Q3 2024 Redwood Trust Inc Earnings Call
The
Ladies and gentlemen, greetings and welcome to the Redwood Trust third quarter 2024 Honings Concernscore.
At this time, all participants are in a listen-only mode. A brief question and as session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad.
As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host, Kaitlyn Mauritz, Head of Investor Relations. Please go ahead.
Thank you, operator. Hello everyone and thank you for joining us today for RedWords third quarter 2024 earnings conference call. With me on today's call, our Chris Abate Chief Executive Officer, Dash Robinson, President and Brooke Carillo, Chief Financial Officer.
Speaker Change: Before we begin, I want to remind you that certain statements made during management presentation today with respect to future financial and business performance may constitute forward-looking statements.
Board-looking statements are based on current expectations for cast and assumptions and include resonance or in-design because actual results differ materially.
We encourage you to read the company's annual report on Form 10K, which provide a description of some of the factors that could have a material impact on the company's performance and cause actual results differ from those that may be expressed in Board-looking statements.
On this call, we may also refer to both Gap and Nongap Financial Measures. The Nongap Financial Measures provided should not be utilized in isolation or considered as a substitute for measures or financial performance prepared in accordance with Gap. A reconciliation between Gap and Nongap Financial Measures are provided in our third quarter review.
which is available on our website at BedWitchhouse.com.
Also, note that the contents of today's call contain time, sensitive information that are only accurate as of today. We do not intend and undertake no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded and will be available on our website later today. And with that, I'll turn the call over to Chris.
Chris: Thanks Kate
As we work towards the end of a productive year, we find ourselves at the dawn of a new rate regime and a too close to call presidential election, which is now less than a week away.
Many macro questions remain, particularly with respect to the speed and impact of monetary and fiscal policy shifts. What we do know is that the U.S. will have a new administration and a fresh take on improving access to quality housing. The challenge we have undertaken since Redwood's founding three decades ago.
Each major party candidate has acknowledged the need for more scalable solutions with proposals that include enhanced down payment assistance programs, incentives for increased construction, and easing of the maze of local regulations that blunt housing development.
In another wise polarized environment, it seems many have found common cause for an issue that essential to our company's core mission.
Chris: As you rise to meet this formidable challenge, our platform continues to make good operating progress. We recently increased our common dividend for the first time since 2021, up over 6% to 17 cents per share for the third quarter, reflecting continued growth in our operating activities.
Chris: Mark and Brian Morgan's banking returns for the highest and over three years as each business unlocked operating leverage to achieve strong results.
These were goals we outlined in our investor day earlier this year and we're pleased with the progress we've made towards them.
Chris: We continue to spend a significant amount of time collaborating with our loan sellers, particularly as higher mortgage rates appear to be returning after short-lived recovery. Rates today, sitting nearly 70 basis points higher than their September lows, and are effectively back to levels we saw in early July.
Chris: and anticipation of this pickup. We've leveraged momentum in our distribution channels, the seller scared ties approximately 1.5 billion of jumbo collateral in October alone, and amount equal to our distribution for the entire third quarter.
Chris: These efforts are contributed to us maintaining a flat book value for our estimation since quarter end.
So we expect to see continued rate volatility through the election with expectations for further fetting on the horizon. We still expect to see housing activity pick up in the coming quarters from the enemic levels we have witnessed over the past few years.
With that in mind, and with a prospect of a new administration in Washington, we continue to believe our platform's value proposition to the market will only grow. Typically as more reasons of the country turn to the 9AGIS sector or creative solutions.
Chris: The industry demands positive disruption as a continues to grapple with an estimated under supply of 3 to 4 million homes.
In many corners of the market, there also remains a significant knowledge gap between prospective homeowners and the not agency housing financial solutions available to them.
That's why much of our focus heading into 2025 will be on mission expanding strategies that are designed to leverage areas of high potential growth Common Sense use cases for prospective homeowners in a strong access between technology and consumer adoption
As you may have seen in an earlier press release today, we have added senior leadership to support and drive this focus area. As always, this work will be coupled with expanded access to private credit investors in area that now represents a deep competitive strength.
Dash: I'm now turning the call over to Dash.
Thank you Chris.
Mortgage banking performance was a key driver of our strong third quarter performance, with gap contribution from these businesses tripling versus the second quarter on strong margins and continued broadening of our distribution channels.
