Q1 2022 Ellington Residential Mortgage REIT Earnings Call
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Program, Please press Star zero.
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Good morning, ladies and gentlemen, thank you for standing by welcome to the Arlington residential mortgage rate 2022 first quarter financial results Conference call. Today's call is being recorded at this time all participants have been placed on a listen only mode and the floor will be open for your questions. Following the.
Patient if you'd like to ask a question at that time. Please press star one on your telephone keypad at any time. If your question has been answered you may remove yourself from the queue by pressing the Punky Lastly, if you should require operator assistance. Please press star one it is now my pleasure to turn the floor over to Jason Frank Deputy General Counsel and Secretary Sir.
You may begin.
Thank you and welcome to Ellington residential first quarter 2022 earnings conference call before we begin I would like to remind everyone that certain statements made during this conference call may constitute forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 forward looking statements are not hyster.
Oracle in nature.
As described under item, one and our annual report on Form 10-K forward looking statements are subject to a variety of risks and uncertainties that could cause the company's actual results to differ from its beliefs expectations estimates and projections. Consequently, you should not rely on these forward looking statements as predictions of future events.
Statements made during this conference call are made as the date of this call and the company undertakes no obligation to update or revise any forward looking statements whether as a result of new information future events or otherwise joining me on the call today are Larry Penn Chief Executive Officer of Ellington residential Mark to copy our co Chief investment Officer, and Chris Martin off our Chief Financial Officer.
Sure.
Described in our earnings press release, our first quarter earnings Conference call presentation is available on our website <unk> Dot com.
Our comments this morning will track the presentation.
Please note that any references to figures in this presentation are qualified in their entirety by the endnotes at the back of the presentation with that I will now turn the call over to Larry.
Thanks, Jay and good morning, everyone. We appreciate your time and interest in Ellington residential.
To begin please turn to slide three.
The challenging operating environment of late last year intensified during the first quarter of 2022.
It became increasingly evident that the hiking cycle and quantitative tightening will be faster and more severe than previously expected as the federal reserve combats searching inflation.
During the first quarter that made the first of what are expected to be many interest rate hikes.
Its final months net purchases of agency MBS and signal that balance sheet write off with likely commence hey, guys.
Yeah.
Geopolitical instability and recessionary concerns further contributed to a risk off sentiment in the market.
And yield spreads in virtually every fixed income sector, including HDR.
Oh.
You can't read my lips.
Yeah.
And yield spreads in virtually every fixed income sector, including agency MBS widened relative to U S Treasury securities and interest rate swaps.
You were on slide three you can see the meteoric rise or the intermediate term interest rates in particular.
Two year note yield rose a remarkable 160 basis points during the first quarter and as of March 31st was up a full two percentage points since September 30th wasn't equal yield, but the benchmark 10 year notes.
The 160 basis point move for the two year was its largest quarterly increase since 1984.
Mortgage rates have similarly sort.
The 30 year fixed survey rate has risen by more than two percentage points since November and today sits at five 1%, which is the highest it's been in more than a decade.
This sharp increase has suddenly eliminated the refinancing incentive for most borrowers and so prepayments speeds are plummeting.
The full ramifications of the new mortgage regime are just starting to play out whether in terms of deteriorating housing affordability.
Impact in the mortgage industry and other housing sensitive industries, where the long longer term impact on the economy in general.
The bond markets were extremely volatile in the first quarter and continue to be.
The move index, which measures short term volatility of interest rates as implied by the treasury options market reached its highest level since the 2020 COVID-19 liquidity crisis.
Against this backdrop of surging interest rates and heightened volatility.
<unk> experienced both significant duration extension and significant yield spread widening which in combination cause extremely sharp price declines.
You can see on slide three that the price of Fannie may two and a half which at year end, where our production coupons.
Now way off the run finished the quarter at 95.4 dollar price down six seven points for the quarter.
You can also see toward the bottom of the slide the significant yield spread widening in agency MBS, particularly in higher coupons, but they're measured on an option adjusted basis or on a nominal basis.
