Q2 2020 Great Ajax Corp Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Great. Ajax Corporation Q2, Twentytwenty earnings call. At this time, all participants are they listen only mode. After the speakers presentation, there will be question and answer session.
ASCII question doing this session you would need to press star one on your telephone.
If you require any further assistance. Please press star Zero I would now my behind the conference will be to your speaker today <unk> Mendelson CEO. Thank you. Please go ahead Sir.
Thank you very much. Thank you everybody for joining us on our second quarter 2020.
Earnings call.
Before we get started on the presentation well just have you take a look at Q2 or at a page to a win for forward looking statements disclosure and with that we can get moving to page three our business overview.
Q2, 2020, it was a positive quarter in many ways.
After navigating through March and April we closed the second tranche of joint venture investment in loans that was purchased a in a prefunded securitization structure that we created in March or 2020.
We raised 125 million in net proceeds of perpetual preferred shares we paid down significant amount repurchase facility debt in Q2 as result of loan and mortgage bond cash flow.
And beginning in late Q2, 2020, we've seen our cost upon start coming down dramatically in first the average Q2 cost of funds.
One thing I do want to add volatile environments and declining economic times like we've seen in the last few months really show, how important and strategic having our directly aligned operating them on servicing platform can be coupled with our value investing mentality.
You can see this through the continued performance of our loan portfolio and the net asset value relative to book value.
On page three our manager strength in analyzing long characteristics in market metrics for re performance probabilities and pathways and our manager's ability to source mortgage loans enables us to acquired loans that we believe haven't material probability of long term continuing re performance.
We've acquired loans in 302 different transactions since 2014.
Additionally, we believe having an affiliated servicer provides a strategic advantage in nonperforming and non regular paying loan resolution processes and timelines in today's volatile environment, having our portfolio teams and analytics group at the manager.
Looking closely with the servicer is essential to maximize re performance probabilities on a long cycle basis.
Yeah analytics in sourcing of the manager and the effectiveness of the service are also enables us to broaden our investment reach through joint ventures with third party institutional investors.
Our June 30, 2020, corporate leverage ratio decreased from 3.2 times at March 31 to 2.2 times at June 30, we used primarily moderate leverage, especially for our sector and primarily non mark to market leverage mark to market financing represents less than 25% of our financing as.
Approximately 90% backed by our class he wants securities from our joint ventures.
On page four will talk in depth about second quarter.
Net interest income from loans and securities, including a four point Threemillion partial reversal of Kobin 19 related loan extension and credit losses was approximately 15 million.
The second quarter, we had a lower average balance of mortgage loans due to prepayment in principle amortization, but a higher average balance of investments in joint ventures that our on balance sheet securities and beneficial interest.
Our joint venture loan acquisition that closed in April was on balance sheet for approximately nine weeks, although its related interest expense was for the entire quarter. Since we pre funded the acquisition through securitization in the first quarter of 2020.
A gap widened to keep in mind, though is that interest income from our portion of joint ventures shows up in income from securities not interest income from loans.
For these joint venture interest servicing fees for securities are paid out in securities waterfall. So our interest income from joint venture Securities is net of servicing fees. Unlike interest income from mortgage loans, which has gross of servicing fees.
As a result, since our joint venture investments have been growing faster than our direct loan investments, particularly in the second quarter GAAP interest income will grow slower than if we directly purchase loans by the amount at the servicing fees and GAAP servicing expense will decrease by the offsetting amount.
An important part of discussing interest income is the payment performance of our loan portfolio.
At December 31, 2019, approximately 76% of our loan portfolio by principal balance made at least 12, a blast 12 payments.
As compared to only 13% at the time, we purchased the loans.
At March 31, this number was 74% and at June 30, approximately 72.6% of our loan portfolio by U.P. be made at least 12 and the last 12 payments.
In our Q1 2020 industry recall, we mentioned that we expected coping cobot 19 related economic environment would negatively impact the percentage of 12 12 borrowers in our portfolio in the second quarter.
