EXHIBIT 8.1





                        [GIANCARLO & GNAZZO LETTERHEAD]




                                                                 March 5, 1998



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


           Re:    Redwood Trust, Inc.  Registration Statement on Form S-3 for
                  Dividend Reinvestment and Stock  Purchase Plan

Dear Ladies and Gentlemen:

        You have requested our opinion in connection with the Post Effective
Amendment No. 1 to Form S-3 Registration Statement (the "Registration
Statement") being filed by Redwood Trust, Inc. (the "Company") on the date
hereof with respect to its Dividend Reinvestment and Stock Purchase Plan (the
"Plan").

        In connection with the Registration Statement, we have acted as your
special tax counsel and have assisted in the preparation of the tax summary for
such Registration Statement. In formulating our opinions, we have reviewed (i)
the Registration Statement, (ii) the Articles of Incorporation for of each the
Company and its wholly owned subsidiary, Sequoia Mortgage Funding Corporation
("Sequoia"), as amended and supplemented, (iii) the Bylaws of the Company and
Sequoia, and (iv) 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. In addition, the Company has provided us with
a certificate (the "Officer's Certificate"), executed by a duly appointed and
knowledgeable officer of the Company, and upon which we have relied, setting
forth certain representations relating to various factual matters including the
prior, current and future methods of operation of the Company and Sequoia. We
have also relied upon the opinion of Tobin & Tobin, a professional corporation,
dated on or about the date hereof, with respect to certain matters of corporate
law.

        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 Company and Sequoia have been


Redwood Trust, Inc.
March 5, 1998
Page 2



and will continue to be organized and operated in the manner described in the
Officer's Certificate, the Registration Statement, and the other relevant
documents referred to above; and (ii) there have been no changes in the
applicable laws of the States of Maryland or Delaware, 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 (x) in the case of the former assumption,
the representations set forth in the Officer's Certificate are highly factual in
nature and reflect an intention with respect to the future conduct of the
business of the Company and Sequoia which may not be achievable if there are
future changes in the circumstances of the Company or Sequoia and (y) in the
case of the latter assumption, statutes, regulations, judicial decisions, and
administrative interpretations are subject to 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 opinions could adversely
affect our conclusions.

        Based on the foregoing, we are of the opinion that:

        1. The Company has been organized and operated in conformity with the
requirements for qualification as a "real estate investment trust" under the
Code since the commencement of its operations on August 19, 1994 through
September 30, 1997, the date of the most recent unaudited financial statements
of the Company reviewed by us, and the Company's current and contemplated
methods of operation, as described in the Registration Statement and as
represented by the Company, will enable it to continue to so qualify; and

        2. Although the discussion set forth under the caption "Certain Federal
Income Tax Considerations" in the Form S-3 does not purport to discuss all
possible Federal income tax consequences of the acquisition and ownership of the
Company's Common Stock acquired under the Plan, such discussion constitutes, in
all material respects, an accurate summary of the Federal income tax
considerations that are likely to be material to a participant in the Plan.

        Other than as expressly stated above, we express no opinion on any issue
relating to the Company, to Sequoia, or to any investment therein 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 opinion as
an Exhibit to the Registration Statement.


                             Very truly yours,

                             /s/ Giancarlo & Gnazzo,
                             A Professional Corporation