| ·   | analyzed the compensation arrangements in other offerings; |
|--------------------|------------------------------------------------------------|

| ·   | spoken to other professionals in the industry including issuers, promoters and broker-dealers; |
|--------------------|------------------------------------------------------------------------------------------------|

| ·   | examined “rate sheets” from banks, savings & loans, mortgage brokers, mortgage bankers and consumer finance lenders, which set forth the rates being charged by those institutions for the same or similar services; and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | collected data regarding compensation from trade association meetings, relevant periodicals and/or other sources. |
|--------------------|-------------------------------------------------------------------------------------------------------------------|

----

| Entity Receiving Compensation | Form and Method of Compensation                                                                                                                                                                                                                           | Estimated Amount Payable for Minimum Offering | Estimated Amount Payable for Maximum Offering |
|-------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------|-----------------------------------------------|
|                          |                                                                                                                                                                                                                                                      | (Unleveraged)                                 | (Leveraged)(6)                                | (Unleveraged) | (Leveraged)(6) |
| Redwood Mortgage Corp.        | Reimbursement of organizational and offering expenses up to 4.5% of the gross offering proceeds.  Redwood Mortgage Corp. will be responsible for any portion of organizational and offering expenses exceeding 4.5% of gross offering proceeds. | $45,000                                       | $45,000                                       | $500,000 | $500,000 |

| Entity Receiving Compensation | Form and Method of Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Estimated Amount Payable for Minimum Offering | Estimated Amount Payable for Maximum Offering |
|-------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------|-----------------------------------------------|
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | (Unleveraged)                                 | (Leveraged) (6)                               | (Unleveraged) | (Leveraged)(6) |
| Redwood Mortgage Corp.        | Loan brokerage commissions in an amount negotiated with prospective borrowers on a case by case basis.  It is estimated that such commissions will be approximately 2% to 5% of the principal amount of each loan made.  The loan brokerage commissions will be capped at 4% of our total assets per year assets (except during the first year of operations).  Loan brokerage commissions are payable solely by the borrower and not by us (See “TERMS OF THE OFFERING” at page 38). | $5,000per year (7) (8)                        | $8,000per year (7) (8)                        | $940,000per year (7) (8) | $1,546,000per year (7) (8) |

----

| Entity Receiving Compensation                       | Form and Method of Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                               | Estimated Amount Payable for Minimum Offering | Estimated Amount Payable for Maximum Offering |
|-----------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------|-----------------------------------------------|
|                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Unleveraged                                   | (Leveraged)(6)                                | (Unleveraged) | (Leveraged)(6) |
| Redwood Mortgage Corp.                              | Loan administrative fees in an amount up to 1% of the principal amount of each new loan originated or acquired on our behalf by Redwood Mortgage Corp. for services rendered in connection with the selection and underwriting of potential loans.  Such fees are payable by us upon the closing of each loan.                                                                                                                                                      | $2,000per year (7) (8)                        | $3,000per year (7) (8)                        | $342,000per year (7) (8) | $562,000per year (7) (8) |
| Redwood Mortgage Corp.                              | Processing and escrow fees for services in connection with notary, document preparation, credit investigation, and escrow fees in an amount equal to the fees customarily charged by Redwood Mortgage Corp. for comparable services in the geographical area where the property securing the loan is located, payable solely by the borrower and not by us.                                                                                                                   | $1,000per year (7)                            | $1,000per year (7)                            | $45,000per year (7) | $74,000per year (7) |
| Redwood Mortgage Corp.                              | Loan servicing fee, payable monthly, which when added to all other fees paid in connection with the servicing of a particular loan, does not exceed 0.25% per year of the outstanding principal amount of the loan.  (1)                                                                                                                                                                                                                                            | $2,000per year (7)                            | $3,000per year (7)                            | $357,000per year (7) | $566,000per year (7) |
| Redwood Mortgage Corp. (75%)Gymno Corporation (25%) | Asset management fee payable monthly in an amount up to 0.75% annually of the portion of the capital originally committed to investment in mortgages, not including leverage, and including up to 2% of working capital reserves.  This amount will be recomputed annually after the second full year of our operations by subtracting from the then fair market value of our loans plus the working capital reserves, an amount equal to our outstanding debt. (2) | $6,000per year (7)                            | $6,000per year (7)                            | $1,195,000per year (7) | $1,195,000per year (7) |

