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 March 31, 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, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.





Large
Accelerated
Filer  [  ]                                                   Accelerated
Filer  [  ]                                               Non-Accelerated
Filer  [X]





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


MARCH
31, 2008 (unaudited) AND DECEMBER 31, 2007 (audited)





ASSETS





March
      31,
            
            
            December
      31,2008
            
            
            2007Cash
      and cash equivalents
            
            $
            300,016
            
            
            $
            351,129LoansLoans,
      secured by deeds of trust
            
            
            6,160,911
            
            
            
            6,202,522Loans,
      unsecured, net discount of $55,521 and $57,577for
      March 31, 2008 and December 31, 2007, respectively
            
            
            788,707
            
            
            
            772,031Allowance
      for loan losses
            
            
            (386,658
            )
            
            
            (386,658
            )Net
      loans
            
            
            6,562,960
            
            
            
            6,587,895Interest
      and other receivablesRelated
      party receivables
            
            
            24,448
            
            
            
            20,702Accrued
      interest and late fees
            
            
            79,402
            
            
            
            73,259Advances
      on loans
            
            
            2,070
            
            
            
            6,436Total
      interest and other receivables
            
            
            105,920
            
            
            
            100,397Investment
      in limited liability company
            
            
            973,557
            
            
            
            939,937Real
      estate held, net
            
            
            1,371,401
            
            
            
            1,371,401Total
      assets
            
            $
            9,313,854
            
            
            $
            9,350,759








LIABILITIES AND PARTNERS’
CAPITAL





LiabilitiesAccounts
      payable
            
            $
            11,865
            
            
            $
            11,865Payable
      to affiliate
            
            
            72,660
            
            
            
            71,998Total
      liabilities
            
            
            84,525
            
            
            
            83,863Partners’
      capitalLimited
      partners’ capital, subject to redemption
            
            
            9,217,356
            
            
            
            9,254,923General
      partners’ capital
            
            
            11,973
            
            
            
            11,973Total
      partners’ capital
            
            
            9,229,329
            
            
            
            9,266,896Total
      liabilities and partners’ capital
            
            $
            9,313,854
            
            
            $
            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 MONTHS ENDED MARCH 31, 2008 AND 2007 (unaudited)





2008
            
            
            2007RevenuesInterest
      on loans
            
            $
            143,770
            
            
            $
            139,109Interest-interest
      bearing accounts
            
            
            1,825
            
            
            
            8,206Late
      fees
            
            
            695
            
            
            
            1,168Other
            
            
            1,482
            
            
            
            1,232Total
      revenues
            
            
            147,772
            
            
            
            149,715ExpensesClerical
      costs through Redwood Mortgage Corp.
            
            
            —
            
            
            
            2,837Asset
      management fees
            
            
            —
            
            
            
            2,922Recovery
      on losses on loans and real estate held
            
            
            —
            
            
            
            (12,676
            )Professional
      services
            
            
            18,464
            
            
            
            23,129Other
            
            
            7,402
            
            
            
            6,791Total
      expenses
            
            
            25,866
            
            
            
            23,003Net
      income
            
            $
            121,906
            
            
            $
            126,712Net
      income:  general partners (1%)
            
            $
            1,229
            
            
            $
            1,267limited
      partners (99%)
            
            
            120,677
            
            
            
            125,445$
            121,906
            
            
            $
            126,712Net
      income per $1,000 invested by limitedpartners
      for entire period-where
      income is compounded and retained
            
            $
            13
            
            
            $
            13-where
      partner receives income in monthlydistributions
            
            $
            13
            
            
            $
            13











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 THREE MONTHS ENDED MARCH 31, 2008 AND 2007 (unaudited)








2008
            
            
            2007Cash
      flows from operating activitiesNet
      income
            
            $
            121,906
            
            
            $
            126,712Adjustments
      to reconcile net income to net cash providedby
      operating activitiesRecovery
      of losses on loans and real estate held
            
            
            —
            
            
            
            (12,676
            )Early
      withdrawal penalty credited to income
            
            
            (1,132
            )
            
