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                      March 31, 2004
    ----------------------------------------------------------------------------
    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>

Part I - Item 1.  Financial Statements

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                MARCH 31, 2004 and DECEMBER 31, 2003 (unaudited)

                                     ASSETS

                                                  March 31           December 31
                                                    2004                 2003
                                               --------------     --------------

Cash                                           $  930,684             $  321,114
                                               --------------     --------------
Loans
   Loans, secured by deeds of trust             7,463,825              8,280,826
   Loans, unsecured                               233,465                232,551
                                               --------------     --------------
                                                7,697,290              8,513,377
   Less allowance for loan losses                (691,824)             (680,469)
                                               --------------     --------------
     Net loans                                  7,005,466              7,832,908
                                               --------------     --------------
Interest and other receivables
   Accrued interest                               538,150                489,995
   Advances on loans                                6,567                  6,484
                                               --------------     --------------
     Total interest and other receivables         544,717                496,479
                                               --------------     --------------

Real estate owned, held for sale                  633,053                633,053
Prepaid expenses                                    3,586                      -
                                               --------------     --------------
     Total assets                             $ 9,117,506            $ 9,283,554
                                               ==============     ==============

                        LIABILITIES AND PARTNERS' CAPITAL

Liabilities
   Line of credit                                $      0              $ 200,000
   Accounts payable                                10,360                  4,102
   Payable to affiliate                            56,092                 51,288
                                               --------------     --------------
     Total liabilities                             66,452                255,390
                                               --------------     --------------
Partners' capital
   Limited partners' capital,
        subject to redemption                   9,039,081              9,016,191
   General partners' capital                       11,973                 11,973
                                               --------------     --------------
     Total partners' capital                    9,051,054              9,028,164
                                               --------------     --------------
     Total liabilities and partners' capital  $ 9,117,506              9,283,554
                                               ==============     ==============





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 MONTHS ENDED MARCH 31, 2004 and 2003 (unaudited)


                                                       THREE MONTHS ENDED
                                                            MARCH 31,
                                            ------------------------------------

                                                      2004                2003
                                            -----------------   ----------------
Revenues
   Interest - on loans                             $ 203,219           $ 164,099
   Interest - interest bearing accounts                1,343               1,570
   Late charges                                        4,598               6,627
   Other income                                        8,494               1,010
                                            -----------------    ---------------
                                                     217,654             173,306
                                            -----------------    ---------------
Expenses
   Mortgage servicing fees                            20,131              16,154
   Interest expense                                      732                 169
   Clerical costs through Redwood   Mortgage Corp.     4,818               6,485
   Asset management fees                               8,489               8,517
   Provisions for (recovery of) losses on loans
     and real estate                                  11,355            (22,372)
   Professional services                              20,963              17,318
   Printing, supplies and postage                      2,290               1,586
   Other                                               8,780               1,204
                                            -----------------    ---------------
                                                      77,558              29,061
                                            -----------------    ---------------

Net income                                         $ 140,096           $ 144,245
                                            =================    ===============

Net income:  To general partners (1%)                  1,401               1,442
             To limited partners (99%)               138,695             142,803
                                            -----------------    ---------------
                                                   $ 140,096           $ 144,245
                                            =================    ===============

Net income per $1,000 invested by limited partners
for entire period
    -where income is reinvested and compounded       $    15             $    16
                                            =================    ===============
   -where partner receives income in monthly
      distributions                                  $    15             $    16
                                            =================    ===============



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 THREE MONTHS ENDED MARCH 31, 2004 and 2003 (unaudited)

                                                   THREE MONTHS ENDED MARCH 31,
                                               ---------------------------------
                                                        2004              2003
                                                 ---------------    ------------
Cash flows from operating activities
  Net income                                          $ 140,096        $ 144,245
  Adjustments to reconcile net income to net cash
         provided by operating activities
      Provision for (recovery of) losses on
         loans and real estate                           11,355         (22,372)
         Early withdrawal penalty credited to income       (380)           (755)
    Amortization of discount on unsecured loans          (5,371)               -
    Change in operating assets and liabilities
       Accrued interest and advances on loans           (48,238)        (63,364)
       Accounts payable and other liabilities            11,062         (25,178)
       Prepaid expenses                                  (3,586)         (2,663)
                                                  ---------------    -----------