----

| Entity Receiving Compensation                       | Form and Method of Compensation                                                                                                                                                                                                                                                                                                                                                                  | Estimated Amount Payable for Minimum Offering         | Estimated Amount Payable for Maximum Offering         |
|-----------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------|-------------------------------------------------------|
|                                                |                                                                                                                                                                                                                                                                                                                                                                                             | (Unleveraged)                                         | (Leveraged)(6)                                        | (Unleveraged) | (Leveraged)(6) |
| Redwood Mortgage Corp.                              | Reimbursement of salaries, compensation, travel expenses and fringe benefits of personnel employed by us and involved in our business. (3)                                                                                                                                                                                                                                                       | $700per year                                          | $700per year                                          | $200,000per year | $200,000per year |
| Redwood Mortgage Corp.                              | Reimbursement of expenses relating to our administration, subject to certain limitations; see Article 11 of the operating agreement. (4)                                                                                                                                                                                                                                                    | $300per year                                          | $300per year                                          | $97,000per year | $97,000per year |
| Gymno Corporation                                   | Reconveyance fee for reconveyance of property upon full payment of loan, payable by borrower.                                                                                                                                                                                                                                                                                                    | Approximately $45 per deedof trust or statutory rate. | Approximately $45 per deedof trust or statutory rate. | Approximately $45 per deedof trust or statutory rate. | Approximately $45 per deedof trust orstatutory rate. |
| Redwood Mortgage Corp.                              | Assumption fee for assumption of loans payable by borrower of between 0.5% and 1.5% of the loan principal balance. (5)                                                                                                                                                                                                                                                                           | $0per year (7)                                        | $0per year (7)                                        | $7,000per year (7) | $11,000per year (7) |
| Redwood Mortgage Corp.                              | Extension fee for extending the loan period payable by borrower as a percentage of the loan principal balance. (5)                                                                                                                                                                                                                                                                               | $0per year (7)                                        | $0per year (7)                                        | $14,000per year (7) | $22,000per year (7) |
| Redwood Mortgage Corp. (50%)Gymno Corporation (50%) | 1% interest in profits and 1% interest in losses.                                                                                                                                                                                                                                                                                                                                                | $1,000per year (7)                                    | $1,000per year (7)                                    | $119,000per year (7) | $119,000per year (7) |
| Managers or Third Parties                           | The total compensation paid to all persons for the sale of property held by us as a result of foreclosure may not exceed 6% of the contract price for the sale of such property. Neither our managers nor any of their affiliates will receive a real estate commission in connection with such a sale.  Foreclosed properties may be sold to our managers or any of their affiliates. | Not determinable at this time                         | Notdeterminable at this time                          | Notdeterminable at this time | Notdeterminable at this time |

----

| Entity Receiving Compensation | Form and Method of Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Estimated Amount Payable for Minimum Offering | Estimated Amount Payable for Maximum Offering |
|-------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------|-----------------------------------------------|
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | (Unleveraged)                                 | (Leveraged)(6)                                | (Unleveraged) | (Leveraged)(6) |
| Redwood Mortgage Corp.        | Redwood Mortgage Corp.’s obligation to repay the principal amount of the formation loan owed to us will be reduced by a portion of the early redemption penalties received by us.  Initially, a portion of the early redemption penalties will be used to reduce the formation loan obligation and a portion will be used to pay our offering expenses.  This portion will be determined by the ratio between the initial amount of the formation loan and the total amount of the offering expenses incurred by us.  Assuming that the maximum formation loan is $10,500,000 and the maximum organizational costs are $6,750,000, the ratio would be 61:39.  This amount could be higher or lower, depending upon actual total offering expenses.  That ratio will be determined by the actual formation loan and offering expenses incurred.  The ratio will change as offering expenses are amortized (See “TRANSFER OF UNITS – Unit Redemption Program” at page 99). | $200per year (7)                              | $200per year (7)                              | $27,000per year (7) | $27,000per year (7) |

