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, 2008





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:  000-27816








REDWOOD
MORTGAGE INVESTORS VIII,


a
California Limited Partnership


(Exact
name of registrant as specified in its charter)








California
            94-3158788(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





1





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 reports 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulations S-K (§ 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to the Form
10-K.                         [X]





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





Large
      accelerated filer
            [  ]
            
            Accelerated
      filer
            [  ]Non-accelerated
      filer
            [  ]
            
            Smaller
      reporting company
            [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, 2008, the aggregate value of limited partnership units held by
non-affiliates was $325,846,000.  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 effective August 4, 2005, and post effective Amendment No. 8
dated April 28, 2008, containing supplement No. 6 dated April 28, 2008, (the
“Prospectus”), are incorporated in Parts II, III, and IV.  Exhibits
filed as part of Form S-11 Registration Statement #333-125629 are incorporated
by reference in part IV.





2


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Index
to Form 10-K





December
31, 2008








Part IPage
      No.Item
      1
            –
      Business
            4Item
      1A
            –
      Risk Factors
            9Item
      2
            –
      Properties
            9Item
      3
            –
      Legal Proceedings
            10Item
      4
            –
      Submission of Matters to a Vote of Security Holders
    (Partners)
            10Part IIItem
      5
            –
      Market for the Registrant’s “Limited Partnership Units,” Related
      Unitholder Matters andIssuer
      Purchases of Equity Securities
            11Item
      6
            –
      Selected Consolidated Financial Data
            12Item
      7
            –
      Management Discussion and Analysis of Financial Condition and Results of
      Operations
            14Item
      7A
            –
      Quantitative and Qualitative Disclosures About Market Risk
            22Item
      8
            –
      Consolidated Financial Statements and Supplementary Data
            25Item
      9
            –
      Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure
            60Item
      9A(T)
            –
      Controls and Procedures
            60Item
      9B
            –
      Other Information
            60Part IIIItem
      10
            –
      Directors, Executive Officers and Corporate Governance
            60Item
      11
            –
      Executive Compensation
            62Item
      12
            –
      Security Ownership of Certain Beneficial Owners and Management, and
      Related Stockholder Matters
            63Item
      13
            –
      Certain Relationships and Related Transactions, and Director
      Independence
            63Item
      14
            –
      Principal Accountant Fees & Services
            63Part IVItem
      15
            –
      Exhibits and Financial Statement Schedules
            64Signatures
            65Certifications
            67








3


Part I





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, trends in the California real estate market,
estimates as to the allowance for loan losses, estimates of future limited
partner withdrawals, the total amount of the formation loan, 2009 annualized
yield estimates, additional foreclosures in 2009, expectations regarding the
level of loan delinquencies, plans to develop certain properties, beliefs
relating to the impact on the partnership from current economic conditions and
trends in the financial and credit markets, expectations as to when liquidations
will resume or how long reduced earnings distributions will be in effect,
beliefs regarding the partnership’s ability to recover its investment in certain
properties, beliefs regarding the effect of borrower foreclosures on liquidity,
the use of excess cash flow and the intention not to sell the partnership’s loan
portfolio.  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.








Item 1 –
Business





Overview





Redwood
Mortgage Investors VIII, a California Limited Partnership, was organized in
1993.  Michael R. Burwell, Gymno Corporation and Redwood Mortgage
Corp., both California Corporations, are the general partners.  The
partnership is organized to engage in business as a mortgage lender, for the
primary purpose of making loans secured primarily by first and second deeds of
trust on California real estate.  Loans are arranged and serviced by
Redwood Mortgage Corp.  The partnership’s objectives are to make loans
that will: (i) yield a high rate of return from mortgage lending; and (ii)
preserve and protect the partnership’s capital.  Investors should not
expect the partnership to provide tax benefits of the type commonly associated
with limited partnership tax shelter investments.  The partnership is
intended to serve as an investment alternative for investors seeking current
income.  However, unlike other investments, which are intended to
provide current income, an investment in the partnership will be less liquid,
not readily transferable, and not provide a guaranteed return over its
investment life.





Initially,
the partnership offered a minimum of $250,000 and a maximum of $15,000,000 in
units, of which $14,932,000 were sold.  This initial offering closed
on October 31, 1996.  Subsequently, the partnership commenced a second
offering of up to $30,000,000 in units commencing on December 4,
1996.  This offering sold $29,993,000 in units and was closed on
August 30, 2000.  On August 31, 2000 the partnership commenced its
third offering for another 30,000,000 units ($30,000,000).  This
offering sold $29,999,000 in units and was closed on April 23,
2002.  On October 30, 2002 the partnership commenced its fourth
offering for an additional 50,000,000 units ($50,000,000).  This
offering sold $49,985,000 in units and was closed on October 6,
2003.  On October 7, 2003 the partnership commenced its fifth offering
of 75,000,000 units ($75,000,000).  This offering sold $74,904,000 in
units and was closed on August 3, 2005.  On August 4, 2005 the
partnership commenced its sixth offering of 100,000,000 units
($100,000,000).  As of November 19, 2008 the sixth offering was closed
with all $100,000,000 in units having been sold, bringing the aggregate sale of
units to $299,813,000.  No additional offerings are contemplated at
this time.





4


The
partnership began selling units in February 1993, and began investing in
mortgages in April 1993.  At December 31, 2008, the partnership has
investments in secured loans with principal balances totaling
$363,037,000.  Interest rates range from 5.00% to
12.50%.  Currently, loans secured by First Trust Deeds comprise 53% of
the amount of the secured loan portfolio, an increase of 8% from the 2007 level
of 45%.  Junior loans (secured by 2nd and 3rd Trust Deeds) make up the
remaining 47%, a decrease of 8% from the 2007 level of 55%.  Loans
secured by single family properties comprise 73% of the secured loan
portfolio.  Loans secured by multi-family properties make up 3% of the
total secured loans.  Commercial loans comprise 23% of the secured
portfolio and land makes up 1% of the secured loan portfolio.  Of the
total secured loans, 56% are secured by properties located in the nine counties
comprising the San Francisco Bay Area, 16% are in other Northern California
counties and 28% are in Southern California counties.  Average loan
size decreased this year to $2,539,000 per loan, down $95,000 from the average
loan balance of $2,634,000 in 2007.  During 2008, the partnership’s
loan portfolio continued to grow.  As of December 31, 2008 the secured
loan portfolio balance was $363,037,000 compared to $305,568,000 as of December
31, 2007; an increase of $57,469,000 (19%).  The number of loans also
increased to 143 as of December 31, 2008 from the 116 loans existing at December
31, 2007; an increase of 27 loans (23%).  These increases in amount
and number of loans were due to the ability of the partnership, by virtue of its
increased capital, to invest in more loans.  The average loan as of
December 31, 2008, represents 0.76% of partner capital and 0.70% of outstanding
secured loans, compared to December 31, 2007 when average loan size represented
0.85% of partners’ capital and 0.86% of outstanding secured
loans.  Some of the loans are fractionalized between affiliated
partnerships with objectives similar to those of the partnership to further
reduce risk.  Over the last several years, fractionalization of loans
with other lenders has decreased.  As of December 31, 2008 and 2007
fractionalized loan balances represented 0.91% and 1.70% of the portfolio,
respectively.  Average equity per loan transaction at the time the
loans were made based upon appraisals and prior liens at such time, which is the
loan plus any senior loans, divided by the property’s appraised value,
subtracted from 100%, stood at 32.36%, a decrease in equity of 0.35% from the
2007 level.  Generally, the greater the equity, the greater the
protection for the lender.  The partnership’s loan portfolio has five
properties with filed notices of default as of the end of December
2008.  The principal balance of the loans secured by these properties
with filed notices of default represents 1.70% ($6,165,000) of the secured loan
portfolio.  The partnership expects during 2009, to file additional
notices of default and conduct foreclosures to collect payment from borrowers
who have become delinquent.  In January and February of 2009, the
partnership has filed three notices of default with an aggregate principal
balance of $12,283,000, which is 3.38% of the outstanding principal balance at
December 31, 2008.  During the current, prolonged real estate downturn
and recession, some of the partnership’s borrowers have struggled to make their
scheduled loan payments. In the past, such borrowers would typically sell or
refinance their property to repay the loan.  However, real estate
markets have been hurt by slow sales and by lower property values making the
sale of property difficult. In addition, the deterioration of credit markets
including all segments of real estate lending markets, more stringent borrower
and property underwriting standards, reduced property values, lower loan to
value lending ratios and a general lack of desire by traditional lending
institutions to lend money secured by real estate have all contributed to
significantly reduced credit availability to borrowers and potential real estate
buyers.  These dramatic changes have severely constrained credit and
greatly hampered the ability of borrowers to refinance or sell their properties
as a means of repayment of maturing debt in the event they find themselves
unable to make their monthly loan payment.  Delinquencies higher than
traditional lending institutions are typical of our market segment and the
partnership expects to have a level of delinquency higher than banking
institutions within its portfolio.





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





For a
discussion of the properties owned by the partnership, see Item 2,
Properties.





Net
income increased from $18,872,000 in 2006 to $21,572,000 in 2007 and decreased
to $18,340,000 in 2008.  The decrease in 2008 was due to increased
allowances for losses resulting from declining property values and increased
delinquencies.  The secured loan portfolio increased from $261,097,000
in 2006 to $305,568,000 in 2007 and to $363,037,000 in 2008, an increase of 39%
over the two-year period.  The partnership has placed its loans at
interest rates competitive in the marketplace.  Mortgage interest
income increased from $26,395,000 in 2006 to $28,502,000 in 2007 and to
$33,141,000 in 2008, an increase of 26% over the two-year
period.  During 2008 the partnership’s annualized yield on compounding
accounts was 5.30% and 5.18% on monthly distributing accounts.  The
partnership’s actual cash distributions during 2008 was 6.38% on compounding
accounts and 6.20% on distributing accounts.








5


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.  The lenders that have traditionally relied upon
the sale of loans after their origination to replenish their lending capital
have found themselves unable to sell the mortgages into the market place through
the typical means of mortgage securitizations.  This inability to sell
their loans to replenish their funds available for lending has eliminated many
of these lenders. The primary sources of lending capital have been reduced to
loans that may be sold to Fannie Mae, Freddie Mac and large well-capitalized
portfolio lenders.  In all respects, money available for real estate
lending has been greatly curtailed in 2008 particularly in the latter half of
the year.  In addition to less availability of money for real estate
lending, the remaining lenders have both increased their underwriting standards
as well as eliminated a wide variety of lending programs which has significantly
reduced the number of potential borrowers for both residential and commercial
properties that may qualify for loans.  Increased lending standards
have led to reduced potential viable purchasers of real estate in general
contributing to a reduced demand for real estate.





During
2008, numerous events have buffeted the economy, the financial system and the
business sector.  These include, among others: the failure of
brokerage firm Lehman Brothers; the forced merger of the brokerage firm Bear
Stearns; the governmental bailout of insurance giant AIG; the government
takeover of both Fannie Mae and Freddie Mac (the largest holders of residential
mortgages in the United States); the merger of Bank of America with Countrywide
(the third largest holder of residential mortgages in the United States) and the
forced merger of Wachovia Bank; as well as continued declines in real estate
values. These factors have contributed to shrinking credit availability and
exposed the financial system to increased risks and decreased consumer
confidence.





In
response to the turmoil in the financial markets and to help bolster the
financial system and the economy, the United States government, through the
Federal Reserve and Treasury has adopted many measures.  These
measures include, among others, two financial stimulus packages, the temporary
raising of limits on Federal Deposit Insurance Corporation and National Credit
Union Administration from $100,000 to $250,000 per account, enacting the
Troubled Asset Relief Program to provide capital to financial institutions and
to purchase or guarantee troubled mortgage related and possibly other assets,
reducing the Federal Funds rate, placing a temporary guarantee for balances held
in money market mutual funds and enacting the Emergency Economic Stabilization
Act.  The results of these actions and future actions will take time
to have their intended effects.





During
2008, the Gross Domestic Product (GDP) the output of goods and services produced
by labor and property located in the United States began the year with an
increase of 0.9 percent for the 1st quarter, followed by a 2.8 percent increase
for the second quarter, a decrease of 0.5 percent for the 3rd quarter and a
dramatic decrease of 6.2 percent for the fourth quarter of 2008, thereby
demonstrating the rapid deterioration of the economy during the latter part of
2008.  Economists are generally of the opinion the United States
slipped into recession in December 2007 and that the recession has deepened
during 2008.





The
economic downturn has had a dramatic effect on the United States and
California’s unemployment figures.  For the fourth quarter of 2007,
unemployment for the nation averaged 4.8 percent.  During 2008 the
unemployment rate steadily rose.  Average national unemployment rose
to 4.9 percent during the first quarter of 2008, 5.3 percent in the second
quarter of 2008, 6.0 percent in the third quarter of 2008, and to 6.9 percent as
of December 31, 2008.  California’s unemployment mirrored the nation
with unemployment rising steadily and significantly throughout
2008.  California’s unemployment rate began 2008 at 6.1 percent and
ended the year at 8.7 percent.  The rapid rise in unemployment has
caused significant concerns among workers regarding their job security and
lowered their confidence in their own financial circumstances.





In
September 2007, after having left the Federal Funds Rate unchanged at 5.25
percent for more than two years, the Federal Reserve began to react to the
slowing economy, rising unemployment, and turmoil created by contractions in the
credit market and lowered the rate to 4.75 percent.  In lowering the
Federal Funds Rate, the Federal Reserve’s initial goals were to stimulate the
economy while keeping inflation in check, create jobs and increase liquidity in
the financial system.  Since the September 2007 reduction, the Federal
Funds Rate has been further lowered several times.  The most recent
reduction on December 16, 2008 was to a level of 0.00 to 0.25
percent.  The Federal Reserve has little room to reduce this rate for
any further effects on the economy.





6


Mortgage
interest rates are a key factor in the affordability of real estate. The higher
the interest rate, the less affordable real estate becomes.  Mortgage
interest rates are significantly influenced by the United States 10 year
treasury securities.  These securities began January 2008 at an
average rate of 3.74 percent.  They rose to a high of 4.10 percent
during June of 2008 and have been falling since to a level of 2.42 percent
during December 2008.  Mortgage interest rates followed suit as
measured by Freddie Mac for their fixed–rate 30 year conforming
loans.  They began 2008 with a January average of 5.76 percent with a
0.4 percent fee, rose to a high of 6.48 percent with a 0.7 percent fee in August
2008 and have since dropped through the remainder of 2008 to a level in December
of 5.29 percent with a 0.7 percent fee and in February 2009 to 5.13 percent with
a 0.7 percent fee.





Median
home prices have declined from their highs in 2005 and 2006.  The
median national sales price of existing homes as reported by the National
Association of Realtors was $219,000 for 2005, $221,900 for 2006 and then began
to decline to $219,000 for 2007 and to $198,100 for 2008.





Secured
Loan Portfolio.





A summary
of the partnership’s secured loan portfolio as of December 31, 2008, is set
forth below (in thousands):




Loans
      as a Percentage of Appraised ValuesFirst
      Trust Deeds
              
              $
              190,765Appraised
      Value of Properties at Time of Loan
              
              
              355,209Total
      Investment as a % of Appraisal
              
              
              53.71
              %First
      Trust Deed Loans
              
              
              190,765Second
      Trust Deed Loans
              
              
              171,096Third
      Trust Deed Loans
              
              
              1,176Total
      of Trust Deed Loans
              
              
              363,037Priority
      Positions due Other Lenders:First
      Trust Deed Loans due Other Lenders
              
              
              335,657Second
      or Third Trust Deed Loans due Other Lenders
              
              
              7,742Total
      Debt
              
              $
              706,436Appraised
      Property Value at Time of Loan
              
              
              1,044,411Total
      Debt as a % of Appraisal based on appraised values and
    priorliens
      at date loan was consummated
              
              
              67.64
              %Number
      of Secured Loans Outstanding
              
              
              143Average
      Secured Loan
              
              $
              2,539Average
      Secured Loan as a % of Secured Loans Outstanding
              
              
              0.70
              %Largest
      Secured Loan Outstanding
              
              
              38,976Largest
      Secured Loan as a % of Secured Loans Outstanding
              
              
              10.74
              %Largest
      Secured Loan as a % of Partnership Assets
              
              
              9.17
              %Secured
      Loans as a Percentage of Total Secured Loans
              
              PercentFirst
      Trust Deed Loans
              
              
              53
              %Second
      Trust Deed Loans
              
              
              47Third
      Trust Deed Loans
              
              
              0Total
      Trust Deed Loan Percentage
              
              
              100
              %





Type
      of Secured Loans by Property
              
              Amount
              
              
              PercentSingle
      Family
              
              $
              266,113
              
              
              
              73
              %Apartments
              
              
              10,727
              
              
              
              3Commercial
              
              
              83,692
              
              
              
              23Land
              
              
              2,505
              
              
              
              1Total
              
              $
              363,037
              
              
              
              100
              %





7


The
following is a distribution of secured loans outstanding as of December 31, 2008
by California counties (in thousands):





TotalCalifornia
      County
              
              Secured
      Loans
              
              
              PercentSan
      Francisco Bay Area CountiesSan
      Francisco
              
              $
              80,432
              
              
              
              22.15
              %Contra
      Costa
              
              
              49,077
              
              
              
              13.52Alameda
              
              
              48,982
              
              
              
              13.49Santa
      Clara
              
              
              8,608
              
              
              
              2.37San
      Mateo
              
              
              6,351
              
              
              
              1.75Napa
              
              
              4,569
              
              
              
              1.26Solano
              
              
              2,064
              
              
              
              0.57Marin
              
              
              1,945
              
              
              
              0.54202,028
              
              
              
              55.65
              %Other
      Northern California CountiesSacramento
              
              
              41,919
              
              
              
              11.55
              %San
      Joaquin
              
              
              6,300
              
              
              
              1.74Fresno
              
              
              4,058
              
              
              
              1.12Amador
              
              
              2,181
              
              
              
              0.60Placer
              
              
              1,322
              
              
              
              0.36El
      Dorado
              
              
              908
              
              
              
              0.25Sutter
              
              
              857
              
              
              
              0.24Monterey
              
              
              692
              
              
              
              0.19Stanislaus
              
              
              654
              
              
              
              0.18All
      others
              
              
              1,451
              
              
              
              0.4060,342
              
              
              
              16.63
              %Southern
      California CountiesLos
      Angeles
              
              
              83,555
              
              
              
              23.01
              %San
      Diego
              
              
              8,844
              
              
              
              2.44Riverside
              
              
              4,082
              
              
              
              1.12Santa
      Barbara
              
              
              1,497
              
              
              
              0.41Orange
              
              
              1,235
              
              
              
              0.34Ventura
              
              
              834
              
              
              
              0.23Kern
              
              
              402
              
              
              
              0.11San
      Bernardino
              
              
              218
              
              
              
              0.06100,667
              
              
              
              27.72
              %Total
              
              $
              363,037
              
              
              
              100.00
              %





Number
      of Secured Loans in Foreclosure
            5
            
            $6,165,000





Scheduled
maturity dates of secured loans as of December 31, 2008 are as follows (in
thousands):




Year
      ending December 31,
              
              Amount2009
              
              $
              219,3672010
              
              
              55,5302011
              
              
              16,6212012
              
              
              47,1282013
              
              
              18,790Thereafter
              
              
              5,601Total
              
              $
              363,037





8


The
scheduled maturities for 2009 include nine loans totaling $54,107,000, and
representing 14.90% of the secured loan portfolio, at December 31,
2008.  The partnership occasionally allows borrowers to continue to
make the payments on debt past maturity for periods of time.  Given
the lack of alternative financing available, the partnership will attempt to
extend or restructure many of these maturing loans.  The partnership’s
largest loan totaling $38,976,000 represents 10.74% of outstanding secured loans
and 9.17% of partnership assets.  It is the partnership’s experience
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.








Item 1A – Risk
Factors





A
description of the risk factors with respect to investing in the limited
partnership units publicly offered by the partnership is set forth in the
partnership’s prospectus, dated August 4, 2005, beginning on page 8, under the
section “Risk Factors”, which is incorporated herein by reference.








Item 2 -
Properties





During
2002, a single-family residence that secured a partnership loan totaling
$4,402,000, including accrued interest and advances, was transferred via a
statutory warranty deed to a new entity named Russian Hill Property Company, LLC
(“Russian”).  Russian was formed by the partnership to complete the
development and sale of the property.  The assets, liabilities and
development or sales expenses of Russian have been consolidated into the
accompanying consolidated financial statements of the
partnership.  Costs related to the sale and development of this
property was capitalized during 2003.  Commencing January 2004, costs
related to sales and maintenance of the property were expensed.  At
December 31, 2008 and 2007 the partnership’s total investment in Russian was
$3,975,000, net of a valuation allowance of $500,000.





In
September 2004, the partnership acquired a single family residence through a
foreclosure sale.  At the time the partnership took ownership of the
property, the partnership’s investment totaled $1,937,000 including accrued
interest and advances.  The borrower had begun a substantial
renovation of the property, which was not completed at the time of
foreclosure.  The partnership has decided to pursue development of the
property by processing plans for the creation of two condominium units on the
property.  These plans will incorporate the majority of the existing
improvements currently located on the property.  At December 31, 2008
and 2007 the partnership’s total investment in this property was $2,026,000 and
$1,857,000, respectively, net of a valuation allowance of $500,000.