Our residential consumer platform remains a valued partner to both banks and independent mortgage bankers or I&Bs, with third quarter results benefiting from tightening, secure, and execution, a creative hedging and continued progress in capital efficiency.
The third quarter brought some notable chefs in the composition of our lockvimes, reflective of both market conditions and strategic progress with our origination partners.
We lock $2.2 billion of loans during Q3, compared to $2.7 billion in the second quarter, essentially flat when adjusting for the large pool of season hybrid arms we discussed on our second quarter call.
After a slow July marked by heightened market volatility that predated the significant rate rally later in the quarter, August and September volumes rebounded.
In spite of the rate back-ups since quarter-end, we are finishing up an equally active October, helped in part by a revamp set of guidelines on new production hybrid arms, which has been met with favorable early feedback across our seller base.
Third quarter volume was split evenly between bulk and flow with IMB volume accounting for close to 60% of total production. Our loan sourcing remains well diversified across a deep seller base, and near today we have locked loans with over 160 discrete originators, with no one seller representing more than 7% of total flow volume.
Interest rates move significantly throughout the third quarter, including a rally in the 10-year Treasury yield to just under 3.6% that opened up a brief window for consumers seeking to refinance. A dynamic we haven't seen in meaningful size since early 2022.
Refinance Activity represent a 27% of our overall flow volume during the third quarter, more than double our recent run rate.
With rates now almost 70 bases points higher than prior to September's FOMC announcement, refinance demand has abbed.
But the volume increases evidence that homeowners and originators are prepared to transact once a more durable, reprieve eventually emerges. The level of activity also serves as a good reminder that 10% about standing mortgages are 100 basis points or less out of the money.
A potential boon to market activity into a traditional seasonal slowdown in the fourth quarter
Speaker Change: We completed three Sequoia Securities Actions during the third quarter for $1.5 billion, maintaining a reliable, monthly cadence that promotes strong execution levels. A measure of contrast with other market participants that issue more episodically.
Dash: But our issuance pace also has an important impact on our capital efficiency, particularly critical amidst what until recently has been a persistently inverted yield curve.
Average days on balance sheet has decreased approximately 40%, since 2023 to just under 40 days. Bringing up capital for a creative alternative use, including hedging activities that drove significant outperformance during the third quarter.
This Chris reference this moment of his continued into October.
Our residential investor business built on its progress from the second quarter, sustaining overall production volume and executing on key distribution channels.
Dash: We funded $458 million of investor loans during the third quarter, by light of by another record quarter of single asset bridge or SAB originations, and growth in bridge lines of credit, which offer borrowers ongoing funding capacity on a cross-clateralized basis.
Turmloan Bimes in the quarter were impacted by sponsors taking a wait and see approach to the September Fed decision.
With that now behind us, we've maintained a robust term loan funnel through a combination of new borrowers and opportunities within our existing portfolio. Of note, 75% of second quarter term loan volume was either a purchase transaction or a refinance from outside our book, reflecting the strength of our lead generation and the potential growth impact of organic refinance activity.
During the third quarter, we also made critical strides in running the residential investor business in a capital efficient manner. Q3 was our first full quarter of operations with the CPP Investments Joint Venture, a partnership that allows us to capitalize more fully on a broadening set of products.
Dash: Through October, we have contributed nearly $650 million of loans to our JVs. While we expect to steadily ramp in conjunction with other emerging distribution outlets, Chief Among these is Hold On Sales, and already in the fourth quarter we have agreed to sell a $200 million plus pool of term loans.
to an institutional investor on the follow from our successful settlement of a $240 million term loan pool earlier this year.
Taking together this strategic progress in distribution gives the business differentiated alternative to the security decision while also reinforcing our positioning within the private capital ecosystem.
The markets' largest asset allocators are increasingly looking to redwood for scalable investment partnerships. Through time, this will have important benefits for shareholders, including a growing and durable revenue stream and the ability to serve even more facets of the market.
Within the residential investor portfolio, overall repayment velocity increased by 19% from the second quarter with close to $380 million of total payoffs, including over $225 million in the bridgebook.
Delinquities increased approximately 1% from the second quarter, as resolutions were offset by a small number of loans entering Delinquents status.
Dash: While the process of resolving certain of these loans often is in a straight line, successful execution will free a valuable capital for redeployment.
Dash: Through the work of our asset management team, we have visibility on resolving close to half of the Delinqued Bridge portfolio by the end of the year, or early in Q1 2025, and anticipated loss of air, it is favourable to the net discount in which the overall Bridge portfolio is currently marked.