Thus far the impact on paper performance has been less than expected all the effect on interest cannot must still difficult to quantify and forecast while regular paying loans produce higher total cash flows over the life at the loans on average.
They can extend duration and because we purchased loans a discount this reduces percentage yield on the loan portfolio interest income.
However, regular paying loans generally increase our net asset value enable it. They also enable financing at a lower cost of funds and provide regular cash flow.
What was that are not regular monthly pay status tend to have shorter duration. However, we expect that this duration reduction will be less than typical due to market conditions and the impact of cobot 19.
As I mentioned earlier, most of our loans were purchases non regular paying loans and the borrowers our servicer and portfolio team have worked together overtime to reestablish these loans as regular we pay.
We also expect that given the low mortgage rate environment and the stability of housing prices. So far that prepayments will likely continue to increase on both the regularly paying and Don regularly paying loans overtime.
Our cost of funds in the second quarter was higher than in the first quarter by 11 basis points, which equates to approximately $300000 of additional interest expense for the quarter, even though our average outstanding asset level debt was 25 million less.
This was primarily due to temporarily higher rates on certain of our mark to market securities repurchase facilities caused by market disruption, which were partially offset by lower cost of funds for a mortgage loan repurchase facilities.
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Net income was 6.2 million or 27 cents per share after subtracting out 1.84 million a preferred dividends and 735000 of income attributable to non controlling interests.
A couple of other things to note.
We recorded 700000 to flow through income from the June 32020, mark to market or managers and Servicers ownership agreed echecks common shares versus the March 31, Mark to market.
Our manager and service or combined to own approximately 1.1 million shares of our common stock and we own 19.8% of our manager and 8% of our servicer.
Also we expensed approximately 1.4 million relating to the GAAP required accrual of the warrant put rights from our second quarter issuances preferred stock and warrants.
Book value rebounded from Ford turning 37, a share at March 31 to 15 20 at June 30. This is still lower than the 15 80 per share at year end 2019.
The increase from Q1, primarily reflects a 23 million mark to market adjustment to our debt securities as generally determined by marks provided by our fans financing counterparties. After a 28 million negative mark to market adjustment in Q1.
Almost all of our debt securities that are subject to mark to market repurchase agreements our class eight one securities from our joint ventures.
Taxable income was negative nine cents per share the two leading drivers of lower taxable income in the second quarter were fewer foreclosures and more Oreo sales as well as increasing loan ownership through joint ventures.
Taxable income declined in the second quarter, primarily as result of lower foreclosure gains versus prior quarters, while the level of tax losses from Oreo sales remain elevated.
For tax purposes, we recognize a gain after for closure date is an amount equal to the difference between our tax basis in the loan and the fair value before expenses of the property.
As a tax accounting it foreclosure does not take into account liquidation expenses a portion of this gain is typically reversed when you sell the are you.
As a result of cobot 19 effect on Oreo and strong pay history of our loans, we have very few new foreclosures, which reduces tax gains and more Oreo sales, which increases tax losses.
Additionally, our joint ventures are accounted for a single loan pools with the purchase discount those pools recognized over the remaining weighted average life.
Under the tax law, the pricing speed in yield at the loan pool is required to remain constant over the life of the pool and low mobile gains are not recognized accordingly, the historical gains previously recognized that the loan level for foreclosure or modification event are no longer recognized in all income is effectively recognized as Hawaii.
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Cash at June 30, we had approximately 163 million of cash at Duff and for the second quarter, We had an average daily balance of 125 million.
Our surplus cash currently tempers earnings a bit but this should reverse as we get the cash invested over time.
In addition to cash we also have approximately 65 million.
Oh unencumbered Triple B double B and single B rated securities from our Securitizations and approximately 25 million of unencumbered class eight two and be one securities.
As I mentioned earlier on the call over 72% of our portfolio by you PB made at least 12 of their last 12 payments compared to only 13% at the time of loan acquisition.
