REDWOOD MORTGAGE INVESTORS VIII - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - REDWOOD MORTGAGE INVESTORS VIII	Financial_Report.xls
EX-32.1 - REDWOOD MORTGAGE INVESTORS VIII	rmiviii-20120331exhibit32_1.htm
EX-32.2 - REDWOOD MORTGAGE INVESTORS VIII	rmiviii-20120331exhibit32_2.htm
EX-31.1 - REDWOOD MORTGAGE INVESTORS VIII	rmiviii-20120331exhibit31_1.htm
EX-31.3 - REDWOOD MORTGAGE INVESTORS VIII	rmiviii-20120331exhibit31_3.htm
EX-31.2 - REDWOOD MORTGAGE INVESTORS VIII	rmiviii-20120331exhibit31_2.htm
EX-32.3 - REDWOOD MORTGAGE INVESTORS VIII	rmiviii-20120331exhibit32_3.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to _____________

Commission File Number: 000-27816

REDWOOD MORTGAGE INVESTORS VIII,

a California Limited Partnership

(Exact name of registrant as specified in its charter)

California	94-3158788
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


900 Veterans Blvd., Suite 500, Redwood City, CA	94063
(Address of principal executive offices)	(Zip Code)

(650) 365-5341

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[X] YES [ ] NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[ ] YES [X] NO

Part I –FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Balance Sheets

March 31, 2012 (unaudited) and December 31, 2011 (audited)

(in thousands)

ASSETS

	March 31,			December 31,
	2012			2011
Cash and cash equivalents	$	6,765		$	4,200

Loans
Secured
Principal		69,598			73,386
Advances		7,062			6,870
Accrued interest		1,582			2,446
Unsecured		35			44
Allowance for loan losses		(22,035	)		(22,035	)
Net loans		56,242			60,711

Real estate owned (REO)
Held for sale		40,383			48,406
Held as investment, net		161,159			161,402
REO, net		201,542			209,808

Other assets, net		882			680

Total assets	$	265,431		$	275,399

LIABILITIES AND CAPITAL

Liabilities
Bank loan, secured	$	10,250		$	16,789
Mortgages payable		43,010			43,681
Accounts payable		8,167			7,625
Payable to affiliate		417			725
Total liabilities		61,844			68,820

Capital
Partners’ capital
Limited partners’ capital, subject to redemption, net		202,200			204,137
General partners’ capital (deficit), net		(981	)		(968	)
Total partners’ capital

Non-controlling interest		2,368			3,410
Total capital		203,587			206,579

Total liabilities and capital	$	265,431		$	275,399

The accompanying notes are an integral part of these consolidated financial statements.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Statements of Operations

For the Three Months Ended March 31, 2012 and 2011

(in thousands, except for per limited partner amounts)

(unaudited)

	Three Months Ended March 31,
	2012			2011
Revenue, net
Interest income
Loans	$	323		$	758
Imputed interest on formation loan		52			125
Other interest income		1			1
Total interest income		376			884

Interest expense
Bank loan, secured		281			730
Mortgages payable		584			552
Amortization of discount on formation loan		52			125
Other interest expense		1			—
Total interest expense		918			1,407

Net interest income/(expense)		(542	)		(523	)

Late fees		7			3
Other		3			2
Total revenues, net		(532	)		(518	)

Provision/(recovery) for loan losses		—			—

Operating expenses
Mortgage servicing fees		180			182
Asset management fees		226			247
Costs from Redwood Mortgage Corp.		361			110
Professional services		331			303
REO
Rental operations, net		(805	)		(712	)
Holding costs		430			291
Loss/(gain) on disposal		(6	)		—
Other		47			16
Total operating expenses		764			437
Net income (loss)	$	(1,296	)	$	(955	)

Net income (loss)
General partners (1%)	$	(13	)	$	(10	)
Limited partners (99%)		(1,283	)		(945	)
	$	(1,296	)	$	(955	)

Net income (loss) per $1,000 invested by
limited partners for entire period
Where income is reinvested	$	(6	)	$	(4	)
Where partner receives income in monthly distributions	$	(5	)	$	(4	)

The accompanying notes are an integral part of these consolidated financial statements.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Statements of Changes in Partners’ Capital

For the Three Months Ended March 31, 2012

(in thousands) (unaudited)

	Limited Partners
				Unallocated
				Syndication			Formation
	Capital			Costs			Loan			Capital, net

Balance, December 31, 2011	$	212,431		$	(667	)	$	(7,627	)	$	204,137
Net income (loss)		(1,283	)		—			—			(1,283	)
Allocation of syndication costs		(87	)		87			—			—
Withdrawals		(654	)		—			—			(654	)

Balance, March 31, 2012	$	210,407		$	(580	)	$	(7,627	)	$	202,200

	General Partners
				Unallocated						Total
				Syndication						Partners’
	Capital			Costs			Capital, net			Capital

Balance, December 31, 2011	$	(961	)	$	(7	)	$	(968	)	$	203,169
Net income (loss)		(13	)		—			(13	)		(1,296	)
Allocation of syndication costs		(1	)		1			—			—
Withdrawals		—			—			—			(654	)

Balance, March 31, 2012	$	(975	)	$	(6	)	$	(981	)	$	201,219

The accompanying notes are an integral part of these consolidated financial statements.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2012 and 2011

(in thousands) (unaudited)

	2012			2011
Cash flows from operating activities
Net income (loss)	$	(1,296	)	$	(955	)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Amortization of borrowings-related origination costs		103			139
Imputed interest on formation loan		(52	)		(125	)
Amortization of discount on formation loan		52			125
Depreciation from rental operations		572			397
REO-loss/(gain) on disposal		(6	)		—
Change in operating assets and liabilities
Accrued interest		864			12
Advances on loans		(192	)		(755	)
Receivable from affiliate		—			18
Other assets		(305	)		(483	)
Accounts payable		542			(94	)
Payable to affiliate		(308	)		105
Net cash provided by (used in) operating activities		(26	)		(1,616	)

Cash flows from investing activities
Loans originated		(7	)		(3	)
Principal collected on loans		3,804			5,879
Refund/(payments) for development of real estate		(322	)		55
Proceeds from disposition of real estate		8,022			2,225
Net cash provided by (used in) investing activities		11,497			8,156

Cash flows from financing activities
Payments on bank loan		(6,539	)		(7,500	)
Payments on mortgages		(671	)		(224	)
Partners’ withdrawals		(654	)		(697	)
Formation loan payments received		—			436
Increase/(decrease) in non-controlling interest		(1,042	)		(418	)
Net cash provided by (used in) financing activities		(8,906	)		(8,403	)

Net increase (decrease) in cash and cash equivalents		2,565			(1,863	)

Cash and cash equivalents, beginning of year		4,200			7,054

Cash and cash equivalents, end of period	$	6,765		$	5,191

The accompanying notes are an integral part of these consolidated financial statements.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2012 and 2011

(in thousands) (unaudited)

	2012		2011
Supplemental disclosures of cash flow information
Non-cash investing activities
Real estate acquired through foreclosure/settlement on loans,
net of liabilities assumed	$	—	$	3,712

Cash paid for interest	$	865	$	1,282

The accompanying notes are an integral part of these consolidated financial statements.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 1 – GENERAL

In the opinion of the general partners, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the consolidated financial information included therein. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the partnership’s Form 10-K for the fiscal year ended December 31, 2011 filed with the Securities and Exchange Commission (SEC). The results of operations for the three month period ended March 31, 2012 are not necessarily indicative of the operating results to be expected for the full year.

Redwood Mortgage Investors VIII, a California Limited Partnership, (“RMI VIII” or the “partnership”) was organized in 1993. The general partners of the partnership are Redwood Mortgage Corp. (“RMC”) and its wholly-owned subsidiary, Gymno LLC, a California limited liability company, and Michael R. Burwell (“Burwell”), an individual. The partnership was organized to engage in business as a mortgage lender for the primary purpose of making loans secured by deeds of trust on California real estate. Loans are being arranged and serviced by RMC. The general partners are solely responsible for partnership business, subject to the voting rights of the limited partners on specified matters. Any one of the general partners acting alone has the power and authority to act for and bind the partnership. The general partners are required to contribute to capital 1/10 of 1% of the aggregate capital contributions of the limited partners. As of March 31, 2012 the general partners had contributed capital in accordance with Section 4.1 of the partnership agreement.

The rights, duties and powers of the general and limited partners of the partnership are governed by the limited partnership agreement and Sections 15900 et seq. of the California Corporations Code.

The partnership completed its sixth offering stage in 2008. No additional offerings are contemplated at this time. Sales commissions owed to securities broker/dealers in conjunction with the offerings, are not paid directly out of the offering proceeds by the partnership. These commissions are paid by RMC as consideration for the exclusive right to originate loans for RMI VIII. To fund the payment of these commissions, during the offering periods, the partnership lent amounts to RMC to pay all sales commissions and amounts payable in connection with unsolicited orders to invest (formation loan).

On the mortgage loans originated for RMI VIII, RMC may collect loan brokerage commissions (points) limited to an amount not to exceed four percent per year of the total partnership assets. The loan brokerage commissions are paid by the borrowers and thus, are not an expense of the partnership. The proceeds from loan brokerage commissions and other fees earned are the source of funds for the repayment of the formation loans by RMC.