            
            (982
            )Amortization
      of discount on unsecured loans
            
            
            (2,056
            )
            
            
            (2,056
            )Change
      in operating assets and liabilitiesLoans,
      unsecured
            
            
            (14,620
            )
            
            
            (3,524
            )Accrued
      interest and late fees
            
            
            (6,143
            )
            
            
            (13,820
            )Advances
      on loans
            
            
            4,366
            
            
            
            —Related
      party receivables
            
            
            (3,746
            )
            
            
            4,521Payable
      to affiliate
            
            
            662
            
            
            
            —Net
      cash provided by operating activities
            
            
            99,237
            
            
            
            98,175Cash
      flows from investing activitiesPrincipal
      collected on loans
            
            
            190,225
            
            
            
            699,624Loans
      originated
            
            
            (148,614
            )
            
            
            —Payments
      on investment in limited liability company
            
            
            (36,006
            )
            
            
            (5,449
            )Proceeds
      from investment in limited liability company
            
            
            2,386
            
            
            
            —Net
      cash provided by investing activities
            
            
            7,991
            
            
            
            694,175Cash
      flows from financing activitiesPartners’
      withdrawals
            
            
            (158,341
            )
            
            
            (151,030
            )Net
      (decrease)/increase in cash and cash equivalents
            
            
            (51,113
            )
            
            
            641,320
            )Cash
      and cash equivalents - beginning of period
            
            
            351,129
            
            
            
            584,114Cash
      and cash equivalents - end of period
            
            $
            300,016
            
            
            $
            1,225,434








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


4


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


MARCH
31, 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 three month
period ended March 31, 2008 are not necessarily indicative of the operating
results to be expected for the full year.






NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
  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
March 31, 2008 and December 31, 2007, the partnership had five and two loans,
respectively, past due 90 days or more in interest payments and/or past
maturity.  The outstanding principal balances of these loans at March
31, 2008 and December 31, 2007 were $792,129 and $987,500,
respectively.  In addition, accrued interest, advances and late
charges on these loans totaled $29,616 and $37,845 at March 31, 2008 and
December 31, 2007, respectively.  In the opinion of management, the
delinquent and/or past maturity loans as of March 31, 2008 have sufficient
collateral to cover the outstanding amounts due to the partnership and are still
accruing interest.




Loans, unsecured,
net


The
partnership has held unsecured loans, net of a discount, from three borrowers
totaling $788,707 and $772,031 at March 31, 2008 and December 31, 2007,
respectively.  Interest is not being accrued; however one borrower is
making monthly payments of principal and interest.





5


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


MARCH
31, 2008 (unaudited)






NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
  Allowance for loan
losses





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





March
      31, 2008
            
            
            December
      31, 2007Percent
      of
            
            
            
            
            
            Percent
      ofloans
      in
            
            
            
            
            
            loans
      ineach
            
            
            
            
            
            eachcategory
            
            
            
            
            
            categoryto
      total
            
            
            
            
            
            to
      totalAmount
            
            
            loans
            
            
            Amount
            
            
            loansBalance
      at end of periodApplicable
      to:DomesticReal
      estate – mortgageSingle
      family (1-4 units)
            
            $
            59,725
            
            
            
            44.72
            %
            
            $
            58,262
            
            
            
            42.13
            %Apartments
            
            
            10,217
            
            
            
            11.29
            %
            
            
            10,217
            
            
            
            11.21
            %Commercial
            
            
            35,183
            
            
            
            37.21
            %
            
            
            41,701
            
            
            
            39.92
            %Land
            
            
            29,252
            
            
            
            6.78
            %
            
            
            27,832
            
            
            
            6.74
            %Total
      real estate – mortgage
            
            $
            134,377
            
            
            
            100.00
            %
            
            $
            138,012
            
            
            
            100.00
            %Unsecured
      loans
            
            $
            252,281
            
            
            
            100.00
            %
            
            $
            248,646
            
            
            
            100.00
            %Total
      unsecured loans
            
            $
            252,281
            
            
            
