UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)


[X]
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For
the Quarterly Period Ended September 30, 2008





OR





[   ]
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For
the transition period from ______________ to ______________





Commission
File Number:  000-19992





REDWOOD
MORTGAGE INVESTORS VII,


a
California Limited Partnership


(Exact
name of registrant as specified in its charter)





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





900
      Veterans Blvd., Suite 500, Redwood City, CA
            94063-1743(Address
      of principal executive offices)
            (Zip
      Code)





(650)
      365-5341


(Registrant’s
telephone number, including area code)





NOT
      APPLICABLE


(Former
name, former address and former fiscal year, if changed since last
report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.





Yes
            XX
            
            No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.





Large
      accelerated filer
            [  ]
            
            Accelerated
      filer
            [  ]Non-accelerated
      filer
            [  ]
            
            Smaller
      reporting company
            [X](Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).





Yes
            
            
            No
            XX


1


Part
I – Item 1.   FINANCIAL STATEMENTS





REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


BALANCE
SHEETS


SEPTEMBER
30, 2008 (unaudited) AND DECEMBER 31, 2007 (audited)








ASSETS





September
      30,
            
            
            December
      31,2008
            
            
            2007Cash
      and cash equivalents
            
            $
            1,248,827
            
            
            $
            351,129LoansLoans,
      secured by deeds of trust
            
            
            5,052,263
            
            
            
            6,202,522Loans,
      unsecured, net discount of $51,408 and $57,577for
      September 30, 2008 and December 31, 2007, respectively
            
            
            741,700
            
            
            
            772,031Allowance
      for loan losses
            
            
            (399,848
            )
            
            
            (386,658
            )Net
      loans
            
            
            5,394,115
            
            
            
            6,587,895Interest
      and other receivablesReceivable
      from affiliate
            
            
            21,320
            
            
            
            20,702Accrued
      interest and late fees
            
            
            83,489
            
            
            
            73,259Advances
      on loans
            
            
            4,041
            
            
            
            6,436Total
      interest and other receivables
            
            
            108,850
            
            
            
            100,397Investment
      in limited liability company
            
            
            1,036,147
            
            
            
            939,937Real
      estate held, net
            
            
            2,002,736
            
            
            
            1,371,401Total
      assets
            
            $
            9,790,675
            
            
            $
            9,350,759








LIABILITIES AND PARTNERS’
CAPITAL





LiabilitiesAccounts
      payable
            
            $
            14,463
            
            
            $
            11,865Mortgage
      payable
            
            
            500,000
            
            
            
            —Payable
      to affiliate
            
            
            72,660
            
            
            
            71,998Total
      liabilities
            
            
            587,123
            
            
            
            83,863Partners’
      capitalLimited
      partners’ capital, subject to redemption
            
            
            9,191,579
            
            
            
            9,254,923General
      partners’ capital
            
            
            11,973
            
            
            
            11,973Total
      partners’ capital
            
            
            9,203,552
            
            
            
            9,266,896Total
      liabilities and partners’ capital
            
            $
            9,790,675
            
            
            $
            9,350,759








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


2


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


STATEMENTS
OF INCOME


FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(unaudited)





THREE
      MONTHS ENDED
            
            
            NINE
      MONTHS ENDEDSEPTEMBER
      30,
            
            
            SEPTEMBER
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007RevenuesInterest
      on loans
            
            $
            142,613
            
            
            $
            149,227
            
            
            $
            434,554
            
            
            $
            411,499Interest-interest
      bearing accounts
            
            
            1,384
            
            
            
            3,156
            
            
            
            3,852
            
            
            
            24,108Late
      fees, prepayment penalties and fees
            
            
            3,691
            
            
            
            1,106
            
            
            
            4,579
            
            
            
            2,819Other
            
            
            479
            
            
            
            3,982
            
            
            
            2,941
            
            
            
            6,244Total
      revenues
            
            
            148,167
            
            
            
            157,471
            
            
            
            445,926
            
            
            
            444,670ExpensesMortgage
      servicing fees
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Clerical
      costs through Redwood Mortgage Corp.
            
            
            2,354
            
            
            
            2,642
            
            
            
            4,756
            
            
            
            8,211Asset
      management fees
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,922Provision
      or (recovery) of losses on loans and real estate
            
            
            15,551
            
            
            
            6,383
            
            
            
            13,377
            
            
            
            (24,994
            )Professional
      services
            
            
            10,410
            
            
            
            11,762
            
            
            
            50,007
            
            
            
            50,126Other
            
            
            9,334
            
            
            
            10,401
            
            
            
            28,160
            
            
            
            29,026Total
      expenses
            
            
            37,649
            
            
            
            31,188
            
            
            
            96,300
            
            
            
            65,291Net
      income
            
            $
            110,518
            
            
            $
            126,283
            
            
            $
            349,626
            
            
            $
            379,379Net
      income:  general partners (1%)
            
            $
            1,095
            
            
            $
            1,263
            
            
            $
            3,496
            
            
            $
            3,794limited
      partners (99%)
            
            
            109,423
            
            
            
            125,020
            
            
            
            346,130
            
            
            
            375,585$
            110,518
            
            
            $
            126,283
            
            
            $
            349,626
            
            
            $
            379,379Net
      income per $1,000 invested by limitedpartners
      for entire period-where
      income is compounded and retained
            
            $
            12
            
            
            $
            13
            
            
            $
            38
            
            
            $
            41-where
      partner receives income in monthlydistributions
            
            $
            11
            
            
            $
            13
            
            
            $
            37
            
            
            $
            40

















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


3


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


STATEMENTS
OF CASH FLOWS


FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (unaudited)








2008
            
            
            2007Cash
      flows from operating activitiesNet
      income
            
            $
            349,626
            
            
            $
            379,379Adjustments
      to reconcile net income to net cash providedby
      operating activitiesProvision
      (recovery ) losses on loans and real estate held
            
            
            13,377
            
            
            
            (24,994
            )Early
      withdrawal penalty credited to income
            
            
            (2,092
            )
            
            
            (3,301
            )Amortization
      of discount on unsecured loans
            
            
            (6,169
            )
            
            
            (6,169
            )Change
      in operating assets and liabilitiesLoans,
      unsecured
            
            
            36,500
            
            
            
            (36,736
            )Accrued
      interest and late fees
            
            
            (10,417
            )
            
            
            (32,716
            )Advances
      on loans
            
            
            2,395
            
            
            
            —Receivable
      from affiliate
            
            
            (618
            )
            
            
            728Accounts
      payable
            
            
            2,598
            
            
            
            12,442Payable
      to affiliate
            
            
            662
            
            
            
            —Net
      cash provided by operating activities
            
            
            385,862
            
            
            
            288,633Cash
      flows from investing activitiesPrincipal
      collected on loans
            
            
            1,501,874
            
            
            
            1,679,113Loans
      originated
            
            
            (351,615
            )
            
            
            (1,751,617
            )Payments
      for development of real estate
            
            
            (131,335
            )
            
            
            —Payments
      on investment in limited liability company
            
            
            (98,596
            )
            
            
            (31,930
            )Proceeds
      from investment in limited liability company
            
            
            2,386
            
            
            
            —Net
      cash provided by (used in) investing activities
            
            
            922,714
            
            
            
            (104,434
            )Cash
      flows from financing activitiesPartners’
      withdrawals
            
            
            (410,879
            )
            
            
            (422,341
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            897,698
            
            
            
            (238,142
            )Cash
      and cash equivalents - beginning of period
            
            
            351,129
            
            
            
            584,114Cash
      and cash equivalents - end of period
            
            $
            1,248,827
            
            
            $
            345,972








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


4


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


SEPTEMBER
30, 2008 (unaudited)







NOTE 1 –
GENERAL




In the
opinion of the management of the partnership, the accompanying unaudited
financial statements contain all adjustments, consisting of normal, recurring
adjustments, necessary to present fairly the financial information included
therein.  These financial statements should be read in conjunction
with the audited financial statements included in the partnership’s Form 10-K
for the fiscal year ended December 31, 2007 filed with the Securities and
Exchange Commission.  The results of operations for the nine month
period ended September 30, 2008 are not necessarily indicative of the operating
results to be expected for the full year.




NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES




Cash and cash
equivalents





The
partnership places its cash and temporary cash investments with high credit
quality institutions.  Periodically, such investments may be in excess
of federally insured limits.




Loans, secured by deeds of
trust




As of
September 30, 2008 and December 31, 2007, the partnership had three loans past
due more than 90 days in interest payments and/or past maturity.  The
outstanding principal balances of these loans at September 30, 2008 and December
31, 2007 were $538,864 and $476,870, respectively.  In addition,
accrued interest, advances and late charges on these loans totaled $21,787 and
$17,788 at September 30, 2008 and December 31, 2007, respectively.  In
the opinion of management, the delinquent and/or past maturity loans as of
September 30, 2008 have sufficient collateral to cover the outstanding amounts
due to the partnership and are still accruing interest.  At September
30, 2008 and December 31, 2007, as presented in Note 8, the average loan to
appraised value of security based upon appraised values and prior liens at the
time the loans were consummated was 59.30% and 59.69%,
respectively.




Loans, unsecured,
net




The
partnership had unsecured loans, net of a discount, from three borrowers
totaling $741,700 and $772,031 at September 30, 2008 and December 31, 2007,
respectively.  Interest is not being accrued as these loans are
considered impaired; however all borrowers are making payments.





5


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


SEPTEMBER
30, 2008 (unaudited)







NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)


Allowance for loan
losses





The
composition of the allowance for loan losses as of September 30, 2008 and
December 31, 2007 was as follows:





September
      30, 2008
            
            
            December
      31, 2007Percent
      of
            
            
            
            
            
            Percent
      ofloans
      in
            
            
            
            
            
            loans
      ineach
            
            
            
            
            
            eachcategory
            
            
            
            
            
            categoryto
      total
            
            
            
            
            
            to
      totalAmount
            
            
            loans
            
            
            Amount
            
            
            loansBalance
      at end of period applicable to:DomesticReal
      estate – mortgageSingle
      family (1-4 units)
            
            $
            73,842
            
            
            
            54
            %
            
            $
            58,262
            
            
            
            42
            %Apartments
      (5+ units)
            
            
            10,747
            
            
            
            2
            %
            
            
            10,217
            
            
            
            11
            %Commercial
            
            
            30,798
            
            
            
            36
            %
            
            
            41,701
            
            
            
            40
            %Land
            
            
            29,252
            
            
            
            8
            %
            
            
            27,832
            
            
            
            7
            %Total
      real estate – mortgage
            
            $
            144,639
            
            
            
            100
            %
            
            $
            138,012
            
            
            
            100
            %Total
      unsecured loans
            
            $
            255,209
            
            
            
            100
            %
            
            $
            248,646
            
            
            
            100
            %Total
      allowance for loan losses
            
            $
            399,848
            
            
            
            100
            %
            
            $
            386,658
            
            
            
            100
            %





6


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


SEPTEMBER
30, 2008 (unaudited)








NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)





Allowance for loan
losses (continued)





Activity
in the allowance for loan losses for the nine month period ended September 30,
2008 and the year ended December 31, 2007 was as follows:





September
      30,
            
            
            December
      31,2008
            
            
            2007Balance
      at beginning of period
            
            $
            386,658
            
            
            $
            454,417Charge-offsDomesticReal
      estate – mortgageSingle
      family (1-4 units)
            
            
            —
            
            
            
            —Apartments
      (5+ units)
            
            
            —
            
            
            
            —Commercial
            
            
            (187
            )
            
            
            —Land
            
            
            —
            
            
            
            (46,637
            )(187
            )
            
            
            (46,637
            )RecoveriesDomesticReal
      estate – mortgageSingle
      family (1-4 units)
            
            
            —
            
            
            
            —Apartments
      (5+ units)
            
            
            —
            
            
            
            —Commercial
            
            
            —
            
            
            
            —Land
            
            
            —
            
            
            
            —Net
      charge-offs
            
            
            (187
            )
            
            
            (46,637
            )Additions
      (recovery) charge to operations
            
            
            13,377
            
            
            
            (21,122
            )Transfer
      to real estate held for sale reserve
            
            
            —
            
            
            
            —Balance
      at end of period
            
            $
            399,848
            
            
            $
            386,658Ratio
      of net charge-offs during the period to averagesecured
      loans outstanding during the period
            
            
            0.00
            %
            
            
            0.75
            %





Investment in limited
liability company





An
investment in a limited liability company is accounted for using the equity
method.  In February 2005, the partnership acquired an 8% interest in
Larkin Property Company, LLC (see note 5).





Income
taxes





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





Reclassifications





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





7


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


SEPTEMBER
30, 2008 (unaudited)








NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)





Profits and
losses





Profits
and losses are allocated among the limited partners according to their
respective capital accounts monthly after 1% of the profits and losses are
allocated to the general partners.





Management
estimates





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








NOTE 3 – GENERAL PARTNERS
AND RELATED PARTIES




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




Mortgage brokerage
commissions





For fees
in connection with the review, selection, evaluation, negotiation and extension
of loans, Redwood Mortgage Corp., an affiliate of the general partners, may
collect an amount equivalent to 12% of the loaned amount until six months after
the termination date of the offering.  Thereafter, loan brokerage
commissions (points) will be limited to an amount not to exceed 4% of the total
partnership assets per year.  The loan brokerage commissions are paid
by the borrowers and thus, are not an expense of the partnership.





Mortgage servicing
fees





Monthly
mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the unpaid principal
are paid to Redwood Mortgage Corp., based on the unpaid principal balance of the
loan portfolio, or such lesser amount as is reasonable and customary in the
geographic area where the property securing the mortgage is
located.  Once a loan is categorized as impaired, mortgage servicing
fees are no longer accrued.  Additional service fees are recorded upon
the receipt of any subsequent payments on impaired loans.  Redwood
Mortgage Corp. has waived $67,879 in mortgage servicing fees during
2008.





Asset management
fees





The
general partners receive monthly fees for managing the partnership’s loan
portfolio and operations in an amount up to 1/32 of 1% of the “net asset value” (3/8 of 1%
annually).  The general partners have waived asset management fees of
$26,035 during 2008.





8


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


SEPTEMBER
30, 2008 (unaudited)








NOTE 3 – GENERAL PARTNERS
AND RELATED PARTIES (continued)





Other
fees





The
partnership agreement provides for other fees such as reconveyance, mortgage
assumption and mortgage extension fees.  Such fees are incurred by the
borrowers and are paid to parties related to the general partners.





Clerical costs through
Redwood Mortgage Corp.





Redwood
Mortgage Corp., an affiliate of the general partners, is reimbursed by the
partnership for all operating expenses actually incurred by it on behalf of the
partnership, including without limitation, out-of-pocket general and
administration expenses of the partnership, accounting and audit fees, legal
fees and expenses, postage and preparation of reports to limited partners. For
the first quarter of 2008, $3,052 of costs were waived by Redwood Mortgage
Corp.








NOTE 4 – REAL ESTATE
HELD





During
August 2008, the partnership acquired a commercial-agricultural property
encumbered by a first deed of trust in the amount of $500,000 with a private
party.  In a non-cash transaction, the partnership has taken ownership
through foreclosure subject to this mortgage and the partnership is now making
the monthly payments.  As of September 30, 2008, the partnership’s
investment in this property was $631,335.





In 1993,
the partnership, together with two other affiliates, acquired through
foreclosure a parcel of land located in East Palo Alto,
California.  As of September 30, 2008, the partnership’s investment in
this property was $62,720.  The property is currently listed for
sale.





In
December 2004, the partnership acquired land through a deed in lieu of
foreclosure.  At the date of acquisition, the partnership’s investment
totaled $1,752,836 including accrued interest and advances.  During
2006, management established a $190,310 reserve against this property to reduce
the carrying amount to management’s estimate of the ultimate net realizable
value of the property.  One of the parcels comprising the property was
sold during 2006 for $336,652.  The partnership incurred a loss of
$28,336 on this sale, which was fully reserved.  At September 30,
2008, the partnership’s total investment in this property was $1,470,655, less a
remaining reserve of $161,974.





