Hugging this tree has been hazardous to one's wealth. For a company buying up high quality residential mortgages, this would seem to be the perfect climate.
Interest rates are low so the homebuilding industry is faring well.
The low rates have also encouraged investors to snap up shares of high-yielding stocks, like Redwood. The demise began in June when Furman Selz analyst Jamie Handwerker cut earnings estimates after the company warned that interest rate spreads might narrow. Since Redwood makes money by buying up mortgages with cheaper money, that thinning spread, the very heart of Redwood's income, was in jeopardy. When the going was good, Redwood was able to leverage that optimism. With the stock selling for what was more than two times book value at its peak, the company found it beneficial to issue new shares.