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.

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).

[ ] YES [ ] NO

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

[ ] YES [X] NO

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

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

In the opinion of the management of the partnership, 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, ~~2008~~2009 filed with the Securities and Exchange Commission. The results of operations for the six month period ended June 30, ~~2009~~2010 are not necessarily indicative of the operating results to be expected for the full year.

~~Formation~~Redwood Mortgage Investors VIII, a California Limited Partnership, was organized in 1993. The general partners are Michael R. Burwell, an individual, Gymno Corporation and Redwood Mortgage Corp. (RMC), both California corporations that are owned and controlled directly or indirectly, by Michael R. Burwell through his individual stock ownership and as trustee of certain family trusts. 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 rights, duties and powers of the general and limited partners of the partnership are governed by the limited partnership agreement and Sections 15611 et seq. of the California Corporations Code. Income taxes – federal and state – are the obligation of the partners, if and when taxes apply, other than for the annual California franchise taxes levied on and paid by the partnership.

In March 2009, the partnership suspended capital liquidations, and is not accepting new liquidation requests until further notice.

In December 2008, the partnership completed its sixth offering stage, wherein contributed capital totaled $299,813,000 of approved aggregate offerings of $300,000,000. No additional offerings are contemplated at this time.

Sales commissions are not paid directly by the partnership out of the offering proceeds. Instead, the partnership loans to RMC, one of the general partners, amounts to pay all sales commissions and amounts payable in connection with unsolicited orders. This loan is unsecured and non-interest bearing and is referred to as the “formation loan.” The following summarizes formation loan transactions toat June 30, ~~2009 (in~~2010 ($ in thousands):

The formation loan ~~has been~~is deducted from limited partners’ capital in the consolidated balance sheets. As amounts are collected from ~~Redwood Mortgage Corp.,~~RMC, the deduction from capital ~~will be~~is reduced. Interest has been imputed at the market rate of interest in effect at the date of the ~~offerings’ close.~~offerings closed which ranged from 4.00% to 9.50%. An estimated amount of imputed interest ~~was~~is recorded for ~~the~~ offerings still outstanding. The partnership had no outstanding offerings as of June 30, 2010. During the three ~~month periods~~months ended June 30, 2010 and 2009, $142,000, and ~~2008, amortization expenses related to the discount on the imputed interest was~~ $76,000, ~~and $161,000,~~ respectively, and for the six ~~month periods~~months ended June 30, 2010 and 2009, $289,000 and $369,000, respectively, were recorded related to amortization of the ~~amounts were $369,000 and $320,000, respectively..~~

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 against partners’ capital and are ~~being~~ allocated to ~~the~~ individual partners consistent with the partnership agreement.

Through June 30, ~~2009,~~2010, syndication costs of $5,010,000 had been incurred by the partnership with the following distribution ~~(in~~($ in thousands):

The partnership is scheduled to terminate on December 31, 2032, unless sooner terminated as provided in the partnership agreement.

The partnership’s consolidated financial statements include the accounts of its 100%-owned subsidiaries, Russian Hill Property Company, LLC, Borrette Property Company, LLC, Altura, LLC, SF Dore, LLC and Grand Villa Glendale, LLC, and the partnership’s 72.5%-owned subsidiary, Larkin Property Company, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.

The preparation of ~~consolidated~~ 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 ~~consolidated~~ 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 ~~owned.~~held for sale and held as investment, at acquisition and subsequently. Actual results could differ significantly from these estimates.

~~Cash~~Collateral fair values are reviewed quarterly and ~~cash equivalents~~

The fair value of the ~~related collateral.~~

Mortgage servicing fees ~~paid to Redwood Mortgage Corp.~~are summarized in the following table for the three and six ~~month periods~~months ended June 30 ~~2009 and 2008, (in~~($ in thousands):.

Asset management fees for the three months ended June 30, 2010 and 2009, were $306,000 and $333,000, respectively, and for the six months then ended were $610,000 and $667,000, respectively. No asset management fees ~~paid to the general partners for the three and six month periods ended June 30, 2009 and 2008 (in thousands):~~were waived during any period reported.

The partnership generally funds loans with a fixed interest rate and a five-year term. Approximately half of all loans outstanding provide for monthly payments of interest only, with the principal due in full at maturity. The other loans require monthly payments of principal and interest, typically calculated on a 30 year amortization, with the remaining principal balance due at maturity.

The cash flow and the income generated by the real property securing the loan factor into the credit decisions, as does the general creditworthiness, experience and reputation of the borrower. Such considerations though are subordinate to a determination that the value of the real property is sufficient, in and of itself, as a source of repayment. The amount of the partnership’s loan combined with the outstanding debt and claims secured by a senior deed of trust on the property generally will not exceed a specified percentage of the appraised value of the property (the loan to value ratio or LTV) as determined by an independent written appraisal at the time the loan is made. The loan-to-value ratio generally will not exceed 80% for residential properties (including apartments), 70% for commercial properties, and 50% for land. The excess of the total debt, including the partnership’s loan, and the value of the collateral is the protective equity.

Secured loan transactions are summarized in the following table for the six months ended June 30 ~~2009 and 2008, Redwood Mortgage Corp. was reimbursed operating expenses of $225,000 and $168,000, respectively.~~($ in thousands).

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

As of November 19, 2008, the date the sixth and final offering closed, Gymno Corporation, a general partner, had contributed $300,000 as capital in accordance with the partnership agreement. After adjusting for unallocated syndication costs, capital and earnings liquidations, the general partners’ capital was $221,000 and $248,000 as of June 30, ~~2009~~2010, the partnership’s largest loan, in the unpaid principal balance of $37,923,000 (representing 15.80% of outstanding secured loans and ~~December 31, 2008, respectively.~~9.47% of partnership assets) was secured by a condominium/apartment complex located in Sacramento County, California. The loan bears interest at a rate of 9.25% and matured on July 1, 2010 (as extended from its prior maturity date of January 1, 2010). Negotiations regarding a possible further extension or other restructuring of this loan are pending. The borrower has remitted some partial payments in 2010, as the condominium/apartment complex approaches full occupancy. The loan was placed on nonaccrual status as of January 1, 2010.

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.

From time to time, loan originations in one sector or property type increase due to prevailing market conditions. The current concentration of the partnership’s loan portfolio in condominium properties may pose additional or increased risks as to ~~evaluate among other things, their asset classification. Properties are purchased or acquired through foreclosure. Several factors are considered~~the timing and the amount of the recovery of the partnership’s investment in ~~determining~~ the ~~classification~~loan. Recovery of ~~owned properties as “real estate held,” “real estate held for sale” or “real estate held for use”. These factors include, but are not limited to,~~the condominium sector of the real estate market is generally expected to lag behind that of single-family residences, which is itself distressed due to 1) the uncertainty regarding general economic conditions ~~status~~and employment; 2) tighter mortgage credit; and 3) the preponderance of ~~any required permits, repair, improvement or development work~~bank-owned and short sales in the market. In addition, availability of financing for condominium properties has been, and will likely continue to be, ~~completed, rental~~constricted and ~~lease income and investment potential. Real estate owned is classified as held~~more dif ficult to obtain than for ~~sale in the period in which the criteria of Statement of Financial Accounting Standards (SFAS) No. 144,~~ ~~Accounting for the Impairment or Disposal of Ling-Lived Assets,~~ ~~are met. As a property’s status changes, reclassifications may occur.~~

~~In December 2004,~~Condominiums may create unique risks for the partnership ~~acquired land through~~that are not present for loans made on other types of properties. In the case of condominiums, a ~~deed~~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.

Further, due to the nature of condominiums and a borrower's ownership interest therein, the partnership may have less flexibility in ~~lieu~~completing foreclosure and obtaining title to the collateral upon a default on the part of ~~foreclosure. At~~ the ~~date~~borrower. Among other things, the partnership must consider the governing documents of ~~acquisition,~~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.

It is the partnership’s ~~investment totaled $4,377,000, including accrued interest and advances. During 2006, management established~~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 ~~$490,000 reserve against this property to reduce the carrying amount to management’s estimate~~forecast of the ultimate net realizable value of the property. In 2006, one of the parcels comprising the property was sold. The partnership incurred a loss of $73,000 on this sale, which had been previously reserved for. The partnership’s total investment at June 30, 2009 and December 31, 2008, was $3,219,000, net of a reserve of $420,000.future cash receipts.

Impaired loans - Secured loans designated as impaired loans are summarized in the following table for the six months ended June 30, 2010 and ~~advances, was transferred via a statutory warranty deed to a new entity named Russian Hill Property Company, LLC (“Russian”)~~for the year ended December 31, 2009 ($ in thousands). ~~Russian was formed by~~

Loans are designated impaired when based on current information and events, it is probable the partnership will be unable to ~~complete~~collect all amounts due in accordance with the ~~development and sale~~terms of the property. The assets, liabilities and any development or sales expenses of Russian have been consolidated into the accompanying consolidated financial statements of the partnership. Costs relatedloan agreements. For loans designated impaired, but that are deemed well collateralized, no impairment to the ~~sale and development of this property were capitalized during 2003. Commencing January 2004, costs related to sales and maintenance of~~investment in the ~~property were expensed.~~loan is recorded (i.e. there is no specific reserve recorded). At June 30, ~~2009~~2010, and December 31, ~~2008, the partnership’s total investment in Russian was $3,974,000~~2009, 17 loans and ~~$3,975,000,~~20 loans, respectively, ~~net of a valuation allowance of $500,000.~~had specific reserves.

