Q4 2024 Ellington Financial Inc Earnings Call
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Speaker Change: Good morning, ladies and gentlemen, and thank you for standing by welcome to the Ellington Financial fourth quarter 2024 earnings Conference call. Today's call is being recorded at this time all participants have been placed in a listen only mode. The floor will be opened for your questions. Following the.
Speaker Change: <unk> if he would like to ask a question during that time simply press Star then the number one on your telephone keypad.
Speaker Change: If at any time. Your question has been answered can remove yourself from the queue by pressing star into.
Speaker Change: Lastly, if you should require operator assistance, you May press star and zero.
Speaker Change: It is now my pleasure to turn the call over to Alan Dean Shellac, you may begin.
Speaker Change: Thank you before we begin I'd like to remind everyone that this conference call may include forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995. These statements are not historical in nature and involve risks and uncertainties detailed in our annual and quarterly reports filed with the FCC.
Speaker Change: Actual results may differ materially from these statements. So they should not be considered kidney predictions of future events. The company undertakes no obligation to update. These forward looking statements. Joining me today are Larry Penn Chief Executive Officer of Ellington Financial Mark Takatsuki, Co Chief Investment Officer, and Jr. Herlihy, Chief Financial Officer.
Speaker Change: Fourth quarter earnings Conference call presentation is available on our website Ellington financial Dot Com today's call will talk that presentation and all statements and references the figures are qualified.
Speaker Change: And their entirety by the important notice and I noted in the presentation without I'll handle the call over to Larry.
Larry Penn: Thanks, Howard and good morning, everyone and thank you for joining us today.
Larry Penn: Q4 was a very strong quarter for Ellington financial capping off a very successful 2024.
Larry Penn: In the fourth quarter as throughout the year, we expanded our loan portfolios and sourcing channels, we strengthened our financing and balance sheet and we steadily grew adjusted distributable earnings.
Larry Penn: I'll begin on slide three of the presentation.
Larry Penn: In the fourth quarter, we generated net income of 25 per share while our adjusted distributable earnings increased by another <unk> <unk> per share sequentially to 45 per share.
Larry Penn: Comfortably covering our quarterly dividends of 39 cents per share.
Larry Penn: Key drivers of our results included first another excellent quarter from our Longbridge reverse mortgage segment again led by the proprietary reverse mortgage business second continued strong performance from our non QM and other loan originator affiliates and third sizable gains from several securitization.
<unk> that we completed during the quarter.
Larry Penn: Yeah.
Larry Penn: We continue to scale up our credit portfolio in the fourth quarter.
Larry Penn: Our closed end second lien HELOC crop reverse and commercial mortgage bridge loan portfolios grew by a combined 39%.
Larry Penn: This substantial growth reflected further expansion of our proprietary loan origination businesses, where we closed on yet another mortgage originator joint venture investment in the quarter.
Larry Penn: As is typical of how we structure. These JV is we tied our equity investment into a forward flow agreement with that originator.
Larry Penn: These forward flow agreements have been key to our portfolio growth and earnings growth.
Larry Penn: Table us to lock in sources of high quality loans at attractive pricing and at a predictable pace.
Larry Penn: Meanwhile, we strengthened the liability side of our balance sheet in the fourth quarter in three key ways.
Larry Penn: Executing our securitizations.
Larry Penn: Adding and improving warehouse lines and redeeming our high cost debt and preferred stock.
Larry Penn: In Securitizations, we capitalize on a tightest securities securitization spreads we have seen all year by completing four securitization transactions across three different product lines.
Larry Penn: First we completed two non QM deals one in October and one in November each at great execution levels.
Larry Penn: This marked the first time that we have completed two securitizations in the same calendar quarter, reflecting the increased velocity of our acquisitions in the non QM sector.
The faster the turnaround time on our non QM loans from acquisition to securitization. The sooner that we can start earning the kind of outsized returns that we've been earning on our non QM retained tranches and the sooner we can redeploy the freed up capital.
Ellington's increasing market share in non QM is due in no small part to the numerous originator investments and relationships that we fostered over many years now.
Larry Penn: Next we completed our third proprietary reverse mortgage securitization of the year and a dealer was oversubscribed several times over in which price considerably tighter than our two prior deals in 2024.
Larry Penn: Our wholly owned subsidiary Longbridge has become one of the largest originators of proprietary reverse mortgages. So we have good pricing power in that market as well as great visibility on the flow will continue to see of that product.
Larry Penn: Finally, we closed on our inaugural securitization of closed end second lien allowance, which locked in nonrecourse match financing to drive further growth of that strategy.
Larry Penn: Home equity extraction remains a key theme in the mortgage market.
Larry Penn: This theme is an important driver of the proprietary reverse mortgage space, but that's a relatively small market.
Larry Penn: On a larger level home equity extraction is fueled by continued strong demand for second lien loves.
Larry Penn: Given the increase recent supply of second lien loans and the excellent long term financing terms, we can get on second lien loans through securitization. This sector became an important component of our portfolio growth in 2024.
Larry Penn: With the securitization we completed in the fourth quarter, we generated net gains we secured non mark to market long term financing on the underlying assets, we freed up capital to redeploy.
Larry Penn: And we retained the highest yielding tranches or our investment portfolio.
Larry Penn: We believe that our strategic use of securitization as remains a core competitive advantage for Ellington financial.
Larry Penn: We expect that our ability to source high quality loans structure, securitizations and retain high yielding tranches will continue to drive strong earnings both GAAP earnings and adjusted distributable earnings.
Larry Penn: I'll cover our dividend and help build additional franchise value in 2025.
Speaker Change: Okay. We are still on the liability side of the balance sheet, but let's move from securitization financing to warehouse financing.
Speaker Change: We've finally seen spreads in the warehouse and financing market tightened in sympathy with asset credit spreads more and more banks are providing financing and they are increasing the amount of capital allocated to providing warehousing financing.
Speaker Change: We capitalized on this increased competition, both by negotiating improved terms on several existing loan financing facilities and by preparing lines with two new Counterparties, we have plenty of borrowing capacity to accommodate hundreds of millions of dollars of increased loan growth.
Speaker Change: Our financing Counterparties appreciate our credit worthiness, which is supported by the fact that the FCS unsecured notes remain NTIC one rated.
Speaker Change: A definite Gulf for Us in 2025 is to issue another round of unsecured notes, assuming we can get the cost of funds that we think we deserve.