            100.00
            %
            
            $
            248,646
            
            
            
            100.00
            %Total
      allowance for loan losses
            
            $
            386,658
            
            
            
            100.00
            %
            
            $
            386,658
            
            
            
            100.00
            %





6


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


MARCH
31, 2008 (unaudited)








NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)





Allowance for loan
losses (continued)





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





March
      31,
            
            
            December
      31,2008
            
            
            2007Balance
      at beginning of period
            
            $
            386,658
            
            
            $
            454,417Charge-offsDomesticReal
      estate – mortgageSingle
      family (1-4 units)
            
            
            —
            
            
            
            —Apartments
            
            
            —
            
            
            
            —Commercial
            
            
            —
            
            
            
            —Land
            
            
            —
            
            
            
            (46,637
            )—
            
            
            
            (46,637
            )RecoveriesDomesticReal
      estate – mortgageSingle
      family (1-4 units)
            
            
            —
            
            
            
            —Apartments
            
            
            —
            
            
            
            —Commercial
            
            
            —
            
            
            
            —Land
            
            
            —
            
            
            
            —Net
      charge-offs
            
            
            —
            
            
            
            (46,637
            )Additions
      (recovery) charge to operations
            
            
            —
            
            
            
            (21,122
            )Transfer
      to real estate held for sale reserve
            
            
            —
            
            
            
            —Balance
      at end of period
            
            $
            386,658
            
            
            $
            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).


7


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


MARCH
31, 2008 (unaudited)








NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)





Income
taxes





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





Reclassifications





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





Profits and
losses





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





Management
estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions about the reported amounts of assets and liabilities,
and disclosures of contingent assets and liabilities, at the 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. waived $14,533 in mortgage servicing fees during the first
quarter of 2008.





8


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


MARCH
31, 2008 (unaudited)








NOTE 3 – GENERAL PARTNERS
AND RELATED PARTIES (continued)





Asset management
fees





The
general partners receive monthly fees for managing the partnership’s loan
portfolio and operations in an amount up to 1/32 of 1% of the “net asset value” (3/8 of 1%
annually).  The general partners waived asset management fees of
$2,903 during the first quarter of 2008.





Other
fees





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





Operating
expenses





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








NOTE 4 – REAL ESTATE
HELD





In 1993
the Partnership, together with two other affiliates, acquired through
foreclosure a parcel of land located in East Palo Alto,
California.  As of March 31, 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 March 31, 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 March 31, 2008 and December 31, 2007:





March
      31,
            
            
            December
      31,2008
            
            
            2007Costs
      of properties
            
            $
            1,533,375
            
            
            $
            1,533,375Reduction
      in value
            
            
            (161,974
            )
            
            
            (161,974
            )Real
      estate held, net
            
            $
            1,371,401
            
            
            $
            1,371,401





9


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


MARCH
31, 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 that 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 March 31, 2008, the
partnership has capitalized approximately $136,855 in costs, net of recovery in
2006 from the guarantors of the original loan, related to this
property.  At March 31, 2008, the partnership’s investment in Larkin
totaled $973,557.








NOTE 6 – 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.




NOTE 7 – FAIR VALUE OF
FINANCIAL INSTRUMENTS


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







(a)
            Cash
      and cash equivalents – The carrying amount equals fair
      value.  All amounts, including interest bearing accounts, are
      subject to immediate withdrawal.


(b)
            Secured
      loans had a carrying value of $6,160,911 and $6,202,522 at March 31, 2008
      and December 31, 2007, respectively.  The fair value of these
      loans of $6,169,605 and $6,206,237, 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.


(c)
            Unsecured
      loans had a carrying value of $788,707 and $772,031 at March 31, 2008 and
      December 31, 2007, respectively.  The fair value of these loans
      approximates their carrying value after consideration of the loan losses
      established by the general partners on these
  loans.








