Redwood Trust (RWT) Q3 2025: Sequoia Loan Locks Surge 53%, Fueling Platform Scale-Up
Redwood Trust’s record $7 billion in loan originations this quarter signals a decisive shift toward scalable, high-ROE mortgage banking platforms, as legacy asset runoff accelerates and capital redeployment gains speed. The firm’s Sequoia and Aspire units are capturing outsized market share even as the broader housing market remains subdued. Management’s bullish tone on technology and capital partnerships points to further margin expansion and operating leverage in 2026.
Summary
- Platform Scale-Up: Core mortgage banking segments sustained above-20% ROE as capital shifted from legacy assets.
- Market Share Capture: Sequoia and Aspire sharply expanded seller networks and loan volumes despite flat industry origination.
- Forward Leverage: Technology and capital partnerships set the stage for continued growth and efficiency gains.
Performance Analysis
Redwood Trust’s Q3 results underscore a strategic acceleration away from legacy assets and toward high-return mortgage banking platforms. The company locked or originated a record $7 billion in loans, with Sequoia, its jumbo mortgage platform, posting a 53% sequential increase to $5.1 billion in locks. Aspire, Redwood’s non-QM (non-qualified mortgage, loans outside standard agency underwriting) aggregator, quadrupled its lock volume to $1.2 billion, positioning itself as a top-five player in the segment. Corvest, the investor loan platform, also delivered its highest funding since 2022, with a pronounced shift toward smaller balance products.
Despite a subdued housing market, Redwood’s core segments maintained GAAP ROEs above 20% for a fifth straight quarter, with Sequoia reaching 29% and Corvest hitting 30% on segment EAD (Earnings Available for Distribution, a non-GAAP profit measure). The company’s operating leverage improved, with cost per loan declining as origination volumes rose. Legacy portfolio runoff freed up $150 million of capital for redeployment, and total capital allocated to core segments has increased by 80% since mid-2024. The ongoing reduction in legacy exposure—now 25% of capital, down from 33%—continues to weigh on consolidated GAAP results, but positions Redwood for a cleaner, more profitable earnings profile by 2026.
- Loan Volume Record: Sequoia’s $5.1 billion loan locks and Aspire’s $1.2 billion quadruple last quarter’s pace, driving market share gains.
- Efficiency Gains: AI-driven automation and scale improvements lowered cost per loan and accelerated turn times.
- Legacy Runoff: $1 billion of legacy assets sold or transferred, with capital redeployed into high-ROE platforms.
Redwood’s capital structure remains robust, with a $150 million expansion of its secured borrowing facility and declining cost of funds. The company continues to repurchase shares and pay dividends, reflecting confidence in its core earnings power as legacy drag diminishes.
Executive Commentary
"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."
Chris Abate, Chief Executive Officer
"On a non-GAAP basis, Core Segments Earnings Available for Distribution, or Core Segments EAD, was $27 million, or $0.20 per share, representing a 17% return on equity. This compares to 18 cents per share in the second quarter and underscores the continued earnings strength of our three core segments."
Brooke Carrillo, Chief Financial Officer
Strategic Positioning
1. Mortgage Banking Platform Dominance
Redwood’s pivot to a platform-centric business model, anchored by Sequoia and Aspire, is yielding tangible market share gains and outsized returns. Sequoia’s seller network now covers 80% of jumbo market share, up from 20%–30% in 2023. Aspire’s rapid rise as a non-QM aggregator reflects both organic market growth and a deliberate push to consolidate seller relationships and diversify product offerings.
2. Capital Redeployment and Legacy Wind-Down
Legacy asset runoff remains a key earnings bridge, with $400 million of capital still to be redeployed. Management expects continued reduction at a pace of $100 million per quarter, with freed capital flowing to mortgage banking platforms capable of absorbing and scaling new investment quickly. This dynamic is expected to materially lift consolidated earnings as negative-yielding legacy assets are replaced with high-ROE core business exposure.