Speaker Change: Finally, we repaid and refinanced some of our outstanding higher cost debt and we redeemed our highest cost preferred stock that we inherited from the Arlington merger, replacing that capital with lower cost debt.
Speaker Change: These are steps that are immediately accretive to earnings.
Speaker Change: With that I'll turn the call over to Jr. To walk through our financial results in more detail Jr. Thanks.
Speaker Change: Thanks, Larry Good morning, everyone for the fourth quarter, we reported GAAP net income of 25 per share on a fully mark to market basis, and a D E <unk> 45 per share.
Speaker Change: On slide five you can see the net income breakdown by strategy 32 cents per share from credit 30 cents from Longbridge and negative four cents from agency.
Speaker Change: And on slide six you can see the ADT breakdown by segment 28 cents per share from the investment portfolio segment net of corporate expenses and 17 cents from the laundry segment.
Speaker Change: Positive performance in the credit portfolio was driven by sequentially higher net interest income, which reflected a wider net interest margin and larger portfolio quarter over quarter net.
Speaker Change: Net gains from non agency arm B S. He locks Ford MSR investments and a B S.
Speaker Change: And net gains on our loan originator equity investments.
Speaker Change: Offsetting a portion of these gains were modest net losses on non QM loans and retained tranches commercial mortgage loans and consumer loans in each case, driven by a slight decline in credit performance.
Speaker Change: In addition, we had negative operating income on Oreo workouts.
Speaker Change: Turning to Longbridge the robust results from that segment were attributable to an excellent quarter for originations driven by higher volumes, which increased 18% sequentially across all products improved origination margins in Hexham and net gains related to the property of our securitization.
Speaker Change: Long Ridge also had a net gain on its msr's driven by tighter H MBS yield spreads as well as net gains on interest rate hedges with rates higher during the quarter.
Speaker Change: Meanwhile, the agency strategy generated a modest loss for the quarter as rising interest rates and intra quarter volatility around the presidential election drove underperformance of agency MBS relative to hedging instruments market wide.
Speaker Change: Our results for the quarter also reflected a net loss on our senior notes.
Speaker Change: We fair value those fixed rate liabilities in our balance sheet and despite higher interest rates. They are fair value increased during the quarter due to tighter credit spreads and shortening durations as they pull to par with their maturities approaching.
In particular, one of the tranches of unsecured notes that we brought over from Arlington matures next month, and we intend to pay those off at par, which is around where they were marked at year end.
Speaker Change: With interest rates higher in the quarter. We also had net losses on the rate hedges associated with the fixed payments on the senior notes.
Speaker Change: As well as on our preferred stock, which we don't fair value under GAAP.
Speaker Change: Yeah.
Speaker Change: Turning now to portfolio changes during the quarter.
Speaker Change: Slide seven shows a 5% increase of our adjusted long credit portfolio to 3.42 billion driven by net purchases of closed end seconds Helocs commercial mortgage bridge loans and non agency MBS.
Speaker Change: A portion of the growth was offset by smaller RTL and non QM loan portfolios driven by pay downs as well as securitization activity.
Speaker Change: On slide eight you can see that our total long agency, our MBS portfolio declined by another 25% to $297 million by design as we continue to sell down that portfolio and rotate that capital into higher yielding opportunities.
Speaker Change: Slide nine illustrates that our longbridge portfolio decreased by 15% sequentially to $420 million as the impact of the proprietary reverse mortgage securitization completed during the quarter exceeded the impact of new originations in that business.
Speaker Change: Please nextgen site. Please next turn to slide 10 for a summary of our borrowings at year end. The total weighted average borrowing rate on recourse borrowings decreased by 56 basis points to 621% driven by lower short term interest rates and tight tighter financing spreads as Larry mentioned.
Speaker Change: Driven by lower financing costs, the net interest margins on our credit and agency portfolios both increased sequentially.
Speaker Change: Our recourse debt to equity ratio was unchanged at one eight to one quarter over quarter and including consolidated Securitizations. Our overall debt to equity ratio increased to 8.8 to one from $8 three to one.
Speaker Change: In December we redeemed our series D preferreds, which we brought over with the Arlington acquisition, and which recently reset from a fixed rate to floating rate.
Speaker Change: At year end, combined cash and unencumbered assets increase to approximately $810 million or more than 50% of our total equity.
Speaker Change: Book value per common share stood at $13 52, and total economic return for the fourth quarter was one 8% non annualized.
Mark Takatsuki: With that I'll pass it over and I'll pass it over to Mark.
Mark Takatsuki: Thanks, Jr.
I was really happy to see the strong portfolio growth. This past quarter much of it was organic growth, resulting from our vertical integration, which allows us to effectively manufacture our own loan investments in partnership with our originator affiliates.
Mark Takatsuki: Early in 2024, we were also able to take advantage of attractive opportunities in the secondary market, but those secondary opportunities are more cyclical in contrast to the loan origination market, where we are more in control of our own destiny.
Mark Takatsuki: Generally speaking the high the current high interest rate environment has led to relatively depressed levels of both home purchases and mortgage refinancings industry wide. Despite that if you look at the roster of mortgage originators that we partner with and the originations sectors that we focus on those with generics have actually been.
Mark Takatsuki: Growing volume and by all indications gaining market share.
Mark Takatsuki: With the strong origination teams reliable financing sources and with <unk> as a partner. These platforms have the potential to really grow volumes should interest rates decline in housing activity pick up later in 2025.
Mark Takatsuki: Well asset spreads are tighter across the board compared to say a year ago, we've been able to consistently lower our average financing spreads almost in lockstep with the assets in March I expect to add a new financing counterparty, providing us with the lowest financing rates, we will have in both non QM and second liens.
Larry Penn: As Larry mentioned, we were very active securitizers in Q4, taking advantage of consistently strong execution on the new issue investment grade bonds.
Larry Penn: Accordingly, thanks to the excellent historical performance of our empty shelf FMT shelf the debt spreads that we were able to lock in with some of the best levels in the market are consistently strong deal execution is a real competitive advantage, which not only helps drive our earnings but also enables us to pass along better pricing to our origination partners.
Larry Penn: And that in turn allows our origination partners to pass along more competitive mortgage rates to their customers, which helps them capture additional market share and produce a higher quality loan for us.
Larry Penn: We also had terrific performance in our language segment over the course of 2024, we completed our first three securitization of proprietary private label reverse mortgages, which were all originated by our Longbridge subsidiary with each succeeding deal we've brought in a larger and larger roster of debt investors we've executed.
