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 June 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


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








ASSETS





June
      30,
            
            
            December
      31,2008
            
            
            2007Cash
      and cash equivalents
            
            $
            140,559
            
            
            $
            351,129LoansLoans,
      secured by deeds of trust
            
            
            6,360,597
            
            
            
            6,202,522Loans,
      unsecured, net discount of $53,464 and $57,577for
      June 30, 2008 and December 31, 2007, respectively
            
            
            794,244
            
            
            
            772,031Allowance
      for loan losses
            
            
            (384,296
            )
            
            
            (386,658
            )Net
      loans
            
            
            6,770,545
            
            
            
            6,587,895Interest
      and other receivablesReceivable
      from affiliate
            
            
            21,074
            
            
            
            20,702Accrued
      interest and late fees
            
            
            79,610
            
            
            
            73,259Advances
      on loans
            
            
            7,939
            
            
            
            6,436Total
      interest and other receivables
            
            
            108,623
            
            
            
            100,397Investment
      in limited liability company
            
            
            1,004,983
            
            
            
            939,937Real
      estate held, net
            
            
            1,371,401
            
            
            
            1,371,401Total
      assets
            
            $
            9,396,111
            
            
            $
            9,350,759








LIABILITIES AND PARTNERS’
CAPITAL





LiabilitiesAccounts
      payable
            
            $
            11,865
            
            
            $
            11,865Payable
      to affiliate
            
            
            172,660
            
            
            
            71,998Total
      liabilities
            
            
            184,525
            
            
            
            83,863Partners’
      capitalLimited
      partners’ capital, subject to redemption
            
            
            9,199,613
            
            
            
            9,254,923General
      partners’ capital
            
            
            11,973
            
            
            
            11,973Total
      partners’ capital
            
            
            9,211,586
            
            
            
            9,266,896Total
      liabilities and partners’ capital
            
            $
            9,396,111
            
            
            $
            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 SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (unaudited)





THREE
      MONTHS ENDED
            
            
            SIX
      MONTHS ENDEDJUNE
      30,
            
            
            JUNE
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007RevenuesInterest
      on loans
            
            $
            148,171
            
            
            $
            123,163
            
            
            $
            291,941
            
            
            $
            262,272Interest-interest
      bearing accounts
            
            
            643
            
            
            
            12,746
            
            
            
            2,468
            
            
            
            20,952Late
      fees, prepayment penalties and fees
            
            
            193
            
            
            
            545
            
            
            
            888
            
            
            
            1,713Other
            
            
            980
            
            
            
            1,030
            
            
            
            2,462
            
            
            
            2,262Total
      revenues
            
            
            149,987
            
            
            
            137,484
            
            
            
            297,759
            
            
            
            287,199ExpensesMortgage
      servicing fees
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Clerical
      costs through Redwood Mortgage Corp.
            
            
            2,402
            
            
            
            2,732
            
            
            
            2,402
            
            
            
            5,569Asset
      management fees
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,922Recovery
      of losses on loans and real estate
            
            
            (2,174
            )
            
            
            (18,701
            )
            
            
            (2,174
            )
            
            
            (31,377
            )Professional
      services
            
            
            21,133
            
            
            
            15,235
            
            
            
            39,597
            
            
            
            38,364Other
            
            
            11,424
            
            
            
            11,834
            
            
            
            18,826
            
            
            
            18,625Total
      expenses
            
            
            32,785
            
            
            
            11,100
            
            
            
            58,651
            
            
            
            34,103Net
      income
            
            $
            117,202
            
            
            $
            126,384
            
            
            $
            239,108
            
            
            $
            253,096Net
      income:  general partners (1%)
            
            $
            1,172
            
            
            $
            1,264
            
            
            $
            2,401
            
            
            $
            2,531limited
      partners (99%)
            
            
            116,030
            
            
            
            125,120
            
            
            
            236,707
            
            
            
            250,565$
            117,202
            
            
            $
            126,384
            
            
            $
            239,108
            
            
            $
            253,096Net
      income per $1,000 invested by limitedpartners
      for entire period-where
      income is compounded and retained
            