For the first quarter and generated a net loss of $1 33 per share on a fully mark to market basis as you can see on slide four.
And while our net loss and therefore, our book value decline was significant be aggressively rebalance the duration of our hedges throughout the quarter, so as to prevent even deeper book value to clients.
Our delta hedging costs associated with all of this rebalancing were high but again, they were absolutely essential and preventing even deeper book value to clients.
Finally, our meaningful short TBA position also helped to offset some of the impact of the duration extension and yield spread widening during the first quarter.
When interest rates Spike TBA short positions tend to extend more than specified pool assets and this dynamically and automatically hedges are correspondingly larger portion of our specified pool portfolio.
We expect to continue to rely on TBA shorts to reduce the overall volatility of our earnings and book value.
In his remarks, Mark will elaborate further on how we navigated the first quarter's volatility and how we are positioned going forward.
But first I'll pass it over to Chris to review, our financial results for the first quarter in more detail, Chris. Thank you Larry and good morning, everyone.
Please turn to slide five where you can see a summary of earnings first quarter financial results for.
For the quarter ended March 31, 2022, we reported a net loss of $17 $5 million were $1 33 per share and core earnings of $3 $9 million or <unk> 30 per share.
These results compared to a net loss of $2 $8 million or 21 cents per share and core earnings of $3 $7 million or 28 cents per share in the fourth quarter.
Core earnings excludes the catch up premium amortization adjustment, which was a negative $488000 in the first quarter as compared to a positive $169000 in the prior quarter.
During the first quarter as Larry noted agency RBS significantly underperformed U S Treasury securities and interest rate swaps for.
For earn net losses on the agency MBS exceeded net interest income and net gains on our interest rate hedges non agency arm B S and interest only securities, which resulted in a significant net loss for the quarter on a mark to market basis.
Core earnings increased sequentially by two cents per share to 30 cents, which was in line with our dividend for the quarter.
This increase was driven by higher average holdings in the first quarter.
Our net interest margin did decrease marginally quarter over quarter to 176% from 1.81% as higher cost of funds more than offset higher asset yields.
Since our specified pools are relatively seasoned overall.
Offer both prepayment protection and extension.
Protection relative to their TBA counterpart.
Which now include newer issue more prepayment sensitive pools.
While the surge in mortgage rates during the quarter caused the value of prepayment protection to fall substantially. It also enhance the value of extension protection. After taking into account. These partially offsetting factors, perhaps for existing specified pool portfolio declined over the course of the quarter.
However, we net sold pools during the quarter and these net sales generated generally consisted of pools with much lower pay up.
Overall average pay ups for specified pool portfolio declined only slightly quarter over quarter to 0.94% as of March 31, as compared to 1.07% as of December 31st.
Please turn next to our balance sheet on slide six.
Book value per share was $10.14 at March 31, as compared to $11.76 as of December 31st.
Including the 30 cents, a first quarter dividend, our economic return was negative 11, 2% for the quarter.
We finished the quarter with cash cash equivalents and other liquidity of $29 $9 million. In addition to other unencumbered assets of $11 $3 million.
Liquidity represented $13 $7 million of unencumbered U S Treasury Securities.
Next please turn to slide seven for a summary of our portfolio holdings.
Our agency arm B S holdings measured on a treaty basis per gas decreased by 17% to $1.068 billion as of March 31, as compared to one point to eight $9 billion as of December 31st.
The decrease was driven by a combination of net self pay downs and mark to market losses.
However, measured on a settlement date basis, our agency MBS holdings increased sequentially by 13% to $1.169 billion from 1.03 or $4 billion.
Over the same period, our interest rate I'm, sorry, our interest only holdings increased to.
To $17 $9 million from $13 $1 million, while our non agency holdings decreased slightly to $8 7 million from $9 1 million.
We traded very actively during the first quarter with agency arm B S portfolio turnover of 77%.