Larry Penn: Tighter and tighter levels continuing on the theme I, just mentioned that tighter deal execution translate directly into more competitive loan pricing for longbridge, which is helping them build loan volumes and market share.
Larry Penn: Another growth area for US has been second liens and helocs much of the credit for that success goes to a phenomenal research team, which has built a robust framework for evaluating both credit and prepayment risk for these products. In addition, our sourcing effort has been built upon the foundation of our close relationship with mortgage originators, which in some.
Larry Penn: K span decades to secure what we believe are among the best quality loans in the sector again, you have see wins with organic portfolio growth in the sector became the highest yielding portions of our securitization of loans from programs that we have selected with underwriting guidelines, we endorse and in some cases have helped construct.
Larry Penn: Another often overlooked benefit of active securitization is it if he's building up a war chest of deal call rates.
Larry Penn: Non QM and second lien securitizations come with an option to call the deal in the future and potentially we securitize the underlying loans at a lower cost of funds before rates spiked in 2022, if you've made a lot of money exercising its non QM call options and should interest rates decline again, they could be very profitable in the future.
Larry Penn: We did experienced some headwinds in the fourth quarter on the commercial mortgage side, we're making steady progress resolving our three most significant loans didn't work out.
Larry Penn: One of these three loans should resolve in the next 60 days with the sale of the underlying property in contract.
Larry Penn: In the case of the second loan the underlying properties have already been sold and we're basically just waiting for the bankruptcy court to finalize the expenses and divvy up the proceeds.
Larry Penn: This resolution processes for more protracted and more expensive than we initially anticipated.
Larry Penn: But I'm excited to know that we'll shortly be able to redeploy the resolution proceeds which haven't been generating any a D for us during the workout period.
Larry Penn: Finally, the third loan is currently in the construction and lease up phase that is progressing but more work needs to be done and that will take more time keep in mind that we fair value all of our work out loans through our income statement and on our balance sheet and we believe that our valuations are conservative and reflect realistic estimates the ongoing expenses.
Capex and timing to us timing to stabilization in sale.
Larry Penn: We've also seen an uptick in residential loan delinquencies, most notably in our non QM portfolio.
Larry Penn: So far these non QM delinquencies haven't translated into material losses, nor do we expect them to going forward as we believe the vast majority of these loans are well secured by the underlying real estate.
Larry Penn: We think consumer credit is pretty pervasive we attribute the higher delinquency rates than our non QM portfolio to the combination of bigger loan sizes and higher mortgage rates, creating a much higher monthly payment obligation and therefore, a greater likelihood of delinquency.
Larry Penn: On top of that some parts of the country are experiencing a big jump in homeownership premium in the home insurance premiums.
Larry Penn: We have seen this cycle before we have a big research effort to turn to the data and we have a very experienced team of underwriters and asset managers to address the issues.
Larry Penn: Relative to the market, we have been tight underwriting selective on what programs you buy and choosy about whom we partner with that said rising debt costs have taken their toll on some borrowers.
Larry Penn: Focused on this issue.
Larry Penn: So far in 2025, we've continued with our playbook and we have already closed two non QM securitizations and another second lien deal.
This environment has really allowed us to leverage our vertical integration, which when soup to nuts from equity Stakes in the originators to underwriting guidelines in pricing informed by our models to a very efficient securitization process, culminating in culminating in the creation of security if you want to retain at the prices we want.
Larry Penn: Now back to Larry.
Larry Penn: Thank you Mark.
Larry Penn: With our accomplishments in the fourth quarter.
Speaker Change: I am pleased just closed a successful year on a high note with great momentum heading into 2025.
Larry Penn: I am proud of what we accomplished in 2024.
Larry Penn: Early in the year, we laid out the drivers to growing adjusted distributable earnings which included growing the correct credit portfolio and returning to origination profitability at Longbridge financial and we delivered with.
Larry Penn: With 25% year over year growth of the credit portfolio and with the strong second half performance from Longbridge.
Larry Penn: Altogether, we increased our <unk> from 28 per share in the first quarter of 2024, all the way up to 45 per share in the fourth quarter.
Larry Penn: We are excited about the momentum at Longbridge and in particular, the growing demand for our proprietary reverse mortgage products.
Larry Penn: While not counting on long ridge is a day contribution being quite so high each and every quarter. We do anticipate that esc's overall ADP will continue to cover the dividend moving forward, which of course is always our goal.
As we discussed earlier, our <unk> will also be supported agile as we redeploy the capital from some remaining delinquencies in our commercial mortgage loan book.
Larry Penn: Mark talked about the uptick in delinquencies that were seeing market wide.
Larry Penn: Being careful and diversifying across sectors, we have avoided the kinds of serious problems that you've seen at other companies.
Larry Penn: I can't stress enough, how diversification has been key to our success.
Larry Penn: I believe that we're as diversified as any other mortgage REIT out there and I'd like to close by highlighting the many ways that we benefit from this diversification.
Larry Penn: First of all we benefit from asset diversification and multiple dimensions, we diversify by actively investing in both securities and loans and we've built up a formidable loan generation machine, which has been crucial for us as spreads on securities investments have tightened.
Larry Penn: We diversified by investing in both residential and commercial mortgage loans. So the problems in the commercial mortgage sector had been relatively minor ones for us and we are back to playing offense in that sector.
Larry Penn: We diversified by investing in both forward and reverse mortgages and in fact, we own one of the largest reverse mortgage loan originators in the country.
Larry Penn: Meanwhile, in the forward mortgage space, we own stakes in mortgage originators originate everything from non QM mortgages to residential transition loans to commercial mortgage bridge loans.
Larry Penn: We also on mortgage servicing rights.
Larry Penn: Forward Msr's and reverse Msr's we.
Larry Penn: We also diversified by duration, we own short duration mortgages like Rtl's commercial bridge loans and second lien mortgage loans and.
Larry Penn: And we on longer duration loans like non QM loans and proprietary reverse mortgage loans.
Having so many short duration mortgages.
Larry Penn: Even though it creates more work for us to be constantly reinvesting the paydowns it can be extremely beneficial in times of stress.
Speaker Change: For example in 2020 during Covid he used the sizable cash flow coming coming off of our short duration mortgages to purchase distress non agency MBS, which had widen out dramatically during COVID-19 due to forced portfolio liquidations.
Speaker Change: Okay. We further diversify by having both agency guaranteed lower yielding assets on which we imply higher leverage as well as non guaranteed credit assets on which we employed lower leverage to.
Speaker Change: The fourth quarter was a tough one for agency mortgages with rates sorry.
