Redwood Trust, Inc. Aktie

Greetings, and welcome to the Redwood Trust Third Quarter 2026 Financial Results Conference Call. Today's conference is being recorded.

I will now turn the call over to Anh Nguyen, Head of Investor Relations. Please go ahead, ma'am.

Thank you for joining us today for Redwood's Third Quarter 2026 Earnings Conference Call. With me on today's call are Chris Abate, Chief Executive Officer; Dash Robinson, President; and Brooke Carillo, Chief Financial Officer.

Before we begin today, I want to remind you that certain statements made during management's presentation with respect to future financial and business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts and assumptions, which includes risks and uncertainties that can cause actual results to differ materially. We encourage you to read the company's annual report on Form 10-K and quarterly report on Form 10-Q, which provides the description of some of the factors that could have a material impact on the company's performance and could cause actual results to differ from those that may be expressed in forward-looking statements.

On this call, we may also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. Reconciliation between GAAP and non-GAAP financial measures are provided in our third quarter Redwood review, which is available on our website, redwoodtrust.com.

Also note that the contents of today's conference call may contain time-sensitive information that are accurate only as of today. We do not intend and undertake no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded. It will be available on our website later today.

With that, I'll turn the call over to Chris for opening remarks.

Good afternoon, everyone. Today, we announced several important developments for Redwood. I'll cover the key points before Dash and Brooke share their prepared remarks, and then we'll take your questions.

After 32 years as a real estate investment trust, Redwood plans to transition to a taxable C-corporation beginning in 2027. We believe this structure better aligns with our operating business today and will strengthen our ability to build long-term shareholder value. We expect the transition to generate an initial GAAP book value benefit of approximately $0.73 to $0.77 per share in the fourth quarter of 2026, which translates to an increase of approximately 11% over our September 30 book value per share of $6.56.

We realize that this transition has been anticipated for some time by many of our shareholders. Redwood has evolved considerably since its founding in 1994, with our transformation into an operating platform accelerating in recent years. Today, we serve as an embedded partner to hundreds of loan originators and real estate investors, including 70 of the top 100 U.S. banks. We support these institutions with deep underwriting and asset management expertise and leading securitization and whole loan distribution programs.

Our recent market share gains in mortgage banking indicate that we have only begun to monetize the full potential of these relationships. However, the earnings strength of our franchise has not translated into sustained book value growth. One reason is that we've distributed substantial capital through dividends, limiting our ability to allocate capital and compete effectively with our mortgage banking peers.

By de-REITing, beginning with the 2027 tax year, we want to share 3 near-term benefits. First, we expect to unlock significant tangible value from our existing tax assets through previously unusable federal and state NOL carryforwards. In this regard, we are unique as all REITs that come to mind withstand to lose their tax shelters by not complying with the REIT rules. our shareholders will immediately realize the opposite.

Second, we will have greater flexibility to retain earnings and allocate capital. As we disclosed earlier, we expect the Board to reset the quarterly common dividend to $0.02 per share beginning in the fourth quarter. This would bring our payout ratio in line with banks, asset managers and other C-corp mortgage businesses with comparable operating models.

We recognize that the de-REIT transition, while in the long-term interest of the company, entails a lower common dividend to fully leverage the compounding effect of earnings and associated benefits. For our shareholders who value Redwood's historically high dividend yield, particularly our retail investors, today, we announced plans for a preferred for common exchange offer that we expect to come at a significant premium. This new series of preferred stock will carry a high dividend yield aligned with income-oriented objectives. I would strongly encourage interested shareholders to fully explore it ahead of the upcoming launch.

For our common shareholders, this exchange can be thought of akin to a share buyback and will further enhance the contribution from our newly minted tax assets. Based on our projected size for this exchange, we would expect any remaining potential dilution associated with our September convertible debt issuance to be neutralized, especially when factoring in our third quarter common share buybacks.

Third and finally, the C-corp transition creates a path towards a structurally lower cost of capital. Our corporate debt costs reflect constraints associated with mortgage REITs, particularly the requirement to pay out substantially all earnings rather than allocate that capital for other uses. As a consequence, non-REIT mortgage peers enjoy broader access to the debt markets, including rated debt with covenants better suited for operating businesses.

With more than 80% of our unsecured debt callable by the end of 2028, the C-corp transition will allow us to not only pursue more attractive debt, but also opportunistically replace higher cost obligations with lower cost financing. In step with that unlock, today, we announced the upsize of our corporate secured financing facility with CPP Investments and extended its maturity to March of 2030, adding valuable funding flexibility.

As we head towards year-end, we are working very hard to resolve as much of the legacy book as possible in the fourth quarter. While Dash and Brooke will cover legacy, I want to be sure our shareholders understand that the legacy book remains very much a melting ice cube. Charges went up this quarter because liquidations went up and the outstanding balance went down.

I'd also note that our legacy book is marked dramatically lower than many who utilize CECL reserving for similar assets. This distinction is a big reason why we can pursue liquidations at this time rather than traditional loan modifications.

In closing, through all today's announcements, our mission remains the same to make quality housing, whether rented or owned, accessible to all American households. As we discussed in this quarter's shareholder letter, that mission is taking on new significance as we transition towards becoming an agentic enterprise. With our expectation that markets begin to normalize after the midterm elections, we're excited to challenge the boundaries between agency and nonagency mortgage lending in the quarters ahead.

With that, I'll turn the call over to Dash.

Thank you, Chris. Our third quarter operating results reflected proactive risk management and the depth of distribution and product offerings that make our platform resilient even in times of market volatility.

We substantially increased activity with our joint venture partners, increased loan purchase and sale activity with banks and made important strides in the wind down of our legacy portfolio. The result was our ninth consecutive quarter of mortgage banking returns north of 20% despite sharply higher benchmark rates and spread widening that has persisted into the fourth quarter.

Across our platforms, we produced $6.6 billion of loans, down from $8 billion in the second quarter, while distributing $8.8 billion through securitizations, whole loan sales and joint ventures. We meaningfully reduced net inventory, freeing up liquidity for fresh working capital and accretive deployment into our corporate capital structure.

At Sequoia, lock volume was down modestly on the quarter to $5.1 billion from $5.6 billion in Q2. Gain on sale margins rose to 113 basis points, up from 92 basis points in the second quarter, resilience that reflected a proactive distribution posture, appropriate conservatism with our rate sheet and continued accretive hedging activities, particularly as 10-year treasury yields moved sharply higher in the quarter end and the mortgage basis widened.

Sequoia distributed over $7.1 billion of loans during the quarter, including $5.8 billion across 10 securitizations and the first out of the Castlelake joint venture. Full loan sales totaled $700 million, including transactions with 2 new bank partners. The majority of Sequoia's dispositions on the quarter occurred prior to the uptick in rates in September, helping to support gross margins.

Just 1 quarter after coming online, the Castlelake partnership is reinforcing how joint ventures can expand our production capacity while more efficiently deploying our shareholders' capital and increasing mortgage banking returns. Through these partnerships, Redwood earns upfront economics on loan sales, recurring management fees and a share of gain on sale profits, providing growing revenue streams without the added working capital requirements.

Amidst a more cautious operating approach, Sequoia continued to expand its product development and bring a deeper suite of solutions to our seller base. Traditional 30-year fixed rate production represented less than 70% of locks on the quarter, a nod to strategic progress with our medical professional loan offering for which we issued our second securitization during the third quarter as well as HELOCs, which we formally rolled out in May.

When rates and spreads are volatile, these products support margins, both through our unique sourcing capabilities and increased market demand for nonfixed rate product when convexity becomes more challenging to manage.

Transaction activity with our bank network also continued to trend higher with over 30% of our Q3 locks coming from depositories. While rates have rallied close to 40 basis points off their recent highs, spreads remain at or near recent wides, an opportunity for the business heading into year-end, a period of time during which many competitors have historically retrenched.

Market conditions more acutely impacted Aspire's third quarter performance. Spread widening across the capital structure and rate volatility, particularly at the short end of the yield curve, led to roughly flat gross margins, down from 101 basis points in the second quarter. Lock volume on the quarter totaled $1.1 billion of loans, down from $2.1 billion in the second quarter and the result of deliberate calibration of activity as distribution time lines extended with both originators and aggregators challenged to efficiently move inventory.

Low purchases represented roughly 88% of Aspire's volume, and our active seller network grew to over 165 sellers. Aspire distributed $1.3 billion of loans, including $904 million across 2 SPIRE securitizations and $386 million of whole loan sales.

The non-QM market remains in growth mode and Aspire's addressable market remains significant. With a net undistributed pipeline of below $400 million, the business is well positioned to capitalize as demand from insurance capital ramps back up, and we prepare for initial fundings under Aspire's newly formed joint venture, which at scale has overall purchasing power of approximately $8 billion.

CoreVest funded $406 million of loans in the third quarter, roughly flat with the second quarter. Higher rates once again weighed on the term loan pipeline, but combined bridge and RTL fundings increased roughly 35% and accounted for nearly 3/4 of volume.

CoreVest distributed $427 million of loans through joint venture transfers, securitization and whole loan sales, including $244 million through our joint venture with CPP Investments. We also launched a new pricing engine and redesigned website to support lead generation and began transitioning servicing of certain bridge loans to our new servicing partner, an effort we expect to reduce one-the-run servicing costs through time.

As production activity has increased across our platforms, credit performance has remained stable and delinquencies remain low. 60-day plus delinquencies in Sequoia and Aspire are each below 20 basis points, reflective of continued strong underwriting discipline as those businesses continue to expand.

Importantly, credit performance in recent CoreVest production vintages has also remained healthy with combined serious delinquency and REO below 5% in our securitized bridge portfolios, affirmation of the significant changes in our approach beginning in late 2022 that have delivered several consecutive years of strong credit cohorts.

Total payoffs across all bridge portfolios have totaled $475 million in unpaid principal balance since June 30, a level of turnover in line with expectations. This included $160 million of payoffs and dispositions of legacy and other seasoned bridge loans with another $70 million in UPB expected to be resolved by mid-Q4 or already under contract.

As credit from core production activities remains resilient, the legacy investment segment, which continues to shrink, remains the primary area of focus for loss mitigation and disposition. Since the third quarter of 2025, we have reduced exposure in that segment by close to 40%, prioritizing proactive measures, including note sales, refinances and REO sales. As such, modification activity in the legacy portfolio has decreased sharply in recent quarters as we prioritize expedient recovery, capital reallocation and reduction in interest expense.

As we evaluate offers on close to 70% of the remaining loans in the segment, we maintain our posture of expeditiously reducing this position. While we may encounter additional transaction costs in doing so, the dual economic benefits are powerful, reallocation of capital to our profitable mortgage banking activities and reduction in carrying costs that have averaged $0.12 to $0.14 per share per quarter thus far in 2026.

I'll now turn the call over to Brooke to discuss our financial results.

Thank you, Dash. We reported a GAAP net loss related to common stockholders of $47 million or $0.39 per share compared to $3 million or $0.03 per share in the second quarter. Book value ended the quarter at $6.56, down 4.9% from $6.90 at June 30. The decline reflected losses associated with resolutions of legacy assets and our $0.18 per share dividend, partially offset by approximately $0.25 per share of accretion from common stock repurchases we completed during the quarter.

Our economic return on book value was negative 2.3%. Excluding the $0.39 GAAP loss from legacy investments, which included a $0.07 per share charge to position certain legacy HEI assets for liquidation, book value per share would have been up modestly from the second quarter.

Consolidated non-GAAP EAD was negative $0.02 per share compared to positive $0.15 per share in the second quarter. Core Segments generated $23 million of EAD or $0.18 per share, representing a 12.7% annualized return on equity compared to $0.25 per share last quarter.

Legacy investments reduced consolidated EAD by $0.20 per share compared to $0.11 per share in the second quarter, reflecting carry and resolution costs. Importantly, the underlying nonperforming loan population continues to shrink with nonaccrual loans declining to $205 million at September 30, down from $291 million at year-end. Throughout the year, we have not accrued on the majority of our legacy loans irrespective of payment status.

We completed no complex modifications or rate concessions during the quarter, focusing instead on sales foreclosures and other dispositions. As this portfolio continues to wind down, we expect the associated earnings drag to decline. Our goal remains to resolve as many legacy loans as possible throughout the remainder of the year.

Mortgage banking generated $27 million of GAAP net income compared to $40 million in the second quarter and a 26% annualized non-GAAP return on capital. Sequoia generated $32 million of GAAP net income, essentially unchanged from the second quarter and a 41% annualized return on capital. Margins benefited from our interest-only and servicing hedges as well as joint venture distributions offsetting the impact of lower volume.

Aspire reported a $5 million GAAP loss compared to $7 million of net income in the second quarter. Volume declined 45%, reducing operating leverage as we deliberately moderated acquisitions early in the quarter when loan spreads did not adequately compensate for emerging market risks, a decision which was reinforced by subsequent market volatility.

CoreVest was approximately breakeven on a GAAP basis. Excluding acquisition-related expenses and the related tax effects, EAD was $1.6 million, representing a 20% annualized EAD return on capital and compared to $2.8 million in the second quarter. Fundings remained relatively stable with increased bridge activity offsetting weaker term loan demand.

Redwood Investments generated a $4 million GAAP loss versus $1 million of income in Q2 as higher rates and wider spreads pressured retained investment valuations. This was partially offset by $4.9 million of positive RWT Horizons fair value changes.

Net interest income rose to $19 million from $10 million, primarily reflecting seasoned IO and servicing investments transferred from mortgage banking as our pipeline hedging benefit diminished. Segment EAV before allocated corporate costs increased to $13.6 million from $10 million.

G&A was essentially unchanged at $30.5 million. Year-to-date total expenses represented 69 basis points of production versus 88 basis points for the full year 2025, a 22% improvement.

Turning to liquidity and capital. We ended September with $201 million of unrestricted cash, up from $192 million in June. We raised $205 million through our 7% convertible offering, retired approximately $125 million of 2027 converts, repurchased $34 million of common stock, deployed $67 million into retained investments and paid $23 million in dividends.

Cash generated through loan distributions and ongoing balance sheet management allowed us to fund these capital actions while increasing our cash balance, a trend that has continued into the fourth quarter. Recourse debt declined approximately $310 million to $4.2 billion as distributions outpaced production. Recourse leverage rose to 5.2x from 5.0x, reflecting lower equity from repurchases, the net loss and dividends.

Turning to the financial implications of today's corporate actions, our planned C-corp conversion will allow us to use approximately $304 million of federal and over $1 billion of state net operating loss carryforwards from our REIT qualified businesses to offset future taxable income generated by our operating businesses where our effective tax rate at the TRS increased to approximately 29% this quarter, up from 21% in the second quarter.

We expect to recognize an initial deferred tax asset of $85 million to $90 million in the fourth quarter of 2026, increasing GAAP book value by approximately $0.73 to $0.77 per share based on September 30 shares outstanding and subject to final tax and accounting determinations. Beyond this initial benefit and an illustrative $30 million of quarterly taxable income, NOL utilization could reduce quarterly taxes by approximately $0.05 to $0.06 per share per quarter over the next several years, subject to applicable limitations.

As Chris mentioned, the Board is realigning our quarterly common dividend policy to $0.02 per share expected to take effect with the declaration of our fourth quarter dividend in December compared to the current $0.18 quarterly dividend that would reduce our annual common dividend payments by approximately $75 million at the September 30 share count and before the effects of the planned exchange offer.

Finally, the Board approved a 1-for-5 reverse split planned for January 4, 2027, to improve share marketability. It proportionately reduces shares outstanding and increases per share amounts without changing total equity. All per share figures discussed today are presplit as the split will be reflected in our fourth quarter metrics.

With that, I'll turn the call back over to the operator for questions.

[Operator Instructions] Our first question comes from the line of Doug Harter with BTIG.

Can you -- with the combination of the cash savings from the dividend and cash tax savings, can you talk about kind of your priorities for capital deployment, whether that be repurchasing debt at a discount in the market, continuing to invest in mortgage banking or share repurchase, kind of how you're thinking about those options?

Sure. Doug, I'll start. With respect to the common stock, we've announced an exchange offering that we think really addresses the portion of the shareholder base that prefers a high dividend going forward. I'll let the press release do the talking at this point. We expect to launch a tender next week. But I think that exchange has the potential to be very accretive to the common. We expect to take shares out of the market. And that's going to be our next step with respect to common.

I think with the new dividend policy, it allows us to be much more opportunistic with debt repurchases across the stack. We also noted that the type of debt that we're able to raise and the rates become more attractive, so we'll be focused on our entire capital structure.

And of course, mortgage banking, we're running a mortgage operation here. It needs capital to grow, pushing $6 billion, $8 billion a quarter through the pipes, retaining investments, managing the pipelines. All of those things take capital. But the earnings that we're generating at our core operating subsidiaries remain substantial. So we're very excited about having the opportunity to allocate capital in a more optimized fashion. So we'll have more to discuss in the weeks ahead. But I think for now, we've given the market a lot today to digest.

Our next question comes from the line of Crispin Love with Piper Sandler.

Just following up on that last question. I think it addresses it somewhat. But just with the transition to a C-corp, just how do you expect the shareholder base to change? What have you learned from other companies taking similar steps? Just what that could look like over the next few months? I assume that the exchange offering is meant to address that, but what if that offering isn't as successful as intended?

Well, we certainly hope it's successful. I think it's well thought out, and it's a great opportunity for those shareholders who value a high dividend to step into what we currently expect to be an 11% coupon. There's a tender, a modified Dutch auction component. So the actual yield to the investor could certainly be higher. But we'll -- again, we'll have more to say about that at the launch next week.

I think for us, we've studied our mortgage banking peers. We were thoughtful in how to reset the dividend, looking at our true competitors based on the business that we're running, not based on the tax structure. And we also have historically had a very high institutional ownership percentage within the common stock.

So our retail ownership has not typically been nearly as high as we've seen in other more passive income-oriented REITs. So we're optimistic that hopefully, many or most of our long-term shareholders understand these changes or even anticipated these changes, and we're going to work hard to make sure that those investors who value a high dividend have a great option to exchange into a preferred.

Can I add one thing too, Crispin, just I think for all the common shareholders, too, this is an atypical C-corp conversion in that we actually think it's very ROE accretive for us. It's actually really unlocking these tax assets that will provide a significant financial benefit for us.

We -- in addition to the retained capital that has a significant compounding effect to be able to reinvest that both in our businesses and potentially delever, that $75 million alone could bring our leverage multiple down by 0.5 turn over the next year and provide significant working capital for our 20% plus mortgage banking entities and the state cash taxes is significant, too. Every $20 million to $25 million is about a 20% ROE accretion for us.

So taken together, we think that this is really exciting for a prospective shareholder base that will get to enjoy in book value growth and ROE accretion from this change, too.

Great. And Brooke, just on that point, when you think about -- because you've had ROE targets out in the past. So when you think about the conversion or the transition, the ROE uplift, the earnings outlook, can you just discuss kind of what do you think normalized ROEs could be?

Yes. I think it's very similar to what we've been generating on the mortgage banking side. We have 9-plus quarters of 20% plus ROEs. Really, this is -- we will recognize this upfront benefit through book value and over time, see that through kind of the cash savings. And that, again, is really compounding from an ROE effect.

So I think we continue to have the same kind of target returns for our capital that's redeployed back into our core segments, which despite the market volatility on a consolidated margin basis, we really saw Aspire, Sequoia and CoreVest collectively over kind of a 1% margin. So really looking forward to continuing to really target those same returns in our on-the-run business.

