Shares of Redwood Trust Inc (NYSE: RWT) plummeted 5.07% during Thursday's trading session, following the company's first-quarter 2025 earnings call. The significant drop reflects investors' concerns about the company's performance and challenges in certain segments of its portfolio.

During the earnings call, Redwood Trust executives highlighted several key issues that likely contributed to the stock's decline. One of the primary concerns was the increased delinquency rates in the company's legacy bridge loan portfolio, particularly in the multifamily sector. Dashiell Robinson, President of Redwood Trust, acknowledged that the uptick in delinquencies was partly due to the company's decision to pursue alternative resolutions for some loans, potentially including selling notes or taking control of real estate assets.

The company also faced challenges in its multifamily bridge loan segment, with some vintage exposures experiencing credit migration. This development has prompted Redwood to actively pursue resolutions for affected loans. The situation in the multifamily sector remains market-specific, with the company expecting a potential realignment of supply and demand in the coming quarters as multifamily starts have decreased significantly.

Despite these challenges, Redwood Trust's management emphasized their strategic initiatives and efforts to reposition the company for future growth. The firm is focusing on reallocating capital from non-strategic investments to its operating businesses, which have shown strong returns. Additionally, Redwood is exploring opportunities in the evolving mortgage finance landscape, including potential benefits from shifts in housing finance policy and increased demand for private capital in the residential mortgage space.

As Redwood Trust navigates these challenges and pursues its strategic objectives, investors will be closely watching the company's progress in resolving legacy issues and capitalizing on new opportunities in the mortgage finance market. The stock's sharp decline suggests that the market may need more time to assess the effectiveness of Redwood's strategies and the potential impact of ongoing challenges in certain segments of its portfolio.