.37
            %Second
      Trust Deed Loans
            
            
            17.19
            %Third
      Trust Deed Loans
            
            
            1.44
            %Total
      Trust Deed Loan Percentage
            
            
            100.00
            %




Secured
      Loans by Type of Property
            
            Amount
            
            PercentSingle
      Family (1-4 units)
            
            $
            2,613,022
            
            42.13
            %Apartments
            
            
            695,625
            
            11.21
            %Commercial
            
            
            2,475,890
            
            39.92
            %Land
            
            
            417,985
            
            6.74
            %Total
            
            $
            6,202,522
            
            100.00
            %





7


The
following is a distribution of secured loans outstanding as of December 31, 2007
by California Counties.




TotalCalifornia
      County
            
            Secured
      Loans
            
            PercentSan Francisco Bay Area
    CountiesSan
      Francisco
            
            $
            1,945,625
            
            31.37
            %Alameda
            
            
            811,985
            
            13.09
            %Solano
            
            
            570,243
            
            9.19
            %San
      Mateo
            
            
            382,798
            
            6.17
            %Sonoma
            
            
            344,693
            
            5.56
            %Santa
      Clara
            
            
            300,000
            
            4.84
            %Contra
      Costa
            
            
            253,348
            
            4.08
            %Napa
            
            
            —
            
            —
            %Marin
            
            
            —
            
            —
            %4,608,692
            
            74.30
            %San Francisco Bay Area Adjacent
      CountiesSan
      Joaquin
            
            
            419,071
            
            6.76
            %Monterey
            
            
            250,000
            
            4.03
            %Stanislaus
            
            
            228,536
            
            3.69
            %Calaveras
            
            
            189,449
            
            3.05
            %Santa
      Cruz
            
            
            127,352
            
            2.05
            %1,214,408
            
            19.58
            %Other California CountiesRiverside
            
            
            135,000
            
            2.18
            %San
      Bernardino
            
            
            134,422
            
            2.17
            %Los
      Angeles
            
            
            110,000
            
            1.77
            %379,422
            
            6.12
            %Total
            
            $
            6,202,522
            
            100.00
            %





Number
      of Secured Loans in Foreclosure:
            0





Scheduled
maturity dates of secured loans as of December 31, 2007 are as
follows:




Year
      Ending December 31,
            
            Amount2008
            
            $
            1,786,9472009
            
            
            1,118,6652010
            
            
            1,205,7752011
            
            
            600,3482012
            
            
            1,401,121Thereafter
            
            
            89,666Total
            
            $
            6,202,522


8


The
scheduled maturities for 2008 include no loans past maturity at December 31,
2007.  The Partnership occasionally allows borrowers to continue to
make the payments on debt past maturity for periods of time.  The
Partnership, in most instances, receives the benefit of a higher interest rate
than would otherwise be available in the currently existing loan
marketplace.  It is the Partnership’s experience that loans can be
refinanced or repaid before and after the maturity date.  Therefore,
the table of scheduled maturities is not a forecast of future cash
receipts.




The loan
portfolio had three loans with total outstanding principal of $476,870 where
interest payments were overdue 90 days or more.  The outstanding
principal of these loans represents 7.69% of the Partnership’s total secured
portfolio as of December 31, 2007.




At
December 31, 2007, there was one impaired loan.  A loan is considered
impaired when events and/or changes in circumstances cause the management to
have serious doubts about the collectibility of the contractual payments and
interest is no longer accrued.








Item 2 –
PropertiesIn February, 2005, the Partnership acquired a multi-unit
property through foreclosure.  This property is located in an upscale
neighborhood in San Francisco. This property is jointly owned with three other
affiliated partnerships.  Upon acquisition the Partnership transferred
its interest (principally land and building) to a limited liability company,
Larkin Property Company, LLC.  No allowance for loss has been set
aside, as management believes that the fair value of the property exceeds the
combined investment of the Partnership and its affiliates in the
property.  The Partnership has undertaken additional improvements to
the property.  As of December 31, 2007, the Partnership’s total
investment in this property was $939,937.





The
Partnership took back vacant land through a deed in lieu of foreclosure in
2004.  The land is located in Stanislaus County,
California.  It is comprised of three separate lots, which total
approximately 14 acres.  In September 2006, one of the parcels was
sold.  This property is owned together with two affiliated
partnerships.  The Partnership’s net investment in the land at
December 31, 2007 was $1,470,655.  The remaining two parcels are on
the market for sale.  The general partners believe that the property
may not return the Partnership’s investment upon sale and have allocated
$161,974 reserve against loss.




The
Partnership also owns (through previous foreclosure) one other property: an
undeveloped parcel of land located in East Palo Alto, California.  The
land is owned with two other affiliated partnerships.  The
Partnership’s net investment in the land at December 31, 2007 is
$62,720.  The Partnership’s net investment of $62,720 is less than 1%
of Partnership assets.  The property is currently listed for
sale.








Item 3 –
Legal ProceedingsIn the normal course of business the Partnership may
become involved in various types of legal proceedings such as assignments of
rents, bankruptcy proceedings, appointments of receivers, unlawful detainers,
judicial foreclosures, etc., to enforce the provisions of the deeds of trust,
collect the debt owed under the promissory notes or to protect or recoup its
investment from the real property secured by the deeds.  As of the
date hereof, the Partnership is not involved in any legal proceedings other than
those that would be considered part of the normal course of
business.


Item 4 –
Submission of Matters to a Vote of Security Holders (Partners)No matters
have been submitted to a vote of the Partnership.


9


Part II





Item 5 –
Market for the Registrant’s “Limited Partnership Units” and Related Unitholder
Matters120,000 Units at $100 each (minimum 20 Units) were offered through
broker-dealer member firms of the Financial Industry Regulatory Authority
(FINRA) on a “best efforts” basis (as indicated in Part I item
1).  Investors have the option of withdrawing earnings on a monthly,
quarterly, or annual basis or reinvesting and compounding the
earnings.  Limited partners may withdraw from the Partnership in
accordance with the terms of the Partnership Agreement subject to possible early
withdrawal penalties. There is no established public trading
market.  As of December 31, 2007, 459 limited partners had a capital
balance of $9,254,923.




A
description of the Partnership Units, transfer restrictions and withdrawal
provisions is more fully described under the section entitled “Description of
Units” and “Summary of Limited Partnership Agreement”, pages 47 to 50 of the
Prospectus, a part of the referenced Registration Statement, which is
incorporated herein by reference.




During
2007, the Partnership’s annualized yield on compounding accounts was 5.50% and
5.37% on monthly distributing accounts.  During 2006, the
Partnership’s annualized yield on compounding accounts was 5.50% and 5.37% on
monthly distributing accounts.








Item 6 –
Selected Financial DataRedwood Mortgage Investors VII began operations in
December 1989. Financial condition and results of operation for the Partnership
as of and for the five years ended December 31, 2007 were:





Balance
Sheets





ASSETS





December
      31,




2007
            
            
            
            2006
            
            
            
            2005
            
            
            
            2004
            
            
            
            2003Cash
      and cash equivalents
            
            $
            351,129
            
            
            $
            584,114
            
            
            $
            1,627,384
            
            
            $
            346,393
            
            
            $
            321,114LoansLoans,
      secured by deedsof
      trust
            
            
            6,202,522
            
            
            
            6,218,439
            
            
            
            5,448,401
            
            
            
            7,388,478
            
            
            
            8,280,826Loans,
      unsecured, net
            
            
            772,031
            
            
            
            714,659
            
            
            
            161,987
            
            
            
            238,484
            
            
            
            232,551Less
      allowance for loanlosses
            
            
            (386,658
            )
            
            
            (454,417
            )
            
            
            (700,536
            )
            
            
            (745,476
            )
            
            
            (680,469
            )Interest
      and other receivablesAccrued
      interest and late fees
            
            
            73,259
            
            
            
            67,754
            
            
            
            64,304
            
            
            
            190,105
            
            
            
            489,995Advances
      on loans
            
            
            6,436
            
            
            
            —
            
            
            
            6
            
            
            
            8,188
            
            
            
            6,484Other
            
            
            20,702
            
            
            
            20,634
            
            
            
            —
            
            
            
            —
            
            
            
            —Real
      estate held, net
            
            
            1,371,401
            
            
            
            1,371,401
            
            
            
            1,870,027
            
            
            
            1,782,182
            
            
            
            633,053Investment
      in limited liabilitycompany
            
            
            939,937
            
            
            
            875,408
            
            
            
            882,641
            
            
            
            —
            
            
            
            —$
            9,350,759
            
            
            $
            9,397,992
            
            
            $
            9,354,214
            
            
            $
            9,208,354
            
            
            $
            9,283,554





10


LIABILITIES AND PARTNERS’
CAPITAL





December
      31,




2007
            
            
            
            2006
            
            
            
            2005
            
            
            
            2004
            
            
            
            2003LiabilitiesLine
      of credit
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            200,000Accounts
      payable
            
            
            11,865
            
            
            
            —
            
            
            
            —
            
            
            
            4,951
            
            
            
            4,102Deferred
      interest
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Payable
      to affiliate
            
            
            71,998
            
            
            
            71,998
            
            
            
            71,998
            
            
            
            74,987
            
            
            
            51,28883,863
            
            
            
            71,998
            
            
            
            71,998
            
            
            
            79,938
            
            
            
            255,390Partners’
      capitalGeneral
      partners
            
            
            11,973
            
            
            
            11,973
            
            
            
            11,973
            
            
            
            11,973
            
            
            
            11,973Limited
      partners subjectto
      redemption
            
            
            9,254,923
            
            
            
            9,314,021
            
            
            
            9,270,243
            
            
            
            9,116,443
            
            
            
            9,016,191Total
      partners’ capital
            
            
            9,266,896
            
            
            
            9,325,994
            
            
            
            9,282,216
            
            
            
            9,128,416
            
            
            
            9,028,164$
            9,350,759
            
            
            $
            9,397,992
            
            
            $
            9,354,214
            
            
            $
            9,208,354
            
            
            $
            9,283,554








STATEMENTS OF
INCOME





For
      the Years Ended December 31,




2007
            
            
            
            2006
            
            
            
            2005
            
            
            
            2004
            
            
            
            2003Gross
      revenue
            
            $
            600,073
            
            
            $
            581,284
            
            
            $
            691,385
            
            
            $
            868,274
            
            
            $
            782,280Expenses
            
            
            94,636
            
            
            
            75,900
            
            
            
            153,830
            
            
            
            289,628
            
            
            
            189,639Net
      income
            
            $
            505,437
            
            
            $
            505,384
            
            
            $
            537,555
            
            
            $
            578,646
            
            
            $
            592,641Net
      income to general partners (1%)
            
            
            5,050
            
            
            
            5,054
            
            
            
            5,376
            
            
            
            5,786
            
            
            
            5,926Net
      income to limited partners (99%)
            
            
            500,387
            
            
            
            500,330
            
            
            
            532,179
            
            
            
            572,860
            
            
            
            586,715$
            505,437
            
            
            $
            505,384
            
            
            $
            537,555
            
            
            $
            578,646
            
            
            $
            592,641Net
      income per $1,000 invested bylimited
      partners for entire period:-
      where income is compounded
            
            $
            55
            
            
            $
            55
            
            
            $
            59
            
            
            $
            65
            
            
            $
            67-
      where partner receives incomein
      monthly distributions
            
            $
            54
            
            
            $
            54
            
            
            $
            58
            
            
            $
            63
            
            
            $
            65





Annualized
yields when income is compounded or distributed monthly for the years 2003
through 2007 are outlined in the table below:





Compounded
            
            
            Distributed2003
            
            
            6.66
            %
            
            
            6.47
            %2004
            
            
            6.49
            %
            
            
            6.30
            %2005
            
            
            5.94
            %
            
            
            5.78
            %2006
            
            
            5.50
            %
            
            
            5.37
            %2007
            
            
            5.50
            %
            
            
            5.37
            %





Average
annualized yield from inception through the years ended December 31, 2005-2007,
when income is compounded and retained, was 7.58%, 7.46% and 7.34%,
respectively.  Average annualized yield from inception through the
years ended December 31, 2005-2007, when income is distributed monthly was
7.35%, 7.23% and 7.13%, respectively.





11


Item 7 – Management
Discussion and Analysis of Financial Condition and Results of
Operations





MANAGEMENT DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





Critical
Accounting Policies.





In
preparing the financial statements, management is required to make estimates
based on the information available that affect the reported amounts of assets
and liabilities as of the balance sheet dates and income and expenses during the
reporting periods.  Such estimates relate principally to the
determination of (1) the allowance for loan losses (i.e. the amount of allowance
established against loans receivable as an estimate of potential loan losses)
including the accrued interest and advances that are estimated to be
unrecoverable based on estimates of amounts to be collected plus estimates of
the value of the property as collateral and (2) the valuation of real estate
acquired through foreclosure.  At December 31, 2007, we owned four
pieces of real property.







Loans and
the related accrued interest, late fees and advances are analyzed on a periodic
basis for recoverability.  Delinquencies are identified and followed
as part of the loan system.  A provision is made for loan losses to
adjust the allowance for loan losses to an amount considered by management to be
adequate, with due consideration to collateral value, to provide for
unrecoverable loans and receivables, including impaired loans, other loans,
accrued interest, late fees and advances on loans and other accounts receivable
(unsecured).  The Partnership charges off uncollectible loans and
related receivables directly to the allowance account once it is determined that
the full amount is not collectible.




