UNITED STATES
                        SECURITIES & EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

                   Quarterly Report Under Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934


    For Quarterly Period Ended                      June 30, 2003
    ----------------------------------------------------------------------------
    Commission file number                             33-30427
    ----------------------------------------------------------------------------

        REDWOOD MORTGAGE INVESTORS VII, a California Limited Partnership
    ----------------------------------------------------------------------------
             (exact name of registrant as specified in its charter)

          California                                     94-3094928
    ----------------------------------------------------------------------------
    (State or other jurisdiction of                    I.R.S. Employer
     incorporation of organization)                   Identification No.

              900 Veterans Blvd., Suite 500, Redwood City, CA 94063
    ----------------------------------------------------------------------------
                     (address of principal executive office)

                                 (650) 365-5341
    ----------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
    ----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required 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  reports),  and (2) has been  subject to such
filing requirements for the past 90 days.

           YES       XX                             NO
               ----------------                        ----------------

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be filed by  Sections  12, 13 or 15 (d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

   YES                       NO                   NOT APPLICABLE       X
       -------------            -------------                    ------------

                      APPLICABLE ONLY TO CORPORATE ISSUERS

     Indicate the number of shares  outstanding of each of the issuer's class of
common stock, as of the latest date.


                                 NOT APPLICABLE


                                       1
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                 JUNE 30, 2003 and DECEMBER 31, 2002 (unaudited)


                                     ASSETS

                                                   June 30,        December 31,
                                                    2003               2002
                                                -------------     --------------

 Cash                                            $   233,831        $ 1,057,845
                                                -------------     --------------
 Loans
    Loans, secured by deeds of trust               6,937,320          6,423,984
    Loans, unsecured                                 211,969            216,770
                                                -------------     --------------
                                                   7,149,289          6,640,754
    Less allowance for loan losses                 (734,945)          (791,882)
                                                -------------     --------------
      Net loans                                    6,414,344          5,848,872
                                                -------------     --------------
 Interest and other receivables
    Accrued interest                                 380,501            304,936
    Advances on loans                                  6,283             17,230
                                                -------------     --------------
      Total interest and other receivables           386,784            322,166
                                                -------------     --------------
 Investment in limited liability company           1,352,277          1,212,722
                                                -------------     --------------
 Real estate owned, held for sale                    687,500            683,136
                                                -------------     --------------

      Total assets                               $ 9,074,736        $ 9,124,741
                                                =============     ==============


                        LIABILITIES AND PARTNERS' CAPITAL

 Liabilities

    Accounts payable                              $    4,102          $   2,593
    Payable to affiliate                              40,147             32,176
    Deferred interest                                      -             37,704
                                                -------------      -------------
      Total liabilities                               44,249             72,473
                                                -------------      -------------
 Partners' capital
    Limited partners' capital, subject to
       redemption                                  9,018,509          9,040,290
    General partners' capital                         11,978             11,978
                                                -------------      -------------
      Total partners' capital                      9,030,487          9,052,268
                                                -------------      -------------
      Total liabilities and partners' capital    $ 9,074,736        $ 9,124,741
                                                =============      =============







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

                                       2
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              STATEMENTS OF INCOME
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 and JUNE 30, 2002 (unaudited)


<TABLE>
<S>                                                       <C>                <C>               <C>                <C>
                                                              THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                                   JUNE 30,                           JUNE 30,
                                                       --------------------------------------------------------------------

                                                           2003              2002              2003               2002
                                                       -------------     -------------      -------------     -------------
Revenues
   Interest - on loans                                  $   176,069       $   273,185        $   340,168       $   568,337
   Interest - interest bearing accounts                         572               695              2,142             1,780
   Late charges                                               6,001             1,349             12,628             5,849
   Other income                                               4,544             3,419              5,554            14,726
                                                       -------------     -------------      -------------     -------------
                                                            187,186           278,648            360,492           590,692
                                                       -------------     -------------      -------------     -------------
Expenses
   Mortgage servicing fees                                   17,147            44,658             33,301            96,325
   Interest on line of credit                                 1,156            12,366              1,325            34,593
   Clerical costs through Redwood
     Mortgage Corp.                                           6,008             7,674             12,493            15,688
   Asset management fees                                      8,505             8,754             17,022            17,635
   Provisions for losses on loans and real estate          (34,565)                 -           (56,937)             5,731
   Professional services                                     16,273             3,017             33,591            19,252
   Printing, supplies and postage                             2,683             3,858              4,269             5,093
   Other                                                      4,123               846              5,327             2,269
                                                       -------------     -------------      -------------     -------------
                                                             21,330            81,173             50,391           196,586
                                                       -------------     -------------      -------------     -------------
Net income                                              $   165,856       $   197,475        $   310,101       $   394,106
                                                       =============     =============      =============     =============

Net income:  To general partners (1%)                   $     1,659       $     1,975        $     3,101       $     3,941
             To limited partners (99%)                      164,197           195,500            307,000           390,165
                                                        $   165,856       $   197,475        $   310,101       $   394,106
                                                       =============     =============      =============     =============

Net income per $1,000 invested by limited
  partners for entire period
    -where income is reinvested and
      compounded                                             $16.31            $21.08             $34.30            $42.21
                                                       =============     =============      =============     =============
    -where partner receives income in monthly
      distributions                                          $16.22            $20.94             $33.82            $41.49
                                                       =============     =============      =============     =============
</TABLE>





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

                                       3
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                            STATEMENTS OF CASH FLOWS
           FOR THE SIX MONTHS ENDED JUNE 30, 2003 and 2002(unaudited)


<TABLE>
<S>                                                                              <C>              <C>
                                                                               SIX MONTHS ENDED JUNE 30,
                                                                            --------------------------------

                                                                                 2003             2002
                                                                             -------------    -------------
    Cash flows from operating activities
      Net income                                                               $  310,101       $  394,106
      Adjustments to reconcile net income to net cash provided by
             operating activities
        Provision for (recovery of) losses on loans and real estate              (56,937)            5,731
        Early withdrawal penalty credited to income                               (1,057)          (5,982)
        Change in operating assets and liabilities
           Accrued interest and advances on loans                                (64,618)          412,132
           Accounts payable and other liabilities                                (28,224)          (7,193)
           Prepaid expenses                                                             -          (9,983)
                                                                             -------------    -------------

    Net cash provided by operating activities                                     159,265          788,811
                                                                             -------------    -------------

