Q1 2024 Two Harbors Investment Corp Earnings Call

Jennifer: Good morning. My name is Jennifer, and I will be your conference facilitator. At this time, I'd like to welcome everyone to the Two Harbors First Quarter 2024 Financial Results Conference Call. All participants will be in a listen-only mode. After the speaker's remarks, there will be a question and answer period. I would now like to turn the call over to Ms. Maggie Karr.

Good morning, My name is Jennifer and I will be your conference facilitator at this time I'd like to welcome everyone to the two harbors first quarter 'twenty 'twenty four financial results conference call.

All participants will be in a listen only mode.

After the Speakers' remarks, there will be a question and answer period.

I would now like to turn the call over to MS. Maggie Karr.

Margaret Field Karr: Good morning, everyone, and welcome to our call to discuss Two Harbors' first quarter 2024 financial results. With me on the call this morning are Bill Greenberg, our President and Chief Executive Officer, Nick Letica, our Chief Investment Officer, and Mary Riskey, our Chief Financial Officer.

Margaret Field Karr: Good morning, everyone and welcome to our call to discuss two harbors first quarter 'twenty 'twenty four for neutral result.

Margaret Field Karr: With me on the call. This morning are Bill Greenberg, President and Chief Executive Officer, Nick <unk>, Our Chief investment Officer, and Mary recipe, our Chief Financial Officer.

Margaret Field Karr: The earnings press release and presentation associated with today's call have been filed with the SEC and are available on the SEC's website, as well as on the Investor Relations page of our website at TwoHarborsInvestment.com. In our earnings release and presentation, we have provided reconciliations of GAAP to non-GAAP financial measures, and we urge you to review this information in conjunction with today's call. As a reminder, our comments today will include forward-looking statements that are subject to risks and uncertainties that may cause our results to differ materially from expectations.

Margaret Field Karr: The earnings press release and presentation associated with today's call have been filed with the SEC and are available on the I think.

Margaret Field Karr: The site as well as the Investor Relations page of our web site at two harbors investment dotcom.

Margaret Field Karr: In our earnings release and presentation. We have provided a reconciliation of GAAP to non-GAAP financial measures and we urge you to review this information in conjunction with today's call.

Margaret Field Karr: As a reminder, our comments today will include forward looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are described on page two of the presentation and in our Form 10-K, and subsequent reports filed with the SEC.

Margaret Field Karr: These are described on page 2 of the presentation and in our Form 10-K and subsequent reports filed with the SEC. Except as may be required by law, Two Harbors does not update forward-looking statements and disclaims any obligation to do so. I will now turn the call over to Bill.

Margaret Field Karr: Except as may be required by law two harbors does not update forward looking statements and disclaims any obligation to do so I will now turn the call over to Bill.

William Ross Greenberg: Thank you, Maggie. Good morning, everyone, and welcome to our first quarter earnings call. Today, I'll provide an overview of our quarterly performance. Then, I will spend a few moments discussing the markets, to finish with an update on Round Point operations. Mary will cover our financial results in detail, and Nick will discuss our investment portfolio and return outlook. Let's begin with slides.

William Ross Greenberg: Thank you Maggie and good morning, everyone and welcome to our first quarter earnings call.

William Ross Greenberg: Today, I'll provide an overview of our quarterly performance.

William Ross Greenberg: And then I will spend a few moments discussing the markets and finish with an update on round quite operations.

William Ross Greenberg: Maybe we'll cover our financial results in detail.

William Ross Greenberg: Nick will discuss our investment portfolio and return outlook.

Speaker Change: Let's begin with slide three.

William Ross Greenberg: Our book value at March 31st increased to $15.64 per share, representing a positive 5.8% total economic return for the quarter. Our results were driven by the performance of our RMBS portfolio in a declining volatility environment and MSR, which experienced slower-than-expected repayments. MSR continues to benefit our portfolio with a very attractive yield combined with limited prepayment risk and low interest rate sensitivity. As we have previously emphasized, our high capital allocation to MSR acts as a ballast to our portfolio when agency spreads fluctuate. We are confident that our portfolio design and current allocation between MSR and RMBS positions us well for what we expect to be a higher-for-longer interest rate environment.

William Ross Greenberg: Our book value at March 31st increased to $15 64 per share representing a positive five 8% total economic return for the quarter.

William Ross Greenberg: Our results were driven.

William Ross Greenberg: By the performance of our MBS portfolio, and a declining volatility environments, and MSR, which experienced slower than expected prepayment speeds.

William Ross Greenberg: MSR continues to benefit our portfolio with a very attractive yield combined with limited prepayment risk and low interest rates sensitivities.

William Ross Greenberg: As we have previously emphasized our high capital allocation to MSR acts as a balance to our portfolio when agency spreads fluctuates.

William Ross Greenberg: I'm confident that our portfolio design and current allocation between MSR and agency RBS positions us well for what we expect to be a higher for longer interest rate environment.

William Ross Greenberg: Please turn to slide four for a brief discussion of the market. Stronger-than-expected economic data and sticky inflation readings pushed interest rates higher in the quarter and led the market to the realization that higher-for-longer rates is the most likely path. The employment report came in stronger than expected in each month of the quarter, averaging gains of 281,000 new jobs per month.

William Ross Greenberg: Please turn to slide four for a brief discussion of the markets.

William Ross Greenberg: Stronger than expected economic data and sticky inflation readings pushed interest rates higher in the quarter and led the market to the realization that higher for longer rates, here's the most likely path.

William Ross Greenberg: Employment report came in stronger than expected in each month of the quarter, averaging gains of 281000, new jobs per month.

William Ross Greenberg: Similarly, both consumer and producer price indices surprised higher, with three-month annualized core CPI, a metric closely watched by the market and the Fed, reaching 4.5%, its highest level since June 2023, as seen in Figure 1. At the start of the year, Fed funds futures implied more than six interest rate cuts in 2024. But by quarter end, that number had fallen to just under three, as you can see in figure two. Sentiment continues to evolve, and following the Fed's mid-April meeting, those expectations had fallen to about 1.3 interest rate cuts for 2024. Please turn to slide five for a brief discussion on round points operation.

William Ross Greenberg: Similarly, both consumer and producer price indices surprised higher with three months annualized core CPI metric closely watched by the market and the fed reaching 4.5% its highest level. Since June 2023, as you can see you want.

William Ross Greenberg: At the start of the year fed funds futures implied more than six interest rate cuts in 2024, so by quarter and that number had fallen to just under three as you can see in figure two.