Net cash provided by operating activities               104,938           29,913
                                                  ---------------    -----------

Cash flows from investing activities
     Principal collected on loans                     1,465,742          446,574
     Loans originated                                  (648,741)     (1,295,000)
     Payments for real estate held for sale                   -          (1,255)
     Proceeds from sale of real estate held for sale          -                -
     Investments in limited liability company                 -         (60,821)
     Proceeds from unsecured loans                        4,457            3,596
                                                   ---------------   -----------
Net cash provided by (used in) investing activities     821,458        (906,906)
                                                   ---------------   -----------
Cash flows from financing activities
     Net increase (decrease) in line of credit         (200,000)         250,000
     Partners withdrawals                              (116,826)       (171,171)
                                                   ---------------   -----------
Net cash provided by (used in) financing activities    (316,826)          78,829
                                                   ---------------   -----------
Net increase (decrease) in cash                         609,570        (798,164)

Cash - beginning of year                                321,114        1,057,845
                                                   ---------------   -----------
Cash - end of period                                    930,684          259,681
                                                   ===============   ===========
Cash payments for interest                             $    732         $    169
                                                   ===============   ===========



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
                           MARCH 31, 2004 (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,  2003 filed with the  Securities  and  Exchange
Commission. The results of operations for the three month period ended March 31,
2004 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 March 31, 2004 and  December  31, 2003 there were loans  categorized  as
impaired by the  Partnership  of $96,710.  In addition,  the impaired  loans had
accrued interest and advances  totaling $7,841.  The reduction in carrying value
of the impaired  loans of $14,596 at March 31, 2004 and  December  31, 2003,  is
included in the allowance for loan losses.  The average  recorded  investment in
the  impaired  loans was $96,710  for both  quarters  ending  March 31, 2004 and
December 31, 2003.

     At March 31, 2004 and December 31, 2003, the Partnership had three and five
loans past due 90 days or more totaling  $1,932,230 and  $2,259,756  (25.89% and
27.29% 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 March 31, 2004 and
December 31, 2003 was as follows:

                                               March 31,            December 31,
                                                  2004                  2003
                                          ---------------      -----------------
      Impaired loans                            $ 14,596               $ 14,596
      Specified loans                            321,263                321,263
      General                                    248,339                236,984
      Unsecured loans                            107,626                107,626
                                          ---------------      -----------------
                                               $ 691,824              $ 680,469
                                          ===============      =================

     Activity  in the  allowance  for loan  losses is as  follows  for the three
months ended March 31, 2004 and year ended December 31, 2003:

                                               March 31,            December 31,
                                                  2004                  2003
                                          ---------------      -----------------
      Beginning balance                        $ 680,469              $ 791,882
      Provision for loan losses                   11,355                      -
      Recoveries                                       -                (18,299)
      Restructures                                     -                (50,083)
      Write-offs                                       -                (43,031)
                                          ---------------      -----------------
                                               $ 691,824              $ 680,469
                                          ===============      =================



                                       5
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           MARCH 31, 2004 (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 period 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 periods.  Such estimates relate  principally to the
determination  of the  allowance  for loan losses,  including  the  valuation of
impaired  loans and the valuation of real estate held for sale.  Actual  results
could differ significantly from these estimates.

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.

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).



                                       6
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           MARCH 31, 2004 (unaudited)


NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES (continued)

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 March 31, 2004 and December 31, 2003:

                                                March 31,          December 31,
                                                   2004                2003
                                              ---------------     --------------
      Costs of properties                       $ 1,263,222         $ 1,263,222
      Reduction in value                           (630,169)           (630,169)
                                              ---------------     --------------
      Real estate held for sale                  $  633,053          $  633,053
                                              ===============     ==============


NOTE 5 -  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 March 31,
2004 and December 31, 2003 were $ $0 and  $200,000,  respectively;  the interest
rate was  4.25%  (4.00%  prime + .25%) at March  31,  2004.  This line of credit
expires  December 2004 and requires the  Partnership  to meet certain  financial
covenants.  As of March 31, 2004 and December 31, 2003, the  Partnership  was in
compliance with all loan covenants.