            $
            13
            
            
            $
            13
            
            
            $
            26
            
            
            $
            27-where
      partner receives income in monthlydistributions
            
            $
            13
            
            
            $
            13
            
            
            $
            26
            
            
            $
            27

















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 SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (unaudited)








2008
            
            
            2007Cash
      flows from operating activitiesNet
      income
            
            $
            239,108
            
            
            $
            253,096Adjustments
      to reconcile net income to net cash providedby
      operating activitiesRecovery
      of losses on loans and real estate held
            
            
            (2,174
            )
            
            
            (31,377
            )Early
      withdrawal penalty credited to income
            
            
            (1,862
            )
            
            
            (1,891
            )Amortization
      of discount on unsecured loans
            
            
            (4,113
            )
            
            
            (4,113
            )Change
      in operating assets and liabilitiesLoans,
      unsecured
            
            
            (18,100
            )
            
            
            (25,552
            )Accrued
      interest and late fees
            
            
            (6,539
            )
            
            
            (15,698
            )Advances
      on loans
            
            
            (1,503
            )
            
            
            (4,926
            )Receivable
      from affiliate
            
            
            (372
            )
            
            
            1,859Payable
      to affiliate
            
            
            100,662
            
            
            
            —Net
      cash provided by operating activities
            
            
            305,107
            
            
            
            171,398Cash
      flows from investing activitiesPrincipal
      collected on loans
            
            
            193,541
            
            
            
            1,201,778Loans
      originated
            
            
            (351,616
            )
            
            
            (1,157,955
            )Payments
      on investment in limited liability company
            
            
            (67,432
            )
            
            
            (15,191
            )Proceeds
      from investment in limited liability company
            
            
            2,386
            
            
            
            —Net
      cash provided by, (used in) investing activities
            
            
            (223,121
            )
            
            
            28,632Cash
      flows from financing activitiesPartners’
      withdrawals
            
            
            (292,556
            )
            
            
            (280,550
            )Net
      (decrease)/increase in cash and cash equivalents
            
            
            (210,570
            )
            
            
            (80,520
            )Cash
      and cash equivalents - beginning of period
            
            
            351,129
            
            
            
            584,114Cash
      and cash equivalents - end of period
            
            $
            140,559
            
            
            $
            503,594








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


4


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


JUNE
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 six month
period ended June 30, 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
June 30, 2008 and December 31, 2007, the partnership had three loans past due 90
days or more in interest payments and/or past maturity.  The
outstanding principal balances of these loans at June 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 $17,583 and $17,788
at June 30, 2008 and December 31, 2007, respectively.  In the opinion
of management, the delinquent and/or past maturity loans as of June 30, 2008
have sufficient collateral to cover the outstanding amounts due to the
partnership and are still accruing interest.  At June 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 59.32% and 59.69%, respectively.





Loans, unsecured,
      net





The
partnership had unsecured loans, net of a discount, from three borrowers
totaling $794,244 and $772,031 at June 30, 2008 and December 31, 2007,
respectively.  Interest is not being accrued as these loans are
considered impaired; however one borrower is making monthly payments of
principal and interest.





5


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


JUNE
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 June 30, 2008 and December
31, 2007 was as follows:





June
      30, 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)
            
            $
            58,386
            
            
            
            44.85
            %
            
            $
            58,262
            
            
            
            42.13
            %Apartments
            
            
            13,966
            
            
            
            18.80
            %
            
            
            10,217
            
            
            
            11.21
            %Commercial
            
            
            31,938
            
            
            
            29.78
            %
            
            
            41,701
            
            
            
            39.92
            %Land
            
            
            29,252
            
            
            
            6.57
            %
            
            
            27,832
            
            
            
            6.74
            %Total
      real estate – mortgage
            
            $
            133,542
            
            
            
            100.00
            %
            
            $
            138,012
            
            
            
            100.00
            %Total
      unsecured loans
            
            $
            250,754
            
            
            
            100.00
            %
            
            $
            248,646
            
            
            
            100.00
            %Total
      allowance for loan losses
            
            $
            384,296
            
            
            
            100.00
            %
            
            $
            386,658
            
            
            
            100.00
            %





6


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


JUNE
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 six month period ended June 30, 2008
and the year ended December 31, 2007 was as follows:





June
      30,
            
            
            December
      31,2008
            
            
            2007Balance
      at beginning of period
            
            $
            386,658
            
            
            $
            454,417Charge-offsDomesticReal
      estate – mortgageSingle
      family (1-4 units)
            
            
            —
            
            
            
            —Apartments
            
            
            —
            
            
            
            —Commercial
            
            
            (188
            )
            
            
            —Land
            
            
            —
            
            
            
            (46,637
            )(188
            )
            
            
            (46,637
            )RecoveriesDomesticReal
      estate – mortgageSingle
      family (1-4 units)
            
            
            —
            
            
            
            —Apartments
            
            
            —
            
            
            
            —Commercial
            
            
            —
            
            
            
            —Land
            
            
            —
            
            
            
            —Net
      charge-offs
            
            
            (188
            )
            
            
            (46,637
            )Additions
      (recovery) charge to operations
            
            
            (2,174
            )
            
            
            (21,122
            )Transfer
      to real estate held for sale reserve
            
            
            —
            
            
            
            —Balance
      at end of period
            
            $
            384,296
            
            
            $
            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


JUNE
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. waived $46,148 in mortgage servicing fees during the first half
of 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 waived asset management fees of
$17,381 during the first half of 2008.





8


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


JUNE
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





In 1993
the Partnership, together with two other affiliates, acquired through
foreclosure a parcel of land located in East Palo Alto,
California.  As of June 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 June 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 June 30, 2008 and December 31, 2007:





June
      30,
            
            
            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


JUNE
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 June 30,
2008, the partnership has capitalized $168,281 in costs, net of recovery in 2006
from the guarantors of the original loan, related to this
property.  At June 30, 2008, the partnership’s investment in Larkin
totaled $1,004,983.








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





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


JUNE
30, 2008 (unaudited)








NOTE 7 – FAIR
      VALUE (continued)





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 $6,375,243
      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. For loans in which a specific allowance is established based on the
      fair value off 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.








NOTE 8 – ASSET
CONCENTRATIONS AND CHARACTERISTICS





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





June
      30,
            
            
            December
      31,2008
            
            
            2007Number
      of secured loans outstanding
            
            27
            
            
            
            25Total
      secured loans outstanding
            $
            6,360,597
            
            
            $
            6,202,522Average
      secured loan outstanding
            $
            235,578
            
            
            $
            248,101Average
      secured loan as percent of total secured loans
            
            3.70
            %
            
            
            4.00
            %Average
      secured loan as percent of partners’ capital
            
            2.56
            %
            
            
            2.68
            %Largest
      secured loan outstanding
            $
            500,000
            
            
            $
            500,000Largest
      secured loan as percent of total secured loans
            
            7.86
            %
            
            
            8.06
            %Largest
      secured loan as percent of partners’ capital
            
            5.43
            %
            
            
            5.40
            %Largest
      secured loan as percent of total assets
            
            5.32
            %
            
            
            5.35
            %Number
      of counties where security is located (all California)
            
            16
            
            
            
            15Largest
      percentage of loans in one county
            
            30.59
            %
            
            
            31.37
            %Number
      of secured loans in foreclosure status
            
            2
            
            
            
            NoneAmount
      of secured loans in foreclosure status
            $
            234,202
            
            
            
            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.





11


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


JUNE
30, 2008 (unaudited)








NOTE 8 – ASSET
CONCENTRATIONS AND CHARACTERISTICS (continued)





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





June
      30,
            
            
            December
      31,2008
            
            
            2007First
      trust deeds
            
            $
            5,205,828
            
            
            $
            5,046,885Second
      trust deeds
            
            
            1,065,404
            
            
            
            1,065,972Third
      trust deeds
            
            
            89,365
            
            
            
            89,665Total
      loans
            
            
            6,360,597
            
            
            
            6,202,522Prior
      liens due other lenders at time of loan
            
            
            2,308,163
            
            
            
            2,308,163Total
      debt
            
            $
            8,668,760
            
            
            $
            8,510,685Appraised
      property value at time of loan
            
            $
            14,613,634
            
            
            $
            14,257,967Total
      secured loans as percent of appraisals based on appraisedvalues
      and prior liens at time loan was consummated
            