In
December 2004, the partnership acquired land through a deed in lieu of
foreclosure.  At the time the partnership took ownership of the
property, the partnership’s investment totaled $4,377,000 including accrued
interest and advances.  At December 31, 2008 and 2007, the
partnership’s investment in this property was $3,639,000.  During
2006, management established a $490,000 reserve against this property to reduce
the carrying amount to management’s estimate of the ultimate net realizable
value of the property.  During the third quarter of 2006, the
partnership sold one of the three parcels at a loss of approximately $73,000,
which had been previously reserved for.  At December 31, 2008, the
partnership’s total investment in this property was $3,219,000, net of a
valuation allowance of $420,000.





During
2005, the partnership acquired a multi-unit property through
foreclosure.  At the time the partnership took ownership of the
property, the partnership’s investment, together with three other affiliate
partnerships, totaled $10,595,000, including accrued interest and
advances.  Upon acquisition, the property was transferred via a
statutory warranty deed to a new entity named Larkin Street Property Company,
LLC (“Larkin”).  The partnership owns a 72.50% interest in the
property and the other three affiliates collectively own the remaining
27.50%.  No valuation allowance has been established against this
property as management is of the opinion the property will have adequate equity
to allow the partnership and its affiliates to recover their
investments.  The assets and liabilities of Larkin have been
consolidated into the accompanying consolidated financial statements of the
partnership.  The partnership and the affiliates have continued making
improvements in anticipation of listing the property for sale in
mid-2009.  As of December 31, 2008, approximately $3,338,000 in costs
related to the development of this property has been capitalized.  The
partnership pursued its effort to recover funds from the guarantors of the
original loan and during the third quarter of 2006, obtained a pro-rate share of
$431,000, representing the partnership’s pro rata share of the recovery, from
one of them.  These proceeds were applied to reduce the partnership’s
investment and as of December 31, 2008 the partnership’s investment, together
with the other affiliated partnerships, totaled $13,502,000.


9





During
2006, the partnership acquired a single-family residence through
foreclosure.  At the time the partnership took ownership of the
property, the partnership’s investment totaled $6,028,000.  As of June
30, 2007 and December 31, 2006, approximately $253,000 and $111,000,
respectively, in costs related to the development of this property had been
capitalized.  In June 2007, the property was sold at a loss of
$602,000, which was offset against a valuation allowance of $919,000, which was
allocated for this property.





In
February 2007, the partnership acquired a single-family residence through
foreclosure.  At the time the partnership took ownership of the
property, the partnership’s investment totaled $2,640,000 including accrued
interest, late charges, advances and the balance owed to the senior lien holder,
including accrued charges.  In September, 2007 the senior lien holder
was paid in full.  A single asset entity named Borrette Property
Company; LLC (“Borrette”) holds title to the property.  The
partnership beneficially owns 100% of the membership interests in
Borrette.  During 2007 and 2008, the partnership has received two
partial settlements of claims from the title insurance company totaling
$1,149,000.  The partnership continues to seek further
recoveries.  As of December 31, 2008, the partnership has spent
approximately $342,000 for property improvements and maintenance in anticipation
of listing the property for sale.  As of December 31, 2008, the
partnership’s total investment in Borrette was $1,833,000.





In
February 2008, the partnership acquired a single family residence through
foreclosure.  The total investment, including loan principal balance,
accrued interest, late charges and advances, was $391,000 at
foreclosure.  Additional expenditures of $11,000 were needed to make
the residence saleable.  In July of 2008 the property was sold and the
net proceeds were $270,000.  The remaining balance of $132,000 was
charged against the previously established reserve for losses.





In April
2008, the partnership acquired a single family residence through a deed in lieu
of foreclosure.  The total investment, including loan principal
balance, accrued interest, late charges and advances, was $1,269,000 at
foreclosure.  The partnership has capitalized an additional $63,000 in
improvements and furnishings.  The total investment at December 31,
2008 was $1,138,000, net of a valuation allowance of $194,000.





In April
2008, the partnership acquired a single family residence through
foreclosure.  On the date of acquisition the total investment was
$985,000, comprised of $660,000 of loan principal, accrued interest, late fees
and advances held by the partnership and $325,000 of a first lien held by
another lender.  The partnership made the monthly payment due on the
first lien until the property was sold in November of 2008 for proceeds of
$425,000.  The sale resulted in a loss of $250,000 which was charged
against the previously established reserve for losses.








Item 3 – Legal
Proceedings





In the
normal course of business, the partnership may become involved in various types
of legal proceedings such as assignment of rents, bankruptcy proceedings,
appointment of receivers, unlawful detainers, judicial foreclosure, 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 of trust and resolve disputes between borrowers, lenders,
lien holders and mechanics.  None of these actions would typically be
of any material importance.  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 Vote of Security Holders (Partners)





No
matters have been submitted to a vote of the partnership.








10


Part II








Item 5 – Market for the
Registrant’s “Limited Partnership Units,” Related Unitholder Matters and Issuer
Purchases of Equity Securities





The
partnership’s sixth offering of 100,000,000 units at $1 each (minimum purchase
of 2,000 units) was completed on November 19, 2008 ($200,000,000 in units were
previously offered and sold through separate offerings) through broker-dealer
member firms of the Financial Industry Regulatory Agency (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
compounding the earnings.  Limited partners may withdraw from the
partnership in accordance with the terms of the limited partnership agreement
subject to possible early withdrawal penalties.  There is no
established public trading market.  As of December 31, 2008, 7,814
limited partners had an aggregate capital balance of $334,265,000, net of
formation loans and syndication costs.





A
description of the units, transfer restrictions and withdrawal provisions is
more fully described under the section of the prospectus entitled “Description
of Units” and “Summary of Limited Partnership Agreement”, on pages 81 through 84
of the prospectus, a part of the referenced registration statement, which is
incorporated herein by reference.





During
the year 2008, the partnership’s annualized yield on compounding accounts was
5.30% and 5.18% on monthly distributing accounts.  During the year
2007, the partnership’s annualized yield on compounding accounts was 7.09% and
6.87% on monthly distributing accounts.  For yields for prior years,
please see the table in Item 6.





In
response to reduced cash flows due to reduced loan payoffs, increased loan
delinquencies and increased needs for cash reserves necessary to protect and
preserve the partnership’s assets, as of March 16, 2009, the partnership
suspended all liquidation payments and will not be accepting new liquidation
requests until further notice, and in March 2009 earnings distributions were
also reduced.








11


Item 6 – Selected
Consolidated Financial Data





Redwood
Mortgage Investors VIII began operations in April 1993.





Consolidated
financial condition and results of operation for the partnership as of and for
the five years ended December 31, 2008 were (in thousands, except for net income
per $1,000 invested by limited partners for entire period):





Consolidated Balance
Sheets





ASSETS





2008
              
              
              
              2007
              
              
              
              2006
              
              
              
              2005
              
              
              
              2004Cash
      and cash equivalents
              
              $
              12,495
              
              
              $
              11,591
              
              
              $
              18,096
              
              
              $
              28,853
              
              
              $
              16,301LoansLoans,
      secured by deeds of trust, net
              
              
              363,037
              
              
              
              305,568
              
              
              
              261,097
              
              
              
              214,012
              
              
              
              171,745Loans,
      unsecured
              
              
              453
              
              
              
              345
              
              
              
              —
              
              
              
              —
              
              
              
              34Accrued
      interest and late fees
              
              
              12,174
              
              
              
              5,600
              
              
              
              3,384
              
              
              
              3,254
              
              
              
              4,895Advances
      on loans
              
              
              22,345
              
              
              
              2,358
              
              
              
              96
              
              
              
              103
              
              
              
              131Less
      allowance for loan losses
              
              
              (11,420
              )
              
              
              (4,469
              )
              
              
              (2,786
              )
              
              
              (3,138
              )
              
              
              (2,343
              )Due
      from affiliate
              
              
              —
              
              
              
              764
              
              
              
              —
              
              
              
              —
              
              
              
              —Real
      estate owned, net
              
              
              25,693
              
              
              
              23,609
              
              
              
              25,231
              
              
              
              21,328
              
              
              
              9,793Other
      assets
              
              
              96
              
              
              
              117
              
              
              
              104
              
              
              
              72
              
              
              
              62$
              424,873
              
              
              $
              345,483
              
              
              $
              305,222
              
              
              $
              264,484
              
              
              $
              200,618





LIABILITIES AND PARTNERS’
CAPITAL





2008
              
              
              
              2007
              
              
              
              2006
              
              
              
              2005
              
              
              
              2004LiabilitiesLine
      of credit
              
              $
              85,000
              
              
              $
              29,450
              
              
              $
              30,700
              
              
              $
              32,000
              
              
              $
              16,000Accounts
      payable
              
              
              199
              
              
              
              62
              
              
              
              76
              
              
              
              10
              
              
              
              25Payable
      to affiliate
              
              
              1,195
              
              
              
              557
              
              
              
              481
              
              
              
              489
              
              
              
              638Deferred
      revenue
              
              
              277
              
              
              
              355
              
              
              
              —
              
              
              
              —
              
              
              
              —Minority
      interest
              
              
              3,689
              
              
              
              3,240
              
              
              
              3,017
              
              
              
              3,042
              
              
              
              —Subscriptions
      to partnership inapplicant
      status
              
              
              —
              
              
              
              492
              
              
              
              557
              
              
              
              776
              
              
              
              42490,360
              
              
              
              34,156
              
              
              
              34,831
              
              
              
              36,317
              
              
              
              17,087Partners’
      capitalLimited
      partners subject toredemption
              
              
              334,265
              
              
              
              311,065
              
              
              
              270,160
              
              
              
              227,970
              
              
              
              183,368General
      partners subject toredemption
              
              
              248
              
              
              
              262
              
              
              
              231
              
              
              
              197
              
              
              
              163Total
      partners’ capital
              
              
              334,513
              
              
              
              311,327
              
              
              
              270,391
              
              
              
              228,167
              
              
              
              183,531$
              424,873
              
              
              $
              345,483
              
              
              $
              305,222
              
              
              $
              264,484
              
              
              $
              200,618





12





Consolidated Statements of
Income





2008
              
              
              
              2007
              
              
              
              2006
              
              
              
              2005
              
              
              
              2004Gross
      revenue
              
              $
              34,253
              
              
              $
              29,617
              
              
              $
              27,325
              
              
              $
              20,188
              
              
              $
              17,133Expenses
              
              
              15,902
              
              
              
              8,017
              
              
              
              8,432
              
              
              
              4,779
              
              
              
              4,981Income
      before interest credited topartners
      in applicant status
              
              
              18,351
              
              
              
              21,600
              
              
              
              18,893
              
              
              
              15,409
              
              
              
              12,152Interest
      credited to partners inapplicant
      status
              
              
              11
              
              
              
              28
              
              
              
              21
              
              
              
              41
              
              
              
              20Minority
      interest share of subsidiary loss
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Net
      income
              
              $
              18,340
              
              
              $
              21,572
              
              
              $
              18,872
              
              
              $
              15,368
              
              
              $
              12,132Net
      income to general partners (  1%)
              
              
              183
              
              
              
              216
              
              
              
              188
              
              
              
              154
              
              
              
              121Net
      income to limited partners (99%)
              
              
              18,157
              
              
              
              21,356
              
              
              
              18,684
              
              
              
              15,214
              
              
              
              12,011Total
      net income
              
              $
              18,340
              
              
              $
              21,572
              
              
              $
              18,872
              
              
              $
              15,368
              
              
              $
              12,132Net
      income per $1,000 invested bylimited
      partners for entire period(annualized)-
      where income is compounded andretained
              
              $
              53
              
              
              $
              71
              
              
              $
              71
              
              
              $
              70
              
              
              $
              72-
      where partner receives income inmonthly
      distributions
              
              $
              52
              
              
              $
              69
              
              
              $
              69
              
              
              $
              68
              
              
              $
              70





Annualized
yields when income is compounded or distributed monthly for the years 2004
through 2008 are outlined in the table below:





Compounded
              
              
              Distributed2004
              
              
              7.22
              %
              
              
              6.99
              %2005
              
              
              7.05
              %
              
              
              6.83
              %2006
              
              
              7.13
              %
              
              
              6.90
              %2007
              
              
              7.09
              %
              
              
              6.87
              %2008
              
              
              5.30
              %
              
              
              5.18
              %





During
2008, the partnership made distributions to compounded and distributed accounts
of 6.38% and 6.20%, respectively.  This over distribution of earnings
occurred during the fourth quarter of 2008 when the partnership recognized
additional expenses related to the allowance for losses during the year end
accounting closing process.  The average annualized yield, when income
is compounded and retained, from inception, for the years ended December 31,
2006-2008, was 8.14%, 8.07% and 7.90%, respectively.  The average
annualized yield, when income is distributed monthly, from inception, for the
years ended December 31, 2006-2008 was 7.91%, 7.84% and 7.67%,
respectively.





Certain
reclassifications, not affecting previously reported net income or total partner
capital, have been made to the previously issued consolidated financial
statements to conform to the current year presentation.








13


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





Critical
Accounting Policies.





In
preparing the consolidated 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 consolidated balance sheet dates and income and
expenses during the reported 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 owned through foreclosure.  At December 31, 2008, the
partnership owned seven real estate properties, which were taken back from
defaulted borrowers.





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 values, 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 is significant, the carrying amount of the investment will 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 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.  As of December 31, 2008 there were
twelve impaired loans with an aggregate principal balance of
$39,683,000.





Real
estate acquired through foreclosure 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 undiscounted
future 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 estimated 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
owned.  Actual results could vary from the aforementioned provisions
for losses.





Recently
issued accounting pronouncements





In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162).  SFAS 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements presented in conformity
with generally accepted accounting principles in the United
States.  SFAS 162 became effective on November 15,
2008.  The adoption of this statement did not have a material impact
on the partnership’s financial condition and results of operation.





On
January 1, 2008, the partnership adopted Statement of Financial Accounting
Standards No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosure requirements for fair
value measurements. The partnership deferred the application of SFAS 157 for
nonfinancial assets and nonfinancial liabilities as provided for by FASB Staff
Position (FSP) FAS 157-2, Effective Date of FASB Statement No. 157. FSP FAS
157-2 defers the effective date of SFAS 157 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for
nonfinancial assets and nonfinancial liabilities, except items that are
recognized or disclosed at fair value in an entity's financial statements on a
recurring basis (at least annually).  The adoption of SFAS 157 did not
have a material effect on the partnership’s results of operations, financial
position or liquidity.





14


In
October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for that Asset is Not Active, with an
immediate effective date.  The purpose of this release was to provide
further clarification regarding Level 3 inputs and the assumptions management
may make when the market for the asset in not active.  The adoption of
FSP FAS 157-3 did not have a material effect on the partnership’s results of
operations, financial position or liquidity.





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 did not have a material impact on the
partnership’s financial condition and results of operations.







On
February 15, 2007, the 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 has elected not to adopt the fair value option
for financial assets and financial liabilities.













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.











Related
Parties.





The
general partners of the partnership are Redwood Mortgage Corp., Gymno
Corporation and Michael R. Burwell.  Most partnership business is
conducted through Redwood Mortgage Corp., which arranges services and maintains
the loan portfolio for the benefit of the partnership.  The fees
received by 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 CommissionsFor fees in
      connection with the review, selection, evaluation, negotiation and
      extension of loans, the general partners may collect an amount equivalent
      to 12% of the loaned amount until 6 months after the termination date of
      the offering.  Thereafter, the loan brokerage commissions
      (points) will be limited to 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.  In 2008, 2007 and 2006, loan brokerage commissions
      paid by the borrowers were $1,182,000, $2,932,000 and $3,496,000,
      respectively.


15





·
            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 are 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.  The table below
      summarizes these fees paid by the partnership for the past three years (in
      thousands).





Years
      ended December 31,2008
              
              
              
              2007
              
              
              
              2006Maximum
      chargeable
              
              $
              5,128
              
              
              $
              4,158
              
              
              $
              3,719Waived
              
              
              (2,459
              )
              
              
              (2,709
              )
              
              
              (1,240
              )Net
      charged
              
              $
              2,669
              
              
              $
              1,449
              
              
              $
              2,479





·
            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
      $1,282,000, $1,143,000 and $991,000 were incurred by the partnership for
      years 2008, 2007 and 2006,
respectively.





·
            Other
      Fees   The partnership agreement provides that the
      general partners 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) may not exceed 1%.





·
            Operating
      ExpensesThe general
      partners may be 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 or severally are required to contribute 1/10 of 1% in
      cash contributions as proceeds from the offerings are received from the
      limited partners.  As of December 31, 2008 and 2007, a general
      partner, Gymno Corporation, had contributed $265,000 and $280,000,
      respectively, as capital in accordance with Section 4.02(a) of the
      partnership agreement.





·
            Sales
      Commission – “Formation Loan” to Redwood Mortgage
      Corp.Sales commissions relating to the capital
      contributions by limited partners are not paid directly by the partnership
      out of the offering proceeds.  Instead, the partnership loans to
      Redwood Mortgage Corp., a general partner, amounts necessary to pay all
      sales commissions and amounts payable in connection with unsolicited
      sales.  The loan is referred to as the “formation
      loan”.  It is unsecured and non-interest bearing and is applied
      to reduce limited partners capital in the consolidated balance
      sheets.  The sales commissions range between 0 (for units sold
      by the general partners) and 9%.  It is estimated the total
      amount of the formation loan will approximate 7.6% based on the assumption
      that 65% of the investors will reinvest earnings, which qualify for the
      higher commission percentage.  Formation loans made to Redwood
      Mortgage Corp. were on a per offering
basis.





16


The
following table summarizes Formation Loan transactions through December 31, 2008
(in thousands):





Offering1st
              
              
              2nd
              
              
              3rd
              
              
              4th
              
              
              5th
              
              
              6th
              
              
              TotalLimited
      partnercontributions
              
              $
              14,932
              
              
              $
              29,993
              
              
              $
              29,999
              
              
              $
              49,985
              
              
              $
              74,904
              
              
              $
              100,000
              
              
              $
              299,813Formation
      loans made
              
              
              1,075
              
              
              
              2,272
              
              
              
              2,218
              
              
              
              3,777
              
              
              
              5,661
              
              
              
              7,564
              
              
              
              22,567Repayments
      to date
              
              
              (991
              )
              
              
              (1,758
              )
              
              
              (1,291
              )
              
              
              (1,856
              )
              
              
              (1,840
              )
              
              
              (999
              )
              
              
              (8,735
              )Early
      withdrawalpenalties
      applied
              
              
              (84
              )
              
              
              (171
              )
              
              
              (135
              )
              
              
              (98
              )
              
              
              (137
              )
              
              
              —
              
              
              
              (625
              )Balance,December
      31, 2008
              
              $
              —
              
              
              $
              343
              
              
              $
              792
              
              
              $
              1,823
              
              
              $
              3,684
              
              
              $
              6,565
              
              
              $
              13,207





The
amounts paid by Redwood Mortgage Corp. are determined at annual installments of
one-tenth of the principal balance of the formation loan at December 31 of each
year until the offering period is closed.  Thereafter, the remaining
formation loan is paid in ten equal amortizing payments over a period of ten
years.  Interest has been imputed at the market rate of interest in
effect at the date the offering closed. See NOTE 1 to the consolidated financial
statements.





On
December 31, 2008, the partnership had completed its sixth offering of
$100,000,000 in units.  Contributed capital equaled $14,932,000 for
the first offering, $29,993,000 for the second offering, $29,999,000 for the
third offering, $49,985,000 for the fourth offering, $74,904,000 for the fifth
offering and $100,000,000 for the sixth offering, totaling an aggregate of
$299,813,000 as of December 31, 2008.





Results of Operations – For
the years ended December 31, 2008, 2007 and 2006





Changes
in the partnership’s operating results for the years ended December 31, 2008 and
2007 are discussed below ($ in thousands):





Changes
      for the years ended December 31,2008
              
              
              
              2007Dollars
              
              
              Percent
              
              
              
              Dollars
              
              
              PercentRevenueInterest
      on loans
              
              $
              4,639
              
              
              
              16
              
              %
              
              $
              2,107
              
              
              
              8
              
              %Interest-interest
      bearing accounts
              
              
              5
              
              
              
              6
              
              
              
              
              24
              
              
              
              38Late
      fees
              
              
              (93
              )
              
              
              (36
              )
              
              
              
              16
              
              
              
              7Imputed
      interest on Formation loan
              
              
              (56
              )
              
              
              (8
              )
              
              
              
              180
              
              
              
              36Gain
      on sale of loan
              
              
              119
              
              
              
              —
              
              
              
              
              —
              
              
              
              —Other
              
              
              22
              
              
              
              24
              
              
              
              
              (35
              )
              
              
              (28
              )Total
      revenues
              
              
              4,636
              
              
              
              16
              
              
              
              
              2,292
              
              
              
              8ExpensesMortgage
      servicing fees
              
              
              1,220
              
              
              
              84
              
              
              
              
              (1,030
              )
              
              
              (42
              )Interest
      expense
              
              
              739
              
              
              
              39
              
              
              
              
              (471
              )
              
              
              (20
              )Amortization
      of loan origination fees
              
              
              8
              
              
              
              8
              
              
              
              
              13
              
              
              
              14Provision
      for losses on loans and real estate
              
              
              5,880
              
              
              
              329
              
              
              
              
              593
              
              
              
              50Asset
      management fees
              
              
              139
              
              
              
              12
              
              
              
              
              152
              
              
              
              15Clerical
      costs through Redwood Mortgage Corp.
              