10


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


MARCH
31, 2008 (unaudited)








NOTE 8 – ASSET
CONCENTRATIONS AND CHARACTERISTICS





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





March
      31,
            
            
            December
      31,2008
            
            
            2007Number
      of secured loans outstanding
            
            25
            
            
            
            25Total
      secured loans outstanding
            $
            6,160,911
            
            
            $
            6,202,522Average
      secured loan outstanding
            $
            246,436
            
            
            $
            248,101Average
      secured loan as percent of total secured loans
            
            4.00
            %
            
            
            4.00
            %Average
      secured loan as percent of partners’ capital
            
            2.67
            %
            
            
            2.68
            %Largest
      secured loan outstanding
            $
            500,000
            
            
            $
            500,000Largest
      secured loan as percent of total secured loans
            
            8.12
            %
            
            
            8.06
            %Largest
      secured loan as percent of partners’ capital
            
            5.42
            %
            
            
            5.40
            %Largest
      secured loan as percent of total assets
            
            5.37
            %
            
            
            5.35
            %Number
      of counties where security is located (all California)
            
            15
            
            
            
            15Largest
      percentage of loans in one county
            
            31.58
            %
            
            
            31.37
            %Number
      of secured loans in foreclosure status
            
            1
            
            
            
            NoneAmount
      of secured loans in foreclosure status
            $
            134,422
            
            
            
            None





At times,
loans may exceed 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.





11


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


MARCH
31, 2008 (unaudited)








NOTE 8 – ASSET
CONCENTRATIONS AND CHARACTERISTICS (continued)





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





March
      31,
            
            
            December
      31,2008
            
            
            2007First
      trust deeds
            
            $
            5,005,505
            
            
            $
            5,046,885Second
      trust deeds
            
            
            1,065,889
            
            
            
            1,065,972Third
      trust deeds
            
            
            89,517
            
            
            
            89,665Total
      loans
            
            
            6,160,911
            
            
            
            6,202,522Prior
      liens due other lenders at time of loan
            
            
            2,308,163
            
            
            
            2,308,163Total
      debt
            
            $
            8,469,074
            
            
            $
            8,510,685Appraised
      property value at time of loan
            
            $
            14,225,467
            
            
            $
            14,257,967Total
      secured loans as percent of appraisals based on appraisedvalues
      and prior liens at time loan was consummated
            
            
            59.53
            %
            
            
            59.69
            %Secured
      loans by type of propertySingle
      family homes (1-4 Units)
            
            $
            2,754,639
            
            
            $
            2,613,022Apartments
            
            
            695,625
            
            
            
            695,625Commercial
            
            
            2,292,668
            
            
            
            2,475,890Land
            
            
            417,979
            
            
            
            417,985$
            6,160,911
            
            
            $
            6,202,522





Scheduled
      maturity dates of secured loans as of March 31, 2008 are as
      follows:





Prior
      to December 31, 2008
            
            $
            1,349,442Between
      January 1, 2009 and December 31, 2009
            
            
            1,373,395Between
      January 1, 2010 and December 31, 2010
            
            
            1,204,748Between
      January 1, 2011 and December 31, 2011
            
            
            600,265Between
      January 1, 2012 and December 31, 2012
            
            
            1,400,044Thereafter
            
            
            233,017Total
            
            $
            6,160,911





The
scheduled maturities for 2008 above had two loans past maturity at March 31,
2008 in the amount of $404,442.





12


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


MARCH
31, 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 March 31, 2008, the
partnership had no loans 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 March 31, 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 March 31, 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.





13


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.


14





·
            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 $6,805 and $0 for the three month periods ended March 31, 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.  Redwood Mortgage
      Corp. waived the entire fee totaling $14,533 and $15,086 during the three
      month period ended March 31, 2008 and 2007,
  respectively.





·
            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).  Management fees to the general
      partners of $0 and $2,922 were incurred for the three month periods ended
      March 31, 2008 and 2007, respectively.  The general partners
      waived $2,903 during the quarter ended March 31,
  2008.





·
            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 $480 and $51 for the
      three month periods ended March 31, 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 $1,229 and $1,267 for the three month periods
      ended March 31, 2008 and 2007,
respectively.