| (1) | For purposes of the “Estimated Amount Payable for Minimum Offering” column, assuming that the minimum $1,000,000 of units offered in the primary offering are sold in the first year, that none of the members elect to purchase units in the distribution reinvestment plan, and that we do not obtain leverage, we estimate that the average annual loan portfolio resulting from unit sales will average $797,000, which amount is the basis for the above loan servicing fee calculation.  For purposes of the “Estimated Amount Payable for Maximum Offering” column, assuming that all of the maximum $150,000,000 of units offered in the primary offering are sold in the first year and $37,500,000 of units under the distribution reinvestment plan are sold over a period of years, that 60% of the members elect to purchase units in the distribution reinvestment plan, and that we do not obtain leverage, we estimate that the average annual loan portfolio resulting from unit sales will average $142,956,000, which amount is the basis for the above loan servicing fee calculation.  Our managers, who will service all of our loans, are entitled to receive a maximum loan servicing fee, payable monthly, of up to 0.25% per year of the outstanding principal amount of each loan.  Our managers, in their sole discretion, may elect to lower the loan servicing fee for any period of time and thereafter raise the fees up to the stated limits.  An increase or decrease in this fee within the limits set by the operating agreement directly impacts the yield to the members. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (2) | The managers, in their sole discretion, may elect to lower the amount of the asset management fee they receive.  The managers may not increase the asset management fee above the maximum amount. An increase or decrease in this fee within the limits set by the operating agreement directly impacts the yield to the members.  The asset management fee is anticipated to be paid 75% to Redwood Mortgage Corp. and 25% to Gymno Corporation.  The managers may, in their discretion, change the relative amount received by each of them.  No asset management fees will be payable on subscription funds held in the subscription account. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Includes reimbursement of salaries, compensation, travel expenses and fringe benefits of persons who may also be employees of our managers or their affiliates, but excludes such items incurred or allocated to any person holding a 5% or greater equity interest in a manager or affiliate, or a person having the power to direct a manager or affiliate. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | The managers or their affiliates are reimbursed for the actual cost of goods and materials used for or by the company and obtained from unaffiliated parties.  In addition, the managers or their affiliates are reimbursed for the cost of administrative services necessary for the prudent operation of the company provided that such reimbursement will be the lesser of (i) the actual cost of such services or (ii) the amount which the company would be required to pay independent parties for comparable services. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Redwood Mortgage Corp. may receive  assumption fees and extension fees estimated to range between 0.5% and 1.5% of the outstanding principal balance of a loan when a new borrower assumes the loan obligations of the original borrower  in the case of a loan assumption or when a lender allows the extension of  the maturity date in the case of a loan extension.  The actual amount of the assumption fees and extension fees is determined by the managers at the time of the assumption or extension based on such factors as current interest rates, the amount of the outstanding loan and the credit worthiness of the new borrower. Assumption fees and extension fees are paid by the borrower.  We do not intend to sell or purchase loans and no compensation will be payable, including to our managers or their affiliates, upon any such sale or purchase of loans by us. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | Our maximum leverage is limited to, and our total indebtedness may not at any time exceed, 50% of members’ capital.  The “Leveraged” columns assume that our managers have obtained leverage in an amount equal to 50% of members’ capital.  We may borrow funds for the purpose of making loans, for increased liquidity, reducing cash reserve needs or for any other company purposes. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | The amount of fees to be paid to the managers and their affiliates related to this offering are based on certain assumptions made in light of the managers’ experience with similar programs.  For purposes of the “Estimated Amount Payable for Minimum Offering” column, in determining the average annual fees to be paid to the managers and their affiliates related to this offering the managers have assumed, based upon their experience the following:  (i) the company operates for twelve years assuming $1,000,000 is raised in the first year; (ii) none of the members elect to participate in our distribution reinvestment plan; (iii) a 8.00% yield is achieved in all 12 years; (iv) withdrawal rates of 1% in year two, 2% in year three, 2.5% in year four, 2.5% in year five and 3.5% in subsequent years through year twelve; (v) a turnover rate on loans of 5% in year two, of 10% in year three, 15% in year four and 20% in years thereafter; (vi) no leveraging of the portfolio occurs; (vii) syndication costs of $45,000 are incurred in year one; (viii) cash liquidity reserves are 2% of our capital originally committed to investment in mortgages; and (ix) a formation loan of $70,000 is incurred upon the sale of units and is repaid according to its terms in equal amortizing payments of principal beginning on December 31 of year two.  For purposes of the “Estimated Amount Payable for Maximum Offering” column, in determining the average annual fees to be paid to the managers and their affiliates related to this offering the managers have assumed, based upon their experience the following:  (i) the company operates for twelve years assuming $150,000,000 is raised in the first year; (ii) 60% of the members elect to participate in our distribution reinvestment plan until all 37,500,000 units have been sold; (iii) a 8.00% yield is achieved in all 12 years; (iv) withdrawal rates of 1% in year two, 2% in year three, 2.5% in year four, 2.5% in year five and 3.5% in subsequent years through year twelve; (v) a turnover rate on loans of 5% in year two, of 10% in year three, 15% in year four and 20% in years thereafter; (vi) no leveraging of the portfolio occurs; (vii) syndication costs of $6,750,000 are incurred in year one; (viii) cash liquidity reserves are 2% of our capital originally committed   to investment in mortgages;  and (ix) a formation loan  of $10,500,000  is incurred upon  the sale of units and is repaid according to its terms in equal amortizing payments of principal beginning on December 31 of year two.  However, because the estimated amount of fees to be paid to the managers and their affiliates is based on certain assumptions and conditions, including, historical |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (8) | For purposes of the “Estimated Amount Payable for Minimum Offering” column, to estimate the maximum loan brokerage commissions, we have assumed that cash available for investments in loans will average $184,000 per year and that we will receive an average of 2.75 points from the borrower on each loan.  For purposes of the “Estimated Amount Payable for Maximum Offering” column, to estimate the maximum loan brokerage commissions, we have assumed that cash available for investments in loans will average $34,199,000 per year and that we will receive an average of 2.75 points from the borrower on each loan. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | the size of the loan |
|--------------------|----------------------|