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


NOTE 6 - 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 $7,463,825 and  $8,280,826,  at March
31, 2004 and December 31, 2003,  respectively.  The fair value of these loans of
$7,511,663 and $8,159,401, 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.

                                       7
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           MARCH 31, 2004 (unaudited)


NOTE 7 - ASSET CONCENTRATIONS AND CHARACTERISTICS


     Most loans are  secured by recorded  deeds of trust.  At March 31, 2004 and
December 31, 2003 there were 24 and 23 secured loans outstanding,  respectively,
with the following characteristics:

                                                      March 31,     December 31,
                                                        2004             2003
                                                  --------------  --------------
Number of secured loans outstanding                         24              23
Total secured loans outstanding                     $7,463,825      $8,280,826

Average secured loan outstanding                     $ 310,993       $ 360,036
Average secured loan as percent of total                  4.17%          4.35%
Average secured loan as percent of Partners' capital      3.44%          3.99%

Largest secured loan outstanding                     $1,000,000     $1,000,000
Largest secured loan as percent of total                 13.40%         12.08%
Largest secured loan as percent of partnership assets    10.96% *     10.77% *

Number of counties where security is located
  (all California)                                           9              8

Largest percentage of loans in one county                36.96%         44.11%

Average secured loan to appraised value of security
   at time based on appraised values and prior liens
   at time loan was consummated                          64.38%         60.79%

Number of secured loans in foreclosure                    none            none
Amount of secured loans in foreclosure                    none            none

*  6.76% and 8.71% of outstanding loans and Partners' capital at loan inception.

     Over time,  loans may increase  above 10% of the secured loan  portfolio or
Partnership assets as the loan portfolio and assets of the Partnership  decrease
due to limited partner withdrawals and/or loan payoffs.



                                       8
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           MARCH 31, 2004 (unaudited)

NOTE 7 - ASSET CONCENTRATIONS AND CHARACTERISTICS (continued)

     The  following  categories of secured loans were held at March 31, 2004 and
December 31, 2003:

                                                       March 31,    December 31,
                                                         2004            2003
                                                    -------------    -----------
  First trust deeds                                   $3,608,522      $3,733,346
  Second trust deeds                                   3,180,303       3,872,480
  Third trust deeds                                      675,000         675,000
                                                    -------------    -----------
          Total loans                                  7,463,825       8,280,826
  Prior liens due other lenders at time of loan        3,293,340       4,319,281
                                                    -------------    -----------

             Total debt                             $ 10,757,165    $ 12,600,107
                                                    =============    ===========

  Appraised property value at time of loan          $ 16,708,092    $ 20,728,514

  Total investments as percent of appraisals based
    on appraisals and prior liens at date of loan          64.38%         60.79%

  Investments by type of property
       Owner occupied homes                            $ 896,421       $ 853,869
       Non-owner occupied homes                        1,113,019       1,589,092
       Apartments                                        985,275       1,367,327
       Commercial                                      2,409,433       2,410,861
       Land                                            2,059,677       2,059,677
                                                    =============    ===========
                                                      $7,463,825      $8,280,826
                                                    =============    ===========

     Scheduled  maturity  dates of  secured  loans as of March  31,  2004 are as
follows:

           Year Ending December 31,
      -----------------------------------
                     2004                          $ 2,333,855
                     2005                            1,728,347
                     2006                              845,607
                     2007                            1,246,756
                     2008                              199,341
                  Thereafter                         1,109,919
                                               ----------------
                    Total                          $ 7,463,825
                                               ================

     The scheduled maturities for 2004 above include approximately $2,206,409 in
7 loans,  which are past  maturity at December  31, 2003.  Interest  payments on
three of these loans with an  aggregate  principal  balance of  $1,932,230  were
categorized  as delinquent  over 90 days and are included in total loans 90 days
or more delinquent presented in Note 2.

     Cash deposits at March 31, 2004 of $965,747 were in one bank.  The balances
exceeded FDIC insurance limits (up to $100,000 per bank) by $865,747.  This bank
is the same financial  institution  that has provided the  Partnership  with the
$3,500,000 limit line of credit (LOC). As and when deposits in the Partnership's
bank accounts  increase  significantly  beyond the insured limit,  the funds are
typically  either  placed on new loans when  available,  or used to pay-down the
line of credit balance to the extent of borrowings or held as cash.