    Cash flows from investing activities
        Principal collected on loans                                            1,167,884        1,537,076
        Loans originated                                                      (1,681,220)        (710,262)
        Payments for real estate held for sale                                    (4,364)          (3,022)
        Proceeds from sale of real estate held for sale                                 -            2,565
        Investments in limited liability company                                (139,555)                -
        Proceeds from unsecured loans                                               4,801            7,500
                                                                             -------------    -------------

    Net cash provided by (used in) investing activities                         (652,454)          833,857
                                                                             -------------    -------------

    Cash flows from financing activities
        Net decrease in line of credit                                                  -      (1,000,000)
        Partners withdrawals                                                    (330,825)        (634,438)
                                                                             -------------    -------------

    Net cash used in financing activities                                       (330,825)      (1,634,438)
                                                                             -------------    -------------

    Net decrease in cash                                                        (824,014)         (11,770)

    Cash - beginning of year                                                    1,057,845          389,844
                                                                             -------------    -------------

    Cash - end of period                                                          233,831          378,074
                                                                             =============    =============

    Cash payments for interest                                                 $    1,325       $   34,593
                                                                             =============    =============
</TABLE>




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

                                       4
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                            JUNE 30, 2003 (unaudited)


NOTE 1 - GENERAL

     In the  opinion of the  management  of the  Partnership,  the  accompanying
unaudited  financial  statements contain all adjustments,  consisting of normal,
recurring  adjustments,  necessary to present  fairly the financial  information
included therein.  These financial statements should be read in conjunction with
the audited financial statements included in the Partnership's Form 10-K for the
fiscal year ended  December  31,  2002 filed with the  Securities  and  Exchange
Commission.  The results of  operations  for the six month period ended June 30,
2003 are not necessarily  indicative of the operating results to be expected for
the full year.


note 2 - Summary of Significant Accounting Policies

Loans, secured by deeds of trust

     At June 30,  2003 and  December  31, 2002 there were loans  categorized  as
impaired  by the  Partnership  in the  total  aggregate  amount of  $96,716  and
$96,716,  respectively. In addition, the impaired loans had accrued interest and
advances  totaling  $7,841 and $7,841 at June 30, 2003 and  December  31,  2002,
respectively.  The reduction in carrying  value of the impaired  loans of $6,620
and $6,620 at June 30, 2003 and December 31, 2002, respectively,  is included in
the allowance for loan losses.  The average recorded  investment in the impaired
loans was $96,716 and  $493,074  for the six months  ended June 30, 2003 and the
year ended December 31, 2002, respectively.

     At June 30, 2003 and  December 31, 2002,  the  Partnership  had eight loans
past due 90 days or more totaling  $2,857,439 and $2,913,212  (41.19% and 45.35%
of the secured loan portfolio),  respectively. The Partnership does not consider
these loans to be impaired  because there is sufficient  collateral to cover the
amount  outstanding to the Partnership  and is still accruing  interest on these
loans.

Allowance for loan losses

     The  composition  of the  allowance for loan losses as of June 30, 2003 and
December 31, 2002 was as follows:

                                                  June 30,          December 31,
                                                    2003                2002
                                                -------------      -------------
      Impaired loans                              $    6,620         $    6,620
      Specified loans                                163,731            163,731
      General                                        476,263            533,200
      Unsecured loans                                 88,331             88,331
                                                -------------      -------------
                                                  $  734,945         $  791,882
                                                =============      =============

     Activity  in the  allowance  for loan  losses is as  follows  for the three
months ended June 30, 2003 and the year ended December 31, 2002:

                                                  June 30,          December 31,
                                                    2003                2002
                                                -------------      -------------
      Beginning balance                           $  791,882         $  887,578
      Provision for loan losses                            -             20,394
      Recoveries                                    (56,937)           (40,433)
      Restructures                                         -           (64,210)
      Write-offs                                           -           (11,447)
                                                -------------      -------------
                                                  $  734,945         $  791,882
                                                =============      =============

                                       5
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                            JUNE 30, 2003 (unaudited)


note 2 - Summary of Significant Accounting Policies (continued)

Income taxes

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

Reclassifications

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

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.

Management estimates

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


note 3 - General Partners and Related Parties

     The following are commissions  and fees,  which will be paid to the general
partners.

Mortgage brokerage commissions

     For fees in connection with the review, selection, evaluation,  negotiation
and extension of loans, the Partnership 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.

Mortgage servicing fees

     Monthly  mortgage  servicing  fees of up to 1/8 of 1% (1.5%  annual) of the
unpaid  principal  are paid to  Redwood  Mortgage  Corp.,  based  on the  unpaid
principal balance of the loan portfolio,  or such lesser amount as is reasonable
and customary in the geographic area where the property securing the mortgage is
located. Once a loan is categorized as impaired,  mortgage servicing fees are no
longer  accrued.  Additional  service fees are recorded  upon the receipt of any
subsequent payments on impaired loans.

                                       6
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                            JUNE 30, 2003 (unaudited)


note 3 - General Partners and Related Parties (continued)

Asset management fees

     The general  partners  receive monthly fees for managing the  Partnership's
loan  portfolio and operations of up to 1/32 of 1% of the "net asset value" (3/8
of 1% annually).

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 parties related to the general partners.

Operating expenses

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


note 4 - Real Estate Held for Sale

     The following  schedule  reflects the costs of real estate acquired through
foreclosure  and the recorded  reductions  to estimated  fair values,  including
estimated costs to sell as of June 30, 2003 and December 31, 2002:

                                                June 30,           December 31,
                                                  2003                 2002
                                             --------------       --------------
        Costs of properties                   $  1,267,586          $ 1,263,222
        Reduction in value                       (580,086)            (580,086)
                                             --------------       --------------
        Real estate held for sale             $    687,500          $   683,136
                                             ==============       ==============


note 5 - Investment in Limited Liability Company

     As a result of acquiring real property through foreclosure, the Partnership
transferred its interest  (principally land and building) to a limited liability
company ("LLC"), Stockton Street Property Company LLC, which is owned 34% by the
Partnership and 66% by an affiliate.  Development  costs are being  capitalized;
thus,  there was no income or expense  recognized  by Stockton  Street  Property
Company  during the six months through June 30, 2003 and the year ended December
31, 2002.  During 2003, the LLC completed  construction  and now intends to sell
the property. The Partnership expects to realize a profit from the venture.

