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                    September 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
              SEPTEMBER 30, 2003 and DECEMBER 31, 2002 (unaudited)


                                     ASSETS

<TABLE>
<S>     <C>                                                         <C>                   <C>
                                                                    September 30,         December 31,
                                                                         2003                 2002
                                                                   -----------------     ---------------

        Cash                                                           $    992,773         $ 1,057,845
                                                                   -----------------     ---------------
        Loans
           Loans, secured by deeds of trust                               7,691,339           6,423,984
           Loans, unsecured                                                 211,969             216,770
           Less allowance for loan losses                                 (738,317)           (791,882)
                                                                   -----------------     ---------------
             Net loans                                                    7,164,991           5,848,872
                                                                   -----------------     ---------------
        Interest and other receivables
           Accrued interest                                                 459,346             304,936
           Advances on loans                                                  6,497              17,230
                                                                   -----------------     ---------------
             Total interest and other receivables                           465,843             322,166
                                                                   -----------------     ---------------
        Investment in limited liability company                             779,527           1,212,722
        Real estate held for sale, net                                      689,062             683,136
                                                                   -----------------     ---------------

             Total assets                                              $ 10,092,196         $ 9,124,741
                                                                   =================     ===============


                        LIABILITIES AND PARTNERS' CAPITAL

        Liabilities

           Bank line of credit                                         $  1,000,000         $         0
           Accounts payable                                                   4,102               2,593
           Payable to affiliate                                              48,997              32,176
           Deferred interest                                                      -              37,704
                                                                     ---------------     ---------------
             Total liabilities                                            1,053,099              72,473
                                                                     ---------------     ---------------
        Partners' capital
           Limited partners' capital, subject to redemption               9,027,119           9,040,290
           General partners' capital                                         11,978              11,978
                                                                     ---------------     ---------------
             Total partners' capital                                      9,039,097           9,052,268
                                                                     ---------------     ---------------
             Total liabilities and partners' capital                   $ 10,092,196         $ 9,124,741
                                                                     ===============     ===============
</TABLE>




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 NINE MONTHS ENDED SEPTEMBER 30, 2003 and SEPTEMBER 30, 2002
                                  (unaudited)

<TABLE>
<S>                                                         <C>               <C>              <C>               <C>
                                                              THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                                SEPTEMBER 30,                      SEPTEMBER 30,
                                                       --------------------------------- ----------------------------------

                                                            2003              2002             2003              2002
                                                        --------------    -------------    --------------    -------------
Revenues
   Interest - on loans                                      $ 186,005        $ 250,757         $ 526,173        $ 896,972
   Interest - interest bearing accounts                            39              354             2,181            2,134
   Late charges                                                 5,194            5,527            17,822           11,376
   Other income                                                   933            3,910             6,487           18,636
                                                        --------------    -------------    --------------    -------------
                                                              192,171          260,548           552,663          929,118
Expenses
   Mortgage servicing fees                                     21,368           26,717            54,669          123,042
   Interest on line of credit                                   5,737           13,839             7,062           48,432
   Clerical costs through Redwood   Mortgage Corp.              5,442            7,541            17,935           23,229
   Asset management fees                                        8,490            8,650            25,512           26,285
   Provisions for losses on loans and real estate               3,372          (5,250)          (53,565)           78,359
   Professional services                                        5,290           16,236            38,881           35,488
   Printing, supplies and postage                               1,268            1,603             5,537            6,696
   Other                                                          (8)              434             5,319            2,703
                                                        --------------    -------------    --------------    -------------
                                                               50,959           69,770           101,350          344,234
                                                        --------------    -------------    --------------    -------------
Net income                                                  $ 141,212        $ 190,778         $ 451,313        $ 584,884
                                                        ==============    =============    ==============    =============

Net income:    To general partners (1%)                     $   1,412        $   1,908         $   4,513        $   5,849
               To limited partners (99%)                      139,800          188,870           446,800          579,035
                                                        --------------    -------------    --------------    -------------
                                                            $ 141,212        $ 190,778         $ 451,313        $ 584,884
                                                        ==============    =============    ==============    =============

Net income per $1,000 invested by limited
  partners for entire period
    -where income is reinvested and compounded                 $15.52           $20.61            $50.35           $63.69
                                                        ==============    =============    ==============    =============
    -where partner receives income in monthly
      distributions                                            $15.44           $20.47            $49.26           $61.96
                                                        ==============    =============    ==============    =============
</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 NINE MONTHS ENDED SEPTEMBER 30, 2003 and 2002(unaudited)