Our next question comes from the line of Marissa Lobo with UBS .

I just wanted to talk about mortgage banking with 30-year rates stubbornly above 7%. How are you thinking about the strategy in banking across the different platforms and where you see the best risk-adjusted returns?

Yes. We -- Marissa, we'll tag team this one. At a high level, we've been, I'd say, extremely conservative and cautious up to this point in the fourth quarter. While we have seen benchmarks start to stabilize, spreads have continued to widen, I'd say, across the board. And we want to make sure that when we lean back into mortgage banking that we can confidently generate the margins that we've consistently generated for a number of quarters now.

So I think at a high level, we're excited to get the midterms today behind us. We have started to see things stabilize. And the really good news about the platform is just given our market penetration and our access to our seller base, we're able to lean in extremely quickly. I think we've demonstrated this through past cycles. And this one, I think, will be no exception.

So we sort of have the luxury of thinking about timing, thinking about when the right reentry point is to really step on the gas. And for us, I think we're -- we've been very conservative, I'd say, from early September through today, candidly, but we're definitely starting to see the market stabilize. We're starting to see mortgage rates stabilize and come down a bit. So the signs are there. We're looking forward to leaning in.

One subtext I would add there, Marissa, is just how light our position is, which is the function of 2 things, the conservatism that Chris articulated in terms of just the locks we've taken in the latter part of Q3 and to date in Q4. But also we were reasonably ahead of the curve, particularly in Sequoia about distributing a lot of the risk in the position prior to Labor Day, after which, as you know, there was a significant amount of upward pressure on rates, and there's been fairly consistent upward pressure on spreads since then through today.

So we're currently sitting at about $800 million of undistributed pipeline across Sequoia and Aspire, which is as light as we've been as we can remember. And one of the reasons that's important is when rates move a lot very quickly and spreads widen, current coupon moves very significantly as well. So we saw situations earlier or October and September where high 6%, low 7% current coupon was quickly 7.5% and 7.75%.

And for a variety of reasons, including convexity, those portfolios or those inventories become more challenging to manage. We were largely ahead of that, which is helpful. And as Chris articulated, the overall size of our position that's undistributed right now is as light as we've been in some time and does position us well when we feel like we can lean back in.

The other thing it's done, too, is really helped us build a nice cash position, I would say, with all of the distribution activity. So we've seen $20 million to $25 million of cash inflow here that we can also use. We've made some comments around opportunistic debt repurchases for certain of our debt that's higher yielding and looks attractive to us today. So that's certainly on our radar as well.

Okay. Great. I appreciate that detail. And then just on legacy, as you mentioned you're evaluating offers in about 70% of the remaining loans. How should we think about potential for additional markdowns or transaction costs required to exit those positions?

Yes. We're obviously very focused on that. Maybe just to look at what we just have accomplished over the past 3 or 4 months. We talked about the majority of the fair value changes in legacy being linked to actual realized dispositions. That was about $0.22. That was linked to about $230 million, $240 million of resolutions realized or expected to be realized here in the coming couple of weeks. A lot of those loans are the loans we disclosed and talked about when we issued our convert a few months back as part of that sale process, and there were others.

So we will certainly evaluate everything. It will depend upon the specific assets, but we feel like that's a reasonable proxy potentially. The reality of these assets is -- oftentimes, there is a bid-ask depending on the particular situation with the sponsor. Obviously, we're evaluating everything also in the context of timing. We talked about the $0.12 to $0.14 carry cost per quarter. That is definitely to the extent we take additional fair value hits on where we have the position marked, that earn-back period and that quarterly savings is very important in terms of the interest expense and the carrying costs, et cetera.

So the big thing, just to underscore sort of the prepared remarks, is that the position continues to shrink. We reduced it by over 20% last quarter alone. We're very engaged to reduce it even more significantly than that in the fourth quarter. And our recent credit cohorts have been very, very strong. So to use Brooke and Chris' terms, this really is a melting ice cube, and we're optimistic that we will continue to move the majority of the rest of this year, the rest of the quarter and early next year.

Our next question comes from the line of Rick Shane with JPMorgan.

A couple of things. Look, tactically, the decision to pull back on volumes in hindsight, looks like a very good decision. Strategically, the conversion to the REIT -- or to de-REIT, I should say, is interesting. I'm curious about a couple of different things.

One is, and I think this all sort of ties together because we've talked about the financing and the corporate structure. But if we look at the expense structure, it's about $250 million on a run rate basis over the last 12 months. That makes it very challenging at current volumes to generate profit. So I am curious when you guys look forward and get credit for sort of that 75% deferred tax asset, what are the underlying assumptions to actually realize that value? Is there going to be operational change along with sort of the corporate and financial structure change?

Yes. Thanks. Maybe Brooke and I can team up on this one, Rick. At the highest level, we should continue to underscore that a huge amount of our costs associated with mortgage banking are variable. It's a unit issue. And if you're pushing through fewer units because in our case, we've decided to be more conservative as spreads have widened there's going to be a direct reduction in expenses associated with that throughput.

Obviously, there's fixed costs associated with the operation. I think that's where the retention of capital comes into play to continue to leverage the platform. We also -- a few other things. I'll let Brooke talk about our joint venture partners and how we're scaling on that front.

But we continue to point to an efficiency ratio based on operating expenses and revenue versus equity. This is a big reason why we've decided to move forward with the de-REIT. Our business -- when we think about our business and our operating expenses divided by revenues, we actually look better than most of the money center banks. So the operation itself is efficient, and we can dig into those numbers with investors. But the corporate structure has not been. And so we're trying to strike that balance. But certainly, we definitely want to preserve margin and margin requires, obviously, net revenues that makes sense and are consistent.

I personally think we're seeing -- we're definitively seeing signs of the mortgage market stabilizing here. We're hoping that as we exit the midterms and some of the ball that we've experienced over the last 6 or 8 weeks, it's going to be a great opportunity to lean back in. But certainly, if the market remains challenging and we don't see the volume opportunities that we expect, we're going to remain efficient. We're going to make sure that our expenses and our efficiency is in line.

Brooke, before you answer, do you mind helping me with what percentage of the as you see as fixed versus variable? I think that will be really helpful as we sort of think through this.

Yes. So about 56% of our costs are variable today, Rick. One thing that some of that noise was muted in a quarter like this where we had a pick up in predominantly legacy portfolio management costs, while G&A was flat, we did have a couple of -- we had some workout costs associated with loans that increased overall OpEx.

I would also note that while our lock volume was down this quarter, our purchase volume is actually up. This is really just because purchase volume lags by 30 to 45 days. So you will actually see our loan acquisition costs, some of those variable costs decrease in the fourth quarter on our 18% lower lock volume.

A couple of other comments there. Chris mentioned our joint ventures, we had over $1.5 billion or so of volume that we -- that ran through our JVs. Capital really has been the biggest constraint to our model, not the size of the -- not our addressable market. And so it is really both these joint ventures and the retained capital that we're freeing up through our -- both retained earnings and these cash savings that we're talking about via taxes. So this is why it's so meaningful to our ability to continue to grow volume.

As Chris noted, we have intentionally slowed over the past month. But as we look at out over a more stable market, then we really have an ability through our joint ventures and this retained capital to continue to meet the right operating leverage of our model.

I would lastly note just consolidated EAD would have been a mid-teens return if not for kind of 2 main factors. One, Aspire's net margin was really the primary driver of the decrease. That was due to a fairly extraordinary spread widening and rate volatility in the market, which is not something specific to us.

And then secondly, I would say the mark-to-market on the HEI intended resolutions actually does run through EAD. So those are just a couple of notes on the quarter as it relates to forward profitability.

Got it. Very helpful. And I'm going to follow up with one thing. Can you walk through the Section 382 risk? And the reason I ask is, obviously, by suspending or reducing the dividend, there is risk that you're going to have pretty significant shareholder turnover. I know one of the strategies to mitigate that is to offer prefs to equity holders, do folks who tender and take press count for or against the 382 test?

The exchange offer, we don't expect to meaningfully mitigate the 382 analysis because our Board has been very thoughtful together with tax advisers as to how to structure the preferred instrument so that we are very mindful of any 382 impact, which we don't expect a significant one at the time of the exchange.

The owner -- there's -- the plan that was put in place that's detailed in one of our press releases that the Board put out with respect to ownership thresholds is exactly to your point, to be mindful of this very significant tax asset that we have and this preservation plan is really very similar that's been adopted by other companies with significant net operating losses.

So a lot of time has been put into making sure that this structure is very cautious with respect to any forward implications on our 382 analysis.

Got it. Okay. I'm sitting here thinking I had a lot more hair the last time I would a de-REIT note, but looking forward to dusting off that knowledge base.

I spend A lot of time on the follow.

Our next question comes from the line of Jason Weaver with JonesTrading.

Lots of news today, obviously. Maybe to the point of the last exchange, just thinking about the preferred exchange offer. What were your assumptions around sizing that transaction? And do you have an idea, is there a hard limit on oversubscription or upsize preserve a given level of common that you want to retain?

Good question. We disclosed $50 million with the potential to upsize based on demand and subscription. We want to be thoughtful. Candidly, we are going to have all the details when this actually launches, which we expect next week. But I think what we wanted to be mindful of things like 382 issue, covenants, other things. However, we think this is an excellent option for investors -- common investors that value a high dividend. We expect it to come at a premium to the share price at the time. And I think once we have all the details ready to go, we will have more to say.

One other point just around sizing is we anticipate at a $50 million level that this really would -- together with the repurchases that we've already commenced since our September offering of our convertible instrument that, that would really care for any potential dilution of that instrument as well, depending on the ultimate premium there.

Got it. That's helpful. And then maybe more broadly, without the REIT asset test restrictions, what, if any, changes do you anticipate for the investment or retained portfolio strategy going forward? As Brooke's spoke to and I think one of Rick's questions, would that incorporate possibly increasing the amount of retention going forward?

Jason, this is Dash. I can take that. Probably not. I think we have continued to lean into our originate to distribute model, either full distribution or having these joint ventures be a bigger part of the story in terms of how we grow our mortgage banking platforms.

Certainly, the ability to retain more capital does give us the ability to continue to invest and add to that portfolio. But I would expect us to continue to do more of what we've been doing, which is bring in outside capital partners either through whole loan sales or joint ventures or sort of similar structures to continue to scale in part -- in tandem with the ability to continue to grow our capital base.

Yes. We also -- while we have joint venture partners, we are a partner. We're an investment partner. And for our business to scale, and this gets back to the essence of the mortgage business that we're running, we need to retain investments in securitizations. We own MSR to run more volume, we need more working capital to fund warehouse haircuts and for hedging.

And so really to meet our business objectives, we need that form of growth capital. And if we're successful, the capital piece needs to follow. As Brooke mentioned, the real constraint to unlocking the true value of the franchise has been capital. So we're focused on the amount of capital, our cost of capital and certainly open to more joint ventures and partners.

Our next question comes from the line of Mikhail Goberman with Citizens JMP.

Lots to unpack here, obviously, and we've been over quite a lot of ground already. So maybe if I could ask you guys to maybe walk through the mechanics of the C-corp conversion, the timing of it, the expected time line of it, if you guys need a shareholder vote on that, stuff like that.

Yes. I'll start, Mikhail, and the team can add comments. The first thing is by way of the announcement today, we've announced the NOL plan and the Board's intention to transition to a C-corp. Once that intention has been made, those tax assets become realizable. That's why we announced, we expect an 11% increase from our September 30 book value, which is pretty substantial.

A reminder, these are NOLs that our operating businesses should be able to use more or less immediately. We've been paying for some time mid to high 20s effective tax rates on substantially all of our earnings which is very counterintuitive for a REIT. We've had the NOLs. We've not been able to use them based on the structure. So for some extended period of time, we expect to not have to pay taxes out of capital or cash, I should say. And tax obligations will be absorbed by the NOLs. So it will become very tangible to us.

I think we have an example in the review on what a average quarter could look like in the per share P&L increase from tax savings alone. So we think that the benefits will become immediate. We mentioned that it becomes effective in the 2027 tax year. So the technical requirements from a federal income tax perspective would presumably be met in the first quarter.

And I think that we are -- our next step is to kind of get through the next few weeks. We've got this exchange plan. We're quite excited about it. And I think what we're trying to do in the fourth quarter through all of the initiatives that we mentioned is really put the business in a position to be growing on a stable basis in 2027.

Hopefully, more simple, more straightforward with a business structure that is consistent with our operating model. And these calls, I think, will be -- our results will become a lot more intuitive.

So there's no shareholder vote that's needed?

No.

Got you. And if I could just make a quick little hard pivot to an operational segment. Just your thoughts on credit quality going forward. Some data has been popping up about delinquencies sort of rising in the non-QM space and a few other pockets of the mortgage industry. So maybe just talk a little bit about that and if there was any effect of that on your Aspire volumes in the third quarter.

Thanks, Mikhail. It's Dash. I can take that. No, in terms of the credit philosophy within Aspire, non-QM can be a broad term. I think since we launched Aspire close to 2 years ago, we've had the thesis of sticking to our knitting and being on sort of the middle lanes of the highway in terms of credit. I think we have market standard guidelines, but the judgmental underwriting that our underwriters do, how we price our rate sheet, et cetera, I think has generally guided us to, on balance, probably a higher credit quality net book than maybe the industry in total, which I think shines through with our delinquencies being at 20 basis points, which is probably in the upper quartile of the market or the best quartile of the market, I should say.

So we've taken a very conservative approach to higher LTVs to aggressive debt service coverage ratios, extremely mindful for some of the issues in valuation that the sector overall has had over the past few years. And I think that's shining through, frankly, in delinquencies and performance. Obviously, that's a day-to-day discipline. But so far, we feel like we're performing that effectively.

The volume pullback for Aspire was really largely market-driven. As we saw spreads widen and rates move higher, Non-QM in particular, did widen pretty significantly in the second half of the third quarter, and it actually has continued to widen in the fourth quarter. If you go back to the summer, maybe in August, AAAs were probably at 120, 125. Now prints are probably at 165 or so. So there's definitely significant widening in both whole loan and AAA spreads.

One thing I would reinforce, which we didn't mention on this call, but have on prior calls is that with Aspire, we move all of our risk. We sell the subordinate securities. We sell the risk retention securities to third parties. And while that execution did impact our margins in the third quarter, that risk is sold. And we're not sitting on bonds that maybe have had some negative price action thus far this quarter as spreads have continued to widen.

So I think sticking to our knitting on credit and continuing to focus on running that business capital efficiently. We have our JV. We expect to set up here shortly in the fourth quarter, and that will continue to be the story in Aspire.

Looking forward to the updates going forward over the next couple weeks and beyond.

Our last question comes from the line of Bose George with KBW.

So first, just one follow-up on the legacy. Your capital there is $160 million, so it's less than $1 a share. On each position, can you walk away if the potential loss exceeds that equity allocation? And just confirming your loss is now ring-fenced at this pretty small number.

Well, some of the debt allocated against that position is nonrecourse and some is recourse, Bose, so that is a consideration. We have some detail on that. So that is part of the capital allocation. There is some modicum of recourse debt. But again, we're going to do everything we can to move the position expeditiously, but obviously protect value. We recognize that it is an overall challenging environment, each of these assets is bespoke and takes its own considerations. But we feel very good with the progress we made, again, close to $0.25 billion of resolution since June 30 and the opportunities we have in front of us to continue to derisk between now and the end of the year and into early Q1. We're optimistic that the bulk of this can get behind us pretty quickly.

Okay. Great. And then actually, you noted that $0.12 to $0.14 a quarter of the carrying costs on this. Does that -- has that declined as the legacy has declined? And was that number for 3Q as well? Or was that a lower number?

It's been fairly consistent, Bose. And some of that is just the ongoing cost, but also, in some cases, just the cost to resolve and get to the real estate and move it. So those have been reasonably consistent. We should continue to see -- or we should start, I should say, to see those trend down in the fourth quarter and into Q1 as some of the associated secured debt is paid down and obviously, the ongoing property management and just overall protective costs come down as the position continues to shrink.

Okay. Great. And then actually one on the deferred tax assets. The -- just given the size of your NOL, is there going to be like -- is there sort of incremental deferred tax assets that are going to have like a valuation allowance initially and can be reversed? Or is the amount you noted kind of the max on the DTA?

No, we actually are putting -- a part of our DTA will have a valuation allowance up. We see some of our NOLs expiring before they're fully utilized. But there's a potential based on our profitability for that to be recognized over time. So we're not taking 100% of the value today.

Okay. And is that something you could quantify now? Is that -- I mean, could that be a pretty meaningful number just given the size of your NOL, it seems like there should be more DTA eventually.

Yes. Our VA that we're putting up is only on our -- we have $1.1 billion of NOLs at the California state level. And so we have -- we're expecting to use roughly kind of half of that state NOL today. To the extent, again, our projections change around our ability to utilize that, we would remove -- we would derecognize that VA over time.

Yes, Bose, we can follow up with the amount. But I think the big takeaway is the amount -- the big jump in book value has been heavily vetted with our tax accountants and tax attorneys, and that is what we expect to be realizable. But certainly, there's more upside if more of that allowance can be released. And some of these DTAs date back to the financial crisis. It's been just a very long time coming. So we're excited to have that unlock.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

financial results conference call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, [ Natasha Fothery ], SPNA Leader.

Thank you, Operator. Hello, everyone. joining us today for Redwood's second quarter 2026 earnings conference call. With me on today's call are Chris Abate, Chief Executive Officer; Dash Robinson, President; Brooke Carillo, Chief Financial Officer; and [ Abhinav Asana ], our Chief Technology Officer. Before we begin today, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts, and assumptions, which include risks and uncertainties that could cause actual results to differ materially.

We encourage you to read the company's annual report on Form 10-K and quarterly report on Form 10-Q, provide the description of some of the factors that could have a material impact on the company's performance, and cause actual results to differ from those that may be expressed in forward-looking statements. On this call, we may also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. Reconciliation between GAAP and non-GAAP financial measures are provided in our second quarter Redwood review, which is available on our website, redwoodtrust.com.

Also note that the contents of today's conference call contain time-sensitive information that are accurate only as of today. We do not intend and undertake no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded. It will be available on our website later today. With that, I'll turn the call over to Chris for opening remarks.

Thank you, and good morning, everyone. Redwood exceeded $8 billion in mortgage banking volume for the second straight quarter. We did over 20 securitizations in the first half of the year. We ended the quarter pricing 3 securitizations in a single week, 1 for each of our operating platforms, the first for Redwood in our 32-year history. That makes us happy and a little nostalgic about how productive the company operates these days relative to the past, when 2 to 4 securitizations a year was deemed just fine by market standards. Broadly speaking, it's no secret the housing finance business has been a lot less forgiving for this current generation of mortgage practitioners, first in over 40 years not to benefit from a long-term bull market in interest rates, which served as an invisible tailwind for both the lucky and the smart.

Home affordability and supply headwinds, both closely linked to high interest rates and regulation, have impacted the addressable mortgage market and how mortgage businesses fundamentally operate. Today's environment is higher operating efficiency and capital turnover in a deep strategic mode that can drive growth despite home sale activity still coming in at multi-decade lows. As investors seek to align with the long-term winners of this extended rate cycle, we're prioritizing a few key differentiators that are worth mentioning. Let's start with technology. We are rebuilding Redwood as an AI-native housing finance platform for proprietary systems developed by our own engineers and embedded directly into our workflows.

