Patrick Harden

Redwood Trust: From $30 to $4 by Year-End?

Greg, thanks for your response to my comments. One additional point that I would like to make is that even if the junior tranches of the Acadia entities fail overcollateralization testing, Redwood will still record the interest income despite not receiving the related cash flow. Over time, this may create a more significant mismatch between taxable income and cash flows, but the release of overcollateralization from older, better performing securities should offset this cash flow mismatch.

Redwood Trust: From $30 to $4 by Year-End?

This article is an excellent example of how a little knowledge is a dangerous thing.

FACT: Redwood Trust marks its CDO assets and liabilities in accordance with FAS 159. This is not questionable accounting, simply the prescribed GAAP accounting for such securities. This is not to say that I agree with the GAAP treatment, but marking to market both the assets and the paired liabilities, RWT presents a more accurate picture of its economic financial state.

FACT: Redwood Trust consistently covers its dividend with ordinary taxable income. Combined with the spillover from 2007 and the taxable income earned in the first quarter of 2008, Redwood Trust has already covered substantially all of its 2008 dividends with ordinary taxable income.

FACT: Redwood Trust holds most of its portfolio to maturity. The Company is not dependent on asset sales to generate cash flows, but rather depends on collection of interest payments and release of overcollateralization from its older vintage securitizations to support operations.

Will Redwood Trust perform as well as it did from 2003-2006? No, of course not. However, the Company is well-positioned to ride out the storm and absorb increased credit losses through the remainder of 2008 and 2009. With the dividend of $3.00/share remaining intact throughout the period, a reasonable yield of 10% supports a $30 stock price.

Short Redwood at risk of your own peril.

Muddled Mortgage REIT Book Value Creates Buying Opportunity

"Consequently, the Kleros CDOs are really nothing more than a public relations problem for AFN."

One small quibble with that -- AFN is relying on the net investment income from the Kleros CDOs to satisfy their 95% gross income test. If the holders of the Kleros CDOs move to liquidate them (as they well could, since all of them have declared an event of default), AFN could fail REIT qualification testing.