Q4 2021 Chimera Investment Corp Earnings Call
Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome to the Chimera Investment Corporation fourth quarter and full year 2021 earnings conference call and webcast.
Ladies and gentlemen, thank you for standing by welcome to the Chimera Investment Corporation fourth quarter and full year 2021 earnings conference call and webcast.
Speaker 1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star and the number 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, press the pound key. We ask that while posing your question, you pick up your headset to allow optimal sound quality. It is now my pleasure to turn the floor over to Victor Falvo, head of capital markets.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question at that time simply press star and the number one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue press the pound key.
I asked that while posing your question you pick up your headset to allow optimal sound quality. It is now my pleasure to turn the floor over to Victor Falvo <unk> head of capital markets.
Speaker 2: Thank you, Ashley, and thank you, everyone, for participating in Chimera's fourth quarter and full year 2021 earnings conference call.
Thank you Ashley and thank you everyone for participating in <unk> fourth quarter and full year 2021 earnings conference call.
Speaker 2: Before we begin, I'd like to review the Safe Harbor Statement.
Before we begin.
I'd like to review the Safe Harbor statements.
Speaker 2: During this call, we will be making forward looking statements, which are predictions, projections, or other statements about future events.
During this call we will be making forward looking statements, which are predictions projections or other statements about future events.
Speaker 2: These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which are outlined in the risk factors section in our most recent annual and quarterly SEC filing.
These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which are outlined in the risk factors section in our most recent annual and quarterly SEC filings.
Speaker 2: Actual events and results may differ materially from these forward-looking statements.
Actual events and results may differ materially from these forward looking statements.
Speaker 2: We encourage you to read the forward-looking statement disclaimer in our earnings release in addition to our quarterly and annual filing.
We encourage you to read the forward looking statement disclaimer in our earnings release in addition to our quarterly and annual filings.
During the call today, we may also discuss non-GAAP financial measures.
Speaker 2: During the call today, we may also discuss non-GAAP financial measures.
Speaker 2: Please refer to our SEC filings and earnings supplement for reconciliation to the most comparable gap measure.
Please refer to our SEC filings and earnings supplement for reconciliation to the most comparable GAAP measures.
Speaker 2: Additionally, the content of this conference call may contain time-sensitive information that is accurate only as of the date of this earnings call.
Additionally, the content of this conference call may contain time sensitive information that is accurate only as of the date of this earnings call.
Speaker 2: We do not undertake and specifically disclaim any obligation to update or revise this information.
We do not undertake and specifically disclaim any obligation to update or revise this information.
Speaker 2: I will now turn the conference over to our CEO and Chief Investment Officer, Mohit Marya.
I will now turn the conference over to our CEO and Chief Investment Officer Mohit Mario.
Okay.
Speaker 3: Thank you, Vic, and good morning and welcome to the fourth quarter and full year 2021 earnings call for Camara Investment Corporation.
You bet.
And good morning, and welcome to the fourth quarter and full year 2021 earnings call for Chimera Investment Corporation.
Joining me on the call today are children legato.
Speaker 3: Joining me on the call today are Choudhury Yarlagadda, our President and Chief Operating Officer, Subra Biswanathan, our Chief Financial Officer, and Vic Falvo, our Head of Capital Markets.
Our president and Chief operating Officer Subaru.
<unk>, our chief Financial Officer.
<unk>, our head of capital markets.
Speaker 3: After my remarks, Sura will review the financial results and then we will open the call up for questions.
After my remarks pseudo will review the financial results and then we will open the call up for questions.
Speaker 3: Low interest rates throughout most of 2021, combined with strong investor demand for high-quality fixed-income assets, allowed Comeric to optimize its liability structure, which we believe will benefit our shareholders over the long term.
Low interest rates throughout most of 2021 combined with strong investor demand for high quality fixed income assets, the Latin America optimize its liability structure, which we believe will benefit our shareholders over the long term.
Speaker 3: Securitization of mortgage assets is at the core of our company's DNA and is paramount to Chimera's market differentiation amongst its peers.
Securitization of mortgage assets is at the core of our company's DNA and is paramount to <unk> market differentiation amongst its peers.
Speaker 3: Through innovative structuring techniques, we have consistently demonstrated our ability to efficiently manage our portfolio's assets and liability risk while maintaining low recourse leverage and attractive net interest spreads.
Through innovative structuring techniques, we have consistently demonstrated our ability to efficiently manage our portfolio of asset and liability risk, while maintaining low recourse leverage and attractive net interest spreads.
The re performing loans, we purchased in the period from 2016 to 2018 have generated portfolio yields that have exceeded our original expectations.
Speaker 3: The re-performing loans we purchased in the period from 2016 to 2018 have generated portfolio yields that have exceeded our original expectations.
Speaker 3: Our re-securitization activity in 2021 enabled us to refinance the debt on these loans with a lower interest expense, as well as release equity from the original purchase.