Our multi-agent AI systems help teams retrieve answers quickly and apply the same intelligence to complex tasks including seller financial reviews, guideline comparisons, and contract analysis. The result has been faster expert reviews, greater consistency, and greater scale. There are people in the loop on every key decision. This is still early innings, but the capabilities we are deploying are proprietary, compounding, and changing how we operate. Early indications of the operating leverage from technology are already visible. Direct expenses were 64 basis points as a percentage of volume for the first half of 2026, already a 28% improvement from full year 2025.

Annualized time savings from our 2026 AI-enabled automation initiatives increased to approximately 23,600 hours, up more than 50% from the first quarter 2026 baseline. meaningful impacts on due diligence costs, rate sheet pricing, and guideline analysis. We also extended our unified technology platform, supporting Sequoia and Aspire to enable HELOCs as a new Sequoia product. The bottom line is this. If you're wondering who the AI winners and losers are going to be in housing finance, we'll put 90% annual volume growth with consistent margins up against anyone operating in the housing market today. a market that has been operating at overall volumes down 50% from 2021 levels.

As many of you know, our RWT Horizons Venture Fund complemented, in certain ways, significantly accelerated our growth in mortgage banking in recent years. Representing less than 2% of our capital, Horizons gives us access to more than 25 early-stage companies across the mortgage and AI ecosystem. During the quarter, we invested in Prometheus, an artificial intelligence company developing an artificial general engineer, while another AI company in our portfolio priced a financing round that values our initial seed investment at approximately 27x our cost. Our dual approach of adopting AI inside Redwood and investing directly at the frontier of technology remains a long-term strategic initiative.

Product depth and distribution are another important part of the story. At Sequoia, newly launched products now represent more than 30% of our quarterly lock volume. Aspire also grew more than 30% sequentially in the non-QM space, while CoreVest is building momentum in its smaller balance offerings for experienced housing investors. Taken together, Redwood today has been dearly less dependent on any 1 product or on any mortgage refi cycle. It also differentiates earnings model in comparison to model line operators, with revenues more tied to MSR values and associated customer retention. Our model, conversely, built around efficiently aggregating loans from across our broad network and distributing them to long-term investors through securitizations, whole loan sales, and strategic partnerships.

Our bank relationships further strengthened that position. Large depositories leaned into mortgage volume during the second quarter, even at the expense of margins, underscoring that bank behavior is already evolving as the Basel III endgame is finalized. Lower capital charges and high-quality mortgages may have been a necessary regulatory impediment for banks to re-engage, but they are certainly not the only constraint. The ultimate decision by banks to boost origination activity remains risk-based, and to repeat ourselves, the mortgage risk that banks see sweets most consistently cite to us as top of mind is convexity, not credit. Redwood enables our bank partners to generate fee income and retain their clients while transferring their interest rate exposure to us while they retain and continue to grow the customer relationship.

June 30, Redwood acted as a dedicated capital partner, 70% of the top 50 banks in the U.S. Our ability to help banks manage ongoing mortgage exposures differentiates Redwood and reinforces our essential role throughout the banking system. In summary, business we operate today is fundamentally different than it was 20, 10, or even 2 years ago. Advanced technology and operating efficiency, more comprehensive products, diversified distribution, premier institutional capital partnerships, and a shrinking legacy portfolio position us to grow going forward through a wide range of market environments, long-term value for shareholders. Not just when all boats are rising, as they do when interest rates fall, but through challenging rate cycles where hard work and innovation make the difference. And with that, I'll turn the call over to Dash to discuss our operating results.

Thank you, Chris. Our second quarter operating performance reflected the combined benefits of product diversification, capital efficient distribution channels, and an opportunity operating framework that's fully integrated with core AI initiatives at the center of our strategic blueprint. The result was an eighth consecutive quarter of mortgage-banking returns north of 20%, increasingly fertile ground for continued capital redeployment away from our non-core portfolio holdings. At Sequoia, second quarter lock volume totaled $5.6 billion alongside several noteworthy product and distribution benchmarks. On sale margins were 92 basis points overall, in line with the first quarter's 96 basis points, despite substantial macro headwinds in April and May, and broader indications of pronounced margin compression across the industry.

Distribution remained well aligned with production, most notably with a Castlelake joint venture coming online in late June, 9 Sequoia securitizations, and $1.2 billion of whole loan sales, almost all to banks. Sequoia's production mix included over 65% purchase money loans. The strategic position in Chris' reference has emerged as an important buffer against profitability headwinds for non-bank operators that are often coupled with reduced housing activity and renewed vigor from bank portfolios. This is in large part attributable to how our platform as a non-bank has positioned itself within the depository ecosystem. When business drivers, including those influenced by capital rules, need a bank to buy or sell mortgage loans, we are most often the first call.

The deep bank relationship drove the launch of our medical professional loan program, now offered broadly to our seller network with great early success. including a second MedPro securitization earlier in July that priced well inside of our inaugural issuance. The recent launch of our HELOC program builds on our optimism that deeper product offerings will continue to drive resilience during periods of upward pressure on rates and volatility, reach stable margins, increase relevance to our deep seller network, and our ability to support two-way flow between bank portfolios. Also key to this positioning is Aspire, whose establishment 18 short months ago was designed to leverage existing strengths by offering a well-underwritten, flexible suite of expanded products to a broader network of originators.

Aspire delivered over $2 billion of lock volume during the second quarter, another record for the platform, up 31% from Q1. Market observers expect non-QM originations to reach $150 billion in 2026, up 20% from last year and reflective of a growing cohort of high-quality borrowers that access credit differently than the traditional W-2 employee. This implies a run rate market share for Aspire of approximately 5% to 6% that we seek to grow to 10% by year-end 2026. Through a relentless commitment to product innovation, accretive distribution, and technology, including recently announced progress with AI-powered pricing and guideline analysis tools. Institutional investor demand continues to support the non-QM sector's growth in general, but Aspire isn't specific.

The business completed its second and third securitizations issued under the Aspire shelf during the second quarter, with the risk retention and support in the tranches once again syndicated profitably to third-party investors. At June 30, 60-plus state delinquencies within an Aspire securitized population were less than 10 basis points. Subsequent to quarter end, we executed definitive documentation for an Aspire dedicated joint venture with Crayhill Capital Management, a leading structured credit investor. the vehicle has the potential purchasing power of up to $8 billion of loans underscoring demand for Aspire's products and an important early validation for the business. Similar to our other joint ventures, it provides a source of recurring revenues with added performance fees upon reaching stated return thresholds.

Each of our platforms now operates with a dedicated joint venture with key benefits to our operating leverage and revenue durability going forward. CoreVest, our direct originator focused on lending to housing investors, funded $410 million of loans during the second quarter, down approximately 5% from Q1, as higher rates weighed on portions of the pipeline and legislative uncertainty now largely settled, impacting certain key pockets of market activity. We remain disciplined while borrowers and developers assess the evolving regulatory and legislative landscape. With the landmark housing bill now passed and build-for-rent carved out from institutional ownership limitations, activity is beginning to reopen an area that has largely paused.

CoreVest remains well positioned, supported by its longstanding focus on experienced sponsors below the largest institutional segment. A key milestone for CoreVest during the quarter was its first term loan securitization since 2023, since which time our term loan production has largely been sold in whole loan form. The $268 million transaction priced accretively to loan sale economics and was placed with close to 2 dozen discrete investors. A market response that underscores the deep demand for the platform forms origination activities. The team also entered into a new servicing arrangement later in the second quarter, designed to reduce administrative demands and lower servicing costs over time. launched a targeted business development initiative to expand lead generation.

As immediately realizable returns and mortgage banking continue to sit well above 20%, the value of continued reallocation away from our legacy investment segment remains significant. At quarter end, allocation to this portfolio totaled 12% of overall capital, down from 15% on March 31, and 63% lower than 1 year ago when we accelerated the wind-down of this position. Early in the third quarter, we commenced formal marketing of a substantial portion of our remaining legacy bridge loans, and continued to progress individual line items through to resolutions, unlocking capital and reducing associated secured debt. Thus far in the third quarter, we also priced a new financing arrangement for the remainder of our home equity investment portfolio. That pro forma we expect to reduce segment capital to below 10%. 90 day plus delinquencies in the unsecuritized legacy bridge portfolio were roughly flat versus March 31, and the priority remains fully moving on from this position as quickly and efficiently as possible to support further growth of our core activities. I will now turn the call over to Brooke to discuss our financial results.

Thank you, Dash. Turning to our second quarter results, we reported a GAAP net loss of $3 million, or $0.03 per share, compared with a $0.07 per share loss in the first quarter. Book value per common share was $6.90 at June 30. The 3% decline from $7.12 at March 31 was primarily driven by mark-to-market changes and ongoing carry costs within our legacy investments portfolio, as well as the $0.18 dividend paid to common shareholders. On a non-GAAP basis, consolidated earnings available for distribution, or EAD, was $20 million, or $0.15 per share, compared to $0.21 per share in the first quarter. The quarter again reflected two distinct trends. Our core segments remain highly profitable, generating $34 million of earnings available for distribution, ending in 18.5% annualized ROE, while legacy investments generated a $14 million EAD loss.

Turning to our segment results, aggregate mortgage banking net revenue remained essentially flat despite a roughly 6% decline in production, reflecting stable to improving margins across the platforms while direct expenses declined. The result was a 33% annualized return on average capital for our operating platforms with capital efficiency continuing to improve. Average capital required per dollar of production fell to roughly 2.6% in the first half of 2026 from about 3% a year ago, underscoring the scalability of our mortgage banking platforms volumes grow. Prior to corporate allocations, Sequoia generated $32 million of GAAP net income compared with $38 million in the first quarter.

The sequential decline was primarily volume-driven, as purchase commitments declined 9% while the 92 basis point gain on sale margin remained near the high end of our historical target range. Cost per loan improved to 17 basis points from 18 basis points demonstrating that we maintained operating discipline as volumes moderated initial loan transfers to Castlelake occurred near quarter end and therefore we expect the partnership to begin affecting capital velocity and see economics more visibly in the second half of the year. Aspire generated $7 million of GAAP net income, up $5 million sequentially. Lock volume increased 31% to a record $2.1 billion, while gain on sale margins increased to 101 basis points from 73 basis points as securitization spreads normalized and hedge performance improved relative to the first quarter. this growth was achieved with improving capital efficiency, resulting in a 33% annualized return on capital for the segment.

CoreVest generated $1 million of GAAP net income compared with a $3 million loss in the first quarter, which had included approximately $5 million of restructuring charges. excluding acquisition-related expenses, EAD contribution for the segment increased to $3 million. Net revenue rose 8%, reflecting improved term loan execution, while direct operating expense declined meaningfully following the actions taken earlier this year. Net cost to originate was 96 basis points in the second quarter, up from 79 basis points in the first quarter, reflecting modestly lower fee and income relative to expenses, along with 5% lower quarter-over-quarter volume. Redwood Investments generated approximately $1 million of GAAP net income compared with an $8 million loss in the first quarter.

The improvement reflected a more constructive valuation backdrop across portions of the retained portfolio and lower expenses, although the segment continued to experience soft fair value pressure in selected bridge and SFR investments. We deployed $72 million of capital into investments sourced from second quarter securitization. Because much of that deployment occurred late in the quarter, its earnings contribution should be more impactful in the third quarter. During the second quarter, we refinanced a portfolio of retained securities at an all-in cost of funds approximately 150 basis points below the prior financing. With approximately $1.5 billion of secured portfolio debt callable over the next 12 months, we retain a meaningful optionality to reduce funding costs as opportunities arise.

Legacy investments generated a $23 million GAAP loss, which included $12 million of negative fair value changes, primarily on legacy bridge loans inclusive of realized resolution activity. Financing, marketing, and structured sale initiatives Dash discussed are intended to release capital for higher returning uses and reduce the negative carry still embedded in consolidated EAD. Based on the current return differential between legacy and our core segments, we estimate that each $100 million of capital successfully redeployed could improve consolidated EAD ROE by approximately 200 to 400 basis points through reinvestment in our operating platforms or potentially share repurchases at appropriate levels. Operating expenses were down 21% on the quarter, with G&A declining to $38 million from $49 million.

Approximately $7 million of the reduction reflected restructuring charges recorded in the first quarter, with the remainder primarily attributable to lower compensation and variable expenses. More importantly, first half adjusted expenses represented 64 basis points of production compared with 88 basis points for the full year 2025, as volume growth continues to outpace expense growth. expect some natural variability in quarterly expenses, but the structural efficiency gains reflect in cost per loan trends and expenses relative to volume remain intact. Recourse debt declined by approximately $150 million to $4.5 billion, while recourse leverage declined modestly to 5x.

More than half of recourse debt supports mortgage banking inventory that turns rapidly through securitizations, whole loan sales, and joint ventures, with loans held for an average of approximately 26 days in June. of the quarter with $192 million of unrestricted cash, approximately $100 million of unencumbered assets, and $3.7 billion of excess warehouse capacity. In the last year, we have renewed or added approximately $4.4 billion of capacity, and the senior notes issued in the quarter further extended our unsecured maturity profile. And with that, I'll turn the call back to the operator for questions.

We will now be conducting a question and answer session. [Operator Instructions] One moment, please, while we poll for questions. Our first question comes from Richard Shane with JPMorgan. Please proceed with your question.

Good morning, guys. Can you hear me? Yes. Excellent. Sorry, I couldn't tell if that's fun with me. Do we have a new system over here? Look, and it's 5 in the morning. Look, you guys are making progress in terms of reallocating capital. There's $195 million left. You're talking about getting down to 10% by the end of this quarter. Realistically, how much of that $195 million do you expect to be able to realize? Obviously I think there's some friction as we saw this quarter. And as the business descales, there may be further just operating losses associated with it.

So how much of that sort of $195 million melting actually will go into the remainder of the business over the next couple of years?

Hey Rick, it's Dash, I can start. So a couple of pieces in your question. We expect to continue trending towards the capital in the legacy investment segment below 5% by the end of the year. That's how we've been guiding the market for a few quarters now. As we said in our prepared remarks, we actually did a transaction this week, which we think pro forma will bring allocation segments, that's definitely progress. As I also mentioned in the prepared remarks, you know, we're currently working on a disposition plan for a large portion of the remaining unsecuritized bridge loans, which we'll hopefully have more to talk about Q3 earnings. So we believe we're still on track, you know, to have that segment below 5% of capital by the end of the year.

We've set we're trying to be balanced between disposition speed and execution, but also recognizing just the significant accretion of redeployment of that capital. As we can elaborate on, we're highly confident that as that capital continues to come out of that segment that we will have a place to go with it immediately. We're still doing $8 billion-plus volumes in mortgage banking, and we're bringing on new joint ventures. All of which speak to the fact that those are all tailwinds for us to continue to grow market share and mortgage banking. As Brooke articulated, the decisions around continuing to unlock that capital, we have to weigh the right execution, but also the fact that there's $0.14 to $0.15 a quarter in of negative carry and opportunity cost within that segment that we think is immediately realizable through the retirement of secure debt, like I mentioned, and also the immediate redeployment. So we feel like the opportunities are there to redeploy very efficiently as we continue to wind that book down.

Got it. And how much so look, you guys executed a transaction at the beginning in the third quarter, as you talked about. presumably when you were valuing the portfolio at the end of the second, you were probably pretty close to that execution so you had a good sense of value. How much of the second quarter mark was was informed by the execution of the third quarter deal. Because again, I'm trying to understand, like we saw capital allocation decline during the quarter, partially a portion of reallocation, but also partially a function of a decline of capital. And so that's what I'm trying to understand here sort of of that $195 million, how do we think about what flows into the rest of the business going forward?

Rick, I would say every asset in our legacy book at this point, we're down to a couple handfuls of loans here. So these are really distinct. So the execution I think that we had in the third quarter of last year is helpful, but we definitely were looking at what our resolution strategy was for each of the assets at 6/30, and that definitely informed our mark.

Yes, the transaction you're, I think, referring to, Rick, was for the remainder of our HEI position, and certainly the mark at June 30 was informed by that execution, which we've since completed, so that's very much in line. as it relates to the legacy bridge portfolio, um, you know, Brooke is right. Obviously, as we say, every quarter, that book is fair valued. It's, it's marked where we feel, um, like we could execute it, but we're going to be obviously responsive to, um, um, you know, to what the market tells us in terms of disposing of the rest, again, with an eye towards where we can redeploy that capital quickly and, you know, reduction of the secured debt that's influencing some of the carry costs that Brooke articulated.

I've taken a lot of your guys' time. Thank you guys very much.

Our next question comes from Doug Harter with BTIG. Please proceed with your question.

Hi, good morning. This is actually [ Will Nesta ] on for Doug this morning. I know you mentioned in the release talking about having a more cautious operating posture early in the quarter. And given the move hiring rates early this quarter, I was hoping you could talk about how you're thinking about bettering the operating posture. banking volume sensitivity to rates and kind of with volatility versus higher rates. How you guys are thinking about that right now?

Yes, we definitely were more cautious in the second quarter, certainly earlier in the quarter, Rates were very, very volatile and there was a lot of geopolitical uncertainty, as everybody well knows. In June, things felt more stable and we leaned back in. I think we said 40% of our Q2 volume was in the month of June alone. that's pretty good validation that we've got recurring revenue streams from these businesses, really durable volume opportunities. And obviously we're going to be risk-minded as we pursue them, but we saw things pick back up when we decided to lean back in in June, and I think we saw more of the same in July. you know, in the past week or two rates have backed up. Um, obviously we're looking at a 4.63-ish 10-year. Um, and, uh, Mortgage rates are close to their 1-year high, I suppose. So all of that we need to factor in, but I think by and large we feel pretty good with our position today and our ability to continue to grow volumes.

We can't control what's going on in the macro environment, and we need to continue to be responsive to what we're seeing on the ground. But I would say July has been a fairly strong month from a mortgage banking perspective, and we're hoping that we can maintain that momentum in August and September.

Got it, thanks. And then just one more. I know you talked about your technology investment and how that's helped to improve expense efficiency. I think 64 basis points you guys had mentioned. I was hoping you could talk about where you see that number trending, if you see more potential upside there, progress you can make on that side. Or is there a particular level that you guys are comfortable with on that?

Why don't we – this might be a good opportunity for Abhinav to chime in on, you know, a few of the efficiencies we've been focused on. And then perhaps Brooke could follow up with some of the numbers.

Thank you, Chris, and thank you, Doug, for the question. I think the important part to recognize is that Redwood has been very thoughtfully investing in technology, especially AI, over the last 18 months, I would say, and we've started to see some of that result in compounding value proposition for the company. We've been investing in foundational AI platforms, as Chris mentioned in his prepared remarks. not bolting on AI where we look at incremental or small minor changes in how we do our business. We are rather looking at how we rethink the operating model in itself. And so as we built our platforms, we've kind of reengineered how our operating platforms and business platforms function. conduct business.

And so, to that effect, we've not only added efficiencies in terms of where we see waste in the process, but we also have now eliminated parts of the function that no longer make sense to our business. And in doing so, we've been able to provide value as we grow our businesses and the The more important part to think about is as we scale our business, These platforms are designed to handle volume as we grow and operate at efficiencies that are going to be significantly much larger than where we are today. Brooke?