Dash: Credit quality within our broader, invest in portfolio has remained strong. Performance of our jumbo and season-reperforming loan securities continue to exceed expectations, supported by high levels of equity in the underlying loans.
As Brooke will describe in more detail, our portfolio maintains a meaningful discount to par that we have begun to unlock through a creative secured financing, and that represents a potentially meaningful tale in for shareholders, with continued strong credit performance and a durable change in the rate cycle.
And with that, I will turn the call over to Brooke to discuss our financial performance during the third quarter.
Thank you, Dash. We reported gap earnings of 13 million or 9 cents per share for the third quarter compared to 14 million or 10 cents per share in the prior quarter. Our earnings available for distribution or EAD reached 25 million or 18 cents per share for the third quarter up from 19 million or 13 cents per share in the prior quarter.
This resulted in an EAD return on equity of 8.7%. As highlighted, income from mortgage banking activities increased by 21 million, driving the nearly 40% increase in EAD.
Book Value Preserve increased slightly to $8.74 up from $8.73 as a June 30. Year to date, our total economic return is approaching 7%. Physician and asked a potentially exceed our dividend yield on book value annually, a testament to our ability to grow dividends in book value.
Our residential consumer-mords banking segment achieved a return on capital of 30% up from 16% in Q2, while the residential investor segment EAD return on capital was 58% compared to 13% last quarter.
The segments return was driven both by higher earnings and lower working capital as Q3 marked the first full quarter with CPP investments partnerships.
Higher residential consumer mortgage banking income with a result of lower rates, strategic positioning for interest rate volatility and spread tightening on our specializations throughout the quarter.
Dash: We anticipate that these elevated margins will normalize or historical range of 75 to 100 basis points, particularly as longer dated interest rates have reverted higher on the quarter.
During Q3, we optimized the use of high advanced rate facility as in partnership with banks, and distributed 240 million of loans into our JV entities to reduce overall capital needs per loan by approximately 15%.
and the residential investor segment income was modestly hired due to stable volume and slightly higher bridge in other fees. Margin's remain relatively consistent as a creative hold-on sales and sales to joint ventures bolstered results.
Netanthus income this quarter was positively impacted by increased capital allocation towards the Koya and third party investment portfolios. As Dash noted, the smaller residential investor portfolio coupled with a 50-based point reduction in the weighted average of cruel rate of the portfolio resulted in lower netanthus income from bridge loans relative to the second quarter.
Within the investment portfolio, while our credit security has benefited from steady fundamental performance and generally tighter spreads. Those gains are more than a set as our interest rate ahead just as lost value into the rate rally and we took incremental reserve on bridge loans.
At September 30th we had $2.9 of net discount in our security portfolio.
Approximately 40% of this net discount was created during the Fed's tight news cycle between 2022 and 2023 and could some losses interest rates begin to fall. We control the call rights on 97% of these assets and could look unlocks for their value by calling as collateral and securing the loans that are premium.
Dash: General and Administrative, or DNA expenses worth 3 million higher on the quarter.
While fixed costs declined in another consecutive quarter, performance based variable and equity compensation costs rose sequentially reflecting and improved earnings performance.
Cost metrics for both a residential consumer and investor platforms remain within or below previously guided ranges, underscoring our progress towards long term efficiency goals.
Dash: Bruton Balanchet Management has enabled us to capitalize on timely investments, particularly through more efficient financing facilities. This quarter, we close two non-marginable financing deals secured by cattle and secoyant securities.
We also secured or renewed 1.7 billion in financing capacity with key partners supporting the growth of our operating platforms
During the third quarter we repaid our 2024 convertible debt with cash on hand. In early in the fourth quarter we took advantage of market conditions to reopen 40 million of our 775 convertible notes due to 2027. Mainly to retire our 2025 convertible notes.
This extends our convertible debt maturity profile. Our outstanding convertible debt balance is now 364 million and our recent financing actions extended nearly 80% of our term financing maturity is to 2027 and beyond.
Total Recourse leverage increases 2.5 times and Q3 from 2.1 times and Q2, mainly due to the increase in residential loan inventory, off-step by converting 121 million of Recourse debt on the Coia Security to non-recourse longer term debt.