A re securitization activity in 2021 enabled us to refinance the debt on these loans with a lower interest expense as well as release equity from the original purchases.
Speaker 3: For the full year 2021, we refinance 13 of our previously issued re-performing deals with eight new securitizations on $6 billion of mortgage loans.
For the full year 2021, we refinanced 13 of our previously issued re performing deals with eight new securitizations on $6 billion of mortgage loans.
Speaker 3: Higher advance rates achieved through Chimera's re-securitization activity in 2021 freed up more than $900 million of capital and helped us accomplish many objectives towards the strengthening of our balance sheet.
Higher advance rates achieved through <unk> re securitization activity in 2021 freed up more than $900 million of capital and helped us accomplish many objectives towards the threat thing of our balance sheet.
Speaker 3: Lower interest expense and higher advance rates on our 2021 securitizations have provided a great benefit to our asset and liability structure.
Lower interest expense and higher advance rates on our 2021 Securitizations have provided a great benefit to our asset and liability structure.
Speaker 3: It positively impacted the returns on our newly retained investments and allowed us to further shift financing from recourse to nonrecourse, a clear enhancement for the long term.
It positively impacted the returns on our newly retained investments and allowed us to further shift financing from recourse to nonrecourse.
Clear enhancement for the long term.
As a result of our work in 2021 helped to reduce the amount of recourse financing on our credit assets by over $800 million, while significantly lowering the interest expense on our credit related repo.
Speaker 3: The results of our work in 2021 helped reduce the amount of recourse financing on our credit assets by over 800 million, while significantly lowering the interest expense on our credit related repo.
Speaker 3: In addition, we successfully paid off $400 million high-cost debt plus the associated warrant.
In addition, we successfully paid off $400 million high cost debt plus the associated warrants.
Speaker 3: and extinguish the remaining 50 million of convertible debt.
And extinguish the remaining $50 million of convertible debt.
Speaker 3: Overall, Securitized Debt represents 70% of our total financing, up from 65% in 2020.
Overall securitized debt represented 70% of our total financing from.
From 65% in 2020.
Speaker 3: Our cost of secure test debt was 2.40% at year-end, 120 basis point reduction from 2020.
Our cost of securitized debt was two 4% at year end 120 basis point reduction from 2020.
Yeah.
Speaker 3: 98% of our securitized debt has a fixed rate coupon, which is important as interest rates have begun to rise.
98% of our securitized debt has a fixed rate coupon, which is important as interest rates have begun to rise.
Yeah.
Speaker 3: The fixed rates created on our deals helped to lock in a wide net interest spread on our securitized assets for a long period of time.
The fixed rates accreted on our deals helped to lock in a wide net interest spread and our securitized assets for a long period of time.
Okay.
Speaker 3: Most of our securitizations are structured with explicit call dates.
Most of our Securitizations are structured with explicit call dates.
Speaker 3: We called 13 deals in 2021 and have 14 deals callable in 2022, and our entire stack of Securitas debt has a weighted average time to call of three years.
He called 13 deals in 2021, and EF 14 deals callable in 2022.
And our entire stack of securitized debt has a weighted average time to call of three years.
Speaker 3: These call days provide opportunities to frequently optimize our funding structure, which has proven to be immensely beneficial.
These call dates provide opportunities to frequently optimize our funding structure, which has proven to be immensely beneficial.
Speaker 3: Now, I would like to talk, take you through our asset purchases and fourth quarter securitization activity.
Now I would like to take you through our asset purchases and fourth quarter securitization activity.
In the fourth quarter repurchased $540 million of re performing loans.
Speaker 3: In the fourth quarter, we purchased $540 million of re-performing loans.
Speaker 3: be closed on 100 million of the loans in December and expect 440 million of these loans to close in the first quarter of 2022.
Closed on $100 million of the loans in December and expect $440 million of these loans to close in the first quarter of 2022.
Speaker 3: For the full year 2021, we purchased over $3.2 billion in loans, consisting of $1.3 billion in re-performing loans, $320 million of business purpose loans.
For the full year 2021, we purchased over $3 2 billion in loans, consisting of $1 3 billion and re performing loans.
$320 million of business purpose loans.
One 2 billion and prime jumbo loans and.
Speaker 3: and 435 million of agency-eligible investor loans.
$435 million of agency eligible investor loans.
Yeah.
Speaker 3: For securitization activity in October , we securitized 354 million CIM 2021-R6 with re-performing loans from our loan warehouse.
For securitization activity in October we securitized 354 million CIM 2021 dash, our sex with re performing loans from our loan warehouse.
Speaker 3: We sold $336 million in notes representing a 95% advance rate, the highest advance rate we have achieved on re-performing loans to date.
We sold $336 million in notes, representing a 95% advance rate the highest advance rate we have achieved on re performing loans to date.
Speaker 3: The average cost of debt for the R6 deal is 1.53%.
The average cost of debt for the <unk> deal is 153%.
