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

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


For Period Ended                               March 31, 1999
--------------------------------------------------------------------------------
Commission file number                            33-30427
--------------------------------------------------------------------------------

                         REDWOOD MORTGAGE INVESTORS VII
--------------------------------------------------------------------------------
             (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.

              650 El Camino Real, Suite G, Redwood City, CA. 94063
--------------------------------------------------------------------------------
                     (address of principal executive office)

                                 (650) 365-5341
--------------------------------------------------------------------------------
                           (Registrants 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 issuers class of
common stock, as of the latest date.


                                 NOT APPLICABLE

<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                         DECEMBER 31, 1998 (audited) and
                           MARCH 31, 1999 (unaudited)

                                     ASSETS

                                                Mar 31, 1999       Dec 31, 1998
                                                 (unaudited)         (audited)
                                               ---------------   ---------------

Cash                                                $380,697           $461,544
                                               ---------------   ---------------

Accounts receivable:
  Mortgage Investments, secured by deeds    
      of trust                                    14,745,001         13,209,186
  Accrued Interest on Mortgage Investments           327,616            442,350
  Advances on Mortgage Investments                    49,662             39,733
  Accounts receivables, unsecured                    243,240            242,493
                                               ---------------   ---------------
                                                  15,365,519         13,933,762

  Less allowance for doubtful accounts               868,573            787,042
                                               ---------------   ---------------
                                                  14,496,946         13,146,720
                                               ---------------   ---------------

Real estate owned, acquired through foreclosure,                   
    held for sale                                    363,112            397,396
                                               ---------------   ---------------
                                                 $15,240,755        $14,005,660
                                               ===============    ==============

                        LIABILITIES AND PARTNERS CAPITAL


Liabilities:
  Notes payable - bank line of credit             $3,500,000         $1,912,663
  Accounts payable and accrued expenses               19,721             12,547
  Deferred Interest                                        0            131,743
                                                --------------    --------------
                                                   3,519,721          2,056,953
                                                --------------    --------------

Partners Capital
  Limited partners capital, subject to redemption (Note 4E):
     Net of formation loan receivable of 
       $235,663 and $253,387 for 1999,             
       and 1998, respectively                     11,709,056         11,936,729
  General partners capital                            11,978             11,978
                                                --------------    --------------

           Total Partners Capital                 11,721,034         11,948,707
                                                --------------    --------------

           Total Liabilities and Partners  
            Capital                              $15,240,755        $14,005,660
                                                ==============    ==============

See accompanying notes to financial statements.
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              STATEMENTS OF INCOME
         FOR THE THREE MONTHS ENDED MARCH 31, 1999 and 1998 (unaudited)

                                             3 months ended       3 months ended
                                              Mar. 31, 1999        Mar. 31, 1998
                                                (unaudited)          (unaudited)

Revenues:
    Interest on Mortgage Investments               $416,849             $386,870
    Interest on bank deposits                           858                2,196
    Late charges                                        645                  564
    Other                                             2,001                2,970
                                              --------------       -------------
                                                    420,353              392,600
                                              --------------       -------------


Expenses:
    Interest on note payable - bank                  47,227               52,446
    Clerical costs through Redwood Mortgage          
       Corp.                                          7,967                8,794
    Mortgage Servicing Fees                          31,563               26,413
    General Partner asset management fees             3,827                4,145
    Provision for doubtful accounts and losses 
      on real estate acquired through foreclosure    81,531               73,398
 .                                          
    Professional Services                            20,933               16,942
    Printing, supplies and postage                    3,464                2,898
    Other                                             3,296                3,908
                                              --------------       -------------
                                                    199,808              188,944
                                              --------------       -------------

Net income                                         $220,545             $203,656
                                              ==============       =============

Net income:  to General Partners (1%)                $2,205               $2,036
Net income:  to Limited Partners (99%)              218,340              201,620
                                              --------------       =============
                                                   $220,545             $203,656
                                              ==============       =============

Net income per $1000 invested by Limited
  Partners for entire period:
  - where income is reinvested and compounded        $17.93               $15.28
                                              --------------       -------------
  - where partner receives income in monthly         $17.83               $15.20
distributions
                                              --------------       -------------



See accompanying notes to Financial Statements
<PAGE>
<TABLE>
                                          REDWOOD MORTGAGE INVESTORS VII
                                        (A California Limited Partnership)
                                    STATEMENTS OF CHANGES IN PARTNERS CAPITAL
                             FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
                                 THE THREE MONTHS ENDED MARCH 31, 1999 (unaudited)


                                                                     PARTNERS CAPITAL
                                         ---------------------------------------------------------------------------
                                                                 LIMITED PARTNERS CAPITAL
                                         ---------------------------------------------------------------------------

                                            Capital
                                            Account          Unallocated         Formation
                                            Limited          Syndication            Loan
                                           Partners             Costs            Receivable           Total
                                         --------------     ---------------    ---------------    --------------

<S>                                        <C>                   <C>               <C>              <C>        
Balances at December 31, 1995              $14,216,032           $(13,588)         $(517,051)       $13,685,393

Formation Loan collections                           0                   0             62,225            62,225
Net income                                     850,508                   0                  0           850,508
Allocation of syndication costs               (13,588)              13,588                  0                 0
Early withdrawal penalties                    (37,345)                   0             25,663          (11,682)
Partners withdrawals                       (1,013,078)                   0                  0       (1,013,078)
                                         --------------     ---------------    ---------------    --------------

Balances at December 31, 1996              $14,002,529                  $0         $(429,163)       $13,573,366

Formation Loan collections                           0                   0             60,223            60,223
Net Income                                     818,610                   0                  0           818,610
Early withdrawal penalties                    (40,258)                   0             27,665          (12,593)
Partners withdrawals                       (1,572,037)                   0                  0       (1,572,037)
                                         --------------     ---------------    ---------------    --------------

Balances at December 31, 1997              $13,208,844                  $0         $(341,275)       $12,867,569

Formation Loan collections                           0                   0             66,908            66,908
Net Income                                     838,105                   0                  0           838,105
Early withdrawal penalties                    (30,529)                   0             20,980           (9,549)
Partners withdrawals                       (1,826,304)                   0                  0       (1,826,304)
                                         --------------     ---------------    ---------------    --------------

Balances at December 31, 1998              $12,190,116                  $0         $(253,387)       $11,936,729

Formation Loan collections                           0                   0             14,648            14,648
Net Income                                     218,340                   0                  0           218,340
Early withdrawal penalties                     (4,477)                   0              3,076           (1,401)
Partners withdrawals                         (459,260)                   0                  0         (459,260)
                                         --------------     ---------------    ---------------    --------------

Balances at March 31, 1999                 $11,944,719                  $0         ($235,663)       $11,709,056
                                         ==============     ===============    ===============    ==============







See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>

                                    REDWOOD MORTGAGE INVESTORS VII
                                        (A California Limited Partnership)
                                    STATEMENTS OF CHANGES IN PARTNERS CAPITAL
                             FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
                                 THE THREE MONTHS ENDED MARCH 31, 1999 (unaudited)


                                                                       PARTNERS CAPITAL
                                         ------------------------------------------------------------------------------
                                                         GENERAL PARTNERS CAPITAL
                                         ----------------------------------------------------------
                                          Capital Account         Unallocated                               Total
                                         General Partners      Syndication Costs                          Partners
                                                                                          Total            Capital
                                         ------------------    -------------------     ------------    ----------------

