Q4 2021 Great Ajax Corp Earnings Call
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[music].
Ladies and gentlemen, thank you for standing by and welcome to the Great Ajax Corp, fourth quarter fiscal 2021 earnings call.
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After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad.
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Larry Mendelsohn CEO you may begin your conference.
Thank you very much. Thank you everybody for joining us for the <unk>.
<unk> fourth quarter and fiscal 2021 Investor call I. Appreciate you joining us before we get started I just want to point out on page two the safe Harbor disclosure about forward looking statements.
If we jump to page three.
2021 was a very productive year and Q4 2021 was another good quarter as well, although there's a little bit of noise. In the Q4 2021 income statement numbers that we'll talk about on this call.
Significant increase in loan performance and lower cash flow velocity continued and has also continued into the first quarter of 2022, so far.
This continuing increase in the present value of loan cash flow and the resulting decrease in unallocated reserve discount and excess modeled expectations led to an additional acceleration of income on loans during the fourth quarter of $4 2 million.
In Q4, we purchased a significant amount of loans, both npls and our pls with certain specific characteristics and good locations and at low percentages of underlying property value.
At December 31, 2021, we had approximately $84 million of cash and more than $300 million of unencumbered bonds and loans. The significant cash balance does create some earnings drag and while the significant cash flow velocity from a mortgage loans and our mortgage loan JV structures increases income acceleration. It also rapidly pay.
Is down our loan and securities portfolio leverage which can reduce Roe.
Our managers data Science guide to the analysis of loan characteristics and geographic market metrics for performance and resolution pathway probabilities and its ability to source. These loans through long standing relationships very much enables us to acquire loans that we believe have a material probability of long term.
Our continuing re performance.
We've acquired loans and 352 different transactions since 2014, including seven transactions in the fourth quarter.
We own 19, 8% of the equity of our manager at a close to zero basis, and we do not mark to market our ownership interest on our balance sheet or through the income statement.
Additionally, our affiliated servicer provides a strategic advantage in nonperforming and non regular paying loans resolution processes and timelines and also a data feedback loop for our manager's analytics and today its quite volatile environment, having our portfolio teams and our analytics group at the manager working closely.
With the servicer is essential to maximize REIT performance probabilities loan by loan by loan we've certainly seen the benefit of this during the Covid pandemic and in Q4 2021 and in Q1 2022, so far with significant ongoing increase in loan cash flow velocity and credit performance.
Like our 20% equity interest in our manager we have a 20% economic interest in our servicer at a low basis as well, we don't mark to market our equity interest in the service or on their balance sheet or our income statement either.
The data analytics and sourcing relationships of our manager and the effectiveness of our affiliated servicer also enables us to broaden our investment reached through joint ventures, with third party institutional investors and thereby invest in much larger transactions as well.
The Servicers loan expertise is definitely appreciated by our joint venture partners as several of them now pay our servicer for providing third party due diligence services for other transactions that they may work out.
We still have low leverage our December 31, 2021, corporate leverage ratio was two four times. Our Q4 2021 average asset base leverage was two two times, even though we made significant acquisitions in Q3 and Q4.
We keep trying to increase asset base leverage, but the significant cash flow from our loan portfolio.
Offsetting this.
We also have $26 million invested in Gaia real estate Corp, a REIT that invest in triple net lease veterinary clinic properties multifamily properties and multifamily repositioning loans Guy is managed by a subsidiary of our manager.
We thank guy has a great deal of Optionality, and a guy who can grow materially.
Many of the Guy you owned Triple net lease veterinary clinics have annual rent increases based on uncapped CPI.
Additionally, several of Guy as mezzanine repositioning loans also have equity participations in the underlying collateral properties.
Yes.
On page four we will talk about some highlights of Q4.
Yes.
Net interest income from loans and securities, including $4 2 million interest income from the increase in the present value of cash flow in excess of modeled and unallocated reserves was approximately $18 5 million in Q4 2021.