Profits and losses are allocated among the limited partners according to their respective capital accounts after one percent of profits and losses is allocated to the general partners. The results are subject to subsequent adjustment as a result of quarterly and year-end accounting and reporting.

Burwell, Gymno, and RMC, as the general partners, are entitled to one percent of the profits and losses of RMI VIII. Beginning with calendar year 2010, and continuing until January 1, 2020, Gymno and RMC each assigned its right to one-third of one percent of profits and losses to Burwell in exchange for Burwell assuming one hundred percent of the general partners’ equity deficit.

Income taxes – federal and state – are the obligation of the limited partners, if and when taxes apply, other than for the annual California franchise taxes levied on and paid by the partnership.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 1 – GENERAL (continued)

Beginning with the worldwide financial crisis in 2008, continuing with the resultant Great Recession, and on-going through 2012, the combination of the general economic conditions, the constrained credit and financial markets, the distressed real estate markets, and the terms and the conditions of the amended and restated loan agreement dated October 2010 (and the preceding forbearance agreement) resulted in significant changes to the lending and business operations of the partnership, as well as to its balance sheet, results of operations and cash flows.

Formation loan

RMC financed the payments to broker-dealers by borrowing funds (“the formation loan”) from RMI VIII. The formation loan is non-interest bearing and is being repaid equally over an approximate ten-year period commencing the year after the close of a partnership offering. Interest has been imputed at the market rate of interest in effect in the years the offerings closed.

The formation loan is deducted from limited partners’ capital in the consolidated balance sheets. As payments are received from RMC, the formation loan’s balance outstanding and the deduction from capital are reduced.

If the general partners are removed and RMC is no longer receiving payments for services rendered, the formation loan is forgiven.

Commission and fees paid by borrowers to the general partners

Brokerage commissions, loan originations – the partnership agreement provides for RMC to collect a loan brokerage commission for fees in connection with the review, selection, evaluation, negotiation and extension of loans, that is expected to range from approximately 2% to 5% of the principal amount of each loan made during the year. Total loan brokerage commissions are limited to an amount not to exceed four percent of the total company assets per year. The loan brokerage commissions are paid by the borrowers and are not an expense of the partnership.

Other fees – the partnership agreement provides for RMC or Gymno to receive fees for processing, notary, document preparation, credit investigation, reconveyance, and other mortgage related fees. The amounts received are customary for comparable services in the geographical area where the property securing the loan is located, payable solely by the borrower and not by the partnership.

Syndication costs

The partnership bears its own syndication costs, other than certain sales commissions, including legal and accounting expenses, printing costs, selling expenses and filing fees. Syndication costs are charged monthly against partners’ capital and are allocated to individual partners consistent with the partnership agreement.

Withdrawals

In March 2009, in response to economic conditions, the dysfunction of the credit markets, the distress in the real estate markets, and the expected cash needs of the partnership, the partnership suspended capital liquidations, and is not accepting new liquidation requests until further notice.

Term of the partnership

The partnership is scheduled to terminate in 2032, unless sooner terminated as provided in the partnership agreement.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The partnership’s consolidated financial statements include the accounts of the partnership, its wholly-owned subsidiaries, and its 72.5%-owned subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

Certain reclassifications, not affecting previously reported net income or total partner capital, have been made to the previously issued consolidated financial statements to conform to the current year presentation.

Management estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Such estimates relate principally to the determination of the allowance for loan losses, including the valuation of impaired loans, (which itself requires determining the fair value of the collateral), and the valuation of real estate held for sale and held as investment, at acquisition and subsequently. Actual results could differ significantly from these estimates.

Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the arithmetic difference between the fair value of the collateral, net of any senior liens, and the loan balance, where “loan balance” is the sum of the unpaid principal, advances and the recorded interest thereon. This computation is done for each loan (whether impaired or performing), and while loans secured by collateral of similar property type are grouped, there is enough distinction and variation in the collateral that a loan-by-loan, collateral-by-collateral analysis is appropriate.

The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values, and publicly available information on in-market transactions. Historically, it has been rare for determinations of fair value to be made without substantial reference to current market transactions. However, in recent years, due to the low levels of real estate transactions, and the rising number of transactions that are distressed (i.e., that are executed by an unwilling seller – often compelled by lenders or other claimants – and/or executed without broad exposure or with market exposure but with few, if any, resulting offers), more interpretation, judgment and interpolation/extrapolation within and across property types is required.

Appraisals of commercial real property generally present three approaches to estimating value: 1) market comparables or sales approach; 2) cost to replace and 3) capitalized cash flows or investment approach. These approaches may or may not result in a common, single value. The market-comparables approach may yield several different values depending on certain basic assumptions, such as, determining highest and best use (which may or may not be the current use); determining the condition (e.g. as-is, when-completed, or for land when-entitled); and determining the unit of value (e.g. as a series of individual unit sales or as a bulk disposition). Further complicating this process already subject to judgment, uncertainty and imprecision are the current low transaction volumes in the residential, commercial and land markets, and the variability that has resulted. This exacerbates the imprecision in the process, and requires additional considerations and inquiries as to whether the transaction was entered into by a willing seller in a functioning market or the transaction was completed in a distressed market, in which the predominant number of sellers are surrendering properties to lenders in partial settlement of debt (as is currently prevalent in the residential markets and is occurring more frequently in commercial markets) and/or participating in “arranged sales” to achieve partial settlement of debts and claims and to generate tax advantage.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Management estimates (continued)

Management has the requisite familiarity with the markets the partnership lends in generally and of the collateral properties specifically to analyze sales-comparables and assess their suitability/applicability. Management is acquainted with market participants – investors, developers, brokers, lenders – that are useful, relevant secondary sources of data and information regarding valuation and valuation variability. These secondary sources may have familiarity with and perspectives on pending transactions, successful strategies to optimize value, and the history and details of specific properties – on and off the market – that enhance the process and analysis that is particularly and principally germane to establishing value in distressed markets and/or property types (such as land held for development and for units in a condominium conversion). Multiple inputs from different sources often collectively provide the best evidence of fair value. In these cases expected cash flows would be considered alongside other relevant information. Management’s analysis of these secondary sources, as well as the analysis of comparable sales, assists management in preparing its estimates regarding valuations, such as collateral fair value. However, such estimates are inherently imprecise and actual results could differ significantly from such estimates.

Cash and cash equivalents

The partnership considers all highly liquid financial instruments with maturities of three months or less at the time of purchase to be cash equivalents. Periodically, partnership cash balances in banks exceed federally insured limits.

Loans, advances and interest income

Loans generally are stated at the unpaid principal balance (principal). Management has discretion to pay amounts (advances) to third parties on behalf of borrowers to protect the partnership’s interest in the loan. Advances include, but are not limited to, the payment of interest and principal on a senior lien to prevent foreclosure by the senior lien holder, property taxes, insurance premiums, and attorney fees. Advances generally are stated at the principal balance and accrued interest until repaid by the borrower.

The partnership may fund a specific loan origination net of an interest reserve to insure timely interest payments at the inception (one to two years) of the loan. As monthly interest payments become due, the partnership funds the payments into the affiliated trust account.

If based upon current information and events, it is probable the partnership will be unable to collect all amounts due according to the contractual terms of the loan agreement, then a loan may be designated as impaired. Impaired loans are included in management’s periodic analysis of recoverability. Any subsequent payments on impaired loans are applied to late fees and then to reduce first the accrued interest, then advances, and then unpaid principal.

From time to time, the partnership negotiates and enters into loan modifications with borrowers whose loans are delinquent. If the loan modification results in a significant reduction in the cash flow compared to the original note, the modification is deemed a troubled debt restructuring and a loss is recognized. In the normal course of the partnership’s operations, loans that mature are renewed and/or the maturity is extended. If at the time of renewal the loan is not designated as impaired and the renewal is at terms reflecting then current market rates and conditions, the loan is not designated impaired.

Interest is accrued daily based on the unpaid principal balance of the loans. An impaired loan continues to accrue as long as the loan is in the process of collection and is considered to be well-secured. Loans are placed on non-accrual status at the earlier of management’s determination that the primary source of repayment will come from the foreclosure and subsequent sale of the collateral securing the loan (which usually occurs when a notice of sale is filed) or when the loan is no longer considered well-secured. When a loan is placed on non-accrual status, the accrual of interest is discontinued; however, previously recorded interest is not reversed. A loan may return to accrual status when all delinquent interest and principal payments become current in accordance with the terms of the loan agreement.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Allowance for loan losses

Loans and the related accrued interest and advances are analyzed on a periodic basis for ultimate recoverability. Delinquencies are identified and followed as part of the loan system. Delinquencies are determined based upon contractual terms. For impaired loans, a provision is made for loan losses to adjust the allowance for loan losses to an amount considered by management to be adequate, with due consideration to collateral values, such that the net carrying amount (unpaid principal balance, plus advances, plus accrued interest less the specific allowance) is reduced to the present value of future cash flows discounted at the loan’s effective interest rate, or, if a loan is collateral dependent, to the estimated fair value of the related collateral net of any senior loans, which would include costs to sell in arriving at net realizable value if planned disposition of the asset securing a loan is by way of sale.