<S>                                                <C>                     <C>             <C>             <C>        
Balances at December 31, 1995                      $11,978                 $(137)          $11,841         $13,697,234

Formation Loan collections                               0                      0                0              62,225
Net income                                           8,591                      0            8,591             859,099
Allocation of syndication costs                      (137)                    137                0                   0
Early withdrawal penalties                               0                      0                0            (11,682)
Partners withdrawals                               (8,454)                      0          (8,454)         (1,021,532)
                                         ------------------    -------------------     ------------    ----------------

Balances at December 31, 1996                      $11,978                     $0          $11,978         $13,585,344

Formation Loan collections                               0                      0                0              60,223
Net income                                           8,269                      0            8,269             826,879
Early withdrawal penalties                               0                      0                0            (12,593)
Partners withdrawals                               (8,269)                      0          (8,269)         (1,580,306)
                                         ------------------    -------------------     ------------    ----------------

Balances at December 31, 1997                      $11,978                     $0          $11,978         $12,879,547

Formation Loan collections                               0                      0                0              66,908
Net income                                           8,466                      0            8,466             846,571
Early withdrawal penalties                               0                      0                0             (9,549)
Partners withdrawals                               (8,466)                      0          (8,466)         (1,834,770)
                                         ------------------    -------------------     ------------    ----------------

Balances at December 31, 1998                      $11,978                     $0          $11,978         $11,948,707

Formation Loan collections                               0                      0                0              14,648
Net  income                                          2,205                      0            2,205             220,545
Early withdrawal penalties                               0                      0                0             (1,401)
Partners withdrawals                               (2,205)                      0          (2,205)           (461,465)
                                         ------------------    -------------------     ------------    ----------------

Balances at March 31, 1999                         $11,978                     $0          $11,978         $11,721,034
                                         ==================    ===================     ============    ================

See accompanying notes to financial statements
</TABLE>
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                            STATEMENTS OF CASH FLOWS
         FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (unaudited)

                                                3 months ended    3 months ended
                                                  Mar 31, 1999      Mar 31, 1998
Cash flows from operating activities:              (unaudited)       (unaudited)
                                              ----------------- ----------------
  Net income
  Adjustments to reconcile net income to net                      
      cash provided by operating activities:         $220,545           $203,656
    Provision for doubtful accounts                    81,531             73,398
    Provision for losses on real estate held for sale       0                  0
    Early withdrawal penalty credited to income       (1,401)            (2,399)
    (Increase) decrease in accrued interest &                            
       advances                                       104,805            126,097
    Increase (decrease) in accounts payable and                
    accrued expenses                                    7,174                  0
    Increase (decrease) in deferred interest on             
        Mortgage Investments                        (131,743)           (69,316)

      Net cash provided by operating activities       280,911            331,436
                                              ----------------- ----------------

Cash flows from investing activities:
    Principal collected on mortgage investments       942,300            536,021
    Mortgage Investments made                     (2,478,115)        (1,123,177)
    Additions to Real Estate held for sale            (2,456)            (3,785)
    Dispositions of real estate held for sale          35,993             47,411
    Investment in partnership                               0            (7,138)
                                              ----------------- ----------------

    Net cash provided by (used in) investing                      
       activities                                 (1,502,278)          (550,668)
Cash flows from financing activities:
  Increase in note payable-bank                     1,587,337            240,847
  Formation loan collections                           14,648             21,972
  Partners withdrawals                              (461,465)          (421,054)
                                              ----------------- ----------------

      Net cash provided by (used in) financing 
         activities                                 1,140,520          (158,235)
                                              ----------------- ----------------

Net increase (decrease) in cash                      (80,847)          (377,467)

Cash - beginning of period                            461,544            520,837
                                              ----------------- ----------------

Cash - end of period                                 $380,697           $143,370
                                              ================= ================

See accompanying notes to financial statements.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                           MARCH 31, 1999 (unaudited)

NOTE 1 - ORGANIZATION AND GENERAL

     Redwood Mortgage  Investors VII, (the Partnership) is a California  Limited
Partnership,  of which the General Partners are D. Russell  Burwell,  Michael R.
Burwell and Gymno  Corporation,  a California  corporation owned and operated by
the individual  General  Partners.  The  Partnership  was organized to engage in
business  as a  mortgage  lender  for the  primary  purpose  of making  Mortgage
Investments  secured  by  Deeds of Trust on  California  real  estate.  Mortgage
Investments  are being  arranged  and  serviced by Redwood  Mortgage  Corp.,  an
affiliate of the General Partners.  At September 30, 1992, the offering had been
closed with contributed capital totaling $11,998,359 for limited partners.

     A  minimum  of 2,500  units  ($250,000)  and a  maximum  of  120,000  units
($12,000,000)  were  offered  through  qualified  broker-dealers.   As  Mortgage
Investments were identified,  partners were transferred from applicant status to
admitted partners participating in Mortgage Investment operations.  Each months
income is allocated to partners based upon their proportionate share of partners
capital.  Some partners have elected to withdraw income on a monthly,  quarterly
or annual basis.

A. Sales Commissions - Formation Loan

     Sales  commissions  ranging from 0% (Units sold by General Partners) to 10%
of the gross proceeds were paid by Redwood Mortgage, an affiliate of the General
Partners  that  arranges and services the Mortgage  Investments.  To finance the
sales  commissions,  the Partnership was authorized to loan to Redwood  Mortgage
Corp.,  an amount not to exceed  8.3% of the gross  proceeds  provided  that the
Formation  Loan  for the  minimum  offering  period  could  be 10% of the  gross
proceeds for that period.  The Formation  Loan is unsecured and is being repaid,
without  interest,  in  installments  of  principal,  over  a  ten  year  period
commencing  January 1, 1992. At December 31, 1992,  Redwood  Mortgage  Corp. had
borrowed  $914,369 from the Partnership to cover sales  commissions  relating to
$11,998,359  Limited  Partner  contributions  (7.62%).  Through  March 31, 1999,
$678,706  including  $127,199  in early  withdrawal  penalties,  had been repaid
leaving  a  balance  of  $235,663.  The  Formation  Loan,  which  is due from an
affiliate of the General  Partners,  has been deducted  from Limited  Partners
capital in the balance  sheet.  As amounts are collected  from Redwood  Mortgage
Corp., the deduction from capital will be reduced.

B. Other Organizational and Offering Expenses

     Organizational  and  offering  expenses,   other  than  sales  commissions,
(including printing costs,  attorney and accountant fees, and other costs), were
paid by the Partnership. Such costs were limited to 10% of the gross proceeds of
the offering or $500,000  whichever was less.  The General  Partners were to pay
any amount of such expenses in excess of 10% of the gross proceeds or $500,000.

     Organization  costs of  $10,102  and  syndication  costs of  $415,692  were
incurred by the  Partnership.  The sum of organization  and  syndication  costs,
$425,794,  approximated 3.55% of the gross proceeds contributed by the Partners.
Both the  Organization  and  Syndication  Costs  have been fully  amortized  and
allocated to the Partners.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                           MARCH 31, 1999 (unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Accrual Basis

     Revenues and expenses are  accounted for on the accrual basis of accounting
wherein  income is recognized as earned and expenses are recognized as incurred.
Once a Mortgage  Investment is  categorized  as impaired,  interest is no longer
accrued thereon.