<TABLE>
<S> <C>                                                                          <C>               <C>
                                                                                    NINE MONTHS ENDED
                                                                                      SEPTEMBER 30,
                                                                             -------------------------------

                                                                                 2003              2002
                                                                             -------------     -------------
    Cash flows from operating activities
      Net income                                                              $   451,313      $    584,884
      Adjustments to reconcile net income to net cash provided by
             operating activities
        Provision for (recovery of) losses on loans and real estate              (53,565)            78,359
        Early withdrawal penalty credited to income                               (1,437)           (9,300)
        Change in operating assets and liabilities
             Accrued interest and advances on loans                             (143,677)           506,086
             Accounts payable and other liabilities                              (19,374)           (7,193)

    Net cash provided by operating activities                                     233,260         1,152,836
                                                                             -------------     -------------

    Cash flows from investing activities
        Principal collected on loans                                            1,616,607         2,060,641
        Loans originated                                                      (2,879,161)       (1,867,781)
        Payments for real estate held for sale                                    (5,926)         (194,220)
        Proceeds from sale of real estate held for sale                                 -             2,565
    Distribution from limited liability company                                   433,195                 -
        Proceeds from unsecured loans                                                   -            11,124
                                                                             -------------     -------------

    Net cash provided by (used in) investing activities                         (835,285)            12,329
                                                                             -------------     -------------

    Cash flows from financing activities
        Net increase/(decrease) in line of credit                               1,000,000         (400,000)
        Partners withdrawals                                                    (463,047)         (887,851)
                                                                             -------------     -------------

    Net cash provided by (used in) financing activities                           536,953       (1,287,851)
                                                                             -------------     -------------

    Net decrease in cash                                                         (65,072)         (122,686)

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

    Cash - end of period                                                          992,773           267,158
                                                                             =============     =============

    Cash payments for interest                                                $     7,062      $     48,432
                                                                             =============     =============
</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
                         SEPTEMBER 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 nine month period ended September
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 September 30, 2003 and December 31, 2002, the  Partnership had eight and
nine loans past due 90 days or more totaling  $2,659,053 and $2,913,212  (34.57%
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.

     At September 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 September 30, 2003 and December 31, 2002,
respectively.  The reduction in carrying  value of the impaired  loans of $6,620
and $6,620 at  September  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 nine months ended  September
30, 2003 and the year ended December 31, 2002, respectively.

Allowance for loan losses

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

                                           September 30,         December 31,
                                                2003                 2002
                                          -----------------    -----------------
          Impaired loans                       $     6,620          $     6,620
          Specified loans                          163,731              163,731
          General                                  479,635              533,200
          Unsecured loans                           88,331               88,331
                                          -----------------    -----------------
                                               $   738,317          $   791,882
                                          =================    =================

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

                                            September 30,         December 31,
                                                2003                 2002
                                          -----------------    -----------------
          Beginning balance                    $   791,882          $   887,578
          Provision for loan losses                      -               20,394
          Recoveries                              (53,565)             (40,433)
          Restructures                                   -             (64,210)
          Write-offs                                     -             (11,447)
                                          -----------------    -----------------
                                               $   738,317          $   791,882
                                          =================    =================



                                       5
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         SEPTEMBER 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 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,  Redwood  Mortgage  Corp.,  as an  affiliate  of  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
                         SEPTEMBER 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%(3/8 of 1% annually) of the
"net  asset  value",  which is the  Partnership's  total  assets  less its total
liabilities.

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 September 30, 2003 and December 31, 2002:

                                             September 30,         December 31,
                                                 2003                 2002
                                           -----------------     ---------------
        Costs of properties                     $ 1,269,148         $ 1,263,222
        Reduction in value                        (580,086)           (580,086)
                                           -----------------     ---------------
        Real estate held for sale               $   689,062         $   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 nine months  through  September  30, 2003 and the year ended
December 31, 2002.  During 2003,  the LLC completed  construction  and now it is
selling  the  property.