·
            Operating
      ExpensesAn 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 $0 and $2,837 for the three
      month periods ended March 31, 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 March 31, 2008
      and 2007, a general partner, Gymno Corporation, had contributed $11,973 as
      capital in accordance with the partnership
  agreement.





15


Results of
Operations





Changes
in the Partnership’s operating results for the three month period ended March
31, 2008 as compared to 2007 are discussed below:








Changes
      during the three months ended March 31, 2008 versus 2007Dollars
            
            
            PercentRevenueInterest
      on loans
            
            $
            4,661
            
            
            
            3.35
            
            %Interest-bearing
      accounts
            
            
            (6,381
            )
            
            
            (77.76
            )Late
      fees
            
            
            (473
            )
            
            
            (40.50
            )Other
            
            
            250
            
            
            
            20.29Total
      revenue
            
            
            (1,943
            )
            
            
            (1.30
            )ExpensesMortgage
      servicing fees
            
            
            —
            
            
            
            —Clerical
      costs through Redwood Mortgage Corp.
            
            
            (2,837
            )
            
            
            (100.00
            )Asset
      management fees
            
            
            (2,922
            )
            
            
            (100.00
            )Provision
      for losses on loans and real estate
            
            
            12,676
            
            
            
            (100.00
            )Professional
      services
            
            
            (4,665
            )
            
            
            (20.17
            )Other
            
            
            611
            
            
            
            9.00Total
      expenses
            
            
            2,863
            
            
            
            12.45Net
      income
            
            $
            (4,806
            )
            
            
            (3.79
            )
            %





The
increase in interest on loans for the three month period ended March 31, 2008 as
compared to the same period in 2007 was due to an increase in the average loan
portfolio outstanding to $6,099,002 as of March 31, 2008 from an average balance
of $5,905,492 as of March 31, 2007.





The
decrease in interest from interest-bearing accounts for the three month period
ended March 31, 2008 as compared to the same period in 2007 was due to decreases
in both the average account balance and the average interest rate
earned.  For 2008, the average balance was $314,217 and the average
rate was 2.32%.  For 2007, the corresponding numbers were $811,344 and
4.05%.





The
decrease in clerical costs from Redwood Mortgage Corp. (RMC) 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 three month period ended March 31,
2008 as compared to the same period in 2007 was due to a complete waiver of
$2,903 in management fees by the general partners during the quarter ended March
31, 2008.





The
increase in provision for losses on loans and real estate for the three month
period ended March 31, 2008 as compared to the same period in 2007 is due to
management’s determination the allowance for losses on loans and real estate
held of $548,632 as of March 31, 2008 was adequate.





The
decrease in professional fees for the three month period ended March 31, 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.





16


At March
31, 2008, there was one outstanding loan with a 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 $6,805 and $0 for the three month
periods ended March 31, 2008 and 2007, 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 March 31, 2008, the partnership had four secured loans
totaling $577,130, which were past due 90 days or more in interest
payments.  Additionally, one secured loan totaling $214,999 was past
maturity as of March 31, 2008 and there are four unsecured loans totaling
$788,707, net of a discount of $55,521





Periodically,
the partnership enters into workout agreements with borrowers who are past
maturity or delinquent in their regular payments.  The partnership had
no loans in workout agreements with borrowers as of March 31,
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 $548,632 at March 31, 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.





As of
March 31, 2008, the partnership had an average loan to value ratio of 59.53%
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.





17


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 March 31, 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 $4,568,167 (74.15%)
and $4,316,518 (78.21%), 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
March 31, 2008 and 2007, the partnership held 25 and 20 loans, respectively, in
the following categories:





March
      31,2008
            
            
            2007Single-family
      (1-4 units)
            
            $
            2,754,639
            
            
            
            44.72
            %
            
            $
            2,151,984
            
            
            
            38.99
            %Apartments
      (5+ units)
            
            
            695,625
            
            
            
            11.29
            %
            
            
            687,500
            
            
            
            12.46
            %Commercial
            
            
            2,292,668
            
            
            
            37.21
            %
            
            
            1,773,518
            
            
            
