Q2 2020 Walker & Dunlop Inc Earnings Call
The three properties worth $1.4 billion under contract for closing in Q3 and Q4.
So a very robust GRC and had pipelines are get brokerage business rebuilding nicely as capital begins to return to the broader market and our multifamily property sales business rebounding nicely, we feel extremely well positioned to continue outperforming the market for the remainder of 2020.
Vision 2020 was established in 2016 with very ambitious five year goals $30 billion of annual debt financing $8 billion of annual investment sales $8 billion and assets under management and 100 billion dollar of loans in our servicing portfolio, which if achieve.
We drive $1 billion in annual revenues.
As left hand side of this next slide shows we established the debt financing gold $30 billion dollars after originating $16.2 billion of debt financing in 2015.
And on a trailing 12 month basis as you can see in Alaska column of this chart. We've achieved our vision 2020 debt financing gold by originating $31.4 billion of loans, which is a five year comment annual growth rate on loan originations a 14%.
Similarly, the right sided this slide shows the growth in property sales from establishing the goal of selling $8 billion in multifamily properties after selling 1.5 billion in 2015.
To selling 5.8 billion over the last 12 months.
While the pandemic is clearly slowed down our property sales business.
We have grown this business at a compound annual growth rate of 31% over the past five years and has built an absolutely incredible team.
I mentioned previously the growth in our servicing portfolio to $100 billion.
And as this slide shows over the past five years, we've grown the portfolio from $50.2 billion in 2000 $15 billion to $100 billion today.
At a compound annual growth rate of 15%.
The dramatic growth in loan originations property sales and servicing have grown revenues as you can see on the right side of this slide from $468 million in 2000 $15 million to $916 million over the past 12 months.
Or at a compound annual growth rate of 14%.
So all of this brings us closer, but not quite to our vision 2020 goal of $1 billion in annual revenues, which we will continue chasing for the remainder of this year.
We announced twice during the second quarter, but the number of forbearance requests in our at risk portfolio has been extremely low.
As seen on this slide.
For various requests on office retail and hospitality loans in our portfolio are dramatically higher than multifamily.
But we haven't from zero credit risk on any office retail industrial our hospitality alone we have originated and service today zero.
Our only credit rating is on multifamily and that portfolio continues to performed exceedingly well.
As Steve will discuss we took a large loan loss reserve in Q1 to incorporate the expected impacts of coated and added another $5 million to that reserve in Q2.
The additional reserves added in this quarter were due entirely to growth in our servicing portfolio and not due to any specific reserves or degradation in the credit quality in our at risk portfolio.
While it is still early days in the cobot induced economic crisis, given the extremely small number of forbearance request. We've received in Q2, we feel extremely good about the longstanding reputation for outstanding credit discipline at Walker and Dunlop showing itself once again.
There are two other topics I'd like to focus on before turning the call over to Steve.
First one of the pandemic kit, we decided we needed to communicate with our employees and customers on a direct and consistent basis.
I started filming daily videos to all Walker NAPW employees, but up every one of the team what was going on inside and outside of the company.
The video has also helped maintain the exceptional corporate culture that defines Walker and Dunlop during a time when everyone was working from home.
We also launched the Walker webcast.
While all of W. These competitors were producing webinars been discussed market conditions in cap rates, we design, our Walker webcast to discuss not only commercial real estate and the Kobe pandemic, but also topics like health care leadership remote working macroeconomics and emotional intelligence.
And by bringing in World leaders on these topics the Walker webcast differentiated itself and has continued to do so ever since.
While most webcast I participate on with other industry leaders have a few hundred participants. The Walker webcast is consistently had over 5000 pre register to watch the webcast and the webcast replay on Walker now wants you to channel has consistently received more than 5000 views.
Today, we have added just under 150000 people do a live or recorded Walker webcast.
And while a 150000 views isn't an incredibly impressive number whether it even more reduce even more exciting is how the webcast has become a cornerstone for an entirely new digital marketing strategy for Walker and Dunlop.
For example, our client email database with 19000 people prior to the cobot pandemic today is over 120000 email addresses.
Our media outreach has exploded, having walker and Dunlop mentioned at 129 press articles in target publication during Q2, and all time record by over 55%.
It is no coincidence that WMD has gained enormous market share in Q2.
And given the success of the Walker webcast, we will continue to expand our brand and digital marketing strategies going forward.