If the
probable ultimate recovery of the carrying amount of a loan, with due
consideration for the fair value of collateral, is less than amounts due
according to the contractual terms of the loan agreement and the shortfall in
the amounts due are not insignificant, the carrying amount of the investment
shall be reduced to the present value of future cash flows discounted at the
loan’s effective interest rate.  If a loan is collateral dependent, it
is valued at the estimated fair value of the related collateral.  If
events and or changes in circumstances cause management to have serious doubts
about the further collectibility of the contractual payments, a loan may be
categorized as impaired and interest is no longer accrued.  Any
subsequent payments on impaired loans are applied to reduce the outstanding loan
balances including accrued interest and advances.




Real
estate held for sale includes real estate acquired through foreclosure and is
stated at the lower of the recorded investment in the loan, plus any senior
indebtedness, or at the property’s estimated fair value, less estimated costs to
sell.  The Partnership periodically compares the carrying value of
real estate to expected future undiscounted cash flows for the purpose of
assessing the recoverability of the recorded amounts.  If the carrying
value exceeds future undiscounted cash flows, the assets are reduced to fair
value.




Recent
trends in the economy have been taken into consideration in the aforementioned
process of arriving at the allowance for loan losses and real estate held.
Actual results could vary from the aforementioned provisions for
losses.





Forward
      Looking Statements.





Certain
statements in this Report on Form 10-K which are not historical facts may be
considered forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, including statements regarding the Company’s
expectations, hopes, intentions, beliefs and strategies regarding the
future.  Forward-looking statements include statements regarding
future interest rates and economic conditions and their effect on the
Partnership and its assets, future sales of properties held by the Partnership
and the proceeds from such sales, trends in the California real estate market,
estimates as to the allowance for loan losses, estimates of future limited
partner withdrawals, 2008 annualized yield estimates, plans to develop certain
properties, beliefs regarding the impact on the Partnership of current
conditions and trends in the “sub prime” lending market, beliefs regarding the
Partnership recovering the full value of its investment in certain properties,
the expectation that borrower foreclosures will not have a material effect on
liquidity, and the use of excess cash flow.  Actual results may be
materially different from what is projected by such forward-looking
statements.  Factors that might cause such a difference include
unexpected changes in economic conditions and interest rates, the impact of
competition and competitive pricing and downturns in the real estate markets in
which the Company has made loans.  All forward-looking statements and
reasons why results may differ included in this Form 10-K are made as of the
date hereof, and we assume no obligation to update any such forward-looking
statement or reason why actual results may differ.





12


Related
Parties.





The
general partners of the Partnership are Gymno Corporation and Michael R.
Burwell.  Most Partnership business is conducted through Redwood
Mortgage Corp., an affiliate of the general partners, which arranges, services,
and maintains the loan portfolio for the benefit of the
Partnership.  The fees received by the affiliate and the general
partners are paid pursuant to the partnership agreement and are determined at
the sole discretion of the general partners subject to limitations imposed by
the partnership agreement.  In the past, the general partners have
elected not to take the maximum compensation.  The following is a list
of various Partnership activities for which related parties are
compensated.





·
            Mortgage
      Brokerage Commissions  For fees in connection with the
      review, selection, evaluation, negotiation and extension of loans, an
      affiliate of the general partners may collect an amount  not to
      exceed 4% of the total Partnership assets per year.  The loan
      brokerage commissions are paid by the borrowers, and thus, are not an
      expense of the Partnership.  For the years ended December 31,
      2007, 2006 and 2005 loan brokerage commissions paid by borrowers were
      $52,150, $97,358 and $137,913,
respectively.





·
            Mortgage
      Servicing Fees  Monthly mortgage servicing fees of up to
      1/8 of 1% (1.5% on an annual basis) of the unpaid principal of the
      Partnership’s loans is paid to Redwood Mortgage Corp., or such lesser
      amount as is reasonable and customary in the geographic area where the
      property securing the mortgage is located.  Once a loan is
      categorized as impaired, mortgage servicing fees are no longer accrued
      thereon.  Additional servicing fees are recorded upon the
      receipt of any subsequent payments on impaired loans.  Mortgage
      servicing fees of $0, $0 and $68,906 were incurred for the years ended
      December 31, 2007, 2006 and 2005, respectively.  Redwood
      Mortgage Corp. waived mortgage servicing fees of $55,312 and $56,647 for
      the years 2007 and 2006,
respectively.





These
servicing fees were charged at 1%, on an annual basis, of the outstanding
principal balances.  If the maximum mortgage servicing fee of 1.5%, on
an annual basis, had been charged to the Partnership, then net income would have
been reduced by approximately $82,968, $84,971 and $34,453 for the years ended
December 31, 2007, 2006, and 2005, respectively.  Reducing net income
reduces the annualized yields.  An increase or decrease in this fee
within the limits set by the partnership agreement directly impacts the yield to
the limited partners.





·
            Asset
      Management FeesThe general partners receive monthly
      fees for managing the Partnership’s portfolio and operations up to 1/32 of
      1% of the ‘net asset
      value’ (3/8 of 1% on an annual basis).  Management fees
      to the general partners of $2,922, $8,748 and $34,512 were incurred by the
      Partnership for the years ended December 31, 2007, 2006 and 2005,
      respectively.  For the years ended December 31, 2007 and 2006,
      the General Partners waived $32,042 and $26,208 in such fees,
      respectively.





·
            Other
      Fees  The Partnership agreement provides that the general
      partners or their affiliates may receive other fees such as reconveyance,
      mortgage assumption and mortgage extension fees.  Such fees are
      incurred by the borrowers and are paid to the general
      partners.





·
            Income and
      LossesAll income and losses are credited or charged to
      partners in relation to their respective Partnership
      interests.  The allocation to the general partners (combined)
      shall not exceed 1%.





·
            Operating
      ExpensesAn affiliate of the Partnership, Redwood
      Mortgage Corp., is reimbursed by the Partnership for all operating
      expenses actually incurred by it on behalf of the Partnership, including
      without limitation, out-of-pocket general and administration expenses of
      the Partnership, accounting and audit fees, legal fees and expenses,
      postage and preparation of reports to limited
  partners.





·
            Contributed
      CapitalThe general partners jointly and severally
      contributed cash equal to 1/10 of 1% of the total capital raised by the
      Partnership.  The general partners contributed this cash as
      proceeds from the offerings were received from the limited
      partners.  As of December 31, 2007 and 2006, a general partner,
      Gymno Corporation, had contributed $11,973 as capital in accordance with
      Section 4.02(a) of the partnership
agreement.


13


Results
of Operations – For the three years ended December 31, 2007, 2006 and
2005





Changes
in the Partnership’s operating results for the years ended December 31, 2007 and
2006 are discussed below:





Changes
      for the years ended December 31,2007
            
            
            2006Dollars
            
            
            Percent
            
            
            Dollars
            
            
            PercentRevenueInterest
      on loans
            
            $
            16,266
            
            
            
            3.00
            %
            
            $
            (130,085
            )
            
            
            (19.33
            )%Interest-interest
      bearing accounts
            
            
            256
            
            
            
            0.99
            %
            
            
            22,862
            
            
            
            745.18
            %Late
      fees
            
            
            (2,738
            )
            
            
            (43.85
            )%
            
            
            (4,659
            )
            
            
            (42.73
            )%Other
            
            
            5,005
            
            
            
            82.44
            %
            
            
            1,781
            
            
            
            41.52
            %18,789
            
            
            
            3.23
            %
            
            
            (110,101
            )
            
            
            (15.92
            )%ExpensesMortgage
      servicing fees
            
            
            —
            
            
            
            —
            
            
            
            (68,906
            )
            
            
            (100.00
            )%Interest
      expense
            
            
            (1,068
            )
            
            
            (100.00
            )%
            
            
            375
            
            
            
            54.11
            %Clerical
      costs from Redwood Mortgage Corp.
            
            
            (1,545
            )
            
            
            (12.56
            )%
            
            
            (1,364
            )
            
            
            (9.98
            )%Asset
      management fees
            
            
            (5,826
            )
            
            
            (66.60
            )%
            
            
            (25,764
            )
            
            
            (74.65
            )%Recovery
      of losses on loans andreal
      estate held
            
            
            27,980
            
            
            
            (56.98
            )%
            
            
            643
            
            
            
            (1.29
            )%Professional
      services
            
            
            4,982
            
            
            
            8.14
            %
            
            
            10,966
            
            
            
            21.84
            %Other
            
            
            (5,787
            )
            
            
            (13.88
            )%
            
            
            6,120
            
            
            
            17.20
            %18,736
            
            
            
            24.69
            %
            
            
            (77,930
            )
            
            
            (50.66
            )%Net
      income
            
            $
            53
            
            
            
            0.01
            %
            
            $
            (32,171
            )
            
            
            (5.98
            )%





Please
refer to the above table throughout the discussion of Results of
Operations





Interest
on loans increased in 2007 due to a higher average loan portfolio balance of
$5,961,336 compared to $5,906,554 for 2006.  Also, the average
interest rate earned increased from 9.19% in 2006 to 9.38% for
2007.  The decrease in interest on loans for 2006 was mainly due to a
lower average loan portfolio balance of $5,906,554 in 2006 as compared to the
average loan portfolio balance of $6,394,464 in 2005.  The average
interest rate on loans also declined from 9.25% in 2005 to 9.19% in
2006.  The decline in interest income in 2006 was also due to the
Partnership gaining interest income of $42,996 in 2005 on an impaired loan that
was repaid in 2005.  Prior to 2005, no interest was being accrued
against this impaired loan.





The
increase in interest-interest bearing accounts for 2006 was due to loans
totaling $1,343,470 being paid off at the end of 2005.  Payoff
proceeds were not immediately placed on new loans.  Instead, the
proceeds were deposited into interest-bearing accounts until such time as
suitable loans could be funded.





The
decreases in late fee revenue 2007 and 2006 were primarily due to improved loan
collections and reduced delinquencies.





Other
income for 2007 includes extraordinary transfer fees of $3,200 received from a
retirement custodian due to its need to realign some of their customers within
various funds.





The
decrease in mortgage servicing fees for 2006 was due to management waiving all
of the mortgage servicing fees totaling $56,647.  The 2006 decrease
was also attributed to the Partnership collecting interest and hence mortgage
servicing fees of $8,870, from an impaired loan which was paid off in
2005.





14


Interest
expense reduced to zero in 2007, as the line of credit facility was not being
utilized and was eventually terminated.  The increase in interest
expense for 2006 represents amortization of a loan fee of $1,068 in 2006 versus
an interest expense of $693 for use of the line of credit in 2005.





The
decrease in clerical costs for the years 2007 and 2006 was due to the
partnership’s lower allocation percentage in relation to the other partnerships
serviced by Redwood Mortgage.





The
decrease in asset management fees for 2007 and 2006 was due to the general
partners waiving fees of $32,042 and $26,208 respectively.





Recovery
of loan losses for 2007 increased due to management’s assessment of the
appropriate loan loss allowance.  The general partners believe the
allowance for loan losses of $386,658 at December 31, 2007 is adequate to offset
potential losses on loans.





The
increase in professional fees for 2007 and 2006 was primarily due to general
accounting cost increases in relation to its legal services, audit and tax
return processing.





The
decrease in other expenses for 2007 was due to reductions in costs to maintain
and market the owned properties.  The increase in 2006 was due to
higher costs related to the owned properties.





Allowance for
Losses.





The
general partners regularly review the loan portfolio, examining the status of
delinquencies, the underlying collateral securing these properties, the real
estate held expenses and sales activities, borrowers payment records,
etc.  Data on the local real estate market and on the national and
local economy are studied.  Based upon this information and other
data, loss reserves are increased or decreased.  The Partnership is
not a credit based lender and hence while it reviews the credit history and
income of borrowers, and if applicable, the income from income producing
properties, the general partners expect we will on occasion take back real
estate security.  Borrower foreclosures are a normal aspect of
Partnership operations and the general partners anticipate that they will not
have a material effect on liquidity.  As of December 31, 2007, the
Partnership had no loans past maturity.  The loan portfolio had three
loans with principal outstanding of $476,870 where interest payments were
overdue 90 days.  There were no loans against which the Partnership
had notice of default filed at December 31, 2007.  The Partnership
enters into workout agreements with borrowers who are past maturity or
delinquent in their regular payments.  The Partnership had no workout
agreements as of December 31, 2007.  Typically, a workout agreement
allows the borrower to extend the maturity date of the balloon payment, allows
the borrower to make current monthly payments while deferring for periods of
time, past due payments, or allows time to pay the loan in
full.  These workout agreements and foreclosures generally exist
within our loan portfolio to greater or lesser degrees, depending primarily on
the health of the economy.  The number of foreclosures and workout
agreements will rise during difficult times and conversely fall during good
economic times.  These workouts have been considered when management
arrived at appropriate loan loss reserves and based on our experience, are
reflective of our loan marketplace segment.  Because of the number of
variables involved, the magnitude of the possible swings and the general
partners’ inability to control many of these factors, actual results may and do
sometimes differ significantly from estimates made by the general
partners.  Management recorded ($21,122), ($49,102), and ($49,745) as
recoveries for losses on loans and real estate for the years ended December 31,
2007, 2006 and 2005, respectively.  The general partners believe the
current reserves for losses are adequate to handle potential
losses.  If conditions change, the Partnership may increase or
decrease its provisions for loan losses and real estate held.





The
Partnership may restructure loans.  This is done either through the
modification of an existing loan or by rewriting a whole new loan.  A
modification could involve, among other conditions, an extension in maturity
date, a reduction in repayment amount, a change in interest rate, or granting of
additional loan funds.