B. Management Estimates

     In  preparing  the  financial  statements,  management  is required to make
estimates based on the information available that affect the reported amounts of
assets and  liabilities  as of the balance  sheet date and revenues and expenses
for the related periods.  Such estimates relate principally to the determination
of the  allowance  for doubtful  accounts,  including  the valuation of impaired
mortgage  investments,  and  the  valuation  of  real  estate  acquired  through
foreclosure. Actual results could differ significantly from these estimates.

C. Mortgage Investments, Secured by Deeds of Trust

     The  Partnership  has both the  intent  and  ability  to hold the  Mortgage
Investments to maturity, i.e., held for long-term investment. They are therefore
valued at cost for financial  statement  purposes  with  interest  thereon being
accrued by the simple interest method.

     Financial   Accounting  Standards  Board  Statements  (SFAS)  114  and  118
(effective  January 1, 1995) provide that if the probable  ultimate  recovery of
the carrying amount of a mortgage  investment,  with due  consideration  for the
fair value of  collateral,  is less than the  recorded  investment,  and related
amount due and the  impairment  is considered  to be other than  temporary,  the
carrying  amount of the investment  (cost) shall be reduced to the present value
of future cash flows.  The adoption of these  statements did not have a material
effect on the  financial  statements  of the  Partnership  because  that was the
valuation method previously used on impaired Mortgage Investments.

     At March 31, 1999 and at December 31,  1998,  and 1997,  reductions  in the
cost of Mortgage Investments categorized as impaired by the Partnership totalled
$38,634,  $38,634,  and $0  respectively.  The  reduction  in  stated  value was
accomplished by increasing the allowance for doubtful accounts.

     As presented in Note 10 to the  financial  statements as of March 31, 1999,
the average  mortgage  investment to appraised value of security at the time the
Mortgage  Investments were consummated was 63.06%. When a Mortgage Investment is
valued  for  impairment  purposes,  an  updating  is  made in the  valuation  of
collateral security.  However,  such a low loan to value ratio tends to minimize
reductions for impairment.

D. Cash and Cash Equivalents

     For purposes of the  statements  of cash flows,  cash and cash  equivalents
include interest bearing and non-interest bearing bank deposits.

E. Real Estate Owned, Held for Sale

     Real estate owned,  held for sale,  includes real estate  acquired  through
foreclosure,  and is  stated  at the  lower of the  recorded  investment  in the
property,  net of any senior  indebtedness,  or at the propertys estimated fair
value, less estimated costs to sell.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                           MARCH 31, 1999 (unaudited)

     The following  schedule  reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of March 31,1999, and December 31, 1998, 1997:

                                March 31,       December 31,        December 31,
                                  1999               1998               1997
                             --------------   ---------------   ----------------

Costs of properties               $630,544          $765,986           $906,499
Reduction in value               (267,432)         (348,590)          (219,360)
REO prior lien                           0          (20,000)                  0
                             --------------    ---------------  ----------------

Fair value reflected in  
  financial statements            $363,112          $397,396           $687,139 
                             ==============    ===============  ================

     Effective  January 1, 1996,  the  Partnership  adopted  the  provisions  of
statement  No 121  (SFAS  121)  of the  Financial  Accounting  Standards  Board,
Accounting  for the Impairment of Long Lived Assets and for Long Lived Assets to
be disposed of. The  adoption of SFAS 121 did not have a material  impact on the
Partnerships  financial position because the methods indicated were essentially
those previously used by the Partnership.

F. Investment in Partnership (see note 5)


G. Income Taxes

     No provision  for Federal and State  income taxes is made in the  financial
statements  since  income taxes are the  obligation  of the partners if and when
income taxes apply.

H. Organization and Syndication Costs

     The Partnership  bears its own  organization  and syndication  costs (other
than certain sales  commissions  and fees described  above)  including legal and
accounting expenses,  printing costs, selling expenses, a 1% wholesale brokerage
fee and filing fees.  Organizational  costs of $10,102 were capitalized and were
amortized  over a five year period.  Syndication  costs of $415,692 were charged
against partners capital and were allocated to individual  partners  consistent
with the Partnership Agreement.

I. Allowance for Doubtful Accounts

     Mortgage  Investments and the related accrued  interest,  fees and advances
are  analyzed  on a  continuous  basis  for  recoverability.  Delinquencies  are
identified and followed as part of the Mortgage  Investment  system. A provision
is made for doubtful  accounts to adjust the allowance for doubtful  accounts to
an amount  considered by management to be adequate,  with due  consideration  to
collateral value, to provide for unrecoverable  accounts  receivable,  including
impaired  mortgage  investments,   unspecified  mortgage  investments,   accrued
interest and advances on mortgage  investments,  and other  accounts  receivable
(unsecured).  The composition of the allowance for doubtful accounts as of March
31, 1999, and December 31, 1998, and 1997 was as follows:
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                           MARCH 31, 1999 (unaudited)

                                    March 31,      December 31,     December 31,
                                      1999             1998             1997
                                  ------------    -------------    -------------

Impaired Mortgage Investments         $38,634          $38,634               $0
Unspecified Mortgage Investments      687,830          606,299          284,738
Accounts receivable, unsecured        142,109          142,109          140,000
                                  ============    ==============    ============
                                     $868,573         $787,042         $424,738
                                  ============    ==============    ============

J. Net Income Per $1,000 Invested

     Amounts  reflected  in the  statements  of income as net  income per $1,000
invested by Limited Partners for the entire period are actual amounts  allocated
to Limited  Partners who have their  investment  throughout  the period and have
elected to either  leave their  earnings to compound or have  elected to receive
monthly  distributions of their net income.  Individual income is allocated each
month based on the Limited partners pro rata share of Partners Capital.  Because
the net income  percentage  varies from month to month,  amounts per $1,000 will
vary for those individuals who made or withdrew  investments  during the period,
or select other options. However, the net income per $1,000 average invested has
approximated  those  reflected  for those whose  investments  and  options  have
remained constant.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                           MARCH 31, 1999 (unaudited)


NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES

     The following are commissions and/or fees which will be paid to the General
Partners and/or related parties.

A. Mortgage Brokerage Commissions

     Redwood Mortgage Corp. receives mortgage brokerage commissions for services
in connection with the review, selection, evaluation,  negotiation and extension
of  Mortgage  Investments  in an amount up to 12% of the  principal  through the
period ending 6 months after the termination  date of the offering.  Thereafter,
commissions  are limited to an amount not to exceed 4% of the total  Partnership
assets per year. Such  commissions  are paid by the borrowers,  and thus, not an
expense of the Partnership.

B. Mortgage Servicing Fees

     Redwood Mortgage Corp. also receives monthly mortgage  servicing fees of up
to 1/8 of 1% (1.5% annual) of the unpaid principal,  or such lesser amount as is
reasonable and customary in the geographic area where the property  securing the
Mortgage Investment is located. Mortgage servicing fees of $31,563, $83,559, and
$97,267 were incurred for three months through March 31, 1999 and for years 1998
and 1997, respectively.

C. Asset Management Fee

     The General  Partners  receive a monthly fee for managing the  Partnerships
Mortgage  Investment  portfolio  and  operations  of up to 1/32 of 1% of the net
asset value (3/8 of 1% annual).  No management fees were incurred for year 1997.
For three months  through  March 31, 1999,  and for the year ended  December 31,
1998,  management  fees of $3,827 and  $16,141,  respectively,  were paid to the
General Partners.

