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Redwood Trust, Inc. Announces Dividend Tax Information for 2004

Friday, January 14, 2005

MILL VALLEY, Calif.--(BUSINESS WIRE)--Jan. 14, 2005--Redwood Trust, Inc. (NYSE:RWT), a financial institution that invests in, credit-enhances, and securitizes residential and commercial real estate loans and securities, today announced tax information regarding its dividend distributions for the year 2004.

Shareholders should check the tax statements they receive from brokerage firms to make sure the Redwood dividend information reported in those statements conforms to the information reported here. Furthermore, shareholders should consult their tax advisors to determine the amount of taxes that should be paid on Redwood dividend income.

Under the tax rules applicable to real estate investment trusts (REITs), the $0.65 per share fourth quarter 2003 regular common stock dividend that had a record date of December 31, 2003 and a payment date of January 21, 2004 was reportable on shareholders' 2003 tax returns.

All of the other common stock dividends paid during 2004 are reportable on shareholders' 2004 tax returns, including three quarters of regular $0.67 per share dividends, the first quarter special dividend of $0.50 per share, and the fourth quarter special dividend of $5.50 per share. In addition, the $0.67 per share fourth quarter 2004 common stock dividend with a record date of December 31, 2004 that will be paid on January 21, 2005 is also reportable on shareholders' 2004 tax returns.

Thus, for the tax year 2004, Redwood shareholders that held stock for this entire period should report a total of $8.68 per share of common stock dividends for tax purposes. Under the tax rules applicable to REITs, Redwood's 2004 dividends are characterized as follows:

-- 72.919% ordinary income ($6.329 per share)

-- 27.081% long-term capital gains income ($2.351 per share)

The dividends paid in tax year 2004 do not include any return of capital.

Redwood's 2004 long-term capital gains income is largely attributable to certain residential credit-enhancement securities that were called during the year. In effect, Redwood sold these securities for a profit when they were called, and thus earned long-term capital gains income. When Redwood distributes this income as dividends, shareholders are taxable on this portion of their dividends at long-term capital gains rates, which may be lower than tax rates on ordinary income.

As a REIT, Redwood's dividends are generally not eligible for the other rate reductions enacted for certain types of dividend income under the Jobs & Growth Tax Relief Reconciliation Act of 2003. Thus, the portion of Redwood's dividends that are characterized as ordinary income generally will be taxed at full ordinary income rates.

The table below provides more detailed tax information for each of Redwood's common stock dividends for 2004.

Common Stock (CUSIPs 758075 40 2)

   Dividend     Declaration     Record        Payable       Distrib
     Type          Dates         Dates         Dates       Per Share
-------------- ------------- ------------- -------------- ------------
   Regular       3/5/20043/31/20044/21/2004       $0.67
   Special       3/5/20043/31/20044/21/2004       $0.50
   Regular       5/7/20046/30/20047/21/2004       $0.67
   Regular      8/20/20049/30/200410/21/2004       $0.67
   Special      11/15/200411/30/200412/10/2004       $5.50
   Regular      11/15/200412/31/20041/21/2005       $0.67
                                               Total         $8.68

     Dividend                  Ordinary              Return of
       Type                     Income                Capital
  -----------------          --------------        -------------
      Regular                  $0.488555             $0.000000
      Special                  $0.364593             $0.000000
      Regular                  $0.488555             $0.000000
      Regular                  $0.488555             $0.000000
      Special                  $4.010523             $0.000000
      Regular                  $0.488555             $0.000000
                             --------------        -------------
       Total                   $6.329336             $0.000000

      Dividend          Long Term           # Of           Total $
        Type           Capital Gains       Shares           Paid
  -----------------   ---------------  -------------   -------------
      Regular           $0.181445        19,796,237     $ 13,263,479
      Special           $0.135407        19,796,237     $  9,898,119
      Regular           $0.181445        21,510,801     $ 14,412,237
      Regular           $0.181445        23,345,696     $ 15,641,616
      Special           $1.489477        23,731,717     $130,524,444
      Regular           $0.181445        24,153,576     $ 16,182,896
                      ---------------                  -------------
       Total            $2.350664                       $199,922,791

For shareholders that are corporations, Redwood's dividends are not generally eligible for the corporate dividends-received deduction.

No portion of Redwood's 2004 dividends consisted of "excess inclusion" income subject to the specialized tax reporting and other rules applicable to such income.

This information is available on our website at

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Certain matters discussed in this news release may constitute forward-looking statements within the meaning of the federal securities laws that inherently include certain risks and uncertainties. Actual results and the timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, among other things, changes in interest rates on our mortgage assets and borrowings, changes in prepayment rates on our mortgage assets, general economic conditions, particularly as they affect the price of mortgage assets and the credit status of borrowers, and the level of liquidity in the capital markets, as it affects our ability to finance our mortgage asset portfolio, and other risk factors outlined in the Company's 2003 Annual Report on Form 10-K (available on the Company's Web site or by request to the Contacts listed above). Other factors not presently identified may also cause actual results to differ. No one should assume that results or trends projected in or contemplated by the forward-looking statements included above will prove to be accurate in the future. We will revise our outlook from time to time and frequently will not disclose such revisions publicly.

    CONTACT: Redwood Trust, Inc.
             Harold Zagunis or Nicole Klock, 415-389-7373

    SOURCE: Redwood Trust, Inc.

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