     Summarized  financial  information of the LLC at June 30, 2003 and December
31, 2002 is as follows:

                                                June 30,           December 31,
                                                 2003                 2002
                                             -------------        --------------
        Assets                                $ 1,950,701           $ 1,814,186
        Liabilities                             (598,424)             (601,464)
                                             -------------        --------------
        Total                                 $ 1,352,277           $ 1,212,722
                                             =============        ==============

                                       7
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                            JUNE 30, 2003 (unaudited)


note 6 - Bank Line of Credit

     The  Partnership has a bank line of credit secured by its loan portfolio of
up to $3,500,000  at .25% over prime.  The balances  outstanding  as of June 30,
2003 and December 31, 2002 were $0; and the interest rate was 4.25% (4.00% prime
+ .25%) at June 30, 2003. This line of credit expires December 2007 and requires
the Partnership to meet certain  financial  covenants.  As of June 30, 2003, the
Partnership was in compliance with all loan covenants.

     Should the  general  partners  choose not to renew the line of credit,  any
balance then outstanding would be converted to a three-year term loan.


note 7 - Fair Value of Financial Instruments

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

     Secured loans had a carrying  value of $6,937,320 and  $6,423,984,  at June
30, 2003 and December 31, 2002,  respectively.  The fair value of these loans of
$6,710,931 and $6,030,669, 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.


note 8 - Asset Concentrations and Characteristics

     The loans are  secured by  recorded  deeds of trust.  At June 30,  2003 and
December 31, 2002 there were 24 and 25 secured loans outstanding,  respectively,
with the following characteristics:

<TABLE>
<S>                                                                        <C>               <C>
                                                                           June 30,          December 31,
                                                                             2003                2002
                                                                        ---------------     ---------------
   Number of secured loans outstanding                                              24                  25
   Total secured loans outstanding                                        $  6,937,320        $  6,423,984

   Average secured loan outstanding                                       $    289,055        $    256,959
   Average secured loan as percent of total                                      4.17%               4.00%
   Average secured loan as percent of Partners' capital                          3.20%               2.84%

   Largest secured loan outstanding                                       $  1,000,000        $  1,000,000
   Largest secured loan as percent of total                                     14.41%              15.57%
   Largest secured loan as percent of Partners' capital                         11.07%              11.05%
   Number of counties where security is located (all California)                     9                  11

   Largest percentage of loans in one county                                    31.52%              41.38%

   Average secured loan to appraised value of security at time
       loan was consummated                                                     63.28%              65.86%

   Number of secured loans in foreclosure                                            2                   2
   Amount of secured loans in foreclosure                                 $    500,000        $    236,807
</TABLE>

                                       8
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                            JUNE 30, 2003 (unaudited)


note 8 - Asset Concentrations and Characteristics (continued)

     The  following  categories  of secured loans were held at June 30, 2003 and
December 31, 2002:

                                                June 30,           December 31,
                                                  2003                 2002
                                              --------------      --------------
  First trust deeds                             $ 3,179,518         $ 3,269,897
  Second trust deeds                              3,684,631           2,939,753
  Third trust deeds                                  73,171             214,334
                                              --------------      --------------
             Total loans                          6,937,320           6,423,984
  Prior liens due other lenders                   5,864,520           5,475,725
                                              --------------      --------------

             Total debt                         $12,801,840         $11,899,709
                                              ==============      ==============

  Appraised property value at time of loan      $20,230,341         $18,069,602

  Total investments as percent of appraisals         63.28%              65.86%

  Investments by type of property
       Owner occupied homes                     $   965,868         $ 1,037,474
       Non-owner occupied homes                     111,345             575,051
       Apartments                                 1,759,955             708,648
       Commercial                                 4,100,152           4,102,811
                                              --------------      --------------
                                                $ 6,937,320         $ 6,423,984
                                              ==============      ==============


     Scheduled  maturity  dates of  secured  loans  as of June  30,  2003 are as
follows:


            Year Ending December 31,
        ----------------------------------
                      2003                        $3,145,046
                      2004                           127,450
                      2005                           940,125
                      2006                            96,716
                      2007                         1,521,356
                   Thereafter                      1,106,627
                                                -------------

                      Total                       $6,937,320
                                                =============

     The scheduled maturities for 2003 above include approximately $2,368,129 in
6 loans, which are past maturity at June 30, 2003.  Interest payments on five of
these loans with an aggregate  principal  balance of $2,234,608 were categorized
as delinquent over 90 days.

     Cash  deposits  per  bank at June 30,  2003 of  $323,750,  before  clearing
deposits  in transit  and  outstanding  checks,  were in one bank.  The  balance
exceeded  FDIC  insurance  limits (up to  $100,000  per bank) by  $223,750.  The
Partnership's main bank is the same financial  institution that has provided the
Partnership with the $3,500,000 limit line of credit.

     The Partnership has a substantial amount of its loan receivable balance due
from one borrower.  This borrower  accounted for  approximately 29% of the total
Partnership loan balance at June 30, 2003.

                                       9
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                            JUNE 30, 2003 (unaudited)


note 9 - Commitments and Contingencies

Workout agreements

     The Partnership has negotiated various  contractual workout agreements with
borrowers  whose  loans  are  past  maturity  or who are  delinquent  in  making
payments.  Under the terms of these workout  agreements  the  Partnership is not
obligated to make any additional monetary advances for the maintenance or repair
of the collateral  securing the loans as of June 30, 2003 and December 31, 2002.
As of June 30, 2003 the  Partnership  had three loans under  workout  agreements
totaling $269,979.

Construction loans

     Periodically the Partnership makes  construction  loans. These projects are
at various stages of completion.  The Partnership approves the borrowers up to a
maximum loan balance;  however,  disbursements are made during completion phases
throughout the  construction  process.  At June 30, 2003,  all the  construction
loans were paid off.

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.


 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE PARTNERSHIP

Critical Accounting Policies.

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

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

     Statement of Financial  Accounting  Standards Nos. 114 and 118 provide that
if the probable  ultimate  recovery of the carrying  amount of a loan,  with due
consideration  for the fair  value  of  collateral,  is less  than  amounts  due
according to the  contractual  terms of the loan  agreement and the shortfall in
the amounts due are not  insignificant,  the carrying  amount of the  investment
shall be reduced to the  present  value of future cash flows  discounted  at the
loan's effective interest rate. If a loan is collateral dependent,  it is valued
at the estimated fair value of the related collateral.  If events and or changes
in  circumstances  cause  management  to have  serious  doubts about the further
collectibility  of the  contractual  payments,  a loan  may  be  categorized  as
impaired and interest is no longer accrued.  Any subsequent payments on impaired
loans are applied to reduce the  outstanding  loan  balances  including  accrued
interest and advances.