Speaker 3: Chimera retained an $18 million investment in subordinate notes and interest-only securities.
Primarily retained an $18 million of investment in subordinate notes and interest only securities.
Speaker 3: The R6 deal was rated by Fitch and DBRS, and it will be callable beginning September of 2026.
The Euro six deals was rated by Fitch and <unk> and will be callable beginning September of 2026.
Speaker 3: In November , we completed our 14th and final securitization of the year. 168 million CIM 2021-NR4 with non-performing loans from our warehouse.
In November we completed our 14th and final securitization of the year.
168 million CIM 2021.
Our four with nonperforming loans from our warehouse.
Speaker 3: We sold 126 million senior securities, representing 75% of the capital structure. We retained $42 million.
We sold $126 million senior securities, representing 75% of the capital structure.
We retained $42 million in subordinate notes for investment.
Speaker 3: 2021 was the most active year for securitization in Chimaera's history.
2021 was the most active year for securitization in <unk> history.
Speaker 3: In total, Chimera sponsored $8 billion in 14 separate securitized deals, six re-performing
In total <unk> sponsored $8 billion.
In 2014 separate securitize deals.
Six re performing loan securitizations.
Speaker 3: four non-performing loan securitizations, three prime jumbo securitizations, and one agency-eligible investor loan securitization.
<unk> nonperforming loan Securitizations.
Three prime Jumbo Securitizations, and one agency eligible investor loan securitization.
Speaker 3: The re-performing and non-performing deals have been consolidated on our balance sheet. The prime jumbo and the agency-eligible loans
The re performing and nonperforming deals had been consolidated on our balance sheet.
Prime Jumbo and the agency eligible loans.
Are not consolidated on our balance sheet.
As we begin 2022, we are well positioned for the current market environment with higher rates and wider spreads.
Speaker 3: As we begin 2022, we are well positioned for the current market environment with higher rates and wider spread.
Speaker 3: Our balance sheet is strong with 95% of the capital allocated to residential mortgage credit.
Our balance sheet is strong with 95% of the capital allocated to residential mortgage credit.
Speaker 3: 70% of our financing is securitized debt, which we believe provides optimal long-term non-recourse financing for our loan portfolio.
70% of our financing of securitized debt, which we believe provides optimal long term non recourse financing for our loan portfolio.
Speaker 3: Our net interest spreads is strong, largely resulting from the reduction in financing costs this past year, and our leverage is at historically low levels.
Our net interest spreads as strong largely resulting from the reduction in financing costs. This past year and our leverage is at historically low levels.
Speaker 3: We've accomplished a lot this year. Our securitization business remains strong.
We have accomplished a lot this year.
Our securitization business remains strong we.
Speaker 3: We have ample cash on hand to grow the portfolio, and as we embark on 2022, we are set to continue to deliver the best risk-adjusted dividends to our shareholders. I will now turn the call.
We have ample cash on hand to grow the portfolio and as we embark on 2022, we are set to continue to deliver the best risk adjusted dividends to our shareholders.
I will now turn the call over to <unk> to review the financial results.
Okay.
Okay.
Speaker 4: Thank you, Mohit. I will review Chimera's financial highlights for the fourth quarter and full year 2021.
Thank you Mohit I will review <unk> financial highlights for the fourth quarter and full year 2021.
Speaker 4: Gap book value at the end of the quarter was $11.84 per share and our economic return on book value was negative 1.2% based on quarterly change in book value and the fourth quarter dividend per common share. Our economic return for the full year
GAAP book value at the end of the quarter was $11 84 per share and our economic return on book value was negative one 2% based on quarterly change in book value in the fourth quarter dividend per common share.
Our economic return for the full year was six 2%.
Speaker 4: Gap net loss for the fourth quarter was 718,000 or 0%.
GAAP net loss for the fourth quarter was 718000 or zero per share.
Speaker 4: and GAAP net income for the full year was $596 million or $244 per share.
GAAP net income for the full year was $596 million or $2 44 per share.
Speaker 4: On an earnings available for distribution basis, net income for the fourth quarter was 111 million or 46 cents per share and 429 million or 1.78 cents per share for the full year.
On an earnings available for distribution basis net income for the fourth quarter was 111 million or <unk> 46 per share and $429 million or $1 78 per share for the full year.
For the one time non recurring items, we had approximately <unk> <unk> of income that was derived from securities called during the quarter and 26 cents of income there was derived from securities called over the full year.
Speaker 4: For one-time non-recurring items, we had approximately $0.08 of income that was derived from securities called during the quarter and $0.26 of income that was derived from securities called over the full year.
Speaker 4: While this may occur from time to time, we don't expect this level of income every quarter, and in some quarters, we could have a loss related to interest-only securities that are caught.
While this may occur from time to time, we don't expect this level of income every quarter and in some quarters, we could have a loss related to interest only securities that I'll call. It.
Speaker 4: We will provide details on this income whenever it becomes material to our earnings available.
We will provide details on this income whenever it becomes material to our earnings available for distribution.