On slide eight you can see the details of our interest rate hedging portfolio.
During the quarter, we continued to hedge interest rate risk through the use of interest rate swaps and short positions in TBA is U S Treasury Securities and futures.
We ended the quarter with a net short TBA position, both on a notional basis.
And as measured by 10 year equivalents.
Slide nine illustrates our net mortgage assets to equity ratio, which is measured on a trip basis.
This ratio decreased to six nine times from seven one times during the quarter.
And was due to lower agency RBS, holding particularly offset by a smaller net short TBA position on a fair value basis, and lower shareholders' equity.
Our debt to equity ratio adjusted for unsettled purchases and sales increased to $8 three times as of March 31, as compared to $6 nine times as of December 31st.
This increase in our debt to equity ratio was primarily due to the increase in borrowings on our agency MBS portfolio, where we had larger settled holdings at quarter end, along with lower shareholders' equity.
I'll turn the presentation over to Mark.
Okay.
Thanks, Chris.
And spread volatility in the first quarter was absolutely stork deal.
On the two year Treasury jumped 160 basis points.
Danny Twos dropped seven points and Fannie four has dropped over five points.
In terms of volatile quarters for the bond market. This one is going to stand out for a very long time.
<unk> change in the fed messaging led to a huge repricing of yield spreads across all our fixed income when the dust settles and it has not all settled yet the opportunity set after these historic moves should make for a phenomenal backdrop for an agency mortgage REIT. What you have now is agency MBS and asset with good liquidity no credit.
Risk priced it very widespread with most of the market no longer exposed to the risk of fast prepayments.
So you can see a clear path to low teens levered returns on pools, and TBA were you more or less know what you're getting on prepayments, which should now be limited to cash out refis and turnover.
This is a completely different opportunity set than what we had in the second half of 2020 and all of 2021.
Those are periods, where current coupon rolls were strong because the fed buying and spread volatility was manageable because of the fed backstop backdrop, but once you ventured into coupons that the fed wasn't by you either had premium TBA like pools, playing paying blazing fast because of the efficiency of the non bank mortgage companies or you had specified pool.
At Nosebleed paths, you can make returns, but a lot of it was really drafting off the fed.
Now we have a market that has a much richer opportunity set and much wider spreads you don't have to take prepayment risk. If you don't want to at the end of the quarter or 30 year portfolio range in price from $88 to 103.
We also have had lots of seasoned cohorts.
So expected returns are both much higher and much better quality today than they were before but and theres always a but the street pricing was driven by the abrupt exit at the fed which also means we should expect more volatility both volatility and spreads and volatility in rates, meaning more and more to market volatility, but for much of the market that's built.
So 98 dollar price.
Theres not substantial cash flow uncertainty.
To get to the low price points today, we first had to endure the price declines and manage to enormous rate moves and the resulting delta hedging costs, which which have been substantial for earn.
Our economic return was negative 11% much of that loss was from the massive underperformance of agency MBS versus treasuries and swaps, but not all of it there we're delta hedging costs. They were wide bid offer spreads and there was yield curve.
Yeah.
Nobody has a crystal ball on my list.
The volatility in the first quarter as repeat it because it was an adjustment to a 180 degree turned by the fed the fed rarely revises their economic outlook. So radically. So now you have wide mortgage spreads predictable speeds.
And discounts.
And with discounts you have room to run up in price before you have to worry about prepayment risk and substantial negative convexity should the market start pricing and recession fears.
Spreads are wide, but unlike 2020, we have not seen funding pressures, even though volatile.
Even though liquidity is weighed out as a result, the cost of repositioning the portfolio was higher than normal, but the financing side of the equation stable as a manager you have to be patient and access liquidity as it presents itself.
So having a portfolio of just during the quarter you can see on slide seven we shrunk our portfolio that is the prudent thing to do in volatile markets than you experienced book value decline, that's what you need to do to keep leverage relatively constant.
A comment on that going forward opportunity, it's just conservative portfolio management in the face of high volatility and heightened uncertainty.