Yes, the only thing I would add is that the improvement, you know, thus far from 2025, as they have been driven by first by just the scalability of our platforms and the amount of market share we've gained. and so volume has certainly helped that. Secondly, our variable expense structure has provided a large benefit here, and we're really starting to see technology start to carry some of its weight here on the improvement. I think the next 10 to 15 basis points improvement will probably be driven more by tech than continued scalability of our platform. But we imagine this ratio will continue to decline as we efficiently fund our loans via at some of these technological enhancements that Chris and Abhinav and Dashall mentioned today in their prepared remarks.

Our next question comes from Marisa Lobo with UBS. Please proceed with your question.

Good morning. Just thinking about gain on sale margins, you flagged that banks were competing aggressively in Q2, but Sequoia margins were better than we expected. So how much of that resilience was mixed versus pricing discipline? And as banks lean in further, you know, should we think about how the gain on sale margins evolve?

Yes, we observed, and certainly we're still kind of midway through earnings season here, but we definitely observed the large money center banks leaning back in, whether that was front running, the anticipated capital rule changes, we're not certain, certainly 20%, 30% sequential gains in volume. you know meaningfully lower margins at least from what was disclosed sort of indicate to us that you saw some some leaning back in it'll be interesting to see what overall industry volumes do for the quarter We did a pretty good job of maintaining our volumes or demonstrating consistency, even while staying risk-minded. And part of staying risk-minded is preserving margins and not chasing volume. So I thought we did a good job of that during the quarter.

Our business has really been built to be a holistic partner to banks, and In July, we actually locked a very large bulk sale to a regional bank. We've been mostly buying loans from banks over the past few years, but there could be two-way flows. The real essence of the franchise is the relationship itself and the technology implementations, the LO training, all those things that go into a partnership. So if the banks want to lean in, particularly the regional banks, and they want a capital partner to help them do that, you know, We're very much focused on serving our clients. That said, we don't necessarily see housing activity meaningfully higher and certainly refi activity. had trended down over the past quarter. So, you know, these do look to be kind of market share battles between perhaps the banks and the non-banks from an originator standpoint. And, you know, we'll look when the smoke clears in Q2 earnings season to kind of see where overall volumes landed.

Got it. Thanks for that. Can you provide any color on book value performance quarter-to-date?

Yes, we're up about approximately 1% of the recovered part of Q2's decline.

And that 1% is certainly a function of strong mortgage banking results.

Okay, great. Thank you for taking my questions.

Our next question comes from Crispin Love with Piper Sandler. Please proceed with your question.

Hi, good morning. This is [ Ben Graham ] on for Crispin Love. I'm wondering what your views are on the administration really focusing on housing, specifically housing affordability through GSE purchases, the single family executive order, etc. And then just broadly, what do you think would be some of the best ways to address the affordability issues in the U.S.? Thank you.

Well, I think the Road to Housing Act, the legislation is very focused on housing supply, which is the right long-term answer. We need more homes built. We need permits to be easier to obtain. You know, we need builders to be profitable. There's a lot in the bill. We were very happy that, you know, build-for-rent wasn't adversely impacted at the end of the day. We're excited about the future of our CoreVest business. But all of those supply initiatives I think are going to take – those are long-run – sort of initiatives. In the short run, it's really the demand side is probably all that the administration can hope to affect, certainly between now and the midterms.

The MBS buying at the GSEs has been pretty evident in the market. You know, there's not as many kind of natural buyers those bonds certainly since the Fed stopped buying a few years ago and to have the GSE step up I think has helped certainly help the TBA market through this very volatile rate period since the conflict with Iran began, certainly. So we've seen some offsetting pressures there, which we suspect are coming from GSE purchases. Overall, that makes its way into the non-agency space. So we're seeing pretty stable jumbo executions, for instance, which is very good. But in the near term, I'm not sure what else can be done to really rein in mortgage rates.

You know, there's... We've got a long way to go before we're kind of back into a 5 handle. you will rate and we see meaningful pickups in refi volume. So I think home equity is a big initiative for many in the industry, you know, ways to continue to serve the client. you know, without new mortgages. All of those things we're focused on as well. But overall, I think between now and certainly the end of the year, we're sort of range bound absent any big catalyst. And one thing too on the road to housing legislation.

We've seen our CoreVest production a bit softer over the last two quarters, And a lot of that was largely tied to the legislation. Now that there's clarity, we have seen a pickup in transaction volume from middle market investors, allowing them to really start to reallocate capital. There was a lot of frozen capital on the sidelines, particularly in parts of the bridge market, really under-penetrated, particularly in build-for-rent, which was about 2% of our volume on the quarter. And so we might see a mixed shift here from some of that pent-up demand. I think our term sheets issued are up about 40% since the trough in the spring when this was really an overhang on the sector. And so CoreVest had, you know, a quarter where income picked up, and we should see more of that as some of these deals get done.

Awesome, that's it for me. Thank you guys both so much for the color there.

[Operator Instructions] Our next question comes from Mikhail Goberman with Citizens JMP. Please proceed with your question.

Hey, good morning, everybody. Hope everyone's doing well. If I could maybe dig in and get some more color on your general thoughts on the non-QM space, what you guys are seeing in that space. um Aspire a segment of yours um your thoughts on the progression of lock volume going forward which has been obviously very excellent and also your expectations for margins going forward thank you.

Thanks, Mikhail. It's Dash. I can start there. We are still very much of the view that the non-QM market is going to continue to grow. I think we said in the prepared remarks, there's 20% or so expected growth this year. And so we think with Aspire, we're leaning in at the right time to what's definitely a growing market. I think some of that is always with these consumer products is just this consumer awareness. And I think the market's come a long way over the past couple of years. And in making consumers that qualify for these loans aware that they can qualify, you know, the folks that aren't traditional W-2 employees. So I think that's been a big development for the sector.

In terms of how we're approaching it, one of the value propositions for Aspire from the beginning has always been just the incredibly strong foundation from our Sequoia business and the years-long relationships we've had with sellers, more of whom we've seen in-source these sorts of expanded credit products as rates have stayed high. As you know, a lot of our long-time relationships that we've bought jumbo loans from for a very long time have begun to insource these loans over the past couple of years to diversify their product offerings, retain and attract LOs, etc. I think that competitive advantage has been empirical and Aspire's growth. At this point, two-thirds are here. so of our Aspire production is with existing Sequoia relationships, which is pretty close to how we expected it to happen.

But we're also growing with new sellers, and we have a lot of existing sellers that aren't online yet. So when you think about the growth to $2 billion a quarter, some of that runway is what underpins our goal that Aspire's buyer speaks for closer to a 10% market share by the end of this year, early next year, up from what we estimate to be 5% to 6% currently. It relates to margins, we're still expecting to be very much in our long term range of 75 to 100 basis points. We're excited to get this new joint venture up and running as sort of a fast follow from the Castlelake joint venture and the Sequoia business. Those JVs in general, just to speak to that for a second, just the pricing power that they give us in the market and the ability that we have to leverage our internal capital 10 to 20 times with these partnerships.

Our dollar goes a lot further and at higher ROEs You know, when you combine the certainty of those economics, the fees we earn, and obviously, you know, the fact that we're partnered with pari passu capital next to us, that's 80 to 90% plus, you know, the equity of those of those vehicles. And so it's it's become a good a really virtuous cycle with how we've brought some of this outside capital in to drive growth. And we certainly expect Aspire to continue to grow. I would say that the market in general, Mikhail, continues to be very responsive to these sorts of cash flows. If you think about the ability to access mortgage credit, the GSEs haven't issued deals in a while. It's uncertain when they'll do that again. And so the non-QM market continues to be you know, a pretty efficient vehicle for investors to put capital to work in U.S. housing credit. And I think you've seen that and how well the markets absorb volumes and obviously with the overall growth.

Thanks, Dash. That's much appreciated. If I could squeeze in one more, just your guys' general thoughts on borrower credit quality at the mid-year point. Thanks.

In our experience, Mikhail, it's been quite stable. We track, obviously, our delinquencies. and certainly our underwriting guides, and we've been pretty fortunate with the performance of the book up to this point. More broadly, obviously there's some warning signs out there, but I think for us, you know, We're focused on working down our legacy book, and in Aspire and Sequoia, we've had pretty consistent credit performance.

Our next question comes from Bose George with KBW. Please proceed with your question.

Good morning. I just wanted to go back to the expenses discussion. The comp expense was down quite a bit, quarter-over-quarter. Was there some structural stuff or was it just like was Q1, I guess, had some of the year end? So anything to just call out there?

Yes, so thanks for asking. You know, we sort of are prepared remarks for just really calling out that we did have to $7 million of kind of restructuring-related expenses in that Q1 number so we expected that to come out of our run rate. We had originally guided, I think, last quarter that we should be inside our and a fixed comp from Q4, which we saw in G&A by a couple million bucks. And so, you know, we had about, you know, $7 million or $8 million that was attributable to just the one-timers that were in this quarter, that were in last quarter. But we also had, you know, we did have lower acquisition costs just based on slightly smaller volume. We did have slightly lower portfolio management costs relative to the first quarter, and then just generally fixed comp expense and some variable costs for the remainder of the delta.

So, you know, we've really tried to sure that we're putting out enough metrics on the expenses of the business, particularly given how much we've increased volume since the fourth quarter for that comparison point. We're down on an annualized basis probably $10 million to $12 million of G&A, which we had guided and volumes up a couple billion relative to that quarter. So, again, back to the point around technology and our scale. We're proud of those efficiency metrics.

Okay, great. Makes sense. Thanks. And then I didn't know if you mentioned this, but the allocation of capital, you know, to those capital looks like reallocated from mortgage banking to the investment segment. Was that just sort of reflecting the economics of that or just curious what happened there?

Yes, those really are, we have several servicing or other IO-related assets that hedge our pipeline. At a certain point, if those, lose some of their pure hedging value for mortgage banking, we, based on our pipeline, we will move them into the portfolio as soon as possible. like those profiles as long-term hold assets as well. So that was really the mixed shift between the capital allocation, between the portfolio and mortgage banking.

Okay. And then was the decline in servicing income because of the reallocation or?

No, that was, we just saw a slight pickup in speeds relative to our Q1 results. So that was just a small market impact from Legacy MSR.

Okay, great, thanks.

We have reached the end of our question and answer session, which now concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Good afternoon, and welcome to the Redwood Trust, Inc. First Quarter 2026 Financial Results Conference Call. Today's conference is being recorded.

I will now turn the call over to [ Natasha Spaduri ], Senior Vice President of Finance. Please go ahead, ma'am.

Thank you, operator. Hello, everyone, and thank you for joining us today for Redwood's First Quarter 2026 Earnings Conference Call.

With me on today's call are Chris Abate, Chief Executive Officer; Dash Robinson, President; and Brooke Carillo, Chief Financial Officer.

Before we begin today, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts and assumptions, which include risks and uncertainties that could cause actual results to differ materially. We encourage you to read the company's annual report on Form 10-K, which provides a description of some of the factors that could have a material impact on the company's performance and cause actual results to differ from those that may be expressed in forward-looking statements. On this call, we may also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. Reconciliation between GAAP and non-GAAP financial measures are provided in our first quarter Redwood review, which is available on our website, redwoodtrust.com. Also note that the contents of today's conference call contain time-sensitive information that are accurate only as of today. We do not intend and undertake no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded. It will be available on our website later today.

With that, I'll turn the call over to Chris for opening remarks.

Thank you, and good afternoon, everyone. Before I turn the call over to Dash and Brooke, I want to share a few thoughts on our first quarter performance and what it says about Redwood's position as we move forward in 2026.

As you all saw by now, Redwood generated a third consecutive record operating quarter with mortgage banking volume surpassing $8.5 billion for the first time and earnings available for distribution coming in a bit above last quarter at $0.21 per share, once again covering our dividend.

Operating progress should garner some attention as our results came amid a broader mortgage market that has been stuck in neutral with mortgage applications running close to 40% below pre-pandemic levels and jumbo mortgage rates having risen from the recent February lows in large part due to the conflict in the Middle East.

To zoom out and offer some context, our $8.5 billion of first quarter volume exceeded residential mortgage production at 3 of the top money center banks during the quarter. Our volume also clocked in at 10x our March 31 reported GAAP book value, a very high capital turnover ratio. This means the loans we hold in short-term warehouse facilities are moving quickly and getting replaced with fresh production. All told, we completed 11 securitizations in the first quarter, another in-house record for Redwood.

High turnover also indicates the tremendous operational efficiencies we've implemented in recent quarters, in part due to our strong adoption of AI across the enterprise. In the first quarter alone, we executed over 2,500 agentic workflows, spanning technology platform expansion to support both Sequoia and Aspire in a single unified platform, as well as automated QC and the elimination of significant work previously performed by outside vendors.

In the quarters ahead, we aim to continue unlocking addressable market share by leveraging the many network relationships we've spent years cultivating, something that is neither easy nor cheap to replicate.

Our longer-term objective of 20% market share or more for our primary products will require both capital efficiency and significant growth capital. We believe there is a compelling opportunity for common shareholders to participate in that growth alongside us in advance of the next monetary regime and mortgage rate cycle. In the meantime, we continue to see tremendous demand from alternative asset investors who are eager to partner with us and speak for the high-quality assets we source.

Just this morning, we announced a major Sequoia capital partnership with Castlelake, a blue-chip global investment firm specializing in asset-backed credit. This partnership brings approximately $8 billion of incremental purchasing power to Sequoia as it scales and reflects growing institutional demand to access our platform and the assets we create.

We view this as an important step in a broader strategy to pair our origination capabilities with third-party capital at scale. To that end, we've also been hard at work on an Aspire-focused joint venture and hope to announce a similar JV in short order. Such capital partnerships are timely as we're growing more optimistic about macro trends that could positively impact the housing sector with the obvious caveat that the conflict in the Middle East seems far from resolved.

As we like to say, mortgage was among the first sectors to be impacted by the Fed's historic tightening cycle to combat inflation in 2022, and we think mortgage could be among the first to benefit now with the prospect of a more accommodative and housing-focused Fed.

Based on recent publications and testimony, the presumptive new Fed Chair, Kevin Warsh, seems to prefer the policy combination of lower rates and a smaller Fed balance sheet. While the reduction of QE had certainly removed the demand stimulus from the mortgage market, the prospect of a smaller Fed balance sheet should help reduce long-term inflation expectations and hopefully support lower long-term rates. The wildcard for mortgages continues to be spreads, which are still meaningfully above pre-COVID levels and still trying to find equilibrium.

We expect any monetary policy tailwinds to be further supported by evolving regulatory dynamics, most notably the recently reproposed bank regulatory capital rules, also known as the Basel III Endgame. The proposed rules would ease the cost for banks to hold higher quality mortgages and mortgage servicing assets, a necessary step for banks to consider allocating more capital to their go-forward consumer mortgage operations. But lowering the capital rules is just one precursor for banks to reenter the mortgage space. The ultimate decision, we believe, remains risk-based and not profit-based.

We consistently hear from bank C-suites that having a partner like Redwood to assist in the management of their interest rate and asset liability risks is a huge differentiator, especially because our support does not undermine their customer retention goals. Having the option to transact with Redwood when rates change quickly or priorities shift is the value differentiator we've now established throughout the banking system and another example of the moat we've built around our franchise.

Finally, before handing the call over to Dash, I want to remark on recent headlines stemming from the private credit sector. As we all have seen, pockets of weakness in underlying fundamentals are emerging for certain aspects of private credit and constraints on liquidity and asset price visibility are, in some cases, impacting broader market sentiment.

It's a timely moment for us to humbly champion Redwood's public credit model, where you can gain exposure to innovative mortgage banking and credit strategies, coupled with the liquidity that a publicly traded stock offers. We also strive to provide great transparency through the utilization of annual external audits, quarterly 10-Q filings, proxy statements and perhaps most importantly, mark-to-market accounting through our income statement. It's times like these that we take pride in our shareholders knowing not only what they own, but also knowing what they don't.

With that, I'll turn the call over to Dash to discuss our operating results.

Thank you, Chris. Our first quarter operating performance reflects continued momentum across our mortgage banking platforms, supported by record Sequoia volume, ongoing growth at Aspire and strategic progress at CoreVest, including evolution of our production mix. Even against a more volatile backdrop beginning in March, our full quarter results demonstrated the scalability of our model and the additional operating leverage still to be unlocked.

Sequoia once again headlined our results, logging another record quarter with $6.5 billion of locks, up 22% from the fourth quarter. That volume was generated in a housing environment that remains well below historical norms, underscoring the market share gains we continue to make across our originator network, now enhanced by several new products to complement our core jumbo offering.

Cost per loan improved 30% from the fourth quarter to below 20 basis points, aided by automation initiatives that we estimate will free up close to 6,000 hours per year that our team members can utilize more productively. Capital turnover also improved quarter-over-quarter with continued efficiencies expected from the new joint venture dedicated to Sequoia's jumbo production that Chris described.

Gain on sale margins in the first quarter were 96 basis points, at the high end of our historical target range despite substantial TBA underperformance into quarter end, much of which has retraced thus far in April. Margin resilience was driven in part by strong execution on $5.5 billion of dispositions, including $4.6 billion across 9 securitizations.

As Chris articulated, the recently reproposed Basel Endgame rules represent a potentially meaningful tailwind for the business. While flow volume represented the majority of first quarter production, we are currently evaluating on an exclusive basis close to $5 billion of seasoned bulk pools from banks, underscoring our view that more benign capital charges against high-quality mortgages will promote more 2-way flow of bulk pools, a positive for Redwood given our market positioning as banks continue to prioritize prudent asset liability management. Away from bulk opportunities, our sourcing channels remain well diversified overall with average flow lock concentration by seller of less than 1%. Product expansion also continues to support growth.

During the quarter, we launched a new loan program focused on medical professionals, locking nearly $300 million of such loans on a flow basis during the quarter and later in the quarter, successfully securitizing a bulk pool of MedPro loans we acquired from a bank, a first-of-its-kind transaction. In all, our expanded offerings represented 14% of total lock volume in the quarter with over 100 of our sellers now actively selling us at least one new product.

Aspire continued its growth trajectory in the first quarter, adding several new origination partners while further deepening our value with existing sellers. Aspire lock volume increased to $1.6 billion with April lock volume ahead of that pace. Approximately 70% of Aspire's first quarter volume came from sellers already active with Sequoia, a significant competitive advantage for the platform that also is indicative of its growth potential.

More originators are now recognizing the strategic benefit of non-QM products that serve a growing cohort of borrowers outside the traditional W-2 profile, including self-employed consumers and smaller scale housing investors. We estimate Aspire's first quarter market share to be approximately 4%, which we expect to at least double by the second half of this year. As Aspire remains a relatively early-stage platform, an ongoing priority remains scaling operations ratably with volume growth and maintaining the cost discipline that supports long-term profitability.

Aspire's gross margins were 73 basis points in the first quarter, impacted by spread widening in the pipeline at quarter end that has since largely reversed. The platform's inaugural securitization in March was an important milestone for the business, broadening distribution, improving capital efficiency, including through accretive distribution of the risk retention and subordinate tranches to a third party and establishing Aspire as a programmatic issuer alongside Redwood's other leading securitization shelves.

At CoreVest, first quarter volume totaled $432 million, down modestly from the fourth quarter, but with continued progress in our smaller balance residential transition loan, or RTL and DSCR products. In partnership with our borrowers, we managed the pipeline carefully in March as volatility increased, which reduced monthly volume but positioned customers to lock loans in April at more favorable all-in rates.