The fair value estimates are derived from information available in the real estate markets including similar property, and may require the experience and judgment of third parties such as commercial real estate appraisers and brokers.

The partnership charges off uncollectible loans and related receivables directly to the allowance account once it is determined the full amount is not collectible.

Loans determined not to be individually impaired are grouped by the property type of the underlying collateral, and for each loan and for the total by property type, the amount of protective equity or amount of exposure to loss (i.e., the dollar amount of the deficiency of the fair value of the underlying collateral to the loan balance) is computed. Based on its knowledge of the borrowers and their historical (and expected) performance, and the exposure to loss as indicated in the analysis, management estimates an appropriate reserve by property type for probable credit losses in the portfolio. Because the partnership is an asset-based lender and because specific regions, neighborhoods and even properties within the same neighborhoods, vary significantly as to real estate values and transaction activity, general market trends, which may be indicative of a change in the risk of a loss, are secondary to the condition of the property, the property type and the neighborhood/region in which the property is located, and do not enter substantially into the determination of the amount of the non-specific (i.e. general) reserves.

Real estate owned (REO), held for sale

REO, held for sale includes real estate acquired in full or partial settlement of loan obligations generally through foreclosure that is being marketed for sale. REO, held for sale is recorded at acquisition at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s net realizable value, which is the fair value less estimated costs to sell, as applicable. Any excess of the recorded investment in the loan over the net realizable value is charged against the allowance for loan losses. The fair value estimates are derived from information available in the real estate markets including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. The estimates figure materially in calculating the value of the property at acquisition, the level of charge to the allowance for loan losses and any subsequent valuation reserves. After acquisition, costs incurred relating to the development and improvement of property are capitalized to the extent they do not cause the recorded value to exceed the net realizable value, whereas costs relating to holding and disposition of the property are expensed as incurred. After acquisition, REO, held for sale is analyzed periodically for changes in fair values and any subsequent write down is charged to operating expenses. Any recovery in the fair value subsequent to such a write down is recorded – not to exceed the net realizable value at acquisition – as an offset to operating expenses. Gains or losses on sale of the property are recorded in other income or expense. Recognition of gains on the sale of real estate is dependent upon the transaction meeting certain criteria related to the nature of the property and the terms of the sale including potential seller financing.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Real estate owned (REO), held as investment, net

REO, held as investment, net includes real estate acquired in full or partial settlement of loan obligations generally through foreclosure that is not being marketed for sale and is either being operated, such as rental properties; is being managed through the development process, including obtaining appropriate and necessary entitlements, permits and construction; or are idle properties awaiting more favorable market conditions. REO, held as investment, net is recorded at acquisition at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s estimated fair value, net, plus any cash flows during the expected holding period. After acquisition, costs incurred relating to the development and improvement of the property are capitalized, whereas costs relating to operating or holding the property are expensed. Subsequent to acquisition, management periodically compares the carrying value of real estate to expected undiscounted future cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds future undiscounted cash flows, the assets are reduced to estimated fair value.

Recently issued accounting pronouncements

The FASB issued ASU 2011-04 “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRs”. The ASU is effective for interim and annual periods beginning after December 15, 2011 with prospective application. The partnership adopted ASU 2011-04 effective January 1, 2012.

NOTE 3 – GENERAL PARTNERS AND RELATED PARTIES

The general partners are entitled to one percent of the profits and losses, which amounted to approximately $(13,000) and $(10,000) for the three months ended March 31, 2012 and 2011, respectively.

Formation loan

Formation loan transactions are presented in the following table at March 31, 2012 ($ in thousands).

Formation loan made	$	22,567
Unamortized discount on formation loan		(1,289	)
Formation loan made, net		21,278
Repayments to date		(14,297	)
Early withdrawal penalties applied		(643	)
Formation loan, net		6,338
Unamortized discount on formation loan		1,289
Balance, March 31, 2012	$	7,627

An estimated amount of imputed interest is recorded for any outstanding offerings. During the three months ended March 31, 2012 and 2011, $52,000 and $125,000, respectively, was recorded related to imputed interest.

The proceeds from loan brokerage commissions and other fees earned are the source of funds for the repayment of the formation loans by RMC.

The following commissions and/or fees are paid by the borrowers to the general partners and their affiliates and are not an expense of the partnership.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 3 – GENERAL PARTNERS AND RELATED PARTIES (continued)

Brokerage commissions, loan originations

There were no loan brokerage commissions paid by the borrowers in the three months ended March 31, 2012 and 2011.

Other fees

Other fees totaled $315 and $450 for the three month periods ended March 31, 2012 and 2011, respectively.

The following fees are paid by the partnership to RMC.

Mortgage servicing fees

RMC may earn mortgage servicing fees of up to 1.5% annually of the unpaid principal of the loan portfolio or such lesser amount as is reasonable and customary in the geographic area where the property securing the mortgage is located from RMI VIII. Historically, RMC charged one percent annually, and at times waived additional amounts to improve the partnership’s earnings. Such fee waivers were not made for the purpose of providing the partnership with sufficient funds to satisfy withdrawal requests, nor were such waivers made in order to meet any required level of distributions, as the partnership has no such required level of distributions. RMC does not use any specific criteria in determining the amount of fees, if any, to be waived. The decision to waive fees and the amount, if any, to be waived, is made by RMC in its sole discretion.

Mortgage servicing fees are summarized in the following table for the three ended March 31 ($ in thousands).

	Three months ended March 31,
	2012			2011
Chargeable by RMC	$	270		$	273
Waived by RMC		(90	)		(91	)
Charged to RMI VIII	$	180		$	182

Asset management fees

The general partners receive monthly fees for managing the partnership’s loan portfolio and operations of up to 1/32 of 1% of the “net asset value” (3/8 of 1% annually). At times, the general partners have charged less than the maximum allowable rate to enhance the partnership’s earnings. Such fee waivers were not made with the purpose of providing the partnership with sufficient funds to satisfy withdrawal requests, nor to meet any required level of distributions, as the partnership has no such required level of distributions. RMC does not use any specific criteria in determining the exact amount of fees, if any, to be waived. The decision to waive fees and the amount, if any, to be waived, is made by RMC in its sole discretion.

Asset management fees for the three months ended March 31, 2012 and 2011 were $226,000 and $247,000, respectively. No asset management fees were waived during any period reported.

Costs from RMC

RMC is reimbursed by the partnership for operating expenses incurred on behalf of the partnership, including without limitation, accounting and audit fees, legal fees and expenses, postage and preparation of reports to limited partners, and out-of-pocket general and administration expenses. The decision to request reimbursement of any qualifying charges is made by RMC in its sole discretion. Operating expenses were $361,000 and $110,000, for the three months ended March 31, 2012 and 2011, respectively. To the extent some operating expenses incurred on behalf of RMI VIII were not charged by RMC, the financial position and results of operations for the partnership would be different.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 4 – LOANS

The partnership generally funds loans with a fixed interest rate and a five-year term. As of March 31, 2012, approximately 60% of the partnership’s loans (representing 57% of the aggregate principal balance of the partnership’s loan portfolio) have a five year term or less from loan inception. The remaining loans have terms longer than five years. As of March 31, 2012, approximately 38% of the loans outstanding (representing 82% of the aggregate principal balance of the partnership’s loan portfolio) provide for monthly payments of interest only, with the principal due in full at maturity. The remaining loans require monthly payments of principal and interest, typically calculated on a 30 year amortization, with the remaining principal balance due at maturity.

The partnership makes construction and rehabilitation loans which are not fully disbursed at loan inception. The partnership has approved the borrowers up to a maximum loan balance; however, disbursements are made periodically during completion phases of the construction or rehabilitation or at such other times as required under the loan documents and would be funded from available cash balances and future cash receipts. The partnership does not maintain a separate cash reserve to hold the undisbursed obligations, which are intended to be funded. As of March 31, 2012, there was one such loan; however, the borrower is in default negating any funding obligation.

Loans unpaid principal balance (principal)

Secured loan transactions are summarized in the following table ($ in thousands).

	Three months ended March 31,
	2012			2011
Principal, January 1	$	73,386		$	202,134
New loans added		7			3
Borrower repayments		(3,795	)		(5,824	)
Foreclosures		—			(6,502	)
Principal, March 31	$	69,598		$	189,811

At March 31, 2012, the partnership had one unsecured loan with an interest rate of 7.00% and a remaining principal of $35,000. The borrower is making monthly payments of principal and interest which reduced the principal by $9,000 during the three months ended March 31, 2012.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 4 – LOANS (continued)

Secured loan characteristics

Secured loans had the characteristics presented in the following table ($ in thousands).

