SEC Company Response from REDWOOD MORTGAGE INVESTORS VIII (CIK 0000889123) — Dec 12, 2005
REDWOOD MORTGAGE INVESTORS VIII (CIK 0000889123)
Date: Dec. 12, 2005 · CIK: 0000889123 · Accession: 0000889123-05-000037
AI Filing Summary & Sentiment
File numbers found in text: 000-27816
Referenced dates: November 2, 2005
Letter
December 12, 2005 By Telefacsimile and Mail Rebekah Moore Staff Accountant United States Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549
Re: Redwood Mortgage Investors VIII Form 10-K for the Fiscal Year Ended December 31, 2004 Form 10-Q for the Fiscal Quarter ended June 30, 2005 File No. 000-27816
Dear Ms. Moore:
On behalf of our client, Redwood Mortgage Investors VIII (the "Company") we are responding to the comments of the Staff (the "Staff") of the Securities and Exchange Commission (the "Commission") set forth in your letter of December 1, 2005. The following discussion and answers to your inquiries have been presented in numbered paragraphs to conform to the numbered paragraphs in your letter. For the convenience of the Staff, we have set forth the Staff's comments fully identified in bold and italicized type immediately prior to each response.
1. Please refer to our previous comment 3. We concur that the majority of disclosures required by Guide 3 are not applicable to your business activities and did not request that you provide all disclosures included therein. However, we requested that you include the disclosures set forth in Item IV of Industry Guide 3 because the majority of your business activities include lending. Please revise your filings to include the disclosures set forth in Item IV of Guide 3. If you do not want to use the format presented in Guide 3, please provide this information in an alternative format. Provide us with your proposed disclosures.
RESPONSE:
We have more specifically reviewed the disclosures set forth in Item IV of Guide 3. While we agree that our business is lending, we do not engage in a
<PAGE>
Rebekah Moore December 12, 2005 Page Two
multitude of lending types as contemplated by this section. Specifically, we engage in real estate lending. We have previously provided substantially the same information as requested in Item IV of Industry Guide 3 in Note 2 of our financial statements. We will revise these disclosures to reflect the requested formats for "Analysis for the Allowance of Loan Losses" and "Allocation of the Allowance for Loan Losses" as detailed in Guide 3. Since we do not participate in any foreign lending and we only participate in real estate lending, it would seem that those specific lending types requested in the two formats in which we do not substantially participate may be deleted.
We believe that the enhanced disclosures to be provided in Note 2 to our financial statements, plus the discussion of what factors we consider in determining the amount of the allowance for loan losses currently contained in Note 2 section "Allowance for Loan Losses" and the section "Allowance for Loan Losses" in Management's Discussion and Analysis provide the remaining information in Guide 3 pertinent to our operations. In our future filings, we will set forth the following tables in Note 2 in our financial statements; such tables will be in lieu of the tables that were set forth in Note 2 in our financial statements contained in our Form 10-K for the year ended December 31, 2004.
TABLE A:
Analysis of the Allowance for Loan Losses (in thousands)
<TABLE> <S> <C> <C> <C> -------------------------------------------------------- 2003 2004 2005 ---------------- ---------------- ---------------- Balance at beginning of period $ 3,021 $ 2,649 $ 2,343
Charge-Offs Domestic Real estate - mortgage 1154 952 9 Transfer to real estate held for sale reserve 0 500 0 ---------------- ---------------- ---------------- 1,154 1,452 9 ---------------- ---------------- ---------------- Recoveries Domestic Real estate - mortgage 0 0 0 ---------------- ---------------- ---------------- 0 0 0 ---------------- ---------------- ---------------- Net Charge-Offs -1,154 -1,452 -9 ---------------- ---------------- ---------------- Additions charge to operations 782 1146 168 ---------------- ---------------- ---------------- Balance at end of period (December 31, 2003; December 1, 2004; and September 30, 2005, respectively, $ 2,649 $ 2,343 $ 2,502 ================ ================ ================ </TABLE>
<PAGE>
Rebekah Moore December 12, 2005 Page Three
<TABLE> <S> <C> <C> <C> Ratio of net charge-offs during the period to average loans outstanding during the period 1.00% 0.91% 0.0051% ================ ================ ================ </TABLE>
TABLE B:
Allocation of the Allowance for Loan Losses (in thousands) <TABLE> <S> <C> <C> <C> <C> <C> <C> December 31, December 31, September 30, --------------------------- ---------------------------- ---------------------------- 2003 2004 2005 --------------------------- ---------------------------- ----------------------------
Percent of Percent of Percent of loans in loans in loans in each each each category category category to total to total to total Amount loans Amount loans Amount loans ----------- ------------ ------------ ------------ ------------ ------------ Balance at End of Period Applicable to: -----------------------------------
Real estate - mortgage specified $ 49 $ 103 $ 103 Real estate - mortgage general $ 2,600 $ 2,240 $ 2,399 ----------- ------------ ------------ ------------ ------------ ------------ $ 2,649 100% $ 2,343 100% $ 2,502 100% Real estate - mortgage total =========== ============ ============ ============ ============ ============ </TABLE>
2. Please refer to our previous comment 4. Please tell us, in detail, the factors considered in recording a loss reserve for real estate held for sale and how you determined that the $1,000,000 loss reserve for all properties owned as disclosed on page 4 was appropriate. Tell us if you consider this reserve to be a general reserve or if you determine this reserve on a specific property basis.