Speaker 4: Our economic net interest income for the fourth quarter was $155 million and $613 million for the full year.
Our economic net interest income for the fourth quarter was 155 million.
And $630 million for the full year.
Speaker 4: For the fourth quarter, the yield on average interest-earning assets was 6.4 percent. Our average cost of funds was 2.3 percent, and our net interest spread was 4.1 percent.
For the fourth quarter the yield on average interest, earning assets was six 4%.
The average cost of funds was two 3%.
And our net interest spread was four 1%.
Speaker 4: Total leverage for the fourth quarter was 3 to 1 while Zco's leverage ended the quarter at 0.9 to 1.
Total leverage for the fourth quarter was three to one while recourse leverage ended the quarter at 0.9 to one.
Speaker 4: For the for the year, our economic net interest return on equity was 16.5% and a gap return on average equity was 18.1%. And lastly, our full year 2021 expenses, excluding servicing fees and transaction expenses were 69.1M in line with previous previous year. That concludes the remarks.
For the for the year, our economic net interest return on equity was 16, 5% and our GAAP return on average equity was 18, 1% and lastly, our full year 'twenty to review on expenses, excluding servicing fees and transaction expenses were $69 1 million in line with previous previous year.
That concludes our remarks, we will now open the call for questions.
Speaker 1: Certainly not this time. If you would like to ask a question, please press star 1 on your touch-tone phone. You may withdraw your question at any time by pressing the pound key. Once again, that is star and 1. And we will take our first question from both George with KBW. Please go ahead.
At this time, if you would like to ask a question. Please press star one on your Touchtone phone you may withdraw your question at any time by pressing the button.
Once again that is star one.
We will take our first question from Bose George with <unk>. Please go ahead.
Speaker 5: Hey, everyone, this is actually Mike Smith on for Bose. My first question, in your prepared remarks, you mentioned your most recent RPL deal with the 95% advance rate. Just wondering, what's the all-in ROE on that deal, and then would you ever hold any repo against that as well, or do you get a high enough unlevered ROE on the support of these?
Hey, everyone. This is actually Mike Smith on for Bose.
My first question in your prepared remarks, you mentioned your most recent Rps deal with the 95% advance rate I'm just wondering.
See you all in ROE on that deal and then would you ever hold any repo against that as well or do you get at a high enough.
Unlevered ROE on the subordinate piece.
Hey, Mike This is mohit how are you.
Speaker 3: The question as it relates to the 2021 R6 deal, as mentioned in the opening remarks, we did hold an $18 million investment plus the derivatives that were created and the returns on the sub-stack and the IOs will produce very high single-digit, low double-digit deals.
The question as it relates to the 2021, our <unk> deal.
As mentioned in the opening remarks, we did hold an $18 million of investment.
The derivatives that are created.
And the returns on the sub stack in the iOS will produce very high single digits low double digit deals.
Speaker 3: Depending on the type of financing that we could get on the sub stack we could potentially repo it But at the moment, you know, it's it's held for cash
Depending on the type of financing that we could get on the sub stack, we could potentially do we bullet but at the moment.
<unk> has held for cash.
Speaker 3: As we've highlighted on previous calls, the composition of the financing on the retained pieces, you know, we would prefer non-mark-to-market and longer tenor, so if that becomes available and it seems attractive, we could potentially add that in the future.
And as we've highlighted on previous calls the composition of the financing on the.
Retained pieces, we would prefer non mark to market and longer tenor. So if that becomes available and it seems attractive we could potentially add that in the future.
Speaker 5: Great. That's helpful, Culler. And then we've heard that volatility has picked up, you know, a bit in the securitization markets over the last few weeks. Just curious to hear your thoughts on that and, you know, how long you expect any volatility to persist.
Okay.
That's helpful color and then we've heard that volatility has picked up a bit in the securitization.
Jason markets over the last few weeks just curious to hear your thoughts on that and then how long do you expect any any volatility to persist for.
Speaker 3: Yeah, I mean, we have seen an uptick in volatility even in Q4, you know, and, you know, we thought typically the Jan effect would bring in buyers, it has, but the amount of deal flow has definitely been elevated. A lot of the volatility is on the prime jumbo and the non-QM side, the season re-performing
Yes, I mean, we have seen an uptick in volatility even in Q4.
And when we thought typically the Jan and the fact that bringing buyers. It has but the amount of deal flow has definitely been elevated.
A lot of the volatility is on the prime jumbo and the non QM side.
The season re performing.
Speaker 3: Securitizations are few and far between, even last year outside of us and a handful of other issuers.
Securitizations are few and far between even in last year outside of us and a handful of other issuers.
Speaker 3: So, again, I think the rate volatility, the backdrop of what's happening, you know, macro event has led to buyers being more selective. And I think the large amount of deal volume in the first six weeks has also put a lot of pressure on spreads in the near term. But we think it'll stabilize, you know, with housing still remaining strong.