            32.14
            %Land
            
            
            417,979
            
            
            
            6.78
            %
            
            
            905,813
            
            
            
            16.41
            %Total
            
            $
            6,160,911
            
            
            
            100.00
            %
            
            $
            5,518,815
            
            
            
            100.00
            %





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





PRIORITIES,
ASSET CONCENTRATIONS AND MATURITIES OF LOANS


As
of March 31, 2008





#
      of Loans
            
            
            Amount
            
            
            Percent1st
      Mortgages
            
            
            20
            
            
            $
            5,005,505
            
            
            
            81.25
            %2nd
      Mortgages
            
            
            4
            
            
            
            1,065,889
            
            
            
            17.30
            %3rd
      Mortgages
            
            
            1
            
            
            
            89,517
            
            
            
            1.45
            %Total
            
            
            25
            
            
            $
            6,160,911
            
            
            
            100.00
            %Maturing
      prior to 12/31/08
            
            
            6
            
            
            $
            1,349,442
            
            
            
            21.91
            %Maturing
      between 01/01/09 and 12/31/09
            
            
            5
            
            
            
            1,373,395
            
            
            
            22.29
            %Maturing
      between 01/01/10 and 12/31/10
            
            
            4
            
            
            
            1,204,748
            
            
            
            19.55
            %Maturing
      after 12/31/10
            
            
            10
            
            
            
            2,233,326
            
            
            
            36.25
            %Total
            
            
            25
            
            
            $
            6,160,911
            
            
            
            100.00
            %Average
      Secured Loan
            
            
            
            
            
            $
            246,436
            
            
            
            4.00
            %Largest
      Secured Loan
            
            
            
            
            
            
            500,000
            
            
            
            8.12
            %Smallest
      Secured Loan
            
            
            
            
            
            
            89,517
            
            
            
            1.45
            %Average
      Loan-to-Value based upon appraisals andprior
      liens at time loan was consummated
            
            
            
            
            
            
            
            
            
            
            59.53
            %





The
partnership’s largest loan in the principal amount of $500,000 represents 8.12%
of outstanding secured loans and 5.37% of partnership assets.  Over
time, loans may increase above 10% of the secured loan portfolio or partnership
assets as the loan portfolio and assets of the partnership decrease due to
limited partner withdrawals and/or loan payoffs.





18


Borrower 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 an irrevocable
decision to either take distributions of earnings monthly, quarterly or annually
or to compound earnings in their capital account.  For the three month
periods ended March 31, 2008 and 2007, the partnership made the following
allocations of earnings both to the limited partners who elected to compound
their earnings, and those that chose to distribute:





Three
      months ended March 31,2008
            
            
            2007Compounding
            
            $
            74,598
            
            
            $
            77,496Distributing
            
            $
            47,072
            
            
            $
            47,949





As of
March 31, 2008 and 2007, limited partners electing to withdraw earnings
represented 39% and 38% of the limited partners’ capital.





The
partnership agreement also allows the limited partners to withdraw their capital
account subject to certain limitations.  For the three month periods
ended March 31, 2008 and 2007, $14,150 and $11,085, respectively, were
liquidated subject to the 10% penalty for early withdrawal.  These
withdrawals are within the normally anticipated range the general partners would
expect in their experience in this and other partnerships.





Additionally,
for the three month periods ended March 31, 2008 and 2007, $97,362 and $91,710,
respectively, were liquidated by limited partners who have elected a liquidation
program over a period of five years or longer.





Earnings
and capital liquidations, including early withdrawals, during the three months
ended March 31, 2008 and 2007 were:





Three
      months ended March 31,2008
            
            
            2007Earnings
      liquidation
            
            $
            46,732
            
            
            $
            47,949Capital
      liquidation*
            
            $
            110,380
            
            
            $
            102,795Total
            
            $
            157,112
            
            
            $
            150,744





* These
are gross amounts, which are not net of early withdrawal penalties.