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

                                       10
<PAGE>

Forward Looking Statements.

     Some of the  information  in the Form  10-Q  may  contain  forward  looking
statements.  Uses of words  such as  "will",  "may",  "anticipate",  "estimate",
"continue"  or other forward  looking  words,  discuss  future  expectations  or
predictions.  The  analysis of 2003  includes  forward  looking  statements  and
predictions  about the  possibility of future events,  results of operations and
financial  condition.  As such, this analysis may prove to be inaccurate because
of  assumptions  made by the general  partners or the actual  development of the
future  events.  No  assurance  can be given  that any of  these  statements  or
predictions will ultimately prove to be correct or substantially correct.

Related Parties.

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

     o Mortgage  Brokerage  Commissions  For fees in connection with the review,
selection,  evaluation,  negotiation and extension of loans, the Partnership 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.  Loan brokerage commissions paid by
the borrowers were $48,775 and $6,400 for the six months ended June 30, 2003 and
2002,  and $6,000 and $2,500 for the three  months ended June 30, 2003 and 2002,
respectively.

     o Mortgage  Servicing Fees Monthly mortgage  servicing fees of up to 1/8 of
1% (1.5% on an annual basis) of the unpaid principal of the Partnership's  loans
is paid to Redwood  Mortgage  Corp.,  or such lesser amount as is reasonable and
customary in the  geographic  area where the  property  securing the mortgage is
located.  Mortgage  servicing  fees of $33,301 and $96,325 were incurred for the
six months ended June 30, 2003 and 2002,  and $17,147 and $44,658 were  incurred
for the three months ended June 30, 2003 and 2002, respectively.

     o Asset  Management  Fees The 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 $17,022 and $17,635  were  incurred by the  Partnership  for the six
months ended June 30, 2003 and 2002, and $8,505 and $8,754 were incurred for the
three months ended June 30, 2003 and 2002, respectively.

     o 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.

     o Income and Losses  All  income  and  losses  are  credited  or charged to
partners in relation to their respective Partnership  interests.  The allocation
to the general partners (combined) shall be a total of 1%.

     o Operating  Expenses An affiliate  of the  Partnership,  Redwood  Mortgage
Corp.,  is reimbursed by the  Partnership  for all operating  expenses  actually
incurred  by it on  behalf of the  Partnership,  including  without  limitation,
out-of-pocket general and administration expenses of the Partnership, accounting
and audit fees,  legal fees and expenses,  postage and preparation of reports to
limited partners. Such reimbursements are reflected as expenses in the statement
of income.

     o  Contributed   Capital  The  general   partners   jointly  and  severally
contributed 1/10 of 1% in cash contributions as proceeds from the offerings were
received  from the limited  partners.  As of June 30,  2003 and 2002,  a general
partner,  Gymno  Corporation,  had contributed  $11,978 as capital in accordance
with Section 4.02(a) of the partnership agreement.

                                       11
<PAGE>

     Results of  Operations  - For the six and three  months ended June 30, 2003
and 2002

     The net income decrease of $84,005 (21.32%) for the six months, and $31,619
(16%) for the three  months  ended June 30,  2003  versus  June 30, 2002 was due
primarily  to a decrease in interest  earned on loans of $228,169  (40%) for the
six months and $97,116 (36%) for the three  months,  an increase in late charges
of $6,779 (116%) for the six months and $4,652 (345%)for the three months, and a
decrease in other  income of $9,172  (62%) for the six months and an increase of
$1,125  (33%)  for the three  months;  offset  by  expense  increases/decreases.
Significant  expense decreases for the six and three month period ended June 30,
2003 versus June 30, 2002 included lower mortgage  servicing fees of $63,024 for
the six months and $27,511 for the three months, a decrease in the provision for
losses on loans and real  estate of $62,668  for the six months and  $34,565 for
the three months,  a decrease in interest  expense of $33,268 for the six months
and  $11,210 for the three  months,  and an  increase  in  professional  fees of
$14,339 for the six months and $13,256 for the three months.

     The decrease in interest on loans of $228,169 (40%) for the six months, and
$97,116  (36%) for the three months ended June 30, 2003 versus June 30, 2002 was
due  primarily  to  a  reduction  of  the  loan  portfolio  to  $6,937,320  from
$9,522,503,  and a reduction in average  portfolio  interest rate as compared to
the first half of 2002.

     The decrease in interest on the line of credit of $33,268 (96%) for the six
months,  and $11,210  (91%) for the three months ended June 30, 2003 versus June
30, 2002 is due to lower  overall  usage of the line of credit  during the first
half of 2003. The  Partnership  utilized its bank line of credit less during the
first half of 2003 compared to the first half of 2002. The outstanding  balances
of $0 at June 30, 2003 versus  $907,000 at June 30, 2002 are  reflective  of the
overall lower credit line usage.  Cash  generated from interest  earnings,  late
charges, amortization of principal and loan payoffs was utilized to pay down the
credit line.

     The  decrease  in  mortgage  servicing  fees of  $63,024  (65%) for the six
months,  and $27,511  (62%) for the three months ended June 30, 2003 versus June
30, 2002 is  attributable  to a decrease in loan  portfolio to  $6,937,320  from
$9,522,503. In addition, higher mortgage servicing fees during the six and three
months through June 30, 2002 was due to collection of servicing fees on impaired
loans during the first half of 2002. The Partnership  does not accrue  servicing
fees to Redwood  Mortgage  Corp. on impaired  loans.  Rather,  servicing fees on
impaired loans are incurred as borrower payments are received.

     Loan loss recoveries  were $56,937 for the six months,  and $34,565 for the
three months ended June 30, 2003, as compared to a loan loss provision of $5,731
for the six months,  and $0 for the three months ended June 30, 2002. No further
provision  was made as the general  partners  felt that the  allowance  for loan
losses of  $734,945  as of June 30,  2003 was more than  adequate  to offset any
potential loss in loans or real estate.

     The decrease in asset management fees of $613 (3%) for the six months,  and
$249 (3%) for the three months ended June 30, 2003 versus the respective periods
ended  June  30,  2002  is due to a  decrease  in the  partners'  capital  under
management at June 30, 2003 and 2002 of $9,030,487 and $9,185,932, respectively.

     The increase in professional fees of $14,339 (74%) for the six months,  and
$13,256  (439%) for the three months ended June 30, 2003 versus June 30, 2002 is
due to timing of services  provided in 2003  compared to 2002 in relation to its
audit and tax return processing and increases in the cost of such services.