Allowance for loan losses activity is presented in the following table for the six months ended June 30 ($ in thousands).

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

Real estate held for sale activity and changes in the net realizable values are summarized in the following table for the six months ended June 30 ($ in thousands).

Interest expense on the mortgages securing the rental property was $84,000 and $129,000 for the three and six month periods ended June 30, 2010, respectively.

In February ~~2009,~~2010, the partnership, along with two affiliated partnerships, acquired though foreclosure, a 22 unit, condominium complex, in which the partnership holds a 70.00% ownership interest. The property is subject to a senior loan with an interest rate of 7.21%. At acquisition the transaction resulted in an increase to real estate held for sale of $7,188,000, reductions to secured loans of $2,100,000, accrued interest of $202,000 and advances of $374,000. Also at acquisition, the partnership's share of the unpaid principal balance of the senior loan and other claims was $4,512,000. Following its acquisition, the property has been operated as a rental property. An independent, professional management firm has been engaged to oversee property operations. As of June 3 0, 2010, all of the units have been leased to tenants. RMC is processing/filing necessary administrative documents to offer for sale the individual units.

For real estate held as investment, the activity and changes in the impairment reserves are summarized in the following table for the six months ended June 30 ($ in thousands).

Interest expense on the mortgages securing the rental property was $202,000 for both the three and six month periods ended June 30, 2010, respectively.

In August 2010, the homeowners association for the condominium complex in which Altura, LLC owns 72 units, levied a special assessment of $10,200 per unit, payable over 12 months beginning in September 2010 to repair the water damage from overwhelmed storm drainage in early 2010 and to remediate the drainage problem by changing the landscaping and increasing the flow of the storm drains. Altura, LLC recorded repair and remediation expense of $739,000 as of June 30, 2010.

In April 2010, SF Dore, LLC, a wholly-owned subsidiary of the partnership, acquired a 42 unit condominium complex located in San Francisco, California. The property is currently being operated as rental apartments, and is considered fully occupied. An independent, professional management firm was engaged to oversee operations. As acquisition, the partnership’s total investment in the property was approximately $12,808,000. The property is subject to a mortgage loan with a balance at acquisition of approximately $5,925,000 and an interest rate of 4.20%. RMC is processing/filing necessary administrative documents to offer for sale the individual units.

In April 2010, the partnership acquired through foreclosure, a ~~single-family residence~~commercial property located in San Francisco, California. The property's sole tenant is the City of San Francisco, which occupies all leasable space on the property. Approximately 16 months remain on the lease. The tenant may, at its option, extend the lease for three additional five-year periods. At acquisition the partnership's total investment was approximately $10,342,000. The property is subject to a mortgage loan with a balance at acquisition of approximately $8,000,000 and an interest rate of 6.53%.

In March 2010, the partnership acquired through foreclosure an approximately 13,500 square foot commercial property located in San Francisco, California. At acquisition the total investment was approximately $3,400,000 of prior loan balance, accrued interest and advances. The property is currently vacant and typical cosmetic improvements are being made to enhance the property’s appeal to the real estate leasing and sale markets.

In March 2010, the partnership acquired through foreclosure an eight unit condominium complex located in San Francisco, California. The property is subject to a senior ~~mortgage~~loan of ~~$245,000 (see Note 9)~~$2,460,000, with an interest rate of 7.00%. At acquisition the total investment was approximately $3,540,000 of prior loan balance, accrued interest, advances and the senior loan. Following its acquisition, the property has been operated as a rental property. An independent, professional management firm has been engaged to oversee property operations. As of June 30, 2010, all of the units have been leased to tenants. RMC is processing/filing necessary administrative documents to offer for sale the individual units.

In January 2010, the partnership acquired through foreclosure a mixed use commercial property located in Sausalito, California. At acquisition the total investment was approximately $863,000 of prior loan balance and accrued interest. The property has been vacated and typical cosmetic improvements are being made to enhance the property’s appeal to the real estate leasing and sale markets.

The partnership’s bank line of credit matured on June 30, 2010, which by agreement as of that date was extended to August 31, 2010. The loan agreements required the partnership to comply with certain financial covenants. As a result of reporting a net loss for the quarter ended September 30, 2009 and for the year ended December 31, 2009, the partnership was in technical non-compliance with the profitability covenant set forth in the loan agreement. In the fourth quarter of 2009, the banks and the partnership entered into a forbearance agreement under which the banks agreed, among other things, to forbear from exercising its rights and remedies arising out of the partnership’s default in failing to comply with the profitability financial covenant until January 20, 2010 (which, forbearance period was subsequently e xtended by several later agreements to August 31, 2010. The terms of the forbearance agreement included increasing the interest rate on the line of credit by 2.0 percentage points to the default rate (prime plus 1.5%) effective as of October 1, 2009 and charging a forbearance fee of $148,000. Other modifications of the loan terms included a reduction of the revolving loan commitment to $80 million; suspension of the revolving facility; and assignment of unassigned notes receivable secured by mortgages as additional collateral.

In addition to extending the maturity date to August 31, 2010, the maturity extension agreement, dated June 30, 2010, between the partnership and the banks, provided for a reduction of the revolving loan commitment to $54.5 million (the outstanding balance at June 30, 2010), cancellation of the unused commitment fee, and an interest rate modification to Prime plus 1.5 percentage points subject to a floor of five percent (5%). The ~~partnership is currently evaluating possible courses of action, including the repayment of past due amounts under the senior mortgage or the full payment and extinguishment~~extension agreement further provided for a temporary waiver of the ~~senior mortgage.~~2009 event of default and any subsequent non-compliance with the financial covenants to August 31st, payment of a facility fee, and a deferral of the monthly collateral report and Borrowing Base Certificate in anticipation of a re-definition of the qualifying assets (loans and REO).

In July 2010, the general partners completed negotiation of a nonbinding Summary of Terms, broadly outlining the terms and conditions for the definitive agreement. The significant items in the Summary of Terms are: 1) the maturity date is to be June 30, 2012; with continuing scheduled pay downs of the amount owing to maturity; 2) the interest rate is to be Prime plus 1.5 percentage points subject to a floor of five percent (5%); 3) an annual facility fee (payable quarterly) of one half of one percent (0.5%), 4) 70% of net proceeds from the sale or refinance of REO and/or net proceeds from loan payoffs in excess of $5 million is to be remitted to the banks; 5) cash balances in excess of $12 million are to be remitted to the banks; 6) restrictions on use of cash including no new loans with the exception of refinance of existin g 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 agreement), and limitations on distributions to electing limited partners of an amount not to exceed a distribution rate of 2.1%; and 7) a collateral covenant. Other terms and conditions, including restrictions on use of cash and payments to investors, are consistent with present terms in the forbearance and maturity extension agreements. The final terms will not be known until negotiations are completed on the definitive agreement in August 2010.

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

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

The partnership determines the fair values of its assets and liabilities based on the fair value hierarchy established in ~~SFAS 157.~~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~~assumptio ns 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 makes construction and rehabilitation loans which are not fully disbursed at loan inception. ~~With these types of loans, the~~The partnership ~~approves~~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. At June 30, ~~2009,~~2010, there were ~~$805,000~~$478,000 of undisbursed loan funds which will be funded by a combination of borrower monthly mortgage payments, line of credit draws, ~~retirement~~retirements of principal on current loans ~~cash~~ and ~~capital contributions from investors.~~cash. The partnership does not maintain a separate cash reserve to hold the undisbursed obligations, which are intended to be funded.

~~Workout agreements~~

Larkin Property Company, LLC is rehabbing its property to complete the refurbishments of all the units that it intends to bring to market as Tenant in Common units. At June 30, 2010 approximately $450,000 of work remained to be completed under existing construction contracts. The Larkin Property Company, LLC anticipates that it will enter into construction contracts in the approximate amount of $1,500,000 to complete the remainder of the units in the third and fourth quarters of 2010.

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 the provisions of the deeds of trust, collect the debt owed under the promissory notes, or to protect, or recoup its investment from the 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 ~~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.

InSubsequent to June ~~2009,~~30, 2010 the partnership ~~acquired~~purchased the senior lien of $6,531,000, on a ~~multi-unit~~ property ~~through foreclosure. The acquisition resulted in an increase to real estate held for use~~on which it holds a second lien at a discount of ~~$61,139,000, reductions to secured loans of $46,338,000, accrued interest of $1,948,000 and advances of $12,853,000.~~$2,881,000.

~~In February 2009, the~~The partnership ~~acquired~~has foreclosed upon a single-family residence ~~through foreclosure. The acquisition resulted~~located in ~~an increase to real estate held for sale~~Los Angeles, CA. As of ~~$357,000, reductions to secured loans of $72,000, accrued interest of $3,000, advances of $37,000 and an increase~~July 31, 2010, the partnership’s investment in ~~mortgages payable of $245,000.~~this property was approximately $2,500,000.

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, 2009.