     The Partnership has a substantial amount of its loan receivable balance due
on two loans from one borrower. This borrower accounted for approximately 16% of
the loan balance and approximately 10% of interest revenue for the quarter ended
March 31, 2004. The collateral  securing these loans was less than the principal

                                       9
<PAGE>

balance due under the loans. Redwood Mortgage Corp. has provided an indemnity to
the  Partnership  whereby  it has agreed to  indemnify  and hold  harmless,  the
Partnership from any expenses or losses incurred by the Partnership by reason of
the  Partnership's  inability to collect all principal due under the loans after
the  Partnership  has  exhausted  all reserves set aside for these loans and all
remedies  available to it including  foreclosure of the  underlying  collateral.
Therefore,  these loans are not considered  impaired solely because the value of
the collateral  securing the loans is less than the principal balance due to the
Partnership.

     The  Partnership  also has a  substantial  amount  of its  loan  receivable
balance due on three loans from another  borrower.  This borrower  accounted for
approximately  25% of the loan balance and approximately 23% of interest revenue
for the quarter ended March 31, 2004.

NOTE 8 - 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  these loans as of March 31, 2004 and  December 31,
2003.  As of  March  31,  2004  the  Partnership  had two  loans  under  workout
agreements totaling $64,917.

     Construction  loans The Partnership has  construction  loans,  which are at
various stages of completion of the  construction  process and loans,  which are
not  fully  disbursed  at March 31,  2004.  The  partnership  has  approved  the
borrowers up to a maximum loan balance;  however,  disbursements are made during
completion  phases  throughout the construction  process or  incrementally  upon
certain  conditions  being  met.  At March  31,  2004,  there  were  $38,115  of
undistributed  loans which will be funded by a combination  of borrower  monthly
mortgage payments, line of credit draw-downs, retirement of principal on current
loans, cash and reinvestment of investors' earnings.


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.

Part I - Item 2   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 revenues and expenses
during  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.


                                       10
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           MARCH 31, 2004 (unaudited)

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

     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.

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 foregoing analysis of 2004 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. For the three months ended March 31
2004 and 2003,  loan  brokerage  commissions  paid by borrowers were $17,634 and
$42,775, 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 $20,131 and $16,154 were incurred for the
three months ended March 31, 2004 and 2003, 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 $8,489 and $8,517 were  incurred  by the  Partnership  for the three
months ended March 31, 2004 and 2003, 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.

                                       11
<PAGE>

     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.  During the three months  through March 31, 2004 and 2003,  operating
expenses  totaling $4,818 and $6,485,  respectively,  were reimbursed to Redwood
Mortgage Corp.

     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 March 31, 2004 and 2003,  a general
partner,  Gymno  Corporation,  had contributed  $11,978 as capital in accordance
with Section 4.02(a) of the partnership agreement.

Results of Operations - For the three months ended March 31, 2004 and 2003

     On September 30, 1992, the Partnership  had sold  119,983.59  Units and its
contributed  capital totaled  $11,998,359 of the approved  $12,000,000 issue, in
Units of $100 each. As of that date, the offering was formally closed.  At March
31, 2004, Partners' Capital totaled $9,051,054.

     The net income  decrease of $4,149 (2.88%) for the three months ended March
31, 2004 versus the three month period ended March 31, 2003 was due primarily to
an increase in interest earned on loans of $39,120 (23.84%),  and an increase in
other  income  of $7,484  (740.99%)  offset by  expense  increases.  Significant
expense  increases  for the three month period ended March 31, 2004 versus March
31, 2003 included higher mortgage servicing fees of $3,977, and increases in the
provision  for losses on loans and real estate of $33,727,  interest  expense of
$563, professional fees of $3,645, and other expenses of $7,576.