            
            59.32
            %
            
            
            59.69
            %Secured
      loans by type of propertySingle
      family homes (1-4 Units)
            
            $
            2,852,703
            
            
            $
            2,613,022Apartments
            
            
            1,195,500
            
            
            
            695,625Commercial
            
            
            1,894,415
            
            
            
            2,475,890Land
            
            
            417,979
            
            
            
            417,985$
            6,360,597
            
            
            $
            6,202,522





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





Year
      ending December 31, 2008
            
            $
            949,4422009
            
            
            1,376,0052010
            
            
            1,603,6972011
            
            
            699,6552012
            
            
            1,399,004Thereafter
            
            
            332,794Total
            
            $
            6,360,597





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





12


REDWOOD
MORTGAGE INVESTORS VII


(A
California Limited Partnership)


NOTES
TO FINANCIAL STATEMENTS


JUNE
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 June 30, 2008, the
partnership had two 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 June 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 June 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.





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 $11,500 and $34,350 for the three month periods and $18,305 and
      $34,350 for the six month periods, all ended June 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 six month periods ended June 30,
      2008 and 2007.





Three
      months ended June 30,
            
            Six
      months ended June 30,2008
            
            2007
            
            2008
            
            2007Maximum
      chargeable
            
            $
            23,354
            
            
            $
            20,024
            
            
            $
            46,148
            
            
            $
            42,653Waived
            
            
            (23,354
            )
            
            
            (20,024
            )
            
            
            (46,148
            )
            
            
            (42,653
            )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 six month periods ended
      June 30, 2008 and 2007.





Three
      months ended June 30,
            
            Six
      months ended June 30,2008
            
            2007
            
            2008
            
            2007Maximum
      chargeable
            
            $
            8,673
            
            
            $
            8,741
            
            
            $
            17,381
            
            
            $
            17,506Waived
            
            
            (8,673
            )
            
            
            (8,741
            )
            
            
            (17,381
            )
            
            
            (14,584
            )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 $692 and $1,941 for
      the three month periods and $1,172 and $1,992 for the six month periods,
      all ended June 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 $1,172 and $1,264 for the three month periods and
      $2,401 and $2,531 for the six month periods, all ended June 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 $2,402 and
      $2,732 for the three month periods and $2,402 and $5,569 for the six month
      periods, all ended June 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 June 30, 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 are tabulated for reference and are
discussed below:





Changes
      during the three months ended June 30, 2008 versus 2007
            
            Changes
      during the six months ended June 30,   2008 versus
      2007Dollars
            
            Percent
            
            
            
            
            Dollars
            
            PercentRevenueInterest
      on loans
            $
            25,008
            
            20.30
            
            %
            
            $
            29,669
            
            11.31
            
            %Interest-interest
      bearing accounts
            
            (12,103
            )
            (94.96
            )
            
            
            
            (18,484
            )
            (88.22
            )Late
      fees, prepayment penalties and fees
            
            (352
            )
            (64.59
            )
            
            
            
            (825
            )
            (48.16
            )Other
            
            (50
            )
            (4.85
            )
            
            
            
            200
            
            8.84Total
      revenues
            
            12,503
            
            9.09
            
            
            
            
            10,560
            
            3.68ExpensesMortgage
      servicing fees
            
            —
            
            —
            
            
            
            
            —
            
            —Clerical
      costs through Redwood Mortgage Corp.
            
            (330
            )
            (12.08
            )
            
            
            
            (3,167
            )
            (56.87
            )Asset
      management fees
            
            —
            
            —
            
            
            
            
            (2,922
            )
            (100.00
            )Provision
      for losses on loans and real estate
            
            16,527
            
            (88.37
            )
            
            
            
            29,203
            
            (93.07
            )Professional
      services
            
            5,898
            
            38.71
            
            
            
            
            1,233
            
            3.21Other
            
            (410
            )
            (3.46
            )
            
            
            
            201
            
            1.08Total
      expenses
            
            21,685
            
            195.36
            
            
            
            
            24,548
            
            71.98Net
      income
            $
            (9,182
            )
            (7.27
            )
            %
            