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, estimates of future limited partner withdrawals, ~~the total amount of the formation loan, 2009~~2010 annualized yield estimates, additional foreclosures in ~~2009,~~2010, expectations regarding the ~~levels~~level of loan delinquencies, ~~and loan repayments, expectations regarding the numbers of loan extensions, workouts and foreclosures,~~ 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, ~~expectations regarding the partnership’s plans to hold or sell properties which it forecloses,~~ beliefs regarding the effect of borrower foreclosures on liquidity, the use of excess cash flow and the intention not to sell the partnership’s loan portfolio. 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 ~~Company~~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.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management ~~is required~~ to make estimates ~~based on the information available that affect~~and assumptions about the reported amounts of assets and liabilities, asand disclosures of contingent assets and liabilities, at the dates of the ~~consolidated balance sheet dates~~financial statements and ~~income~~the reported amounts of revenues and expenses during the reported periods. Such estimates relate principally to the determination of ~~(1)~~ the allowance for loan losses, ~~(i.e. the amount of allowance established against loans receivable as an estimate of potential loan losses)~~ including the ~~accrued interest and advances that are estimated to be unrecoverable based on estimates~~valuation of ~~amounts to be collected plus estimates of~~impaired loans, (which itself requires determining the fair value of the ~~property as collateral~~collateral), and ~~(2)~~ the valuation of real estate ~~owned through foreclosure. At June 30, 2009,~~held for sale and held as investment, at acquisition and subsequently. Actual results could differ significantly from these estimates. Collateral fair values are reviewed quart erly 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 t ypes 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. Either way, the present market is at historically low transaction volumes with neither potential buyers nor sellers willing to transact. In certain asset classes the time elapsed between transactions – other than foreclosures – was 12 or more months.

The uncertainty in the process is exacerbated by overt (over)conservatism and caution exercised by appraisers. Criticized - as having contributed to the asset bubble by inflating values – beginning in the immediate aftermath of the market and economic crisis, as a class the tendency of appraisers now is seemingly to (over)compensate by searching out or over-weighting lower sales comparables, thereby depressing values. It also may be reflective of the tendency in distressed market for lesser-quality properties to transact while upper echelon properties remain off the market - or come on and off the market – because these owners often believe in the intrinsic value of their properties (and the recoverability of that value) and are unwilling to accept “vulture” offers. This accounts for the ev er lower transaction volumes for higher quality properties which exacerbate the perception of a broadly declining market in which each succeeding transaction establishes a new low.

Management has the requisite familiarity with the markets the partnership ~~owned eight real estate~~lends in generally and of the collateral properties ~~which were taken back~~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 u nits in a condominium conversion). Multiple inputs from ~~defaulted borrowers.~~different sources often collectively provide the best evidence of fair value. In these cases expected cash flows would be considered alongside other relevant information.

Loans and advances generally are stated at the unpaid principal balance. 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 unpaid principal balance and accrue 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, 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 balances.

From time to time, the partnership negotiates and enters into contractual workout agreements with borrowers whose loans are past maturity or who are delinquent in making payments which can delay and/or alter the loan’s cash flow and delinquency status.

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.

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 ~~that~~ the full amount is not collectible.

Real estate held for sale includes real estate acquired in full or partial settlement of loan obligations generally through foreclosure that is being marketed for sale. Real estate held for sale is recorded at acquisition at the ~~probable ultimate recovery~~lower of the ~~carrying amount of a~~recorded investment in the loan, ~~with due consideration for~~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 ~~collateral,~~the recorded investment in the loan over the net realizable value is ~~less than amounts due according~~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 ~~contractual~~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, real estate 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 proper ty and the terms of the loan agreement and the shortfall in the amounts due is significant, the carrying amount of the investment will be reduced to the present value of future cash flows discounted at the loan’s effective interest rate. If a loan is collateral dependent, it is valued at the estimated fair value of the related collateral.sale including potential seller financing.

Real estate held as investment includes real estate acquired through foreclosure that is ~~stated~~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. Real estate held as investment 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, less estimated costs to ~~sell. The partnership periodically~~sell, as applicable. 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 pe riodically 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.

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This ASU requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables by disclosing an evaluation of (i) the nature of credit risk inherent in the ~~economy, particularly the downward trend~~entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in ~~real estate values, have been taken into consideration in the aforementioned process of~~ arriving at the allowance for ~~loan~~credit losses and ~~real estate owned. Actual results could vary from~~(iii) the ~~aforementioned provisions~~changes and reasons for those changes in the allowance for credit losses. Under this statement, allowance for credit losses and fair value are to be disclosed by portfolio segment , while credit quality information, impaired financing receivables and nonaccrual status are to be presented by class of financing receivable. Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance. ASU 2010-20 will be effective for the partnership’s consolidated financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period will be required for the partnership’s consolidated financial statements that include periods beginning on or after January 1, 2011.

The general partners of the partnership are ~~Redwood Mortgage Corp.,~~RMC, Gymno Corporation and Michael R. Burwell. Most partnership business is conducted through ~~Redwood Mortgage Corp.,~~RMC, which arranges services and maintains the loan portfolio for the benefit of the partnership. The fees received by the general partners are paid pursuant to the partnership agreement and are determined at the sole discretion of the general partners, subject to limitations imposed by the partnership agreement. In the past the general partners have elected not to take the maximum compensation. ~~The following is~~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 ~~list~~detailed discussion of various partnership activities for which the general partners and related parties are ~~compensated.~~compensated, and other related-p arty transaction, including the formation loan.

The amounts paid by Redwood Mortgage Corp. are determined at annual installments of one-tenth of the principal balance of each formation loan at December 31 of each year until the offering period is closed. Thereafter, the remaining formation loan is paid in ten equal amortizing payments over a period of ten years.

The interest on loans decreased for both the three and six month periods ended June 30, 2010 compared to the same periods in ~~2008 was~~2009, due ~~primarily~~ to a decrease in the ~~non-accrual status of~~average secured loan portfolio balance, the ~~impaired loans~~decrease in the related average yield rate and the increase in ~~delinquent~~nonaccrual loans ~~from 18 at June 30, 2008 to 34 at June 30, 2009. At June 30, 2009, the balance of impaired loans was $39,617,000 as compared to zero at June 30, 2008.~~

The ~~decrease in~~increased interest expense ~~for the three month period ended June 30, 2009 as compared~~and amortization of origination fees related to the same period in 2008 was due to a decrease in the average borrowing rate from 4.75% in 2008 to 2.75% in 2009, offset by an increase in the average daily borrowing from $66,033,000 for 2008 as compared to $85,000,000 for 2009.

The increased interest expense on mortgages is due to the partnership either obtaining a mortgage on a piece of owned property or making the payments on existing mortgages encumbering foreclosed upon property.

The decreases in mortgage servicing fees for both the three and six month periods ended June 30, 2010, compared to the same periods in 2009 was due to ~~management’s decision~~the reductions in the loan portfolios during each period, and the increase in impaired loans during each period which are not charged such fee by RMC.

The increase in professional services for both the three and six month periods ended June 30, 2010, compared to ~~increase~~ the ~~allowances~~same periods in 2009 was due to increases in professional costs for ~~losses for~~legal services, audits, and tax return processing. As more issues have arisen related to delinquent and impaired loans, and real estate ~~due~~owned, management’s need to increased amounts of real estate owned and an increase in the delinquent loans. At June 30, 2008 there were 18 delinquent or mature loans totaling $71,949,000, compared to 35 loans totaling $106,824,000 at June 30, 2009.consult with experts has increased.

~~Partnership capital increased during~~The rental operations for 2010 is attributable to the partnership’s acquisition, since late June 2009, of nine properties which the general partners determined would best serve the partnership at this time and for the foreseeable future, to be rented rather than sold. The properties range from a single condominium unit up to a 126 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 and six months ended June 30, ~~2009 by $1,977,000, primarily due to limited partners electing to retain earnings. The partnership’s net income~~($ in thousands).

Interest expense on the mortgage securing the rental property was $286,000 and $331,000 for the three and six month periods ~~ending~~ended June 30, ~~2009 and 2008 was $3,982,000 and $10,935,000, respectively. Distributions to compounding and distributing limited partners totaled $6,544,000 and $10,646,000,~~2010, respectively.

In ~~1995,~~August 2010, the ~~partnership established~~homeowners association for the condominium complex in which Altura, LLC owns 72 units, levied a ~~line~~special assessment of ~~credit with a commercial bank secured~~$10,200 per unit, payable over 12 months beginning in September 2010 to repair the water damage from overwhelmed storm drainage in early 2010 and to remediate the drainage problem by ~~its loan portfolio. Since inception,~~changing the ~~line of credit’s limit has increased from $3,000,000 to $85,000,000~~landscaping and increasing the number of banks participating on the line of credit has increased to three. This added source of funds has helped in maximizing the partnership’s yield by permitting the partnership to minimize the amount of funds in lower yield investment accounts when appropriate loans are not available. Additionally, the loans made by the partnership generally bear interest at a rate in excessflow of the ~~rate payable to the bank, which extended the line~~storm drains. Altura, LLC recorded repair and remediation expense of ~~credit. As~~$739,000 as of June 30, 2010.

The increase in real estate owned holding costs for the three month period ended June 30, 2010 compared the same period in 2009, is primarily due to the loss on sale of property held by Russian, LLC of $340,000. Other increases have been attorney fees and ~~December 31, 2008,~~property taxes on newly acquired properties.

The loss on disposal of real estate and impairment loss on real estate for 2010 is the ~~outstanding balance~~result of the completed sale of a condominium unit and an accepted offer for sale on another condominium unit, set to close escrow in the ~~line~~second quarter of ~~credit was $85,000,000.~~2010.