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

                                             September 30,         December 31,
                                                 2003                 2002
                                          -----------------     ----------------
        Assets                                 $   994,175          $ 1,814,186
        Liabilities                              (214,648)            (601,464)
                                          -----------------     ----------------
        Total                                  $   779,527          $ 1,212,722
                                          =================     ================



                                       7
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         SEPTEMBER 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 September
30, 2003 and December 31, 2002 were  $1,000,000  and $0,  respectively;  and the
interest rate was 4.25% (4.00% prime + .25%) at September 30, 2003. This line of
credit  expires  December  2007 and  requires  the  Partnership  to meet certain
financial  covenants.  As of  September  30, 2003 and  December  31,  2002,  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  $7,691,339  and  $6,423,984,  at
September 30, 2003 and December 31, 2002, respectively.  The fair value of these
loans of $7,555,393  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 September 30, 2003 and
December 31, 2002, there were 24 and 25 secured loans outstanding, respectively,
with the following characteristics:

<TABLE>
<S>                                                                   <C>                  <C>
                                                                      September 30,        December 31,
                                                                          2003                 2002
                                                                     ----------------    -----------------
   Number of secured loans outstanding                                            24                   25
   Total secured loans outstanding                                       $ 7,691,339         $  6,423,984

   Average secured loan outstanding                                      $   320,472         $    256,959
   Average secured loan as percent of total                                    4.17%                4.00%
   Average secured loan as percent of partners' capital                        3.55%                2.84%

   Largest secured loan outstanding                                      $ 1,000,000         $  1,000,000
   Largest secured loan as percent of total                                   13.00%*              15.57%*
   Largest secured loan as percent of partners' capital                       11.06%*              11.05%*
   Number of counties where security is located (all California)                   8                   11

   Largest percentage of loans in one county                                  35.17%               41.38%

   Average secured loan to appraised value of security at time
       loan was consummated                                                   60.69%               65.86%

   Number of secured loans in foreclosure                                          0                    2
   Amount of secured loans in foreclosure                                $         0         $    236,807
</TABLE>

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


                                       8
<PAGE>

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


note 8 - Asset Concentrations and Characteristics (continued)

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

<TABLE>
<S>   <C>                                                          <C>                   <C>
                                                                   September 30,         December 31,
                                                                        2003                 2002
                                                                  -----------------    -----------------
      First trust deeds                                               $  3,723,875         $  3,269,897
      Second trust deeds                                                 3,894,293            2,939,753
      Third trust deeds                                                     73,171              214,334
                                                                  -----------------    -----------------
                 Total loans                                             7,691,339            6,423,984
      Prior liens due other lenders                                      6,181,232            5,475,725
                                                                  -----------------    -----------------

                 Total debt                                           $ 13,872,571         $ 11,899,709
                                                                  =================    =================

      Appraised property value at time of loan                        $ 22,857,946         $ 18,069,602

      Total investments as percent of appraisals                            60.69%               65.86%

      Investments by type of property
           Owner occupied homes                                       $    879,496         $  1,037,474
           Non-owner occupied homes                                        913,753              575,051
           Apartments                                                    1,798,982              708,648
           Commercial                                                    4,099,108            4,102,811
                                                                  -----------------    -----------------
                                                                      $  7,691,339         $  6,423,984
                                                                  =================    =================
</TABLE>

     The  interest  rates on the loans range from 13.00% to 6.125% at  September
30, 2003.

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

            Year Ending December 31,
        ----------------------------------
                      2003                        $2,510,149
                      2004                           337,448
                      2005                         1,753,958
                      2006                           759,067
                      2007                         1,521,254
                   Thereafter                        809,463
                                              ---------------

                      Total                       $7,691,339
                                              ===============

     The scheduled maturities for 2003 above include approximately $2,368,721 in
6 loans,  which are past  maturity at September 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 September 30, 2003 of $88,020,  before  clearing
deposits in transit and  outstanding  checks,  were in one bank. The balance did
not exceed the FDIC insurance limits (up to $100,000 per bank). This 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 26% of the total
Partnership loan balance at September 30, 2003.


                                       9
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         SEPTEMBER 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 September 30, 2003 and December 31,
2002.  As of  September  30, 2003 the  Partnership  had two loans under  workout
agreements totaling $64,952.

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  September  30, 2003.  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 September  30, 2003,  there were $698,165 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
capital contributions from investors.