              
              31
              
              
              
              9
              
              
              
              
              4
              
              
              
              1Professional
      services
              
              
              (200
              )
              
              
              (47
              )
              
              
              
              192
              
              
              
              83Amortization
      of discount on imputed interest
              
              
              (56
              )
              
              
              (8
              )
              
              
              
              180
              
              
              
              36Other
              
              
              107
              
              
              
              42
              
              
              
              
              (41
              )
              
              
              (14
              )Total
      expenses
              
              
              7,868
              
              
              
              98
              
              
              
              
              (408
              )
              
              
              (5
              )Net
      income
              
              $
              (3,232
              )
              
              
              (15
              )
              %
              
              $
              2,700
              
              
              
              14
              
              %





17


Please
refer to the above table throughout the discussions of Results of
Operations.





The
increases in interest on loans, year over year, are primarily the result of
increases in the average loan portfolio.  The year end loan balances
were $363,037,000 for 2008, $305,568,000 for 2007 and $261,097,000 for
2006.  Offsetting the portfolio increase for 2008 was a reduction in
the average loan portfolio yield from 9.87% to 9.42%.  In 2007, the
average interest rate of the loan portfolio increased from 9.78% for 2006 to
9.87%.





The 2008
decreases in imputed interest on the formation loan and the related amortization
of discount on imputed interest is primarily due to a reduction to the formation
loan from $13,497,000 at December 31, 2007 to $13,207,000 at December 31,
2008.  The 2007 increases for the same two items were due to increase
of the formation loan from $12,693,000 at December 31, 2006 to $13,497,000 at
December 31, 2007.  Since the formation loan has a zero coupon rate,
the partnership has imputed interest at rates near the prime rate existing at
the close of each offering of units.





The
increase to gain on sale of loan relates to a premium obtained upon the sale of
a mortgage loan.  The partnership was presented with an unsolicited
offer to sell a more than 90 days delinquent loan.  At the time of
sale, the loan balance plus related accrued interest, advances and late charges
totaled $5,166,000.





The 2008
increase in mortgage servicing fees is primarily due to the increase in the
average loan portfolio from $280,688,000 for 2007, to $345,864,000 for
2008.  Mortgage servicing fees declined in 2007 primarily due to
Redwood Mortgage Corp. waiving $2,709,000 of fees for 2007 compared to waiving
$1,240,000 in 2006.





Interest
expense on the line of credit is tied to the bank’s prime rate.  The
increase for 2008 is due to an increase in the average daily borrowing to
$57,018,000, compared to $21,774,000 for 2007.  Offsetting the
increase in borrowings was a reduction to the average interest rate charged from
7.58% in 2007 to 4.58% for 2008.  The decrease for 2007 is directly
related to a decline of the weighted average borrowing to $21,774,000 for 2007,
compared to $29,032,000 for 2006.  Also, the average interest rate
charged decreased from 8.08% in 2006 to 7.58% for 2007.





The
increase in provision for losses on loans and real estate owned in 2008 and 2007
was primarily due to management’s decision to increase the allowances for losses
for loans and real estate owned due to increased loan portfolio size, increased
delinquency, impaired loans and declining property values.  For the
years ended 2006 through 2008, the respective secured loan portfolio was
$261,097,000, 305,568,000 and 363,037,000.  The number of loans more
than 90 days delinquent and their related loan balances for the same years were
10 and $30,055,000, 19 and $49,672,000, and 21 and $83,576,000,
respectively.





The
increase in asset management fees for 2008 and 2007 was due to an increase in
limited partners’ capital under management, which increased to $334,265,000 in
2008 from $311,065,000 in 2007 and $270,160,000 in 2006.





The
increase in clerical costs for 2008 and 2007 was primarily due to an increase in
partnership allocation size compared to the other partnerships serviced by
Redwood Mortgage Corp.





The
decrease in professional fees for 2008 was due to 2007 including one-time costs
related to the Sarbanes-Oxley Act.  The increase in professional fees
for 2007 was due to the partnership initiating compliance work required by the
Sarbanes-Oxley Act as well as costs associated with partnership regulatory
filings and the annual audit.





The 2008
increase, and the 2007 decrease in other expenses is primarily related to the
costs to maintain and market the owned properties.  For the years
2008-2006 those costs have been $264,000, $131,000 and $191,000.





Partnership
capital continued to increase for the years 2006-2008, as the partnership
received new limited partner capital contributions of $20,393,000, $32,570,000
and $34,811,000, respectively and retained the earnings of limited partners that
have chosen to do so of $12,509,000, $12,871,000 and 11,462,000 for the years
2008, 2007 and 2006, respectively.  On August 4, 2005 the partnership
commenced its sixth offering and it closed on November 19,
2008.  Funds raised have been used to increase the partnership’s
capital base and provide funds for additional mortgage loans.  For all
offerings, as of December 31, 2008 the limited partners total units purchased
were 299,321,000 units aggregating $299,813,000.





18


The
partnership began funding loans on April 14, 1993 and as of December 31, 2008
had credited earnings to limited partners who elected to retain earnings at an
average annualized yield of 7.90% since inception through December 31,
2008.  Limited partners who elected to have their earnings distributed
monthly had an average annualized yield of 7.67% since inception through
December 31, 2008.





In 1995,
the partnership established a line of credit with a commercial bank secured by
its loan portfolio.  Since its inception, the credit limit has
increased from $3,000,000 to $85,000,000 and the number of banks involved has
increased to three.  This added source of funds has helped in
maximizing the partnership’s yield by permitting the partnership to minimize the
amount of funds in lower yield investment accounts when appropriate loans are
not available.  Additionally, the loans made by the partnership
generally bear interest at a rate in excess of the rate payable to the bank,
which extended the line of credit.  As of December 31, 2008 and 2007,
the outstanding balance on the line of credit was $85,000,000 and $29,450,000,
respectively.





Allowance
for Losses.





The
general partners periodically review the loan portfolio, examining the status of
delinquencies, the underlying collateral securing these loans, borrowers’
payment records, etc.  Based upon this information and other data, the
allowance for loan losses is increased or decreased.  Borrower
foreclosures are a normal aspect of partnership operations.  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.  At December 31, 2008 the partnership had 21
loans past due 90 days or more in interest payments totaling
$83,576,000.  Nine of these 21 loans with principal totaling
$54,107,000 were past maturity.  At December 31, 2008 the partnership
has filed notices of default, beginning the process of foreclosure against five
loans, three of which are included in the 90 day delinquent payment
category.  The principal amounts of the five filed notices of default
total $6,165,000 or 1.70% of the loan portfolio.  The partnership
occasionally allows borrowers to continue to make the interest payments on debt
past maturity for periods of time.  At December 31, 2008 the
partnership had a combined total of 21 loans totaling $83,576,000, which were
past maturity and/or past due more than 90 days in interest
payments.





The
partnership occasionally enters into workout agreements with borrowers who are
past maturity or delinquent in their regular payments.  Typically, a
workout agreement allows the borrower to extend the maturity date of the balloon
payment and/or allows the borrower to make current monthly payments while
deferring for periods of time, past due payments, and allows time to pay the
loan in full.  Workout agreements and foreclosures generally exist
within the partnership’s loan portfolio to greater or lesser degrees, depending
primarily on the health of the economy.  Management expects the number
of foreclosures and workout agreements will rise during difficult economic times
and conversely fall during good economic times.  The delinquencies
that exist are typical for our market segment, but have risen significantly
during 2008 and in the first two months of 2009.  Workouts and
foreclosures are considered when management arrives at appropriate loan loss
reserves and based on management’s experience, are reflective of the
partnership’s loan marketplace segment.  In 2008, the partnership
filed foreclosure proceedings to enforce the terms of certain loans. In some of
these instances the borrowers have been able to remedy the foreclosures we have
filed.  During 2008 the partnership completed the foreclosure of three
loans.  In 2008, one of the properties acquired through foreclosure in
2007, was sold at a loss of $250,000 which was offset against a valuation
allowance of $270,000, allocated for this property.  Another property
acquired through foreclosure was sold in 2008 at a loss of $132,000 which was
offset against a valuation allowance of $132,000.  In 2007, one of the
properties acquired through foreclosure in 2006, was sold at a loss of $602,000
which was offset against a valuation allowance of $919,000, allocated for this
property.  In 2006, one of the properties acquired through foreclosure
in 2004 was sold, which resulted in a loss of $73,000.  During 2005,
we completed the foreclosure of two loans.  In 2005 the partnership
sold one of these two properties for a gain of $183,000.  In 2004, the
partnership took back four properties through foreclosure or deeds in lieu of
foreclosure.  These properties are more fully discussed under Item 2 –
Properties.  During 2009 the partnership anticipates filing additional
notices of default.  During January and February 2009, the partnership
filed three notices of default on loans with an aggregate principal balance s of
$12,283,000 which represents 3.38% of the outstanding loan balance at December
31, 2008.  Borrower foreclosures are a normal aspect of partnership
operations.  As a safeguard against potential losses, the general
partners have established allowances for losses on loans and real estate owned
through foreclosure of $13,034,000 at December 31, 2008.  These
allowances for losses were established to guard against collection
losses.  The total cumulative allowances for losses as of December 31,
2008, are considered by the general partners to be adequate.  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.





19


The
partnership may restructure loans, which are delinquent or past
maturity.  This is done either through the modification of an existing
loan or by re-writing a whole new loan.  It could involve, among other
changes, an extension in maturity date, a reduction in repayment amount, a
reduction in interest rate or granting an additional loan.  Twelve
loans were restructured in 2008 resulting in a loss of $2,482,000.  No
loans were restructured in 2007 and 2006.





Liquidity
and Capital Resources.





The
partnership relies upon loan payoffs, borrowers’ mortgage payments, the
partnership’s line of credit and sale of real estate owned 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
generated from borrower payments of interest, principal, loan payoffs and from
the partnership’s sale of real estate owned properties.  Currently the
credit and financial markets are facing significant disruptions.  Loan
funds are not readily available to borrowers or purchasers of real estate
properties.  These credit constraints may impact the partnership’s
ability to sell properties and the borrowers’ ability to sell properties or
refinance their loans in the event they have difficulty making loan payments or
their loan matures.  A slow down or reduction in loan repayments could
reduce the partnership’s cash flows and restrict the partnership’s ability to
invest in new loans or provide earnings and capital distributions.





At the
time of their subscription to the partnership, limited partners must elect
either to receive monthly, quarterly or annual cash distributions from the
partnership, or to compound earnings in their capital account.  If an
investor initially elects to receive monthly, quarterly or annual distributions,
such election, once made, is irrevocable.  If the investor initially
elects to compound earnings in his/her capital account, in lieu of cash
distributions, the investor may, after three (3) years, change the election and
receive monthly, quarterly or annual cash distributions.  Earnings
allocable to limited partners, who elect to compound earnings in their capital
account, will be retained by the partnership for making further loans or for
other proper partnership purposes and such amounts will be added to such limited
partners’ capital accounts.





During
the years stated below, the partnership, after allocation of syndication costs,
made the following allocation of earnings both to the limited partners who
elected to compound their earnings, and those that chose to distribute: ($ in
thousands)




2008
              
              
              
              2007
              
              
              
              2006Compounding
              
              $
              12,584
              
              
              $
              12,871
              
              
              $
              11,462Distributing
              
              
              8,681
              
              
              
              8,132
              
              
              
              6,887Total
              
              $
              21,265
              
              
              $
              21,003
              
              
              $
              18,349Percent
      of limited partner’scapital,
      electing distribution
              
              
              43
              %
              
              
              40
              %
              
              
              38
              %





The
partnership also allows the limited partners to withdraw their capital account
subject to certain limitations and penalties (see “Withdrawal From Partnership”
in the Limited Partnership Agreement).  Once a limited partner’s
initial five-year holding period has passed, the general partners expect to see
an increase in liquidations due to the ability of limited partners to withdraw
without penalty.  This ability to withdraw five years after a limited
partner’s investment has the effect of providing limited partner liquidity and
the general partners expect a portion of the limited partners to avail
themselves of this liquidity.  This has the anticipated effect of
increasing the net capital of the partnership, primarily through retained
earnings during the offering period.  The general partners expect to
see increasing numbers of limited partner withdrawals during a limited partner’s
5th
through 10th
anniversary, at which time the bulk of those limited partners who have sought
withdrawal have been liquidated.  Since the five-year hold period for
most limited partners has yet to expire, as of December 31, 2008, many limited
partners may not as yet avail themselves of this provision for
liquidation.  Capital liquidations including early withdrawals during
the past three years ending December 31 were: ($ in thousands)


20





2008
              
              
              
              2007
              
              
              
              2006Capital
      liquidations – without penalty
              
              $
              4,717
              
              
              $
              2,765
              
              
              $
              2,200Capital
      liquidations – subject to penalty
              
              
              2,437
              
              
              
              1,001
              
              
              
              839Total
              
              $
              7,154
              
              
              $
              3,766
              
              
              $
              3,039








The total
liquidations represent 2.14%, 1.21% and 1.12% of the limited partners’ ending
capital for the years ended December 31, 2008, 2007 and 2006,
respectively.  Withdrawal requests have been rising throughout
2008.  In response to reduced cash flows due to reduced loan payoffs,
increased loan delinquencies and increased needs for cash reserves necessary to
protect and preserve the partnership’s assets, as of March 16, 2009, the
partnership suspended all liquidation payments and will not be accepting new
liquidation requests until further notice, and in March 2009 earnings
distributions were also reduced.  While the partnership is unable to
predict when liquidations will resume or how long reduced earnings distribution
will be in effect, it is currently anticipated that liquidations will not resume
and that earnings distributions will not increase for the remainder of
2009.





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 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 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 units and
none is likely to develop.  Thus, there is no certainty 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 (See the section of the Prospectus
entitled “Risk Factors - Purchase of Units is a Long Term
Investment”).





Current
Economic Conditions.





The
partnership makes loans secured by California real estate.  As a
result, the health of the California economy and real estate market is of
primary concern to the partnership.  The majority of the partnership’s
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, 2008, approximately 56 percent of the loans held by the partnership
were located in the nine counties which comprise the San Francisco Bay Area
region.





The
California economy has slowed significantly during 2008.  California
unemployment increased from 6.1 percent in December of 2007 to 8.7 percent in
December 2008.  The unemployment rate rose to over 10 percent in
February 2009 and appears likely to go higher as businesses continue to layoff
workers.  The UCLA Anderson Forecast estimates a very weak first three
quarters of 2009.  The California economy is in a recession like the
remainder of the nation.





21


Residential
real estate values are important to the partnership as they provide the security
behind the loans.  During 2008, residential real estate values
declined from their 2007 levels.  According to the California
Association of Realtors, in December 2008 the median price of an existing
single-family home in California was $281,000, a 41.5 percent decrease from the
$480,820 median for December 2007.  Sales volumes began to increase in
the second half of 2008.  The increased sales volumes have helped to
decrease inventories of homes.  The California Association of Realtors
Inventory Index for existing single-family detached homes in December 2008 was
5.6 months, compared to 13.4 months for the same period a year
ago.  The index indicates the number of months needed to deplete the
supply of homes on the markets at the current sales rate.





For the
partnership loans outstanding at December 31, 2008, the partnership had an
average loan-to-value of 65.67% 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.  Real estate values have declined during 2008 putting upward
pressure on the partnership’s loan-to-value ratio.





Contractual
Obligations





A summary
of the contractual obligations of the partnership as of December 31, 2008 is set
forth below (in thousands):




Contractual
      Obligation
              
              Total
              
              
              Less
      than 1 Year
              
              
              1-3
      Years
              
              
              3-5
      YearsLine
      of credit
              
              $
              85,000
              
              
              $
              —
              
              
              $
              70,830
              
              
              $
              14,170Construction
      loans
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Rehabilitation
      loans
              
              
              1,856
              
              
              
              1,856
              
              
              
              —
              
              
              
              —Total
              
              $
              86,856
              
              
              $
              1,856
              
              
              $
              70,830
              
              
              $
              14,170








Item 7A – Quantitative and
Qualitative Disclosures About Market Risk





The
following table contains information about the cash held in money market
accounts, loans held in the partnership’s portfolio and our line of credit as of
December 31, 2008.  The presentation, for each category of
information, aggregates the assets and liabilities by their maturity dates for
maturities occurring in each of the years 2009 through 2013 and separately
aggregates the information for all maturities arising after 2013.  The
carrying values of these assets and liabilities approximate their fair values as
of December 31, 2008 (in thousands).





2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              Thereafter
              
              
              TotalInterest
      earning assets:Money
      market accounts
              
              $
              11,130
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              11,130Average
      interest rate
              
              
              1.50
              %
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1.50
              %Loans
      secured by deeds of trust
              
              $
              219,367
              
              
              $
              55,530
              
              
              $
              16,621
              
              
              $
              47,128
              
              
              $
              18,790
              
              
              $
              5,601
              
              
              $
              363,037Average
      interest rate
              
              
              9.59
              %
              
              
              9.82
              %
              
              
              9.51
              %
              
              
              7.12
              %
              
              
              8.46
              %
              
              
              9.45
              %
              
              
              9.24
              %Interest
      bearing liabilitiesLine
      of credit
              
              $
              —
              
              
              $
              14,166
              
              
              $
              28,332
              
              
              $
              28,332
              
              
              $
              14,170
              
              
              $
              —
              
              
              $
              85,000Average
      interest rate
              
              
              2.75
              %
              
              
              2.75
              %
              
              
              2.75
              %
              
              
              2.75
              %
              
              
              2.75
              %
              
              
              
              
              
              
              2.75
              %





Market
Risk.





The
partnership’s line of credit bears interest at a variable rate, tied to the
prime rate.  As a result, the partnership’s primary market risk
exposure with respect to its obligations is to changes in interest rates, which
will affect the interest cost of outstanding amounts on the line of
credit.  The partnership may also suffer market risk tied to general
trends affecting real estate values that may impact the partnership’s security
for its loans.





22


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. 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 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.





The
partnership is also at risk for significant declines in the value of the
underlying collateral for the loans.  Should the collateral value
decline to be less than the outstanding loan balance and any related
receivables, the partnership would need to write-down the carrying value of the
loan and any related receivables to match the collateral value.  Also,
borrowers may be less inclined to make their minimum monthly payments, thus
placing a burden on the partnership’s cash flows.








PORTFOLIO
REVIEW – For the years ended December 31, 2008, 2007 and
2006





Secured
Loan Portfolio.





The
partnership’s secured loan portfolio consists primarily of short-term (one to
five years), fixed rate loans secured by real estate.  As of December
31, 2008, 2007 and 2006 the partnership’s loans secured by real property
collateral in the nine San Francisco Bay Area counties (San Francisco, San
Mateo, Santa Clara, Alameda, Contra Costa, Napa, Solano, Sonoma, and Marin)
represented $202,028,000 (56%), $187,834,000 (62%) and $152,997,000 (59%),
respectively, of the outstanding secured loan portfolio.  The
remaining portfolio is primarily represented by loans secured by real estate
located in Southern California.





The
following table sets forth the distribution of loans held by the partnership by
property type for the years ended December 31, (in thousands):





2008
              
              
              2007
              
              
              2006Single
      family homes
              
              $
              266,113
              
              
              
              73
              %
              
              $
              191,608
              
              
              
              63
              %
              
              $
              190,859
              
              
              
              73
              %Apartments
              
              
              10,727
              
              
              
              3
              
              
              
              9,369
              
              
              
              3
              
              
              
              14,914
              
              
              
              6Commercial
              
              
              83,692
              
              
              
              23
              
              
              
              100,933
              
              
              
              33
              
              
              
              53,262
              
              
              
              20Land
              
              
              2,505
              
              
              
              1
              
              
              
              3,658
              
              
              
              1
              
              
              
              2,062
              
              
              
              1Total
              
              $
              363,037
              
              
              
              100
              %
              
              $
              305,568
              
              
              
              100
              %
              
              $
              261,097
              
              
              
              100
              %





23


The
following table sets forth the priorities, asset concentrations and maturities
of loans held by the partnership as of December 31, 2008 (in
thousands):





#
      of Loans
              
              Amount
              
              PercentFirst
      trust deeds
              75
              
              $
              190,765
              
              53
              %Second
      trust deeds
              64
              
              
              171,096
              
              47Third
      trust deeds
              4
              
              
              1,176
              
              —Total
              143
              
              $
              363,037
              
              100
              %Maturing
      prior to December 31, 2009
              39
              
              $
              219,367
              
              60
              %Maturing
      during 2010
              22
              
              
              55,530
              
              15Maturing
      during 2011
              20
              
              
              16,621
              
              5Maturing
      after December 31, 2011
              62
              
              
              71,519
              
              20Total
              143
              
              $
              363,037
              
              100
              %Average
      loan
              
              
              $
              2,539
              
              0.70
              %Largest
      loan
              
              
              
              38,976
              
              10.74
              %Smallest
      loan
              
              
              
              23
              
              0.01
              %Average
      Loan-to-Value, based upon appraisalsand
      senior liens at date of inception of loan
              
              
              
              
              
              67.64
              %








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.  Rather, 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 losses of the
partnership.  As of December 31, 2008, the general partners have
determined the allowance for loan losses and losses on real estate owned of
$13,034,000 (3.85% of net assets) 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.  At December 31, 2008, the partnership had 21 loans past due
more than 90 days in interest payments totaling $83,576,000.  Nine of
these 21 loans with principal totaling $54,107,000 were also past
maturity.  The partnership has filed notices of default on three of
the 21 loans plus two loans less than 90 days delinquent, thus beginning the
process of foreclosure.  The principal amounts of the five filed
notices of default total $6,165,000 or 1.70% of the loan
portfolio.  During January and February 2009 the partnership filed
three notices of default on loans with an aggregate principal balance of
$12,283,000 which represents 3.38% of the outstanding loan balance at December
31, 2008.  For one of these filed notices of default, totaling
$10,338,000 in principal balance, the partnership also holds the first mortgage
which it acquired from the senior lender.  The property is managed and
the remaining rehabilitation is being coordinated, by a court appointed
receiver.  If acquired at a trustee sale, the partnership’s basis
would be approximately $58,000,000.  Should the partnership acquire
the property, the intent would be to operate it as a rental property until the
resale market has improved.  The partnership allows borrowers to
occasionally continue to make the interest payments on debt past maturity for
periods of time.