The volatility has subsided the last two weeks, but it was still a very volatile month in our preliminary estimates show their book value as of April 30th with $949 60 range. You can also see on slide eight that we increased the tenure equivalents of our hedges and that's despite having a smaller portfolio. We did this.
Because the duration of both spec pools and their TBA increased during the quarter as higher rates implied slower prepayment speeds and consequently longer duration.
On slide nine you can see that we essentially shrunk our mortgage portfolio.
Junk, our mortgage exposure portfolio pro rata with the size of our portfolio. So our net mortgage exposure only declined slightly from seven 1% to $6. Nine. This is not a commentary on mortgage value. It's more a commentary on market volatility mortgages are much cheaper now than they had been in years and a lot of bad news is already baked into their pricing.
Euro dollar futures already implied that three month LIBOR well reached three 6% by June 2023.
Many tunes.
Current coupon for much of last year, and then and that's in place during 2021 of almost one O. One are now trading with an 87 handle and Fannie fours, which averaged at a price of about 107 in 2021, and whose prepayment protected pools used to trade at multiple point pay ups now trade at <unk> 99 in the quarter the <unk>.
Assuming a very fast paper and correspondingly a correspondingly a lot of net supply for private capital to digest.
Things can obviously move more and spreads continuing to widen but a lot of the mortgage market is now fully extended we don't plan to increase leopard materially from here until we see signs of interest rate and spread stability Nims are very wide right now and there are what we consider high quality names that don't require a big premium dollar prices or big spec pool pay.
But we respect the fact that we are in uncharted waters with elevated inflation and balance sheet write off around the corner. So I think we're going to wait for more stability before increasing leverage from here.
Discount coupons performed much better and higher coupons during the first quarter, so that positioning helped us and Meanwhile, the underperformance of higher coupons created a great entry point.
We can see on slide 14 that we had gone up in coupon and our holdings the weighted average coupon of our 30 year pools increased by 19 basis points sequentially. During the first quarter, we have done more of that since quarter end.
How is that process deliver strong returns going forward.
How widespread are now we don't need more leverage to generate a high dividend rely on prepayment models.
Our duration and yield curve exposure closely I mean hedge across the curve. All of that's important is we want to capture in love with widespread as we see them.
And with the fed stepping away, we believe that more dislocations could emerge.
We provide relative value opportunities to exploit for those who have maintained excess liquidity is.
As the fed shrinks MBS have wider yield spreads, but theyre also hedgeable. So it's a real opportunity to get double digit returns without taking credit risk and now with a lot less prepayment or volatility risk because convexity of the mortgage market is much better.
We have a range of coupons to buy and we don't have to be so roll dependent in the short run there's mark to market volatility, but in the long run you can buy a government guaranteed assets widespread through at discount to par and have a lot of extension risk already priced in.
But we will be patient with adding leverage as deferred hasnt, even stopped buying it and more technical headwinds are set to come as they start to reduce the size of their balance sheet.
In addition, we can manage our portfolio with a diversified mix of discounts and premiums. So we don't have a disproportionate focus on call risk as in years past.
And most importantly, we don't have to compete with an enormous pool of capital the fed that isn't seeking returns.
Yields are much higher and spreads are much wider so private capital can demand and should get a portfolio with substantially higher levered return.
I think eight agency MBS can perform well from here regardless of the direction of rates, if we see a weak economy that leads to.
Dip in interest rates that can still be a scenario for strong returns as he may get faster prepayments and cash out refis and what we are assuming whereas for credit sensitive bond portfolios, a recessionary scenario, a recessionary scenario would likely be a challenge and higher rates and lower supply can reduce the supply of agency MBS.
Moving the fundamental picture now back to Larry.
Thanks Mark.
<unk> initial intentions for a smooth and well telegraphed tightening cycle surging inflation has forced their hand to move faster at times. The market's reaction has been reminiscent of the taper tantrum in 2013.