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 dates and revenue and expenses
for  the  reporting   periods.   Such  estimates   relate   principally  to  the
determination of (1) the allowance for loan losses (i.e. the amount of allowance
established  against loans  receivable as an estimate of potential  loan losses)
including   the  accrued   interest  and  advances  that  are  estimated  to  be
unrecoverable  based on estimates of amounts to be collected  plus  estimates of
the value of the  property as  collateral  and (2) the  valuation of real estate
acquired through foreclosure.

     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.

                                       10
<PAGE>

     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  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,  Redwood  Mortgage
Corp.  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 $64,877 and $24,661 for the
nine months ended  September 30, 2003 and 2002,  and $16,102 and $18,261 for the
three months ended September 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 $54,669 and $123,042 were incurred for the
nine months  ended  September  30, 2003 and 2002,  and $21,368 and $26,717  were
incurred for the three months ended September 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 $25,512 and $26,285 were  incurred by the  Partnership  for the nine
months ended  September  30, 2003 and 2002,  and $8,490 and $8,650 were incurred
for the three months ended September 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
statements of income.

                                       11
<PAGE>

     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 September 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.

Results of Operations - For the nine and three months ended September 30, 2003
and 2002

     The net income decrease of $133,571 (23%) for the nine months,  and $49,566
(26%) for the three months ended  September  30, 2003 versus  September 30, 2002
was due  primarily to a decrease in interest  earned on loans of $370,799  (41%)
for the nine months and $64,752 (26%) for the three months,  an increase in late
charges  of $6,446  for the nine  months  and a  decrease  of $333 for the three
months, and a decrease in other income of $12,149 for the nine months and $2,977
for the three months; offset by expense increases/decreases. Significant expense
decreases for the nine and three month  periods ended  September 30, 2003 versus
September 30, 2002 included  lower  mortgage  servicing  fees of $68,373 for the
nine months and $5,349 for the three  months,  a decrease in the  provision  for
losses on loans and real estate of $131,924  for the nine months and an increase
of $8,622 for the three  months,  a decrease in interest  expense of $41,370 for
the nine months and $8,102 for the three months, and an increase in professional
fees of $3,393  for the nine  months and a  decrease  of  $10,946  for the three
months.

     The  decrease in interest on loans of $370,799  (41%) for the nine  months,
and $64,752 (26%) for the three months ended September 30, 2003 versus September
30, 2002 was due primarily to a reduction of the loan portfolio from  $9,201,968
at September 30, 2002 to  $7,691,339  at September 30, 2003,  and a reduction in
average portfolio interest rate as compared to the first three quarters of 2002.
Also during the nine months ended  September 30, 2002,  additional  interest was
collected from some loans that were previously considered impaired.

     The  decrease in  interest  on the line of credit of $41,370  (85%) for the
nine months,  and $8,102 (59%) for the three  months  ended  September  30, 2003
versus  September  30, 2002 is due to lower  overall usage of the line of credit
during the first three quarters of 2003. The Partnership  utilized its bank line
of  credit  less  during  the  first  nine  months  of  2003   compared  to  the
corresponding  period in 2002. The outstanding  balance on the line was zero for
most of 2003 and rose to $1,000,000  at September 30, 2003 versus  $1,507,000 at
September  30, 2002.  Cash  generated  from  interest  earnings,  late  charges,
amortization  of principal  and loan payoffs are utilized to pay down the credit
line when possible.

     The  decrease  in  mortgage  servicing  fees of $68,373  (56%) for the nine
months,  and $5,349 (20%) for the three months ended  September  30, 2003 versus
September 30, 2002 is attributable to a decrease in loan portfolio to $7,691,339
at September 30, 2003 from $9,201,968 at September 30, 2002. In addition, higher
mortgage  servicing fees during the nine and three months through  September 30,
2002 was due to collection of servicing  fees on impaired loans during the first
three  quarters  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 $53,565 for the nine months,  and the loan loss
provision was $3,372 for the three months ended  September 30, 2003, as compared
to a loan loss  provision  of $78,359 for the nine  months,  and  recoveries  of
$5,250 for the three  months ended  September  30,  2002.  The general  partners
believe  that the  allowance  for loan  losses and real  estate held for sale of
$1,318,403  as of  September  30,  2003 was more than  adequate  to  offset  any
potential loss in loans or real estate.

     The decrease in asset management fees of $773 (3%) for the nine months, and
$160 (2%) for the three months ended  September  30, 2003 versus the  respective
periods ended  September 30, 2002 is due to a decrease in the partners'  capital
under  management at September 30, 2003 and 2002 to $9,039,097 from  $9,119,979,
respectively.