That's the Quint to Quarter End. We distributed 1.5 billion of collateral on the residential consumer side, which has brought leverage down. And leverage should remain within a range of 2 to 2 and 1 half times depending on the inventory of our loans on balance G.
with 7.7 billion in total financing capacity, including 4.8 billion on drawn, we are well positioned to support the growth of our platforms.
Dash: Our capital deployment remains strong in Q3 with 157 million invested, a high point for the year, which we believe should drive in communal net interest income for the fourth quarter. Despite elevated capital deployment and the debt repayment, our cash position held relatively steady ending the quarter at 254 million.
Dash: Looking ahead, we are being committed to enhancing our operating platforms and deploying capital strategically to drive earnings growth.
and now I'll turn the call over the operator for Q&A.
Dash: Thank you.
Ladies and gentlemen, we will now be conducting a question and answer session.
If you'd like to ask a question, please press star and one on your telephone keypad. A confirmation to own will indicate your line is in the question queue. You may press star and two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Ladies and gentlemen, we will wait for a moment while the question queue assembles.
Speaker Change: The first question comes from the line of Rick Shane from JP Morgan, please go ahead
Thanks everybody for taking my question this afternoon. I'm interested in slide 10 and obviously important the net discount on the portfolio. You make the observation here that of the $2.9 sense of discount, 84.
Dash: Sence.
Dash: are about 40% has occurred since the Fed.
started tightening.
and implicitly that's a call on spread.
I am curious because I think that there are...
Dash: Potentially different factors underline the portfolio and I'm curious.
Dash: sort of factoring in the potential higher credit risk with that portfolio.
Hey, Ricketts Dash. Great question. I can take that.
Speaker Change: I would say higher level, you know, the discount is spread across, you know, a couple principal.
Pass the classes as you know to the majority but it's still...
in the Re Performing Loan portfolio where performance continues to be extremely strong. Those are consumers that have been in their houses for 15 plus years at this point. You know, estimated mark to market altibies in the forties.
I was one, you know, average seasonings probably three to four years.
and that portfolio. There is a lot of built up rental growth in our securities, because we've been selling a lot more term loans recently.
Speaker Change: you know that portfolio has more seasoning to it than we prefer to be prioritizing on the run more regularly. So I think the risks are of a different type.
You know, within the Capital Securities book, I would say, as if you look at
You know, some of the realized severities we've had, they've generally been below 100 basis points where they have them severities. So, you know, the realized loss has been really low.
But you're right, I mean those loans are exposed to different dynamics, you know, in the market then our PL loans So you're right to point that out, but I think the risk are just somewhat different in nature
This is Chris, I also added that, you know, just not to lose
You know the punch line, you know we do have this big investment portfolio which is carried at a pretty significant discount
I think the vast majority of that is recoverable. You mentioned that.
Huge portion of that has been due to spread widening since the Fed started.
and late 22. So now that we're sort of at the dawn of an easing cycle, we're pretty excited about how that's positioned. For the mortgage banking businesses, we're a different to the path of rates, which we can certainly talk about, but for the...
for the book. We certainly stand a benefit if some of that is recovered through tightening here, which of course we'd expect to start realizing the coming quarters.
for sure, look, I think the mortgage banking business.
Speaker Change: and the return year to date on the ROE on EAD or however you want to describe it is good proof of concept. I'm just thinking about how we could see those discounts sort of evolve over time as well because obviously that's a big driver of another significant allocation of your capital.
Dash: Right?
Speaker Change: Thanks guys.
Thank you.
Speaker Change: The next question comes from the line of both George from KBW, please go ahead
Hey everyone, good afternoon. In terms of the mortgage banking gains this quarter, is it possible to disaggregate that to some degrees in terms of the benefit you got from spread typing? I'm just really trying to think about the cadence of the EAD growth from current levels.
Torba, as I'm happy to see that.
We're a lot of the kind of alpha relative in margins relative to last quarter, within dirt around the residential consumer business, I'll start there. Roughly half of the
Speaker Change: You know, total mortgage banking revenue was really driven by rain and then it was fairly divided evenly between red tightening. We saw about 12 ticks of red tightening on security and execution on average throughout the quarter and the remainder was really gain on sale and carry.
Speaker Change: Thanks very much. In terms of the lock volume, can you talk about lock volume in September and you noted that the sort of the cadence there was increasing over the course of the quarter? Can you just talk about the monthly trends in lock volume on the residential?
Churana, consumer side, we ended the quarter.