19


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 primarily makes secured mortgage loans in California with the bulk
of its lending concentrated in the San Francisco Bay Area and its outlying
communities.  The economic health of California and, in particular,
the San Francisco Bay Area, plays a significant role in the performance of the
real estate industry, and property values, 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.





Over the
last several years, the United States economy and California’s economy have been
slowing.  Many have expressed fears of a
recession.  Although decelerating over the last four years, United
States Gross Domestic Product (GDP) continued to remain positive with annual
growth rates of 3.6%, 3.1%, 2.9% and 2.2% for the years 2004 through
2007.  GDP has continued to increase with a 0.6% gain in the first
quarter of 2008.  The University of California at Los Angeles,
Anderson Forecast predicts “real estate weakness will remain a significant drag
on the economy, leaving us treading water—but not slipping under the waves into
recession.”





The
United States unemployment rate, another factor in borrowers’ ability to service
their indebtedness, reached a low of 4.4% in December 2006 and has gradually
risen to 5.0% in December 2007.  As of March 2008, the United States
unemployment rate was 5.1%.  The upward unemployment trend turned
around in April 2008 when the unemployment rate declined to
5.0%.  California’s unemployment pattern has in many ways mimicked the
national unemployment rate.  California’s unemployment rate reached
its most recent low of 4.8% in November 2006 and has steadily climbed to a
preliminary estimate of 6.2% as of March 2008.





Inflation,
as measured by the Consumer Price Index (CPI), was 3.1% estimated at a
compounded annual rate for the first three months of 2008.  This
compares favorably to the 2007 CPI increase of 4.1%.  Oil prices,
however, have recently reached a new all-time high exceeding $120 per barrel in
May 2008.  This will place added upward pressure on the
CPI.





20


The
Federal Reserve, after having left the Federal Funds Rate unchanged at 5.25% for
more than two years, began to react to the slowing economy, rising unemployment
and the turmoil created by a credit crisis stemming from the sub prime mortgage
loan market write downs.  The Federal Reserves’ initial goals were
aimed at stimulating the economy, while keeping inflation in check and creating
jobs.  Later its efforts expanded to increase liquidity in the
financial system.  Since the initial Federal Funds Rate reduction of
0.5% in September 2007, the Federal Reserve has further reduced this rate by
0.25% in October 2007, 0.25% in December 2007, 1.25% in January 2008, 0.75% in
March 2008 and 0.25% in April 2008.  The Federal Funds Rate now stands
at 2.00% as of May 12, 2008.  The prime rate offered by banks for
borrowing has followed in lock step with the reductions in the Federal Funds
Rate and is currently at 5.0%.  Like the Federal Funds Rate, the Prime
Rate has been reduced by 3.25% since September 2007, a period of just seven
months.  Short term treasury yields have also fallen, but the longer
term yields represented by the 10 year treasury bonds have not decreased as
dramatically.  As of May 1, 2008, the 10 year treasury yield was 3.78%
compared to 4.04% at December 31, 2007 and 4.61% at September 30, 2007, shortly
after the Federal Reserve began efforts to lower interest rates.





Mortgage
rates have responded slowly to the Federal Reserve’s actions.  Freddie
Mac reports average interest rates for 30 year fixed rate conforming loans were
6.66% for June 2007, 6.38% for September 2007, 6.10% for December 2007, 5.97%
for March 2008 and most recently 5.92% for April 2008.  These
declining mortgage rates have not had an appreciable effect on stimulating
activity in the residential real estate market.





Loan
delinquencies and foreclosures on residential real estate have been
rising.  During the first quarter of 2008, the number of California
homes in foreclosure increased to the highest level in more than 15
years.  Throughout California, lending institutions sent homeowners
113,676 default notices during the first quarter of 2008, an increase of 39.4%
from the first quarter of 2007. (Dataquick)  On a national and local
level, both residential sales volumes and median home prices have declined from
their highs in 2005 and 2006.  Dataquick reported sales of new and
resale houses and condominiums in California were up 19.8% from February 2008
but down 38.3% from March 2007.  The median price for a California
single-family detached home was $413,980 in March 2008 compared to $582,930 in
March 2007.  The San Francisco Bay Area median single-family detached
home sales price was $704,580 in March 2008, down 10.2% from $784,730 in March
2007 (California Association of Realtors (CAR)).  CAR also reported
their unsold inventory index, which indicates the number of months needed to
deplete the market supply of homes at the current sales rate, was 11.6 months in
March 2008 compared to 7.6 months in March 2007.