The
following schedule reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, including
estimated costs to sell as of September 30, 2008 and December 31,
2007:





September
      30,
            
            
            December
      31,2008
            
            
            2007Costs
      of properties
            
            $
            2,164,710
            
            
            $
            1,533,375Reduction
      in value
            
            
            (161,974
            )
            
            
            (161,974
            )Real
      estate held, net
            
            $
            2,002,736
            
            
            $
            1,371,401





9


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


SEPTEMBER
30, 2008 (unaudited)








NOTE 5 – INVESTMENT IN
LIMITED LIABILITY COMPANY





In
February 2005, the partnership acquired a multi-unit property through
foreclosure.  This property is located in an upscale neighborhood in
San Francisco.  At the time the partnership took ownership of the
property, the partnership’s investment totaled $836,702 including accrued
interest and advances.  This property is jointly owned with three
other affiliated partnerships.  Upon acquisition the partnership
transferred its interest (principally land and building) to Larkin Property
Company, LLC (“Larkin”), which 8% is owned by the partnership, and 92% owned by
three other affiliates.  No allowance for loss has been set aside as
management believes the fair value of the property exceeds the combined
partnerships’ investment in the property.  The partnership intends to
undertake additional improvements to the property.  As of September
30, 2008, the partnership has capitalized $199,445 in costs, net of recovery in
2006 from the guarantors of the original loan, related to this
property.  At September 30, 2008, the partnership’s investment in
Larkin totaled $1,036,147.








NOTE 6 –
BORROWINGS





Bank line of
credit





The
partnership previously had a bank line of credit secured by its loan portfolio
of up to $2,500,000 at .25% over prime.  This credit facility was
terminated in 2007.





Mortgage





The
partnership obtained a property through foreclosure which was subject to an
interest only first lien of $500,000 with a 7.20% interest rate and matures on
April 1, 2011.  The partnership is making the monthly
payments.




NOTE 7 – FAIR
VALUE




On
January 1, 2008, the Partnership adopted Statement of Financial Accounting
Standards No. 157, “Fair Value
Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosure requirements for fair
value measurements. The Partnership deferred the application of SFAS 157 for
nonfinancial assets and nonfinancial liabilities as provided for by FASB Staff
Position (FSP) FAS 157-2, “Effective Date of FASB Statement No.
157.” FSP FAS 157-2 defers the effective date of SFAS 157 to fiscal years
beginning after November 15, 2008, and interim periods within those fiscal years
for nonfinancial assets and nonfinancial liabilities, except items that are
recognized or disclosed at fair value in an entity's financial statements on a
recurring basis (at least annually).





SFAS 157
defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. The partnership determines the fair
values of its financial assets and financial liabilities based on the fair value
hierarchy established in SFAS 157. The standard describes three levels of inputs
that may be used to measure fair value (Level 1, Level 2 and Level 3). Level 1
inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Partnership has the ability to access at the measurement
date. An active market is a market in which transactions occur with sufficient
frequency and volume to provide pricing information on an ongoing basis. Level 2
inputs are inputs other than quoted prices that are observable for the asset or
liability, either directly or indirectly. Level 3 inputs are unobservable inputs
for the asset or liability. Unobservable inputs reflect the partnership’s own
assumptions about the assumptions market participants would use in pricing the
asset or liability (including assumptions about risk). Unobservable inputs are
developed based on the best information available in the circumstances and may
include the partnership’s own data.


10


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


SEPTEMBER
30, 2008 (unaudited)




NOTE 7 – FAIR VALUE
(continued)




In
October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for that Asset is Not Active”, with an
immediate effective date.  The purpose of this release was to provide
further clarification regarding Level 3 inputs and the assumptions management
may make when the market for the asset in not active.  The adoption of
FSP FAS 157-3 did not have a material effect on the partnership’s results of
operations, financial position or liquidity.




The
partnership does not record loans at fair value on a recurring
basis.




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 accounts, are
      subject to immediate withdrawal.





(b)
            Secured
      loans (Level 2).  The fair value of these loans of $5,114,000
      and $6,206,000 at September 30, 2007 and December 31, 2007, respectively,
      was estimated based upon projected cash flows discounted at the estimated
      current interest rates at which similar loans would be
      made.  The applicable amount of the allowance for loan losses
      along with accrued interest and advances related thereto should also be
      considered in evaluating the fair value versus the carrying value. For
      loans in which a specific allowance is established based on the fair value
      of the collateral, the Partnership records the loan as nonrecurring Level
      2 if the fair value of the collateral is based on an observable market
      price or a current appraised value.  If an appraised value is
      not available or the fair value of the collateral is considered impaired
      below the appraised value and there is no observable market price, the
      Partnership records the loan as nonrecurring Level
  3.





(c)
            Unsecured
      loans (Level 3).  Unsecured loans are valued at their principal
      less any discount or loss reserves management establishes after taking
      into account the borrower’s creditworthiness and their ability to repay
      the loan.








11


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


SEPTEMBER
30, 2008 (unaudited)








NOTE 8 – ASSET
CONCENTRATIONS AND CHARACTERISTICS





At
September 30, 2008 and December 31, 2007 the loans secured by recorded deeds of
trust had the following characteristics:





September
      30,
            
            
            December
      31,2008
            
            
            2007Number
      of secured loans outstanding
            
            22
            
            
            
            25Total
      secured loans outstanding
            $
            5,052,263
            
            
            $
            6,202,522Average
      secured loan outstanding
            $
            229,648
            
            
            $
            248,101Average
      secured loan as percent of total secured loans
            
            4.55
            %
            
            
            4.00
            %Average
      secured loan as percent of partners’ capital
            
            2.50
            %
            
            
            2.68
            %Largest
      secured loan outstanding
            $
            500,000
            
            
            $
            500,000Largest
      secured loan as percent of total secured loans
            
            9.90
            %
            
            
            8.06
            %Largest
      secured loan as percent of partners’ capital
            
            5.43
            %
            
            
            5.40
            %Largest
      secured loan as percent of total assets
            
            5.11
            %
            
            
            5.35
            %Number
      of counties where security is located (all California)
            
            15
            
            
            
            15Largest
      percentage of loans in one county
            
            17.16
            %
            
            
            31.37
            %Number
      of secured loans in foreclosure status
            
            1
            
            
            
            NoneAmount
      of secured loans in foreclosure status
            $
            134,422
            
            
            
            None





At times,
a specific loan may increase above 10% of the secured loan portfolio or
partnership assets as the loan portfolio and assets of the partnership decrease
due to limited partner withdrawals and/or loan payoffs.





12


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


SEPTEMBER
30, 2008 (unaudited)








NOTE 8 – ASSET
CONCENTRATIONS AND CHARACTERISTICS (continued)





The
following categories of secured loans were held at September 30, 2008 and
December 31, 2007:





September
      30,
            
            
            December
      31,2008
            
            
            2007First
      trust deeds
            
            $
            4,248,055
            
            
            $
            5,046,885Second
      trust deeds
            
            
            714,999
            
            
            
            1,065,972Third
      trust deeds
            
            
            89,209
            
            
            
            89,665Total
      loans
            
            
            5,052,263
            
            
            
            6,202,522Prior
      liens due other lenders at time of loan
            
            
            1,383,558
            
            
            
            2,308,163Total
      debt
            
            $
            6,435,821
            
            
            $
            8,510,685Appraised
      property value at time of loan
            
            $
            10,853,634
            
            
            $
            14,257,967Total
      secured loans as percent of appraisals based on appraisedvalues
      and prior liens at time loan was consummated
            
            
            59.30
            %
            
            
            59.69
            %Secured
      loans by type of propertySingle
      family homes (1-4 Units)
            
            $
            2,740,551
            
            
            $
            2,613,022Apartments
      (5+ units)
            
            
            99,622
            
            
            
            695,625Commercial
            
            
            1,794,111
            
            
            
            2,475,890Land
            
            
            417,979
            
            
            
            417,985$
            5,052,263
            
            
            $
            6,202,522




Scheduled
maturity dates of secured loans as of September 30, 2008 are as
follows:


Year
      ending December 31, 2008
            
            $
            839,4422009
            
            
            975,4682010
            
            
            907,2612011
            
            
            599,6222012
            
            
            1,398,105Thereafter
            
            
            332,365Total
            
            $
            5,052,263





The
scheduled maturities for 2008 above had two loans past maturity at September 30,
2008 in the amount of $404,442.





