<SEC-DOCUMENT>0001144204-15-043588.txt : 20151021
<SEC-HEADER>0001144204-15-043588.hdr.sgml : 20151021
<ACCEPTANCE-DATETIME>20150722130303
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001144204-15-043588
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		2
FILED AS OF DATE:		20150722

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			REDWOOD TRUST INC
		CENTRAL INDEX KEY:			0000930236
		STANDARD INDUSTRIAL CLASSIFICATION:	REAL ESTATE INVESTMENT TRUSTS [6798]
		IRS NUMBER:				680329422
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		ONE BELVEDERE PLACE
		STREET 2:		SUITE 300
		CITY:			MILL VALLEY
		STATE:			CA
		ZIP:			94941
		BUSINESS PHONE:		(415) 380-2317

	MAIL ADDRESS:	
		STREET 1:		ONE BELVEDERE PLACE
		STREET 2:		SUITE 300
		CITY:			MILL VALLEY
		STATE:			CA
		ZIP:			94941
</SEC-HEADER>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"></P>

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    <TD STYLE="width: 80%"><IMG SRC="image_001.jpg" ALT="">&nbsp;</TD>
    <TD STYLE="width: 20%">One Belvedere Place<BR>
Suite 300<BR>
Mill Valley, CA 94941<BR>
<BR>
<BR>
</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right">July 22, 2015</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><U>VIA EDGAR AND E-MAIL</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Securities and Exchange Commission<BR>
Division of Corporation Finance<BR>
100 F Street, N.W.<BR>
Washington, D.C. 20549</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;&nbsp;</P>

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<TD STYLE="width: 0in"></TD><TD STYLE="width: 0.5in; text-align: left">Attn:</TD><TD STYLE="text-align: justify">Jaime G. John</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Branch Chief</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Division of Corporation Finance</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

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<TD STYLE="width: 0in"></TD><TD STYLE="width: 0.5in; text-align: left"><FONT STYLE="font-family: Times New Roman, Times, Serif">Re:</FONT></TD><TD STYLE="text-align: justify">Redwood Trust, Inc.</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Responses to Comments on:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Form 10-K for the Fiscal Year Ended December 31,
        2014</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Filed on February 25, 2015</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Form 10-Q for the Quarterly Period Ended March 31,
        2015</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Filed May 7, 2015</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">File No. 1-13759</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Dear Mr. John,</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On behalf of Redwood Trust, Inc. (&ldquo;Redwood&rdquo;),
I hereby provide the following response in reply to the Staff&rsquo;s comment letter dated June 24, 2015 (the &ldquo;Comment Letter&rdquo;)
in connection with the above-referenced Annual Report on Form 10-K (the &ldquo;2014 Form 10-K&rdquo;) and Quarterly Report on Form
10-Q (the &ldquo;2015 Q1 Form 10-Q&rdquo;). For your convenience, each of my responses is preceded with an italicized recitation
of the comment set forth in the Comment Letter.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I><U>Form 10-K for the fiscal year ended
December 31, 2014</U></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I><U>Item 7. Management&rsquo;s Discussion
and Analysis of Financial Condition and Results of Operations</U></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">1.</TD><TD STYLE="text-align: justify"><I>Please provide us with additional details regarding your Mortgage Servicing Rights investments
(MSRs) including whether you have retained the basic MSR and excess MSR. Additionally, tell us the weighted average yield that
you have earned on these assets for all periods presented and whether you have any outstanding servicer advances. Please update
your disclosure in future filings accordingly.</I></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We own MSRs associated with
both jumbo and conforming residential mortgage loans, which we refer to as &ldquo;Jumbo MSRs&rdquo; and &ldquo;Conforming MSRs,&rdquo;
respectively. Our MSRs are retained from the sale of loans or are purchased on a stand-alone basis, as outlined on page 63 of the
2014 Form 10-K.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><I><U>Base and excess MSR</U></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We distinguish base (or &ldquo;basic&rdquo;)
and excess MSRs in accordance with IRS specified &ldquo;safe harbor&rdquo; levels of servicing fees they consider to be reasonable
compensation (or &ldquo;base&rdquo; fees) for servicing various loan types. For conforming loans, the IRS considers fees up to
0.25% (of associated loan principal) to be base fees, and for jumbo loans, fees up to 0.375% (of associated loan principal) to
be base fees.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

