Q4 2020 MFA Financial Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the MFA Financial Inc. Fourth quarter earnings Conference call. At this point all of the participant lines are in a listen only mode. However, there will be an opportunity for your questions. If you'd like to ask a question. Please press. One then zero at any point during the call.
As a reminder, today's call is being recorded I will turn the call now of Mr. Hal Schwartz. Please go ahead Sir.
Thank you John and good morning, everyone. The information discussed on this conference call today may contain or refer to forward looking statements regarding MFA financial Inc, which were which reflect management's beliefs expectations and assumptions as to Mfa's future performance and operations. When used statements that are not historical in nature, including those contained.
Words, such as will believe expect anticipate estimate should could would or similar expressions are intended to identify forward looking statements. All forward looking statements speak only as of the date on which they are made these types of statements are subject to various known and unknown risks uncertainties assumptions and other factors, including those described in.
The Mfa's annual report on form 10-K for the year ended December 31, 2019, and other reports that it may file from time to time with the Securities and Exchange Commission. These risks uncertainties and other factors could cause mfa's actual results to differ materially from those projected expressed or implied in any forward looking statements.
It makes for additional information regarding Mfa's use of forward looking statements. Please see the relevant disclosure on the press release announcing MFA is fourth quarter 2020 financial results. Thank you for your time I would now like to turn this call over to MFA, CEO and President Craig Knutson.
Thank you Hal.
Good morning, everyone I would like to thank you for your interest in and welcome you to MFA Financial's fourth quarter 2020 financial results webcast also dialed in with me today are Steve yard our CFO.
Good Monday, Christiansen, and Brian Wilson, our co chief investment officers and other members of the senior management.
Before we begin I want to again recognize our entire MFA team.
<unk> 'twenty was obviously, a very challenging year on many levels and our team powered through the adversity and persevere Theres no quit in this group and I think we've made extraordinary progress in the second half of 'twenty, 'twenty and particularly in the fourth quarter.
So the fourth quarter of 'twenty 'twenty on the macro level was very much of an extension of the third quarter interest rate volatility was again muted an accommodative fed monetary policy continued to provide support for risk assets with little indication that this will change materially in 2021.
The short end of the curve remains firmly anchored consistent with the lower for longer narrative.
Two year rates interest into the high teens very briefly in mid November but are barely in double digits, so far in 'twenty and 'twenty one.
The yield curve does continue to surreptitiously steepen as the 10 year backed up 23 basis points on the fourth quarter and another almost 45 since year end.
With twos tens of approximately 125 basis points, there's hardly qualifies as a steep yield curve by historical standards, but it has steepened by about 45 basis points since the end of the year.
This is not surprising in light of political developments as the expectation of additional stimulus will continue to raise concerns about inflation.
I do have the smile, a little when I hear this recent chatter about higher rates, however, with tens yielding $1 35, there's tens of we're above 3% of less than two and a half years ago. Yes, we're off the lows at least for 10 years, but let's not kid ourselves, we are still in an extraordinary and unprecedented low interest rate environment.
Agency origination crowded out non conforming production for much of 2020.
But with even a modest increase in agency eligible mortgage rates, we've seen an increase in production from non QM and business purpose loans in recent months with rates of particularly low levels and credit spreads very tight suffice to say there are no cheap assets out there.
However, at the same market conditions of pushed yields on issued securities to all time lows. So while it is a difficult period for assets. It's an extremely attractive one for liabilities and MFA has taken advantage of this opportunity to lock in low cost term nonrecourse debt.
Which will substantially reduce interest expense in the future.
In addition of strong housing market together with our ability to actively manage residential mortgage credit assets has also been reflected in our financial results. Because we have achieved better than expected results on credit sensitive assets, resulting in reversals of prior credit reserves and sales of Oreo properties at attractive levels.
Please turn to page four.