Our gross interest income excluding the $4 2 million from the increase in cash flow to our reserve models with similar to Q3, but net interest income was 200000, lower primarily due to calling our 2019 C securitization.
And accelerating the amortization of remaining costs and paying double interest on the financing of the underlying loans for a period into.
Interest expense was up marginally after subtracting the double interest paid from calling 2019 seat. However, our average asset based debt balance was $50 million higher for the quarter.
Our GAAP item to keep in mind 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 interests servicing fees for securities are paid out of the securities waterfall. So our interest income from joint venture Securities is net of servicing fees.
Unlike interest income from loans, which is gross of servicing fees as a result, since our joint investments in.
Our joint venture investments have been growing faster than our direct loan investments until Q4, GAAP interest income would grow more slowly than if we directly purchase loans outside of joint ventures by the amount of the servicing fees and GAAP servicing fee expense will decrease by the corresponding offsetting amount.
Since we called our 2019 C securitization in November and have not yet re securitized it servicing fees increased in Q4 since we now hold all of the 2019 C assets as loans and related interest income will increase by the amount of the servicing fees.
Yes.
An important part of discussing interest income is the payment performance of our loan portfolio.
At December 31, approximately 72, 3% of our loan portfolio by <unk> made at least 12 of the last 12 payments as compared to only 13% at the time, we purchased the loans.
This is strong even though in June August and November of 2021, we purchased a significant number of npls in loans and in joint venture bond structures.
And our first quarter of 2020 Investor call, We mentioned that we expected the COVID-19 related economic environment.
Negatively impact percentage of 12 to 12 borrowers in our portfolio thus far.
The impact on our regular payment performance has been much less than expected and the percentage of our portfolio that is 12 months <unk> has been quite stable. Additionally.
Additionally, we have seen significant prepayment increases from a subset of impacted borrowers that experienced material increases in absolute dollars of equity and we are in specific geographic markets.
These patterns along with increases in housing prices and price stability in certain markets that we have counter concentrations in helps maintain these payment and prepayment patterns and leads to increases in the present value of Barbara borrower payments in excess of modeled expectations and the related income recognition of $4 2 million of.
Unallocated loan purchase discount reserves in Q4.
Approximately 27% of our full loan pay offs in the fourth quarter were from loans over 180 days delinquent.
While regular paying loans produce higher total cash flows over the life of the loans on average they can extend duration and because we purchased loans at discounts. This can reduce percentage yield on the loan portfolio.
However, regular paying loans generally increase our net asset value they enable financing at lower cost of funds and provide regular predictable cash flow.
Loans that are not regular monthly pay status tend to have a shorter duration. However, we generally expected that this duration reduction would be less than typical due to the impact of certain COVID-19 resolution extension requirements.
But as I mentioned earlier most of our loans were purchased as non regular paying loans and the borrowers our servicer in the portfolio team at our manager have worked together over time to reestablish these loans as regular paying.
We also expect that given stability of housing prices, so far that higher prepayments from property sales will likely continue.
For both regularly paying and non regularly paying loans. We do however expect debt prepayment from rate term refinancing will slow sometime in the second quarter of 2022.
Pre prepayment shortened duration and increases the present value of collectibility of a portion of the discount reserves in excess of modeled expectations as I mentioned earlier. However, it also means less total cash flow and net interest income to be collected over the life of the loan so a lower pool yield.
Our cost of funds in the fourth quarter was effectively flat versus the third quarter, given inflation and fed rate increase the expectations. We would expect our cost of funds on adjustable rate repurchase agreements to increase over time. However, we also expect to call several of our 2019, Securitizations and re securitize them at a.
A lower cost of funds in the next few months, we have already called our 2019 C transaction.
Net income attributable to common stockholders was $7 4 million or <unk> 32 per share after subtracting out $195 million of preferred dividends. There are a couple of other things to note.
Our acceleration of discount allowance related to credit performance in the fourth quarter was $4 2 million cash flow in excess of expectations continue to increase in the fourth quarter and so far in the first quarter of 2022.