13


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


SEPTEMBER
30, 2008 (unaudited)








NOTE 9 – COMMITMENTS AND
CONTINGENCIES





Workout
agreements





The
partnership occasionally negotiates a contractual workout agreement with
borrowers who are delinquent in making payments or whose loans are past
maturity.  Under the terms of the workout agreement the partnership is
not obligated to make any additional monetary advances for the maintenance or
repair of the collateral securing the loan.  As of September 30, 2008,
the partnership had one loan under a workout agreement.





Construction
loans





The
partnership makes construction and rehabilitation loans which are not fully
disbursed at loan inception.  The partnership approves the borrowers
up to a maximum loan balance; however, disbursements are made periodically
during completion phases of the construction or rehabilitation or at such other
times as required under the loan documents.  At September 30, 2008,
there were no undisbursed loan funds.  The partnership does not
maintain a separate cash reserve to hold the undisbursed obligations, which are
intended to be funded.





Legal
proceedings





From time
to time, the partnership is involved in various legal actions arising in the
normal course of business.  In the opinion of management, such matters
will not have a material effect upon the financial position of the
partnership.







Part
I – Item 2.


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





Critical
Accounting Policies.





In
preparing the financial statements, management is required to make estimates
based on the information available that affect the reported amounts of assets
and liabilities as of the balance sheet dates and income and expenses during the
reporting periods.  Such estimates relate principally to the
determination of (1) the allowance for loan losses (i.e. the amount of allowance
established against loans receivable as an estimate of potential loan losses)
including the accrued interest and advances that are estimated to be
unrecoverable based on estimates of amounts to be collected plus estimates of
the value of the property as collateral and (2) the valuation of real estate
acquired through foreclosure. At September 30, 2008, the partnership owned four
real estate properties.





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





14


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





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





Real
estate held includes real estate acquired through foreclosure and is stated at
the lower of the recorded investment in the loan, plus any senior indebtedness,
or at the property’s estimated fair value, less estimated costs to
sell.





The
partnership periodically compares the carrying value of real estate to expected
undiscounted future cash flows for the purpose of assessing the recoverability
of the recorded amounts.  If the carrying value exceeds future
undiscounted cash flows, the assets are reduced to estimated fair
value.





Forward-Looking
Statements.





Certain
statements in this Report on Form 10-Q which are not historical facts may be
considered forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, including statements regarding the
partnership’s expectations, hopes, intentions, beliefs and strategies regarding
the future.  Forward-looking statements include statements regarding
future interest rates and economic conditions and their effect on the
partnership and its assets, trends in the California real estate market,
estimates as to the allowance for loan losses, estimates of future limited
partner withdrawals, 2008 annualized yield estimates, beliefs relating to the
partnership’s compliance with its loan covenants, beliefs relating to the
effects of various legal actions arising in the normal course of business, the
partnership’s intention not to sell its loan portfolio, and management’s beliefs
relating to the sufficiency of collateral  Actual results may be
materially different from what is projected by such forward-looking
statements.  Factors that might cause such a difference include
unexpected material adverse changes in economic conditions and interest rates,
including such conditions in California, a material adverse decline in the
market for real estate in California, the impact of competition and competitive
pricing and downturns in the real estate markets in which the partnership has
made loans.  All forward-looking statements and reasons why results
may differ included in this Form 10-Q are made as of the date hereof, and we
assume no obligation to update any such forward-looking statement or reason why
actual results may differ.





Related
Parties.





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


15





·
            Mortgage
      Brokerage CommissionsFor fees in connection with
      the review, selection, evaluation, negotiation and extension of loans,
      Redwood Mortgage Corp. may collect an amount equivalent to 12% of the
      loaned amount until 6 months after the termination date of the
      offering.  Thereafter, the loan brokerage commissions (points)
      will be limited to an amount not to exceed 4% of the total partnership
      assets per year.  The loan brokerage commissions are paid by the
      borrowers, and thus, are not an expense of the
      partnership.  Loan brokerage commissions paid by the borrowers
      were $0 and $17,800 for the three month periods and $18,305 and $52,150
      for the nine month periods, all ended September 30, 2008 and 2007,
      respectively.





·
            Mortgage
      Servicing Fees   Monthly mortgage servicing fees of
      up to 1/8 of 1% (1.5% on an annual basis) of the unpaid principal of the
      partnership’s loans are paid to Redwood Mortgage Corp., or such lesser
      amount as is reasonable and customary in the geographic area where the
      property securing the mortgage is located.  The table below
      summarizes the results for the three and nine month periods ended
      September 30, 2008 and 2007.





Three
      months ended September 30,
            
            Nine
      months ended September 30,2008
            
            2007
            
            2008
            
            2007Maximum
      chargeable
            
            $
            23,224
            
            
            $
            21,102
            
            
            $
            67,879
            
            
            $
            63,137Waived
            
            
            (23,224
            )
            
            
            (21,102
            )
            
            
            (67,879
            )
            
            
            (63,137
            )Net
      charged
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —





·
            Asset
      Management FeesThe general partners receive
      monthly fees for managing the partnership’s portfolio and operations of up
      to 1/32 of 1% of the ‘net asset value’ (3/8
      of 1% on an annual basis).  The general partners have
      historically not charged the maximum allowable rate.  The table
      below summarizes the results for the three and nine month periods ended
      September 30, 2008 and 2007.





Three
      months ended September 30,
            
            Nine
      months ended September 30,2008
            
            2007
            
            2008
            
            2007Maximum
      chargeable
            
            $
            8,654
            
            
            $
            8,735
            
            
            $
            26,035
            
            
            $
            26,241Waived
            
            
            (8,654
            )
            
            
            (8,735
            )
            
            
            (26,035
            )
            
            
            (23,319
            )Net
      charged
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            2,922





·
            Other
      Fees   The Partnership Agreement provides the
      general partners may receive other fees such as processing and escrow,
      reconveyance, mortgage assumption and mortgage extension
      fees.  Such fees are incurred by the borrowers and are paid to
      the general partners.  Such fees aggregated $105 and $1,438 for
      the three month periods and $1,277 and $3,430 for the nine month periods,
      all ended September 30, 2008 and 2007,
  respectively.





·
            Income and
      LossesAll income and losses are credited or
      charged to partners in relation to their respective partnership
      interests.  The allocation to the general partners (combined) is
      a total of 1%, which was $1,095 and $1,263 for the three month periods and
      $3,496 and $3,794 for the nine month periods, all ended September 30, 2008
      and 2007, respectively.





·
            Clerical
      Costs through Redwood Mortgage Corp.An affiliate
      of the partnership, Redwood Mortgage Corp., is reimbursed by the
      partnership for all operating expenses actually incurred by it on behalf
      of the partnership, including without limitation, out-of-pocket general
      and administration expenses of the partnership, accounting and audit fees,
      legal fees and expenses, postage and preparation of reports to limited
      partners.  Such reimbursements are reflected as expenses in the
      statements of income.  Operating expenses totaled $2,354 and
      $2,642 for the three month periods and $4,756 and $8,211 for the nine
      month periods, all ended September 30, 2008 and 2007,
      respectively.  For 2008, Redwood Mortgage Corp. has waived
      $3,052 of costs.





·
            Contributed
      CapitalThe general partners jointly and severally
      contribute 1/10 of 1% in cash contributions as proceeds from the offerings
      are received from the limited partners.  As of September 30,
      2008 and 2007, a general partner, Gymno Corporation, had contributed
      $11,973 as capital in accordance with the partnership
      agreement.