William Ross Greenberg: Sentiment continues to evolve and following the Fed's mid April meeting those expectations had fallen to about 1.3 interest rate cuts for 2024.

William Ross Greenberg: Please turn to slide five for a brief discussion on Ron points operations.

William Ross Greenberg: We completed the 10th transfer of our servicing to RoundPoint's platform on February 1st, and we have one final transfer of approximately 52,000 loans in early June, as shown in Figure 1. We are still in the early stages of building our sub-servicing platform, and in the quarter, we added one new sub-servicing client. We expect to transfer in approximately 17,000 loans from this client in the near term. We are continuing to build out the team and supporting infrastructure for our direct-to-consumer ReCAPTCHA Originations Channel, and we still expect to begin taking locks in the second quarter.

William Ross Greenberg: We completed the tense transfer of our servicing to Ron points platform on February 1st and we have one final transfer of approximately 52000 loans in early June as shown in figure one.

William Ross Greenberg: We are still in the early stages of building, our sub servicing platform and in the quarter. We added one new sub servicing clients.

William Ross Greenberg: Expect to transfer an approximately 17000 loans from this client in the near term.

William Ross Greenberg: We are continuing to build out the team and supporting infrastructure for our direct to consumer recapture origination channel and we still expect to begin taking locks in the second quarter.

William Ross Greenberg: This direct-to-consumer portfolio retention business should be thought of as a way to hedge faster-than-expected prepayment speeds in a refinanced environment. Though that may seem distant, we intend to offer ancillary products, including second lien loans, to our customers in the meantime. The ability to build this critical piece of our servicing business from scratch without any legacy issues or risks is exciting and something that few companies have the opportunity to do.

William Ross Greenberg: This direct to consumer portfolio retention business should be thought of as a way to hedge faster than expected prepayment speeds in a refinance environment.

William Ross Greenberg: So that may seem distance, we intend to offer ancillary products, including second lien loans to our customers in the meantime.

William Ross Greenberg: The ability to build this critical piece of our servicing business from scratch without any legacy issues or risks is exciting and something that few companies have the opportunity to do.

William Ross Greenberg: Institutional demand remains high for investors who are looking to participate in the MSR market, given the never-before-seen risk profile of the current servicing universe, with the majority of outstanding MSRs being hundreds of basis points away from an economic incentive to refinance. Given our deep expertise as an MSR investor, we believe that we are the ideal partner to service MSR for this new capital, and we are actively working on the ability to support various structures.

William Ross Greenberg: Institutional demand remains high for investors, who are looking to participate in the MSR market given the never before seen in risk profile of the current servicing universe with a majority of outstanding MSR being hundreds of basis points away from an economic incentive to refinance.

William Ross Greenberg: Given our deep expertise as an MSR investor. He believes that we are the ideal partner to service MSR for this new capital and we are actively working on the ability to support various structures.

William Ross Greenberg: With over 60% of our capital allocated to servicing and the remaining 40% to securities, we believe that we are positioned to benefit in the current market environment and beyond. Our high allocation to MSR means that our portfolio is less exposed to fluctuations in mortgage spreads than portfolios without MSR. And we believe that this is an attractive position, particularly amid uncertainty over the future paths of Fed actions or inactions, interest rate volatility, and mortgage spread performance.

William Ross Greenberg: With over 60% of our capital allocated to servicing and the remaining 40% Securities. We believe that we are positioned to benefit in the current market environment and beyond.

William Ross Greenberg: A high allocation to MSR means that our portfolio is less exposed to fluctuations in mortgage spreads than portfolios without MSR.

William Ross Greenberg: We believe that this is an attractive position, particularly amid uncertainty over the future pads are fed actions or inactions interest rate volatility and mortgage spread performance.

William Ross Greenberg: In addition, owning an operating company allows us to significantly impact our results through our own actions in a way that's not possible when only owning a portfolio of security. Our future success will be determined by remaining disciplined and sticking to our areas of expertise, managing interest rates, and prepayment risk. With that, I'd like to hand the call over to Mary to discuss our financial results.

William Ross Greenberg: In addition, owning and operating company allows us to significantly impact our results through our own actions in a way that's not possible, but only owning a portfolio of securities.

William Ross Greenberg: Our future success will be determined by remaining disciplined in sticking to our areas of expertise managing interest rate and prepayment risks.

William Ross Greenberg: I'd like to hand, the call over to Mary to discuss our financial results.

Mary Kathryn Riskey: Thank you, Bill, and good morning. Please turn to slide six. Our book value increased to $15.64 per share at March 31 compared to $15.21 at December 31, and the $0.45 common dividend resulted in a quarterly economic return of positive 5.8%. As a reminder, total economic return is the primary metric we consider as an indicator of our performance.

Mary Kathryn Riskey: Thank you Bill and good morning, Please turn to slide six.

Mary Kathryn Riskey: Book value increased to $15.64 per share at March 31st compared to $15.21 at December 31st.

Mary Kathryn Riskey: Excluding the 45 cent common dividend results in a quarterly economic return of positive 5.8%.

Mary Kathryn Riskey: As a reminder, total economic return is the primary metric, we consider as an indicator of our performance.

Mary Kathryn Riskey: We purchased approximately 485,000 shares of Preferred SAC in the quarter, lowering the ratio of Preferred SAC to total equity. Please turn to slide 7. The company generated comprehensive income of $89.4 million, or $0.85 per weighted average common share, in the first quarter. MSR values increased during the quarter on higher rates and spread tightening, offset somewhat by the RMBS allocated as a hedge. RMBS values decreased as a result of the rate movement, but gains on swaps and futures were more than offset by losses on swaps and futures, which is consistent with the mortgage spread tightening that we observed in the quarter.

Mary Kathryn Riskey: We repurchased approximately 485000 shares of preferred stock in the quarter lowering the ratio of preferred stock to total equity.

Mary Kathryn Riskey: Please turn to slide seven.

Mary Kathryn Riskey: The company generated comprehensive income of $89.4 million or <unk> 85 cents per weighted average common share in the first quarter.

Mary Kathryn Riskey: MSR values increased during the quarter on higher rates and spread tightening offset somewhat by the RBS allocated as a hedge.

Mary Kathryn Riskey: MBS values decreased as a result of rate movement more than offset by gains on swaps and futures, which is consistent with the mortgage spread tightening that we observed in the quarter.