The reduced fed support was obviously a headwind for agency RBS in recent months and the extreme interest rate volatility is widening yield spreads and made it a lot more expensive to hedge.
And April interest rates continued to increase yield spreads widen further and volatility remained elevated.
As Mark mentioned, our preliminary estimate is that our book value at April 30th agenda, $9 40 to $9 60 range.
In light of our recent book value to clients last night, we adjusted our annualized dividend back to the way it had been sites previously, namely to an approximately 10% yield on book value per share.
We believe that this adjustment was prudent in light of recent circumstances, but we are also optimistic that we can start rebuilding that dividend given that much richer opportunity set that mark spoke about.
As we've seen in the past big pricing dislocations tend to be the source of opportunity.
With significantly wider yield spreads and lower pay ups agency specified pools are more attractive than they've been in a long time.
Repo financing terms continue to be very favorable and putting it altogether higher reinvestment yields are outpacing rising borrowing cost so core earnings in the coming quarters is actually looking very strong.
And from a price performance perspective, which has been by far the biggest component of recent underperformance New agency RMB as supply is declining significantly given the much higher mortgage rates and this should help mitigate the negative effects of fed balance sheet reduction.
In fact back in 2013. This is exactly what happened after severely underperforming during the taper Tantrum agency MBS actually rallied significantly during the second half of that year.
With that we'll now open the call to questions.
Please go ahead.
At this time, if you'd like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue at any time by pressing the pound key once again that is star one to ask a question.
And we'll take our first question from Crispin Love from Piper Sandler Your line is open.
Thanks, and good morning, So first off thank you for the book value update here, but just based on the recent volatility and your outlook.
Do you believe that we're starting to see some stabilization mortgages and in April and then just also what are your expectations for near term volatility continuing and then coupled with the investment opportunities you're seeing.
Hey, Chris it's Mark So I would say that.
The second half of April there was more spread stability and there was the first half so while the entire month was a volatile month you certainly saw some stability second second part of April .
Yeah.
Great. Thanks, Marc and then.
One on the dividend and I know, it's a board decision here Budd.
And Larry I know you had some comments on it but.
Just thinking about the dividend would you view that the new <unk> monthly.
Run rate just a resetting of the dividend here Unreason book value and then just also how are you thinking about the dividend relative to core earnings going forward because recent commentary on that commentary you just had it seems that the 30000 run rate in core isn't in question, but perhaps with a slight in the loan portfolio that we thought you might fall.
A little bit below there so just kind of thoughts on the dividend and also compared to core earnings sure.
Thanks, Chris Yeah, So as I said, we resize the dividend basically to a 10% yield on our new book value for share.
I mentioned core.
Is outstripping that and in fact is expected to to expand.
To expand further in the coming quarters.
So, but because of the particular tax situation that we're in we're not.
Required if you will to distribute.
All of our core.
In our dividend so.
So even with core exceeding the dividend as we project.
For the next few quarters.
No we would not be required to do that and we just thought as I said given.
The circumstances, we thought it was prudent to to resize that to the 10% yield where it had been.
No.
The last time that we resize and frankly.
Okay, Great and then just so I'm clear. So are you, saying that you think over the next few quarters, our core should be at least 30.
Yes.
Great. Thank you that's helpful. Thanks for taking my questions sure. Thank you.
Our next question comes from Doug Harter from Credit Suisse. Your line is open.
Okay.
Doug Your line is open.
Alright.
Can you hear me now yeah, sorry, Doug Thanks.
You mentioned that the second the latter part of the month you started to see volatility slowed down now I guess.
Think about kind of the the risks how do you kind of size the risk to future spread widening versus kind of the potential for spread tightening.
And in the market now.
Yeah. So that's a good question Doug so.
One thing is we kind of contextualize mortgage spreads.
Versus other competing fixed income spread product, so investment grade corporates high yield bonds.
Those sectors have widened a lot too so well.
Well, we see very clearly.
Widespread on agency MBS versus the hedging instruments.
That is.