     The increase in interest on loans of $39,120  (23.84%) for the three months
ended March 31, 2004 versus  March 31, 2003 was due  primarily to an increase to
the loan portfolio to $7,463,825 from $7,272,410 at March 31, 2004 and March 31,
2003  respectively.  At December 31, 2002, the loan portfolio totaled $6,423,984
versus   $8,280,826  at  December  31,  2003  which  allowed  a  larger  average
outstanding  loan  balance  during the first  quarter  of 2004  versus the first
quarter of 2003.

     The  increase in interest on the line of credit of $563  (333.14%)  for the
three months ended March 31, 2004 versus March 31, 2003 is due to higher overall
usage of the line of credit during the first quarter of 2004.  The  Partnership,
on average,  utilized  its bank line of credit more during the first  quarter of
2004  compared  to the first  quarter  of 2003.  Cash  generated  from  interest
earnings, late charges,  amortization of principal and loan payoffs was utilized
to pay down the credit line in full as of March 31, 2004.

     The increase in mortgage  servicing  fees of $3,977  (24.62%) for the three
months ended March 31, 2004 versus March 31, 2003 is attributable to an increase
in the average outstanding loan portfolio during the first quarter of 2004.

     The  provision  for losses on loans and real estate was $11,355  during the
first  quarter of 2004 versus a recovery of loan losses of $22,372 in 2003.  The
general  partners  believe that the  allowance for loan losses of $691,824 as of
March 31, 2004 was adequate to offset potential loss in loans or real estate.

     The increase in  professional  fees of $3,645 (21.05%) for the three months
ended March 31, 2004 versus March 31, 2003 is due to timing and  increased  cost
of services  provided in 2004  compared to 2003 in relation to its audit and tax
return services.

     For the three  months  ended  March  31,  2004,  other  income  was  mainly
comprised of $7,714 as a non-refundable payment which was not deductible against
the  purchase  price of real estate held for sale.  Other  expense  consisted of
$7,345 spent on the upkeep of Partnership properties.

                                       12
<PAGE>
     Partnership  capital  increased this quarter as both earnings  distribution
and capital  liquidations  declined.  For the three  months ended March 31, 2004
earnings and capital  liquidated  was $48,198 and $67,608,  respectively  versus
$57,158 and $113,151, respectively for the corresponding period in 2003.

     At March 31, 2004, outstanding  foreclosures were reduced to none ($0) from
the two ($236,807) that existed at March 31, 2003. These foreclosures  reflected
more  difficult  economic  times at March 31, 2003,  yet were not unusual in the
general partners' experience.

     The general partners received Mortgage Brokerage  Commissions from the loan
borrowers  of $17,634 for the three  months  ended March 31, 2004 as compared to
$42,775 for the three months ended March 31, 2003.  The decrease is due to fewer
loans written with reduced average  commission  rates for the three months ended
March 31, 2004.

     Since  January,  2001,  and through  March 31,  2004,  the Federal  Reserve
reduced interest rates significantly by cutting the Federal Funds Rate 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.  New loans will be
originated at then existing  interest rates. In the future the general  partners
anticipate that interest rates likely will change from their current levels. The
general  partners  cannot,  at this time,  predict at what levels interest rates
will be in the future.  The general  partners  anticipate that new loans will be
placed  during  2004 at rates  similar  to those  that  prevailed  in 2003.  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% over
the year 2004.  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  that  the
annualized yield will range between 6% and 7% in 2004.

Allowance for Losses.

     The general  partners  regularly  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 that we will on occasion take back real estate security.  During
2001,  the Northern  California  real estate  market slowed and the national and
local economies  slipped into  recession.  During 2002 and 2003, the economy has
stabilized, but is still stagnant. At March 31, 2004 the partnership had 3 loans
past due 90 days or more totaling $1,932,230 with no loans in foreclosure.