Speaker Change: Got it under 5% of our overall capital allocation it didn't spoil our quarter.
Speaker Change: Meanwhile, some other mortgage Reits are large drops in book value per share due directly to interest rate volatility and their effect on agencies.
Speaker Change: When we see better relative value in the agency sector relative to the credit sectors, we can always refocus more on agencies.
Speaker Change: Finally, please turn to slide 19.
Speaker Change: We add yet another dimension of diversification to our portfolio through our use of credit hedges, which I think really distinguishes the FC from the other mortgage Reits here, we try to be counter cyclical.
Speaker Change: Want to have more credit hedges on when spreads are tighter and less when spreads are wider.
Speaker Change: Even though our portfolio as mortgage focused we mostly use corporate instruments to hedge credit because of their liquidity and their robust protection and big market <unk> like we saw during COVID-19.
Speaker Change: On the rightmost column of this slide you can see that to a lesser extent, we also use <unk> to hedge which are credit default swaps and commercial mortgage backed securities.
Speaker Change: As you can see on both slides slide 19, as well as on the prior slide 18, we had a large overall credit hedging portfolio on the books at year end and in fact, the most we have add on in a long while that makes sense for us since credit spreads tightened throughout 2024 and reach their types in December.
Speaker Change: In fact by many metrics corporate credit spreads in December with the tightest. They had been since late 2021 right before they started to widen out massively when it first became clearer than inflation was a real threat to the economy.
Speaker Change: I'd like to point out that in these first two months of 2025 corporate credit spreads have widened out a bunch and so we've taken off some of our credit hedges recently.
Speaker Change: I firmly believe that diversification and discipline have been key to our performance in difficult years and key to our steady returns over market cycles 2024 was another solid year as we delivered a 9% economic return and maintained our dividends our steadiness as illustrated both on slide 13, which shows that standard.
Speaker Change: Deviation of our returns in comparison to our peer group and on slide 25, which shows our resilience over market cycles and in particular through financial crises and market shocks.
Moving forward in 2025, we are committed to building on our 2024 achievements, including maintaining the securitization of momentum we have built across multiple business lines.
Mark Takatsuki: As Mark mentioned, we've already closed three securitization deals so far in 2025 in just two months.
Mark Takatsuki: We also have a few more originator investments in the pipeline, which we expect will further expand our asset sourcing channels with.
Mark Takatsuki: With a strong capital base ample liquidity, a diversified portfolio strategy prudent leverage dynamic hedging I believe that we are very well positioned for the year ahead.
Mark Takatsuki: With that let's open up the floor to Q&A operator. Please go ahead.
Mark Takatsuki: Absolutely at this time, if you'd like to ask a question. Please press the star and one keys on your telephone keypad keep in mind, you can remove yourself from the question queue at any time by pressing star and two.
Mark Takatsuki: We will take our first question from Doug Harter with UBS. Please go ahead. Your line is open.
Doug Harter: Thanks can you talk a little bit more about some of the originator investments that you're making.
Doug Harter: And kind of the appetite for non QM given the commentary you made around delinquencies.
Mark Takatsuki: Mark do you want to take that.
Mark Takatsuki: Yeah, Hey, Doug.
Doug Harter: So the playbook, we've had for originator Stakes goes back to 2014, where we tend to make relatively small investments.
Mark Takatsuki: In platforms, where we.
Doug Harter: No the principles.
Doug Harter: And we think Theres, a meeting of the minds on credit quality and underwriting.
Doug Harter: And what we look for is situations that are synergistic and by that I mean.
Doug Harter: Can we help them lower their warehousing costs with UFC financial heft, maybe putting the guarantee in place.
Doug Harter: Can we help them by being a more consistent pricing for their loans.
Can we help them by informing some of their underwriting processes with the data we have.
Doug Harter: And that has worked well you know we've done a.
Doug Harter: A handful of them since 2014, no what I said about delinquencies. This has been sort of going on for the past couple of years.
Doug Harter: And the response from US, but also I'd say from the market generally has to move up and move up in FICO move down in LTV and you've basically seen that EBIT, even with those adjustments do delinquencies are higher than what they were you know in the years right. After Covid I think you know.
Doug Harter: For a long time, so we did our first non QM loan I think 2015, and so for many many years.
Doug Harter: The credit losses on the loans were much much smaller than our underwriting assumptions right and I, just think youre going into a period of time, where.
Doug Harter: You might see credit losses, more consistent with how we underwrite it as nothing.
It's nothing shocking.
Doug Harter: And it's nothing that you haven't seen incrementally another market cycles and it's also it's not anything that we don't think we have the requisite tools to.
Doug Harter: Troll and commodity and minimize the damage on so you know it does inform though our loss expectations on non QM, which then informs our pricing, but you know with where we are now in the assumptions. We have we still find a lot of value in that market.
Speaker Change: Great I appreciate that and then.
Speaker Change: On a long bridge can you just help kind of you know I understand that that's always going to be a slightly more volatile earnings stream, but can you help contextualize kind of the the ranges you know.
Speaker Change: Of earnings that you would expect you know kind of where kind of <unk> would sit where <unk> sits kind of in that as we kind of think about the no.
Speaker Change: The go forward earnings power of the business.
Speaker Change: Sure Hey, Doug It's Jr.
Doug Harter: Last quarter, we talked about nine cents per share per quarter coming from Longbridge.
Doug Harter: Which we see as kind of a longer term run rate target and what we think is achievable. So we almost doubled that in Q4 and Larry mentioned, we shouldn't expect such a high level, but I think that <unk> run rate plus or minus is a good number to.
Doug Harter: You have to think about it.
Doug Harter: If you multiply that our capital allocation by our dividend run rate.
Doug Harter: Clearly above their kind of contribution if you will but we have been able to exceed.
Doug Harter: The dividend here in the last couple of quarters. So I think the direct answer would be that would be that kind of reiterating what we said on last earnings call.
Doug Harter: Alright, great I appreciate that.
Doug Harter: Thanks.
Speaker Change: We'll take our next question from Eric Hagen with BTG. Please go ahead. Your line is open.
Eric Hagen: Hey, Thanks, Good morning, guys. Good to hear from you going back to the agency portfolio and the allocation. There can you share why that maybe isn't more attractive to you at these valuations and if you guys had maybe.
Eric Hagen: A more incremental capital like what where you would potentially do without thank you.
Eric Hagen: Alright.
Eric Hagen: Sure Yeah.
Speaker Change: You know for the last I'd say, two or three years.