The
Partnership did not restructure any loans in 2007 or 2006.





15


Borrower
Liquidity and Capital Resources.





The
Partnership relies upon loan payoffs, borrowers’ mortgage payments, and, to a
lesser degree, retention of income for the source of funds for new
loans.  Over the past several years, mortgage interest rates have
decreased somewhat from those available at the inception of the
Partnership.  If interest rates were to increase substantially, the
yield of the Partnership’s loans may provide lower yields than other comparable
debt-related investments.  Additionally, since the Partnership has
made primarily fixed rate loans, if interest rates were to rise, the likely
result would be a slower prepayment rate for the Partnership.  This
could cause a lower degree of liquidity as well as a slowdown in the ability of
the Partnership to invest in loans at the then current interest
rates.  Conversely, in the event interest rates were to decline, the
Partnership could see significant borrower prepayments, which, if the
Partnership can only obtain the then existing lower rates of interest, may cause
a dilution of the Partnership’s yield on loans, thereby lowering the
Partnership’s overall yield to the limited partners.  Cash is
constantly being generated from borrower payments of interest, principal and
loan payoffs.  Currently, cash flow exceeds Partnership expenses and
earnings distribution requirements.  Excess cash flow is invested in
new loan opportunities, when available, and for other Partnership
business.





At the
time of subscription to the Partnership, limited partners made a decision to
either take distributions of earnings monthly, quarterly or annually or to
compound earnings in their capital account.  For the years ended
December 31, 2007, 2006 and 2005, the Partnership made the following allocations
of earnings both to the limited partners who elected to compound their earnings,
and those that chose to distribute:





2007
            
            
            
            2006
            
            
            
            2005Compounding
            
            $
            306,470
            
            
            $
            312,898
            
            
            $
            348,748Distributing
            
            $
            193,917
            
            
            $
            187,432
            
            
            $
            183,432





As of
December 31, 2007, 2006 and 2005, limited partners electing to withdraw earnings
represented 39%, 38% and 36% of the limited partners’ capital.





The
partnership agreement also allows the limited partners to withdraw their capital
account subject to certain limitations.  For the years ended December
31, 2007, 2006 and 2005, $54,550, $54,733 and $30,727, respectively, were
liquidated subject to the 10% penalty for early withdrawal.  These
withdrawals are within the normally anticipated range that the general partners
would expect in their experience in this and other partnerships.  The
general partners expect that a small percentage of limited partners will elect
to liquidate their capital accounts over one year with a 10% early withdrawal
penalty.  In originally conceiving the Partnership, the general
partners wanted to provide limited partners needing their capital returned a
degree of liquidity.  Generally, limited partners electing to withdraw
over one year need to liquidate their investment to raise cash.  The
trend the Partnership is experiencing in withdrawals by limited partners
electing a one year liquidation program represents a small percentage of limited
partner capital as of December 31, 2007, 2006 and 2005.





Additionally
for the years ended December 31, 2007, 2006 and 2005, $311,018, $214,387 and
$164,220, respectively, were liquidated by limited partners who have elected a
liquidation program over a period of five years or longer.  This
ability to withdraw after five years by limited partners has the effect of
providing limited partner liquidity.  The general partners expect a
portion of the limited partners to take advantage of this
provision.  This has the anticipated effect of the Partnership
growing, primarily through reinvestment of earnings in years one through
five.  The general partners expect to see increasing numbers of
limited partner withdrawals in years five through eleven, after which time the
bulk of those limited partners who have sought withdrawal have been
liquidated.  After year eleven, liquidation generally
subsides.





16


Earnings
and capital liquidations, including early withdrawals, during the three years
ended December 31, 2007 were:





Years ended December
31,





Earnings
            
            
            CapitalLiquidation
            
            
            Liquidation*
            
            
            Total2007
            
            $
            193,917
            
            
            $
            365,568
            
            
            $
            559,4852006
            
            $
            187,432
            
            
            $
            269,120
            
            
            $
            456,5522005
            
            $
            183,432
            
            
            $
            194,947
            
            
            $
            378,379





* These
are gross amounts, which are not net of early withdrawal penalties.





In some
cases in order to satisfy Broker Dealers and other reporting requirements, the
general partners have valued the limited partners’ interest in the Partnership
on a basis which utilizes a per Unit system of calculation, rather than based
upon the investors’ capital account.  This information has been
reported in this manner in order to allow the Partnership to integrate with
certain software used by the Broker Dealers and other reporting
entities.  In those cases, the Partnership will report to Broker
Dealers, Trust Companies and others a “reporting” number of Units based upon a
$1.00 per Unit calculation.  The number of reporting Units provided
will be calculated based upon the limited partner’s capital account value
divided by $1.00.  Each investor’s capital account balance is set
forth periodically on the Partnership account statement provided to
investors.  The reporting Units are solely for Broker Dealers
requiring such information for their software programs and do not reflect actual
Units owned by a limited partner or the limited partners’ right or interest in
cash flow or any other economic benefit in the Partnership.  Each
investor’s capital account balance is set forth periodically on the Partnership
account statement provided to investors.  The amount of Partnership
earnings each investor is entitled to receive is determined by the ratio that
each investor’s capital account bears to the total amount of all investor
capital accounts then outstanding.  The capital account balance of
each investor should be included on any FINRA member client account statement in
providing a per Unit estimated value of the client’s investment in the
Partnership in accordance with NASD Rule 2340.





While the
general partners have set an estimated value for the Partnership Units, such
determination may not be representative of the ultimate price realized by an
investor for such Units upon sale.  No public trading market exists
for the Partnership’s Units and none is likely to develop.  Thus,
there is no certainty that the Units can be sold at a price equal to the stated
value of the capital account.  Furthermore, the ability of an investor
to liquidate his or her investment is limited subject to certain liquidation
rights provided by the Partnership, which may include early withdrawal
penalties.





Current
Economic Conditions.





The
Partnership makes loans secured by California real estate.  The health
of the California economy and real estate market is of primary concern to the
Partnership as we rely upon the equity securing our loans for
repayment.  The majority of our loans are secured by property located
in Northern California, dominated by loans made in the nine counties of the San
Francisco Bay Area.  As of December 31, 2007, approximately 74.30% of
the loans held by the Partnership were located in the nine counties which
comprise the San Francisco Bay Area region.





The
California economy like the overall U.S. economy has slowed during the latter
part of 2007.  California unemployment decreased from 5.1% in December
of 2005, to 4.9% in December of 2006 and then steadily increased throughout 2007
to a rate of 5.9% as of December 2007.  According to UCLA Anderson
Forecast Economists Ryan Ratcliff and Jerry Nickelsburg, California’s economy is
expected to experience a slightly slower and prolonged period of sluggishness,
but no recession.  They expect unemployment to peak at 6.1% in late
2008, with non-farm payroll growth remaining below 1% through the end of next
year.  Real growth in Gross State Product and Personal Income is
expected to be in the 1-2% range over the same period.





17


Residential
real estate values are important to the Partnership as they provide the security
behind our loans.  During 2006, residential real estate sales volumes
began to decline from their highs in 2005.  The reduction in sales
volumes continued throughout 2007.  In 2006 California residential
real estate sales volumes declined 15.3% from 2005 and sales volumes further
declined 26% compared to 2006 according to the California Association of
Realtors (CAR).  In spite of these lower sales volumes, CAR reported
the median sales price of a single family home in California increased in 2007
by 0.3%, from $556,430 to $558,100.  These numbers indicate a
relatively stable market, but residential real estate values are very much
locally driven.  CAR indicated regional price reductions in their
median price value.  Examples include the California High Desert,
Central Valley, and Sacramento regions experiencing price reductions between 6%
and 10% in 2007.  Larger metropolitan regions such as the San
Francisco Bay Area, Los Angeles, Santa Clara and Santa Barbara experienced price
increases of 0.7% to 7.0%.  The slow down in residential real estate
appreciation and the price depreciation in various regions is of concern to the
Partnership as depreciation erodes the value of the real estate assets securing
our loans.





Commercial
real estate has fared well in 2007.  Rents continued to remain stable
or escalate.  As reported by NAI BT Commercial, the San Francisco Bay
Area as a whole reported a 40 basis-point decrease in vacancy from 2006 to push
vacancy rates to 11.25% at the close of 2007.  This marked the lowest
vacancy level for the Bay Area’s office market since the second quarter of
2001.  The overall average asking rate increased almost $0.50 during
2007 closing the year at $2.98 per square foot full service.  This
represented a 19% increase from 2006 and a 44% increase from $2.07 nearly four
years ago.  Strong commercial rents and occupancy combined to keep
values strong and stable a healthy result for the commercial portion of the
Partnership’s portfolio.





For the
Partnership loans outstanding at December 31, 2007, the Partnership had an
average loan-to-value of 59.69% computed based on appraised values and senior
liens as of the date the loan was made.  This percentage does not
account for any increases or decreases in property values since the date the
loan was made, nor does it include any reductions in principal on senior
indebtedness through amortization of payments after the loan was
made.  Management believes low loan-to value ratios will assist the
partnership in weathering loan delinquencies and foreclosures when they
occur.





Contractual Obligations Table.None








Item 7a – Quantitative and
Qualitative Disclosures About Market Risk





The
following table contains information about the cash held in money market
accounts, and loans held in the Partnership’s portfolio as of December 31,
2007.  The presentation, for each category of information, aggregates
the assets and liabilities by their maturity dates for maturities occurring in
each of the years 2008 through 2012 and separately aggregates the information
for all maturities arising after 2012.  The carrying values of these
assets and liabilities approximate their fair market values as of December 31,
2007:





2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            Thereafter
            
            
            TotalInterest
      earning assets:Money
      market accounts
            
            $
            259,064
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            259,064Average
      interest rate
            
            
            2.50
            %
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2.50
            %Loans
      secured by deedsof
      trust
            
            
            1,786,947
            
            
            
            1,118,665
            
            
            
            1,205,775
            
            
            
            600,348
            
            
            
            1,401,121
            
            
            
            89,666
            
            
            
            6,202,522Average
      interest rate
            
            
            9.64
            %
            
            
            9.07
            %
            
            
            9.30
            %
            
            
            9.10
            %
            
            
            9.63
            %
            
            
            9.25
            %
            
            
            9.41
            %Unsecured
      loans
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            617,373
            
            
            
            
            
            
            
            154,658
            
            
            
            772,031Average
      interest rate
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            0
            %
            
            
            
            
            
            
            0
            %
            
            
            0
            %





Unsecured
loans include three loans that have no stated rate of interest, for which the
Partnership is imputing interest.  One other loan, which has become
unsecured, with a coupon rate of 9.25% has been placed by the Partnership on
nonaccrual status.  As such, the average interest rate for unsecured
loans has been reflected at 0%.





18


Market
Risk.





The
Partnership may suffer market risk tied to general trends affecting real estate
values that may impact the Partnership’s security for its loans.  The
Partnership’s primary market risk in terms of its profitability is the exposure
to fluctuations in earnings resulting from fluctuations in general interest
rates.  The majority of the Partnership’s mortgage loans earn interest
at fixed rates.  Changes in interest rates may also affect the value
of the Partnership’s investment in mortgage loans and the rates at which the
Partnership reinvests funds obtained from loan repayments and new capital
contributions from limited partners.  If interest rates increase, the
interest rates the Partnership obtains from reinvested funds will generally
increase, but the value of the Partnership’s existing loans at fixed rates will
generally tend to decrease.  The risk is mitigated by the fact that
the Partnership does not intend to sell its loan portfolio, rather such loans
are held until they are paid off.  If interest rates decrease, the
amounts becoming available to the Partnership for investment due to repayment of
Partnership loans may be reinvested at lower rates than the Partnership had been
able to obtain in prior investments, or than the rates on the repaid
loans.  In addition, interest rate decreases may encourage borrowers
to refinance their loans with the Partnership at a time where the Partnership is
unable to reinvest in loans of comparable value.





The
Partnership does not hedge or otherwise seek to manage interest rate
risk.  The Partnership does not enter into risk sensitive instruments
for trading purposes.








PORTFOLIO
REVIEW – For the years ended December 31, 2007, 2006 and
2005.





Loan
Portfolio





The
Partnership’s loan portfolio consists primarily of short-term (one to five
years), fixed rate loans secured by real estate. As of December 31, 2007, 2006
and 2005, the Partnership’s loans secured by real property collateral in the
nine San Francisco Bay Area counties (San Francisco, San Mateo, Santa Clara,
Marin, Alameda, Sonoma, Napa, Solano and Contra Costa) represented $4,608,692
(74.30), $5,015,392 (80.65%), and $4,090,089 (75.07%), respectively, of the
outstanding secured loan portfolio. The majority of the remaining portfolio
represented loans secured by real estate located primarily in Northern
California.





The
following table sets forth the distribution of loans held by the Partnership by
property type for the years ended December 31:





2007
            
            2006
            
            2005





Single
      Family(1-4
      units)
            
            $
            2,613,022
            
            
            
            42.13
            %
            
            $
            2,850,592
            
            
            
            45.84
            %
            
            $
            2,944,330
            
            
            
            54.04
            %Apartments(over
      4 units)
            
            
            695,625
            
            
            
            11.21
            %
            
            
            687,500
            
            
            
            11.05
            %
            
            
            570,000
            
            
            
            10.46
            %Commercial
            
            
            2,475,890
            
            
            
            39.92
            %
            
            
            1,774,528
            
            
            
            28.54
            %
            
            
            1,487,019
            
            
            
            27.29
            %Land
            
            
            417,985
            
            
            
            6.74
            %
            
            
            905,819
            
            
            
            14.57
            %
            
            
            447,052
            
            
            
            8.21
            %Total
            
            $
            6,202,522
            
            
            
            100.00
            %
            
            $
            6,218,439
            
            
            
            100.00
            %
            
            $
            5,448,401
            
            
            
            100.00
            %





19


The
following table sets forth the priorities, asset concentrations and maturities
of the 25 loans secured by deeds of trust, held by the Partnership as of
December 31, 2007.