The ~~general partners periodically review~~allowance for loan losses is principally the total of the specific reserves for loans designated impaired (and therefore deemed collateral dependent). The increase in payment defaults is the primary cause of the increase in impaired loans as shown in the detail of delinquent loans and loans designated impaired below.

At June 30, 2009, the partnership had 34 loans past due 90 days or more in interest payments with an aggregate principal of $93,704,000 and a weighted average interest rate of 9.50%. Of these 34 loans, twelve loans, with an aggregate principal balance of $52,993,000, were also past maturity. Of these twelve loans, seven were secured by first deeds of trust with an aggregate principal balance of $25,074,000 and a weighted average interest rate of 9.32%, and the other five loans were secured by second deeds of trust with an aggregate principal balance of $27,919,000 and a weighted average interest rate of 10.56%. Of the remaining 22 non-mature delinquent loans, nine were secured by first deeds of trust with an aggregate principal balance of $20,600,000 and a weighted average interest rate of 7.88% and 13 were secured by second deeds of trust with an aggregate principal balance of $20,111,000 and a weighted average interest rate of 9.25%. There was one mature, non-delinquent loan with a principal balance of $13,120,000 and an interest rate of 10.50%. With respect to those loans that have matured or are past due in interest payments, the partnership will attempt to collect such amounts in full and, if collection is not successful, theThe partnership may ~~consider entering~~enter into a workout agreement ~~restructuring the~~with a borrower whose loan ~~or foreclosing on the property as the general partners deem appropriate based on their evaluation of each individual loan.~~

Activity in the allowance for loan losses ~~based on their experience, and are reflective of~~is presented in the ~~partnership’s loan marketplace segment~~following table for the six months ended June 30 ($ in thousands).

The partnership may restructure loans which are delinquent or past maturity. This is done either through the modification of an existing loan or by re-writing a whole new loan. It could involve, among other changes, an extension in maturity date, a reduction in repayment amount, a reduction in interest rate or granting an additional loan. ~~Twelve loans were restructured in 2008 resulting in a loss of $2,482,000 which was offset against the loan loss reserve. The partnership anticipates restructuring additional loans in 2009.~~

The partnership relies upon loan payoffs, borrowers’ mortgage payments, ~~the partnership’s line of credit,~~rents, and sale of real estate owned ~~and to a lesser degree, retention of income~~ for the source of funds for new loans, partnership operations, and ~~liquidity for ongoing operations. Currently, the credit~~partner distributions and financial markets are facing significant disruptions. Loan funds are not readily available to borrowers or purchasers of real estate properties. In the event borrowers have difficulty making loan payments or their loan matures there are few lenders willing to provide refinancing. These credit constraints impact borrowers’ ability to repay their debt and the partnership’s liquidity by reducing the amounts of cash received from loan payoffs. The slow down or reduction in loan repayments has reduced the partnership’s cash flows and restricts the partnership’s ability to invest in new loans or provide earnings and capital distributions.

Currently the credit and financial markets are facing a significant and prolonged disruption. As a result, loans are not readily available to borrowers or purchasers of real estate. These credit constraints have impacted the partnership and our borrowers’ ability to sell properties or refinance their loans in the event they have difficulty making loan payments or their loan matures. Borrowers are also generally finding it more difficult to refinance or sell their properties due to the general decline in California real estate values in recent years. The partnership’s loans generally have shorter maturity terms than typical mortgages. As a result, constraints on the ability of our borrowers to refinance their loans on or prior to maturity have had and will likely continue to have a negative impact on th eir ability to repay their loans. This has resulted, and may continue to result, in increasing number of loans designated as impaired. 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; a loan may be designated as impaired. Impaired loans are individually reviewed for ultimate collectability based on the fair value of the underlying collateral and the financial resources of the borrower. In addition, the relatively higher than median nature of our average loan balances, makes it more difficult for many of our borrowers to refinance with us, even though we are an “asset” lender. Residential-loan borrowers with high loan balances, particularly jumbo-loan borrowers, would find it difficult to refinance their loans with us. In the event a borrower is unable to repay a loan at maturity due to its inability to refinance the loan or otherwise, the partnership may consi der extend the maturing loan through workouts or modifications, or foreclosing on the property as the general partners deem appropriate based on their evaluation of each individual loan. A slow down or reduction in loan repayments would likely reduce the partnership’s cash flows and restrict the partnership’s ability to invest in new loans or provide earnings and capital distributions.

The partnership’s bank line of credit matured on June 30, 2010, which by agreement as of that date was extended to August 31, 2010. The loan agreements required the partnership to comply with certain financial covenants. As a result of reporting a net loss for the quarter ended September 30, 2009 and for the year ended December 31, 2009, the partnership was in technical non-compliance with the profitability covenant set forth in the loan agreement. In the fourth quarter of 2009, the banks and the partnership entered into a forbearance agreement under which the banks agreed, among other things, to forbear from exercising its rights and remedies arising out of the partnership’s default in failing to comply with the profitability financial covenant until January 20, 2010 (which, forbearance per iod was subsequently extended by several later agreements to August 31, 2010. The terms of the forbearance agreement included increasing the interest ~~rates~~rate on the line of credit by 2.0 percentage points to the default rate (prime plus 1.5%) effective as of October 1, 2009 and charging a forbearance fee of $148,000. Other modifications of the loan terms included a reduction of the revolving loan commitment to $80 million; suspension of the revolving facility; and assignment of unassigned notes receivable secured by mortgages as additional collateral.

In addition to extending the maturity date to August 31, 2010, the maturity extension agreement, dated June 30, 2010, between the partnership and the banks, provided for a reduction of the revolving loan commitment to $54.5 million (the outstanding balance at June 30, 2010), cancellation of the unused commitment fee, and an interest rate modification to Prime plus 1.5 percentage points subject to a floor of five percent (5%). The extension agreement further provided for a temporary waiver of the 2009 event of default and any subsequent non-compliance with the financial covenants to August 31st, payment of a facility fee, and a deferral of the monthly collateral report and Borrowing Base Certificate in anticipation of a re-definition of the qualifying assets (loans and REO).

In July 2010, the general partners completed negotiation of a nonbinding Summary of Terms, broadly outlining the terms and conditions for the definitive agreement. The significant items in the Summary of Terms are: 1) the maturity date is to be June 30, 2012; with continuing scheduled pay downs of the amount owing to maturity; 2) the interest rate is to be Prime plus 1.5 percentage points subject to a floor of five percent (5%); 3) an annual facility fee (payable quarterly) of one half of one percent (0.5%), 4) 70% of net proceeds from the sale or refinance of REO and/or net proceeds from loan payoffs in excess of $5 million is to be remitted to the banks; 5) cash balances in excess of $12 million are ~~currently at historic lows.~~to be remitted to the banks; 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 agreement), and limitations on distributions to electing limited partners of an amount not to exceed a distribution rate of 2.1%; and 7) a collateral covenant. Other terms and conditions, including restrictions on use of cash and payments to investors, are consistent with present terms in the forbearance and maturity extension agreements. The final terms will not be known until negotiations are completed on the definitive agreement in August 2010.

At the time of their subscription ~~for units in~~to the partnership, limited partners must elect either to receive monthly, quarterly or annual cash distributions from the partnership, or to compound earnings 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 earnings 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. Earnings allocable to limited partners, who elect to compound earnings 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 partnerships electing distribution of allocated net income, if any, by weighted average to total partners’ capital was 49% and 44% at June 30, 2010 and 2009, 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.

29

~~Withdrawal requests rose throughout 2008 and during the first quarter of 2009.~~ In response to reduced cash flows due to reduced loan payoffs, increased loan delinquencies and increased needs for cash reserves necessary to protect and preserve the partnership’s assets, as of March 16, 2009, the partnership suspended ~~all~~ liquidation payments and announced that it will not be accepting new liquidation requests until further notice. Liquidation requests of approximately $2,700,000 remained unfulfilled at March 31, 2009 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 partn ers, who had made the election to receive distributions of their pro-rata share of the net income.

The partnership is unable to predict when liquidations will resume or distributions will increase, as it will depend on its ability to collect monies due from borrowers and to dispose of or receive rental income from real estate owned, and on the improvement of general economic and capital market conditions and recovery of the real estate market. However, it is ~~currently~~ anticipated that liquidations will not resume for the remainder of ~~2009.~~2010. In the event the current economic downturn worsens, the disruption in the credit markets is prolonged, or liquidity in the partnership is otherwise further restricted, liquidations will continue to be suspended. For the foreseeable future, the partnership intends to utilize available cash flows to implement its normal operations, protect its security interests in properties, maintain its real est ate holdings, and pay down amounts due under its line of credit and on mortgages payable. It is anticipated liquidation payments will resume only when the partnership’s line of credit is paid in full and cash flows improve to levels that enable the partnership to accomplish these objectives.

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~~ca pital 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. Each investor’s capital account balance is set forth periodically on the partnership account statement provided to investors. 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.

Credit, as the lifeblood of modern economies, has been greatly curtailed in the wake of the crises of 2007 and 2008, and the concurrent deleveraging of consumers and businesses continues through the current quarter, often with unfortunate consequences. Financial institutions in response to the difficult economic times have increased underwriting standards and eliminated lending to perceived risky industries in their efforts to shore up balance sheets and credit quality. This has led to a dearth of available credit to many industries, particularly those involved with real estate such as construction, development, and lending for commercial and residential properties. Virtually all single family home loans are being financing by the three government agencies of Fannie Mae, Freddie Mac and FHA. Without gre ater availability of credit, real estate will continue to suffer as owners and buyers cannot effectively buy, sell or refinance property, or otherwise take advantage of the current lower interest rate environment. Substantial numbers of sales transactions that do occur are distressed transactions or even short sales that wipe out the borrowers’ equity.