I will discuss the importance of this in greater detail when we get to page nine on the call.
If we flip to page five.
It's pretty clear that we continued to be primarily RPL, driven with rpls prison, representing approximately 97% of our loan purchases, we strive for positive payment migration of purchased Rpls.
And on page six you'll see that we continue to buy and own lower LTV loans. Our overall RPL purchase price is approximately 54.4% of the current property value.
And 87.7% unpaid principal balance.
And on page seven.
Our purchase nonperforming loans npls have been declining relative to the total loan portfolio for Npls on our balance sheet. Our overall purchase price is 73% at U.P.B. and 52% of the current property value.
We've not changed our target markets a in Q2.
California continues to represent the largest segments of our loan portfolio, our California mortgage loans are primarily in Los Angeles, Ori, Orange and San Diego counties.
We've seen consistent payment of performance patterns from loans in these markets. We've also seen consistent pre payment patterns, even in recent months, thus far the impact on our California loans from Cobot 19, and its related economic effects has been relatively muted.
We removed Las Vegas is a target markets during Q1 mortgages in Las Vegas are currently a small percentage of our portfolio. Unlike five years ago.
Our analytic suggests that cobot 19 will haven't been material economic impact on Las Vegas, given its tourism focus and the economic multiplier effect.
Although this will be partially offset by tax rate related transitions that we've seen from southern California.
We're keeping a close eye on Houston as the combination of Cobot 19, new oil industry struggles is having a material impact.
It's not spilled into the single family homes market nearly as much as the apartment market, thus far but we have trimmed back Houston targets.
Since we only had to Houston to our target portfolio locations in the second half of 2019.
It's a very small percentage of our portfolio.
We had been seeing material negative effects from the new tax loss Salt provisions in New York City Metro area in suburban New Jersey, and Southern Connecticut home values and Homesale liquidity.
We have seen a quick positive turn liquidity in the suburban locations as a result of Cobot 19, as New York City apartment dwellers look for suburban residences.
It is too early to tell however, whether this is a short term phenomena or a longer term change and lifestyle as result of cope with 19.
Related to this you have also seen demand for homes and home rentals surge in parts of Florida, but we've not seen the same for condominiums in Florida.
If we turn to page nine portfolio migration.
At June 30, approximately 72.6% of our loan portfolio made at least 12 of the last 12 payments.
Including 65.6% of our portfolio that made at least 24 of the last 24 payments.
Again this compares to approximately 13% at the time of purchase.
As a result of the economic impact of Cobot 19, we've seen a small decline in these numbers. During Q1, we had a 2% decline in loans as a percentage of our portfolio that our 12 of 12 payments are better and in Q2, the decline was 1.4%.
We expect that this number will continued to be affected but it is too early to determine the materiality.
Since we generally purchase lower LTV loans, and our purchase price to property value averages in the high Fiftys percentage, we would expect the principal impact of a decline in regular paying loans to be duration extension as borrowers with loans that are paying but are not 12 months contractually current we'll have more difficulty refinancing.
Since we buy loans that discount to the face amount of view PB duration extension reduces the speed at which we received a discount on the effective loans and therefore the interest yield.
So with 19 duration extension can also affect the yield on true nonperforming loans as extended resolution timelines can lead to more property tax insurance and repair expenses over that extended timeline.
Since we purchased most of our loans when they were less than 12 for 12 payment history.
Our service or is worked with most of our borrowers overtime, while it's too soon to understand the full effects of copas 19 on home prices in mortgage loan performance. So far the impact has been less than anticipated for us.
12 for 12 loans in today's market trade it materially higher prices, then pre cobot 19, primarily related to the rated securitization cost of financing now as a result, we believe our portfolio and related implied corporate net asset value are materially higher than GAAP book value, which.
Represent our loans at amortized cost.
On page 10 post Q2, we closed down approximately 46 million principal balance of residential first mortgage loans. The purchase price was approximately 88% if you PB and 66% on value of the underlying properties.