PRIORITIES,
ASSET CONCENTRATIONS AND MATURITIES OF SECURED LOANS


As
of December 31, 2007




#
      of Loans
            
            
            Amount
            
            
            Percent1st
      Mortgages
            
            
            20
            
            
            $
            5,046,885
            
            
            
            81.37
            %2nd
      Mortgages
            
            
            4
            
            
            
            1,065,972
            
            
            
            17.19
            %3rd
      Mortgages
            
            
            1
            
            
            
            89,665
            
            
            
            1.44
            %Total
            
            
            25
            
            
            $
            6,202,522
            
            
            
            100.00
            %Maturing
      in 2008
            
            
            8
            
            
            $
            1,786,947
            
            
            
            28.81
            %Maturing
      in 2009
            
            
            4
            
            
            
            1,118,665
            
            
            
            18.04
            %Maturing
      in 2010
            
            
            4
            
            
            
            1,205,775
            
            
            
            19.44
            %Maturing
      after 12/31/10
            
            
            9
            
            
            
            2,091,135
            
            
            
            33.71
            %Total
            
            
            25
            
            
            $
            6,202,522
            
            
            
            100.00
            %Average
      Secured Loan
            
            
            
            
            
            $
            248,101
            
            
            
            4.00
            %Largest
      Secured Loan
            
            
            
            
            
            
            500,000
            
            
            
            8.06
            %Smallest
      Secured Loan
            
            
            
            
            
            
            89,666
            
            
            
            1.45
            %Average
      Loan-to-Value based upon appraisalsand
      prior liens at time of loan
            
            
            
            
            
            
            
            
            
            
            59.69
            %





At
December 31, 2007 and 2006, the Partnership had unsecured loans totaling
$772,031 and $714,659, respectively.  Three of the loans are
non-interest bearing and are due in monthly installments of $2,647 through
various maturities.  These monthly payments escalate at various times
through the loan maturity date.  Interest has been imputed on these
loans at interest rates for comparable loans made during the same
periods.  During 2006, a loan in the amount of $571,494 became
unsecured.  The Partnership has placed the loan on non-accrual
status.  The Partnership is pursuing collection efforts against the
borrower for the entire amount of outstanding principal and past due
interest.  The general partners have established an allowance for loan
losses for its unsecured loans as a protection against amounts that may
ultimately prove uncollectible.





ASSET
QUALITY





A
consequence of lending activities is occasionally losses will be experienced and
the amount of such losses will vary from time to time, depending upon the risk
characteristics of the loan portfolio as affected by economic conditions and the
financial experiences of borrowers.  Many of these factors are beyond
the control of the general partners.  There is no precise method of
predicting specific losses or amounts that ultimately may be charged off on
particular segments of the loan portfolio, especially in light of the current
economic environment.





The
conclusion a loan may become uncollectible, in whole or in part, is a matter of
judgment.  Although institutional lenders are subject to requirements
and regulations that, among other things, require them to perform ongoing
analyses of their portfolios, loan-to-value ratios, reserves, etc., and to
obtain and maintain current information regarding their borrowers and the
securing properties, the Partnership is not subject to these regulations and has
not adopted certain of these practices.





Instead,
the general partners, in connection with the periodic closing of the accounting
records of the Partnership and the preparation of the financial statements,
determine whether the allowance for loan losses is adequate to cover potential
loan losses of the Partnership.  As of December 31, 2007, the general
partners have determined the allowance for loan losses and real estate held of
$548,632 (5.92% of partners’ capital) is adequate in amount.  Because
of the number of variables involved, the magnitude of the swings possible and
the general partners’ inability to control many of these factors, actual results
may and do sometimes differ significantly from estimates made by the general
partners.  As of December 31, 2007, three secured loans were
delinquent 90 days or more in payment of interest with outstanding principal of
$476,870.





The
Partnership may make loans requiring periodic disbursements of
funds.  As of December 31, 2007, there were no such
loans.  These loans include ground up construction of buildings and
loans for rehabilitation of existing structures.  Interest on such
loans is computed at simple interest method and only on the amounts disbursed on
a daily basis.





20


Item 8 – Financial
Statements and Supplementary Data





A
– Financial Statements





The
following financial statements of Redwood Mortgage Investors VII are included in
Item 8:





·
            Report
      of Independent Registered Public Accounting Firm·
            Balance
      Sheets - December 31, 2007 and December 31, 2006·
            Statements
      of Income for the years ended December 31, 2007, 2006 and
    2005·
            Statements
      of Changes in Partners’ Capital for the years ended December 31, 2007,
      2006 and 2005·
            Statements
      of Cash Flows for the years ended December 31, 2007, 2006 and
      2005·
            Notes
      to Financial Statements





B
– Financial Statement Schedules





The
following financial statement schedules of Redwood Mortgage Inventors VII are
included in Item 8.





·
            Schedule
      II  - Valuation and Qualifying Accounts·
            Schedule
      IV - Mortgage Loans on Real Estate





All other
schedules for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.


21




















REDWOOD MORTGAGE INVESTORS
VII


(A CALIFORNIA LIMITED
PARTNERSHIP)


FINANCIAL
STATEMENTS


AND SUPPLEMENTAL
INFORMATION


AS OF DECEMBER 31, 2007 AND
2006


AND FOR EACH OF THE THREE
YEARS


IN THE PERIOD ENDED DECEMBER
31, 2007








22














TABLE OF
CONTENTS








Page
      No.Report
      of Independent Registered Public Accounting Firm
            
            24Balance
      Sheets
            
            25Statements
      of Income
            
            26Statements
      of Changes in Partners’ Capital
            
            27Statements
      of Cash Flows
            
            28Notes
      to Financial Statements
            
            29Supplemental
      SchedulesSchedule
      II -  Valuation and Qualifying Accounts
            
            44Schedule
      IV - Mortgage Loans on Real EstateRule
      12-29 Loans on Real Estate
            
            45





23












REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM








To the
Partners


Redwood
Mortgage Investors VII


Redwood
City, California





We have
audited the accompanying balance sheets of Redwood Mortgage Investors VII (a
California limited partnership) as of December 31, 2007 and 2006 and the related
statements of income, changes in partners’ capital and cash flows for each of
the three years in the period ended December 31, 2006. These financial
statements are the responsibility of Redwood Mortgage Investors VII’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. Redwood Mortgage
Investors VII is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of Redwood
Mortgage Investors VII’s internal control over financial reporting. Accordingly,
we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Redwood Mortgage Investors VII as
of December 31, 2007 and 2006 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2007 in
conformity with accounting principles generally accepted in the United States of
America.





Our
audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedules II and IV are presented for
purposes of additional analysis and are not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.








ARMANINO
McKENNA  LLP


San
Ramon, California


March 28,
2008


24


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Balance
Sheets


December
31, 2007 and 2006








ASSETS





2007
            
            
            
            2006Cash
      and cash equivalents
            
            $
            351,129
            
            
            $
            584,114LoansLoans
      secured by deeds of trust
            
            
            6,202,522
            
            
            
            6,218,439Loans,
      unsecured, net of discount of $57,577 and$65,802
      in 2007 and 2006, respectively
            
            
            772,031
            
            
            
            714,659Allowance
      for loan losses
            
            
            (386,658
            )
            
            
            (454,417
            )Net
      loans
            
            
            6,587,895
            
            
            
            6,478,681Interest
      and other receivablesRelated
      party receivables
            
            
            20,702
            
            
            
            20,634Accrued
      interest and late fees
            
            
            73,259
            
            
            
            67,754Advances
      on loans
            
            
            6,436
            
            
            
            —Total
      interest and other receivables
            
            
            100,397
            
            
            
            88,388Investment
      in limited liability company
            
            
            939,937
            
            
            
            875,408Real
      estate held, net
            
            
            1,371,401
            
            
            
            1,371,401Total
      assets
            
            $
            9,350,759
            
            
            $
            9,397,992








LIABILITIES AND PARTNERS’
CAPITAL




LiabilitiesAccounts
      payable
            
            $
            11,865
            
            
            $
            —Payable
      to affiliate
            
            
            71,998
            
            
            
            71,998Total
      liabilities
            
            
            83,863
            
            
            
            71,998Partners’
      capitalLimited
      partners’ capital, subject to redemption
            
            
            9,254,923
            
            
            
            9,314,021General
      partners’ capital
            
            
            11,973
            
            
            
            11,973Total
      partners’ capital
            
            
            9,266,896
            
            
            
            9,325,994Total
      liabilities and partners’ capital
            
            $
            9,350,759
            
            
            $
            9,397,992











The
accompanying notes are an integral part of these financial
statements.





25


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Statements
of Income


For
the Years Ended December 31, 2007, 2006 and 2005







2007
            
            
            
            2006
            
            
            
            2005RevenuesInterest
      on loans
            
            $
            559,305
            
            
            $
            543,039
            
            
            $
            673,124Interest-interest
      bearing accounts
            
            
            26,186
            
            
            
            25,930
            
            
            
            3,068Late
      fees
            
            
            3,506
            
            
            
            6,244
            
            
            
            10,903Other
            
            
            11,076
            
            
            
            6,071
            
            
            
            4,290600,073
            
            
            
            581,284
            
            
            
            691,385ExpensesMortgage
      servicing fees
            
            
            —
            
            
            
            —
            
            
            
            68,906Interest
      expense
            
            
            —
            
            
            
            1,068
            
            
            
            693Clerical
      costs from Redwood Mortgage Corp.
            
            
            10,754
            
            
            
            12,299
            
            
            
            13,663Asset
      management fees
            
            
            2,922
            
            
            
            8,748
            
            
            
            34,512Recovery
      of losses on loansand
      real estate held
            
            
            (21,122
            )
            
            
            (49,102
            )
            
            
            (49,745
            )Professional
      services
            
            
            66,168
            
            
            
            61,186
            
            
            
            50,220Other
            
            
            35,914
            
            
            
            41,701
            
            
            
            35,58194,636
            
            
            
            75,900
            
            
            
            153,830Net
      income
            
            $
            505,437
            
            
            $
            505,384
            
            
            $
            537,555Net
      incomeGeneral
      partners (1%)
            
            $
            5,050
            
            
            $
            5,054
            
            
            $
            5,376Limited
      partners (99%)
            
            
            500,387
            
            
            
            500,330
            
            
            
            532,179$
            505,437
            
            
            $
            505,384
            
            
            $
            537,555Net
      income per $1,000 invested by limited partnersfor
      entire periodWhere
      income is reinvested
            
            $
            55
            
            
            $
            55
            
            
            $
            59Where
      partner receives incomein
      monthly distributions
            
            $
            54
            
            
            $
            54
            
            
            $
            58











The
accompanying notes are an integral part of these financial
statements.


26


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Statements
of Changes in Partners’ Capital


For
the Years Ended December 31, 2007, 2006 and 2005







Limited
            
            
            General
            
            
            TotalPartners’
            
            
            Partners’
            
            
            Partners’Capital
            
            
            Capital
            
            
            CapitalBalances
      at December 31, 2004
            
            $
            9,116,443
            
            
            $
            11,973
            
            
            $
            9,128,416Net
      income
            
            
            532,179
            
            
            
            5,376
            
            
            
            537,555Early
      withdrawal penalties
            
            
            (2,014
            )
            
            
            —
            
            
            
            (2,014
            )Partners’
      withdrawals
            
            
            (376,365
            )
            
            
            (5,376
            )
            
            
            (381,741
            )Balances
      at December 31, 2005
            
            
            9,270,243
            
            
            
            11,973
            
            
            
            9,282,216Net
      income
            
            
            500,330
            
            
            
            5,054
            
            
            
            505,384Early
      withdrawal penalties
            
            
            (4,744
            )
            
            
            —
            
            
            
            (4,744
            )Partners’
      withdrawals
            
            
            (451,808
            )
            
            
            (5,054
            )
            
            
            (456,862
            )Balances
      at December 31, 2006
            
            
            9,314,021
            
            
            
            11,973
            
            
            
            9,325,994Net
      income
            
            
            500,387
            
            
            
            5,050
            
            
            
            505,437Early
      withdrawal penalties
            
            
            (4,459
            )
            
            
            —
            
            
            
            (4,459
            )Partners’
      withdrawals
            
            
            (555,026
            )
            
            
            (5,050
            )
            
            
            (560,076
            )Balances
      at December 31, 2007
            
            $
            9,254,923
            
            
            $
            11,973
            
            
            $
            9,266,896











The
accompanying notes are an integral part of these financial
statements.