            
            (13,988
            )
            (5.53
            )
            %





The
increases in interest on loans for the three month and six month periods ended
June 30, 2008 as compared to the same periods in 2007 were due to increases in
the average loan portfolio balance and the effective weighted average interest
rate.  For the three month period of 2008, these numbers were
$6,261,059 and 9.47% compared to $5,339,751 and 9.23% for 2007.  For
the six month period of 2008, these numbers were $6,182,762 and 9.44% compared
to $5,687,068 and 9.22% for 2007.  Each three month period includes
$2,056 in income gained through amortization of discount on unsecured notes and
the six month periods include $4,113 of discount earned.  After
adjusting for the discount, the effective weighted average interest rates for
the three month periods were 9.33% for 2008 and 9.07% for 2007, and for the six
month periods the adjusted interest rates were 9.31% for 2008 and 9.08% for
2007.





The
decrease in interest from interest-bearing accounts for the three month period
ended June 30, 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 $195,448 and the average
rate was 1.32%.  For 2007, the corresponding numbers were $1,157,526
and 4.40%.  The decrease for the six month period is due to the same
reasons.  The average account balance declined from $1,059,198 in 2007
to $301,214 in 2008 and the average interest rate earned declined to 1.64% in
2008, from 3.96% in 2007.





The
decrease in clerical costs from Redwood Mortgage Corp. (RMC) for the six month
period ended June 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 six month period ended June 30, 2008
as compared to the same period in 2007 was due to a complete waiver of
management fees by the general partners during the quarter ended June 30,
2008.





The
increase in provision for losses on loans and real estate for the three and six
month periods ended June 30, 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 $546,270 as of June 30, 2008 was adequate.





16


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





At June
30, 2008, there were two outstanding loans with an aggregate balance of $234,202
with filed notices of default.





Redwood
Mortgage Corp., an affiliate of the general partners, received mortgage
brokerage commissions from loan borrowers of $11,500 and $34,350 for the three
month periods and $18,305 and $34,350 for the six month periods, all ended June
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 June 30, 2008, $203,002 in new loans
were made, compared to $1,157,955 for the same period in 2007.  For
the six month periods ended June 30, 2008 and 2007, the amount of new loans were
$351,616 and $1,157,955, 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 June 30, 2008, the partnership had two secured loans
totaling $323,865, which were past due 90 days or more in interest
payments.  Additionally, one secured loan totaling $214,999 was past
maturity as of June 30, 2008 and there are four unsecured loans totaling
$794,244, net of a discount of $53,464





Periodically,
the partnership enters into workout agreements with borrowers who are past
maturity or delinquent in their regular payments.  The partnership had
two loans totaling $234,202 in workout agreements with borrowers as of June 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 $546,270 at June 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.





As of
June 30, 2008, the partnership had an average loan to value ratio of 59.32%
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 June 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 $4,768,959 (74.98%)
and $4,688,365 (75.93%), 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
June 30, 2008 and 2007, the partnership held 27 and 23 loans, respectively, in
the following categories:





June
      30,2008
            
            
            2007Single-family
      (1-4 units)
            
            $
            2,852,703
            
            
            
            44.85
            %
            
            $
            2,026,059
            
            
            
            32.81
            %Apartments
      (5+ units)
            
            
            1,195,500
            
            
            
            18.80
            %
            
            
            687,500
            
            
            
            11.13
            %Commercial
            
            
            1,894,415
            
            
            
            29.78
            %
            
            
            2,555,459
            
            
            
            41.39
            %Land
            
            
            417,979
            
            
            
            6.57
            %
            
            
            905,598
            
            
            
            14.67
            %Total
            
            $
            6,360,597
            
            
            
            100.00
            %
            
            $
            6,174,616
            
            
            
            100.00
            %





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





#
      of Loans
            
            
            Amount
            
            
            PercentFirst
      trust deeds
            
            
            22
            
            
            $
            5,205,828
            
            
            
            81.84
            %Second
      trust deeds
            
            
            4
            
            
            
            1,065,404
            
            
            
            16.75
            %Third
      trust deeds
            
            
            1
            
            
            
            89,365
            
            
            
            1.41
            %Total
            
            
            27
            
            
            $
            6,360,597
            
            
            