	March 31,			December 31,
	2012			2011
Number of secured loans		47			49
Secured loans – principal	$	69,598		$	73,386
Secured loans – interest rates range (fixed)		3.00%-12.00	%		3.00%-12.00	%

Average secured loan – principal	$	1,481		$	1,498
Average principal as percent of total principal		2.13	%		2.04	%
Average principal as percent of partners’ capital		0.74	%		0.74	%
Average principal as percent of total assets		0.56	%		0.54	%

Largest secured loan – principal	$	16,682		$	16,675
Largest principal as percent of total principal		23.97	%		22.72	%
Largest principal as percent of partners’ capital		8.29	%		8.21	%
Largest principal as percent of total assets		6.28	%		6.05	%

Smallest secured loan – principal	$	90		$	92
Smallest principal as percent of total principal		0.13	%		0.12	%
Smallest principal as percent of partners’ capital		0.04	%		0.05	%
Smallest principal as percent of total assets		0.03	%		0.03	%

Number of counties where security is located (all California)		21			21
Largest percentage of principal in one county		25.83	%		24.51	%

Number of secured loans in foreclosure status		6			7
Secured loans in foreclosure – principal	$	21,299		$	21,915

Number of secured loans with an interest reserve		—			—
Interest reserves	$	—		$	—

As of March 31, 2012, the partnership’s largest loan, in the unpaid principal balance of $16,682,000 (representing 23.97% of outstanding secured loans and 6.28% of partnership assets) has an interest rate of 10.00% and is secured by a condominium/apartment complex located in San Francisco County, California. This loan matured February 1, 2011. The partnership has been working with the borrower to assist with the sale of the remaining units.

Larger loans sometimes increase above 10% of the secured loan portfolio or partnership assets as these amounts decrease due to limited partner withdrawals, loan payoffs and restructuring of existing loans.

In April 2012, the partnership released its security interest in a condominium complex in exchange for security interests in several financial instruments, some of which are secured by deeds of trust on real property. The tables in Note 4 include the loan with its original characteristics such as property type (Single-family), property location (Santa Clara County, California) and lien position (2nd). At March 31, 2012, the loan had a principal balance of $3,460,000, an interest rate of 6.00%, matures on December 30, 2016, and at the time of our loan had a senior lien of $18,744,000, and an appraisal of $30,210,000. The loan is current per the new agreement, and is designated impaired and is in non-accrual status.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 4 – LOANS (continued)

Distribution of loans within California

Secured loans are distributed within California as summarized in the following table ($ in thousands).

	March 31, 2012					December 31, 2011
	Loans	Principal		Percent		Loans	Principal		Percent
San Francisco	5	$	17,610	25	%	5	$	17,606	24	%
San Francisco Bay Area (1)	22		40,379	58		23		42,206	58
Northern California (1)	8		7,362	11		8		7,373	10
Southern California	12		4,247	6		13		6,201	8
Total secured loans	47	$	69,598	100	%	49	$	73,386	100	%

(1)	Excludes line(s) above

Lien positions

Secured loans had the lien positions presented in the following table ($ in thousands).

	March 31, 2012						December 31, 2011
	Loans	Principal			Percent		Loans	Principal			Percent
First trust deeds	20	$	28,054			%	21	$	29,361		40	%
Second trust deeds	25		41,043				26		43,523		59
Third trust deeds	2		501				2		502		1
Total secured loans	47		69,598		100	%	49		73,386		100	%
Liens due other lenders at loan closing			113,857						114,550

Total debt		$	183,455					$	187,936

Appraised property value at loan closing		$	247,709					$	275,909

Percent of total debt to appraised
values (LTV) at loan closing (2)			74.06	%					68.12	%

(2)

Based on appraised values and liens due other lenders at loan closing. The loan to value computation does not take into account subsequent increases or decreases in property values following the loan closing nor does it include decreases or increases of the amount owing on senior liens to other lenders by payments or interest accruals, if any. Property values likely have changed, particularly over the last three years, and the portfolio’s current loan to value ratio likely is higher than this historical ratio.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 4 – LOANS (continued)

Property type

Secured loans summarized by property type of the collateral are presented in the following table ($ in thousands).

	March 31, 2012					December 31, 2011
	Loans	Principal		Percent		Loans	Principal		Percent
Single family	36	$	51,448	74	%	37	$	52,085	71	%
Multi-family	3		2,757	4		3		4,609	6
Commercial	7		14,851	21		8		16,149	22
Land	1		542	1		1		543	1
Total secured loans	47	$	69,598	100	%	49	$	73,386	100	%

Single family properties include owner-occupied and non-owner occupied single family homes (1-4 unit residential buildings), condominium units, townhouses, and condominium complexes. From time to time, loan originations in one sector or property type become more active due to prevailing market conditions. The current concentration of the partnership’s loan portfolio in condominium properties may pose additional or increased risks. Recovery of the condominium sector of the real estate market is generally expected to lag behind that of single-family residences. In addition, availability of financing for condominium properties has been, and will likely continue to be, constricted and more difficult to obtain than other property types. As of March 31, 2012 and December 31, 2011, $40,388,000 and $40,907,000, respectively, of the partnership’s loans were secured by condominium properties.

Condominiums may create unique risks for the partnership that are not present for loans made on other types of properties. In the case of condominiums, a board of managers generally has discretion to make decisions affecting the condominium building, including regarding assessments to be paid by the unit owners, insurance to be maintained on the building, and the maintenance of that building, which may have an impact on the partnership loans that are secured by such condominium property.

The partnership may have less flexibility in foreclosing on the collateral for a loan secured by condominiums upon a default by the borrower. Among other things, the partnership must consider the governing documents of the homeowners association and the state and local laws applicable to condominium units, which may require an owner to obtain a public report prior to the sale of the units.

Scheduled maturities

Secured loans are scheduled to mature as presented in the following table ($ in thousands).

Scheduled maturities	Loans	Principal		Percent
2012	11	$	19,437	28	%
2013	10		2,467	4
2014	2		2,531	4
2015	8		3,740	5
2016	2		3,640	5
Thereafter	4		2,162	3
Total future maturities	37		33,977	49
Matured at March 31, 2012	10		35,621	51
Total secured loans	47	$	69,598	100	%

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 4 – LOANS (continued)

Scheduled maturities (continued)

It is the partnership’s experience that loans may be repaid or refinanced before, at or after the contractual maturity date. For matured loans, the partnership may continue to accept payments while pursuing collection of amounts owed from borrowers. Therefore, the above tabulation for scheduled maturities is not a forecast of future cash receipts.

The partnership reports maturity data based upon the most recent contractual agreement with the borrower. The table above includes 1 loan with an aggregate principal of $3,460,000 which had its maturity date extended, which is considered impaired and is in non-accrual status.

Matured loans

The partnership may periodically negotiate various workout agreements with borrowers whose loans are past maturity or who are delinquent in making payments. The partnership is not obligated to fund additional money as of March 31, 2012.

Secured loans past maturity are summarized in the following table ($ in thousands).

	March 31,			December 31,
	2012			2011
Number of loans (3) (4)		10			9
Principal	$	35,621		$	40,393
Advances		6,995			6,829
Accrued interest		1,439			1,608
Loan balance	$	44,055		$	48,830
Percent of principal		51	%		55	%

(3)	The secured loans past maturity include seven and eight loans as of March 31, 2012 and December 31, 2011, respectively, also included in the secured loans in non-accrual status.

(4)	The secured loans past maturity include eight and seven loans as of March 31, 2012 and December 31, 2011, respectively, also included in the secured loans delinquency category.

Delinquency

Secured loans summarized by payment delinquency are presented in the following table ($ in thousands).

	March 31,		December 31,
	2012		2011
Past due
30-89 days	$	16,827	$	5,370
90-179 days		1,066		1,254
180 or more days		34,819		34,911
Total past due		52,712		41,535
Current		16,886		31,851
Total secured loans	$	69,598	$	73,386

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 4 – LOANS (continued)

Delinquency (continued)

The partnership reports delinquency based upon the most recent contractual agreement with the borrower.

Interest income accrued on loans contractually past due 90 days or more as to principal or interest payments during the three months ended March 31, 2012 and 2011 was $0 and $8,000, respectively. Accrued interest on loans contractually past due 90 days or more as to principal or interest payments at March 31, 2012 and December 31, 2011 was $1,430,000 and $1,458,000, respectively.

At March 31, 2012, the partnership had eight workout agreements in effect with an aggregate principal of $4,252,000. Of the eight borrowers, six, with an aggregate principal of $3,357,000, had made all required payments under the workout agreements and were included in the above table as current. Four of the eight loans, with an aggregate principal of $1,128,000 were designated impaired and were in non-accrual status.

At December 31, 2011, the partnership had eight workout agreements in effect with an aggregate principal of $4,255,000. Of the eight borrowers, seven, with an aggregate principal of $3,590,000 had made all required payments under the workout agreements and the loans were included in the above table as current. Four of the eight loans, with an aggregate principal of $1,131,000 were designated impaired and were in non-accrual status.

Loans in non-accrual status

Secured loans in nonaccrual status are summarized in the following table ($ in thousands).

	March 31,		December 31,
	2012		2011
Secured loans in nonaccrual status
Number of loans		18		19
Principal	$	60,256	$	62,739
Advances		7,045		6,859
Accrued interest		1,434		2,259
Loan balance	$	68,735	$	71,857
Foregone interest	$	1,263	$	3,957

At March 31, 2012 and December 31, 2011, there were zero and one loans, respectively, with loan balances of $0 and $195,000, respectively, that were contractually 90 or more days past due as to principal or interest and not in non-accrual status.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 4 – LOANS (continued)

Impaired loans

Secured loans designated as impaired loans are summarized in the following table at and for the three months ended March 31, 2012 and for the year ended December 31, 2011 ($ in thousands).

