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July 9, 2012

VIA EDGAR AND FACSIMILE TRANSMISSION – 202-772-9209

Securities and Exchange Commission

Division of Corporation Finance

450 Fifth Street, N.W.

Washington, D.C. 20549

    Attn:
    William Demarest

Staff Accountant

Division of Corporation Finance

    Re:

        Redwood Trust, Inc.

        Responses to Comments on:

        Form 10-K for the Fiscal Year Ended December 31,
        2011

        Filed on February 27, 2012

        Form 10-Q for the Quarterly Period Ended March 31,
        2012

        Filed on May 8, 2012

        File No. 1-13759

Dear Mr. Demarest,

On behalf of Redwood Trust, Inc. (“Redwood”),
I hereby provide the following response in reply to the Staff’s comment letter dated June 25, 2012 (the “Comment Letter”)
in connection with the above-referenced Annual Report on Form 10-K and Quarterly Report on Form 10-Q. For your convenience, each
of my responses is preceded with an italicized recitation of the comment set forth in the Comment Letter.

Form 10-K for the fiscal year ended
December 31, 2011

Legal Proceedings, page 37

 1. Please tell us if you are able to quantify the remedy that FHLP-Seattle is seeking. If so, also
include the amount in future Exchange Act reports.

As disclosed in our Annual Report on
Form 10-K for the year ended December 31, 2011 (our “2011 Form 10-K”), on July 19, 2011, the FHLB-Seattle’s
claims against Redwood and its subsidiary, Sequoia Residential Funding, Inc., were dismissed for lack of personal
jurisdiction. As a result of the dismissal, FHLB-Seattle is currently pursuing claims only against the underwriters of the
Sequoia mortgage-backed securities at issue in the litigation. Our current potential exposure to those claims is indirect and
is a result of the indemnities we provided to those underwriters at the time of the issuance of those mortgage-backed
securities. The mortgage-backed securities at issue in the original complaint continue to perform and, as a result, the
FHLB-Seattle continues to receive all principal and interest payments to which it is contractually entitled under the terms
of the securities. Because of these and other factors, including the nature of the claims that the FHLB-Seattle is pursuing
against the underwriters, equitable considerations that may limit the availability of any potential remedy against those
underwriters, and potential limits on the underwriters’ indemnity claims against us, we are not able to quantify the
remedy that the FHLB-Seattle is seeking or the amount to which we, indirectly, could be exposed as a result of this
litigation. We believe that any quantification that is premised on various assumptions regarding these factors may be
materially inaccurate and, therefore, would not be useful to investors or other readers of our quarterly and annual Exchange
Act reports.

    -1-

We have and will continue to disclose in
our quarterly and annual Exchange Act reports the original principal amount of the securities at issue (which is equivalent to
the purchase price paid by the FHLB-Seattle for those securities), as well as the current principal balance of those securities,
which we believe aids readers of our Exchange Act reports by providing information that is helpful in assessing the magnitude of
any loss that could be associated with a rescission remedy. In addition, we will also provide in future quarterly and annual Exchange
Act reports, the aggregate amount of interest payments made to the FHLB-Seattle in respect of those securities, which will provide
readers of our Exchange Act reports with additional information that will be helpful in assessing the magnitude of any loss that
could be associated with a rescission remedy.

Earning Assets – Redwood (Parent),
page 65

 2. Please tell us if you allocated specific borrowings to specific asset classes. If so, please
disclose, in future Exchange Act reports, the spread between the yield on your different assets and their specific financing costs.

We allocate specific borrowings to specific
asset classes in certain circumstances – namely through our consolidation of various securitization entities for financial
reporting purposes. Beginning on Page 44 of our 2011 Form 10-K, Management’s Discussion and Analysis of Financial Condition
and Results of Operations (“MD&A”) summarizes our securitization activities and how we account for consolidated
entities. Contributing to our reported income is net interest income earned at these entities that consists of interest income
on real estate related assets less the interest expenses incurred on the debt secured by those assets. On Page 57 of MD&A,
we present a disaggregated version of our GAAP consolidated income that separates income earned at Redwood from income earned at
consolidated securitization entities with associated assets and borrowings. Additionally, we believe that Tables 22 and 25 beginning
on Page 71 illustrate the spread between the yield on our securitized assets and their specific financing costs.