We expense to approximately $2 9 million related to the GAAP required fair value accrual of the warrant put rights from our second quarter 2020 issuances of preferred stock and warrants versus $2 5 million in Q3 of 2021.
We had about 100000, a onetime reduction in net interest income due to the timing gap between buying the 2019 see loans out of the trust and calling the 2019 see bond structure.
We also had approximately 367000 of loss on debt extinguishment from the acceleration of amortization of remaining deferred issuance cost related to calling 2019 C as well as the repurchase of $1 3 million of convertible notes.
We had a one time expense of approximately $500000 of tax consulting fees related to several acquisitions, new financing structures and transactions that we have closed or are currently working on.
We added 200000 increase in real estate operating expenses, primarily from some Oreo impairments.
Absent transaction related onetime items and the tax fees earnings would have been approximately 37 per share.
Book value was $15 92 at December 31 versus $16 per share at September 30.
The difference in book value comes from primarily from the declaration of our <unk> special dividend on December 31.
Taxable income was <unk> 40 per share.
Taxable income in the fourth quarter of 'twenty, one was primarily driven by continuing continuing lower financing cost increases in prepayment, especially for nonperforming loans and from continuing high cash flow velocity on performing loans.
We saw many delinquent loans prepay in full and generate tax gains and 27% of all prepayments were nonperforming loans.
In Q4, we completed one joint venture structure in late November 2021.
Totaling $330 million and <unk> of re performing and non performing loans with approximately $716 million of underlying property value.
We retained approximately $55 million <unk> in the form of debt securities and beneficial interest in this joint venture.
We also purchased $148 million of residential re performing loans, including approximately $100 million UBB from our JV partners, 66% share of the 2019 C structure with <unk> of $150 million in total owing balance of approximately $153 million at 54, 1% of.
The underlying property value.
Previously our 33% interest in 2019 was held out securities.
We purchased another $10 million of Npls and small balance commercial mortgage loans at approximately 50% of property value.
The loans, we purchased in Q4. However, we are on our balance sheet for only 52 days on average.
Cash collections and cash on hand at December 31, we had approximately $84 million of cash.
And for the second and for the fourth quarter, we had an average daily cash and cash equivalent balance of approximately $79 million.
We had $86 6 million of cash collections in the fourth quarter, which is a 5% increase over the third quarter, which was a 7% increase over the second quarter, which was an 11% increase over the first quarter.
Our surplus cash tempers earnings and ROE.
<unk> us with significant optionality in today's volatile environment as.
As I mentioned earlier in this call at December 31, we also had more than 300 million face amount of unencumbered securities from our Securitizations in joint ventures, and unencumbered mortgage loans.
As of February 28, 2022, we had $76 million of cash.
Approximately 72, 3% of our portfolio by <unk> made at least 12 of their last 12 payments compared to only 13% at the time of loan acquisition.
This difference creates material embedded net asset value for our loan purchase cost basis. It also enables us to continue reducing our cost of funds and increase credit enhancement advance rates through through rated securitization structures. This percentage is marginally lower than September 30, but that has not performed.
<unk> related is because we purchased a material number of Npls in late Q3 and Q4.
On page five.
<unk> re performing loans represent approximately 89% of our loan portfolio at December 31.
Purchased Rps represented 96% at June 30.
We primarily purchase our pls that have made less than seven consecutive payments and npls at a certain loan level underlying property specifications. There are analytics suggest we do positive payment migration.
The positive payment migration of these purchased Rps and Npls regularly results in an increase in fair market value of the loans and a decrease in cost of funding over time.
On page six.
We continue to buy and own lower LTV loans, our overall RPM purchase price is approximately 46% of property value and 88, 4% of <unk> we.
We have always been focused on loans with lower ltvs and certain threshold levels of absolute dollars of equity and target geographic locations and the current times of rising rates and the potential for market disruptions. This becomes even more important for our pls in npls.
Purchased Npls increased in the fourth quarter of 2021 for Npls on our balance sheet. Our overall purchase price is 90% of <unk> and 55% of property value.