| ·   | portfolio diversification |
|--------------------|---------------------------|

| ·   | amount of uninvested funds |
|--------------------|----------------------------|

| ·   | the length of time that excess funds have remained uninvested |
|--------------------|---------------------------------------------------------------|

----

----

| ·   | the unpaid principal amount of our loan; |
|--------------------|------------------------------------------|

| ·   | unpaid interest accrued to the date of foreclosure; |
|--------------------|-----------------------------------------------------|

| ·   | expenditures made to protect our interest in the property such as payments to senior lienholders and for insurance and taxes; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------|

| ·   | costs of foreclosure (including attorneys’ fees actually incurred to prosecute the foreclosure or to obtain relief from a stay in bankruptcy); and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | any advances made by our managers on our behalf for any of the foregoing less any income or rents received, condemnation proceeds or other awards received or similar monies received. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Yield a high rate of return from mortgage lending; |
|--------------------|----------------------------------------------------|

| ·   | Preserve and protect our capital; and |
|--------------------|---------------------------------------|

| ·   | Generate and distribute cash flow from operations to investors. |
|--------------------|-----------------------------------------------------------------|

| ·   | less liquid; |
|--------------------|--------------|

| ·   | not readily transferable; and |
|--------------------|-------------------------------|

| ·   | not provide a guaranteed return over its investment life. |
|--------------------|-----------------------------------------------------------|

| ·   | single-family residences (including homes, condominiums and townhouses, including 1-4 unit residential buildings); |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

| ·   | multi-family residential property (such as apartment buildings); |
|--------------------|------------------------------------------------------------------|

| ·   | commercial property (such as stores, shops, offices, warehouses and retail strip centers); and |
|--------------------|------------------------------------------------------------------------------------------------|

| ·   | land. |
|--------------------|-------|

| ·   | Priority of Mortgages. The lien securing each loan will not be junior to more than two other encumbrances (a first and, in some cases a second deed of trust) on the real property which is to be used as security for the loan.  Although we may also make wrap-around or “all-inclusive” loans, those wrap-around loans will include no more than two underlying obligations (See “CERTAIN LEGAL ASPECTS OF LOANS - Special Considerations in Connection with Junior Encumbrances” at page 72).  We anticipate that our loans will eventually be diversified as to priority approximately as follows: |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| §   | first mortgages – 40-60% |
|--------------------|--------------------------------|

| §   | second mortgages – 40-60% |
|--------------------|---------------------------------|

| §   | third mortgages – 0-10% |
|--------------------|-------------------------------|

| ·   | Geographic Area of Lending Activity. We will limit lending to properties located in California, and primarily in the nine San Francisco Bay Area counties.  These counties, which have an aggregate population of over 7.3 million, are San Francisco, San Mateo, Santa Clara, Alameda, Contra Costa, Marin, Napa, Solano and Sonoma.  The economy of the area where the security is located is important in protecting market values.  Therefore, our managers will limit the largest percentage of our lending activity principally to the San Francisco Bay Area since it has a broad diversified economic base, an expanding working population and a minimum of buildable sites.  Our managers believe these factors generally contribute to a stable market for residential property.  Although we anticipate that our primary area of lending will be Northern California, we may elect to make loans secured by real property located throughout California. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Construction Loans. We may make construction loans up to a maximum of 10% of our loan portfolio.  With respect to residential property, a construction loan is a loan in which the proceeds are used to construct a new dwelling (up to four units) on a parcel of property on which no dwelling previously existed or on which the existing dwelling was entirely demolished.  With respect to commercial property, a construction loan is a loan in which the proceeds are used to construct an entirely new building on a parcel of property on which no building existed or on which an existing building was entirely demolished.  It is possible that with the disbursement of undisbursed commitments, there may be times when the aggregate amount of our construction loans would exceed 10% of its total loan portfolio.  Our managers anticipate, however, that as such undisbursed commitments are disbursed, the total amount of construction loans will not exceed such 10% level because such disbursed loans will be offset by repayments of other outstanding construction loans and by the overall growth in our loan portfolio. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Rehabilitation Loans.  We will also make “rehabilitation loans” to finance remodeling, additions to and/or rehabilitation of an existing structure or dwelling, whether residential, commercial or multi-family properties.  While we will not classify rehabilitation loans as construction loans, rehabilitation loans do carry some of the same risks as construction loans.  We may make rehabilitation loans up to a maximum of 15% of our total loan portfolio. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Loan-to-Value Ratios.  The amount of our loan combined with the outstanding debt secured by a senior deed of trust on the security property generally will not exceed a specified percentage of the appraised value of the security property as determined by an independent written appraisal at the time the loan is made.  These loan-to-value ratios are as follows: |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Type of Security Property                                                                                    |   | Loan-to-Value Ratio |
|--------------------------------------------------------------------------------------------------------------|--------|---------------------|
|                                                                                                         |   |                |
| Residential (including apartments)                                                                           |   | 80%                 |
| Commercial Property (including retail stores, office buildings, warehouses facilities, mixed use properties) |   | 75%                 |
| Land                                                                                                         |   | 50%                 |