     Partnership  capital  continued to decrease as the limited partners capital
declined due to both earnings distribution and capital liquidations. For the six
and three  months  ended June 30,  2003  earnings  and  capital  liquidated  was
$110,116 and $218,663 for the six months, and $52,958 and $105,512 for the three
months,  respectively,  versus  $158,736 and  $477,743  for the six months,  and
$78,288 and $227,321 for the three months,  respectively  for the  corresponding
period in 2002.

     At June 30, 2003, outstanding  foreclosures remained at two ($500,000) from
the two  ($986,372)  that existed at June 30,  2002.  These  foreclosures  are a
reflection of the difficult  economic  times at June 30, 2003 and June 30, 2002,
yet are not unusual in the general partners' experience.

                                       12
<PAGE>

     The general partners received Mortgage Brokerage  Commissions from the loan
borrowers of $48,775 and $6,000 for the six and three months ended June 30, 2003
as  compared  to $6,400 and $2,500 for the six and three  months  ended June 30,
2002.  The  increase  is due to more loans  written in the six and three  months
ended June 30, 2003.

     Beginning in 2001, and through June 30, 2003, the Federal  Reserve  reduced
interest  rates by cutting the Federal  Funds Rate several  times to 1.00%.  The
effect of the previous cuts has greatly reduced short-term interest rates and to
a  lesser  extent  reduced  long-term   interest  rates.  The  general  partners
anticipate  that new loans  will be placed  at rates  approximately  1% to 1.50%
lower than similar loans during early 2002.  The lowering of interest  rates has
encouraged  those  borrowers that have mortgages with higher interest rates than
those  currently  available  to  seek  refinancing  of  their  obligations.  The
Partnership may face prepayments in the existing portfolio from borrowers taking
advantage  of these  lower  rates.  However,  demand  for loans  from  qualified
borrowers  continues to be strong and as prepayments occur, the general partners
expect to replace paid off loans with loans at somewhat lower interest rates. At
this time, the general partners believe that the average loan portfolio interest
rate will decline  approximately .50% to .75% over the year 2003.  Nevertheless,
based  upon the  rates  payable  in  connection  with the  existing  loans,  and
anticipated  interest  rates to be charged by the  Partnership  and the  general
partners'  experience,  the general partners  anticipate,  but do not guarantee,
that the annualized yield will range between 6.30% and 7.30% in 2003.

     Borrower  foreclosures,  as set forth under  Results of  Operations,  are a
normal aspect of Partnership operations and the general partners anticipate that
they will not have a material  effect on liquidity.  As of June 30, 2003,  there
were two properties totaling $500,000 in foreclosure, compared to two properties
totaling  $986,372 at June 30, 2002.  Cash is constantly  being  generated  from
interest  earnings,  late  charges,   pre-payment  penalties,   amortization  of
principal and loan pay-offs.  Currently, cash flow exceeds Partnership expenses,
earnings and capital payout  requirements.  Excess cash flow will be invested in
new  loan  opportunities,  when  available,  and  will  be used  to  reduce  the
Partnership credit line or in other Partnership business.

Allowance for Losses.

     The general  partners  regularly  review the loan portfolio,  examining the
status of delinquencies,  the underlying  collateral  securing these properties,
the real estate held for sale expenses and sales  activities,  borrowers payment
records, etc. Data on the local real estate market and on the national and local
economy are studied.  Based upon this  information and other data, loss reserves
are  increased  or  decreased.  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 that we
will on occasion take back real estate security.  During 2001, and continuing in
2002 and 2003,  the  Northern  California  real  estate  market  slowed  and the
national and local economies have slipped into  recession.  As of June 30, 2003,
two notices of default are currently  filed beginning the process of foreclosing
two loans.  The principal  amounts of the two foreclosed loans total $500,000 or
7.21% of our loan portfolio,  versus two loans in foreclosure  totaling $986,372
that  existed at June 30,  2002.  The  Partnership  also  entered  into  workout
agreements  with  borrowers who are past maturity or delinquent in their regular
payments.  The  Partnership  had workout  agreements  on  approximately  3 loans
totaling $269,979 as of June 30, 2003. Typically, a workout agreement allows the
borrower  to extend the  maturity  date of the  balloon  payment  and allows the
borrower to make current  monthly  payments while deferring for periods of time,
past  due  payments,  or  allows  time to pay the loan in  full.  These  workout
agreements and foreclosures generally exist within our loan portfolio to greater
or lesser degrees,  depending primarily on the health of the economy. The number
of  foreclosures  and workout  agreements  will rise during  difficult times and
conversely  fall  during  good  economic   times.   The  number  and  amount  of
foreclosures and workout  agreements  existing at June 30, 2003, in management's
opinion,  does not have a  material  effect  on our  results  of  operations  or
liquidity.  These workouts and foreclosures have been considered when management
arrived at  appropriate  loan loss  reserves  and based on our  experience,  are
reflective of our loan marketplace  segment.  Because of the number of variables
involved,  the  magnitude  of the  possible  swings  and  the  general  partners
inability to control many of these factors,  actual results may and do sometimes
differ  significantly  from estimates made by the general  partners.  Management
provided  ($56,937) and $5,731,  as  (recoveries)  and  provisions for losses on
loans  and  real  estate  for the six  months  ended  June 30,  2003  and  2002,
respectively.  The  reserve for losses on loans and real estate had a balance of
$734,945 as of June 30, 2003.  This balance  reflects  reduced  expected loan or
real estate anticipated losses in 2003 and that current reserves are adequate to
handle  potential  losses.  If  conditions  change,  the  Partnership  may again
increase its provisions for loan and real estate losses.

                                       13
<PAGE>

     The Partnership  makes loans primarily in Northern  California.  As of June
30, 2003,  approximately 65%,  ($4,529,744) of the loans held by the Partnership
were in five of the six San  Francisco Bay Area  Counties.  The remainder of the
loans held were secured primarily by Northern California real estate outside the
San Francisco Bay Area. Like the rest of the nation,  the San Francisco Bay Area
has felt the  recession  and  accompanying  slow  down in  economic  growth  and
increasing unemployment. The technology companies of Silicon Valley, the airline
industry,  the tourism  industry and other industries are feeling the effects of
the overall United States recession,  which includes lower earnings,  losses and
layoffs.

     As of June 30,  2003,  the  Partnership  had an average loan to value ratio
computed  as of the date the loan  was  made of 63%.  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  through
amortization  of payments after the loan was made.  This low loan to value ratio
will assist the Partnership in weathering loan  delinquencies  and  foreclosures
should they eventuate.