Speaker Change: One of the sort of high level decisions, we've thought about at Ellington financial.
Speaker Change: Is to really have it more credit focused.
Speaker Change: Really have it.
Speaker Change: Take advantage of you know.
Speaker Change: Vertical integration, which we think gives us a big competitive advantage versus just going out there and buying CUSIP in these sectors and so to do that.
Speaker Change: It's fairly capital intensive between you know originators Stakes in Bulking up you know loans for securitization and having the risk retention obligation. So you know.
Speaker Change: The opportunity in agencies has been pretty good and I had a good 24 and the start of this year broadly speaking for agency portfolios has been has been good. So you know we don't it's not that it's not that we don't think it's unattractive sector. It's just.
Speaker Change: Over cycles.
Speaker Change: <unk>.
Speaker Change: The advantage you have in a permanent capital vehicle to invest in credit we think a substantial you know in that and that the agency strategy is a good strategy, but it doesn't need to be done in a in a permanent capital vehicle and for.
Speaker Change: The capital we have an E F C.
Speaker Change: We think it can be put to better use.
Taking advantage of being able to go down in liquidity and sort of going down in the mortgage food chain and getting closer to borrowers controlling underwriting and thats done.
Speaker Change: On the residential side and the commercial side, we didn't really talk about it on this call, but you know we made the investment in.
Speaker Change: Our commercial mortgage.
Speaker Change: What is there that we've partnered with for years and they've been very helpful for us on overseeing property management and construction you know those.
Speaker Change: Those kind of investments.
Speaker Change: Need permanent capital and so while we have that permanent capital and Ellington financial is just a conclusion that over cycles.
Speaker Change: We're going to generate better returns and more stable returns.
Speaker Change: Doing this vertical vertical integration on the lending side.
Speaker Change: And again, it's just yeah, we think it's sort of a superior.
Return to the market on the agency side you can get you know you can get massive dislocation the agency market, you're selling in 2022, and we have the ability to be opportunistic there and we retained that ability and.
And we will do it and it's certainly a core competency of the firm.
Speaker Change: But for right now.
Speaker Change: Now when you're seeing this growth in non agency Securitizations, you were seeing Fannie and Freddie retrench, a little bit and more parts of the mortgage market that they used to dominate our now go and go in or getting a credit enhanced by private capital. We just think right now that's the more exciting opportunity.
Speaker Change: Yes, definitely makes sense I appreciate that so following up on the non QM delinquencies is there a read through and managing the securitization trusts like is there an expectation from investors that you buy those loans out of the trust. Even if you don't expect an eventual credit loss and do you need to maybe temporarily manager liquidity any differently as a result of that.
Speaker Change: No I don't think there's that expectation you know by and large we've been risk retainers and we've and we've kept a lot of the credit risk on our deals.
Speaker Change: And you know we can you know, it's a little bit different than like what you see in the CLO market that I think you know, it's you're talking about.
Speaker Change: Not chunky loans right. So I think we have.
Speaker Change: I think our expectation now is to work those out and resolve those while the loans are in the securitization.
Speaker Change: Got you. Thank you guys. Thanks.
Eric Hagen: Thanks, Eric.
Speaker Change: We will take our next question from George with <unk>. Please go ahead. Your line is open.
Speaker Change: Hey, guys good morning.
Eric Hagen: First on.
Eric Hagen: The net interest income. So you guys noted obviously the work you've done on the liability side is the net interest income this quarter kind of a good run rate to think about going forward.
Eric Hagen: Sorry, I missed the middle of the question.
Eric Hagen: Just on net interest income.
Eric Hagen: Yes, it's a good run rate as a run rate.
Eric Hagen: Yeah.
Yes. So I was just checking if there was a good run rate since it was up around 5%. So I guess on the improvement you've had on the liability side. So just yeah.
Eric Hagen: Those improvements are ongoing and didn't take place at the beginning of the quarter. So yeah I think.
Eric Hagen: I think that.
Eric Hagen: We should be seeing something better, yes, I think thats.
Speaker Change: I would echo that I mean, we mentioned that the NIM on the credit portfolio.
Eric Hagen: It widened.
Eric Hagen: And the weighted average cost of funds decline, which is okay, which is what youre pointing out declined by 50 bps plus.
Eric Hagen: During the quarter, that's a combination of negotiating tighter spreads with several financing providers and the drop of short term rates. So I do think that it's also a function of product mix, but I do think its representative of what we saw in Q4 in terms of.
Eric Hagen: That.
Eric Hagen: Portfolio composition, adding more resi loans, adding more commercial bridge loans. So yeah, I think I'd say I think it's a good run rate to yeah, I mean look on the other hand.
Eric Hagen: On some of the loans that were buying now for example, we've seen some spread compression in <unk>. So.
Eric Hagen: And other products. So I think as the portfolio turns over you may see.
Eric Hagen: Some tightening on the on the asset side. So it's.
Eric Hagen: This kind of currency counter Karnes I guess, you can say about it.
Eric Hagen: Thanks for certainly for.
Eric Hagen: For the first quarter.
Eric Hagen: I don't see any reason why that's not a good guidepost.
Eric Hagen: Okay, great. Thanks, and then actually on the expense side as well.
Eric Hagen: It went up last quarter, it's kind of a similar level. Thank you guys.
Eric Hagen: It suggested it might tick back down but is this kind of a decent run rate.
Eric Hagen: Yes, I think I think it's a good that's a decent run rate.
Eric Hagen: We did have some one time option related tick up last quarter, you identified I think that youre referencing.
Eric Hagen: The quarter over quarter now is it just a small percentage increase with no no.
Eric Hagen: Real movement in any of the individual line items.
Eric Hagen: I think in short I think it's a I think it's a good run rate to use going forward that kind of a Q4 <unk>.
Eric Hagen: <unk>, yes.
Eric Hagen: Like to add a little bit of color to that that option line.
Eric Hagen: So.
Eric Hagen: Before we had owned.
Eric Hagen: Basically half of Longbridge until a few years ago.
Eric Hagen: And.
Eric Hagen: Our partner owning the other half was a.
Eric Hagen: It was a private equity firm and.
Eric Hagen: There was some thought back then of potentially having a.
Eric Hagen: A sale of the company and a realization of that I mean im going back several years.
Eric Hagen: And ultimately we actually so sorry, so the way that employees had been compensated.
Eric Hagen: Back then, especially senior management was partially through granting options in the company again, anticipating some sort of a realization of that down the road.
Eric Hagen: When we bought the other half and basically owned all the company at that point.
