JPMorgan Turns More Positive on Redwood Trust (RWT) as Loss Pressures Ease

Redwood Trust, Inc. (NYSE:RWT) is included among the 13 Dividend Stocks with Over 8% Yield.

On January 23, JPMorgan raised its rating on Redwood Trust, Inc. (NYSE:RWT) to Overweight from Neutral and set a $6 price target on the stock. The firm said the headwinds from realized losses and non-accrual loans should continue to fade as Redwood works through and exits its legacy investments. As those pressures ease, JPMorgan sees a clearer path for the company to reach a more normalized return on equity around 20%, according to the analyst’s research note. The firm also expects demand for jumbo mortgage loans to stay healthy.

In its earnings for the third quarter, CEO Christopher Abate said the company has moved faster than planned in shifting toward a simpler, more scalable operating model, one that is better positioned to take advantage of what management sees as meaningful changes unfolding across the business. He noted that Redwood delivered its strongest quarter on record, with nearly $7 billion in loans locked or originated. That total included a record $5.1 billion at Sequoia, $1.2 billion at Aspire, and $521 million at CoreVest.

Abate added that legacy exposure has been brought down to about 25% of total capital and said the firm remains on track to reduce that figure to 20% by the end of the year. He also pointed to an expanded relationship with CPP Investments, with the secured borrowing facility increased to $400 million from $250 million.

President Dashiell Robinson highlighted Sequoia’s momentum, saying loan locks rose 53% from the prior quarter and that jumbo market share has climbed to roughly 7%, up from just 1% to 2% in 2023. He said Aspire posted $1.2 billion in loan locks, nearly four times its second-quarter volume, alongside a 50% increase in loan originator partners.

Redwood Trust, Inc. (NYSE:RWT) is a specialty finance company that operates across several corners of the housing credit market. Its business spans mortgage banking through Sequoia and CoreVest, along with investment activities housed in its Redwood Investments and Legacy Investments segments.

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