PORTFOLIO REVIEW - For the six months ended June 30, 2003 and 2002.

Loan Portfolio

     The Partnership's  loan portfolio  consists primarily of short-term (one to
five years),  fixed rate loans  secured by real estate.  As of June 30, 2003 and
2002 the Partnership's  loans secured by real property collateral in the six San
Francisco Bay Area counties (San  Francisco,  San Mateo,  Santa Clara,  Alameda,
Contra Costa,  and Marin)  represented  $4,529,744 (65%) and $6,503,301 (68%) of
the outstanding loan portfolio. The remainder of the portfolio represented loans
secured by real estate located primarily in Northern California.

     As of June 30, 2003, approximately 16% ($1,077,213),  was invested in loans
secured by single family homes (1-4 units), approximately 25% ($1,759,955),  was
invested in loans secured by multifamily  dwellings  (apartments  over 4 units),
approximately  28%  ($1,943,095),  was invested in loans  secured by  commercial
properties,  and approximately 31% ($2,157,057) was invested in loans secured by
land. As of June 30, 2002, approximately 14% ($1,371,159), was invested in loans
secured by single family homes (1-4 units),  approximately  17% ($1,563,213) was
invested in loans secured by multifamily  dwellings  (apartments  over 4 units),
approximately  42%  ($4,023,523)  was  invested in loans  secured by  commercial
properties,  and approximately 27% ($2,564,608) was invested in loans secured by
land.

     As of June 30,  2003,  the  Partnership  held 24 loans  secured by deeds of
trust. The following table sets forth the priorities,  asset  concentrations and
maturities of the loans held by the Partnership as of June 30, 2003:

            PRIORITIES, ASSET CONCENTRATIONS AND MATURITIES OF LOANS
                               As of June 30, 2003

                                     # of Loans        Amount           Percent
                                    -----------    -------------     -----------

     1st Mortgages                         12       $ 3,179,518             46%
     2nd Mortgages                         11         3,684,631             53%
     3rd Mortgages                          1            73,171              1%
                                    ==========     =============     ===========
       Total                               24       $ 6,937,320            100%

     Maturing 12/31/03 and prior           11       $ 3,145,046             45%
     Maturing prior to 12/31/04             1           127,450              2%
     Maturing prior to 12/31/05             2           940,125             14%
     Maturing after 12/31/05               10         2,724,699             39%
                                    ==========     =============     ===========
       Total                               24       $ 6,937,320            100%

     Average Loan                                   $   289,055              4%
     Largest Loan                                     1,000,000             14%
     Smallest Loan                                       11,345           0.16%
     Average Loan-to-Value                                                  63%

                                       14
<PAGE>

Borrower Liquidity and Capital Resources.

     At the time of subscription to the  Partnership,  limited  partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound  earnings in their capital  account.  For the six and
three months ended June 30, 2003 and 2002, the Partnership made distributions of
earnings to limited  partners of $110,116 and  $158,736 for the six months,  and
$52,958 and $78,288 for the three months, respectively. Distribution of Earnings
to limited partners, which were not withdrawn for the six and three months ended
June 30,  2003 and 2002 were  $196,884  and  $231,429  for the six  months,  and
$111,239 and $117,212 for the three  months,  respectively.  As of June 30, 2003
and 2002, limited partners electing to withdraw earnings represented 37% and 42%
of the limited partners' capital.

     The Partnership  also allows the limited partners to withdraw their capital
account  subject  to  certain   limitations  (see   liquidation   provisions  of
partnership  agreement).  For the six and three  months  ended June 30, 2003 and
2002,  $13,190 and  $74,772  for the six months,  and $3,750 and $41,481 for the
three months, respectively, were liquidated subject to the 10% penalty for early
withdrawal. These withdrawals are within the normally anticipated range that the
general   partners   would  expect  in  their   experience  in  this  and  other
partnerships.  The general  partners  expect that a small  percentage of limited
partners will elect to liquidate their capital accounts over one year with a 10%
early withdrawal penalty. In originally conceiving the Partnership,  the general
partners wanted to provide  limited  partners  needing their capital  returned a
degree of liquidity.  Generally,  limited partners electing to withdraw over one
year need to liquidate their investment to raise cash. The trend the Partnership
is  experiencing  in  withdrawals  by  limited  partners  electing  a  one  year
liquidation  program represents a small percentage of limited partner capital as
of June 30, 2003 and 2002.

     Additionally,  for the six and three  months  ended June 30, 2003 and 2002,
$205,473  and  $402,971  for the six months,  and  $101,762 and $185,840 for the
three months, respectively, were liquidated by limited partners who have elected
a  liquidation  program  over a period of five years or longer.  This ability to
withdraw  after  five  years by limited  partners  has the  effect of  providing
limited partner liquidity.  The general partners expect a portion of the limited
partners to take advantage of this provision. This has the anticipated effect of
the Partnership growing, primarily through reinvestment of earnings in years one
through five. The general  partners expect to see increasing  numbers of limited
partner  withdrawals in years five through eleven,  after which time the bulk of
those limited partners who have sought  withdrawal have been  liquidated.  After
year eleven, liquidation generally subsides.

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

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

                                       15
<PAGE>

Current Economic Conditions.

     As contained in a collection  of real estate  statistics  listed in the San
Francisco Chronicle dated May 16, 2003, mortgage rates are at their lowest in 30
years. The article stated,  "The average 30-year fixed mortgage dropped to 5.45%
for the week ending  today down from 5.62% last week,  according to Freddie Mac,
the  government-sponsored  entity that buys and repackages mortgages for sale to
the equity market. Freddie Mac has kept weekly mortgage rate records since 1971,
when Richard Nixon was in the White House.  Fifteen-year  fixed  mortgages hit a
12-year low,  dipping to an average 4.84%,  down from 4.97% last week.  One-year
adjustable rate mortgages,  known as ARMs,  edged up slightly to 3.67% this week
from 3.66% last week.  This time last year, the average  30-year rate was 6.89%,
the 15-year rate was 6.37% and the ARM rate was 4.81%.  For the year so far, the
average  30-year rate is at 5.83%,  under the 5.9% average in 1963,  Freddie Mac
said."