24


The
partnership also makes loans requiring periodic disbursements of
funds.  As of December 31, 2008 there were seven such
loans.  These include loans for the ground up construction of
buildings and loans for rehabilitation of existing structures. Interest on these
loans is computed with the simple interest method and only on the amounts
disbursed on a daily basis.





A summary
of the status of the partnership’s loans, which are periodically disbursed as of
December 31, 2008, is set forth below (in thousands):





Complete
      Construction
              RehabilitationDisbursed
      funds
              
              $
              —
              
              
              $
              24,628Undisbursed
      funds
              
              $
              —
              
              
              $
              1,856





“Construction
Loans” are determined by the management to be those loans made to borrowers for
the construction of entirely new structures or dwellings, whether residential,
commercial or multifamily properties.  For each such Construction
Loan, the partnership has approved a maximum balance for such loan; however,
disbursements are made in phases throughout the construction
process.  As of December 31, 2008, the partnership had no commitments
for Construction Loans.  Upon project completion construction loans
are reclassified as permanent loans.  Funding of Construction loans is
limited to 10% of the loan portfolio.





The
partnership also makes loans, the proceeds of which are used to remodel, add to
and/or rehabilitate an existing structure or dwelling, whether residential,
commercial or multifamily properties and which, in the determination of
management, are not construction loans.  Many of these loans are for
cosmetic refurbishment of both interiors and exteriors of existing
condominiums.  The refurbished units will then be sold to new owners,
repaying the partnership’s loan. These loans are referred to by management as
“Rehabilitation Loans”.  As of December 31, 2008 the partnership had
$24,628,000 in Rehabilitation Loans where $1,856,000 remained to be disbursed
for a combined total of $26,484,000.  While the partnership does not
classify Rehabilitation Loans as Construction Loans, Rehabilitation Loans carry
some of the same risks as Construction Loans.  There is no limit on
the amount of Rehabilitation Loans the partnership may make.








Item 8 – Consolidated
Financial Statements and Supplementary Data





A
– Consolidated Financial Statements





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





·
            Report
      of Independent Registered Public Accounting Firm·
            Consolidated
      Balance Sheets - December 31, 2008 and December 31,
2007·
            Consolidated
      Statements of Income for the years ended December 31, 2008, 2007 and
      2006·
            Consolidated
      Statements of Changes In Partners’ Capital for the years ended December
      31, 2008, 2007 and 2006·
            Consolidated
      Statements of Cash Flows for the years ended December 31, 2008, 2007 and
      2006·
            Notes
      to Consolidated Financial
Statements





B
– Consolidated Financial Statement Schedules





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





·
            Schedule
      II  –  Valuation and Qualifying
    Accounts·
            Schedule
      IV –  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.


25





























REDWOOD MORTGAGE INVESTORS
VIII


(A CALIFORNIA LIMITED
PARTNERSHIP)


CONSOLIDATED FINANCIAL
STATEMENTS


AND SUPPLEMENTAL
INFORMATION


DECEMBER 31, 2008 AND
2007


AND FOR EACH OF THE THREE
YEARS


IN THE PERIOD ENDED DECEMBER
31, 2008








26




















TABLE OF
CONTENTS








Page
      No.Report
      of Independent Registered Public Accounting Firm
              
              
              28Consolidated
      Balance Sheets
              
              
              29Consolidated
      Statements of Income
              
              
              30Consolidated
      Statements of Changes in Partners’ Capital
              
              
              31Consolidated
      Statements of Cash Flows
              
              
              33Notes
      to Consolidated Financial Statements
              
              
              34Supplemental
      SchedulesSchedule
      II - Valuation and Qualifying Accounts
              
              
              54Schedule
      IV - Mortgage Loans on Real EstateRule
      12-29 Loans on Real Estate
              
              
              55



















27















REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM











To the
Partners


Redwood
Mortgage Investors VIII


Redwood
City, California







We have
audited the accompanying consolidated balance sheets of Redwood Mortgage
Investors VIII (a California limited partnership) as of December 31, 2008 and
2007 and the related consolidated statements of income, changes in partners’
capital and cash flows for each of the three years in the period ended December
31, 2008. These consolidated financial statements are the responsibility of
Redwood Mortgage Investors VIII’s management. Our responsibility is to express
an opinion on these consolidated 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 VIII 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 VIII’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 consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Redwood
Mortgage Investors VIII as of December 31, 2008 and 2007 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2008 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
consolidated 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 consolidated financial statements. Such information has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic consolidated financial statements taken as a
whole.








/s/
ARMANINO McKENNA  LLP


_____________________________


ARMANINO
McKENNA  LLP


San
Ramon, California


March 31,
2009





28


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Consolidated
Balance Sheets


December
31, 2008 and 2007


(in
thousands)





ASSETS




2008
              
              
              
              2007Cash
      and cash equivalents
              
              $
              12,495
              
              
              $
              11,591LoansLoans,
      secured by deeds of trust, net of discount of $2,976 for
    2008
              
              
              363,037
              
              
              
              305,568Loans,
      unsecured
              
              
              453
              
              
              
              345Allowance
      for loan losses
              
              
              (11,420
              )
              
              
              (4,469
              )Net
      loans
              
              
              352,070
              
              
              
              301,444Interest
      and other receivablesAccrued
      interest and late fees
              
              
              12,174
              
              
              
              5,600Receivable
      from affiliate
              
              
              —
              
              
              
              764Advances
      on loans
              
              
              22,345
              
              
              
              2,358Total
      interest and other receivables
              
              
              34,519
              
              
              
              8,722Real
      estate ownedReal
      estate held
              
              
              21,500
              
              
              
              20,547Real
      estate held for sale
              
              
              5,807
              
              
              
              4,479Allowance
      for real estate losses
              
              
              (1,614
              )
              
              
              (1,417
              )Net
      real estate
              
              
              25,693
              
              
              
              23,609Loan
      origination fees, net
              
              
              96
              
              
              
              117Total
      assets
              
              $
              424,873
              
              
              $
              345,483





LIABILITIES AND PARTNERS’
CAPITAL




LiabilitiesLine
      of credit
              
              $
              85,000
              
              
              $
              29,450Accounts
      payable
              
              
              199
              
              
              
              62Deferred
      revenue
              
              
              277
              
              
              
              355Payable
      to affiliate
              
              
              1,195
              
              
              
              557Total
      liabilities
              
              
              86,671
              
              
              
              30,424Investors
      in applicant status
              
              
              —
              
              
              
              492Minority
      interest
              
              
              3,689
              
              
              
              3,240Partners’
      capitalLimited
      partners’ capital, subject to redemption, net of
    unallocatedsyndication
      costs of $1,716 and $1,791 for 2008 and 2007,
respectively;and
      net of Formation Loan receivable of $13,207 and $13,4972008
      and 2007, respectively
              
              
              334,265
              
              
              
              311,065General
      partners’ capital, net of unallocated syndication costs of
    $17and
      $18 for 2008 and 2007, respectively
              
              
              248
              
              
              
              262Total
      partners’ capital
              
              
              334,513
              
              
              
              311,327Total
      liabilities and partners’ capital
              
              $
              424,873
              
              
              $
              345,483





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


29


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Consolidated
Statements of Income


For
the Years Ended December 31, 2008, 2007 and 2006


(in
thousands, except for per limited partner amounts)





2008
              
              
              
              2007
              
              
              
              2006RevenuesInterest
      on loans
              
              $
              33,141
              
              
              $
              28,502
              
              
              $
              26,395Interest-interest
      bearing accounts
              
              
              92
              
              
              
              87
              
              
              
              63Late
      fees
              
              
              164
              
              
              
              257
              
              
              
              241Imputed
      interest on Formation loan
              
              
              624
              
              
              
              680
              
              
              
              500Gain
      on sale of loan
              
              
              119
              
              
              
              —
              
              
              
              —Other
              
              
              113
              
              
              
              91
              
              
              
              126Total
      revenues
              
              
              34,253
              
              
              
              29,617
              
              
              
              27,325ExpensesMortgage
      servicing fees
              
              
              2,669
              
              
              
              1,449
              
              
              
              2,479Interest
      expense
              
              
              2,612
              
              
              
              1,873
              
              
              
              2,344Amortization
      of loan origination fees
              
              
              112
              
              
              
              104
              
              
              
              91Provision
      for losses on loans and real estate owned
              
              
              7,668
              
              
              
              1,788
              
              
              
              1,195Asset
      management fees
              
              
              1,282
              
              
              
              1,143
              
              
              
              991Clerical
      costs from Redwood Mortgage Corp.
              
              
              364
              
              
              
              333
              
              
              
              329Professional
      services
              
              
              223
              
              
              
              423
              
              
              
              231Amortization
      of discount on imputed interest
              
              
              624
              
              
              
              680
              
              
              
              500Other
              
              
              359
              
              
              
              252
              
              
              
              293Total
      expenses
              
              
              15,913
              
              
              
              8,045
              
              
              
              8,453Net
      income
              
              $
              18,340
              
              
              $
              21,572
              
              
              $
              18,872Net
      incomeGeneral
      partners (  1%)
              
              $
              183
              
              
              $
              216
              
              
              $
              188Limited
      partners (99%)
              
              
              18,157
              
              
              
              21,356
              
              
              
              18,684$
              18,340
              
              
              $
              21,572
              
              
              $
              18,872Net
      income per $1,000 invested bylimited
      partners for entire periodWhere
      income is reinvested
              
              $
              53
              
              
              $
              71
              
              
              $
              71Where
      partner receives income in monthly distributions
              
              $
              52
              
              
              $
              69
              
              
              $
              69








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


30


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Consolidated
Statements of Changes in Partners’ Capital


For
the Years Ended December 31, 2008, 2007 and 2006


(in
thousands)





Limited
      PartnersInvestors
              
              
              Capital
              
              
              
              
              
              
              
              
              TotalIn
              
              
              Account
              
              
              Unallocated
              
              
              Formation
              
              
              LimitedApplicant
              
              
              Limited
              
              
              Syndication
              
              
              Loan,
              
              
              Partners’Status
              
              
              Partners
              
              
              Costs
              
              
              Gross
              
              
              CapitalBalances
      at December 31, 2005
              
              $
              776
              
              
              $
              241,129
              
              
              $
              (1,653
              )
              
              $
              (11,506
              )
              
              $
              227,970Contributions
      on application
              
              
              34,811
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Formation
      loan increases
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (2,674
              )
              
              
              (2,674
              )Formation
      loan payments received
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,422
              
              
              
              1,422Interest
      credited to partners in applicant status
              
              
              21
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Interest
      withdrawn
              
              
              (7
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Transfers
      to partners’ capital
              
              
              (35,044
              )
              
              
              35,044
              
              
              
              —
              
              
              
              —
              
              
              
              35,044Net
      income
              
              
              —
              
              
              
              18,684
              
              
              
              —
              
              
              
              —
              
              
              
              18,684Syndication
      costs incurred
              
              
              —
              
              
              
              —
              
              
              
              (440
              )
              
              
              —
              
              
              
              (440
              )Allocation
      of syndication costs
              
              
              —
              
              
              
              (335
              )
              
              
              335
              
              
              
              —
              
              
              
              —Partners’
      withdrawals
              
              
              —
              
              
              
              (9,846
              )
              
              
              —
              
              
              
              —
              
              
              
              (9,846
              )Early
      withdrawal penalties
              
              
              —
              
              
              
              (80
              )
              
              
              15
              
              
              
              65
              
              
              
              —Balances
      at December 31, 2006
              
              
              557
              
              
              
              284,596
              
              
              
              (1,743
              )
              
              
              (12,693
              )
              
              
              270,160Contributions
      on application
              
              
              32,570
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Formation
      loan increases
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (2,444
              )
              
              
              (2,444
              )Formation
      loan payments received
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,564
              
              
              
              1,564Interest
      credited to partners in applicant status
              
              
              28
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Interest
      withdrawn
              
              
              (11
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Transfers
      to partners’ capital
              
              
              (32,652
              )
              
              
              32,652
              
              
              
              —
              
              
              
              —
              
              
              
              32,652Net
      income
              
              
              —
              
              
              
              21,356
              
              
              
              —
              
              
              
              —
              
              
              
              21,356Syndication
      costs incurred
              
              
              —
              
              
              
              —
              
              
              
              (418
              )
              
              
              —
              
              
              
              (418
              )Allocation
      of syndication costs
              
              
              —
              
              
              
              (353
              )
              
              
              353
              
              
              
              —
              
              
              
              —Partners’
      withdrawals
              
              
              —
              
              
              
              (11,805
              )
              
              
              —
              
              
              
              —
              
              
              
              (11,805
              )Early
      withdrawal penalties
              
              
              —
              
              
              
              (93
              )
              
              
              17
              
              
              
              76
              
              
              
              —Balances
      at December 31, 2007
              
              
              492
              
              
              
              326,353
              
              
              
              (1,791
              )
              
              
              (13,497
              )
              
              
              311,065Contributions
      on application
              
              
              20,988
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Formation
      loan increases
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (1,558
              )
              
              
              (1,558
              )Formation
      loan payments received
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,672
              
              
              
              1,672Interest
      credited to partners in applicant status
              
              
              11
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Interest
      withdrawn
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Transfers
      to partners’ capital
              
              
              (21,491
              )
              
              
              20,893
              
              
              
              —
              
              
              
              —
              
              
              
              20,893Net
      income
              
              
              —
              
              
              
              18,157
              
              
              
              —
              
              
              
              —
              
              
              
              18,157Syndication
      costs incurred
              
              
              —
              
              
              
              —
              
              
              
              (322
              )
              
              
              —
              
              
              
              (322
              )Allocation
      of syndication costs
              
              
              —
              
              
              
              (357
              )
              
              
              357
              
              
              
              —
              
              
              
              —Partners’
      withdrawals
              
              
              —
              
              
              
              (15,642
              )
              
              
              —
              
              
              
              —
              
              
              
              (15,642
              )Early
      withdrawal penalties
              
              
              —
              
              
              
              (216
              )
              
              
              40
              
              
              
              176
              
              
              
              —Balances
      at December 31, 2008
              
              $
              —
              
              
              $
              349,188
              
              
              $
              (1,716
              )
              
              $
              (13,207
              )
              
              $
              334,265





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





31


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Consolidated
Statements of Changes in Partners’ Capital (continued)


For
the Years Ended December 31, 2008, 2007 and 2006


(in
thousands)








General
      PartnersCapital
              
              
              
              
              
              TotalAccount
              
              
              Unallocated
              
              
              General
              
              
              TotalGeneral
              
              
              Syndication
              
              
              Partners’
              
              
              Partners’Partners
              
              
              Costs
              
              
              Capital
              
              
              CapitalBalances
      at December 31, 2005
              
              $
              213
              
              
              $
              (16
              )
              
              $
              197
              
              
              $
              228,167Contributions
      on application
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Formation
      loan increases
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (2,674
              )Formation
      loan payments received
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,422Interest
      credited to partners in applicant status
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Interest
      withdrawn
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Capital
      contributed
              
              
              35
              
              
              
              —
              
              
              
              35
              
              
              
              35,079Net
      income
              
              
              188
              
              
              
              —
              
              
              
              188
              
              
              
              18,872Syndication
      costs incurred
              
              
              —
              
              
              
              (5
              )
              
              
              (5
              )
              
              
              (445
              )Allocation
      of syndication costs
              
              
              (3
              )
              
              
              3
              
              
              
              —
              
              
              
              —Partners’
      withdrawals
              
              
              (184
              )
              
              
              —
              
              
              
              (184
              )
              
              
              (10,030
              )Early
      withdrawal penalties
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Balances
      at December 31, 2006
              
              
              249
              
              
              
              (18
              )
              
              
              231
              
              
              
              270,391Contributions
      on application
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Formation
      loan increases
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (2,444
              )Formation
      loan payments received
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,564Interest
      credited to partners in applicant status
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Interest
      withdrawn
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Capital
      contributed
              
              
              31
              
              
              
              —
              
              
              
              31
              
              
              
              32,683Net
      income
              
              
              216
              
              
              
              —
              
              
              
              216
              
              
              
              21,572Syndication
      costs incurred
              
              
              —
              
              
              
              (4
              )
              
              
              (4
              )
              
              
              (422
              )Allocation
      of syndication costs
              
              
              (4
              )
              
              
              4
              
              
              
              —
              
              
              
              —Partners’
      withdrawals
              
              
              (212
              )
              
              
              —
              
              
              
              (212
              )
              
              
              (12,017
              )Early
      withdrawal penalties
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Balances
      at December 31, 2007
              
              
              280
              
              
              
              (18
              )
              
              
              262
              
              
              
              311,327Contributions
      on application
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Formation
      loan increases
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (1,558
              )Formation
      loan payments received
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,672Interest
      credited to partners in applicant status
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Interest
      withdrawn
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Capital
      contributed
              
              
              20
              
              
              
              —
              
              
              
              20
              
              
              
              20,913Net
      income
              
              
              183
              
              
              
              —
              
              
              
              183
              
              
              
              18,340Syndication
      costs incurred
              
              
              —
              
              
              
              (3
              )
              
              
              (3
              )
              
              
              (325
              )Allocation
      of syndication costs
              
              
              (4
              )
              
              
              4
              
              
              
              —
              
              
              
              —Partners’
      withdrawals
              
              
              (214
              )
              
              
              —
              
              
              
              (214
              )
              
              
              (15,856
              )Early
      withdrawal penalties
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Balances
      at December 31, 2008
              
              $
              265
              
              
              $
              (17
              )
              
              $
              248
              
              
              $
              334,513





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


32


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Consolidated
Statements of Cash Flows


For
the Years Ended December 31, 2008, 2007 and 2006


(in
thousands)




2008
              
              
              
              2007
              
              
              
              2006Cash
      flows from operating activitiesNet
      income
              
              $
              18,340
              
              
              $
              21,572
              
              
              $
              18,872Adjustments
      to reconcile net income tonet
      cash provided by (used in) operating activitiesAmortization
      of loan origination fees
              
              
              112
              
              
              
              104
              
              
              
              91Imputed
      interest income
              
              
              (624
              )
              
              
              (680
              )
              
              
              (500
              )Amortization
      of discount
              
              
              624
              
              
              
              680
              
              
              
              500Provision
      for losses on loans and real estate owned
              
              
              7,668
              
              
              
              1,788
              
              
              
              1,195Gain
      on sale of loan
              
              
              (119
              )
              
              
              —
              
              
              
              —Change
      in operating assets and liabilitiesAccrued
      interest and late fees
              
              
              (7,808
              )
              
              
              (2,749
              )
              
              
              (578
              )Advances
      on loans
              
              
              (20,054
              )
              
              
              (2,317
              )
              
              
              (109
              )Receivable
      from affiliate
              
              
              764
              
              
              
              (764
              )Loan
      origination fees
              
              
              (91
              )
              
              
              (117
              )
              
              
              (122
              )Accounts
      payable
              
              
              137
              
              
              
              (14
              )
              
              
              66Deferred
      revenue
              
              
              (78
              )
              
              
              355
              
              
              
              —Payable
      to affiliate
              
              
              638
              
              
              
              76
              
              
              
              (8
              )Net
      cash provided by (used in) operating activities
              
              
              (491
              )
              
              
              17,934
              
              
              
              19,407Cash
      flows from investing activitiesLoans
      originated
              
              
              (99,839
              )
              
              
              (137,635
              )
              
              
              (159,745
              )Principal
      collected on loans
              
              
              35,923
              
              
              
              91,134
              
              
              
              107,656Proceeds
      from sale of loan
              
              
              5,300
              
              
              
              —
              
              
              
              —Payments
      for development of real estate
              
              
              (2,007
              )
              
              
              (2,096
              )
              
              
              (520
              )Proceeds
      from disposition of real estate
              
              
              1,990
              
              
              
              5,886
              
              
              
              635Net
      cash used in investing activities
              
              
              (58,633
              )
              
              
              (42,711
              )
              
              
              (51,974
              )Cash
      flows from financing activitiesBorrowings
      (repayments) on line of credit, net
              
              
              55,550
              
              
              
              (1,250
              )
              
              
              (1,300
              )Payments
      on mortgages
              
              
              (325
              )
              
              
              —
              
              
              
              —Contributions
      by partner applicants
              
              
              20,421
              
              
              
              32,618
              
              
              
              34,862Partners’
      withdrawals
              
              
              (15,856
              )
              
              
              (12,017
              )
              
              
              (10,030
              )Syndication
      costs paid
              
              
              (325
              )
              
              
              (422
              )
              
              
              (445
              )Formation
      loan lending
              
              
              (1,558
              )
              
              
              (2,444
              )
              
              
              (2,674
              )Formation
      loan collections
              
              
              1,672
              
              
              
              1,564
              
              
              
              1,422Increase
      to (distribution from) minority interest
              
              
              449
              
              
              
              223
              
              
              
              (25
              )Net
      cash provided by financing activities
              
              
              60,028
              
              
              
              18,272
              
              
              
              21,810Net
      increase (decrease) in cash and cash equivalents
              
              
              904
              
              
              
              (6,505
              )
              
              
              (10,757
              )Cash
      and cash equivalents - beginning of year
              
              
              11,591
              
              
              
              18,096
              
              
              
              28,853Cash
      and cash equivalents - end of year
              
              $
              12,495
              
              
              $
              11,591
              
              
              $
              18,096Supplemental
      disclosures of cash flow informationCash
      paid for interest
              
              $
              2,612
              
              
              $
              1,873
              
              
              $
              2,344








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


33


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 1 – ORGANIZATIONAL AND
GENERAL





Redwood
Mortgage Investors VIII, a California Limited Partnership, was organized in
1993.  The general partners are Michael R. Burwell, an individual,
Gymno Corporation and Redwood Mortgage Corp., both California corporations,
whose majority owner 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.  At December 31, 2008, the partnership had completed its sixth
offering stage, wherein contributed capital totaled $299,813,000 of approved
aggregate offerings of $300,000,000.  As of December 31, 2008 and
2007, $0 and $492,000, respectively, remained in applicant status, and total
partnership units sold were in the aggregate of $299,813,000 and $279,420,000,
respectively.