So again I think the rate volatility the backup of whats happening macro event.
This has led to a buyers being more selective and I think the large amount of deal volume in the first six weeks has also put a lot of pressure on spreads in the near term, but we think it will stabilize with housing still remaining strong and.
Speaker 3: Yields on these assets on these new deals that you couldn't get a year ago still is an attractive place to park money So we're still optimistic You know as mentioned in the opening remarks We have 14 deals that are callable over the year and we will see how the market is As we sort of take advantage of that As we did last year
Yields on these assets on these new deals that you couldnt get a year ago still is an attractive place to park money. So we're still optimistic.
As mentioned in the opening remarks, we have 14 deals that are callable over the year and we will see how the market is as we sort of take advantage of that as we did last year.
Speaker 5: It's great that's helpful. And then just one more for me, I guess as a follow-up, have you seen any changes in loan prices to reflect the wider spreads in the securitization market?
Okay, Great. That's helpful. And then just one more for me.
I guess as a follow up have you seen any changes in loan prices to reflect that.
The wider spreads in the securitization market.
Speaker 3: Loan pricing has been more sticky than where execution is occurring on the new issue space, but again, I think with just the backup and rate.
Loan pricing has been more sticky than where execution is occurring on the new issue space, but again I think with just the backup in rates the translation on the new issue side, whether it be private Jumbo agency eligible investor in non QM, we felt more of a spread widening there on the loan front.
Speaker 3: The translation on the new issue side, whether it be private, general, agency-level investor or non-QM, we felt more of a spread widening there on the loan fund. Again, the RPL space.
The <unk> base.
Speaker 3: The main sellers there remain the GSEs. There are some funds that will liquidate. And what we've seen so far this year, pricing is marginally wider but not significantly wider, unlike the prime jumbo and non-QM space.
The main sellers there remain the GSE is there are some funds that will liquidate and what we've seen so far this year pricing is marginally wider but not significantly wider unlike the.
Prime jumbo and non QM space.
Great. That's helpful. Thank you for taking the questions. Thank you Mike.
Speaker 1: And we'll take our next question from Eric Hagen with BTIG. Please go ahead, your line is open.
And we will take our next question from Eric Hagen with BTG. Please go ahead. Your line is open.
Speaker 6: Hey, thanks. Good morning. Maybe a couple for me. For the $108 million in unrealized losses for the period, can you give some color on where those marks were concentrated? And you obviously mentioned the callable securitized debt, which remains a focal point of the portfolio. Can you talk about how you guys think about the tradeoff between
Hey, Thanks, good morning.
Maybe a couple for me for the $108 million in unrealized losses for the period.
Can you give some color on where those marks were concentrated.
And then you obviously mentioned the callable securitized debt with some rains a focal point of the portfolio.
Sure.
Can you talk about how you guys think about the tradeoff between.
Speaker 6: potentially higher funding costs as those deals come up for call, and the ability to get more leverage and restructure your advance rate and such. Thanks.
Potentially higher funding costs as those deals come up for call and the ability to get more leverage and restructure your debt.
Advance rate and such.
Yes.
Sure Eric I'll start with the second part of the question and Super can give some color on the first part as it relates to the unrealized losses due to fair value changes.
Speaker 3: Sure, Eric, I'll start with the second part of the question, and Subra can give some color on the first part as it relates to the unrealized losses due to fair value changes. You know, the balance between...
The balance between.
Speaker 3: Or the economics, I should say, at looking at calling a deal versus not calling a deal are twofold, and you highlighted the two things. One is if there's a reduction in the all-in financing cost.
Are the economics, I should say at looking at calling a deal which does not calling a deal or two.
Two fold and you highlighted the two things one is if there is a reduction in the all in financing cost and two if the structural leverage is not optimal.
Speaker 3: And two, if the structural leverage is not optimal and we could optimize it via the call and take out some equity as, you know, those are the two things we look at anytime we make a call. For the calendar year 2021, we had the benefit of being able to do both, reduce financing costs quite significantly while also achieving a higher advance rate leading to an equity lease of over $900 million.
Could optimize it via the call and take out some equity.
Those are the two things we look at anytime we make a call for the calendar year 2021, we had the benefit of being able to do both reduced financing costs quite significantly while also achieving a higher advance rates, leading to an equity release of over $900 million.
Speaker 3: If you look at the deals that are in the supplement on the last page, the 14 deals have delivered quite, you know, substantially. So, no doubt, based on the strong securitization market, strong housing, and strong credit performance of those deals, we should be able to attain a similar advance rate as we did on the securitizations we did in 2021.
If you look at the deals that are in the supplement on the last page the 14 deals have delivered.
Substantially so no doubt based on the strong securitization market strong housing and strong credit performance of those deals we should be able to attain a similar advance rate as we did on the securitization. We did in 2021. So that's the first factor and given the timeframe in which those deals were executed.