We also have another 11 million the principal balance of loans under contract to purchase subject to due diligence.
On July 30, we priced Ajax mortgage loan trust 2020 be with approximately 97 million of AAA rated senior securities and $17.3 million of single a rated securities with respect to 156 million you PB of loans, the AAA and single a rated bonds represent 73 point.
2% of you PB and approximately 82% of cost basis.
As a result for the 156.5 million of underlying loans, we have approximately four and a half times leverage at a weighted average interest cost of 1.88% that is non mark to market and non recourse.
We declared a cash dividend of 17 cents a share to be paid August 31 to holders of record on August 14, as a result would cobot 19 uncertainty and the related economic impact taxable income is hard to forecast. We do however, anticipate that our 2020 be securitization will trigger significant taxable income.
Our current joint venture partners continue to work with us seeking investment opportunities and we anticipate additional material joint venture transactions this year.
If we turn to page 11 financial matrix metrics, just a few things to note.
Average loan yields excluding reserve recaptured declined by about 70 basis points. This primarily as result of duration extension from both paying loans and not paying loans as discussed earlier the principal effects, we're seeing from koeppen 19.
Impact is duration extension.
Also remember that yield on debt securities and beneficial interest is net of servicing fees in yield on loans is gross of servicing fees as I discussed earlier debt securities and beneficial interest is how our interest in our Jvs are presented under GAAP as our JV is increase as they did in Q1 in Q2 relative to loans the GAAP reporting will show.
Lower yields by the amount under the servicing fees.
Our leverage continues to be quite low, especially for companies in our sector.
We ended Q2 with asset level debt of 1.9 times, while our asset level debt cost of funds was higher in Q versus Q1 due to market disruption in the securities repurchase agreement financing market the cost of our asset level debt has begun to declined considerably beginning in late Q2, and even more so in Q.
Three and you can certainly see that from our 2020 be securitization.
As we get our surplus cash invested as well we should see material increases in interest income and net interest income as well.
And with that sums up my remarks, if anybody has any questions we're happy to answer.
As a reminder to ask a question you need to press star one on your telephone to withdraw your question first the powder Heskey.
Please standby we have the Korean air roster.
Your first question is from Tim Hayes from B. Riley.
Hey, good afternoon, Larry hope, they're doing well.
Yep.
My first question here just on the reversal. This quarter can you just help us understand what drove that wasn't as simple as did better.
Collection rates than you expected or whether inputs like home values are interest rates that were the bigger drivers that reversal just trying to understand how volatile this could be going forward and how likely to the reversal could actually reverse going forward.
Right.
Is primarily collection rates.
And cash flows were significantly more than we had estimated when we can.
Late Q1 early Q2 built are kind of coded expectation model.
That being said, we expected to be volatile in the world of Cecil So.
We.
Took a reversal of a reserve that we thought was.
The proper reversal.
The cash flows continue to be significantly better than we expected from coded but.
Even through.
July that being said Theres no way to know kind of how this all turns out as we come into the school season in the fourth quarter.
Mhm.
And can be share why you think cash collection has been that in credit performance has been better than expected I mean is it just have to do with.
The demographic some of your loans or is there anything more kind of them from a macro perspective that you think is driving better credit performance just any color you could could share and that would be helpful. So far from discussions with borrowers and looking at performance.
One of the most important things is our loans tend to be lower LTB and have more absolute dollars of equity.
And as a result on average the borrowers are.
The borrowers.
Personal momentum has been derail the little less than.
Lower value properties.
Our properties tend to be worth.
We talked about Deciles, our properties tend to be industrials, four and a half through seven kind of.
Primarily for predictability and liquidity and in this environment.
We've seen that being the damage.
In terms of absolute dollars of equity.
I also think.
To a smaller extent much smaller expense stimulus money has been helpful. Although I think it's less.
Available or had less of an impact on our portfolio then in mortgage land in general.