CoreVest's origination and distribution strategies are improving capital efficiency, reducing market risk and aligning the platform with areas of demand well supported by our capital partners. Most notably, this includes our joint venture with CPP Investments, to which we have now distributed over $2 million of CoreVest production life to date, generating upfront fee income and building a recurring income stream as the joint venture grows.

The broader housing investor market remains focused on a pending piece of legislation that may impact institutional ownership of rented single-family homes over the medium to long term. While the final outcome remains uncertain, we believe parts of the eventual framework could create longer-term opportunities for the platform, both within our smaller balance loan programs and if the new rulemaking ultimately impacts the GSE footprint for single-family housing investors.

Alongside record mortgage banking activity, we continue to pace with our reallocation of capital away from legacy investments, which stood at 15% of total capital at March 31, down from 19% at year-end.

While segment returns were once again impacted primarily by net interest expense, resolution activity during the first quarter, combined with an accretive securitization, reduced legacy bridge loans to approximately half of the legacy segment and 8% of our total capital overall. 90-day plus delinquencies were roughly flat versus year-end in the legacy portfolio as we prioritize efficiently winding down the segment through outright dispositions or other structured sales that we believe will lead to the best outcomes through time.

I will now turn the call over to Brooke to discuss our financial results.

Thank you, Dash. Turning to our first quarter results. We reported a GAAP net loss of $7 million or $0.07 per share compared to GAAP net income of $18 million or $0.13 per share in the fourth quarter.

Book value per share was $7.12 at March 31. The 3% decline from Q4 was driven by noncash market-related valuation changes and certain nonrecurring expense items rather than underlying operating performance. Book value also reflected the $0.18 dividend paid to common shareholders.

On a non-GAAP basis, consolidated earnings available for distribution, or EAD, was $27 million or $0.21 per share, up from $0.20 per share in the fourth quarter. Core segments EAD was $37 million or $0.28 per share, representing a 19% return on equity. This performance was driven by strong mortgage banking volumes, efficient loan distribution and capital turnover, particularly during the more volatile period in March, and disciplined capital deployment into attractive, income-generating investments, which supported net interest income and margins. The difference between core segment's EAD of $0.28 and consolidated EAD of $0.21 primarily reflects the legacy portfolio, which reduced consolidated EAD by approximately $0.08 per share in the first quarter. As capital allocated to legacy continues to decline, we expect that drag to further moderate.

Our mortgage banking platforms generated $37 million of GAAP net income in the quarter, representing a 38% annualized return on capital.

Capital efficiency improved with capital required per dollar of volume declining by approximately 10% quarter-over-quarter to 1.1%. Just to note, this quarter, our segment returns reflect a full allocation of unsecured interest expense based on average capital deployed with capital reduced by the corresponding allocation of corporate debt. The Redwood review presents segment results on both this basis and our prior methodology, which reflected these items within corporate.

Sequoia generated $38 million of GAAP net income in the first quarter. Heightened flow activity represented 61% of production with a growing contribution from newer products such as ARMs, closed-end seconds and medical professional loans. As volumes scale, we continue to see strong earnings conversion and benefits of scale with cost per loan declining to 18 basis points, a highly efficient milestone.

We also see a deep and growing pipeline of attractive opportunities with demand exceeding available capital. The joint venture announced today is designed to capture more of that opportunity in a capital-efficient manner by incorporating third-party capital alongside our own. Based on current expectations, the structure has the potential to contribute approximately $0.12 to $0.15 per share of incremental annual earnings as it scales with additional upside through structured economics.

Aspire generated $2 million of GAAP net income in the first quarter. As the platform scales and expands distribution, we are beginning to see improvements in capital efficiency. Margins were impacted by late quarter volatility but have largely recovered post quarter end.

CoreVest generated a GAAP net loss of $3 million in the first quarter, including approximately $5 million of onetime restructuring charges related to organizational changes that position the business for profitability in 2026. Excluding these items, our net cost to originate declined from 95 basis points last quarter to 79 basis points in Q1, reflecting improved operating efficiency.

Redwood Investments generated GAAP net loss of $8 million. Portfolio-related marks were primarily driven by widening in the TBA basis and credit spreads, combined with the impact of higher interest rates late in the quarter. The cost of funds for our investment portfolio improved as we refinanced higher cost debt and optimized our financing mix, supporting net interest margin.

Legacy investments recorded a GAAP net loss of $13 million, improving from a $23 million loss in the fourth quarter. The improvement was driven by lower net interest expense on legacy bridge loans, reflecting improved financing terms and lower balances as well as higher HEI income as capital markets conditions for the asset class improved.

Total G&A was $49 million in the first quarter, up from $41 million in Q4, reflecting onetime costs associated with the previously discussed organizational streamlining initiatives as well as typical seasonal expense patterns. Excluding these items, run rate G&A was approximately $40 million, essentially flat to slightly below the fourth quarter. We continue to scale with discipline as first quarter volume growth exceeded expense growth by nearly 2x, driving our expense to volume ratio down to 66 basis points.

With a largely fixed cost structure tied to production, we see meaningful upside in incremental volume converting into earnings, reinforcing our confidence in ROE expansion as the business scales.

Liquidity remains strong with $202 million of unrestricted cash and approximately $3.9 billion of excess warehouse capacity as of March 31.

Recourse debt increased modestly to $4.7 billion at quarter end, driven by higher warehouse utilization supporting record mortgage banking activity. Our ability to efficiently turn loans and inventory was evident in the first quarter with 11 securitizations completed across $5.2 billion of collateral alongside improved financing efficiency through tighter spreads and better advance rates, driving an approximate 50 basis point reduction in our cost of funds over the past 12 months. Over that same period, we increased warehouse capacity by 30% to $7.1 billion and renewed $5.7 billion of facilities, reflecting continued support from our lending partners. And finally, there are no corporate unsecured debt maturities over the next 5 quarters, and we maintain meaningful flexibility within our unsecured debt structure.

With that, I'll turn the call back to the operator for Q&A.

[Operator Instructions] Our first question is from Mikhail Goberman with Citizens JPM (sic) [ JMP ].

Congrats on another record quarter of banking volume. If I could ask, start with the new joint venture announcement this morning. I see in your slide deck, you mentioned you're expecting a meaningful annual EPS accretion for yourselves. Is there a target range that you guys are thinking about in terms of a number?

Yes, we are anticipating that it has a potential for roughly $0.12 to $0.15 of incremental earnings. This joint venture will really, as Chris noted in his prepared remarks, allow us to grow volume by another incremental 1/3 or 30% kind of add double-digit ROEs without raising other capital to source that. So given our incremental margin significantly outweighs our incremental cost to source, we're really excited about the partnership and its dedicated distribution channel that really kind of aligns with our high capital turnover model that we've evolved into.

As far as your comments on the call about a potential Aspire JV being announced in the near future, is there a size that you guys are thinking about there? I see the Castlelake deal is about $8 billion. What are you guys thinking about in terms of size of a JV for Aspire?

It's Dash. We'll have more to say when the details get finalized, but I think we are expecting a joint venture of this type to probably support 25% to 30% of Aspire's annualized production. That's probably the best way to quote it for now just in terms of all the other initiatives we have with distribution, including securitizations and whole loan sales. Obviously, we need to finalize what we're working on, but that's the context I would give you as a percentage of Aspire's overall production mix.

Mikhail, I'd also add, obviously, we've had joint ventures with CoreVest up to this point. And so I think the in-house knowledge is pretty high. And so our ability to continue to add these to the platform is getting progressively more streamlined. So we want to continue to find partners to the extent we need capital and it's available. And hopefully, again, we'll have more to say on Aspire, as Dash mentioned [Technical Difficulty] quarter.

Next, we'll hear from Crispin Love with Piper Sandler.

So you had another record quarter for mortgage bank production. Can you just discuss some of the momentum there and what you're seeing in April? Mortgage rates peaked around quarter end, a little bit better now. So curious what you're seeing in April and what you might expect throughout the year?

Well, I think on the one hand, vol. came down earlier in the month as we kind of settled into where we're at with the conflict in the Middle East and energy prices. So mortgage rates came in a bit. Obviously, the 30-year ticked 5% today, the 10-year is back up to 4.40%. So that's not a positive for mortgage rates. So I think that we're going to continue to expect to see some volatility here in rates. But I think the initial shock that occurred in March with this conflict in Iran, the market has somewhat processed that. And we've been much more business as usual, I think, as a sector these past few weeks.

So from that standpoint, we've obviously got great inroads to taking market share. I think we've demonstrated that the last few quarters late in the first quarter, early in the second quarter, we've added a few more regional banks from a flow perspective. We continue to unlock market share for the platform. And I think we're quite excited about the prospect of the Basel III Endgame and being more or less an exclusive partner to a number of banks who work with us today.

It's ironic that with the Basel III Endgame, some of the capital changes pertain to credit, but I think many banks would tell you that the largest risk they're focused on with respect to mortgage is convexity, and that's what we help manage asset liability risk, interest rate risk. That's the big need right now. So that doesn't go away. And in fact, if the capital charges go down, I think, having a partner like Redwood to manage that, our business case just gets stronger and stronger.

So we feel good about the momentum. The only thing we don't feel good about is the volatility in the macro economy, and we're doing our best to manage through that.

Great. And then just for Sequoia, you called out the cost per loan improving to 18 bps a couple of times during the call. Can you discuss some of the drivers there? Is part of it volume-related tech, AI? I believe you mentioned the automation initiatives. So curious on a little bit of detail there. And then are there additional efficiencies that you think you can drive that even lower in the coming quarters?

Yes. I mean, we feel really good about our combination of hustle and hard work with adoption of tech and AI. I think we have in the review that our volume growth is outpacing our expense growth by 2x, which I think really demonstrates the scale of the platform at this point. We're operating very, very efficiently.

During the quarter, we mentioned 2,500 agentic workflows. We're eliminating vendors who have done a lot of QC for us or document intelligence. We're smarter on due diligence reviews. We're able to create a lot of efficiencies between Sequoia and Aspire using AI for our consumer platforms.

So across the board, it's been kind of full frontal on just finding efficiencies in the platform and making sure that each dollar is used wisely, and we're leveraging our team and the tech that we're building.

Next, we'll move to Marissa Lobo with UBS.

Just looking at the slide, it noted that bank sourced volume at Sequoia was about 30%. I believe this is lower than 4Q. Could you just comment on your outlook for that contribution going forward? And the Castlelake JV, does this reactivate any recurring Sequoia program in the second half of 2026?

Yes. I think the bank percentage ticked down maybe on a percentage basis but continues to rise. We had another record quarter of volume and a lot of that can be influenced by bulk one way or the other. So in the first quarter, we had some large, bulk transactions with certain independents. We have added some additional regional bank partners on flow, as I mentioned. And so we continue to expect that volume mix to evolve.

I think we've got really durable partnerships on the bank side. It represents about half our network today, more or less. And while we can't necessarily cuff it because I think bulk has such a big impact on that quarterly percentage, we expect it to continue to grow.

Some of your peers have noted institutional capital entering the non-QM market and the broader residential credit market. Are you seeing that competition manifest in your whole loan acquisitions or through tighter spreads on the AAAs? How is that impacting the ROE and securitization?

It's Dash. I think that's largely been to an advantage for us as we continue to deepen our distribution channels. First quarter, a big milestone for Aspire was completing the platform's first securitization. We're actually in the market today with its second, which is really important because it shows institutional investors that the platform is going to be in the market regularly, which obviously helps primary and secondary liquidity.

We've sold whole loans out of the Aspire platform to now close to 10 discrete different counterparties, including a couple of banks, which is a very big deal. And so I think from a supply-demand perspective, the amount of institutional capital coming into the space is a net advantage for us, because there are some players in the space that have been established. But again, Aspire is really leveraging not only the new sellers we're bringing in, but also obviously, the foundation of sellers that we've been working with for years in Sequoia.

I think we said in the prepared remarks that about 70% of Aspire's production is from sellers that we've already done business with, are doing business within Sequoia. That's good news for a couple of reasons. One is we're leveraging our existing seller base and becoming an even more relevant partner to them with these added products in addition to all the products that Sequoia is now offering. But it also reflects the room to the ceiling for Aspire in terms of growth because there's a lot of sellers that we're not engaged with right now that want to do business with us that we anticipate onboarding between now and end of the year. We estimate our market share in Aspire at about 4% in the first quarter. We want to double that in the second half of the year to a run rate that will probably be close to $1 billion a month of locks.

So the momentum on volume is there. The business is obviously still building, but I think a lot of the table stakes premise for getting into the business in a full-throated fashion 1.5 years ago are definitely coming to fruition. The amount of capital that is coming into the space but can't really put that sort of risk on themselves and relies on us to do that, I think it is a net tailwind for us.

We'll move on to Jason Weaver with Jones Trading.

I was wanting to ask about the legacy wind down within CoreVest. You took capital allocation down to 15% in one quarter. What do you think about the realistic finish line here to get below 10%? Is that end of year? And what sort of residual assets are sort of stickier on that resolution time line?

We have stated we want that percentage to be well below 10% by the end of the year. One thing to unpack on that, Jason, and thanks for the question, is the legacy portfolio is, at this point, about 50-50 legacy bridge loans and then HEI. Legacy HEI we purchased a number of years ago, some of which, as you know, we've disposed of over the past year or so. We're pretty optimistic that we can recycle a fair amount of that HEI capital later this year.

As Brooke articulated, capital markets execution for that asset class has continued to improve. Just this morning, there was an announcement that a new institutional investor was putting a few hundred million of capital towards new production with a different originator. But the point is that capital is continuing to flow into that space, and that's translated to more optimal securitization execution. So that's definitely front burner.

On the bridge side, we are down to a few real focus line items, which will move the needle, which we are very focused on resolving in Q2, if not early to mid-Q3. That combination there will get us below 10%, and then we will continue to wind the position down from there and keeping with our goal of getting it below 5% by the end of the year.

If I could add just one thing on the financial impact of the wind down as well. I think the legacy book was around $240 million of capital at the end of March. That 5% or so translates to be below $100 million of capital by the end of the year. Every $50 million or so of capital that we free up, just given the drag from the legacy book is about a $0.05 quarterly -- would expected to be about a $0.05 quarterly improvement in EAD as it's redeployed into mortgage banking. And we've seen that the legacy contribution was about $10 million better than we saw in the fourth quarter as well. So that is starting to translate into continued EAD trajectory.

That's great color. And then I wonder if you could talk about the comparative economics between the Castlelake JV and the CPP fee structure, risk retention, retained margin per loan.

They're very different asset classes, obviously, jumbo versus BPL. I think they are conceptually very, very similar. Much like CPP, we're the minority of the capital in the Castlelake JV. The economics to Redwood include certainty of upfront economics at time of transfer into the JV, as well as a running essentially asset management or loan administration strip.

So I think the economics are conceptually similarly. They do differ numerically, obviously, because the underlying assets are different. But the structures are very similar in that they're both sort of living, breathing ecosystems. We would intend to securitize out of the Castlelake JV, much like we've done out of the CPP JV. We could sell loans out of it, et cetera. So they're structurally very, very similar, but understanding there's nuances because of the underlying asset class differences.

Bose George with KBW will have our next question.

Just wanted to ask about trends at CoreVest in April. And then can you just talk about the pipeline discipline in March, the volatility there, what drove that? And is the sort of backdrop a lot better now in April?

Yes. I mean, Bose, as you know, CoreVest of our different strategies has kind of the most credit sensitivity. And as things got volatile in March, I think it was pretty prudent to not spread lock too far in advance of outcomes that we were kind of waiting on from a macro perspective. So there, too, the vast majority of that distribution is kind of spoken for with CPP and others. And so we kind of have somewhat baked economics in some respects. And so we decided to be a little bit more cautious there. I think that was the right call.

Coming out of quarter end, similar to the consumer business, things have picked back up, and it's very much business as usual. So there, it's a little bit different than how we think about certainly Sequoia, which is a much more rate sensitive, less credit-sensitive business and Aspire, which is kind of a little bit of both.

Then actually, on the marks on the Redwood Investments, since quarter end, have you seen reversals of some of those?

Yes. We've seen some reversals. Our business is quite a bit different than most others in the mortgage REIT sector, but I think book is probably up 1%, 1.5% based on kind of where the portfolio has evolved. But it's also still very early in the quarter. And I think what we learned in the first quarter is the last month of the quarter can have a pretty big sway. So we're early in the second quarter. And hopefully, things continue to kind of stabilize, and we're pretty happy with the credit profile of the book.

We'll move on to Doug Harter with BTIG.

Brooke, you mentioned that kind of pipeline adjustments negatively impacted kind of the gain on sale that you were able to achieve in the quarter. Just wondering if you could size that. And I think I just want to make sure I heard that you said that that has largely reversed in April.

Yes. So we saw a decent amount of TBA widening throughout March. That probably had about -- we saw them about an 1/8 or so wider and our execution widened a bit relative to where we were at the beginning of the quarter. A lot of that has since reversed in April to date. And so I think it was a portion of the delta between where we were in the fourth quarter on gain on sale.

I think we quantified at the time, we had about 25 bps of margin outperformance in the fourth quarter due to TBA tightening, and we probably saw at least half of that in terms of the quantum of the impact from TBA widening on jumbo margins in March.

Great. And obviously, with Dash's prior comments in mind that it's still early in the quarter, but all else being equal, you would see some outperformance from TBA tightening. What you've seen so far?

Yes. I think we still guide to the high end of our historical range in terms of expected margins for Sequoia in the quarter.

Yes, Doug, I would say similar for Aspire. The Aspire pipeline was definitely impacted at 3/31 by empirical spreads in the securitization market. Those are probably 20 to 30 bps tighter today than they were at March 31, which specifically to Aspire is probably worth about $0.02 to $0.03 of EAD in terms of where that pipeline was marked at 3/31 versus where we ultimately expect to potentially execute or at current market conditions. So that would be sort of the Aspire part of the answer as well.

We'll move on to Don Fandetti with Wells Fargo.

Can you talk a little bit about the sort of ramp-up of the Castlelake JV, how quickly you could get to that sort of incremental earnings contribution that you talked about? And then is there any offset, meaning like cannibalization or less of your core mortgage banking business, or should we think of this as additive?

I'll start. I think the answer is definitively additive. Chris mentioned the amount of opportunities we're seeing out of both regional banks on a slow basis as new partners and also seasoned opportunities. So I think we are highly excited to have this up and running. The joint venture will use warehouse lines and other things that just operationally need to set up in the second quarter. This is fully expected to really be incremental volume for Sequoia.

We'll move on to Rick Shane with JPMorgan.

I actually don't think I heard the answer to Don's question, which was one of mine. Given that this is a -- the constraint seems to be capital, and it sounds like you have the pipes in place, should we expect a very quick ramp to that $0.12 to $0.15 per year accretion, or how many quarters should we be thinking about here?

Yes. I think you can think of that somewhat linearly over the next 4 quarters as we ramp fully.

I want to understand a little bit better the G&A expense allocations this quarter. We saw Sequoia go down. There was a pretty significant increase at CoreVest on a relative basis and an increase at the corporate level. And I just want to understand what's driving that and how we think about that going forward, so we can model the different business lines efficiently.

Yes. No problem. Expected this one, just given there's a lot of movement in the quarter. So just at a high level, let me start with some of the movement in G&A, and then I can talk about allocation as well.