     The partnership has entered into workout  agreements with borrowers who are
past  maturity or  delinquent  in their  regular  payments.  The total number of
partnership  workout  agreements  with  borrowers is two matured loans  totaling
$64,917.  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.  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 economic times and conversely fall
during good economic times. The number and amount of workout agreements existing
at March 31, 2004, in management's  opinion,  does not have a material effect on
our results of operations or liquidity. These workouts have been considered when
management   arrived  at  appropriate  loan  loss  reserves  and  based  on  our
experience,  are  reflective of our loan  marketplace  segment.  In 2004, we may
initiate  foreclosure on delinquent borrowers or borrowers who become delinquent
during the year. We may take back additional real estate through the foreclosure
process  in 2004.  Borrower  foreclosures  are a normal  aspect  of  partnership
operations  and the  general  partners  anticipate  that  they  will  not have a
material effect on liquidity.  As a prudent guard against potential losses,  the
general  partners have made provisions for losses on loans and real estate owned
through  foreclosure of $1,321,993  through March 31, 2004. These provisions for
losses  were made to guard  against  collection  losses.  The  total  cumulative
provision for losses as of March 31, 2004 is 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.

                                       13
<PAGE>

     As of March 31, 2004,  the  Partnership  had an average loan to value ratio
computed  based on appraised  values and prior liens as of the date the loan was
made of 64.38%.  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 three months ended March 31, 2004 and 2003.

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 March 31, 2004 and
2003 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 $4,684,545 (62.76%) and $4,201,144 (57.77%)
of the outstanding  loan portfolio.  The remainder of the portfolio  represented
loans secured by real estate located primarily in Northern California.


     As of March 31, 2004 and March 31,  2003,  the  Partnership  held 24 and 26
loans respectively in the following categories:

                                     March 31                 March 31
                                       2004                     2003
                                ----------------          ----------------

Single Family Residences
      (1-4 units)            $2,009,440      26.92%      $1,562,396       21.48%

Multiple family dwellings
      (5+ units)                985,275      13.20%       1,508,648       20.75%

Commercial                    2,409,433      32.28%       2,044,309       28.11%

Land                          2,059,677      27.60%       2,157,057       29.66%
                           ------------   ---------      ----------   ----------

   Total                     $7,463,825     100.00%      $7,272,410      100.00%
                           ============   =========      ==========   ==========


     As of March 31, 2004,  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 March 31, 2004:


                                       14
<PAGE>

            PRIORITIES, ASSET CONCENTRATIONS AND MATURITIES OF LOANS
                              As of March 31, 2004

                                              # of Loans      Amount     Percent
                                           --------------   ----------   -------
1st Mortgages                                       15      $3,608,522    48.35%
2nd Mortgages                                        8       3,180,303    42.61%
3rd Mortgages                                        1         675,000     9.04%
                                               =========    ==========   =======
  Total                                             24      $7,463,825      100%

Maturing 12/31/04 and prior                          8      $2,333,856    31.27%
Maturing prior to 12/31/05                           4       1,728,347    23.16%
Maturing prior to 12/31/06                           2         845,607    11.33%
Maturing after 12/31/06                             10       2,556,015    34.24%
                                               ==========   ==========   =======
  Total                                             24      $7,463,825      100%

Average Loan                                                 $ 310,993        4%
Largest Loan                                                $1,000,000       13%
Smallest Loan                                                 $ 11,688     0.16%
Average Loan-to-Value
  based upon appraisal and
  prior liens at date of loan                                                64%

     The  Partnership's  largest  loan in the  principal  amount  of  $1,000,000
represents  13% of outstanding  secured loans and 10.96% of Partnership  assets.
Over  time,  loans may  increase  above 10% of the  secured  loan  portfolio  or
Partnership assets as the loan portfolio and assets of the Partnership  decrease
due to limited partner withdrawals and/or loan payoffs.

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 three
months ended March 31, 2004 and 2003,  the  Partnership  made  distributions  of
earnings to limited partners of $48,198 and $57,158, respectively.  Distribution
of Earnings to limited  partners,  which were not withdrawn for the three months
ended March 31,  2004 and 2003 were  $90,497 and  $85,645,  respectively.  As of
March  31,  2004 and  2003,  limited  partners  electing  to  withdraw  earnings
represented 35%and 37% 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 three  months  ended  March 31, 2004 and 2003,
$4,750  and  $9,440  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 March 31, 2004 and 2003, respectively.

     Additionally,  for the three months ended March 31, 2004 and 2003,  $67,608
and $103,711, 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.

                                       15
<PAGE>
     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").

Current Economic Conditions.