	March 31,		December 31,
	2012		2011
Principal	$	63,830	$	66,318
Recorded investment (5)	$	72,364	$	75,496
Impaired loans without allowance	$	29,101	$	32,363
Impaired loans with allowance	$	43,263	$	43,133
Allowance for loan losses, impaired loans	$	21,535	$	21,535

(5)

Recorded investment is the sum of principal, advances, and interest accrued for financial reporting purposes.

Impaired loans had the average balances and interest income recognized and received in cash as presented in the following table ($ in thousands).

	March 31,		December 31,
	2012		2011
Average recorded investment	$	73,930	$	143,783
Interest income recognized	$	57	$	695
Interest income received in cash	$	749	$	277

Modifications and troubled debt restructurings

During the three months ended March 31, 2012, the partnership modified one loan by extending the maturity date, lowering the interest rate, and changing the loan from interest only to an amortizing loan which increased the monthly payment.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 4 – LOANS (continued)

Allowance for loan losses

Allowance for loan losses activity is presented in the following table ($ in thousands).

	Three months ended March 31,
	2012			2011
Balance, January 1	$	22,035		$	89,200

Provision/(recovery) for loan losses		—			—

Charge-offs, net
Charge-offs		—			(3,925	)
Recoveries		—			—
Charge-offs, net		—			(3,925	)

Balance, March 31	$	22,035		$	85,275

Specific reserves	$	21,535		$	83,999
General reserves		500			1,276
Balance, March 31	$	22,035		$	85,275

Ratio of charge-offs, net during the period to average
secured loans outstanding during the period		—	%		1.93	%

Allowance for loan losses applicable to secured loans (by property type) and the percentage of principal (by property type) are presented in the following table ($ in thousands).

	March 31, 2012				December 31, 2011
	Amount		Percent		Amount		Percent
Allowance for loan losses

Secured loans by property type
Single family	$	21,475	74	%	$	21,475	72	%
Multi-family		60	4			60	4
Commercial		490	21			490	23
Land		10	1			10	1
Total for secured loans	$	22,035	100	%	$	22,035	100	%

Unsecured loans	$	—	100	%	$	—	100	%

Total allowance for loan losses	$	22,035	100	%	$	22,035	100	%

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 5 – REAL ESTATE OWNED (REO), HELD FOR SALE

REO, held for sale activity and changes in the net realizable values are summarized in the following table ($ in thousands).

	Three months ended March 31,
	2012			2011
Balance, January 1	$	48,406		$	54,206
Dispositions		(8,023	)		(2,225	)
Improvements/betterments/(refunds)		—			(80	)
Balance, March 31	$	40,383		$	51,901

Property type
Single family	$	259	$	8,356
Multi-family		12,724		30,095
Commercial		27,400		13,450
Balance, March 31	$	40,383	$	51,901
Number of properties, March 31		7		9

The results of operations for rental properties in REO, held for sale is presented in the following table ($ in thousands). The table below reflects rental operations, net for those properties classified as REO, held for sale at March 31, 2012 and March 31, 2011.

	Three months ended March 31,
	2012		2011
Rental income	$	109	$	376

Operating expenses
Administration and payroll		17		62
Homeowner association fees		2		—
Receiver fees		11		23
Other		4		5
Utilities and maintenance		22		73
Advertising and promotions		—		2
Property taxes		10		64
Total operating expenses		66		229
Net operating income		43		147
Depreciation		—		—
Earnings	$	43	$	147

Interest expense on the mortgages securing the rental property was $33,000 and $212,000 for the three month periods ended March 31, 2012 and 2011, respectively.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 5 – REAL ESTATE OWNED (REO), HELD FOR SALE (continued)

During the first quarter of 2012 the partnership sold the following properties.

-	1 condominium unit and 3 tenants-in-common units, all located in San Francisco County, California. The units had an aggregate gain on sale of approximately $6,000.

-	A mixed-use property consisting of a single-family residence, winery and vineyard, located in Napa County, California. The partnership placed its interest in the title to the property in a single asset entity named Diamond Heights Winery, LLC. The property was sold for its carrying value.

NOTE 6 – REAL ESTATE OWNED (REO), HELD AS INVESTMENT, NET

For REO, held as investment, the activity and changes in the impairment reserves are summarized in the following table for the three months ended March 31 ($ in thousands).

	Net Realizable Value						Accumulated Depreciation
	2012			2011			2012			2011
Balance, January 1	$	161,402		$	115,411		$	3,594		$	1,807
Acquisitions					10,825
Dispositions		7			—			(7	)		—
Improvements/betterments		322			25						—
Depreciation		(572	)		(397	)		572			397
Balance, March 31	$	161,159		$	125,864		$	4,159		$	2,204

REO, held as investment, summarized by property type is presented in the following table ($ in thousands).

	March 31,		December 31,
	2012		2011
Number of properties		21		21

Property type
Single family	$	6,361	$	6,039
Multi-family		137,307		137,840
Commercial		12,461		12,493
Land		5,030		5,030
Total REO, held as investment, net	$	161,159	$	161,402

At March 31, 2012 and December 31, 2011, there was 1 property with carrying values of $3,470,000 and $3,148,000, respectively, in construction with remaining construction costs of approximately $1,832,000 and $2,154,000, respectively.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 6 – REAL ESTATE OWNED (REO), HELD AS INVESTMENT, NET (continued)

The earnings/(loss) from rental operations of the real estate owned, held as investment is presented in the following table for the three months ended March 31 ($ in thousands).

	Three months ended March 31,
	2012		2011
Number of properties		17		10
Rental income	$	2,809	$	1,797
Operating expenses
Administration and payroll		375		222
Homeowner association fees		158		12
Receiver fees		62		—
Other		89		31
Utilities and maintenance		305		326
Advertising		34		8
Property taxes		452		236
Total operating expenses		1,475		835
Net operating income		1,334		962
Depreciation		572		397
Rental operations, net(1)	$	762	$	565

(1)

Interest expense on the mortgages securing the rental property was $549,000 and $340,000 for the three months ended March 31, 2012 and 2011, respectively.

NOTE 7 – BORROWINGS

Bank loan, secured

The partnership’s bank loan/line of credit matured on June 30, 2010, which maturity date was subsequently extended to October 18, 2010. As of October 18, 2010, the partnership and the banks entered into an amended and restated loan agreement. The significant terms and conditions in the amended loan agreement include: 1) an extended maturity date of June 30, 2012; with continuing scheduled pay downs of the loan amount to maturity; 2) an interest rate of Prime plus 1.5% subject to a floor of 5.0%; 3) an annual facility fee (payable quarterly) of 0.5%; 4) required remittance to the banks of 70% of net proceeds from the sale or refinance of REO and/or net proceeds from loan payoffs in excess of $5 million; 5) required remittance of cash balances in excess of $12 million; 6) restrictions on use of cash including no new loans with the exception of refinance of existing loans, no expenditures in the ordinary course of business to preserve, maintain, repair, or operate property in excess of $1 million without prior written consent (subject to exclusions for funds set aside for REO projects and servicing of senior liens designated in the loan agreement), limitations on distributions to electing limited partners of an amount not to exceed a distribution rate of 2.1%; 7) a collateral covenant, and 8) a financial covenant.

The bank loan balance was $10,250,000 and $16,789,000, at March 31, 2012 and December 31, 2011, respectively.

The required remaining minimum principal payments are $10,250,000 for 2012.

The bank loan balance at May 14, 2012 was approximately $7,500,000.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 7 – BORROWINGS (continued)

Mortgages payable

Mortgages payable are summarized in the following table (mortgage balance $ in thousands).

	March 31,		December 31,
Lender	2012		2011
NorthMarq Capital	$	18,923	$	19,027
Interest rate 2.97%
Matures July 1, 2015
Monthly payment (1) $124,415
East West Bank (2)		13,700		13,735
Interest rate 7.50%
Matures May 5, 2012
Monthly payment $98,347
Business Partners		7,369		7,456
Interest rate 6.53%
Matures May 1, 2015
Monthly payment (1) $78,669
First National Bank of Northern California		2,200		2,207
Interest rate 5.70%
Matures November 1, 2016
Monthly payment $12,856
Chase		—		432
Interest rate 3.52%
Matures July 1, 2033
Monthly payment $2,728
Wells Fargo Bank		375		379
Interest rate 2.88%
Matures October 1, 2032
Monthly payment $2,014
Wells Fargo Bank (Wachovia Mortgage)		336		338
Interest rate 5.11%
Matures September 15, 2032
Monthly payment $2,233
GMAC		107		107
Interest rate 7.38%
Matures May 1, 2029
Monthly payment $1,154
Total mortgages payable	$	43,010	$	43,681

(1)	Monthly payments include amounts for various impounds such as property taxes, insurance, and repairs.

(2)	East West bank has agreed to an extension; the agreement is being finalized.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 8 – SYNDICATION COSTS

The partnership bears its own syndication costs, other than certain sales commissions, including legal and accounting expenses, printing costs, selling expenses and filing fees. Syndication costs are charged monthly against partners’ capital and are being allocated to individual partners consistent with the partnership agreement.

Syndication costs of $5,010,000 had been incurred by the partnership with the following distribution through March 31, 2012, ($ in thousands).