We reported GAAP earnings of <unk> per share in the fourth quarter. These results were driven by continued price appreciation of loans held at fair value and by further improvement in credit leading to credit loss reserve reversals on the other hand fourth quarter earnings were reduced by expenses related to the acceleration of.
Discount in connection with our pay off of the 500 million dollar of 11% of Apollo Athene Senior note.
On September and October.
We also closed out the outstanding warrant position of the Apollo was seen during the fourth quarter through street werent be purchases and of warrant exercise via a combination of cash and cash list exercise there are no more outstanding warrants and the overall dilution associated with these transactions was less than four per cent obviously on.
GAAP book value would have been up by approximately 2.4 per cent for the quarter had it not been for these warrants economic book value of.
Also negatively impacted by three 9% by the warrants was nevertheless, unchanged at $4 92 during the fourth quarter.
Our loans held the carrying value of appreciated further.
We repurchased $14 1 million common shares for an aggregate purchase price of a little over $50 million during the quarter at an average price of less than 80 per cent of September 30, GAAP book value and less than 75 per cent of economic book value. We viewed these purchases is among the best available investments in the fourth quarter.
Our leverage declined modestly over the quarter to 1.7 to one primarily due to the payoff of the Apollo Athene debt and we paid of seven and a half cent dividend to shareholders on January 29th.
Please turn to page five.
Yeah.
Our net interest income for the fourth quarter nearly doubled versus the third quarter. Despite slightly lower overall interest income as our interest expense reductions began to meaningfully drive results.
The expense reductions are due to some repo borrowing cost spread reductions securitizations, which replaced the bow and non mark to market financing with substantially cheaper funding and the payoff of the Apollo Athene note the.
The impact of these efforts was not fully reflected in the fourth quarter as they were all done at varying points within the quarter we.
We also took advantage of the strong housing market to Opportunistically liquidate Oreo properties, which we own mostly through resolution of nonperforming loans purchased years ago.
The sales totaled over $270 million for the year and were executed at prices well above our carrying value. We believe that the hard work that we've done since emerging from forbearance at the end of June has benefited stockholders as our total shareholder return was 62% from June 30 to December 31st clearly, we still have wood to chop.
But we are committed to continuing to rebuild shareholder value.
Please turn to slide six.
We illustrate our investment portfolio and summarize our asset based financing on the slide the investment.
Portfolio has not changed materially since September 30, we did add $111 million of loans in the fourth quarter, the Brian and good Wonder will discuss additional details about the loan portfolio. Later in this presentation just to review on this Pie chart.
The loans held at carrying value on our balance sheet are represented in three slices of the Pie chart. The purple section P. C D or purchase credit deteriorated loans. This is accounting speak for re performing loans and other loans are seasoned performing loans. The gray section business purpose loans are fix and flip the.
Single family rental loans in the Red section or the non QM loans on.
On the financing side, you can see that 67 per cent of our asset based financing.
It was non mark to market with the S. F. Our securitization that we closed at the beginning of February. This is now over 70 per cent.
Please turn to page seven.
Again, continuing the theme of aggressively taking advantage of available market opportunities. We've executed three additional securitizations on $1 2 billion of U P D of successively tighter levels.
As you can see on this page AAA yields on bonds sold on the most recent two deals were below 1% and the blended cost of debt sold was in the low ones. It was in some cases, almost 200 basis points lower than the cost of borrowing we replaced.
Also noteworthy is that while some of the financing that we replaced with the Securitizations was non mark to market. The securitized debt is similarly, non mark to market non recourse in term. So we actually increased the amount of this more durable financing while substantially lowering the cost.
Bonds sold generated cash of between 91, and 94% of U P. D, which also produced approximately $250 million of additional liquidity.
Please turn to page eight.
Page eight provides the details of the repurchase of exercise of the previous the outstanding warrant position.
Through the street and the purchase of the warrants on December 10th for $33 $7 million and then exercise through a combination of cash and cashless exercise on December 28, we were able to limit the dilution of warrants granted which was seven 5% at the time of grant for less than four per cent.