So G&A was $49 million in the first quarter versus $40 million in the fourth quarter. Predominantly most of that was $8 million associated with the reorg costs and other about $1.5 million of that as well with seasonally higher benefits that we actually always see in the first quarter. The run rate from here should really be inside the fourth quarter levels. The area where most of that came from was within both kind of corporate and CoreVest, which is why you saw CoreVest contribution impacted, which is we disclosed both our GAAP contribution as well as EAD for CoreVest, just so you can see what really the run rate of that business looks like, excluding the onetime costs in the quarter.

The other corporate expense reallocation that was done on the quarter was really taking -- which we showed on Page 9 in the Redwood review, our segment returns, both pro forma for this presentation for what we presented both last quarter and this quarter. We were really just allocating our $777 million of corporate debt by segment rather than having it sit in a corporate segment so that you can see the impact of that interest expense proportionately for each segment.

So that is why if you look on Page 9, our mortgage banking ROE under our prior presentation would have been 23%. It's 38% just given the impact of that capital coming out of the otherwise kind of dedicated working capital for each segment.

There are no further questions at this time, and this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.

Good afternoon, and welcome to the Redwood Trust, Inc. Fourth Quarter 2025 Financial Results Conference Call. Today's conference is being recorded.

I will now turn the call over to Kaitlyn Mauritz, Redwood's Head of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Hello, everyone, and thank you for joining us today for Redwood's Fourth Quarter 2025 and Full Year 2025 Earnings Conference Call.

With me on today's call are Chris Abate, Chief Executive Officer; Dash Robinson, President; and Brook Carillo, Chief Financial Officer.

Before we begin today, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts and assumptions include risks and uncertainties that could cause actual results to differ materially. We encourage you to read the company's annual report on Form 10-K, which provides a description of some of the factors that could have a material impact on the company's performance that could cause actual results to differ from those that may be expressed in forward-looking statements.

On this call, we may also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures are provided in our fourth quarter Redwood review, which is available on our website, redwoodtrust.com.

Also note that the content of today's conference call contains time-sensitive information that are accurate only as of today. We do not intend and undertake no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded and will be available on our website later today.

And with that, I'll turn the call over to Chris for opening remarks.

Thank you, Kate, and thanks to everyone for joining our fourth quarter earnings call today.

Before I turn the call over to Dash and Brook, I'll share some thoughts on our recent performance and our outlook for 2026. Fourth quarter 2025 capped a year of meaningful progress for Redwood marked by record mortgage banking activity, improved capital efficiency and a more durable earnings profile. We closed out the final quarter of the year delivering positive GAAP consolidated earnings and very strong earnings available for distribution across our core segments.

For the full year, our 3 operating platforms, Sequoia, CoreVest and Aspire generated $23 billion of volume, the highest in our company's history. And hitting a new gear with production, we've also ensured that earnings have kept pace. Brooke will cover a few operating metrics that demonstrate how more revenue is making it to the bottom line than we have seen in a very long time. Tracking the operations focused metrics as opposed to more traditional REIT investment portfolio metrics is something we'll be emphasizing in the quarters ahead. This also coincides with our strategic shift towards increasing capital to our mortgage banking platforms with over 80% now invested in core operating and related activities at year-end 2025, up from 57% in 2024.

On the back of recent new product rollouts, the runway to continue profitably growing volume supports additional capital deployment to these platforms, capital both sourced internally and in tandem with a growing cohort of external partners. This shift also reflects our decision in the second quarter to accelerate the wind-down of our legacy investment portfolio. We saw further progress on this front in the fourth quarter with resolutions and dispositions and more thus far in the first quarter. As we work to fully wind down this portfolio, we'll continue freeing up investment capital to redeploy while also simplifying the balance sheet.

Turning to the broader economy. Housing affordability has been a key focus in Washington with a $200 billion agency MBS buying initiative recently announced in tandem with other efforts to lower borrowing costs. The announcement tightened spreads and pushed mortgage rates lower initially, but rates have since stabilized, leaving markets still looking for a broader revival of the refinance mortgage market, which [ at ] more accommodative times has represented 50% or more of total originations.

Case for lower jumbo mortgage rates was recently bolstered by the long-awaited nomination of a new Fed chair, who, as anticipated, favors additional rate cuts in 2026. Mortgage rates currently sit meaningfully off their highs with 30-year fixed-rate prime jumbo mortgages, covering just above 6% in coupon. At levels modestly below 6%, we estimate between $200 billion and $300 billion of jumbo mortgages could become refinanceable.

An important distinction here for Redwood, unlike many mortgage businesses, is that we don't maintain large holdings of mortgage servicing rights, whose values are reliant upon significant levels of customer recapture volume. In other words, the prospect of a new refinance wave is entirely good news for us, particularly for our Sequoia business, where higher refinance volume could significantly expand our volume expectations and further scale our operations.

Complementing our Sequoia business in the consumer mortgage space is our Aspire non-QM business. And leveraging Redwood's best-in-class originator network, Aspire has already become a top non-QM correspondent platform. On the back of strong non-QM growth, we are pleased to launch our third branded securitization issuance platform under the moniker Aspire, which will speak for a large amount of our non-QM production going forward. We expect our inaugural Aspire securitization to launch in the coming weeks.

Turning back to affordability initiatives in Washington. Institutional participation in housing has also [ done ] a renewed focus with proposals intended to limit the ownership of single-family homes by large institutional investors. We remind listeners that large investors continue to only own a small share of the country's single-family housing stock, and that with respect to CoreVest, our business-purpose lending platform, the vast majority of our lending footprint remains focused on smaller and midsized housing investors.

In serving this segment of the market, CoreVest continues to thrive, having recently been named IMN's Lender of the Year for 2025. Our team is positioned to deliver additional growth in 2026, especially as our small balance products have scaled to complement CoreVest's flagship term and bridge offerings.

I'll close with some context for the year ahead. Redwood's market and structural positioning is now meaningfully stronger across all channels in which we operate. We're supported by a broader base of third-party capital partners, more flexible, simpler balance sheet and an infrastructure built to profitably scale volume as housing activity expands under our renewed focus in Washington in an evolving rate regime under a new Fed chair.

As we look to grow earnings and market share in 2026, we are leveraging AI to enhance risk management, accelerate capital deployment and extract further gains in operating leverage. Based on the progress we have made to date, we expect core operating performance to drive consolidated earnings above our common dividend in 2026, enabling earnings retention and reinvestment to help fund organic growth.

And with that, I will turn the call over to Dash to discuss our operating businesses and investments.

Thank you, Chris. We entered 2025 with record production and strong margins driven by operational efficiencies, accretive capital reallocation and continued progress in deepening distribution channels.

Mortgage banking activity for the quarter was once again headlined by our Sequoia platform, which delivered a second consecutive quarter of record volumes amidst housing activity levels that remain well below historical norms. In all, Sequoia locked $5.3 billion of loans, a 5% increase from the third quarter and up 130% for the fourth quarter of 2024. Bulk activity, much of it with banks and a continued competitive moat for our platform, represented close to 60% of volume and included a $500 million pool sourced from our regional bank, housed under a new Sequoia loan program that we expect to contribute meaningfully to 2026 volumes. Flow volume, which represented just over 40% of fourth quarter production remained well diversified with a notable pickup [ in closed end second ] and adjustable rate loan buys.

Sequoia's competitive position continues to strengthen. Our network now spans over 210 originators across banks and independent mortgage bankers or IMDs, and we estimate our full year 2025 jumbo market share at approximately 7%, up materially from prior years. Importantly, these gains are driven by market trends we have now observed for some time. We continue to actively engage with banks that are increasingly choosing distribution over balance sheet retention, a dynamic that continues to expand our addressable opportunity. While IMBs represented roughly 2/3 of fourth quarter production, we expect the mix to evolve further in 2026 as additional large bank relationships come online.

Distribution also remains a core differentiator, driving fourth quarter margins up nearly 40% sequentially from Q3. During the quarter, Sequoia distributed approximately $3 billion through securitizations and over $1 billion through [ whole loan ] sales, supporting strong turnover and attractive returns. By design, we are running the platform to turn capital faster, and the breadth of our distribution options has become a durable operating advantage.

In 2026, opportunities to profitably scale volume without a robust refinance market remain compelling on a stand-alone basis. As a reminder, in [Audio Gap] 2025

[Audio Gap] is a meaningful contributor to the operating leverage Brooke will discuss, including our 44% year-over-year reduction in operating cost per loan. Rather than relying on incremental staffing to support higher volumes, we're using automation to increase throughput, shorten turn times and maintain underwriting discipline as production scales. As a result, Horizons is evolving into a fully integrated driver of efficient growth across Sequoia, Aspire and CoreVest, increasingly embedded in how we operate these platforms day-to-day as we support higher volume.

I'll now turn the call over to Brooke to discuss our financial results.

Thank you, Dash. For the fourth quarter, we reported GAAP net income of $18.3 million or $0.13 per share compared to a GAAP loss of $9.5 million or $0.08 per share in the third quarter. Book value per common share was $7.36 at December 31, up slightly from $7.35 at September 30. And our economic return on book value was 2.6% for the quarter, inclusive of the $0.04 of accretion from our share repurchases and the $0.18 per share common dividend.

On a non-GAAP basis, consolidated earnings available for distribution or EAD, increased from $0.01 in Q3 to $0.20 in Q4 and exceeded our common dividend. This reflects both a reduction in the earnings drag associated with legacy assets, which improved by $0.08 relative to Q3 as well as the initial redeployment of freed up capital into our higher return mortgage banking platforms. Core segment's EAD was $0.33 per share for the fourth quarter, up from $0.20 per share in Q3, demonstrating the earnings power of our operating businesses as capital is reallocated away from under-earning legacy investments.

Combined mortgage banking returns remained strong, resulting in total return on capital of 26% for the full year 2025. In the fourth quarter, the Sequoia Mortgage Banking segment, which includes Aspire activity, generated segment net income of $43.8 million and a 29% return on capital, supported by record quarterly lock volumes. Gain on sale margins expanded to 127 basis points, exceeding our historical target range, reflecting strong execution and continued operating leverage as volumes scaled.

CoreVest Mortgage Banking generated $7.5 million of segment net income, delivering a 30% GAAP return on capital and a 36% non-GAAP EAD return on capital. Earnings improved sequentially despite modestly lower funded volumes driven by accretive distribution activity, improved net interest income and continued efficiency gains across the platform. As we've scaled our mortgage banking platform, volume and revenue growth has materially outpaced operating expense growth. reinforcing the operating leverage embedded in our model.

In 2025, mortgage banking volumes grew roughly 6x faster than our total operating expenses, reducing total operating expense to approximately 0.9% of production volume from 1.6% in the prior year. This improvement reflects both structural cost efficiencies and disciplined execution. And because the majority of our cost base is variable or tied to production, we are increasingly focused on how effectively incremental volume converts into earnings once fixed costs are covered, supporting margin expansion as the model continues to scale. This operating leverage reflects our transition to a capital efficient originate-to-distribute model, where earnings power is driven by margin and capital velocity rather than balance sheet size.

As production scales, operating expenses naturally rise with volume even as returns improve, which can make traditional mortgage REIT efficiency metrics anchored to assets or equity appear less indicative of performance when production is growing faster than common equity. In practice, this reflects the efficiency of pushing more production through our equity base without increasing our balance sheet risk. We have industry-leading capital velocity as our loans typically on our balance sheet for approximately 35 days, meaning that incremental production continues to translate directly into earnings. Furthermore, recent organizational streamlining actions are expected to reduce annualized back office run rate costs by approximately $10 million to $15 million in 2026.

Redwood Investments delivered segment net income of $21 million and a 17% annualized return on capital. Results improved quarter-over-quarter due to positive fair value changes from spread tightening and higher net interest income from assets that we've created from our mortgage banking businesses. With nearly $1 billion of financing or roughly 50% of our financing in this segment, callable within the next year, we see further upside to earnings from this segment as we take advantage of the potential to refinance at a lower cost of funds as the front end of the curve is expected to continue to decline.

With respect to the balance sheet, recourse leverage increased sequentially, 85% of which was driven by higher warehouse utilization supporting record mortgage banking activity. Approximately 62% of recourse debt resides in our mortgage banking platforms for capital turns quickly and borrowings are repaid as loans are sold or securitized Liquidity remained strong with $256 million of unrestricted cash at quarter end, providing us meaningful flexibility.

And with that, I'll turn the call back to the operator for questions.

[Operator Instructions] Our first question comes from the line of Crispin Love with Piper Sandler.

First, just on the recent move in mortgage rates, the rally earlier in the year and support from the administration. Can you just discuss how that's been impacting your businesses into the early part of 2026 from a volume perspective compared to the fourth quarter? Have you seen momentum continue or an acceleration into the new year?

Sure. Crispin, maybe the easiest way to answer that directly is just to provide our January numbers. We were at $3.6 billion of volume for January. So we were $7 billion and change total for Q4. So obviously, the run rate has just continued to accelerate. So from our standpoint, the rally has helped, although our business has largely been about taking market share across nonagencies. So we've got high expectations for volume this year.

But the jumbo business has been somewhat insulated from some of the things we're observing in agency. There's indirect impacts, but the rally hasn't been as steep. Jumbo mortgage rates are still maybe 0.25 point behind conforming. And a lot of that rally has since kind of leveled off as well. So obviously, we had today's job's print. So we'll see where we go from here. But I think overall, we're pretty bullish on our volume potential based on how we started the year.

Great. I appreciate that. And then you've been leaning into the Aspire non-QM platform, and that's definitely showing up in your growth. Can you just discuss some of the opportunities there? And then how that business could be impacted from GSE reform, if anything happens over the next couple of quarters or even years? Would you see that as an additional opportunity for that business?

Crispin, this is Dash. I can take that. In terms of the near-term opportunity, I think a lot of it is continuing to execute on what we've been doing. Obviously, the business has shown fantastic momentum in the second half of the year with close to $3 billion of locks alone in just Q3 and Q4. And I think that's a function of a couple of things. First of all, a huge competitive advantage we have is that the existing Sequoia network. Folks we've been buying jumbos from for years and have real operational intimacy with -- over the past couple of years, they've really started to lean into non-QM products. A lot of that was a function of rates having been persistently high, notwithstanding this recent rally and just the desire to expand their product suite.

But also I think a recognition that the non-QM market continues to grow and has a lot of really high-quality borrowers that are underserved. And we think about -- we have a slide on this in the review this quarter. I think we estimated the non-QM market for 2025 to be $130 billion, which was up significantly from 2024. I think a lot of market observers expect another 10% to 15% increase this year. And so there's a lot for us to lean into in this space. As you know, depositories have a much, much smaller footprint, if any, in non-QM. We did sell a non-QM pool to a bank last quarter, which was a great achievement for the business. But beyond that, it's largely nonbank competitors where we can really lean in and win share, as Chris articulated, with our service level and with our relationships.

So that's a really, really big deal. The ability to securitize will be an important element for this business. As Chris articulated, we expect that in the coming weeks. So I think it's all very much going according to plan and there's a very long runway for growth in the business. We estimate we probably have last year market share of the volumes I just articulated, it should be higher than that in 2026 as the business rounds out.

On GSE reform, specific to Aspire, anything could potentially happen. Obviously, there's been a lot of evolution in messaging out of DC. But specific to these types of products, in our view, it's unlikely to be impacted. The types of consumers that are being served through non-QM bank statement borrowers, things of that nature have been outside of the GSE purview, and there's technology capabilities there that they don't particularly have. And so we think there's some probably insulation there.

The other big thing, and who knows how this evolves, but with the administration's recent mandate around GSEs not supporting single-family ownership buy investors, these are probably smaller investors [ that ] would be impacted by that, but that's an element that you need to take into account to in terms of the probability that the GSEs entered the DSCR market as it's currently contemplated with the non-QM. So our expectation is that private capital thankfully, will continue to really speak for these products, and we expect to lean into the opportunity a lot more this year.

Our next question comes from the line of Don Fandetti with Wells Fargo.

With volumes being so strong on the origination side, how do you -- how are you thinking about third-party capital providers going forward?

I'm happy to take that, Don. Dash, I think, in his prepared remarks included a comment about really across both Aspire and CoreVest, increasingly, all of our loans are being spoken for. We are gearing up for securitization in Aspire. But to date, we've sold to multiple handfuls of insurance companies and asset managers, the demand is just really strong for our production.

And increasingly so, on the Sequoia side, especially given some of our success with teasing these season pools out of banks. We've seen multiple levels of oversubscription on some of our seasoned securitizations that we've done, just really giving investors a different convexity profile than we have historically through our Sequoia program. So we are catching the eye of several third-party capital providers. We are in evolved discussions for both a capital partner for Aspire and Sequoia, which will really help launch the growth Chris was mentioning to continue to scale these platforms this year. And doing it outside of our corporate balance sheet is helpful given where our capital options lie today.

So that's really the numbers that you're seeing in terms of our capital efficiency, the amount of production that we've been able to really put through the system this year is a byproduct of those capital partners, and we expect it to continue to fuel growth in '26.

Our next question comes from the line of Bose George with KBW.

So what are the margins like in the non-QM channel, the gain on sale margins currently? And how does that compare to margins currently in the jumbo channel?

Bose, this is Dash. I can take that. We're targeting pretty much in line with the Sequoia 75 to 100 basis points that we've traditionally targeted. Obviously, it's a similar business model. I think the fact that we will be rolling out a securitization platform will be very accretive to that. in terms of optimizing execution versus whole loan sale. But we're targeting something contextual to what we've historically targeted for Sequoia.

Okay. Great. And then can you just talk about the competitive landscape in non-QM. So the market is growing quite a bit, but there's different companies entering the space as well. Can you just talk broadly about that?

Sure. Yes. I think the space is definitely competitive. I mean I think that's largely driven by what continues to be an increasing demand from large capital allocators for the asset class. There's -- the securitization market is extremely strong right now. There's a very, very deep bid from whole loan buyers. We see loan spreads in that space right now sort of at or very close to the tightest we've seen in years, frankly.

I think what that speaks to is that overall, the asset class has performed well. I think the convexity story that a lot of investors have signed up for has played out. Frankly, a lot of the sort of challenges in private credit away from mortgage, I think what we've sort of anecdotally heard from our partners is that there's increasing capital allocation to this space. maybe away from some of the other sectors in private credit that have been a bit more challenging.

So I think those are all real tailwinds for the space. It does lead to increased competition. As you know, for years in Sequoia, we've seen entrants folks come and go. I think there's similar operational hurdles to running a non-QM business well as there is in jumbo. So the market is definitely competitive, but we feel we have a lot to lean into, frankly, in terms of continuing to grow our share and things of that nature. So we're still very, very excited about the runway in front of us, like I said.

Our next question comes from the line of Rick Shane with JPMorgan.

I'm looking at Slide 15, and it's really interesting. And 2 questions here. One is if we compare the Sequoia volume in '21 versus '25. Historically, you guys were a little bit more of a purchase shop versus the market, and now your mix is much, much more aligned with the market mix. I'm curious if as your distribution -- is your bank -- as you have increased the number of partners, if that's really what's happening that you're going to mirror the market a little bit more closely? Or is it some function of the refi market being so small right now?

And then the other part of the question is, when we think about margins for you, both in terms of gain on sale, but also expenses, is there anything that we should think about as the market eventually shifts to more of a refi market or more balance between purchase and refi?

I'll take the one, Rick. The '21 comparison that we did was really to highlight that as much progress as we made with volumes and actually exceeding 2021 levels in 2025 was substantially without significant refi business. And in '21, thanks to the Fed, mortgage rates were into the 3s or even the 2s and refi was huge. And so the real goal of the slide is to basically say, for jumbo, for Redwood, it's been largely purchased business up until very recently. And if we add refi business, it won't be at the expense of purchase, it will be in addition to purchase. And from a margin standpoint, that should continue to leverage the platform.

