Lets face it, the accounting here is quite complex for the average person to deciphere. But you kind of summed it up in a nut shell. There assets lost value and they wrote them down in a big way, resulting in terrible earnings. However, to offset the loss, they received a capital infusion that will allow them to invest in more assets at a depressed value and benefit from the new investments once the real estate market recovers.....which it will. BUT, the question is how long will it take for the recovery. Personally, I see the recovery coming sooner than later. Either way (short recover or long recovery) RWT looks poised to whether the storm and those who buy into it at current values will be able to reap the rewards. AND, in the mean time, will benefit from the 8-9% dividend while waiting. Not a bad deal.
There are some similarities to TMA. Both RWT and TMA are excellent generators of PRIME jumbo mortgage loans. TMA's only problem was that it funded way too much of its assets with short term repurchase agreements. When the secondary market for subprime mortgage paper tanked the pricing rubbed off on the prime paper. Many of the so-called AAA instruments were so complex the buyers couldn't tell what was prime and what was really subprime. TMA experienced margin calls on their repos to the extent that they had to practically give the company away.
The same thing would have happened at RWT except for the fact that they had the foresight to fund their long term assets with long term liabilities. TMA actually has better credit statistics than RWT.