D. 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.

E. Income and Losses

     All  income is  credited  or  charged  to  partners  in  relation  to their
respective  partnership  interests.  The  partnership  interest  of the  General
Partners (combined) is a total of 1%.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                           MARCH 31, 1999 (unaudited)

     F.  Operating  Expenses The General  Partners or their  affiliate  (Redwood
Mortgage  Corp.) are reimbursed by the  Partnership  for all operating  expenses
actually  incurred  by them on  behalf  of the  Partnership,  including  without
limitation,   out-of-pocket   general   and   administration   expenses  of  the
Partnership,  accounting and legal fees and expenses, postage and preparation of
reports to Limited Partners.  Such  reimbursements  are reflected as expenses in
the Statements of Income.

G. General Partners Contributions

     The General  Partners  collectively or severally were to contribute 1/10 of
1% in cash  contributions as proceeds from the offering were admitted to limited
Partner capital.  As of December 31, 1992 a General Partner,  GYMNO Corporation,
had  contributed  $11,998,  1/10  of  1% of  limited  partner  contributions  in
accordance with Section 4.02(a) of the Partnership Agreement.

NOTE 4 - OTHER PARTNERSHIP PROVISIONS

A. Applicant Status

     Subscription  funds received from  purchasers of units were not admitted to
the Partnership until appropriate lending  opportunities were available.  During
the period  prior to the time of  admission,  which ranged  between  1-120 days,
purchasers  subscriptions  remained  irrevocable  and earned  interest  at money
market  rates,  which were lower  than the return on the  Partnerships  Mortgage
Investment portfolio.

     Interest  earned prior to  admission  was credited to partners in applicant
status.  As Mortgage  Investments  were made and partners  were  transferred  to
regular status to begin sharing in income from Mortgage  Investments  secured by
deeds of trust,  the  interest  credited  was either  paid to the  investors  or
transferred to Partners Capital along with the original investment.

B. Term of the Partnership

     The term of the  Partnership  is  approximately  40  years,  unless  sooner
terminated as provided. The provisions provide for no capital withdrawal for the
first five  years,  subject  to the  penalty  provision  set forth in (E) below.
Thereafter,  investors  have the right to withdraw over a five-year  period,  or
longer.

C. Election to Receive Monthly, Quarterly or Annual Distributions

     Upon subscriptions,  investors elected either to receive monthly, quarterly
or  annual  distributions  of  earnings  allocations,  or to allow  earnings  to
compound for at least a period of 5 years.

D. Profits and Losses

     Profits and losses are allocated  among the Limited  Partners  according to
their respective capital accounts after 1% is allocated to the General Partners.

E. Liquidity, Capital Withdrawals and Early Withdrawals

     There  are  substantial   restrictions  on  transferability  of  Units  and
accordingly an investment in the Partnership is illiquid.  Limited  Partners had
no right to  withdraw  from the  Partnership  or to obtain  the  return of their
capital  account  for at least one year from the date of purchase of Units which
in all instances had accrued as of March 31, 1999. In order to provide a certain
degree of liquidity to the Limited Partners after the one-year  period,  Limited
Partners may withdraw all or part of their Capital Accounts from the Partnership
in four quarterly installments beginning on the last day of the calendar quarter
following the quarter in which the notice of withdrawal is given,
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                           MARCH 31, 1999 (unaudited)

subject to a 10% early withdrawal penalty. The 10% penalty is applicable to
the amount  withdrawn as stated in the Notice of Withdrawal and will be deducted
from  the  Capital  Account  and  the  balance  distributed  in  four  quarterly
installments.  Withdrawal  after the  one-year  holding  period  and  before the
five-year holding period was permitted only upon the terms set forth above.

     Limited  Partners  also have the right  after  five  years from the date of
purchase of the Units to withdraw from the partnership on an installment  basis,
generally  over a five year  period in twenty  (20)  quarterly  installments  or
longer.  Once this five year  period  expires,  no  penalty  will be  imposed if
withdrawal   is  made  in  twenty  (20)   quarterly   installments   or  longer.
Notwithstanding  the  five-year  (or  longer)  withdrawal  period,  the  General
Partners will liquidate all or part of a Limited  Partners  capital  account in
four quarterly  installments  beginning on the last day of the calendar  quarter
following the quarter in which the notice of  withdrawal is given,  subject to a
10% early withdrawal  penalty applicable to any sums withdrawn prior to the time
when such sums could have been  withdrawn  pursuant to the five-year (or longer)
withdrawal period.

     The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnerships capacity to return a Limited Partners capital
account is restricted to the availability of Partnership cash flow. Furthermore,
no more than 20% of the total Limited Partners  capital accounts  outstanding at
the beginning of any year shall be liquidated during any calendar year.

F. Guaranteed Interest Rate For Offering Period

     During the period commencing with the day a Limited Partner was admitted to
the  Partnership  and ending 3 months after the offering  termination  date, the
General  partners  guaranteed  an  interest  rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average cost of Funds
Index for the Eleventh  District Savings  Institutions  (Savings & Loan & Thrift
Institutions)  as  computed  by the  Federal  Home  Loan  Bank of San  Francisco
monthly, up to a maximum interest rate of 12%. The guarantee amounted to $12,855
and $5,195 in 1990 and 1991, respectively.  In 1992 and 1993, actual realization
exceeded the  guaranteed  amount each month.  Beginning  with fiscal years after
1993, the guarantee no longer applies.

NOTE 5 - INVESTMENT IN PARTNERSHIP

     The  Partnerships  interest  in land  located in East Palo Alto,  CA.,  was
acquired through foreclosure.  The Partnerships  interest was invested with that
of two other  Partnerships.  The Partnerships had been attempting to develop the
property into single family residences.  Significant  community  resistance,  as
well as environmental, and fish and wildlife concerns affected efforts to obtain
the required  approvals.  The  Partnership,  in resolving  disputes  which arose
during the course of the Partnerships  attempt to obtain entitlements to develop
the property,  entered into agreements on May 8, 1998 with  Rhone-Poulanc,  Inc.
These agreements,  among other things,  restrict the property to non-residential
uses, provide for appropriate indemnifications,  and include other consideration
including the payment of cash. The Partnership  still retains  liability for the
remediation of pesticide contamination affecting the property.  Investigation of
remediation  options are ongoing.  At this time management does not believe that
remediation of the pesticide contaminants will have a material adverse effect on
the  financial  condition  of the  Partnership.  As of December  31,  1998,  the
Partnership had recovered $70,805 in excess of its costs.
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                           MARCH 31, 1999 (unaudited)

NOTE 6 - LEGAL PROCEEDINGS

     The  Partnership  is not a defendant in any legal actions.  However,  legal
actions against  borrowers and other involved parties have been initiated by the
Partnership  to help  assure  payments  against  unsecured  accounts  receivable
totalling $243,240 at March 31, 1999.  Management  anticipates that the ultimate
results of these cases will not have a material adverse effect on the net assets
of the Partnership,  with due consideration having been given in arriving at the
allowance for doubtful accounts.

NOTE 7 - NOTE PAYABLE BANK - LINE OF CREDIT

     The  Partnership  had a  bank  line  of  credit  secured  by  its  Mortgage
Investment  portfolio  of up to  $3,000,000  at .50% over  prime.  The  balances
outstanding as of December 31, 1998, and December 31, 1997 were $2,341,816,  and
$1,175,000  respectively,  and the interest rate was 9.00% (8.50% prime + .50%).
This line of credit  expired in December,  1998,  but was  formally  extended to
March  31,  1999.  In  1999 a new  line  of  credit  was  secured  with  another
institution. The new borrowing limit is $3,500,000, at prime, plus .25% (7.75% +
 .25% = 8.00%). The balance outstanding as of March 31, 1999 is $3,500,000.

