Exhibit 8.1

            [Letterhead of GnazzoThill, A Professional Corporation]

                                                                    May 28, 2002

Redwood Trust, Inc.
591 Redwood Highway
Suite 3100
Mill Valley, CA 94941

     Re: Registration Statement for 2002 Redwood Trust, Inc. Incentive Stock
         Plan

Dear Ladies and Gentlemen:

     You have requested our opinion in connection with the Registration
Statement on Form S-8, dated May 28, 2002 (together with all exhibits thereto,
the "Registration Statement") being filed by Redwood Trust, Inc. (the
"Company") with respect to its 2002 Incentive Stock Plan (the "Plan").

     We have acted as your special tax counsel in connection with the
Registration Statement and Prospectus related thereto (the "Prospectus"), and
have assisted in the preparation of the tax summary for the Prospectus. In
formulating our opinions, we have reviewed (i) the Registration Statement and
the Prospectus, (ii) the Plan, (iii) Articles of Amendment and Restatement of
the Company, as amended and supplemented to date, (iv) the Bylaws of the
Company, as amended to date, and (v) such resolutions, certificates, records,
and other documents provided by the Company as we have deemed necessary or
appropriate as a basis for the opinions set forth below. We have also reviewed
the opinion of Tobin and Tobin, a professional corporation, dated on or about
the date hereof, with respect to certain matters of Maryland law and the law of
the United States.

     In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or other copies, and the
authenticity of the originals of such copies.

     In rendering our opinions, we have assumed that the transactions described
in or contemplated by the foregoing documents have been or will be consummated
in accordance with such operative documents, and that such documents accurately
reflect the material facts of such transactions. In addition, our opinions are
based on the correctness of the following specific assumptions: (i) the Plan
will be administered in accordance with its terms; and (ii) there have been no
changes in the applicable laws of the State of Maryland, the Internal Revenue
Code of 1986, as amended (the "Code"), the regulations promulgated thereunder
by the Treasury Department (the "Treasury Regulations"), and the
interpretations of the Code and the Treasury Regulations by the courts and the
Internal Revenue Service, all as they exist on the date of this letter. With
respect to these assumptions, it should be noted that statutes, regulations,
judicial decisions, and administrative interpretations are subject to
Redwood Trust, Inc.
May 28, 2002
Page 2


change at any time and, in some circumstances, with retroactive effect. Any
material change that is made after the date hereof in any of the foregoing
bases for our opinion could adversely affect our conclusions.

     Based on the foregiong, we are of the opinion that the statements set
forth under the caption "Federal Income Tax Consequences" in the Prospectus, to
the extent that they constitute matters of law or legal conclusions regarding
Federal income tax law, are correct in all material respects.

     Other than as expressly stated above, we express no opinion on any issue
relating to the Company, its stock or its employee compensation arrangements or
under any law other than the Federal income tax laws.

     We are furnishing this opinion to you solely in connection with the filing
of the Registration Statement and it is not to be relied upon, used,
circulated, quoted or otherwise referred to for any other purpose without our
express written permission.

     We hereby consent to the filing of this letter as Exhibit 8.1 to the
Registration Statement and to its incorporation by reference as an exhibit to
the Registration Statement. In giving our consent, we do not hereby admit that
we come within the category of persons whose consent is required under Section
7 of the Act or the rules and regulations promulgated thereunder.


                                                    Very truly yours,

                                                    /s/ GnazzoThill