The second topic is Rachel Justice and diversity.
The Wednesday after George Floyd you are brutally murder in the streets in Minneapolis.
Turning to our board member John Rice jointly Walker webcast and said quote the time for took acts of diversity is over his time for real action on flow.
On that webcast I detailed Walker and Dunlops already established ambitious goals to increase gender and racial diversity in both management positions and top earnings is it patients by 2025.
Fair enough has consistently been a leader in the commercial real estate and mortgage industry with regard to racial diversity and we will continue to do so.
We have been a major sponsor of project adjusted management leadership for Tomorrow, Europe and future housing leaders.
And we will continue to invest our capital in time to make these important programs have greater impact.
We have reinforced our commitment to building a robust diversity and inclusion program driven in large part by our minority employed resource group and our women's initiative.
And we have put diversity and inclusion at the center of our environmental social and governance goals and are in the process of time the accomplishment of these goals to long term executive compensation.
As I wrote to all Walker and Dunlop clients two weeks ago. The commercial real estate industry is premised on the concept of community communities to work communities to shop and communities to live.
We must as an industry to all we can to promote community and a quality across our country. During these challenging times.
Most importantly over the coming years to ensure systemic change actually happens.
I'll turn the call over to Steve now talk through our second quarter financial results and credit portfolio in more detail and then I'll come back to provide some insight into what we see ahead in the coming quarters Steve.
Thank you Willy and good morning, everyone.
Our second quarter results once again demonstrated the power of our business model as we delivered exceptional top and bottom line growth and continued to strengthen our balance sheet, although operating with a fully remote workforce.
Q2, total transaction volume of $7.1 billion included a significant year over year increase in our Fannie Mae loan originations, which drove a 26% year over year increase and total revenues to a quarterly record of $253 million.
Second quarter net income of $62 million and diluted earnings per share of $1.95 cents.
Were both up 47% from Q2 19.
Second quarter total debt financing volume of 6.7 billion was led by $2.8 billion of Fannie Mae originations.
For the second consecutive quarter, Fannie Mae originations comprised over 40% of debt financing volume, which along with our robust had originations pushed gain on sale margin to 252 basis points well above our forecast range of 170 to 200 basis points.
The first half of the year has been characterized by our dominant market share with Fannie Mae.
Looking at our current pipeline of GFC business, we expect to see an increase in are pretty met originations in the second half, particularly in Q3.
Our hub businesses poised for a breakout year in 2020, having originated $640 million in the quarter and with a strong pipeline for the rest of year, while debt brokerage volumes will likely continue to be constrained by the current economic environment.
Anticipating the shift to more Freddie Mac originations in Q3, we expect gain on sale margin to be in the range of 190 to 210 basis points for the quarter.
Our scale business model continues to produce healthy chief financial metrics, the second quarter operating margin of 33% and return on equity of 23%.
Both well above the top end of our target ranges of 30% and 20% respectively.
Personnel expense as a percentage of revenue was 42% due to an increase in variable expenses for commissions and bonus driven by the strong performance during the quarter.
Variable compensation expense was 60% of our total personnel costs during the quarter.
And finally year to date revenue per employee has increased to over $1.1 million as revenue growth has outpaced the hiring of new employees.
Our strong debt financing volumes in the first half of the year have enabled us to grow our servicing portfolio by more than $6.5 billion in the last six months and our servicing portfolio ended the quarter just $12 million below the 100 billion dollar Mark.
As Willy mentioned, we have since crossed over 100 billion successfully achieving an important pillar of our vision 2020 goals.
The portfolio continues to fuel strong cash revenues with record servicing fees totaling $57 million in Q2.
Additionally, the record mortgage servicing rights revenues of $90 million in the quarter, which were more than double those of Q2 19 will translate into higher cash servicing fees in the future.
Turning now to liquidity, we continued to strengthen the balance sheet, increasing our available cash on hand from 205 million at the end of Q1 to $275 million at the end of June.
The increase in cash was driven by strong operating cash flows and continued payouts in our interim loan portfolio.
Adjusted EBITDA in the quarter was $48.4 million down from 62.6 million in a year ago quarter.
The decline was driven primarily by the impact of low short term interest rates on our escrow earnings which declined by $12 million year over year.
Our average escrow balances at the end of June were $2.2 billion, which will drive significant upside earnings and adjusted EBITDA, if interest rates start to rise.