27


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Statements
of Cash Flows


For
the Years Ended December 31, 2007, 2006 and 2005




2007
            
            
            2006
            
            
            
            2005Cash
      flows from operating activitiesNet
      income
            $
            505,437
            
            $
            505,384
            
            
            $
            537,555Adjustments
      to reconcile net income tonet
      cash provided by operating activitiesProvisions
      for (recovery of) losses on loansand
      real estate
            
            (21,122
            )
            
            (49,102
            )
            
            
            (49,745
            )Early
      withdrawal penalty credited to income
            
            (4,459
            )
            
            (4,744
            )
            
            
            (2,014
            )Amortization
      of discount on unsecured loans
            
            (8,225
            )
            
            (6,169
            )
            
            
            (35,462
            )Change
      in operating assets and liabilitiesLoans
      unsecured
            
            (49,147
            )
            
            22,186
            
            
            
            83,391Accrued
      interest and late fees
            
            (39,244
            )
            
            (38,195
            )
            
            
            76,379Advances
      on loans
            
            (6,834
            )
            
            (2,379
            )
            
            
            2,654Related
      party receivable
            
            (68
            )
            
            (20,634
            )
            
            
            —Accounts
      payable
            
            11,865
            
            
            —
            
            
            
            (4,951
            )Payable
      to affiliate
            
            —
            
            
            —
            
            
            
            (2,989
            )Net
      cash provided by operating activities
            
            388,203
            
            
            406,347
            
            
            
            604,818Cash
      flows from investing activitiesPrincipal
      collected on loans
            
            1,764,863
            
            
            3,380,178
            
            
            
            5,023,486Loans
      originated
            
            (1,761,446
            )
            
            (4,459,946
            )
            
            
            (3,859,637
            )Payments
      for real estate
            
            —
            
            
            —
            
            
            
            (54,472
            )Proceeds
      from disposition of real estate
            
            —
            
            
            79,780
            
            
            
            —Payments
      on investment in limited liability company
            
            (64,529
            )
            
            (27,083
            )
            
            
            (51,463
            )Proceeds
      from investment in limited liability company
            
            —
            
            
            34,316
            
            
            
            —Net
      cash provided by (used in) investing activities
            
            (61,112
            )
            
            (992,755
            )
            
            
            1,057,914Cash
      flows from financing activitiesPartners’
      withdrawals
            
            (560,076
            )
            
            (456,862
            )
            
            
            (381,741
            )Net
      cash used in financing activities
            
            (560,076
            )
            
            (456,862
            )
            
            
            (381,741
            )Net
      increase (decrease) in cash and cash equivalents
            
            (232,985
            )
            
            (1,043,270
            )
            
            
            1,280,991Cash
      and cash equivalents at beginning of year
            
            584,114
            
            
            1,627,384
            
            
            
            346,393Cash
      and cash equivalents at end of year
            $
            351,129
            
            $
            584,114
            
            
            $
            1,627,384Supplemental
      disclosures of cash flow informationCash
      payments for interest
            $
            —
            
            $
            1,068
            
            
            $
            693





The
accompanying notes are an integral part of these financial
statements.





28


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








1.
            Organization and
      General





Redwood
Mortgage Investors VII, (the “Partnership”) is a California Limited Partnership
organized on June 30, 1989.  The general partners are Michael R.
Burwell, an individual, and Gymno Corporation, a California corporation whose
stockholders are Michael R. Burwell and two trusts both of whose trustee is
Michael R. Burwell.  The Partnership was organized to engage in
business as a mortgage lender for the primary purpose of making loans secured by
deeds of trust on California real estate.  Loans are being arranged
and serviced by Redwood Mortgage Corp., an affiliate of the general
partners.





Term of the
Partnership





The
Partnership is scheduled to terminate on December 31, 2029, unless sooner
terminated as provided in the Partnership Agreement.








2.
            Summary of Significant
      Accounting Policies





Management
estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions about the reported amounts of assets and liabilities,
and disclosures of contingent assets and liabilities, at the dates of the
financial statements and the reported amounts of revenues and expenses during
the reported periods.  Such estimates relate principally to the
determination of the allowance for loan losses, including the valuation of
impaired loans and the valuation of real estate held for sale. Actual results
could differ significantly from these estimates.





Loans, secured by deeds of
trust





Loans
generally are stated at their outstanding unpaid principal balance with interest
thereon being accrued as earned.





If the
probable ultimate recovery of the carrying amount of a loan, with due
consideration for the fair value of collateral, is less than amounts due
according to the contractual terms of the loan agreement, and the shortfall in
the amounts due are not insignificant, the carrying amount of the loan is
reduced to the present value of future cash flows discounted at the loan’s
effective interest rate.  If a loan is collateral dependent, it is
valued at the estimated fair value of the related collateral.


29


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








2.
            Summary of Significant
      Accounting Policies
(continued)





Loans, secured by deeds of
trust (continued)





If events
and or changes in circumstances cause management to have serious doubts about
the further collectibility of the contractual payments, a loan may be
categorized as impaired and interest is no longer accrued.  Any
subsequent payments on impaired loans are applied to reduce the outstanding loan
balances including accrued interest and advances.  At December 31,
2007 and 2006, there was one unsecured loan totaling $639,338 and $571,494,
respectively, that was considered impaired by the Partnership.  At
December 31, 2005, there were no loans categorized as impaired by the
Partnership.  The average recorded investment in impaired loans was
$319,669 and $285,747 for December 31, 2007 and 2006, respectively.





At
December 31, 2007 and 2006, the Partnership had three and two secured loans past
maturity or past due 90 days or more totaling $476,870 and $737,500,
respectively.  In addition, accrued interest and advances on these
secured loans totaled $17,788 and $26,250 at December 31, 2007 and 2006,
respectively.  The Partnership does not consider any of these secured
loans to be impaired because there is sufficient collateral to cover the amount
outstanding to the Partnership and is still accruing interest on these
loans.  At December 31, 2007 and 2006, as presented in Note 11, the
average loan to appraised value of security based upon appraised values and
prior indebtedness at the time the loans were consummated was 59.69% and 61.62%,
respectively.  When loans are considered impaired, the allowance is
updated to reflect the change in the valuation of collateral
security.  However, a low loan to value ratio has the tendency to
minimize reductions for impairment.





Allowance for loan
losses







Loans and
the related accrued interest, late fees and advances are analyzed on a periodic
basis for recoverability.  Delinquencies are identified and followed
as part of the loan system.  Delinquencies are determined based upon
contractual terms.  A provision is made for loan losses to adjust the
allowance for loan losses to an amount considered by management to be adequate,
with due consideration to collateral value, to provide for unrecoverable loans
and receivables, including impaired loans, other loans, accrued interest, late
fees and advances on loans and other accounts receivable.  The
Partnership charges off uncollectible loans and related receivables directly to
the allowance account once it is determined the full amount is not
collectible.




30


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








2.          Summary of Significant
Accounting Policies (continued)





Allowance for loan losses
(continued)





The
composition of the allowance for loan losses was as follows:





December
      31,
            
            
            December
      31,2007
            
            
            2006Amount
            
            
            Percent
      of loans in each category to total loans
            
            
            Amount
            
            
            Percent
      of loans in each category to total loansBalance
      at End of YearApplicable
      to:DomesticReal
      estate – mortgageSingle
      family (1-4 units)
            
            $
            58,262
            
            
            
            42.13
            %
            
            $
            68,548
            
            
            
            45.84
            %Apartments
            
            
            10,217
            
            
            
            11.21
            %
            
            
            10,156
            
            
            
            11.05
            %Commercial
            
            
            41,701
            
            
            
            39.92
            %
            
            
            37,182
            
            
            
            28.54
            %Land
            
            
            27,832
            
            
            
            6.74
            %
            
            
            52,492
            
            
            
            14.57
            %Total
      real estate mortgage
            
            $
            138,012
            
            
            
            100.00
            %
            
            $
            168,378
            
            
            
            100.00
            %Unsecured
            
            
            248,646
            
            
            
            100.00
            %
            
            
            286,039
            
            
            
            100.00
            %Total
      unsecured
            
            $
            248,646
            
            
            
            100.00
            %
            
            $
            286,039
            
            
            
            100.00
            %Total
      allowance for loan losses
            
            $
            386,658
            
            
            
            100.00
            %
            
            $
            454,417
            
            
            
            100.00
            %





31


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








2.          Summary of Significant
Accounting Policies (continued)





Allowance for loan losses
(continued)





Activity
in the allowance for loan losses is as follows:





Years
      Ended December 31,




2007
            
            
            
            2006
            
            
            
            2005Balance
      at beginning of year
            
            $
            454,417
            
            
            $
            700,536
            
            
            $
            745,476Charge-offsDomesticReal
      estate – mortgageSingle
      family (1-4 units)
            
            
            —
            
            
            
            —
            
            
            
            —Apartments
            
            
            —
            
            
            
            —
            
            
            
            —Commercial
            
            
            —
            
            
            
            (6,707
            )
            
            
            (28,568
            )Land
            
            
            (46,637
            )
            
            
            —
            
            
            
            —(46,637
            )
            
            
            (6,707
            )
            
            
            (28,568
            )RecoveriesDomesticReal
      estate – mortgageSingle
      family (1-4 units)
            
            
            —
            
            
            
            —
            
            
            
            —Apartments
            
            
            —
            
            
            
            —
            
            
            
            —Commercial
            
            
            —
            
            
            
            —
            
            
            
            —Land
            
            
            —
            
            
            
            —
            
            
            
            —Net
      charge-offs
            
            
            (46,637
            )
            
            
            (6,707
            )
            
            
            (28,568
            )Additions
      (recovery) charge to operations
            
            
            (21,122
            )
            
            
            (49,102
            )
            
            
            (16,372
            )Transfer
      to real estate held reserve
            
            
            —
            
            
            
            (190,310
            )
            
            
            —Balance
      at end of year
            
            $
            386,658
            
            
            $
            454,417
            
            
            $
            700,536Ratio
      of net charge-offs during the periodto
      average secured loans outstandingduring
      the period
            
            
            0.75
            %
            
            
            0.11
            %
            
            
            0.45
            %





32


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








2.          Summary of Significant
Accounting Policies (continued)





Cash and cash
equivalents





The
Partnership considers all highly liquid financial instruments with maturities of
three months or less at the time of purchase to be cash
equivalents.  Periodically, Partnership cash balances exceed federally
insured limits.






Real estate
held





Real
estate held includes real estate acquired through foreclosure and is stated at
the lower of the recorded investment in the loan, plus any senior indebtedness,
or at the property’s estimated fair value, less estimated costs to
sell.





The
Partnership periodically compares the carrying value of real estate to expected
future undiscounted cash flows for the purpose of assessing the recoverability
of the recorded amounts.  If the carrying value exceeds future
undiscounted cash flows, the assets are reduced to fair value.  During
2006, the Partnership transferred $190,310 from the allowance for loan losses to
the allowance for losses on real estate held.





Investment in limited
liability company





Investment
in limited liability company is accounted for using the equity
method.  In 2007, the Company had an 8% interest in the Larkin Street
Property Company, LLC (see Note 6).





Income
taxes





No
provision for federal and state income taxes (other than an $800 state minimum
tax) is made in the financial statements since income taxes are the obligation
of the partners if and when income taxes apply.





Net income per $1,000
invested





Amounts
reflected in the statements of income as net income per $1,000 invested by
limited partners for the entire period are amounts allocated to limited partners
who had their investment throughout the period and have elected to either leave
their earnings to compound or have elected to receive periodic distributions of
their net income.  Individual income is allocated each month based on
the limited partners’ pro rata share of partners’ capital.  Because
the net income percentage varies from month to month, amounts per $1,000 will
vary for those individuals who made or withdrew investments during the period,
or select other options.





33


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








2.
            Summary of Significant
      Accounting Policies
(continued)





Late fee
revenue





Late fees
are generally charged at 6% of the monthly installment payment past
due.  During 2007, 2006 and 2005, late fee revenue of $3,506, $6,244
and $10,903, respectively, was recorded.  The Partnership has a late
fee receivable at December 31, 2007 and 2006 of $1,352 and $1,597,
respectively.





Recently issued accounting
pronouncements





In March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets, an amendment of FASB Statement No. 140” (SFAS 156), which permits,
but does not require, an entity to account for one or more classes of servicing
rights (i.e., mortgage servicing rights) at fair value, with the changes in fair
value recorded in the statement of income. SFAS 156 is effective in the first
quarter of 2007.  The adoption of SFAS 156 is not expected to have a
material impact on the Partnership’s financial condition and results of
operations.







On
September 15, 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework
for measuring fair value under GAAP and enhances disclosures about fair value
measurements.  SFAS 157 defines fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement
date.  SFAS 157 is effective for the Partnership’s financial
statements issued for the year beginning on January 1, 2008, with earlier
adoption permitted.  Management is currently evaluating the impact and
timing of the adoption of SFAS 157 on the Partnership’s financial condition and
results of operations.






On
February 15, 2007, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (SFAS 159), which allows
an entity the irrevocable option to elect fair value for the initial and
subsequent measurement for certain financial assets and liabilities on a
contract-by-contract basis.  Subsequent changes in fair value of these
financial assets and liabilities would be recognized in earnings when they
occur.  SFAS 159 further establishes certain additional disclosure
requirements.  SFAS 159 is effective for the Partnership’s financial
statements for the year beginning on January 1, 2008, with earlier adoption
permitted.  Management is currently evaluating the impact and timing
of the adoption of SFAS 159 on the Partnership’s financial condition and results
of operations.






In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51” (SFAS
160).  SFAS 160’s objective is to improve the relevance,
comparability, and transparency of the financial information a reporting entity
provides in its consolidated financial statements by establishing accounting and
reporting standards for the noncontrolling interest in a
subsidiary.  SFAS 160 is effective for fiscal years beginning on or
after December 15, 2008, along with the interim periods within those fiscal
years.  Early adoption is prohibited.  Management is
currently evaluating the impact and timing of the adoption of SFAS 160 on the
Partnership’s financial condition.






