Redwood Trust Posts $29M Profit

Redwood Trust, Inc., the Strawberry real estate investment trust, reported second-quarter earnings Wednesday that dropped from the previous quarter but were up markedly from the same period a year ago.

The 16-year-old company, which buys mortgage loans and mortgage securities to use as collateral to issue new securities, reported a quarterly profit of $29 million, or 35 cents per diluted share. That was down 38 percent from $47 million, or 58 cents per diluted share) in the first quarter, but up 314 percent from a lowly $7 million, or 10 cents per share, in the same period a year ago.

The company said it acquired $23 million of residential securities in the quarter and sold $116 million of securities, including a jumbo residential mortgage-backed security (RMBS) deal in April, which was the first private securitization of a new U.S. home loan in two years.

The company recorded a second-quarter estimated taxable loss of $3 million, or 3 cents per share, up from estimated taxable income of $1 million, or 1 cent per share, for the first quarter of 2010, but an improvement over a taxable loss of $12 million, or 16 cents per share, for the second quarter of 2009.

Redwood ended the quarter with a total securities portfolio of $734 million, down from $840m at the beginning of the quarter, and with $288 million of cash and cash equivalents.

In a quarterly filing, Redwood said that the Securities and Exchange Commission (SEC) sent a directive in May asking for information on topics including "trading practices and valuation policies" related to its Acacia collateralized debt-obligation (CDO) business.

The "order from the SEC indicates that it should not be construed as an indication by the SEC or its staff that any violations of law have occurred," the company said in the filing.

Company spokesman Mike McMahon could not be reached for comment.