     According to the San Francisco  Chronicle of the week of June 21, 2003, the
mortgage defaults dropped across the U.S. The article stated,  "Fewer California
and U.S.  homeowners  defaulted  on their  mortgages  in the first  quarter,  as
plunging  interest rates helped trim monthly house payments,  a mortgage banking
group reported Friday. At the same time, however,  soaring personal bankruptcies
and  persistent  job  losses - largely  in the  Midwest  - helped  push the U.S.
foreclosure rate to a record 1.20%, the Mortgage Bankers  Association  said. "We
saw very modest improvement (in mortgage delinquencies) this quarter, because we
didn't see the  improvement  in the economy we would have  expected,"  said Doug
Duncan,  chief  economist  at the  Washington  D.C.,  trade  group.  "If economy
continues to muddle along ... we won't see rapid improvement in  delinquencies."
In California,  2.66% of homeowners  were late on their mortgage  payments by at
least 30 days in the first three months of the year on a non-seasonally adjusted
basis,  compared with 3.10% a year ago.  Nationwide,  4.52% of  homeowners  were
delinquent on home  payments,  versus 4.65% in the first  quarter of 2002.  U.S.
data are compiled on a seasonally  adjusted basis to account for  differences in
state laws  regarding  foreclosure.  Much of the  decrease  in  defaults  can be
attributed to historically low interest rates,  which have allowed  consumers to
refinance and slash their monthly house payments."

     On the commercial  scene, the San Francisco  Business Times for the week of
June 27, 2003 stated,  "Preliminary  second  quarter  numbers from two brokerage
houses  concurred  that  commercial  vacancy was basically as flat as the Indian
bread over the last  quarter,  ticking up a mere 0.1% from March.  Newmark & Co.
Real Estate said that total vacancy was 17.1%,  versus 17% last  quarter,  while
Grubb & Ellis saw  vacancy at 24.1%,  up  slightly  from 24%. "I think what it's
saying is we really have not had significant job growth to take down some of the
vacant space, " said Monica Finnegan,  managing principal with Newmark, "Even if
we have some slight  absorption,  we have  another  level of lay-offs at another
organization." Colin Yasukochi, regional manager of research and client services
for California at Grubb & Ellis, saw the numbers as potentially more sweet bread
than  sourdough,   noting  that  they  might  indicate  the  market  is  finally
stabilizing.  The article  further stated "The direction of rents  themselves is
also a source of discrepancy in the reports, though ironically so. The seemingly
less optimistic Newmark said direct rent was $21.88 in second quarter,  actually
up slightly from $21.74 last quarter.  "Some of the high rise, premier buildings
are still trying to capture higher rents,"  Finnegan said. "So you're looking at
average rents that reflect Class A across the board." Meanwhile,  Grubb reported
that Class A rents citywide,  declined from $28.40 to $28.10, and Yasukochi said
they could continue to erode slightly over the next few quarters."

     To the  Partnership,  lower interest  rates may mean more borrowers  coming
forward for equity loans or for refinancing. Declines in defaults will stabilize
delinquencies  and  foreclosures.  Stabilizing  commercial  vacancies and little
appreciation in rental rates may mean that we are at the vacancy rate bottom.

                                       16
<PAGE>

           Quantitative and Qualitative Disclosures About Market Risk

     The  following  table  contains  information  about  the cash held in money
market accounts,  secured loans held in the Partnership's portfolio and our line
of  credit  as of  June  30,  2003.  The  presentation,  for  each  category  of
information,  aggregates the assets and  liabilities by their maturity dates for
maturities  occurring  in each of the years  2003  through  2007 and  separately
aggregates the information  for all maturities  arising after 2007. The carrying
values of these assets and liabilities  approximate  their fair market values as
of June 30, 2003:
<TABLE>
<S>                                <C>         <C>         <C>         <C>         <C>       <C>             <C>
                                   2003        2004        2005        2006        2007      Thereafter      Total
                              ----------------------------------------------------------------------------------------
Interest earning assets:
Money market accounts          $  106,712                                                                  $  106,712
Average interest rate               0.90%                                                                       0.90%
Loans secured by deeds
   of trust                    $3,145,046     127,450     940,125      96,716    1,521,356    1,106,627    $6,937,320
Average interest rate              11.28%       8.00%       9.87%       6.50%        6.82%        9.05%         9.63%
Interest bearing
   liabilities:
Line of credit                 $        0                                                                  $        0
Average interest rate               4.25%                                                                       4.25%
</TABLE>

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.

     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 (100% as of
June 30, 2003) earn interest at fixed rates.  Changes in interest rates may also
affect the value of the Partnership's investment in mortgage loans and the rates
at which the  Partnership  reinvests funds obtained from loan repayments and new
capital  contributions  from limited partners.  If interest rates increase,  the
interest  rates the  Partnership  obtains from  reinvested  funds will generally
increase,  but the value of the Partnership's existing loans at fixed rates will
generally  tend to  decrease.  The  risk  is  mitigated  by the  fact  that  the
Partnership  does not intend to sell its loan  portfolio,  rather such loans are
held until they are paid off. If interest rates decrease,  the amounts  becoming
available to the  Partnership  for  investment  due to repayment of  Partnership
loans may be  reinvested  at lower rates than the  Partnership  had been able to
obtain in prior investments, or than the rates on the repaid loans. In addition,
interest rate  decreases may encourage  borrowers to refinance  their loans with
the  Partnership at a time where the  Partnership is unable to reinvest in loans
of comparable value.

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

Controls and Procedures.

     Within the 90 days prior to the date of this report, the general partner of
the  Partnership  carried out an evaluation,  under the supervision and with the
participation  of  the  general  partner's  management,  including  the  general
partner's  President and Chief Financial  Officer,  of the  effectiveness of the
design and operation of the  Partnership's  disclosure  controls and  procedures
pursuant to Exchange Act Rule 13a-14. Based upon that evaluation,  the President
and  Chief  Financial   Officer  of  the  general  partner  concluded  that  the
Partnership's  disclosure  controls and procedures are effective.  There were no
significant  changes in the Partnership's  internal controls or in other factors
that could  significantly  affect these controls subsequent to the date of their
evaluation.

                                       17
<PAGE>


ASSET QUALITY

     A consequence  of lending  activities is that  occasionally  losses will be
experienced  and that 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 that 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 loan losses of the
Partnership.  As of June 30, 2003 the general  partners have determined that the
allowance  for loan  losses of  $734,935  (8.14% 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.  As of June 30, 2003, 8 loans were delinquent over 90 days
amounting to $2,857,439.