The Apollo and Athene hold $12 3 million shares or about two 7% of outstanding shares and we continue to maintain a strong partnership with both of Apollo and Athene.
That said, we think that the elimination of any uncertainty around on outstanding warrant position should have a positive impact on our stock.
Please turn to page nine.
We announced on our third quarter earnings call that our board had authorized a $250 million stock repurchase program and we executed the NIM during the open window period in the fourth quarter, the purchasing $14 1 million shares at an average price of $3 61.
Which was accretive to GAAP and economic book value by three and four respectively.
In addition, the $33 $7 million of warrant repurchase was included under this plan. So all in we deployed almost $85 million during the quarter and still have $165 million available under this authorization.
Please turn to page 10.
We announced the redemption of our $100 million, 8% senior notes due in 'twenty 40 to the.
The $25 par bonds of issued in 2012, this redemption, which was completed shortly after year end, we will save $8 million in annual interest expense. We did book of noncash charge of $3 1 million in the fourth quarter for unamortized issuance expenses. The these $25 par bonds were sold primarily to retail invest.
Similar to 20 firms and hence the relatively high issuance expense.
Please turn to page 11.
So when the feel good department and just the demonstrates that it's not solely about the numbers I'm happy to report two significant accolades for MFA for the second year in a row MFA was included in the Bloomberg gender equality index.
We were recognized as one of 380 public companies across 44 countries and regions for our commitment to the support of gender equality. Additionally.
Additionally, the MFA has been certified as a great place to work by the Great place to work Institute. This award is based on anonymous employee feedback through an engagement survey that we conducted through this organization. This on.
Important validation of our culture culture is a testament to our people management does not make MFA of great place to work our people do the management has a role it's simply the hire great people and our team collectively create for our culture.
In today's work from home World. This recognition is also an important distinction for us for hiring that's almost all of recruitment is virtual these days.
And I will now turn the call over to Steve yard discussion to discuss additional details of our financial results.
Yeah.
Thanks, Craig.
Please turn to slide 12 for the other be without fourth quarter financial results.
Craig discussed these opening remarks ex.
Sitting for balance in late June MFA has been primarily focused on obtaining cheaper and more durable forms of financing.
While we certainly appreciate the support of the poll on things other things from Counterparties during the challenging times of full balance and over the past six months.
Reis, the closeout 2020, with a significantly more durable makes it financing and having paid off most of that high cost debt.
But on the execution of the warrant transactions of eliminated with relatively modest solution. The pencil source of uncertainty in the future results.
2020 was certainly a year of significant unusual items from all of that.
Things have become more stable since June.
There was some residual nonrecurring items in Q4, then I will discuss for the shortly.
MFA into 'twenty, 'twenty, one or the significant items related to the forbearance period financing effectively behind us now.
Continuing efforts to pursue securitization and other forms of non mark to market financing have lowered our cost of funds and generated liquidity.
Maintaining relatively low leverage.
These efforts are already moving crude benefit better from the net interest spreads and the continued and we expect this to continue for at least the short to medium term.
Turning now to the detail of that Q4 results.
Net income to common shareholders was $37 6 million for eight cents per share.
Net income includes $25 three men the six cents per common share expenses recognized on the repayment of the senior secured term line from the polo and the thing.
The COVID-19 as we elected to account for this financing of fair value GAAP required us to allocate a portion of the day, one loan to value of approximately $14 million.
I said of warrants.
This was recorded in shareholders equity, while the residual land value of approximately 491 man was recorded on our balance sheet as the liability.
Due to changes in interest rates and market spreads per se.
The value of this liability declined in Q3.
However, as the line was repaid at par rather than the fair value of expenses are recorded on payoffs related to the reversal of prior unrealized gains and the difference between par and the previously recorded of carrying value.
The subsequent execution of the associated of born transactions did not impact of earnings directly but they did result in modest book value dilution as Craig has already discussed.