On
July 13, 2006, the FASB released FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109” (FIN 48).  FIN 48 clarifies the accounting and reporting
for income taxes where interpretation of the tax law may be
uncertain.  FIN 48 prescribes a comprehensive model for the financial
statement recognition, measurement, presentation and disclosure of income tax
uncertainties with respect to positions taken or expected to be taken in income
tax returns.  The Partnership adopted FIN 48 in the first quarter of
2007.  The adoption of FIN 48 did not have a material impact on the
Partnership’s financial condition and results of operations.











34


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








2.
            Summary of Significant
      Accounting Policies
(continued)




Recently issued accounting
pronouncements (continued)




On
September 13, 2006, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 108 “Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements” (SAB 108).  SAB 108 expresses the SEC Staff’s views
regarding the process of quantifying financial statement
misstatements.  SAB 108 states that in evaluating the materiality of
financial statement misstatements, an entity must quantify the impact of
correcting misstatements, including both the carryover and reversing effects of
prior year misstatements, on the current year financial
statements.  SAB 108 is effective for the year ended December 31,
2006.  The application of SAB 108 did not have an impact on the
Partnership’s financial condition and results of operations.









3.
            Other Partnership
      Provisions





The
Partnership is a California Limited Partnership.  The rights, duties
and powers of the general and limited partners of the Partnership are governed
by the limited partnership agreement and Sections 15611 et seq. of the
California Corporations Code.





The
general partners are in complete control of the Partnership business, subject to
the voting rights of the limited partners on specified matters.  Any
one of the general partners acting alone has the power and authority to act for
and bind the Partnership.





A
majority of the outstanding limited partnership interests may, without the
permission of the general partners, vote to: (i) terminate the Partnership, (ii)
amend the limited partnership agreement, (iii) approve or disapprove the sale of
all or substantially all of the assets of the Partnership and (iv) remove or
replace one or all of the general partners.





The
approval of the majority of limited partners is required to elect a new general
partner to continue the Partnership business where there is no remaining general
partner after a general partner ceases to be a general partner other than by
removal.





Election to receive
      monthly, quarterly or annual
  distributions





At
      subscription, investors elected either to receive monthly, quarterly or
      annual distributions of earnings allocations, or to allow earnings to
      compound.  Subject to certain limitations, a compounding
      investor may subsequently change his election, but an investor’s election
      to have cash distributions is
irrevocable.





Profits and
losses





Profits
and losses are allocated among the limited partners according to their
respective capital accounts monthly after 1% of the profits and losses are
allocated to the general partners.








35


REDWOOD
      MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








3.          Other Partnership Provisions
(continued)





Liquidity, capital
withdrawals and early withdrawals





There are
substantial restrictions on transferability of Partnership units and accordingly
an investment in the Partnership is non- liquid.  Limited partners
have no right to withdraw from the Partnership or to obtain the return of their
capital account for at least one year from the date of purchase of
units.





In order
to provide a certain degree of liquidity to the limited partners after the
one-year period, limited partners may withdraw all or part of their capital
accounts from the Partnership in four quarterly installments beginning on the
last day of the calendar quarter following the quarter in which the notice of
withdrawal is given, subject to a 10% early withdrawal penalty.  The
10% penalty is applicable to the amount withdrawn early and will be deducted
from the capital account.





After
five years from the date of purchase of the units, limited partners have the
right to withdraw from the Partnership, on an installment
basis.  Generally this is done over a five-year period in twenty
quarterly installments.  Once a limited partner has been in the
Partnership for the minimum five-year period, no penalty will be imposed if
withdrawal is made in twenty quarterly installments or
longer.  Notwithstanding the five-year (or longer) withdrawal period,
the general partners may liquidate all or part of a limited partner’s capital
account in four quarterly installments beginning on the last day of the calendar
quarter following the quarter in which the notice of withdrawal is
given.  This withdrawal is subject to a 10% early withdrawal penalty
applicable to any sums withdrawn prior to the time when such sums could have
been withdrawn without penalty.





The
Partnership will not establish a reserve from which to fund withdrawals and,
accordingly, the Partnership’s capacity to return a limited partner’s capital
account is restricted to the availability of Partnership cash
flow.  Furthermore, no more than 20% of the total limited partners’
capital accounts outstanding at the beginning of any year, shall be liquidated
during any calendar year.








4.
            General Partners and
      Related Parties





The
following commissions and fees are paid to the general partners and
affiliates:





Mortgage brokerage
commissions





For fees
in connection with the review, selection, evaluation, negotiation and extension
of loans, an affiliate of the general partners may collect an amount not to
exceed 4% of the total Partnership assets per year.  The loan
brokerage commissions are paid by the borrowers and thus, are not an expense of
the Partnership.  During 2007, 2006 and 2005, loan brokerage
commissions paid by the borrowers to Redwood Mortgage Corp. were $52,150,
$97,358, and $137,913, respectively.





36


REDWOOD
      MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








4.
            General Partners and
      Related Parties (continued)





Mortgage servicing
fees





Monthly
mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the unpaid principal
are paid to Redwood Mortgage Corp., an affiliate of the general partners, based
on the unpaid principal balance of the loan portfolio, or such lesser amount as
is reasonable and customary in the geographic area where the property securing
the mortgage is located.  Once a loan is categorized as impaired,
mortgage servicing fees are no longer accrued.  Additional service
fees are recorded upon the receipt of any subsequent payments on impaired
loans.  Mortgage servicing fees of $68,906 were incurred for
2005.  During 2007 and 2006, Redwood Mortgage Corp. waived $55,312 and
$56,647, respectively, of mortgage servicing fees.  The Partnership
has a payable to Redwood Mortgage Corp. for servicing fees of $71,998 at
December 31, 2007 and 2006.





Asset management
fee





The
general partners receive monthly fees for managing the Partnership’s loan
portfolio and operations of up to 1/32 of 1% of the “net asset value” (3/8 of 1%
annually).  Asset management fees of $2,922, $8,748 and $34,512 were
incurred for 2007, 2006 and 2005, respectively.  During 2007 and 2006,
the general partners waived $32,042 and $26,208 of asset management fees,
respectively.





Other
fees





The
Partnership Agreement provides for other fees such as reconveyance, mortgage
assumption and mortgage extension fees. Such fees are incurred by the borrowers
and are paid to the general partners or affiliates.





Operating
expenses





The
Partnership receives certain operating and administrative services from Redwood
Mortgage Corp.  Redwood Mortgage Corp may be reimbursed by the
Partnership for operating expenses incurred on behalf of the Partnership,
including without limitation, out-of-pocket general and administration expenses
of the Partnership, accounting and audit fees, legal fees and expenses, and
postage and preparation of reports to limited partners.  During 2007,
2006 and 2005, operating expenses totaling $10,754, $12,299 and $13,663,
respectively, were reimbursed to Redwood Mortgage Corp.  To the extent
some operating and administrative services were not reimbursed, the financial
position and results of Partnership operation may be different.








5.
            Real Estate
      Held





In
December 2004, the Partnership acquired land through a deed in lieu of
foreclosure.  At that date, the Partnership’s investment totaled
$1,752,836 including accrued interest and advances.  During 2006,
management established a $190,310 reserve against this property to reduce the
carrying amount to management’s estimate of the ultimate net realizable value of
the property.  One parcel was sold during 2006 for
$336,652.  The partnership incurred a loss on this sale of $28,336,
which was fully reserved.  At December 31, 2007, the partnership’s
total investment in this property was $1,470,655, less a remaining reserve of
$161,974.





During
1993, the Partnership acquired land through foreclosure.  Management
believes the full amount of the Partnership’s investment, $62,720 at December
31, 2007, will be recovered based on its current estimate of the property’s fair
value.





37


REDWOOD
      MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








5.
            Real Estate Held
      (continued)





The
following schedule reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, including
estimated costs to sell as of December 31, 2007 and 2006:




2007
            
            
            
            2006Costs
      of properties
            
            $
            1,533,375
            
            
            $
            1,533,375Reduction
      in value
            
            
            (161,974
            )
            
            
            (161,974
            )Real
      estate held for sale, net
            
            $
            1,371,401
            
            
            $
            1,371,401








6.
            Investment in Limited
      Liability Company





As a
result of acquiring real properties through foreclosure, the Partnership
transferred its interests (principally land and building) to a limited liability
company, Larkin Street Property Company, LLC (“Larkin”).





Larkin
was created during 2005.  It is owned 8% by the Partnership and 92% by
affiliates.  The property is under development and development costs
were capitalized.  No income or expense was recognized by Larkin
during 2007 and 2006.









7.
            Bank Line of
      Credit





The
Partnership had a bank line of credit secured by its loan portfolio of up to
$2,500,000 at .25% over prime.  This credit facility was terminated in
2007.








8.
            Income
      Taxes





The
following reflects a reconciliation of partners’ capital reflected in the
financial statements to the tax basis of the Partnership capital:




2007
            
            
            
            2006Partners’
      capital per financial statements
            
            $
            9,266,896
            
            
            $
            9,325,994Allowance
      for loan losses
            
            
            386,658
            
            
            
            454,417Allowance
      for real estate losses
            
            
            161,974
            
            
            
            161,974Partners’
      capital tax basis
            
            $
            9,815,528
            
            
            $
            9,942,385





In 2007
and 2006, approximately 71% and 67%, respectively, of taxable income was
allocated to tax-exempt organizations (i.e., retirement plans).


38


REDWOOD
      MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








9.
            Fair Value of
      Financial Instruments





The
      following methods and assumptions were used to estimate the fair value of
      financial instruments:





(a)
            Cash
      and cash equivalents - The carrying amount equals fair
      value.  All amounts, including interest bearing, are subject to
      immediate withdrawal.





(b)
            Secured
      loans had a carrying value of $6,202,522 and $6,218,439 at December 31,
      2007 and 2006, respectively.  The fair value of these loans of
      $6,206,237 and $6,203,160, respectively, was estimated based upon
      projected cash flows discounted at the estimated current interest rates at
      which similar loans would be made.  The applicable amount of the
      allowance for loan losses along with accrued interest and advances related
      thereto should also be considered in evaluating the fair value versus the
      carrying value.





(c)
            Unsecured
      loans carrying value was $772,031 and $714,659 at December 31, 2007 and
      2006, respectively.  The fair value of these loans approximates
      their carrying value after consideration of the allowance for loan losses
      established by the general partners on these
  loans.








10.
            Non-cash
      Transactions





In 2007 a
loan was settled from the sale of the secured property.  The sales
proceeds were insufficient to satisfy the total loan principal balance advances,
accrued interest and late charges.  The total shortfall of $46,637 was
charged against the allowance for loan losses.





During
2006, a previously secured loan became unsecured which resulted in a decrease to
secured loans, advances and accrued interest of $531,559, $2,385 and $34,745,
respectively, and an increase to unsecured loans of $568,689.





During
2006, a previous real estate owned property was sold with the Partnership
providing financing.  This resulted in a decrease to real estate owned
and allowance for real estate held for sale of $256,873 and $28,336,
respectively and an increase to secured loans of $228,536.





During
2005, the Partnership foreclosed on property (see Note 6), which resulted in an
increase in investment in limited liability company of $831,178 and a decrease
in secured loans, accrued interest and advances of $776,228, $49,422 and $5,528,
respectively.  In addition, an unsecured loan was written-off against
the allowance for loan losses in the amount of $28,568.





39


REDWOOD
      MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








11.
            Loan Concentrations
      and Characteristics









Most
      loans are secured by recorded deeds of trust. At December 31, 2007 and
      2006, there were 25 and 22 secured loans outstanding, respectively, with
      the following characteristics:





2007
            
            
            
            2006Number
      of secured loans outstanding
            
            
            25
            
            
            
            22Total
      secured loans outstanding
            
            $
            6,202,522
            
            
            $
            6,218,439Average
      secured loan outstanding
            
            $
            248,101
            
            
            $
            282,656Average
      secured loan as percent of total secured loans
            
            
            4.00
            %
            
            
            4.55
            %Average
      secured loan as percent of partners’ capital
            
            
            2.68
            %
            
            
            3.03
            %Largest
      secured loan outstanding
            
            $
            500,000
            
            
            $
            550,000Largest
      secured loan as percent of total secured loans
            
            
            8.06
            %
            
            
            8.84
            %Largest
      secured loan as percent of partners’ capital
            
            
            5.40
            %
            
            
            5.90
            %Largest
      secured loan as percent of total assets
            
            
            5.35
            %
            
            
            5.85
            %Number
      of counties where security is located (all California)
            
            
            15
            
            
            
            14Largest
      percentage of loans in one county
            
            
            31.37
            %
            
            
            25.53
            %Average
      secured loan to appraised value of security based onappraised
      values and prior liens at time loan was consummated
            
            
            59.69
            %
            
            
            61.62
            %Number
      of secured loans in foreclosure
            
            
            —
            
            
            
            —Amount
      of secured loans in foreclosure
            
            
            —
            
            
            
            —


40


REDWOOD
      MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








11.
            Loan Concentrations
      and Characteristics
(continued)





The
      following categories of secured loans were held at December 31, 2007 and
      2006:




2007
            
            
            
            2006First
      trust deeds
            
            $
            5,046,885
            
            
            $
            5,011,682Second
      trust deeds
            
            
            1,065,972
            
            
            
            1,206,757Third
      trust deeds
            
            
            89,665
            
            
            
            —Total
      loans
            
            
            6,202,522
            
            
            
            6,218,439Prior
      liens due other lenders at time of loan
            
            
            2,308,163
            
            
            
            2,560,514Total
      debt
            
            $
            8,510,685
            
            
            $
            8,778,953Appraised
      property value at time of loan
            
            $
            14,257,967
            
            
            $
            14,247,048Total
      debt as percent of appraisals
            
            
            59.69
            %
            
            
            61.62
            %Loans
      by type of propertySingle
      family (1-4 units)
            
            $
            2,613,022
            
            
            $
            2,850,592Apartments
            
            
            695,625
            
            
            
            687,500Commercial
            
            
            2,475,890
            
            
            
            1,774,528Land
            
            
            417,985
            
            
            
            905,819$
            6,202,522
            
            
            $
            6,218,439





The
      interest rates on these loans ranged from 7.00% to 11.00% at December 31,
      2007 and 2006.