During the quarter, we also finalize the servicing advance Lyne mentioned in our last call to facilitate the advancing a principal and interest payments on our Fannie Mae portfolio.
The advance line is structured to $100 million supplement to an existing agency warehouse line and may be used to fund advances of principal and interest payments on loans that are in forbearance or our delinquent within our Fannie Mae DUS portfolio.
The facility provides 90% of the principal and interest advance payment at a rate of LIBOR, plus 175 and is collateralized by Fannie mae's commitments to repay the advances.
Today, we have had very few requests for forbearance.
Through the end of July we had only nine Fannie Mae loans totaling $261 million that took forbearance, which is less than 60 basis points of our Fannie Mae portfolio.
And we have granted no new request since may.
In addition, the three loans it took forbearance in April all made their first post forbearance period payments in July.
A really good sign as the initial three month forbearance periods come due and add.
Before I turn the call back to Willy I want to spend some time talking about credit.
During the quarter, we took an additional $5 million provision expense to increase our allowance for credit obligations related to our at risk Fannie Mae portfolio.
The provision expense was driven by the growth in our portfolio during the quarter and was not related to any change in our forecast for future losses.
Since we established our loss forecast in the first quarter. Our portfolio has continued to perform very well as demonstrated by the de Minimis number of forbearance request to date and with those who requested for parents in April all making their required post forbearance payment in July.
Unemployment rates are at the levels we expected.
And it seems likely that additional government stimulus will be provided while the economy remains burdened by code 19.
Our allowance now stands at just over $69 million for 17 basis points of our at risk portfolio.
We fully expect that there will be defaults in the portfolio over the next year, but that is baked into our forecast.
With respect to our interim loan portfolio, we reduced our allowance by $200000 during the quarter due to the overall decrease in the size of the portfolio, which declined from 458 million at March $31 million to $408 million at the end of June.
So far this year, we've reduced the portfolio by 25%.
Inclusive of the interim loans in the Blackstone JV, we've had 12 loans totaling $240 million iterate locker payoff payoff, so far this year, reducing the risk profile significantly.
Those 12 loans that rate locked or paid off we refinanced 10 of them with third party capital, mostly Fannie and Freddie for over $290 million in permanent loan financing achieving exactly the objective we have always had for the interim lending program.
We expect to restart our interim lending in Q3 consciously at first given the opportunities we see in the market to originate high quality loans from our very best sponsors.
Overall, we feel really good about the performance of our entire portfolio today in the strong performance of the multifamily market through this crisis.
Last quarter in light of the massive uncertainty we faced at the time, we backed off of our goal for double digit earnings per share growth in 2020.
Our strong financial results for the first half of the year and the pipeline of business, we see for Q3 and put us back on track to achieving our annual operating margin and return on equity goals of 28% to 30% in 18% to 20% respectively.
And we believe double digit EPS growth for 2020 is now achievable.
In addition, our robust capital and liquidity position give us great confidence in maintaining our dividend as a board approved a 36 cents dividend per share for the quarter payable to shareholders of record as of August 20 Onest.
We had an amazing first half of 2020 on the face of uncertain economic environment.
This is all due to our resilient business model and exceptional team, which continues to deliver for our clients shareholders and each other quarter after quarter end year after year.
Thank you for being with US This morning and for your continued support I'll now turn the call back over to Willy.
Thank you Steve.
As my opening remarks, and the financial details Steve just provided show.
Our next year to date performance has been exceptional.
Prior to the Copacabana, our strategic focus and new high Heres contributed to fantastic growth in first quarter and when the pandemic setting. Thanks to the teams culture systems and processes, we have implemented over many many years, we transition to a distributed work model without skipping a beat.
We've been using zone to conduct our weekly executive sales calls long before the coated pandemic kit as well as Salesforce inbox to manage our client outreach and collaboration.
And our team of 900 employees to their upon themselves to figure out how to inspect properties receive appraisals closed loans and continuing providing exceptional service to our customers. This is expected at Walker and Dunlop each and every debt.
The seamless transition to remote working low interest rates and tight investor spreads on agency backed commercial mortgage debt has created a terrific environment for refinancing activity in the multifamily sector.
As I mentioned previously WMD has been refinancing new loans, not our own portfolio, which is dramatically expanded our market share.
