Redwood Trust, Inc. Q4 FY2025 earnings call

• Fourth quarter 2025 capped a year of meaningful progress with record mortgage banking activity, improved capital efficiency, and a more durable earnings profile. Full year 2025, the 3 operating platforms generated $23 billion of volume, the highest in company history.
• Sequoia had record volumes in the fourth quarter, with bulk activity representing close to 60% of volume and flow volume making up just over 40%. CoreVest saw growth in smaller balance products like RTL and DSCR loans. Aspire launched its third branded securitization issuance platform and is close to launching the first Aspire securitization.
• Technology enablement through RWT Horizons using AI and automation to enhance risk management, accelerate capital deployment, and improve operating leverage, with elimination of over 3,000 manual hours and reduction in document review times by approximately 75%.
• Progress in winding down the legacy investment portfolio, including reducing the legacy bridge portfolio's principal balance by nearly 40% in the fourth quarter and resolving multiple loans.

The company's segments included Sequoia, CoreVest, Aspire, and the legacy investment portfolio. For Sequoia, in the fourth quarter, it locked $5.3 billion of loans, a 5% increase from the third quarter and up 130% from Q4 2024. Bulk activity was close to 60% of volume, and flow volume represented just over 40% of production. Full year 2025, the 3 operating platforms generated $23 billion of volume, the highest in the company's history. CoreVest had full year volumes up 13% versus 2024, with residential transition loans (RTL) nearly 40% of fourth quarter production and DSCR volumes increasing 43% versus the third quarter. Aspire locked a record $1.5 billion of loans during the fourth quarter, with total 2025 lock volume over $3 billion. The legacy investment portfolio saw the principal balance of the legacy bridge portfolio reduced by nearly 40% in the fourth quarter, with 90-day plus delinquencies declining to $82 million at year-end.

• Expect core operating performance to drive consolidated earnings above the common dividend in 2026, enabling earnings retention and reinvestment for organic growth.
• Anticipate continued growth in mortgage banking volumes, with the potential for a broader refinance market revival to scale volumes further.
• Plan to launch the first Aspire securitization in the coming weeks and continue scaling CoreVest and Sequoia with third-party capital partnerships.

• Market volatility affecting mortgage rates and refinance activity, which could impact volume expectations.
• Uncertainty around GSE reform and its potential impact on the non-QM and CoreVest businesses.
• Regulatory changes related to housing affordability and institutional ownership of single-family homes, which could affect the market for CoreVest's lending activities.

Q: 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?

A: 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 non-agencies. 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 sprint. 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.

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

A: 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 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 seizing these seasoned 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 that Chris was mentioning to continue to scale these platforms this year and doing it outside of our corporate balance sheet is helpful given where 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.