You know with...
with much higher daily locks than we'd seen. Where we started the quarter, I think there are some seasonal factors that came into play and that certainly the rate cut in September. You know, I would say the fourth quarter has started out.
Much more briskly than the third quarter did, so October we're off to a great start. You know, we did have in Q2 a big bulk deal that accounted for much of the difference in...
Lachlanium quarter of a quarter. So backing that out and just kind of focusing on the run. We definitely like where things are tracking and then obviously the margin story was very good this past quarter.
and we continue to guide to the 75-100-based points.
Speaker Change: Stewart Business
But I would say, you know, we've been in the deal in the market each month with a curitization.
We've been turning the capital over very efficiently. We've seen some real differentiation in pricing and execution versus some of the less episodic or more episodic issuers. So I think all of that's playing into the margins that we're realizing on the pipe. And hopefully we're up to it that started October hopefully we can continue to do that.
Speaker Change: Okay, great, thanks!
Speaker Change: Thank you.
The next question comes from the line of Jason Weaver from Jones Trading. Please go ahead.
Hi guys, thanks for taking my question
You know, seeing in the deck the leverage picking up about a half turn, I'm thinking that's more to do with a point in time as you've just treated so much in Q4. Can you give us some insights what that is currently? And also how comfortable you are with the higher level of liquidity here.
Speaker Change: Hello.
and Jason, I'm having a take that you're exactly right Dash and others mentioned the billion and a half of distributions.
You know we've been very encouraged by seeing a pickup in a whole own sale activity on the residential consumer side.
Speaker Change: and we...
and a lot of securizations that we really clear the back of the head of the election and potential further increase in volatility. Leverages is trended back down to start the quarter. It's probably close to where we were at a Q2 around 2.2 times. That should really fluctuate throughout the rest of the quarter depending on pace of distribution versus our pipeline from your own balance sheet.
Speaker Change: Yeah, we're pretty pleased with...
Speaker Change: You know, our leverage or resource leverage, you know, being a two-handle or they're about two and a half, two to three. We operate with, you know, I dig, beatingfully lower leverage than, than much of the sector. And Brooke and the team have done a great job of.
of adding more non-recourse facilities, non-marked market facilities. So, quality of leverage, if you will, is quite a bit different than it's been in past.
Speaker Change: Thank you for that. And then just something I believe that Chris mentioned in its prepared remarks talking about the, you know, the breadth of your seller partnerships from banks. Any sort of significant developments that have happened during the quarter or quarter to date expanding that number of partnerships.
Speaker Change: Well, it continues to expand. You know, we've done business with, I think, 80-90% of our sellers this year. So the breath is really, really strong. We're not.
Overly concentrated to any individual seller whether it's a banker and IMB.
I think banks are still trying to figure out the path of capital charges with Basil III.
Speaker Change: We continue to add thanks and we continue to build.
that business, so with this backup in rates, I think it just reinforces the value proposition that we offer, particularly in the 30 year. We started to see more hybrid arms being originated. That's something that...
You know, we're apt to participate in and so we've been rolling out those products, but I think overall
Speaker Change: really pleased with the diversification of the seller base and certainly we continue to make traction with the banks and I think for many of them we're an exclusive partner.
Great, that's helpful, thank you again.
Speaker Change: Thanks.
Speaker Change: Thank you. The next question comes from the line of Doug Harder from UBS. Please go ahead.
Thanks, looking at the investment portfolio, seems like HCI income was down pretty noticeably quarter over quarter, hoping you could give us a little more insight into that and had to think about that going forward.
Yeah, I'm happy to. We are on our portfolio of about 400 million. You should expect kind of baseline a creature or yield around 9 million as long as.
You know empirical HP that we observed kind of falls in line with our assumptions. You know, we saw both actual HPA come in above where we were modeling it. That was...
A stronger factor in the first half of the year where HI think come with elevated relative to our expectations. And so while it was still above kind of model expectations for Q3 we expected to revert as HBA assumptions have been coming down.
That in this count writes are really the main drivers of that portfolio
I guess just more broadly on that, you know, delivered a 12% return on equity or a turn on capital this quarter you've been kind of targeting returns.
Well, north of that for quite some time. How should we think about what the segment can result in trying to square those two numbers?
Speaker Change: Well, with respect to HCI, I think it's Brooke said, you know, a big part of it is the path of
Home prices.
and Discount Rates. So I think in the long run.
We're very bullish on HPA.
Speaker Change: Abyssey.
Housing Activities been very slow.