            100.00
            %Maturing
      prior to 12/31/08
            
            
            5
            
            
            $
            949,442
            
            
            
            14.93
            %Maturing
      during 2009
            
            
            5
            
            
            
            1,376,005
            
            
            
            21.63
            %Maturing
      during 2010
            
            
            5
            
            
            
            1,603,697
            
            
            
            25.21
            %Maturing
      after 12/31/10
            
            
            12
            
            
            
            2,431,453
            
            
            
            38.23
            %Total
            
            
            27
            
            
            $
            6,360,597
            
            
            
            100.00
            %Average
      Secured Loan
            
            
            
            
            
            $
            235,578
            
            
            
            3.70
            %Largest
      Secured Loan
            
            
            
            
            
            
            500,000
            
            
            
            7.86
            %Smallest
      Secured Loan
            
            
            
            
            
            
            89,365
            
            
            
            1.40
            %Average
      Loan-to-Value based upon appraisals andprior
      liens at time loan was consummated
            
            
            
            
            
            
            
            
            
            
            59.32
            %





The
partnership’s largest loan in the principal amount of $500,000 represents 7.86%
of outstanding secured loans and 5.32% 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.





18


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 June 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 June 30,
            
            
            Six
      months ended June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Distributing
            
            $
            44,845
            
            
            $
            47,707
            
            
            $
            91,917
            
            
            $
            95,657Compounding
            
            $
            71,185
            
            
            $
            77,413
            
            
            $
            145,783
            
            
            $
            154,908





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 June 30, 2008 and 2007, and is expected by the general partners to
commonly occur at these levels.





Three
      months ended June 30,
            
            
            Six
      months ended June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Capital
      liquidations-without penalty
            
            $
            80,086
            
            
            $
            70,085
            
            
            $
            177,447
            
            
            $
            161,795Capital
      liquidations-subject to penalty
            
            $
            9,122
            
            
            $
            11,374
            
            
            $
            23,273
            
            
            $
            22,459





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.





19


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 where 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 play a significant role in 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.





The
United States Gross Domestic Product (GDP) continued in positive territory
during the second quarter of 2008 rising at an estimated 1.9 percent
rate.  Many had raised fears that the numerous factors currently
affecting the economy, including a weak housing market, credit crunch, rising
unemployment, increased inflation and bank mortgage debt write-downs would weigh
heavily enough upon growth to further slow or push the economy into negative
growth.  The United States economy has proven to be resilient to the
numerous factors weighing upon it and rose above the 0.9 percent increase in GDP
for the first quarter of 2008.





Inflation
as measured by the Consumer Price Index (CPI) accelerated rapidly in the second
quarter 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 month of 2008.  This brings the year-to-date annual
rate to 5.5 percent and compares with an increase of 4.1 percent in all of
2007.  The outlook for continued strong inflation may change with the
recent strong reduction in oil and other commodity prices during July and early
August of 2008.   The price of a barrel of oil fell from its July
highs of approximately $145 per barrel to less than $118 per barrel in early
August 2008.  The cost of energy has been a leading contributor to
advances in the CPI.





Unemployment,
a factor in borrowers’ ability to service their indebtedness, increased during
the second quarter of 2008.  Both the United States and the California
unemployment rates increased to 5.5 percent and 6.9 percent,
respectively.  These unemployment rates evidence the steady increase
in unemployment particularly when compared to the unemployment rates existing in
June of 2007 of 4.6 percent and 5.3 percent for the United States and
California, respectively.





The
Federal Reserve, after having left the Federal Funds Rate unchanged at 5.25
percent for more than two years, began to react to the slowing economy, rising
unemployment, and turmoil created by contractions in the credit
market.  The Fed’s initial goals were to stimulate the economy while
keeping inflation in check and create jobs.  Later their efforts
expanded to include increasing liquidity in the financial system.  In
September of 2007, the Federal Funds Rate was 5.25 percent when the Federal
Reserve began to lower the rate.  The present Federal Funds Rate of
2.00 percent has been left unchanged during its last two
sessions.  Like the Federal Funds Rate, banks have lowered their Prime
Rate to 5.00 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.  As of July 28, 2008 the 10 year treasury yield was 4.09
percent and has remained near the 4.00 percent range through much of the 2008
second quarter.  Mortgage interest rates have not been significantly
affected by the Federal Reserve’s actions but are lower than one year
ago.  Freddie Mac reports that during the week ending July 17, 2008
the 30-year fixed-rate mortgage averaged 6.26 percent with an average 0.6 point
fee. One year ago, the 30-year fixed-rate mortgage average 6.73 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.