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    <TD STYLE="width: 33%">&nbsp;</TD>
    <TD STYLE="width: 34%; text-align: center">Page 1 of 5</TD>
    <TD STYLE="width: 33%">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Our Jumbo MSRs entitle
us to a contractually specified servicing fee, with rates ranging from 0.25% to 0.375%, and are therefore all considered
base fees under the IRS safe harbor. As of December 31, 2014 and 2013, the weighted average servicing fee rate on our Jumbo
MSRs was 0.25%. Our Conforming MSRs entitle us to a contractually specified servicing fee, with rates ranging from 0.25% to
0.70%. As of December 31, 2014 and 2013, our portfolio of Conforming MSRs had a fair value of $81.3 million and $3.3 million,
respectively, and of these amounts MSRs with fair values of approximately $100,000 and $30,000, respectively, had servicing fees in excess of 0.25%.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><I><U>MSR Yields</U></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Our gross cash yield on MSRs
(calculated by dividing the annual gross servicing fees we received, by the weighted average notional balance of loans associated
with MSRs we owned during the year) was 0.23%, 0.23%, and 0.18% for the years ended December 31, 2014, 2013 and 2012, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><I><U>Servicer Advances</U></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">At both December 31, 2014 and
December 31, 2013, we had approximately $1.0 million and $800,000, respectively, of servicer advances, primarily related to recoverable
escrow advances, presented in &ldquo;Other assets&rdquo; on our balance sheet.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In accordance with the comment
letter request, in future filings, we will update our disclosures to include the amount of MSRs we own with excess servicing and
the amount of servicing advances associated with MSRs as of each balance sheet date presented, as well as the gross cash yield
on our MSRs for each period presented in our statements of income.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I><U>Item 8. Financial Statements and
Supplementary Data</U></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><I>2.</I></TD><TD STYLE="text-align: justify"><I>We note your disclosure on page F-36 that the fair value for residential loans is determined
based on either an exit price to securitization or the whole loan market. Please tell us how you determine which of these two markets
to use for your residential loans and how you have concluded that the market used in your valuation is the principal or most advantageous
market.</I></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">We carry our jumbo residential
mortgage loans (&ldquo;jumbo loans&rdquo;) at fair value, as they have historically represented our loan inventory for our residential
mortgage banking activities. Our jumbo loans held-for-sale have typically been held on balance sheet from 30-60 days, until they
are sold or securitized. With the reasonably high turnover, quarter-end estimates of fair value for these loans are quickly realized
in subsequent quarters.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Since prices or quotes from
exchanges or listed markets are not available for jumbo loans, we estimate fair value for these loans using internal models that
incorporate various observable and unobservable inputs, including the transactional activity noted above. We have not viewed the
various purchasers of jumbo loans (e.g., whole loan investors, resellers, or securitization aggregators) as representative of separate
markets, but rather as part of a single &ldquo;secondary market&rdquo; for jumbo loans. In fact, many purchasers fall into more
than one of these categories and acquire jumbo loans for differing reasons. Similarly, sellers of jumbo loans typically seek bids
for jumbo loans from many different types of purchasers, rather than solely from one category of purchasers. We view this single
secondary market as the principal market, with various market participants providing varying pricing inputs each quarter. During
2014, the difference in fair value estimates implied by pricing inputs provided by different types of purchasers was minimal.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