Away from the impact of the repayment of the senior secured debt and warrant transactions that results for the quarter, primarily reflects the ongoing recovery in residential mortgage asset valuations and net reduction of assay so credit loss reserves.
And the previously mentioned the improvement in net interest income.
Specifically the key items impacting our results are as follows.
Net interest income for Q4 was $19 4 million almost double Q3 and it reflects the following.
Especially high net interest spreads primarily on our residential whole loan portfolio.
In fact, the financing of these things start to take hold.
The payoffs of the senior secured debt resulted in high on interest income by approximately 12 man.
And as Craig noted really being down 8% senior notes early in January of 'twenty one.
Q4, net interest expense includes a noncash charge of $3 1 million from them and amortize the fluid expenses that we incurred when this debt was originally issued in 2012.
In addition, future quarterly interest expense for the 10 million of law as a result of this note redemption.
I would also.
The next thing forbearance in June we have lowered our cost of funds across the entire portfolio by 140 basis points for 3.1% December 31 2020.
And this goes even further from two 9% with the.
The senior note redemption.
Well, sorry, it will reduce the overall seasonal allowance on a carrying value loans to $86 8 million, primarily reflecting low estimates of future unemployment use of the credit loss modeling purposes.
All of sudden partially due to lower loan balances.
As for vessel and other net adjustments chassis, so reserves part of that.
The impacted net income for the quarter by approximately $68 million.
After the initial significant increase in face of reserves taken in Q1, but uncertainty related to COVID-19, economic impacts of where at the highest.
We've reduced the FCC of reserves by almost 16 million in the past three quarters.
Actual charge off experienced the date remains very modest with less of $2 5 million of net charge offs taken in 2020.
Nonetheless, we continue to take a cautious approach.
Our estimates for credit losses, given the uncertainty in the U S economic outlook, what's the time line for a post COVID-19 impacted the economy remains on credit and <unk>.
Given the current political environment.
Once again airlines at fair value of performed strongly this quarter net.
It gains of $49 8 million were recorded including $30 9 million if the market value of increases in <unk>.
$18 9 million of interest payments liquidation gains and other cash income.
By the end of 2020, a fair value line portfolio recovered all of the market value declines that were recorded in the first quarter.
Finally, operating and other expenses for $20 4 million for the quarter.
This reflects a lower run rate in the normally expect primarily due to adjustments for lower incentive compensation accruals that were finalized in the fourth quarter.
We continue the estimate an annualized G&A expenses, the equity should run at about 2% each quarter.
Some of that I will turn the call over to Brian Wilson, who will review the details of that non QM loans portfolio.
Thank you Steve.
Turning to page 13.
Yeah.
The fourth quarter for the non QM space was the continuation for more of the third quarter left off.
The origination volume increased over the quarter and on premiums paid have risen to levels seen prior to the pandemic.
We were able to purchase approximately $80 million in the fourth quarter and are on track to purchase over $100 million in the first two months of 2021.
We saw pretty debt prepayment speeds increase over the quarter as mortgage rates for non QM loans have come down in recent months.
The reduction in rates lagged conventional loans.
<unk> originally interest had to rebuild capacity after reducing staff at the onset of the pandemic.
We closed on a minority investment in one of our origination partners in the quarter, providing the need of capital for number of being able to grow originations.
We believe the strategy of aligning our interest with select origination partners will allow us to effectively grow our portfolio over time, while ensuring loan quality.
Oh.
We executed on two additional securitizations in the fourth quarter, bringing the amount of collateral securitized in 2022, approximately one on a quarter billion.
As Craig mentioned previously the Securitizations have lowered our financing costs at the same time have provided additional stability to our box.
Securitization combined with non mark to market term.
The non mark to market from facility has resulted in over 75 per cent of our non QM portfolio financed with non mark to market leverage.
And we expect to continue to be of programmatic issuer of Securitizations.
Turning to page 14.