Speaker 3: So that's the first factor. And given the time frame in which those deals were executed, you know, if you go back to 2018-19, the rates were obviously higher than they are today. So in some cases, you may still have a cost savings, but being able to take out equity in a rising rate environment with wider spreads should still give us the ability to take advantage of redeploying new capital into new assets. So, you know, hopefully that answers your question.
If you go back to 2018 19 rates were obviously higher than they are today. So in some cases, you may still have a cost savings, but being able to take out equity in a rising rate environment with wider spreads should still give us the ability to take advantage of deep redeploying new capital into new assets.
Hopefully that answers your question there as.
Speaker 3: As far as the fair value, I'll let Subra touch upon that and the breakdown of that.
As far as the fair value of I'll, let sue Brad touched upon that on the breakdown of that.
Thanks, Paul.
Speaker 4: On the securitized loans, we saw about 92 basis points of reduction or unrealized losses.
On the securitized loans, we saw above 92 basis points of <unk>.
Production.
Unrealized losses.
Speaker 4: The non-NCAE senior debt, sorry, the non-NCAE senior securities positions we saw about 2.34% drop and on the securitized debt, which was our liabilities, we saw 114 basis point drop.
The non agency senior debt.
The noninterest senior securities positions, we saw about 234% drop.
On the securitized debt, which was our liabilities we saw a 114%.
114 basis point drop.
So that's the breakup.
Speaker 3: A lot of our legacy assets are obviously rolled on the curve quite significantly, and the move in rates in Q4 was more front-end loaded. The 10-year was effectively flat quarter over quarter, so that change in rates is what led to some of our legacy assets.
Yeah, a lot of a lot of our legacy assets are obviously rolled on the clarify significantly and the move in rates.
In Q4 was more front end loaded the 10 year was effectively flat quarter over quarter.
That change in rate is what led to some of our legacy assets pricing going down for the quarter.
Speaker 3: Pricing going down for the quarter.
Eric.
That's helpful. That's helpful and then on the securitized debt that is.
Speaker 6: That's helpful. That's helpful. And then on the securitized debt that is up for call this year, can you say what the fixed rate coupon is on the debt that is up for call this year?
For our call. This year can you say, what the fixed rate coupon is on the debt.
That is potentially rolling over.
Speaker 3: I don't have that number here in front of me, but we could get that number for you guys. I think it should be in the financial, I just don't have that here in front of me.
I don't have that number here in front of me, but we could get that number for you guys I think it should be in the in the financials I just don't have that here in front of me.
Alright, Thank you very much I appreciate it.
And we'll take our next question from Kenneth Lee with RBC Capital markets. Please go ahead. Your line is open.
Speaker 1: And we'll take our next question from Kenneth Lee with RBC Capital Markets. Please go ahead, your line is open.
Speaker 6: Hi. Thanks for taking my question. You touched upon this briefly, but I just wonder if you can just further elaborate about your expectations around expected returns on the retained tranches for any of the resume mortgage loans in the current environment. Thanks.
Hi, Thanks for taking my question.
On this briefly but I just wonder if you can just elaborate.
About your expectations around.
Expected returns on the retained tranches.
For any of the.
<unk> mortgage loans in the current environment. Thanks.
Speaker 3: Sure. Hey, Ken. As it relates to 2021, the levered returns on what we created are very high single digits to low double digits on a
Sure. Thanks, Ken.
As it relates to 2021.
Levered returns on what we created our.
Very high single digit to low double digits on a.
Speaker 3: just a loss-adjusted basis and implying some leverage depending on the form it comes in. Those returns could be, you know, high double digits, you know, between 17 to 18 percent depending on, again, the leverage you embed on those. As we look forward, you know, obviously there's been some more volatility in the new issue market. Like I said, primarily on the Prime, Jemba, and non-QM side. But that should also put pressure on loan pricing, although it hasn't been reflected yet. That's what we think.
Just a loss adjusted basis and implying some leverage depending on the format comes in those returns could be high double digits between 17% to 18% depending on again the leverage you embed on those as we look forward obviously, there's been some more volatility in the new issue market primarily.
On the prime jumbo and non QM side, but that should also put pressure on loan pricing, although it hasnt been reflected yet, but we think those two things should move in tandem and your returns on our retained piece is even this year should produce pretty attractive risk adjusted returns in the same context those last.
Speaker 3: know, those two things should move in tandem and your returns on retained pieces even this year should produce, you know, pretty attractive risk-adjusted returns in the same context as last year.
Year.
Speaker 6: Gotcha. Very helpful. And then one follow-up, if I may. Just given the current environment and obviously the macro backdrop, how would you characterize your current investment stance, or in other words, do you expect leverage to sort of like remain at the same levels, or could you get a little bit more on the offense going forward as pricing gets a little bit more attractive potentially? Thanks.
Got you very helpful.
And then one and one follow up if I may.
Just given the current environment and obviously the macro backdrop.
<unk>.
How would you characterize your current investment stance or in other words.