Purchase price represents approximately 84% of the total owing balance including any arrears.
As a result of the low loan to value and higher absolute dollars of equity on average for our NPL portfolio, we've seen that rising home prices have significantly accelerated prepayment and regular payment velocity on our npls as borrowers can capture significant and growing equity.
Undersea. So this leads to greater interest income from the acceleration of unallocated reserve loan purchase discount due to the increase in present value of collected unanticipated cash flow.
Yeah.
On page eight California continues to represent the largest segment of our loan portfolio, our California mortgage loans are primarily in Los Angeles, Orange and San Diego counties.
We have seen consistent payment and performance patterns from loans in these markets.
Performance in Southern California has far outperformed expectation during the COVID-19 pandemic. We've also seen consistently strong prepayment patterns.
In Q4, California, prepayments represent nearly 36% of all prepayments by UCB, even though it is less than 28% of our portfolio.
Florida prepayments have also increased significantly we purchased in nonperforming loan portfolio of approximately 85 million <unk> in late Q3 2021.
All of the loans are in Miami Dade, Broward and Palm Beach counties in Florida in Q4, and so far in Q1 of 'twenty to these loans have far outperformed expectations.
We are also seeing demand and prices for homes and rentals increased materially in Phoenix, Dallas, Charlotte Atlanta, and several other metro areas, where we have concentrations.
Until Q3 of 2021, we had seen this appreciation primarily in single family homes and less so for condominiums, but in late Q3 and in Q4, we have started to see this materially and condominiums as well.
Yes.
On page nine our portfolio migration at December 31, approximately 72, 3% of our loan portfolio made at least 12 of the last house payments, including approximately 64% that made at least 24 of the last 24.
This compares to approximately 13% at the time of purchase and 74, 5% pre COVID-19 in 2019.
Nonpaying loans, which usually have shorter durations than paying loans received significant timeline extensions as a result of COVID-19, moratoriums. This typically negatively affects yield untrue nonperforming loans as extended resolution timelines can lead to more property tax insurance expense legal and other repairs. However.
In the past four quarters and continuing so far into the first quarter of 'twenty. Two we've seen the increase in prepayment of nonperforming loans shortened duration on average rather than extend duration.
Since we purchased most of our loans when they were less than 12 for 12 payment history. Our servicer has worked with most of our borrowers over time.
While it's too soon to understand the full impact of COVID-19 on home prices and mortgage loan performance. So far the impact of our portfolio has been positive we've seen demand and prices for homes in our targeted markets increase cash flow velocity on the loans increase in prepayment and full also increase.
12 for 12 loans in today's loan market still trade at materially higher prices and our cost basis. As a result, the fair market value of our loan portfolio and our implied corporate net asset value estimates are materially higher than our GAAP book value, which presents loans at the lower of market our amortized cost.
Yes.
On page 10, some subsequent events.
We have agreed to purchase approximately $13 million <unk> of Npls and <unk> eight transactions subject to due diligence the purchase price for the loans is approximately 99% of <unk> and approximately 94% of the <unk> balance, including arrears and approximately 46% of the underlying property values.
On March 4th we declared a cash dividend of <unk>, 26% per share of <unk> <unk> per share increase over our Q3 dividend paid on March 31 to holders of record of March 18 2022.
And in January we exercised our pro rata right to acquire our percentages for interest in Gaia real estate core second private round of equity. The second round was done at an 18% premium to round one we do not mark to market, our Gaia ownership, but carry it based on cost with adjustments from equity accounting.
We owned 22, 2% of Gaia Real estate Corp.
Some financial metrics on page 11 average loan yields excluding the accelerated income from unallocated discount due to the present value of cash flows in excess of modeled expectations declined marginally by approximately 2%.
Income that gets accelerated undersea saw can reduce yield on the affected loans in the future is that unallocated discount gets captured earlier under Cecil.
For debt securities and beneficial interests remember that yield is net of servicing fees and yield on loans is gross of servicing fees.