A significant percentage of our borrowers kind of non current portfolio have been impacted by the pandemic.
Many of our borrowers are owners of small businesses.
Affected by shutdowns across the nation.
We instituted a deferral program at the onset of the pandemic in an effort to help our borrowers manage through the crisis.
Through our Servicers, we granted almost 32% of the portfolio of temporary payment relief, which we believe helps put our borrowers in a better position for long term payment performance.
Subsequent to June you for.
<unk> two of Forbearance program instead of a deferral as the economy opens up.
The forbearance program instituted are largely now determined by state guidelines.
For clarity.
For the Pearl program tax on the payments missed to the maturity of the loan as a balloon payment for.
For parents requires the payments missed to be repaid at the conclusion of the for parents period.
The amounts are unable to be paid in one lump sum.
We allow for the borrower to spread the amounts owed over an extended period of time.
Over the fourth quarter, we saw an improvement in delinquencies compared to the third quarter has 60 plus day delinquencies dropped almost a full percentage point.
In addition of approximately 30% of delinquent loans made a payment in December.
The current state of affairs is unique as although we have seen economic stress and increased unemployment levels home values have been improving as low levels of supply combined with low mortgage rates have supported the market.
In addition, our strategy of targeting the lower LTV loans should mitigate losses under a scenario with the elevated delinquencies.
In many cases borrowers, which no longer have the ability to afford their debt service will sell their home in order to get the return of their equity.
Yeah.
Turning to page 15.
Our RTL portfolio of $1 1 billion has been impacted by the pandemic, but continues to perform well.
81 per cent of our portfolio of remains less than 60 days delinquent.
And although the percentage of the portfolio of six days delinquent status was 19% over 24 per cent of those borrowers continue to make payments.
The prepayment speeds in the fourth quarter continue the rise as mortgage rates continue to be historically low.
And about 30 per cent of RPM of borrowers for impacted by Covid.
We of course with our Servicers to provide assistance to borrowers and have seen improvements of delinquency levels over the quarter.
Turning to page 16.
Yeah.
Our asset management team continues to drive performance of our NPL portfolio.
The team has worked through the pandemic in concert with our servicing partners to maximize the outcomes on a portfolio.
This slide shows the outcomes for loans that were purchased prior to the year ended 2019, therefore on for more than one year.
36% of loans that were delinquent net purchase are now either performing or paid in full.
45% have either liquidated or oreo to be liquidated.
We have significantly increased our activity liquidating Oreo properties, selling 87% more properties as compared to a year ago.
The 19% are still on nonperforming status.
On modifications have been effective it's almost three quarters on either performing or of paid in full.
We are pleased with these results as they continue to outperform our assumptions at the time of purchase.
And now I'd like to turn the call over the good monitor to walk you through our business purpose loans.
Thanks, Brian.
Turning to page 17.
The fourth quarter saw a continuation of the trend we have experienced in 2020 of large principal paydowns in our fixed and flip portfolio.
The strong housing market supported by a record low mortgage rates and limited housing inventory is the allowed many of our borrowers to successfully complete the project from the sell quickly which of strong mark.
This combined with the season the nature of our portfolio of currently at a weighted average loan age of 17 months.
That's the us receiving hiring of $41 million principal payments in the fourth quarter and a total of approximately $650 million for all of 2020.
We expect this trend to continue in 2021.
As I say is fixed for the portfolio of declined $118 million to $581 million and you'd be at the end of the fourth quarter principal pay downs were for $141 million, which is equivalent of quarterly run rate of 15, nine CPR on annualized basis.
The advanced about $11 million of rehab draws.
Diverted $3 million to Oreo.
We began purchasing fix and flip loans again in the fourth quarter on acquired approximately $15 million of UTP of new loans in the quarter.
Average yield for the fixed income portfolio in the fourth quarter was $5 97 per cent.
All of our fixed and flip financing is non mark to market debt with the remaining term of 18 months.
