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CORRESP
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    Unassociated Document

                    VIA EDGAR

                    January 13,
2010

    Securities
and Exchange Commission

    Division
of Corporation Finance

    450 Fifth
Street, N.W.

    Washington,
D.C. 20549

              Attn:

              Kristi
      Marrone

    Staff
Accountant

    Division of Corporation
Finance

                Re:

                Redwood
      Trust, Inc.

                Amended
      Response to Comment on:

                Form
      10-K for the year ended December 31, 2008

                Filed
      on February 17, 2009

                Forms
      10-Q for the quarters ended March 31, June 30, and September 30,
      2009

                Filed
      on May 5, August 5, and November 4, 2009, respectively

                  File
      No. 001-13759

      Please
note: On January 12, 2010, we filed a comment response letter relating to the
above-captioned SEC Comment Letter. We are hereby amending our response to
correct an error in the following sentence:

      “As of
September 30, 2009, $2.95 billion of Sequoia loans (77% of outstanding principal
balances) were originated in 2005 or prior and have many years of demonstrated
payment histories.”

      This
sentence should read as follows:

      “As of
September 30, 2009, $3.53 billion of Sequoia loans (92% of outstanding principal
balances) were originated in 2005 or prior and have many years of demonstrated
payment histories.”

      The full
text of our comment response, as amended to correct the above referenced-error,
is set forth below.

    Dear Ms.
Marrone:

    On behalf
of Redwood Trust, Inc. (“Redwood”), I hereby provide the following response to
the Staff’s comment letter (the “Comment Letter”) dated December 29, 2009, in
connection with the above-referenced Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q. For your convenience, our response is preceded with an
italicized recitation of the Staff’s comment.

    Form 10-Q for the quarter
ended September 30, 2009

    Note 7. Allowance for Loan
Losses, page 24

              1.

              We
      note that serious delinquencies on consolidated Sequoia loans were $145
      million as of September 30, 2009 but an allowance of only $50 million has
      been recorded. With a view towards disclosure in filings, please explain
      to us how you determined that this reserve is
  adequate.

        Page 1 of
4

    To
respond to the Staff’s comment, I will reference one of our existing disclosures
that describes the systematic methodology we use in determining the Allowance
for Loan Losses (“Allowance”) and also summarize the relevant factors we
considered as part of our quarterly process to conclude that the Allowance we
recorded at September 30, 2009 was adequate.

    But
first, I wish to note that our Allowance covers all inherent losses in our
Sequoia loan portfolio in accordance with GAAP, including ASC 310 (formerly FAS
5 and SAB 102). This portfolio consists of $3.82 billion of prime-quality,
seasoned residential loans made to borrowers with demonstrated credit histories.
Approximately $3.76 billion (or 98%) of our outstanding Sequoia loan balance
represents first-lien prime loans collateralized by residential properties. The
remaining $61 million are second-lien prime loans also collateralized by
residential properties. As of September 30, 2009, $3.53 billion of Sequoia loans
(92% of outstanding principal balances) were originated in 2005 or prior and
have many years of demonstrated payment histories. The weighted average FICO
score for our Sequoia loans outstanding was 740 and the weighted average
original loan-to-value ratio (LTV) was 68%.

    We do not
consider any of our Sequoia loans to be “higher-risk” loans, such as subprime
and option arm products – many of which are currently owned at other financial
institutions.  We believe that our existing disclosures, including
those in our most recent Form 10-K for the year ended December 31, 2008,
completely and robustly detail the primary characteristics and risks associated
with this portfolio for users of our financial statements.

    Turning
to the process we use to determine our Allowance, I would like to reference the
following disclosure included in our Form 10-Q for the quarter ended September
30, 2009, which describes our systematic methodology:

    Notes to
Financial Statements, Note 3, Page 8, “Real Estate Loans – Allowance for Loan
Losses”

    “For real
estate loans classified as held-for-investment, we establish and maintain an
allowance for loan losses based on our estimate of credit losses inherent in our
loan portfolios at the reporting date. To calculate the allowance for loan
losses, we assess inherent losses by determining loss factors (defaults, the
timing of defaults, and loss severities upon defaults) that can be specifically
applied to each of the consolidated loans or pool of loans.

    We
consider the following factors in making such determinations:

              ·

              Ongoing
      analyses of loans, including, but not limited to, the age of loans,
      underwriting standards, business climate, economic conditions, and other
      observable data;

              ·

              Historical
      loss rates and past performance of similar
  loans;

              ·

              Relevant
      environmental factors;

              ·

              Relevant
      market research and publicly available third-party reference loss
      rates;

              ·

              Trends
      in delinquencies and charge-offs;

              ·

              Effects
      and changes in credit
concentrations;

              ·

              Information
      supporting a borrower’s ability to meet
  obligations;

              ·

              Ongoing
      evaluations of fair values of collateral using current appraisals and
      other valuations; and,

              ·

              Discounted
      cash flow analyses.