In addition to our ongoing
securitization activities, we had accumulated residential mortgage loans and residential mortgage-backed securities that were
funded with a combination of short-term debt and equity. Short-term debt includes warehouse facilities for residential
mortgage loans and repurchase facilities for residential securities. On Page F-49 of our 2011 Form 10-K, we highlight the
outstanding short-term debt by collateral type (residential loans and real estate securities) as well as the weighted average
interest rate on the debt for the periods presented. Additionally, in MD&A of our 2011 10-K, we provide information on
Page 60 highlighting yields on our loans and securities, some of which are funded with short-term debt. In addition, we will
also provide in future quarterly and annual Exchange Act reports, a table that sets forth the spread between the yield on
unsecuritized loans and securities and their specific debt financing costs.

 3. We note the reference to a weighted average FICO score on page F-34. Please tell us of any other
measures management uses to evaluate the risk associated with your assets, such as credit ratings or some internal risk rating
metric.

Management uses asset-specific measures
to evaluate risk associated with our real estate loans and securities, and our risk management derivatives. Set forth below is
a summary of these measures and references to related disclosures made in our 2011 Form 10-K. As disclosed on Page 12 of our 2011
Form 10-K, credit ratings assigned to debt securities by the credit rating agencies may not accurately reflect the risks associated
with the securities we own. As a result, we generally do not consider credit ratings in assessing risks associated with our assets.

    -2-

Real Estate Loans

For loans held at fair value or
the lower of cost or fair value, our risk assessment associated with these assets is reflected in their estimated fair
values. The factors used to determine the fair value of our residential loans are summarized in our 2011 Form 10-K, in Note
5, on Page F-29. For loans held-for-investment, we assess the risk of these loans as part of our initial underwriting and
recurring loss reserving analyses. In addition to the weighted average FICO score and weighted average original loan to value
noted on Page F-34, we consider the following factors, as disclosed in Note 3 on Page F-13, to evaluate our residential
loans held-for-investment on an ongoing basis:

 · The age of loans and year of origination,
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.

For commercial loans held-for-investment,
our risk analysis is based on an internal risk assessment process by which we assign an internal risk rating of “Pass,”
“Watch List,” “or “Workout,” to each loan. As disclosed in our 2011 Form 10-K in Note 3 on Pages
F-14 through F-15, we consider the following factors to assign ratings and establish loss reserves for these commercial loans on
an ongoing basis:

 · Loan to value ratios upon origination
or acquisition of the loan;

 · Ongoing analysis of the most recent financial
information for each loan and associated properties, including net operating income, debt service coverage ratios, occupancy rates,
rent rolls, as well as any other loss factors we consider relevant, such as, but not limited to, specific loan trigger events that
would indicate an adverse change in expected cash flows or payment delinquency;

 · Ongoing analysis of economic trends, both
macroeconomic as well as those directly affecting the properties associated with our loans, and the supply and demand of competing
projects in the sub-market in which the subject property is located;

 · Ongoing evaluation of each commercial
loan sponsor’s ability to ensure that properties associated with the loan are managed and operated sufficiently;

 · Historical loss rates and past performance
of similar loans in our own portfolio, if any;

 · Publicly available third-party reference
loss rates on similar loans; and

 · Trends in delinquencies and charge-offs
in our own portfolio and among industry participants.

Real Estate Securities

Our risk assessment associated with real
estate securities we own is reflected in their estimated fair values. The factors used to determine the fair value of our residential
securities are summarized in Note 5, on Page F-30 of our 2011 Form 10-K. We also use the “prime” or “non-prime”
designations to categorize our residential securities based upon the general credit characteristics of the residential loans underlying
each security at the time of origination as described in Note 3 on Page F-15. For residential securities, which comprise 94% of
the fair value of our securities portfolio, we consider the credit quality at time of origination of the underlying loans as well
as the serious delinquencies on those loans at the balance sheet date as part of our ongoing risk assessment. As noted above, we
generally do not assess the risks associated with our securities based on their credit ratings or changes in credit ratings. Instead,
we focus on the rights of our securities to principal and interest cash flows based upon their seniority within a securitization
capital structure (e.g., senior, subordinate, etc.) as discussed in Note 8 on Page F-40 of our 2011 Form 10-K.

