930236--2/20/2007--REDWOOD_TRUST

related topics

{loan, real, estate}

{tax, income, asset}

{investment, property, distribution}

{loss, insurance, financial}

{condition, economic, financial}

{system, service, information}

{regulation, change, law}

{personnel, key, retain}

{provision, law, control}

{control, financial, internal}

Risks Related to our Business The securities we own expose us to concentrated risks and thus are likely to lead to variable returns. Residential real estate loan delinquencies, defaults, and credit losses could reduce our earnings, dividends, cash flows, and access to liquidity. Significant losses on residential credit-enhancement securities could diminish our equity capital base, reduce our earnings, and otherwise negatively affect our business. The timing of credit losses can harm our economic returns. Our efforts to manage credit risk may not be successful in limiting delinquencies and defaults in underlying loans or losses on our investments. We have significant credit risk in California. We also have credit risk in other states and our business may be adversely affected by a slowdown in the economy or by natural disasters in these states. We assume credit risk on a variety of residential and commercial mortgage assets. The risks of credit-enhancing commercial real estate loans may exceed those of credit-enhancing residential loans. We are increasing our financial leverage and this could expose us to increased risks. Investments in diverse types of assets and businesses could expose us to new, different, or increased risks. We have exposure under representations and warranties we make in the contracts of sale of loans to securitization entities. Our results could be harmed by counter-party credit risk. We may be subject to the risks associated with inadequate or untimely services from third-party service providers, which may harm our results of operations. Interest rate fluctuations can have various negative effects on us, and could lead to reduced earnings and increased earnings volatility. Changes in prepayment rates of residential real estate loans could reduce our earnings, dividends, cash flows, and access to liquidity. Hedging activities may reduce long-term earnings and may fail to reduce earnings volatility or to protect our capital in difficult economic environments. Our failure to hedge may also harm our results. New assets we acquire may not generate yields as attractive as yields on our current assets, resulting in a decline in our earnings per share over time. Our securitization operations expose us to liquidity, fair market value, and execution risks. We may enter into derivative contracts that could expose us to contingent liabilities. Our cash balances and cash flows may become limited relative to our cash needs. Our reported GAAP financial results differ from the taxable income results that drive our dividend distributions. We establish credit reserves for GAAP accounting purposes, but there are no reserves established for tax accounting purposes. Our reported income depends on accounting conventions and assumptions about the future that may change. Risks Related to our Company Structure and Operations Failure to qualify as a REIT would adversely affect our dividend distributions and could adversely affect the value of our securities. Maintaining REIT status may reduce our flexibility. Changes in tax rules could adversely affect REITs. Failure to qualify for the Investment Company Act exclusion could harm us. Provisions in our charter and bylaws and provisions of Maryland law may limit a change in control or deter a takeover that might otherwise result in a premium price being paid to our stockholders. Our future success depends on our ability to attract and retain key personnel. Our business could be adversely affected if we have deficiencies in our disclosure controls and procedures or internal control over financial reporting.

Full 10-K form ▸

930236--2/20/2007--REDWOOD_TRUST_INC