    Once we
determine the amount of defaults, the timing of the defaults, and severity of
losses upon the defaults, we estimate expected losses for each individual loan
or pool of loans over its expected life. We then estimate the timing of these
losses and the losses probable to occur over an appropriate loss confirmation
period. This period is defined as the range of time between the occurrence of a
credit loss (such as the initial deterioration of the borrower’s financial
condition) and the confirmation of that loss (the actual impairment or
charge-off of the loan). The losses expected to occur within the estimated loss
confirmation period are the basis of our allowance for loan losses, since we
believe these losses exist as of the reported date of the financial statements.
We re-evaluate the adequacy of our allowance for loan losses on at least a
quarterly basis.”

        Page 2 of
4

    This
systematic methodology is performed in accordance with applicable GAAP and
reassessed each quarter to ensure that it continues to provide management with a
reasonable and adequate estimate. The $145 million of serious delinquencies at
September 30, 2009, which includes all loans delinquent more than 90 days and in
foreclosure, were reserved for as part of this process. Some of the specific
factors that we considered to conclude that our $50 million Allowance was
adequate included the following:

              ·

              We
      validated the assumptions used to determine our Allowance and then
      reviewed both internal and external qualitative factors to conclude that
      the Allowance was adequate at September 30, 2009. The process we followed
      was completed in accordance with our Allowance policy and our internal
      controls. Senior Management played an active role in this
      process.

              ·

              We
      did not acquire any new loans during the third quarter of 2009, nor have
      we since 2007. The loans that we assessed for impairment have been on our
      books for years and have demonstrated performance trends and
      characteristics. We therefore believe that the loss factors considered for
      our Allowance were complete and predictive of inherent losses within our
      consolidated Sequoia portfolio at September 30,
  2009.

              ·

              Through
      the first nine months of 2009, total charge-offs on our Sequoia loan
      portfolio totaled $11.6 million, or 0.30% of outstanding loan
      balances.  These charge-offs were generated by $41.37 million of
      serious delinquencies for an implied loss severity of 28%. We believe that
      our Allowance at September 30, 2009, of $50 million adequately provides
      for all inherent losses remaining in the Sequoia portfolio, including
      anticipated losses on the $145 million of serious
      delinquencies.

              ·

              Since
      our Sequoia loans have been underwritten to similar credit standards, the
      next most relevant risk attributes that we use to determine loss
      severities include year of origination (i.e., “vintage”) and lien type
      (i.e., “first lien vs. second lien”). During September 2009, we analyzed
      the actual loss severities incurred on our consolidated Sequoia loans over
      the past twelve months in comparison to the loss severity assumptions we
      forecasted for each vintage and lien type. Available industry data and
      trends were also used for this analysis. The results supported our
      conclusion that the loss severity assumptions we applied to anticipated
      loan defaults at September 30, 2009, were
  reasonable.

              ·

              During
      the third quarter of 2009, there were no changes in the practices we
      followed to determine our Allowance, such as our non-accrual and
      charge-off policies, economic factors utilized, or the level of
      specificity we used to group loans. We are not aware of any trends,
      demands, commitments, events or uncertainties regarding our consolidated
      Sequoia loans that would cause us to expect to have a material favorable
      or unfavorable impact on our results of operations, liquidity, and capital
      resources.

              ·

              Entity-specific
      factors were also considered as part of our Allowance process, such as our
      size, organizational structure, business environment and strategy,
      management style, and loan portfolio characteristics. No significant
      organizational changes occurred during the third quarter of 2009; nor did
      loan portfolio characteristics materially
  change.

    In
summary, we believe that our Allowance for Loan Losses of $50 million is
adequate to cover all inherent losses within our consolidated Sequoia loan
portfolio, including the $145 million of serious delinquencies cited in the
Staff’s comment. These loans were assessed as part of our extensive quarterly
analysis using loss reserving assumptions that were validated by senior
management. We also believe that we adequately disclosed our process, relevant
loan characteristics, and other Allowance information in the notes accompanying
our financial statements in our most recent quarterly Form 10-Q and annual Form
10-K filings.

        Page 3 of
4

    As you
have requested, we confirm that:

              ·

              Redwood
      is responsible for the adequacy and accuracy of the disclosure in the
      above-referenced filings;

              ·

              Staff
      comments or changes to disclosure in response to staff comments do not
      foreclose the Commission from taking any action with respect to the
      filings; and

              ·

              Redwood
      may not assert staff comments as a defense in any proceeding initiated by
      the Commission or any person under the federal securities laws of the
      United States.

    Should
you have any further comments or questions about this letter, please contact me
by telephone
at          415-380-3455, by
fax at 415-381-1773, or by email at marty.hughes@redwoodtrust.com.

                    Very
      truly yours,

                    Redwood
      Trust, Inc.

                      By:

                    /s/
      Martin S. Hughes

                      Martin
      S. Hughes

                    Chief
      Financial Officer

        Page 4 of
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