                                       18
<PAGE>

       COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP


     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 part of Form S-11 and subsequent  amendments  related to the offering
of Partnership  interests,  pages 12-13, under the section  "Compensation of the
General Partners and the Affiliates",  which are 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 six months ended June 30, 2003. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus.
<TABLE>
<S>                            <C>                                                            <C>
Entity Receiving
Compensation                   Description of Compensation and Services Rendered              Amount
-------------------------------------------------------------------------------------------------------
I.  Redwood Mortgage Corp.     Loan Servicing Fee for servicing loan ..........................$33,301

    General Partners
       &/or Affiliates         Asset Management Fee for managing assets .......................$17,022

    General Partners           1% interest in profits ..........................................$3,101
</TABLE>

     II. FEES PAID BY  BORROWERS  ON LOANS  PLACED BY  COMPANIES  RELATED TO THE
GENERAL  PARTNERS  WITH  THE  PARTNERSHIP  (EXPENSES  OF  BORROWERS  NOT  OF THE
PARTNERSHIP)
<TABLE>
<S>                            <C>                                                             <C>
Redwood Mortgage Corp.         Mortgage Brokerage Commissions for services in connection
                               with the review, selection, evaluation, negotiation, and
                               extension of the loan paid by the borrowers and not by the
                               Partnership ....................................................$48,775

Redwood Mortgage Corp.         Processing and Escrow Fees for services in connection with
                               notary, document preparation, credit investigation, and
                               escrow fees paid by the borrowers and not by the Partnership ....$1,587

Gymno Corporation, Inc.        Reconveyance Fee ..................................................$241
</TABLE>


     III. IN ADDITION, THE GENERAL PARTNERS AND/OR RELATED COMPANIES PAY CERTAIN
EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE
STATEMENT  OF INCOME  . . . . . . . . . . . . . . . . . . . . . . . . . $12,493

                                       19
<PAGE>


                                     PART 2
                                OTHER INFORMATION


Item 1.  Legal Proceedings

           The Partnership periodically is a defendant in various legal actions.
           Please refer to Note 9 of the Financial Statements.

Item 2.  Changes in the Securities

           Not Applicable

Item 3.  Defaults upon Senior Securities

           Not Applicable

Item 4.  Submission of Matters to a Vote of Security Holders

           Not Applicable

Item 5.  Other Information

           Not Applicable

Item 6.  Exhibits and Reports on Form 8-K

         (a) Exhibits

             (99.1) Certification of Michael R. Burwell, General Partner

             (99.2) Certification of Michael R. Burwell, President,
                    Secretary/Treasurer & Chief Financial Officer of Gymno
                    Corporation, General Partner

         (b) Form 8-K

             Not Applicable


                                       20
<PAGE>



                                   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 14th day of August
2003.


REDWOOD MORTGAGE INVESTORS VII


By:       /S/ Michael R. Burwell
          -----------------------------------
          Michael R. Burwell, General Partner


By:       Gymno Corporation, General Partner


          By:     /S/ Michael R. Burwell
                  ---------------------------------------------
                  Michael R. Burwell, President,
                  Secretary/Treasurer & Chief Financial Officer


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 14th day of August 2003.


      Signature                        Title                        Date


/S/ Michael R. Burwell
-----------------------
Michael R. Burwell                General Partner               August 14, 2003


/S/ Michael R. Burwell
-----------------------
Michael R. Burwell         President, Secretary/Treasurer       August 14, 2003
                           of Gymno Corporation (Principal
                              Financial and Accounting
                            Officer); Director of Gymno
                                    Corporation


                                       21
<PAGE>

                                                                   Exhibit 99.1

                          GENERAL PARTNER CERTIFICATION


I, Michael R. Burwell, General Partner, certify that:

     1. I have reviewed this quarterly  report on Form 10-Q of Redwood  Mortgage
Investors VII, a California Limited Partnership (the "Registrant");

     2. Based on my knowledge, this quarterly 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 quarterly
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included in this quarterly  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 quarterly 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-14 and 15d-14) for the Registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
material  information  relating  to  the  Registrant,   is  made  known  to  us,
particularly during the period in which this quarterly report is being prepared;

     (b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

     (c)  presented  in  this  quarterly   report  our  conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date.

     5. The Registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  Registrant's  auditors  and the  audit
committee  of  Registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

     (a) all  significant  deficiencies  in the design or  operation of internal
controls  which  could  adversely  affect  the  Registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
Registrant's auditors any material weaknesses in internal controls; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the Registrant's internal controls.

     6. The Registrant's other certifying  officers and I have indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.



/s/ Michael R. Burwell
___________________________________
Michael R. Burwell, General Partner
August 14, 2003

                                       22
<PAGE>

                                                                    Exhibit 99.1


                            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 Quarterly Report of Redwood  Mortgage  Investors VII
(the  "Partnership")  on Form 10-Q for the period  ending June 30, 2003 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,  General  Partner of the
Partnership, 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.




/s/ Michael R. Burwell
___________________________________
Michael R. Burwell, General Partner
August 14, 2003


                                       23
<PAGE>


                                                                   Exhibit 99.2

               PRESIDENT AND CHIEF FINANCIAL OFFICER CERTIFICATION

     I,  Michael R.  Burwell,  President  and Chief  Financial  Officer of Gymno
Corporation, General Partner, certify that:

     1. I have reviewed this quarterly  report on Form 10-Q of Redwood  Mortgage
Investors VII, a California Limited Partnership (the "Registrant");

     2. Based on my knowledge, this quarterly 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 quarterly
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included in this quarterly  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 quarterly 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-14 and 15d-14) for the Registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
material  information  relating  to  the  Registrant,   is  made  known  to  us,
particularly during the period in which this quarterly report is being prepared;

     (b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

     (c)  presented  in  this  quarterly   report  our  conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date.

     5. The Registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  Registrant's  auditors  and the  audit
committee  of  Registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

     (a) all  significant  deficiencies  in the design or  operation of internal
controls  which  could  adversely  affect  the  Registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
Registrant's auditors any material weaknesses in internal controls; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the Registrant's internal controls.

     6. The Registrant's other certifying  officers and I have indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.



/s/ Michael R. Burwell
_________________________________
Michael R. Burwell, President and
Chief Financial Officer of Gymno
Corporation, General Partner
August 14, 2003

                                       24
<PAGE>

                                                                   Exhibit 99.2

                            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 Quarterly Report of Redwood  Mortgage  Investors VII
(the  "Partnership")  on Form 10-Q for the period  ending June 30, 2003 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,    President,
Secretary/Treasurer  & Chief  Financial  Officer of Gymno  Corporation,  General
Partner of the Partnership, 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.





/s/ Michael R. Burwell
_______________________________________
Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial
Officer of Gymno Corporation, General Partner
August 14, 2003

                                       25