RESPONSE:
In our previous response, we indicated that our accounting for real estate held for sale follows the guidance found in paragraph 34 of SFAS 144. We further stated that we periodically compare the carrying value of real estate to undiscounted future cash flows, including net expected sales proceeds (i.e., its fair value) to assess the recoverability of the recorded amounts. If the carrying value exceeds future undiscounted cash flows, the asset is reduced to its estimated fair value. Typically, this reduction is accomplished through the establishment of a loss reserve against the property's carrying value.
In determining the amount of a loss reserve for real estate held for sale, many factors are considered. First and foremost is the expected future cash
<PAGE>
Rebekah Moore December 12, 2005 Page Four
flows related to the property. Such cash flows typically are based upon the property's expected market value reduced by expected sales costs to be incurred in selling the property. However, if improvements to the property are necessary in order to sell it, these costs also need to be considered. The expected market value is determined from an analysis of the real estate market for the geographic area in which the property is located. Appraisals, comparable sales transactions or other market real estate data may be utilized to help determine the expected market value. Market demand data is studied to determine the expected time period required to sell the property. In addition, the overall real estate market and overall economic climate is considered in evaluating both market value and expected sales time.
We determine our reserves on a specific property-by-property basis after careful consideration of all of the factors noted above. At the current time, we do not have a general reserve against our real estate held for sale.
3. Please refer to our previous comment 5. Your response to this comment was not included in the letter filed with the commission. Please include the information requested in your response to this letter.
RESPONSE:
As we discussed with the Staff, our response to the Staff's previous Comment 5 was included in our previous response letter dated November 2, 2005 filed with the Commission via Edgar.
Very truly yours,
/s/ Stephen J. Schrader
Show Raw Text
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(Letterhead of Morrison Foerster LLP)
December 12, 2005
By Telefacsimile and Mail
Rebekah Moore
Staff Accountant
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Redwood Mortgage Investors VIII
Form 10-K for the Fiscal Year Ended December 31, 2004
Form 10-Q for the Fiscal Quarter ended June 30, 2005
File No. 000-27816
Dear Ms. Moore:
On behalf of our client, Redwood Mortgage Investors VIII (the "Company") we
are responding to the comments of the Staff (the "Staff") of the Securities and
Exchange Commission (the "Commission") set forth in your letter of December 1,
2005. The following discussion and answers to your inquiries have been presented
in numbered paragraphs to conform to the numbered paragraphs in your letter. For
the convenience of the Staff, we have set forth the Staff's comments fully
identified in bold and italicized type immediately prior to each response.
1. Please refer to our previous comment 3. We concur that the majority of
disclosures required by Guide 3 are not applicable to your business activities
and did not request that you provide all disclosures included therein. However,
we requested that you include the disclosures set forth in Item IV of Industry
Guide 3 because the majority of your business activities include lending. Please
revise your filings to include the disclosures set forth in Item IV of Guide 3.
If you do not want to use the format presented in Guide 3, please provide this
information in an alternative format. Provide us with your proposed disclosures.
RESPONSE:
We have more specifically reviewed the disclosures set forth in Item IV of
Guide 3. While we agree that our business is lending, we do not engage in a
<PAGE>
Rebekah Moore
December 12, 2005
Page Two
multitude of lending types as contemplated by this section. Specifically, we
engage in real estate lending. We have previously provided substantially the
same information as requested in Item IV of Industry Guide 3 in Note 2 of our
financial statements. We will revise these disclosures to reflect the requested
formats for "Analysis for the Allowance of Loan Losses" and "Allocation of the
Allowance for Loan Losses" as detailed in Guide 3. Since we do not participate
in any foreign lending and we only participate in real estate lending, it would
seem that those specific lending types requested in the two formats in which we
do not substantially participate may be deleted.