16


Results of
Operations





Changes
in the partnership’s operating results are tabulated for reference and are
discussed below:





Changes
      during the three months ended September 30, 2008 versus
    2007
            
            
            
            Changes
      during the nine months ended September 30, 2008 versus
2007Dollars
            
            
            Percent
            
            
            
            Dollars
            
            
            PercentRevenueInterest
      on loans
            
            $
            (6,614
            )
            
            
            (4
            )
            %
            
            $
            23,055
            
            
            
            6
            
            %Interest-interest
      bearing accounts
            
            
            (1,772
            )
            
            
            (56
            )
            
            
            
            (20,256
            )
            
            
            (84
            )Late
      fees, prepayment penalties and fees
            
            
            2,585
            
            
            
            234
            
            
            
            
            1,760
            
            
            
            62Other
            
            
            (3,503
            )
            
            
            (88
            )
            
            
            
            (3,303
            )
            
            
            (53
            )Total
      revenues
            
            
            (9,304
            )
            
            
            (6
            )
            
            
            
            1,256
            
            
            
            —ExpensesMortgage
      servicing fees
            
            
            —
            
            
            
            —
            
            
            
            
            —
            
            
            
            —Clerical
      costs through Redwood Mortgage Corp.
            
            
            (288
            )
            
            
            (11
            )
            
            
            
            (3,455
            )
            
            
            (42
            )Asset
      management fees
            
            
            —
            
            
            
            —
            
            
            
            
            (2,922
            )
            
            
            (100
            )Provision
      for losses on loans and real estate
            
            
            9,168
            
            
            
            144
            
            
            
            
            38,371
            
            
            
            (154
            )Professional
      services
            
            
            (1,354
            )
            
            
            (11
            )
            
            
            
            (119
            )
            
            
            —Other
            
            
            (1,067
            )
            
            
            (10
            )
            
            
            
            (866
            )
            
            
            (3
            )Total
      expenses
            
            
            6,461
            
            
            
            21
            
            
            
            
            31,009
            
            
            
            47Net
      income
            
            $
            (15,765
            )
            
            
            (12
            )
            %
            
            $
            (29,753
            )
            
            
            (8
            )
            %





The
decrease in interest on loans for the three month period ended September 30,
2008 as compared to the same period in 2007 was primarily due to a decrease in
the average loan portfolio balance from $6,247,848 for 2007 to $5,907,765 for
2008.  Offsetting this decrease was an increase to the effective
weighted average interest rate from 9.55% in 2007 to 9.66% for
2008.  The increase in interest on loans for the nine month period was
due to increases in both the average loan portfolio and the effective interest
rate.    For the nine month period of 2008, these numbers
were $6,054,980 and 9.57% compared to $5,873,995 and 9.34% for
2007.  Each three month period includes $2,056 in income gained
through amortization of discount on unsecured notes and the nine month periods
include $6,169 of discount earned.  After adjusting for the discount,
the effective weighted average interest rates for the three month periods were
9.52% for 2008 and 9.42% for 2007, and for the nine month periods the adjusted
interest rates were 9.43% for 2008 and 9.20% for 2007.





The
decrease in interest from interest-bearing accounts for the three month period
ended September 30, 2008 as compared to the same period in 2007 was primarily
due to a decrease in the average interest rate earned.  For 2008, the
average rate was 1.13% and 3.73% for 2007.  The decrease for the nine
month period is due decreases to both the average account balances and interest
rates earned  The average account balance declined from $816,389 in
2007 to $395,709 in 2008 and the average interest rate earned declined to 1.95%
in 2008, from 3.94% in 2007.





The
increase in late fees is due to increased delinquency and borrowers already
delinquent failing to pay on time.





The
decrease in other income is due a one time expense recapture in the third
quarter of 2007.





The
decrease in clerical costs from Redwood Mortgage Corp. (RMC) for the nine month
period ended September 30, 2008 as compared to the same period in 2007 was due
to the waiver by RMC of its entire charge of $3,052 for the first quarter of
2008.





The
decrease in asset management fees for the nine month period ended September 30,
2008 as compared to the same period in 2007 was due to a complete waiver of
management fees by the general partners during 2008.


17





The
increase in provision for losses on loans and real estate for the three and nine
month periods ended September 30, 2008 as compared to the same period in 2007 is
due to management’s determination the allowances for losses on loans and real
estate held totaling $561,822 as of September 30, 2008 was
adequate.  Please see the Allowance for Losses discussion below for
further details.





The
decrease in professional fees for the three and nine month periods ended
September 30, 2008 as compared to the same period in 2007 was due to general
professional cost decreases in 2008 for legal services, audits, tax return
processing and the timing of billing.





The
decrease in other costs for the third quarter is primarily related to reduced
costs for the production and distribution of reports.





At
September 30, 2008, there was one outstanding loan with an aggregate balance of
$134,422 with a filed notice of default.





Redwood
Mortgage Corp., an affiliate of the general partners, received mortgage
brokerage commissions from loan borrowers of $0 and $17,800 for the three month
periods and $18,305 and $52,150 for the nine month periods, all ended September
30, 2008 and 2007, respectively.  These decreases are due to reduced
opportunities and reduced cash available for investment in new loans in
2008.  For the three months ended September 30, 2008, $0 in new loans
were made, compared to $590,000 for the same period in 2007.  For the
nine month periods ended September 30, 2008 and 2007, the amounts of new loans
were $351,615 and $1,751,617, respectively.





Allowance
for Losses.





The
general partners regularly review the loan portfolio, examining the status of
delinquencies, the underlying collateral securing these loans, borrowers’
payment records, etc.  Based upon this information and other data, the
allowance for loan losses is increased or decreased. Borrower foreclosures are a
normal aspect of partnership operations.  The partnership is not a
credit based lender and hence while it reviews the credit history and income of
borrowers, and if applicable, the income from income producing properties, the
general partners expect we will on occasion take back real estate
security.  At September 30, 2008, the partnership had three secured
loans totaling $538,864, which were past due more than 90 days in interest
payments or past maturity.  Additionally, one secured loan totaling
$214,999 was past maturity as of September 30, 2008 and there are three
unsecured loans totaling $741,700, net of a discount of $51,408





Periodically,
the partnership enters into workout agreements with borrowers who are past
maturity or delinquent in their regular payments.  The partnership had
one loan totaling $134,422 in a workout agreement with the borrower as of
September 30, 2008.  Typically, a workout agreement allows the
borrower to extend the maturity date of the balloon payment, allows the borrower
to make current monthly payments while deferring for periods of time, past due
payments  or allows time to pay the loan in full.  Workout
agreements and foreclosures generally exist within our loan portfolio to varying
degrees, depending primarily on the health of the economy.  The number
of foreclosures and workout agreements will generally rise during difficult
economic times and conversely fall during good economic
times.  Workout agreements and foreclosures are considered when
management arrives at an appropriate allowance for loan losses, and based on our
experience; they are reflective of our loan marketplace segment. During the
remainder of 2008, we may initiate foreclosure by filing notices of default on
delinquent borrowers or borrowers who become delinquent during the
year.  Borrower foreclosures are a normal aspect of partnership
operations and the general partners anticipate they will not have a material
effect on liquidity.  As a safeguard against potential losses, the
general partners have made provisions for losses on loans and real estate held
of $561,822 at September 30, 2008.  These provisions for losses were
made to guard against collection losses and are considered by the general
partners to be adequate. Due to the number of variables involved, the magnitude
of the swings possible and the general partners’ inability to control many of
these factors, actual results may and do sometimes differ materially from
estimates made by the general partners.





18


As of
September 30, 2008, the partnership had an average loan to value ratio of 59.30%
computed based on appraised values and prior liens as of the date the loan was
made.  This percentage does not account for any increases or decreases
in property values since the date the loan was made, nor does it include any
reductions in principal through amortization of payments after the loan was
made.  This low loan to value ratio should assist the partnership in
weathering loan delinquencies and foreclosures should they occur.





PORTFOLIO
REVIEW





Loan
Portfolio





The
partnership’s loan portfolio consists primarily of short-term (one to five
years), fixed rate loans secured by real estate. As of September 30, 2008 and
2007, the partnership’s loans secured by real property collateral in the nine
San Francisco Bay Area counties (San Francisco, San Mateo, Santa Clara, Alameda,
Marin, Napa, Solano, Sonoma and Contra Costa) represented $3,571,892 (71%) and
$4,683,553 (75%), respectively, of the outstanding secured loan
portfolio.  The remainder of the portfolio represented loans secured
by real estate located primarily in other Northern California
counties.