So there hasn't been any near-term catalyst to move that one way or the other, the huge under supply of homes is...
Speaker Change: and just a great technical support we think for that as a class. But over time it's been going to come down to efficient financing and ultimately the path of home prices. So, well, 12 is double digits and is fine. We still think there's real upside down lock in that portfolio and then certainly as we focus on potentially originating more of those.
Pressing price discovery will be a big part of that.
Speaker Change: Great, thank you.
Thank you. The next question comes from the line of Dawn Fandetti from Wells Fargo. Please go ahead.
Yes, can you talk a bit about how the rate moves higher rates and Q4 has impacted book value in any EAD considerations for Q4, I guess, you know, day-not-select margins will be more normalized, anything else to consider.
I think I mentioned my remarks that Brooke Carillo was flat.
Speaker Change: We think that's pretty consequential because his rates have backed up.
I think many would assume that either the pipes down or certainly the sector has been impacted.
Speaker Change: But we're really pleased with how we've had the pipeline and how we've vanished distribution.
Speaker Change: So, you know, for us.
It's not been...
Speaker Change: A headwind per se and in fact as I mentioned before.
Speaker Change: The Banks
as things have backed up become more engaged versus wanting to put more 30-year fixed-rate mortgages on there.
on their balance sheets. So we think EAD, certainly we had some one-time items, in Q3 margins, we're very elevated.
We continue to guide to normalized margins, particularly for the consumer business.
Speaker Change: That said, we're pretty happy with how the quarters begun October certainly has begun from a volume standpoint. So we're optimistic that there's enough levers to continue the momentum that we've been able to generate.
God, I'm holding out an eye
Speaker Change: Sorry, I don't think I would just add it in terms of VAD and the hedging is broken crisp both reference this earlier
Speaker Change: in the Q&A and the remarks, you know, we've sort of pivoted from a hedging strategy perspective. You know, it's had an impact on Cari, but also on the contingent and risk capital we have to hold against our hedging instrument. So it's a use of capital, but it's a creative to NII, and also a creative to the amount of risk capital we have to hold just based on.
Speaker Change: and how those instruments are marginal or not. So as Chris said, that strategy has paid some dividends here, particularly early in the fourth quarter, has rates have backed up and they were also meaningful driver of mortgage banking. Incoming the third quarter.
God, okay, I'll both let thanks.
Speaker Change: Thank you.
The next question comes from the line of Eric Hagen from BTIG, please.
Speaker Change: The End
Speaker Change: Eric, are you there?
Cooperator, we can go to the next question.
Speaker Change: The End
Speaker Change: The End
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Speaker Change: Operator.
Speaker Change: The End
Speaker Change: Hello to you at the operator there
Speaker Change: Thank you.
Speaker Change: The End
and his practice in all of the Christian laws.
Can you guys hear me?
Yarn you
Speaker Change: Can you just speak on your Karen Salison, the dividend, obviously you're offering earnings covered the dividend this quarter, but wanted to get your thoughts if you and the board believe you're at the right level now at 17 cents when you look at right outlook and what you need to see to continue covering the dividend with EA Day. Thanks.
Yep, so we can certainly dig into specifics if that's helpful, but I think at a high level we were pleased to raise it this quarter and I would say...
Speaker Change: We believe that most shareholders continue to value the dividend, particularly or growing dividend.
as does the board. So we'll continue to look for ways to raise it incrementally as the quarter's progress. I think we were certainly...
Tracking to ahead of schedule on EAD this quarter.
Speaker Change: We probably cite the guidance that we gave at our investor day in March.
as far as the path to growing the dividend. So we're very happy that we got there a little bit ahead of schedule, but I think from a sustainability perspective.
and we want to continue to to tether to that guidance and continue to build over the coming quarters. But certainly I think the board was pleased to raise it and we'll continue to value and increasing dividend as the quarters progress.
The End of the Dead
One other thing I'd add is just that heading into a more accommodative.
Speaker Change: Great cycle, we've been really focused on earning available for distribution but Rick very nicely pointed out the discount and here in our book
Speaker Change: We really should have an opportunity for our gap earnings to meet and exceed our earnings available for distribution over the next cycle as we pull forward a lot of the discount from the investment portfolio.
you know, even as we progress your time and not, um.
Speaker Change: and then.
and recovers from what we have lost from technical spread and rate volatility over the last.