Mary Kathryn Riskey: Net interest expense of $42 million was favorable $3 million to Q4 from lower average borrowing balances and lower cost of funds, partially offset by lower RMBS interest income from net sales. Net servicing income of $159 million included $134 million of servicing fee income and $32 million of float and ancillary income, offset by $7 million of third-party subservicing fees and other MSR-related servicing costs. Overall, net servicing income was unfavorable to Q4 by $7 million due to lower flowed income due to seasonality of escrow balances and lower servicing fee collections, partially offset by lower third-party servicing and other MSR-related costs as we continue transferring loans to the Round Point platform. Please turn to slide 8.

Mary Kathryn Riskey: Net interest expense of $42 million with favorable 3 million to Q4 from lower average borrowing balances and lower cost of funds, partially offset by lower arm B S interest income from net sales.

Mary Kathryn Riskey: Net servicing income of $159 million included 134 million of servicing fee income.

Mary Kathryn Riskey: And $32 million of float and ancillary income offset by $7 million of third party sub servicing fees and other MSR related servicing costs.

Mary Kathryn Riskey: Overall net servicing income was unfavorable to Q4 by $7 million on lower float income due to seasonality of escrow balances and lower servicing fee collections, partially offset by lower third party servicing and other MSR related costs as we continue transferring loans to the round point platform.

Mary Kathryn Riskey: Please turn to slide eight.

Mary Kathryn Riskey: RMBS funding markets remained stable and liquid throughout the quarter with ample balance sheets available. Spreads on repurchase agreements were tight and slightly with financing for RMBS between SOFR plus 18 to 24 basis points. At quarter end, our weighted average days to maturity for our agency repo was 88 days. We finance our MSR across five lenders with $1.6 billion of outstanding borrowings under bilateral facilities and $296 million of outstanding five-year term notes. We ended the quarter with a total of $602 million of unused MSR financing capacity and $135 million of unused capacity for servicing advances. I will now turn the call over to Nick.

Mary Kathryn Riskey: Our MBS funding markets remained stable and liquid throughout the quarter with ample balance sheet available.

Mary Kathryn Riskey: Spreads on repurchase agreements tightened slightly with financing for arm B S between sulfur plus 18% to 24 basis points.

Mary Kathryn Riskey: At quarter end, our weighted average days to maturity for our agency repo was 88 days.

Mary Kathryn Riskey: Finance, our MSR across five lenders with $1 6 billion of outstanding borrowings under bilateral facilities and 296 million of outstanding five year term notes.

Mary Kathryn Riskey: Ended the quarter with a total of $602 million of unused MSR financing capacity and $135 million of unused capacity for servicing advances.

Mary Kathryn Riskey: I will now turn the call over to Nick.

Nicholas Letica: Thank you, Mary. Please turn to slide 9. Our portfolio at March 31st was $14.7 billion, including $11.3 billion in settled positions and $3.4 billion in TBAs. We maintain the belief that now is not the time to go out on a limb in terms of risk or leverage, given the current market conditions and level of spreads. As a result, we kept a neutral risk profile with an ending economic debt-to-equity of six times

Nick: Thank you Mary.

Nick: Please turn to slide nine.

Nick: Our portfolio at March 31 was $14 7 billion, including <unk> 11, 3 billion in subtle positions and $3 4 billion and TBA is.

Nick: We maintain our belief that now is not the time to go out on a limb in terms of risk or leverage given the current market conditions and level of spreads and as a result, we kept a neutral risk profile with ending economic debt to equity of six times.

Nicholas Letica: Over the quarter, we shifted our mortgage exposure up in coupon, which we will detail in our agency portfolio commentary. This benefited the portfolio and resulted in lower spread sensitivity, as you can see in the spread exposure summary chart on this page. Please turn to slide 10.

Nick: Over the quarter, we shifted our mortgage exposure up in coupon, which we will detail in our agency portfolio commentary.

Nick: This benefit of the portfolio and resulted in lower spread sensitivity as you can see in the spread exposure summary chart on this page.

Nick: Please turn to slide tell them.

Nicholas Letica: In the first quarter, despite a 30 basis point rise in rates on the 10-year Treasury and less optimism about the Fed cutting rates this year, volatility declined, driving positive performance for RMBF. Though still high by historical standards, realized volatility across the yield curve fell from the prior quarter, as did implied volatility. Our preferred gauge, implied volatility on two-year options on 10-year swap rates, declined to about 98 basis points annually, close to the bottom end of its range since the beginning of 2023. The nominal spread to treasuries for the current coupon finished at 119 basis points, essentially unchanged over the quarter.

Nick: In the first quarter. Despite a 30 basis point rise in rates on the 10 year treasury, but less optimism about the fed cutting rates. This year volatility declined driving positive performance for our MBS.

Nick: So still high by historical standards realized volatility across the yield curve fell from the prior quarter as did implied volatility.

Nick: Our preferred gauge implied volatility onto your options on 10 year swap rates declined to about 98 basis points annually close to the bottom end of its range since the beginning of 2023.

Nick: The nominal spread to treasuries for the current coupon finished at 119 basis points essentially unchanged over the quarter.

Nicholas Letica: As you can see from Figure 1, the spread continues to closely track implied volatility and remained well above the 50th percentile of long-term history. Spreads for current coupons were aided by lower-than-expected supply, strong fixed-income fund inflows, and tame prepayment rates. Although the overall performance of RMBS was positive in the first quarter, performance varied widely; belly and higher coupons outperformed lower coupons, and specified pools outperformed TBAs. Specified pools broadly outperform the same coupon TBA, owing to elevated demand typical of the beginning of the year, and for higher coupons, investors seeking to protect performance against potential fast repayments.

Nick: As you can see from figure one the spread continues to closely track implied volatility and remained well above the 15th percentile of long term history.

Nick: Reds for current coupons were aided by lower than expected supply strong fixed income fund inflows contain prepayment rates.

Nick: Although the overall performance of our MBS was positive in the first quarter performance varied widely.

Nick: Elliot higher coupons outperformed lower coupons and specified pools outperformed TBA is.

Nick: Specified pools broadly outperformed the same coupon TBA, owing to elevated demand typical of the beginning of the year and for higher coupons investors seeking to protect performance against potential fast prepayments fees.

Nicholas Letica: Lower coupons, like 30 or 2s and 2 12s, widen by around 5 to 10 basis points on concerns of bank portfolio reallocation. As is evident in Figure 2, spread curves flattened over the quarter with higher coupons tighter versus lower coupons wider.

Nick: Lower coupons like 30 year twos in two and a half widened by around five to 10 basis points on concerns of a bank portfolio Reallocations.

Nick: As is evident in figure two spread curves flattened over the quarter with higher coupons tighter versus lower coupons water.