Eric Hagen: No no intention or let's just say.
Eric Hagen: No specific plans to ever sell the company, which we think works really well within Ellington financial for all the reasons that we've said so far.
Eric Hagen: Options didn't really make as much satisfied to have an option.
Eric Hagen: A subsidiary debt.
Eric Hagen: <unk>.
Eric Hagen: Employees can never monetize right. So we.
Eric Hagen: We basically bought them out at.
Eric Hagen: They are at.
Eric Hagen: At a fair price given.
Given what had happened in the ensuing years between when the options were.
Eric Hagen: Granted.
We repurchased them. So that was thats why it was a one time thing and now there are no more options outstanding.
Eric Hagen: Sorry.
Eric Hagen: Yeah, No I think that I think that covers it okay. Yeah. Okay. Great. Thanks. Thank you just as a follow up on the agency MBS discussion.
Eric Hagen: Do you see current leverage yields that are sort of ROE and also just in terms of spreads do you look at nominal spread Z spreads OAS.
Eric Hagen: Kind of what's.
Eric Hagen: If you look at mainly on the math.
Eric Hagen: On the agency space.
Eric Hagen: On the agency space, yet so I would say this right we've always run it.
Eric Hagen: A little bit differently than some of the peer group. So we've liked the use of TBA hedges. So.
Eric Hagen: When we have mortgages.
Eric Hagen: Hedged with swaps or treasuries, so not versus TBA is.
Eric Hagen: There's a few things we look at so on specified pools, we look a lot at OAS I do think that is the best.
Eric Hagen: Measure to capture sort of value you're going to value you're going to capture over over market moves. So when we look about we look at OAS. We also look a lot and we think a lot about.
Eric Hagen: Sort of Optionality and pay ups right like there's sometimes you can buy.
Eric Hagen: Pools with the very low pay up and in certain market environments. The Pip can go up substantially right. So I'd say, it's primarily OAS it's less.
Eric Hagen: The overall spread.
Eric Hagen: Now when we have pools versus TBA.
Eric Hagen: And it's a lot of well, okay, how does that pool carry versus what the role is on the TBA. That's a big part of it and what's the convexity of our pool going to be like with TBA or their market moves or we think you'll pay up and go from a handful of ticks up you know maybe like 'twenty four 'twenty five ticks and it could be you know half point about performance. So they were looking at a lot.
Eric Hagen: Sort of we kind of call it pay up convexity, but so what what kind of volatility and what kind of upside do you having to pay up and.
Eric Hagen: And the other thing is when we have.
Eric Hagen: T B a longs.
Eric Hagen: Is rate hedges than we care a lot about what.
Eric Hagen: What their roles are and there are some times where roles can be so compelling over a long period of time.
Eric Hagen: Far superior than being long specified pools, and that sort of like it definitely harkens back like 2021.
Eric Hagen: And you know these discount roles like Fannie twos, and Penny tune as we're consistently delivering.
Eric Hagen: Substantial returns over what pools could've done then.
Eric Hagen: And just you know in the hedging cost so I think it depends a little bit on is it pools, however, they hedged but.
Eric Hagen: Zero Wolff spreads versus OAS, we're firmly in the camp that you need to really look at OAS.
Eric Hagen: We're reluctant to buy things they have a.
Eric Hagen: Very low zero vol spread because there's fewer other participants that want them, but.
Eric Hagen: You know a gun to our head, we're going to pick a higher OAS and the low or zero of all spread than something that's the reverse.
Eric Hagen: Okay, Great that's helpful.
Speaker Change: Yes, hi.
Hi, Yes, I actually wanted to follow up a little bit on your expense question. Because we were just looking at some of the numbers offline here.
Speaker Change: So there are a few things going on so we're look we're always looking to make sure we're efficient on expenses and.
Speaker Change: We definitely made some improvements even so far this year, but.
Speaker Change: When you think about the fact that we're more and more focusing on loans versus securities obviously.
Speaker Change: Obviously, not a credit versus agencies.
Speaker Change: But even just loans versus securities.
Those are going to require.
Speaker Change: More people and so compensation costs again, I think when you look to the extent there.
Speaker Change: They are rising versus what our income has been in these sectors.
Speaker Change: It's not a question that this is what we need to be doing long bridge by the way also in particular right as we're growing that proprietary.
Speaker Change: Business as they would increase there.
Speaker Change: Servicing portfolio I mean, all these things that are making us a lot of money.
They've been also growing in terms of head count as well and again, we're always going to look at efficiencies there.
Speaker Change: And.
Speaker Change: But I think that these investments.
Speaker Change: And what are really been modest increases I think in compensation and personnel costs have been absolutely more than rewarded in terms of what you've seen at long ridge and what you've seen in terms of.
Speaker Change: What we're doing on the loan side of our portfolio. So so yes.
Speaker Change: Okay, Great and then it makes a lot of sense. Thanks a lot.
Speaker Change: Yeah.
Speaker Change: We'll take our next question from Trevor Cranston with citizens JMP. Please go ahead. Your line is open.
Speaker Change: Okay. Thanks.
Speaker Change: Question on related to Longbridge.
Speaker Change: I know a lot of the focus there is on the proprietary side of things, but I was wondering if you guys could comment on whether or not you guys have seen or you foresee.
Speaker Change: And any impact on the <unk>.
Speaker Change: H MBS market and the rollout of each MBS 2.0, they are real.
Speaker Change: <unk> two.
Speaker Change: Staffing cuts at HUD and other places.
Speaker Change: And what the overall impact that that could be longbridge. Thanks.
Speaker Change: Yeah look it's a it's an important question.
Speaker Change: And.
And I wish I had a better answer than to tell you we'll have to see just like with a lot of things going on right now.
Speaker Change: On the other hand.
Speaker Change: The.
Speaker Change: We do have the prop business, which has really been driving the earnings.
Speaker Change: I think we will just have to wait and see on the <unk> side. The heck am side did have.
Speaker Change: The agency side basically.
Speaker Change: <unk> has been seeing improving results as well.
Speaker Change: But we're just going to have to wait and see I mean look there were a lot of questions.
Speaker Change: First Trump administration and there'll be questions in this administration exactly where.
Speaker Change: They're going to.
Speaker Change: At <unk> I can't remember, whether your first of all of that but so we were anticipating.
Speaker Change: A change in some of the regulations that would actually be a further boost to pack and profitability.
Speaker Change: We'll just have to wait and see maybe doesn't materialize that will just be the <unk>.