A minimum
of $250,000 and a maximum of $15,000,000 in partnership units were initially
offered through qualified broker-dealers.  This initial offering
closed in October 1996.  In December 1996, the partnership commenced a
second offering of an additional $30,000,000 which closed on August 30,
2000.  On August 31, 2000, the partnership commenced a third offering
for an additional $30,000,000 which closed in April 2002.  On October
30, 2002, the partnership commenced a fourth offering for an additional
$50,000,000 which closed in October 2003.  On October 7, 2003, the
partnership commenced a fifth offering for an additional $75,000,000 which
closed in August 2006.  On August 4, 2005, the partnership commenced a
sixth offering for an additional $100,000,000 which closed on November 19,
2008.  No additional offerings are contemplated at this
time.





Sales commissions -
formation loans





Sales
commissions are not paid directly by the partnership out of the offering
proceeds. Instead, the partnership loans to Redwood Mortgage Corp., one of the
general partners, amounts to pay all sales commissions and amounts payable in
connection with unsolicited orders.  This loan is unsecured and
non-interest bearing and is referred to as the “formation loan.”





The
formation loan relating to the initial offering ($15,000,000) totaled
$1,075,000, which was 7.2% of limited partners’ contributions of
$14,932,000.  It is being repaid, without interest, in ten annual
installments of $107,000, which commenced on January 1, 1997, following the year
the initial offering closed.  Payments on this loan were also made
during the offering period prior to the close of the offering. As of December
31, 2006 this formation loan had been fully repaid.





The
formation loan relating to the second offering ($30,000,000) totaled $2,272,000,
which was 7.6% of limited partners’ contributions of $29,993,000.  It
is being repaid, without interest, in ten equal annual installments of $201,000,
which commenced on January 1, 2001, following the year the second offering
closed.  Payments on this loan were also made during the offering
period prior to the close of the offering.





The
formation loan relating to the third offering ($30,000,000) totaled $2,218,000,
which was 7.4% of the limited partners’ contributions of
$29,999,000.  It is being repaid, without interest, in ten annual
installments of $178,000, which commenced on January 1, 2003, following the year
the third offering closed.  Payments on this loan were also made
during the offering stage prior to the close of the offering.





The
formation loan relating to the fourth offering ($50,000,000) totaled $3,777,000,
which was 7.6% of the limited partners contributions of
$49,985,000.  It is being repaid, without interest, in ten annual
installments of $365,000, which commenced on January 1, 2004, following the year
the fourth offering closed.  Payments on this loan were also made
during the offering stage prior to the close of the offering.





34


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 1 – ORGANIZATIONAL AND
GENERAL (continued)





Sales commissions -
formation loans (continued)





The
formation loan relating to the fifth offering ($75,000,000) totaled $5,661,000,
which was 7.6% of the limited partners contributions of
$74,904,000.  It is being repaid, without interest, in ten annual
installments of $526,000, which commenced on January 1, 2007, following the year
the fifth offering closed.  Payments on this loan were also made
during the offering stage prior to the close of the offering.





The
formation loan relating to the sixth offering ($100,000,000) totaled $7,564,000
as of December 31, 2008, which was 7.6% of the limited partners contributions of
$100,000,000 through December 31, 2008.  An equal annual repayment
schedule on this loan, without interest, in ten annual installments of $657,000,
will commence in 2009.  Payments on this loan were being made during
the offering stage prior to the close of the offering.





For the
offerings, sales commissions paid to brokers ranged from 0% (units sold by
general partners) to 9% of gross proceeds.  The partnership had
anticipated the sales commissions would approximate 7.6% based on the assumption
that 65% of investors will elect to reinvest earnings, thus generating full 9%
commissions.  The actual sales commission percentage for all six
offerings combined was 7.5%.





The
following summarizes formation loan transactions at December 31, 2008 (in
thousands):





Initial
              
              
              Subsequent
              
              
              Third
              
              
              Fourth
              
              
              Fifth
              
              
              SixthOffering
      of
              
              
              Offering
      of
              
              
              Offering
      of
              
              
              Offering
      of
              
              
              Offering
      of
              
              
              Offering
      of$
              15,000
              
              
              $
              30,000
              
              
              $
              30,000
              
              
              $
              50,000
              
              
              $
              75,000
              
              
              $
              100,000
              
              
              TotalLimited
      Partnercontributions
              
              $
              14,932
              
              
              $
              29,993
              
              
              $
              29,999
              
              
              $
              49,985
              
              
              $
              74,904
              
              
              $
              100,000
              
              
              $
              299,813Formation
      Loan made
              
              $
              1,075
              
              
              $
              2,272
              
              
              $
              2,218
              
              
              $
              3,777
              
              
              $
              5,661
              
              
              $
              7,564
              
              
              $
              22,567Unamortized
      discounton
      imputed interest
              
              
              —
              
              
              
              (31
              )
              
              
              (79
              )
              
              
              (194
              )
              
              
              (704
              )
              
              
              (1,985
              )
              
              
              (2,993
              )Formation
      Loanmade,
      net
              
              
              1,075
              
              
              
              2,241
              
              
              
              2,139
              
              
              
              3,583
              
              
              
              4,957
              
              
              
              5,579
              
              
              
              19,574Repayments
      to date
              
              
              (991
              )
              
              
              (1,758
              )
              
              
              (1,291
              )
              
              
              (1,856
              )
              
              
              (1,840
              )
              
              
              (999
              )
              
              
              (8,735
              )Early
      withdrawalpenalties
      applied
              
              
              (84
              )
              
              
              (171
              )
              
              
              (135
              )
              
              
              (98
              )
              
              
              (137
              )
              
              
              —
              
              
              
              (625
              )Formation
      Loan, netat
      December 31, 2008
              
              
              —
              
              
              
              312
              
              
              
              713
              
              
              
              1,629
              
              
              
              2,980
              
              
              
              4,580
              
              
              
              10,214Unamortized
      discounton
      imputed interest
              
              
              —
              
              
              
              31
              
              
              
              79
              
              
              
              194
              
              
              
              704
              
              
              
              1,985
              
              
              
              2,993Balance,December
      31, 2008
              
              $
              —
              
              
              $
              343
              
              
              $
              792
              
              
              $
              1,823
              
              
              $
              3,684
              
              
              $
              6,565
              
              
              $
              13,207Percent
      loaned
              
              
              7.2
              %
              
              
              7.6
              %
              
              
              7.4
              %
              
              
              7.6
              %
              
              
              7.6
              %
              
              
              7.6
              %
              
              
              7.5
              %





35


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 1 – ORGANIZATIONAL AND
GENERAL (continued)





Sales commissions -
formation loans (continued)





The
formation loan has been deducted from limited partners’ capital in the
consolidated balance sheets.  As amounts are collected from Redwood
Mortgage Corp., the deduction from capital will be reduced.  Interest
has been imputed at the market rate of interest in effect at the date the
offerings closed which ranged from 4.00% to 9.50%.  An estimated
amount of imputed interest is recorded for offerings still
outstanding.  During 2008, 2007 and 2006, $624,000, $680,000 and
$500,000, respectively, were recorded related to amortization of the discount on
imputed interest.





Syndication
costs





The
partnership bears its own syndication costs, other than certain sales
commissions, including legal and accounting expenses, printing costs, selling
expenses and filing fees.  Syndication costs are charged against
partners’ capital and are being allocated to individual partners consistent with
the partnership agreement.





Through
December 31, 2008, syndication costs of $5,010,000 had been incurred by the
partnership with the following distribution (in thousands):





Costs
      incurred
              
              $
              5,010Early
      withdrawal penalties applied
              
              
              (186
              )Allocated
      to date
              
              
              (3,091
              )December
      31, 2008 balance
              
              $
              1,733





Syndication
costs attributable to the initial offering ($15,000,000) were limited to the
lesser of 10% of the gross proceeds or $600,000 with any excess being paid by
the general partners.  Applicable gross proceeds were
$14,932,000.  Related expenditures totaled $582,000 ($570,000
syndication costs plus $12,000 organization expense) or 3.9% of
contributions.





Syndication
costs attributable to the second offering ($30,000,000) were limited to the
lesser of 10% of the gross proceeds or $1,200,000 with any excess being paid by
the general partners.  Gross proceeds of the second offering were
$29,993,000.  Syndication costs totaled $598,000 or 2% of
contributions.





Syndication
costs attributable to the third offering ($30,000,000) were limited to the
lesser of 10% of the gross proceeds or $1,200,000 with any excess being paid by
the general partners.  Gross proceeds of the third offering were
$29,999,000.  Syndication costs totaled $643,000 or 2.1% of
contributions.





Syndication
costs attributable to the fourth offering ($50,000,000) were limited to the
lesser of 10% of the gross proceeds or $2,000,000 with any excess to be paid by
the general partners.  Gross proceeds of the fourth offering were
$49,985,000.  Syndication costs totaled $658,000 or 1.3% of
contributions.





Syndication
costs attributable to the fifth offering ($75,000,000) were limited to the
lesser of 10% of the gross proceeds or $3,000,000 with any excess to be paid by
the general partners.  Gross proceeds of the fifth offering were
$74,904,000.  Syndication costs totaled $789,000 or 1.1% of
contributions.





36


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 1 – ORGANIZATIONAL AND
GENERAL (continued)





Syndication costs
(continued)





Syndication
costs attributable to the sixth offering ($100,000,000) were limited to the
lesser of 10% of the gross proceeds or $4,000,000 with any excess to be paid by
the general partners.  As of December 31, 2008, the sixth offering had
incurred syndication costs of $1,752,000 (1.75% of contributions).





Term of the
partnership





The
partnership is scheduled to terminate on December 31, 2032, unless sooner
terminated as provided in the partnership agreement.








NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES





Basis of
presentation





The
partnership’s consolidated financial statements include the accounts of its
100%-owned subsidiaries, Russian Hill Property Company, LLC (“Russian”) and
Borrette Property Company, LLC (“Borrette”), and its 72.50%-owned subsidiary,
Larkin Street Property Company, LLC (“Larkin”).  All significant
intercompany transactions and balances have been eliminated in
consolidation.





Reclassifications





Certain
reclassifications, not affecting previously reported net income or total partner
capital, have been made to the previously issued consolidated financial
statements to conform to the current year presentation.





Management
estimates





The
preparation of consolidated 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 consolidated 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
owned.  Actual results could differ significantly from these
estimates.





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.





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 significant, 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.





37


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 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 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, 2008 and 2007, the partnership had 21 loans past maturity and/or
past due more than 90 days in interest payments, totaling $83,576,000 and
$65,852,000, respectively.  In addition, accrued interest, late
charges and advances on these loans totaled $20,083,000 and $5,095,000 at
December 31, 2008 and 2007, respectively.  As presented in Note 10 to
the consolidated financial statements, the average loan to appraised value of
security based upon appraised values and prior indebtedness at the time the
loans were consummated for loans outstanding at December 31, 2008 and 2007 was
67.64% and 67.29% respectively.  When loans are considered impaired
the allowance for loan loss is updated to reflect the change in the valuation of
collateral security. The table below summarizes the impaired loans for the years
ended December 31, ($ in thousands).





Number
              
              
              Total
              
              
              
              
              
              Total
              
              
              Impaired
              
              
              Average
              
              
              
              
              
              
              
              
              Interestof
              
              
              Impaired
              
              
              
              
              
              Investment
              
              
              Loans’
              
              
              Investment
              
              
              
              
              
              Interest
              
              
              IncomeImpaired
              
              
              Loan
              
              
              
              
              
              Impaired
              
              
              Loss
              
              
              Impaired
              
              
              
              
              
              Income
              
              
              ReceivedYear
              
              Loans
              
              
              Balance
              
              
              
              
              
              Loans
              
              
              Reserve
              
              
              Loans
              
              
              
              
              
              Accrued
              
              
              In
      Cash2008
              
              
              12
              
              
              $
              39,683
              
              
              
              
              
              $
              56,274
              
              
              $
              6,956
              
              
              $
              49,976
              
              
              
              
              
              $
              3,699
              
              
              $
              5092007
              
              
              —
              
              
              
              
              
              
              $
              
              
              
              $
              —
              
              
              $
              —
              
              
              
              
              
              
              $
              
              
              
              $
              —
              
              
              $
              —2006
              
              
              —
              
              
              
              
              
              
              $
              
              
              
              $
              —
              
              
              $
              —
              
              
              
              
              
              
              $
              
              
              
              $
              —
              
              
              $
              —





During
the year the partnership restructured fifteen loans by either extending the
maturity date, lowering the interest rate or reducing the monthly
payment.  Six of these restructurings required special accounting
treatment under SFAS 114, Accounting by Creditors for
Impairment of a Loan, resulting in a loss of $2,482,000.





The
partnership was presented with an unsolicited offer to sell a more than 90 days
delinquent loan.  At the time of sale, the loan balance plus related
accrued interest, advances and late charges totaled $5,166,000.  The
recognized gain on sale was $119,000.





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 values, 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 that the full amount is not
collectible.





38


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)





Allowance for loan
losses (continued)





The
composition of the allowance for loan losses was as follows (in
thousands):





December
      31, 2008
              
              
              December
      31, 2007Percent
              
              
              
              
              
              Percentof
      loans
              
              
              
              
              
              loans
      ofin
      each
              
              
              
              
              
              in
      eachcategory
              
              
              
              
              
              categoryto
      total
              
              
              
              
              
              to
      totalAmount
              
              
              loans
              
              
              Amount
              
              
              loansBalance
      at end of period applicable to:DomesticReal
      estate – mortgageSingle
      family
              
              $
              10,116
              
              
              
              73
              %
              
              $
              3,028
              
              
              
              63
              %Apartments
              
              
              125
              
              
              
              3
              
              
              
              76
              
              
              
              3Commercial
              
              
              1,016
              
              
              
              23
              
              
              
              1,210
              
              
              
              33Land
              
              
              50
              
              
              
              1
              
              
              
              73
              
              
              
              1Total
      real estate – mortgage
              
              $
              11,307
              
              
              
              100
              %
              
              $
              4,387
              
              
              
              100
              %Total
      unsecured loans
              
              $
              113
              
              
              
              100
              %
              
              $
              82
              
              
              
              100
              %Total
      allowance for losses
              
              $
              11,420
              
              
              
              100
              %
              
              $
              4,469
              
              
              
              100
              %











39


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)





Allowance for loan
losses (continued)





Activity
in the allowance for loan losses is as follows (in thousands):





Years
      Ended December 31,2008
              
              
              
              2007
              
              
              
              2006Balance
      at beginning of year
              
              $
              4,469
              
              
              $
              2,786
              
              
              $
              3,138Charge-offsDomesticReal
      estate - mortgageSingle
      family
              
              
              (39
              )
              
              
              (13
              )
              
              
              (112
              )Apartments
              
              
              —
              
              
              
              (11
              )
              
              
              —Commercial
              
              
              (100
              )
              
              
              (363
              )
              
              
              (15
              )Land
              
              
              —
              
              
              
              (46
              )
              
              
              —(139
              )
              
              
              (433
              )
              
              
              (127
              )RecoveriesDomesticReal
      estate - mortgageSingle
      family
              
              
              —
              
              
              
              —
              
              
              
              —Apartments
              
              
              —
              
              
              
              —
              
              
              
              —Commercial
              
              
              —
              
              
              
              —
              
              
              
              —Land
              
              
              —
              
              
              
              —
              
              
              
              ——
              
              
              
              —
              
              
              
              —Net
      charge-offs
              
              
              (139
              )
              
              
              (433
              )
              
              
              (127
              )Additions
      charge to operations
              
              
              7,115
              
              
              
              1,788
              
              
              
              927Transfer
      from (to) real estate owned reserve
              
              
              (25
              )
              
              
              328
              
              
              
              (1,152
              )Balance
      at end of year
              
              $
              11,420
              
              
              $
              4,469
              
              
              $
              2,786Ratio
      of net charge-offs during the period to averagesecured
      loans outstanding during the period
              
              
              0.04
              %
              
              
              0.14
              %
              
              
              0.05
              %








40


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)





Real estate
owned





Real
estate owned 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, as
applicable.  Costs relating to the development and improvement of real
estate owned are capitalized, whereas costs relating to holding the property are
expensed





The
partnership periodically compares the carrying value of real estate to expected
undiscounted future 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 estimated fair
value.  During 2008, the partnership transferred $25,000 from the
allowance for loan losses to the allowance for real estate owned.





Loan origination
fees





The
partnership capitalizes fees for obtaining bank financing.  The fees
are amortized over the life of the financing using the straight-line
method.





Income
taxes





No
provision for federal and state income taxes (other than an $800 state minimum
tax) is made in the consolidated 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 held 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 selected other options.





Late fee
revenue





Late fees
are generally charged at 6% of the monthly installment payment past
due.  During 2008, 2007 and 2006, late fee revenue of $164,000,
$257,000 and $241,000, respectively, was recorded.  The partnership
has a recorded late fee receivable at December 31, 2008 and 2007 of $155,000 and
$186,000, respectively.





41


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)





Recently issued accounting
pronouncements





In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162).  SFAS 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements presented in conformity
with generally accepted accounting principles in the United
States.  SFAS 162 became effective on November 15,
2008.  The adoption of this statement did not have a material impact
on the partnership’s financial condition and results of operation.





On
January 1, 2008, the partnership adopted Statement of Financial Accounting
Standards No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosure requirements for fair
value measurements. The partnership deferred the application of SFAS 157 for
nonfinancial assets and nonfinancial liabilities as provided for by FASB Staff
Position (FSP) FAS 157-2, Effective Date of FASB Statement No. 157. FSP FAS
157-2 defers the effective date of SFAS 157 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for
nonfinancial assets and nonfinancial liabilities, except items that are
recognized or disclosed at fair value in an entity's financial statements on a
recurring basis (at least annually).  The adoption of SFAS 157 did not
have a material effect on the partnership’s results of operations, financial
position or liquidity.





In
October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for that Asset is Not Active, with an
immediate effective date.  The purpose of this release was to provide
further clarification regarding Level 3 inputs and the assumptions management
may make when the market for the asset in not active.  The adoption of
FSP FAS 157-3 did not have a material effect on the partnership’s results of
operations, financial position or liquidity.





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 did not have a material impact on the
partnership’s financial condition and results of operations.







On
February 15, 2007, the 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 has elected not to adopt the fair value option
for financial assets and financial liabilities.




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.











42


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)





Recently issued accounting
pronouncements (continued)







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.










NOTE 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 all the 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.





Applicant
status





Subscription
funds received from purchasers of partnership units were not admitted to the
partnership until subscription funds were required to fund a loan, fund the
formation loan, create appropriate cash reserves, or to pay organizational
expenses or other proper partnership purposes.  During the period
prior to the time of admission, which was anticipated to be between 1 - 90 days,
purchasers’ subscriptions remained irrevocable and did earn interest at money
market rates, which were lower than the anticipated return on the partnership’s
loan portfolio.





During
2008, 2007 and 2006, interest totaling $11,000, $28,000 and $21,000,
respectively, was credited to partners in applicant status.  As loans
were made and partners were transferred to regular status to begin sharing in
partnership operating income, the interest credited was either paid to the
investors or transferred to partners’ capital along with the original
investment.





Election to receive monthly,
quarterly or annual distributions





At the
time of their subscription for units, investors elect 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.