NOTE 8 - INCOME TAXES

     The following reflects a reconciliation from net assets (Partners Capital)
reflected in the financial statements to the tax basis of those net assets:

                                        March 31,       Dec. 31          Dec. 31
                                          1999            1998             1997
                                      ------------   ------------    -----------

Net assets - Partners Capital per  
 financial statements                  $11,721,034    $11,948,707    $12,879,547
Formation Loan receivable                  235,663        253,387        341,275
Allowance for doubtful accounts            868,573        787,042        424,738
                                      =============  =============   ===========
Net assets tax basis                   $12,825,270    $12,989,136    $13,645,560
                                      =============  =============   ===========

     In 1998,  approximately  68% of taxable  income was allocated to tax exempt
organizations i.e.,  retirement plans. Such plans do not have to file income tax
returns  unless their  unrelated  business  income  exceeds  $1,000.  Applicable
amounts become taxable when distribution is made to participants.

NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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

     (a) Cash and Cash  Equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.

     (b) The  Carrying  Value  of  Mortgage  Investments  - (see  note 2 (c)) is
$14,745,001.  The March 31, 1999, fair value of these investments of $14,224,031
is estimated based upon projected cash flows discounted at the estimated current
interest  rates at  which  similar  Mortgage  Investments  would  be  made.  The
applicable  amount of the  allowance  for doubtful  accounts  along with accrued
interest and advances  related  thereto  should also be considered in evaluating
the fair value versus the carrying value.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                           MARCH 31, 1999 (unaudited)

NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS

     The Mortgage  Investments  are secured by recorded deeds of trust. At March
31, 1999,  there were 52 Mortgage  Investments  outstanding  with the  following
characteristics:

Number of Mortgage Investments outstanding                                    52
Total Mortgage Investments outstanding                               $14,745,001

Average Mortgage Investment outstanding                                 $283,558
Average Mortgage Investment as percent of total                            1.92%
Average Mortgage Investment as percent of Partners Capital                 2.42%

Largest Mortgage Investment outstanding                               $1,600,000
Largest Mortgage Investment as percent of total                           10.85%
Largest Mortgage Investment as percent of Partners Capital                13.65%

Number of counties where security is located(all California)                  14

Largest percentage of Mortgage Investments in one county                  18.15%
Average Mortgage Investment to appraised value of security at time            
Mortgage Investment was consummated                                       63.06%

Number of Mortgage Investments in foreclosure                                  0

     The following categories of mortgage investments are pertinent at March 31,
1999, and December 31, 1998, 1997:

                                   March 31        December 31       December 31
                               -------------     -------------     -------------
                                    1999              1998               1997
                               -------------     -------------     -------------

First Trust Deeds                 $8,649,103        $8,638,976        $6,810,113
Second Trust Deeds                 5,565,763         4,188,401         5,719,369
Third Trust Deeds                    330,134           181,808           720,258
Fourth Trust Deeds                   200,001           200,001           200,001
                               -------------     --------------    -------------
  Total mortgage investments      14,745,001        13,209,186        13,449,741
Prior liens due other lenders     15,116,132        12,728,867        17,951,579
                               -------------     --------------    =============
  Total debt                     $29,861,133       $25,938,053       $31,401,320
                               =============     ==============    =============

Appraised property value 
  at time of loan                $47,356,649       $42,393,561       $52,077,885
                               =============     ==============    =============
Total investments as a percent
  of appraisals                       63.06%            61.18%            60.30%
                               =============     ==============    =============

Investments by Type of Property

Owner occupied homes                $573,999          $746,334        $1,104,742
Non-Owner occupied homes           1,934,597         1,691,016         1,464,596
Apartments                           907,674           897,292         1,666,916
Commercial                        11,328,731         9,874,544         9,213,487
                               =============     ==============    =============
                                 $14,745,001       $13,209,186       $13,449,741
                               =============     ==============    =============
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                           MARCH 31, 1999 (unaudited)

     Scheduled maturity dates of mortgage  investments as of March 31, 1999, are
as follows:

                        Year Ending
                        December 31,
                     -------------------

                            1999                                      $4,208,377
                            2000                                       4,380,175
                            2001                                       3,027,117
                            2002                                       1,609,893
                            2003                                       1,183,850
                         Thereafter                                      335,589
                                                                 ===============
                                                                     $14,745,001
                                                                 ===============

     The scheduled maturities for 1999 include  approximately  $1,493,030 in ten
mortgage investments which are past maturity at March 31, 1999. Interest payment
on most of these Mortgage Investments are current.

     Six Mortgage  Investments  with  principal  outstanding  of $1,798,901  had
interest  payments  overdue in excess of 90 days. Two Mortgage  Investments with
principal  outstanding of $231,966 were  considered  impaired at March 31, 1999.
That is interest accruals are no longer recorded thereon.

     The cash  balance at March 31,  1999 of  $380,697  was in three  banks with
interest  bearing  balances  totalling  $193,494.  The  balances  exceeded  FDIC
insurance limits (up to $100,000 per bank) by $170,229.

<PAGE>
            MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

     On September 30, 1992, the Partnership  had sold  119,983.59  units and its
contributed  capital totaled  $11,998,359 of the approved  $12,000,000 issue, in
units of $100 each. As of that date, the offering was formally closed.  At March
31, 1999, Partners Capital totaled $11,721,034.

     At  March  31,  1999,  the  Partnership  Mortgage  Investments  outstanding
totalled  $14,745,001.  This  represents  an  increase  of  $1,535,815  from the
12/31/98 Mortgage  Investments  balance.  This increase in Mortgage  Investments
outstanding as of 3/31/99 was chiefly due to an increase in Note Payable-Bank of
$1,587,337,  reinvestment of earnings of $99,469, reduction in real estate owned
by $34,284 and investment of cash.  The ability of the  Partnership to invest in
new  Mortgage  Investments  during  three months  through  March 31,  1999,  was
partially  offset by  withdrawals  of income and capital by the  Partners in the
amount of $463,737 including early withdrawal  penalties.  Mortgage  Investments
increased  from  $12,036,293  from 1996 to  $13,449,741  in 1997, an increase of
$1,413,448  chiefly due to the ability of the General Partners to reduce the net
amounts  invested  in real  estate  owed  (REO)  during the  twelve  months,  by
increasing bank credit line borrowing to $2,341,816 as of December 31, 1997 from
$1,175,000 as of December 31, 1996, by  reinvesting  of earnings of $419,231 and
investment of cash. Mortgage Investments decreased slightly, by $346,348, during
the year ended December 31, 1996,  from  $12,382,641 as of December 31, 1995, to
$12,036,293 as of December 31, 1996. This Mortgage Investment  reduction was due
primarily to a reduced usage of the bank line of credit.  The Partnership  began
funding Mortgage  Investments on December 27, 1989, and as of December 31, 1998,
had  credited  the  Partners  accounts  with  income  at an  average  annualized
(compounded) yield of 7.75%.