~~Current Economic Conditions.~~

~~During this recession many events have buffeted~~Unemployment remains at historically high rates. At the United States economy, particularly the financial system and the business sector. These events include, among others: the failure of brokerage firm Lehman Brothers; the forced merger of the brokerage firm Bear Stearns; the governmental bailout of insurance giant AIG; the government takeover of both Fannie Mae and Freddie Mac (the largest holders of residential mortgages in the United States); the merger of Bank of America with Countrywide (the third largest holder of residential mortgages in the United States); the forced merger of Wachovia Bank; the takeovers of over 69 banks by the FDIC in 2009; governmental financial assistance provided to United States automakers; the bankruptcies of Chrysler Corporation and General Motors; and historic write downs of mortgages held by banks. These factors have exposed the financial system to increased risks and decreased consumer confidence.

~~The rise in residential~~With the general worsening of the United States’ economy, delinquencies on real estate ~~values~~loans have risen dramatically. According to ~~all-time highs from 2003~~the Mortgage Bankers Association’s National Delinquency Survey, the delinquency rate for mortgage loans on one-to-four-unit residential properties increased to ~~2006, and the subsequent steep value declines in many residential real estate markets, have furthered the downturn in consumer confidence and has been~~ a ~~leading cause~~seasonally adjusted rate of 10.06 percent of all loans outstanding as of the ~~current recession. As residential real estate values declined, borrowers that had obtained subprime~~end of the first quarter of 2010, an increase of 59 basis points from the fourth quarter of 2009 and ~~high loan-to-value mortgages began to default in high percentages on their mortgage obligations. These defaults were due to a variety~~up 94 basis points from one year ago. The percentage of reasons, including borrowers’ inability to manage their mortgage payments, dramatic increases in mortgage payments from adjustable rate mortgage loans, rising unemployment and reduced or negative equity. As borrowers defaulted upon their loans in the foreclosure process at the end of the first quarter was 4.63 percent, an increase of five basis points from the fourth quarter of 2009 and 78 basis points from one year ago. This represents another record ~~numbers and property values fell, real estate lenders have sought to minimize risk and became more cautious~~high. The combined percentage of loans in ~~their real estate lending activities.~~foreclosure or at least one payment p ast due [at the end of the first quarter of 2010] was 14.01 percent on a non-seasonally adjusted basis, a decline from 15.02 percent in the prior quarter.

In California, ~~loan defaults~~delinquencies and foreclosures are higher than the ~~subsequent filings of notices of default to enforce lenders’ remedies against defaulted borrowers rose throughout most of 2007 and 2008. However in~~national averages. In the ~~second~~first quarter of 2009, the number of notice of defaults peaked at 135,431 – the highest number ever recorded. A total of 70,051 notices of default were filed decreased by 8.0% from the first quarter of 2009, but was 2.5% higher than the second quarter of 2008. Likewise, trustee’s deeds issued at the foreclosure sale of a property decreased in San Francisco County from 142 during the second quarter of ~~2008 to 136,~~2010. That was down 13.6 percent from 81,054 for the prior quarter and down 43.8 percent from 124,562 in the second quarter of 2009. The 2010 second quarter total was the lowest level since the second quarter of 2007 when 53,943 notices of default were filed. The number of Trustee Deeds recorded, which reflect the number of houses or ~~1.1 per 1,000 homes,~~condominiums lost at the end of the foreclosure process, totaled 47,669 during the second quarter of ~~2009.~~2010. That ~~number also decreased in Los Angeles County~~is up 11.2 percent from ~~9,568 during~~ the ~~second~~prior quarter ~~2008 to 6,922, or 1.0 per 1,000 homes, during~~and up 4.4 percent from the second quarter of 2009.

Mortgage interest rates are a key factor in the affordability of real estate. The higher the interest rate, the less affordable real estate becomes. ~~Interest~~Mortgage interest rates are ~~currently near historic lows. Freddie Mac reports for July~~significantly influenced by the United States 10-year treasury rate. In 2009, the ~~30-year fixed-rate~~10-year rate rose from 2.84 in January to 3.84 in December. During the first quarter of 2010, the 10 year rate traded within a relatively narrow range of 3.59 percent to 3.90 percent. In the second quarter of 2010, the 10-year rate began to drop and ended June 2010 at 2.97 percent. Since June 2010 the 10-year rate has continued its general decline to the mid 2.75 percent range. Mortgage interest rates on 30 year fixed rate conforming loans followed suit as measured by Freddie Mac. In January 2008, the average rate was 5.76 percent. It rose to a high of 6.48 percent in August 2008 and dropped through the remainder of 2008 to 5.29 percent in December. In January 2009, the average rate for a 30 year fixed rate mortgage was 5.05 percent. That average rate dropped early in the second quarter before peaking at 5.42 percent in June, and then dropped again through the remainder of 2009 to 4.93 percent in December. Mortgage rates then began to climb reaching 5.21 percent for the week ending May 21, 2010, and then began a decent to their current low of 4.44 percent, with a 0.7 percent cost. The current 30 year mortgage interest rate ~~averaged 5.22% with an average cost~~is near historical lows. In spite of ~~0.7 points. Last year at this time,~~ the ~~interest rate on the same loan averaged 6.43% and cost 0.6 points. The lower~~current low interest rates, ~~have helped homeowners~~it appears that they are not low enough to entice concerned consumers to take on mortgage debt. Borrowers are also facing tight underwriting standards which makes if difficult to qualify for mortgages and provided those seeking to purchase residential property with lower payment rates and increased affordability. This improved affordability is one likely reason why residential real estate sales volumes have been increasing since July 2008. In June 2009, California sales volumes of new and resale houses and condominiums rose 25.5% from June 2008.financing or refinancing at these rates.

In addition to mortgage rates, home prices also factor into affordability. Median home prices have declined from their highs in ~~2005 and~~ 2006. The median national sales price of an existing ~~California home,~~homes as reported by the National Association of Realtors was $221,900 for 2006 and then declined to $219,000 in 2007, to $198,100 in 2008, and then to $172,500 in 2009. As of March 2010, the median national sales price had dropped to $170,700. By June 2010 it had risen to $183,700. According to Dataquick, the median home price in California was ~~$246,000~~$255,000 in March 2010, up 14.3 percent from $223,000 in March 2009. The median home price rose again in June ~~2009,~~2010 to $270,000 but declined from the previous May 2010 median of $278,000. The median price peaked at $484,000 in early 2007 and hit a ~~10.0%~~low of $221,000 in April 200 9. In June 2010, the median home price in the nine-county San Francisco Bay area reached $410,000, a 16.5 percent increase from ~~March 2009 but a 25.0% drop from $328,000~~June 2009. The median price peaked in the Bay Area peaked in June and July of 2007 at $665,000 and reached bottom at $290,000 in March 2009.

During the same time period, national sales volumes of existing homes fell from an annual rate of 6,287,800 homes in 2006 to 5,652,000 in 2007, and then to 4,913,000 in 2008. ~~These value declines~~In 2009, after a slow start to the year, existing home sales increased to an annual rate of 5,156,000, due to robust sales volumes in the third and fourth quarter. Sales volumes peaked for the year in November at an annual rate of 6,490,000. Volumes retracted in December to 5,440,000 and declined further as of March 2010 and June 2010, when the annual rates were 5,350,000 and 5,370,000. In California, DataQuick reports that 37,295 homes and condos were sold in March 2010, a 3 percent increase from ~~2008~~the 36,215 sales in March 2009. During June 2010, 43,964 homes and condos were sold in California, a 0.5 percent decline from June 2009. Sa les in California peaked in 2004 at 65,793. On average, there are about 44,708 sales per month in California. There is concern that declining volumes of both national and California sale volumes could begin to pressure prices downward if inventories increase.

Given the current difficult credit market, there is concern that borrowers with commercial mortgages that have ~~caused great difficulties for residential owners and~~balloon payments coming due in the next three years will have a difficult time extending or refinancing their ~~lenders. Owners desiring~~existing real estate debt. To the extent that they cannot extend or refinance their debt, these borrowers will be forced to sell ~~property often must face the prospect of selling at prices less than their acquisition cost,~~or default, resulting in ~~a loss to~~increased available commercial real estate and placing downward price pressure on this asset class. All in all, the ~~owner. Lenders on secured properties often find the~~San Francisco Bay Area hasn’t seen this steep of a decline in ~~values has tightened~~the commercial real estate sector since the dot-com bust hit the area in the early 2000s. In some areas declines are the worst since the recession in the early 1990s. The recent trends may be a sign that commercial rents and vacancies are stabilizing albeit at greatly reduced lease rates from their ~~lendable equity~~highs only a few years ago.