Nicholas Letica: Please turn to slide 11 to review our agency portfolio. Figure One shows the composition of our specified pool holdings by coupon and story. And in figure two, you can see the performance of TBAs and the specified pools we own throughout this quarter. We replaced approximately $2.4 billion notional of 2.5s through 5s TBA with an equal amount of higher coupon 5.5s through 6.5s TBA, reversing the decline in coupon trade from the fourth quarter and more defensively positioning our portfolio from a spread perspective. We also rotated approximately $350 million notional of lower coupon-specified pools into 6% specified pools to capture positive payoff performance. We continue to favor pools over TBAs, with pools accounting for about 70% of our exposure.

Nick: Please turn to slide 11 to review our agency portfolio.

Nick: Figure one shows the composition of our specified pool holdings by coupon and story and then figure two you can see the performance of <unk> and the specified pools, we owe them throughout this quarter.

Nick: We replaced approximately $2 4 billion notional of two and a half through fives TBA with an equal amount of higher coupons, five and a half through six of the house TBA reversing the down in coupon trade from the fourth quarter and more defensively positioning our portfolio from a spread perspective.

Nick: We also rotated approximately 350 million notional of lower coupon specified pools into 6% specified pools to capture positive payer performance.

Nick: We continued to favor pools over T b as with pools accounting for about 70% of our exposure.

Nick: Figure three on the bottom right shows our specified pool prepayment speeds decreased slightly to 5.1 CPR in the first quarter from $5 four CPR in the fourth quarter.

Nicholas Letica: Figure 3 on the bottom right shows our specified pool prepayment speeds decreased slightly to 5.1 CPR in the first quarter from 5.4 CPR in the fourth quarter. Please turn to slide 12 as we discuss the market environment for investments in MSR. Activity in the MSR market remained brisk, with bid-wanted activity totaling $160 billion.

Nick: Please turn to slide 12, as we discuss the market environment for investments in MSR.

Nick: Activity in the MSR market remained brisk with bid wanted activity totaling 160 billion, although a sizable number as is shown in figure. One this is down slightly from the first quarters of the prior two years.

Nicholas Letica: Although a sizable number, as shown in Figure 1, this is down slightly from the first quarters of the prior two years. We expect MSR supply to be lower compared to prior years given lower origination volume and the large amount of low coupon servicing that is already traded on hand. This lower supply, combined with a growing investor base, should keep MSR values well-supported, as evidenced by the strong traded levels of servicing so far this year.

Nick: We expect MSR supply to be lower compared to prior years, given lower origination volume and the large amount of low coupon servicing that is already traded hands.

Nick: This lower supply combined with a growing investor base should keep MSR values, well supported as evidenced by the strong traded levels of servicing so far this year.

Nick: Mortgage rates drifted higher over the quarter with 30 year rates, averaging around 675% still hundreds of basis points above the gross coupon of our MSR being.

Nick: Being so deeply out of the money prepayments on our servicing are predominantly from housing turnover rather than a homeowner refinancing of our loan to a better rates.

Nicholas Letica: Mortgage rates drifted higher over the quarter, with 30-year rates averaging around 6.75%, still hundreds of basis points above the gross coupon of our MSR. Being so deeply out of the money, prepayments on our servicing are predominantly from housing turnover rather than a homeowner refinancing their loan to a better rate. In prior quarters, we discussed the disincentive, or so-called lock-in effect, that a very low-rate mortgage has on a homeowner to move or sell their home.

Nick: In prior quarters, we have discussed the disincentive or so called lock in effect that a very low rate mortgage has been a homeowner to move or sell their home.

Nick: This is the primary reason for today's historically low turnover rates.

Nick: A direct proxy for turnover is existing home sales and in figure two you can see on a monthly basis, how closely prepayment speeds on our MSR attract this time series.

Nick: Existing home sales so far in 'twenty 'twenty four have been in line with last spring and remain at a pace far below recent years.

Nicholas Letica: This is the primary reason for today's historically low turnover rate; a direct proxy for turnover is existing home sales. And in figure two, you can see on a monthly basis how closely prepayment speeds on our MSR track this time. Existing home sales so far in 2024 have been in line with last spring and remain at a pace far below recent years.

Nick: Something you can see on appendix slide 19, along with a few other market data charts, we added this quarter.

Nick: So there are signs that the housing market is beginning to normalize to this high level of mortgage rates. It is our expectation that turnover on low rate mortgages will continue to run at historically low levels.

Nick: Please turn to slide 13 to review our MSR portfolio.

Nicholas Letica: This is something you can see on appendix slide 19, along with a few other market data charts we added this quarter. Though there are signs that the housing market is beginning to normalize to this high level of mortgage rates, it is our expectation that turnover on low-rate mortgages will continue to run at a historically low level. Please turn to slide 13 to review our MSR portfolio. The portfolio was 215 billion UPB at March 31st, which included the addition of 3.1 billion UPB through bulk and flow purchases in the quarter.

Nick: Portfolio was 215 billion U P. B at March 31st which includes the addition of $3 1 billion U P b through bulk and flow purchases in the quarter.

Nick: Post quarter end, we committed to purchase a $2 billion <unk> bulk package.

Nick: The price multiple of our MSR increased slightly to five seven times from five six times for.

Nick: For the entire quarter speeds paid 3.8% CPR slower than our projections.

Nick: Assuming unchanged mortgage rates, we expect prepayment rates to rise modestly in the second quarter, reflecting turnover seasonality.

Nick: Even so less than 1% of the mortgage loans. It back our MSR are likely to refinance at current rates and over 80% of balances are at least 250 basis points below current mortgage rates.

Nicholas Letica: Note that after quarter end, we committed to purchase a $2 billion UPB bulk package. The price multiple of our MSR increased slightly to 5.7 times from 5.6. For the entire quarter, speeds paid 3.8% CPR, slower than our projection. Assuming unchanged mortgage rates, we expect prepayment rates to rise modestly in the second quarter, reflecting turnover seasonality.

Nick: Finally, please turn to slide 14, our return potential and outlook slide.

Nick: Top half of this table is meant to show what returns we believe are available on the assets in our portfolio.

Nick: We estimate that about 63% of our capital is allocated to servicing with a static return projection of 12% to 15%.

Nicholas Letica: Even so, less than 1% of the mortgage loans that back our MSR are likely to refinance at current rates, and over 80% of balances are at least 250 basis points below their current values. Finally, please turn to slide 14, our Return Potential and Outlook slide. The top half of this table is meant to show what returns we believe are available on the assets in our portfolio. We estimate that about 63% of our capital is allocated to servicing, with a static return projection of 12 to 15%.

Nick: The remaining capital is allocated to securities with a static return estimate of 12% to 13%.