We believe that the enhanced disclosures to be provided in Note 2 to our
financial statements, plus the discussion of what factors we consider in
determining the amount of the allowance for loan losses currently contained in
Note 2 section "Allowance for Loan Losses" and the section "Allowance for Loan
Losses" in Management's Discussion and Analysis provide the remaining
information in Guide 3 pertinent to our operations. In our future filings, we
will set forth the following tables in Note 2 in our financial statements; such
tables will be in lieu of the tables that were set forth in Note 2 in our
financial statements contained in our Form 10-K for the year ended December 31,
2004.
TABLE A:
Analysis of the Allowance for Loan Losses
(in thousands)
<TABLE>
<S> <C> <C> <C>
--------------------------------------------------------
2003 2004 2005
---------------- ---------------- ----------------
Balance at beginning of period $ 3,021 $ 2,649 $ 2,343
Charge-Offs
Domestic
Real estate - mortgage 1154 952 9
Transfer to real estate held for sale reserve 0 500 0
---------------- ---------------- ----------------
1,154 1,452 9
---------------- ---------------- ----------------
Recoveries
Domestic
Real estate - mortgage 0 0 0
---------------- ---------------- ----------------
0 0 0
---------------- ---------------- ----------------
Net Charge-Offs -1,154 -1,452 -9
---------------- ---------------- ----------------
Additions charge to operations 782 1146 168
---------------- ---------------- ----------------
Balance at end of period (December 31, 2003;
December 1, 2004; and September 30, 2005,
respectively, $ 2,649 $ 2,343 $ 2,502
================ ================ ================
</TABLE>
<PAGE>
Rebekah Moore
December 12, 2005
Page Three
<TABLE>
<S> <C> <C> <C>
Ratio of net charge-offs during
the period to average loans
outstanding during the period 1.00% 0.91% 0.0051%
================ ================ ================
</TABLE>
TABLE B:
Allocation of the Allowance for Loan Losses
(in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
December 31, December 31, September 30,
--------------------------- ---------------------------- ----------------------------
2003 2004 2005
--------------------------- ---------------------------- ----------------------------
Percent of Percent of Percent of
loans in loans in loans in
each each each
category category category
to total to total to total
Amount loans Amount loans Amount loans
----------- ------------ ------------ ------------ ------------ ------------
Balance at End of Period
Applicable to:
-----------------------------------
Real estate - mortgage specified $ 49 $ 103 $ 103
Real estate - mortgage general $ 2,600 $ 2,240 $ 2,399
----------- ------------ ------------ ------------ ------------ ------------
$ 2,649 100% $ 2,343 100% $ 2,502 100%
Real estate - mortgage total =========== ============ ============ ============ ============ ============
</TABLE>
2. Please refer to our previous comment 4. Please tell us, in detail, the
factors considered in recording a loss reserve for real estate held for sale and
how you determined that the $1,000,000 loss reserve for all properties owned as
disclosed on page 4 was appropriate. Tell us if you consider this reserve to be
a general reserve or if you determine this reserve on a specific property basis.
RESPONSE:
In our previous response, we indicated that our accounting for real estate
held for sale follows the guidance found in paragraph 34 of SFAS 144. We further
stated that we periodically compare the carrying value of real estate to
undiscounted future cash flows, including net expected sales proceeds (i.e., its
fair value) to assess the recoverability of the recorded amounts. If the
carrying value exceeds future undiscounted cash flows, the asset is reduced to
its estimated fair value. Typically, this reduction is accomplished through the
establishment of a loss reserve against the property's carrying value.
In determining the amount of a loss reserve for real estate held for sale,
many factors are considered. First and foremost is the expected future cash
<PAGE>
Rebekah Moore
December 12, 2005
Page Four
flows related to the property. Such cash flows typically are based upon the
property's expected market value reduced by expected sales costs to be incurred
in selling the property. However, if improvements to the property are necessary
in order to sell it, these costs also need to be considered. The expected market
value is determined from an analysis of the real estate market for the
geographic area in which the property is located. Appraisals, comparable sales
transactions or other market real estate data may be utilized to help determine
the expected market value. Market demand data is studied to determine the
expected time period required to sell the property. In addition, the overall
real estate market and overall economic climate is considered in evaluating both
market value and expected sales time.
We determine our reserves on a specific property-by-property basis after
careful consideration of all of the factors noted above. At the current time, we
do not have a general reserve against our real estate held for sale.
3. Please refer to our previous comment 5. Your response to this comment
was not included in the letter filed with the commission. Please include the
information requested in your response to this letter.
RESPONSE:
As we discussed with the Staff, our response to the Staff's previous
Comment 5 was included in our previous response letter dated November 2, 2005
filed with the Commission via Edgar.
Very truly yours,
/s/ Stephen J. Schrader
Stephen J. Schrader
cc: Michael R. Burwell, Redwood Mortgage Investors VIII
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