Speaker Change: Axes of of a positive but again, we're just going to have to wait and see yes, and I would just add I mean, it's hard to read the tea leaves on the regulatory change front and like but you can also see and if there is an interruption on the heck of nature MBS product could drive demand to prop that's right.
Speaker Change: And we have large we believe we have larger market share of approximately do and how can we even though we have a very large market share package. So yes. So we'll just have to wait and see.
Speaker Change: Okay, Yes that makes sense. Thank you guys.
Speaker Change: Thanks.
Speaker Change: We will take our next question from Randy Binner with B Riley. Please go ahead. Your line is open.
Randy Binner: Hey, Thanks actually just on the HUD.
Speaker Change: That's a really interesting area so.
Speaker Change: Understood that there's a lot to monitor with the new administration, but I believe they've already had some pretty significant staffing cuts at HUD. So is there just kind of real time are you all feeling anything just from a procedural perspective.
Speaker Change: And dealing with the government Havent heard anything now.
Speaker Change: Okay.
Speaker Change: So I think my question is this has all been very comprehensive I appreciate it but just on the Oreo workout.
Speaker Change: Hi.
Speaker Change: In the prepared script you provided some details on a couple of loans it sounds like there and then kind of last.
Speaker Change: <unk>.
Speaker Change: Negotiation.
Speaker Change: You can you quantify how much capital gets freed up.
What's the timing of that would be.
Speaker Change: As a result of these Oreo workout, yes, not yet.
Speaker Change: Just going to say, it's not it's probably not as much as you think but.
Speaker Change: Go ahead, Jr. Yes, so the short answer is we've not quantified it.
Speaker Change: At year end, we had less than $100 million invested in commercial in <unk>.
Speaker Change: Jos and delinquent loans altogether.
Speaker Change: More than half of that.
Speaker Change: It is.
Speaker Change: The three loans that we talked about those three constitute more than half of that $95 million call. It. So we haven't beyond that we haven't we haven't quantified as I say, so, but if you just assume for arguments sake that it was something in the high $40 then.
Speaker Change: I mean again this is not got it yes, it's great. It's great. It's don't get me wrong, we want to see these resolved quickly and move on but.
Speaker Change: Youre not talking about anything game changing yes. Some finance some is not that also we have it it's it doesn't contribute to <unk> as we mentioned in the prepared remarks and in some cases it has negative implications.
Speaker Change: Implications during the quarter. So it can have a dish despite the smaller size relative to the overall pool of capital can have a disproportionately negative impact on <unk>, both through not generating EDI, but also being a drag in some cases, that's what we're looking forward to getting past that.
Okay understood.
Speaker Change: That's our model and then.
Speaker Change: I guess I would reverse.
Speaker Change: It is.
Speaker Change: You doubled your guide and you have this.
Speaker Change: Demographic wave boomers, I mean, seemingly AJ in place would be preferable for a number of different reasons. So I mean, just taking a step back are you. This is Ben.
Speaker Change: Tremendous business.
Speaker Change: And it is generally underappreciated.
Speaker Change: Okay.
Speaker Change: Are you do you get the sense that youre going to get more mainstream competitors in that area or do you think this can kind of still stay at kind of.
Speaker Change: Our niche market where you.
Speaker Change: You can have a lot of share reverse mortgage kind of that large.
Speaker Change: And by the way.
Speaker Change: The other thing I just want to mention that I think that addresses your question to some extent is that.
Speaker Change: Long Ridge is actually we're actually actively working with some other partners.
Speaker Change: Yes.
Speaker Change: Products.
Speaker Change: For seniors.
Speaker Change: That.
Speaker Change: May not technically the reverse mortgages, but have a lot of similar characteristics I don't want to sort of give away too much but theres just yeah, there's a lot of ways with.
Speaker Change: The relationships, we have with the compliance program.
Speaker Change: That is I would say.
Speaker Change: Unique to the reverse mortgage originators that have to do so much more.
Speaker Change: When dealing with it.
Speaker Change: Seniors for example, so.
Speaker Change: Yeah, So we're excited and.
Speaker Change: We're hopeful that we can even announced some interesting new products in the near future.
Speaker Change: So that would be like in partnership with life insurers.
Speaker Change: I know with with other types of.
Speaker Change: And originators okay. Okay.
Speaker Change: Alright, very good thank you.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: And we'll take our next question from Crispin Love with Piper Sandler. Please go ahead. Your line is open.
Speaker Change: Thank you I appreciate taking my question can you just dig a little bit deeper into closed end seconds helocs and the opportunity there it looks like you've more than doubled the portfolio. There in the fourth quarter that rate driven along with affordability and HPA moves and what that growth mostly through acquisitions and just curious on how the.
Speaker Change: A man could be in that space if rates do come down meaning is there still a bunch of runway if rates do come down just with where rates are today. Thank you.
Mark Takatsuki: Mark Yeah, Hey, Chris Thanks.
Mark Takatsuki: Thanks for the question so that opportunity set.
Mark Takatsuki: What we've been buying and we've been buying just.
Mark Takatsuki: Loans second liens, where the first lien is from Fannie Freddie Ginnie.
Mark Takatsuki: And borrower the borrower has a low note right first you know three and a half or three in the quarter looked note rate first.
Mark Takatsuki: And you know they've they've amortized down the first little bit they've had home price appreciation. So most of these things are now.
Mark Takatsuki: No there there.
Mark Takatsuki: Site goes in the.
Mark Takatsuki: $747 50 type range, the combined loan to value ratios. So the first lien plus the second lien.
Mark Takatsuki: Typically high 60, so you've got a lot of equity.
Mark Takatsuki: And its borrowers that have in some cases, it's been the house 810 years, because a lot of that activity in 2021, as you remember where refi activity right.
Mark Takatsuki: Person has been in his house family has been that has 810 years.
Mark Takatsuki: They've got a really valuable first rate mortgage REIT, if you're paying three and a half for three and a quarter on a first.
Mark Takatsuki: That's an asset right. So you don't want to part with that but yet.
Maybe you want to renovate your kitchen, maybe you want to do some landscape and you want to borrow against your home right because it's a heck of a lot cheaper than credit cards heck of a lot cheaper than unsecured. So you take out a second lien you know nine odd percent or whatever it is.
Mark Takatsuki: It's a smart way to tap some of the equity in your home. So that's.
Mark Takatsuki: That's a big opportunity set because you know even though it's been years since we've had the super low rates most of the Fannie Freddie Ginnie market is still that really low coupon stuff. So we see it as a big opportunity set.