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<TR STYLE="vertical-align: top; text-align: left">
    <TD STYLE="width: 33%"><FONT STYLE="font-variant: small-caps">Redwood Trust</FONT></TD>
    <TD STYLE="width: 34%; text-align: center">Page 2  of 5</TD>
    <TD STYLE="width: 33%; text-align: right">July 22, 2015</TD></TR>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In considering the Staff&rsquo;s
comment, we plan to update our disclosures in future filings to clarify the existence of a single principal market for jumbo loans,
as opposed to two distinct markets. The updated language we intend to use is as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.25in 0pt 0.5in; text-align: justify">Estimated fair values for
residential loans are determined using models that incorporate various observable and unobservable inputs, including pricing information
from recent securitizations and whole loan sales. Certain significant inputs in these models are considered unobservable and are
therefore Level 3 in nature. Pricing inputs obtained from market securitization activity include indicative spreads to indexed
TBA prices for senior RMBS and indexed swap rates for subordinate RMBS, which are adjusted as necessary for current market conditions
(Level 3). Pricing inputs obtained from market whole loan transaction activity include indicative spreads to indexed swap rates,
adjusted as necessary for current market conditions (Level 3). Other observable inputs include Agency RMBS pricing, indexed swap
yields, credit rating agency guidance on expected credit support levels for newly issued RMBS transactions, benchmark interest
rates, and prepayment rates. These assets would generally decrease in value based upon an increase in the credit spread, prepayment
speed, or credit support assumptions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.25in 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.25in 0pt 0.5in; text-align: justify">Estimated fair values for
conforming loans are determined based upon quoted market prices (Level 2). Conforming loans are mortgage loans that conform to
Agency guidelines. As necessary, these values are adjusted for servicing value, market conditions and liquidity.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I><U>Form 10-Q for the quarterly period
ended March 31, 2015 </U></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I><U>Item 2. Management&rsquo;s Discussion
and Analysis of Financial Condition and Results of Operations</U></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><I>3.</I></TD><TD STYLE="text-align: justify"><I>We note your disclosure on page 70 that you began to account for commitments to purchase jumbo
loans as derivatives as a result of amendments to the agreements governing these commitments. Please provide to us additional details
regarding the terms of the referenced amendments, how they qualify your loan purchase commitments to be accounted for as a derivative,
and quantify the impact to your financial statements. Also, tell us the accounting guidance upon you which you relied.</I></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">We purchase jumbo residential
mortgage loans (&ldquo;jumbo loans&rdquo;) from various bank and non-bank loan originators, which we refer to as &ldquo;Sellers.&rdquo;
Our purchases of jumbo loans from these Sellers are governed by mortgage loan purchase and sale agreements (or &ldquo;MLPSAs&rdquo;).
Prior to January 1, 2015, our MLPSAs were drafted such that there was no legally enforceable commitment by us to purchase a jumbo
loan that we and the Seller had specified until a purchase price and terms letter (&ldquo;PPTL&rdquo;) relating to that loan was
executed by both parties. Once the PPTL was executed by both parties, a contractual purchase and sale commitment between the parties
was established; and, consequently, it was only at the time the PPTL was executed that a commitment to purchase a jumbo loan could
be assessed under derivatives accounting guidance. Of note, this commitment does not represent an &ldquo;Interest Rate Lock Commitment&rdquo;
to a borrower as we do not originate any residential loans ourselves.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">Prior to January 1, 2015, we
generally entered into PPTLs on the same day we purchased the related jumbo loan &ndash; <I>i.e.</I>, on the same day we wired
the purchase price to the Seller and the Seller conveyed ownership of the loan to us. Under this framework, even if an executed
PPTL were to qualify as a derivative, we did not have open PPTLs at any quarter-end (because commitments to purchase jumbo loans
were made and fulfilled on the same day) and, therefore, had no jumbo loan purchase commitments to assess as derivatives for financial
reporting purposes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify"></P>

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    <TD STYLE="width: 33%"><FONT STYLE="font-variant: small-caps">Redwood Trust</FONT></TD>
    <TD STYLE="width: 34%; text-align: center">Page 3   of 5</TD>
    <TD STYLE="width: 33%; text-align: right">July 22, 2015</TD></TR>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify"></P>