Costs incurred	$	5,010
Early withdrawal penalties applied		(190	)
Allocated to date		(4,234	)
March 31, 2012 balance	$	586

NOTE 9– FAIR VALUE

GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

The partnership determines the fair values of its assets and liabilities based on the fair value hierarchy established in GAAP. The standard describes three levels of inputs that may be used to measure fair value (Level 1, Level 2 and Level 3). Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the partnership has the ability to access at the measurement date. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs reflect the partnership’s own assumptions about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs are developed based on the best information available in the circumstances and may include the partnership’s own data.

The partnership does not record loans at fair value on a recurring basis.

Non-recurring basis

Assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2012 are presented in the following table ($ in thousands).

	Fair Value Measurement at Report Date Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
Item	(Level 1)		(Level 2)		(Level 3)		Total
Impaired loans	$	—	$	—	$	72,364	$	72,364
REO, held for sale	$	—	$	—	$	40,383	$	40,383
REO, held as investment, net	$	—	$	—	$	—	$	—

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 9 – FAIR VALUE (continued)

Non-recurring basis (continued)

Assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2011 are presented in the following table ($ in thousands).

	Fair Value Measurement at Report Date Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
Item	(Level 1)		(Level 2)		(Level 3)		Total
Impaired loans	$	—	$	—	$	75,496	$	75,496
REO, held for sale	$	—	$	—	$	48,406	$	48,406
REO, held as investment, net	$	—	$	—	$	76,096	$	76,096

The following methods and assumptions were used to estimate the fair value.

(a)	Cash and cash equivalents. The carrying amount equals fair value. All amounts, including interest bearing accounts, are subject to immediate withdrawal.

(b)

Secured loans. The fair value of the non-impaired loans of $5,774,000 (carrying amount - $5,768,000) and $6,948,000 (carrying amount - $7,068,000) at March 31, 2012 and December 31, 2011, respectively, was estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made. For impaired loans in which a specific allowance is established based on the fair value of the collateral, the collateral fair value is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers opinion of values, and publicly available information on in-market transactions (Level 2 inputs). Historically, it has been rare for determinations of fair value to be made without substantial reference to current market transactions. However, in recent years, due to the low number of real estate transactions, and the rising number of transactions that are distressed (i.e., that are executed by an unwilling seller – often compelled by lenders or other claimants – and/or executed without broad exposure or with market exposure but with few, if any, resulting offers), more interpretation, judgment and interpolation/extrapolation within and across property types is required (Level 3 inputs).

(c)	Unsecured loans. Unsecured loans are valued at their principal less any discount or loss reserves established by management after taking into account the borrower’s creditworthiness and ability to repay the loan.

(d)

Real estate owned (REO), net. Real estate acquired in full or partial settlement of loan obligations, generally through foreclosure, is recorded at acquisition at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s fair value less estimated costs to sell, as applicable. The fair value estimates are derived from information available in the real estate markets including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. Historically, it has been rare for determinations of fair value to be made without substantial reference to current market transactions. However, in recent years, due to the low number of real estate transactions, and the rising number of transactions that are distressed (i.e., that are executed by an unwilling seller – often compelled by lenders or other claimants – and/or executed without broad exposure or with market exposure but with few, if any, resulting offers), more interpretation, judgment and interpolation/extrapolation within and across property types is required.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

March 31, 2012 (unaudited)

NOTE 9 – FAIR VALUE (continued)

(e)

Bank loan. The partnership has a bank loan, evidenced by a promissory note, in an outstanding amount of $10,250,000 at March 31, 2012. The interest rate of 1.5 points above the prime rate, or 4.75%, with a floor of 5.0% is deemed to be a market rate and the other terms and conditions are deemed to be customary for a well collateralized note with a 21-month loan term.

(f)	Mortgages payable. The partnership has mortgages payable (see Note 7 for details). The interest rates are deemed to be at market rates, and the other terms and conditions are deemed to be customary for the secured properties.

NOTE 10 – COMMITMENTS AND CONTINGENCIES, OTHER THAN LOAN COMMITMENTS

Legal proceedings

In the normal course of business, the partnership may become involved in various legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc., to enforce provisions of the deeds of trust, collect the debt owed under promissory notes, or to protect, or recoup its investment from real property secured by the deeds of trust and to resolve disputes between borrowers, lenders, lien holders and mechanics. None of these actions typically would be of any material importance. As of the date hereof, the partnership is not involved in any legal proceedings other than those that would be considered part of the normal course of business.

NOTE 11 – SUBSEQUENT EVENTS

Subsequent to March 31, 2012, the partnership sold a tenant-in-common unit in San Francisco, California for total consideration of $1,210,000.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes thereto, which are included in Item 1 of this Report, as well as the audited consolidated financial statements and the notes thereto, and “Management Discussion and Analysis of Financial Condition and Results of Operations” included in the partnership’s Annual Report on Form 10-K for the year ended December 31, 2011.

Forward-Looking Statements

Certain statements in this Report on Form 10-Q which are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the partnership’s expectations, hopes, intentions, beliefs and strategies regarding the future. Forward-looking statements include statements regarding future interest rates and economic conditions and their effect on the partnership and its assets, trends in the California real estate market, estimates as to the allowance for loan losses, expectations as to when the partnership’s bank loan will be repaid, additional foreclosures in 2012, expectations regarding the level of loan delinquencies, plans to develop, hold or sell certain properties, beliefs relating to the impact on the partnership from current economic conditions and trends in the financial and credit markets, expectations as to when liquidations will resume or how long reduced earnings distributions will be in effect, beliefs regarding the partnership’s ability to recover its investment in certain properties, beliefs regarding the effect of borrower foreclosures on liquidity, and the use of excess cash flow. Actual results may be materially different from what is projected by such forward-looking statements. Factors that might cause such a difference include unexpected changes in economic conditions and interest rates, the impact of competition and competitive pricing, regulatory changes and downturns in the real estate markets in which the partnership has made loans. All forward-looking statements and reasons why results may differ included in this Form 10-Q are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results may differ.

Current Economic Conditions

The statistical release by the Bureau of Economic Analysis regarding Gross Domestic Product for the first quarter of 2012 and the statements by two of our country’s economic leaders, give a quick summary of the economic conditions facing the company. Real estate finance continues to be challenging; general economic conditions are better (but not yet a recovery by historic standards), and the lending markets remain constricted. These conditions persist with the Federal Reserve Bank remaining accommodative, with interest rates at historic lows and United States’ federal deficits at historic highs.

On April 27th The Bureau of Economic Analysis released the Gross Domestic Product, first quarter 2012 (advance estimate). The release stated that “Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.2 percent in the first quarter of 2012 (that is, from the fourth quarter of 2011 to the first quarter of 2012), according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2011, real GDP increased 3.0 percent. The increase in real GDP in the first quarter of 2012 primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, and residential fixed investment that were partly offset by negative contributions from federal government spending, nonresidential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased. The deceleration in real GDP in the first quarter of 2012 primarily reflected a deceleration in private inventory investment and a downturn in nonresidential fixed investment that were partly offset by accelerations in PCE and in exports.”

In testimony given on February 14, 2012, Secretary of the Treasury Timothy Geithner stated, “Three years after the worst financial crisis since the Great Depression, our economy is gradually getting stronger. Over the last two and a half years the economy has grown at an annual rate of 2.5 percent, exceeding growth in the year prior to the recession. Private employers have added 3.7 million jobs over the past 23 months, including more than 400,000 manufacturing jobs. Growth has been led by exports, which have grown 25 percent in real terms over the last two and one-half years, and by business investment in equipment and software, which has risen by 33 percent during the same period. While the economy is regaining strength, we still face significant economic challenges. Unemployment, at 8.3 percent, is still far too high, and the housing market remains weak. The damage inflicted by the crisis presents difficulties for consumers and businesses alike. In addition, the debt crisis in Europe and the slowing of major economies elsewhere in the world present potential impediments to our economic growth.”

Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System in a speech on February 10, 2012 said, “Though some progress has been made in reversing the losses in jobs and income sustained during the last recession, the pace of expansion has been frustratingly slow and the unemployment rate remains very high by historical standards. The state of the housing sector has been a key impediment to a faster recovery. The state of housing and mortgage markets may also be holding back the recovery of our financial system and the normalization of credit conditions. Mortgage delinquencies surged between 2007 and 2009 and remain high, imposing losses on lenders, mortgage insurers, and investors. Although some of the losses were the result of poorly underwritten mortgages, an increasing share of losses has arisen from prime mortgages originally fully documented with significant down payments, have defaulted due to the weak economy and housing market.”

Chairman Bernanke further stated, “The large imbalance of supply and demand has been reflected in a drop in home prices of historic proportions. Nationally, house prices have plunged about 30 percent in nominal terms from their peak and 40 percent in real, or inflation-adjusted, terms. In contrast to the situation for owner-occupied homes, rental markets around the country have strengthened somewhat. In particular, vacancy rates for rental properties have declined and now stand near the lower end of their range over the past eight years. Not surprisingly, rents have been increasing and the construction of apartment buildings has picked up. With home prices falling and rents rising, it could make sense in some markets to turn some of the foreclosed properties into rental properties.”

The GDP reports of growth, although slow, give hope the economy is stabilizing/improving. Growth prospects are offset in some sectors, industries and geographies by the continuing affects of the Great Recession. There are significant uncertainties with sovereign debt both at home and in Europe and the stock market exhibits high volatility.