----

| ·   | Terms of Loans.  Most of our loans will be for a period of 1 to 5 years, but in no event more than 15 years.  Most loans will provide for monthly payments of interest and/or principal and interest only.  Many loans will provide for payments of interest only or are partially amortizing with a “balloon” payment of principal payable in full at the end of the term. Some loans provide for the deferral and compounding of all or a portion of accrued interest for various periods of time.  We generally will not grant borrowers an option to refinance or extend the loan at the time the loan is made.  However, we may agree to extend or refinance a loan at its maturity if deemed appropriate and advisable for business reasons or in light of the then-current economic climate or other factors. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Escrow Conditions.  Loans will be funded through an escrow account handled by a title insurance company, an escrow company or by Redwood Mortgage Corp., subject to the following conditions: |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Satisfactory title insurance coverage will be obtained for all loans.  The title insurance policy will name us as the insured and provides title insurance in an amount at least equal to the principal amount of the loan.  Title insurance insures only the validity and priority of our deed of trust, and does not insure us against loss by reason of other causes, such as diminution in the value of the security property, over appraisals, etc. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Satisfactory fire and casualty insurance will be obtained for all loans, naming us as loss payee in an amount equal to cover the replacement cost of improvements. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Our managers do not intend to arrange for mortgage insurance, which would afford some protection against loss if we foreclose on a loan and there is insufficient equity in the security property to repay all sums owed.  If our managers determine in their sole discretion to obtain such insurance, the minimum loan-to-value ratio for residential property loans will be increased. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | All loan documents (notes, deeds of trust, escrow agreements, and any other documents needed to document a particular transaction or to secure the loan) and insurance policies will name us as payee and beneficiary.  Loans will not be written in the name of our managers or any other nominee. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Loans to our Managers and Their Affiliates.  We will make formation loans to Redwood Mortgage Corp.  However, we may not acquire a loan from, or sell a loan to a program in which a manager or its affiliate has an interest, except as allowed under our operating agreement.  In addition, we may not provide a mortgage loan to mortgage programs formed by or affiliated with us. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Purchase of Loans from Managers, Affiliates and Third Parties.  We may not purchase a loan in which a manager or its affiliate has an interest unless: (i) the manager or its affiliate acquired the loan temporarily in its name for the purpose of facilitating the acquisition of the loan and provided that the loan is purchased from the manager for a price no greater than the cost of the loan to the manager, except for the compensation allowed by the NASAA Mortgage Guidelines; or (ii) the purchase is made from a program pursuant to the rights of first refusal required by the provisions of the NASAA Mortgage Guidelines.  In addition, existing loans may be purchased from the managers, their affiliates or other third parties, but only so long as any such loan is not in default and otherwise satisfies all of the foregoing requirements; provided, the managers and their affiliates will sell no more than a 90% interest and retain a 10% interest in any loan sold to us which they have held for more than 180 days.  In such case, the managers and affiliates will hold their 10% interest and we will hold our 90% interest in the loan as tenants in common.  Our purchase price for any such loan will not exceed the par value of the note or its fair market value, whichever is lower. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Sale of Loans.  We may not sell a loan to a manager unless:  (i) we do not have sufficient offering proceeds available to retain the loan; (ii) the manager pays us an amount of cash equal to the cost of the loan (including all related cash payments and carrying costs); (iii) the manager assumes all of our obligations and liabilities incurred in connection with holding the loan; and (iv) the sale occurs not later than 90 days following the termination date of the offering.  A manager or its affiliate will purchase all loans that we do not have sufficient proceeds to retain.  In the event that the offering proceeds are insufficient to retain all loans, we will sell loans to the managers on a “last-in, first-out” basis.  Our managers or their affiliates may sell loans to third parties (or fractional interests therein) if and when our managers determine that it appears to be advantageous to do so.  We may not give a manager or its affiliate an exclusive right or employment to sell or otherwise dispose of loans or other assets of the company. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Note Hypothecation.  We may make loans which will be secured by assignments of secured promissory notes.  