Do you expect leverage to sort of like remains the same levels or could.
Could you get a little bit more.
More on the offense going forward as pricing gets a little bit more attractive potentially thanks.
Speaker 3: You know, that's a good question, Ken. Thank you. You know, as we've highlighted on...
That's a good question Ken Thank you.
As we've highlighted on pretty much all of the calls last year. We played defense just the uncertainty around the fed may do.
Speaker 3: Pretty much all of the calls last year, we played defense, just, you know, the uncertainty around what the Fed may do.
Speaker 3: you know, the pandemic and how long that will go on for and.
The pandemic and how long that will go on for and <unk> had still a very successful year in accomplishing and buying $3 2 billion of loans, which are accretive to the portfolio as we sit here with.
Speaker 3: and have had still a very successful year in accomplishing and buying $3.2 billion of loans, which are accretive to the portfolio. As we sit here with, you know, with 0.9 turns of recourse leverage and ample liquidity at our disposal, we actually want to take the offensive here, whether it be on the agency side, given the spread widening and more clarity from the Fed unwinding or paring down their, you know, activity.
<unk> nine turns a recourse leverage and ample liquidity at our disposal, we were actually want to take off take the offensive here, whether it be on the agency side, given the spread widening and more clarity from the fed unwinding, a paring down there.
<unk>.
Speaker 3: you know, what's happening on the new issue market, which should lead to some widening on loan spreads. So I think we are actually very well positioned to take advantage of all of those investment opportunities that may become available. And I think we will look to take leverage up from where we are at 0.9 higher and take advantage and grow the portfolio here.
What's happening on the new issue market, which should lead to some widening on loan spreads. So I think we are actually very well positioned to take advantage of all of those investment opportunities that may become available and I think we will look to take leverage up from where we are at <unk>, 9% higher and take advantage of and grow the portfolio here.
Great very helpful. Thanks.
Thank you Ken.
Speaker 1: And we'll take our next question from Trevor Cranston with JMP Securities. Please go ahead. Your line is open. Hey, thanks. Good morning.
And we will take our next question from Trevor Cranston with JMP Securities. Please go ahead. Your line is open.
Hey, Thanks, good morning.
Speaker 7: You guys mentioned the sort of change in pricing you've seen in the – primarily in the prime jumbo and the non-QM spaces in 4Q and in the first quarter. Can you also talk about any changes you've seen in terms of, you know, the supply of loan products available for sale with the uptick in volatility in the first quarter and how you expect that piece to play out over the course of the year? Sure, Trevor. Thank you.
You guys mentioned the.
Sort of change in pricing you've seen in the primarily in the prime jumbo and non QM spaces.
<unk> in the first quarter.
Can you also talk about.
Any changes you've seen in terms of.
The supply of loan products available for sale.
The uptick in volatility in the first quarter and how you expect that piece to play out over the course of the year.
Sure Trevor.
Ill take this one.
As far as the prime jumbo and non QM stuff goes I think from an originator standpoint, we are going to see more activity. There just for them to continue churning. If you will the origination channels on this infrastructure build so I think we will have ample opportunity to buy as much as we want of that product.
Speaker 3: As far as the Prime Jumbo and non-QM stuff goes, I think from an originator standpoint, we are going to see more activity there, just for them to continue churning, if you will, their origination channels on this infrastructure they've built. So I think we will have ample opportunity to buy as much as we want of that product. I don't think...
I don't think.
Speaker 3: To the extent the economic returns make sense, we will sort of grow that. We did a total of four circuitizations on new issue collaterals, three jumbo and one agency-eligible investor. On the RPL side, like I said, a lot of that flow is primarily coming from the GSEs.
And to the extent the economic returns makes sense, we will sort of grow that we did a total of four securitizations on new issue collateral three jumbo and one agency eligible investor.
On the <unk> side.
And I guess that a lot of that flow is primarily coming from the GSE.
Speaker 3: You know, they target anywhere between $12 to $18 billion of loan sales a year. We will see what their calendar looks like for 2022. We did get the first announcement from Fannie last week about their upcoming sale, so we think, again, that supply will be more controlled by, you know, the GSEs, and we'll keep that market, at least from a spread perspective, more controlled than some of the other markets which are just bringing deals to the market to, you know,
Target anywhere between $12 billion to $18 billion of loan sales a year, we will see what their calendar looks like for 2022.
We did get the first announcement from Fannie last week about their upcoming sale.
So we think again that supply will be more controlled by the GSE and we will keep that market at least from a spread perspective more control than some of the other markets, which are just bringing deals to the market too.
Yeah.
Speaker 3: to mitigate some of the rate risk and how much the rates have moved in the first six weeks of this year.
To mitigate some of the rate risk and how much the rates have moved in the first six weeks of this year.
Speaker 7: Got it. Okay, that's helpful. And then, you know, given the magnitude of the movement rates and some credit spread widening we've seen in the first quarter, do you guys have an estimate as to how your book values moved since the end of the year?