Mhm.
Okay.
Got it and then what is the current forbearance rate on the portfolio today and how is that trended so far for in the third quarter. There we've had for our portfolio.
We've had about 15% of borrowers call, but about 80% of the 15% continued to make payments regularly.
And about 3%, which is why you've seen our 12 12 scope from 76% to 72.4%.
Haven't stopped making payments.
Okay, 3% got it.
And then.
I don't know if you can dispose this or is there is a view internally I understand this is a very opaque environment.
A lot yet to be seen but what loss rate scenarios are are you using internally for whether it's just kind of cash flow or credit analysis.
Yes that you're monitoring internally, it's it's loan by loan by loan we build our models loan by loan by loan in terms of expected losses, and cash flows rather than kind of a kind of CPR CDR mentality. We go loan by loan by loan and based on loan characteristics, we have different probability pads.
Of.
Oh, paying or not paying and not paying what potential outcomes are going to paying what potential outcomes are and that.
So we base everything off of those individual loan by loan profitability pads.
So there isn't really what I would call a global you know prepayment or.
Default rate and then based on probability pads.
The absolute the property values versus the underlying loan amounts plus the bridges if any.
We determine losses if any.
And timelines.
Okay. So you I guess the point what I'm trying to get here is your stock is obviously applying a massive amount of losses in your portfolio and I'm just wondering.
When you run your.
Kind of profitability scenarios and your your loss rates scenarios that if you think the market got IRET or if you think that they are severely over discounting the stock based on what you expected just kind of whats driving so and so our port so our portfolio.
This is kind of unusual in that.
If we had 100% defaults.
The yield would probably increase but any movie with decrease.
Mhm.
So because 100% defaults, we shortened duration, which would mean yields would go up.
Because of the low ltvs.
But we're much more focused on any v. and long term cash flow. So we would never want that to happen. We would want the opposite Devon, we'd rather have 100% payment even though it would reduce interest income in any given period, but it would increase and navy dramatically and reduce the up a reduced financing costs superdrug.
Great.
I mean, we've learned that if a 100% of our loan was clean pay 12, 12, we could finance the entire portfolio 1.8%.
And Thats, four and a half times leverage with a cost basis on the loans in the eighties.
Right.
Right right.
And we say okay.
We've still got well book to Bill pay loans recently.
Sell for basically 3% yields.
Mhm.
Right and I guess just on your you know your commentary about the inverse relationship which yield than anybody there.
Maybe this is more reflecting or maybe this is what the stock is more reflecting is.
Taxable income and the dividend here you know the dividend was well covered by GAAP earnings this quarter.
Tax in taxable income negative.
And last quarter was very low so you're paying out more than you need to and just based on kind of I think you're probably accurate, but we're not cohort.
But but we also are paying out because we expect will have to.
Right right, Okay, well I guess yeah. It was my question would just you know again like touching on the view of taxable income in the second half of the year and how you're thinking about where the dividend is set here in that context.
Okay, Alright, fair enough I'm going to get back into queue, but thanks for taking my questions.
One thing I would add Tim is.
Taxing gap when you have no assets remaining tax and gap over the years have to be the same.
So tax eventually have to approach where gap has been.
So.
We would anticipate that.
Secured some of the securitization structure is triggered loan sales.
As well as a trigger loan a taxable income prepayment increases will trigger loan taxable income.
And the market value of our.
Clean pay loans could very well trigger some taxable income at some point as well.
Got it okay. Okay. Thanks for the color Larry appreciate it.
Your next question is from Stephen laws of Raymond James.
Hi, Good afternoon, Larry I Hope you have to you.
All others out there are doing well.
Yes.
I hate to beat up on the dividend, but I want to pursue the had that Tim blinded questionnaires taxable I've got a negative four sets first half I think it was a nickel and the negative nine.
And just kind of want to understand you in the boards.
Thoughts on Oh on establishing the dividend, where it does and whether or not.