43


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE
      3 – OTHER PARTNERSHIP PROVISIONS (continued)





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.





Liquidity, capital
withdrawals and early withdrawals





There are
substantial restrictions on transferability of 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 as stated in the notice of
withdrawal 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 does not establish a reserve from which to fund withdrawals and,
accordingly, the partnership’s capacity to return a limited partner’s capital 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, may be liquidated during any calendar
year.  As of March 16, 2009, the partnership has suspended all capital
liquidations and will not be accepting new liquidation requests until further
notice.





NOTE 4 – GENERAL PARTNERS
AND RELATED PARTIES





The
following are commissions and/or fees that are paid to the general partners or
their affiliates:





Mortgage brokerage
commissions





For fees
in connection with the review, selection, evaluation, negotiation and extension
of loans, the general partners may collect an amount equivalent to 12% of the
loaned amount until 6 months after the termination date of the
offering.  Thereafter, loan brokerage commissions (points) will be
limited to 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.  In 2008, 2007 and 2006,
loan brokerage commissions paid by the borrowers were $1,182,000, $2,932,000 and
$3,496,000, respectively.





44


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 4 – GENERAL
      PARTNERS AND RELATED PARTIES
(continued)





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 are 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.  The table below
summarizes these fees paid by the partnership for the past three years (in
thousands).





Years
      ended December 31,2008
              
              
              
              2007
              
              
              
              2006Maximum
      chargeable
              
              $
              5,128
              
              
              $
              4,158
              
              
              $
              3,719Waived
              
              
              (2,459
              )
              
              
              (2,709
              )
              
              
              (1,240
              )Net
      charged
              
              $
              2,669
              
              
              $
              1,449
              
              
              $
              2,479





Asset management
fee





The
general partners receive monthly fees for managing the partnership’s loan
portfolio and operations up to 1/32 of 1% of the “net asset value” (3/8 of 1%
annual).  Asset management fees of $1,282,000, $1,143,000 and $991,000
were incurred for 2008, 2007 and 2006, 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.





Operating
expenses





The
partnership receives certain operating and administrative services from Redwood
Mortgage Corp., a general partner.  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, postage and preparation of reports to limited
partners.  During 2008, 2007 and 2006, operating expenses totaling
$364,000, $333,000 and $329,000, 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.





Contributed
capital





The
general partners jointly or severally are to contribute 1/10 of 1% of limited
partners’ contributions in cash contributions as proceeds from the offerings are
received from the limited partners.  As of December 31, 2008 and 2007,
Gymno Corporation, a general partner, had capital in accordance with Section
4.02(a) of the partnership agreement.


45


REDWOOD
      MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 5 – REAL ESTATE
OWNED





Real Estate
Held





Periodically,
management reviews the status of the owned properties to evaluate among other
things, their asset classification.  Properties are purchased or
acquired through foreclosure.  Several factors are considered in
determining the classification of owned properties as “real estate held” or
“real estate held for sale”.  These factors include, but are not
limited to, real estate market conditions, status of any required permits,
repair, improvement or development work to be completed, rental and lease income
and investment potential.  Real estate owned is classified as held for
sale in the period in which the criteria of Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, are met.  As a property’s status
changes, reclassifications may occur.





The
following schedule for real estate held, reflects the cost of the properties and
recorded reductions to estimated fair values, at December 31 (in
thousands):





2008
              
              
              
              2007Real
      estate heldCosts
      of properties
              
              $
              21,500
              
              
              $
              20,547Reduction
      in value
              
              
              (920
              )
              
              
              (917
              )Real
      estate held, net
              
              $
              20,580
              
              
              $
              19,630





During
the first quarter of 2007, the partnership acquired a single family residence
through foreclosure.  This resulted in an increase in asset value of
real estate held of $2,640,000, an increase in notes payable of $844,000 and a
decrease of $1,796,000 in loans receivable, accrued interest, advances and late
charge receivables.  The partnership has been pursuing legal remedies
surrounding title conditions not disclosed to the partnership at the time of
making the original loan.  In July, 2008 the partnership received
$941,000 as a partial settlement of claims from the title insurance
company.  Combined with a previous recovery the partnership has now
received $1,149,000.  The partnership continues to seek further
recoveries.  As of December 31, 2008 and 2007, the partnership’s
investment net of recoveries in this property totaled $1,833,000 and $2,679,000,
respectively.





During
2005, the partnership acquired a multi-unit property through foreclosure. At the
time the partnership took ownership of the property, the partnership’s
investment, together with three other affiliate partnerships, totaled
$10,595,000, including accrued interest and advances. Upon acquisition, the
property was transferred via a statutory warranty deed to a new entity named
Larkin Street Property Company, LLC (“Larkin”). The partnership owns a 72.50%
interest in the property and the other three affiliates collectively own the
remaining 27.50%. No valuation allowance has been established against this
property as management is of the opinion the property will have adequate equity
to allow the partnership and its affiliates to recover all of their investments.
The assets, liabilities and any development or sales expenses of Larkin have
been consolidated into the accompanying consolidated financial statements of the
partnership.  As of December 31, 2008, approximately $3,338,000 in
costs related to the development of this property has been
capitalized.  During 2006, the partnership recovered $431,000 from one
of the guarantors of the original note.  As of December 31, 2008 and
2007, the partnership’s investment, together with the other affiliated
partnerships, totaled $13,502,000 and $11,872,000, respectively.





In
December 2004, the partnership acquired land through a deed in lieu of
foreclosure.  At the date of acquisition, the partnership’s investment
totaled $4,377,000 including accrued interest and advances.  During
2006, management established a $490,000 reserve against this property to reduce
the carrying amount to management’s estimate of the ultimate net realizable
value of the property.  In 2006, one of the parcels comprising the
property was sold.  The partnership incurred a loss of $73,000 on this
sale, which had been previously reserved for.  The partnership’s total
investment at December 31, 2008 was $3,219,000, net of a reserve of $420,000 and
at December 31, 2007, the partnership’s total investment in this property was
$3,222,000, net of a reserve of $417,000.





46


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 5 – REAL ESTATE
OWNED (continued)





Real Estate Held
(continued)





In
September 2004, the partnership acquired a single-family residence through a
foreclosure sale. At the time the partnership took ownership of the property,
the partnership’s investment totaled $1,937,000 including accrued interest and
advances.  The borrower had begun a substantial renovation of the
property, which was not completed at the time of foreclosure.  The
partnership has decided to pursue development of the property by processing
plans for the creation of two condominium units on the
property.  These plans will incorporate the majority of the existing
improvements currently located on the property.  At December 31, 2008
and 2007, the partnership’s total investment in this property was $2,026,000 and
$1,857,000, respectively, net of a valuation allowance of $500,000.





Real Estate Held for
Sale





The
following schedule for real estate held for sale, reflects the cost of the
properties and recorded reductions to estimated fair values, including estimated
costs to sell, at December 31 (in thousands):





2008
              
              
              
              2007Real
      estate held for saleCosts
      of properties
              
              $
              5,807
              
              
              $
              4,479Reduction
      in value
              
              
              (694
              )
              
              
              (500
              )Real
      estate held for sale, net
              
              $
              5,113
              
              
              $
              3,979





In April,
2008, the partnership acquired a single family residence through a deed in lieu
of foreclosure.  The total investment, including loan principal
balance, accrued interest, late charges and advances, was $1,269,000 at
foreclosure.  The partnership has capitalized an additional $63,000 in
improvements and furnishings.  The total investment at December 31,
2008 was $1,138,000, net of a valuation allowance of $194,000.





In April,
2008, the partnership acquired a single family residence through
foreclosure.  On the date of acquisition the total investment was
$985,000, comprised of $660,000 of loan principal, accrued interest, late fees
and advances held by the partnership and $325,000 of a first lien held by
another lender.  The partnership made the monthly payment due on the
first lien until the property was sold in November of 2008 for proceeds of
$425,000.  The sale resulted in a loss of $250,000 which was charged
against the previously established reserve for losses.





In
February, 2008, the partnership acquired a single family residence through
foreclosure.  The total investment, including loan principal balance,
accrued interest, late charges and advances, was $391,000 at
foreclosure.  Additional expenditures of $11,000 were needed to make
the residence saleable.  In July of 2008 the property was sold and the
net proceeds were $270,000.  The remaining balance of $132,000 was
charged against the previously established reserve for losses.





During
2002, a single-family residence that secured a partnership loan totaling
$4,402,000, including accrued interest and advances, was transferred via a
statutory warranty deed to a new entity named Russian Hill Property Company, LLC
(“Russian”).  Russian was formed by the partnership to complete the
development and sale of the property.  The assets, liabilities and any
development or sales expenses of Russian have been consolidated into the
accompanying consolidated financial statements of the
partnership.  Costs related to the sale and development of this
property was capitalized during 2003.  Commencing January 2004, costs
related to sales and maintenance of the property were being
expensed.  At December 31, 2008 and 2007, the partnership’s total
investment in Russian was $3,975,000 and $3,979,000, respectively, net of a
valuation allowance of $500,000.





47


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 6 – INCOME
TAXES





The
following reflects a reconciliation of partners’ capital reflected in the
consolidated financial statements to the tax basis of partnership capital (in
thousands):





2008
              
              
              
              2007Partners’
      capital per consolidatedfinancial
      statements
              
              $
              334,513
              
              
              $
              311,327Unallocated
      syndication costs
              
              
              1,733
              
              
              
              1,809Allowance
      for loan losses and real estate owned
              
              
              13,034
              
              
              
              5,886Formation
      loans receivable
              
              
              13,207
              
              
              
              13,497Partners’
      capital - tax basis
              
              $
              362,487
              
              
              $
              332,519





In 2008
and 2007, approximately 49% of taxable income was allocated to tax-exempt
organizations (i.e., retirement plans).








NOTE 7 – BANK LINE OF
CREDIT





The
partnership has a bank line of credit in the maximum amount of the lesser of (1)
$85,000,000, (2) one-third of partners’ capital, or (3) the borrowing base as
defined in the agreement.  The line of credit matures on June 30,
2010, with borrowings at prime less 0.50% and secured by the partnership’s loan
portfolio.  The outstanding balances were $85,000,000 and $29,450,000
at December 31, 2008 and 2007, respectively.  The interest rate was
2.75% at December 31, 2008 and 6.75% at December 31, 2007.  The
partnership may also be subject to a 0.5% fee on specified balances in the event
the line is not utilized.  The line of credit requires the partnership
to comply with certain financial covenants.  The partnership was in
compliance with these covenants at December 31, 2008 and 2007.  There
is an option to convert the line of credit to a term loan that would be payable
over 36 months.








NOTE 8 – FAIR VALUE OF
FINANCIAL INSTRUMENTS





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. The partnership determines the fair
values of its financial assets and financial liabilities based on the fair value
hierarchy established in SFAS 157. The standard describes three levels of inputs
that may be used to measure fair value (Level 1, Level 2 and Level 3). Level 1
inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the partnership has the ability to access at the measurement
date. An active market is a market in which transactions occur with sufficient
frequency and volume to provide pricing information on an ongoing basis. Level 2
inputs are inputs other than quoted prices that are observable for the asset or
liability, either directly or indirectly. Level 3 inputs are unobservable inputs
for the asset or liability. Unobservable inputs reflect the partnership’s own
assumptions about the assumptions market participants would use in pricing the
asset or liability (including assumptions about risk). Unobservable inputs are
developed based on the best information available in the circumstances and may
include the partnership’s own data.





The
partnership does not record loans at fair value on a recurring
basis.





48


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 8 – FAIR VALUE OF
FINANCIAL INSTRUMENTS (continued)





Financial
assets and liabilities measured at fair value on a non-recurring basis as of
December 31, 2008:  ($ in thousands)





Fair
      Value Measurement at Report Date UsingQuoted
      Prices
              Significantin
      Active
              Other
              SignificantMarkets
      for
              Observable
              Unobservable
              TotalIdentical
      Assets
              Inputs
              Inputs
              as
      ofItem
              (Level
      1)
              (Level
      2)
              (Level
      3)
              12/31/2008Impaired
      loans
              $—
              $—
              $39,683
              $39,683





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 accounts, are
      subject to immediate withdrawal.





(b)
            Secured
      loans (Level 2). The fair value of the non-impaired loans of $328,160,000
      $307,654,000 at December 31, 2008 and December 31, 2007, 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. For loans in which a
      specific allowance is established based on the fair value of the
      collateral, the partnership records the loan as nonrecurring Level 2 if
      the fair value of the collateral is based on an observable market price or
      a current appraised value.  If an appraised value is not
      available or the fair value of the collateral is considered impaired below
      the appraised value and there is no observable market price, the
      partnership records the loan as nonrecurring Level
  3.





(c)
            Unsecured
      loans (Level 3).  Unsecured loans are valued at their principal
      less any discount or loss reserves established by management after taking
      into account the borrower’s creditworthiness and ability to repay the
      loan.





(d)
            Line
      of credit and loan commitments (Level 2).  The carrying amount
      equals fair value.  All amounts, including interest payable, are
      subject to immediate repayment.








NOTE 9 – NON-CASH
TRANSACTIONS





In April,
2008, the partnership acquired a single family residence through a deed in lieu
of foreclosure.  This resulted in an increase in asset value of real
estate held for sale of $1,269,000, a decrease of $1,163,000 in loans
receivable, $76,000 in accrued interest, $28,000 in advances and $2,000 in late
charge receivables.





In April,
2008, the partnership acquired a single family residence through
foreclosure.  On the date of acquisition the total investment was
$985,000, comprised of $561,000 of loan principal, $54,000 of accrued interest,
$2,000 of late fees and $43,000 of advances and $325,000 of a first lien held by
another lender.





In
February, 2008, the partnership acquired a single family residence through
foreclosure.  This resulted in an increase in asset value of real
estate held for sale of $391,000, a decrease of $345,000 in loans receivable,
$40,000 in accrued interest, $4,000 in advances and $2,000 in late charge
receivables.





49


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 9 – NON-CASH
TRANSACTIONS (continued)





During
the first quarter of 2007, the partnership acquired a single family residence
through foreclosure.  This resulted in an increase in asset value of
real estate held of $2,640,000, an increase in notes payable of $844,000 and a
decrease of $1,320,000 in loans receivable, $399,000 in accrued interest,
$52,000 in advances and $25,000 in late charge receivables.





During
2006, a previous real estate owned property was sold with the partnership
providing financing.  This resulted in a decrease to real estate owned
of $588,000 and an increase to secured loans of $588,000.





During
2006, the partnership foreclosed on one property (see Note 5), which resulted in
an increase in real estate owned of $6,028,000, and a decrease in secured loans
receivable, accrued interest and advances of $5,464,000, $448,000 and $116,000,
respectively.








NOTE
      10 – LOAN CONCENTRATIONS AND
  CHARACTERISTICS





At
December 31, 2008 and 2007, the loans secured by recorded deeds of trust had the
following characteristics (dollars in thousands):





2008
              
              
              
              2007Number
      of secured loans outstanding
              
              
              143
              
              
              
              116Total
      secured loans outstanding
              
              $
              363,037
              
              
              $
              305,568Average
      secured loan outstanding
              
              $
              2,539
              
              
              $
              2,634Average
      secured loan as percent of total secured loans
              
              
              0.70
              %
              
              
              0.86
              %Average
      secured loan as percent of partners’ capital
              
              
              0.76
              %
              
              
              0.85
              %Largest
      secured loan outstanding
              
              $
              38,976
              
              
              $
              34,383Largest
      secured loan as percent of total secured loans
              
              
              10.74
              %
              
              
              11.25
              %Largest
      secured loan as percent of partners’ capital
              
              
              11.65
              %
              
              
              11.04
              %Largest
      secured loan as percent of total assets
              
              
              9.17
              %
              
              
              9.95
              %Number
      of California counties where all security is located
              
              
              33
              
              
              
              32Largest
      percentage of secured loans in one county
              
              
              23.01
              %
              
              
              23.63
              %Number
      of secured loans in foreclosure status
              
              
              5
              
              
              
              5Amount
      of secured loans in foreclosure
              
              $
              6,165
              
              
              $
              5,169











50





REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 10 – LOAN
CONCENTRATIONS AND CHARACTERISTICS (continued)





The
following secured loan categories were held at December 31, 2008 and 2007 (in
thousands):





2008
              
              
              
              2007First
      trust deeds
              
              $
              190,765
              
              
              $
              138,965Second
      trust deeds
              
              
              171,096
              
              
              
              166,103Third
      trust deeds
              
              
              1,176
              
              
              
              500Total
      loans
              
              
              363,037
              
              
              
              305,568Prior
      liens due other lenders at time of loan
              
              
              343,399
              
              
              
              433,797Total
      debt
              
              $
              706,436
              
              
              $
              739,365Appraised
      property value at time of loan
              
              $
              1,044,411
              
              
              $
              1,098,743Average
      secured loan to appraised value of securitybased
      on appraised values and prior liens at timeloan
      was consummated
              
              
              67.64
              %
              
              
              67.29
              %Secured
      loans by type of propertySingle
      family
              
              $
              266,113
              
              
              $
              191,608Apartments
              
              
              10,727
              
              
              
              9,369Commercial
              
              
              83,692
              
              
              
              100,933Land
              
              
              2,505
              
              
              
              3,658$
              363,037
              
              
              $
              305,568





The
interest rates on the loans range from 5.00% to 12.50% at December 31, 2008 and
7.00% to 13.00% at December 31, 2007.





Scheduled
maturity dates of secured loans as of December 31, 2008 are as follows (in
thousands):





Year
      Ending December 31,2009
              
              $
              219,3672010
              
              
              55,5302011
              
              
              16,6212012
              
              
              47,1282013
              
              
              18,790Thereafter
              
              
              5,601Total
              
              $
              363,037





51


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 10 – LOAN
CONCENTRATIONS AND CHARACTERISTICS (continued)





The
scheduled maturities for 2009 include nine loans totaling $54,107,000, and
representing 14.90% of the portfolio, which are past maturity at December 31,
2008.  Interest payments on all of these loans were delinquent and are
included in the total of loans more than 90 days delinquent presented in Note
2.  Occasionally, the partnership allows borrowers to continue to make
the payments on debt past maturity for periods of time.  It is the
partnership’s experience 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.





The
partnership had 19% of its receivable balance due from one borrower at December
31, 2008.  Interest revenue for this borrower accounted for
approximately 14.86% of interest revenue for the year ended December 31,
2008.








NOTE 11 – COMMITMENTS AND
CONTINGENCIES





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, 2008, there were $1,856,000 of undisbursed loan funds which will be funded
by a combination of borrower monthly mortgage payments, line of credit draws,
retirements of principal on current loans and cash.  The partnership
does not maintain a separate cash reserve to hold the undisbursed obligations,
which are intended to be funded.





Workout
agreements





The
partnership periodically negotiates various 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, 2008.  As of December 31, 2008, there are six loans
under workout agreements totaling $10,783,000.





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.








52


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Notes
to Consolidated Financial Statements


December
31, 2008, 2007 and 2006








NOTE 12 – SELECTED
      FINANCIAL INFORMATION
(unaudited)





(in
      thousands, except for per limited partner
  amounts)





Calendar
      QuarterFirst
              
              
              Second
              
              
              Third
              
              
              Fourth
              
              
              AnnualRevenues2008
              
              $
              8,038
              
              
              $
              8,590
              
              
              $
              9,170
              
              
              $
              8,658
              
              
              $
              34,2532007
              
              $
              7,098
              
              
              $
              7,200
              
              
              $
              7,620
              
              
              $
              7,699
              
              
              $
              29,617Expenses2008
              
              $
              2,572
              
              
              $
              3,121
              
              
              $
              3,680
              
              
              $
              6,540
              
              
              $
              15,9132007
              
              $
              1,958
              
              
              $
              1,880
              
              
              $
              2,068
              
              
              $
              2,139
              
              
              $
              8,045Net
      income allocatedto
      general partners2008
              
              $
              55
              
              
              $
              54
              
              
              $
              55
              
              
              $
              19
              
              
              $
              1832007
              
              $
              51
              
              
              $
              54
              
              
              $
              55
              
              
              $
              56
              
              
              $
              216Net
      income allocatedto
      limited partners2008
              
              $
              5,411
              
              
              $
              5,415
              
              
              $
              5,435
              
              
              $
              1,896
              
              
              $
              18,1572007
              
              $
              5,089
              
              
              $
              5,266
              
              
              $
              5,497
              
              
              $
              5,504
              
              
              $
              21,356Net
      income per $1,000invested
      where income isCompounded2008
              
              $
              16
              
              
              $
              16
              
              
              $
              16
              
              
              $
              5
              
              
              $
              532007
              
              $
              17
              
              
              $
              18
              
              
              $
              18
              
              
              $
              18
              
              
              $
              71Withdrawn2008
              
              $
              16
              
              
              $
              16
              
              
              $
              15
              
              
              $
              5
              
              
              $
              522007
              
              $
              17
              
              
              $
              17
              
              
              $
              17
              
              
              $
              18
              
              
              $
              69








NOTE 13 – SUBSEQUENT
EVENTS





Subsequent
to December 31, 2008 the partnership has been experiencing a drop off in cash
flows coming into the partnership.  This drop off is due to several
factors, including but not limited to:  1) loan payoffs and pay downs
have not been forthcoming due to borrowers limited or reduced opportunities to
refinance their loan, or to sell their property, 2) as of February 28, 2009 the
number of loans more than 90 days delinquent in interest payments had risen from
21 loans totaling $83,576,000 at December 31, 2008, to 29 loans totaling
$93,366,000.  As a result of these conditions, the partnership has
suspended all capital liquidations as of the March 2009 scheduled
distribution.