20


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
that sales of new, resale and condominiums increased 6.6 percent from May 2008
to June 2008, but on a comparative basis between June of 2007 and 2008 they
declined 8.1 percent to a total sales volume of 35,024 units.  The
California Association of Realtors (CAR) reported the median price of an
existing, single-family detached home in California decreased 37.7 percent to
$368,250 in June of 2008 when compared to June 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.  A year ago, the under $500,000 price range accounted for 40
percent of sales, the middle segment made up about 45 percent, and the over
$1,000,000 segment captured 15 percent of the market.  As of June
2008, the shares had shifted to 67 percent, 24 percent and 9 percent,
respectively.  CAR’s unsold Inventory Index for existing,
single-family detached homes in June 2008 was 7.7 months compared with 10.2
months for June of 2007.  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.





Loan
delinquencies and foreclosures on residential real estate have been rising.
Mortgage servicers recorded 121,341 "notices of default" during the
April-through-June period. That was up 6.6 percent from a revised 113,809 for
this year's first quarter, and up 124.9 percent from 53,943 in second-quarter
2007, according to DataQuick Information Systems.





The
partnership’s loans outstanding as of June 30, 2008 carried an average
loan-to-value ratio of 59.32% based on appraised value and senior liens as of
the date the loan was made.  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
average loan to value ratio may help provide sufficient equity to recoup
individual outstanding loan balances in connection with foreclosure of
properties which may increase during the remainder of 2008.





Commercial
and multifamily real estate have continued to fare well in
2008.  Rents have continued to rise but vacancies have begun to
increase.  NAIBT Commercial reported the San Francisco Bay Area office
market posted a moderate increase in vacancies in the second quarter of
2008.  The Bay Area office market saw an increase in vacancies, from
11.0 percent at the close of 2007 to 12.8 percent.  Average asking
rental rates though now leveling pushed slightly further above the $3.00 mark to
$3.09 per square foot for full service during the second quarter of
2008.  A stable commercial and apartment rental market helps keep
values stable, a benefit to the partnership.  Stable rents and stable
property values provide support for the partnership’s expectation that loans
secured by these properties will continue to perform.





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 June 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 June 30,
2008:





2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            Thereafter
            
            
            TotalInterest
      earning assets:Money
      market accounts
            
            $
            113,216
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            113,216Average
      interest rate
            
            
            0.55
            %
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            0.55
            %Unsecured
      loans
            
            
            
            
            
            
            
            
            
            
            
            $
            794,244
            
            
            
            
            
            
            
            
            $
            794,244Average
      interest rate
            
            
            
            
            
            
            
            
            
            
            
            
            0.00
            %
            
            
            
            
            
            
            
            
            0.00
            %Loans
      secured by deedsof
      trust
            
            $
            949,442
            
            
            
            1,376,005
            
            
            
            1,603,697
            
            
            
            699,655
            
            
            
            1,399,004
            
            
            
            332,794
            
            
            $
            6,360,597Average
      interest rate
            
            
            9.77
            %
            
            
            8.97
            %
            
            
            9.45
            %
            
            
            9.30
            %
            
            
            9.63
            %
            
            
            9.43
            %
            
            
            9.42
            %








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 June 30, 2008, three loans were either past due 90
days or more 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 June 30, 2008, the general partners
have determined the allowance for loan and real estate losses of $546,270 (5.93%
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
June 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
pursuant to 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, the partnership’s disclosure
controls and procedures are effective in timely accumulating and alerting the
general partners to material information needed to allow timely decisions
regarding disclosures 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 three months ended June 30, 2008 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 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 August, 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)) 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


August
14, 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)) 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


August
14, 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 June 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


August
      14, 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 June 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


August
      14, 2008


29