So as we push more business through the same amount of capital or thereabouts and a similar work structure, we should continue to see more of that revenue make it to the bottom line. And that's why we really rolled out some new operating metrics this quarter. I think we sometimes get mixed in with more traditional business models, which look at expenses to capital and other metrics. And for us, it's really capital turnover. And then how much can we grow revenue without growing expenses. And so some of the metrics there comparing those, I think, will be really valuable.

So jumbo has not experienced the same amount of refi business as conforming. Rates didn't snap in as quickly. I don't think the fourth quarter experience was the same. And so that's still a business that's potentially ahead of us. I think we mentioned there's a couple of hundred billion dollars of jumbo that could become in the money if rates dip below meaningfully below 6. So there's a lot of that ahead of us, and we think that just scales the platform further.

Understood. And Chris, I think the takeaway from this is that as you sort of achieve that normalized volume as markets normalize in terms of purchase and refi, you are indifferent from -- on the margin between an incremental $1 million origination on the purchase side and on the refi? Or is there anything we should think about in terms of profitability that's a little bit different between the 2?

Well, generally, refis are a little bit quicker. So from that standpoint, our refi business, you're dealing with an existing borrower with a home that's been appraised. From that standpoint, you could see some efficiencies. But with our model largely, it's not big enough where we're substantially rooting for one or the other. I think what we're really trying to do is continue to be a great partner to our network of originators and Dash made the point earlier, one of the reasons why we're entering non-QM and growing quickly is not because we really had a different take on the products. It's because the very, very large originators, particularly the IMBs, top 5, top 10 originators in the country have entered the space. And it's much easier for them to do business with somebody like us that has been a capital partner for, in some cases, decades than to kind of introduce themselves to a new counterparty.

So really, we're just going to continue to leverage our network. And I hope that the refi business picks up, it would be great for us and for the industry. But as we saw today, rates are kind of still pretty volatile and [ 4.17% or 4.20% ] 10-year is giving us a lot of indication on which way things are going to go.

Fair enough. I mean, look, it's a timing issue. It's when, not if, in my mind, but I agree with you. Who knows how soon that will happen. But I appreciate the answer, guys.

Our next question comes from the line of Eric Hagen with BTIG.

All right. So how do you think the focus on affordability in this like overwhelming support for home ownership and lower mortgage rates has an impact on the resi transition lending business. And would you say like there's a catalyst which would get you to allocate more capital over the near term to the CoreVest side of the business?

I'll kick that up high level, and then I'm sure Dash will have some comments specifically focused on RTL and some of the affordability initiatives. But CoreVest is where our deepest JV partnerships are. And the way we're thinking about that business is primarily in terms of profitability for shareholders. So it's going to be less about how much can we raise volumes in x amount of time and more about continuing to scale it and generate high margins for shareholders.

And the reason why I say that is much of CoreVest volume is spoken for by CPP and others. And so what that does is it generates asset management fees for us. And obviously, we're co-investing. So -- but ultimately, the goal is to -- with CoreVest is to really dial in the products. We certainly expect to grow volume this year, but we're very focused on margins back to shareholders. Dash, do you want to take the other?

Yes. Thanks, Eric. I think it's a great question, and I think it's nuanced, right, because there's so many shades of gray as to what an affordability initiative or initiatives may look like. As you know, one of the big challenges with the overall housing picture in this country is just the disconnect between, I think, what's desired at the federal level and some of the reality of getting through like the local or municipal hurdles to actually create accessible housing for people.

And by that, I mean price point, but also turnkey housing. Like, as you all know, consumers, whether they're buying their third or fourth house or their first, there's just very, very little interest in putting a bunch of CapEx into the home themselves, the desire really is to buy a home that they can move right into, right? Which is a big reason why the RTL business has expanded so much. There's obsolescence in housing. And there's just been an evolution in the consumer over the last couple of decades where there's just a desire to have someone else get the home ready to move into.

And so to the extent that these funds that are already allocated can be more efficiently dispersed and can open up opportunities for builders or developers, whether it's with subsidies or whether it's just easier to get through the red tape of developing or redeveloping a lot, lot, meaning a piece of property. I think that could be a huge tailwind because there is a lot of pent-up demand for refurbished homes. There's existing homes that need to be refurbished. There's lots that could be used in more effective ways. And to the extent that some of these affordability initiatives, at the federal level, obviously, Congress is one of the very few issuers that there's significant bipartisan support on. The issues that we see in large part are really at the local municipal level in terms of actually allowing some of these developers to get to work. And so to the extent that actually loosens up a bit. It could be a huge opportunity for our client base to serve more ultimate homebuyers by cheapening the cost and the time it currently takes to get through some of these project approvals. So I mean there's some other potential knock-on effects, but I think greasing the skids on that would be a very big deal.

Really good color there. I appreciate that. Really quickly, I think we heard you say there was $10 million to $15 million of expense savings that you mentioned in the opening remarks. Can you say what that was again? Are you offering any broader guidance for expenses this year for the full year?

Yes. No, I think we -- that's really concentrated, I would say, I mentioned back office, but really across corporate and CoreVest segments. Of our $200 million or so of OpEx for the year, about 45% of that was fixed. And so just in terms of broader guidance on OpEx, a lot of what Chris made in terms of remarks around our efficiency we've done both through our process technology, but also our scaling our volumes and grabbing market share. We are pointing to some of the marginal cost on loans that we've seen this year just because outside of our fixed cost, it will really be variable variable OpEx tied to increased volumes this year.

So we did about -- just for some context, our OpEx was up about $30 million on the year. All of that nearly was tied to the growth in Sequoia and Aspire where we had very profitable volume on the year. So we generated an incremental $12 billion of volume with that $30 million of expense. So call it like a marginal cost per loan of about 25 basis points. We think we can continue to drive that down through added efficiencies with initiatives that we're focused on today that have been mentioned, but that can help you model the incremental G&A that we would have tied to additional volume.

Our next question comes from the line of Mikhail Goberman with Citizens JMP.

Just to follow up a little bit on Eric's question in CoreVest. What kind of -- what do the originations there look like? And if there's any sort of color you can give us on first quarter volumes and how margins are holding up there?

Again, I'll start and kick it over to Dash. Across our businesses, including CoreVest, we're projecting higher volumes in the first quarter sequentially. And pretty consistent margins. Again, with CoreVest, it's a little bit different because much of our production is -- goes to our JV partners, and we -- the capital partners that are focused on that segment. So the volume to profitability dynamics are a little bit different. The math is a little bit different. But overall, we have metrics in the review.

CoreVest had a very profitable year. And one of the reasons is because of capital efficiency. And we did take some further expense out of the business, as Brooke mentioned. So that's going to improve. That should improve margins, all things equal, in 2026. So high level, I think we're expecting higher volume in the first quarter. But as far as the makeup of the products, which has evolved over the past year, I'll let Dash answer that.

Yes, Chris, thank you. I would say, Mikhail, we're still really tracking and making great progress with focusing production on the smaller balance RTL and DSCR products. So as I mentioned in the prepared remarks, RTL is our largest product type in the fourth quarter for the first time. And so I think it reflects significant strategic progress in that business, which we expect to continue.

CoreVest has always been unique with its relatively broad set of products, but the smaller balance products are particularly well bid right now, both in securitization and whole loan buyers. And so we're going to continue to push in that direction. Chris articulated it correctly, obviously with our joint venture with CPP, that's a great way to not only turn capital quickly, but there's very reliable economics there where we are earning a very certain amount of economics on loans going into the JV and then we obviously participate in the upside and the outcomes as a 20% stakeholder in that JV. So I would say those are tracking very consistently for a few reasons, including that one.

The other point I would make, and Eric touched on this a little bit with the affordability pieces. A big potential tailwind for production for CoreVest and we talked about this in the prepared remarks, was just with rental products. We're doing more on the DSCR side on a portfolio basis, cross-collateralized loans, which are starting to look a little bit similar to our traditional term loan product, which we've securitized and sold for years. And a tailwind there, depending on how some of these housing initiatives at a DC play out is that smaller investors and more sort of mid-cap investors, which are really the target audience for CoreVest, could be winners to the extent that larger players are moved a bit to the sidelines. Obviously, a lot remains to be seen there. But leaning in on these rental products and continuing to fill what the market wants is something we're going to continue to do. And as Chris articulated, the ability to turn capital quickly and reliably into these joint ventures is very important.

Just one last -- on mix, we continue to see our term and portfolio DSCR product as an increasing mix of of originations for CoreVest [ as our 2 ] higher-margin products as well. You saw in the fourth quarter that despite volume being down, our gain on sale activity for CoreVest was up. So those are contributions to that dynamic.

Just one more, I think, for me. Just kind of looking out over the space. Are there any other sort of real estate loan products that might interest you going forward? Or are you guys kind of in a grow what you have kind of situation and execute throughout this year? And with that in mind, I know you guys have your history with the FHLB. Is there any -- could there possibly be any value to owning a bank in order to get back in that system for funding?

Well, I never say never, but it's not in our current plan. Although banks -- we're obviously doing a lot of partnering with banks. And I think with with the capital partnerships comes ancillary opportunities, warehouse partnerships and otherwise. So I think we're still sort of extracting value from a lot of the bank partnerships, particularly the regional banks more recently that we've kind of brought online. They brought us online.

From a product perspective, I think we're largely going to stick to our knitting. There's obviously been a lot of conjecture in Washington about some alternative products, whether it's 50-year term or otherwise. And for a lot of reasons. I think those are going to be hard, not technically eligible for delivery in many other reasons. So I think for Redwood, we're going to largely lean in on non-QM, which we've talked a lot about today. We've already got a fantastic business in the BPL space with CoreVest. And with Sequoia, I think we're underpenetrated in second lien mortgages. Certainly, HEI, other sort of interesting ways to to really leverage our seller base. So all of those will be in the mix this year, but I think the core products are going to really carry the flag.

We have reached the end of the question-and-answer session. I would like to turn the floor back to Kaitlyn Mauritz for closing remarks.

Great. Thank you, operator, and thank you, everyone, for joining today. We appreciate the sponsorship and your time, and we look forward to continued engagement across 2026. Thank you.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. Have a great day.

Good afternoon, and welcome to the Redwood Trust Third Quarter 2025 Financial Results Conference Call. Today's conference is being recorded.

I will now turn the call over to Kaitlyn Mauritz, Redwood's Head of Investor of Relations. Please go ahead, ma'am.

Thank you, operator. Hello, everyone, and thank you for joining us today for Redwood's Third Quarter 2025 Earnings Conference Call. With me on today's call are Chris Abate, Chief Executive Officer; Dash Robinson, President; and Brooke Carillo, Chief Financial Officer.

Before we begin today, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts and assumptions, include risks and uncertainties that could cause actual results to differ materially. We encourage you to read the Company's annual report on Form 10-K, which provides a description of some of the factors that could have a material impact on the Company's performance and cause actual results to differ from those that may be expressed in forward-looking statements.

On this call, we may also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures are provided in our third quarter Redwood review, which is available on our website, redwoodtrust.com.

Also note that the contents of today's conference call contains time-sensitive information that are accurate only as of today. We do not intend and undertake no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded and will be available on our website later today.

And with that, I'll turn the call over to Chris for opening remarks.

Thanks, Kate, and thank you, everyone, for joining us today. On our last earnings call, we announced the acceleration of our strategic transition to a more scalable, simplified operating model, one designed to capitalize on the transformative opportunities we see emerging for our business. We committed to proactively repositioning our balance sheet, freeing up capital from legacy assets and redeploying it into our highly profitable operating platforms. We set a target of reducing our legacy exposure from 33% of our capital at July 30 to 20% by year-end and in support of this transition, repurchased common shares.

We can look back now in the third quarter as one of our most productive to date. Across our businesses, we locked or originated nearly $7 billion of loans, a new quarterly record for Redwood. This was despite an otherwise subdued housing market where industry volumes are roughly flat quarter-over-quarter. Our production included a record $5.1 billion of loans locked at Sequoia, $1.2 billion of loans locked at Aspire, which has rapidly ascended to become a market-leading non-QM loan aggregator and $521 million of loans funded at CoreVest across residential investor products. Volume drivers for the quarter included record contributions from bank sellers and a host of new distribution partners that have enabled us to turn our capital quickly and speak for more production.

In step with the growing opportunity across our mortgage banking platforms, we've continued to scale them profitably, generating a core segment's EAD of $0.20 per share for the third quarter. We've now maintained mortgage banking segment ROEs above 20% for 5 consecutive quarters while boosting capital allocated to these businesses by 80% over that time.

Importantly, this growth hasn't come at the expense of efficiency. We continue to build out an AI infrastructure and core in-house capabilities, owning our data, models and workflows while leveraging AI-driven document intelligence to extract data at scale and accelerate turn times.

We're also partnering with leading Silicon Valley tech firms to stay ahead of curve. Our AI tools aren't just operational upgrades. We expect them to become strategic assets that will help us drive scale and manage risk as volumes reach new heights, just as they did this past quarter.

On the heels of such a productive period and in recognition of the ongoing success of our existing partnership, we announced today that we have expanded our relationship with CPP Investments by extending the investment period of our joint venture and significantly increasing our corporate secured borrowing facility to $400 million from $250 million. We look forward to building on this foundational momentum with CPP Investments, and we'll now turn our attention to fundraising for our flagship Sequoia platform, where growth prospects underscore the opportunity for additional institutional capital.

Turning to our legacy portfolio. We significantly reduced our capital allocated to this segment in the third quarter with it now representing 25% of our total capital. The noise of the legacy transition continues to play a part in our consolidated results, which Dash and Brooke will cover, contributing to a small decline in GAAP book value to $7.34 per share at September 30. Book value also included the effect of our $0.18 per share dividend paid to stockholders and 5 million shares of stock repurchased during the quarter.

Zooming out on the broader markets, we are closely watching developments across the credit landscape and U.S. economy. Recent bankruptcies affecting clients of several large banks underscore growing pressure in certain consumer asset-backed sectors. These events may appear isolated, they echo earlier chapters of the credit cycle, reminiscent of conditions that preceded the mortgage reforms implemented after the global financial crisis. By contrast, today's residential mortgage market benefits from more rigorous underwriting standards, enhanced transparency and stronger data integrity, principles deeply embedded in Redwood's credit culture and capital markets practices.

And as we continue to see strong growth in the private label securitization market, our advocacy in Washington to make capital flows into securitization more efficient is bearing fruit. Amidst a very ambitious agenda, SEC Chair Atkins launched a concept release in late September on how to streamline non-Agency RMBS disclosures, which we think has the potential to crowd significant new capital into the sector and deepen demand for the assets we create.

As we progress through the final quarter of the year, we continue to capture market share in what has been a very subdued housing market. However, with mortgage rates on the decline and with the prospect of further monetary easing ahead, we're optimistic that the housing finance sector will once again resume strong growth in the year ahead.

With that, I'll turn the call over to Dash to discuss our operating results in more detail.

Thank you, Chris. The third quarter witnessed our strongest operating performance in the Company's history with ample progress in further reallocating capital to continue profitably scaling our core activities.

To start, Sequoia launched $5.1 billion of loans in the third quarter, a 53% increase from Q2 and a record for the platform. Against a more muted market backdrop in which many other large players reported minimal to no production growth, our volumes with both bank and nonbank sellers grew by over 50%. We estimate that our seller network now covers approximately 80% of market share for jumbo production, up from 20% to 30% as recently as 2023. In step, our estimated jumbo market share is now 7%, up from 1% to 2% over the same time period.

This deeper access must be complemented by crisp execution, a continued strength of our platform across a deepening set of products. Sequoia's third quarter activity was split between traditional 30-year fixed, hybrid ARMs, closed-end second liens and a number of other products, underscoring our role as a one-stop provider of timely and flexible liquidity for our loan origination partners.

Of note, 48% of our third quarter volumes were bank collateral and 25% was tied to seasoned loans, reflective of trends we have anticipated for some time, namely a resurgence in bank M&A activity and increased rigor within bank C-suites in evaluating the true return profile of funding long-duration mortgages with deposits, irrespective of where the final Basel endgame rules land.

By design, our operating progress has been coupled with continued momentum in distribution. Year-to-date, we have distributed nearly $9 billion of collateral tops in the market across 13 securitizations and whole loan sales to a variety of partners, including $2.6 billion in the third quarter. This already eclipses full year 2024 activity and with demand for securitization still elevated, notwithstanding a modest recent backup in overall execution. We expect activity to continue at pace heading into year-end.

Complementing Sequoia's growth is our emergent Aspire platform, whose expanded loan program we launched in January of this year. This business primarily focuses on loans for prime quality borrowers who require an alternative underwriting approach, including a valuation of personal bank statements or rental income tied to the property. Aspire's $1.2 billion of third quarter locks were nearly 4x second quarter volume. The business closed the quarter with a record month, $550 million in September alone, profitably establishing a run rate we expect to build upon in the quarters ahead. The pipeline continues to reflect a focus on well-underwritten loans to high-quality borrowers with third quarter production carrying an average credit score of 749 and average LTV of 71%.

Aspire's emergence as a top 5 aggregator of non-QM loans underscores both the institutional strength of our platform and sellers' growing preference to consolidate relationships as they expand their own product offerings. A key element of Aspire's business plan has already played out. Existing sellers are meaningfully broadening the range of products they deliver through the platform.

As recently as 18 to 24 months ago, many of our core seller relationships were brokering out or otherwise not directly addressing the expanded credit market, which market observers estimate could be up 40% from a year ago and top $125 billion in size in 2025. The shift has been noticeable and bodes well for the expanded credit market overall and Aspire's growth prospects in particular. Sellers seeking seamless and one-stop solutions for their products can now come to Redwood for their entire suite of non-agency offerings.

Concurrently, Aspire continues to make important inroads with relationships new to our platform, critical progress to grow the platform responsibly, diversifying our seller base and thereby driving reliable margins. The platform grew its loan originator partner base by nearly 50% in the third quarter with plans to continue growing further, including with several top originators in the coming quarters.

While Aspire's distribution thus far has been focused on whole loan sales, we are in process to expand our distribution efforts further through securitization and joint ventures, outlets where we have had success in other channels of our business.

Our residential investor loan platform, CoreVest, continued to evolve its production mix while achieving its highest quarterly volume since mid-2022. Notably, originations within CoreVest are increasingly driven by smaller balance products. Originations of residential transition loans or RTLs and DSCR comprised 40% of Q3 volume and are up 45% versus the same period last year.

The smaller balance market remains a significant opportunity for CoreVest, given we have been relatively underpenetrated in a space that continues to grow and remains in demand with our capital partners.

The broader origination landscape for investor loans remains robust but uneven as many platforms competitive posture, as always, ebbs and flows in step with their access to capital. Depth of distribution remains a competitive advantage for CoreVest, which has distributed nearly $1.5 billion of loans year-to-date via joint ventures and whole loan sales.

Concurrent with our operating progress, we significantly reduced our exposure to legacy investments since the end of the second quarter. We sold our full reperforming loan portfolio, SLST, and approximately half of our third-party HEI investments at accretive levels versus our June 30, 2025 marks, while also resolving or transferring a significant portion of our legacy bridge loans, including selling over half of the portfolio into a partnership structure capitalized with multiyear nonrecourse borrowings with preferred and residual co-investments by a third party.