As of
September 30, 2008 and 2007, the partnership held 22 and 25 loans, respectively,
in the following categories:





September
      30,2008
            
            
            2007Single-family
      (1-4 units)
            
            $
            2,740,551
            
            
            
            54
            %
            
            $
            2,614,711
            
            
            
            41
            %Apartments
      (5+ units)
            
            
            99,622
            
            
            
            2
            %
            
            
            687,500
            
            
            
            11
            %Commercial
            
            
            1,794,111
            
            
            
            36
            %
            
            
            2,558,243
            
            
            
            41
            %Land
            
            
            417,979
            
            
            
            8
            %
            
            
            417,989
            
            
            
            7
            %Total
            
            $
            5,052,263
            
            
            
            100
            %
            
            $
            6,278,443
            
            
            
            100
            %





The
following table sets forth the priorities, asset concentrations and maturities
of the loans held by the partnership.





#
      of Loans
            
            
            Amount
            
            
            PercentFirst
      trust deeds
            
            
            19
            
            
            $
            4,248,055
            
            
            
            84
            %Second
      trust deeds
            
            
            2
            
            
            
            714,999
            
            
            
            14
            %Third
      trust deeds
            
            
            1
            
            
            
            89,209
            
            
            
            2
            %Total
            
            
            22
            
            
            $
            5,052,263
            
            
            
            100
            %Maturing
      prior to 12/31/08
            
            
            4
            
            
            $
            839,442
            
            
            
            17
            %Maturing
      during 2009
            
            
            4
            
            
            
            975,468
            
            
            
            19
            %Maturing
      during 2010
            
            
            3
            
            
            
            907,261
            
            
            
            18
            %Maturing
      after 12/31/10
            
            
            11
            
            
            
            2,330,092
            
            
            
            46
            %Total
            
            
            22
            
            
            $
            5,052,263
            
            
            
            100
            %Average
      Secured Loan
            
            
            
            
            
            $
            229,648
            
            
            
            4.55
            %Largest
      Secured Loan
            
            
            
            
            
            
            500,000
            
            
            
            9.90
            %Smallest
      Secured Loan
            
            
            
            
            
            
            89,209
            
            
            
            1.77
            %Average
      Loan-to-Value based upon appraisals andprior
      liens at time loan was consummated
            
            
            
            
            
            
            
            
            
            
            59.30
            %





The
partnership’s largest loan in the principal amount of $500,000 represents 9.90%
of outstanding secured loans and 5.11% of partnership assets.  At
times, a specific loan may increase above 10% of the secured loan portfolio or
partnership assets as the loan portfolio and assets of the partnership decrease
due to limited partner withdrawals and/or loan payoffs.





19


Liquidity
and Capital Resources.





The
partnership relies upon loan payoffs, and borrowers’ mortgage payments for the
source of funds for loans.  Over the past several years, mortgage
interest rates have decreased somewhat from those available at the inception of
the partnership.  If interest rates were to increase substantially,
the yield of the partnership’s loans may provide lower yields than other
comparable debt-related investments.  Additionally, since the
partnership has made primarily fixed rate loans, if interest rates were to rise,
the likely result would be a slower prepayment rate for the
partnership.  This could cause a lower degree of liquidity as well as
a slowdown in the ability of the partnership to invest in loans at the then
current interest rates.  Conversely, in the event interest rates were
to decline, the partnership could see significant borrower prepayments, which,
if the partnership can only obtain the then existing lower rates of interest,
may cause a dilution of the partnership’s yield on loans, thereby lowering the
partnership’s overall yield to the limited partners.  Cash is
constantly being generated from borrower payments of interest, principal and
loan payoffs.  Currently, cash flow exceeds partnership expenses and
earnings distribution requirements.  Excess cash flow is invested in
new loan opportunities, when available, and is used for other partnership
business.





At the
time of subscription to the partnership, limited partners made a decision to
either take distributions of earnings monthly, quarterly or annually or to
compound earnings in their capital account.  The table below
summarizes these allocation elections. As of September 30, 2008 and 2007,
limited partners electing to withdraw earnings represented 39% and 38%,
respectively, of the limited partners’ outstanding capital
accounts.





Three
      months ended September 30,
            
            
            Nine
      months ended September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Distributing
            
            $
            41,351
            
            
            $
            48,165
            
            
            $
            133,268
            
            
            $
            143,822Compounding
            
            $
            67,079
            
            
            $
            75,855
            
            
            $
            212,862
            
            
            $
            231,763





The
partnership also allows the limited partners to withdraw their capital account
(see table below) subject to certain limitations and penalties (see “Withdrawal
From Partnership” in the Limited Partnership Agreement).  These
withdrawals are within the normally anticipated range the general partners would
expect in their experience in this and other partnerships.  The
general partners expect a small percentage of limited partners will elect to
liquidate their capital accounts over one year with a 10% early withdrawal
penalty.  In originally conceiving the partnership, the general
partners wanted to provide limited partners needing their capital returned a
degree of liquidity.  Generally, limited partners electing to withdraw
over one year need to liquidate investments to raise cash.  The demand
the partnership is experiencing in withdrawals by limited partners electing a
one year liquidation program represents a small percentage of limited partner
capital as of September 30, 2008 and 2007, and is expected by the general
partners to commonly occur at these levels.





Three
      months ended September 30,
            
            
            Nine
      months ended September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Capital
      liquidations-without penalty
            
            $
            73,441
            
            
            $
            76,148
            
            
            $
            250,888
            
            
            $
            237,944Capital
      liquidations-subject to penalty
            
            $
            2,872
            
            
            $
            17,624
            
            
            $
            26,145
            
            
            $
            40,083





20


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





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





Current
Economic Conditions.





The
partnership makes mortgage loans in California.  The bulk of its
lending is concentrated in the San Francisco Bay Area and outlying
communities.  The economic health of California and the San Francisco
Bay Area are significant in determining the performance of the real estate
industry and property values in general, which provide the underlying collateral
for our loans.  California’s economic vitality is driven by numerous
diverse industries, including tourism, finance, entertainment, shipping,
technology, agriculture and government.  Alone, California is the
eighth largest economy in the world and as such is a major contributor to the
overall United States economic health.





Both the
United States’ and California’s economies have encountered difficult economic
times over the last year.  A proximate cause of the financial
difficulties has been the rise in housing prices during 2003 to 2006 and the
subsequent declines.  As residential real estate values declined,
borrowers that had obtained subprime mortgages began to default on their
mortgage obligations.  These defaults were due to a variety of
reasons, including inability to manage their mortgage payments, dramatic
increases in mortgage payments, stricter underwriting standards and reduced
equity.  This has led to what many are calling the “Credit
Crisis.”





During
the year 2008, numerous events have buffeted the economy, the financial system
and the business sector.  These include:  the failure of
brokerage firm Lehman Bros; the forced merger of the brokerage firm Bear
Stearns; the governmental bailout of insurance giant AIG; the government
takeover of both Fannie Mae and Freddie Mac, (the largest holders of residential
mortgages in the United States); the merger of Bank of America with Countrywide,
(the third largest holder of residential mortgages in the United States) and the
forced merger of Wachovia Bank.  Wall Street, in particular, has been
hard hit with various stock indices having dropped significantly in
2008.  The Dow Jones Industrial Average has dropped 30 percent, the
Standard and Poor’s 500 has dropped 34 percent and the NASDAQ has dropped 35
percent, all through October 31, 2008.  These factors have contributed
to shrinking credit availability and exposed the financial system to increased
risks.





21


In
response to the strife in the financial markets, and to help bolster the
financial system and the economy, the United States government, through the
Federal Reserve and Treasury has enacted many measures.  Some of these
measures include a financial stimulus package, the temporary raising of limits
on the Federal Deposit Insurance Corporation and National Credit Union
Administration  from $100,000 to $250,000 per account, the Troubled
Asset Relief Program to provide capital to financial institutions and purchase
or guarantee troubled mortgage related and possibly other assets, increasing the
amount of funds it auctions to banks, reducing the Federal Funds rate, placing a
temporary guarantee for balances held in money market mutual funds and the
Emergency Economic Stabilization Act.  The results of these actions
and future actions will take time to have their intended effect.





The
United States Gross Domestic Product (GDP) increased at an annual rate of 0.9
percent during the first quarter of 2008 and continued in positive territory
during the second quarter of 2008, rising at an annual rate of 2.8
percent.  During the third quarter of 2008 GDP slipped to 0.3 percent
raising fears the credit crisis will cause the economy to fall into a
recession.