And with multifamily comprising close to 80% of total commercial real estate financing volume. So far this year, we are extremely well positioned to be one of the largest providers of capital to the commercial real estate industry over the coming years.
A strong macroeconomic environment coming out of the pandemic should drive continued financing volumes in our core multifamily business.
And as the multifamily property sales business rebalance, so should our capital markets business as non multifamily asset classes, such as office retail and hospitality to stabilize.
As I ran through vision 2020 on a trailing 12 month basis I did not discuss our asset management business, which as we started at the end of two that as we stayed at the 2019 is not going to achieve the 2020 vision goal of $8 billion of AIU App.
There are however, several noteworthy accomplishments during the quarter that I'd like to underscore first our AUM of $1.9 billion comprises three components equity capital invested in a broad array of commercial property types by JCR capital.
Debt capital, we landed on behalf of life insurance company lease through separate accounts and multifamily bridge loans, we originate into our joint venture with Blackstone mortgage Trust.
During Q2, we reached an agreement with a large Canadian pension plan to provide up to $250 million of preferred equity capital on multifamily deals, where we originating first trust mortgage financing with Fannie Mae or Freddie Mac.
We also rebranded JCR capital, the Walker and Dunlop investment partners and reorganized the business going forward.
Finally during the quarter, we began efforts terminate or raise our six fund an opportunity fund.
So while our asset management business has not grown as rapidly as vision 2020 had outlined we're extremely pleased with the progress made during the quarter and its outlook going forward.
Steve made a point during his comments that I'd like to underscore as we think about the new business, we originating today and how it will play out in future quarters.
The loans, we are currently originating carry with them significant servicing fees demonstrated by our 252 basis point gain on sale margin in Q2.
As you can see in our net income and EBITDA numbers, we are generating a huge amount of noncash revenue in mortgage servicing rights that will convert into cash revenues over the next 710, and even 40 years, depending on the life of the level. So noncash revenues today convert to cash.
Tomorrow, we also expect our debt and property brokerage volumes to be significantly higher in Q3 and going forward into next year, which will add cash origination fees.
And finally at some point interest rates will begin to rise and we will generate substantial cash interest income our $2.2 billion in escrow deposits.
So while we have had an exceedingly successful quarter by any measure it is truly exciting to think about the future cash generation of the platform we have built.
Walker Dunlop went public in Q4 2010, just as the economy was emerging from the great financial crisis that quarter, and our IPO, where seminal moments in our company's long history.
And set us up for dramatic growth, we have generated over the past decade.
Q2, 2020 is another seminal quarter for our company, where the team scale brand and culture. We have built immediately differentiate us from the competition.
Walker and Dunlop has proven time and again that we can weather commercial real estate cycles and emerge as the very best in the industry and during times of market uncertainty borrowers want to work with the very best.
Hi dramatically, increasing our brands for the Walker webcast working collaboratively as a team using zone and having insights into our clients total debt holding through our proprietary data analytics, we were able to grow our market share to 13% of all commercial real estate financing in the United States for the first half of 2000.
20.
We used the momentum gained during the quarter to add property sales talent in Los Angeles, and Nashville acquire a debt and equity placement team in New York and bring on a high team in Dallas.
We just became a Freddie Mac small balance lender, which gives our team the ability to originate small loans for both Fannie Mae and Freddie Mac and we hired one of the top small balance loan origination originators in the industry to help us grow this area of our business.
Finally, we continue to invest heavily in our appraisal joint venture a price and other technology initiatives even.
Even during a period of market stress, our strong market position and financial stability have allowed us to remain focused on our long term growth strategy initiatives and continue to invest in our people and platform to drive growth in future years.
I've been proud of our team since the day I joined Walker and off but never in my 17 years at the company I've I've seen how good we truly are demonstrated so dramatically.
We transition to a disservice work model seamlessly generated record revenues and the strongest operating income in the company's history.
Had no credit defaults in the quarter and a very low number of forbearance requests and fundamentally transform the brand and market presence of the company through the Whopper Walker webcast and ancillary digital marketing strategies.
All while continuing to invest in future growth.
There are plenty of challenges that we will face in the coming months in years.
But as we have shown time and again Walker and Dunlop is not only up for the challenge, but will emerge the where.
I want to congratulate and thank all my colleagues at WD for a truly outstanding Q2 I.