The amount of a loan secured by an assigned note will satisfy the loan-to-value ratios set forth above (which are determined as a specified percentage of the appraised value of the underlying property) and also will not exceed 80% of the principal amount of the assigned note.  For example, if the property securing a note is commercial property, the total amount of outstanding debt secured by such property, including the debt represented by the assigned note and any senior mortgages, must not exceed 75% of the appraised value of such property, and the loan will not exceed 80% of the principal amount of the assigned note.  For purposes of making loans secured by promissory notes, we will rely on the appraised value of the underlying property, as determined by an independent written appraisal which was conducted within the last twelve months.  If such appraisal was not conducted within the last twelve months, then we will arrange for a new appraisal to be prepared for the property.  All such appraisals will satisfy our loan-to-value ratios set forth above.  Any loan evidenced by a note assigned to us will also satisfy all other lending standards and policies described herein.  Concurrently with our making of the loan, the borrower, i.e., the holder of the promissory note, will execute a written assignment which will assign to us their interest in the promissory note.  No more than 10% of our portfolio at any time will be secured by promissory notes. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Investments in or with Other Programs. We may invest in general partnerships or joint ventures with our other publicly registered affiliates if:  (1) the programs have substantially identical investment objectives; (2) there are no duplicate fees; (3) the compensation to the managers or general partners of the programs is substantially identical in each program; (4) each program has a right of first refusal to buy if the other programs wish to sell assets held in the joint venture; and (5) the investment of each program is on substantially the same terms and conditions.  Participants in such investments may from time to time reach an impasse on joint venture decisions since no participant controls decisions.  In addition, while a joint venture participant may have the right to buy the assets from the general partnership or joint venture, it may not have the resources to do so.  We may also invest in general partnership interests of limited partnerships, but only if we, alone or together with our publicly registered affiliate meeting the above requirements, acquire a controlling interest, no duplicate fees are payable and no additional compensation beyond that permitted by the NASAA Mortgage Guidelines, are be paid to the managers.  We may not invest in interests of other programs. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Loan Participation.  We may participate in loans with other programs organized by our managers, where we will purchase a fractional undivided interest in a loan, meeting the requirements set forth above.  Because we will not participate in a loan which would not otherwise meet our requirements, the risk of such participation is minimized.  We may also participate in loans with nonaffiliated lenders, individuals or pension funds.  Any such participation would only be on the terms and conditions set above.  We may also acquire from or sell to affiliated publicly registered mortgage programs, participation interests in loans. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Diversification.  We may not invest in or make loans on any one property that would exceed, in the aggregate, an amount equal to 10% of the then total gross proceeds of this offering.  We may not invest in or make loans to or from any one borrower that would exceed, in the aggregate, an amount greater than 10% of the then total gross proceeds of this offering. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Other Limitations.  We may not make a loan secured by unimproved real property, except in amounts and upon terms which can be financed by the offering proceeds or from cash flow and provided investment in such unimproved real property does not exceed 10% of the then total gross proceeds of this offering. Properties will not be considered unimproved if they are expected to produce income within a reasonable period of time after their acquisition, and for this purpose, two years will be deemed to be presumptively reasonable. We may not invest in real estate contracts of sale unless such contracts of sale are in recordable form and are appropriately recorded in the chain of title. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Reserve Liquidity Fund. A contingency reserve liquidity fund equal to the lesser of 2% of the gross proceeds of the offering or 2% of our capital originally committed to investment in mortgages will be established for the purpose of covering our unexpected cash needs. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | issue senior securities; |
|--------------------|--------------------------|

| ·   | invest in the securities of other public companies for the purpose of exercising control; |
|--------------------|-------------------------------------------------------------------------------------------|

| ·   | underwrite securities of other public companies; or |
|--------------------|-----------------------------------------------------|

| ·   | offer securities in exchange for property. |
|--------------------|--------------------------------------------|

----