Nick: With our portfolio allocation shown in the top half of the table and after expenses. The static return estimate for our portfolio is between 9.1 to 11, 7% before applying any capital structure leverage to the portfolio.

Nick: After giving effect to our outstanding convertible notes and preferred stock we believe that the potential static return on common equity falls in the range of 10, 1% to 14, 1%.

Nicholas Letica: The remaining capital is allocated to securities with a static return estimate of 12 to 13%. With our portfolio allocation shown in the top half of the table, and after expenses, the static return estimate for our portfolio is between 9.1 to 11.7% before applying any capital structure leverage to the portfolio. After giving effect to our outstanding convertible notes and preferred stock, we believe that the potential static return on common equity falls in the range of 10.1% to 14.1%, or a prospective quarterly static return per share of $39 to $55.

Nick: Or a perspective quarterly static return per share of 39% to 55 seven.

Nick: So fixed income markets remain subject to periods of high realized rate volatility and the near term likelihood of significant tightening of our MBS spreads remote.

Nick: Nominal spreads for agency MBS are wide on a historical basis and the return potential of our portfolio is strong.

Nick: We are content to what spread sit here at their current levels, while our low duration and low convexity MSR portfolio continues to generate attractive cash flows with low spread volatility.

Speaker Change: Thank you very much for joining us today and now we will be happy to take any questions you might have.

Nicholas Letica: No fixed income markets remain subject to periods of high realized rate volatility, and the near-term likelihood of significant tightening of RMBF spreads is remote. However, nominal spreads for agency RMBS are wide on a historical basis, and the return potential of our portfolio is strong. We are content to let spreads sit here at their current levels, while our low duration and low convexity MSR portfolio continues to generate attractive cash flows with low spread volatility. Thank you very much for joining us today, and now we will be happy to take any questions you might have.

Speaker Change: Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.

Speaker Change: Speaker phone. Please make sure your mute function is turned off.

Speaker Change: Again press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.

Speaker Change: We'll go first to Doug Harter with UBS.

Speaker Change: Okay.

Speaker Change: Thanks.

Douglas Michael Harter: Just hoping you could give us an update on how book has performed so far in April and then sort of in that context.

Operator: Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll go first to Doug Harder with UBS.

Douglas Michael Harter: You know given spread widening is that enough to kind of change your your kind of outlook on the market and moving off a neutral stance.

Speaker Change: Good morning, Doug Thanks for joining us today.

Douglas Michael Harter: So far in the in April as of last Friday, we estimate our book value to be down between one and a half and 2%.

Douglas Michael Harter: First, I'm hoping you could give us an update on how Book has performed so far in April. And then, sort of, in that context, you know, given the spread widening, is that enough to kind of change your kind of look on the market and move off a neutral standpoint?

Douglas Michael Harter: I'll, let Nick asked the question of how he thinks that's changed.

Speaker Change: Our outlook and positioning.

Speaker Change: Hey, Doug Thanks for the question this is Nick.

Nick: So no it really has not changed our outlook or positioning it as spreads have widened out a little bit they continue to be within the range that they've been for the year and as we've as we've talked about.

William Ross Greenberg: Good morning, Doug. Thanks for joining us today.

William Ross Greenberg: So far in April, as of last Friday, we estimated our book value to be down between one and a half and two percent. I'll let Nick ask the question of how he thinks that is. R-r-r-r-r-r-r-r-r-r-r-r-r-r-r-r-r-r-r-r-r-r-r-r-r-r-r-r

Nick: We still believe that the construction of our portfolio our capital allocation.

Nick: As it stands between MSR and Securities is where we would like it to be and I wouldn't say that there has not been a sufficient amount of disturbance or widening in the mortgage market to really change our outlook on on spreads we remain somewhat defensive about spreads.

Nicholas Letica: Hey Doug, thank you for the question. This is Nick.

Nicholas Letica: So, no, it really has not changed our outlook or positioning. It is – spreads have widened out a little bit, but they continue to be within the range that they've been for the year. And as we've talked about, you know, we still believe that the construction of our portfolio, our capital allocation as it stands between MSR and securities is where we would like it to be.

Nick: Relative to <unk>.

Nick: There's I would say you know we.

Nick: We continue to believe that while mortgages from a longer term value longer term perspective do have value in the near term. The market is subject to these bouts of volatility as we've seen you know for this quarter already and although things have changed to some degree with regard to the the range of spreads with range of spreads do seem to be.

Nicholas Letica: And I wouldn't – would say that there has not been a sufficient amount of disturbance or widening in the mortgage market to really change our outlook on spreads. You know, we remain somewhat defensive about spreads relative to – others, I would say. We continue to believe that while mortgages from a longer-term perspective do have value, in the near term, the market is subject to these bouts of volatility, as we've seen for this quarter already.

Nick: Tighter than they were at some periods in the last two years. The market is still subject to these shifts in sentiment about the fed and the mortgages definitely react to it so.

Nick: We would we continue to have as you see from our numbers, we continue to have exposure to.

Nick: Positive exposure to spreads tightening, which again is likely the long term trend, but in the near term.

Nicholas Letica: And although things have changed to some degree with regard to the range of spreads, the range of spreads do seem to be tighter than they were at some periods in the last two years, the market is still subject to these shifts in sentiment about the Fed, and mortgages definitely react to them. So we continue to have, as you see from our numbers, we continue to have positive exposure to spread tightening, which, again, is likely the long-term trend. But in the near term, we prefer to keep our mortgage exposure in a neutral range.

Nick: We prefer to keep our mortgage exposure in a neutral ranch.

Speaker Change: It's just a follow up on that you know I guess, how willing are you to kind of be opportunistic in.

Speaker Change: And more tactical kind of during those bouts of volatility.

Speaker Change: Yeah sort of trading the range, if you will versus kind of kind of holding the longer term.

Speaker Change: Neutral defensive position.

Nicholas Letica: It's just a follow-up on that, you know, I guess, how willing are you to kind of be opportunistic and more tactical, you know, kind of during those bouts of volatility, you know, sort of trading the range, if you will, versus kind of, you know, kind of holding a longer-term, you know, neutral defensive position.

Speaker Change: Look we respond to markets as they develop everyday as everyday is a new day in the markets as we know so yeah, we're absolutely absolutely positioned to take advantage of spreads.

Speaker Change: If we believe there opportunistically wide, we will do so but you know in this in the current market.

Speaker Change: If you look at look at the spread range and how it's done over the last couple of years and we still believe we're well within that range and like the <unk> portfolio construction as it is right now.