I know working remotely has its challenges and benefits, but we are at less to have an incredible company with an outstanding corporate culture and if our performance in Q2 is any indicator we have plenty of exciting times ahead.
Thank you for joining us today, and I will now turn the call over the operator for questions.
Before it now open for analyst question at this time with the other question on the phone. Please press star nine or here on your computer Creek click rates and the bottom on your webcast screen.
Our first question is coming from Henry Coffey of Wedbush.
Yes, good morning, I Hope you can hear me.
Good morning.
So.
The obvious the open question on multifamily credit quality is.
What's in the estimate.
And right know unemployment rates are high, but we have a lot of supplemental payments out there.
Multifamily delinquencies are actually about where they usually are.
What what sort of numbers are you thinking about as you look forward.
In terms of likely multifamily delinquencies unemployment levels and then one of the open topics, which of course is student housing.
Good morning, Henry and thanks for joining US look if you look at the data right now Henry.
We got zero to worry about right I mean, the data tells me right now zero, but at the same time, you got to sit there and sort of say okay.
There are likely as Steve said, there are likely to fall it will come into portfolio, but as Steve also outlined we are.
Extremely well positioned a provision given the $22 million Division, we took in Q1 and the $5 million provision. We took in Q2, which is not a specific reserve for anyone any one asset or any assets that we are concerned about but do 100% the growth in the loan portfolio.
Due to the new Cecil standard so.
Look we we went through the great financial crisis with de Minimis losses in our portfolio, we had a much smaller portfolio back then.
We feel extremely good if you listen to squat box. This morning plenty of Republican centers are saying, we're going to see some extension of the unemployment benefits and as you heard speaker Mcconnell talk about yesterday or the white house as they want to go to stepped up level of 400, 600 that likely will break from the more conservative member.
As of his caucus and support that type of stepped up unemployment payments and I I would say to you that if you get any extension of the unemployment benefits that rent roll should hold very strong.
And you have to also keep in mind, there's a huge amount of equity capital that has been accumulated in all the assets that we have loans on over the last 10 years and so while rent rolls may degrade supplier. The concept that owners would default on their loans and throw us back the keys with the amount of equity cap.
It will in those assets I think this time around is a much higher bar that during the great financial crisis and as you know during the great financial crisis multifamily the agencies and Walker and Dunlop had diminished loan losses.
Let me just quickly go to your second question about student housing and then add like you follow up if you have anything else on student housing as you know Henry we have $2.6 billion of at risk loans on student housing properties across the United States. What has been extremely good to see is that and many students whether this.
School is going back live virtual or some hybrid headed back to that off campus housing.
Universities transforming their on campus housing have de identified if you will.
They triples into double as doubles into singles and they've also taken on campus housing and turned it into quarantine areas. As a result of that the demand for off campus housing has spike and those operators.
Who have good off campus housing have seen pre leasing numbers, they're extremely strong and I'll give you one other data point, which today one of our largest student housing borrowers at Walker and Dunlop, We just yesterday approved a 55% LTV hundred 19.
Million dollars loan on a student housing property that they are acquiring right now they did 95% pre leased for this upcoming fall. So there is Ada preleasing looks really good and be there are many investors right now we're stepping into that space and not away from that space.
That's helpful. And then on just a real big picture issue. The FHLB Bay is put up capital guidelines for comment.
I did note with a certain amount to irony that that the the risk weighting on multifamily was was exceptionally twice that I'm single, even though multi families. The area, where you don't see the losses.
Do you have any thoughts.
On what's going on with the GE as season weather.
Whether we'll see a recapitalization, whether we'll really change the market I mean, there there were a lot of flow thoughts floating out there last fall and now we have at least to capital proposals to react too.
Okay.
I would put forth it a as you know Henry Theres, a lot of activity in Washington, right now.
And the issue of the FHLB plan privatization, Fannie and Freddie I think is heavily dependent on the outcome of the November election.
As it relates specifically to the capital standards.
As you can imagine we have read through the proposals we have worked with industry associations to comment on those proposals and I would say from just Walker and Dunlops physician. There are things we are commenting on but there's nothing in the proposed capital standards that were overly concerned about at this point.
And then the second thing I would just say is that depending on the outcome of the election I think Dave you have a president Trump being reelected Mark Calabria will stay in as a director and I think that the administration at hedge at Bay will continue to push to privatizing Fannie and Freddie I think it's vice President Biden is elected form.