After after the declining by approximately $40 million in the third quarter total amount of of cigarettes the delinquent.
Loans increased $19 million in the fourth quarter to $162 million.
So far in the first quarter delinquency trends have been good and we have seen delinquencies trended down again closer to the third quarter levels.
Similar to the third quarter improved economic expectations and the strong housing market contributed to a decline in fix and flip of loan loss reserves.
Loan loss reserves declined by 4 million to approximately $18 million at the end of the fourth quarter.
Turning to page 18.
Seriously delinquent and fix and flip loans increased 19 million in the quarter to $162 million at the end of the fourth quarter.
In the quarter, we sold 25 million of loans pay off and for 3 million cured. The current of 330 days delinquent pay status.
$3 million of loans convert to Oreo, while the 50 million became new 60, plus day delinquent loans.
Despite the increase in delinquency for the quarter were pleased the delinquency levels of declined from the high levels. We saw on the second quarter of 2020.
And with the continued robust level of co pay offs, you've seen from loans from serious delinquency.
As mentioned previously we have seen delinquencies trend down in the first quarter closer to the third quarter delinquency loans.
Approximately two thirds of the seriously delinquent loans are out of completed projects for bridge loans were limited for <unk>.
No work is expected to be done meaning of these properties should be and generally saleable condition. In addition of approximately 15% of the seriously delinquent loans are already listed for sale of potentially shortening the time until resolution.
When loans pay off in full from serious delinquency, we often collect default interest extension fees and the other piece of the payout.
For low for loans, where there's meaningful equity on the property. These can out.
Since inception, we have collected approximately $2 $6 million in these types of fees across the fixed income portfolio.
We believe that our experienced asset management team gives us a tremendous advantage the loss mitigation and the term non to market non.
Non mark to market financing for fixed income portfolio allows us to efficiently work through our delinquent loans.
We believe that the recent economic trends in particular, the strong housing market with robust home price appreciation combined with the loss mitigation efforts can lead to acceptable outcomes on our delinquent loans.
Turning to page 19.
Our single family of restaurant loans portfolio continues to perform well in the fourth quarter.
The portfolio yielded 527% in the quarter.
That number does not include prepayment penalties, which are of feature of almost all of our rest of the loans and are recorded in other income when.
When including those.
Portfolio yield was 599% in the fourth quarter.
Prepayments increased in the quarter of two three months two of three months CPR of 33%. This was primarily due to payoffs on some of our three year balloon loans that we're approaching maturity.
So far in Q1 prepayments of trended back down to mid teens CPR levels.
60, plus day delinquencies increased modestly in the quarter to five 6%.
We resumed our acquisition of rest of the loans in the fourth quarter and purchased $12 million of loans in the quarter.
As Craig mentioned earlier.
We closed the first securitization consisting solely of the business purpose rest of the loans in the first week of February.
Approximately $218 million of loans of securitized.
The old approximately 91% of the bonds and the weighted average coupon of 106 basis points.
This transaction lowers the funding rate of the underlying assets by over 150 basis points.
And increases the percentage of FSFR financing that is non mark to market the 77 per cent.
Up 54% from 23% of the end of the fourth quarter.
And with that I will turn the call over to Craig for some final comments.
Okay.
Thank you good wonder.
I believe the MFA has made great strides since July one of last year.
Significant asset price appreciation drove earnings and book value, we made substantial progress in moving our asset based financing from expensive durable debt to equally durable, but materially cheaper securitized debt paying off other expensive debt repurchasing MFA common stock of material discounts to book.
And most recently the settlement and elimination of the outstanding warrant package considerable market uncertainties still exist as the country and the world continue to face challenges around the pandemic politics, and monetary and fiscal policy, but MFA is well positioned to weather these uncertainties respond to <unk>.
<unk> as they arise and we're taking proactive steps to further position our company to thrive in the future.
John would you. Please open up the line for questions.
Certainly.