Debt Securities and beneficial interest is how our interest in our joint ventures are presented under GAAP.
As our Jv's increase as they did in 2020 in 2021 relative to loans. The GAAP reporting will show a lower average asset yield by the amount of the servicing fees.
Leverage continues to be low, especially for companies in our sector.
We ended Q4 2021 with asset level debt of $2, two times and average asset level debt for the quarter was two two times.
Our asset level debt cost of funds was 1% higher in Q4 versus Q3. This is primarily the result of double paying interest as a result of a timing gap between the purchase of the loans and the calling of 2019 <unk> structure.
As I mentioned earlier on the call we have increased asset based debt levels, but this has been offset by increased asset based cash flow velocity that pays down asset based debt.
We are working on some new securitization structures that will result in lower cost of funds than some of our existing outstanding Securitizations and intend to call and re securitize several outstanding structure.
On page 12, our total repurchase agreement related debt at December 31 was approximately $546 million of which $228 million was non mark to market mortgage loan financing and $233 million was financing on class eight.
<unk> senior bonds in our joint ventures.
Repurchase agreement that is our only floating rate debt, we expect our <unk> securitization structures to returned approximately $275 million of this into fixed rate debt in the next few months.
At December 31, we had 142 million face of unencumbered bonds as well as $139 million <unk> of unencumbered equity beneficial interest certificates and $45 million of unencumbered mortgage loans.
Combined with $84 million of cash at December 31, we have significant resources for being on offense and defense in this.
Usual and volatile environment.
That's all of the.
The notes I wanted to bring out on this call.
Anybody has any questions we're perfectly happy to answer any questions you might have.
At this time I would like to remind everyone. If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
First question comes from Kevin Barker with Piper Sandler Your line is open.
Hi, Thank you good afternoon Larry.
Hi, Kevin so.
There's a lot of moving parts here around the funding.
The right side of the balance sheet.
Your funding cost to come down to roughly below 3% here, but I would expect.
You heard it a little bit more.
Or a more rapid decline in interest expense.
Could you talk about some of the moving parts with the calling of the securitization the securitization structure.
And then the movement in interest rates recently, and how thats going to impact.
Your expectation for interest expense going into let's say the first half of next year.
Certainly so in in.
In early November .
Our 2019 <unk> was a structure, where we owned one third and we had a number of partners own. The other two thirds in early November we bought out there two thirds interest.
But we couldnt call the structure until December 25th So we bought their interests and bought out the underlying loans and then the cash SaaS in the trust account to pay down the call on December 25, So as a result, we paid interest on buying out our partner's interest.
And interest on the securitization for that gap period of time, which makes it look like our cost of funds is higher because we paid more interest on a similar average balance, but we in fact double paid on.
Okay.
<unk>.
For a period of time for that call.
Because we bought out their interest.
Six weeks before we call it the deal.
Alright, and the securitization itself had a much higher coupons than the rate that we financed the loans at the launch we are financing the loan's non mark to market at two 5% in the securitization had a $3 92.
<unk>, four and a half hour and yet yes. So we are so.
Double paying the interest is what really caused our cost of funds to not look lower in the fourth quarter. The going forward our cost of funds on our repo has increased a hair. So far I mean very little if at all we do.
Spec that as fed increases it will go up on the on the.
Asset repo basis point for basis point with fed hikes, but we also expect that within the next six weeks a chunk of that will be turned into fixed rate rated debt.
So we will effectively lock in that financing for a long period of time.
So the the.
On the floating rate side, we should be down to sub $300 million about $250 million of floating rate debt.
Sometime in the next six weeks or so.
Assuming markets don't.
Come undone.
<unk>.
Okay, so taking that all into account.
So what loser in that.
By the way and that will actually lower and that would actually.
The securitization we call our 2019 Securitizations.
The lowest coupon is $3 90.
And for our 2000, and we have a couple 2000 eighteen's that are in the fours. So our expectation is our new securitizations will actually lower cost of funds on our the deals the securitizations, we call and effectively lock in fixed rates not too different than our current repo rates on <unk>.