President by has elected president that those efforts will likely.
The stall that there will likely be a new FHLB director putting bye.
Newly elected President Biden and that there will be a new strategy for the agencies.
And as I have said multiple times from Walker and Dunlops perspective, Henry it's sort of had we win and sales you lose if they continue as parts of the federal government, they're going to continue to provide capital for multifamily and we are going to continue to be one of their largest partners. If they get privatized there are clearly benefits to that in the.
I sense that they are now outside of the federal government. They can invest in his new talent. They can pay their senior managers on out on a more if you will the market pay scale and they can become increasingly innovative although I would say within the confines of conservatorship, both Fannie and Freddie they've been wildly creative and try to.
Create new products and to lead the multifamily financing market.
Super It listen congratulations on a solid quarter at a pretty tough period. So thank you solid that I will add an understatement Henry.
Very very solid.
I appreciate it thanks, Eric.
Extra special solid.
Our next question will come from Steve Delaney JMP.
Steve We can't hear yet you might be on mute.
On me, Okay can you hear me now, yes, Mccann Oh excellent.
Mute button I didn't realize was there so well I'll I'll top Emory I'll, just say congrats on an excellent quarter.
We put that aside.
Will you made it very clear that you're good new loans are not just turning your own book, but they are there new new loans, new in some cases, new clients to WD. So my question is where are the ones coming from what types of institutions are are seeing these loans being paid off and if you could.
We've obviously had a huge drop and rates can you quantify with the the rate benefit is.
Kind of a range of the rate benefit that these borrowers are realizing when they figure out of their current one into their new.
And your fixed one or so you're putting them with with Freddie Ben Thank you.
Sure Steve first of all thanks for joining us this morning, Sir.
First is well over 100 basis points is typically what we're seeing as it relates to the pickup on the new rates were right.
New debt out at between 253, depending on.
Leverage level sponsorship asset et cetera, et cetera, some loans are dipping below 250 and getting into that two thirds into fortys.
Some loans are around the three coupon, but thats just generally speaking the range in most of the paper that were refinancing right now had a four handle on it previous to us redoing. It. So there is a very significant step up there I would also say we did a financing on an investment sale that we actually brokered during at the end of the quarter and.
One of the interesting things there was there was only a 4% price difference in the sale price of the asset.
From pre cold that pricing to when we transacted at the end of June 4% and you sit there and you say wow wouldn't there be more of a discount between pre committed pricing and a deal that went off at the end of Q2 and the issue with it is their underwriting on the financing at pre crisis.
With a 100 basis points tighter as far as the coupon rate than it wasn't actually closed on it and so they weren't the only take a 4% discount on the sale price because they picked up so much in their cost of capital and what the cat what the return was going to be.
On buying at that level.
To your question as it relates to clients and the expanding of our market share.
Well you have to keep in mind that of the $5.2 billion of loans that we added to the servicing portfolio, our net new servicing rights in the quarter 2.4 billion of it was the southern management portfolio, which we essentially one from one of our large competitor firms we bid against them.
And through two other of our biggest competitors, we won that financing and that 2.4 billion, which is in that 5.2 got it yes.
But at the same time, there is $2.8 billion of incremental loans that what is unbelievable about at Henry is that they were almost all one off deals and smaller loans 20 $30 million loans. There is no other portfolio in there there is no other.
300 million dollar loan in there that says Oh, well, that's what's got they won one big new client all that over a 2.8 billion was basically singles and doubles. It was 18 million dollar deal a $32 million deal and what's so exciting about it is just the breadth of the platform the banks.
Is that we put on the front lines and the support that we've given them by quite honestly the explosion of our brands, which is brought new borrowers to Walker and Dunlop I well bore you on this call, but the number of new clients that I personally have interface with through the Walker webcast of people, saying.
I listen to it every week Walker and Dunlop is being insightful you. We follow up on every single Emailing free we got off the webcast with direct one to one marketing with some of this put a question on the webcast direct one to one marketing while immediately that might be someone who in the past has been borrowing from one of our competitors and now we have a one to one relationship with them.
And that has transformed the brand and its transform the reach reach of our bankers and broker for into a whole new client base that previously we weren't touching.
You mentioned, the new leadership and the programming Ginnie Mae loans and that was obviously a big contributor could you give us a sense of what percentage of total.