Ladies and gentlemen, again, if you'd like to ask a question. Please press one then zero.
The pressing one zero again that would remove you from the queue again, one zero. If you have a question for the call today.
In the first of all the line of Eric Hagen with BTG. Please go ahead.
Thanks. Good morning can you guys talk about any additional sources of capital and liquidity you can potentially draw from on the existing balance sheet. I think you have some seasoned re performing and nonperforming loan securitizations that.
It might be callable and can you address how active you might be in securitizing, the remainder of your non QM portfolio on.
The other parts of the portfolio of from here. Thanks.
Sure Eric Thanks for the question.
And you're right. We had we had free outstanding non rated NPL Securitizations and one rated R. P. L. We called 2017 NPL one already.
And NPL 18, NPL, one on 18 of the NPL too or are both callable.
So we're certainly looking at those you know the.
The the AAA levels on those two NPL deals outstanding I think one of them is about three and three quarters of the others in the low fours. So there's obviously significant cost savings that we could realize there. The 17 RPM of one deal I think there was about $130 million of that current face outstanding.
That's also callable I think the cost of debt AAA is about $2 60, So again pretty significant savings there and you know youre right. That's certainly on the radar screen because you know some.
Some of those deals of recently traded at very tight levels and as far as additional non QM.
You know as you can see we've done a lot of we've done three non QM securitizations, but we have more collateral to go and suffice to say we're not from.
We're not sitting on our hands in terms of moving forward with debt securitization of the market is really really receptive to that right now and we feel it's really almost of the most important thing we can do.
That's good color. Thank you and then how should one think about the trajectory of the yields and the existing portfolio of at this point I think the 90 day delinquency rate and the.
The non QM portfolio of picks up some of the loans that receive forbearance last spring can you give us some additional color on the resolution for those borrowers.
And what we should expect as the forbearance period expires for a lot of those folks.
Sure, Brian you want to talk about that.
Sure. So if you look at the the.
Page 14, right the active forbearance for our non QM borrowers is at two 8%.
So the majority almost of 100% right of.
People, who have been impacted by Covid and given relief.
<unk> have been have moved past that relief period, and any borrower who is in the active forbearance plan and they haven't made payments that also will show up in the delinquency. So it's already included in those delinquency numbers. So really what we're seeing in the in the 60 plus bucket.
The borrowers who after they received somehow they still haven't been able to be become completely current but as I had mentioned, 30% of those delinquent borrowers are still making payments. They just can't make two or three payments out of time to really get back to that current level. So there they may be on repayment plan.
But like so the.
The expectation is the majority of these borrowers will come back to current and as previously mentioned the LTV on these our are similar to the you know the rest of the portfolio of being in the six handle so what will occur if they really do go down the path of the.
I can't you know they are unable to meet their debt service.
What the end up doing and what we have seen is the borrowers will list their property.
I would take out their equity sell of our property and move to a place. That's you know more affordable for them.
And you know what when we see that pay off it really comes in through just the regular prepayment because theres no loss associated with that.
Yeah, Yeah. It makes sense I think you said you're on track to purchase of $100 million on the first.
Through February of of non QM loans I assume those are newly originated.
Loans can you share of where the coupon is and how the borrower profile has potentially changed.
On those newly originated loans versus pre COVID-19 loans.
Sure. So the coupon is where for the rest of the portfolio.
It was the six handle.
For for newly purchased loans, it's down into the fives. So it's you know somewhere around the low fives to admit the high fives, and then youre seeing a wide range of rates inside there. So youre seeing some non QM right Scott.
Low 4% at this point, but theres still some where there is.
Any type of first flaring youre still seeing rates.
Well on to the five and even into the sixes for for the spot of your credit type borrowers, but in terms of the the general types of origination we're seeing from a credit perspective and on or any perspective, we are at the you know.
Pretty similar level to pre COVID-19.
Just with with some added bells and whistles to to make sure that the borrowers.