     The increase in professional fees of $3,393 (10%) for the nine months,  and
a decrease  of $10,946  for the three  months  ended  September  30, 2003 versus
September  30,  2002 is due to timing of services  provided in 2003  compared to
2002 and increases in the cost of such services.

                                       12
<PAGE>

     Partnership  capital  continued to decrease as the limited partners capital
declined due to both earnings  distribution  and capital  liquidations.  For the
nine and three months ended  September 30, 2003 earnings and capital  liquidated
was $159,354  and $300,615 for the nine months,  and $49,239 and $81,951 for the
three months,  respectively,  versus  $231,150 and $660,152 for the nine months,
and  $72,414  and  $182,409  for  the  three   months,   respectively   for  the
corresponding periods in 2002.

     At  September  30,  2003,  there  were  no  foreclosures,  compared  to one
($31,807) that existed at September 30, 2002.

     The general partners received Mortgage Brokerage  Commissions from the loan
borrowers of $64,877 and $16,102 for the nine and three  months ended  September
30, 2003 as compared to $24,661 and $18,261 for the nine and three  months ended
September  30, 2002.  The increase is due to more loans  written in the nine and
three months ended September 30, 2003.

     Since January 2001, and through September 30, 2003, the Federal Reserve has
reduced interest rates significantly by cutting the Federal Funds Rate to 1.00%.
The effect of the 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 at
rates  approximately  1% lower than similar  loans during 2002.  The lowering of
interest rates has  encouraged  those  borrowers that hold higher  interest rate
loans than those  currently  available  to seek  refinancing  of their  existing
obligations to take  advantage of these lower rates.  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, we expect to replace these 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  expected 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 for  compounding
limited partners will range between 6.30% and 7.30% for the year 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 September  30, 2003,
there were no  properties  in  foreclosure,  compared to one  property  totaling
$31,807 at September 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 2002,  the
Northern  California  real  estate  market  slowed  and the  national  and local
economies have slipped into recession. Economic trends have begun to slowly move
upward in 2003.  As of September  30, 2003,  no notices of default are currently
filed. 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 2 loans totaling $64,952 as of September 30,
2003. 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,  or allows time

                                       13
<PAGE>

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  workout  agreements  existing  at
September 30, 2003, 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.  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  ($53,565)  and  $78,359,  as  (recoveries)  and
provisions  for  losses  on loans  and real  estate  for the nine  months  ended
September 30, 2003 and 2002,  respectively.  The reserve for losses on loans and
real estate had a balance of $1,318,403  as of September 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.

     As of September  30,  2003,  the  Partnership  had an average loan to value
ratio computed as of the date the loan was made of 61%. 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 nine months ended September 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 September 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  $5,295,139 (69%) and $6,122,683 (67%) of
the outstanding loan portfolio. The remainder of the portfolio represented loans
secured by real estate located primarily in Northern California

     As of September 30, 2003,  approximately 23% ($1,793,249),  was invested in
loans   secured  by  single   family  homes  (1-4  units),   approximately   23%
($1,798,982), was invested in loans secured by multifamily dwellings (apartments
over 4 units), approximately 36% ($2,715,484),  was invested in loans secured by
commercial properties,  and approximately 18% ($1,383,624) was invested in loans
secured by land. As of September 30, 2002,  approximately 26% ($2,406,124),  was
invested in loans secured by single family homes (1-4 units),  approximately  7%
($608,647)  was invested in loans secured by multifamily  dwellings  (apartments
over 4 units),  approximately  44% ($4,022,589) was invested in loans secured by
commercial properties,  and approximately 23% ($2,164,608) was invested in loans
secured by land.