To years and really the impact of soapur on the front end for us, you know, we have about a billion more floating rate deaths in assets
and with our Ficture Residential Pipeline we could see.
You know, some would have an immediate pickup to nim. There we've done a lot in terms of capital deployments on the here that can should continue to provide a tailwind to both net interest income and earnings available for distribution and then Mauriz Bankina's we keep re-scaling those businesses.
You know, that should be a longer term benefit to both gap earnings and earnings available for distribution.
Speaker Change: As we move through this next cycle. So those are all no longer-term tailwinds that we're seeing that gave the board comfort and raising it soon and should provide additional room for growth in the dividend as we move through time.
Thanks for that detail and then Chris in your prepare remarks, you mentioned the election. I was just wondering if you could expand on Election implications for Redwood, we see rate moves to central volatility, housing implications And we're just curious on how you are thinking about it and positioning the company both over the near and intermediate terminal, central impacts on Redwood. Thanks
Sure, well, I actually think this cycle is pretty unique in that you have strong alignment between both major party candidates.
Speaker Change: The critical need to address home accessibility, so it's literally the mission of this firm and so in past cycles we probably...
Speaker Change: Um...
You know, been rooting for one side of the other as far as how it helps or hurts the business. I think this time around both candidates or both parties will be focused on this issue because it's a very, very big issue in the swing states. We spent a lot of time in the Midwest and in other places and...
Home prices are...
are just very high and it's very tough. First time home buyers are certainly others to access housing.
Speaker Change: So I think whether it's on the supply side of the demand side, we'll see programs implemented that we think will leverage our business and our products, particularly in the non-agency space.
Speaker Change: as far as, as far as race.
For many reasons we are planning for the long end of the curve to stay elevated.
Speaker Change: It's not go higher.
Big reason why we've been focusing on expanding our distribution.
Speaker Change: and certainly our seller base is for Wallachair, if you will, and with the banks of particular, the freight stay-all evaded, we think, will be a less apt to resume for folio lending, so that's a huge opportunity for us and why.
and many ways higher rates, higher mortgage rates could actually be a good thing for mortgage banking businesses. But ultimately, we think that the volatility...
associated, or that we've seen recently, is mostly due to maybe the fact that getting out of itself, you know, it has some really strong, a good GDP print today.
Strong Employment Numbers, you know, I think the volatility has as much to do with that as it does in election outcome. So those are things that we've been managing the past few years and will continue to manage. But ultimately I'm quite excited.
by the prospect of being a solution provider as the candidates focus on housing accessibility.
Thank you, that's it for me.
Thank you. The next question is from the line of Steve delaying from JMP securities. Please go ahead.
Good afternoon everyone, thanks for taking the question. Obviously everyone's a lot of comments on rates, memes, Dash I'd like to go to the real rate, not so much just following the 10 year. But could you comment on where you're...
30-year fixed-rate crime-jumble loan coupons. Where are you quoting those today to your iron bees and to the banks?
Compaired to where the low was, I guess late summer or maybe in September, just like, you know, what is it cost? What are your customers paying? You're borrowers paying as we sit here today on Pron Jumbo.
Sure, thanks. You want me to quote this Steve Delaney raid or our marginary, great sheep. No, I don't deserve a good guy raid problem.
and just this is straight up, no good guy.
Speaker Change: Yeah, I appreciate the question. Currently, we have LAPAs and things of that nature depending on the nature of the risk and the loan. But, generally, at the moment, our 30-year fixed rate is very high-sixes, very low-stevens.
You know, that's where it sits today. That's probably...
Speaker Change: 5A to 3.4% of a point in rate over the lows that we hit over the summer. You know what, and just a couple observations around that Steve, because...
Speaker Change: You know, a lot of this is borrowers psychology, notwithstanding that the 30-year fixed rate is pre-payable at any time, you know, there is a psychology element to win.
You're number one, consumers will come off the sideline for a rate but also the relative in the money nest, which it would take them to move and where that rate is versus where their current mortgage is and what can get housing turnover rates finally higher.
We definitely, I think the whole market saw some really interesting empirical evidence as we got into the low sixes You're not only did a refinance pick up as we talked about, it was over a quarter of our flow volume in the third quarter it's been
at least six quarters since three five volume was that much of our production, but we also saw purchase money pickup as well and so you definitely started to see the benefit.
But as Chris articulated, you know, October has been on par, so to speak, from a volume perspective with August and September, and I think that speaks to more of a wall at Cherokee and continuing to gain Cherokee in the market. So just a medicinal perspective there.