Overall, while there are some signs that economic conditions are improving as indicated among some watched statistics and indices, it must be remembered that these improvements are coming from historic lows often not seen in decades. A return to a stable economic climate appears to be, at best, slow in returning and perhaps will include periods of downturn. The second quarter of 2010 may in fact be one of those periods. As sales volumes of homes slow, this will put pressure on prices. Perhaps the most important factor in the near term direction of residential real estate prices is the “shadow inventory” of properties that have or will be taken back by lenders. The volume and timing of the shadow inventory supply entering the market may exert downward pressure upon residential real estate prices, posing a continuing risk that home prices might further decline. Most analysts expect some further downward pressure on prices as unemployment remains high, government stimulus programs end, credit remains tight and in some ~~instances resulted in their loan being larger than the collateral property~~asset classes is ~~worth. In the current environment, borrowers owning residential properties may find it difficult to refinance~~virtually non-existent, and consumer confidence remains low or sell their properties. This situation may cause or even force borrowers to hold their existing financing longer than they normally would choose or originally anticipated due to the lack of other financing alternatives or the inability to sell the property and pay off the existing debt through property sale.declining.

In light of ~~the current~~these continuing difficult economic and market conditions, the partnership ~~has been increasing the~~1) continues to increase its allowance for loan losses to reflect the payment shortfalls by borrowers and ~~has taken other actions~~the diminishing fair value of the underlying collateral, which in itself is reflective of the distressed credit and real estate markets; 2) adopts strategies (property by property, borrower by borrower) to protect loan interests in its collateral and take back that collateral when necessary and appropriate; 3) continues to explore opportunities to reduce the ~~capital~~exposure to senior debt and claims on the collateral; 4) offer the properties for sale as markets permit; and 5) negotiate the term out agreement of ~~its investors. Nevertheless,~~the line of credit, such that the needs of all parties – the banks, the partnership ~~is expecting increased loan delinquencies, lower levels of loan repayments, increased numbers of loan extensions, workouts~~ and ~~foreclosures as some borrowers~~the investors are ~~unable to meet their financial obligations.~~given due consideration . In some instances, the partnership anticipates realizing losses should it ~~take back the real estate securing these loans and~~ choose to immediately sell ~~the property. The partnership may also consider accepting less than the amount owed on a mortgage to facilitate the sale of real estate at its current market value, commonly known as a short sale.~~properties it acquires. The partnership believes it may be beneficial, in some cases, to hold a property as an investment if the property has the potential to generate rental income or the value of the property can be enhanced through ~~improvements. Given the~~improvements or improved management. The current difficult economic ~~environment,~~conditions and distressed credit and real estate markets are not conducive to real estate sales of some properties and make holding certain properties taken in foreclosure attractive until more normal sales conditions result. This tactic will cause the partnership ~~anticipates holding~~in many cases to hold properties as investments.

Contractual obligations of the ~~properties it forecloses upon for periods of time rather than immediately selling the properties. In the interim, this will result~~partnership are summarized in the following table as of June 30, 2010 ($ in thousands).

The partnership ~~being~~generally funds loans with a ~~holder~~fixed interest rate and a five-year term. Approximately 35% of ~~both~~all loans outstanding provide for monthly payments of interest only, with the principal due in full at maturity. The other loans require monthly payments of principal and interest, typically calculated on a 30 year amortization, with the remaining principal balance due at maturity.

The cash flow and the income generated by the real property securing the loan factor into the credit decisions, as does the general creditworthiness, experience and reputation of the borrower. Such considerations though are subordinate to a determination that the value of the real property is sufficient, in and of itself, as a source of repayment. The amount of the partnership’s loan combined with the outstanding debt and ~~equity~~claims secured by a senior deed of trust on ~~California real estate.~~the property generally will not exceed a specified percentage of the appraised value of the property (the loan to value ratio or LTV) as determined by an independent written appraisal at the time the loan is made. The loan-to-value ratio generally will not exceed 80% for residential properties (including apartments), 70% for commercial prope rties, and 50% for land. The excess of the total debt, including the partnership’s loan, and the value of the collateral is the protective equity.

Secured loan activity is recapped in the following table for the six months ended June 30 ($ in thousands).

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

As of June 30, 2010, the partnership’s largest loan, in the unpaid principal balance of $37,923,000 (representing 15.80% of outstanding secured loans and 9.47% of partnership assets) was secured by a condominium/apartment complex located in Sacramento County, California. The loan bears interest at a rate of 9.25% and matured on July 1, 2010 (as extended from its prior maturity date of January 1, 2010). Negotiations regarding a possible further extension or other restructuring of this loan are pending. The borrower has remitted some partial payments in 2010, as the condominium/apartment complex approaches full occupancy. The loan was placed on nonaccrual status as of January 1, 2010.

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

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.

Further, due to the nature of condominiums and a borrower's ownership interest therein, the partnership may have less flexibility in realizing on the collateral upon a default on the part of 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.

It is the partnership’s experience that loans may be repaid or refinanced before, at or after the contractual maturity date. On 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.

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

Secured loans more than 90 days delinquent in interest payments and/or on nonaccrual status are summarized in the following table ($ in thousands).

Loans designated as impaired and the allowance for loan losses are presented and discussed under the section entitled “Allowance for Losses” above.

The partnership also makes loans requiring periodic disbursements of funds. As of June 30, ~~2009,~~2010, there were ~~seven~~three such loans. These include loans ~~are divided into two classifications: Construction Loans~~for the ground up construction of buildings and ~~Rehabilitation Loans.~~

~~A summary of the~~The status of the partnership’s loans, which are periodically disbursed as of June 30, ~~2009, is set forth below: (in thousands)~~

“Construction loans” are determined by the management to be those loans made to borrowers for the construction of entirely new structures or dwellings, whether residential, commercial or multifamily properties. For each such construction loan, the partnership has approved a maximum balance for such loan; however, disbursements are made in phases throughout the construction process. As of June 30, 2010, the partnership had no commitments for construction loans. Upon project completion construction loans are reclassified as permanent loans. Funding of construction loans is limited to 10% of the loan portfolio.

~~Part I – Item~~The partnership also makes “rehabilitation loans,” the proceeds of which are used to remodel, add to and/or rehabilitate an existing structure or dwelling, whether residential, commercial or multifamily properties and which, in the determination of management, are not construction loans. Many of these loans are for cosmetic refurbishment of both interiors and exteriors of existing condominiums. The refurbished units will then be sold to new owners, repaying the partnership’s loan. As of June 30, 2010, the partnership had $20,290,000 in rehabilitation loans where $478,000 remained to be disbursed for a combined total of $20,768,000. While the partnership does not classify rehabilitation loans as construction loans, rehabilitation loans carry some of the same risks as construction loans. There is no limit on the amount of rehabilitation loans the partnership may make.

Larkin Property Company, LLC is rehabbing its property to complete the refurbishments of all the units that it intends to bring to market as Tenant in Common units. At June 30, 2010 approximately $450,000 of work remained to be completed under existing construction contracts. The Larkin Property Company, LLC anticipates that it will enter into construction contracts in the approximate amount of $1,500,000 to complete the remainder of the units in the third and fourth quarters of 2010.

~~Under the~~Not included as a smaller reporting ~~requirements of Smaller Reporting Companies, the partnership has elected not to report on this item.~~company.

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(as defined in Rule 13a-15(e) of the Securities Exchange Act of ~~1934, as amended. Based upon that evaluation, the general partners concluded~~1934) as of the end of the period covered by this ~~report,~~report. Based upon that evaluation, the general partners concluded the partnership’s disclosure controls and procedures ~~are effective~~were effective.

There ~~was no change~~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 ~~three months~~quarter ended ~~June 30, 2009~~March 31, 2010 that ~~has~~have materially affected, or isare reasonably likely to materially affect, the partnership’s internal control over financial reporting.

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 on the 14th day of August, 2009~~authorized.

_____________________________

Michael R. Burwell, General Partner

August ~~14, 2009~~16, 2010

_____________________________

Michael R. Burwell, President, ~~Secretary/Treasurer~~and

~~and~~ Chief Financial Officer of Gymno ~~Corporation, General~~

~~Partner, and Redwood Mortgage Corp.,~~Corporation, General Partner

/s/ Michael R. Burwell

___________________________

Michael R. Burwell, President,

Redwood Mortgage Corp.,

General Partner

In connection with the Quarterly Report of Redwood Mortgage Investors VIII ~~a California Limited Partnership~~ (the “Partnership”) on Form 10-Q for the period ended June 30, ~~2009~~2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), pursuant to 18 U.S.C. ~~Section~~(S) 1350, as adopted pursuant to ~~Section~~(S) 906 of the Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, certify that to the best of my knowledge:

A signed original of this written statement required by Section 906 has been provided to ~~the Partnership~~Redwood Mortgage Investors VIII and will be retained by ~~the Partnership~~Redwood Mortgage Investors VIII and furnished to the Securities and Exchange Commission or its staff upon request.

In connection with the Quarterly Report of Redwood Mortgage Investors VIII ~~a California Limited Partnership~~ (the “Partnership”) on Form 10-Q for the period ended June 30, ~~2009~~2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), pursuant to 18 U.S.C. ~~Section~~(S) 1350, as adopted pursuant to ~~Section~~(S) 906 of the Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, certify that to the best of my knowledge:

A signed original of this written statement required by Section 906 has been provided to ~~the Partnership~~Redwood Mortgage Investors VIII and will be retained by ~~the Partnership~~Redwood Mortgage Investors VIII and furnished to the Securities and Exchange Commission or its staff upon request.

In connection with the Quarterly Report of Redwood Mortgage Investors VIII (the “Partnership”) on Form 10-Q for the period ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, certify that to the best of my knowledge:

A signed original of this written statement required by Section 906 has been provided to Redwood Mortgage Investors VIII and will be retained by Redwood Mortgage Investors VIII and furnished to the Securities and Exchange Commission or its staff upon request.