     The Partnership makes loans primarily in Northern  California.  As of March
31,  2004,  approximately  62.76%,   ($4,684,545)  of  the  loans  held  by  the
Partnership  were in 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.

     Recently  the national and the  Northern  California  economies  seem to be
improving.  Job creation  remains a concern,  as little job creation seems to be
evident.  The partnership makes loans primarily in Northern  California and real
estate values of residential,  commercial,  multi-family properties and land are
of particular  interest to the partnership.  Real estate is the primary security
for the partnership's loans.

     The residential  real estate market in California  continues to appreciate.
The San Francisco  Business Times of March 19, 2004 states "Robust  February for
Bay Area home sales." "Bay Area home prices rose at their fastest rate in nearly
three  years and sales were at  near-record  levels  last  month,  the result of
continued demand and an accommodating mortgage finance environment, according to
DataQuick  Information Systems of La Jolla, a real estate information service. A
total of 7,412 new and resale  houses and  condos  were sold in the  nine-county
region in February. That was up 4.4 percent from 7,102 the month before and 10.6
percent from 6,704 for February last year, according to DataQuick".  "Last month
was the second strongest February DataQuick has in its records, which go back to
1988." "The median price paid for a Bay Area home was $457,000 last month,  near
December's record $458,000. Last month's median was up 3.2 percent from $443,000
in January  and up 13.4  percent  from  $403,000  for  February  last year.  The
year-over-year  increase  was the  highest  since March 2001 when the median was
$386,000,  up 17.3 percent from $329,000 a year earlier.  Santa Clara County had
the  lion's  share of home sales  --25%--  with  1,865  homes  sold in  February
compared to 1,450 in February 2003,  according to DataQuick,  which compiles its
figures  from  public  records of all sales.  The  Median  Price in the  county,
according to DataQuick,  was $490,000, up 7.5% in a year's time." "Indicators of
market  distress are still  largely  absent,  in  DataQuick's  opinion.  It said
foreclosure rates are low, flipping rates are low, down payment sizes are stable
and there  have been no  significant  shifts in market  mix." On the  commercial
scene,  the SF Business  Times of March  26-April 1, 2004  stated  "City's  real
estate market creeps toward  recovery." "San Francisco's  commercial real estate
industry clawed forward in the first quarter,  as office vacancy moved downward,

                                       16
<PAGE>
rents  remained  flat  or  moved  up  slightly,   and  sales  surged.   Colliers
International reported 221,347 square feet of downtown office absorption,  while
preliminary  numbers from Grubb & Ellis indicated  around 140,000 square feet of
absorption.  The  firms  put the  office  vacancy  rate at 16.9  percent  and 22
percent,  respectively.  "We're  trending back toward a favorable  market," said
Scott Harper,  managing  director of Collier's San Francisco  office.  "It's the
third  consecutive  quarter,  and fourth of the last five quarters,  of positive
absorption."  The pace of absorption did slow from the fourth quarter,  however.
Collier's  reported 360,631 square feet of positive  absorption during the final
three months of 2003,  while Grubb saw 365,000 square feet. "As recovery starts,
the pace usually  picks up initially  and then starts to  moderate,"  said Colin
Yasukochi,  regional  manager of research and client  services for California at
Grubb & Ellis.  "We've always  projected that  performance will be uneven in the
first year of the  recovery."  Large  deals  during the first  quarter  included
Gymboree's  163,000  square foot deal at 500 Howard St,  Design  Within  Reach's
59,000  square foot lease at 225 Bush St,  Kirkland & Ellis'  47,000 square foot
deal at 555  California  St., and California  Pacific  Medical  Center's  42,000
square  foot  deal at 475  Brannan.  Also on the plus  side,  sublease  space is
steadily  decreasing.  After  hitting a peak of around 8 million  square feet in
2002,  total San Francisco  sublease  space is now around 4 million square feet,
Grubb & Ellis reported."

     A strong,  appreciating  residential  market is good for  primarily  equity
based lenders as it allows  borrowers to sell or refinance if they become unable
to make their mortgage payments.  Appreciation assists lenders if they must take
back the real estate security on a loan mitigating potential loan losses.

     Recovering  commercial vacancies and stable to increasing rental rates will
assist landlords in debt service coverage,  cash flow, and property values.  All
are good for the real estate collateral  securing the  Partnership's  commercial
loans.