We use the term high quality NIM, so the NIM where.
You don't have a lot of prepayment uncertainty to it and it's the NIM, where we think.
You know rates up rates down the NIM will.
Hold up it won't it.
It won't degrade a lot and it won't require a lot of delta hedging. So we see very wide net interest margins on agency MBS.
But we also see competing products have also underperformed materially this year so.
What happens with competing products doesn't really change. The fact that we can capture a high net interest margin now, but I think what happens with competing products.
Does have something to say about entry point and price volatility so.
We want to see and you're starting to see it a little bit now stability in rates stability in mortgage spreads, but also <unk> say in you know investment grade you know investment.
Investment grade spreads for other asset classes and.
Yeah, you you you.
Have a lot of bad news.
And to the market in Q1, it led to the book value decline, but the book value decline.
Has created a much better opportunity set than we've had in the last few years, but there's still a few hurdles left for the market right. The Fed's got a meeting this week expectations for you know a 50 basis point hike expectations. They announced the tapering. So I think we also want to see a little bit.
How the market absorbs with daily mortgage supply without the fed being a buyer right there they're buying a lot less now than they did last year, but they're still buying right. So it's a little bit of an adjustment so I think that.
The net interest margin right now is very wide, but we wanted to be thoughtful about.
Entry points and that in and thoughtful about entry points has something to do with.
Other asset classes and sort of overall market tone.
Yeah.
Great I appreciate that answer thank you.
Yeah.
Our next question comes from Eric Hagen from B P. I G.
Hey, Thanks, good morning.
How would you say are long short MBS portfolio is in a better position to outperform our portfolio hedged exclusively with interest rates.
When the fed is about to start tightening more aggressively what what our investors are getting by being long short versus some other approach levered approach.
Youre, saying, a long short MBS portfolio versus say like high yield portfolio and investment grade bond portfolio.
No in EMEA shortfall portfolio versus just long MBS portfolio.
Right. The second thing you said, a long a long MBS portfolio hedged with swaps.
The swaps and treasuries.
So I think what you get is less.
Volatility sensitivity so a lot of the mortgage market now see kind of Fannie cleanups and lower.
Or sort of fully extended and the prepayment speeds versus if you believe the forward curve gets played out to prepayment speeds, we're gonna be largely determined by turnover and cash out Refis right and then when you get above that then you start getting into things that you know can get into money.
And have refinance you know have a increase in prepayments if mortgage rates dropped right. So I think that.
You you you have and it depends what coupons your loan book coupon to short, but one thing and you saw it in the first quarter is that being short some mortgages.
<unk> reduced how much increase in volatility hurt you know I think that.
Given how much.
TBA ASEAN spec pools underperformed, it's it's a weaker case now than it was at the start of the quarter for sure.
Okay. That's helpful color. Thanks.
How does the old price appreciate it.
I'd add one other thing is that.
To the extent you have a research effort and modeling efforts that.
Can do a good job of identifying discount pools that are going to have elevated prepayments. You know so you kind of predict levels of cash out activity and levels of turnover than long short and some of these coupons can add a fair bit of excess return you know, there's there's parts of the mortgage market now there.
13th belongs 13 points below par so getting so picking the pools with faster prepayment speeds.
F T. B. If you know if you can pick pools that faster prepayment speeds and.
And by those versus TBA, and if TBA prices the famed St prepayment speeds that adds a lot of excess return.
Okay.
Yeah. That's helpful. I think that actually leads into maybe my next question, which is you know how does home price appreciation and inflation factor into the outlook for Prepays I mean, do you feel like there's the potential for faster speeds to developing.
The lower coupons simply as a matter of faster turnover and cash out refi demand against the current backdrop.
Yeah, It's a great question and something we have been.
Doing a lot of data analysis on right. So.
What you have now is.
A whole bunch of borrowers with.
You know three and a half three and a quarter, 3% mortgage rates. So there you know anywhere between 150 to 200 basis points below the current mortgage rate, but there are also sitting on a mountain home out of home equity right. So what we've seen in the past is that how likely you are to do a cash out is a function of.