The current economic environment may remain as is for a prolonged period. As such, these dynamics could restrain the ability of the partnership in its efforts to collect its loans due to the inability of borrowers to find replacement financing due to credit restrictions, higher underwriting standards and reduced protective equity. A slow rebound in real estate will elongate the time properties are held, as such, the partnership intends to hold a significant amount of the property it has acquired through foreclosure. To the extent the partnership can generate funds for placement in new loans, there will be limited competition resulting in desirable pricing for well qualified loan applicants.

Critical Accounting Policies

Management estimates

See Note 2 (Summary of Significant Accounting Policies) to the financial statements included in Part I, Item 1 of this report for a detailed presentation of critical accounting policies.

Related Parties

See Note 1 (General) and Note 3 (General Partners and Related Parties) to the financial statements included in Part I, Item 1 of this report for a detailed presentation of various partnership activities for which the general partners and related parties are compensated, and other related-party transactions, including the formation loan.

Results of Operations

Changes to the partnership’s operating results are presented in the following table ($ in thousands).

	Changes during the three months ended March 31, 2012 versus 2011
	Dollars			Percent
Revenue, net
Interest income
Loans	$	(435	)		(57	)	%
Imputed interest on formation loan		(73	)		(58	)
Other interest income		—			—
Total interest income		(508	)		(57	)

Interest expense
Bank loan, secured		(449	)		(62	)
Mortgages payable		32			6
Amortization of discount on formation loan		(73	)		(58	)
Other interest expense		1			—
Total interest expense		(489	)		(35	)

Net interest income/(expense)		(19	)		4

Late fees		4			133
Other		1			50
Total revenues, net		(14	)		3

Provision for loan losses		—			—

Operating expenses
Mortgage servicing fees		(2	)		(1	)
Asset management fees		(21	)		(9	)
Costs from Redwood Mortgage Corp.		251			228
Professional services		28			9
REO
Rental operations, net		(93	)		13
Holding costs		139			48
Loss/(gain) on disposal		(6	)		—
Other		31			194
Total operating expenses, net		327			75

Net income (loss)	$	(341	)		36		%

Please refer to the above table and the Statement of Operations in the financial statements included in Part I, Item I of this report throughout the discussion of Results of Operations.

Impact of general economic and market conditions on the partnership’s financial condition, results of operations and cash flows

As we have noted in our prior reports on Form 10-Q and Form 10-K, the combination of the general economic conditions, the constrained credit and financial markets, the distressed real estate markets, and the terms and conditions of the amended and restated loan agreement (the “bank loan”) have resulted in significant changes in the lending and business operations of the partnership that are on-going.

Real estate sales, investment, and construction continue to be at greatly reduced levels, particularly as to single family homes. Loans from traditional sources, such as banks, are of limited availability, and when they are available the credit and regulatory environment imposes constraints such that few projects and/or borrowers meet the new, more stringent minimum requirements to qualify. Multi family properties that are stabilized and profitable can qualify for Fannie and Freddie loans, but the loan underwriting is severely restricting. The secondary market for mortgages on commercial real estate continues at low volumes of activity and is not a source of liquidity to the industry. The result is that our borrowers are experiencing on-going difficulty in refinancing their loans from the partnership and/or selling the properties securing those loans to generate the cash to repay us.

Since the inception of the financial crisis (2008) and the resultant Great Recession (2009), the partnership’s portfolio has continued to migrate from predominately performing loans to impaired loans and REO. Total assets, the sum of all assets owned by the partnership, decreased from $424,873,000 at December 31, 2008, to $265,431,000 at March 31, 2012 (a decline of $159,442,000 or 38%). Net loans, the total of loan principal, advances, accrued interest, net of the allowance for loan losses, declined over the same time period from $386,589,000 to $56,242,000 (a decline of $330,347,000 or 85%). REO increased from $25,693,000 at December 31, 2008, to $201,542,000 at March 31, 2012, as a consequence of the loan collection efforts undertaken by the general partners. Our ownership of the collateral which secured our loans is the most effective means of maintaining or improving the value of the properties and is the best alternative for preserving partners’ capital.

The cash proceeds received by the partnership from loan payments, loan payoffs, sale of real estate owned (REO), and third-party mortgages obtained on stabilized properties that the partnership has taken back through foreclosure or otherwise obtained are used predominately to pay down the amount outstanding on the bank loan. The amount outstanding on the bank loan, after the March 2012 payments were made, was $10,250,000, a reduction of $39,750,000 since December 31, 2010, and a reduction of $74,750,000 since September 2009.

The continuing primary focus of the general partners is the preservation of the limited partners’ capital while dealing with the historic declines in liquidity in the markets and the constraints imposed by the amended terms of the bank loan. While the financial markets continue in turmoil in May 2012, the general partners believe progress toward the repayment of the bank loan in full is on schedule and, depending on the anticipated completion of transactions in contract and the sale of REO, likely will occur at maturity on June 30, 2012, or before.

Comparison of the three month periods ended March 31, 2012 versus the same period ended March 31, 2011

Revenue – Interest income - Loans

The interest income on loans decreased for the three month period ended March 31, 2012 compared to the same periods in 2011, due to decreases in the average secured loan portfolio balance, and the related average yield rate.

Average secured loan balances, interest income – loans, the corresponding interest rates and the effect of the foregone interest on the average yield rate are presented in the table below ($ in thousands).

	Three months ended March 31,
	2012			2011
Average Secured Loan Balance(1)	$	71,998		$	203,078
Interest income – loans		323			758
Stated Average Yield Rate		8.18	%		8.46	%
Effective Yield Rate		1.79	%		1.49	%

(1) Portfolio Review - See Note 4 (Loans) to the financial statements included in Part I, Item 1 of this report for a detailed presentation on the secured loan portfolio.

Interest Expense – Bank Loan, secured, and other Borrowings

The decreased interest expense related to the partnership’s bank loan (previously line of credit) for the three month period ended March 31, 2012 compared to the same period in 2011, is related primarily to a decrease in the average daily borrowing, which was $15,012,000 for the three month period ended March 31, 2012, as compared to $47,500,000 for the same period in 2011, respectively.

The increased interest expense on mortgages for the three month period ended March 31, 2012 compared to the same period in 2011 is primarily due to the increase in the average daily outstanding mortgage balances from $40,888,000 for the three months ended March 31, 2011 to $43,265,000 for the three months ended March 31, 2012.

Provision for losses on loans/allowance for loan losses

The provision for losses on loans is primarily driven by the specific reserves maintained in the allowance for loan losses, associated with impaired loans as analyzed each quarter.

See Notes 4 (Loans) and 5 (Allowance for Loan Losses) to the financial statements included in Part I, Item 1 of this report for detailed presentations of loan balances, activity, and characteristics, and the corresponding data regarding the allowance for loan losses.

Operating Expenses

The increase in costs from RMC for the three month period ended March 31, 2012, compared to the same period in 2011 was due to reimbursement of qualifying charges permitted in the partnership agreement. In 2011, RMC did not request reimbursement for all costs qualifying for reimbursement, which it may do from time to time in its sole discretion.

The increase in professional services for the three month period ended March 31, 2012, compared to the same period in 2011 was primarily due to a $30,000 increase for the 2011 tax return processing for changes mandated by the Internal Revenue Service.

The increase in rental operations for the three month period ended March 31, 2012 compared to the same period in 2011 is attributable to the partnership’s net acquisition, since March 31, 2011, of seven additional properties, which the general partners determined, at the time of acquisition, would best serve the partnership at such time to be rented rather than sold. The properties range from a single condominium unit up to a 257 unit condominium complex, along with a detached single-family residence and commercial property. Independent, professional management firms were engaged to oversee operations at each of the larger or complex properties.

Operating expenses of rental operations and depreciation of rental properties are presented in the following table for the three months ended March 31 ($ in thousands).

	Three months ended March 31,
	2012		2011
Rental income	$	2,918	$	2,173

Operating expenses
Administration and payroll		392		284
Homeowner association fees		160		12
Receiver fees		73		23
Other		93		36
Utilities and maintenance		327		399
Advertising and promotions		34		10
Property taxes		462		300
Total operating expenses		1,541		1,064
Net operating income		1,377		1,109
Depreciation		572		397
Earnings	$	805	$	712

(1)

Interest expense on the mortgages securing the rental property was $582,000 and $552,000 for the three month periods ended March 31, 2012 and 2011, respectively.

The increases in real estate owned holding costs for the three month period ended March 31, 2012, compared to the same period in 2011, is primarily due to property taxes ($169,000) on a San Francisco property acquired in the third quarter of 2011.

The increase in other expenses for the three month period ended March 31, 2012, compared to the same period in 2011, is primarily due to an increase in appraisal costs and bank fees related to requirements under the bank loan.

Liquidity and Capital Resources

Historically, the partnership relied upon loan payoffs, borrowers’ mortgage payments, rents, and sale of real estate owned for the source of funds for new loans, partnership operations, and partner distributions and liquidations.

Beginning with the worldwide financial crisis in 2008, and on-going into 2012, the combination of the general economic conditions, the constrained credit and financial markets, the distressed real estate markets, and the terms and the conditions of the amended and restated loan agreement (and the preceding forbearance agreement) resulted in significant changes to the lending and business operations of the partnership, as well as to its balance sheet, results of operations and cash flows.