     Currently,  general mortgage  interest rates are lower than those prevalent
at  the  inception  of the  Partnership.  New  Mortgage  Investments  are  being
originated  at these lower  interest  rates.  The result is a  reduction  of the
average  return  across the entire  portfolio  held by the  Partnership.  In the
future, 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 believe the rates charged by the Partnership to
its borrowers will change significantly from the beginning of 1999 over the next
twelve months.  As of March 31, 1999 the  Partnership  Real Estate Owned account
and the investment in Partnership  account have been reduced to $363,112 and $0,
respectively.  These accounts had combined balances of $397,396,  $1,033,156 and
$1,710,739   for  the  years  ended  December  31,  1998  and  1997,  and  1996,
respectively.  The conversion of these  non-earning  assets to income  producing
assets will generate  increased income. The overall effect of these developments
will  allow the  Partnership  to  increase  the  annualized  yields  paid by the
Partnership  in  future  quarters.  The  General  Partners  anticipate  that the
annualized yield for the coming new year, 1999, will be higher than the previous
year.
<PAGE>
     The  Partnership had a line of credit with a commercial bank secured by its
Mortgage  Investments to a limit of $3,000,000,  at a variable interest rate set
at one half  percent  above the prime rate.  As of  December  31,  1998,  it has
borrowed  $1,912,663.  This  line of  credit  expired  on March  31,  1999.  The
Partnership  has  successfully  negotiated  for a  replacement  line of  credit,
effective January,  1999, with another  institution for a limit of $3,500,000 at
prime  plus  .25%  (7.75% + .25% = 8%).  This  facility  could  increase  as the
Partnership  capital increases.  This added source of funds helped in maximizing
the  Partnership  yield by allowing  the  Partnership  to minimize the amount of
funds in lower yield investment accounts when appropriate  Mortgage  Investments
are not currently available.  Since most of the Mortgage Investments made by the
Partnership  bear  interest at a rate in excess of the rate  payable to the bank
which  extended  the line of credit,  once the required  principal  and interest
payments on the line of credit are paid to the bank,  the  Mortgage  Investments
funded  using the line of credit  generate  revenue for the  Partnership.  As of
March 31, 1999,  the  Partnership  is current with its interest  payments on the
line of credit.  In 1995, the Partnership  incurred $163,361 of interest on note
payables  reflecting  a small  increase in the overall  average  credit  balance
outstanding from the previous year. The Partnership  still maintained a positive
spread  between  the cost of  borrowing  the  funds and the  interest  earned in
lending the funds. In 1996,  interest payments decreased to $127,454  reflecting
the  Partnerships  overall smaller average  outstanding  credit line balance due
primarily to a large number of Mortgage Investment payoffs.  For the years ended
December   31,  1997  and  1998,   interest   paid  was  $198,316  and  $170,867
respectively,  reflecting an overall greater  average  utilization of the credit
line from the previous three years.


     The Partnerships income and expenses, accruals and delinquencies are within
the  normal  range  of the  General  Partners  expectations,  based  upon  their
experience in managing  similar  partnerships  over the last  twenty-two  years.
Mortgage  Servicing  Fees  decreased  from $97,267 in 1996,  to $83,559 in 1997,
primarily due to timing of receipt of payments from borrowers and actual payment
of the Mortgage  Servicing  Fee.  Mortgage  Servicing  Fees increased in 1998 to
$128,493 from $83,559 in 1997 chiefly due to an increase during the 1998 year of
the monthly  loan service fee to 1/12% (1% per year).  For three months  through
March 31, 1999, Mortgage Servicing Fees incurred were $31,563.  Asset Management
Fees  increased  from  $0 in  1997  and $0 in 1996 to  $16,141  in  1998.  Asset
Management Fees for the quarter under review was $3,827. As for the two previous
years,  the  General  Partners  waived  this fee to the  Partnership.  All other
expenses  flucuated  in a very close range except for Interest on Note Payable -
bank and  Provision  for Doubtful  Accounts  and losses on Real Estate  acquired
through foreclosure each discussed  elsewhere in this Management  Discussion and
Analysis  of   Financial   Condition   and  Results  of   Operations.   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 March 31, 1999, there was no property
in foreclosure.  Cash is constantly being generated from interest earnings, late
charges, pre-payment penalties, amortization of Mortgage Investments and pay-off
on notes.  Currently,  cash flow  exceeds  Partnership  expenses,  earnings  and
capital payout  requirements.  Excess cash flow will be invested in new Mortgage
Investment  opportunities when available,  used to reduce the Partnership credit
line or other Partnership business.

     The General Partners  regularly review the Mortgage  Investment  portfolio,
examining the status of delinquencies,  the underlying collateral securing these
properties,  the REO 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.  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  $419,437,
$434,495  and $423,054 as  provision  for doubtful  accounts for the years ended
December  31, 1996,  1997 and 1998,  respectively.  During three months  through
March 31, 1999, the  Partnership  provided  $81,531 for doubtful  accounts.  The
provision for doubtful  account was increased by $15,058 in 1997, to $434,495 as
the selling of REO  accumulated  primarily  in the  California  recession of the
early to mid 1990s  netted less proceeds than  originally  anticipated  and the
General Partners further  refinement of anticipated  sales proceeds on remaining
REO,  collections  of  unsecured  receivables,  and  additional  provisions  for
unspecified losses. The provision for doubtful accounts was decreased by $11,441
to $423,054 in 1998. This decrease  reflected  reduced  expected REO anticipated
losses and improved collections of secured and unsecured receivables.

     The December 1998 issue of Western Economic Developments,  published by the
Federal  Reserve Bank of San Francisco,  said the following about the California
economy:

     The pace of  economic  growth in  California  was solid in recent  months,
despite continued contraction in some major industries. Total payroll employment
rose 3.2 percent on an annual basis in October and  November.  This is above the
average growth rate for the first eleven months of 1998, but it is below the 3.8
percent pace from last year.  Faced by declining export demand and rising import
competition,   durable   goods   manufacturers   cut   employment  in  November.
Manufacturers of computers and electronic components have been particularly hard
hit this year, and aerospace employment has contracted. However, the pace of job
creation has remained strong in sectors other than  manufacturing,  and this has
helped to lower the state unemployment rate to 5.7 percent in November.
<PAGE>

     Californias  state and local  governments  have created new jobs at about a
2.5 percent annual pace this year, a pickup from prior years that is due in part
to improved fiscal  capacity.  About 21,000 of the 29,000 jobs created this year
were for educators at local schools.

     To the Partnership, the above evaluation of the California economy means an
increase in property values, job growth, personal income growth, etc., which all
translates  into  more  loan  activity,  which of  course,  is  healthy  for the
Partnerships lending activity.

     The  Partnerships  interest  in land  located  in East Palo  Alto,  Ca, was
acquired through foreclosure.  The Partnerships  interest was invested with that
of two other Partnerships.  The Partnerships basis of $ 0, $346,017 and $242,394
for the years ended  December 31,  1998,  1997 and 1996  respectively,  has been
invested  with  that  of  two  other  Partnerships.  The  Partnership  had  been
attempting  to  develop  property  into an  approximately  63 units  residential
subdivision, (the Development).  The proposed Development had gained significant
public  awareness  as a result  of  certain  environmental,  fish and  wildlife,
density,  and other concerns.  Incorporated  into the proposed  Development were
various  mitigation  measures which included  remediation of hazardous  material
existing on the property,  and protection of potentially affected species due to
the  proximity of the property to the San Francisco  Baylands.  These issues and
others sparked  significant public  controversy.  Opposition against and support
for the proposed Development  existed.  Among those in opposition to the project
was Rhone Poulanc,  Inc. which is responsible for a nearby hazardous waste site.
Rhone Poulanc, Inc. has been identified as the Responsible Party for the Arsenic
Contamination  which  affected a portion of the  property.  On May 8, 1998,  the
Partnership,  in order to resolve  disputes which arose during the course of the
attempts to obtain  entitlements for this  Development,  entered into agreements
with Rhone-Poulanc, Inc which among other things, restricted the property to non
residential uses,  provided for appropriate  indemnification  and included other
considerations including a cash payment to the Partnership.  The Partnership has
retained   ownership  of  the  property,   which  is  subject  to  various  deed
restrictions,  options and or first rights of refusal.  The General Partners are
pleased with this outcome to the residential  development  attempt.  The General
Partners may now explore  other  available  options with respect to  alternative
uses for the  property.  In order  to  pursue  these  options,  rezoning  of the
propertys  existing  residential zoning  classification  will be required.  The
Partnership is continuing to explore  remediation  options available to mitigate
the  pesticide  contamination,   which  affects  the  property.  This  pesticide
contamination  appears  to be the  result of  agricultural  operations  by prior
owners, and is unrelated to the Arsenic  Contamination for which  Rhone-Poulanc,
Inc. remains responsible.  The General Partners do not believe at this time that
remediation of the pesticide contaminants will have a material adverse effect on
the financial condition of the Partnership.