How much cash you can actually take out how much equity do you have in your property, but also what's the rate differential between your mortgage rate and the current mortgage rate. So the strong H P. A.
We think is supportive of cash out activity and it's interesting because while there's a borrower component to it. There's also an originator and servicer component to it and some of the non banks.
I have been very aggressive in making borrowers aware about cash out refi opportunity. So.
Our strong HPA is definitely something that we think is supportive of higher turnover speeds.
You're just now it's really only been.
It maybe have two months of data to really look and see what's going on but you know because there is the amount of equity you have in your home, there's a little bit of a geographic component right. So you've had you know an aggregate, 20% H P a but it hasn't been.
It's not like every area went up 20%. So there's certainly some high flyer areas. So there is.
That's supportive of turnover speed and it's also something that it's hard for models to capture rate you're at your read of.
<unk> you.
Ah moment.
Now where the amount of <unk>.
H P a borrowers have.
It was a lot higher than what they've historically had in the data set. So you can't it's you can't it's hard to go back and sort of regress and data mined and find other moments in the historical mortgage prepayment record that look a lot like this moment.
So you really need to be watching like a hawk each and every prepayment report and then really slice and dice the data into as many different dimensions. As you think irrelevant. So it's also interesting to have someone did a cash out last year are they more or less likely to do a cash out for someone.
Did a purchase last year right. So there's a whole bunch of stuff, which is sort of fertile ground for research and I think if you get it right.
There is a lot of excess return that is built into the price of some of these discounted MBS that isn't all isn't 100% captured to the model and you're dealing with a market that has.
Cause so much red ink out there that it's not fully priced in and it's not a kind of market where people are sort of listening to stories and really feel like they have to reach for incremental returns. So you can you can focus on this stuff and I think it adds a lot of excess return and it will eventually.
We get priced in but I think now you can almost sort of pick it up almost for free.
Yes.
Yes.
Yes, it's really fascinating.
Places, where we are right now in the mortgage market where.
There are so many securities now you know Mark mentioned that I think it was you know Fannie twos trading with an 87 handle well.
Where the difference in value.
At current rates, if they prepay say at six CPR versus 10, CPR is massive and in terms of how they'll respond in an up rate environment again, six CPR versus 10-C P. R.
You know a lot more modest price job.
If you know.
The market's fees consistent speeds of 10 CPR, it's at a six CPR. So the value of a lot of the mortgage market right. Now is gonna be I think highly dependent but as Mark said really probably mostly just on the upside or was it I think the market is pricing in a pretty slow speeds, but theres tremendous upside.
<unk> ended up being a faster, which as you know Eric you implied could be very dependent on home price appreciation.
The economy mobility, all sorts of things. So it's it's a fascinating and it will unfold over the coming months and quarters, but you know of course the longer term trend is going to be really important too because youre talking about these are the these are very long mortgages right now.
I appreciate it guys. Thank you.
Okay.
Thanks, Eric.
Our next question comes from Macau government from J J M P Securities.
Hi, Good morning, gentlemen, most of my questions have already been touched on if I may just ask you what kind of opportunities are you seeing in the reverse mortgage market seems to be a space that is attracting more interest these days.
I'll just I'll.
I will just say that.
There are there was widening in sympathy in that market.
And so just you know.
The not surprisingly.
It looks like a good actually quite there it's not a big focus.
As you can tell looking at our portfolio.
Of the company.
We're focusing on on the more liquid sectors, but just we do think that it's an excellent entry point right now.
Four.
No.
Heck in pools.
As an investor.
They have widened.
They got their portfolio.
Palio is roughly flat to up.
Last quarter versus this quarter in terms of size yes.
Alright, Thanks, a lot.
That was our final question for today, we thank you for participating and Ellington residential mortgage REIT 2022 first quarter financial results Conference call. You may disconnect. Your lines at this time and have a wonderful day.
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