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


900 Veterans Blvd., Suite 500, Redwood City, CA	~~94063-1743~~94063
(Address of principal executive offices)	~~(Zip~~(Zip Code)

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

	June 30,			December 31,
	2009			2008
Cash and cash equivalents	$	11,377		$	12,495

Loans
Loans, secured, net of discount of $2,976 for 2008		309,962			363,037
Loans, unsecured		478			453
Allowance for loan losses		(9,796	)		(11,420	)
Net loans		300,644			352,070

Interest and other receivables
Accrued interest and late fees		13,246			12,174
Receivable from affiliate		5			—
Advances on loans		16,954			22,345
Total interest and other receivables		30,205			34,519

Real estate owned
Real estate held		22,887			21,500
Real estate held for sale		6,178			5,807
Real estate held for use		61,321			—
Allowance for real estate losses		(5,266	)		(1,614	)
Net real estate		85,120			25,693
Loan origination fees, net and other assets		30			96
Total assets	$	427,376		$	424,873

	June 30,			December 31,
	2010			2009
Cash and cash equivalents	$	17,063		$	11,161

Loans
Secured by deeds of trust
Principal balances		240,053			268,445
Advances		18,096			18,421
Accrued interest		15,012			15,405
Allowance for loan losses		(34,818	)		(23,086	)
Net loans		238,343			279,185

Real estate held for sale		9,580			8,102

Real estate held as investment, net		134,715			102,833

Receivable from affiliate		138			5

Other assets, net		582			112

Total assets	$	400,421		$	401,398

Liabilities
Line of credit	$	54,500		$	80,000
Mortgages payable		40,985			1,680
Accounts payable		1,623			1,756
Payable to affiliate		1,501			2,439
Total liabilities		98,609			85,875

Capital
Partners’ capital
Limited partners’ capital, subject to redemption, net		297,291			311,214
General partners’ capital (deficit), net		(47	)		81
Total partners’ capital		297,244			311,295

Non-controlling interest		4,568			4,228
Total capital		301,812			315,523

Total liabilities and capital	$	400,421		$	401,398

	THREE MONTHS ENDED					SIX MONTHS ENDED
	JUNE 30,					JUNE 30,
	2010			2009		2010			2009
Revenues
Loans
Interest	$	1,944		$	6,185	$	5,018		$	12,785
Late fees		4			20		28			24
Total loan revenue		1,948			6,205		5,046			12,809

Imputed interest on formation loan		142			76		289			369
Other interest		16			25		39			54
Other		3			6		7			9
Total revenues		2,109			6,312		5,381			13,241

Interest expense
Line of credit		834			584		1,724			1,168
Amortization of originations fees for line of credit		59			30		86			60
Mortgages		286			—		331			—
Amortization of discount on imputed interest		142			76		289			369
Total interest expense		1,321			690		2,430			1,597

Provision for loan losses		12,001			2,722		12,302			5,149

Operating Expenses
Mortgage servicing fees		303			865		886			1,280
Asset management fees		306			333		610			667
Costs from Redwood Mortgage Corp.		112			113		224			225
Professional services		420			93		782			137
Rental operations, net		274			—		134			—
Real estate owned holding costs		619			41		674			132
Loss/(gain) on real estate sold		(3	)		—		220			—
Impairment loss on real estate		—			—		89			—
Other		61			54		100			72
Total operating expenses		2,092			1,499		3,719			2,513

Net income (loss)	$	(13,305	)	$	1,401	$	(13,070	)	$	3,982

Net income (loss)
General partners ( 1%)	$	(133	)	$	14	$	(131	)	$	40
Limited partners (99%)		(13,172	)		1,387		(12,939	)		3,942
	$	(13,305	)	$	1,401	$	(13,070	)	$	3,982

Net income (loss) per $1,000 invested by
limited partners for entire period
Where income is reinvested	$	(40	)	$	3	$	(39	)	$	11
Where partner receives income in monthly distributions	$	(41	)	$	3	$	(40	)	$	11

	Limited Partners
	Capital									Total
	Account			Unallocated			Formation			Limited
	Limited			Syndication			Loan,			Partners’
	Partners			Costs			Gross			Capital

Balances at December 31, 2009	$	323,840		$	(1,365	)	$	(11,261	)	$	311,214
Formation loan payments received								971			971
Net income (loss)		(12,939	)		—			—			(12,939	)
Allocation of syndication costs		(174	)		174			—			—
Partners’ withdrawals		(1,955	)		—			—			(1,955	)
Early withdrawal penalties		(2	)		—			2			—

Balances at June 30, 2010	$	308,770		$	(1,191	)	$	(10,288	)	$	297,291

	General Partners
	Capital						Total
	Account			Unallocated			General			Total
	General			Syndication			Partners’			Partners’
	Partners			Costs			Capital			Capital

Balances at December 31, 2009	$	95		$	(14	)	$	81		$	311,295
Formation loan payments received		—			—			—			971
Net income (loss)		(131	)		—			(131	)		(13,070	)
Allocation of syndication costs		(2	)		2			—			—
Partners’ withdrawals		3			—			3			(1,952	)
Early withdrawal penalties		—			—			—			—

Balances at June 30, 2010	$	(35	)	$	(12	)	$	(47	)	$	297,244

	2010			2009
Cash flows from operating activities
Net income (loss)	$	(13,070	)	$	3,982
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Amortization of origination fees		86			60
Imputed interest on formation loan		(289	)		(369	)
Amortization of discount on formation loan		289			369
Provision for loan losses		12,302			5,149
Depreciation from rental operations		615			—
Impairment loss on real estate		89			—
Change in operating assets and liabilities
Accrued interest		(1,261	)		(2,412	)
Advances on loans		(733	)		(7,504	)
Receivable from affiliate		(133	)		(5	)
Loan origination fees		(556	)		6
Accounts payable		(152	)		(86	)
Payable to affiliate		(938	)		318
Net cash provided by (used in) operating activities		(3,751	)		(492	)

Cash flows from investing activities
Loans originated		(943	)		(6,945	)
Principal collected on loans		18,026			8,585
Payments for development of real estate		(4,822	)		(3,110	)
Proceeds from disposition of real estate		5,385			2,278
Net cash provided by (used in) investing activities		17,646			808

Cash flows from financing activities
Borrowings (repayments) on line of credit, net		(25,500	)		—
Mortgages taken		19,600			245
Payments on mortgages		(1,452	)		—
Partners’ withdrawals		(1,952	)		(2,978	)
Formation loan collections		971			973
Increase in non-controlling interest		340			326
Net cash provided by (used in) financing activities		(7,993	)		(1,434	)

Net increase (decrease) in cash and cash equivalents		5,902			(1,118	)

Cash and cash equivalents - beginning of year		11,161			12,495

Cash and cash equivalents - end of year	$	17,063		$	11,377

	2010			2009
Supplemental disclosures of cash flow information
Non-cash investing activities
Loans foreclosed including related interest and advances	$	13,538		$	66,882
Related loan loss reserve charge-offs upon foreclosure		(87	)		(6,769	)
Mortgages and other payables taken subject
to collateral foreclosure		21,421			245
Real estate acquired through foreclosure on loans
receivable	$	34,872		$	60,358

Cash paid for interest	$	2,055		$	1,168

	1st			2nd			3rd			4th			5th			6th			Total

Limited partner
contributions	$	14,932		$	29,993		$	29,999		$	49,985		$	74,904		$	100,000		$	299,813

Formation Loan made		1,075			2,272			2,218			3,777			5,661			7,564			22,567
Discount on imputed
interest		—			(16	)		(59	)		(158	)		(611	)		(1,780	)		(2,624	)

Formation Loan made,
net		1,075			2,256			2,159			3,619			5,050			5,784			19,943
Repayments to date		(991	)		(1,857	)		(1,390	)		(2,038	)		(2,104	)		(1,328	)		(9,708	)
Early withdrawal
penalties applied		(84	)		(172	)		(136	)		(99	)		(139	)		(2	)		(632	)

Formation Loan, net
at June 30, 2009		—			227			633			1,482			2,807			4,454			9,603
Unamortized discount
on imputed interest		—			16			59			158			611			1,780			2,624

Balance
June 30, 2009	$	—		$	243		$	692		$	1,640		$	3,418		$	6,234		$	12,227

Percent loaned		7.2	%		7.6	%		7.4	%		7.6	%		7.6	%		7.6	%		7.5	%

Formation loan made	$	22,567
Unamortized discount on imputed interest		(2,024	)
Formation loan made, net		20,543
Repayments to date		(11,637	)
Early withdrawal penalties applied		(642	)
Formation loan, net		8,264
Unamortized discount on imputed interest		2,024
June 30, 2010 balance	$	10,288

Costs incurred	$	5,010		$	5,010
Early withdrawal penalties applied		(188	)		(189	)
Allocated to date		(3,265	)		(3,618	)

June 30, 2009 balance	$	1,557
June 30, 2010 balance				$	1,203

	As of June 30,
	Number		Total		Total		Impaired
	of		Impaired		Investment		Loans
	Impaired		Loan		Impaired		Loss
	Loans		Balance		Loans		Reserve
2009		21	$	39,617	$	47,082	$	7,769
2008		—	$	—	$	—	$	—