As of October 18, 2010, the partnership and the banks entered into an amended and restated loan agreement. The significant terms and conditions in the amended loan agreement include: 1) an extended maturity date of June 30, 2012; with continuing scheduled pay downs of the loan amount to maturity; 2) an interest rate of Prime plus 1.5% subject to a floor of 5.0%; 3) an annual facility fee (payable quarterly) of 0.5%; 4) required remittance to the banks of 70% of net proceeds from the sale or refinance of REO and/or net proceeds from loan payoffs in excess of $5 million; 5) required remittance of cash balances in excess of $12 million; 6) restrictions on use of cash including no new loans with the exception of refinance of existing loans, no expenditures in the ordinary course of business to preserve, maintain, repair, or operate property in excess of $1 million without prior written consent (subject to exclusions for funds set aside for REO projects and servicing of senior liens designated in the loan agreement), limitations on distributions to electing limited partners of an amount not to exceed a distribution rate of 2.1%; 7) a collateral covenant, and 8) a financial covenant. The bank loan balance at March 31, 2012 and December 31, 2011 was $10,250,000 and $16,789,000, respectively. The loan is scheduled to be paid off in June 2012.

Cash received from loan payments, loan payoffs, the sale of real estate owned and third-party mortgages obtained on stabilized properties that we own and are included in REO is predominantly used to pay down the amount outstanding on the bank loan, to make the periodic interest and principal payments on the loan, to protect the security interest in the collateral securing the loans from senior debt and claims, to maintain and develop REO, to meet the operating expenses of the partnership, and to fund periodic payments to limited partners that elected monthly, quarterly and annual distributions.

As the downturn in the real estate markets has continued to persist, the disruption in the credit markets is prolonged, and liquidity in the partnership is restricted, liquidations will continue to be suspended. For the foreseeable future, the partnership intends to utilize available cash flows to protect its security interests in properties, maintain its real estate holdings, pay down amounts due under its bank loan and on mortgages payable, and maintain operations. It is anticipated liquidation payments will resume only when the partnership’s bank loan is paid in full, the partnership can deploy its assets in such a manner to become profitable, and cash flows improve to levels that enable the partnership to accomplish these objectives.

Contractual Obligations, Commitments, and Contingencies

Contractual obligations of the partnership are summarized in the following table as of March 31, 2012 ($ in thousands).

Contractual Obligation							More than
(principal only)	Total		Less than 1 Year		1-3 Years		3 Years
Bank loan, secured	$	10,250	$	10,250	$	—	$	—
Mortgages payable		43,010		14,986		1,829		26,195
Construction contracts		1,832		1,807		25		—
Total	$	55,092	$	27,043	$	1,854	$	26,195

See Note 4 (Loans) and Note 11 (Commitments and contingencies, other than loan commitments) to the financial statements included in Part I, Item I of this report for a detailed presentation of commitments and contingencies.

Distributions to limited partners

At the time of their subscription to the partnership, limited partners elect either to receive monthly, quarterly or annual cash distributions from the partnership, or to compound distributions in their capital account. If an investor initially elects to receive monthly, quarterly or annual distributions, such election, once made, is irrevocable. If the investor initially elects to compound distributions in his/her capital account, in lieu of cash distributions, the investor may, after three (3) years, change the election and receive monthly, quarterly or annual cash distributions. Distributions allocable to limited partners, who elect to compound distributions in their capital account, will be retained by the partnership for making further loans or for other proper partnership purposes and such amounts will be added to such limited partners’ capital accounts. The percent of limited partners electing distribution, if any, by weighted average to total partners’ capital was 56% and 53% at March 31, 2012 and 2011, respectively. Should the amount distributed to limited partners based on estimated net income exceed the full year results of operations, the excess amount distributed would be a return of capital.

Under the terms of the amended and restated loan agreement dated October 2010, distributions to electing limited partners cannot exceed a distribution rate of 2.1%. Accordingly, the partnership is restricted in its ability to increase distributions to the limited partners until the bank loan is repaid in full, which the partnership currently anticipates will occur on or about the scheduled maturity date of June 30, 2012. However, if borrowers continue to default on their loan obligations, if the partnership’s needs for cash increase substantially, or if income flows into the partnership decrease, then the partnership may be unable to service its scheduled debt payments during the loan term or may be unable to repay the bank loan in full on the maturity date. As with the recovery of the real estate market and the economy generally, it is anticipated rebuilding earnings and cash flows will be a slow process. It is not anticipated limited partners will see a quick or large increase in the earnings or distributions within the limitations imposed by the bank loan or thereafter. Rather, such increases, if any, are anticipated to grow slowly over time as the economy and the state of the partnership improves, the bank loan is repaid, cash flows improve and profitability is achieved. For the three months ended March 31, 2012 and 2011, the partnership made cash distributions of $654,000 and $698,000, respectively.

Withdrawals of limited partners’ capital

The partnership agreement also provides for the limited partners to withdraw their capital account subject to certain limitations and penalties. In March 2009, in response to economic conditions then existing, as to the financial-market crisis, the dysfunction of the credit markets, the distress in the real estate markets, and the expected cash needs of the partnership, the partnership suspended capital liquidations and is not accepting new liquidation requests until further notice.

Under the terms of the amended and restated loan agreement (dated October 2010) withdrawals of limited partners’ capital are not permitted. The bank loan is scheduled to be paid off in June 2012. Liquidation requests of approximately $2,700,000 remained unfulfilled at March 31, 2012 and liquidations for future periods are suspended until future notice.

Liquidation requests submitted to Redwood after March 16, 2009 are not deemed to be accepted, nor do they serve as placeholders for the submitting limited partner. In addition, since March 16, 2009, the partnership significantly reduced the amount of the cash distributions made to the limited partners, who had made the election to receive distributions of their pro-rata share of the net income.

Valuation of partners’ capital as units

In some cases in order to satisfy broker-dealers and other reporting requirements, the general partners have valued the limited partners’ interest in the partnership on a basis which utilizes a per unit system of calculation, rather than based upon the investors’ capital account. This information has been reported in this manner in order to allow the partnership to integrate with certain software used by the broker-dealers and other reporting entities. In those cases, the partnership will report to broker-dealers, trust companies and others a “reporting” number of units based upon a $1.00 per unit calculation. The number of reporting units provided will be calculated based upon the limited partner’s capital account value divided by $1.00. Each investor’s capital account balance is set forth periodically on the partnership account statement provided to investors. The reporting units are solely for broker-dealers requiring such information for their software programs and do not reflect actual units owned by a limited partner or the limited partners’ right or interest in cash flow or any other economic benefit in the partnership. The amount of partnership earnings each investor is entitled to receive is determined by the ratio each investor’s capital account bears to the total amount of all investor capital accounts then outstanding. The capital account balance of each investor should be included on any FINRA member client account statement in providing a per unit estimated value of the client’s investment in the partnership in accordance with NASD Rule 2340.

While the general partners have set an estimated value for the units, such determination may not be representative of the ultimate price realized by an investor for such units upon sale. No public trading market exists for the units and none is likely to develop. Thus, there is no certainty the units can be sold at a price equal to the stated value of the capital account. Furthermore, the ability of an investor to liquidate his or her investment is limited subject to certain liquidation rights provided by the partnership, which may include early withdrawal penalties.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not included as the partnership is a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The partnership carried out an evaluation, under the supervision and with the participation of the general partners of the effectiveness of the design and operation of the partnership’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the general partners concluded the partnership’s disclosure controls and procedures were effective.

Changes to Internal Control Over Financial Reporting

There have not been any changes in the partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the partnership’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

In the normal course of business, the partnership may become involved in various types of legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc., to enforce provisions of the deeds of trust, collect the debt owed under promissory notes, or to protect, or recoup its investment from real property secured by the deeds of trust and resolve disputes between borrowers, lenders, lien holders and mechanics. None of these actions would typically be of any material importance. As of the date hereof, the partnership is not involved in any legal proceedings other than those that would be considered part of the normal course of business.

ITEM 1A. Risk Factors

Not included as the partnership is a smaller reporting company.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable.

ITEM 3. Defaults Upon Senior Securities

Not Applicable.

ITEM 4. Mine Safety Disclosures

Not Applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

31.1 Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3 Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.3 Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS* XBRL Instance Document

101.SCH* XBRL Taxonomy Extension Schema Document

101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF* XBRL Taxonomy Extension Definition Linkbase Document

101.LAB* XBRL Taxonomy Extension Label Linkbase Document

101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document

* XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement of Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

REDWOOD MORTGAGE INVESTORS VIII

Signature

Title

Date

/S/ Michael R. Burwell
Michael R. Burwell		General Partner		May 15, 2012

/S/ Michael R. Burwell
Michael R. Burwell		Manager of Gymno LLC		May 15, 2012

/S/ Michael R. Burwell
Michael R. Burwell		President, Secretary/Treasurer of Redwood Mortgage Corp. (Principal Financial and Accounting Officer); Director of Redwood Mortgage Corp.		May 15, 2012

REDWOOD MORTGAGE INVESTORS VIII - FORM 10-Q - May 15, 2012

Attached files

REDWOOD MORTGAGE INVESTORS VIII Reports