                                       14
<PAGE>


     As of September 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 September 30, 2003:


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

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

 1st Mortgages                                 11     $3,723,875            48%
 2nd Mortgages                                 12      3,894,293            51%
 3rd Mortgages                                  1         73,171             1%
                                       ===========    ============   ===========
   Total                                       24     $7,691,339           100%

 Maturing 12/31/03 and prior                    9     $2,510,149            33%
 Maturing prior to 12/31/04                     2        337,448             4%
 Maturing prior to 12/31/05                     3      1,753,958            23%
 Maturing after 12/31/05                       10      3,089,784            40%
                                       ===========    ============   ===========
   Total                                       24     $7,691,339           100%

 Average Loan                                           $320,472             4%
 Largest Loan                                          1,000,000            13%
 Smallest Loan                                            11,723          0.15%
 Average Loan-to-Value                                                      61%


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 nine and
three  months  ended  September  30,  2003  and  2002,  the   Partnership   made
distributions  of earnings to limited  partners of $159,354 and $231,150 for the
nine  months,  and  $49,239  and  $72,414  for the three  months,  respectively.
Distribution of earnings to limited  partners,  which were not withdrawn for the
nine and three  months  ended  September  30,  2003 and 2002 were  $287,445  and
$347,885  for the nine months,  and $90,561 and  $116,456 for the three  months,
respectively.  As of September 30, 2003 and 2002,  limited partners  electing to
withdraw earnings represented 35% 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 nine and three months ended September 30, 2003
and 2002,  $17,940 and $116,253 for the nine months,  and $4,750 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 September 30, 2003 and 2002.

                                       15
<PAGE>

     Additionally,  for the nine and three months ended  September  30, 2003 and
2002,  $282,675 and  $543,899 for the nine months,  and $77,201 and $140,928 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").

Current Economic Conditions.

     The  Partnership  makes  loans  primarily  in  Northern  California.  As of
September 30, 2003,  approximately  69%,  ($5,295,139)  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 contained in an article in the San Francisco  Chronicle dated October 4,
2003,  mortgage  rates are down again while home sales are soaring.  The article
stated,  "Rates on benchmark  30-year mortgages dropped for the fourth week in a
row, good news for people thinking about  refinancing  their home mortgage.  For
the week  ending  October 3, the  average  rate on 30-year  mortgages  dipped to
5.77%,  down from last week's rate of 5.98%,  Freddie Mac,  the mortgage  giant,
reported  Thursday  in its weekly  nation-wide  survey of mortgage  rates.  This
week's  rate was the  lowest  since the  middle of July,  when  rates on 30-year
mortgage  averaged 5.67%.  Rates on 30-year  mortgages slid to 5.21%, the lowest
level in more than four decades,  in the middle of June. But in late June, those
rates started marching back up. They have retreated in the past four weeks. Even
with the  recent  gyration  in  mortgage  rates,  sales of both  new  homes  and
previously owned ones soared in August and are on track to set record highs this
year. And, home-mortgage refinancing activity remains healthy, economists said."

                                       16
<PAGE>

     According to the San Francisco  Chronicle of the week of September 9, 2003,
house  prices  were  showing  steady  appreciation  across the U.S.  The article
stated, "Defying gloom and doom predictions of impending deflation, the value of
the average U.S.  home  continues to  appreciate  at more than twice the rate of
inflation. In the latest nationwide survey of prices of existing houses, average
values rose by 5.56% from the second  quarter of 2002 through the second quarter
of 2003.  The  study  was  done by the  Office  of  Federal  Housing  Enterprise
Oversight  (OFHEO),  which  monitors  the market  value  changes of  millions of
individual  properties  financed or refinanced by giant investors Fannie Mae and
Freddie Mac. Dozens of local markets  experienced much higher average gains than
5.56%, including  double-digit  appreciation rates in large swaths of California
and  Florida."  The  article  also  stated  "Houses in the  District of Columbia
appreciated at 10.1% on average,  while  California  houses gained an average of
9.4%. Formerly superheated  markets,  such as San Francisco where values rose at
20% and more per year during the dot-com  boom,  continue to readjust.  San Jose
houses  gained an average  1.6% in resale value from 2002 to 2003 but lost 0.56%
during the last quarter  measured by the study.  San Francisco  houses gained an
average 3.81% during the year,  but rose by just 0.22% during the quarter ending
June  30."  These  articles  and  statistics   imply  that  interest  rates  are
stabilizing   near   historical  lows  and  that  the  real  estate  market  for
single-family  residences is strong,  but that the San Francisco Bay Area values
are  continuing to fall slightly as they readjust from the robust markets of the
late 1990's and early 2000.