You know you're going to continue to reduce quarterly.
I understand you cannot you've got the cash flow to overpay taxable income and I think your prepared remarks, you talked about the 2020 be securitization will increase T.I., but you also said you expect more.
More JV this year, which was one of the reasons more loans owned and Jvs that you had quite at the lower tax into Q. So trying to one reconciled to the right level, but also you're raising money with the preferred to deploy because you liked the new investment environment, So would it make sense to reduce.
What's you're paying out to have more cash that you can retain and dish and put into new investments that that you're not having to pay such a high before that like you are on the private placements.
So I could argue with both ways.
And and I think.
Some of our institutional investors.
Could argue it both ways as well from discussions over the years with them.
We think there's a lot of opportunity, particularly for value investors in this environment.
Who can have a longer timeline mentality in terms of buying things in and monetizing.
But on the flip side from an NPV perspective, we have a material built in gain I would for lack of a better descriptive term.
And.
If co bid 19 word to become very bad and we have a lot of foreclosures are taxable income would sort.
Mhm, if we sold the loans, our taxable income would sort.
And some of ours rated securitizations structures now.
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We will trigger some taxable income as well material amount of taxable income.
As a result.
We're our board has taken the position where let's keep it the dividend where it is for now until we see how co bids impacts our on loan performance and whether that triggers more foreclosures are more defaults and hence more taxable income overtime.
Or whether it keeps loans paying.
Economically and our loans continued to be less impacted as we would expect.
As we saw.
But we're evaluating kind of tax planning strategies.
To accelerate taxable income to some extent because tax gap is so different.
And what we don't want to do is wake up three years from now and have an enormous amount of tax relative to gap.
Because theres some giant catch up that happens so.
Our board is evaluating each quarter and right now they think that the 17 cents dividend is pretty.
[noise] descriptive of what we anticipate taxable income would cause distributions to be through the remainder of this year.
Very helpful. Thank you Larry.
Touching on the to lend calm, but but not quite sure the dividend, but what the JV in the sale taking place there what operations are taking place in a taxable REIT subsidiary, where you could technically I guess retain the earnings if you wanted or I understand you can dividend of up to the right level and distribute al but how much income do you have taken place at the tier.
For us versus at the right.
A fair amount takes place at Trs we do.
Ours are multi class cash flowing securities generates income, but we have income that happens in the Trs from a real estate that and and our interest in the manager servicer and our interest in servicer as well.
So and and the manager we own 20% imaginative zero basis, So we pick up 20% of the managers income through Trs.
And we pick up 20, we pick up 8% of the Servicers income through the Trs.
Okay. That's helpful. Last question for me is on the expense side for two of them real estate and you have some securities in our Trs also but not immaterial amount relative to our total securities.
Okay.
And on the expense side looks like real estate operating expenses much lower than we've seen on the on another seven other expenses a little bit higher than we've seen historically any color what's going on in those two line items haven't read the the full filings I apologize if I missed it out there somewhere.
Yes, it real estate.
Impairments are down considerably in real estate some of which happened is some of which is related to real estate selling quickly.
Function of Cobot 19.
Okay number one also we only have about 8 million of real estate owned remaining in our portfolio because so much as sold and so many loans are paying very little new real estate is being created.
Yep and on and on the other expense side you see you see you see.
Increase of other expense by about a million two or something like that that is the accrual of the warrant put related expense.
Got it.
Uh huh.
Okay, great. Thanks, Larry appreciate the time and look forward to talking soon.
Got it my pleasure.
Once again that is star one for question.
We have a question from Kevin Barker of Piper sand.
Good afternoon Larry.
Hi, Kevin.
Near me Okay.
Yes, yes, you're getting rain down in Philly.
It was pretty nasty, a luxury down around here.
Much.
[laughter].
So.
Acquisition front, I mean, cobot as thrown a curve ball on with foreclosure moratoriums and everything like that could you help us think about the timing of when you're going to see the best opportunities to make acquisitions over the next several quarters, just given the foreclosure moratoriums changes in home price.