Total volume going forward a range of what you would expect could grow to and remind us I know, it's the highest margin business that you have but.
End of embedded in your your new Steve's new gain on sale margin what are you specifically assuming on hug once thanks.
That's my final.
So I.
I'd say they Steve.
First of all I mentioned, Cherry and Stephanie Weightings, Who's our Chief production officer results in the Middle office done an amazing job with our business.
And to a process that much business in Q2, when the federal government shutdown for lengthy period of time and Im not trying to poke at high but they're not exactly the most technologically savvy.
Lender in rural right.
A process that amount of business in Q2 is just to herculean effort in an incredible accomplishment for our team.
I'm going to dumb youre on giving you a forward look on high that I'll tell you want the first of all our Q3 pipeline is fantastic and 30 into Q4, so as it relates to what we're working on today. The team has got a pipeline is as I said in my comments extremely fall and I feel very good about.
Our Q3 high volumes and at the same time I will off so say that we've been in had business for a long time, it's a very difficult business to project volumes because it allows the the commitment timeframe you're working on a deal you expect to be a Q2 deal if for whatever reason some things come up are you got to go reduce something and long ball.
It becomes Q3, so I would only say that yield.
What about the Q3 pipeline on our hospital.
I'd love to see if you will redo in Q3 of what we did in Q2.
We clearly have visibility to doing something like that but quite honestly I can't tell you if that were going to get they are not right now just given the amount of we're.
During the quarter Yep, well apart from volumes, which I understand.
Can you quantify the the the gain on sale opportunity on when and if those loans come.
When you're looking at your third quarter or one nania to Tim So what is that the rough range, which you would expect could loans to contribute to that marching orders on a basis point.
A lot of that depends on whether we're doing a lot of to 23 apps, which are refinancings or whether we're doing before as which are construction loans and how we account for that but Steve you want to we haven't broken out ranges on various lines of business in the in the gain on sale margin do you want to get Henry some color on that I mean, sorry decent.
Yeah, and look part of it to Steve is a function of how much debt.
Brokerage volume, we do as well right. So that we write suppress number in Q2, which also helped elevate the gain on sale margin to that.
Understood, yes, what level so.
If we get a pickup in debt brokerage in Q3.
And what was about 10% of the Enbrel volume in Q2.
I'd love to see it stick around at that level.
Going forward.
But to Willie's point.
It's.
Hard to predict that.
Pipeline certainly looks good.
Thats factored in the to the estimate we've given you.
Well. Thank you both with comments and again congratulations on the progress you've made in 2020.
Thanks, Steve.
Thank you. Our next question will come from Jade Rahmani at KBW.
Hi can you hear me can say, okay. Thanks very much.
Just wanted to find out on the pipeline for Fannie Mae Freddie Mac, How's that looking for the third quarter and in the second quarter, specifically were there any outsized originations.
That that occurred.
Yes, so Jay good morning, and thanks for joining us.
As I said in my remarks, our pipeline for Fannie and Freddie and Q through Q3 is extremely strong.
We have great visibility on our Fannie and Freddie business in Q3, and it looks great.
As it relates to Q2, one of the big things to keep in mind is as much as in responding to Henry's question on.
The are actually received question on the net additions to the servicing portfolio and I mentioned, the southern management deal the southern managing deal is not in our Q2 origination numbers. We recognized 2.1 of the $2.4 billion on the southern management deal in Q1, so all of the originations in Q2.
Are those ones and twos, if you will that I mentioned and so the loan count was significantly up there was no portfolio in there and there was no the loan in there.
And so I mean that did quite honestly, that's where we get not only new clients, but we also got a lot of margin because when you do large structure transactions origination fees come down servicing fees come down and so when you're doing those one off transactions, you're typically getting full origination fees and full servicing fees and that was.
Big driver in Q2.
Our economic performance.
Okay in terms of the financial outlook, just wanted to make sure I got the.
The guidance was that was provided was basically the third quarter gain on sale margin of 190 to 210 basis points, which I believe is driven by increased mix of brokerage business and non Fannie Mae business and secondly, you still expect double digit EPS growth 2020 is there any comments that you could.
And with respect to adjusted EBITDA for the year.
Steve you articulate about that the grower.
Yes, I think.