Scheduled
      maturity dates of secured loans as of December 31, 2007 are as
      follows:




Year
      Ending December 31,2008
            
            $
            1,786,9472009
            
            
            1,118,6652010
            
            
            1,205,7752011
            
            
            600,3482012
            
            
            1,401,121thereafter
            
            
            89,666Total
            
            $
            6,202,522


41


REDWOOD
      MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








11.          Loan Concentrations and
Characteristics (continued)





The
scheduled maturities for 2008 above include no loans 90 days past maturity at
December 31, 2007.  Occasionally, the Partnership allows borrowers to
continue to make the payments on loans past maturity for periods of
time.  It is the Partnership’s experience that loans are sometimes
refinanced or repaid before the maturity date.  Therefore, the above
tabulation for scheduled maturities is not a forecast of future cash
receipts.








12.          Commitments and
Contingencies





Workout
agreements





The
Partnership periodically negotiates various contractual workout agreements with
borrowers whose loans are past maturity or who are delinquent in making
payments.  The Partnership is not obligated to fund additional money
as of December 31, 2007.  As of December 31, 2007, there are no loans
under workout agreement.





Construction /
rehabilitation loans





The
Partnership makes construction and rehabilitation loans, which are not fully
disbursed at loan inception.  The Partnership has approved the
borrowers up to a maximum loan balance; however, disbursements are made
periodically during completion phases of the construction or rehabilitation or
at such other times as required under the loan documents.  At December
31, 2007, there were no undisbursed loan funds.  The Partnership does
not maintain a separate cash reserve to hold the undisbursed obligations, which
are intended to be funded.





Legal
proceedings






The
Partnership is involved in various legal actions arising in the normal course of
business.  In the opinion of management, such matters will not have a
material effect upon the financial position of the Partnership.











42


REDWOOD
      MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Notes
to Financial Statements


December
31, 2007, 2006 and 2005








13. Selected Financial
Information (Unaudited)





Calendar
      Quarter





First
            
            
            Second
            
            
            Third
            
            
            Fourth
            
            
            AnnualRevenues2007
            
            $
            149,715
            
            
            $
            137,484
            
            
            $
            157,471
            
            
            $
            155,403
            
            
            $
            600,0732006
            
            $
            137,842
            
            
            $
            149,504
            
            
            $
            151,278
            
            
            $
            142,660
            
            
            $
            581,284Expenses2007
            
            $
            23,003
            
            
            $
            11,100
            
            
            $
            31,188
            
            
            $
            29,345
            
            
            $
            94,6362006
            
            $
            11,716
            
            
            $
            23,377
            
            
            $
            24,814
            
            
            $
            15,993
            
            
            $
            75,900Net
      income allocatedto
      general partners2007
            
            $
            1,267
            
            
            $
            1,264
            
            
            $
            1,263
            
            
            $
            1,256
            
            
            $
            5,0502006
            
            $
            1,261
            
            
            $
            1,261
            
            
            $
            1,264
            
            
            $
            1,268
            
            
            $
            5,054Net
      income allocatedto
      limited partners2007
            
            $
            125,445
            
            
            $
            125,120
            
            
            $
            125,020
            
            
            $
            124,802
            
            
            $
            500,3872006
            
            $
            124,865
            
            
            $
            124,865
            
            
            $
            125,200
            
            
            $
            125,400
            
            
            $
            500,330Net
      income per $1,000invested
      where income isReinvested2007
            
            $
            13
            
            
            $
            14
            
            
            $
            14
            
            
            $
            14
            
            
            $
            552006
            
            $
            13
            
            
            $
            13
            
            
            $
            13
            
            
            $
            16
            
            
            $
            55Withdrawn2007
            
            $
            13
            
            
            $
            13
            
            
            $
            14
            
            
            $
            14
            
            
            $
            542006
            
            $
            13
            
            
            $
            13
            
            
            $
            13
            
            
            $
            15
            
            
            $
            54





43


REDWOOD
      MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Schedule
II


Valuation
and Qualifying Accounts for the years ended


December
31, 2007, 2006 and 2005








Col
      B
            
            
            Col.
      C - Additions
            
            
            
            
            
            
            Col
      EBalance
      at
            
            
            Charged
      to
            
            
            Charged
            
            
            
            
            
            
            BalanceCol
      A
            
            Beginning
            
            
            Costs
      and
            
            
            to
      Other
            
            
            Col.
      D
            
            
            
            at
      EndDescription
            
            of
      Period
            
            
            Expenses
            
            
            Accounts
            
            
            Deductions
            
            
            
            of
      PeriodYear
      Ended December 31, 2005Deducted
      from asset accountsAllowance
      for loan losses
            
            $
            745,476
            
            
            $
            (16,372
            )
            
            $
            —
            
            
            $
            (28,568
            )
            (a)
            
            $
            700,536Cumulative
      write-down ofreal
      estate held (REO)
            
            
            33,373
            
            
            
            (33,373
            )
            
            
            —
            
            
            
            —
            
            
            
            
            —$
            778,849
            
            
            $
            (49,745
            )
            
            $
            —
            
            
            $
            (28,568
            )
            
            
            $
            700,536Year
      Ended December 31, 2006Deducted
      from asset accountsAllowance
      for loan losses
            
            $
            700,536
            
            
            $
            (49,102
            )
            
            $
            —
            
            
            $
            (197,017
            )
            (b)
            
            $
            454,417Cumulative
      write-down ofreal
      estate held (REO)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            161,974
            
            (b)
            
            
            161,974$
            700,536
            
            
            $
            (49,102
            )
            
            $
            —
            
            
            $
            (35,043
            )
            
            
            $
            616,391Year
      Ended December 31, 2007Deducted
      from asset accountsAllowance
      for loan losses
            
            $
            454,417
            
            
            $
            (21,122
            )
            
            $
            —
            
            
            $
            (46,637
            )
            (b)
            
            $
            386,658Cumulative
      write-down ofreal
      estate held (REO)
            
            
            161,974
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            161,974$
            616,391
            
            
            $
            (21,122
            )
            
            $
            —
            
            
            $
            (46,637
            )
            
            
            $
            548,632(a)
      - Represents write-offs on loans(b)
      - Represents sales of REO





44





REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Schedule
IV


Mortgage
Loans on Real Estate


Rule
12-29 Loans on Real Estate


December
31, 2007








Col.
      HPrincipalCol.
      F
            
            AmountFace
            Col.
      G
            of
      LoansCol.
      C
            Col.
      D
            
            Amount
      of
            Carrying
            Subject
      to
            Col.
      I
            Col.
      JCol.
      B
            Final
            Periodic
            Col.
      E
            Mortgage
            Amount
      of
            Delinquent
            Type
            CaliforniaCol.
      A
            Interest
            Maturity
            Payment
            Prior
            Original
            Mortgage
            Principal
            of
            GeographicDescription
            Rate
            Date
            Terms
            Liens
            Amount
            Investment
            or
      Interest
            Lien
            LocationRes.
            9.00%
            04/01/09
            $     1,139
            $            —
            $    141,500
            $    134,885
            $            —
            1st
            San
      JoaquinComm.
            9.00%
            08/01/09
            3,000
            —
            400,000
            400,000
            —
            1st
            San
      FranciscoRes.
            8.50%
            09/01/06
            1,771
            —
            200,000
            250,000
            —
            1st
            MontereyComm.
            9.50%
            03/01/10
            3,279
            —
            390,000
            382,798
            —
            1st
            San
      MateoRes.
            9.00%
            03/01/10
            1,046
            —
            130,000
            127,352
            —
            1st
            Santa
      CruzRes.
            8.50%
            01/01/08
            1,523
            200,398
            215,000
            214,999
            —
            2nd
            SolanoLand
            11.00%
            02/01/08
            1,742
            —
            190,000
            189,448
            189,448
            1st
            CalaverasRes.
            8.88%
            07/01/11
            3,698
            1,083,333
            500,000
            500,000
            —
            2nd
            San
      FranciscoApts.
            9.25%
            12/01/07
            1,932
            424,605
            242,500
            250,625
            —
            2nd
            San
      FranciscoComm.
            10.00%
            07/01/08
            1,563
            —
            187,500
            187,500
            —
            1st
            AlamedaComm.
            10.25%
            09/01/07
            2,563
            —
            300,000
            300,000
            —
            1st
            Santa
      ClaraLand
            7.00%
            10/01/09
            1,333
            —
            228,536
            228,536
            —
            1st
            StanislausComm.
            10.25%
            04/01/11
            940
            500,000
            101,500
            100,348
            —
            2nd
            Contra
      CostaRes.
            9.25%
            11/01/08
            1,041
            —
            135,000
            135,000
            —
            1st
            RiversideRes.
            10.00%
            01/01/12
            1,275
            —
            153,000
            153,000
            153,000
            1st
            Contra
      CostaRes.
            9.25%
            1/1/12
            1,111
            —
            135,000
            134,422
            134,422
            1st
            San
      BernardinoApts.
            9.25%
            12/1/07
            3,430
            —
            445,000
            445,000
            —
            1st
            San
      FranciscoRes.
            9.25%
            05/01/17
            740
            99,827
            90,000
            89,666
            —
            3rd
            AlamedaRes.
            9.75%
            06/01/12
            2,449
            —
            285,000
            284,186
            —
            1st
            San
      JoaquinComm.
            10.50%
            07/01/09
            3,212
            —
            450,000
            355,244
            —
            1st
            SolanoComm.
            9.00%
            07/01/12
            2,625
            —
            350,000
            350,000
            —
            1st
            San
      FranciscoRes.
            9.50%
            08/01/08
            871
            —
            110,000
            110,000
            —
            1st
            Los
      AngelesRes.
            10.00%
            10/01/12
            1,185
            —
            135,000
            134,819
            —
            1st
            AlamedaRes.
            10.00%
            10/01/12
            3,028
            —
            345,000
            344,693
            —
            1st
            SonomaTotal
            
            
            $   49,785
            $2,308,163
            $
      6,259,536
            $  6,202,522
            $   476,870








Note:  Most
loans have balloon payments due at maturity.





45


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


Schedule
IV (continued)


Mortgage
Loans on Real Estate


Rule
12-29 Loans on Real Estate, continued











Reconciliation
of carrying amount (cost) of loans at close of periods





Year
      ended December 31,





2007
            
            
            2006
            
            
            2005Balance
      at beginning of year
            
            $
            6,218,439
            
            
            $
            5,448,401
            
            
            $
            7,388,478Additions
      during periodNew
      loans
            
            
            1,761,446
            
            
            
            4,459,946
            
            
            
            3,859,637Other
            
            
            —
            
            
            
            228,536
            
            
            
            —Total
      additions
            
            
            1,761,446
            
            
            
            4,688,482
            
            
            
            3,859,637Deductions
      during periodCollections
      of principal
            
            
            1,764,863
            
            
            
            3,380,178
            
            
            
            5,023,486Foreclosures
            
            
            —
            
            
            
            —
            
            
            
            776,228Cost
      of loans sold
            
            
            —
            
            
            
            —
            
            
            
            —Amortization
      of premium
            
            
            —
            
            
            
            —
            
            
            
            —Other
            
            
            12,500
            
            
            
            538,266
            
            
            
            —Total
      deductions
            
            
            1,777,363
            
            
            
            3,918,444
            
            
            
            5,799,714Balance
      at close of year
            
            $
            6,202,522
            
            
            $
            6,218,439
            
            
            $
            5,448,401

















46


Item 9 – Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure





There
were no disagreements with the Partnership’s independent registered public
accounting firm during the years ended December 31, 2007 and 2006.








Item 9a – Controls and
Procedures





The
Partnership carried out an evaluation, under the supervision and with the
participation of the general partners of the effectiveness of the design and
operation of the Partnership’s disclosure controls and procedures as of the end
of the period covered by this report pursuant to Rule 13a-15 of the Securities
Exchange Act of 1934, as amended.  Based upon that evaluation, the
general partners concluded the Partnership’s disclosure controls and procedures
were effective in timely alerting the general partners to material information
related to the Partnership that is required to be included in our periodic
filings with the Securities and Exchange Commission.





There
were no significant changes in the Partnership’s internal control over financial
reporting during the Partnership’s fourth fiscal quarter that have materially
affected, or are likely to materially affect, the Partnership’s internal control
over financial reporting.








Item 9b – Other
Information





None


47


Part III








Item 10 –
Directors,  Executive Officers  and Corporate
Governance





The
Partnership has no Officers or Directors. Rather, the activities of the
Partnership are managed by the two general partners, one of whom is an
individual, Michael R. Burwell.  The second general partner is Gymno
Corporation, a California corporation, formed in
1986.  Mr. Burwell is one of three shareholders of Gymno
Corporation, a California corporation, and has a 50% interest in the
corporation.  The remaining two shareholders are trusts as to which
Mr. Burwell is the trustee of each trust.