Mark Takatsuki: You know I would suspect over time youre going to see people doing more adventurous things in second liens.
Mark Takatsuki: That's not what we've been participating in so.
Mark Takatsuki: Yeah.
Mark Takatsuki: For us it's been a chance to get a higher note rate loan.
Mark Takatsuki: From a bar, where we think the borrower is an excellent borrower as evidenced by like long pay strings, and the bar where that even with the second lien even after you take into account this additional.
Mark Takatsuki: Loan obligations additional debt obligations from their home is still very low.
Mark Takatsuki: Loan to value ratio. So it's been that combination of things that has drawn us to the sector.
Mark Takatsuki: It's similar things about helix and then in addition, with the second liens there was an active securitization market. So we're ability to <unk>.
Mark Takatsuki: Larry talked about our liability side of the balance sheet and so when you do a securitization second liens just like non QM, you're you're you're replacing repo with.
Mark Takatsuki: With our fixed rate debt that matches the cash flow on the assets.
Mark Takatsuki: And as that spreads have come in we've found issuing the securitizations.
Mark Takatsuki: Is more profitable to us than just keeping loans on repo.
Mark Takatsuki: And so I think it's a pretty big opportunity set I think it'll be.
Mark Takatsuki: Pretty long lived I mean, I think what changes is it rates going up won't change. It I think rates going up you will still see good volumes I think where it changes if rates were to drop precipitously than some of these borrowers where it's smarter to take a second lien.
Mark Takatsuki: <unk> refinance in the first lien, that's where you could see the market dynamics change that right. Now if you are a three and a half first.
Speaker Change: Do you want to borrow 60 Grand it just doesn't make sense to.
Speaker Change: Pay off your three and a half first and take a bigger 7% first but if rates were to come down a lot. Then all of a sudden maybe you get to three and a half first you can borrow at a five then the math then.
Speaker Change: It's the scales are more in balance.
Mark Takatsuki: Great Mark I appreciate that all really helps you and then just.
Speaker Change: Last one for me just Big picture question on the potential for GSE is coming out of conservatorship and the new administration.
Mark Takatsuki: Do you view that.
Mark Takatsuki: Probability of that happening and impacts the EMC as you'd see and then is there any way for you to position and on.
Mark Takatsuki: And that may be occurring over the next few years.
Mark Takatsuki: I think it's a great question.
Mark Takatsuki: I think it depends on leadership at FHFA, but it's certainly a possibility, but certainly on the radar for the first Trump administration and they've been talking about it now so I definitely think it's possible I definitely think.
Mark Takatsuki: You've had a lot of comments from the Treasury Secretary that.
It needs to be done in a way that does not raise the cost of homeownership I think they're very focused on that so I think it could certainly happen whether there is an ultimate backstop to the government or not I don't know and I think.
Mark Takatsuki: What I think it does create though is the possibility of some short term volatility. So in the end whenever it happens maybe it's done in a way where.
Mark Takatsuki: Agency mortgages still have a backstop and they are extremely liquid and they really do compete with investment grade corporate bonds in treasury bonds for the investment grade dollars. The way. They are now they're a big part of the AG, but.
Mark Takatsuki: You know going from where we are now what finally happens you can certainly get comments made and and suggest you put out there that can cause some short term volatility so I think.
Mark Takatsuki: I think the opportunity set is short term volatility.
Mark Takatsuki: I think the bigger picture that we've been focused on for a couple of years and which I think is a very substantial opportunity set for Ellington financial.
Mark Takatsuki: Is the fact that in it's sort of.
I think this this.
Mark Takatsuki: This trend is.
Mark Takatsuki: Is accelerated with the current administration is that.
Speaker Change: Fannie and Freddie Ginny are gradually shrinking their footprint and it's clear with Fannie and Freddie they have a mentality of cross subsidies, where certain loans. They know, they're charging way way above expected losses for guarantee fees and loan level price adjustments, because they want to be able to.
Speaker Change: Subsidize other loans that are more mission, driven maybe higher LTV loans.
And so you've seen Fannie and Freddie now willing to let portions of the market that use that they use to guarantee fee and used to make a lot of money on get credit enhanced in the private label market in years past.
Speaker Change: When Fannie and Freddie would see that they are losing market share to the cap to the private market in certain areas than they would oftentimes adjust their G fees, just a loan level price adjustments.
Speaker Change: But.
Speaker Change: It seems like where we are now I think they are less likely to do that so I think.
Speaker Change: Private capital's role.
Speaker Change: In the in the housing market I think that's going up as a result of all this and how it ends in GSE reform I don't know.
Speaker Change: No.
Speaker Change: But you know.
Speaker Change: You're certainly seeing that.
Speaker Change: Loans that could go to Fannie and Freddie.
Speaker Change: Right.
Right after the financial crisis, 100% that could go to Fannie and Freddie went to Fannie and Freddie and that was by and large the case for many many years and now you're starting to see you know loans that could go to Fannie Freddie and increasing numbers are finding better execution in the private label market.
Speaker Change: Yes.
Mark Takatsuki: Mark I'm just kind of.
Speaker Change: I don't usually make predictions but.
Speaker Change: But I I.
Speaker Change: Think that the odds of course anything is possible I think the odds are lower than people think.
Speaker Change: But I think if there is going to be an eventual release I think it has a lot more complicated.
Speaker Change: And a lot of people think so I think you're talking about something that to take a really long time. Meanwhile.
The agencies are actually through the.
Speaker Change: The cash and stock or programs right.
Speaker Change: Crts.
Speaker Change: Theyre actually re insuring a lot of that risk.
Speaker Change: Yes.
Speaker Change: We believe a model to global financial crisis type levels in terms of what could happen to housing.
Speaker Change: They are generating massive profits that are going right to the treasury.
Speaker Change: And those obviously, you've got a lot of things on the table now that are going to.
Speaker Change: Increased deficits potentially.
Speaker Change: I think got.
Even though there was a lot of pockets and the first administration again and I think it's I think it's much more complicated than people think to sort of disentangle them as well from the markets.
Speaker Change: I think it's going to take a very long time I think the odds are lower than people think.
Speaker Change: Great well I appreciate you taking my questions on the details great. Thank you.
Speaker Change: Thank you.
Speaker Change: And that was our final question for Darren Thanks.
Speaker Change: Thank you participating in the Ellington Financial's fourth quarter 2024 earnings Conference call. You may disconnect. Your lines at this time and have a wonderful day.
Speaker Change: Oh.
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