We have current and comment and the ability to repay so sort of right. If you were to think about.
Coming through the pandemic.
But what the borrowers earning prior to March of last year and of small business is not nearly as important as what they've earned over the last six months, so theres a little bit more focus as to how the borrower has recently been doing.
And the earnings potential versus looking historically, where that may no longer be available.
That's really helpful color. Thank you guys.
Thanks Victor.
Our next question is from the line of Steve Delaney of JMP Securities. Please go ahead.
Hey, good morning, everyone and congratulations on the substantial progress of the the last few months.
Pretty remarkable compared to where we were nine months ago I'm just looking at the tapes.
Welcome Craig looking at page, six and seven and Eric hit on the Big thing obviously the in Qm's.
I'm trying to get a handle on you and you discussed the securitization and loan purchase activity, there well with him, but looking over at the Rps or urge you know calling on P. C DS and the Bpl's, both single family rental of land, a fix and flip.
Is there embedded in there.
And in those two buckets of.
Of your three transactions two were in QM and then you did the one I guess the I N V. I guess, it's a rental the gist.
Just maybe give us a sense is there more work to do and let's just talk about the loans you have.
On your books and financed today under other facilities is there more kind of micro securitization potential in those two buckets, which look like they represent about 1.8 billion. Thanks.
So you were asking about the P. C D and the business purpose loans right, Steve Yes, yes, apart from from the Eqm's that Eric discussed Yeah sure sure. So under the P. C. D loans you know there are some re performing loans, there and I did mentioned earlier that we do have <unk>.
17 of RPM of one that's outstanding and callable.
And as we call the nonperforming.
Deals as well inevitably there are loans that are performing within those deals so the.
It's a little bit of a of an art rather than the science to you know to move loans around to where the best execution is.
But theres certainly room within that portfolio too.
The additional securitization or two or two to call and then reissued securitizations under business purpose loans.
We probably do have enough single family rental for another small deal and on the fix and flip side.
That's possible to fix and flip side, the securitizations aren't quite as compelling there of the structures are a little bit more complicated because of the really short term nature of the asset.
While the possibility exists there's a little more difficult.
There and we've done three non QM securitization since September.
As I said before you know suffice to say, we have more of non QM loans and we're working towards that as well. So you know we think we've got we think we've got the securitizations sort of stacked up for at least the next three or four months.
You know great to sort of chop through some of these.
And you know.
You mentioned there is no cheap assets out there that's probably the most of the most honest thing anybody will say on this call. This morning.
But if you you got to where you are by some strategic relationships.
And that of worked out for you over the last 345 years or so I mean at this point is it is part of your effort.
Continuing to search for partners out there and to try to continue to build on.
Sort of of flow pipeline.
Can you get enough from your existing relationships I guess or do you need to sort of go out and beat the bushes of little bit for more loans.
Sure. It's a good question, Steve and I think as we like to say you know everything's on the table every day, Brian did mention that we had made.
The additional investment in an originator.
In the fourth quarter. So on the non QM side. So you know the answer is yes, we continue to look at additional partners and and really continue to look at all opportunities. You know I think anytime that yields are as low as low and credit spreads of as tight as they are right now.
We need to just widen the aperture and consider you know things of that maybe we haven't considered before I think all of the asset classes are on the table every day as we like to say.
Yeah.
Apologize I missed that one Brian commented on the did you mentioned third quarter and was that related primarily to in QM product.
Yeah.
Sales in the fourth quarter as.
It was fourth quarter, Okay got it sorry.
Okay, so not not much to happen from there in the fourth quarter, but that's something that could contribute I guess on them get them in.
In the first half of this year, so well thank.
Thank you. Thank you for the comments I appreciate it and congrats Dave.
Yeah.
Yeah.
Okay.
Yeah.
Operator, do we have any more questions.
Yeah.
John operator.
For you there.
Yeah.
Yeah.
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Answered on this call.
Thanks, everyone.