Inflation
as measured by the Consumer Price Index (CPI) accelerated in the first and
second quarters of 2008. Consumer prices advanced at a seasonally adjusted
annualized rate of 7.9 percent in the second quarter after increasing at a 3.1
percent rate in the first three months of 2008.  The cost of energy
has been a leading contributor to advances in the CPI.  However, the
price of crude oil fell from its July highs of approximately $145 per barrel to
less than $70 per barrel in October 2008.  Recent reductions in the
price of oil and lower housing costs have driven increases in the CPI downward
to 2.6% during the third quarter of 2008.  This brings the
year-to-date annual rate to an increase of 4.5 percent, compared with an
increase of 4.1 percent in all of 2007.  The outlook for continued
inflation has diminished with the recent strong reductions in the cost of oil
and other commodity prices during July, August, September and October of
2008.





Unemployment,
a factor in borrowers’ ability to service their indebtedness, increased during
the third quarter of 2008.  Both the United States and the California
unemployment rates increased to 6.1 percent and 7.7 percent, respectively,
during September 2008.  These rates evidence the steady increase in
unemployment, particularly when compared to the unemployment rates in September
2007 of 4.7 percent and 5.6 percent for the United States and California,
respectively.





In
September 2007, after having left the Federal Funds Rate unchanged at 5.25
percent for more than two years, the Federal Reserve began to react to the
slowing economy, rising unemployment, and turmoil created by contractions in the
credit market and lowered the rate to 4.75 percent.  In lowering the
Federal Funds Rate, the Federal Reserve’s initial goals were to stimulate the
economy while keeping inflation in check, create jobs and increase liquidity in
the financial system.  Since the September 2007 reduction, the Federal
Funds Rate has been lowered several times.  The most recent reduction
on October 29, 2008 was to 1.0 percent in an effort to loosen the flow of
credit, counter weakening economic activity and reduced inflationary
pressures.  This is the lowest Federal Funds Rate in over four years.
Like the Federal Funds Rate, banks have lowered their Prime Rate to 4.00 percent
from its most recent high of 8.25 percent.





Short-term
Treasury yields have also fallen, but longer term yields represented by the 10
year treasury bonds have not decreased as dramatically.  In September
2008, the Federal Reserve reported the 10 year treasury yield was 3.69 percent,
as compared to 4.52 percent for September 2007.  During most of 2008,
the 10 year treasury yield has remained within a range of 3.50 percent of 4.25
percent. Mortgage interest rates have not been significantly affected by the
Federal Reserve’s actions, but are nevertheless lower than one year
ago.  Freddie Mac reports during the week ending October 23, 2008, the
30-year fixed-rate mortgage averaged 6.04 percent with an average 0.6 point fee.
One year ago, the 30-year fixed-rate mortgage averaged 6.33 percent with a 0.4
point fee.  The current 30-year mortgage rate is slightly higher than
the rates that existed during the spring of 2008, when comparable mortgage rates
were in the high 5.00 percent range.





22


On a
national and local level, both residential sales volumes and median home prices
have declined from their highs in 2005 and 2006.  However, starting in
July 2008, residential sales volumes began to increase over the previous month’s
activity.  Compared to a year ago July, August and September
residential sales volumes were 43.4 percent, 56.7 percent and 96.7 percent ahead
of the same periods in 2007.  The increased sales volumes helped to
decrease the California Association of Realtors Unsold Inventory Index for
existing, single-family detached homes to 6.5 months from the 16 months for the
same period a year ago.  This falling index, which indicates the
months needed to deplete the market supply of homes at the current sales rate,
is a good omen indicating the market may be moving toward balance with normal
amounts of inventory available for real estate buyers to select from. The
California Association of Realtors reported the median price of an existing,
single-family detached home in California decreased 40.9 percent to $316,480 in
September of 2008 when compared to September of 2007.  The significant
decline in the median price is largely due to a dramatic shift in the sales mix
since the onset of the credit crunch and the increase in the share of distressed
sales.  The greater percentage of lower priced homes included in the
median skews the median price dramatically lower.  By region, the
median prices and year over year price changes varied
dramatically.  The San Francisco Bay had a September median price of
an existing, single family detached home of $554,730, down 29.2 percent from
September 2007.  Los Angeles had a September 2008 median price of an
existing, single family detached home of $376,790, down 35.3 percent from the
previous year.  Condominium median prices faired somewhat better than
existing, single family detached homes with a median price of $292,620 for
September 2008, down 29.0 percent from September 2007.


Data on
loan delinquencies and foreclosures on residential real estate have been mixed.
Mortgage loan servicers recorded 94,240 "notice of default" filings during the
July-through-September period. This was down from 113,809 and 121,673 for this
year's first and second quarters, but up 29.9 percent from 72,571 in the third
quarter of 2007, according to DataQuick Information Systems.


In the
current environment, borrowers owning residential properties may find it
difficult to refinance or sell their properties should they encounter difficulty
in making their mortgage payments.  In these circumstances, the lender
will have to decide whether to work with the borrowers to assist them through a
period of financial difficulty or proceed with remedies incorporated into the
loan documents, often resulting in a foreclosure of the
property.  Slow and longer sales periods and often lower property
values, coupled with a general lack of financing alternatives and tough
underwriting standards have forced many borrowers and lenders to make difficult
choices.  The partnership’s loans outstanding as of September 30, 2008
carried an average loan-to-value ratio of 59.30% based on appraised value and
senior liens as of the date the loan was made.  The partnership’s
average loan to value ratio will help provide sufficient equity to recoup
individual outstanding loan balances should foreclosure of properties become
necessary.





Commercial
real estate has continued to fare well in 2008.  Rents have continued
to rise but vacancy has begun to increase.  NAIBT Commercial reported
the San Francisco Bay Area office market posted a moderate increase in
vacancy.  Vacancy has increased throughout 2008, rising from 11.00
percent at the close of 2007 to 13.7 percent in the third quarter of
2008.  Average asking rental rates, though now leveling, pushed
slightly further above the $3.00 mark to $3.11 per square foot full service
during the third quarter of 2008.  Commercial sales volumes have
declined significantly during 2008 as heightened lending standards and the
volatile reports on the economy widen the gap between buyer and seller
expectations.   A stable commercial rental market helps keep
values stable, a benefit to the partnership.  Stable rents and stable
property values provide comfort loans secured by these properties will perform
well.





Rental
apartments continued with stable rents and stable prices.  Rents and
occupancy were virtually unchanged over the past quarter. Realfacts reported
nationwide rents inched up from an average of $1,000 per month for the second
quarter of 2008 to $1,002 in the third quarter of 2008.  In June, the
average occupancy rate for apartments in all areas was 92.7%, and in September
it was 92.9%.  San Jose and Los Angeles were reported to have the
fourth and fifth highest average rental rates at $1,708 and $1,661,
respectively.  These level rental rates and occupancy rates suggest
the apartment sector is in balance and should continue with stability and stable
pricing.  Stable rents, occupancy and values benefit the partnership
by helping borrowers maintain mortgage payments on multifamily
collateral.








23


Part
I – Item 3. Quantitative and Qualitative Disclosures About Market
Risk





The
following table contains information about the cash held in money market
accounts and loans held in the partnership’s portfolio as of September 30,
2008.  The presentation, for each category of information, aggregates
the assets and liabilities by their maturity dates for maturities occurring in
each of the years 2008 through 2012 and separately aggregates the information
for all maturities arising after 2012.  The carrying values of these
assets and liabilities approximate their fair market values as of September 30,
2008:





2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            Thereafter
            
            
            TotalInterest
      earning assets:Money
      market accounts
            
            $
            1,240,432
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,240,432Average
      interest rate
            
            
            2.00
            %
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2.00
            %Unsecured
      loans
            
            
            
            
            
            
            
            
            
            
            
            $
            741,700
            
            
            
            
            
            
            
            
            $
            741,700Average
      interest rate
            
            
            
            
            
            
            
            
            
            
            
            
            0.00
            %
            
            
            
            
            
            
            
            
            0.00
            %Loans
      secured by deedsof
      trust
            
            $
            839,442
            
            
            
            975,468
            
            
            
            907,261
            
            
            
            599,622
            
            
            
            1,398,105
            
            
            
            332,365
            
            
            $
            5,052,263Average
      interest rate
            
            
            9.81
            %
            
            
            8.96
            %
            
            
            9.60
            %
            
            
            9.14
            %
            
            
            9.63
            %
            
            
            9.43
            %
            
            
            9.45
            %








Market
Risk.