Pro forma for these activities, legacy investments now represent approximately 25% of total capital, down from 33% at June 30, 2025, with further reductions expected through year-end, primarily through additional resolutions in the legacy bridge portfolio.

I'll now turn the call over to Brooke to discuss our financial results.

Thank you, Dash. For the third quarter, we reported a GAAP net loss of $9.5 million or $0.08 per share compared to a loss of $100 million or $0.76 per share in the second quarter. The GAAP loss primarily reflected transaction-related expenses associated with the resolution or transfer of approximately $600 million of legacy bridge assets and an ongoing net interest income drag from our legacy investment portfolio.

Book value per common share was $7.35 at September 30 compared to $7.49 at June 30, and our economic return on book value was 0.5%, including $0.06 per share of accretion from share repurchases. Total repurchase activity since June was 6.5 million shares or 5% of our outstanding common shares.

On a non-GAAP basis, core segment's earnings available for distribution or core segment's EAD was $27 million or $0.20 per share, representing a 17% return on equity. This compares to $0.18 per share in the second quarter and underscores the continued earnings strength of our 3 core segments: the Sequoia Coya Mortgage Banking, which currently includes our Aspire platform, CoreVest Mortgage Banking and Redwood Investments. Across our operating platforms, we've increased capital allocation by more than 80% since mid-2024, including a $160 million increase since the end of the second quarter.

Combined GAAP return on equity for mortgage banking segments reached 28% in Q3, marking the fifth consecutive quarter returns exceeded 20%.

At Sequoia Mortgage Banking, segment net income rose to $34 million, producing a 29% ROE compared to $22 million and a 19% ROE in the prior quarter. Total locked volume reached $6.3 billion, including $5.1 billion from Sequoia and $1.2 billion from Aspire. Gain on sale margins averaged 93 basis points at the high end of our long-term target range.

CoreVest Mortgage Banking generated $3.5 million of segment net income and a 30% EAD return on equity. Funding volume of $521 million, the highest since 2022, was up 14% year-over-year, supported by strong loan distribution and a shift in production mix towards term, DSCR and smaller balance bridge products.

Redwood Investments delivered segment net income of $10 million and a 10% EAD ROE. The modest decline in net income relative to the second quarter was attributable to paydowns and sales of third-party securities, partially offset by gains on retained investments as rates declined and spreads tightened.

We deployed approximately $30 million of capital into assets sourced from our operating businesses and completed our fourth nonrecourse financing trade of retained investments, reducing total securities repo balances to just $28 million, which is down 85% from Q3 2024. The investment portfolio saw steady to declining delinquencies across products, including 90-plus day delinquencies on securitized bridge loans that now sit below 3% and where we continue to see healthy repayment velocity.

Turning to legacy investments. The segment reported a $22 million net loss driven by the transaction costs and continued net interest margin pressure. On the $1 billion of assets sold or transferred this quarter, we recorded an approximate $0.05 EAD loss equating to negative 15% return versus returns exceeding 20% across our operating businesses, where the $150 million of capital generated from resolution activity will be redeployed.

Total operating expenses decreased 3% or $1.7 million from the second quarter, driven by lower portfolio management costs. This was partially offset by higher G&A related to personnel and other expenses supporting the growth of our newer platforms. Across all operating segments, we saw continued gains in operating efficiency with notable improvements in cost per loan, reflecting the benefits of record quarter origination volumes this quarter.

Turning to our balance sheet and capital structure. Our overall recourse leverage increased from 3.2x to 4x, driven by warehouse utilization tied to record mortgage banking activity. Excluding recourse leverage from our mortgage banking businesses, our combined corporate and portfolio leverage ratio declined from 1.9x to 1.6x, consistent with the ongoing repositioning of the balance sheet towards our operating platform. The 2.3x of recourse leverage associated with the warehouse lines remain well supported by highly liquid jumbo loans where we turn capital quickly.

Recourse debt balances increased by [ $771 million ] from the second quarter, reflecting record funding volume of $5.1 billion and $2 billion of which has already been sold or securitized month-to-date.

Subsequent to quarter end, we retired our 2025 convertible notes and as announced today, expanded our revolving credit facility by $150 million to $400 million in total capacity, extending the maturity to September of 2028. These actions strengthen our liquidity, simplify our debt profile and increase flexibility to support continued growth in our core platforms.

In addition, our company-wide cost of funds declined approximately 40 basis points from the prior quarter, driven both by lower SOFR rates and narrow net spreads across our aggregate facilities.

To close, Redwood is executing with focus and consistency. We are simplifying our business, scaling our core platforms and redeploying capital into higher return opportunities. The progress this quarter underscores the strength of our operating model and the earnings potential of our core segments, repositioning Redwood to deliver sustainable profitability and long-term value for our shareholders.

And with that, I'll turn the call back over to the operator for questions.

[Operator Instructions] Our first question comes from Bose George from KBW.

First, I wanted to ask about the EAD sort of longer-term earnings power. You noted you largely expect the legacy assets to be rolled off by 2026. And so when you look at the earnings power after that, should we look at the non-GAAP core number this quarter was $0.20 plus the deployment of all the capital that comes out of -- that's still in the legacy piece. Is that kind of the way to bridge to sort of the earnings power after?

Bose, I can start on that one. The short answer is yes. I think as the legacy segment winds down, our earnings -- our consolidated earnings will start to look a lot closer to what we're generating in EAD today, in core EAD. So as you said, that was $0.20 exceeded the dividend. I think that's -- the redeployment is going to be a question of how quickly we can wind that down. But certainly, in the third quarter, we turboed it, so to speak. And I think Brooke mentioned, we freed up $150 million of capital for reinvestment. So that was capital that was generating a negative return on a consolidated basis and now can be redeployed into the mortgage banking segments, which I think we stated have generated greater than 20% ROEs for the past 4 or 5 quarters.

Okay. And just in terms of the $0.20, that basically just strips out the legacy piece. But as you redeploy that, there'll be essentially whatever, 20% return on that piece, right? So that's sort of incremental to the $0.20. Is that -- is that fair?

Yes, that's right. We still have $400 million of capital associated with our legacy segment. So as that capital is freed up, absolutely, that will be redeployed into mortgage banking.

Okay. Great. And then just one other quick one. The GAAP -- the ROE on the Redwood investments, the non-GAAP EAD ROE looked like it was -- last quarter, I think it was 16%. This quarter, it looked like it was 10%. Was that right? So can you just discuss like what drove that?

Yes, I'm happy to. So a lot of it came from just lower NII from our investment portfolio. We actually saw our net interest income up about $1 million overall, and you're really starting to see kind of the benefit of our mix shift here where our capital is being redeployed from the portfolio into mortgage banking. So I think our mortgage banking NII was about $5 million. This was really from sales primarily in payoffs. We had about almost $450 million of payoffs in our bridge and term loans across our consolidated assets. So that was the reason for that.

Our next question comes from Rick Shane from JPMorgan.

I have to queue in a little faster because Bose asked most of what I wanted to discuss. But look, basically, if you sort of look at the time line in terms of what you're describing for releasing capital from the legacy investment portfolio, it's about $100 million a quarter that's going to run off over the next 4 or 5 quarters. When we look at the 3 remaining core businesses, I'm curious if -- which of those businesses will actually generate additional net income with additional capital? For example, does the mortgage banking business, is it capital constrained right now? Or is it a market share issue and that additional -- it will be about market share growing regardless of capital? Or -- and so how should we think about that actual capital being allocated to the 3 different businesses?

Rick, I'll take a stab at this one to start. I would say we've shown -- I think we said we've grown capital to that sector 80% or so over the past 4 or 5 quarters. So effectively, what that means is every dollar that we've been able to free up, we've deployed. And I think that dynamic will continue into the foreseeable future. So as we free up more capital, we have uses for it fairly quickly in mortgage banking across the 3 platforms, candidly. We had a record quarter in Sequoia. We mentioned that Aspire grew 4x quarter-over-quarter. So when you think about those growth rates, the need for capital is going to continue to be there. It's a big reason why we continued -- extended our relationship with CPP Investments, which is a great partnership for us. And so I think we're pretty excited about our ability to deploy capital in the core businesses here over the next year or so.

Got it. Okay. That's helpful, Chris. And when we think about it and over the last 2 quarters, the math, the ROE math for Sequoia is book ended 19% to 28% ROE. Even on the low end, that's obviously very attractive and supports the dividend. I am curious when you think about what drove the expansion and how we think about that going forward, is that ROE expansion a function of scale? Or is it more a function of shape of the curve and a particularly favorable environment in terms of margin in that business?

Rick, it's Dash. Great question. It's probably a little bit of all of the above. We've always strived to be as capital efficient in that business as possible. Loans on average are coming on and leaving the balance sheet within a month. We could probably continue to do that more efficiently. We've done now 13 securitizations already year-to-date, which is obviously above 1 per month. So that's very, very helpful. So capital efficiency is part of it.

Our operating efficiency just in terms of just expenses to revenues continue to improve. Those improved notably from quarter-on-quarter. So that's obviously helpful from just an overall expense ratio perspective.

The other big emerging story, which we talked about is just the synergies between Aspire and Sequoia as well. We're just scratching the surface within Aspire in terms of our market share. Our implied market share annualized in that business in Q3 is probably like 3% or so if you extrapolate our volumes versus full year volume. So you asked about market share. And I think for different reasons within Sequoia and Aspire, those businesses are primed to continue to grow wallet share. Aspire, in particular, onboarding new sellers and penetrating existing Sequoia sellers. And as I mentioned, our adding their product suite, that's a very big deal.

We talked a lot about bank posture, just the percentage of bank collateral that Sequoia did in the third quarter was close to 50%. That's very meaningful, particularly when you think about what's going on in bank C-suites, dispositions, rationalization of ROEs. So the runway is really long to continue to grow share, notwithstanding the size of the pie with rates, et cetera. And so I think when you put all of that together, those can continue to drive ROEs to the -- hopefully to the wider end of the book end that you talked about.

Our next question comes from Doug Harter with UBS.

I guess sticking with returns, just how do you think about the total size of the corporate expense as you look to maximize kind of the overall ROE? And then also, how do you think about what the third-party investment ROE can be as you look to kind of allow the high mortgage banking ROE to fall to the bottom-line as much as possible?

Yes. Doug, I'm happy to take that. I think we think it's really important not to view our expense base just in the context kind of of our capital base. We've talked today a lot about our 3 scaled but still rapidly growing operating businesses. And when we think about who we're competing and what we're producing there, on the jumbo side, we've kind of been neck and neck with the biggest bank dealer desk as a prime the top issuer of prime jumbo loans, and we're running that business on a fairly lean operating expense base. Aspire, as Dash just mentioned, just move quickly into a top 5 non-QM aggregator. CoreVest continues to kind of lead in the investor and small business lending. And so -- and meanwhile, for several years, we've really chosen not to raise dilutive capital and instead focus on returning capital to shareholders through buybacks.

So our operating expenses, it might look elevated as a percentage of equity, but we think the kind of right way to look at it is the amount of operating leverage and productivity that we have and manage on our platform today. We basically manage $20 billion of assets with about 300 people. And so we remain highly focused on our expense structure, but we also believe that the real path to earnings creation is coming from further scaling our model and addressing our legacy capital rather than shrinking our infrastructure.

So I think the third-party focus will remain fairly limited. We kind of talked a lot about our strategic pivot last quarter to focusing on our operating businesses that are franchise. I think we're -- within third party, we're focused on assets that meet our cost of capital today. And obviously, with where we were marked, that helped move assets that we thought were suboptimal from that perspective.

Our next question comes from Don Fandetti with Wells Fargo.

Yes. On the Aspire non-QM, can you talk a little bit about how you see the growth of that underlying market and whether or not the GSE footprint shrinking could potentially increase that?

Thanks, Don, for the question. I think setting aside the GSEs for just a second, I think that we see that market just organically having significant growth runway. If you look at just the employment mix in this country, there's more and more consumers who earn nontraditional income away from W-2. I think that's a very big deal.

The other piece is awareness. I think particularly with more originators, particularly larger IMBs involved in non-QM originations. I think more of the eligible consumer population that can take out some of these loans is being reached, frankly, now that more originators are involved in this space. Technology, particularly AI, that's a very, very big deal in terms of managing cost to produce in the space. If you think back to when like bank statement loans really emerged 10 or 12 years ago, very manual, took quite a while for an underwriter to responsibly get through underwriting one of those loans. That's significantly shorter now. And I think we're probably just at the tip of the iceberg in a good way in terms of how those efficiencies can come to bear. There's a lot to be careful about in terms of how those underwriting processes evolve. That's something we're very focused on, but that's also a big deal.

And then on DSCR, just for context, about 40% of Aspire's volume was DSCR, which is sort of smaller balance rental loans. Rentership in this country continues to grow. I think rentership was up 2%, 3% annualized last quarter when you think about just continued challenges with housing affordability, et cetera. And so I just think organically, Aspire's TAM is going to continue to grow for good reasons.

As it relates to the GSE footprint, these are not products that they really do right now. Far be it for me to fully prognosticate around how they think about the footprint going forward. We need to be ready for anything. Obviously, an overall footprint reduction with the GSEs on loan limits would be a huge boon for all of our businesses, probably most notably Sequoia. But even away from what's going on in D.C., we just think the Aspire TAM is growing for good reasons.

Our next question comes from Steve Delaney with JMP Securities.

So I want to ask a question about rates, which is probably dangerous after Chairman Powell didn't do a very good job at his little speech earlier today. So I guess we don't know where they're going. But what I want to get at is looking at your securitized prime jumbo portfolio and the WACC kind of the coupons within those seasoned loans versus what you're quoting now on new prime jumbo loans. Help us get a picture maybe of what that dynamic looks like. Are you -- do you think your book is going to extend? Or could it accelerate in terms of CPR picking up. And just curious how you're going to approach that? And I got a follow-up related to that, if you would just kind of comment on where you stand with respect to coupon risk.

Sure. Steve, good to hear your voice. I will take a shot here. I think 1/3 or so of our volume this quarter was refi, refi related. So a lot of -- most homeowners are sort of out of the money. And I think that's reflected in our book as well. So I'm not sure we're going to see much on the back of Powell's remarks today, even though, of course, the market is going to likely sell off in the near-term. But by and large, we're growing the portfolio at a rate where it's trending towards current coupon. And to the extent that continues, the extent we're on a pace of more than a deal a month, and we're retaining subs and likely IO, that puts us in a good position to continue to move the coupon up -- and over time, with the combination of IO, we've got a good balance in the book today. So I'm not sure it's going to be overly meaningful for us because, again, our business today is primarily the moving business. It's mortgage banking, and it's less and less portfolio investing.

Curious, what is the current -- I haven't been in the market lately, but what is the sort of current range for prime jumbo, 30-year fixed prime jumbo loans?

We were around 6.25% this week. Again, we'll see what happens on the back of Powell's remarks. Aspire is maybe 100 basis points higher than that. So the market has come down meaningfully. And again, we're starting to see more refi business in our pipeline, but that's been largely absent for the last 3 years or so. So to the extent we do see more easing, QT is officially done. So heading into 2026, if that could become a more meaningful component of our business, that just adds to the opportunity.

And the refi pick up that you're hearing here recently, is that kind of HPA driven where people have built up some nice equity and they're looking at that. I know that's probably an aspect of the Aspire program, but do you see that even in Sequoia where the people are really coming in and they want to do a little bit of a cash out, whether it's education or whatever the issues are?

Yes. We're certainly seeing some of that. We have those products. I'd also say that just given the capacity in the origination system, people are getting calls sooner. So the old adage that you had to be 50, 75, 100 basis points in the money to refi I think the combination of capacity and technology has really shortened that up where we are seeing some homeowners refi-ing perhaps 25, 35 basis points in the money. So I think that presents an opportunity for us. And again, technology is a big part of that. We talked about AI and just processing loans faster, getting approvals faster. Those are real upside opportunities for us as we build out the infrastructure.

Appreciate the comments. The business -- the mortgage business is changing for sure, but it sounds like you guys are kind of riding the wave and right on top of what's going on. So thanks for the feedback.

Our next question comes from Eric Hagen with BTIG.

Really strong quarter for jumbo volume. We're looking out now like, call it, a year and looking at your capital needs. And so if you stay on this pace, what do you think will be the amount of jumbo volume that you securitize versus sell to third parties over the next year?

Well, right now, securitization has been a great option for us. I think we have the most liquid shelf in the sector. So our financing costs are the lowest. In jumbo, the subordinates that we retain aren't overly thick. So the actual investment size isn't what it is at Aspire or certainly CoreVest. So that business, we have the potential to grow through securitization for an extended period without necessarily needing outside capital per se.

I would say, though, we've been able to invest every dollar of capital that we've put in that business. And I know that we can do more. So I think I mentioned fundraising for Sequoia in my prepared remarks, and we're going to be very focused on that over the next few months.

We also -- I think bank business was half of our volume in Q3. Again, that's way beyond where it's ever been. And I think it's reflective of why we're able to grow market share so significantly in a market that's essentially flat from a housing origination activity perspective. So that's another area of partnering with banks. So we've got great options in Sequoia and to the extent we can grow Aspire and CoreVest as well. I think the mortgage banking piece of the business has been pretty exciting for us.

Just one thing I'd add to that, Eric, sorry, is we talked a little bit about the upsize of the CPP secured facility, which I think is important to return to for a second in terms of your question because not only did we upsized that facility by $150 million of capacity, but the -- basically, the borrowing base eligibility is moving in the direction you're indicating, which is more ability for us to use that facility to finance our operating activities in mortgage banking and not just hard assets. And that's -- the upsize is a big deal, but in terms of how we're able to use that capital going forward, that's pretty important, too.

Yes, that's helpful. That's helpful. What are you guys looking at right now to give you confidence or some visibility that the credit performance in the BPL portfolio has basically been stabilized at this point?

I think it continues to be a vintage issue. We've talked about that for quite a while. I think the issues are -- certainly the issues that have taken longer to deal with or have resulted in higher severities are still very much limited to that really first half 2022 vintage. As Brooke articulated in her remarks, our securitized bridge portfolio, which is basically the last 3 years of production net of prepays is now below 3%, 90-plus -- that's a good number. We're seeing prepay velocity pick up. And if you look at the loss mid within those portfolios, we've seen delinquencies come but be resolved efficiently and in many cases, with little to no severity, which is a function of our pivot over the past few years to smaller balance, more single-family focused collateral.

And so Eric, as you know, that business is not a no loss business. But if you look at the composition of what we've been originating, I think multifamily was like 1% of our overall production last quarter. You're seeing it in just the overall roll rates, but also the efficiency of being able to resolve whatever does go delinquent in the last 2, 3 years of production.

One thing I would just add to Dash's comments, I know I mentioned the amount of paydowns we had in the quarter, $280 million or so that was bridge. That includes about $67 million of REO and some of our special assets. So we are, I think, not only seeing the payment velocity -- repayment velocity in performing assets, but also moving that legacy book as well.

This now concludes our question-and-answer session. I would like to turn the floor back over to Kaitlyn Mauritz for closing comments.

Thank you, everyone, for joining today. We appreciate the ongoing engagement and sponsorship. If you haven't already, we encourage you also to check out our earnings materials, including the Redwood review and shareholder letter on our website. We're always here to answer questions if you have any. And thank you, and have a good rest of your evening.

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. Please disconnect your lines, and have a wonderful day.