In this
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 tougher underwriting standards, have forced
many borrowers and lenders to make difficult choices.  The
partnership’s low average loan to value ratio of 59.53% may help provide equity
to recoup individual outstanding loan balances should foreclosure of properties
become necessary.





Commercial
and multifamily real estate have continued to fare well in
2008.  Rents remain stable or escalating.  Colliers
International reported Class A office rents in San Francisco averaged $50.92 per
square foot, a rise of 1% the first quarter of 2008.  Apartment rents
the first quarter of 2008 were growing at a rate of 0.4% per
quarter.  Since March 2007, rents have increased about 3.0%
(RealFacts).  A stable commercial and apartment rental market helps
keep values stable.  Stable rents and stable property values provide
comfort that loans secured by these properties will perform well.





21


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 March 31,
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 March 31,
2008:





2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            Thereafter
            
            
            TotalInterest
      earning assets:Money
      market accounts
            
            $
            272,568
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            272,568Average
      interest rate
            
            
            1.99
            %
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1.99
            %Unsecured
      loans
            
            
            
            
            
            
            
            
            
            
            
            $
            788,707
            
            
            
            
            
            
            
            
            $
            788,707Average
      interest rate
            
            
            
            
            
            
            
            
            
            
            
            
            0
            %
            
            
            
            
            
            
            
            
            0
            %Loans
      secured by deedsof
      trust
            
            $
            1,349,442
            
            
            
            1,373,395
            
            
            
            1,204,748
            
            
            
            600,265
            
            
            
            1,400,044
            
            
            
            233,017
            
            
            $
            6,160,911Average
      interest rate
            
            
            9.80
            %
            
            
            8.97
            %
            
            
            9.30
            %
            
            
            9.10
            %
            
            
            9.63
            %
            
            
            9.40
            %
            
            
            9.40
            %








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.





22


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 March 31, 2008, five loans were either past due 90
days or more in interest payments or mature, totaling $792,129.  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 March 31, 2008, the general
partners have determined the allowance for loan and real estate losses of
$548,632 (5.94% of net assets) is adequate in amount.  Because of the
number of variables involved, the magnitude of the swings possible and the
general partners’ inability to control many of these factors, actual results may
and do sometimes differ significantly from estimates made by the general
partners.








Part
I – Item 4.   CONTROLS AND PROCEDURES





As of
March 31, 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
pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as
amended.  Based upon that evaluation, the general partners concluded
that the partnership’s disclosure controls and procedures are effective in
timely alerting the general partners to material information relating to the
partnership that is required to be included in our periodic filings with the
Securities and Exchange Commission.  There were no significant changes
in the partnership’s internal control over financial reporting during the
partnership’s first fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the partnership’s internal control over
financial reporting.





23


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





24


SIGNATURES





Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of
1934 the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereto duly authorized on the 15th day of May,
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

















25


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)) for the Registrant
      and we 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 quarterly report is
      being prepared;





(b)
            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





(c)
            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 fourth 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 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


May 15,
2008


26


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)) for the Registrant
      and we 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 quarterly report is
      being prepared;





(b)
            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





(c)
            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 fourth 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 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


May 15,
2008


27


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 March 31, 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.





This
certification has not been, and shall not be deemed “filed” with the Securities
and Exchange Commission.









/s/
Michael R. Burwell
  Michael
R. Burwell, General Partner
 May 15,
2008
















28


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 March 31, 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.





This
certification has not been, and shall not be deemed “filed” with the Securities
and Exchange Commission.











/s/
Michael R. Burwell
  Michael
R. Burwell, President,
 Secretary/Treasurer
& Chief Financial
 Officer
of Gymno Corporation, General Partner
 May 15,
2008












29