Nicholas Letica: Look, we respond to markets as they develop. Every day is a new day in the markets, as we know. So, you know, we're absolutely positioned to take advantage of spreads. If we believe they are opportunistically wide, we will do so. But, you know, in the current market, as I said, if you look at the spread range and how it's done over the last couple of years, and we still believe, you know, we're well within that range and like the portfolio construction as it is right now.

Speaker Change: Great. Thank you Nick.

Nick: Thanks, Doug.

Speaker Change: We'll go next to Trevor Cranston with JMP Securities.

Trevor John Cranston: Hey, thanks.

Trevor John Cranston: Following up on the question about.

Trevor John Cranston: Performance in April can you comment on whether or not there's been any.

Trevor John Cranston: Significant changes to the portfolio.

Trevor John Cranston: In terms of.

Trevor John Cranston: Coupon composition in particular thanks.

Nicholas Letica: Great. Thank you, Nick.

Trevor John Cranston: [laughter].

Trevor John Cranston: We'll go next to Trevor Cranston with JMP Securities.

Trevor John Cranston: No no there has not been the the portfolio from quarter end has changed very little to date.

Nicholas Letica: Hey, thanks. Following up on the question about, you know, performance in April, can you comment on whether or not there were any significant changes to the portfolio in April in terms of, you know, coupon composition in particular? Thanks.

Speaker Change: Got it okay.

Trevor John Cranston: And then given the outperformance of spec pools relative to TBA is over the last few months.

Speaker Change: Can you give us an update on how you sort of think about the relative value between specs and to be as right now. Thanks.

Nicholas Letica: No, no, there has not been. Our portfolio from quarter end has changed very little to date.

Speaker Change: Sure spec pools and a lot of that is governed by.

Speaker Change: How rolls are the TBA market frankly, we're always of course, comparing where pools are trading to TBA is and make a relative value judgements and as as you guys know, we do tend to move our position in the coupon stack around.

Nicholas Letica: Got it. Okay. And then, you know, given the outperformance of spec pools relative to TBAs over the last few months, can you give us an update on how you sort of think about the relative value between speculative and TBAs right now?

Speaker Change: Not infrequently, but right now I would say to elaborate on your on your first question a little bit we don't see that.

Nicholas Letica: Sure, spec pools, you know, a lot of that is just governed by how roles are in the TBA market, frankly. You know, we're always, of course, comparing where pools are trading to TBAs and making relative value judgments. And as you guys know, we do tend to move our position in the coupon stack around not infrequently. Right now, I would say, to elaborate on your first question a little bit, we don't see a compelling reason to move our exposure right now.

Speaker Change: Compelling reason to move our exposure right now we the the value proposition across the stack is pretty flat.

Speaker Change: We do like the the higher coupons right now just the lower coupon market.

Speaker Change: Is it seems to be fairly well priced and there have been these as we noted in our commentary there has been some amount of.

Nicholas Letica: The value proposition across the stack is pretty flat. We do like the higher coupons right now, just the lower coupon market is uh... seems to be fairly well-priced, and there have been, as we noted in our commentary, there has been some amount of uh... of selling related to some bank portfolio reallocations, we think that could persist in lower coupons So... You know, we have not moved our positioning materially over the quarter from where we were at the end.

Speaker Change: Selling related to some bank portfolio Reallocations, we think that could persist in lower coupons.

Speaker Change: So.

Speaker Change: The R R.

Speaker Change: We haven't we are we have not moved our performance over the quarter or we have not moved our positioning materially over the quarter from where we were at at the end.

Speaker Change: Okay I appreciate the color. Thank you.

Speaker Change: Thanks Trevor.

George: We'll go next to Bose, George with K B W.

Trevor John Cranston: Okay, I appreciate the comments. Thank you.

Bose Thomas George: Hey, everyone. Good morning can you remind us what are the drivers that sort of push you to the high end or the low end of the target range early range you've provided.

Bose Thomas George: We'll go next to Bose George with KBW.

William Ross Greenberg: Hey everyone, good morning. Can you remind us what the drivers are that sort of push you to the high end or the low end of the target range or the range you've provided?

George: The drivers are primarily hey, Bose other drivers.

George: Excuse me, our prepayment and funding rates.

Bose Thomas George: Okay, Great and then exceed given just can you talk about the comfort level with your dividend. It's I guess, it's slightly below the midpoint of the range. So.

William Ross Greenberg: Okay, great. And then I will see.

William Ross Greenberg: Yeah, the dividend, as you can see from our term projection, it's squarely within the range of those outcomes. And yes, we feel good about being able to support the dividend on a going forward basis. OK.

Speaker Change: Is that.

Speaker Change: Brazil is that suggest a level of comfort there.

Speaker Change: Yeah, the dividend as you can see from our return projections, it's squarely within the range of of those outcomes and yes, we feel we feel good about being able to support the dividend on a go forward basis.

Bose Thomas George: Okay, great, thanks.

Speaker Change: Okay, great. Thanks.

Speaker Change: We'll go next to Jason Weaver with Jones trading.

Jason Price Weaver: We'll go next to Jason Weaver with Jones Trading.

Jason Weaver: Hi, Good morning noted your comments expecting lower supply, where do you see incremental returns on new MSR today, and where the relative value looks like between say production coupons and.

Jason Price Weaver: Noting your comments expecting lower supply, where do you see incremental returns on new MSR today and what is the relative value looks like between, say, production coupons and season deals?

Jason Weaver: And Susan deal.

Jason Weaver: Yes. Good morning, Thanks for the question.

Jason Weaver: We we hum see the value proposition of being low coupons and high coupons to be to be pretty pretty flat.

Nicholas Letica: Yeah, good morning. Thanks for the question.

Nicholas Letica: You know, uh... We, we, um... See the value proposition between low coupons and high coupons to be pretty flat. The range of returns is probably on an unlevered, unhedged basis in the low teens. Leverett and Hedgd, we think it's... We think it's mid-teens, probably.

Susan: The the range of returns is probably.

Susan: On an unlevered unhedged basis in the in the low teens.

Speaker Change: Levered and hedged we think it's.

Speaker Change: We think it's mid teens probably.

Nicholas Letica: Um... One of the things that we've observed in the market, and there's been lots of lots of demand in the market, the servicing has been very well bid this quarter, is that the recapture assumptions that are embedded in some of the higher coupons can be pretty high, pretty, pretty efficient. And so, this is something to keep in mind as we look at the relative values between high coupons and low coupons. But, you know, every pool is different. Every situation is specific.