3. Technology as a Strategic Asset
Redwood’s investment in AI-driven document intelligence and workflow automation is not just an efficiency lever—it is emerging as a core competitive moat. The company’s ability to process and underwrite loans faster than peers, while owning its data and models, is enabling it to scale volume and manage risk even as product complexity and origination velocity increase.
4. Distribution and Funding Partnerships
The expansion of the CPP Investments joint venture and the upsizing of the secured borrowing facility to $400 million reflect Redwood’s focus on deepening institutional partnerships and ensuring ample liquidity for continued mortgage banking growth. Securitization remains the primary distribution channel, with 13 deals completed year-to-date, but management is also pursuing new capital sources for the flagship Sequoia platform.
5. Regulatory and Market Advocacy
Redwood’s advocacy for streamlined non-agency RMBS disclosures is beginning to bear fruit, with anticipated regulatory changes likely to attract new capital into the private label securitization market. This could further deepen demand for Redwood’s assets and support platform scale-up.
Key Considerations
Redwood’s Q3 demonstrates the operational and strategic leverage unlocked by its transition to a platform-driven, capital-light mortgage banking model. As legacy asset runoff accelerates, key considerations for investors include:
Key Considerations:
- Capital Allocation Pace: The speed at which legacy capital is redeployed into high-ROE platforms will determine the earnings inflection in 2026.
- Market Share Sustainability: Sequoia and Aspire’s expanded seller networks and product breadth will be tested as housing activity normalizes and competitors re-engage.
- Technology Execution: Continued investment in AI and automation is critical to maintaining cost and speed advantages as volumes scale.
- Funding Flexibility: The expanded CPP facility and ongoing securitization access are vital to sustaining origination growth and absorbing new capital.
- Regulatory Tailwinds: Potential SEC reforms could unlock new demand for non-agency RMBS, amplifying Redwood’s distribution advantage.
Risks
Redwood’s forward trajectory depends on the successful and timely runoff of legacy assets, which still comprise 25% of capital. Market volatility, regulatory shifts, and potential credit deterioration in newer loan vintages could pressure returns or slow capital redeployment. While technology adoption enhances efficiency, rapid scaling also introduces operational and integration risks that must be managed as product complexity grows.
Forward Outlook
For Q4, Redwood expects:
- Continued reduction of legacy asset exposure, freeing up additional capital for redeployment.
- Ongoing record origination volumes at Sequoia and Aspire, with potential for further market share gains.
For full-year 2025, management reiterated its target to reduce legacy assets to 20% of capital by year-end, with further capital allocation to mortgage banking platforms driving earnings growth. Management highlighted:
- Strong institutional demand for securitizations and whole loan sales.
- Continued focus on technology investment and seller network expansion.
Takeaways
Redwood’s Q3 marks a pivotal point in its transformation to a high-ROE, platform-driven mortgage banking business.
- Core Earnings Power: Sustained above-20% ROE in core segments positions Redwood for profitable growth as legacy drag diminishes.
- Market Share Expansion: Sequoia and Aspire’s rapid growth outpaces the broader market, validating Redwood’s platform strategy.
- 2026 Inflection: Investors should track the pace of legacy runoff and capital redeployment, as well as the impact of technology and partnership initiatives on margin and scale.
Conclusion
Redwood Trust’s Q3 results highlight the successful execution of its platform transition, with record origination volumes and robust returns in core mortgage banking segments. As legacy assets run off and capital is redeployed, the company is positioned for a cleaner, higher-margin earnings profile in 2026 and beyond.
Industry Read-Through
Redwood’s experience this quarter offers a blueprint for mortgage REITs navigating legacy asset runoff and platform reinvention. The company’s ability to capture market share in a flat housing market, leverage technology for efficiency, and secure institutional capital partnerships underscores the importance of scale, operating leverage, and funding flexibility. Firms unable to pivot away from legacy drag or lacking automation will face growing margin and growth headwinds as the mortgage cycle evolves. Regulatory advocacy and capital market access are likely to become increasingly important differentiators across the sector.