	June 30, 2009				December 31, 2008
			Percent				Percent
			of loans				of loans
			in each				in each
			category				category
			to total				to total
	Amount		loans		Amount		loans
Real estate mortgage
Single-family	$	8,742	69	%	$	10,116	73	%
Apartments		168	4	%		125	3	%
Commercial		511	26	%		1,016	23	%
Land		256	1	%		50	1	%

Total real estate-mortgage		9,677	100.00	%		11,307	100.00	%

Total unsecured loans		119	100.00	%		113	100.00	%

Total	$	9,796	100.00	%	$	11,420	100.00	%

	For the three months ended June 30,						For the six months ended June 30,
	Average				Interest		Average				Interest
	Investment		Interest		Income		Investment		Interest		Income
	Impaired		Income		Received		Impaired		Income		Received
	Loans		Accrued		In Cash		Loans		Accrued		In Cash
2009	$	46,988	$	175	$	353	$	46,908	$	395	$	448
2008	$	—	$	—	$	—	$	—	$	—	$	—

	Three months ended June 30,								Six months ended June 30,
	2009				2008				2009				2008
Maximum chargeable		$	1,298			$	1,337			$	2,370			$	2,483
Waived			(433	)			(846	)			(1,090	)			(1,578	)
Net charged		$	865			$	491			$	1,280			$	905

	2010			2009
Unpaid principal balance, beginning of the year	$	268,445		$	363,037
New loans		943			6,945
Borrower repayments		(18,026	)		(8,585	)
Foreclosures		(11,309	)		(51,410	)
Other		—			(25	)
Unpaid principal balance, June 30,	$	240,053		$	309,962

	June 30, 2010						December 31, 2009
	Loans	Principal			Percent		Loans	Principal			Percent
First trust deeds	51	$	109,268		46	%	59	$	126,702		47	%
Second trust deeds	40		130,275		54		48		141,131		53
Third trust deeds	2		510		0		3		612		0
Total secured loans	93		240,053		100	%	110		268,445		100	%
Liens due other lenders at loan closing			260,913						291,912

Total debt		$	500,966					$	560,357

Appraised property value at loan closing		$	785,081					$	805,457

Percent of total debt to appraised
values (LTV) at loan closing (1)			63.81	%					69.57	%

Scheduled maturities	Loans	Principal		Percent
2010	11	$	60,251	26	%
2011	19		37,909	16
2012	19		57,213	24
2013	20		12,723	5
2014	5		950	0
Thereafter	9		4,995	2
Total future maturities	83		174,041	73
Matured at June 30, 2010	10		66,012	27
Total secured loans	93	$	240,053	100	%

									Average				Interest
			Unpaid						Investment		Interest		Income
			Principal		Loan		Specific		Impaired		Income		Received
	Loans		Balance		Balance		Reserve		Loans		Accrued		In Cash
June 30, 2010		32	$	194,031	$	225,092	$	31,169	$	199,634	$	2,005	$	1,621
December 31, 2009		29	$	146,956	$	174,175	$	20,884	$	115,225	$	9,367	$	2,495

	2010				2009
Balance at beginning of year	$	23,086			$	11,420

Provision for loan losses		12,302				5,016

Charge-offs, net
Charge-offs		(570	)			(6,640	)
Recoveries
Charge-offs, net		(570	)			(6,640	)

Balance at end of June 30,	$	34,818			$	9,796

Ratio of charge-offs, net during the period to average
secured loans outstanding during the period		0.23		%		1.83		%

	2010			2009
Real estate held for sale - beginning of the year	$	8,102		$	5,113
Acquisitions		7,188			5,640
Dispositions		(5,385	)		(5,410	)
Improvements/betterments		9			—
Charge-offs		(245	)		—
Changes in net realizable values		(89	)		—
Real estate held for sale – June 30,	$	9,580		$	5,343

	Cost					Accumulated Depreciation
	2010			2009		2010		2009
Balance beginning of the year	$	102,833		$	20,580	$	507	$	—
Acquisitions		31,108			57,810		—		—
Dispositions		—			—		—		—
Improvements/betterments		1,391			1,387		—		—
Designated real estate held as investment		—			—		—		—
Depreciation		(617	)		—		617		—
Change in impairment reserve		—			—		—		—
Balance June 30,	$	134,715		$	79,777	$	1,124	$	—

	June 30,		December 31,
Lender	2010		2009
Chinatrust Bank	$	4,314	$	—
Interest rate 7.21%
Matures June 14, 2011
Monthly payment $31,245
Lime Financial		—		245
Interest rate 6.25%
Matures June 1, 2034
Monthly payment $1,580
Bank of Alameda		—		674
Interest rate 8.00%
Matures February 24, 2015
Monthly payment $5,215
First National Bank of Northern California		2,453		—
Interest rate 7.00%
Matures September 1, 2011
Monthly payment $17,043
Business Partners		7,951		—
Interest rate 6.53%
Matures May 1, 2015
Monthly payment (1) $81,473
NorthMarq Capital		19,600		—
Interest rate 3.08%
Matures July 1, 2015
Monthly payment (1) $81,473
PNC Bank		5,918		—
Interest rate 4.20%
Matures May 1, 2017
Monthly payment (1) $43,786
Wells Fargo		397		403
Interest rate 3.50%
Matures October 1, 2032
Monthly payment $2,141
Wachovia		352		358
Interest rate 6.26%
Matures September 15, 2032
Monthly payment $2,581
Total mortgages	$	40,985	$	1,680

	Fair Value Measurement at Report Date Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable		Total
	Identical Assets		Inputs		Inputs		as of
Item	(Level 1)		(Level 2)		(Level 3)		June 30, 2009
Impaired secured loans	$	—	$	—	$	39,313	$	39,313
Unsecured loans	$	—	$	—	$	365	$	365
Real estate owned	$	—	$	—	$	68,550	$	68,550

Year ending December 31,	Amount

2009	$	135,936
2010		70,889
2011		21,353
2012		58,052
2013		18,014
Thereafter		5,718

	$	309,962

	Changes during the three months ended June 30, 2009 versus 2008						Changes during the six months ended June 30, 2009 versus 2008
	Dollars			Percent			Dollars			Percent
Revenue
Interest on loans	$	(2,198	)	(26	)	%	$	(3,392	)	(21	)	%
Imputed interest on Formation loan		(85	)	(53	)			49		15
Other interest		17		213				19		54
Late fees		9		82				(23	)	(49	)
Other		(21	)	(78	)			(40	)	(82	)
Total revenue		(2,278	)	(27	)			(3,387	)	(20	)

Expenses
Mortgage servicing fees		374		76				375		41
Interest expense		(200	)	(26	)			5		—
Amortization of loan origination fees		4		15				6		11
Provision for losses on loans and real estate		1,622		147				3,029		143
Asset management fees		18		6				43		7
Clerical costs through Redwood Mortgage Corp.		29		35				57		34
Professional services		30		48				(8	)	(6	)
Amortization of discount on imputed interest		(85	)	(53	)			49		15
Other		(2	)	(2	)			10		5
Total expenses		1,790		57				3,566		63

Net income	$	(4,068	)	(74	)	%	$	(6,953	)	(64	)	%

	# of Loans	Amount		Percent

First trust deeds	73	$	144,623	47	%
Second trust deeds	60		164,266	53
Third trust deeds	4		1,073	—
Total	137	$	309,962	100	%

Maturing prior to December 31, 2009	28	$	135,936	44	%
Maturing during 2010	25		70,889	23
Maturing during 2011	21		21,353	7
Maturing after December 31, 2011	63		81,784	26
Total	137	$	309,962	100	%

Average loan		$	2,262	0.73	%
Largest loan		$	37,923	12.23	%
Smallest loan		$	65	0.02	%
Average Loan-to-Value, based upon appraisals
and senior liens at date of inception of loan				67.40	%

Contractual Obligation							More than
(principal only)	Total		Less than 1 Year		1-3 Years		3 Years

Line of credit	$	54,500	$	19,500	$	35,000	$	—
Mortgages payable		40,985		949		8,487		31,549
Construction contracts		450		450		—		—
HOA special assessment		739		739		—		—
Construction loans		—		—		—		—
Rehabilitation loans		478		478		—		—

Total	$	97,152	$	22,116	$	43,487	$	31,549

	Construction		Rehabilitation

Disbursed funds	$	—	$	20,407
Undisbursed funds		—		805

Total	$	—	$	21,212

	Complete Construction			Rehabilitation
Disbursed funds		$	—		$	20,290
Undisbursed funds		$	—		$	478

~~By:~~	/S/ Michael R. Burwell
	~~Michael R. Burwell, General Partner~~

Michael R. Burwell
~~By:~~	~~Gymno Corporation,~~ General Partner	August 16, 2010

/S/ Michael R. Burwell
Michael R. Burwell		President of Gymno Corporation, (Principal Executive Officer); Director of Gymno Corporation Secretary/Treasurer of Gymno Corporation (Principal Financial and Accounting Officer)		August 16, 2010

/S/ Michael R. Burwell
	~~By:~~	~~/S/~~ Michael R. Burwell
	President, Secretary/Treasurer of Redwood Mortgage Corp. (Principal Financial and Accounting Officer); Director of Redwood Mortgage Corp.		~~Michael R. Burwell, President, Secretary/Treasurer & Chief Financial Officer~~


~~By:~~	~~Redwood Mortgage Corp., General Partner~~



	~~By:~~	~~/S/ Michael R. Burwell~~
		~~Michael R. Burwell,~~ ~~President, Secretary/Treasurer~~ August 16, 2010