Loans for a long period of time, so it's definitely helpful to get these done.
Okay. So what was your.
Run rate.
Cost of funds lets just say at the end of the quarter.
At the end.
End of <unk>, because you were at $2 94 during the quarter, but obviously there is a lot of noise there.
So like what's the exit rate basically on the year.
And then can we put the pieces together to figure out.
Sure the change so repo costs combined with the change in securitization costs.
Right. So if you. So if you take out the double payment or cost of funds in Q4 was the low $2 nine.
Okay.
A little a little bit lower than Q3.
Okay, and I would anticipate and I would anticipate.
That when we the Securitizations that we call and re securitize will lower our cost of funds.
Further.
But to the extent, we still have say about 200 and.
50, or $70 million of floating rate debt that would be subject to fed rate increases.
So do you think so so so calling our 2019 securitization probably lowers our cost of funds related to those by close to 100 basis points.
Yep.
Following and re securitizing.
We still would have $250 million or so of floating rate debt that would increase with each fed increase.
Assuming that doesn't get securitized or turned into a structured at some point.
So in total how much.
How many.
Which of your securitization.
Do you expect to call and re securitize.
In the next two or three quarters.
All of our 2019 Securitizations that are on balance sheets of two other than 2019 D. In 2019 F, which are rated long term structures.
And can you remind compromised commentary can you remind us how much that cumulative.
So 2019, <unk> $150 million, we have another 100 that were adding to that so our next securitization will be a little under $2 50, So call. It call. It about 400 will be called between say now in June .
Okay.
So far in what we call it, but youre, probably going to increase the balance right just given.
That will actually increase leverage there'll be the securitizations will be effectively cash out refis.
But at lower cost of funds.
Securitization to securitization of about 90 to 100 basis points.
Okay.
Despite setting so putting that together it seems like even if we have 100 basis point movement.
Fed rates.
On the $250 million on our repo balance.
And the re securitization is here.
Should more than offset that rate. So you should see incremental declines in interest expense throughout 2020, yes.
Our goal is yes, our goal is to for it to be at least an offset and the question is is can we get the.
Ah.
Get them all called re secured re rated R rated and re securitize quick enough.
So that's the goal and the goal is to call them all by.
June 30th.
Okay.
Okay.
And then.
On the.
Interest income.
Your expectations for.
The slowing of prepayments and the impact on that.
The yield that youre going to have.
Sure so so.
Prepayment in January .
It was actually higher than it was in Q4.
Prepayment in February was approximately the same as it was in Q4.
Our expectation is that the increase in mortgage rates won't really show up in rate term refis until April or may as people rush to refi right now.
Or they are using what they locked in January or February to close on their refis right. Now. So we would expect a portion of their prepayment to slow come April may, but we're not anticipating that much slowdown in prepayment of nonperforming loans. We've certainly for that we think you'd need to see negative HPA to really slow down materially.
Okay.
Alright, that's all really now thanks for taking my question I'm sorry.
Got it.
Yes, so so the.
We do expect however, you know that.
Because seasonal accelerate some of this debt, though as they loans keep paying keep paying pankey paying they have less discount now so theoretically that decreases the long term remaining yield.
A loan that's been affected by the seasonal capture.
But we're also where we're buying loans now is cheaper than we bottom six months ago also.
Okay.
That's really helpful. Thanks for taking my questions.
Sure.
As a reminder, if you would like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from Eric Hagen with BTG. Your line is open.
Hey, Thanks, how are we doing maybe a follow up on the prepaid question.
Sure.
Can you confirm that slower Prepays would also probably support lower taxable earnings.
And therefore potentially support less need to pay a special dividend at the end of this year all things equal.
Sure.
Slower Prepays would decrease taxable earnings if the loans also stopped paying regularly so.
They went from they were kind of not really paying and didn't prepay that would decrease taxable earnings but the.