Also,
during January and February 2009, the partnership filed three notices of default
on loans with an aggregate principal balance of $12,283,000 at December 31,
2008.





53


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Schedule
II – Valuation and Qualifying Accounts


For
the Years Ended December 31, 2008, 2007 and 2006


(in
thousands)





B
              
              
              
              CBalance
      at
              
              
              Additions
              
              
              
              
              
              
              
              EA
              
              
              Beginning
              
              
              Charged
      to Costs
              
              
              Charged
      to
              
              
              
              D
              
              
              
              Balance
      atDescription
              
              
              of
      Period
              
              
              and
      Expenses
              
              
              Other
      Accounts
              
              
              Deductions
              
              
              
              End
      of PeriodYear
      ended December 31, 2006Deducted
      from asset accountsAllowance
      for loan losses
              
              
              $
              3,138
              
              
              $
              927
              
              
              $
              —
              
              
              $
              (1,279
              )
              (a)
              
              $
              2,786Cumulative
      write-down ofreal
      estate owned
              
              
              
              1,000
              
              
              
              268
              
              
              
              —
              
              
              
              1,080
              
              (a)
              
              
              2,348$
              4,138
              
              
              $
              1,195
              
              
              $
              —
              
              
              $
              (199
              )
              
              
              $
              5,134Year
      ended December 31, 2007Deducted
      from asset accountsAllowance
      for loan losses
              
              
              $
              2,786
              
              
              $
              1,788
              
              
              $
              —
              
              
              $
              (105
              )
              (a)
              
              $
              4,469Cumulative
      write-down ofreal
      estate owned
              
              
              
              2,348
              
              
              
              —
              
              
              
              —
              
              
              
              (931
              )
              (a)
              
              
              1,417$
              5,134
              
              
              $
              1,788
              
              
              $
              —
              
              
              $
              (1,036
              )
              
              
              $
              5,886Year
      ended December 31, 2008Deducted
      from asset accounts
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              )Allowance
      for loan losses
              
              
              $
              4,469
              
              
              $
              7,115
              
              
              $
              (25
              
              
              $
              (139
              )
              (a)
              
              $
              11,420Cumulative
      write-down ofreal
      estate owned
              
              
              
              1,417
              
              
              
              553
              
              
              
              25
              
              
              
              (381
              )
              (b)
              
              
              1,614$
              5,886
              
              
              $
              7,668
              
              
              $
              —
              
              
              $
              (520
              )
              
              
              $
              13,034











Note (a)
– Represents write-offs of loans or transfers


Note (b)
– Represents write-offs of real estate owned


54


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Schedule
IV – Mortgage Loans on Real Estate


Rule
12-29 Loans on Real Estate


December
31, 2008


(in
thousands)








Col.
      HPrincipalCol.
      F
              
              
              
              
              
              Amount
      ofFace
              
              
              Col.
      G
              
              
              LoansCol.
      C
              
              Col.
      D
              
              
              
              
              
              Amount
      of
              
              
              Carrying
              
              
              Subject
      to
              
              
              Col.
      JCol.
      B
              
              Final
              
              Periodic
              
              
              Col.
      E
              
              
              Mortgage
              
              
              Amount
      of
              
              
              Delinquent
              
              Col.
      I
              CaliforniaCol.
      A
              
              Interest
              
              Maturity
              
              Payment
              
              
              Prior
              
              
              Original
              
              
              Mortgage
              
              
              Principal
              
              Type
      of
              GeographicDescrip.
              
              Rate
              
              Date
              
              Terms
              
              
              Liens
              
              
              Amount
              
              
              Investments
              
              
              or
      Interest
              
              Lien
              LocationRes.
              
              
              10.00
              %
              10/01/13
              
              $
              2
              
              
              $
              131
              
              
              $
              185
              
              
              $
              185
              
              
              $
              —
              
              2nd
              Santa
      ClaraRes.
              
              
              9.50
              %
              10/01/13
              
              
              1
              
              
              
              354
              
              
              
              100
              
              
              
              100
              
              
              
              —
              
              2nd
              Los
      AngelesRes.
              
              
              9.25
              %
              10/01/13
              
              
              4
              
              
              
              125
              
              
              
              540
              
              
              
              539
              
              
              
              —
              
              1st
              OrangeRes.
              
              
              6.50
              %
              10/01/13
              
              
              12
              
              
              
              —
              
              
              
              2,300
              
              
              
              2,300
              
              
              
              —
              
              1st
              SacramentoComm.
              
              
              5.00
              %
              10/01/13
              
              
              3
              
              
              
              —
              
              
              
              823
              
              
              
              626
              
              
              
              —
              
              2nd
              AlamedaLand
              
              
              9.50
              %
              07/01/10
              
              
              1
              
              
              
              —
              
              
              
              320
              
              
              
              97
              
              
              
              —
              
              2nd
              Santa
      ClaraRes.
              
              
              9.25
              %
              09/01/13
              
              
              4
              
              
              
              —
              
              
              
              525
              
              
              
              524
              
              
              
              —
              
              1st
              Los
      AngelesRes.
              
              
              9.25
              %
              12/01/15
              
              
              4
              
              
              
              1,403
              
              
              
              462
              
              
              
              461
              
              
              
              —
              
              3rd
              San
      FranciscoRes.
              
              
              9.50
              %
              11/01/13
              
              
              4
              
              
              
              174
              
              
              
              500
              
              
              
              499
              
              
              
              —
              
              2nd
              Santa
      ClaraComm.
              
              
              10.50
              %
              11/01/09
              
              
              66
              
              
              
              —
              
              
              
              7,500
              
              
              
              7,500
              
              
              
              —
              
              1st
              San
      FranciscoRes.
              
              
              9.25
              %
              11/01/13
              
              
              4
              
              
              
              —
              
              
              
              500
              
              
              
              500
              
              
              
              —
              
              1st
              San
      DiegoComm.
              
              
              10.00
              %
              12/01/11
              
              
              18
              
              
              
              —
              
              
              
              2,880
              
              
              
              2,181
              
              
              
              —
              
              1st
              AmadorRes.
              
              
              10.00
              %
              12/01/18
              
              
              2
              
              
              
              —
              
              
              
              242
              
              
              
              242
              
              
              
              —
              
              1st
              Los
      AngelesRes.
              
              
              9.25
              %
              12/01/15
              
              
              16
              
              
              
              —
              
              
              
              2,000
              
              
              
              2,000
              
              
              
              —
              
              1st
              Los
      AngelesRes.
              
              
              9.75
              %
              01/01/14
              
              
              2
              
              
              
              —
              
              
              
              179
              
              
              
              179
              
              
              
              —
              
              1st
              San
      MateoRes.
              
              
              6.00
              %
              01/01/13
              
              
              4
              
              
              
              —
              
              
              
              1,088
              
              
              
              1,088
              
              
              
              —
              
              1st
              AlamedaRes.
              
              
              6.50
              %
              01/01/13
              
              
              2
              
              
              
              —
              
              
              
              528
              
              
              
              528
              
              
              
              —
              
              2nd
              AlamedaLand
              
              
              9.50
              %
              07/01/10
              
              
              8
              
              
              
              —
              
              
              
              987
              
              
              
              986
              
              
              
              —
              
              1st
              Santa
      ClaraApts.
              
              
              9.50
              %
              01/01/09
              
              
              4
              
              
              
              —
              
              
              
              413
              
              
              
              390
              
              
              
              —
              
              1st
              San
      JoaquinRes.
              
              
              8.50
              %
              10/01/10
              
              
              4
              
              
              
              190
              
              
              
              500
              
              
              
              478
              
              
              
              —
              
              2nd
              AlamedaComm.
              
              
              9.00
              %
              06/01/09
              
              
              4
              
              
              
              2,850
              
              
              
              500
              
              
              
              482
              
              
              
              —
              
              2nd
              Santa
      ClaraRes.
              
              
              9.25
              %
              07/01/09
              
              
              6
              
              
              
              716
              
              
              
              690
              
              
              
              667
              
              
              
              —
              
              2nd
              San
      MateoComm.
              
              
              9.50
              %
              08/01/09
              
              
              16
              
              
              
              —
              
              
              
              1,947
              
              
              
              1,885
              
              
              
              —
              
              1st
              AlamedaRes.
              
              
              6.50
              %
              04/01/12
              
              
              39
              
              
              
              —
              
              
              
              11,245
              
              
              
              11,685
              
              
              
              11,685
              
              1st
              Contra
      CostaComm.
              
              
              9.50
              %
              01/01/09
              
              
              25
              
              
              
              —
              
              
              
              3,113
              
              
              
              3,112
              
              
              
              —
              
              1st
              San
      FranciscoRes.
              
              
              8.50
              %
              03/15/10
              
              
              10
              
              
              
              2,097
              
              
              
              450
              
              
              
              432
              
              
              
              —
              
              2nd
              NapaComm.
              
              
              9.00
              %
              03/01/10
              
              
              2
              
              
              
              179
              
              
              
              204
              
              
              
              194
              
              
              
              —
              
              2nd
              MontereyRes.
              
              
              9.25
              %
              01/01/09
              
              
              7
              
              
              
              —
              
              
              
              3,256
              
              
              
              857
              
              
              
              —
              
              1st
              SutterRes.
              
              
              9.25
              %
              05/01/10
              
              
              1
              
              
              
              411
              
              
              
              160
              
              
              
              156
              
              
              
              —
              
              2nd
              San
      MateoRes.
              
              
              10.00
              %
              03/01/09
              
              
              81
              
              
              
              36,000
              
              
              
              6,532
              
              
              
              9,774
              
              
              
              —
              
              2nd
              San
      FranciscoRes.
              
              
              9.00
              %
              05/01/10
              
              
              1
              
              
              
              286
              
              
              
              70
              
              
              
              68
              
              
              
              —
              
              2nd
              El
      DoradoRes.
              
              
              8.50
              %
              10/01/10
              
              
              2
              
              
              
              379
              
              
              
              325
              
              
              
              315
              
              
              
              —
              
              3rd
              AlamedaComm.
              
              
              8.42
              %
              07/01/09
              
              
              37
              
              
              
              5,731
              
              
              
              3,841
              
              
              
              5,341
              
              
              
              —
              
              2nd
              AlamedaRes.
              
              
              12.50
              %
              08/01/08
              
              
              44
              
              
              
              19,700
              
              
              
              3,453
              
              
              
              4,112
              
              
              
              4,112
              
              2nd
              San
      MateoComm.
              
              
              9.00
              %
              08/01/15
              
              
              13
              
              
              
              9,500
              
              
              
              1,000
              
              
              
              895
              
              
              
              895
              
              2nd.
              San
      FranciscoRes.
              
              
              9.00
              %
              08/01/10
              
              
              1
              
              
              
              —
              
              
              
              140
              
              
              
              137
              
              
              
              —
              
              1st
              VenturaRes.
              
              
              9.25
              %
              01/01/09
              
              
              28
              
              
              
              —
              
              
              
              2,741
              
              
              
              3,555
              
              
              
              —
              
              1st
              San
      JoaquinComm.
              
              
              9.50
              %
              10/01/10
              
              
              11
              
              
              
              105
              
              
              
              1,250
              
              
              
              1,223
              
              
              
              —
              
              2nd.
              AlamedaRes.
              
              
              9.25
              %
              01/01/09
              
              
              10
              
              
              
              —
              
              
              
              952
              
              
              
              1,262
              
              
              
              —
              
              1st
              San
      JoaquinRes.
              
              
              11.00
              %
              05/01/10
              
              
              38
              
              
              
              18,744
              
              
              
              3,182
              
              
              
              3,967
              
              
              
              —
              
              2nd
              Santa
      ClaraComm.
              
              
              9.50
              %
              10/01/10
              
              
              37
              
              
              
              —
              
              
              
              4,200
              
              
              
              4,067
              
              
              
              4,067
              
              1st
              AlamedaRes.
              
              
              12.00
              %
              12/01/07
              
              
              13
              
              
              
              3,797
              
              
              
              1,265
              
              
              
              1,265
              
              
              
              1,265
              
              2nd
              San
      Diego


55


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Schedule
IV – Mortgage Loans on Real Estate


Rule
12-29 Loans on Real Estate (continued)


December
31, 2008


(in
thousands)








Col.
      HPrincipalCol.
      F
            
            Amount
      ofFace
            Col.
      G
            LoansCol.
      C
            Col.
      D
            
            Amount
      of
            Carrying
            Subject
      to
            
            Col.
      JCol.
      B
            Final
            Periodic
            Col.
      E
            Mortgage
            Amount
      of
            Delinquent
            Col.
      I
            CaliforniaCol.
      A
            Interest
            Maturity
            Payment
            Prior
            Original
            Mortgage
            Principal
            Type
      of
            GeographicDescrip.
            Rate
            Date
            Terms
            Liens
            Amount
            Investments
            or
      Interest
            Lien
            LocationRes.
            9.00%
            02/01/08
            66
            —
            15,188
            9,120
            9,120
            1st
            Los
      AngelesRes.
            10.25%
            02/01/08
            102
            14,631
            11,529
            11,529
            11,529
            2nd
            Los
      AngelesRes.
            9.00%
            02/01/11
            11
            —
            1,350
            1,332
            —
            1st
            PlacerRes.
            10.25%
            09/01/07
            88
            39,000
            8,350
            10,338
            10,338
            2nd
            Los
      AngelesRes.
            9.25%
            03/01/09
            302
            22,875
            40,444
            37,923
            —
            2nd
            SacramentoRes.
            10.00%
            05/01/08
            29
            22,155
            4,184
            3,566
            3,566
            2nd
            AlamedaRes.
            7.00%
            02/01/10
            22
            —
            6,796
            3,729
            —
            1st
            FresnoRes.
            10.00%
            02/01/10
            100
            32,200
            10,175
            11,605
            —
            2nd
            San
      FranciscoRes.
            8.88%
            07/01/11
            16
            4,550
            2,100
            2,100
            —
            2nd
            San
      FranciscoRes.
            8.75%
            07/01/08
            40
            —
            5,520
            5,520
            5,520
            1st
            Contra
      CostaRes.
            10.00%
            07/01/08
            62
            5,520
            6,225
            7,446
            7,446
            2nd
            Contra
      CostaRes.
            9.75%
            8/1/2011
            1
            165
            66
            65
            65
            2nd
            StanislausRes.
            9.75%
            09/01/11
            1
            120
            120
            119
            —
            2nd
            San
      BernardinoRes.
            9.75%
            09/01/11
            7
            2,550
            850
            838
            —
            2nd
            San
      FranciscoRes.
            9.25%
            09/01/11
            7
            —
            800
            464
            —
            1st
            San
      JoaquinRes.
            9.75%
            09/01/11
            1
            120
            80
            79
            79
            2nd
            HumboldtRes.
            8.75%
            01/01/11
            20
            —
            3,949
            2,313
            —
            1st
            Contra
      CostaLand
            7.00%
            10/01/09
            3
            —
            588
            588
            —
            1st
            StanislausRes.
            9.25%
            11/01/11
            1
            —
            125
            148
            —
            1st
            San
      FranciscoComm.
            10.25%
            04/01/09
            2
            —
            275
            275
            —
            1st
            KernRes.
            10.25%
            01/01/09
            30
            —
            3,550
            3,550
            3,550
            1st
            NapaRes.
            9.25%
            01/01/12
            1
            238
            130
            128
            —
            2nd
            RiversideRes.
            10.25%
            01/01/09
            3
            —
            1,372
            359
            359
            1st
            Santa
      ClaraRes.
            9.75%
            02/01/12
            1
            245
            73
            72
            —
            2nd
            YoloComm.
            10.50%
            01/01/10
            24
            —
            2,750
            2,750
            2,750
            1st
            San
      FranciscoRes.
            9.75%
            03/01/12
            1
            —
            128
            127
            —
            1st
            KernRes.
            10.00%
            02/01/12
            2
            —
            231
            229
            —
            1st
            Los
      AngelesRes.
            10.25%
            02/01/10
            5
            —
            630
            630
            —
            1st
            San
      JoaquinApts.
            9.75%
            07/01/09
            3
            —
            420
            420
            —
            1st
            SolanoRes.
            12.00%
            01/01/09
            98
            30,277
            4,443
            9,537
            —
            2nd
            San
      FranciscoRes.
            9.25%
            02/01/12
            1
            —
            100
            99
            —
            1st
            San
      BernardinoRes.
            9.25%
            02/01/12
            2
            800
            300
            297
            —
            2nd
            SolanoRes.
            10.00%
            03/01/09
            3
            —
            8,365
            298
            —
            1st
            San
      FranciscoComm.
            10.00%
            04/01/12
            3
            2,256
            300
            300
            —
            2nd
            ButteApts.
            10.50%
            04/01/09
            26
            3,449
            3,015
            3,015
            —
            1st.
            San
      FranciscoApts.
            10.50%
            04/01/10
            6
            826
            700
            587
            —
            2nd
            NapaApts.
            10.25%
            04/01/09
            13
            7,560
            1,540
            1,540
            —
            2nd
            Santa
      Clara


56


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Schedule
IV – Mortgage Loans on Real Estate


Rule
12-29 Loans on Real Estate (continued)


December
31, 2008


(in
thousands)








Col.
      HPrincipalCol.
      F
              
              
              
              
              
              Amount
      ofFace
              
              
              Col.
      G
              
              
              LoansCol.
      C
              
              Col.
      D
              
              
              
              
              
              Amount
      of
              
              
              Carrying
              
              
              Subject
      to
              
              
              Col.
      JCol.
      B
              
              Final
              
              Periodic
              
              
              Col.
      E
              
              
              Mortgage
              
              
              Amount
      of
              
              
              Delinquent
              
              Col.
      I
              CaliforniaCol.
      A
              
              Interest
              
              Maturity
              
              Payment
              
              
              Prior
              
              
              Original
              
              
              Mortgage
              
              
              Principal
              
              Type
      of
              GeographicDescrip.
              
              Rate
              
              Date
              
              Terms
              
              
              Liens
              
              
              Amount
              
              
              Investments
              
              
              or
      Interest
              
              Lien
              LocationLand
              
              
              10.00
              %
              10/01/09
              
              
              7
              
              
              
              —
              
              
              
              833
              
              
              
              833
              
              
              
              —
              
              1st
              AlamedaApts.
              
              
              9.75
              %
              05/01/10
              
              
              30
              
              
              
              13,944
              
              
              
              3,750
              
              
              
              3,750
              
              
              
              —
              
              2nd
              RiversideRes.
              
              
              9.25
              %
              06/01/09
              
              
              39
              
              
              
              —
              
              
              
              5,750
              
              
              
              5,000
              
              
              
              5,000
              
              1st
              San
      DiegoComm.
              
              
              10.00
              %
              06/01/10
              
              
              154
              
              
              
              3,500
              
              
              
              16,500
              
              
              
              18,485
              
              
              
              —
              
              1st
              San
      FranciscoRes.
              
              
              9.75
              %
              07/01/12
              
              
              30
              
              
              
              11,397
              
              
              
              3,677
              
              
              
              3,677
              
              
              
              —
              
              2nd
              San
      FranciscoRes.
              
              
              10.00
              %
              07/01/12
              
              
              2
              
              
              
              —
              
              
              
              205
              
              
              
              204
              
              
              
              204
              
              1st
              RiversideRes.
              
              
              10.00
              %
              07/01/12
              
              
              2
              
              
              
              —
              
              
              
              263
              
              
              
              262
              
              
              
              262
              
              1st
              Los
      AngelesRes.
              
              
              9.50
              %
              07/01/12
              
              
              3
              
              
              
              —
              
              
              
              374
              
              
              
              370
              
              
              
              —
              
              1st
              MaderaRes.
              
              
              10.00
              %
              08/01/12
              
              
              3
              
              
              
              613
              
              
              
              350
              
              
              
              347
              
              
              
              —
              
              2nd
              Contra
      CostaRes.
              
              
              10.00
              %
              11/01/12
              
              
              2
              
              
              
              —
              
              
              
              263
              
              
              
              262
              
              
              
              —
              
              1st
              SacramentoRes.
              
              
              9.25
              %
              11/01/12
              
              
              1
              
              
              
              506
              
              
              
              100
              
              
              
              99
              
              
              
              —
              
              1st
              San
      DiegoRes.
              
              
              9.25
              %
              11/01/12
              
              
              3
              
              
              
              —
              
              
              
              377
              
              
              
              377
              
              
              
              —
              
              1st
              OrangeRes.
              
              
              10.25
              %
              12/01/09
              
              
              1
              
              
              
              335
              
              
              
              100
              
              
              
              100
              
              
              
              —
              
              3rd
              Contra
      CostaComm.
              
              
              10.50
              %
              11/01/09
              
              
              64
              
              
              
              —
              
              
              
              7,250
              
              
              
              7,159
              
              
              
              —
              
              1st
              AlamedaComm.
              
              
              10.50
              %
              04/01/09
              
              
              108
              
              
              
              22,300
              
              
              
              12,000
              
              
              
              12,774
              
              
              
              —
              
              2nd
              AlamedaRes.
              