     On the commercial scene,  according to the San Francisco Business Times for
the week of October 3, 2003,  the San  Francisco  real estate  market is showing
signs of life. The article stated,  "San  Francisco's  office market,  among the
most  depressed  in the  nation,  appears to have  finally  started to  recover.
Slowly.  Third-quarter numbers released this week from three major San Francisco
brokerage firms show leasing  creeping  upward,  vacancy  dropping  slightly and
rents stabilizing after almost three years of free fall.  Numbers from Newmark &
Co. Real Estate, for example,  showed "positive  absorption" - the amount of new
leases  compared to new vacancies - of 415,000 square feet citywide in the third
quarter,  with the vacancy rate declining to 16.7% from 17% overall and to 18.3%
from 19.3% among Class A  buildings.  Numbers  from two other real estate  firms
show the same trend, with Cushman & Wakefield reporting more than 500,000 square
feet  absorbed,  and Grubb & Ellis Co. showing  100,000 square feet  absorption.
Both those firms also saw the vacancy rate declining 0.1% citywide." The article
also stated,  "Newmark managing  principal Monica Finnegan said the numbers make
her  cautiously  optimistic  that the market has bottomed  out, but she is still
keeping an eye out for what happens in the fourth quarter.  Still,  Newmark says
in its report that "we expect several  consecutive years of positive  absorption
beginning in 2004." Newmark's outlook is buoyed by federal employment statistics
that show the rate of job loss in San Francisco slowing dramatically,  with jobs
falling 1.9% in the year to August,  compared to declines of 5.8% in August 2002
and  4.9% in  August  2001."  The  commercial  real  estate  market  seems to be
stabilizing but it will take a long time to absorb the large vacancies that have
built up in this  recession.  Values have  decreased but lowered  capitalization
rates have helped keep commercial property values from large reductions.

     To the  Partnership,  lower interest  rates may mean more borrowers  coming
forward for equity loans or for refinancing.  Stabilizing  commercial  vacancies
and  little  appreciation  in rental  rates may mean that the  economy is at the
vacancy rate bottom.

     For  Partnership  loans   outstanding,   as  of  September  30,  2003,  the
Partnership  had an average loan to value ratio computed as of the date the loan
was made of 61%. 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.

                                       17
<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  September  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 September 30, 2003:
<TABLE>
<S>                                 <C>           <C>         <C>          <C>         <C>       <C>              <C>
                                    2003          2004        2005         2006        2007      Thereafter       Total
                                -------------- ----------- ------------ ----------- ------------ ------------ --------------
Interest earning assets:
Money market accounts              $    6,753                                                                    $    6,753
Average interest rate                   0.55%                                                                         0.55%
Loans secured by deeds
   of trust                        $2,510,149     337,448    1,753,958     759,067    1,521,254      809,463     $7,691,339
Average interest rate                  11.11%       9.24%        9.35%       8.68%        8.13%        8.71%          9.55%
Interest bearing liabilities:
Line of credit                     $1,000,000                                                                    $1,000,000
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
September 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.


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.

                                       18
<PAGE>

     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 September 30, 2003 the general partners have determined that
the allowance  for loan losses of $738,317  (8.17% 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 September 30, 2003, 8 loans were delinquent over 90
days amounting to $2,659,053.

Controls and Procedures.

     As of September 30, 2003, 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.

                                       19
<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 nine months ended  September  30,
2003. All such compensation is in compliance with the guidelines and limitations
set forth in the Prospectus.
<TABLE>
<S>  <C>                         <C>                                                                      <C>

Entity Receiving
Compensation                             Description of Compensation and Services Rendered                Amount
--------------------------------------------------------------------------------------------------------------------
I.  Redwood Mortgage Corp.       Loan Servicing Fee for servicing loan ............................         $54,669

    General Partners
       &/or Affiliates           Asset Management Fee for managing assets .........................         $25,512

    General Partners             1% interest in profits ...........................................          $4,513
</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 ..................................................         $64,877

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 ............          $1,991

Gymno Corporation, Inc.          Reconveyance Fee .................................................            $316

</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 . . . . . . . . . . . . . . . . . . . . . . . . . . $17,935




                                       20
<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







                                       21
<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
November 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 November 2003.


       Signature                     Title                           Date


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


 /S/ Michael R. Burwell
-----------------------
 Michael R. Burwell       President, Secretary/Treasurer      November 14, 2003
                          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 September 30, 2003 (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
November 14, 2003


                                       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  September 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
November 14, 2003



                                       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 September 30, 2003 (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
November 14, 2003


                                       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  September 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
November 14, 2003


                                       26