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">During the latter part of 2014,
we executed amendments to the MLPSAs we had in place with Sellers to affect certain new terms relating to purchase and sale commitments.
Under the amendments, these new terms became effective on January 1, 2015. In addition, we changed our standard form MLPSA to affect
the same new terms in new MLPSAs we entered into with new Sellers on and after January 1, 2015.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">As of January 1, 2015, all of
our MLPSAs specify that our commitment to purchase a jumbo loan (and the Seller&rsquo;s corresponding commitment to sell us that
loan) is established when we deliver a confirmation to the Seller relating to that loan. We now typically deliver a confirmation
30-45 days prior to when we expect to fulfill our commitment to purchase a loan. Because a contractual commitment is established
well before a jumbo loan will be purchased, beginning with the quarter ended March 31, 2015, we assessed our open commitments to
purchase jumbo loans under derivative accounting guidance to determine if these open commitments qualified as derivatives.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">In analyzing these open commitments,
we looked to ASC 815-10-15, paragraphs 69-71, which discuss the accounting treatment for &ldquo;Certain Loan Commitments.&rdquo;
In accordance with paragraph 70 (formerly DIG C13), all commitments to purchase or sell mortgage loans must be evaluated under
the definition of a derivative. Therefore, we have evaluated open commitments to purchase jumbo loans using the guidance in ASC
815-10-15-83, &ldquo;Derivatives and Hedging &ndash; Definition of Derivative Instrument.&rdquo; In accordance with this guidance,
we determined that our current MLPSAs and associated confirmations are contractual commitments and evaluated the following required
criteria to assess whether they meet the definition of a derivative:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-weight: normal">a.</FONT></TD><TD STYLE="text-align: justify"><U>Underlying, notional amount, payment provision requirement</U></TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">With respect to our jumbo
loans, the related MLPSA and confirmation evidence a purchase and sale obligation (a settlement requirement), specify the principal
amount of the loan to be purchased, and specify the purchase price for the loan. </P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify"><I>This satisfies the first
criterion under ASC 815-10-15-83&rsquo;s definition of a derivative.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-weight: normal">b.</FONT></TD><TD STYLE="text-align: justify"><U>Initial net investment requirement</U></TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">With respect to our jumbo
loans, the related MLPSA and confirmation require no initial net investment. </P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify"><I>This satisfies the second
criterion under ASC 815-10-15-83&rsquo;s definition of a derivative.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-weight: normal">c.</FONT></TD><TD STYLE="text-align: justify"><U>Net settlement requirement</U></TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">ASC 815-10-15 paragraphs
99-139 discuss net settlement provisions. We evaluated each of the three means by which the net settlement criterion can be satisfied
and determined that our underlying jumbo loans are readily convertible into cash. </P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify"><I>This satisfies the third
criterion under ASC 815-10-15-83&rsquo;s definition of a derivative. </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">Accordingly, as we meet the
specified criteria in ASC 815-10-15, we concluded that our current jumbo loan purchase commitments are considered derivatives in
accordance with GAAP and we began to account for commitments entered into under our amended MLPSAs as derivatives beginning on
January 1, 2015.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top; text-align: left">
    <TD STYLE="width: 33%"><FONT STYLE="font-variant: small-caps">Redwood Trust</FONT></TD>
    <TD STYLE="width: 34%; text-align: center">Page 4   of 5</TD>
    <TD STYLE="width: 33%; text-align: right">July 22, 2015</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify"></P>

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">At March 31, 2015, we had
$5.3 million of derivative assets and $0.8 million of derivative liabilities associated with jumbo loan purchase commitments recorded
on our balance sheet. These amounts are included in our disclosures on page 37 of our 2015 Q1 Form 10-Q.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#9;*&#9;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As you have requested, we confirm that:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in; text-align: left">&bull;</TD><TD STYLE="text-align: justify">Redwood is responsible for the adequacy and accuracy
of the disclosure in the above-referenced filings;</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in; text-align: left">&bull;</TD><TD STYLE="text-align: justify">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</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in; text-align: left">&bull;</TD><TD STYLE="text-align: justify">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.</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Should you have any further comments or
questions about this letter, please contact me by telephone at 415-384-3584, by fax at 415-381-1773, or by email at chris.abate@redwoodtrust.com.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top; text-align: left">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">Very truly yours,</TD></TR>
<TR STYLE="vertical-align: top; text-align: left">
    <TD STYLE="width: 50%">&nbsp;</TD>
    <TD STYLE="width: 5%">&nbsp;</TD>
    <TD STYLE="width: 45%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; text-align: left">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">Redwood Trust, Inc.</TD></TR>
<TR STYLE="vertical-align: top; text-align: left">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; text-align: left">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; text-align: left">
    <TD>&nbsp;</TD>
    <TD>By:</TD>
    <TD STYLE="border-bottom: Black 1pt solid"><FONT STYLE="font-variant: small-caps">/s/ Christopher J. Abate</FONT></TD></TR>
<TR STYLE="vertical-align: top; text-align: left">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Christopher J. Abate</TD></TR>
<TR STYLE="vertical-align: top; text-align: left">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Financial Officer</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top; text-align: left">
    <TD STYLE="width: 33%"><FONT STYLE="font-variant: small-caps">Redwood Trust</FONT></TD>
    <TD STYLE="width: 34%; text-align: center">Page 5   of 5</TD>
    <TD STYLE="width: 33%; text-align: right">July 22, 2015</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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