     For Partnership  loans  outstanding,  as of March 31, 2004, the Partnership
had an average loan to value ratio computed based on appraised  values and prior
liens as of the date the loan  was  made of  64.38%.  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.



Part I - Item 3. 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  March  31,  2004.  The  presentation,  for each  category  of
information,  aggregates the assets and  liabilities by their maturity dates for
maturities  occurring  in each of the years  2004  through  2008 and  separately
aggregates the information  for all maturities  arising after 2008. The carrying
values of these assets and liabilities  approximate  their fair market values as
of March 31, 2004:
<TABLE>
<S>                             <C>          <C>          <C>         <C>           <C>       <C>             <C>
                                2004         2005         2006        2007          2008      Thereafter      Total
                             ------------ ------------ ----------- ------------ ------------- ------------ -------------
Interest earning assets:
Money market accounts           $787,622                                                                      $ 787,622
Average interest rate              0.70%                                                                          0.70%
Loans secured by deeds
   of trust                    2,333,855    1,728,347     845,607    1,246,756       199,341    1,109,919    $7,463,825
Average interest rate             10.78%        9.73%       8.71%        9.00%         10.50        9.24%         9.77%
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.

                                       17
<PAGE>
     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
March 31, 2004) 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.


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 March 31, 2004 the general partners have determined that the
allowance  for loan  losses of  $691,824  (7.64% 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 March 31, 2004, 3 loans were delinquent over 90 days
amounting to $1,932,230.

     The Partnership also makes loans requiring periodic disbursements of funds.
As of March 31, 2004,  there were two such loans.  These loans include ground up
construction of buildings and loans for  rehabilitation of existing  structures.
Interest on these loans is computed using a 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 March 31, 2004, is set forth below (in thousands):

                                     Complete construction     Rehabilitation
                               ---------------------------   -------------------
Disbursed funds                          $  0                    $ 1,640,652
Undisbursed funds                        $  0                     $   38,115


Part I - Item 4.  CONTROLS AND PROCEDURES

     As of March 31, 2004, the general  partners 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 the evaluation,  the President and Chief Financial Officer of
the general partner  concluded that the  Partnership's  disclosure  controls and

                                       18
<PAGE>
procedures are effective. There were no significant changes in the Partnership's
internal  controls on the other  factors that could  significantly  affect these
controls subsequent to the date of their evaluation.


       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 three months ended March 31, 2004.
All such  compensation  is in compliance with the guidelines and limitations set
forth in the Prospectus.

Entity Receiving             Description of Compensation
Compensation                    and Services Rendered                  Amount
--------------------       --------------------------------        -------------
I.  Redwood Mortgage
       Corp.             Loan Servicing Fee for servicing loan .........$.20,131

    General Partners
       &/or Affiliates   Asset Management Fee for managing assets ......$..8,489

    General Partners     1% interest in profits ........................$..1,401

     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)

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......$ 17,634

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................$  1,733

Gymno Corporation,
    Inc.     Reconveyance Fee.............................................$  576



     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 . . . . . . . . . . . . . . . . . . . . . .  . . . . $4,818


                                       19
<PAGE>



                                     PART 2
                                OTHER INFORMATION


         Item 1.           Legal Proceedings

                                    The Partnership periodically is a defendant
                                    in various legal actions. Please refer to
                                    Note 8 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 May
2004.


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




                                       21
<PAGE>




     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 May 2004.


         Signature                       Title                         Date


/S/ Michael R. Burwell
---------------------------
Michael R. Burwell                  General Partner                May 14, 2004


/S/ Michael R. Burwell
---------------------------
Michael R. Burwell               President, Secretary/Treasurer     May 14, 2004
                                of Gymno Corporation (Principal
                                    Financial and Accounting
                                  Officer); Director of Gymno
                                           Corporation



                                       22
<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 March 31, 2004 (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
May 14, 2004



                                       23
<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 March 31, 2004 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
May 14, 2004





                                       24
<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 March 31, 2004 (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
May 14, 2004



                                       25
<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 March 31, 2004 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
May 14, 2004


                                       26
<PAGE>