Definately wooly aphid; the cottony stuff is the waxy fluff they secrete that repels sprays. A very quick pass with a butane torch melts the wax and incinerates the miserable bugs with little damage to the tree and no insecticides.

Thanks everyone for the replies. I thought it was fungus but DH says it is more like nodules that are growing on the roots. The roots also put out a lot of suckers. I live on the Central CA Coast near Santa Cruz. We only get rain in the winter from Nov. to April. We have had one rain fall since last May and it dried up right away. No fertilizer, or sprinklers. We do water once a week with a soaker but it goes immediately into the ground. No standing water. We have very sandy soil that drains well. It is over a septic leach field. The tree has been in the ground for 23 years in the same location. It is a Stayman Winesap apple. It has only started doing this about 7 or so years ago but never this bad. We also get curly leaf and some white powery stuff on the leaves. I thought it was the same thing on the roots but it is totally different. Over the years we have sprayed with malathion, sulfer (dormant mix in winter), and copper oil dormat spray. Thanks for the help. Clare

The bark on some of the branches looks very dark and I assume that is where the fungus is located. I dont' know why the branches are dying, it's certainly not for a lack of water, so I would assume it's directly related to the fungus. Is there any great way to contain the fungus? Or do you just lop off branches as they become infected?

I'm not an expert, so you will have to google it unless someone else chimes in. But those are aerial burr knots which m111 are prone to grow. My trees are 10 years old and they have outgrown them, I.e., it has not been an issue. No pun intended. I did have to battle knot borers but the latex paint wash at the base helped. It is less of an issue now as the trunks are bigger