              
              10.00
              %
              11/01/12
              
              
              2
              
              
              
              —
              
              
              
              209
              
              
              
              208
              
              
              
              —
              
              1st
              CalaverasComm.
              
              
              10.50
              %
              12/01/09
              
              
              9
              
              
              
              —
              
              
              
              1,000
              
              
              
              1,000
              
              
              
              —
              
              1st
              AlamedaRes.
              
              
              9.00
              %
              01/01/13
              
              
              2
              
              
              
              358
              
              
              
              204
              
              
              
              203
              
              
              
              —
              
              2nd
              San
      MateoRes.
              
              
              10.00
              %
              01/01/13
              
              
              1
              
              
              
              349
              
              
              
              100
              
              
              
              99
              
              
              
              —
              
              2nd
              Santa
      ClaraRes.
              
              
              10.00
              %
              01/01/13
              
              
              5
              
              
              
              —
              
              
              
              556
              
              
              
              554
              
              
              
              —
              
              1st
              Contra
      CostaRes.
              
              
              10.00
              %
              02/01/13
              
              
              1
              
              
              
              301
              
              
              
              120
              
              
              
              119
              
              
              
              —
              
              2nd
              AlamedaComm.
              
              
              10.00
              %
              07/01/09
              
              
              84
              
              
              
              —
              
              
              
              9,450
              
              
              
              10,040
              
              
              
              —
              
              1st
              Los
      AngelesRes.
              
              
              9.25
              %
              02/01/13
              
              
              3
              
              
              
              —
              
              
              
              412
              
              
              
              410
              
              
              
              —
              
              1st
              AlamedaComm.
              
              
              10.00
              %
              02/01/11
              
              
              4
              
              
              
              3,025
              
              
              
              500
              
              
              
              500
              
              
              
              —
              
              2nd
              Contra
      CostaRes.
              
              
              10.00
              %
              02/01/13
              
              
              2
              
              
              
              721
              
              
              
              220
              
              
              
              219
              
              
              
              —
              
              2nd
              OrangeRes.
              
              
              9.25
              %
              02/01/13
              
              
              1
              
              
              
              417
              
              
              
              100
              
              
              
              99
              
              
              
              —
              
              2nd
              San
      BenitoApts.
              
              
              10.50
              %
              03/01/10
              
              
              3
              
              
              
              694
              
              
              
              300
              
              
              
              300
              
              
              
              —
              
              2nd
              MercedRes.
              
              
              9.50
              %
              03/01/11
              
              
              1
              
              
              
              —
              
              
              
              100
              
              
              
              100
              
              
              
              —
              
              1st
              Contra
      CostaRes.
              
              
              9.25
              %
              04/01/13
              
              
              6
              
              
              
              1,538
              
              
              
              700
              
              
              
              697
              
              
              
              —
              
              2nd
              VenturaRes.
              
              
              9.50
              %
              04/01/11
              
              
              2
              
              
              
              —
              
              
              
              245
              
              
              
              244
              
              
              
              —
              
              1st
              Santa
      ClaraRes.
              
              
              9.50
              %
              04/01/11
              
              
              1
              
              
              
              —
              
              
              
              160
              
              
              
              159
              
              
              
              —
              
              1st
              Los
      AngelesRes.
              
              
              10.00
              %
              04/01/15
              
              
              3
              
              
              
              —
              
              
              
              330
              
              
              
              329
              
              
              
              —
              
              1st
              FresnoRes.
              
              
              7.00
              %
              04/01/13
              
              
              8
              
              
              
              —
              
              
              
              1,347
              
              
              
              1,347
              
              
              
              —
              
              1st
              SolanoRes.
              
              
              9.50
              %
              05/01/13
              
              
              4
              
              
              
              —
              
              
              
              500
              
              
              
              498
              
              
              
              —
              
              1st
              MontereyRes.
              
              
              10.00
              
              05/01/15
              
              
              3
              
              
              
              —
              
              
              
              389
              
              
              
              388
              
              
              
              —
              
              1st
              Los
      AngelesRes.
              
              
              6.50
              %
              04/01/12
              
              
              23
              
              
              
              5,500
              
              
              
              7,000
              
              
              
              7,000
              
              
              
              —
              
              1st
              AlamedaRes.
              
              
              6.50
              %
              04/01/12
              
              
              33
              
              
              
              5,500
              
              
              
              9,800
              
              
              
              9,800
              
              
              
              —
              
              1st
              Contra
      CostaRes.
              
              
              6.50
              %
              04/01/12
              
              
              34
              
              
              
              —
              
              
              
              10,152
              
              
              
              10,152
              
              
              
              —
              
              2nd
              Contra
      CostaRes.
              
              
              9.75
              %
              05/01/11
              
              
              8
              
              
              
              —
              
              
              
              3,195
              
              
              
              982
              
              
              
              —
              
              1st
              San
      DiegoRes.
              
              
              7.75
              %
              08/01/09
              
              
              248
              
              
              
              —
              
              
              
              38,976
              
              
              
              36,000
              
              
              
              —
              
              1st
              Los
      AngelesRes.
              
              
              9.75
              %
              06/01/15
              
              
              1
              
              
              
              —
              
              
              
              170
              
              
              
              170
              
              
              
              —
              
              1st
              AlamedaComm.
              
              
              10.50
              %
              06/01/10
              
              
              6
              
              
              
              —
              
              
              
              735
              
              
              
              735
              
              
              
              —
              
              1st
              Marin


57


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Schedule
IV – Mortgage Loans on Real Estate


Rule
12-29 Loans on Real Estate (continued)


December
31, 2008


(in
thousands)








Col.
      HPrincipalCol.
      F
            
            Amount
      ofFace
            Col.
      G
            LoansCol.
      C
            Col.
      D
            
            Amount
      of
            Carrying
            Subject
      to
            
            Col.
      JCol.
      B
            Final
            Periodic
            Col.
      E
            Mortgage
            Amount
      of
            Delinquent
            Col.
      I
            CaliforniaCol.
      A
            Interest
            Maturity
            Payment
            Prior
            Original
            Mortgage
            Principal
            Type
      of
            GeographicDescrip.
            Rate
            Date
            Terms
            Liens
            Amount
            Investments
            or
      Interest
            Lien
            LocationRes.
            10.00%
            06/01/15
            3
            1,000
            300
            299
            —
            1st
            San
      FranciscoRes.
            9.50%
            06/01/13
            3
            —
            400
            399
            —
            1st
            AlamedaRes.
            9.25%
            07/01/15
            3
            417
            310
            309
            —
            1st
            San
      MateoRes.
            9.50%
            07/01/13
            20
            —
            2,400
            2,394
            —
            1st
            Los
      AngelesRes.
            10.00%
            07/01/18
            1
            578
            100
            100
            —
            2nd
            OrangeRes.
            10.00%
            07/01/18
            2
            —
            230
            230
            —
            1st
            Los
      AngelesRes.
            10.00%
            08/01/11
            20
            1,354
            2,265
            2,262
            —
            2nd
            San
      FranciscoComm.
            11.50%
            07/01/10
            8
            915
            840
            840
            —
            1st
            El
      DoradoRes.
            10.00%
            08/01/11
            11
            2,354
            1,524
            1,352
            —
            2nd
            San
      FranciscoRes.
            10.00%
            08/01/11
            4
            879
            421
            421
            —
            2nd
            San
      FranciscoRes.
            10.00%
            08/01/11
            2
            785
            246
            246
            —
            2nd
            San
      FranciscoRes.
            10.00%
            08/01/13
            1
            521
            150
            150
            —
            2nd
            Santa
      ClaraRes.
            9.25%
            08/01/13
            12
            582
            1,500
            1,497
            —
            2nd
            Santa
      BarbaraRes.
            9.25%
            08/01/13
            8
            3,741
            1,000
            998
            —
            2nd
            San
      DiegoApts.
            9.50%
            09/01/11
            6
            5,135
            725
            725
            —
            2nd
            San
      MateoRes.
            9.75%
            08/01/13
            5
            304
            562
            561
            —
            2nd
            Contra
      CostaRes.
            9.25%
            08/01/13
            5
            —
            660
            659
            —
            1st
            San
      FranciscoComm.
            11.00%
            09/01/12
            14
            —
            1,390
            1,434
            —
            1st
            SacramentoRes.
            9.25%
            09/01/13
            2
            427
            280
            279
            —
            2nd
            San
      FranciscoRes.
            9.25%
            09/01/13
            6
            —
            720
            719
            —
            1st
            San
      FranciscoComm.
            11.75%
            12/01/09
            3
            —
            242
            23
            —
            1st
            YubaRes.
            12.00%
            05/01/03
            12
            —
            958
            1,210
            1,210
            1st
            Marin$     2,792
            $
      343,399
            $
      375,834
            $    363,037
            $      83,576





58


REDWOOD
MORTGAGE INVESTORS VIII


(A
California Limited Partnership)


Schedule
IV – Mortgage Loans on Real Estate


Rule
12-29 Loans on Real Estate (continued)


(in
thousands)








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





Year
      ended December 31,2008
              
              
              
              2007
              
              
              
              2006Balance
      at beginning of year
              
              $
              305,568
              
              
              $
              261,097
              
              
              $
              214,012Additions
      during periodNew
      loans
              
              
              99,839
              
              
              
              137,635
              
              
              
              159,745Other
              
              
              
              
              
              
              —
              
              
              
              588Total
      additions
              
              
              99,839
              
              
              
              137,635
              
              
              
              160,333Deductions
      during periodCollections
      of principal
              
              
              36,131
              
              
              
              91,134
              
              
              
              107,656Foreclosures
              
              
              2,068
              
              
              
              1,320
              
              
              
              5,464Cost
      of loans sold
              
              
              4,072
              
              
              
              —
              
              
              
              —Amortization
      of premium
              
              
              
              
              
              
              —
              
              
              
              —Other
              
              
              99
              
              
              
              710
              
              
              
              128Total
      deductions
              
              
              42,370
              
              
              
              93,164
              
              
              
              113,248Balance
      at close of year
              
              $
              363,037
              
              
              $
              305,568
              
              
              $
              261,097





59


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, 2008 and 2007.





Item 9A(T) – Controls and
Procedures





Evaluation
of Disclosure 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 defined in
Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the
period covered by this report.  Based upon that evaluation, the
general partners concluded the partnership’s disclosure controls and procedures
were effective.





General Partner's Report on Internal
Control Over Financial Reporting.





The
general partners are responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in the
Exchange Act Rule 13a-15(f). The internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of
America.





The
general partners and their respective managements conducted an evaluation of the
effectiveness of the partnership’s internal control over financial reporting
based on the Internal Control
- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on the results of this
evaluation, the general partners concluded the partnership’s internal control
over financial reporting was effective as of December 31, 2008.





This
annual report does not include an attestation report of the partnership's
independent registered public accounting firm regarding internal control over
financial reporting. The general partner’s report was not subject to attestation
by the partnership's independent registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission permitting the
partnership to provide only the general partner’s report in this annual
report.





Changes
to Internal Control Over Financial Reporting.





There
have not been any changes in the partnership’s internal control over financial
reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act)
during the quarter ended December 31, 2008 that have materially affected, or are
reasonably likely to materially affect, the partnership’s internal control over
financial reporting.





Item 9B – Other
Information





None








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 three general partners, one of whom is an individual,
Michael R. Burwell.  The other two general partners are Gymno
Corporation and Redwood Mortgage Corp. Both are California corporations, formed
in 1986 and 1978, respectively.  Mr. Burwell is one of the three
shareholders of Gymno Corporation, a California corporation, and has a
controlling interest in this company through his ownership of stock and as
trustee of the Burwell trusts, which have a 50 percent interest in
Gymno.  Redwood Mortgage Corp. is a subsidiary of The Redwood Group
Ltd., whose principal stockholders are the Burwell Trusts, the other shareholder
of Gymno Corporation and Michael R. Burwell.  Michael R. Burwell has a
controlling interest in these companies through his stock ownership or as
trustee of the Burwell trusts.





60


The
General Partners.





Michael R.
Burwell.Michael R. Burwell, age 52, 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 Burwell trusts.  Michael R.
Burwell is a director of Gymno and the director position previously 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 stock ownership or as
trustee of the Burwell trusts.





Redwood Mortgage
Corp.Redwood Mortgage Corp. is a licensed real estate broker
incorporated in 1978 under the laws of the State of California, and is engaged
primarily in the business of arranging and servicing mortgage
loans.  Redwood Mortgage Corp. will act as the loan broker and
servicing agent in connection with loans, as it has done on behalf of several
other limited partnerships formed by the general partners.





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.








61


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
(S-11) dated August 4, 2005, page 6, 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, 2008.  All such
compensation is in compliance with the guidelines and limitations set forth in
the partnership agreement.





I.  THE
FOLLOWING COMPENSATION HAS BEEN PAID TO THE GENERAL PARTNERS AND/OR THEIR
AFFILIATES FOR SERVICES RENDERED DURING THE YEAR ENDED DECEMBER 31,
2008.  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
              
              AmountRedwood
      Mortgage Corp.
              Mortgage
      Servicing Fee for servicing loans
              
              $
              2,669,000(General
      Partner)General
      Partners &/or Affiliates
              Asset
      Management Fee for managing assets
              
              $
              1,282,000General
      Partners
              1%
      interest in profits
              
              $
              183,000Less
      allocation of syndication costs
              
              $
              4,000$
              179,000General
      Partners &/or Affiliates
              Portion
      of early withdrawal penalties applied toreduce
      Formation Loan
              
              $
              176,000








II.
FEES PAID BY BORROWERS ON MORTGAGE LOANS PLACED WITH THE PARTNERSHIP BY
COMPANIES RELATED TO THE GENERAL PARTNERS DURING THE YEAR ENDED DECEMBER 31,
2008 (EXPENSES OF BORROWERS NOT OF THE PARTNERSHIP)





Redwood
      Mortgage Corp.
              Mortgage
      Brokerage Commissions for services inconnection
      with the review, selection, evaluation,negotiation,
      and extension of the loans paid by theborrowers
      and not by the partnership
              
              $
              1,182,000Redwood
      Mortgage Corp.
              Processing
      and Escrow Fees for services inconnection
      with notary, document preparation, creditinvestigation,
      and escrow fees payable by the borrowersand
      not by the partnership
              
              $
              124,000Gymno
      Corporation
              Reconveyance
      Fee
              
              $
              8,000





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
CONSOLIDATED STATEMENTS OF INCOME DURING THE YEAR ENDED DECEMBER 31, 2008 . . .
.. . . . . . . . . . . . . . . . . .  $364,000





62


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





The
general partners 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 Consolidated Financial Statements in Part II
item 8, which describes related party fees and data.





Also
refer to the Prospectus dated August 4, 2005, (incorporated herein by reference)
on page 6 “Summary of the Offering – Compensation of General Partners and
Affiliates”.





For a
description of the partnership’s policies and procedures for the review,
approval or ratification of related party transactions, refer also to the
Prospectus dated August 4, 2005 (incorporated herein by reference) for the
discussion under the caption “Compensation of the General Partners and
affiliates” beginning on page 23, the discussion under the caption “Conflicts of
Interest” beginning on page 28 and the discussion under the captions “Investment
Objectives and Criteria – Loans to General Partners and Affiliates” and
“Investment Objectives and Criteria – Purchase of Loans From Affiliates and
Other Third Parties” on page 42.





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 2008 and
2007 are as follows:





Audit Fees  The
aggregate fees billed during the years ended December 31, 2008 and 2007 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,
review of financial statements included in the partnership’s Quarterly Reports
on Form 10-Q and for services provided in connection with regulatory filings
were $191,677 and $180,624, respectively.





Audit Related
Fees  There were no fees billed during the years ended December
31, 2008 and 2007 for audit-related services.





Tax fees  The
aggregate fees billed for tax services for the years ended December 31, 2008 and
2007, were $16,703 and $10,525, 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, 2008 and 2007.





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








63


Part IV








Item 15 – Exhibits and
Financial Statement Schedules





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





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





2.
      The Consolidated Financial Statement Schedules are listed in Part II -
      Item 8 under B – Consolidated 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 for Construction Loans, which provides
      for principal and interest payments.(b)
            Form
      of Note secured by Deed of Trust for Commercial and Multi-Family loans
      which provides for principal and interest payments(c)
            Form
      of Note secured by Deed of Trust for Commercial and Multi-Family loans
      which provides for interest only payments(d)
            Form
      of Note secured by Deed of Trust for Single Family Residential Loans,
      which provides for interest and principal payments.(e)
            Form
      of Note secured by Deed of Trust for Single Family Residential loans,
      which provides for interest only payments.10.4
            (a)
            Deed
      of Trust, Assignment of Leases and Rents, Security Agreement and Fixture
      Filing to accompany Exhibits   10.3 (a), and
      (c).(b)
            Deed
      of Trust, Assignment of Leases and Rents, Security Agreement and Fixture
      Filing to accompany Exhibit 10.3 (b).(c)
            Deed
      of Trust, Assignment of Leases and Rents, Security Agreement and Fixture
      Filing to accompany Exhibit 10.3 (c).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
      200231.3
            
            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
      200232.3
            
            Certification
      of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002





All of
the above exhibits, other than exhibit 31.1, 31.2, 31.3, 32.1, 32.2 and 32.3,
were previously filed as the exhibits to Registrant’s Registration Statement on
Form S-11 (Registration No. 333-106900 and incorporated by reference
herein).





B.           See
A (3) above.





C.
            See
      A (2) above. Additional reference is made to the prospectus (filed as part
      of the S-11 registration statement) dated August 4, 2005, supplement No. 6
      dated April 28, 2008 (post effective amendment No. 8 to the S-11
      registration statement), for financial data related to Gymno Corporation,
      and Redwood Mortgage Corp., the Corporate General
  Partners.





64





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,
2009.








REDWOOD
      MORTGAGE INVESTORS VIII








By:
            /S/
      Michael R. BurwellMichael
      R. Burwell, General PartnerBy:
            Gymno
      Corporation, General PartnerBy:
            /S/
      Michael R. BurwellMichael
      R. Burwell, President, Secretary,and
      Principal Financial OfficerBy:
            Redwood
      Mortgage Corp.By:
            /S/
      Michael R. BurwellMichael
      R. Burwell, President,Secretary/Treasurer








65


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacity indicated on the 31st day of March, 2009.








Signature
            Title
            Date











/S/
      Michael R. BurwellMichael
      R. Burwell
            
            General
      Partner
            
            March
      31, 2009











/S/
      Michael R. BurwellMichael
      R. Burwell
              
              President
      of Gymno Corporation, (Principal Executive Officer); Director of Gymno
      Corporation Secretary/Treasurer of Gymno Corporation (Principal Financial
      and Accounting Officer)
              
              March
      31, 2009











/S/
      Michael R. BurwellMichael
      R. Burwell
              
              President,
      Secretary/Treasurer of Redwood Mortgage Corp. (Principal Financial and
      Accounting Officer);
                Director
      of Redwood Mortgage Corp.
              
              March
      31, 2009





66





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 VIII, 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)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15-d-15(f)) for the Registrant and
  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 report is being
      prepared;





(b)
            designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;





(c)
            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





(d)
            disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s forth 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, General Partner


March 31,
2009






67




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 VIII, 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)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15-d-15(f)) for the Registrant and
  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 report is being
      prepared;





(b)
            designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;





(c)
            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





(d)
            disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s forth 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, Secretary/Treasurer and


Chief
Financial Officer, of Gymno


Corporation,
General Partner


March 31,
2009


68


Exhibit
31.3





PRESIDENT’S
CERTIFICATION





I,
      Michael R. Burwell, certify that:





1.
            I
      have reviewed this annual report on Form 10-K of Redwood Mortgage
      Investors VIII, 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)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15-d-15(f)) for the Registrant and
  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 report is being
      prepared;





(b)
            designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;





(c)
            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





(d)
            disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s forth 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,


Redwood
Mortgage Corporation,


General
Partner


March 31,
2009


69


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 VIII (the
“Partnership”) on Form 10-K for the period ended December 31, 2008 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.





A signed
original of this written statement required by Section 906 has been provided to
Redwood Mortgage Investors VIII and will be retained by Redwood Mortgage
Investors VIII and furnished to the Securities and Exchange Commission or its
staff upon request.

















/s/
      Michael R. Burwell


_____________________________


Michael
      R. Burwell, General Partner


March
      31, 2009


70





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 VIII (the
“Partnership”) on Form 10-K for the period ended December 31, 2008 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.





A signed
original of this written statement required by Section 906 has been provided to
Redwood Mortgage Investors VIII and will be retained by Redwood Mortgage
Investors VIII and furnished to the Securities and Exchange Commission or its
staff upon request.

















/s/
      Michael R. Burwell


_____________________________


Michael
      R. Burwell, President, and


Chief
      Financial Officer of Gymno


Corporation,
      General Partner


March 31,
2009


71


Exhibit
32.3








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 VIII (the
“Partnership”) on Form 10-K for the period ended December 31, 2008 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.





A signed
original of this written statement required by Section 906 has been provided to
Redwood Mortgage Investors VIII and will be retained by Redwood Mortgage
Investors VIII and furnished to the Securities and Exchange Commission or its
staff upon request.

















/s/
      Michael R. Burwell


___________________________


Michael
      R. Burwell, President,


Redwood
      Mortgage Corporation,


General
      Partner


March
      31, 2009








72