Speaker Change:

Speaker Change: You know one of the things that we've observed in the market and there's been lots of lots of demand in the market. The servicing has been very well bid this quarter.

Speaker Change: Is that the recapture assumptions that are embedded in some of the higher coupons can be hum pretty high pretty pretty efficient.

Speaker Change: And so this is something to keep in mind as we look at the relative values between high coupons and low coupons.

Speaker Change: But every pool is is different every situation specific.

Nicholas Letica: And we're willing and able to participate across the sector in terms of coupons. As we noted in our prepared remarks, we bought, you know, a small pool post-quarter end. We continue to be active in the market and active bidders, and we're being very disciplined on the price that we pay in order so that we can... get returns that we think are worthwhile in the

Speaker Change: And where we are willing and able to participate to participate across the right across the sector.

Speaker Change: In terms of in terms of coupons.

Speaker Change: As we noted in our prepared remarks, we bought a small pool.

Speaker Change: Post quarter end.

Speaker Change:

Speaker Change: We continue to to be active in the market and in an active bidders.

Speaker Change: And we're being very disciplined.

Speaker Change: On the price that we pay in order so that we can.

Speaker Change: Get get returns that we think are worthwhile in the market.

Jason Price Weaver: Okay, thank you. That's helpful. And then I'm just curious.

Speaker Change: Okay. Thank you that's helpful and then.

Speaker Change: Just curious.

Nicholas Letica: You know, outside of the interplay between MSR and HRBS, are you making any additional changes to your hedging approach, given that we came to a consensus view of a higher, longer term, higher for longer environment with potential volatility ahead?

Speaker Change: Outside of the interplay between MSR and agency RMB. Yes are you are you, making any additional changes to your hedging approach given that we were coming to a consensus view of the higher longer term higher for longer environment with potential volatility ahead.

Nicholas Letica: No, I don't, I don't think so uh... you know, we've always had an approach or, you know, of keeping our interest rate exposures low, generally. And so, you know, embedded in that is the full range of the portfolio and whether the MSR has more or less interest rate risk, which hedges the MBS, that just gets put into the mix and the calculations that we do in order to figure out how much other hedges we need in our portfolio.

Speaker Change: No no I don't I don't think so.

Speaker Change: We've always had an approach or are you of keeping our interest our interest rate exposures low generally.

Speaker Change: And so.

Speaker Change: Embedded in that is is the full range of the portfolio and whether the MSR has more or less interest rate risk, which.

Speaker Change: Which hedges.

Speaker Change: MBS.

Speaker Change: That just gets put into the mix and the calculations that we do in order to figure out.

Speaker Change: How much other hedges, we need in our portfolio.

Nicholas Letica: But we're generally trying to keep our interest rate exposures low. We don't feel that we have an edge in knowing which direction interest rates are going. And so we keep our exposures pretty flat, as you can see from our disclosure and the kinds of sensitivities that we show.

Speaker Change: But we're generally trying to keep our interest exposure is low we don't feel that we have particularly in the edge and knowing.

Speaker Change: Which direction interest rates are going and so we keep our exposure is pretty flat as you can see from our disclosures the kinds of sensitivities that we show.

Nicholas Letica: All right, thank you. And just one more, and I'll drop back in the queue. Are you seeing any changes in the willingness of counterparties to extend additional MSR financing?

Speaker Change: Alright, Thank you and just one more and I'll drop back in the queue are you seeing any changes in the willingness of counterparties to extend additional MSR financing.

Nicholas Letica: No, in fact, the opposite. We're seeing lots of demand for new balances on the MSR side. We're seeing new participants enter the market regularly. There's lots of MSR financing supply out there. All right, thank you.

Speaker Change: No in fact, the opposite we're seeing lots of lots of demand for new balances on the MSR side, we're seeing new participants.

Speaker Change: And to the markets regularly.

Speaker Change: Hum.

Jason Price Weaver: All right, thank you again for taking my question.

Speaker Change: Theres lots of of of.

Speaker Change: MSR financing supply out there in the market.

Richard Barry Shane: We'll go next to Rick Shane with J.P. Morgan.

Speaker Change: Alright. Thank you again for taking my question.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: We'll go next to Rick Shane with J P. Morgan.

Richard Barry Shane: Hey guys, thanks for taking my questions. How are you?

Richard Barry Shane: Hey, guys. Thanks for taking my questions Scott how are you.

Mary Kathryn Riskey: Look, most of my questions have been asked and answered. I do have a housekeeping question simply because you guys have tweaked the way you report line items and we need to reconstruct our model a little bit. You historically broke out other interest income from securities income. Can you break that out for us? And also, what was the converts expense for the quarter?

Richard Barry Shane: Look most of my questions have been asked and answered I do have a housekeeping question simply because you guys have tweaked. The way you report line items, and we need to reconstruct our model a little bit.

Richard Barry Shane: You historically broke out.

Richard Barry Shane: Other in.

Richard Barry Shane: Other interest income.

Richard Barry Shane: From Securities income can you break that out for US and also what was the converts expense on the quarter.

Mary Kathryn Riskey: Sure, good morning Rick. So I will just note that the details of the interest income and interest expense will be included in our queue, which will be filed today. You can also find the breakdown on page 21 of the deck on our portfolio yields and financing costs. So specific to your question, the convertible senior notes, the quarterly expense was $4.6 million. And what was your other question? What was the other...

Richard Barry Shane: Yeah.

Speaker Change: Sure Good morning, Rick.

Speaker Change: So I will just note that the details of the interest income and interest expense will be included in our Q, which will be filed today.

Richard Barry Shane: And also find the breakdown on page 21 of the deck on our portfolio yields and financing costs.

Richard Barry Shane: So specific to your question convertible senior notes.

Richard Barry Shane: Quarterly expense was $4 6 million.

Speaker Change: And what was your other question.

Speaker Change: What was the other interest income line.

Richard Barry Shane: What was the other interesting timeline?

Mary Kathryn Riskey: Let's see. I believe it was $17 million. Yeah, so on 21, you can see RMBS interest expense of 100.6, so the remainder would be other. Okay, terrific. Thank you very much.

Speaker Change: Let's see.

Speaker Change: Yeah.

Speaker Change: I believe it was $17 million.

Speaker Change: Yeah. So on 21, you can see our MBS are interest expense of 100.6, so the remainder would be either.

Speaker Change: Okay terrific. Thank you very much sorry, sorry to do that but it just seems.

Richard Barry Shane: Okay. Terrific. Thank you very much. Sorry to do that, but it just saves us a lot of hassle with the model. Thank you.

Speaker Change: There's a lot of hassle with the model. Thank you.