     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 years
ended December 31, 1996,  December 31, 1997, December 31, 1998, and three months
through  March 31,  1999,  the  Partnership  made  distributions  of earnings to
Limited Partners after allocation of syndication  costs of, $327,887,  $399,379,
$456,358  and  $118,871,  respectively.  Distribution  of  Earnings  to  Limited
Partners after allocation of syndication  costs for the years ended December 31,
1996,  December 31, 1997,  December 31, 1998 and three months  through March 31,
1999,  to Limited  Partners  capital  accounts and not  withdrawn was $522,621,
$419,231, $381,747 and $99,469,  respectively. As of December 31, 1996, December
31, 1997,  December 31, 1998 and three months  through  March 31, 1999,  Limited
Partners electing to withdraw earnings represented 36%, 44%, 53%, 54% and 56% 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 years ended  December 31,  1996,  December 31,
1997,  December 31, 1998,  and three months  through  March 31, 1999,  $412,798,
$475,348, $381,458 and $55,801, 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
<PAGE>
electing to withdraw  over one year need to liquidate  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 December 31, 1996,  December 31, 1997, December
31,  1998 and  March 31,  1999,  respectively  and is  expected  by the  General
Partners to commonly occur at these levels.

     Additionally,  for the years ended  December 31,  1996,  December 31, 1997,
December 31, 1998 and three months through March 31, 1999,  $318,902,  $737,568,
$1,019,017 and $289,064,  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  which the General  Partners then expect a
portion of the Limited Partners to avail themselves of. 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, at which time the bulk
of those Limited Partners who have sought withdrawal have been liquidated. After
year eleven,  liquidation  generally subsides and the Partnership  capital again
tends to increase.

     Actual  liquidation  of both  capital  and  earnings  from year five (1994)
through year nine  (1998),  and three months  through  March 31, 1999,  is shown
hereunder: Years ended December 31,

                      1994                  1995                  1996
                  -------------         --------------        --------------
Earnings              $263,206                270,760               336,341
Capital*              $340,011                184,157               722,536
                  -------------         ==============        ==============
Total                 $603,217               $454,917            $1,058,877
                                        ==============        ==============
                  =============         --------------        --------------



                      1997                  1998                   3 months
                                                               thru 3/31/99
                  -------------         --------------        --------------
Earnings               399,379                456,358               118,872
Capital*             1,212,916              1,400,475               344,865
                  -------------         --------------        --------------
Total               $1,612,295             $1,856,833              $463,737
                  =============         ==============        ==============

* These amounts represent gross of early withdrawal penalties.

     The Year 2000 will be a challenge for the entire world, with respect to the
conversion of existing computerized operations. The Partnership is completing an
assessment of Year 2000 hardware and software issues. This assessment is not yet
fully complete.  The Partnership  relies on Redwood Mortgage Corp., an affiliate
of the Partnership,  and third parties to provide loan and investor services and
other  computerized  functions  effected by Year 2000  computerized  operations.
Major  services  provided  to  the  Partnership  by  these  companies  are  loan
servicing,  accounting  and  investor  services.  The  vendors  that  supply the
software for loan servicing  have already  confirmed  compliance  with Year 2000
issues.  Installation  of accounting  software that is Year 2000  compliant will
begin during the second  quarter of 1999. The investor  servicing  software Year
2000 compliance is still under assessment.  Existing investor servicing software
maintenance  agreements  provide for  conversion  to Year 2000  compliance to be
provided by the vendor.  Additionally,  the  Partnership  has contacted  several
vendors that provide investor  services as a possible  alternative to continuing
to provide  investors  services in house.  It would  appear  that these  service
providers  would be more expensive than the current in house systems but they do
provide a back-up  alternative in the event of our own failure to fully convert.
Hardware utilized by Redwood Mortgage Corporation,  is currently being tested to
insure  that  modifications  necessary  to be made  prior  to Year  2000  can be
accomplished.  At this juncture,  existing  hardware appears to be substantially
compliant with Year 2000 issues.
<PAGE>

     The costs of updating  the various  software  systems  will be borne by the
various  companies  that supply the  Partnership  with services.  Therefore,  no
significant  capital outlays are  anticipated  and the Partnership  expects only
incidental costs of conversion for Year 2000 issues.

     The Partnership is in the business of making Mortgage  Investments  secured
by real estate. The most important factor in making the Mortgage  Investments is
the value of the real estate  security.  Year 2000 issues have some potential to
effect  industries  and  businesses  located  in the  marketplaces  in which the
Partnership places its Mortgage  Investments.  This would only have an affect on
the Partnership if Year 2000 issues cause a significant downturn in the northern
California economy. In fact, Silicon Valley is located in our marketplace. There
may be significant  increased  demand for Silicon Valley type services and goods
as companies make ready for the Year 2000 conversion.

     Although not fully developed if all or any  accounting,  loan servicing and
investor services conversions should fail the size and scope of the Partnerships
activities  are such that they could be handled at an equal or higher  cost on a
manual basis or outsourced  to other  servicers  existing in the industry  while
correcting  the systems,  and are likely to be  temporary in nature.  While this
would  entail  some  initial set up costs,  these  costs would  likely not be so
significant as to have a material effect upon the Partnership, shifting portions
of daily  operations to manual or outsourced  systems may result in time delays.
Time delays in providing  accurate and pertinent  information  could  negatively
affect  customer  relations  and lead to the  potential  loss of new  loans  and
Limited Partner investments.

     The  foregoing  analysis  of  Year  2000  issues  includes  forward-looking
statements  and  predictions  about  possible  or  future  events,   results  of
operations  and  financial  condition.  As such,  this  analysis may prove to be
inaccurate  because of the assumptions made by the General Partner or the actual
development  of  future  events.  No  assurance  can be given  that any of these
forward-looking  statements and predictions  will ultimately prove to be correct
or even substantially correct.

