Redwood Trust plans for upside from GSE reform

Redwood Trust expects to see an upside from housing policy shifts in Washington, as it rebounded to a first-quarter profit to start the year. 

The real estate investment trust managed to navigate early-year rate volatility and lauded some of the recent developments at government-sponsored enterprises Fannie Mae and Freddie Mac as tailwinds for future business prospects. 

The Mill Valley, California-based company posted net income of $14.4 million in the first three months of the year, improving from an $8.4 million loss in the fourth quarter of 2024. The latest number decreased on a year-over-year basis from $29 million. 

"There remains strong demand for the assets we create," said CEO Christopher Abate, whose company specializes in secondary market investments and issuances of products outside conventional lending. 

"With trillions of dollars raised by private credit institutions, we're actively looking to crowd their capital into the residential mortgage space. The fact that they have not already done so in greater scale is a direct byproduct of the government's outsized role in housing," Abate continued during Redwood's first-quarter earnings call. 

The quarter saw Redwood's Sequoia jumbo correspondent platform rake in $25.8 million in profit, up 18.3% from $21.8 in the prior reporting period. The platform locked $4 billion worth of loans, up from $2.3 billion in fourth quarter 2024.

"We saw billions of dollars of seasoned jumbo loans change hands in the first quarter, and we positioned ourselves to be in the hunt for much of that production," Abate said.

Abate pointed to the growing presence of loans with $1 million balances or more that the GSEs had guaranteed, as well as investment and vacation home mortgages and second liens, as falling outside their intended scope. Instead, the markets would be better served through companies like Redwood, he said. 

"All of these are examples of products that we believe can and should be financed by the private sector without government support."

Also included in Sequoia's latest quarterly lock volume was $111 million of loans from Redwood's Aspire subsidiary, which both originates and buys home equity investment agreements, debt service coverage ratio loans and other "alternative" lending products for borrowers with nontraditional sources of income.

Elsewhere, Redwood's investment arm garnered $22.9 million, surging from $2.8 million largely resulting from a decline in interest rates leading to higher valuations in its third-party portfolio. 

Meanwhile, its business-purpose residential lending business Corevest reported net income of $1.3 million, off the fourth quarter's $1.5 million. Funding of $482 million was provided for first-quarter loans, pulling back from $501 million over the prior three months.

Corporate expenses of $35.6 million, though, offset the positive numbers across Redwood's business segments

With a change in leadership in Washington and a flurry of changes already in place, Redwood hopes to see regulations loosened to open up the housing finance market to more players. 

"There is room to rationalize outdated securitization rules that are holding back private-capital formation and to sensibly update disclosure and execution burdens that would make the mortgage capital markets far more efficient," Abate said. 

Frequently changing tariff policies and overall economic uncertainty are leading Redwood to apply a "broad risk-off tone" in approaching its operations and finances this year. Share repurchases are not off the table, according to Brooke Carillo, Redwood's chief financial officer. 

"As many economists are now pricing in heightened recession risk, we've positioned our balance sheet to benefit modestly from declining rates and increased volatility," she said.

The company's stock, which trades on the New York Stock Exchange under the ticker symbol RWT, opened Thursday at $6.10 per share, down 1.8% from its previous close of $6.21.