Speaker Change: Thanks, Rick.

Eric J. Hagen: Next to Eric Hagen with BTIG.

Speaker Change: The next to Eric Hagen with BG.

Eric J. Hagen: Hey, good morning guys. Hey, following up on the MSR financing, do you see that maybe leading to improved economics or terms that you get in the market? And do you think your counterparties are giving you guys credit for having brought in the subservicing function?

Eric J. Hagen: Hey, good morning, guys.

Eric J. Hagen: Following up on the MSR financing I mean, do you see that maybe leading to improve economics are terms that you get in the market and do you think your Counterparties are giving you guys credit for having brought in the sub servicing function.

Nicholas Letica: Good morning, Eric. Thanks for the question. In terms of, I think, whether spreads will evolve, the answer to that's a definite maybe. I don't know, we haven't seen that yet, but these things typically have a way of doing that when there's lots of competition and so forth. Tighter spreads is often one.

Eric J. Hagen: Good morning, Gary Thanks for the question.

Eric J. Hagen: You know are in terms of I think you know whether spreads will evolve.

Eric J. Hagen: The answer to that is a definite maybe you know I don't know, we havent seen seen that yet, but these things typically have a way of doing that when theres lots of competition and so forth. You know tighter spreads is often one one byproduct of that but one thing to keep in mind. However, though is that our our financing.

Nicholas Letica: One thing to keep in mind, however, is that our financing facilities generally are not overnight repos; these are generally longer-term facilities, so it takes a little bit longer for these things to reset and so forth, but as these things come up, we do renegotiate rates as they occur. And in fact, the last couple of facilities which have recently come up for renewal, we did actually negotiate lower rates. So that is beginning to happen.

Eric J. Hagen: <unk> generally garner these are not overnight repos kind of thing. These are generally longer term facilities and so it takes a little bit longer for these things to reset and so forth, but as these things.

Eric J. Hagen: Hum come up.

Eric J. Hagen: We do renegotiate rates.

Eric J. Hagen: As as they occur and in fact, the last couple of facilities.

Eric J. Hagen: Which have recently come.

Eric J. Hagen: Come up for renewal, we did actually.

Eric J. Hagen: Hum.

Eric J. Hagen: Shh at lower rates. So that is beginning to happen then could a cap and more that remains to be seen and your other question terms of whether our lenders are giving us credit for.

Nicholas Letica: And could it happen again? You know, that remains to be seen. And your other question, in terms of whether our lenders are giving us credit for the subservice, for the servicing operations, I'm not sure what you mean by that and how it affects our lending profile or how lenders view us. But all our lenders are aware that we brought our servicing in-house, and that's incorporated into their analysis and the rates, and the Credit Now.

Eric J. Hagen: For the sub servicer for the servicing operations.

Eric J. Hagen: I'm not sure what you what you mean by that and how it affects our lending profile or or or or how lenders view us, but all of our lenders are aware that we brought our servicing in house and that's incorporated into into their analysis and the rates to give us and then the credit analysis that they do so yes.

Eric J. Hagen: Yep, okay, that's helpful. Hey, I mean, you guys are always very thoughtful about the mortgage market just generally. I mean, do you feel like there's a lot of risk at this point that the Fed could actually sell agency MBS from its portfolio? That was a conversation at one point. I mean, do you even see that being a risk on the table at this point? And then, like, you know, adjacent to that, I mean, how much risk do you think is priced into the mortgage basis that... You know, the Fed actually hikes rates at some points this year.

Speaker Change: Yeah. Okay. That's helpful. I mean, you guys are always very thoughtful on the mortgage market. Just generally I mean do you feel like Theres a lot of risk at this point that the fed could actually sell agency MBS from its portfolio that was a conversation at one point I mean do you even see that being a risk on the table at this point and then Michael just adjacent to that I mean, how much risk do you think is priced into the mortgage.

Eric J. Hagen: Basis that.

Eric J. Hagen: The fed actually hikes rates at some point this year.

Nicholas Letica: Eric, this is Nick. No, we do not think that there's a risk that the Fed will sell any mortgages out of the Fed as far as the. As far as whether things are priced in, the market's very efficient. So it's, you know, it's an extremely hard thing to say. I would, you know, say that the Overall, in the first quarter and to today, we've seen a little bit more of a muted response out of the mortgage market than we had in prior periods of volatility or kind of surprise volatility at higher rates.

Eric J. Hagen: Hey, Eric This is Nick no we do not.

Nick: I think that there is a risk that the.

Nick: But theres any sales of mortgages.

Nick: Fed as far as the.

Nick: As far as whether things are priced in the market is very efficient. So it's yeah. It's extremely hard thing to say I would say that the.

Nick: Overall in the first quarter and into today, we've seen a little bit more of a muted response out of the mortgage market than we had in prior periods of <unk>.

Nick: The volatility or or kind of surprise volatility at higher rates. So I think that's a function of the fact that.

Nicholas Letica: So I think that's a function of the fact that the market still overall believes that the Fed will still cut at some point this year. But I do think that the spreads have been reasonably well calibrated to Fed expectations. But, like we've said, things have stayed in a range. And we like the long-term exposure of being long mortgage spreads. But you have to balance that against this near-term volatility that can seemingly pop up at any time. We're not done with the volatility in the market, that's for sure.

Nick: The market's still does believe that.

Nick: I think the market does overall believe the.

Nick: You know that the fed will will still cut at some point this year.

Nick: But I do think that the spreads have been reasonably well calibrated to fed expectations, but like we've said things have stayed in a range.

Nick: And.

Nick: We like the long term like the long term exposure of being long.

Nick: Long mortgage spreads but.

Nick: You have to balance that against this near term volatility that can seemingly pop up at any time you know we're not we're not we're not done with the volatility in the market that's for sure.

Eric J. Hagen: Yeah, that's helpful. Thanks for the perspective.

Nick: Yeah.

William Ross Greenberg: And at this time, I'll turn the call back to Bill Greenberg for closing remarks. I'd like to thank everyone for joining us today.

Speaker Change: Yeah. That's helpful. Thanks for the perspective I appreciate it.

Speaker Change: Thank you Sir.

Speaker Change: At this time I will turn the call back to Bill Greenberg for closing remarks.

William Ross Greenberg: I'd like to thank everyone for joining us today, and, as always, thanks for your support.

William Ross Greenberg: I'd like to thank everyone for joining us today and as always thanks for your support.

Operator: This does conclude today's conference. We thank you for your participation.

Speaker Change: This does concludes today's conference we thank you for your participation.

Speaker Change: [music].

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