Jay as I alluded to in my comments, one of the primary drivers of the quarter over quarter decline in adjusted EBITDA was the low interest rate environment and the impact that that has on our earnings.
I think we are obviously long term very bullish about.
Bad debt.
Quote unquote asset for us, but in the short run I don't see any impetus to rates going back up on that so I think we're going to continue to see.
As grow earnings data.
More muted level than what we said we've seen over the last couple of years since that where interest rates are and all things equal that's going to put pressure on the.
The year over year comps on EBITDA I think if you haven't today, we still feel really good about the cash generation of the business immunity.
The operating cash flows generated and as a service affiliate growth.
And as we put.
More business into the portfolio at the higher servicing rates thats going to bode well for our cash generation in media in the future as Willy mentioned.
Okay.
The bigger picture question regarding the outlook for multifamily tracking the homebuilders and single family rental rates.
They are both both sexes, our noting a an uptick in move outs from multifamily.
And from denser environments into the single family housing space at the same time it seems that collections in multifamily have been strong performance strong and clearly very very low for bands levels as evidenced by the strong results and.
WD servicing portfolio. So how would you square those two tensions as it relates to the outlook for multifamily credits and the potential for an increase in server suburbanization and an increase in single family housing demand.
Yes, Jade we've discussed this before I'm not I'm not is convinced as you are that this great suburban migration is underway and.
There's there's an economic reality that sit behind all of this if Europe, if you're in associated Goldman Sachs and living downtown in Manhattan, and you decide you want to stop renting your apartment from related to move out to Greenwich, Connecticut, you could have done that a year ago, you can do that tomorrow and likely you are doing that.
But thats not the core of our business, we're not and first of all we don't have alone on a related asset in in downtown New York at start with on the second thing is that we're focused on the middle market. We're focused on workforce housing we're focused on affordable housing.
And we economic reality is that we have over 20 million people unemployed in United States today, if they couldn't go and buy a single family home previously they can't go buy it today Diana although it was on CNBC. This morning talking about the fact that Theres no supply of entry level single family housing I've said that you gave for five years running.
Net and show areas, a new supply of affordable entry level single family housing people will continue to be renters of multifamily.
And for the last five years that is exactly what has happened occupancy levels have held up is there a marginal people, who say I don't want to live in a building with 300 other people because theres, a pandemic going on and I'd like to move out into a single family home. Yes is there a great opportunity for SFR single family rental, yes, but as.
You also know the SFR stock that's out there today is full so yes, there are billions of dollars being put out there in the low single family homes for SFR, but they're not going to be out there between now and when the pandemic is hopefully over.
And then they're going to have a competitor price point of standing multiyear movies SFR. So.
Look there we are in uncharted times, there are plenty of people out there who are holding with their feet to move from an urban location to a suburban location if they can afford it.
But at the end them today, the majority of people who was the first time homebuyers.
For a new single family entry level, how and the homebuilders haven't built that product to make it available which is just pushing the cost of that entry level housing up which is making it increasingly on affordable to the average America.
Okay.
Yeah, and I think in terms of these trends it's too early to tell what will become a long term change behavior Lee.
The market and I think it's it's highly uncertain at this point in terms of the volume strength, how much of it was refi activity and how long do you expect this current re Fi wave to the last.
It was up 90 10 in the quarter as it relates to revive versus acquisition.
But as you also saw numbers, we did $450 million of investment sales in Q2, and I told you. We already have a pipeline for Q3 of closings of 1.3 to 1.4 billion acquisition activity.
And I also made reference in our call to a deal that we sold at the end of Q2, where we brokered and we also fund asset we're seeing more and more.
Deals, where we are both listing the property and financing property.
During the power platform and the investment sales team that we feel good Walker and Dunlop So as investment sales comes back.
Volume.
Acquisition financing go up.
But as I also said.
As it relates to the overall outlook for Fannie and Freddie on I, just hear refinancing basis got an extremely healthy pipeline for Q3.
Thanks, very much congratulations on a great quarter and thanks for taking the questions. Thanks Jade listed.
Thank you Aaron no further questions I'll now turn the floor back and particularly for closing remarks.
I'd reiterate my thanks to everyone, who joined US this morning for the call and I'd also reiterate my congratulations dwt team for a truly outstanding Q2.
As transformed our company.
And we got a lot of exciting times ahead of us. So thank you everyone for joining us today and have a great day.