The
General Partners.





Michael R.
Burwell.Michael R. Burwell, age 51, General Partner, past
member of Board of Trustees and Treasurer, Mortgage Brokers Institute
(1984-1986); President, Director, Chief Financial Officer, Redwood Mortgage
Corp. (1979-present); Director, Secretary and Treasurer A & B Financial
Services, Inc. (1980-present); President, Director, Chief Financial Officer and
Secretary (since 1986) of Gymno Corporation; President, Director, Secretary and
Treasurer of The Redwood Group, Ltd. (1979-present).  Mr. Burwell
is licensed as a real estate sales person.





Gymno
Corporation.Gymno Corporation, General Partner, is a
California corporation formed in 1986 for the purpose of acting as a general
partner of this Partnership and of other limited partnerships formed by the
individual general partners.  The shares in Gymno Corporation are held
equally by Michael R. Burwell and the two trusts, each of which Michael R.
Burwell is the trustee.  Michael R. Burwell is a director of Gymno and
the director position held by D. Russell Burwell is currently
vacant.  Michael R. Burwell is its President, Chief Financial Officer,
and Secretary.  Michael R. Burwell has a controlling interest in this
company through his ownership of stock and as trustee of the Burwell
trusts.





Financial
Oversight by General Partners.





The
Partnership does not have a board of directors or an audit
committee.  Accordingly, the general partners serve the equivalent
function of an audit committee for, among other things, the following purposes:
appointment, compensation, review and oversight of the work of our independent
public accountants, and establishing the enforcing of the Code of
Ethics.  However, since the Partnership does not have an audit
committee and the general partners are not independent of the Partnership, the
Partnership does not have an “audit committee financial expert.”





Code
of Ethics.





The
general partners have adopted a Code of Ethics applicable to the general
partners and to any agents, employees or independent contractors engaged by the
general partners to perform the functions of a principal financial officer,
principal accounting officer or controller of the Partnership, if
any.  You may obtain a copy of this Code of Ethics, without charge,
upon request by calling our Investor Services Department at (650)
365-5341.


48


Item 11 – Executive
Compensation





COMPENSATION OF THE GENERAL
PARTNERS AND AFFILIATES BY PARTNERSHIP





As
indicated above in Item 10, the Partnership has no Officers or Directors. The
Partnership is managed by the general partners. There are certain fees and other
items paid to management and related parties.





A more
complete description of management compensation is found in the Prospectus,
pages 12-13, under the section “Compensation of the General Partners and the
Affiliates”, which is incorporated by reference.  Such compensation is
summarized below.





The
following compensation has been paid to the general partners and affiliates for
services rendered during the year ended December 31, 2007.  All such
compensation is in compliance with the guidelines and limitations set forth in
the partnership agreement.





Entity
      Receiving Compensation
            Description
      of Compensation and Services Rendered
            AmountI. Redwood Mortgage
      Corp.
            Mortgage
      Servicing Fee for servicing loans
            $0General
      Partners &/or Affiliates
            Asset
      Management Fee for managing assets
            $2,922General
      Partners
            1%
      interest in profits
            $5,050








II.
FEES PAID BY BORROWERS ON MORTGAGE LOANS PLACED WITH THE PARTNERSHIP BY
COMPANIES RELATED TO THE GENERAL PARTNERS (EXPENSES OF BORROWERS NOT OF THE
PARTNERSHIP) DURING THE YEAR ENDED DECEMBER 31, 2007





Redwood
      Mortgage Corp.
            Mortgage
      Brokerage Commissions for services in connectionwith
      the review, selection, evaluation, negotiation, and
    extensionof
      the loans paid by the borrowers and not by the Partnership
            $52,150Redwood
      Mortgage Corp.
            Processing
      and Escrow Fees for services in connection with feesnotary,
      document preparation, credit investigation, and escrowpayable
      by the borrowers and not by the Partnership
            $3,357Gymno
      Corporation
            Reconveyance
      Fee
            $74








III.
IN ADDITION, THE GENERAL PARTNERS AND/OR RELATED COMPANIES PAY CERTAIN EXPENSES
ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE
STATEMENT OF INCOME DURING THE YEAR ENDED DECEMBER 31, 2007 . . . . . . .
$10,754


49


Item 12 – Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder
Matters





The
general partners are to own an aggregate total of 1% of the Partnership
including a 1% portion of income and losses.








Item 13 – Certain
Relationships and Related Transactions, and Director
Independence





Refer to
footnotes 3 and 4 of the Notes to Financial Statements in Part II item 8, which
describes related party fees and data.





Also
refer to the Prospectus dated October 20, 1989 (incorporated herein by
reference) on page 12 “Compensation of General Partners and Affiliates” and page
14 “Conflicts of Interest”.





Since the
Partnership does not have a board of directors and since the general partners
are not considered independent of the Partnership, the Partnership does not have
the equivalent of independent directors.








Item 14 – Principal
Accountant Fees and Services





Fees for
services performed for the Partnership by the principal accountant for 2007 and
2006 are as follows:





Audit Fees  The
aggregate fees billed during the years ended December 31, 2007 and 2006 for
professional services rendered for the audit of the Partnership’s annual
financial statements included in the Partnership’s Annual Report on Form 10-K
and review of financial statements included in the Partnership’s Quarterly
Reports on Form 10-Q were $54,414 and $55,635, respectively.





Audit Related
Fees  There were no fees billed during the years ended December
31, 2007 and 2006 for audit-related services.





Tax fees  The
aggregate fees billed for tax services for the years ended December 31, 2007 and
2006, were $4,475 and $4,275, respectively. These fees relate to professional
services rendered primarily for tax compliance.





All Other
Fees  There were no other fees billed during the years ended
December 31, 2007 and 2006.





All audit
and non-audit services are approved by the general partner prior to the
accountant being engaged by the Partnership.


50


Part
IV





Item 15 – Exhibits,
Financial Statements and Schedules





A.           Documents
filed as part of this report are incorporated:





1. In Part II, Item 8 under A -
Financial Statements.





2. The Financial Statement Schedules
are listed in Part II - Item 8 under B - Financial Statement
Schedules.





3.
Exhibits.





Exhibit
      No.
            
            Description
      of Exhibits





3.1
            
            Limited
      Partnership Agreement3.2
            
            Form
      of Certificate of Limited Partnership Interest3.3
            
            Certificate
      of Limited Partnership10.1
            
            Escrow
      Agreement10.2
            
            Servicing
      Agreement10.3
            (a)
            Form
      of Note secured by Deed of Trust which provides for principal and interest
      payments.(b)
            Form
      of Note secured by Deed of Trust which provides principal and interest
      payments and right of assumption(c)
            Form
      of Note secured by Deed of Trust which provides for interest only
      payments(d)
            Form
      of Note10.4
            (a)
            Deed
      of Trust and Assignment of Rents to accompany
      Exhibits   10.3  (a), and (c)(b)
            Deed
      of Trust and Assignment of Rents to accompany Exhibit 10.3
    (b)(c)
            Deed
      of Trust to accompany Exhibit 10.3 (d)10.5
            
            Promissory
      Note for Formation Loan10.6
            
            Agreement
      to Seek a Lender31.1
            
            Certification
      of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of
      200231.2
            
            Certification
      of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of
      200232.1
            
            Certification
      of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
            
            Certification
      of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002





All of
the above exhibits, other than 31.1, 31.2, 32.1 and 32.2, were previously filed
as the exhibits to Registrant’s Statement on Form S-11 (Registration No.
33-30427 and incorporated by reference herein).





B.           See
A (3) above.





C.
            See
      A (2) above. Additional reference is made to the prospectus (S-11 filed as
      part of the Registration statement) dated October 20, 1989 to pages 65
      through 67 and Supplement #5 dated February 14, 1992 for financial data
      related to Gymno Corporation, a general
partner.





51


SIGNATURES





Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of
1934 the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereto duly authorized on the 31st day of March
2008.





REDWOOD
      MORTGAGE INVESTORS VII





By:
            /S/
      Michael R. BurwellMichael
      R. Burwell, General PartnerBy:
            Gymno
      Corporation, General PartnerBy:
            /S/
      Michael R. BurwellMichael
      R. Burwell, President, Secretary
              &
      Chief Financial Officer








Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following person on behalf of the registrant and in the
capacity indicated on the 31st day of March 2008.





Signature
            Title
            Date








/S/
      Michael R. BurwellMichael
      R. Burwell
            
            General
      Partner
            
            March
      31, 2008








/S/
      Michael R. BurwellMichael
      R. Burwell
            
            President,
      Secretary & Chief Financial Officer of Gymno Corporation (Principal
      Financial and Accounting Officer);
              Director
      of Gymno Corporation
            
            March
      31, 2008





52


Exhibit
31.1





GENERAL
PARTNER CERTIFICATION








I,
Michael R. Burwell, certify that:





1.
            I
      have reviewed this annual report on Form 10-K of Redwood Mortgage
      Investors VII, a California Limited Partnership (the
      “Registrant”);





2.
            Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;





3.
            Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the
      Registrant as of, and for, the periods presented in this
      report;





4.
            The
      Registrant’s other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant
      and we have:





(a)
            designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the Registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;





(b)
            evaluated
      the effectiveness of the Registrant’s disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
  and





(c)
            disclosed
      in this report any change in the Registrant’s control over financial
      reporting that occurred during the Registrant’s most recent fiscal quarter
      (the Registrant’s fourth fiscal quarter in the case of an annual report)
      that has materially affected, or is reasonably likely to materially
      affect, the Registrant’s internal control over financial reporting;
      and





5.
            The
      Registrant’s other certifying officers and I have disclosed, based on our
      most recent evaluation of internal control over financial reporting, to
      the Registrant’s auditors and the audit committee of the Registrant’s
      board of directors (or persons performing the equivalent
      functions):





(a)
            all
      significant deficiencies and material weaknesses in the design or
      operation of internal controls over financial reporting which are
      reasonably likely to adversely affect the Registrant’s ability to record,
      process, summarize and report financial information;
  and





(b)
            any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the Registrant’s internal control
      over financial reporting.














/s/
Michael R. Burwell


____________________________


Michael
R. Burwell, General Partner


March 31,
2008


53


Exhibit
31.2








PRESIDENT
AND CHIEF FINANCIAL OFFICER CERTIFICATION





I,
Michael R. Burwell, certify that:





1.
            I
      have reviewed this annual report on Form 10-K of Redwood Mortgage
      Investors VII, a California Limited Partnership (the
      “Registrant”);





2.
            Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;





3.
            Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the
      Registrant as of, and for, the periods presented in this
      report;





4.
            The
      Registrant’s other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant
      and we have:





(a)
            designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the Registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;





(b)
            evaluated
      the effectiveness of the Registrant’s disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
  and





(c)
            disclosed
      in this report any change in the Registrant’s control over financial
      reporting that occurred during the Registrant’s most recent fiscal quarter
      (the Registrant’s fourth fiscal quarter in the case of an annual report)
      that has materially affected, or is reasonably likely to materially
      affect, the Registrant’s internal control over financial reporting;
      and





5.
            The
      Registrant’s other certifying officers and I have disclosed, based on our
      most recent evaluation of internal control over financial reporting, to
      the Registrant’s auditors and the audit committee of the Registrant’s
      board of directors (or persons performing the equivalent
      functions):





(a)
            all
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the Registrant’s ability to record,
      process, summarize and report financial information;
  and





(b)
            any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the Registrant’s internal control
      over financial reporting.











/s/
Michael R. Burwell


__________________________


Michael
R. Burwell, President and


Chief
Financial Officer of Gymno


Corporation,
General Partner


March 31,
2008


54


Exhibit
32.1





CERTIFICATION
PURSUANT TO


18 U.S.C
SECTION 1350,


AS
ADOPTED PURSUANT TO


SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002








In
connection with the Annual Report of Redwood Mortgage Investors VII (the
“Partnership”) on Form 10-K for the period ended December 31, 2007 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”),
pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, certify, that to the best of
my knowledge:





(1)
            The
      Report fully complies with the requirements of section 13(a) or 15(d) of
      the Securities Exchange Act of 1934;
and





(2)
            The
      information contained in the Report fairly presents, in all material
      respects, the financial condition and results of operations of the
      Partnership at the dates and for the periods
  indicated.





This
      Certification has not been, and shall not be deemed, “filed” with the
      Securities and Exchange Commission.








/s/
      Michael R. Burwell


_____________________________


Michael
      R. Burwell, General Partner


March
      31, 2008








55


Exhibit
32.2








CERTIFICATION
      PURSUANT TO


18
      U.S.C. SECTION 1350


AS
      ADOPTED PURSUANT TO


SECTION
      906 OF THE SARBANES-OXLEY ACT OF
2002








In
connection with the Annual Report of Redwood Mortgage Investors VII (the
“Partnership”) on Form 10-K for the period ended December 31, 2007 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”),
pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, certify that to the best of
my knowledge:





(1)
            The
      Report fully complies with the requirements of section 13(a) or 15(d) of
      the Securities Exchange Act of 1934;
and





(2)
            The
      information contained in the Report fairly presents, in all material
      respects, the financial condition and results of operations of the
      Partnership at the dates and for the periods
  indicated.





This
      Certification has not been, and shall not be deemed, “filed” with the
      Securities and Exchange Commission.








/s/
      Michael R. Burwell


_____________________________


Michael
      R. Burwell, President and


Chief
      Financial Officer of Gymno


Corporation,
      General Partner


March
      31, 2008


56