That's very helpful and Kate a quick question for you Chris mentioned something about senior leadership. I didn't see anything Impressorally so I haven't been all the way through to keep working we find that in your disclosure in your information
Hey Steve, the Press release is up on our website under the news section. I can send it to you as well. Thank you.
Speaker Change: is a separate standalone press week that I apologize that I did.
What we're looking at by news feed.
Alright, book, no worries, thank you all for coming on.
Speaker Change: Thanks for watching.
Speaker Change: Thank you. The next question is from the line of Brian, we only know from Red Bush's audience. Please go ahead.
Craig, thanks for taking my question. I think there was a mention of a 50 basis point reduction in the accrue on the Bridge Portfolio of this quarter, which had a negative.
Brian Morgan: and I, in fact, but at the same time, I sound like you're expecting some incremental NII growth in the fourth quarter from capital deployment. We just wanted you to give some more detail on your outlook related to overall NII in the fourth quarter and just going forward in general.
Sure, I'm happy to.
Speaker Change: We've got 157 million of capital deployments that we put to work should more than offset what we saw in terms of
Monifications we made to raise the far worse on the quarter, so in that regard, we expect some catalyst for growth to NII from here. We also mentioned that we are expecting to resolve or, you know,
A-means resolved about half of our so-called asset portfolio by the end of the first quarter, which should provide a material pick-up in earning available for distribution and in capital available for redeployment.
Speaker Change: and the
Speaker Change: and I'm a little bit nervous.
Speaker Change: Thank you.
The next question comes from the line of Eric Hagen from BTIG please go ahead
Speaker Change: Thanks for watching.
Eric Hagen: Okay, super. I'm wanted to follow up on the HPA discussion. What are your expectations for the low-level low-limit increases from the GSEs that we should get here in about a month? Do you think that will create an in-new opportunities in areas where home prices have grown faster than the national average?
Those are large they already priced in. A lot of the originators are, you know, it's basically a math formula so modestly higher, not nearly as big of a jump as we've seen in recent years. Certainly there's opportunities. We've been very competitive on agency high balance.
as well as non-on-on-on-on-occupied for some time now, so to the extent.
Eric Hagen: You know, some markets become more attractive, we'll, you know, our...
Our guys will definitely be running the numbers and make sure that we're pricing for that.
But I think overall, it's not quite as big of a story as it's been.
Eric Hagen: and past years. To me that the bigger story is back to some of the mission stuff, 80's and California are one in five new homes.
Some of the expanded 9QM products that were focused on.
There's a number of underserved consumers out there, particularly ones that are doing at high cost areas like California, where we are.
So having the right product next...
Eric Hagen: is really important and then certainly on non-agency we feel like we've got the best.
Pricing, particularly because it's been a heavy year for skieradization and our deals have priced.
Obviously, very well, which allows us to pass that on and rate. So we're pretty well positioned for the increase to answer your question. But I don't expect it to have as much of an effect as it's had in recent years.
Eric Hagen: and the
Yeah, okay, that's helpful. I actually have another one here on Jumbo. I mean, do you have an estimate or any visibility and how much Jumbo supply we could see next year at these rates and spreads?
Are there any scenarios where you could actually see more jump boosts curization without rates necessarily falling? And if that were the case, like, how do you think you could respond and take advantage of that? If rates are higher and you need more capital to meet that opportunity, but again, rates are higher.
Speaker Change: Yeah, I mean, this year I think is tracking closer to 2020 as far as
You know, Prime Missions goes and in Jumbo PLS 2021 was probably double what we'll see this year, so there's the capacity of the market is definitely there.
From a funding perspective, we're funded very efficiently, particularly in that business, so it definitely won't be a matter of having the capital.
I think it's a matter of supply, like you said. And again, the vast majority of non-adency, particularly jumbo mortgages, since the great financial crisis, have been.
Eric Hagen: originated by Banks for portfolio. And that's why we keep talking about that opportunity. The biggest driver of the PLS market has been bank lending and to the extent rates remain high. It's going to be a huge opportunity for us to partner with these banks and just to prioritize more collateral.
Eric Hagen: So we could definitely see if 12th-plobbles continue to grow from here.
Let's really help for thank you guys
Thank you. Ladies and gentlemen, this now concludes the earnings call. You may now disconnect your lines and thank you for your participation.
Eric Hagen: no