Bases different appetite for real estate I mean, there's a lot of things that are really changing right now in a real estate market I just would love to hear your thoughts on.
When do you think that ramp is going to occur.
Sure.
Well in Q3, so far we've acquired about 45 million pretty cheaply.
In.
In many different transactions.
And we're finding theres a lot of small originators, who have bigger problems and bigger originators have.
With scratch and dent loans the other thing.
So from a value investment perspective, it's.
Those purchases or it's still 2014 2015.
The.
In terms of real estate markets and kind of the opportunity set.
The real estate market that we're seeing and from our discussions with.
Borrowers and people on the ground and also we have an interest in guy.
Property read that we.
Started.
And we're seeing it from our the apartment.
As well is that each market is much more different than it was.
Five six months ago and in a magnified way.
The for example in Florida, we're seeing significant demand for homes, especially from people in the northeast on the East coast support and the Midwest on the West of Suez West Coast to Florida.
Looking for homes, but not condominiums, so we've seen dramatic.
Liquidity.
Both for purchasing single family owns people purchasing.
People wanting to sell single family homes, like us is oreo or but even for rentals, we've seen dramatic.
Acquitted to increases just like you've seen in the New York Metropolitan area and probably in the fill the suburbs as well where you are.
In the New York Metropolitan area houses that might have been on the market for two years now have six offers a weekend.
And.
Were in the city rents are down in significantly less demand for high rise buildings. So these are phenomena that have come dramatically around in the last four months.
And.
It's hard to tell whether they are permanent temporary or somewhere in between or semi permanent in that.
Some piece of it will continue for tax reasons or for some other reason and not co bid over some period of time now the other thing that I will say is that people underestimate the power and impact of mortgage rates going from 4% to 3% that on a 400000 dollar house.
A 1% change in mortgage rates saves the buyer $4000. If you think that houses are basically a five cap product that increases the value that house by $80000 just from the 1% change in mortgage rate because someone can buy it for 80000 more and have the exact same monthly payment.
And we've seen that effect also.
As a result of.
Declining interest rates vary, obviously, economic and cobot related and how long that last is also a question. So as a result were extremely focused on buying low LTV loans in this environment, because we don't know whether the effect is permanent or.
Or temporary and.
We hate losing money so.
As a result, we're being pretty careful and extreme kind of what I'll call value investing mentality right now and while we have a lot at liquidity and it's a drag on earnings we don't know whether there will be a round two or not.
That you're going to want to have a lot of liquidity for because it can be some great opportunities even better than we're seeing now so we're we're.
Right now we're buying things that we see that are cheap rather than looking at momentum is the way I would describe.
I mean would do you see that as an opportunity to maybe recycle your existing portfolio. Yes, yes, no question about it that given given our clean pay loans.
To the extent, we see significant opportunity to err on the buy side.
That that increases yield given work clean pay loans trade in today's environment, we may very well recycle.
Some of our portfolio.
Okay. So would this be defining moment, where you start to really we're going to see a significant amount of gains being generated.
Hi experimenting.
Because remember re rules, there's only so much you can sell in the year as a percentage of your tax basis, no more than 20% in one year and 10% Rolling three year average.
So there are limitations as to what you can sell.
Okay.
So it seems like you're gonna have elevated cash for the foreseeable future as you become more opportunistic down the road yes.
Yes.
To quote one of our large shareholders. This is the time to have your Warren Buffett, Berkshire Hathaway hat on and think about what you can buy really cheap and monetize over three or four years versus what you can try to ride the wave on.
Right.
And that's really helpful. Thank you for sure. Thank you.
There are no other questions in key.
If there is no other questions. Thank you everybody for joining our second quarter Investor call. We're always happy to talk about our business.
And we appreciate you joining us and we appreciate the questions and look forward to talking to between now in.
Our next call and hope everybody stays healthy and.
And safe.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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