Got it okay. That's helpful.
And then.
Given the magnitude of the move in rates.
Some some credit spread widening we've seen in the first quarter.
Do you guys have an estimate as to how you book values move since the end of the year.
Speaker 3: Sure, I think our approximate change in book value since the start of the year is around two and a half percent
Sure I think our approximate change in book value since the start of the year is around two 5%.
Yes.
Speaker 7: So up two and a half percent just to be down down two and a half percent. I'm sorry. Okay. Got you. I'll probably listen to another person.
So up to 5% just to be ramped down to 5% I'm sorry.
Okay got it okay that makes sense and two 5%.
Gotcha Okay.
Okay. Thank you.
Okay.
Speaker 1: We'll go next to Doug Harder with Credit Suisse. Please go ahead, your line is open.
We will go next to Doug Harter with Credit Suisse. Please go ahead. Your line is open.
Speaker 3: Thanks. Just, Mohit, as you're looking at the opportunity set, you know, can you just talk about the relative attractiveness of legacy versus new production versus agency and, you know, how, you know, as you look to get a little bit more offensive, as you said, you know, kind of how you would look to allocate across those opportunity sets.
Thanks.
Mohit as Youre looking at the opportunity set can you just talk about the relative attractiveness of.
Legacy versus new production versus agency.
As you look to get a little bit more offensive as you said kind of how you would look to allocate across those opportunity sets.
Sure Doug.
Speaker 3: Sure, Doug. You know, I'm assuming when you say legacy, you mean legacy loans, not necessarily legacy securities. Correct. If you, yeah. So on the loan front, I think, again, given the rate environment we're in.
Im assuming when you say a legacy you mean legacy loans is not necessarily the legacy securities.
Eric if you've yet so on the loan front I think again, given the rate environment. We're in.
Speaker 3: Convexity is going to play a bigger role this year than in prior years, so having 170 month season loans and knowing how those loans are going to prepay and behave is going to be a lot more telling. That remains a big focus for us.
Convexity is going to play a bigger role this year than in prior years, So having 170 months seasoned loans and knowing how those loans are going to prepay and behave it's going to be a lot more telling that remains a.
Baked focus for us.
Speaker 3: You know, we were successful in adding $1.2 billion of those loans last year. We are hopeful from the GSEs this year that we'll have more success.
We were successful in adding $1 $2 billion of those loans last year.
We are hopeful from the GSC. This year, then we will have more success.
Speaker 3: As far as new originations go, I think the volatility will create opportunities for us to add loans there as well, but a lot of that will be subject to where the securitization exits are on those loan purchases and what the retained pieces look like. So as we've always done, that'll drive our decisions on where we sort of commit capital.
As far as new originations go I think the volatility will create opportunities for us to add loans there as well.
But a lot of that will be subject to where the securitization exits are on those loan purchases and what the retained piece has looked like so as we've always done that will drive our decisions on where we sort of commit capital.
Speaker 3: And obviously, some of the low-level adjustments that the GSEs have made at the start of this year should also lead to a larger private-label exit for some of these originators, but we just need the market to stabilize on the new issue side, on the securitization side, for us to be able to take advantage of that.
And obviously some of the loan level adjustments that the Gse's have made at the start of this year should also lead to it.
Larger private label exit four for some of these originators, but we just need the market to stabilize on the new issue side on the securitization side for that for us to be able to take advantage of that.
Speaker 3: You know, and if you look at more broadly, you know, the agency space where we really haven't had any agencies since March of 2020.
And if you look at more broadly the agency space, where we really haven't had any agency since March of 2020.
Speaker 3: We've seen a 25 to 30 basis point widening of the basis so far since the Fed announcement. We think those could widen out a little bit more. But again, as we look at it, the all-in yields that are attainable today are probably at the levels last seen in 2019. So we do think it does make relative value sense to deploy some capital there over the course of this year, and we'll be patient in sort of taking advantage of those opportunities.
We've seen a 25% to 30 basis point widening of the basis. So far since the fed announcement, we think those could widen out a little bit more but again as we look at it the all in yields that are attainable today are probably at the levels last seen in 2019. So we do think it does.
Make relative value sense to deploy some capital there over the course of this year and we'll be patient and sort of taking advantage of those opportunities.
Great. That's helpful. Thank you Mohit.
Thanks, Doug.
Speaker 1: And there are no further questions at this time. I will now turn the call back over to Mohit for any closing remarks.
And there are no further questions at this time I will now turn the call back over to Mohit for any closing remarks.
Speaker 3: Thank you, Ashley, and thanks everyone for joining us today. We look forward to speaking to you on our Q1 call.
Thank you Ashley and thanks, everyone for joining US today, we look forward to speaking to you on our Q1 call.
Sure.
Thank you and this does conclude today's program. Thank you for your participation you may disconnect at any time.
Speaker 1: Thank you, and this does conclude today's program. Thank you for your participation. You may disconnect at any time.
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