     Various  other  risks and  uncertainties  could  also  affect the Year 2000
analysis  causing the effect on the Partnership to be more severe than discussed
above. The General  Partners Year 2000 compliance  testing cannot guarantee that
all computer  systems will function  without  error beyond the Year 2000.  Risks
also exist with respect to Year 2000 compliance by external parties who may have
no  relationship  to the  Partnership  or the  General  Partner,  but who have a
significant  relationship with one or more third parties,  and may have a system
failure that adversely  affects the  Partnerships  ability to conduct  business.
While the General  Partner is attempting to identify such external  parties,  no
assurance can be given that it will be able to do so. Furthermore, third parties
with  direct  relationships  with  the  Partnership,  whose  systems  have  been
identified  as likely to be Year 2000  compliant,  may suffer a breakdown due to
unforeseen circumstances.  It is also possible that the information collected by
the General Partner for these third parties regarding their compliance with Year
2000 issues may be  incorrect.  Finally,  it should be noted that the  foregoing
discussion of Year 2000 issues assumes that to the extent the General  Partners
systems fail,  whether because of unforeseen  complications  or because of third
parties  failure,  switching to manual  operations will allow the Partnership to
continue  to conduct  its  business.  While the General  Partner  believes  this
assumption to be reasonable,  if it is incorrect,  the Partnerships  results of
operations would likely be adversely affected.

<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,  pages 12-13, under the section Compensation of the General partners
and the Affiliates,  which is incorporated  by reference.  Such  compensation is
summarized below.

     The  following  compensation  has been  paid to the  General  Partners  and
Affiliates for services  rendered during the three months period ended March 31,
1999. All such compensation is in compliance with the guidelines and limitations
set forth in the Prospectus.

Entity Receiving     Description of Compensation and Services Rendered    Amount
Compensation
----------------     -------------------------------------------------   -------

I.Redwood Mortgage   Mortgage Servicing Fee for servicing 
  Corp.                Mortgage Investments..............................$31,563

General Partners 
&/or Affiliate       Asset Management Fee for managing assets.............$3,827
                           

General Partners     1% interest in  profits..............................$2,205
                           

     II. FEES PAID BY  BORROWERS  ON MORTGAGE  INVESTMENTS  PLACED BY  COMPANIES
RELATED TO THE GENERAL PARTNERS WITH THE PARTNERSHIP  (EXPENSES OF BORROWERS NOT
OF THE PARTNERSHIP)

Redwood Mortgage     Mortgage  Brokerage  Commissions  for  services in
Corp.                connection    with    the    review,    selection,
                     evaluation,  negotiation,  and  extension  of  the
                     Mortgage  Investments  paid by the  borrowers  and
                     not by the Partnership..............................$73,580
                           

Redwood Mortgage     Processing   and  Escrow  Fees  for   services  in
Corp.                connection  with  notary,   document  preparation,
                     credit  investigation,  and escrow fees payable by
                     the borrowers and not by the Partnership.............$1,835
                         


     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.......................................$7,967
<PAGE>
           MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF MARCH 31, 1999

                             Partnership Highlights

Mortgage Investment to Value Ratios

First Trust Deeds                                              $8,649,103.32
Appraised Value of Properties *                                15,246,571.00
   Total Investment as a % of Appraisal                               56.73%

First Trust Deed Mortgage Investments                           8,649,103.32
Second Trust Deed Mortgage Investments                          5,565,763.38
Third Trust Deed Mortgage Investments                             330,133.55
Fourth Trust Deed Mortgage Investments  **                        200,001.20
                                                            -----------------
                                                              $14,745,001.45

First Trust Deeds due other Lenders                            13,804,713.00
Second Trust Deeds due other Lenders                            1,168,561.00
Third Trust Deeds due other Lenders                               142,858.00
                                                            -----------------

Total Debt                                                    $29,861,133.45

   Appraised Property Value *                                  47,356,649.00
   Total Investment as a % of Appraisal                               63.06%

Number of Mortgage Investments Outstanding                                52

Average Investment                                               $283,557.72
Average Investment as a % of Net Assets                                2.42%
Largest Investment Outstanding                                  1,600,000.00
Largest Investment as a % of Net Assets                               13.65%

Loans as a Percentage of Total Mortgage Investments

First Trust Deed Mortgage Investments                                 58.66%
Second Trust Deed Mortgage Investments                                37.75%
Third Trust Deed Mortgage Investments                                  2.24%
Fourth Trust Deed Mortgage Investments                                 1.35%
                                                             ----------------
Total                                                                100.00%

Mortgage Investments by Type of
Property                               Amount                    Percent

Owner Occupied Homes                    $573,999.16                    3.89%
Non Owner Occupied Homes               1,934,596.66                   13.12%
Apartments                               907,674.43                    6.16%
Commercial                            11,328,731.20                   76.83%
                                                             ----------------
                                  ------------------
Total                                $14,745,001.45                  100.00%

Statement of Conditions of Mortgage Investments
         Number of Mortgage Investments in Foreclosure                 -0-

     *Values  used are the  appraisal  values  utilized at the time the mortgage
investment was consummated.
<PAGE>

Diversification by County

County                                         Total Loans          Percent

San Mateo                                    $2,676,716.80           18.15%
Stanislaus                                    2,539,082.26           17.22%
San Francisco                                 2,165,878.33           14.69%
Alameda                                       1,843,686.17           12.50%
Santa Clara                                   1,712,387.34           11.61%
Solano                                          994,022.66            6.74%
Monterey                                        839,950.10            5.70%
Contra Costa                                    742,661.55            5.04%
Marin                                           724,999.98            4.92%
Sonoma                                          158,862.45            1.08%
Sacramento                                      127,218.81            0.86%
Ventura                                          91,000.00            0.62%
Shasta                                           80,843.72            0.55%
Santa Cruz                                       47,691.28            0.32%

                                        -------------------      -----------

Total                                       $14,745,001.45          100.00%

     **  Redwood   Mortgage   Investors   VII,   together   with  other  Redwood
Partnerships,  holds a second  and a  fourth  trust  deed  against  the  secured
property. In addition, the principals behind the borrower corporation have given
personal guarantees as collateral.  The overall loan to value ratio on this loan
is 76.52%.  Besides the borrower  paying a fixed  interest  rate of 12.25%,  the
partnership  and  other  lenders  will  also be  entitled  to share  in  profits
generated  by  the  corporation  with  respect  to  the  secured  property.  The
affiliates of the Partnership had entered into previous loan  transactions  with
this borrower  which had been  concluded  successfully,  resulting in additional
revenue beyond interest payments for the affiliates involved.
<PAGE>



                                     PART 2
                                OTHER INFORMATION

    Item 1.      Legal Proceedings

                        None, where the Partnership is a defendant. Please refer
                        to Note 6 of Notes to 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

                                 Not Applicable

                        (b)      Form 8-K

                        The registrant has not filed any reports on Form 8-K
                        during the nine month period ending March 31, 1999

<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 12th day of May,
1999.


REDWOOD MORTGAGE INVESTORS VII


By:      /s/ D. Russell Burwell
         ---------------------------------------------
         D. Russell Burwell, General Partner


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


By:      Gymno Corporation, General Partner


         By:     /s/ D. Russell Burwell
                 ---------------------------------------------
                 D. Russell Burwell, President


         By:     /s/ Michael R. Burwell
                 ---------------------------------------------
                 Michael R. Burwell, Secretary/Treasurer


     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 12th day of May, 1999.


Signature                                  Title                        Date


/s/ D. Russell Burwell
---------------------------------
D. Russell Burwell                    General Partner              May 12, 1999


/s/ Michael R. Burwell
---------------------------------
Michael R. Burwell                    General Partner              May 12, 1999



/s/ D. Russell Burwell
---------------------------------
D. Russell Burwell       President of Gymno Corporation,           May 12, 1999
                         (Principal Executive Officer);
                         Director of Gymno Corporation


/s/ Michael R. Burwell
---------------------------------
Michael R. Burwell       Secretary/Treasurer of Gymno              May 12, 1999
                         Corporation (Principal Financial
                         and Accounting Officer);
                         Director of Gymno Corporation