The taxable earnings from if they just went from not paying to paying every month it would decrease by a lot less.
So.
One of the things <unk> seen as so much of the prepay has come from nonperforming loans. So if they stop prepaying because they started paying that would have a much more limited effect and if they stopped prepaying and just said.
Come after me for the next five years.
So it's.
It really.
<unk> on the pattern right now what we're seeing is.
Nonperforming loans are delinquent loans are either reinstating and coming current and paying.
Or they are selling their homes and paying off and it's really driven more by how much equity. They have we've seen that when they have between about 50 and 130000 of equity they are more likely to reinstating pay regularly and when they're above a 130000 of equity they tend to.
Be more likely to sell and <unk>.
And put a.
A couple of hundred thousand dollars in the bank.
Interesting. Thank you I guess.
A couple more I mean, the line I think you hear from a lot of credit investors is that everything is priced to perfection.
And so I guess, what would you identify as maybe the one or two things that offer upside to an investor in <unk>, which is already priced into the asset.
Sure we.
Our whole approach is very different.
It's not about maximizing leverage in driving ROE and taking risk and playing the momentum game ours is much more about buying things in smaller transactions from many many many different sellers.
We've done transactions of $300000, we've done transactions of 800 million with joint venture partners. So for US, it's all about being a value investor in assets that meet specific criteria in terms of.
<unk>.
Location and geography.
Coupon LTV absolute dollars of equity and all kinds of other.
Asset backs and collateral related tax so as a result.
The other thing is we buy assets at discounts not premiums.
So it's a kind of a different mentality.
We're much more.
I would say HPA affected than we our borrower FICO affected.
So the risk in our portfolio is not a 10% decline in HPA or a 15% decline of negative HBA. It would be home prices go down 30%.
And.
That could have an impact on the credit risk.
But for us, it's not about being priced for perfection, it's being.
We are big believers in that offense is easy defense as hard so focus on defense and offense happens and thats kind of been our mentality, which is why if you look at our stock over the last five years for non agency <unk> is pretty much the number one performer for one year two year, three or four year and five year.
<unk> and a lot of it is our book value is higher than it was pre pandemic. Unlike most of other people in our sector, whose book values are lower than pre pandemic.
It's just a different different or just a different approach.
Yes, no that's helpful.
I guess, one more just on the Oreo impairments that you mentioned can you go into just a little bit more detail on that like what would drive an impairment.
In a period, where home price appreciation is really robust.
Sure. So one of the things you see and some of it is GAAP accounting. So if you foreclose out of house. Okay. If you were close on a nonpaying mortgage loans and sells at the foreclosure sale to a third party.
It's a loan pay off not an REO sale okay.
So we have a much lower percentage of oreos that we take back our Oreo total has gone down dramatically, but to the extent that the Oreo when you get it back needs more repairs than you modeled by a significant amount you would have to you would have to.
Yeah.
Make those repairs and then sell the property and you could have a loss on that <unk> because of the damage that you encounter inside that property.
Okay.
Okay. So it's really very Oreo by Oreo, we havent had an Oreo impairment in very long time and most of this impairment came from a couple of properties that had a significant internal damage.
From.
Which you come across occasionally where a borrower.
Just doesn't on purpose.
Yes, and it looks like.
Impaired period over period, it looks like it's a bigger number but in the fourth quarter of 2021, we actually had a recovery of prior guidance.
So it looks like the change is bigger so so it's 200000 different than the previous quarter, but not 200000 in total.
Okay.
Yes, Thank you guys very much.
Okay.
There are no further questions at this time I will turn the call back to Larry Mendelson for closing remarks.
Thank you everybody for joining us on our fourth quarter 2021, and year end 2021, investor call feel free to reach out to us. If you have any additional questions. We're always happy to talk about.
About our company and our business and glad to answer any questions you might have.
Yes.
This concludes today's conference call. Thank you for joining you may now disconnect.
Please wait the conference will begin shortly.
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Okay.
Yes.
Yes.
Yes.
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Yes.
Okay.