    -3-

Derivative Instruments

Our derivative instruments are generally
used for risk management purposes and constitute interest rate and other derivatives for which there are active markets. In addition
to changes in observed fair values (summarized in Note 5 on Page F-30 of our 2011 Form 10-K), we assess the risk of these derivatives
based upon our assessment of counterparty nonperformance risk, as disclosed in Note 9 on Page F-48 of our 2011 Form 10-K. This
risk is largely addressed through adherence to International Swaps and Derivatives Association (“ISDA”) agreements
with bank counterparties. Each party must maintain compliance with these agreements (or receive a waiver of non-compliance after
a specific assessment) in order to conduct derivative transactions with us. Additionally, derivative counterparty credit standings
are reviewed on a daily basis and in the case of a deterioration of credit worthiness, appropriate remedial action is taken.

We mitigate counterparty nonperformance
risk by exiting derivatives contracts with counterparties that (i) do not maintain compliance with (or obtain a waiver from) the
terms of their ISDA agreements with us; or (ii) do not maintain their status as a primary government dealer or affiliate by the
U.S. Department of Treasury or do not meet internally established guidelines regarding credit worthiness. Our ISDA agreements currently
require full bilateral collateralization of unrealized loss exposures with our derivative counterparties. Through a margin posting
process, our positions are revalued with counterparties each business day and cash margin is transferred to either Redwood or our
derivative counterparties as collateral based upon the directional changes in fair value of the positions. The risk posed by counterparty
nonperformance should generally be limited to operational delays (24 hours) in posting collateral. At December 31, 2011, we assessed
this risk as remote and did not record a specific valuation adjustment.

 4. Please clarify to us how you determined that the transfers to SEMT 2012-1 and SEMT 2012-2 met
all of the criteria of ASC 860-10-40-5 to be accounted for as sales.

As discussed in Note 4 of our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 (our “Q1 2012 Form 10-Q”), during
the three months ended March 31, 2012, we transferred residential loans to SEMT 2012-1 and SEMT 2012-2, and accounted for
these transfers as sales under GAAP. We sponsored these securitizations to provide investors with the ability to invest in a
pool of residential mortgage loans, thereby allowing us to invest in the subordinate interests in the securitizations
and access liquidity to finance our acquisition of additional loans.

In performing our consolidation analysis,
we considered whether or not Redwood, as transferor, had surrendered control over the transferred financial assets in accordance
with Accounting Standards Codification (“ASC”) 860. Control was considered to be surrendered upon the completion of
each securitization once we determined that all three of the following conditions were met:

 i. The assets had been isolated.

At the time of the issuance of
the securitizations, we obtained legal true sale opinions from our outside securitization counsel. These opinions concluded that
the transactions are true sales at law, and that the securitization entities are bankruptcy remote from Redwood and its affiliates,
regardless of whether the securitizations are accounted for as sales or secured financings. Additionally, each entity qualified
as a real estate mortgage investment conduit (“REMIC”) for federal tax purposes. Based on these factors, we concluded
the criteria for legal isolation with regard to these securitizations had been met.

    -4-

 ii. The transferee had the ability to pledge or exchange the assets.

The SEMT 2012-1 and SEMT 2012-2
securitization trusts that were transferees of the financial assets were established with the limited purpose of engaging in securitization
or asset-backed financing activities. Because the securitization entities are established as trusts, ownership of the securities
issued by the securitization entities represents ownership of the beneficial interests in the underlying assets of the trusts.
Accordingly, we determined that it was appropriate to look through each of the limited purpose securitization entities and analyze
whether holders of these beneficial interests (i.e., holders of the securities issued by the securitization trusts) have the right
to pledge or exchange their beneficial interests.

After evaluating this criterion
with respect to the terms and conditions placed on each third-party holder of the beneficial interests, we concluded that there
are no material restrictions or constraints on the rights of a holder of the securities issued by the SEMT 2012-1 or SEMT 2012-2
securitization trusts to monetize the cash inflows (the primary economic benefits of the beneficial interests in the residential
mortgage loans) by pledging or selling those beneficial interests. As such, we co