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





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





Asset
Quality





A
consequence of lending activities is that occasionally losses will be
experienced and that the amount of such losses will vary from time to time,
depending upon the risk characteristics of the loan portfolio as affected by
economic conditions and the financial experiences of borrowers.  Many
of these factors are beyond the control of the general
partners.  There is no precise method of predicting specific losses or
amounts that ultimately may be charged off on particular segments of the loan
portfolio, especially in light of the current economic environment.





24


The
conclusion a loan may become uncollectible, in whole or in part, is a matter of
judgment.  Although institutional lenders are subject to requirements
and regulations that, among other things, require them to perform ongoing
analyses of their portfolios, loan-to-value ratios, reserves, etc., and to
obtain and maintain current information regarding their borrowers and the
securing properties, the partnership is not subject to these regulations and has
not adopted certain of these practices.  Rather, the general partners,
in connection with the periodic closing of the accounting records of the
partnership and the preparation of the financial statements, determine whether
the allowance for loan losses is adequate to cover potential loan losses of the
partnership.  As of September 30, 2008, three loans were either past
due more than 90 days in interest payments or mature, totaling
$538,864.  One of these loans was also in foreclosure
status.  One of the mature loans totaling $214,999 was current on
interest payments.  Management believes there is sufficient collateral
to cover the amount outstanding to the partnership on these loans.  As
of September 30, 2008, the general partners have determined the allowance for
loan and real estate losses of $561,822 (6.10% of partners’ capital) is adequate
in amount.  Because of the number of variables involved, the magnitude
of the swings possible and the general partners’ inability to control many of
these factors, actual results may and do sometimes differ significantly from
estimates made by the general partners.








Part
I – Item 4.   CONTROLS AND PROCEDURES





As of
September 30, 2008, the partnership carried out an evaluation, under the
supervision and with the participation of the general partners of the
effectiveness of the design and operation of the partnership’s disclosure
controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange
Act of 1934, as amended.  Based upon that evaluation, the general
partners concluded as of the end of the period covered by this report, that the
partnership’s disclosure controls and procedures are effective to ensure that
information required to be disclosed by the partnership in the reports that it
files or submits under that Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s
rules and forms, and is accumulated and communicated to the general partners as
appropriate to allow timely decisions regarding required
disclosure.





There was
no change in the partnership’s internal control over financial reporting during
the three months ended September 30, 2008 that has materially affected, or is
reasonably likely to materially affect, the partnership’s internal control over
financial reporting.





25


PART
II – OTHER INFORMATION








Item
1.                Legal
Proceedings





From time
to time the partnership is involved in various legal actions arising in the
normal course of business.  In the opinion of management, such matters
will not have a material effect upon the financial position of the
partnership.








Item
1A.             Risk
Factors





Not
Applicable








Item
2.                Unregistered
Sales of Equity Securities and Use of Proceeds





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





31.1
Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002


31.2
Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002


32.1
Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002


32.2
Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002





26


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934 the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereto
duly authorized on the 14th day of November, 2008.








REDWOOD
      MORTGAGE INVESTORS VII





By:
            /S/
      Michael R. BurwellMichael
      R. Burwell, General PartnerBy:
            Gymno
      Corporation, General PartnerBy:
            /S/
      Michael R. BurwellMichael
      R. Burwell, President,Secretary/Treasurer
      & Chief Financial Officer

















27


Exhibit
31.1





GENERAL
PARTNER CERTIFICATION





I,
      Michael R. Burwell, certify that:





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





2.
            Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;





3.
            Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the
      Registrant as of, and for, the periods presented in this
      report;





4.
            The
      Registrant’s other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15-d-15(f)) for the Registrant and
  have:





(a)
            designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the Registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;





(b)
            designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;





(c)
            evaluated
      the effectiveness of the registrant’s disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
  and





(d)
            disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s forth fiscal quarter in the case of an
      annual report) that has materially affected, or is reasonably likely to
      materially affect, the Registrant’s internal control over financial
      reporting; and





5.
            The
      Registrant’s other certifying officers and I have disclosed, based on our
      most recent evaluation of internal control over financial reporting, to
      the Registrant’s auditors and the audit committee of the Registrant’s
      board of directors (or persons performing the equivalent
      functions):





(a)
            all
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the Registrant’s ability to record,
      process, summarize and report financial information;
  and





(b)
            any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the Registrant’s internal control
      over financial reporting.














/s/
Michael R. Burwell


_____________________________


Michael
R. Burwell, General Partner


November
14, 2008


28


Exhibit
31.2





PRESIDENT
AND CHIEF FINANCIAL OFFICER CERTIFICATION





I,
      Michael R. Burwell, certify that:





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





2.
            Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;





3.
            Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the
      Registrant as of, and for, the periods presented in this
      report;





4.
            The
      Registrant’s other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15-d-15(f)) for the Registrant and
  have:





(a)
            designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the Registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;





(b)
            designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;





(c)
            evaluated
      the effectiveness of the registrant’s disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
  and





(d)
            disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s forth fiscal quarter in the case of an
      annual report) that has materially affected, or is reasonably likely to
      materially affect, the Registrant’s internal control over financial
      reporting; and





5.
            The
      Registrant’s other certifying officers and I have disclosed, based on our
      most recent evaluation of internal control over financial reporting, to
      the Registrant’s auditors and the audit committee of the Registrant’s
      board of directors (or persons performing the equivalent
      functions):





(a)
            all
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the Registrant’s ability to record,
      process, summarize and report financial information;
  and





(b)
            any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the Registrant’s internal control
      over financial reporting.














/s/
Michael R. Burwell


____________________________


Michael
R. Burwell, President and


Chief
Financial Officer of Gymno


Corporation,
General Partner


November
14, 2008


29


Exhibit
32.1





CERTIFICATION
PURSUANT TO


18 U.S.C
SECTION 1350,


AS
ADOPTED PURSUANT TO


SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002








In
connection with the Quarterly Report of Redwood Mortgage Investors VII (the
“Partnership”) on Form 10-Q for the period ended September 30, 2008 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”),
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, certify, that to the best of
my knowledge:





(1)
            The
      Report fully complies with the requirements of section 13(a) or 15(d) of
      the Securities Exchange Act of 1934;
and





(2)
            The
      information contained in the Report fairly presents, in all material
      respects, the financial condition and results of operations of the
      Partnership at the dates and for the periods
  indicated.





A signed
original of this written statement required by Section 906 has been provided to
Redwood Mortgage Investors VII and will be retained by Redwood Mortgage
Investors VII and furnished to the Securities and Exchange Commission or its
staff upon request.














/s/
      Michael R. Burwell


______________________________


Michael
      R. Burwell, General Partner


November
      14, 2008


30


Exhibit
32.2








CERTIFICATION
      PURSUANT TO


18
      U.S.C. SECTION 1350


AS
      ADOPTED PURSUANT TO


SECTION
      906 OF THE SARBANES-OXLEY ACT OF
2002








In
connection with the Quarterly Report of Redwood Mortgage Investors VII (the
“Partnership”) on Form 10-Q for the period ended September 30, 2008 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”),
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, certify that to the best of
my knowledge:





(1)
            The
      Report fully complies with the requirements of section 13(a) or 15(d) of
      the Securities Exchange Act of 1934;
and





(2)
            The
      information contained in the Report fairly presents, in all material
      respects, the financial condition and results of operations of the
      Partnership at the dates and for the periods
  indicated.





A signed
original of this written statement required by Section 906 has been provided to
Redwood Mortgage Investors VII and will be retained by Redwood Mortgage
Investors VII and furnished to the Securities and Exchange Commission or its
staff upon request.














/s/
      Michael R. Burwell


________________________________


Michael
      R. Burwell, President,


Secretary/Treasurer
      & Chief Financial


Officer
      of Gymno Corporation, General
Partner


November
      14, 2008


31